TORONTO,
Dec. 6, 2012 /PRNewswire/ - Harry
Winston Diamond Corporation (TSX: HW) (NYSE:HWD) (the "Company")
today announced its third quarter Fiscal 2013 results for the
quarter ending October 31, 2012.
Robert Gannicott,
Chairman and Chief Executive Officer stated, "This has been a
quarter of solid progress on many fronts for us. Our luxury brand
business has demonstrated strong growth in its bridal jewelry
sales, with the higher margins and broader base that this implies,
while the Diavik Project has successfully switched fully to
underground ore production. Although the underground mine is still
tuning its operating procedures, it has already reached and
exceeded its planned underground production rate. The rough diamond
market has recovered its poise as optimism returns in America,
still the world's largest consumer of diamond jewelry."
The Company is pleased to announce the appointment of
Chuck Strahl to its Board of
Directors. Mr. Gannicott added, "We welcome Chuck Strahl to our board of directors. Chuck
recently retired from almost 18 years in federal politics having
served as both Minister of Transport and Minister of Aboriginal
Affairs and Northern Development. His experience and interest in
northern development is a welcome addition to the board."
Third Quarter Highlights:
Consolidated
- Consolidated sales increased 51% to $180.4 million for the third quarter compared to
$119.7 million for the comparable
quarter of the prior year. Operating profit was $10.3 million compared to an operating loss of
$2.0 million in the comparable
quarter of the prior year. (Included in the prior year's
operating loss was a $13.0 million
paste plant de-recognition charge for the mining segment.)
EBITDA increased 64% to $34.8 million
compared to $21.2 million in the
comparable quarter of the prior year.
- Consolidated net profit attributable to shareholders for the
third quarter was $3.4 million or
$0.04 per share compared to net loss
attributable to shareholders of $4.7 million or $0.06 per share in the comparable quarter of the
prior year. Included in the prior year period net loss was a
$8.4 million (or $0.10 per share) after-tax paste plant
de-recognition charge.
Mining Segment
- Rough diamond sales increased 134% to $84.8 million, versus $36.2 million in the comparable quarter of the
prior year. The increase in sales resulted from a 286% increase in
volume of carats sold during the quarter. The Company sold
approximately 0.88 million carats at an average price of
$96 per carat versus approximately
0.23 million carats at an average price of $159 per carat in the comparable quarter of the
prior year.
- The 39% decrease in the Company's achieved average rough
diamond prices during the third quarter resulted primarily from the
sale of a higher portion of smaller size diamonds due to an
improved market for these goods. Had the Company sold only
the last production shipped in the third quarter, the estimated
achieved price would have been approximately $123 per carat based on the prices achieved in
the October 2012 sale.
- Rough diamond production for the calendar quarter ended
September 30, 2012 was 0.77 million
carats (40% basis), which was consistent with the comparable period
of the prior year.
Luxury Brand Segment
- Luxury brand segment sales increased 14% (17% at constant
exchange rates) to $95.6 million
compared to $83.5 million in the
comparable quarter of the prior year. The total number of
units sold increased by 8% over the comparable quarter of the prior
year.
- Operating profit for the luxury brand segment increased 265% to
$5.3 million in the third quarter
compared to $1.5 million in the
comparable quarter of the prior year.
- On November 7, 2012, the luxury
brand segment amended its senior secured revolving credit facility
to add an additional $40 million of
capacity, increasing the total facility to $300 million. The facility has a maturity
date of August 30, 2017.
Fiscal 2013 Third Quarter Financial
Summary
(US$ in millions except Earnings per Share
amounts)
| |
Three months
ended
Oct 31, 2012 |
Three months
ended
Oct 31, 2011 |
Nine months
ended
Oct 31, 2012 |
Nine months
ended
Oct 31, 2011 |
Sales
- Mining Segment
- Luxury Brand Segment |
$180.4
84.8
95.6 |
$119.7
36.2
83.5 |
$549.8
235.3
314.5 |
$486.0
187.9
298.1 |
Operating profit (loss)
- Mining Segment
- Luxury Brand Segment
- Corporate Segment |
10.3
9.2
5.3
(4.2) |
(2.0)
(1.2)
1.5
(2.3) |
45.4
37.3
20.5
(12.4) |
25.8
21.3
12.6
(8.1) |
| Net profit (loss) attributable to
shareholders |
3.4 |
(4.7) |
19.8 |
8.9 |
| Earnings (loss) per share |
$0.04 |
$(0.06) |
$0.23 |
$0.10 |
Complete financial statements, MD&A and a discussion of risk
factors are included in the accompanying release.
Outlook
Mining Segment
Diavik Diamond Mine's full-year target production is expected to be
approximately 7.1 million carats from the mining of 2.1 million
tonnes of ore and the processing of 2.0 million tonnes of ore. The
decrease in carats from the original plan is primarily due to
deferring the processing and recovery of lower value carats from
the re-processed rejects ("RPR") in favour of processing
underground ore containing higher valued carats.
A new mine plan and budget for calendar 2013 is
under final review by Rio Tinto plc and the Company. The plan for
calendar 2013 foresees Diavik Diamond Mine production of
approximately 6 million carats from the mining and processing of
approximately 1.6 million tonnes of ore with a further 0.2 million
tonnes processed from stockpiled ore from calendar 2012.
Mining activities will be exclusively underground. Included in the
estimated production for calendar 2013 is approximately 0.6 million
carats from RPR and 0.1 million carats from the improved recovery
process for small diamonds. These RPR and small diamond recoveries
are not included in the Company's reserves and resource statement
and are therefore incremental to production.
