TORONTO, June 5 /PRNewswire-FirstCall/ -- ABER DIAMOND CORPORATION
(TSE-ABZ, NASDAQ-ABER) announces its first quarter results for the
period ended April 30, 2007. Commenting on Aber's first quarter
results, Chairman and Chief Executive Officer Robert Gannicott
stated,"Operationally this has been one of our strongest quarters.
The Winter Road re-supply delivered the largest number of loads in
its 25 year history. Diamond production set a new first quarter
high despite a seasonally cold winter with recovered grades being
12% above ore reserve levels. Consolidated operating margins also
improved over the prior year. Harry Winston has continued its solid
growth in sales as it delivers on its planned store openings around
the world to serve the growing population of wealthy consumers."
Thomas O'Neill, President of Aber and Chief Executive Officer of
Harry Winston added, "In the First Quarter 2008 we continue our
solid results with a double digit increase in sales supported by
strengthening gross margins. Another new salon opened in Tokyo,
Japan, while we relocated our store in Osaka to the prestigious
Shinsaibashi area and expanded our store in Taipei, Taiwan. We now
have 14 Harry Winston locations throughout the world. We continue
to execute our growth strategy through new product and innovative
marketing approaches together with expanding our retail store
network in prime locations around the world. We plan to open four
additional stores before the end of the year." Chief Financial
Officer, Alice Murphy commented that "Strong segment sales growth
of 19% and 17% for mining and retail operations respectively
increased consolidated quarterly earnings from operations compared
to the prior year. Net earnings for the quarter were, however,
negatively impacted by the non-cash, mark-to-market adjustment on
future income taxes, resulting from the 6% strengthening of the
Canadian dollar against the US dollar during the quarter. This
$13.6 million mark-to-market charge to earnings compares to a
future income tax recovery of $10.4 million included in our prior
year's results." First Quarter Highlights Financial Highlights
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Three Three Twelve months months months ended ended ended April 30,
April 30, January 31, 2007 2006 2007
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Sales ($ millions) 141 119 559
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Earnings from operations ($ millions) 36 28 147
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Net Earnings ($ millions) 3 24 104
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Earnings per share ($) 0.06 0.41 1.79
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Cash Earnings per share ($)(1) 0.57 0.62 3.18
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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. See "Non-GAAP Performance Measures" in the
Company's Management's Discussion and Analysis for the three months
ended April 30, 2007, for a reconciliation of earnings to cash
earnings. Production Highlights (Aber's 40% share of Diavik Mine
production)
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Three Three Twelve months months months ended ended ended March 31,
March 31, December 31, 2007 2006 2006
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Diamond recovered (000s carats) 1,034 715 3,931
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Grade (carats/tonne) 4.97 3.62 4.21
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Operating costs, cash ($ millions) 25.1 21.6 97.2
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Operating costs per carat, cash ($) 24 30 25
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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 June 29, 2007,
will be entitled to receive payment of this dividend on July 13,
2007. Annual Meeting of Shareholders Aber will hold its Annual
Meeting of Shareholders today at 10 AM EST at the Toronto Board of
Trade located at 1 First Canadian Place, Toronto, Ontario.
Interested parties unable to attend may listen to a broadcast of
the meeting and a review of Aber's first quarter results on the
internet at http://www.aber.ca/ Information in this news release
that is not current or historical factual information may
constitute forward-looking information or statements within the
meaning of applicable securities laws. Implicit in this
information, particularly in respect of statements as to future
operating results and economic performance of Aber, and resources
and reserves at the Diavik Mine, are assumptions regarding
projected revenue and expense, diamond prices and mining costs.
These assumptions, although considered reasonable by Aber at the
time of preparation, may prove to be incorrect. Readers are
cautioned that actual results are subject to a number of risks and
uncertainties, including risks relating to general economic
conditions and mining operations, and could differ materially from
what is currently expected. The Company disclaims any intention or
obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
About Aber 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 through
its 40% ownership in the Diavik Diamond Mine and owns one of the
world's premier retailers of diamond jewelry, Harry Winston.
Highlights (All figures are in United States dollars unless
otherwise indicated) Aber's net earnings for the quarter were $3.3
million with earnings per share of $0.06 (cash earnings per share
of $0.57(1)) as compared to net earnings of $23.9 million and
earnings per share of $0.41 (cash earnings per share of $0.62(1))
for the corresponding quarter of the prior year. Net earnings for
the current quarter were negatively impacted by the foreign
exchange adjustment of $13.6 million, not deductible for Canadian
tax purposes, applied to the provision for future income taxes
payable, which is attributable to the 6% strengthening of the
Canadian dollar against the US dollar during the quarter.
Operationally, this has been one of the strongest quarters in the
Company's history. Consolidated sales for the quarter increased by
19% to $141.4 million compared to $119.3 million for the prior year
and consolidated gross margin for the quarter increased to 50% from
46% for the prior year. Sales from the mining segment increased by
19% compared to the comparable quarter of the prior year. Earnings
from mining operations totalled $37.1 million compared to $25.8
million for the comparable quarter of the prior year. Sales from
the retail segment were 17% higher than the comparable quarter of
the prior year. The loss from retail operations of $1.1 million, as
compared to earnings from operations of $2.4 million for the
comparable quarter of the prior year, was principally impacted by
certain acquisition-related costs of $2.3 million specifically
attributable to the Harry Winston purchase. Aber's share of
diamonds recovered from the Diavik Mine was 1.0 million carats for
the three months ended March 31, 2007, compared to 0.7 million
carats for the comparable period of the prior year. The Company has
declared a quarterly dividend of $0.25 per share to be paid on July
13, 2007 to shareholders of record on June 29, 2007.
----------------- (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 gain (loss), and depreciation and
amortization on a per share basis. See "Non-Canadian GAAP
Performance Measures" in the Company's management's discussion and
analysis for the three months ended April 30, 2007, for a
reconciliation of earnings to cash earnings. Management's
Discussion and Analysis ------------------------------------ (all
figures are in United States dollars unless otherwise indicated)
Prepared as of June 5, 2007 The following is management's
discussion and analysis ("MD&A") of the results of operations
for Aber Diamond Corporation ("Aber", or the "Company") for the
three months ended April 30, 2007, and its financial position as at
April 30, 2007. This MD&A is based on the Company's
consolidated financial statements prepared in accordance with
generally accepted accounting principles in Canada ("Canadian
GAAP") and should be read in conjunction with the unaudited
consolidated financial statements and notes thereto for the three
months ended April 30, 2007 and the audited consolidated financial
statements of Aber and notes thereto for the year ended January 31,
2007. Unless otherwise specified, all financial information is
presented in United States dollars. Unless otherwise indicated, all
references to "first quarter" refer to the three months ended April
30, 2007. The following MD&A makes reference to certain
non-GAAP measures such as cash earnings and cash earnings per share
to assist in assessing the Company's financial performance.
