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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended May 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 1-7848
LAZARE KAPLAN INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
Delaware 13-2728690
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
529 Fifth Avenue, New York, NY 10017
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 972-9700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock ($1 par value) American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of July 31, 1995, 6,147,808 shares of the registrant's common stock were
outstanding, and the aggregate market value of common stock held by
non-affiliates of the registrant, computed by reference to the closing price for
the registrant's stock on the American Stock Exchange at that date was
$15,508,823.
DOCUMENTS INCORPORATED BY REFERENCE
1995 definitive proxy statement to be filed with the Commission-
incorporated by reference into Part III.
1995 Annual Report to Stockholders for the fiscal year ended May 31, 1995
to be filed with the Commission-incorporated by reference into Parts II and IV.
Item 1. The Company
Lazare Kaplan International Inc., which began its business in 1903, is
principally engaged in the cutting, polishing and selling of ideally
proportioned diamonds which it markets internationally under the brand name
'Lazare Diamonds'r''. Ideally proportioned diamonds are distinguished from
commercial cut diamonds by the symmetrical relationship of their facets, which
maximizes brilliance, sparkle and fire. Due to these characteristics, Lazare
Diamonds command a premium in the marketplace. The Company believes there are
only a few other companies worldwide engaged solely in the production of ideally
proportioned diamonds and that it is the largest producer in this segment of the
diamond industry. Additionally, the Company is engaged in the buying and selling
of rough uncut diamonds.
The Company's sales strategy is directed primarily toward quality
conscious consumers throughout the United States, the Far East and Europe. The
Company generally sells to select retail jewelers in each geographic market in
order to maintain an image of selectivity and prestige consistent with its
overall marketing strategy. The Company has developed a comprehensive grading
system for its ideal cut diamonds which allows jewelers to order inventory by
category rather than through the more cumbersome process of visual selection. In
addition, the Company designs, manufactures and sells a line of high quality
jewelry which features Lazare Diamonds.
An important element of the Company's strategy is the promotion of the
Lazare Diamonds brand name. Every Lazare Diamond bears a laser inscription on
its outer perimeter containing the Lazare Kaplan logo and an identification
number unique to the stone. This patented laser 'signature', which is invisible
to the naked eye but visible when magnified at least ten times, serves as the
purchaser's assurance that he is buying an authentic Lazare Diamond. This laser
signature also allows consumers to register their Lazare Diamonds with the
Company under its unique program, The Lazare Diamond Registry'r', thereby
providing proof of ownership in case of loss or theft.
Each rough diamond purchased by the Company and considered for sale as
a polished diamond is evaluated against strict management standards designed to
maximize its potential economic contribution to the Company's profitability.
Expert technicians, assisted by proprietary computer software, determine whether
to cut the stone to ideal proportions, cut the stone as a commercial diamond for
sale through alternative distribution channels, or resell the stone as rough.
The shape of the rough stone, its color, clarity and overall potential economic
contribution, are among the criteria used in making such a determination.
The Company's involvement in the purchase and sale of rough diamonds,
through its Antwerp, Belgium office, provides it with the ability to dispose of
those diamonds not selected for cutting and polishing, as well as access to
supplemental sources of supply. This activity allows the Company to maintain
quantities and qualities of inventory which best meet its customers' needs.
The Company's principal stockholder is Maurice Tempelsman, the
Chairman of the Board. Mr. Tempelsman and his son, Leon Tempelsman, are the sole
general partners of Leon Tempelsman & Son ('LTS'), a New York limited
partnership. LTS is the holder of 1,528,416 shares of common stock, all of which
2
are deemed to be owned indirectly by each of Leon Tempelsman and Maurice
Tempelsman. In addition, Maurice Tempelsman is the direct beneficial holder of
2,385,014 shares of common stock. The aggregate number of common shares held by
Maurice Tempelsman, directly and indirectly, is 3,913,430 constituting 63.7% of
the Company's issued and outstanding common stock.
Lazare Kaplan International Inc. was incorporated in 1972 under the
laws of the State of Delaware as the successor to a business which originated in
1903.
Diamond Supply
Rough Diamonds
The Company's business is dependent upon the availability of rough
diamonds, the world's known sources of which are highly concentrated. Angola,
Australia, Botswana, Brazil, Ghana, Guinea, Namibia, Sierra Leone, South Africa,
Russia and Zaire account for more than 90% of present world rough gem diamond
production. The Central Selling Organization (the 'CSO'), which is affiliated
with De Beers Centenary AG, a Swiss company, is the primary world-wide marketing
mechanism of the diamond industry. The CSO seeks to maintain an orderly and
stable market for diamonds by regulating the quantity and selection of diamonds
that reach the market. Sales for the CSO are made in London by the Diamond
Trading Company (the 'DTC') to a select group of clients, including the Company.
