Aber Reports Second Quarter Results TORONTO, Sept. 9
/PRNewswire-FirstCall/ -- ABER DIAMOND CORPORATION (TSE- ABZ,
NASDAQ-ABER) today announced its second quarter results for the
three and six month period ended July 31, 2004. (All figures are in
United States dollars unless otherwise indicated) Highlights - The
Company recorded sales during the quarter ended July 31, 2004 of
$84.5 million compared to $52.3 million in the preceding quarter. -
Aber's net earnings for the quarter were $12.3 million as compared
to $2.8 million for the first quarter. - Earnings per share was
$0.21 for the current quarter versus $0.05 in the prior quarter. -
Aber's share of diamonds recovered from the Diavik mine were 0.9
million carats for the three months ended June 30, 2004 and 0.6
million carats for the three months ended March 31, 2004. - Cash
operating costs from the Diavik Mine were $19 per carat for the
three months ended June 30, 2004, and $24 per carat for the three
months ended March 31, 2004. Aber's Chairman, Robert Gannicott,
commenting on the current quarter said "As Chief Executive, I
applaud the achievements of our team in responsively adjusting our
rough diamond sales to the opportunities presented by a rapidly
evolving diamond market. At the Diavik Mine, our partners, Rio
Tinto, continue to improve both the quantity and quality of diamond
production allowing us both to take advantage of a receptive market
for our high quality range of products. On the Harry Winston side
of our business, the strengthened management team, lead by Tom
O'Neill, has already begun the task of revitalizing and enhancing
the brand on a global basis. As a fellow shareholder I now look
forward to broader market recognition of Aber's emerging earnings
power." Alice Murphy, Vice President and Chief Financial Officer,
added "our performance this quarter is reflective of Aber's ability
to capitalize on the strong rough diamond market as well as
increased production at the mine. We continue to look forward to
robust cash flows and a cash position at year end that is
substantially equal to the outstanding debt level". Market
Commentary The Rough and Polished Diamond Markets The rough diamond
market remains strong on an overall basis and Aber's rough diamond
sales assortments enjoy particularly positive market recognition
due to consistency of quality. All rough diamond producers have
increased prices recently in response to limited supply, reduced
inventory, and strong retail sales in the United States and other
developing retail markets. The polished diamond market, however,
continues to push back on prices thus eroding margins and leading
to some consolidation of the less profitable participants in the
polished market. Retail Jewelry Market Although both Japan and the
U.S. remain buoyant, consumer confidence in the U.S. economy fell
in August from a two-year high as job growth slowed and oil prices
reached a record high. The United States diamond jewelry market has
been partially driven by sales of three stone jewelry and Right
Hand Rings to high-income households and married women, the
strongest segments of the United States market. Consolidated
Financial Results The following is a summary of the Company's
consolidated quarterly results for the eight quarters ended July
31, 2004 under the basis of presentation utilized in its Canadian
GAAP financial statements: (expressed in thousands of United States
dollars, except per share amounts) (unaudited) FY05 FY05 FY04 FY04
FY04 Q2 Q1 Q4 Q3 Q2 Sales $ 84,487 $ 52,269 $ 41,638 $ 53,958 $ -
Cost of sales 37,746 28,591 26,128 20,276 -
-------------------------------------------------------------------------
46,741 23,678 15,510 33,682 - Selling, general and administrative
expenses 17,632 8,714 3,704 4,795 2,870
-------------------------------------------------------------------------
Earnings (loss) from operations 29,109 14,964 11,806 28,887 (2,870)
-------------------------------------------------------------------------
Interest and financing expenses (3,039) (2,912) (7,127) (5,180)
(157) Other income/(expense) (24) - 183 184 247 Gain on sale of
other assets - - 98 222 327 Foreign exchange gain (loss) 760 (349)
(338) 682 3,572
-------------------------------------------------------------------------
Earnings (loss) before income taxes 26,806 11,703 4,623 24,795
1,119 Income taxes (recovery) 14,798 8,862 1,460 11,247 (4,714)
-------------------------------------------------------------------------
Earnings before minority interest 12,008 2,841 3,163 13,548 5,833
Minority interest (287) 44 - - -
-------------------------------------------------------------------------
-------------------------------------------------- Earnings (loss)
$ 12,295 $ 2,797 $ 3,163 $ 13,548 $ 5,833
--------------------------------------------------
-------------------------------------------------- Basic earnings
(loss) per share $ 0.21 $ 0.05 $ 0.06 $ 0.25 $ 0.11 Diluted
earnings (loss) per share $ 0.21 $ 0.05 $ 0.06 $ 0.24 $ 0.10 Total
assets $834,532 $817,980 $632,768 $611,390 $575,274 Total long-term
liabilities $334,317 $320,749 $229,827 $290,414 $275,932
-------------------------------------------------------------------------
------------------- Six Six months months FY04 FY03 FY03 ended
ended Q1 Q4 Q3 July 31, July 31, 2004 2003 Sales $ - $ - $ -
$136,756 $ - Cost of sales - - - 66,337 -
-----------------------------------------------------
------------------- - - - 70,419 - Selling, general and
administrative expenses 2,286 2,507 2,207 26,346 5,156
-----------------------------------------------------
------------------- Earnings (loss) from operations (2,286) (2,507)
(2,207) 44,073 (5,156)
-----------------------------------------------------
------------------- Interest and financing expenses (146) - -
(5,951) (303) Other income/(expense) 227 268 292 (24) 474 Gain on
sale of other assets 338 - - - 665 Foreign exchange gain (loss)
9,367 3,175 1,278 411 12,939
-----------------------------------------------------
------------------- Earnings (loss) before income taxes 7,500 936
(637) 38,509 8,619 Income taxes (recovery) 2,337 (381) (4) 23,660
(2,377) -----------------------------------------------------
------------------- Earnings before minority interest 5,163 1,317
(633) 14,849 10,996 Minority interest - - - (243) -
-----------------------------------------------------
------------------- ------------------------------
------------------- Earnings (loss) $ 5,163 $ 1,317 $ (633) $
15,092 $ 10,996 ------------------------------ -------------------
------------------------------ ------------------- Basic earnings
(loss) per share $ 0.09 $ 0.03 $ (0.01) $ 0.26 $ 0.20 Diluted
earnings (loss) per share $ 0.09 $ 0.03 $ (0.01) $ 0.26 $ 0.19
Total assets $577,855 $516,898 $454,651 $834,532 $575,274 Total
long-term liabilities $284,648 $249,206 $194,336 $334,317 $275,932
-----------------------------------------------------
------------------- Results of Operations Aber's results of
operations include results from its mining operations and results
from Harry Winston since the date of acquisition. Harry Winston
operates six retail salons around the world. Production from the
Diavik Mine continues to exceed the levels previously forecast due
to increased processing rates and predicted grade recovery. An
annualized rate of ore processing above 2.0 million tonnes per year
was achieved on a consistent basis in the three months ended June
30, 2004. This compares to a nameplate capacity of 1.5 million