Non-GAAP measures do not have any standard meaning prescribed by
Canadian GAAP and are therefore unlikely to be comparable to
similar measures presented by other issuers. See "Non-GAAP
Performance Measures". Certain comparative figures have been
reclassified to the current year's presentation. CAUTION REGARDING
FORWARD-LOOKING INFORMATION Certain information included in this
MD&A 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 and timing 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. Please see page 15 of
this interim report, as well as Aber's annual report, available at
http://www.sedar.com/, for a discussion of these and other risks
and uncertainties involved in Aber's operations. 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.
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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. Market Commentary The
Diamond Market Rough diamond prices continue to recover in the
first quarter of fiscal 2008 after softening in fiscal 2007. The
upward trend is due primarily to an anticipated decline in world
production, with all sectors of the diamond industry expecting
further pressure on supply in the coming year. Higher prices are
evident in all ranges of rough diamonds but remain strongest on the
larger, better-quality white goods. The positive movement in
polished diamond prices in late calendar 2006, combined with the
ongoing shortage of rough diamonds, has brought renewed momentum to
the diamond market. Prices for better-quality, medium-sized
polished diamonds are now moving upwards, while watch manufacturers
are competing for supply in the smaller size ranges. Prices for the
larger, better-quality polished diamonds continue to rise, a trend
that is expected to carry on in future quarters. A slight softening
of demand for the lower-quality ranges of polished diamonds in the
US market has been offset in part by continuing strong demand from
the Indian and Chinese retail sectors. The Retail Jewelry Market
The luxury goods segment of the retail diamond jewelry market,
comprising high-end diamond jewelry and watches, continues to
experience steady demand for its products, with a number of retail
jewelers posting solid gains over the prior year. Consolidated
Financial Results The following is a summary of the Company's
consolidated quarterly results for the eight quarters ended April
30, 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) 2008 2007 2007 2007 2007 Q1 Q4 Q3 Q2 Q1
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Sales $141,365 $154,328 $145,232 $139,962 $119,271 Cost of sales
71,132 78,559 74,636 68,458 63,845
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70,233 75,769 70,596 71,504 55,426 Selling, general and
administrative expenses 34,211 38,590 33,480 27,171 27,295
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Earnings from operations 36,022 37,179 37,116 44,333 28,131
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Interest and financing expenses (6,132) (6,441) (5,570) (4,805)
(4,334) Other income (expense) 913 (111) 1,764 1,805 1,623 Foreign
exchange gain (loss) (13,292) 9,831 (1,560) 2,619 (2,106)
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Earnings before income taxes 17,511 40,458 31,750 43,952 23,314
Income taxes 14,118 13,169 13,005 9,692 (1,036)
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Earnings before minority interest 3,393 27,289 18,745 34,260 24,350
Minority interest 140 (5) (86) (5) 471
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Earnings $ 3,253 $ 27,294 $ 18,831 $ 34,265 $ 23,879
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Basic earnings per share $ 0.06 $ 0.47 $ 0.32 $ 0.59 $ 0.41 Diluted
earnings per share $ 0.05 $ 0.46 $ 0.32 $ 0.58 $ 0.40 Cash
dividends declared per share $ 0.25 $ 0.25 $ 0.25 $ 0.25 $ 0.25
Total assets(i) $ 1,315 $ 1,288 $ 1,246 $ 1,116 $ 1,111 Total
long-term liabilities(i) $ 408 $ 536 $ 530 $ 460 $ 460
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Three Three Months Months Ended Ended 2006 2006 2006 April 30,
April 30, Q4 Q3 Q2 2007 2006
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Sales $125,891 $153,512 $115,699 $141,365 $119,271 Cost of sales
52,782 57,641 53,065 71,132 63,845
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73,109 95,871 62,634 70,233 55,426 Selling, general and
administrative expenses 36,654 24,189 22,711 34,211 27,295
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Earnings from operations 36,455 71,682 39,923 36,022 28,131
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Interest and financing expenses (4,511) (3,353) (3,668) (6,132)
(4,334) Other income (expense) 1,767 795 885 913 1,623 Foreign
exchange gain (loss) (5,392) (4,184) (2,263) (13,292) (2,106)
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Earnings before income taxes 28,319 64,940 34,877 17,511 23,314
Income taxes 10,534 30,775 15,400 14,118 (1,036)
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Earnings before minority interest 17,785 34,165 19,477 3,393 24,350
Minority interest 2,876 423 457 140 471
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Earnings $ 14,909 $ 33,742 $ 19,020 $ 3,253 $ 23,879
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Basic earnings per share $ 0.26 $ 0.58 $ 0.33 $ 0.06 $ 0.41 Diluted
earnings per share $ 0.27 $ 0.57 $ 0.32 $ 0.05 $ 0.40 Cash
dividends declared per share $ 0.25 $ 0.25 $ 0.25 $ 0.25 $ 0.25
Total assets(i) $ 1,044 $ 1,016 $ 928 $ 1,315 $ 1,111 Total
long-term liabilities(i) $ 434 $ 421 $ 378 $ 408 $ 460
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(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. Three Months Ended April 30,
2007 Compared to Three Months Ended April 30, 2006 Net Earnings The
first quarter earnings of $3.3 million or $0.06 per share represent
a decrease of $20.6 million or $0.35 per share as compared to the
results from the first quarter of the prior year due in significant
part to an unrealized foreign exchange loss of $13.6 million on
future income taxes payable as discussed under "Income Taxes" on
page 7. The Company's cash earnings per share for the first quarter
was $0.57 compared to $0.62 in the first quarter of the prior year.