On November 13,
2012, the Company entered into share purchase agreements
with BHP Billiton Canada Inc. and various affiliates to purchase
all of BHP Billiton's diamond assets, including its controlling
interest in the Ekati Diamond Mine as well as the associated
diamond sorting and sales facilities in Yellowknife, Canada, and Antwerp, Belgium. The Ekati Diamond Mine
consists of the Core Zone, which includes the current operating
mine and other permitted kimberlite pipes, as well as the Buffer
Zone, an adjacent area hosting kimberlite pipes having both
development and exploration potential. The agreed purchase price,
payable in cash, is $400 million for
the Core Zone interest and $100
million for the Buffer Zone interest, subject to adjustments
in accordance with the terms of the share purchase agreements. The
share purchase agreements include typical closing conditions,
including receipt of required regulatory and Competition Act
approvals. Each of the Core Zone and the Buffer Zone is subject to
a separate joint venture agreement. BHP Billiton holds an 80%
interest in the Core Zone and a 58.8% interest in the Buffer Zone,
with the remainder held by the Ekati minority joint venture
parties. Pursuant to the joint venture agreements, BHP Billiton
will first separately offer to the joint venture parties its
interest in each of the Core and Buffer Zones on the same terms as
those agreed to by the Company. The joint venture parties will then
have 60 days to elect to acquire either or both of those interests.
Any interests that the joint venture parties do not elect to
acquire within that time period can then be transferred to the
Company in the following 60 days. If the Core Zone
transaction is not completed because the minority joint venture
parties exercise their pre-emptive rights, the Company will be
entitled to be paid a termination fee of $30
million by BHP Billiton. Closing of the transactions is
currently expected to occur before the end of March, 2013. The
purchase price for the acquisitions will be satisfied from cash
resources on hand and from new debt financing that has been
arranged with two banks. The new facilities will comprise a
$400 million term loan, a
$100 million revolving credit
facility (of which $50 million will
be available for purposes of funding the Ekati acquisition) and a
$140 million letter of credit
facility in support of the Core Zone environmental reclamation
bond. The new facilities will be secured and will replace the
Company mining segment's current $125
million facility with Standard Chartered Bank, which will be
repaid and terminated on closing.
Luxury Brand Segment
Continued economic uncertainty in Europe coupled with the softening in consumer
demand in China and the budget
policy issues in the US are likely to translate into slower growth
in the near term, impacting the holiday season. The Company
believes that the Harry Winston brand is well positioned to
continue to increase its market share in the luxury jewelry and
timepiece sector. New salons in China have significantly improved the
distribution network in the fastest growing luxury market in the
world. During August 2012, a new
directly operated salon was opened in the Harrods department store
in London, England. A new directly
operated salon is also expected to be opened early next year in
Geneva, Switzerland. In addition,
a new licensed salon is expected to be opened in Kuwait City, Kuwait, during the first quarter of next
fiscal year. The Company plans to expand by 15 wholesale watch
doors to 216 doors by the end of fiscal 2013.
Conference Call and Webcast
Beginning at 8:30AM (ET) on
Friday, December 7th, the Company
will host a conference call for analysts, investors and other
interested parties. Listeners may access a live broadcast of the
conference call on the Company's investor relations web site at
http://investor.harrywinston.com or by dialing 877-299-4454 within
North America or 617-597-5447 from
international locations and entering passcode 95731015.
An online archive of the broadcast will be
available by accessing the Company's investor relations web site at
http://investor.harrywinston.com. A telephone replay of the call
will be available one hour after the call through 11:00PM (ET), Friday,
December 21st, 2012 by dialing 888-286-8010 within
North America or 617-801-6888 from
international locations and entering passcode 96824980.
About Harry Winston Diamond
Corporation
Harry Winston Diamond Corporation is a diamond enterprise with
premium assets in the mining and retail segments of the diamond
industry. Harry Winston supplies rough diamonds to the global
market from its 40 percent ownership interest in the Diavik Diamond
Mine. The Company's luxury brand segment is a premier diamond
jeweler and luxury timepiece retailer with salons in key locations,
including New York, Paris, London, Beijing, Shanghai, Hong
Kong, Singapore,
Tokyo and Beverly Hills.
The Company focuses on the two most
profitable segments of the diamond industry, mining and retail, in
which its expertise creates shareholder value. This unique business
model provides key competitive advantages; rough diamond sales and
polished diamond purchases provide market intelligence that
enhances the Company's overall performance.
For more information, please visit
www.harrywinston.com or for investor information, visit
http://investor.harrywinston.com.
Highlights
(ALL FIGURES ARE IN UNITED STATES DOLLARS UNLESS OTHERWISE
INDICATED)
Consolidated sales were $180.4 million for the third quarter compared to
$119.7 million for the comparable
quarter of the prior year, resulting in an operating profit of
$10.3 million compared to an
operating loss of $2.0 million in the
comparable quarter of the prior year. Gross margin increased 49% to
$65.7 million from $44.2 million in the comparable quarter of the
prior year. Consolidated EBITDA was $34.8
million compared to $21.2
million in the comparable quarter of the prior year. The
Company had 0.8 million carats of rough diamond inventory with an
estimated current market value of approximately $110 million at October
31, 2012, of which approximately $60
million represents rough diamond inventory available for
sale.
The mining segment recorded sales of
$84.8 million, a 134% increase from
$36.2 million in the comparable
quarter of the prior year. The increase in sales resulted from a
286% increase in volume of carats sold during the quarter, offset
by a 39% decrease in achieved rough diamond prices. In the
comparable quarter of the prior year, the Company chose to hold
inventory due to market conditions. Rough diamond production during
the third calendar quarter was consistent with the comparable
period of the prior year. The mining segment recorded operating
profit of $9.2 million compared to an
operating loss of $1.1 million in the
comparable quarter of the prior year. Included in the operating
loss for the prior year was a $13.0
million ($8.4 million after
tax) non-cash charge related to the de-recognition of certain
assets associated with paste production at the Diavik Diamond Mine,
which were no longer expected to be required for underground
mining. EBITDA for the mining segment was $29.8 million compared to $18.8 million in the comparable quarter of the
prior year.
The luxury brand segment recorded sales of
$95.6 million, an increase of 14%
from sales of $83.5 million in the
comparable quarter of the prior year (an increase of 17% at
constant exchange rates). Operating profit was $5.3 million for the quarter compared to
$1.5 million in the comparable
quarter of the prior year. EBITDA for the luxury brand segment was
$9.1 million compared to $4.5 million in the comparable quarter of the
prior year.