Based upon published reports, the Company believes that approximately 80% of the
world diamond output is purchased for resale by the DTC and its affiliated
companies. In order to maintain their purchasing relationship, the DTC's clients
have traditionally been expected to purchase all of the diamonds offered to them
by the DTC. Non-clients of the DTC must either purchase their requirements from
clients of the DTC or seek access to that limited portion of the world supply
not marketed by the DTC.
Historically, the Company's principal supplier of rough diamonds has
been the DTC, which periodically invites its clients to submit their
requirements as to the amount and type of stones they wish to purchase.
Employees of the Company attend offerings ('sights') held by the DTC
periodically during the year in London. At sights, the Company purchases, at the
DTC's stated price, an assortment of stones known as a 'series', the composition
of which attempts to take into account the market in which the Company operates
and the Company's quantity requirements. The Company has been a client of the
DTC for more than 50 years.
In order to diversify its sources of supply, the Company has entered
into arrangements with other primary source suppliers, and has established an
office in Antwerp to supplement its rough diamond needs by making purchases in
the secondary market. For each of the past three years ended May 31, the Company
purchased not more than 60% of its diamond purchases from the DTC.
In November 1993, the Company reached an agreement with the Ghanaian
Government, Ghana Consolidated Diamonds Limited and De Beers Centenary pursuant
to which, the parties would, subject to a feasibility study, form a new company
to acquire, expand and operate the Akwatia/Birim Diamond and Gold Concessions
now owned by Ghana Consolidated Diamonds. In June, 1995 DeBeers Centenary
announced that
3
its feasibility study was complete. During the feasibility period, output at the
mine increased significantly as a result of changes made to operations and
revenue increased. The improved performance suggests that the project has the
potential to generate positive cash flows subject to further cost reductions and
the maintenance of current production levels. However, DeBeers has informed the
Company and the Ghanaian Government that it will be withdrawing from the project
later this year stating its belief that the cost of its participation will
likely outweigh the economic potential it may realize. The Company anticipates
maintaining its position as marketing agent and plans to seek another mining
company to replace DeBeers in this project, however, should the Company not be
able to maintain its position as marketing agent its ability to recoup certain
pre-operating costs may not be assured.
In 1990, the Company and the Government of the Republic of Botswana,
through its Ministry of Mineral Resources and Water Affairs, reached a long term
agreement for the establishment of a diamond cutting and polishing factory in
Botswana. In 1992, the Government issued to the Company a long term license for
the construction and operation of the facility. On August 31, 1994, the Botswana
Development Corporation ('BDC') made an investment in Lazare Kaplan Botswana
(Pty) Limited. As a result of that investment, Lazare Kaplan Botswana (Pty)
Limited is owned by the Company (60%), the Government of Botswana (5.1%) and the
Botswana Development Corporation (34.9%). Lazare Kaplan Botswana moved into its
new permanent manufacturing facility in January 1993, which it owns and operates
in Molepolole, Botswana. The factory is a state-of-the-art facility using both
automated and manual equipment, and will ultimately employ 500 skilled
employees. The facility currently operates with approximately 463 local
employee/trainees and 14 expatriates. Lazare Kaplan Botswana has been given its
own sight allocation from the DTC from which it selects rough diamonds for
manufacture in its facility. Botswana is widely regarded today as the most
important rough gem diamond producing country in the world.
In December 1994 the Company reached an agreement with the National
Diamond Company of Angola, Endiama, U.E.E., pursuant to which the Company may
purchase rough diamonds from local Angolan suppliers and export such diamonds
for resale. The agreement entitles the Company to establish buying offices in
Angola, the first of which has been set up in Luanda, the capital of Angola. The
Company intends to establish additional buying offices in the future. The
agreement will run for a renewable term of 5 years.
Polished Diamonds
In addition to its purchase of rough diamonds, the Company also
purchases polished diamonds from a number of sources. These diamonds are
purchased with the intention either to resell them or to recut them to ideal
proportions at the Company's manufacturing facility in Puerto Rico.
Availability of Sources of Supply
The Company believes that it has good relations with its suppliers,
that its trade reputation and established customer base will continue to assure
access to primary sources of diamonds and that its sources of supply are
sufficient to enable the Company to meet its present and foreseeable needs.
However, the
4
Company's sources of supply could be affected by political and economic
developments over which the Company has no control. While the Company believes
that alternative sources of supply may be available, any significant disruption
of the Company's access to its primary source suppliers could have a material
adverse effect on its ability to purchase rough diamonds.
Cutting and Polishing
The Company has two primary cutting and polishing operations: Lazare
Kaplan Puerto Rico, located in Puerto Rico and Lazare Kaplan Botswana (Pty)
Ltd., located in Botswana. In addition, the Company recently began a diamond
polishing effort in cooperation with Roskomdragmet, the Russian Government
organization responsible for diamond policy. Under this arrangement, rough
diamonds supplied by Roskomdragmet are polished by Russian technicians in
Moscow, supervised by Company technical personnel and marketed by the Company.
The diamonds, which are non-ideal cut, commercial quality diamonds, are sold
through the Company's worldwide distribution network.