tonnes per year and the reforecast target of 1.7 million tonnes per
year announced in March 2004. The low grade mud-rich unit
surrounding A154 South pipe continues to have a dilutive effect on
recovered grade, but is diminishing over successively lower bench
levels. After adjustment for the dilutive effects of the mud, and
factors for metallurgical recovery, recovered grade reconciles
against the mine plan grade forecast. Currently, drilling is
ongoing to better delineate the shapes of the A154 South and A154
North pipes at depth, and to collect a larger sample of A154 North
material with the aim of promoting A154 North resource tonnage into
the ore reserve category. A separate drilling campaign on the A154
North and A418 pipes is designed to better delineate grade and
grade distribution in the uppermost portions of these pipes. This
development work is expected to continue through the third quarter
and be utilized in an update to the Diavik Mine plan, currently
expected later in the year. Mine Production Production information
from the Diavik Mine, Aber's 40% share:
-------------------------------------------------------------------------
Three months ended Six months ended June 30, 2004 June 30, 2004
-------------------------------------------------------------------------
Diamonds recovered (000 carats) 909 1,524
-------------------------------------------------------------------------
Grade (carats/tonne) 4.2 4.1
-------------------------------------------------------------------------
Operating costs, cash ($ millions) 17.6 31.9
-------------------------------------------------------------------------
Operating costs per carat, cash ($) 19 21
-------------------------------------------------------------------------
Cash operating costs decreased by $5 per carat from the preceding
calendar quarter and $10 per carat on a year-to-date basis compared
to the twelve month results at December 31, 2003. THREE MONTHS
ENDED JULY 31, 2004 COMPARED TO THREE MONTHS ENDED APRIL 30, 2004
AND JULY 31, 2003 Net Earnings The second quarter earnings of $12.3
million or $0.21 per share represent an increase of $9.5 million or
$0.16 per share as compared to the first quarter results of $2.8
million or $0.05 per share and an increase of $6.5 million or $0.10
per share as compared to the results from the second quarter of the
prior year. Revenue Sales for the second quarter totalled $84.5
million, which includes sales of $28.2 million from Harry Winston
for the quarter. This compares to sales of $52.3 million in the
preceding quarter, which included sales of $10.1 million from Harry
Winston for the month of April, and $15.1 million in the comparable
quarter of the prior year. Sales from the comparable quarter of the
prior year were credited against deferred mineral property costs
prior to the commencement of commercial production on August 1,
2003. The increase in sales during the current quarter resulted
primarily from an increase in the quantity of rough diamond product
available for sale during the second quarter as compared to the
first quarter, and also reflects the inclusion of a full quarter
sales from Harry Winston, as compared to only one month of sales
during the first quarter of this year. The increase in quantity of
rough diamond product available for sale during the second quarter
was the direct result of the processing, during the prior periods,
of the low grade mud-rich material that surrounds the A154 South
kimberlite pipe at the Diavik Mine. During the current quarter Aber
completed two rough diamond sales as per plan. The Company is
expected to complete three sales in the third quarter and two sales
in the fourth quarter. Cost of Sales The Company cost of sales
recorded for the second quarter was $37.8 million compared to $28.6
million for the previous quarter and $0 for the comparable quarter
of the previous year which was prior to the commencement of
commercial production. The Company's cost of sales includes cash
and non-cash costs associated with mining, sorting activities and
cost of sales from Harry Winston. See the segmented analysis set
out below for additional information. The substantial portion of
cost of sales is mining operating costs incurred at the Joint
Venture level. Sorting costs include Aber's cost of handling and
assorting product in preparation for rough diamond sales. Non- cash
costs include amortization and depreciation, the majority of which
is recorded on a unit of production method over estimated proven
and probable reserves. Private production royalties are recorded
based on actual production during each accounting period. Selling,
General and Administrative Expenses Selling, general and
administrative ("SG&A") expenses include expenses for salaries,
advertising, professional fees, rent and related office costs. The
second quarter saw SG&A expenses of $17.6 million, including
$13.4 million of SG&A expenses from Harry Winston, as compared
to $8.7 million from the prior quarter (which included $4.7 million
from Harry Winston), and $2.9 million from the comparable quarter
of the prior year. The increase from the first quarter results from
the inclusion of a full quarter of SG&A from Harry Winston as
compared to only one month for the first quarter. Included in
SG&A expenses incurred during the second quarter are $8.2
million in salaries and benefits, $3.8 million in advertising, $2.6
million in rent and office related costs, $1.7 million in
professional fees and $1.3 million in depreciation and other costs.
Included in salaries and benefits are $1.1 million in stock option
and related costs compared to $0.9 million from the previous
quarter and $0.6 million in the comparable quarter of the prior
year. See the segmented analysis set out below for additional
information. Income Taxes Aber recorded a tax expense of $14.8
million during the quarter, compared to $8.9 million in the
previous quarter and a recovery of $4.7 million during the
comparable quarter of the prior year. The Company's effective
income tax rate on regular operating income, excluding Harry
Winston, is expected to be approximately 45% for the current fiscal
year ended January 31, 2005. The current tax rate excludes the
provision for Large Corporations Tax, tax effect of non deductible
stock compensation and is also continually subject to fluctuations
as the result of Aber's U.S. dollar denominated debt and cash, the
value of which changes with fluctuations in the Canadian dollar
against the U.S. dollar. Harry Winston income taxes payable varies
by jurisdiction. Net operating losses are available in certain
jurisdictions to offset future income taxes payable. The net
operating losses are scheduled to expire through 2024. During the
second quarter of the prior year, an income tax recovery of $4.7
million was recorded due to changes in the revaluation of future
income tax liabilities for reduction in future federal income tax
rates and the overall favourable effect of certain other changes in
Canadian income and mining tax legislation. Interest and Financing
Expense Interest and financing expenses of $3.0 million were
incurred during the quarter compared to $2.9 million for the
previous quarter and $0.2 million in the comparable quarter of the
preceding year. The current year's interest and financing expenses
are attributable to both Aber's and Harry Winston's credit
facilities. Interest and financing expenses for the comparable
quarter of the prior year were capitalized to deferred mineral
property costs prior to the commencement of commercial production.