The corporate segment recorded selling, general
and administrative expenses of $4.3
million compared to $2.3
million in the comparable quarter of the prior year.
The Company recorded a consolidated net profit
attributable to shareholders of $3.4
million or $0.04 per share for
the quarter, compared to a net loss attributable to shareholders of
$4.7 million or $0.06 per share in the third quarter of the prior
year.
Management's Discussion and Analysis
PREPARED AS OF DECEMBER 6,
2012 (ALL FIGURES ARE IN UNITED
STATES DOLLARS UNLESS OTHERWISE INDICATED)
The following is management's discussion and
analysis ("MD&A") of the results of operations for
Harry Winston Diamond Corporation ("Harry Winston Diamond
Corporation", or the "Company") for the three and nine months ended
October 31, 2012, and its
financial position as at October 31,
2012. This MD&A is based on the Company's unaudited
interim condensed consolidated financial statements prepared in
accordance with International Financial Reporting Standards
("IFRS") and should be read in conjunction with the unaudited
interim condensed consolidated financial statements and notes
thereto for the three and nine months ended October 31, 2012 and the audited consolidated
financial statements of the Company and notes thereto for the year
ended January 31, 2012. Unless
otherwise specified, all financial information is presented in
United States dollars. Unless
otherwise indicated, all references to "third quarter" refer to the
three months ended October 31. Unless
otherwise indicated, references to "international" for the luxury
brand segment refer to Europe and
Asia.
Certain information included in this MD&A
may constitute forward-looking information within the meaning of
Canadian and United States
securities laws. In some cases, forward-looking information can be
identified by the use of terms such as "may", "will", "should",
"expect", "plan", "anticipate", "foresee", "appears", "believe",
"intend", "estimate", "predict", "potential", "continue",
"objective", "modeled", "hope" 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 plans, timelines and targets for
construction, mining, development, production and exploration
activities at the Diavik Diamond Mine, future mining and processing
at the Diavik Diamond Mine, projected capital expenditure
requirements and the funding thereof, liquidity and working capital
requirements and sources, estimated reserves and resources at, and
production from, the Diavik Diamond Mine, the number and timing of
expected rough diamond sales, the demand for rough diamonds,
expected diamond prices and expectations concerning the diamond
industry and the demand for luxury goods, expected cost of sales
and gross margin trends in the mining segment, targets for compound
annual growth rates of sales and operating income in the luxury
brand segment, plans for expansion of the luxury brand retail salon
network, expected sales trends and market conditions in the luxury
brand segment, and the ability to obtain the necessary regulatory
approvals to complete the Ekati transactions and the time frame
required to do so and to satisfy the other conditions to closing.
Actual results may vary from the forward-looking information. See
"Risks and Uncertainties" on page 21 for material risk factors that
could cause actual results to differ materially from the
forward-looking information.
Forward-looking information is based on certain
factors and assumptions regarding, among other things, mining,
production, construction and exploration activities at the Diavik
Diamond Mine, world and US economic conditions, the worldwide
demand for luxury goods, and the timeline for the funding of the
Ekati transaction. In making statements regarding expected diamond
prices and expectations concerning the diamond industry and
expected sales trends and market conditions in the luxury brand
segment, the Company has made assumptions regarding, among other
things, the state of world and US economic conditions, worldwide
diamond production levels, and demand for luxury goods. While the
Company considers these assumptions to be reasonable based on the
information currently available to it, they may prove to be
incorrect. See "Risks and Uncertainties" on page 21.
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, including risks associated with
underground construction and mining operations, risks associated
with joint venture operations, including risks associated with the
inability to control the timing and scope of future capital
expenditures, and risks of changes to the mine plan for the Diavik
Diamond Mine, risks associated with the remote location of and
harsh climate at the Diavik Diamond Mine site, risks resulting from
the Eurozone financial crisis, risks associated with regulatory
requirements, fluctuations in diamond prices and changes in US and
world economic conditions, the risk of fluctuations in the
Canadian/US dollar exchange rate, cash flow and liquidity risks,
the risks relating to the Company's expansion strategy, the risk of
competition in the luxury jewelry business as well as changes in
demand for high-end luxury goods, and risks relating to the timing
of and ability to obtain necessary regulatory approvals for, and to
satisfy the other closing conditions of, the Ekati transactions and
the mining segment's related new credit facilities. Please see page
21 of this Interim Report, as well as the Company's current Annual
Information Form, available at www.sedar.com, for a discussion of
these and other risks and uncertainties involved in the Company's
operations.
Readers are cautioned not to place undue
importance on forward-looking information, which speaks only as of
the date of this MD&A, and should not rely upon this
information as of any other date. Due to assumptions, risks and
uncertainties, including the assumptions, risks and uncertainties
identified above and elsewhere in this MD&A, actual events may
differ materially from current expectations. The Company uses
forward-looking statements because it believes such statements
provide useful information with respect to the expected future
operations and financial performance of the Company, and cautions
readers that the information may not be appropriate for other
purposes. While the Company may elect to, it is under no obligation
and does not undertake to update or revise any forward-looking
information, whether as a result of new information, future events
or otherwise at any particular time, except as required by law.
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 and can be found at www.sedar.com and
www.sec.gov, respectively.
Summary Discussion
Harry Winston Diamond Corporation is a diamond enterprise with
premium assets in the mining and retailing segments of the diamond
industry. The Company supplies rough diamonds to the global market
from its 40% ownership interest in the Diavik Diamond Mine, located
in Canada's Northwest Territories. The Company's luxury
brand segment is a premier diamond jeweler and luxury timepiece
retailer with salons in key locations including New York, Paris, London, Beijing, Shanghai, Tokyo, Hong
Kong and Beverly Hills.
The Company's mining asset is an 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
Harry Winston Diamond Limited Partnership ("HWDLP") (40%)
where HWDLP holds an undivided 40% ownership interest in the
assets, liabilities and expenses of the Diavik Diamond Mine. DDMI
is the operator of the Diavik Diamond Mine. DDMI and HWDLP are
headquartered in Yellowknife,
Canada. DDMI is a wholly owned subsidiary of Rio Tinto plc
of London, England.