The Company's factory in Puerto Rico is believed to be the largest
cutting facility in the United States. Each stone received in Puerto Rico is
evaluated against strict management standards designed to maximize its potential
economic contribution to the Company. Expert technicians, assisted by
proprietary computer software, determine whether to cut the stone to ideal
proportions, cut the stone as a commercial diamond or resell the stone as rough.
The shape of the rough stone, its color and clarity and overall potential
economic contribution, are among the criteria used in making such
determinations. The Company has an incentive program that rewards its factory
managers and supervisors based on maximizing the manufactured results of the
following criteria: gross margin, yield (rough weight to polished weight
conversion) and efficiency.
Rough stones selected for cutting are analyzed and where desirable are
sorted for sawing or cleaving to achieve the desired shape and to eliminate
imperfections. They are then cut and polished into finished gems. Each finished
ideal cut gemstone (weighing .18 carats and larger) which is marketed as a
Lazare Diamond is then inscribed with the Lazare Kaplan logo and its own
identification number by the Company's patented laser inscription process. All
of these operations are performed by the Company's employees. The Company
believes its work force in Puerto Rico is the most highly skilled in the diamond
industry. The Company has undertaken a worker training program at its facility
in Puerto Rico to ensure a constant flow of skilled labor to satisfy its needs
for further growth.
The Lazare Kaplan Botswana diamond cutting and polishing factory in
Molepolole, Botswana began operations in its newly constructed facility in early
1993. The factory, which is a state-of-the-art facility, uses both automated
and manual equipment and is committed to train and employ Batswana workers. The
Company expects to employ up to 500 skilled technicians at the facility. As of
July 31, 1995, there were 477 employees, of which 116 were trainees.
5
This new factory cuts and polishes rough diamonds to ideal proportions
in sizes which are presently not processed by the Company's facility in Puerto
Rico. The factory, which is still in the beginning stages, is concentrating on
the manufacture of rough stones of somewhat smaller size. The size range
manufactured will be expanded as the skills of its employees are developed.
Lazare Kaplan Botswana purchases rough on its own account directly from the DTC
for manufacture in the Botswana factory.
The Company believes that it is recognized in the diamond industry for
the high quality and brilliance of the gems it cuts and that it also enjoys a
reputation as an imaginative and innovative cutter of large and difficult
stones.
Pricing
Rough Diamond Prices
Through its control of approximately 80% of the world diamond output,
the DTC can exert significant control over the pricing of rough and polished
diamonds to maintain an orderly market by adjusting supplies in the marketplace.
Rough diamond prices established by the DTC have been characterized historically
by steady increases over the long term; however, prices in the secondary market
have experienced a greater degree of volatility, particularly during the late
1970's. Traditionally, the Company has been able to pass along such price
increases to its customers. From time to time, however, the Company has absorbed
these price increases in the short term to maintain an orderly pricing
relationship with its customers. This has, in the past, caused temporary adverse
effects on the Company's earnings. However, a large rapid increase in rough
diamond prices could adversely affect the Company's revenue and operating
margins if the increased cost of rough diamonds could not be passed along to its
customers in a timely manner.
Polished Diamond Prices
Over the past 60 years, increases in the price of rough diamonds have
generally resulted in a corresponding increase in the price of polished
diamonds. During the period of high inflation in the late 1970's, investors
speculated in hard assets, driving polished diamond prices to exceptionally high
levels which in turn caused significant increases in the cost of rough diamonds.
However, the moderation of inflation during the 1980's resulted in a sudden and
massive shift of investments from hard assets to financial instruments,
resulting in dramatic price declines for polished diamonds which caused a market
liquidity crisis as prices of some categories of polished diamonds fell below
the inventory costs of such diamonds. Since this period in the early 1980's, the
Company believes the pricing of polished diamonds has returned to its historical
pattern of responding to increases in the pricing of rough diamonds. However,
there can be no assurance that volatility in the price of polished diamonds
could not occur again. Any rapid decrease in the price of polished diamonds
could have a material adverse effect on the Company in terms of inventory
losses, lower sales and lower margins.
6
The Company has implemented strict inventory, pricing and purchasing
controls which it believes could lessen the impact of fluctuations in the price
of rough and polished diamonds. These include computerized rough stone
evaluation programs, automatic economic order quantity models and inventory
utilization programs.
Marketing, Sales and Distribution
Marketing Strategy
The Company's sales strategy is directed primarily toward quality
conscious consumers throughout the United States, the Pacific Rim and Europe.
The Company generally sells to select retail jewelers in each geographic market
in order to maintain an image of selectivity and prestige consistent with its
overall marketing strategy. The Company also sells to certain jewelry and
diamond manufacturers and wholesalers. The Company has developed a comprehensive
grading system for its diamonds which allows jewelers to order inventory by
category rather than through the more cumbersome process of visual selection. In
addition, the Company designs, manufactures and sells a line of high quality
jewelry which features Lazare Diamonds.