Revenue Sales for the first quarter totalled $141.4 million,
consisting of rough diamond sales of $82.8 million and sales from
Harry Winston of $58.6 million. This compares to sales of $119.3
million in the comparable quarter of the prior year (rough diamond
sales of $69.3 million and sales from Harry Winston of $50.0
million). The Company held two rough diamond sales in both the
current quarter and 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 first quarter cost of
sales was $71.1 million compared to $63.8 million for the
comparable quarter of the prior year, with the majority of increase
related to Harry Winston. 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 8 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 have increased over the comparable period
of the prior year. SG&A expenses for the first quarter were
$34.2 million as compared to $27.3 million for the comparable
quarter of the prior year. The increase of $6.9 million from the
first quarter of the prior year included an increase of $1.3
million in advertising and selling expenses, an increase of $1.2
million in salaries and benefits, an increase of $0.8 million in
amortization, and an increase of $0.7 million in rent and building
related expenses, primarily related to the Harry Winston growth
strategy. Also included was an increase of $0.6 million in other
expenses and $0.1 million in professional fees. Included in the
comparable quarter of the prior year was a reversal of a specific
provision against accounts receivable of $2.2 million. See
"Segmented Analysis" on page 8 for additional information. Income
Taxes Aber recorded a tax expense of $14.1 million during the first
quarter of fiscal 2008, compared to a tax recovery of $1.0 million
in the comparable quarter of the previous year. The Company's
effective income tax rate for the quarter, excluding Harry Winston,
is 70%, which is based on a statutory income tax rate of 34%
adjusted for the Northwest Territories mining royalty, items that
are not deductible for income tax purposes, impact of foreign
exchange, and earnings subject to tax different than statutory
rate. 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 first quarter, as the Canadian dollar strengthened
against the US dollar, the Company recorded an unrealized foreign
exchange loss of $13.6 million on the revaluation of the Canadian
dollar denominated future income tax liability, which is not
deductible 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 April 30, April 30,
2007 2006
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Statutory income tax rate 34% 37% Large Corporations Tax 0% 1%
Stock compensation 1% 1% Northwest Territories mining royalty (net
of income tax relief) 16% 7% Impact on change in future income tax
rate 0% (45)% Impact of foreign exchange 29% 3% Earnings subject to
tax different than statutory rate (5)% (4)% Benefits of losses not
previously recognized 5% 0% Other items 1% (4)% Effective income
tax rate 81% (4)%
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Interest and Financing Expenses Interest and financing expenses of
$6.1 million were incurred during the first quarter compared to
$4.3 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 Other income of $0.9 million was
recorded during the quarter compared to $1.6 million in the
comparable quarter of the prior year. Other income includes
interest income on the Company's various bank balances. Foreign
Exchange Gain (Loss) A foreign exchange loss of $13.3 million was
recognized during the quarter compared to a loss of $2.1 million in
the comparable quarter of the prior year. The loss 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 strengthening 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) 2008 2007 2007 2007 2007 Q1 Q4 Q3 Q2 Q1
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Sales $ 82,752 $ 81,035 $ 90,754 $ 91,476 $ 69,308 Cost of sales
40,516 39,413 45,461 43,256 38,749
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42,236 41,622 45,293 48,220 30,559 Selling, general and
administrative expenses 5,087 7,397 4,665 4,373 4,787
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Earnings from operations $ 37,149 $ 34,225 $ 40,628 $ 43,847 $
25,772
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Three Three Months Months Ended Ended 2006 2006 2006 April 30,
April 30, Q4 Q3 Q2 2007 2006
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Sales $ 62,528 $112,243 $ 70,795 $ 82,752 $ 69,308 Cost of sales
22,780 38,929 29,759 40,516 38,749
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39,748 73,314 41,036 42,236 30,559 Selling, general and
administrative expenses 8,221 4,809 3,991 5,087 4,787
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Earnings from operations $ 31,527 $ 68,505 $ 37,045 $ 37,149 $
25,772
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The mining segment includes the production and sale of rough
diamonds. Sales for the quarter totalled $82.8 million compared to
$69.3 million in the comparable quarter of the prior year. The
Company held two rough diamond sales in both the current quarter
and 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 $26.0 million, non-cash operating costs of $13.1
million and private production royalties of $1.4 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 first quarter gross margin was 51% compared
to 44% 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 first quarter of the prior
year 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 increased by $0.3 million from the
comparable quarter of the prior year. Retail (expressed in
thousands of United States dollars) (unaudited) 2008 2007 2007 2007
2007 Q1 Q4 Q3 Q2 Q1
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Sales $ 58,613 $ 73,293 $ 54,478 $ 48,486 $ 49,963 Cost of sales
30,616 39,146 29,175 25,202 25,096
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27,997 34,147 25,303 23,284 24,867 Selling, general and
administrative expenses 29,124 31,193 28,815 22,798 22,508
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Earnings (loss) from operations $ (1,127) $ 2,954 $ (3,512) $ 486 $
2,359
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Three Three Months Months Ended Ended 2006 2006 2006 April 30,
April 30, Q4 Q3 Q2 2007 2006
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Sales $ 63,363 $ 41,269 $ 44,904 $ 58,613 $ 49,963 Cost of sales
30,002 18,712 23,306 30,616 25,096
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33,361 22,557 21,598 27,997 24,867 Selling, general and
administrative expenses 28,433 19,380 18,720 29,124 22,508
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Earnings (loss) from operations $ 4,928 $ 3,177 $ 2,878 $ (1,127) $
2,359
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The retail segment includes sales from Harry Winston's 14 salons,
which are located in New York, Honolulu, Bal Harbour, Beverly
Hills, Las Vegas, Dallas, Paris, London, Geneva, Tokyo (Ginza,
Omotesando and Roppongi), Osaka and Taipei. Sales for the first
quarter were $58.6 million compared to $50.0 million for the
comparable quarter of the prior year. The 17% 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
Tokyo (Roppongi), London and Dallas, an improved merchandising mix
and the continued strength of the luxury goods sector. Sales were
strong throughout the store network, with the US increasing by 15%
to $24.3 million and international sales rising by 19% to $34.3
million. Cost of sales for Harry Winston for the first quarter was
$30.6 million compared to $25.1 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 first quarter would have been approximately 4% higher. With
the expansion of the new international salon activity consistent
with the retail growth strategy, SG&A expenses increased to
$29.1 million in the first quarter as compared to $22.5 million in
the comparable quarter of the prior year. The increase of $6.6
million was due to an increase in salaries and benefits of $1.5
million primarily attributable to new salon personnel, an increase
in advertising and selling expenses of $1.3 million, an increase in
amortization of $0.7 million, an increase in rent and building
related expenses of $0.7 million, and an increase in both other
expenses and professional fees of $0.1 million. Included in the
comparable quarter of the prior year was a reversal of a specific
provision against accounts receivable of $2.2 million. Included in
SG&A is amortization expense of $1.9 million for the three
months ended April 30, 2007 compared to $1.2 million in the
comparable quarter of the prior year. Operational Update Aber's
results of operations include results from its mining operations
and results from Harry Winston. Mining Segment During the first
calendar quarter of 2007, the Diavik Mine produced 2.6 million
carats from 0.52 million tonnes of ore sourced entirely from the A-
154 South kimberlite pipe. The seasonably cold winter and improved
logistics enabled the Diavik Mine to complete a successful winter
road program this past quarter, with a record volume of 4,753 loads
transported to the Diavik Mine site. An alternate winter road route
was pioneered this year to provide additional future capacity in
the event of an early closure of the primary road. Work has
commenced on extracting a bulk sample from the A-21 pipe for
diamond valuation. Additionally, work crews continue to remove
overburden and waste rock to prepare the A-418 pipe for open pit
mining later in the calendar year. The Diavik Mine continues to
work with the Wek'eezhii Land and Water Board as part of the
process leading to renewal of its water licence, currently expected
by late summer 2007. Aber's 40% Share of Diavik Mine Production
(reported on a one-month lag) Three Three Twelve Months Months
Months Ended Ended Ended March 31, March 31, December 31, 2007 2006
2006
-------------------------------------------------------------------------
Diamonds recovered (000s carats) 1,034 715 3,931 Grade
(carats/tonne) 4.97 3.62 4.21 Operating costs, cash ($ millions)
25.1 21.6 97.2 Operating costs per carat, cash ($) 24 30 25
-------------------------------------------------------------------------
Cash operating costs for the three months ended March 31, 2007 of
$25.1 million increased by $3.5 million from the comparable period
of the prior year, of which approximately $3.8 million was
attributable to an increase in costs due in part to higher
equipment maintenance costs. This was offset by a slight weakening
of the Canadian dollar against the US dollar for the three-month
average ending March 31, 2007 compared to March 31, 2006. Retail
Segment Harry Winston continues to execute its growth strategy
through new product and innovative marketing approaches together
with expansion of its store network in prime locations around the
world. A new salon was opened in Tokyo, Japan dedicated primarily
to the sale of watches and men's jewelry products, and the Osaka,
Japan salon was successfully relocated to a new flagship salon in
the Shinsaibashi area. The existing Osaka salon continued to
operate during the transition period and is expected to close in
the second quarter of fiscal 2008. The three new salons opened in
fiscal 2007, located in Dallas, London and Tokyo (Roppongi), have
all performed well during the quarter. Liquidity and Capital
Resources Working Capital Working capital decreased to $18.2
million at April 30, 2007 from $164.0 million at January 31, 2007.