On November 13,
2012, the Company entered into share purchase agreements
with BHP Billiton Canada Inc. and various affiliates to purchase
all of BHP Billiton's diamond assets, including its controlling
interest in the Ekati Diamond Mine as well as the associated
diamond sorting and sales facilities in Yellowknife, Canada, and Antwerp, Belgium. The Ekati Diamond Mine
consists of the Core Zone, which includes the current operating
mine and other permitted kimberlite pipes, as well as the Buffer
Zone, an adjacent area hosting kimberlite pipes having both
development and exploration potential. The agreed purchase price,
payable in cash, is $400 million for
the Core Zone interest and $100
million for the Buffer Zone interest, subject to adjustments
in accordance with the terms of the share purchase agreements. The
share purchase agreements include typical closing conditions,
including receipt of required regulatory and Competition Act
approvals. Each of the Core Zone and the Buffer Zone is subject to
a separate joint venture agreement. BHP Billiton holds an 80%
interest in the Core Zone and a 58.8% interest in the Buffer Zone,
with the remainder held by the Ekati minority joint venture
parties. Pursuant to the joint venture agreements, BHP Billiton
will first separately offer to the joint venture parties its
interest in each of the Core and Buffer Zones on the same terms as
those agreed to by the Company. The joint venture parties will then
have 60 days to elect to acquire either or both of those interests.
Any interests that the joint venture parties do not elect to
acquire within that time period can then be transferred to the
Company in the following 60 days. If the Core Zone
transaction is not completed because the minority joint venture
parties exercise their pre-emptive rights, the Company will be
entitled to be paid a termination fee of $30
million by BHP Billiton. Closing of the transactions is
currently expected to occur before the end of March, 2013. The
purchase price for the acquisitions will be satisfied from cash
resources on hand and from new debt financing that has been
arranged with two banks. The new facilities will comprise a
$400 million term loan, a
$100 million revolving credit
facility (of which $50 million will
be available for purposes of funding the Ekati acquisition) and a
$140 million letter of credit
facility in support of the Core Zone environmental reclamation
bond. The new facilities will be secured and will replace the
Company mining segment's current $125
million facility with Standard Chartered Bank, which will be
repaid and terminated on closing.
Market Commentary
The Diamond Market
During the third quarter, improved retail sales, especially in
India and the US, have given a
boost to the diamond market, resulting in stabilization of both
rough and polished diamond prices, despite continued macroeconomic
uncertainty. In China, renewed
activity in the retail market together with changes in the
political landscape are expected to have a positive impact on
demand from this region. In light of this improvement, the industry
lending banks appear more relaxed about the current level of credit
notwithstanding some concerns about profitability among diamond
manufacturers. In recent months, the industry has taken a more
pragmatic approach to both rough diamond buying and diamond
manufacturing and is generally better positioned to benefit from an
improved market over the holiday season.
The Luxury Jewelry and Timepiece
Market
The global luxury market for jewelry and timepieces continued to
generate healthy growth during the third quarter. Consumer demand
for luxury products from strong European and North American brands
continues to increase, supported by tourism from emerging markets.
Expansion of luxury brand networks in emerging markets combined
with targeted marketing campaigns is translating into growing
numbers of new luxury consumers. Against these general trends,
Hurricane Sandy negatively impacted retail businesses in the
northeastern US at the end of the Company's third quarter, with
store closures and power outages of up to a week. This, together
with continuing economic uncertainty in Europe, softening demand in China and budget policy issues in the US, are
likely to result in slower growth in the near term. Longer term,
demand for luxury products is expected to continue to grow as a
result of the anticipated economic recovery in the US, increasing
mobility of consumers and growing demand from emerging markets. The
Chinese market is expected to continue to provide the strongest
growth in demand for luxury products, both directly in China as well as through tourism abroad.
Condensed Consolidated Financial
Results
The following is a summary of the Company's consolidated quarterly
results for the eight quarters ended October
31, 2012 following the basis of presentation utilized in its
IFRS financial statements:
(expressed in thousands of United States dollars
except per share amounts and where otherwise noted)
(unaudited) |
| |
|
|
2013 |
|
|
2013 |
|
|
2013 |
|
|
2012 |
|
|
2012 |
|
|
2012 |
|
|
2012 |
|
|
2011 |
|
|
Nine
months
ended
October
31, |
|
|
Nine
months
ended
October
31, |
| |
|
|
Q3 |
|
|
Q2 |
|
|
Q1 |
|
|
Q4 |
|
|
Q3 |
|
|
Q2 |
|
|
Q1 |
|
|
Q4 |
|
|
2012 |
|
|
2011 |
| Sales |
|
$ |
180,399 |
|
$ |
176,897 |