The $0.2 million from the comparable quarter of the preceding year
was recognized on the first mortgage on real property. Foreign
Exchange Gain (Loss) A foreign exchange gain of $0.8 million was
recognized during the quarter compared to a foreign exchange loss
of $0.3 million from the previous quarter and a gain of $3.6
million in the comparable quarter of the preceding year. The prior
year gain was substantially recorded prior to the change in
reporting currency from Canadian to United States dollars. The gain
was recorded on Aber's United States dollar denominated net debt
position for a strengthened Canadian dollar prior to the adoption
of the United States dollar as the functional and reporting
currency. The Company does not currently have any hedges
outstanding. Segmented Analysis The operating segments of the
Company include mining and retail segments. Mining (expressed in
thousands of United States dollars) (unaudited) FY05 FY05 FY04 FY04
FY04 Q2 Q1 Q4 Q3 Q2 ` Sales $ 56,281 $ 42,153 $ 41,638 $ 53,958 $ -
Cost of sales 23,234 23,521 26,128 20,276 -
-------------------------------------------------------------------------
33,047 18,632 15,510 33,682 - Selling, general and administrative
expenses 4,239 3,996 3,704 4,795 2,870
-------------------------------------------------------------------------
Earnings (loss) from operations 28,808 14,636 11,806 28,887 (2,870)
-------------------------------------------------
------------------- Six Six months months FY04 FY03 FY03 ended
ended Q1 Q4 Q3 July 31, July 31, 2004 2003 Sales $ - $ - $ - $
98,434 $ - Cost of sales - - - 46,755 -
-----------------------------------------------------
------------------- - - - 51,679 - Selling, general and
administrative expenses 2,286 2,507 2,207 8,235 5,156
-------------------------------------------------------------------------
Earnings (loss) from operations (2,286) (2,507) (2,207) 43,444
(5,156) ----------------------------- ------------------- The
mining segment includes the production and sale of rough diamonds.
Sales for the second quarter totalled $56.3 million compared to
$42.2 million in the preceding quarter and $15.1 million in the
comparable quarter of the prior year. Sales from the second quarter
of the preceding year were realized prior to commercial production
and were credited against deferred mineral property costs prior to
August 1, 2003. The Company held two rough diamond sales in the
second quarter of this year. Cost of sales includes cash operating
costs of $13.4 million, non-cash operating costs of $8.8 million
and private production royalties of $1.0 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 are comprised 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 on a unit of production method over estimated proven
and probable reserves. Private production royalties are recorded
based on actual production during each accounting period. The
second quarter gross margin was 59% compared to 44% in the
preceding quarter and 0% in the preceding year, which was prior to
the commencement of commercial production. The gross margin
realized on cash operating costs was 74% in the second quarter
compared to 63% in the preceding quarter and 0% in the preceding
year. The increase in gross margins in the current quarter was the
result of lower cash costs per unit due to increased production.
The operating costs at the Diavik Mine were higher in the second
quarter of this year than in the first quarter due to increased
fuel usage and increased employment levels at the mine. A portion
of these costs are included in inventory at July 31, 2004. The
mining segment incurred SG&A expenses of $4.2 million during
the second quarter compared to $4.0 million in the first quarter
and $2.9 million in the comparable prior year period. The increase
compared to the prior year results primarily from increases in
salaries and benefits of $1.0 million and an increase in stock
option expense of $0.3 million. Salaries and benefits of $0.2
million from the second quarter of the prior year were capitalized
to deferred mineral property costs prior to the start of commercial
production. During the second quarter, the mining segment also
recorded $0.3 million in one time salary and benefits expenses for
various items including relocation expenses. The remainder of the
increase from the second quarter of the prior year relates to
increased employment levels. Retail (expressed in thousands of
United States dollars) (unaudited) FY05 FY05 FY04 FY04 FY04 Q2 Q1
Q4 Q3 Q2 Sales $ 28,206 $ 10,116 $ - $ - $ - Cost of sales 14,512
5,070 - - -
-------------------------------------------------------------------------
13,694 5,046 - - - Selling, general and administrative expenses
13,393 4,718 - - -
-------------------------------------------------------------------------
Earnings (loss) from operations 301 328 - - -
-------------------------------------------------
------------------- Six Six months months FY04 FY03 FY03 ended
ended Q1 Q4 Q3 July 31, July 31, 2004 2003 Sales $ - $ - $ - $
38,322 $ - Cost of sales - - - 19,582 -
-----------------------------------------------------
------------------- - - - 18,740 - Selling, general and
administrative expenses - - - 18,111 -
-----------------------------------------------------
------------------- Earnings (loss) from operations - - - 629 -
----------------------------- ------------------- Aber completed
its acquisition of a 51% interest in Harry Winston during the first
quarter of this year. The retail segment includes sales from Harry
Winston's six salons, which are located in New York, Beverly Hills,
Paris, Geneva, Tokyo and Osaka. Sales for this quarter were $28.2
million compared to $10.1 million from the first quarter, which
included only one month of results. Gross margins remained
consistent in both the second and first quarter. SG&A expense
was $13.4 million in the second quarter compared to $4.7 million in
the first quarter, which reflects only one month of operations. The
largest component of SG&A relates to salaries and benefits of
$5.5 million, advertising and related costs of $2.6 million,
building expenses of $2.3 million and administrative expenses of
$3.0 million. The U.S. salon sales increased across a range of
products with jewelry sales above $100,000 being particularly
strong due to the continued strength in the U.S. luxury retail
market. New salon openings in Las Vegas and Taipei are scheduled
for the third quarter of this year. During the quarter, Harry
Winston announced a new executive management team, the members of
which all come from leadership positions within the luxury retail
industry. Additionally, each of the members of Harry Winston's new
executive team has extensive experience in luxury retail start-up
and turn- around environments, and will use this experience to
support Harry Winston's business expansion plan. Harry Winston
believes that numerous factors including expanding global wealth
and increased retail spending have contributed to significant
opportunities in the luxury retail jewelry market. Harry Winston's
growth strategy includes building on its existing brand equity
through a new marketing campaign, geographical expansion, product
development and enhancing the salon environment. SIX MONTHS ENDED
JULY 31, 2004 COMPARED TO SIX MONTHS ENDED JULY 31, 2003 Net
Earnings Aber's net earnings for the six months ended July 31, 2004
totalled $15.1 million or $0.26 per share, compared to net earnings
of $11.0 million or $0.20 per share for the same period of the
preceding year, which was prior to the commencement of commercial
production at the Diavik Mine. Revenue Aber recorded sales for the
six months ended July 31, 2004 of $136.8 million compared to sales
of $19.2 million for the comparable period in the prior year. Sales
from the comparable period in the prior year were credited against
deferred mineral property costs prior to the commencement of
commercial production on August 1, 2003. Sales for the six months
ended July 31, 2004 included $98.5 million from the sale of rough
diamonds and $38.3 million from Harry Winston. The Company
completed four diamond sales during the six months ended July 31,
2004 versus the previously planned five. Two of the sales were
combined in the first quarter due to the reduced quantity of
product available for sale, resulting from the processing of the
low grade mud-rich material that surrounds the kimberlite ore at
the Diavik Mine. Cost of Sales The Company's recorded cost of sales
of $66.3 million during the six months ended July 31, 2004 compared
to $0 during the six months of the prior year. Cost of sales
incurred prior to the commencement of commercial production was
recorded against deferred mineral property costs. Selling, General
and Administrative Expense Aber incurred SG&A expenses of $26.3
million for the six months ended July 31, 2004 compared to $5.2
million incurred for the six months ended July 31, 2003. Included
in SG&A for the six months ended July 31, 2004 are $18.1
million in SG&A expenses related to Harry Winston. Aber also
incurred higher salaries and related benefits of $1.8 million,
higher stock options expense of $0.8 million, higher professional
fees of $0.6 million and a reduction in business development costs
of $0.2 million as compared to the six months ended July 31, 2003.