As at April 30, 2007, Aber had unrestricted cash and cash
equivalents of $39.5 million and contingency cash collateral and
reserves of $39.2 million required under Aber's debt arrangements
compared to $54.2 million and $51.4 million, respectively, at
January 31, 2007. Included in unrestricted cash and cash
equivalents at April 30, 2007 was $16.4 million held at the Diavik
Mine compared to $30.8 million at January 31, 2007. The decrease in
working capital primarily results from the reclassification of the
Harry Winston credit facility from long-term at January 31, 2007 to
current at April 30, 2007. The Harry Winston $200.0 million credit
facility has a maturity date of March 31, 2008 with no scheduled
repayments required before that date. Cash Flow from Operations
During the quarter ended April 30, 2007, Aber generated $14.3
million in cash from operations, compared to $16.8 million from the
comparable quarter of the previous 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 quarter, the Company purchased $43.6 million of
inventory, increased accounts payable and accrued liabilities by
$26.1 million, increased accounts receivable by $4.3 million and
decreased prepaid expenses by $1.5 million. Financing Activities
During the quarter, Aber repaid $12.5 million of its $75.0 million
senior secured revolving credit facility and $3.5 million of its
$100.0 million senior secured term loan that was used to finance
the remaining acquisition of Harry Winston. At April 30, 2007, the
Company had $92.1 million outstanding on its senior secured term
facilities and $50.0 million outstanding on its senior secured
revolving credit facility. As at April 30, 2007, Harry Winston had
$136.0 million outstanding on its $214.4 million credit facilities,
which is used to fund salon inventory and capital expenditure
requirements. This represents an increase of $21.2 million from the
amount outstanding at January 31, 2007. At April 30, 2007, $23.5
million, $8.9 million and $7.6 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, 2007, $18.4 million,
$5.8 million and $5.6 million was drawn under the Aber
International N.V., Harry Winston Japan, K.K. and Aber Diamond
Israel 2006 Ltd. facilities, respectively. During the first
quarter, the Company made dividend payments of $14.6 million or
$0.25 per share to its shareholders. Investing Activities During
the quarter, the Company purchased capital assets of $37.6 million,
of which $29.0 million were purchased for the mining segment and
$8.6 million for Harry Winston. Also included in deferred mineral
property costs were purchases of $3.8 million made during the
quarter. Contractual Obligations The Company has contractual
payment obligations with respect to long-term debt and, through its
participation in the Joint Venture, future site restoration costs
at the Diavik Mine level. Additionally, at the Joint Venture level,
contractual obligations exist with respect to operating purchase
obligations, as administered by DDMI, the operator of the mine. In
order to maintain its 40% ownership interest in the Diavik Mine,
the Company is obligated to fund 40% of the Joint Venture's total
expenditures on a monthly basis. Aber's currently estimated share
of the capital expenditures, which are not reflected in the table
below, including sustaining capital for the calendar years 2007 to
2011, is approximately $240.3 million at a budgeted Canadian/US
exchange rate of $0.88. The most significant contractual
obligations for the ensuing five-year period can be summarized as
follows: (expressed in thousands of United States dollars)
Contractual Less than Year Year After Obligations Total 1 year 2-3
4-5 5 years
-------------------------------------------------------------------------
Long-term debt(i)(a)(b) $ 286,468 $ 225,149 $ 54,519 $ 1,236 $
5,564 Environmental and participation agreements incremental
commitments(c) 29,348 11,555 3,399 1,699 12,695 Operating lease
obligations(d) 112,729 14,157 29,303 19,410 49,859 Capital lease
obligations(e) 1,240 438 802 - -
-------------------------------------------------------------------------
Total contractual obligations $ 429,785 $ 251,299 $ 88,023 $ 22,345
$ 68,118
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(i) Excludes deferred financing costs (a) Long-term debt presented
in the foregoing table includes current and long-term portions. The
Company may at any time prepay, in whole or in part, borrowings
under both the $100.0 million term facility and the $75.0 million
revolving facility, in minimum amounts of $5.0 million. Scheduled
repayment of the original term facility is over ten equal
consecutive semi-annual installments of $10.0 million that
commenced on June 15, 2004. The scheduled repayment of the new
$100.0 million senior secured term loan that was used to finance
the acquisition of the balance of Harry Winston is over four equal
consecutive semi-annual installments of $25.0 million and commenced
on 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 in September 2006. The Company's
first mortgage on real property has scheduled principal payments of
$0.1 million quarterly, and may be prepaid after 2009. On May 31,
2007, Aber amended its existing credit facility to extend the
maturity date to December 15, 2009 from December 15, 2008. The
schedule of required principal repayments has been adjusted to
reflect the new maturity date. Harry Winston amended its $130.0
million credit facility and special accommodation facility of $10.0
million effective April 30, 2007 to $200.0 million, expiring on
March 31, 2008, with no scheduled repayments required before that
date. Included in the $200.0 million credit facility is a special
accommodation facility of $10.0 million. The amendment extends the
special accommodation facility, which was to expire on April 30,
2007, to March 31, 2008. Also included in long-term debt of Harry
Winston is a 30-year loan agreement for $14.4 million to finance
the construction of a new watch factory in Geneva, Switzerland. The
bank has a secured interest in the factory building. (b) Interest
on long-term debt is calculated at various fixed and floating
rates. On an annualized basis, interest payments are approximated
to be $20.8 million. (c) The Joint Venture, under environmental and
other agreements, must provide funding for the Environmental
Monitoring Advisory Board. These agreements also state the Joint
Venture must provide security deposits for the performance by the
Joint Venture of its reclamation and abandonment obligations under
all environmental laws and regulations. The Joint Venture has
fulfilled its obligations for the security deposits by posting
letters of credit of which Aber's share as at April 30, 2007 was
$52.5 million. The requirement to post security for the reclamation
and abandonment obligations may be reduced to the extent of amounts
spent by the Joint Venture on those activities. The Joint Venture
has also signed participation agreements with various native
groups. These agreements are expected to contribute to the social,
economic and cultural well-being of area Aboriginal bands. The
letter of credit in the amount of $52.5 million satisfies that part
of the respective contractual obligations included in the table
above. The actual cash outlay for the Joint Venture's obligations
under these agreements is not anticipated to occur until later in
the life of the Diavik Mine. (d) Operating lease obligations
represent future minimum annual rentals under non-cancellable
operating leases for Harry Winston salons and office space. Harry
Winston's New York salon lease expires on December 17, 2010 with an
option to renew. (e) Capital lease obligations represent future
minimum annual rentals under non-cancellable capital leases for
Harry Winston exhibit space. Outlook The Diavik Mine is projecting
to deliver approximately 10 million carats of diamond production
during calendar 2007. 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. Bulk sampling of the A-21 kimberlite
pipe and underground testing of the kimberlite pipes continues.