|
$ |
192,461 |
|
$ |
216,017 |
|
$ |
119,716 |
|
$ |
222,378 |
|
$ |
143,932 |
|
$ |
215,358 |
|
$ |
549,757 |
|
$ |
486,026 |
| Cost of sales |
|
|
114,690 |
|
|
104,694 |
|
|
119,134 |
|
|
129,807 |
|
|
75,524 |
|
|
150,177 |
|
|
96,452 |
|
|
141,391 |
|
|
338,518 |
|
|
322,153 |
| Gross margin |
|
|
65,709 |
|
|
72,203 |
|
|
73,327 |
|
|
86,210 |
|
|
44,192 |
|
|
72,201 |
|
|
47,480 |
|
|
73,967 |
|
|
211,239 |
|
|
163,873 |
| Gross margin (%) |
|
|
36.4% |
|
|
40.8% |
|
|
38.1% |
|
|
39.9% |
|
|
36.9% |
|
|
32.5% |
|
|
33.0% |
|
|
34.3% |
|
|
38.4% |
|
|
33.7% |
| Selling, general and
administrative expenses |
|
|
55,387 |
|
|
55,819 |
|
|
54,669 |
|
|
55,500 |
|
|
46,155 |
|
|
49,101 |
|
|
42,795 |
|
|
52,722 |
|
|
165,875 |
|
|
138,051 |
| Operating profit (loss) |
|
|
10,322 |
|
|
16,384 |
|
|
18,658 |
|
|
30,710 |
|
|
(1,963) |
|
|
23,100 |
|
|
4,685 |
|
|
21,245 |
|
|
45,364 |
|
|
25,822 |
| Finance expenses |
|
|
(4,811) |
|
|
(4,028) |
|
|
(3,880) |
|
|
(3,481) |
|
|
(4,040) |
|
|
(5,183) |
|
|
(3,983) |
|
|
(3,727) |
|
|
(12,719) |
|
|
(13,206) |
| Exploration costs |
|
|
(673) |
|
|
(568) |
|
|
(254) |
|
|
(177) |
|
|
(600) |
|
|
(781) |
|
|
(212) |
|
|
(351) |
|
|
(1,495) |
|
|
(1,593) |
| Finance and other income |
|
|
96 |
|
|
90 |
|
|
65 |
|
|
81 |
|
|
164 |
|
|
83 |
|
|
258 |
|
|
278 |
|
|
251 |
|
|
505 |
| Foreign exchange gain (loss) |
|
|
767 |
|
|
153 |
|
|
(364) |
|
|
458 |
|
|
436 |
|
|
288 |
|
|
(177) |
|
|
1,392 |
|
|
556 |
|
|
547 |
| Profit (loss) before income taxes |
|
|
5,701 |
|
|
12,031 |
|
|
14,225 |
|
|
27,591 |
|
|
(6,003) |
|
|
17,507 |
|
|
571 |
|
|
18,837 |
|
|
31,957 |
|
|
12,075 |
| Income tax expense (recovery) |
|
|
1,687 |
|
|
7,278 |
|
|
2,615 |
|
|
11,001 |
|
|
(1,272) |
|
|
7,519 |
|
|
(3,027) |
|
|
5,137 |
|
|
11,580 |
|
|
3,220 |
| Net profit (loss) |
|
$ |
4,014 |
|
$ |
4,753 |
|
$ |
11,610 |
|
$ |
16,590 |
|
$ |
(4,731) |
|
$ |
9,988 |
|
$ |
3,598 |
|
$ |
13,700 |
|
$ |
20,377 |
|
$ |
8,855 |
| Attributable to shareholders |
|
$ |
3,397 |
|
$ |
4,755 |
|
$ |
11,610 |
|
$ |
16,602 |
|
$ |
(4,728) |
|
$ |
9,986 |
|
$ |
3,596 |
|
$ |
13,693 |
|
$ |
19,762 |
|
$ |
8,854 |
| Attributable to non-controlling interest |
|
|
617 |
|
|
(2) |
|
|
- |
|
|
(12) |
|
|
(3) |
|
|
2 |
|
|
2 |
|
|
7 |
|
|
615 |
|
|
1 |
| Basic earnings (loss) per share |
|
$ |
0.04 |
|
$ |
0.06 |
|
$ |
0.14 |
|
$ |
0.20 |
|
$ |
(0.06) |
|
$ |
0.12 |
|
$ |
0.04 |
|
$ |
0.16 |
|
$ |
0.23 |
|
$ |
0.10 |
| Diluted earnings (loss) per share |
|
$ |
0.04 |
|
$ |
0.06 |
|
$ |
0.14 |
|
$ |
0.19 |
|
$ |
(0.06) |
|
$ |
0.12 |
|
$ |
0.04 |
|
$ |
0.16 |
|
$ |
0.23 |
|
$ |
0.10 |
| Cash dividends declared per share |
|
$ |
0.00 |
|
$ |
0.00 |
|
$ |
0.00 |
|
$ |
0.00 |
|
$ |
0.00 |
|
$ |
0.00 |
|
$ |
0.00 |
|
$ |
0.00 |
|
$ |
0.00 |
|
$ |
0.00 |
| Total assets (i) |
|
$ |
1,733 |
|
$ |
1,660 |
|
$ |
1,716 |
|
$ |
1,637 |
|
$ |
1,656 |
|
$ |
1,671 |
|
$ |
1,671 |
|
$ |
1,609 |
|
$ |
1,733 |
|
$ |
1,656 |
| Total long-term liabilities (i) |
|
$ |
682 |
|
$ |
461 |
|
$ |
472 |
|
$ |
670 |
|
$ |
661 |
|
$ |
633 |
|
$ |
613 |
|
$ |
603 |
|
$ |
682 |
|
$ |
661 |
| Operating profit (loss) |
|
$ |
10,322 |
|
$ |
16,384 |
|
$ |
18,658 |
|
$ |
30,710 |
|
$ |
(1,963) |
|
$ |
23,100 |
|
$ |
4,685 |
|
$ |
21,245 |
|
$ |
45,364 |
|
$ |
25,822 |
| Depreciation and amortization (ii) |
|
|
24,453 |
|
|
16,980 |
|
|
25,546 |
|
|
27,512 |
|
|
23,121 |
|
|
20,716 |
|
|
20,291 |
|
|
24,635 |
|
|
66,980 |
|
|
64,129 |
| EBITDA (iii) |
|
$ |
34,775 |
|
$ |
33,364 |
|
$ |
44,204 |
|
$ |
58,222 |
|
$ |
21,158 |
|
$ |
43,816 |
|
$ |
24,976 |
|
$ |
45,880 |
|
$ |
112,344 |
|
$ |
89,951 |
| (i) |
Total assets and total long-term
liabilities are expressed in millions of United States
dollars. |
| (ii) |
Depreciation and amortization
included in cost of sales and selling, general and administrative
expenses. |
| (iii) |
Earnings before interest, taxes,
depreciation and amortization ("EBITDA"). See "Non-IFRS Measure" on
page 19. |
| |
| |
The comparability of
quarter-over-quarter results is impacted by seasonality for both
the mining and luxury brand segments. Harry Winston Diamond
Corporation expects that the quarterly results for its mining
segment will continue to fluctuate depending on the seasonality of
production at the Diavik Diamond Mine, the number of sales events
conducted during the quarter, and the volume, size and quality
distribution of rough diamonds delivered from the Diavik Diamond
Mine in each quarter. The quarterly results for the luxury brand
segment are also seasonal, with generally higher sales during the
fourth quarter due to the holiday season. See "Segmented Analysis"
on page 10 for additional information. |
| |
|
Three Months Ended October 31, 2012 Compared to Three
Months Ended October 31, 2011
CONSOLIDATED NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS
The Company recorded a third quarter consolidated net profit
attributable to shareholders of $3.4
million or $0.04 per share
compared to a net loss attributable to shareholders of $4.7 million or $0.06 per share in the third quarter of the prior
year. Excluding the $8.4 million
after-tax de-recognition in the prior year of certain paste
production assets in the mining segment, the Company would have
recorded a net profit attributable to shareholders of $3.7 million or $0.04 per share.
