TORONTO, March 29 /PRNewswire-FirstCall/ -- ABER DIAMOND
CORPORATION (TSE-ABZ, NASDAQ-ABER) announces its unaudited fourth
quarter and year-end results for the period ended January 31, 2007.
Aber's net earnings for the fiscal year ended January 31, 2007 were
$104.3 million with earnings per share of $1.79 (cash earnings per
share of $3.18(1)) as compared to net earnings of $81.3 million and
earnings per share of $1.40 (cash earnings per share of $3.57(1))
for the prior year. The Company's sales for the year increased by
11% to $558.8 million compared to $505.2 million for the prior
year. Commenting on Aber's past year, Chairman and Chief Executive
Officer Robert Gannicott stated, "By concluding the purchase of
100% of Harry Winston, Aber has brought the knowledge bases of the
two most important ends of the diamond spectrum together in one
Diamond Company that delivers improved pricing both in rough
diamond sales from the mine and polished diamond purchases for the
jeweler. The Diavik mine is developing both an underground mine and
a new open pit while our jewelry business continues to open more
salons in prime luxury retail locations. These expansions increase
both the sales volumes and the security of our retail and mining
operations, and therefore our revenue base." Thomas O'Neill,
President of Aber and Chief Executive Officer of Harry Winston
added, "We are very pleased with the performance of Harry Winston
this past year. The continued introduction of new designs,
revitalized and focused marketing and an expansion into new markets
combine to give us confidence that the underlying business will
remain strong and that we will continue to meet our growth
targets." Fourth Quarter and Annual Highlights Financial Highlights
(unaudited)
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Three Three Twelve Twelve months months months months ended ended
ended ended January January January January 31, 2007 31, 2006 31,
2007 31, 2006
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Sales ($ millions) 154 126 559 505
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Earnings from operations ($ millions) 37 36 147 176
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Net Earnings ($ millions) 27 15 104 81
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Earnings per share ($) 0.47 0.26 1.79 1.40
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Cash Earnings per share ($)(1) 0.77 0.66 3.18 3.57
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(1) Cash earnings per share is not a recognized measure under
Canadian GAAP and does not have a standardized meaning prescribed
by Canadian GAAP and is therefore unlikely to be comparable to
similar measures presented by other issuers. Cash earnings per
share is earnings before non-cash income tax expense, non-cash
foreign exchange gains (loss), and depreciation and amortization on
a per share basis. Production Highlights (Aber's 40% share of
Diavik Mine production)
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Three Three Twelve Twelve months months months months ended ended
ended ended December December December December 31, 2006 31, 2005
31, 2006 31, 2005
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Diamond recovered (000s carats) 997 732 3,931 3,309
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Grade (carats/tonne) 4.91 3.68 4.21 3.72 Operating costs, cash ($
millions) 26.1 20.8 97.2 76.6
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Operating costs per carat, cash ($) 26 28 25 23
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"With record net earnings for the year of $104 million, Aber has
continued its growth," stated Alice Murphy, Aber's Chief Financial
Officer. "Tax rate reductions and favorable foreign exchange rates
helped to offset the incremental costs associated with the early
closure of the winter road and the acquisition of the remaining
ownership of Harry Winston." Sales from the mining segment
increased by 6% compared to the prior year. Earnings from mining
operations totalled $144.5 million compared to $163.9 million for
the prior year. Earnings were negatively impacted by additional
costs incurred during the year due to the early closure of the
winter road in early 2006. Aber's share of diamonds recovered from
the Diavik Mine was 3.9 million carats for the twelve months ended
December 31, 2006, compared to 3.3 million carats for the 12 months
ended December 31, 2005. Underground mining is currently
anticipated to begin in calendar 2008, which will bring underground
reserves into the production schedule. As a result of the
acquisition of the balance of Harry Winston, working capital
decreased to $164.0 million at January 31, 2007 from $285.7 million
at January 31, 2006. Returning Value to Shareholders Aber is
pleased to declare an eligible quarterly dividend payment of
US$0.25 per share. Shareholders of record at the close of business
on April 10, 2007, will be entitled to receive payment of this
dividend on April 19, 2007. Webcast and Conference Call Details
Aber will host a conference call and webcast with accompanying
presentation tomorrow, March 30, 2007, at 9:00 AM (EST), accessible
on http://www.aber.ca/. Within North America, access to the call is
available by dialing 866-770- 7146, participant passcode 55163183.
From international locations, call 617- 213-8068 using the same
passcode. Please dial into the conference 10 minutes prior to the
start of the call. A conference call replay will be available one
hour following the call. To access the replay, dial 888-286-8010
within North America or 617-801-6888 from international locations
and enter passcode 86441412. The financial information presented in
this media release remains unaudited and subject to additional
review and final year-end closing procedures performed by the
Company and the completion of the year-end audit by its external
auditors. Aber expects that its audited financial results will be
finalized in April 2007 and the Company will file its financial
statements with the securities regulators shortly thereafter.
CAUTION REGARDING FORWARD-LOOKING INFORMATION Certain information
included herein may constitute forward-looking information within
the meaning of securities laws. In some cases, forward- looking
information can be identified by the use of terms such as "may",
"will", "should", "expect", "plan", "anticipate", "believe",
"intend", "estimate", "predict", "potential", "continue" or other
similar expressions concerning matters that are not historical
facts. Forward-looking information may relate to management's
future outlook and anticipated events or results, and may include
statements or information regarding projected capital expenditure
requirements, estimated production from the Diavik Mine in 2007,
plans, timelines and targets for construction, mining, development,
production and exploration activities at the Diavik Mine, future
mining and processing at the Diavik Mine, the Diavik Mine's water
licence renewal, the number of expected rough diamond sales,
projected sales growth and new store openings at Harry Winston,
expected gross margin and expense trends in the retail segment,
expected diamond prices and expectations concerning the diamond
industry. Forward-looking information is based on certain factors
and assumptions regarding, among other things, mining, production,
construction and exploration activities at the Diavik Mine, world
economic conditions, the level of worldwide diamond production, the
receipt of necessary regulatory permits, the expected sales mix at
Harry Winston, expected salon openings and potential improvements
in sourcing and purchasing polished diamonds. Specifically, in
making statements concerning Aber's projected share of the Diavik
Mine capital expenditure requirements, Aber has used a Canadian/US
dollar exchange rate of $0.88, and has assumed that construction
will continue on schedule with respect to the A-418 dike and with
respect to current underground mining construction initiatives. In
making statements regarding estimated production at the Diavik
Mine, future mining activity and mine plans and future rough
diamond sales, Aber has assumed that mining operations and
exploration activities will proceed in the ordinary course
according to schedule and that the Diavik Mine's water licence will
be renewed on expected terms and conditions. With respect to
statements concerning sales growth and new store openings at Harry
Winston, as well as expected gross margin rates and expense trends,
Aber has assumed that current world economic conditions will not
materially change or deteriorate, and that Harry Winston will be
able to realize improvements in sourcing and purchasing of
inventory. While Aber considers these assumptions to be reasonable
based on information currently available to it, they may prove to
be incorrect. Forward-looking information is subject to certain
factors, including risks and uncertainties, which could cause
actual results to differ materially from what we currently expect.
These factors include, among other things, the uncertain nature of
mining activities, risks associated with joint venture operations,
risks associated with the remote location of the Diavik Mine site,
risks associated with regulatory requirements, fluctuations in
diamond prices and changes in world economic conditions, the risk
of fluctuations in the Canadian/US dollar exchange rate, risks
relating to the Company's salon expansion strategy and the risks of
competition in the luxury jewelry segment. You should not place
undue importance on forward-looking information and should not rely
upon this information as of any other date. While Aber may elect
to, it is under no obligation and does not undertake to update this
information at any particular time, except as required by law.