A key element of the Company's strategy is the promotion of the Lazare
Diamonds brand name directly to consumers. The Company believes that ideal
cutting presents a clear competitive advantage over other diamonds in the
marketplace by providing the Company with the opportunity to establish a brand
name and to market its diamonds under this name through retailers. The Company's
decision to pursue the brand name strategy is reinforced by two factors - a
rising trend among informed consumers to purchase quality, brand name products,
and the need among upscale jewelers to set themselves apart in an increasingly
competitive market by carrying and promoting a highly differentiated product.
Each Lazare Diamond is inscribed with the Company's logo and identification
number using the Company's unique laser inscription process, thus authenticating
the diamond as a Lazare Diamond. This 'labelling' enables the Company to pursue
the brand name diamond strategy. The Company holds various domestic and
international patents for this process.
Building awareness and acceptance of Lazare Diamonds is accomplished
through a comprehensive marketing program which includes co-op advertising,
sales promotion and public relations. The advertising includes a toll-free
number which consumers may call to receive additional information about the
product and to be referred to jewelers carrying Lazare Diamonds and Lazare
Diamond jewelry in their geographic area. A wide assortment of sales promotion
materials has been designed to facilitate jewelers' sales of the Company's
diamonds and fine jewelry line to consumers. Public relations events are offered
which help build traffic in retail stores. The Company believes these marketing
programs have been and will continue to be instrumental in increasing sales. The
Company does not intend to sell its diamonds directly to consumers and plans to
continue concentrating its marketing efforts towards the quality retail jeweler.
The Lazare Diamond Registry program has been established by the
Company to enable consumers to register their Lazare Diamonds with the Company
using the laser inscribed identification number, thereby providing proof of
ownership in case of loss or theft.
7
While the purchase and sale of rough diamonds is concentrated among
relatively few parties, industry wide retailing of polished diamonds occurs
through over 39,000 jewelry stores in the United States, over 26,000 retailers
in Japan and over 48,000 retail stores in Europe. The Company's efforts for its
polished diamonds are directed primarily toward the fine quality segment of
these retailers (the majority of which are independently owned and operated)
and, to a lesser extent, to jewelry manufacturers and wholesalers. Full time
regional sales representatives located throughout the United States and in Hong
Kong and Antwerp, who are compensated on a commission basis, handle sales
throughout the United States, the Pacific Rim and Europe.
The Company's sales force is supported by a New York based
telemarketing department. Sales to certain of the Company's largest accounts are
handled by headquarters personnel. Most of the Company's major accounts are
customers of long standing.
The Company has been expanding its activities abroad, particularly in
the Pacific Rim countries of Japan, Hong Kong, Singapore, Taiwan, Thailand,
Korea, Malaysia, Indonesia and Brunei. In Japan, the Company has had a marketing
relationship since 1972 with Aiwa Co., Ltd., the Japanese importer-marketer of
Lazare Diamonds. Aiwa Co., with a distribution network of over 200 retailers and
wholesalers, is an important customer of the Company's polished diamonds.
Additionally, the Company continues to believe there is significant growth
opportunity in the European market and has expanded in this area.
The Company uses a comprehensive sorting and inventory classification
system for grading color and clarity of its ideal cut polished diamonds. This
system, combined with the fact that the Company's stones are uniformly cut to
ideal proportions, reduces and in some cases eliminates the need for customers
to view stones before placing orders. The system enables customers to
standardize their inventories, order by mail or telephone and minimize their
inventory investment.
The percentages of the Company's total domestic and foreign net sales
to its customers, which include a combination of both rough diamonds and
polished diamonds sales taken together, for the past three fiscal years are set
forth below:
Years ended May 31,
--------------------
1993 1994 1995
---- ---- ----
Percentage of Net Sales to Customers
Domestic 16% 16% 25%
Foreign 84% 84% 75%
The domestic sales increase in 1995 as compared to the prior two years
was a result of the decrease in rough diamond sales in 1995 as compared to 1994
and 1993. Historically, the majority of the Company's rough diamond sales have
been to foreign customers. The Company believes that due to the possible
international resale of diamonds by its customers, the above percentages may not
represent the final location of retail sales of its product. As all foreign
sales are denominated in United States dollars, the Company does not experience
any foreign currency exposure on its foreign revenue. A portion of all foreign
polished sales are accompanied by bank guarantees or are shipped on a C.O.D.
basis. The profitability of foreign sales of either polished or rough diamonds
is consistent with that of domestic sales of similar merchandise.
8
Competition
The polished and rough diamond business is highly competitive. While
the Company believes that it has achieved a reputation as a leading cutter and
distributor of high quality diamonds, it faces competition in sales to its
customers in the United States and abroad from many other suppliers. A
substantial number of cutters and merchants, some of which the Company believes
to be larger or to have greater financial resources than the Company, sell
diamonds of all qualities to the Company's customers. The Company also sells
rough diamonds, primarily through its Antwerp office, in the competitive world
market.