Upon completion, results of these initiatives are expected to be
incorporated into a revised mine plan and an updated mineral
reserve and mineral resource statement. Aber is expecting to hold
three rough diamond sales in the second quarter, three in the third
quarter and two in the fourth quarter of fiscal 2008. New salons
are scheduled to be opened in Chicago, Beijing, Nagoya (Japan) and
Hong Kong during the remainder of the year. In addition, the Harry
Winston watch factory located in Geneva will consolidate its
operations and relocate to a new, larger dedicated facility,
currently under construction, by the third quarter of fiscal 2008.
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) 2008 2007 2007 2007 2007 Q1 Q4 Q3 Q2 Q1
-------------------------------------------------------------------------
Earnings $ 3,253 $ 27,294 $ 18,831 $ 34,265 $ 23,879 Non-cash
income tax (recovery) (3,194) 9,932 9,057 5,016 (3,938) Non-cash
foreign exchange loss (gain) 13,461 (10,220) 1,576 (1,943) 2,970
Depreciation and amortization 19,603 17,999 19,441 17,926 13,362
-------------------------------------------------------------------------
Cash earnings $ 33,123 $ 45,005 $ 48,905 $ 55,264 $ 36,273
-------------------------------------------------------------------------
Cash earnings per share $ 0.57 $ 0.77 $ 0.84 $ 0.95 $ 0.62
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three Three Months Months Ended Ended 2006 2006 2006 April 30,
April 30, Q4 Q3 Q2 2007 2006
-------------------------------------------------------------------------
Earnings $ 14,909 $ 33,742 $ 19,020 $ 3,253 $ 23,879 Non-cash
income tax (recovery) 10,412 31,264 12,788 (3,194) (3,938) Non-cash
foreign exchange loss (gain) 5,201 3,656 3,618 13,461 2,970
Depreciation and amortization 7,697 16,662 17,472 19,603 13,362
-------------------------------------------------------------------------
Cash earnings $ 38,219 $ 85,324 $ 52,898 $ 33,123 $ 36,273
-------------------------------------------------------------------------
Cash earnings per share $ 0.66 $ 1.47 $ 0.91 $ 0.57 $ 0.62
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Related Parties Transactions with related parties for the three
months ended April 30, 2007 include $0.4 million of rent ($0.4
million for the three months ended April 30, 2006) relating to the
New York salon, payable to a Harry Winston employee. Critical
Accounting Estimates Management is often required to make
judgments, assumptions and estimates in the application of Canadian
GAAP that have a significant impact on the financial results of the
Company. Certain policies are more significant than others and are,
therefore, considered critical accounting policies. Accounting
policies are considered critical if they rely on a substantial
amount of judgment (use of estimates) in their application or if
they result from a choice between accounting alternatives and that
choice has a material impact on the Company's reported results or
financial position. Excluding adoption of the new standards for
financial instruments described below, there have been no changes
to the Company's critical accounting policies or estimates from
those disclosed in the Company's MD&A for its fiscal year ended
January 31, 2007. Changes in Accounting Policies Financial
Instruments, Hedges and Comprehensive Income On February 1, 2007,
the Company adopted three new accounting standards issued by the
Canadian Institute of Chartered Accountants ("CICA") on financial
instruments, hedges and comprehensive income that require
investment securities and hedging derivatives to be accounted for
at fair value. These standards are substantially harmonized with US
GAAP. The adoption of these new accounting standards has not had a
material impact on the financial position of the Company. For a
description of new standards and the impact on the Company's
financial statements, please see note 2 to the consolidated
financials statements on page 24 of this report. Risks and
Uncertainties Aber is subject to a number of risks and
uncertainties as a result of its operations, including without
limitation the following risks: Nature of Mining The operation of
the Diavik Mine is subject to risks inherent in the mining
industry, including variations in grade and other geological
differences, unexpected problems associated with required water
retention dikes, water quality, surface or underground conditions,
processing problems, mechanical equipment performance, accidents,
labour disputes, risks relating to the physical security of the
diamonds, force majeure risks and natural disasters. Such risks
could result in personal injury or fatality; damage to or
destruction of mining properties, processing facilities or
equipment; environmental damage; delays or reductions in mining
production; monetary losses; and possible legal liability. Hazards,
such as unusual or unexpected rock formations, rock bursts,
pressures, flooding or other conditions may be encountered in the
drilling and removal of ore. The Diavik Mine, because of its remote
northern location and access only by winter road or by air, is
subject to special climate and transportation risks. These risks
include the inability to operate or to operate efficiently during
periods of extreme cold, the unavailability of materials and
equipment, and increased transportation costs due to the late
opening and/or early closure of the winter road. Such factors can
add to the cost of mine development, production and operation,
thereby affecting the Company's profitability. Nature of Joint
Arrangement with DDMI Aber owns an undivided 40% interest in the
assets, liabilities and expenses of the Diavik Mine and the Diavik
group of mineral claims. The Diavik Mine and the exploration and
development of the Diavik group of mineral claims is a joint
arrangement between DDMI (60%) and Aber Diamond Mines Ltd. (40%),
and is subject to the risks normally associated with the conduct of
joint ventures and similar joint arrangements. These risks include
the inability to exert influence over strategic decisions made in
respect of the Diavik Mine and the Diavik group of mineral claims.
By virtue of DDMI's 60% interest in the Diavik Mine, it has a
controlling vote in virtually all Joint Venture management
decisions respecting the development and operation of the Diavik
Mine and the development of the Diavik group of mineral claims.