Unless otherwise noted, all references to "year" refer to the
fiscal year ended January 31. Summary Discussion Aber Diamond
Corporation is a specialist diamond company focusing on the mining
and retail segments of the diamond industry. The Company supplies
rough diamonds to the global market from production received from
its 40% ownership interest in the Diavik Diamond Mine (the "Diavik
Mine"), located off Lac de Gras in Canada's Northwest Territories.
Aber also owns a 100% interest in Harry Winston Inc. ("Harry
Winston"), the premier fine jewelry and watch retailer. Aber's
mission is to deliver shareholder value through the enhanced
earning power and longevity of the Diavik Mine asset as the
cornerstone of a profitable synergy with the Harry Winston brand.
In a changing diamond market- place, Aber has charted a unique
course to continue to build shareholder value. The Company's most
significant asset is a 40% interest in the Diavik group of mineral
claims. The Diavik Joint Venture (the "Joint Venture") is an
unincorporated joint arrangement between Diavik Diamond Mines Inc.
("DDMI" - 60%) and Aber Diamond Mines Ltd. (40%) where Aber owns an
undivided 40% interest in the assets, liabilities and expenses.
DDMI is the operator of the Diavik Mine. Both companies are
headquartered in Yellowknife, Canada. DDMI is a wholly owned
subsidiary of Rio Tinto plc of London, England, and Aber Diamond
Mines Ltd. is a wholly owned subsidiary of Aber Diamond Corporation
of Toronto, Canada. CONSOLIDATED FINANCIAL RESULTS The following is
a summary of the Company's consolidated quarterly results for the
eight quarters ended January 31, 2007 following the basis of
presentation utilized in its Canadian GAAP financial statements:
(expressed in thousands of United States dollars, except per share
amounts and where otherwise noted) (Unaudited)
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2007 2007 2007 2007 Q4 Q3 Q2 Q1
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Sales $154,328 $145,232 $139,962 $119,271 Cost of sales 78,559
74,636 68,458 63,845
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75,769 70,596 71,504 55,426 Selling, general and administrative
expenses 38,590 33,480 27,171 27,295
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Earnings from operations 37,179 37,116 44,333 28,131
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Interest and financing expenses (6,441) (5,570) (4,805) (4,334)
Other income (expense) (111) 1,764 1,805 1,623 Foreign exchange
gain (loss) 9,831 (1,560) 2,619 (2,106)
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Earnings before income taxes 40,458 31,750 43,952 23,314 Income
taxes 13,169 13,005 9,692 (1,036)
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Earnings before minority interest 27,289 18,745 34,260 24,350
Minority interest (5) (86) (5) 471
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Earnings $27,294 $18,831 $34,265 $23,879
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Basic earnings per share $0.47 $0.32 $0.59 $0.41 Diluted earnings
per share $0.46 $0.32 $0.58 $0.40 Cash dividends declared per share
$0.25 $0.25 $0.25 $0.25 Total assets(i) $1,288 $1,246 $1,116 $1,111
Total long-term liabilities(i) $536 $530 $460 $460
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2006 2006 2006 2006 Q4 Q3 Q2 Q1
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Sales $125,891 $153,512 $115,699 $110,132 Cost of sales 52,782
57,641 53,065 59,119
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73,109 95,871 62,634 51,013 Selling, general and administrative
expenses 36,654 24,189 22,711 23,394
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Earnings from operations 36,455 71,682 39,923 27,619
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Interest and financing expenses (4,511) (3,353) (3,668) (3,401)
Other income (expense) 1,767 795 885 886 Foreign exchange gain
(loss) (5,392) (4,184) (2,263) 496
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Earnings before income taxes 28,319 64,940 34,877 25,600 Income
taxes 10,534 30,775 15,400 12,412
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Earnings before minority interest 17,785 34,165 19,477 13,188
Minority interest 2,876 423 457 (394)
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Earnings $14,909 $33,742 $19,020 $13,582
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Basic earnings per share $0.26 $0.58 $0.33 $0.23 Diluted earnings
per share $0.27 $0.57 $0.32 $0.23 Cash dividends declared per share
$0.25 $0.25 $0.25 $0.15 Total assets(i) $1,044 $1,016 $928 $936
Total long-term liabilities(i) $434 $421 $378 $390
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2007 2006 Total Total
--------------------------------------------------- Sales $558,793
$505,234 Cost of sales 285,498 222,607
--------------------------------------------------- 273,295 282,627
Selling, general and administrative expenses 126,536 106,948
--------------------------------------------------- Earnings from
operations 146,759 175,679
--------------------------------------------------- Interest and
financing expenses (21,150) (14,933) Other income (expense) 5,081
4,333 Foreign exchange gain (loss) 8,784 (11,343)
--------------------------------------------------- Earnings before
income taxes 139,474 153,736 Income taxes 34,830 69,121
--------------------------------------------------- Earnings before
minority interest 104,644 84,615 Minority interest 375 3,362
--------------------------------------------------- Earnings
$104,269 $81,253
---------------------------------------------------
--------------------------------------------------- Basic earnings
per share $1.79 $1.40 Diluted earnings per share $1.76 $1.39 Cash
dividends declared per share $0.90 $1.00 Total assets(i) $1,288
$1,044 Total long-term liabilities(i) $536 $434
--------------------------------------------------- (i) Total
assets and total long-term liabilities are expressed in millions of
United States dollars. The comparability of quarter-over-quarter
results is impacted by seasonality for both the mining and retail
segments. Aber expects that the quarterly results for its mining
segment will continue to fluctuate depending on the seasonality of
production at the Diavik Mine, the number of sales events conducted
during the quarter, and the volume, size and quality distribution
of rough diamonds delivered from the Diavik Mine in each quarter.