The Company believes there are significant barriers to entry by
potential competitors into the business of manufacturing ideally proportioned
diamonds. Among the most important of these barriers are the need for
significant capital, the limited number of persons with the skills necessary to
cut ideally proportioned diamonds, the difficulty in obtaining access to upscale
channels of distribution, the importance of public recognition of an established
brand name and the establishment of computer systems to gauge and monitor the
manufacturing and distribution network.
Employees
At July 31, 1995, the Company had 658 full-time employees, which
includes 116 trainees in Botswana. The Company also has 7 regional sales
representatives. The Company maintains an apprenticeship program at its
facilities in Caguas, Puerto Rico, through which it trains its cutters, who are
highly skilled workmen. The Company also has a program in Botswana through which
it trains cutters and polishers to work at the Company's new facility. The
Company provides paid vacations, sick leave, group life, disability,
hospitalization and medical insurance for its employees. The Company has a
401(k) plan for its U.S. and Puerto Rico employees. The Company believes that it
has satisfactory relationships with its employees. None of the Company's
employees is represented by a union.
Item 2. Properties
The Company leases office space, a portion of which is devoted to
sales rooms, at 529 Fifth Avenue, New York City, for a term expiring September
30, 2003 at an annual rental rate of approximately $278,000 (subject to
escalations). The Company also subleases space at the same address to LTS for a
like term at a rental rate per square foot which is the same as the Company is
paying to the landlord.
The Company also owns a manufacturing facility in Caguas, Puerto Rico.
The Caguas facility consists of approximately 7,500 square feet.
The Company leases office space in Antwerp, Belgium for a term
expiring May 31, 2003 at an annual rental rate of approximately $53,000
(1,500,000 Belgian francs).
The Company also has a 40% ownership interest in a 330 square meter
office in Antwerp, Belgium, a portion of which is devoted to sales rooms.
The Company leases office space in Hong Kong for a term expiring April
30, 1997 at an annual rental rate of approximately $67,000 (514,800 Hong Kong
dollars).
9
The Company leases land in Botswana for a nominal amount for a term of
fifty years with the right to renew for an additional fifty years. The Company
has constructed its cutting and polishing factory on such land. The facility is
approximately 4,300 square meters.
The Company believes that its facilities are fully equipped and
adequate to fulfill its operating and manufacturing needs.
Item 3. Legal Proceedings
The Company is not involved in any significant legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
None
Executive Officers of the Registrant
The following table sets forth information regarding executive
officers of the Company.
NAME POSITION AGE
- ---- -------- ---
Maurice Tempelsman Chairman of the Board 66
Leon Tempelsman Vice Chairman of the 39
Board and President
George R. Kaplan Vice Chairman of the 77
Board
Sheldon L. Ginsberg Vice President and 41
Chief Financial Officer
Robert Speisman Vice President - Sales 42
All officers were elected at the Annual Meeting of the Board of
Directors held in November 1994, and hold office until the next Annual Meeting
of the Board of Directors and until their respective successors have been duly
elected and qualified.
Maurice Tempelsman, Chairman of the Board and a director of the
Company, is a general partner of Leon Tempelsman & Son, a partnership with
interests in the international diamond and mining industries, positions he has
held since 1984. Maurice Tempelsman is the father of Leon Tempelsman and the
father-in-law of Robert Speisman.
Leon Tempelsman, Vice Chairman of the Board, President and a director
of the Company, is a general partner of Leon Tempelsman & Son, positions he has
held since 1984. Leon Tempelsman is the son of Maurice Tempelsman and the
brother-in-law of Robert Speisman.
10
The Company believes that neither the Tempelsmans nor LTS currently
engages directly or indirectly in any activities competitive with those of the
Company.
George R. Kaplan has been Vice Chairman of the Board since 1984 and a
director of the Company since 1972.
Sheldon L. Ginsberg has been Vice President and Chief Financial
Officer since April 1991. He was the Vice President-Finance from January 1986
until April 1991. Mr. Ginsberg has been a director of the Company since 1989.
Robert Speisman has been the Vice President - Sales of the Company
since 1986. Mr. Speisman has been a director of the Company since 1989. Mr.
Speisman is the son-in-law of Maurice Tempelsman and the brother-in-law of Leon
Tempelsman.
Part II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters
The Registrant's common stock (par value $1 per share) is traded on
the American Stock Exchange.
Market prices and other information with respect to the Registrant's
common stock are hereby incorporated by reference from page 1 of the
Registrant's Annual Report.
Item 6. Selected Financial Data
Selected financial data are hereby incorporated by reference from page
4 of the Registrant's Annual Report.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Management's discussion and analysis of financial condition and
results of operations is hereby incorporated by reference from pages 5 to 7 of
the Registrant's Annual Report.
11
Item 8. Financial Statements and Supplementary Data
(a) The following financial statements and supplementary data are
hereby incorporated by reference from pages 8 to 18 of the Registrant's Annual
Report.