CONSOLIDATED SALES
Sales for the third quarter totalled $180.4
million, consisting of rough diamond sales of $84.8 million and luxury brand segment sales
of $95.6 million. This compares
to sales of $119.7 million in the
comparable quarter of the prior year (rough diamond sales of
$36.2 million and luxury brand
segment sales of $83.5 million).
See "Segmented Analysis" on page 10 for additional
information.
CONSOLIDATED COST OF SALES AND GROSS MARGIN
The Company's third quarter cost of sales was $114.7 million for a gross margin of 36.4%
compared to a cost of sales of $75.5
million and a gross margin of 36.9% for the comparable
quarter of the prior year. The Company's cost of sales includes
costs associated with the Diavik Diamond Mine, rough diamond
sorting and luxury brand activities. See "Segmented Analysis" on
page 10 for additional information.
CONSOLIDATED SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES
The principal components of selling, general and administrative
("SG&A") expenses include expenses for salaries and benefits,
advertising and marketing, rent and related costs. The Company
incurred SG&A expenses of $55.4
million for the third quarter, compared to $46.2 million in the comparable quarter of the
prior year.
Included in SG&A expenses for the third
quarter was $3.9 million for the
mining segment compared to $3.3
million for the comparable quarter of the prior year,
$47.2 million for the luxury brand
segment compared to $40.6 million for
the comparable quarter of the prior year, and $4.3 million for the corporate segment compared
to $2.2 million for the comparable
quarter of the prior year. See "Segmented Analysis" on page 10
for additional information.
CONSOLIDATED INCOME TAXES
The Company recorded a net income tax expense of $1.7 million during the third quarter, compared
to a net income tax recovery of $1.3
million in the comparable quarter of the prior year. The
Company's combined federal and provincial statutory income tax rate
for the quarter is 26.5%. There are a number of items that
can significantly impact the Company's effective tax rate,
including foreign currency exchange rate fluctuations, the
Northwest Territories mining
royalty, earnings subject to tax different than the statutory rate,
and the recognition of previously unrecognized benefits. As a
result, the Company's recorded tax provision can be significantly
different than the expected tax provision calculated based on the
statutory tax rate.
The recorded tax provision is particularly
impacted by foreign currency exchange rate fluctuations. 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
third quarter, the Canadian dollar strengthened against the US
dollar. As a result, the Company recorded an unrealized foreign
exchange loss of $0.7 million on the
revaluation of the Company's Canadian dollar denominated deferred
income tax liability. This compares to an unrealized foreign
exchange gain of $8.1 million in the
comparable quarter of the prior year. The unrealized foreign
exchange loss is recorded as part of the Company's deferred income
tax expense, and is not deductible for Canadian income tax
purposes. During the third quarter, the Company also recognized a
deferred income tax expense of $1.0
million for temporary differences arising from the
difference between the historical exchange rate and the current
exchange rate translation of foreign currency non-monetary items.
This compares to a deferred income tax expense of $11.4 million recognized in the comparable
quarter of the prior year. The recorded tax provision during the
third quarter also included a net income tax recovery of
$2.1 million relating to foreign
exchange differences between income in the currency of the country
of origin and the US dollar. This compares to a net income tax
recovery of $0.7 million recognized
in the comparable quarter of the prior year.
The rate of income tax payable by Harry Winston
Inc. 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 2032.
Due to the number of factors that can
potentially impact the effective tax rate and the sensitivity of
the tax provision to these factors, as discussed above, it is
expected that the Company's effective tax rate will fluctuate in
future periods.
CONSOLIDATED FINANCE EXPENSES
Included in finance expenses for the third quarter was $2.3 million for the mining segment compared to
$2.6 million for the comparable
quarter of the prior year and $2.5
million for the luxury brand segment compared to
$1.5 million for the comparable
quarter of the prior year. Also included in finance expense for the
mining segment is accretion expense of $0.6
million (2012 - $0.7 million)
related to the Diavik Diamond Mine's future site restoration
liability.
CONSOLIDATED EXPLORATION EXPENSE
Exploration expense of $0.7 million
was incurred during the third quarter compared to $0.6 million in the comparable quarter of the
prior year.
CONSOLIDATED FINANCE AND OTHER INCOME
Finance and other income of $0.1
million was recorded during the third quarter compared to
$0.2 million in the comparable
quarter of the prior year.
CONSOLIDATED FOREIGN EXCHANGE
A net foreign exchange gain of $0.8
million was recognized during the third quarter compared to
a net foreign exchange gain of $0.4
million in the comparable quarter of the prior year.
The Company does not currently have any significant foreign
exchange derivative instruments outstanding.
Nine Months Ended October 31, 2012 Compared to Nine
Months Ended October 31, 2011
CONSOLIDATED NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS
The Company recorded a consolidated net profit attributable to
shareholders of $19.8 million or
$0.23 per share for the nine months
ended October 31, 2012, compared to a
net profit attributable to shareholders of $8.9 million or $0.10 per share in the comparable period of the
prior year. Excluding the $8.4
million after-tax de-recognition in the prior year of
certain paste production assets in the mining segment, the Company
would have recorded a net profit attributable to shareholders of
$17.3 million or $0.20 per share.