The quarterly results for the retail segment are also seasonal,
with generally higher sales during the fourth quarter due to the
holiday season. Year Ended January 31, 2007 Compared to Year Ended
January 31, 2006 Year Ended January 31, 2007 Compared to Year Ended
January 31, 2006 Net Earnings Aber's net earnings for the twelve
months ended January 31, 2007 totalled $104.3 million or $1.79 per
share (cash earnings per share of $3.18), compared to net earnings
of $81.3 million or $1.40 per share (cash earnings per share of
$3.57) for the prior year. During the twelve months ended January
31, 2007, the Company recorded a future income tax recovery of
$17.0 million or $0.29 per share as a result of the decrease in
Northwest Territories and federal corporate income tax rates and
the elimination of federal surtax. Revenue Aber recorded sales for
the fiscal year ended January 31, 2007 of $558.8 million compared
to sales of $505.2 million for the prior year ended January 31,
2006. Rough diamond sales accounted for $332.6 million of these
sales compared to $314.1 million for the prior year. The Company
completed ten rough diamond sales during the fiscal year,
consistent with the prior year. Harry Winston sales of $226.2
million accounted for the balance, compared to $191.2 million for
the prior year. Cost of Sales The Company recorded cost of sales of
$285.5 million during the fiscal year compared to $222.6 million
during the prior year. The Company's cost of sales includes cash
and non-cash costs associated with mining, sorting and retail
activities. See "Segmented Analysis" on page 11 for additional
information. Selling, General and Administrative Expenses The
principal components of selling, general and administrative
("SG&A") expenses include expenses for salaries and benefits
(including salon personnel), advertising, professional fees, rent
and building related costs. With the growth of the Company's
international selling activities and the underlying control
infrastructure, along with the expansion of its retail salons,
total SG&A expenses during the fiscal year increased relative
to the prior year, a trend that is expected to continue as the
Company expands its network of retail salons. Aber incurred
SG&A expenses of $126.5 million for the fiscal year, compared
to $106.9 million incurred for the prior fiscal year. Included in
SG&A expenses for the twelve months ended January 31, 2007 are
$21.2 million for the mining segment as compared to $21.1 million
for the prior fiscal year, and $105.3 million for the retail
segment as compared to $85.8 million for the prior year. The
increase of $19.6 million in SG&A expenses from the comparable
period of the prior year included an increase of $8.7 million in
salaries and benefits, resulting primarily from deferred
compensation expense of $6.3 million triggered by the acquisition
of the remaining portion of Harry Winston, as well as the hiring of
new salon personnel in connection with the opening of three new
salons during the fiscal year. Also included was an increase of
$7.2 million in advertising and selling expenses and $3.7 million
in rent and building related expenses, primarily related to the
Harry Winston growth strategy, $2.7 million in other expenses, and
an increase of $1.7 million in professional fees. These increases
were offset by a reversal in 2007 of a 2006 $2.2 million specific
provision against accounts receivable. Income Taxes Aber recorded a
tax expense of $34.8 million during the twelve months ended January
31, 2007, compared to $69.1 million during the twelve months ended
January 31, 2006. The Company's effective income tax rate for the
fiscal year ended January 31, 2007, excluding Harry Winston, is
25%, which is based on a statutory income tax rate of 37% adjusted
for Large Corporations Tax, the Northwest Territories mining
royalty, items that are not deductible for income tax purposes,
impact on foreign exchange, impact on changes in future income tax
rates, and earnings subject to tax different than the statutory
rate. During the current fiscal year, Aber recorded a future tax
recovery of $17.0 million as a result of the decrease in Northwest
Territories and federal corporate income tax rates and the
elimination of federal surtax. The weakening of the Canadian dollar
versus the US dollar from January 31, 2006 to January 31, 2007
resulted in an unrealized foreign exchange gain of $7.3 million on
the revaluation of the Canadian dollar denominated future income
tax liability. This unrealized foreign exchange gain is not taxable
for Canadian income tax purposes, which contributed to the decrease
in the effective tax rate in the current fiscal year. The rate of
income tax payable by Harry Winston varies by jurisdiction. Net
operating losses are available in certain jurisdictions to offset
future income taxes payable in such jurisdictions. The net
operating losses are scheduled to expire through 2027. The Company
has provided a table below summarizing the movement from the
statutory to the effective income tax rate as a percentage of
earnings before taxes: Year ended Year ended January 31, January
31, 2007 2006
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Statutory income tax rate 37% 40% Large Corporations Tax 0% 1%
Stock compensation 1% 1% Resource allowance 0% (1)% Northwest
Territories mining royalty 9% 10% Impact of foreign exchange (3)%
2% Impact of changes in future income tax rates (12)% 0% Earnings
subject to tax different than statutory rate (5)% (5)% Benefits of
losses not previously recognized 0% (2)% Other items (2)% (1)%
Effective income tax rate 25% 45%
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Interest and Financing Expenses Interest and financing expenses of
$21.2 million were incurred during the fiscal year compared to
$14.9 million for the prior year. The increase in interest and
financing expenses is due to a combination of higher debt levels at
Harry Winston to finance increased inventory levels, an increased
drawdown of Aber's expanded credit facility related to the Harry
Winston acquisition, and higher interest rates. Other Income Other
income of $5.1 million was recorded during the fiscal year compared
to $4.3 million from the prior year. Other income includes interest
earned on the Company's various bank accounts net of a writeoff on
an investment. Foreign Exchange Gain (Loss) A foreign exchange gain
of $8.8 million was recognized during the fiscal year compared with
a loss of $11.3 million recognized during the prior year. The gain
primarily related to the revaluation of the Canadian dollar
denominated future income tax liability on the balance sheet of the
Company as the result of the weakening of the Canadian dollar
against the US dollar at year end. Aber's ongoing currency exposure
relates primarily to expenses and obligations incurred in Canadian
dollars, as well as the revaluation of certain Canadian monetary
balance sheet amounts. The Company does not currently have any
derivative instruments outstanding. Three Months Ended January 31,
2007 Compared to Three Months Ended January 31, 2006 Net Earnings
The fourth quarter earnings of $27.3 million or $0.47 per share
represent an increase of $12.4 million or $0.21 per share as
compared to the results from the fourth quarter of the prior year.
The Company's cash earnings per share for the fourth quarter was
$0.77 compared to $0.66 in the fourth quarter of the prior year.
Revenue Sales for the fourth quarter totalled $154.3 million,
consisting of rough diamond sales of $81.0 million and sales from
Harry Winston of $73.3 million. This compares to sales of $125.9
million in the comparable quarter of the prior year (rough diamond
sales of $62.5 million and sales from Harry Winston of $63.4
million). The Company held three rough diamond sales in the fourth
quarter compared to two in the comparable quarter of the prior
year. Ongoing quarterly variations in revenues are inherent in
Aber's business, resulting from the seasonality of the mining and
retail activities as well as from the variability of the rough
diamond sales schedule. Cost of Sales The Company's fourth quarter
cost of sales was $78.6 million compared to $52.8 million for the
comparable quarter of the prior year. The Company's cost of sales
includes cash and non-cash costs associated with mining, sorting
and retail sales activities. See "Segmented Analysis" on page 11
for additional information. Selling, General and Administrative
Expenses The principal components of SG&A expenses include
expenses for salaries and benefits (including salon personnel),
advertising, professional fees, rent and building related costs.