Accordingly, DDMI is able to determine the timing and scope of
future project capital expenditures, and therefore is able to
impose capital expenditure requirements on the Company that the
Company may not have sufficient cash to meet. A failure by the
Company to meet capital expenditure requirements imposed by DDMI
could result in the Company's interest in the Diavik Mine and the
Diavik group of mineral claims being diluted. Diamond Prices and
Demand for Diamonds The profitability of Aber is dependent upon
production from the Diavik Mine and on the results of the
operations of Harry Winston. Each in turn is dependent in
significant part upon the worldwide demand for and price of
diamonds. Diamond prices fluctuate and are affected by numerous
factors beyond the control of the Company, including worldwide
economic trends, particularly in the US, Japan, China and India,
worldwide levels of diamond discovery and production and the level
of demand for, and discretionary spending on, luxury goods such as
diamonds and jewelry. Low or negative growth in the worldwide
economy or the occurrence of terrorist activities creating
disruptions in economic growth could result in decreased demand for
luxury goods such as diamonds and jewelry, thereby negatively
affecting the price of diamonds and jewelry. Similarly, a
substantial increase in the worldwide level of diamond production
could also negatively affect the price of diamonds. In each case,
such developments could materially adversely affect Aber's results
of operations. Currency Risk Currency fluctuations may affect the
Company's financial performance. Diamonds are sold throughout the
world based principally on the US dollar price, and although the
Company reports its financial results in US dollars, a majority of
the costs and expenses of the Diavik Mine, which are borne 40% by
the Company, are incurred in Canadian dollars. Further, the Company
has a significant future income tax liability that has been
incurred and will be payable in Canadian dollars. Aber's currency
exposure relates primarily to expenses and obligations incurred by
it in Canadian dollars and, secondarily, to revenues of Harry
Winston in currencies other than the US dollar. The appreciation of
the Canadian dollar against the US dollar, and the depreciation of
such other currencies against the US dollar, therefore, will
increase the expenses of the Diavik Mine and the amount of the
Company's Canadian dollar liabilities relative to the revenue Aber
will receive from diamond sales, and will decrease the US dollar
revenues received by Harry Winston. From time to time, the Company
may use a limited number of derivative financial instruments to
manage its foreign currency exposure. Licences and Permits The
operation of the Diavik Mine and exploration on the Diavik property
require licences and permits from the Canadian government. The
Diavik Mine Type "A" Water Licence granted by the Mackenzie Valley
Land and Water Board expires on August 31, 2007. While Aber
anticipates that DDMI, which is also the operator of the Diavik
Mine, will be able to renew the licence, there can be no guarantee
that DDMI will be able to renew this licence or obtain or maintain
all other necessary licences and permits that may be required to
maintain the operation of the Diavik Mine or to further explore and
develop the Diavik property. Regulatory and Environmental Risks The
operation of the Diavik Mine, exploration activities at the Diavik
Project and the manufacturing of jewelry are subject to various
laws and regulations governing the protection of the environment,
exploration, development, production, taxes, labour standards,
occupational health, waste disposal, mine safety, manufacturing
safety and other matters. New laws and regulations, amendments to
existing laws and regulations, or more stringent implementation or
changes in enforcement policies under existing laws and regulations
could have a material adverse impact on the Company by increasing
costs and/or causing a reduction in levels of production from the
Diavik Mine. Mining and manufacturing are subject to potential
risks and liabilities associated with pollution of the environment
and the disposal of waste products occurring as a result of mining
and manufacturing operations. To the extent that Aber or Harry
Winston is subject to uninsured environmental liabilities, the
payment of such liabilities could have a material adverse effect on
the Company. Resource and Reserve Estimates The Company's figures
for mineral resources and ore reserves on the Diavik group of
mineral claims are estimates, and no assurance can be given that
the anticipated carats will be recovered. The estimation of
reserves is a subjective process. Forecasts are based on
engineering data, projected future rates of production and the
timing of future expenditures, all of which are subject to numerous
uncertainties and various interpretations. Aber expects that its
estimates of reserves will change to reflect updated information.
Reserve estimates may be revised upward or downward based on the
results of future drilling, testing or production levels. In
addition, market fluctuations in the price of diamonds or increases
in the costs to recover diamonds from the Diavik Mine may render
the mining of ore reserves uneconomical. Mineral resources that are
not mineral reserves do not have demonstrated economic viability.
Due to the uncertainty that may attach to inferred mineral
resources, there is no assurance that mineral resources at the
Diavik property will be upgraded to proven and probable ore
reserves. Insurance Aber's business is subject to a number of risks
and hazards generally, including adverse environmental conditions,
industrial accidents, labour disputes, unusual or unexpected
geological conditions, risks relating to the physical security of
diamonds and jewelry held as inventory or in-transit, changes in
the regulatory environment and natural phenomena such as inclement
weather conditions. Such occurrences could result in damage to the
Diavik Mine, personal injury or death, environmental damage to the
Diavik property, delays in mining, closing of Harry Winston
manufacturing facilities or salons, monetary losses and possible
legal liability. Although insurance is maintained to protect
against certain risks in connection with the Diavik Mine, Aber's
operations and the operations of Harry Winston, the insurance in
place will not cover all potential risks. It may not be possible to
maintain insurance to cover insurable risks at economically
feasible premiums. Fuel Costs The Diavik Mine's expected fuel needs
are purchased annually in late winter and transported to the mine
site by way of the winter road. These costs will increase if
transportation by air freight is required due to a shortened
"winter road season" or unexpectedly high fuel usage. The cost of
the fuel purchased is based on the then prevailing price and
expensed into operating costs on a usage basis. The Diavik Mine
currently has no hedges for its anticipated 2007 fuel consumption.
Reliance on Skilled Employees Production at the Diavik Mine is
dependent upon the efforts of certain skilled employees of DDMI.
The loss of these employees or the inability of DDMI to attract and
retain additional skilled employees may adversely affect the level
of diamond production from the Diavik Mine. Currently, there is
significant competition for skilled workers in remote northern
operations due to the significant number of large-scale
construction projects ongoing and planned in Canada's north,
including the various construction projects relating to the
development of the oil sands in Northern Alberta. Aber's success at
marketing diamonds and in operating the business of Harry Winston
is dependent on the services of key executives and skilled
employees, as well as the continuance of key relationships with
certain third parties, such as diamantaires. The loss of these
persons or the Company's inability to attract and retain additional
skilled employees or to establish and maintain relationships with
required third parties may adversely affect its business and future
operations in marketing diamonds and in operating Harry Winston.
Expansion of the Existing Salon Network A key component of the
Company's Harry Winston strategy is the expansion of its existing
salon network. This strategy requires the Company to make ongoing
capital expenditures to build and open new salons, to refurbish
existing salons from time to time, and to incur additional
operating expenses in order to operate the new salons. To date,
much of this expansion has been financed through borrowings by
Harry Winston. There can be no assurance that the expansion of
Harry Winston's salon network will prove successful in increasing
annual sales or earnings from the retail segment, and the increased
debt levels resulting from this expansion could negatively impact
Aber's results from operations in the absence of increased sales
and earnings. Competition in the Luxury Jewelry Segment Aber,
through its ownership of Harry Winston, is exposed to competition
in the retail diamond market from other luxury goods, diamond and
jewelry retailers. The ability of Harry Winston to successfully
compete with such luxury goods, diamond and jewelry retailers is
dependent upon a number of factors, including the ability of Harry
Winston to source high-end polished diamonds and protect and
promote its distinctive brand name and reputation. If Harry Winston
is unable to successfully compete in the luxury jewelry segment,
then Aber's results of operations will be adversely affected.