(i) Report of Ernst & Young LLP
(ii) Consolidated Statements of Operations for each of the
three years in the period ended May 31, 1995.
(iii) Consolidated Statements of Stockholders' Equity for
each of the three years in the period ended May 31,
1995.
(iv) Consolidated Balance Sheets as at May 31, 1995 and May
31, 1994.
(v) Consolidated Statements of Cash Flows for each of the
three years in the period ended May 31, 1995.
(vi) Notes to Consolidated Financial Statements.
(b) Report on Financial Statements and Financial Statement Schedule of
Deloitte & Touche LLP for each of the two years in the period ended May 31,
1994.
12
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Lazare Kaplan International Inc.
We have audited the accompanying consolidated balance sheet of Lazare
Kaplan International Inc. and subsidiaries as of May 31, 1994, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the two years in the period ended May 31, 1994. Our audits also included
the financial statement schedule listed in the Index at Item 14(a)(2). These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Lazare Kaplan International
Inc. and subsidiaries at May 31, 1994, and the results of their operations and
their cash flows for each of the two years in the period ended May 31, 1994 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
New York, New York
July 13, 1994 (August 31, 1994 as to note 11)
13
Item 9. Change in and Disagreements with Accountants on
Accounting and Financial Disclosure
During the fiscal year ended May 31, 1994, the Board of Directors of
the Company considered changing the Company's independent certified public
accountants and, effective September 16, 1994, Ernst & Young LLP was appointed
in replacement of Deloitte & Touche LLP to serve as the Company's independent
certified public accountants for the Company's fiscal year ending May 31, 1995.
In connection with the audits of the two most recent fiscal years of the Company
and all subsequent interim periods preceding such dismissal, there was no
disagreement between the Company and Deloitte & Touche LLP on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
Deloitte & Touche LLP would have caused them to make reference thereto in their
report on the financial statements for such period. The reports of Deloitte &
Touche LLP for such period did not contain an adverse opinion or disclaimer of
opinion nor were they qualified as to uncertainty, audit scope, or accounting
principles. The decision to replace Deloitte & Touche LLP with Ernst & Young LLP
as the Company's independent certified accountants was unanimously approved by
the Audit Committee of the Board of Directors of the Company and ratified by the
stockholders of the Company at the 1994 Annual Meeting of Stockholders.
14
Part III
Except for information regarding Executive Officers of the Registrant,
which, in accordance with Instruction G to Form 10-K, is included in Part I
hereof, the information called for by Part III (Items 10, 11, 12 and 13) is
incorporated by reference herein from the Registrant's definitive proxy
statement to be filed with the Commission within 120 days after the close of its
fiscal year ended May 31, 1995.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
(a) 1. The response to this portion of Item 14 is set forth
in Item 8 of Part II hereof.
2. Financial Statement Schedules
Report on Financial Statement Schedule and Consent of
Ernst & Young LLP for the year ended May 31, 1995
Report on Financial Statements and Financial
Statement Schedule of Deloitte & Touche LLP for each
of the two years in the period ended May 31, 1994
(included in their report filed under Item 8(b) of
this Report on Form 10-K).
Schedule VIII - Valuation and Qualifying Accounts
All other schedules are omitted because they are not
applicable, or not required, or because the required
information is included in the consolidated financial
statements or notes thereto.
15
REPORT AND CONSENT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of Lazare Kaplan
International Inc. and subsidiaries as of May 31, 1995, and for the year then
ended, and have issued our report thereon dated July 12, 1995 (August 25, 1995
as to Note 6); such consolidated financial statements and report are included in
the Company's 1995 Annual Report to Stockholders and are incorporated herein by
reference. Our audit also included the consolidated financial statement
schedule of Lazare Kaplan International Inc. and subsidiaries for the year
ended May 31, 1995, listed in the accompanying index at Item 14(a)(2). This
consolidated financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audit. In
our opinion, this consolidated financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects, the information set forth therein.
We consent to the incorporation by reference in Registration Statement No.
33-20528 of Lazare Kaplan International Inc. on Form S-8, of our reports dated
July 12, 1995 (August 25, 1995 as to Note 6), with respect to the consolidated
financial statements and schedule of Lazare Kaplan International Inc. included
and incorporated by reference in the Annual Report on Form 10-K for the year
ended May 31, 1995.
Ernst & Young LLP
New York, New York
August 25, 1995
16
LAZARE KAPLAN INTERNATIONAL INC.