The principal components of SG&A expense include expenses for
salaries, advertising, professional fees, and rent and related
office costs. Income Taxes Income tax expense of $23.7 million was
recorded during the six months ended July 31, 2004, compared to an
income tax recovery of $2.4 million for the six months ended July
31, 2003. The recovery recorded in the preceding year included a
non-cash income tax benefit of $4.7 million relating to the
revaluation of future income tax liabilities for reductions in
future federal income tax rates and the overall favourable effect
of certain other changes in Canadian income and mining tax
legislation. The current period's tax expense reflects a cumulative
non-cash income tax expense of $3.3 million incurred in the first
quarter of this year relating to the revaluation of future income
tax liabilities to reflect an increase of 2% in future income tax
rates in the Northwest Territories and an income tax expense of
$20.4 million. Aber is currently in an income tax payable position
for Large Corporations Tax, and is projected to be in a full cash
taxable position effective the second quarter of the fiscal year
ended January 31, 2006. The Company's effective income tax rate on
regular operating income, excluding Harry Winston, is approximately
45% for the current fiscal year ended January 31, 2005. The current
tax rate excludes the provision for Large Corporations Tax, tax
effect for non deductible portion of stock compensation and is also
continually subject to fluctuations as the result of Aber's U.S.
dollar denominated debt and cash, the value of which changes with
fluctuations in the Canadian dollar against the U.S. dollar. Harry
Winston income taxes payable varies by jurisdiction. Net operating
losses are available in certain jurisdictions to offset future
income taxes payable. The net operating losses are scheduled to
expire through 2024. Interest and Financing Expenses Interest and
financing expenses of $6.0 million were incurred during the six
months ended July 31, 2004 compared to $0.3 million for the
comparable period in the preceding year. The current year's
interest and financing expenses are attributable to both Aber's and
Harry Winston's credit facilities. Prior to the commencement of
commercial production at the Diavik Mine, all interest and
financing costs were capitalized to deferred mineral property costs
with the exception of interest and financing on the first mortgage
on real property. Foreign Exchange Gain (Loss) A foreign exchange
gain of $0.4 million was recognized during the six months ended
July 31, 2004 compared with a gain of $12.9 million recognized
during the six months ended July 31, 2003. The prior year gain was
substantially recorded prior to the change in reporting currency
from Canadian to United States dollars. The gain was recorded on
Aber's U.S. dollar denominated net debt position and reflected a
strengthened Canadian dollar prior to the adoption of the United
States dollar as the functional and reporting currency. The Company
does not have any hedges outstanding. Liquidity and Capital
Resources Working Capital Working capital increased to $167.5
million at July 31, 2004 from $60.3 million at January 31, 2004,
primarily as a result of the addition of merchandise inventory in
conjunction with the acquisition of Harry Winston that occurred on
April 1, 2004 and the net funds of $53.6 million received from the
issuance of common shares in the first quarter. Aber had $108.9
million in unrestricted cash and cash equivalents and contingency
cash collateral and reserves of $13.3 million at July 31, 2004
compared to $23.6 million and $100.1 million respectively at
January 31, 2004. Included in unrestricted cash and cash
equivalents at July 31, 2004 is $7.0 million held at the Diavik
Mine and $5.3 million held at Harry Winston. This compares to
unrestricted cash and cash equivalents of $7.2 million held at the
Diavik Mine at January 31, 2004. Net Debt In the second quarter,
Aber made its first semi annual mandatory repayment of $10.0
million on its $100.0 million senior secured term facility. The
$100.0 million senior term facility is part of Aber's amended
financing arrangements that were completed during the first
quarter. The amended financing arrangements also include a $75.0
million senior secured revolving credit facility. During the
quarter, Harry Winston drew down a further $7.0 million on its
$60.0 million credit facility, resulting in a total of $35.1
million outstanding at the end of July 31, 2004 primarily to fund
capital expenditure and inventory for new store developments. At
July 31, 2004, no balance was drawn under the Company's revolving
financing facility with Antwerpse Diamantbank N.V. Cash Flow from
Operations During the quarter ended July 31, 2004, Aber generated
$15.0 million in cash from operations, compared to $17.4 million in
the previous quarter, which included only one month of results from
Harry Winston. Variations in revenues and operating cash flows are
to a certain degree inherent in the Company's diamond marketing
activity due to the cyclical nature of the Company's rough diamond
sales activities and Harry Winston's retail sales, and accordingly
the Company expects that such variability will continue to occur on
a quarter over quarter basis. Cash flow from operations during the
quarter was also impacted by the costs incurred by DDMI for
supplies shipped during the first quarter on the ice road to the
Diavik Mine, which costs were not billed to Aber until the second
quarter of this year. During the second quarter, the Company
purchased $10.6 million of inventory and reduced accounts payable
and accrued liabilities by $8.7 million. 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. The Company funds
its 40% share of operating purchase obligations from the Diavik
Mine on a monthly basis. The most significant contractual
obligations for the ensuing five year period can be summarized as
follows: Contractual Less than Year Year After Obligations ($000s)
Total 1 Year 2 - 3 4 - 5 5 Years
-------------------------------------------------------------------------
Long-term debt (a) $218,513 $ 20,316 $ 76,223 $115,950 $ 6,024
Environmental and Participation Agreements Incremental commitments
(b) 41,833 314 15,043 17,751 8,725
-------------------------------------------------------------------------
Total contractual obligations $260,346 $ 20,630 $ 91,266 $133,701 $
14,749 -------------------------------------------------- (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 the $100.0 million term facility
or the $75.0 million revolving facility, in minimum amounts of $5.0
million. Scheduled amortization of the term facility is over ten
equal consecutive semi-annual installments of $10.0 million
commencing June 15, 2004. The revolving facility has mandatory
reduction payments of $12.5 million semi-annually, commencing in
2006. Additionally, the term facility has mandatory prepayment
requirements associated with any dividend payments made by the
Company. The Company's first mortgage on real property has
scheduled principal payments of $0.1 million monthly, and may be
prepaid after 2009. Included under long-term debt is the Harry
Winston credit facility, which expires on March 31, 2008 with no
scheduled repayments required before that date. Also included under
long-term debt are notes payable pertaining to four convertible
subordinated note agreements totalling $10.5 million with two of
Harry Winston's shareholders. The notes are due on December 31,
2005 and bear interest at 11% payable quarterly. The notes are
subordinated to Harry Winston's agreement with ABN AMRO Bank N.V.