With the growth of the Company's international selling activities
and the underlying control infrastructure, along with the expansion
of its retail salons, total SG&A expenses have increased
marginally over the comparable period of the prior year. SG&A
expenses for the fourth quarter were $38.6 million as compared to
$36.7 million for the comparable quarter of the prior year. The
increase of $1.9 million from the fourth quarter of the prior year
included an increase of $2.5 million in advertising and selling
expenses and an increase of $1.1 million in rent and building
related expenses, primarily related to the Harry Winston growth
strategy, an increase of $0.7 million in professional fees and an
increase of $0.5 million in other expenses. The increases were
partially offset by a decrease of $0.4 million in capital tax and a
decrease of $0.3 million in salaries and benefits. The fourth
quarter of fiscal 2006 included a specific provision against
accounts receivable of $2.2 million. See "Segmented Analysis" on
page 11 for additional information. Income Taxes Aber recorded a
tax expense of $13.2 million during the fourth quarter compared to
$10.5 million in the comparable quarter of the prior year. The
Company's effective income tax rate for the quarter, excluding
Harry Winston, is 31%, which is based on a statutory income tax
rate of 37% adjusted for Large Corporations Tax, the Northwest
Territories mining royalty, items that are not deductible for
income tax purposes, impact on foreign exchange, and earnings
subject to tax different than the statutory rate, all as detailed
in the table below. The Company's functional and reporting currency
is US dollars; however, the calculation of income tax expense is
based on income in the currency of the country of origin. As such,
the Company is continually subject to foreign exchange
fluctuations, particularly as the Canadian dollar moves against the
US dollar. During the fourth quarter, as the Canadian dollar
weakened against the US dollar, the Company recorded an unrealized
foreign exchange gain of $10.2 million on the revaluation of the
Canadian dollar denominated future income tax liability, which is
not taxable for Canadian income tax purposes. The rate of income
tax payable by Harry Winston varies by jurisdiction. Net operating
losses are available in certain jurisdictions to offset future
income taxes payable in such jurisdictions. The net operating
losses are scheduled to expire through 2027. The Company has
provided a table below summarizing the movement from the statutory
to the effective income tax rate as a percentage of earnings before
taxes: Three months Three months ended ended January 31, January
31, 2007 2006
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Statutory income tax rate 37% 40% Large Corporations Tax 0% (1)%
Stock compensation 2% 3% Northwest Territories mining royalty 10%
11% Impact of foreign exchange (11)% 3% Earnings subject to tax
different than statutory rate (5)% (5)% Benefits of losses not
previously recognized 0% (10)% Other items 0% (4)% Effective income
tax rate 33% 37%
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Interest and Financing Expenses Interest and financing expenses of
$6.4 million were incurred during the fourth quarter compared to
$4.5 million during the comparable quarter of the prior year. The
increase in interest and financing expenses is due to a combination
of higher debt levels at Harry Winston to finance increased
inventory levels, an increased drawdown of Aber's expanded credit
facility related to the Harry Winston acquisition, and higher
interest rates. Other Income (Expense) Other expense of $0.1
million was recorded during the quarter compared to other income of
$1.8 million in the comparable quarter of the prior year. Other
expense included a write-off of $0.9 million on an investment net
of interest income on the Company's various bank balances. Foreign
Exchange Gain (Loss) A foreign exchange gain of $9.8 million was
recognized during the quarter compared to a loss of $5.4 million in
the comparable quarter of the prior year. The gain primarily
related to the revaluation of the Canadian dollar denominated
future income tax liability on the balance sheet of the Company,
which resulted from the weakening of the Canadian dollar against
the US dollar at quarter end. Aber's ongoing currency exposure
relates primarily to expenses and obligations incurred in Canadian
dollars, as well as to the revaluation of certain Canadian monetary
balance sheet amounts. The Company does not currently have any
derivative instruments outstanding. Segmented Analysis The
operating segments of the Company include mining and retail
segments. Mining (expressed in thousands of United States dollars)
(unaudited)
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2007 2007 2007 2007 Q4 Q3 Q2 Q1
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Sales $81,035 $90,754 $91,476 $69,308 Cost of sales 39,413 45,461
43,256 38,749
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41,622 45,293 48,220 30,559 Selling, general and administrative
expenses 7,397 4,665 4,373 4,787
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Earnings from operations $34,225 $40,628 $43,847 $25,772
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2006 2006 2006 2006 Q4 Q3 Q2 Q1
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Sales $62,528 $112,243 $70,795 $68,507 Cost of sales 22,780 38,929
29,759 37,593
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39,748 73,314 41,036 30,914 Selling, general and administrative
expenses 8,221 4,809 3,991 4,108
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Earnings from operations $31,527 $68,505 $37,045 $26,806
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--------------------------------------------------- 2007 2006 Total
Total --------------------------------------------------- Sales
$332,573 $314,073 Cost of sales 166,879 129,061
--------------------------------------------------- 165,694 185,012
Selling, general and administrative expenses 21,222 21,129
--------------------------------------------------- Earnings from
operations $144,472 $163,883
---------------------------------------------------
--------------------------------------------------- The mining
segment includes the production and sale of rough diamonds. Sales
for the quarter totalled $81.0 million compared to $62.5 million in
the comparable quarter of the prior year. The Company held three
rough diamond sales in the fourth quarter compared to two in the
comparable quarter of the prior year. Aber expects that the
quarterly results for its mining segment will continue to fluctuate
depending on the seasonality of production at the Diavik Mine, the
number of sales events conducted during the quarter, and the
volume, size and quality distribution of rough diamonds delivered
from the Diavik Mine in each quarter. Cost of sales includes cash
operating costs of $24.9 million, non-cash operating costs of $12.9
million and private production royalties of $1.6 million. A
substantial portion of cost of sales is mining operating costs,
which are incurred at the Joint Venture level. Cost of sales also
includes sorting costs, which consist of Aber's cost of handling
and sorting product in preparation for sales to third parties.
Non-cash costs include amortization and depreciation, the majority
of which is recorded using the unit-of-production method over
estimated proven and probable reserves. Private production
royalties are recorded based on actual production during each
accounting period. The fourth quarter gross margin was 51% compared
to 64% in the comparable quarter of the prior year. The mining
gross margin is anticipated to fluctuate between quarters,
resulting from variations in the specific mix of product sold
during each quarter. Additionally, the current quarter was
negatively impacted by higher costs incurred as a result of the
early closure of the 2006 winter road. SG&A expenses for the
mining segment have decreased by $0.8 million from the comparable
quarter of prior year. The decrease in SG&A expenses resulted
from a decrease of $0.6 million in salaries and benefits, primarily
related to lower bonus remuneration and stock-based compensation
costs, a decrease of $0.4 million in capital tax expense and a
decrease of $0.3 million in other expenses, offset by an increase
in professional fees of $0.3 million and an increase in building
related expenses of $0.2 million. Retail (expressed in thousands of
United States dollars) (unaudited)
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2007 2007 2007 2007 Q4 Q3 Q2 Q1
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Sales $73,293 $54,478 $48,486 $49,963 Cost of sales 39,146 29,175
25,202 25,096
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34,147 25,303 23,284 24,867 Selling, general and administrative
expenses 31,193 28,815 22,798 22,508
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Earnings (loss) from operations $2,954 $(3,512) $486 $2,359
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2006 2006 2006 2006 Q4 Q3 Q2 Q1
-------------------------------------------------------------------------
Sales $63,363 $41,269 $44,904 $41,625 Cost of sales 30,002 18,712
23,306 21,526
-------------------------------------------------------------------------
33,361 22,557 21,598 20,099 Selling, general and administrative
expenses 28,433 19,380 18,720 19,286
-------------------------------------------------------------------------
Earnings (loss) from operations $4,928 $3,177 $2,878 $813
-------------------------------------------------------------------------
-------------------------------------------------------------------------
--------------------------------------------------- 2007 2006 Total
Total --------------------------------------------------- Sales
$226,220 $191,161 Cost of sales 118,619 93,546
--------------------------------------------------- 107,601 97,615
Selling, general and administrative expenses 105,314 85,819
--------------------------------------------------- Earnings (loss)
from operations $2,287 $11,796
---------------------------------------------------
--------------------------------------------------- The retail
segment includes sales from Harry Winston's 13 salons, which are
located in New York, Honolulu, Bal Harbour, Beverly Hills, Las
Vegas, Dallas, Paris, London, Geneva, Tokyo (Ginza and Omotesando),
Osaka and Taipei. Aber now owns 100% of Harry Winston after
acquiring the remaining 47.17% on September 29, 2006. Sales for the
fourth quarter were $73.3 million compared to $63.4 million for the
comparable quarter of the prior year. The 16% increase in Harry
Winston sales relative to the same quarter of the prior year is
primarily attributed to the opening of three new salons, being
Omotesando, London and Dallas, an improved merchandising mix and
the continued strength of the luxury goods sector. Cost of sales
for Harry Winston for the fourth quarter was $39.1 million compared
to $30.0 million for the comparable quarter of the prior year. The
gross margin percentage for the year was influenced by the sale of
certain inventory that was on hand at the date of acquisition of
Harry Winston by Aber and was sold at a lower margin than normal.