AND SUBSIDIARIES
SCHEDULE VIII-VALUATION AND QUALIFYING ACCOUNTS
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
Additions
---------------------------------
(1) (2)
Balance at Charged to Charged to Balance at
beginning costs and other accounts Deductions end
Description of period expenses describe describe of period
----------- ---------- -------- -------- -------- ---------
YEAR ENDED MAY 31, 1995:
Allowance for doubtful accounts .......... $ 165,169 $ 70,000 $ -- $ 15,123(C) $ 220,046
---------- ---------- ---------- ---------- ----------
Sales returns and allowances ............. $ -- $ -- $ -- $ -- $ --
---------- ---------- ---------- ---------- ----------
YEAR ENDED MAY 31, 1994:
Allowance for doubtful accounts .......... $ 403,837 $ 10,000 $ -- $ 248,668(C) $ 165,169
---------- ---------- ---------- ---------- ----------
Sales returns and allowances ............. $ 268,632 $ (268,632)(B) $ -- $ -- $ --
---------- ---------- ---------- ---------- ----------
YEAR ENDED MAY 31, 1993:
Allowance for doubtful accounts .......... $ 379,364 $ 86,075 $ 169(A) $ 61,771(C) $ 403,837
---------- ---------- ---------- ---------- ----------
Sales returns and allowances ............. $ 473,781 $ (205,149)(B) $ -- $ -- $ 268,632
---------- ---------- ---------- ---------- ----------
(A) Recoveries of previously written off accounts
(B) Adjustments to reserve balance
(C) Amounts written off
17
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the fourth quarter of the fiscal year ended May 31, 1995.
(c) Exhibits
(3) (a) Certificate of Incorporation, as amended -
incorporated herein by reference to Exhibit
3(a) to Report on Form 10-K of the
Registrant for the fiscal year ended May
31, 1987 filed with the Commission on
August 26, 1987, as amended on January 14,
1988.
(b) Certificate of Amendment of Certificate of
Incorporation filed with the Secretary of
State of the State of Delaware on November
1, 1990 - incorporated herein by reference
to Exhibit (3)(b) to Report on Form 10-K of
the Registrant for the fiscal year ended May
31, 1992 filed with the Commission on August
28, 1992.
(c) By-laws, as amended - incorporated herein by
reference to Exhibit 3(b) to Report on Form
10-K of the Registrant for the fiscal year
ended May 31, 1987 filed with the Commission
on August 26, 1987, as amended on January
14, 1988.
(10) Material Contracts
(a) Lazare Kaplan International Inc. Amended and
Restated 1988 Stock Option Incentive Plan -
incorporated herein by reference to Exhibit
4.1 to Registration Statement on Form S-8 of
the Registrant filed with the Commission on
November 5, 1990.
(b) Note Agreement dated as of May 15, 1991 by
and between the Registrant, Allstate Life
Insurance Company, Monumental Insurance
Company and PFL Life Insurance Company -
incorporated herein by reference to Exhibit
28 to Report on Form 8-K dated May 23, 1991
filed with the Commission on June 4, 1991.
18
(c) First Amendment to Note Agreement, dated as
of February 28, 1992, by and between the
Registrant, Allstate Life Insurance Company,
Monumental Life Insurance Company and PFL
Life Insurance Company incorporated herein
by reference to Exhibit 10(d) to Report on
Form 10-K of the Registrant for the fiscal
year ended May 31, 1992 filed with the
Commission on August 28, 1992.
(d) Second Amendment to Note Agreement, dated as
of March 25, 1992 by and between the
Registrant, Allstate Life Insurance Company,
Monumental Life Insurance Company and PFL
Life Insurance Company incorporated herein
by reference to Exhibit 10(e) to Report on
Form 10-K of the Registrant for the fiscal
year ended May 31, 1992 filed with the
Commission on August 28, 1992.
(e) Third Amendment to the Note Agreement, dated
as of December 1, 1992 by and between the
Registrant, Allstate Life Insurance Company,
Monumental Life Insurance Company and PFL
Life Insurance Company incorporated herein
by reference to Exhibit 10(f) to Report on
Form 10-K of the Registrant for the fiscal
year ended May 31, 1993 filed with the
Commission on August 30, 1993.
(f) Agreement, dated December 5, 1990, by and
between the Registrant and the Government of
the Republic of Botswana - incorporated
herein by reference to Exhibit 10(f) to
Report on Form 10-K of the Registrant for
the fiscal year ended May 31, 1992 filed
with the Commission on August 28, 1992.
(g) Subscription Agreement, dated August 24,
1994 among the Registrant and the Botswana
Development Corporation incorporated herein
by reference to Exhibit 10(h) to Report on
Form 10-K of the Registrant for the fiscal
year ended May 31, 1994 filed with the
Commission on August 31, 1994.
19
(13) 1995 Annual Report to Security Holders - incorporated
herein by reference to the 1995 Annual Report to Stockholders of the Registrant
to be filed with the Commission.
(21) Subsidiaries
(24)(a) Consent of Deloitte & Touche LLP
(24)(b) Consent of Ernst & Young LLP
(Included in their report filed under Item (14)(a)(2)
of this Report on Form 10-K)
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
LAZARE KAPLAN INTERNATIONAL INC.