Harry Winston at its option may prepay all or a portion of the
outstanding balance based upon an early redemption price. If Harry
Winston is unable to pay in cash the aggregate principal amount and
accrued unpaid interest on the maturity date then the unpaid
principal amount of the notes plus accrued interest will dilute the
common shares of Harry Winston. (b) 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 July 31, 2004
is $23.6 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 $23.6 million satisfies
that part of the respective contractual obligations included in the
table above. The actual timing of the cash outlay for the Joint
Venture's obligations under these agreements is not anticipated
until later in the life of the Diavik Mine. (c) In order to
maintain its 40% interest in the Diavik Mine, the Company is
obligated to fund the Joint Venture for 40% of its total
expenditures on a monthly basis. Financing Activities Aber repaid
$10.0 million of its $100.0 million senior secured term facility
during the second quarter. Also in the quarter, Harry Winston
increased its line of credit by $7.0 million. Investing Activities
During the second quarter, the Company purchased capital assets of
$3.1 million. Out of this amount, $1.6 million of the capital
assets were purchased for the Diavik Mine and Aber head office and
Harry Winston purchased the remainder. The Company anticipates
capital spending for the remainder of the year to be approximately
$12.0 million. Foreign Exchange Effect on Cash Balances The
Company's cash resources are held in both CDN dollars and U.S.
dollars, although a substantial portion of the Company's cash
resources were held in U.S. dollars as at July 31, 2004. In the
current quarter, the total impact of foreign exchange translation
amounted to a source of cash of $0.8 million on non-U.S. reported
cash on the balance sheet. The CDN dollar over the last quarter has
strengthened relative to the U.S. dollar and has resulted in a
positive impact of $0.4 million. The remaining $0.4 million results
from the positive impact of non-U.S. cash held by Harry Winston.
This is reflected on the Consolidated Statements of Cash Flows
under the foreign exchange effect on cash balance. Outlook
Operations within the A154 pit and process plant will continue to
focus on the A154 South pipe through the third quarter. The grade
dilution associated with the low-grade mud-rich unit surrounding
the A154 South ore body is expected to continue into the third
quarter as mining advances through the 320m bench level, beyond
which the mud unit is not observed. Processing of lower grade ore
from the top of the A154 North pipe is currently expected to
commence in the fourth quarter. Processing levels are expected to
continue to be ahead of nameplate capacity which will help offset
lower grades from the two pipes. As a result, 2004 diamond
production at the Diavik Mine is still expected to be in the mid to
upper range of 7.0 to 8.0 million carats. Three rough diamond sales
are scheduled for the third quarter. Rough supply in the global
diamond market is expected to remain tight in the second half of
the fiscal year, and the outlook for this period in both market
demand and pricing remains positive. During the quarter, Harry
Winston announced a new management team. The new management team
under the direction of Mr. Thomas J. O'Neill, Chief Executive
Officer of Harry Winston and President of Aber, will focus on
growing Harry Winston's core business while continuing to set the
highest standards in the industry. The new Taipei and Las Vegas
salons will be opened this fall. Accounting Policies and Estimates
There have been no changes in the Company's critical accounting
estimates or policies from those disclosed in the Company's
MD&A for its fiscal year ended January 31, 2004. Recently
Issued Accounting Standards Employee Future Benefits The CICA
issued a revision to Handbook Section 3461, "Employee Future
Benefits". The principal changes relate to a company's disclosure
of its employee future benefits plans. The new disclosure
requirements are intended to improve and expand previous
requirements. Aber has adopted the disclosure requirements in this
quarter's results. Outstanding Share Information as at July 31,
2004
-------------------------------------------------------------------------
Authorized - Unlimited
-------------------------------------------------------------------------
Issued and outstanding shares - 57,522,364
-------------------------------------------------------------------------
Fully diluted(x) - 60,160,470
-------------------------------------------------------------------------
Weighted average outstanding shares - 57,428,354
-------------------------------------------------------------------------
Options outstanding - 2,638,106
-------------------------------------------------------------------------
(x) fully diluted shares outstanding under the treasury stock
method. 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) July 31, January 31, 2004 2004
----------- ----------- Assets (unaudited) Current assets: Cash and
cash equivalents $ 108,868 $ 23,628 Cash collateral 13,333 100,091
Accounts receivable 10,254 3,549 Inventory (note 4) 141,795 22,177
Advances and prepaid expenses 12,505 2,130
-------------------------------------------------------------------------
286,755 151,575 Deferred mineral property costs 203,722 206,073
Capital assets 264,707 263,442 Goodwill and intangibles (note 3)
63,425 - Other assets 15,923 11,678
-------------------------------------------------------------------------
$ 834,532 $ 632,768 ----------------------- -----------------------
Liabilities and Shareholders' Equity Current liabilities: Accounts
payable and accrued liabilities $ 44,358 $ 18,478 Promissory note
(note 5) 49,765 - Bank advances (note 6) 4,781 - Current portion of
long-term debt 20,316 72,805
-------------------------------------------------------------------------
119,220 91,283 Long-term debt (note 6) 198,197 150,270 Future
income tax liability (note 7) 100,720 67,492 Other long-term
liabilities 14,504 12,065 Minority interest (note 3) 20,896 -
Shareholders' equity: Share capital (note 8) 287,532 232,897 Stock
options 7,591 6,096 Retained earnings 72,123 57,031 Cumulative
Translation Adjustment 13,749 15,634
-------------------------------------------------------------------------
380,995 311,658
-------------------------------------------------------------------------
$ 834,532 $ 632,768 ----------------------- -----------------------
See accompanying notes to consolidated financial statements.