Outstanding Share Information As at April 30, 2007
-------------------------------------------------------------------------
Authorized Unlimited
-------------------------------------------------------------------------
Issued and outstanding shares 58,362,198 Fully diluted 58,991,348
Weighted average outstanding shares 58,362,128 Options outstanding
1,629,220
-------------------------------------------------------------------------
Additional Information Additional information relating to the
Company, including the Company's most recently filed annual
information form, can be found on SEDAR at http://www.sedar.com/,
and is also available on the Company's website at
http://www.aber.ca/. Consolidated Balance Sheets
--------------------------- (expressed in thousands of United
States dollars) April 30, 2007 January 31, (unaudited) 2007
-------------------------------------------------------------------------
Assets Current assets: Cash and cash equivalents (note 4) $ 39,528
$ 54,174 Cash collateral and cash reserves (note 4) 39,189 51,448
Accounts receivable 17,600 13,297 Inventory and supplies (note 5)
317,318 273,736 Advances and prepaid expenses 19,774 21,275
-------------------------------------------------------------------------
433,409 413,930 Deferred mineral property costs 184,637 188,058
Capital assets 412,584 384,532 Intangible assets, net 133,897
134,320 Goodwill 97,207 98,142 Other assets 17,509 18,187 Future
income tax asset 36,110 50,745
-------------------------------------------------------------------------
$ 1,315,353 $ 1,287,914
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and Shareholders' Equity Current liabilities: Accounts
payable and accrued liabilities $ 150,018 $ 124,747 Bank advances
40,047 29,776 Current portion of long-term debt 225,149 95,434
-------------------------------------------------------------------------
415,214 249,957 Long-term debt 60,460 185,446 Future income tax
liability 328,358 333,498 Other long-term liability 1,087 - Future
site restoration costs 17,402 17,200 Minority interest 225 85
Shareholders' equity: Share capital (note 7) 305,208 305,165
Contributed surplus 15,107 14,922 Retained earnings (note 3)
154,285 165,625 Accumulated other comprehensive income 18,007
16,016
-------------------------------------------------------------------------
492,607 501,728 Commitments and guarantees (note 8)
-------------------------------------------------------------------------
$ 1,315,353 $ 1,287,914
-------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Consolidated Statements of Earnings
----------------------------------- (expressed in thousands of
United States dollars, except per share amounts) (unaudited) April
30, April 30, For the quarter ended 2007 2006
-------------------------------------------------------------------------
Sales $ 141,365 $ 119,271 Cost of sales 71,132 63,845
-------------------------------------------------------------------------
70,233 55,426 Selling, general and administrative expenses 34,211
27,295
-------------------------------------------------------------------------
Earnings from operations 36,022 28,131
-------------------------------------------------------------------------
Interest and financing expenses (6,132) (4,334) Other income 913
1,623 Foreign exchange loss (13,292) (2,106)
-------------------------------------------------------------------------
Earnings before income taxes 17,511 23,314 Income tax expense -
Current 17,440 2,902 Income tax recovery - Future (3,322) (3,938)
-------------------------------------------------------------------------
Earnings before minority interest 3,393 24,350 Minority interest
140 471
-------------------------------------------------------------------------
Net earnings $ 3,253 $ 23,879
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per share Basic $ 0.06 $ 0.41
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Diluted $ 0.05 $ 0.40
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted average number of shares outstanding 58,362,128 58,161,486
-------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Consolidated Statements of Comprehensive Income
----------------------------------------------- (expressed in
thousands of United States dollars) (unaudited) April 30, April 30,
For the quarter ended 2007 2006
-------------------------------------------------------------------------
Net earnings $ 3,253 $ 23,879 Other comprehensive income Net gain
on translation of net foreign operations 1,991 894
-------------------------------------------------------------------------
Total comprehensive income $ 5,244 $ 24,773
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Consolidated Statements of Changes in
------------------------------------- Shareholders' Equity
-------------------- (expressed in thousands of United States
dollars) (unaudited) April 30, April 30, For the quarter ended 2007
2006 (Restated) (note 3)
-------------------------------------------------------------------------
Common shares Balance at beginning of period $ 305,165 $ 298,985
Issued during the period 43 740
-------------------------------------------------------------------------
Balance at end of period 305,208 299,725
-------------------------------------------------------------------------
Contributed surplus Balance at beginning of period 14,922 16,934
Stock option expense 185 441
-------------------------------------------------------------------------
Balance at end of period 15,107 17,375
-------------------------------------------------------------------------
Retained earnings Balance at beginning of period 165,625 119,630
Net income 3,253 23,879 Dividends paid (14,593) (14,548)
-------------------------------------------------------------------------
Balance at end of period 154,285 128,961
-------------------------------------------------------------------------
Accumulated other comprehensive income Balance at beginning of
period 16,016 16,344 Other comprehensive income 1,991 894
-------------------------------------------------------------------------
Balance at end of period 18,007 17,238
-------------------------------------------------------------------------
Total shareholders' equity $ 492,607 $ 463,299
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows
------------------------------------- (expressed in thousands of
United States dollars) (unaudited) April 30, April 30, For the
quarter ended 2007 2006
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Operating: Net earnings $ 3,253 $ 23,879 Items not involving cash:
Amortization and accretion 19,603 13,362 Future income taxes
(3,194) (3,938) Stock-based compensation 1,282 441 Foreign exchange
loss 13,461 2,970 Minority interest 140 471 Change in non-cash
operating working capital (20,219) (20,419)
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14,326 16,766
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Financing: Repayment of long-term debt (3,626) (100) Increase in
revolving credit 19,011 42,643 Dividends paid (14,593) (14,548)
Issue of common shares 34 740 Cash advance from minority
shareholder - 1,096
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826 29,831
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Investing: Cash collateral and cash reserve 12,259 (12,505)
Deferred mineral property costs (3,782) (2,374) Capital assets
(37,566) (22,144) Other assets (1,091) (98)
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(30,180) (37,121)
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Foreign exchange effect on cash balances 382 1,582 Increase in cash
and cash equivalents (14,646) 11,058 Cash and cash equivalents,
beginning of period 54,174 148,116
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Cash and cash equivalents, end of period $ 39,528 $ 159,174
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Change in non-cash operating working capital: Accounts receivable
(4,285) (1,397) Advances and prepaid expenses 1,512 3,014 Inventory
and supplies (43,582) (25,790) Accounts payable and accrued
liabilities 26,136 3,754
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$ (20,219) $ (20,419)
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Supplemental cash flow information: Cash taxes paid $ 736 $ 1,720
Cash interest paid $ 5,743 $ 2,924
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See accompanying notes to consolidated financial statements. Notes
to Consolidated Financial Statements
------------------------------------------ April 30, 2007 with
comparative figures (tabular amounts in thousands of United States
dollars, except as otherwise noted) 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. During fiscal 2007, Aber acquired the remaining
47.17% interest in Harry Winston Inc. ("Harry Winston") that it did
not previously own. The results of Harry Winston, located in New
York City, US, are consolidated in the financial statements of the
Company. NOTE 2: Significant Accounting Policies The interim
consolidated financial statements are prepared by management in
accordance with accounting principles generally accepted in Canada.