Adjusting for the impact of this pre-acquisition inventory, gross
margin as a percentage of sales for the fourth quarter would have
been approximately 5% higher. With the expansion of the new
international salon activity consistent with the retail growth
strategy, SG&A expenses increased to $31.2 million in the
fourth quarter as compared to $28.4 million in the comparable
quarter of the prior year. This increase was primarily due to an
increase in advertising and selling expenses of $2.5 million, an
increase in other expenses of $0.9 million, an increase in rent and
building related expenses of $0.9 million, an increase in salaries
and benefits of $0.4 million, and an increase in professional fees
of $0.3 million. The fourth quarter of fiscal 2006 included a
specific provision against accounts receivable of $2.2 million.
Operational Update Aber's results of operations include results
from its mining operations and results from Harry Winston. Mining
Segment Annual production reached a record 9.8 million carats for
the calendar year ended December 31, 2006. This represents an
increase of 18% over the prior year and was due to operational
efficiencies in both the mine and processing plant as well as
higher grade ore throughput for part of the year. The increase in
diamond production was achieved despite a shortened winter road
shipping season in early 2006. During the fourth calendar quarter
of 2006, the Diavik Mine produced 2.50 million carats from 0.51
million tonnes of higher grade ore sourced from both the A-154
South (80%) and A-154 North (20%) kimberlite pipes. Overburden
removal from the A-418 open pit has commenced. Kimberlite
production from this pit, originally scheduled for calendar year
2008, is now expected to begin in late 2007. The feasibility study
for the underground mining of the Diavik Mine orebodies is nearing
completion. Mining tests using continuous mining equipment were
successfully completed in A-418 while the production scale headings
continued to advance to the A-154 South and North sections of the
underground development. A separate decline to extract a bulk
sample from the A-21 pipe has reached the kimberlite. The sample is
expected to be mined and processed by mid-May. This in turn is
expected to allow the adoption of a new mine plan incorporating
A-21 and the underground mining of the other pipes by July 2007.
The Diavik Mine continues to work with the Wek'eezhii Land and
Water Board as part of the process leading to renewal of its water
licence, currently expected by late summer 2007. Aber's 40% Share
of Diavik Mine Production Three Three Twelve Twelve months months
months months ended ended ended ended December December December
December 31, 2006 31, 2005 31, 2006 31, 2005
-------------------------------------------------------------------------
Diamonds recovered (000s carats) 997 732 3,931 3,309 Grade
(carats/tonne) 4.91 3.68 4.21 3.72 Operating costs, cash ($
millions) 26.1 20.8 97.2 76.6 Operating costs per carat, cash ($)
26 28 25 23
-------------------------------------------------------------------------
Cash operating costs for the three months ended December 31, 2006
of $26.1 million increased by $5.3 million from the comparable
period of the prior year, of which approximately $4.9 million was
attributable to an increase in costs due in part to the early
closure of the 2006 winter road. For the twelve months ended
December 31, 2006, cash operating costs of $97.2 million increased
by $20.6 million from the prior year, of which $16.2 million was
attributed to an increase in costs due in part to the early closure
of the 2006 winter road, with the balance largely attributable to
the strengthening of the Canadian dollar against the US dollar
during this period. Retail Segment Harry Winston once again
performed well during the fourth quarter with robust revenue growth
over the comparable quarter of the prior year and strong underlying
gross margins. Strong holiday sales in traditional Harry Winston
products as well as new collections introduced in the current year
were both major contributors to the results. For the fiscal year,
Harry Winston met underlying targets, posting strong double-digit
growth in sales and maintaining healthy gross margins. Sales in
Harry Winston's core markets of the US and Far East continued to
perform well, with the stores opened late in fiscal 2006
contributing to the strong results. A refined marketing effort that
focused more heavily on the traditional Harry Winston product mix
and the exclusivity of the brand proved successful in attracting
Harry Winston's customers. New salon openings in fiscal 2007
included London, Tokyo and Dallas. All new salons boasted Harry
Winston's new salon concept, launched with the renovated Beverly
Hills store in fiscal 2006 and based on the designs of Thierry
Despont. The concept creates an elegant setting for Harry Winston
jewelry and watches that provides a luxury-focused atmosphere for
customers and reinforces Harry Winston's exclusivity. Liquidity and
Capital Resources Working Capital Working capital decreased to
$164.0 million at January 31, 2007 from $285.7 million at January
31, 2006. As at January 31, 2007, Aber had unrestricted cash and
cash equivalents of $54.2 million and contingency cash collateral
and reserves of $51.4 million compared to $148.1 million and $14.3
million, respectively, at January 31, 2006. Included in
unrestricted cash and cash equivalents at January 31, 2007 was
$30.8 million held at the Diavik Mine compared to $10.5 million at
January 31, 2006. On September 29, 2006, the Company acquired the
remaining portion of Harry Winston for a purchase price of $157.2
million, of which $57.2 million was financed by cash from
operations. Cash Flow from Operations For the year ended January
31, 2007, Aber generated $177.6 million in cash from operations,
compared to $161.8 million in the prior year. Ongoing quarterly
variations in revenues and operating cash flows are inherent in
Aber's business, resulting from the seasonality of the mining and
retail activities as well as the rough diamond sales schedule.
During the fiscal year, the Company purchased $53.8 million of
inventory, increased accounts payable and accrued liabilities by
$36.2 million, decreased prepaid expenses by $6.2 million and
decreased accounts receivable by $1.1 million. Financing Activities
During the current year, Aber amended its existing credit facility
to include a new senior secured term loan of $100.0 million. The
entire amount of the new term loan was used to finance the
acquisition of the remaining portion of Harry Winston. During the
fiscal year, the Company made mandatory repayments of $20.0 million
on its $100.0 million senior secured term facility, $25.0 million
on the $100.0 million new senior secured term loan used for the
Harry Winston acquisition and $12.5 million on its $75.0 million
senior secured revolving credit facility. At January 31, 2007, the
Company had $95.6 million outstanding on its senior secured term
facilities and $62.5 million outstanding on its senior secured
revolving credit facility. As at January 31, 2007, Harry Winston
had $114.8 million outstanding on its $130.0 million credit
facility, which is used to fund salon inventory and capital
expenditure requirements. This represents an increase of $52.3
million from the amount outstanding at January 31, 2006. At January
31, 2007, $18.4 million, $5.8 million and $5.6 million was drawn
under the Company's revolving financing facilities relating to its
Belgian subsidiary, Aber International N.V., its Japanese
subsidiary, Harry Winston Japan K.K., and its Israeli subsidiary,
Aber Diamond Israel 2006 Ltd., respectively. At January 31, 2006,
$4.8 million and $5.1 million was drawn under the Aber
International N.V. and Harry Winston Japan K.K. facilities,
respectively. During the fiscal year, the Company made dividend
payments of $58.3 million or $1.00 per share to its shareholders.