Consolidated Statements of Earnings and Retained Earnings
(expressed in thousands of United States dollars, except per share
amounts) (unaudited) Three months Six months Ended July 31, Ended
July 31, 2004 2003 2004 2003 Sales $ 84,487 $ - $ 136,756 $ - Cost
of sales 37,746 - 66,337 -
-------------------------------------------------
----------------------- 46,741 - 70,419 - Selling, general and
administrative expenses 17,632 2,870 26,346 5,156
-------------------------------------------------
----------------------- Earnings from operations 29,109 (2,870)
44,073 (5,156) -------------------------------------------------
----------------------- Interest and financing expenses (3,039)
(157) (5,951) (303) Other income (24) 247 (24) 474 Gain on sale of
other assets - 327 - 665 Foreign exchange 760 3,572 411 12,939
-------------------------------------------------
----------------------- Earnings before income taxes 26,806 1,119
38,509 8,619 Income taxes (note 7) 14,798 (4,714) 23,660 (2,377)
-------------------------------------------------
----------------------- Earnings before minority interest 12,008
5,833 14,849 10,996 Minority Interest (287) - (243) -
-------------------------------------------------
----------------------- Net Earnings 12,295 5,833 15,092 10,996
Retained earnings, beginning of period 59,828 34,487 57,031 29,324
-------------------------------------------------
----------------------- Retained earnings, end of period $ 72,123 $
40,320 $ 72,123 $ 40,320 -----------------------
----------------------- -----------------------
----------------------- Earnings per share Basic $ 0.21 $ 0.11 $
0.26 $ 0.20 ----------------------- -----------------------
----------------------- ----------------------- Fully diluted $
0.21 $ 0.10 $ 0.26 $ 0.19 -----------------------
----------------------- -----------------------
----------------------- See accompanying notes to consolidated
financial statements. Consolidated Statements of Cash Flows
(expressed in thousands of United States dollars) (unaudited) Three
months Six months Ended July 31, Ended July 31, 2004 2003 2004 2003
Cash provided by (used in): Operating: Net earnings for the period
$ 12,295 $ 5,833 $ 15,092 $ 10,996 Items not involving cash:
Amortization 10,195 198 17,383 387 Future income taxes 11,309
(5,018) 18,221 (2,755) Stock-based compensation 677 651 1,463 1,222
Foreign exchange (888) (3,571) (448) (13,161) Minority interest
(448) - (403) - Gain on sale of other assets - (327) - (631) Change
in non-cash operating working capital (18,159) 434 (18,928) (1,397)
-------------------------------------------------------------------------
14,981 (1,800) 32,380 (5,339)
-------------------------------------------------------------------------
Financing: Issuance of long- term debt 6,991 - 6,991 28,000
Repayment of long- term debt (10,000) (67) (46,113) (128) Deferred
financing - (725) (4,220) (868) Issue of common shares, for cash
890 898 54,635 1,538
-------------------------------------------------------------------------
(2,119) 106 11,293 28,542
-------------------------------------------------------------------------
Investing: Cash collateral and cash reserve 1,893 - 86,758 -
Deferred mineral property costs (2,502) (5,007) (3,353) (18,778)
Capital assets (3,099) (781) (8,807) (12,347) Deferred charges -
(599) (2,719) (528) Purchase of Harry Winston (net of opening cash)
- - (29,962) - Proceeds on sale of other assets - 3,017 - 3,269
-------------------------------------------------------------------------
(3,708) (3,370) 41,917 (28,384)
-------------------------------------------------------------------------
Foreign exchange effect on cash balances 816 148 (350) 1,437
Increase in cash and cash equivalents 9,970 (4,916) 85,240 (3,744)
Cash and cash equivalents, beginning of period 98,898 25,622 23,628
24,450
-------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 108,868 $ 20,706 $
108,868 $ 20,706 -----------------------------------------------
Change in non-cash operating working capital: Accounts receivable $
1,152 $ 304 $ 3,425 $ 11 Prepaid expenses (4) 102 715 97 Inventory
(10,584) - (15,733) - Accounts payable and accrued liabilities
(8,723) 28 (7,335) (1,505)
-------------------------------------------------------------------------
$ (18,159) $ 434 $ (18,928) $ (1,397)
-----------------------------------------------
----------------------------------------------- See accompanying
notes to consolidated financial statements. Notes to Consolidated
Financial Statements July 31, 2004 (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% interest in the Diavik group of mineral claims. The
Diavik Joint Venture (the "Joint Venture") is an unincorporated
joint venture between Diavik Diamond Mines Inc. (60%) and Aber
Diamond Mines Ltd. (40%). Diavik Diamond Mines Inc. ("DDMI") is the
operator of the Diavik Diamond Mine (the "Diavik Mine"), known as
the "Diavik Project" prior to commencement of commercial
production. 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 acquired a 51% share of Harry
Winston Inc. ("Harry Winston") located in New York City, USA during
the year. The results of Harry Winston have been consolidated in
the financial statements of the Company effective April 1, 2004.
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
share of jointly controlled assets. Intercompany transactions and
balances have been eliminated. 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, 2004, except as described below. 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, 2004 since
these financial statements do not include all disclosures required
by generally accepted accounting principles. (a) Recently issued
accounting pronouncements Employee Future Benefits The CICA issued
a revision to Handbook Section 3461, "Employee Future Benefits".
The principal changes relate to a company's disclosure of its
employee future benefits plans. The new disclosure requirements are
intended to improve and expand previous requirements. Aber has
adopted the disclosure requirements in this quarter's results. Note
3 - Acquisition On April 2, 2004, the Company announced the
acquisition of a 51% share of Harry Winston Inc., a luxury jewelry
and watch retailer. The Company purchased its interest for $85.0
million, of which $20.3 million was in the form of a direct equity
investment in Harry Winston. The total purchase price, before
transaction costs, is payable by the Company in installments, with
$49.8 million remaining to be paid over the one-year period
following closing. The Company also has the option to purchase the
remaining 49% interest in Harry Winston on the sixth anniversary of
the closing at the then fair market value of such interest, failing
which the other principal shareholders of Harry Winston will have
the ability to institute a process for the sale of Harry Winston as
an entity (including the Company's 51% interest). The preliminary
allocation of the purchase price to the fair values of assets
acquired and liabilities assumed is as follows. The finalization of
the purchase price allocations is pending the completion of the
valuation of goodwill and intangible assets. Purchase price amounts
will give rise to future income tax liabilities to be recorded in
the same period in which the intangible assets are separately
identified in the financial statements. Accounts receivable $
30,597 Inventory 94,421 Goodwill and intangibles 63,425 Other
assets 27,796 Accounts payable and accrued liabilities (33,425)
Bank loan (43,871) Minority interest (21,300) Notes payable
(10,511) Other liabilities (15,223)
---------------------------------------------------------- $ 91,909
------------ ------------ Cash paid at acquisition $ 40,000
Purchase price adjustment (4,730) Promissory note 49,765
Acquisition and other costs 6,874
---------------------------------------------------------- $ 91,909
------------ ------------ Minority interest represents the
remaining 49% ownership of Harry Winston. The Company consolidates
the result of Harry Winston and records a minority interest
ownership. Note 4 - Inventory and Supplies July 31, January 31,
2004 2004 Rough diamond inventory $ 22,679 $ 11,128 Merchandise
inventory 101,368 - Supplies inventory 17,748 11,049
-------------------------------------------------------------------
Total inventory and supplies $ 141,795 $ 22,177
------------------------------- Rough diamond inventory represents
rough diamonds held at July 31, 2004 at various Aber locations.