By/s/ Leon Tempelsman
----------------------------
Leon Tempelsman, Vice Chairman
and President (principal
executive officer)
By/s/ Sheldon L. Ginsberg
----------------------------
Sheldon L. Ginsberg, Vice President and
Chief Financial Officer (principal
financial officer)
Dated: August 29, 1995
21
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
(s) Maurice Tempelsman Chairman of the August 29, 1995
- ----------------------------- Board of Directors
(Maurice Tempelsman)
(s) Leon Tempelsman Vice Chairman of the August 29, 1995
- ----------------------------- Board of Directors
(Leon Tempelsman)
(s) George R. Kaplan Vice Chairman of the August 29, 1995
- ----------------------------- Board of Directors
(George R. Kaplan)
(s) Lucien Burstein Director August 29, 1995
- -----------------------------
(Lucien Burstein)
(s) Myer Feldman Director August 29, 1995
- -----------------------------
(Myer Feldman)
(s) Michael W. Butterwick Director August 29, 1995
- -----------------------------
(Michael W. Butterwick)
(s) Sheldon L. Ginsberg Director August 29, 1995
- -----------------------------
(Sheldon L. Ginsberg)
(s) Robert Speisman Director August 29, 1995
- -----------------------------
(Robert Speisman)
22
LAZARE KAPLAN INTERNATIONAL INC.
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission File No. 1-7848
May 31, 1995
EXHIBIT INDEX
Exhibit Page No.
------- --------
(3) (a) Certificate of Incorporation, as amended -
incorporated herein by reference to Exhibit 3(a) to
Report on Form 10-K of the Registrant for the
fiscal year ended May 31, 1987 filed with the
Commission on August 26, 1987, as amended on
January 14, 1988.
(b) Certificate of Amendment of Certificate of
Incorporation filed with the Secretary of State of
the State of Delaware on November 1, 1990 -
incorporated herein by reference to Exhibit (3)(b)
to Report on Form 10-K of the Registrant for the
fiscal year ended May 31, 1992 filed with the
Commission on August 28, 1992.
(c) By-laws, as amended - incorporated herein by
reference to Exhibit 3(b) to Report on Form 10-K of
the Registrant for the fiscal year ended May 31,
1987 filed with the Commission on August 26, 1987,
as amended on January 14, 1988.
(10) Material Contracts
(a) Lazare Kaplan International Inc. Amended and
Restated 1988 Stock Option Incentive Plan -
incorporated herein by reference to Exhibit 4.1 to
Registration Statement on Form S-8 of the
Registrant filed with the Commission on November 5,
1990.
23
Exhibit Page No.
------- --------
(b) Note Agreement dated as of May 15, 1991 by and
between the Registrant, Allstate Life Insurance
Company, Monumental Insurance Company and PFL Life
Insurance Company - incorporated herein by
reference to Exhibit 28 to Report on Form 8-K dated
May 23, 1991 filed with the Commission on June 4,
1991.
(c) First Amendment to Note Agreement, dated as of
February 28, 1992, by and between the Registrant,
Allstate Life Insurance Company, Monumental Life
Insurance Company and PFL Life Insurance Company
incorporated herein by reference to Exhibit 10(d)
to Report on Form 10-K of the Registrant for the
fiscal year ended May 31, 1992 filed with the
Commission on August 28, 1992.
(d) Second Amendment to Note Agreement, dated as of
March 25, 1992 by and between the Registrant,
Allstate Life Insurance Company, Monumental Life
Insurance Company and PFL Life Insurance Company
incorporated herein by reference to Exhibit 10(e)
to Report on Form 10-K of the Registrant for the
fiscal year ended May 31, 1992 filed with the
Commission on August 28, 1992.
(e) Third Amendment to the Note Agreement, dated as of
December 1, 1992 by and between the Registrant,
Allstate Life Insurance Company, Monumental Life
Insurance Company and PFL Life Insurance Company
incorporated herein by reference to Exhibit 10(f)
to Report of Form 10-K of the Registrant for the
fiscal year ended May 31, 1993 filed with the
Commission on August 30, 1993.
24
Exhibit Page No.
------- --------
(f) Agreement, dated December 5, 1990, by and between
the Registrant and the Government of the Republic
of Botswana - incorporated herein by reference to
Exhibit 10(f) to Report on Form 10-K of the
Registrant for the fiscal year ended May 31, 1992
filed with the Commission on August 28, 1992.
(g) Subscription Agreement, dated August 24, 1994 among
the Registrant and the Botswana Development
Corporation incorporated herein by reference to
Exhibit 10(h) to Report on Form 10-K of the
Registrant for the fiscal year ended May 31, 1994
filed with the Commission on August 31, 1994.
(13) 1995 Annual Report to Security Holders -
incorporated herein by reference to the 1995 Annual
Report to Stock holders of the Registrant to be
filed with the Commission. 26
(21) Subsidiaries 46
(24)(a) Consent of Deloitte & Touche LLP. 47
(24)(b) Consent of Ernst & Young LLP (included in their
report filed under Item (14)(a)(2) of this Report
on Form 10-K).
25