Investing Activities In September, the Company acquired the
remaining 47.17% of Harry Winston that it did not previously own
from the minority shareholders for $157.2 million, of which $100.0
million was financed from a new senior secured term loan and $57.2
million was paid from cash on hand. Included in deferred mineral
property costs are purchases of $16.8 million during the fiscal
year. The Company also purchased capital assets of $119.9 million,
of which $100.3 million were purchased for the mining segment and
$19.6 million for Harry Winston. Outlook During the coming year the
Diavik Mine is projected to deliver approximately 10 million carats
of diamond production. Although most of this is expected to come
from the A-154 South pipe, contributions are also expected from the
A-154 North and A-418 pipes. Normal winter weather conditions in
early 2007, combined with operational improvements, have delivered
the most productive winter road campaign to date. Bulk sample
results from the A-21 kimberlite pipe and results from underground
testing of the A-154 South, A-154 North and A-418 kimberlite pipes
are expected mid-year. These are currently expected to be
incorporated into a revised mine plan and an updated mineral
reserve and mineral resource statement by the third calendar
quarter of 2007. The planned rough diamond sales cycle in the
upcoming year is expected to be two in the first quarter, three in
the second, three in the third and two in the fourth. Expansion of
the salon network and the introduction of one-of-a-kind, high-end
diamond jewelry remain at the core of Harry Winston's strategy for
the upcoming year. The relocation of the salon in Osaka, Japan to a
flagship location, a new men's jewelry and watch boutique in Tokyo
as well as planned new salons in Chicago and Beijing, are expected
to reinforce Harry Winston's position in these important markets
and support continued annual sales growth. Current year gains in
Harry Winston's underlying gross margin are expected to be
maintained as the Company continues to refine the product mix, to
improve sourcing, purchasing and manufacturing, and to leverage the
established infrastructure over a growing sales base. Other
Disclosures Non-Canadian GAAP Performance Measures References to
"cash earnings" are earnings before non-cash income tax expense,
non-cash foreign exchange gain (loss), and depreciation and
amortization. Management believes that the inclusion of cash
earnings enables investors to better understand the impact of
certain non-cash items on Aber's financial results and as such
provides a useful supplemental measure in evaluating the
performance of Aber. Cash earnings is not, however, a measure
recognized by Canadian GAAP and does not have a standardized
meaning under Canadian GAAP. Management cautions investors that
cash earnings should not be construed as an alternative to earnings
(as determined in accordance with Canadian GAAP) as an indicator of
Aber's performance, or cash flows from operating, investing and
financing activities as a measure of the Company's liquidity and
cash flows. Aber's method of calculating cash earnings may differ
from the methods used by other companies. Therefore, cash earnings
may not be comparable to similar measures presented by other
companies. See below for a reconciliation of earnings to cash
earnings. Reconciliation of Earnings to Cash Earnings (expressed in
thousands of United States dollars, except per share amounts)
(unaudited)
-------------------------------------------------------------------------
2007 2007 2007 2007 Q4 Q3 Q2 Q1
-------------------------------------------------------------------------
Earnings $27,294 $18,831 $34,265 $23,879 Non-cash income tax 9,932
9,057 5,016 (3,938) Non-cash foreign exchange loss (gain) (10,220)
1,576 (1,943) 2,970 Depreciation and amortization 17,999 19,441
17,926 13,362 Cash earnings $45,005 $48,905 $55,264 $36,273
-------------------------------------------------------------------------
Cash earnings per share $0.77 $0.84 $0.95 $0.62
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2006 2006 2006 2006 Q4 Q3 Q2 Q1
-------------------------------------------------------------------------
Earnings $14,909 $33,742 $19,020 $13,582 Non-cash income tax 10,412
31,264 12,788 5,320 Non-cash foreign exchange loss (gain) 5,201
3,656 3,618 (1,896) Depreciation and amortization 7,697 16,662
17,472 13,685 Cash earnings $38,219 $85,324 $52,898 $30,691
-------------------------------------------------------------------------
Cash earnings per share $0.66 $1.47 $0.91 $0.53
-------------------------------------------------------------------------
-------------------------------------------------------------------------
--------------------------------------------------- 2007 2006 Total
Total --------------------------------------------------- Earnings
$104,269 $81,253 Non-cash income tax 20,067 59,784 Non-cash foreign
exchange loss (gain) (7,617) 10,579 Depreciation and amortization
68,728 55,516 Cash earnings $184,447 $207,132
--------------------------------------------------- Cash earnings
per share $3.18 $3.57
---------------------------------------------------
--------------------------------------------------- Outstanding
Share Information As at January 31, 2007 Authorized Unlimited
Issued and outstanding shares 58,360,755 Fully diluted(i)
59,276,073 Weighted average outstanding shares 58,257,449 Options
outstanding 1,631,163 (i) Fully diluted shares outstanding under
the treasury stock method. CONSOLIDATED BALANCE SHEETS (expressed
in thousands of United States dollars)(unaudited) As at January 31,
2007 2006
-------------------------------------------------------------------------
Assets Current assets: Cash and cash equivalents $ 54,174 $ 148,116
Cash collateral and cash reserves 51,448 14,276 Accounts receivable
13,297 14,917 Inventory and supplies 273,736 202,571 Advances and
prepaid expenses 21,275 27,437
-------------------------------------------------------------------------
413,930 407,317 Deferred mineral property costs 188,058 196,367
Capital assets 384,532 301,735 Intangible assets, net 134,320
42,922 Goodwill 98,142 41,966 Deferred charges and other assets
18,187 22,681 Future income tax asset 50,745 30,625
-------------------------------------------------------------------------
$1,287,914 $1,043,613
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and Shareholders' Equity Current liabilities: Accounts
payable and accrued liabilities $ 124,747 $ 83,822 Bank advances
29,776 9,882 Current portion of long-term debt 95,434 27,915
-------------------------------------------------------------------------
249,957 121,619 Long-term debt 185,446 157,344 Future income tax
liability 333,498 256,426 Other long-term liability - 4,929 Future
site restoration costs 17,200 15,316 Minority interest 85 36,086
Shareholders' equity: 501,728 451,893
-------------------------------------------------------------------------
$1,287,914 $1,043,613
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS (expressed in thousands of
United States dollars, except per share amounts)(unaudited) Years
ended January 31, 2007 2006
-------------------------------------------------------------------------
Sales $ 558,793 $ 505,234 Cost of sales 285,498 222,607
-------------------------------------------------------------------------
273,295 282,627 Selling, general and administrative expenses
126,536 106,948
-------------------------------------------------------------------------
Earnings from operations 146,759 175,679
-------------------------------------------------------------------------
Interest and financing expenses (21,150) (14,933) Other income
5,081 4,333 Foreign exchange gain (loss) 8,784 (11,343)
-------------------------------------------------------------------------
Earnings before income taxes 139,474 153,736 Income taxes - Current
14,763 9,337 Income taxes - Future 20,067 59,784
-------------------------------------------------------------------------
Earnings before minority interest 104,644 84,615 Minority interest
375 3,362
-------------------------------------------------------------------------
Net earnings $ 104,269 $ 81,253
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per share Basic $ 1.79 $ 1.40
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fully diluted $ 1.76 $ 1.39
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted average number of shares outstanding 58,257,449 57,957,201
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (expressed in thousands of
United States dollars)(unaudited) For the year ended January 31,
2007 2006
-------------------------------------------------------------------------
Cash provided by (used in): Operating Net earnings $ 104,269 $
