Aber Diamond (MM) (NASDAQ:ABER)
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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
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Sales $558,793 $505,234
Cost of sales 285,498 222,607
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273,295 282,627
Selling, general and
administrative expenses 126,536 106,948
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Earnings from operations 146,759 175,679
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Interest and financing
expenses (21,150) (14,933)
Other income
(expense) 5,081 4,333
Foreign exchange gain (loss) 8,784 (11,343)
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Earnings before income taxes 139,474 153,736
Income taxes 34,830 69,121
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Earnings before minority
interest 104,644 84,615
Minority interest 375 3,362
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Earnings $104,269 $81,253
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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
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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. 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
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Sales $332,573 $314,073
Cost of sales 166,879 129,061
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165,694 185,012
Selling, general and
administrative expenses 21,222 21,129
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Earnings from operations $144,472 $163,883
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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
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33,361 22,557 21,598 20,099
Selling, general and
administrative expenses 28,433 19,380 18,720 19,286
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Earnings (loss) from
operations $4,928 $3,177 $2,878 $813
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2007 2006
Total Total
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Sales $226,220 $191,161
Cost of sales 118,619 93,546
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107,601 97,615
Selling, general and
administrative expenses 105,314 85,819
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Earnings (loss) from
operations $2,287 $11,796
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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
-------------------------------------------------------------------------
Earnings from operations 144,472 2,287 146,759
-------------------------------------------------------------------------
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
-------------------------------------------------------------------------
Segmented earnings before
income taxes $ 146,562 $ (7,088) $ 139,474
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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
-------------------------------------------------------------------------
$ 745,969 $ 541,945 $ 1,287,914
-------------------------------------------------------------------------
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
-------------------------------------------------------------------------
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
-------------------------------------------------------------------------
185,012 97,615 282,627
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Selling, general and
administrative expenses 21,129 85,819 106,948
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Earnings from operations 163,883 11,796 175,679
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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)
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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)