CONSOLIDATED SALES
Sales totalled $549.8 million for the
nine months ended October 31, 2012,
consisting of rough diamond sales of $235.3
million and luxury brand segment sales of $314.5 million. This compares to sales of
$486.0 million in the comparable
period of the prior year (rough diamond sales of $187.9 million and luxury brand segment
sales of $298.1 million).
See "Segmented Analysis" on page 10 for additional
information.
CONSOLIDATED COST OF SALES AND GROSS MARGIN
The Company's cost of sales was $338.5
million for the nine months ended October 31, 2012, for a gross margin of 38.4%
compared to a cost of sales of $322.2
million and a gross margin of 33.7% for the comparable
period of the prior year. The Company's cost of sales includes
costs associated with the Diavik Diamond Mine, rough diamond
sorting and luxury brand activities. See "Segmented Analysis" on
page 10 for additional information.
CONSOLIDATED SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES
The principal components of SG&A expenses include expenses for
salaries and benefits, advertising and marketing, rent and related
costs. The Company incurred SG&A expenses of $165.9 million for the nine months ended
October 31, 2012, compared to
$138.1 million in the comparable
period of the prior year.
Included in SG&A expenses for the nine
months ended October 31, 2012, was
$9.4 million for the mining segment
compared to $11.4 million for the
comparable period of the prior year, $144.0
million for the luxury brand segment compared to
$118.7 million for the comparable
period of the prior year, and $12.4
million for the corporate segment compared to $8.0 million for the comparable period of the
prior year. See "Segmented Analysis" on page 10 for additional
information.
CONSOLIDATED INCOME TAXES
The Company recorded a net income tax expense of $11.6 million during the nine months ended
October 31, 2012, compared to a net
income tax expense of $3.2 million in
the comparable period of the prior year. The Company's combined
federal and provincial statutory income tax rate for the nine
months ended October 31, 2012 is
26.5%. There are a number of items that can significantly impact
the Company's effective tax rate, including foreign currency
exchange rate fluctuations, the Northwest
Territories mining royalty, earnings subject to tax
different than the statutory rate, and the recognition of
previously unrecognized benefits. As a result, the Company's
recorded tax provision can be significantly different than the
expected tax provision calculated based on the statutory tax
rate.
The recorded tax provision is particularly
impacted by foreign currency exchange rate fluctuations. 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 nine
months ended October 31, 2012, the
Canadian dollar strengthened against the US dollar. As a result,
the Company recorded an unrealized foreign exchange loss of
$0.8 million on the revaluation of
the Company's Canadian dollar denominated deferred income tax
liability. This compares to an unrealized foreign exchange loss of
$1.7 million in the comparable period
of the prior year. During the nine months ended October 31, 2012, the Company recognized a
deferred income tax expense of $3.5
million for temporary differences arising from the
difference between the historical exchange rate and the current
exchange rate translation of foreign currency non-monetary items.
This compares to a deferred income tax expense of $2.8 million recognized in the comparable period
of the prior year. The recorded tax provision during the nine
months ended October 31, 2012 also
included a net income tax recovery of $4.0
million relating to foreign exchange differences between
income in the currency of the country of origin and the US dollar.
This compares to a net income tax recovery of $3.8 million recognized in the comparable period
of the prior year.
The rate of income tax payable by Harry Winston
Inc. 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 2032.
Due to the number of factors that can
potentially impact the effective tax rate and the sensitivity of
the tax provision to these factors, as discussed above, it is
expected that the Company's effective tax rate will fluctuate in
future periods.
CONSOLIDATED FINANCE EXPENSES
Included in finance expenses for the nine months ended October 31, 2012 was $6.7
million for the mining segment compared to $9.1 million for the comparable period of the
prior year and $6.0 million for the
luxury brand segment compared to $4.2
million for the comparable period of the prior year. Also
included in finance expense for the mining segment is accretion
expense of $1.9 million (2012 -
$2.3 million) related to the Diavik
Diamond Mine's future site restoration liability.
CONSOLIDATED EXPLORATION EXPENSE
Exploration expense of $1.5 million
was incurred during the nine months ended October 31, 2012, compared to $1.6 million in the comparable period of the
prior year.
CONSOLIDATED FINANCE AND OTHER INCOME
Finance and other income of $0.3
million was recorded during the nine months ended
October 31, 2012, compared to
$0.5 million in the comparable period
of the prior year.
CONSOLIDATED FOREIGN EXCHANGE
A net foreign exchange gain of $0.6
million was recognized during the nine months ended
October 31, 2012, compared to
$0.5 million in the comparable period
of the prior year. The Company does not currently have any
significant foreign exchange derivative instruments
outstanding.
Segmented Analysis
The operating segments of the Company include mining, luxury brand
and corporate segments. The corporate segment captures costs not
specifically related to operations of the mining or luxury brand
segments.
Mining
The mining segment includes the production, sorting and sale of
rough diamonds.