Merchandise inventory represents jewelry and watches held at Harry
Winston. Supplies inventory represents spare parts and consumable
inventory held at the Diavik Mine. Note 5 - Promissory Note July
31, January 31, 2004 2004 Promissory note $ 49,765 $ -
------------------------------- The $49.8 million represents the
balance of the purchase price payable by the Company for its
acquisition of 51% of Harry Winston, which is to be paid within one
year of the transaction date. Interest is payable on the promissory
note at 7% per annum. Note 6 - Long-Term Debt July 31, January 31,
2004 2004 Credit facility (a) $ 165,000 $ 215,000 Harry Winston
credit facility (b) 35,118 - First mortgage on real property 7,884
8,075 Notes payable (c) 10,511 -
-------------------------------------------------------------------
Total long-term debt 218,513 223,075
-------------------------------------------------------------------
Less current portion (d) (20,316) (72,805)
-------------------------------------------------------------------
$ 198,197 $ 150,270 ------------------------------- (a) Credit
facility On March 3, 2004, the Company completed the refinancing of
its Project Loan Facility. The Company's previous $230.0 million
Project Loan Facility has been refinanced into a $100.0 million
senior secured term facility and a $75.0 million senior secured
revolving facility under an amendment and restatement of the
Project Loan Facility credit agreement. The amended facilities have
underlying interest rates, which at the option of the Company, are
either LIBOR plus a spread of 1.50% to 2.625%, or U.S. Base Rate
plus a spread of 0.50% to 1.625%. The amended facilities have a
final maturity date of December 15, 2008 and are to be amortized as
described in note 6 (d). The Company may at any time prepay, in
whole or in part, borrowings outstanding in minimum amounts of $5.0
million. The senior secured revolving facility has a standby fee on
undrawn amounts up to 1.5%, dependent on certain financial ratios,
payable quarterly. As at July 31, 2004, the Company had a $90.0
million senior secured term facility and a $75.0 million senior
secured revolving facility. The first drawdowns on both facilities
were made on March 3, 2004. The Company made a scheduled repayment
of $10.0 million on June 15, 2004. Additionally, the Company is
required to comply with certain financial and non-financial
covenants. Under the amended facilities, the Company is required to
establish a debt reserve account containing up to a maximum of
$15.0 million. The revolving facility has mandatory reduction
payments of $12.5 million semi-annually, commencing in 2006.
Additionally, the term facility has mandatory prepayment
requirements associated with any dividend payments made by the
Company. Interest and financing charges include interest incurred
on long-term debt, as well as amortization of deferred financing
charges. (b) Harry Winston credit facility On March 31, 2004 Harry
Winston, Inc. entered into a secured four-year credit agreement
with a syndicated group of banks led by ABN AMRO Bank N.V. The
credit agreement established a $60.0 million facility that includes
both a revolving line of credit and fixed rate short-term loans. At
July 31, 2004, $35.1 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 Far East K.K. The initial
borrowings under the facility were used to refinance the
outstanding indebtedness under Harry Winston's former credit
facility with Citicorp Bank. 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 non-financial and 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 Far East, K.K. with no
guarantees or recourse to Aber. The facility provides for fixed
rate loans and floating rate loans, which bear interest at 2.75%
above LIBOR and 1.75% above the bank's prime rate, respectively.
(c) Notes payable On March 31, 2004, Harry Winston entered into
four convertible subordinated note agreements totalling $10.5
million with two of its minority shareholders. The notes are due on
December 31, 2005 and bear interest at 11% payable quarterly. The
notes are subordinated to Harry Winston's agreement with ABN AMRO
Bank N.V. Harry Winston at its option may prepay all or a portion
of the outstanding balance based upon an early redemption price. If
Harry Winston is unable to pay in cash the aggregate principal
amount and accrued unpaid interest on the maturity date then the
unpaid principal amount of the notes plus accrued unpaid interest
will dilute the common shares of Harry Winston. (d) Current portion
of long-term debt Scheduled amortization of the Company's senior
secured term facility is over ten equal consecutive semi-annual
installments commencing June 15, 2004. Additionally, the term
facility has mandatory prepayment requirements associated with any
dividend payments made by the Company. The senior secured revolving
facility has mandatory reduction payments of $12.5 million
semi-annually, commencing in 2006. Both facilities have a final
maturity date of December 15, 2008. The Company may at any time
prepay either facility, in whole or in part, in minimum payments of
$5.0 million. (e) Bank advances The Company also operates a
revolving financing facility with Antwerpse Diamantbank N.V. Under
the terms of the facility, the Company has available $34.0 million
(utilization in either U.S. $ or Euro) for inventory and
receivables funding in connection with marketing activities through
its Belgian subsidiary, Aber International N.V. Borrowings under
the facility bear interest at the bank's base rate plus 1.5%. At
July 31, 2004, no balance was drawn under this facility. This
facility has an annual commitment fee of 0.75% per annum. Harry
Winston Far East maintains unsecured credit agreements with two
banks each amounting to Yen 300 million (U.S. $2.7 million). The
credit facilities bear interest at 1.875% per annum and expire on
October 29, 2004 and December 30, 2004, respectively. Under these
agreements, $4.8 million was outstanding at July 31, 2004. Note 7 -
Income Tax Included in the future income tax liability of the
Company is $7.1 million of net future income tax liabilities of
Harry Winston. Harry Winston's future income tax liabilities are
pending finalization of the purchase price allocation and are
included net of future tax assets of $24.9 million, which have been
recorded to recognize the benefit of $60.9 million of net operating
losses that Harry Winston has available for carry forward to
shelter income taxes for future years. The net operating losses are
scheduled to expire between 2018 and 2024. During the first
quarter, the Northwest Territories territorial income tax rate was
increased from 12% to 14%, retroactive to January 1, 2004. The
increased rate was substantively enacted in March 2004, and as
such, the effect on future tax assets and liabilities of the
Company was $3.3 million recognized in earnings during the first
quarter. Note 8 - Share Capital (a) Authorized Unlimited common
shares without par value. (b) Issued Number of Amount Amount Shares
CDN $ US $ (000's) (000's) Balance, January 31, 2004 55,933,232 $
342,195 $ 232,897 Shares issued for: Cash 1,500,000 71,593 53,491
Cash on exercise of options 89,132 1,544 1,144
-------------------------------------------------------------------------
Balance, July 31, 2004 57,522,364 $ 415,332 $ 287,532
---------------------------------------- In February, 2004, the
Company issued 1,500,000 common shares for gross proceeds of CDN
$74.6 million, with issuance costs of CDN $3.0 million. Note 9 -
Employee Benefit Plans (a) Restricted and Deferred Share Unit Plans
("RSU" and "DSU") The Company issued 6,000 RSUs and 6,000 DSUs
under an employee incentive compensation program during the second
quarter (43,685 RSUs and 18,000 DSUs issued for the six months
ended July 31, 2004). The Restricted and Deferred Share Unit Plans
are full value phantom shares which mirror the value of Aber's
publicly-traded common shares. Grants under the RSU Plan will be
made 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. Only non-executive directors of the Company are
eligible for grants under the DSU plan. Each DSU grant vests
immediately on the grant date. The expenses related to the RSUs and
DSUs are accrued based on the price of Aber's common shares at the
end of the period and the probability of vesting. This expense is
recognized on a straight-line basis over the term of the grant. The
Company recognized an expense of $0.3 million for RSUs and DSUs
during the second quarter ($0.4 million for the six months ended
July 31, 2004). (b) Defined benefit plan Harry Winston sponsors a
defined benefit pension plan covering substantially all of its
employees based in the United States who were employees as of April
2001. The benefits are based on years of service and the employee's
compensation. In April 2001, Harry Winston amended its defined
benefit pension plan. The amendment specifically froze plan
participation effective April 30, 2001. Harry Winston's funding
policy is to contribute amounts to the plan sufficient to meet the
minimum funding requirements set forth in the Employee Retirement
Income Security Act of 1974. Plan assets consisted primarily of
fixed income, equity and other short-term investments. The Plan
assets and benefit obligations were valued as of August 31, 2003.