The interim consolidated financial statements include the accounts
of the Company and all of its subsidiaries as well as its
proportionate interest in the assets, liabilities and expenses of
joint arrangements. Intercompany transactions and balances have
been eliminated. The interim consolidated financial statements
should be read in conjunction with the consolidated financial
statements and the notes thereto in the Company's annual report for
the year ended January 31, 2007, since these financial statements
do not include all disclosures required by Canadian generally
accepted accounting principles. Excluding adoption of the new
standards for financial instruments described below, these
statements have been prepared following the same accounting
policies and methods of computation as the consolidated financial
statements for the year ended January 31, 2007. Changes in
Accounting Policy On February 1, 2007, the Company adopted three
new accounting standards issued by the Canadian Institute of
Chartered Accountants ("CICA") on financial instruments, hedges and
comprehensive income that require investment securities and hedging
derivatives to be accounted for at fair value. These standards are
substantially harmonized with US GAAP. Financial Instruments This
new standard requires the Company to revalue certain of its
financial assets and liabilities, including derivatives designated
in qualifying hedging relationships and embedded derivatives in
certain contracts, at fair value on the initial date of
implementation and at each subsequent financial reporting date. The
adoption of this new standard has not had a material impact on the
financial position of the Company. Under the new standard, the
Company has elected to add transaction costs related to its
non-revolving long-term debt to the carrying amount of the debt,
which has resulted in the following adjustments to the consolidated
balance sheet on February 1, 2007: As at February 1, 2007
Increase/(Decrease)
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Assets Other assets $ (859) Liabilities and Shareholders' Equity
Long-term debt $ (859) Cumulative translation adjustment (16,016)
Accumulated other comprehensive income 16,016
-------------------------------------------------------------------------
This standard has had no material impact on the consolidated
statement of earnings. Prior periods have not been restated. This
standard also requires the Company to classify financial assets and
liabilities according to their characteristics and management's
choices and intentions related thereto for the purposes of ongoing
measurement. Subsequent measurement for these assets and
liabilities is based on either fair value or amortized cost using
the effective interest method, depending upon their classification.
In accordance with the new standard, the Company's financial assets
and liabilities are generally classified and measured as follows:
Asset/Liability Category Measurement Cash and cash equivalents Held
for trading Fair value Cash collateral and cash reserves Held for
trading Fair value Accounts receivable Loans and receivables
Amortized cost Accounts payable and accrued liabilities Held for
trading Fair value Bank advances Held for trading Fair value
Long-term debt Other liabilities Amortized cost Hedges This new
standard contains new rules for reporting fair value and cash flow
hedges. The Company has no hedges and therefore this new standard
has had no impact on the Company's consolidated financial
statements. Comprehensive Income This new standard requires the
Company to present a new consolidated statement of comprehensive
income to detail income items impacting accumulated other
comprehensive income, which is reported as part of shareholders'
equity. This statement has been included above the consolidated
statement of changes in shareholders' equity. NOTE 3: Restatement
The Company has determined that the $7.0 million received from
Tiffany in fiscal 2005 to remove certain restrictions on the resale
of Aber shares owned by Tiffany should be treated as a capital
transaction rather than included in other income. The impact of
this correction is to reduce fiscal 2005 other income by $7.0
million, or $0.12 per share (basic and fully diluted), and to
create contributed surplus of $7.0 million. Accordingly, other
income, net income and earnings per share for the year ended
January 31, 2005 are restated to $2.6 million, $46.1 million, $0.80
basic earnings per share and $0.78 fully diluted earnings per
share, respectively. Originally this amount was classified as an
operating activity rather than a financing activity in the
consolidated statement of cash flows. Accordingly, cash provided by
operating activities in fiscal 2005 would decrease to $143.4
million and cash used in financing activities would decrease to
$54.0 million. Retained earnings at the beginning of fiscal 2006
have been restated to reflect the above. NOTE 4: Cash Resources
April 30, January 31, 2007 2007
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Diavik Joint Venture $ 16,353 $ 30,776 Cash and cash equivalents
23,175 23,398
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Total cash and cash equivalents 39,528 54,174 Cash collateral and
cash reserves 39,189 51,448
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Total cash resources $ 78,717 $ 105,622
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NOTE 5: Inventory and Supplies April 30, January 31, 2007 2007
-------------------------------------------------------------------------
Rough diamond inventory $ 26,115 $ 17,648 Merchandise inventory
243,692 228,157 Supplies inventory 47,511 27,931
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Total inventory and supplies $ 317,318 $ 273,736
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NOTE 6: Diavik Joint Venture The following represents Aber's 40%
proportionate interest in the Joint Venture as at March 31, 2007
and December 31, 2006. April 30, January 31, 2007 2007
-------------------------------------------------------------------------
Current assets $ 87,176 $ 66,037 Long-term assets 495,155 477,753
Current liabilities 39,457 35,671 Long-term liabilities and
participant's account 542,874 508,119
-------------------------------------------------------------------------
April 30, April 30, Three months ended: 2007 2006
-------------------------------------------------------------------------
Net expense 40,101 33,757 Cash flows resulting from operating
activities (44,042) (6,711) Cash flows resulting from financing
activities 64,272 52,069 Cash flows resulting from investing
activities (29,622) (18,412)
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The Company is contingently liable for the other participant's
portion of the liabilities of the Joint Venture and to the extent
the Company's participating interest has increased because of the
failure of the other participant to make a cash contribution when
required, the Company would have access to an increased portion of
the assets of the Joint Venture to settle these liabilities. NOTE
7: Share Capital (a) Authorized Unlimited common shares without par
value. (b) Issued Number of Shares Amount
---------------------------------------------------------------------
Balance, January 31, 2007 58,360,755 $ 305,165 Shares issued for:
Exercise of options 1,443 43
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Balance, April 30, 2007 58,362,198 $ 305,208
---------------------------------------------------------------------
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(c) RSU and DSU Plans Number of Units
---------------------------------------------------------------------
Balance, January 31, 2007 233,539 Awards during the period (net):
RSU 6,053 DSU 11,335
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Balance, April 30, 2007 250,927
---------------------------------------------------------------------
---------------------------------------------------------------------
Three Months Three Months Ended Ended April 30, April 30, Expense
for the period: 2007 2006
---------------------------------------------------------------------
RSU $ 165 $ 386 DSU (73) 136
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$ 92 $ 522
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During the period, the Company granted 6,053 Restricted Share Units
("RSUs") (net of decreases) and 11,335 Deferred Share Units
("DSUs") under an employee and director incentive compensation
program, respectively. The RSU and DSU Plans are full value phantom
shares that mirror the value of Aber's publicly traded common
shares. Grants under the RSU Plan are on a discretionary basis to
employees of the Company subject to Board of Director approval.
Each RSU grant vests on the third anniversary of the grant date,
subject to special rules for death and disability. The Company
anticipates paying out cash on maturity of RSUs and DSUs.
DATASOURCE: Aber Diamond Corporation CONTACT: Robert A. Gannicott,
Chairman and Chief Executive Officer, (416) 362-2237; Investor
Relations, (416) 362-2237 (ext. 244)
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