81,253 Items not involving cash: Amortization and accretion 68,728
55,517 Future income taxes 20,067 58,894 Stock-based compensation
1,250 2,545 Foreign exchange (7,617) 10,579 Loss on write-off of
investment 909 - Minority interest 352 3,296 Loss on sale of other
assets - 161 Change in non-cash operating working capital (10,393)
(50,421)
-------------------------------------------------------------------------
177,565 161,824
-------------------------------------------------------------------------
Financing Increase/(decrease) in long-term debt 51,062 (36,203)
Increase in revolving credit 64,716 86,120 Deferred financing -
(321) Dividends paid (58,274) (52,180) Issue of common shares 2,918
5,752 Purchase of subordinated convertible debt - (6,808) Cash
advance from minority shareholder - 8,067 Common shares purchased
for cancellation - (4,660)
-------------------------------------------------------------------------
60,422 (233)
-------------------------------------------------------------------------
Investing Cash collateral and cash reserve (37,172) (490) Deferred
mineral property costs (16,834) (34,850) Capital assets (119,904)
(52,673) Deferred charges (171) (1,815) Purchase of Harry Winston
(158,150) - Repayment of promissory note - (51,059)
-------------------------------------------------------------------------
(332,231) (140,887)
-------------------------------------------------------------------------
Foreign exchange effect on cash balances 302 3,816
Increase/(decrease) in cash and cash equivalents (93,942) 24,520
Cash and cash equivalents, beginning of year 148,116 123,596
-------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 54,174 $ 148,116
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Change in non-cash operating working capital Accounts receivable
1,058 3,363 Advances and prepaid expenses 6,157 (16,244) Inventory
and supplies (53,807) (63,644) Accounts payable and accrued
liabilities 36,199 26,104
-------------------------------------------------------------------------
$ (10,393) $ (50,421)
-------------------------------------------------------------------------
Supplemental cash flow information Cash taxes paid $ 11,780 $ 7,209
Cash interest paid $ 18,746 $ 12,846
-------------------------------------------------------------------------
NOTES Years ended January 31, 2007 and 2006 (tabular amounts in
thousands of United States dollars, except as otherwise noted)
(unaudited) Note 1: Nature of Operations Aber Diamond Corporation
(the "Company" or "Aber") is a specialist diamond company focusing
on the mining and retail segments of the diamond industry. The
Company's most significant asset is a 40% ownership interest in the
Diavik group of mineral claims. The Diavik Joint Venture (the
"Joint Venture") is an unincorporated joint arrangement between
Diavik Diamond Mines Inc. ("DDMI" - 60%) and Aber Diamond Mines
Ltd. (40%). DDMI is the operator of the Diavik Diamond Mine (the
"Diavik Mine"). Both companies are headquartered in Yellowknife,
Canada. DDMI is a wholly owned subsidiary of Rio Tinto plc of
London, England, and Aber Diamond Mines Ltd. is a wholly owned
subsidiary of Aber Diamond Corporation of Toronto, Canada. The
Diavik Mine is located 300 kilometres northeast of Yellowknife in
the Northwest Territories. Aber records its proportionate interest
in the assets, liabilities and expenses of the Joint Venture in the
Company's financial statements with a one-month lag. Note 2:
Acquisition On September 29, 2006, the Company acquired the
remaining 47.17% ownership of Harry Winston for $157.2 million,
paid in cash on the acquisition date. The allocation of the
purchase price to the fair values of assets acquired and
liabilities assumed is set forth in the table below and continues
to be refined. The valuation of intangible assets has been
completed by a third party valuator. Purchase price amounts give
rise to future income tax liabilities that have been recorded in
the same year in which the intangible assets are separately
identified. Cash $ 2,433 Accounts receivable 4,909 Inventory
107,690 Intangibles 92,414 Goodwill 57,230 Other assets 31,835
Accounts payable and accrued liabilities (18,728) Bank loan
(54,653) Other liabilities (64,980)
-------------------------------------------------------------------------
$ 158,150
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash paid at acquisition $ 157,150 Acquisition and other costs
1,000
-------------------------------------------------------------------------
$ 158,150
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Note 3: Inventory and Supplies 2007 2006
-------------------------------------------------------------------------
Rough diamond inventory $ 17,648 $ 21,612 Merchandise inventory
228,157 164,691 Supplies inventory 27,931 16,268
-------------------------------------------------------------------------
Total inventory and supplies $ 273,736 $ 202,571
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Note 4: Capital Assets 2007
-------------------------------------------------------------------------
Net Accumulated book Cost amortization value
-------------------------------------------------------------------------
Diavik equipment and leaseholds(a) $ 422,419 $ 101,912 $ 320,507
Furniture, equipment and other(b) 20,193 9,530 10,663 Real property
- land and building(c) 64,691 11,329 53,362
-------------------------------------------------------------------------
$ 507,303 $ 122,771 $ 384,532
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2006
-------------------------------------------------------------------------
Net Accumulated book Cost amortization value
-------------------------------------------------------------------------
Diavik equipment and leaseholds(a) $ 337,020 $ 85,655 $ 251,365
Furniture, equipment and other(b) 14,900 7,126 7,774 Real property
- land and building(c) 50,654 8,058 42,596
-------------------------------------------------------------------------
$ 402,574 $ 100,839 $ 301,735
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(a) Diavik equipment and leaseholds are project related assets at
the Joint Venture level. (b) Furniture, equipment and other
includes equipment located at the Company's diamond sorting
facility and at Harry Winston's salons. (c) Real property is
comprised of land and a building that houses the corporate
activities of the Company and various leasehold improvements to
Harry Winston's salons and corporate offices. Note 5: Intangible
Assets Accumulated Amortization amortiz- 2007 2006 period Cost
ation net net
-------------------------------------------------------------------------
Trademark indefinite life $112,995 $ - $112,995 $ 33,850 Drawings
indefinite life 12,365 - 12,365 5,200 Wholesale distribution
network 120 months 5,575 (812) 4,763 2,042 Store leases 65 to 105
months 5,639 (1,442) 4,197 1,830
-------------------------------------------------------------------------
Intangible assets $136,574 $ (2,254) $134,320 $ 42,922
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Amortization expense for 2007 was $1.0 million (2006 - $0.7
million). Note 6: Long-Term Debt and Bank Advances 2007 2006
-------------------------------------------------------------------------
Credit facility(a) $ 158,140 $ 114,160 Harry Winston credit
facilities(b) 114,782 62,460 First mortgage on real property 7,958
8,639
-------------------------------------------------------------------------
Total long-term debt 280,880 185,259
-------------------------------------------------------------------------
Less current portion (95,434) (27,915)
-------------------------------------------------------------------------
$ 185,446 $ 157,344
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(i) Long-Term Debt (a) Credit Facility During the fiscal year, Aber
amended its existing credit facility to include a new senior
secured term loan of $100.0 million. The entire amount of the new
term facility was used to finance the acquisition of the remaining
portion of Harry Winston. As the result of the new senior secured
term loan, the Company's credit agreement now includes two $100.0
million senior secured term facilities and a $75.0 million senior
secured revolving facility. The facilities have underlying interest
rates, which at the option of the Company are either LIBOR plus a
spread of 1.25% to 2.375%, or US Base Rate plus a spread of 0.25%
to 1.375%. The two senior secured term facilities have a final
maturity date of December 15, 2008 and the senior secured revolving
facility has a final maturity date of March 15, 2009. The senior
secured revolving facility has a standby fee on undrawn amounts up
to 1.5%, dependent on certain financial ratios, payable quarterly.