The effective date of the last actuarial valuation for funding
purposes was January 1, 2004. The next valuation is scheduled for
January 1, 2005. Harry Winston has recorded $1.3 million as prepaid
pension expense as at July 31, 2004. (c) Defined contribution plan
Harry Winston has a defined contribution 401(k) plan covering
substantially all employees in the United States that provides
employer-matching contributions based on amounts contributed by an
employee, up to 50% of the first 6% of the employee's salary. Harry
Winston has provided approximately $0.1 million at July 31, 2004
for this match. The employee must meet minimum service requirements
and continue employment on December 31 following the end of the
fiscal year in order to receive this matching contribution. DDMI
has a defined contribution plan covering substantially all
employees whereby 6% of base pay and bonuses are set aside in this
non-contributory plan. Employer contributions of $0.7 million have
been made by DDMI to the plan as at June 30, 2004. Note 10 -
Related Parties The Company has a sales agreement with Tiffany and
Co. ("Tiffany"), a shareholder of Aber. Tiffany has the right to
purchase a specific assortment of rough diamonds for a minimum of
$50.0 million annually subject to Aber's ability to supply such
diamonds from its available allocation from the Diavik Mine under a
process managed by Aber. The supply of diamonds is sold at fair
market value less a discount. Year to date sales of $15.0 million
have been made to Tiffany. Transactions with related parties
include management agreements with all of Harry Winston's
shareholders and rent relating to the New York property payable to
an employee and shareholder. Note 11 - Segmented Information The
Company operates in two segments within the diamond industry,
mining and retail as of July 31, 2004 upon the acquisition of Harry
Winston. 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 the rough diamonds in the
marketplace. 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. (expressed in thousands
of United States dollars) For the three months ended July 31, 2004
Mining Retail Total Sales $ 56,281 $ 28,206 $ 84,487 Cost of sales
23,234 14,512 37,746
-------------------------------------------------------------------------
33,047 13,694 46,741 Selling, general and administrative expenses
4,239 13,393 17,632
-------------------------------------------------------------------------
Earnings (loss) from operations 28,808 301 29,109
-------------------------------------------------------------------------
Interest and financing expenses (1,960) (1,079) (3,039) Other
income/(expense) - (24) (24) Foreign exchange gain (loss) 889 (129)
760
-------------------------------------------------------------------------
Segmented earnings (loss) before income taxes $ 27,737 $ (931) $
26,806 ----------------------------------------
---------------------------------------- Segmented assets as of
July 31, 2004 Canada $ 632,234 $ - $ 632,234 United States -
146,683 146,683 Other foreign countries 4,350 51,265 55,615
---------------------------------------- $ 636,584 $ 197,948 $
834,532 ----------------------------------------
---------------------------------------- Goodwill as of July 31 -
63,425 63,425 Capital expenditures 1,598 1,501 3,099 Other
significant non-cash items: Income tax expense 11,309 168 11,477
(expressed in thousands of United States dollars) For the six
months ended July 31, 2004 Mining Retail Total Sales $ 98,434 $
38,322 $ 136,756 Cost of sales 46,755 19,582 66,337
-------------------------------------------------------------------------
51,679 18,740 70,419 Selling, general and administrative expenses
8,235 18,111 26,346
-------------------------------------------------------------------------
Earnings (loss) from operations 43,444 629 44,073
-------------------------------------------------------------------------
Interest and financing expenses (4,739) (1,212) (5,951) Other
income/(expense) - (24) (24) Foreign exchange gain (loss) 449 (38)
411
-------------------------------------------------------------------------
Segmented earnings (loss) before income taxes $ 39,154 $ (645) $
38,509 ----------------------------------------
---------------------------------------- Segmented assets as of
July 31, 2004 Canada $ 632,234 $ - $ 632,234 United States -
146,683 146,683 Other foreign countries 4,350 $ 51,265 $ 55,615
---------------------------------------- $ 636,584 $ 197,948 $
834,532 ----------------------------------------
---------------------------------------- Goodwill as of July 31 -
63,425 63,425 Capital expenditures 7,160 1,647 8,807 Other
significant non-cash items: Income tax expense 18,221 153 18,374
Safe Harbour Statement on Forward-Looking Information
----------------------------------------------------- Included in
this news release are "forward-looking statements" within the
meaning of the US Private Securities Litigation Reform Act of 1995.
When used in this news release, words such as "estimate", "intend",
"expect", "anticipate", "projected" and similar expressions are
intended to identify forward-looking statements - which are, by
their very nature, not guarantees of Aber's future operational or
financial performance, and are subject to risks and uncertainties.
All forward-looking statements are based on Aber's current beliefs
as well as assumptions made by and information currently available
to the Company and relate to, among other things, anticipated
financial performance, business prospects, strategies, regulatory
developments, market forces and commitments. This forward-looking
information mainly concerns Aber's plans for its diamond
initiatives and is based on the conclusions of management. With
respect to Aber's future revenues from its marketing activities,
differences may result from developments in world diamond markets,
diamond valuations, risks relating to the retail operations of
Harry Winston, risks relating to currency fluctuations and other
factors. With respect to the Diavik Diamond Mine (known as the
Diavik Project prior to the commencement of Commercial Production),
differences may result from additional drilling, sampling, diamond
valuations, engineering and construction timetables and problems,
unanticipated problems with mine operations and production,
revisions to mining plans and other operational decisions taken by
Aber's Joint Venture partner, fluctuations in energy, labour and
other input costs, financial arrangements, local, regional or
national political developments in Canada, fluctuations in the
Canadian dollar relative to the US dollar and other factors. With
respect to other projects, actual events may differ from current
expectations due to exploration results, new exploration
opportunities, changing budget priorities of Aber or its Joint
Venture partner and other factors. Readers are cautioned not to
place undue reliance on these forward- looking statements, which
speak only as of the date of this news release. Due to risks and
uncertainties, including the risks and uncertainties identified
above and elsewhere in this news release, actual events may differ
materially from current expectations. 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. Additional information concerning factors that may
cause actual results to materially differ from those in such
forward-looking statements is contained in the Company's filings
with Canadian and United States securities regulatory authorities.
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, located off Lac de
Gras in Canada's Northwest Territories. Aber also holds a 51%
interest in Harry Winston Inc., the premier retailer of diamond
jewelry. DATASOURCE: Aber Diamond Corporation CONTACT: Robert A.
Gannicott, Chief Executive Officer - (416) 362-2237; Amir Kalman,
Manager, Investor Relations - (416) 362-2237 (ext. 244)
Copyright