Net sales at Lazare Kaplan International during its fiscal third quarter, which ended February 28, 2009, fell 49 percent to $42.2 million. Polished diamond revenue fell 53 percent to $18 million. The drop reflected lower sales of both branded diamonds and fine cut commercial diamonds, the company stated. "Polished diamond sales have been significantly impacted by the worsening economic conditions [and] the reluctance of customers to take inventory positions in response to liquidity concerns," according to Lazare Kaplan. Rough sales were down 45 percent to $24.2 million, a decrease that primarily reflected reduced sourcing activities, as the company sought to preserve liquidity and declined to purchase rough diamonds that it considered overpriced. Lazare Kaplan reported a net loss of $3.5 million for the quarter, down from profits of $3.3 million one year ago.

Gross margin on net polished sales in the quarter stood at 5.8 percent compared with 14.7 percent one year ago. "The decline in gross margin reflects the liquidation of slower moving diamonds and diamond jewelry items at reduced prices, the expensing of unabsorbed manufacturing overhead." Gross margin on rough diamonds was 3 percent, down from 6.1 percent one year ago. This decrease in rough gross margin reflected trading losses that were incurred as falling demand resulted in lower prices for rough, and the expensing of unabsorbed sourcing costs from the company's informal sector rough buying operation.

Lazare Kaplan reported a loss of about $700,000 from its equity in joint ventures, which was down from income of $2.3 million one year ago. The reduced joint venture earnings primarily reflected "lower levels of operating activity attributable to the effects of the global economic downturn in the diamond industry."

Leon Tempelsman, president of Lazare Kaplan, said, "Diamond and diamond jewelry purchases are heavily dependent on the availability of consumer discretionary spending. It is difficult to predict when these conditions on the demand side will improve. While rough diamond producers are heavily cutting back on mining production, which reduces available supply, the company considers it wiser to continue to manage for cash flow by cutting expenses and reducing manufacturing intake until the market establishes a new rough to polished pricing equilibrium. At the same time, management is examining and pursuing several new opportunities stemming from this environment."



The company provided $11.3 million of cash flow from operations for the nine months that ended February 28, 2009, as compared with $31.1 million generated in the previous year. "Rough diamond buying operations commonly involve the commitment of significant monies for opportunistic purchases of groups of diamonds," according to Lazare Kaplan. "Rough trading requires accumulation, sorting and aggregation of purchases for resale, generally in large volume transactions."

For the nine months that ended February 28, 2009, changes in accounts receivable generated $19 million of cash from operations, as compared with $37.6 million one year ago. Changes in inventory levels used up $16.4 million of net cash flow, in contrast to the fiscal third quarter of 2008, in which they generated $4.8 million of cash flow. "Increased inventory levels reflect higher levels of both rough and polished diamonds, primarily attributable to reduced sales volume, and the timing of certain rough purchases," the company stated. Changes in accounts payable provided $18.8 million of cash flow, compared with a usage of $19.6 million during the comparable prior year period. The increase in accounts payable and other current liabilities primarily reflects the timing of payments by the company. Working capital on February 28 was $97 million, down from $108.6 million on May 31, 2008.

Lazare Kaplan maintains long-term unsecured, committed, revolving credit facilities in the amount of $35 million, which it utilizes for general working capital purposes. In addition, it holds a $5.4 million (JPY 530 million) facility  that is used to support its operations in Japan. The company holds an additional $80 million of uncommitted lines of credit that are used to finance rough inventory transactions and other working capital needs. A majority-owned subsidiary of Lazare Kaplan maintains a $3 million line of credit relating to a joint diamond cutting and polishing operation in South Africa. The balance outstanding as of February 28 was approximately $900,000, a $600,000 portion of which is guaranteed by the partner. "The company believes that it has the ability to meet its anticipated financing needs for at least the next twelve months," according to the statement.