The Company is required to comply with certain financial and
non-financial covenants. Under the facilities, the Company is
required to establish a debt reserve account of $25.0 million and
an amount equal to the estimated operating expenses, maintenance
capital expenditures and other capital expenditures of the Diavik
Mine for 30 days following January 31, 2007. The effective interest
at January 31, 2007 was 6.86%. Scheduled amortization of the
Company's senior secured term facility is over ten equal
consecutive semi-annual installments commencing June 15, 2004. The
scheduled repayment of the new term facility is over four equal
consecutive semi-annual installments of $25.0 million commencing
December 15, 2006. The maximum amount permitted to be drawn under
the senior secured revolving facility is reduced by $12.5 million
semi-annually, commencing September 2006. As at January 31, 2007,
the Company had $95.6 million of senior secured term facilities and
had $62.5 million drawn under its senior secured revolving
facility. Interest and financing charges include interest incurred
on long-term debt, as well as amortization of deferred financing
charges. (b) Harry Winston Credit Facilities (i) Harry Winston Inc.
and Harry Winston Japan, K.K. amended its $85.0 million secured
credit agreement on January 31, 2006 with a syndicated group of
banks to increase it to $130.0 million on July 1, 2006. The credit
agreement includes both a revolving line of credit and fixed rate
loans. At January 31, 2007, $112.0 million had been drawn against
the facility. The amount available under this facility is subject
to availability determined using a borrowing formula based on
certain assets owned by Harry Winston Inc. and Harry Winston Japan,
K.K. The Harry Winston credit facility, which expires on March 31,
2008, has no scheduled repayments required before that date. The
credit agreement contains affirmative and negative financial and
non-financial covenants, which apply to Harry Winston on a
consolidated basis. These provisions include minimum net worth,
minimum coverage of fixed charges, leverage ratio, minimum EBITDA
and limitations on capital expenditures. The outstanding borrowings
under the credit facility are secured by inventory and accounts
receivable of Harry Winston Inc. and inventory of Harry Winston
Japan, K.K. with no guarantees or recourse to Aber. The common
stock of Harry Winston Inc. and 65% of the common stock of Harry
Winston's foreign subsidiaries are also pledged to the bank to
secure the loan. The facility provides for fixed rate loans and
floating rate loans, which bear interest at 2.25% above LIBOR and
1.00% above the bank's prime rate, respectively. The effective
interest rate at January 31, 2007 was 9.25% for the revolving line
of credit loans and 7.73% for the fixed rate loans. On November 1,
2006, the credit agreement was amended to provide for a temporary
increase in the credit facility of $10.0 million to $140.0 million.
Borrowings under the temporary facility for fixed rate loans and
floating rate loans bear interest at 2.75% above LIBOR and 1.00%
above the bank's prime rate, respectively. The temporary credit
facility expires on April 30, 2007 and is guaranteed by HW Holdings
Inc. and its domestic subsidiaries and Aber Diamond Corporation.
Under this agreement, $nil was outstanding at January 31, 2007.
(ii) On March 31, 2006, Harry Winston S.A. entered into a 30-year
loan agreement to finance the construction of a new watch factory
in Geneva, Switzerland. The watch factory has been pledged to
secure the loan. The loan agreement bears interest at 3%. Under
this agreement approximately $2.8 million is outstanding at January
31, 2007. (c) Required Principal Repayments 2007 $ 95,434 2008
165,892 2009 13,008 2010 549 2011 594 Thereafter 5,403
--------------------------------------------------------------------
$ 280,880
--------------------------------------------------------------------
--------------------------------------------------------------------
(ii) Bank Advances The Company operates two other revolving
financing facilities. The Company has available $45.0 million
(utilization in either US dollars or Euros) and $10.0 million for
inventory and receivables funding in connection with marketing
activities through its Belgian subsidiary, Aber International N.V.
and its Israeli subsidiary, Aber Diamond Israel 2006 Ltd.,
respectively. Borrowings under the Belgium facility bear interest
at the bank's base rate plus 1.5% and borrowings under the Israeli
facility bear interest at LIBOR plus 1%. At January 31, 2007, $24.1
million was drawn under these two facilities. The Belgium facility
has an annual commitment fee of 0.75% per annum. Both facilities
are guaranteed by Aber Diamond Corporation. Harry Winston Japan,
K.K. maintains unsecured credit agreements with two banks each
amounting to Yen 350 million (US $2.9 million). The credit
facilities bear interest at 2.125% and 1.925% per annum and expire
on April 27, 2007 and December 28, 2007, respectively. Under these
agreements, bank advances of $5.7 million were outstanding at
January 31, 2007. Note 7: Earnings per Share The following table
sets forth the computation of diluted earnings per share: 2007 2006
2005
-------------------------------------------------------------------------
Numerator: Net earnings for the year $ 104,269 $ 81,253 $ 53,084
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Denominator (thousands of shares): Weighted average number of
shares outstanding 58,257 57,957 57,569 Dilutive effect of employee
stock options 1,019 864 1,175
-------------------------------------------------------------------------
59,276 58,821 58,744
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Number of anti-dilutive options - - -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Note 8: Segmented Information The Company operates in two segments
within the diamond industry, mining and retail, as of January 31,
2007. The mining segment consists of the Company's rough diamond
business. This business includes the 40% interest in the Diavik
group of mineral claims and the sale of rough diamonds in the
market-place. The retail segment consists of the Company's
ownership in Harry Winston. This segment consists of the marketing
of fine jewelry and watches on a worldwide basis. For the twelve
months ended January 31, 2007 Mining Retail Total
-------------------------------------------------------------------------
Revenue Canada $ 332,573 $ - $ 332,573 United States - 97,989
97,989 Europe - 75,092 75,092 Asia - 53,139 53,139 Cost of sales
166,879 118,619 285,498
-------------------------------------------------------------------------
165,694 107,601 273,295 Selling, general and administrative
expenses 21,222 105,314 126,536
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Earnings from operations 144,472 2,287 146,759
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Interest and financing expenses (13,008) (8,142) (21,150) Other
income/(expense) 5,323 (242) 5,081 Foreign exchange gain/(loss)
9,775 (991) 8,784
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Segmented earnings before income taxes $ 146,562 $ (7,088) $
139,474
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Segmented assets as at January 31, 2007 Canada $ 731,194 $ - $
731,194 United States - 451,934 451,934 Other foreign countries
14,775 90,011 104,786
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$ 745,969 $ 541,945 $ 1,287,914
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Goodwill as at January 31, 2007 $ - $ 98,142 $ 98,142 Capital
expenditures $ 100,325 $ 19,579 $ 119,904 Other significant
non-cash items: Income tax expense $ 22,972 $ (2,905) $ 20,067
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For the twelve months ended January 31, 2006 Mining Retail Total
-------------------------------------------------------------------------
Revenue Canada $ 314,073 $ - $ 314,073 United States - 75,212
75,212 Europe - 66,279 66,279 Asia - 49,670 49,670 Cost of sales
129,061 93,546 222,607
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185,012 97,615 282,627
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Selling, general and administrative expenses 21,129 85,819 106,948
-------------------------------------------------------------------------
Earnings from operations 163,883 11,796 175,679
-------------------------------------------------------------------------
Interest and financing expenses (10,150) (4,783) (14,933) Other
income/(expense) 4,352 (19) 4,333 Foreign exchange loss (10,488)
(855) (11,343)
-------------------------------------------------------------------------
Segmented earnings before income taxes $ 147,597 $ 6,139 $ 153,736
-------------------------------------------------------------------------
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Segmented assets as at January 31, 2006 Canada $ 706,431 $ - $
706,431 United States - 255,424 255,424 Other foreign countries
19,515 62,243 81,758
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$ 725,946 $ 317,667 $ 1,043,613
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Goodwill as at January 31, 2007 $ - $ 41,966 $ 41,966 Capital
expenditures $ 37,743 $ 14,931 $ 52,674 Other significant non-cash
items: Income tax expense $ 61,677 $ (1,893) $ 59,784
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Sales to one customer in the mining segment totalled $29.0 million
(2006 - $23.0 million) for the fiscal year. DATASOURCE: Aber
Diamond Corporation CONTACT: Robert A. Gannicott, Chairman and
Chief Executive Officer, (416) 362-2237; Amir Kalman, Director,
Investor Relations, (416) 362-2237 (ext. 244)
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