(expressed in thousands of United States
dollars)
(unaudited) |
| |
|
|
2013 |
|
|
2013 |
|
|
2013 |
|
|
2012 |
|
|
2012 |
|
|
2012 |
|
|
2012 |
|
|
2011 |
|
|
Nine
months
ended
October
31, |
|
|
Nine
months
ended
October
31, |
| |
|
|
Q3 |
|
|
Q2 |
|
|
Q1 |
|
|
Q4 |
|
|
Q3 |
|
|
Q2 |
|
|
Q1 |
|
|
Q4 |
|
|
2012 |
|
|
2011 |
| Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
America |
|
$ |
7,697 |
|
$ |
2,269 |
|
$ |
7,432 |
|
$ |
2,727 |
|
$ |
8,835 |
|
$ |
447 |
|
$ |
3,009 |
|
$ |
2,689 |
|
$ |
17,398 |
|
$ |
12,291 |
| |
Europe |
|
|
57,438 |
|
|
50,514 |
|
|
54,370 |
|
|
78,846 |
|
|
21,993 |
|
|
80,131 |
|
|
50,752 |
|
|
75,715 |
|
|
162,322 |
|
|
152,876 |
| |
Asia |
|
|
19,683 |
|
|
8,690 |
|
|
27,207 |
|
|
20,659 |
|
|
5,411 |
|
|
9,030 |
|
|
8,274 |
|
|
4,293 |
|
|
55,580 |
|
|
22,715 |
| Total sales |
|
|
84,818 |
|
|
61,473 |
|
|
89,009 |
|
|
102,232 |
|
|
36,239 |
|
|
89,608 |
|
|
62,035 |
|
|
82,697 |
|
|
235,300 |
|
|
187,882 |
| Cost of sales |
|
|
71,663 |
|
|
46,784 |
|
|
70,099 |
|
|
72,783 |
|
|
34,112 |
|
|
67,613 |
|
|
53,443 |
|
|
61,822 |
|
|
188,546 |
|
|
155,168 |
| Gross margin |
|
|
13,155 |
|
|
14,689 |
|
|
18,910 |
|
|
29,449 |
|
|
2,127 |
|
|
21,995 |
|
|
8,592 |
|
|
20,875 |
|
|
46,754 |
|
|
32,714 |
| Gross margin (%) |
|
|
15.5% |
|
|
23.9% |
|
|
21.2% |
|
|
28.8% |
|
|
5.9% |
|
|
24.5% |
|
|
13.9% |
|
|
25.2% |
|
|
19.9% |
|
|
17.4% |
| Selling, general and administrative
expenses |
|
|
3,932 |
|
|
2,966 |
|
|
2,525 |
|
|
2,061 |
|
|
3,274 |
|
|
3,489 |
|
|
4,630 |
|
|
3,017 |
|
|
9,423 |
|
|
11,393 |
| Operating profit (loss) |
|
$ |
9,223 |
|
$ |
11,723 |
|
$ |
16,385 |
|
$ |
27,388 |
|
$ |
(1,147) |
|
$ |
18,506 |
|
$ |
3,962 |
|
$ |
17,858 |
|
$ |
37,331 |
|
$ |
21,321 |
| Depreciation and amortization
(i) |
|
|
20,588 |
|
|
13,160 |
|
|
22,172 |
|
|
24,284 |
|
|
19,932 |
|
|
17,461 |
|
|
17,083 |
|
|
20,669 |
|
|
55,921 |
|
|
54,476 |
| EBITDA (ii) |
|
$ |
29,811 |
|
$ |
24,883 |
|
$ |
38,557 |
|
$ |
51,672 |
|
$ |
18,785 |
|
$ |
35,967 |
|
$ |
21,045 |
|
$ |
38,527 |
|
$ |
93,252 |
|
$ |
75,797 |
| (i) |
Depreciation and amortization
included in cost of sales and selling, general and administrative
expenses. |
| (ii) |
Earnings before interest, taxes,
depreciation and amortization ("EBITDA"). See "Non-IFRS Measure" on
page 19. |
| |
|
Three Months Ended October 31, 2012 Compared to Three
Months Ended October 31, 2011
MINING SALES
During the third quarter the Company sold approximately 0.88
million carats for a total of $84.8
million for an average price per carat of $96 compared to approximately 0.23 million carats
for a total of $36.2 million for an
average price per carat of $159 in
the comparable quarter of the prior year. The 286% increase in the
quantity of carats sold was primarily the result of the Company's
decision in the prior year to hold some inventory of lower than
average price items until stability returned to the rough diamond
market. The 39% decrease in the Company's achieved average rough
diamond prices during the third quarter resulted from the sale of a
higher portion of smaller size diamonds due to an improved market
for these goods.
Had the Company sold only the last production
shipped in the third quarter, the estimated achieved price would
have been approximately $123 per
carat based on the prices achieved in the October 2012 sale.
The Company expects that results for its mining
segment will continue to fluctuate depending on the seasonality of
production at the Diavik Diamond Mine, the number of sales events
conducted during the quarter, rough diamond prices and the volume,
size and quality distribution of rough diamonds delivered from the
Diavik Diamond Mine and sold by the Company in
each quarter.
MINING COST OF SALES AND GROSS MARGIN
The Company's third quarter cost of sales was $71.7 million resulting in a gross margin of
15.5% compared to a cost of sales of $34.1
million and a gross margin of 5.9% in the comparable quarter
of the prior year. Included in the cost of sales for the prior year
was a non-cash $13.0 million charge
related to the de-recognition of certain components of the backfill
plant associated with paste production at the Diavik Diamond Mine.
Cost of sales for the third quarter included $19.8 million of depreciation and amortization
compared to $19.3 million in the
comparable quarter of the prior year. The mining gross margin for
the third quarter was impacted by the sale of a higher portion of
smaller size goods, which carry lower-than-average gross margins.
The mining gross margin is anticipated to fluctuate between
quarters, resulting from variations in the specific mix of product
sold during each quarter and rough diamond prices.
A substantial portion of cost of sales is mining
operating costs, which are incurred at the Diavik Diamond Mine.
During the third quarter, the Diavik cash cost of production was
$42.0 million compared to
$38.5 million in the comparable
quarter of the prior year. Cost of sales also includes sorting
costs, which consists of the Company's cost of handling and sorting
product in preparation for sales to third parties, and depreciation
and amortization, the majority of which is recorded using the
unit-of-production method over estimated proven and probable
reserves.
The Company's MD&A refers to cash cost of
production, a non-IFRS performance measure, in order to provide
investors with information about the measure used by management to
monitor performance. This information is used to assess how well
the Diavik Diamond Mine is performing compared to the mine plan and
prior periods. Cash cost of production includes mine site operating
costs such as mining, processing and administration, but is
exclusive of amortization, capital, and exploration and development
costs. Cash cost of production does not have any standardized
meaning prescribed by IFRS and differs from measures determined in
accordance with IFRS. This performance measure is intended to
provide additional information and should not be considered in
isolation or as a substitute for measures of performance prepared
in accordance with IFRS. This measure is not necessarily indicative
of net profit or cash flow from operations as determined under
IFRS. The following table provides a reconciliation of cash cost of
production to the mining segment cost of sales disclosed in the
interim condensed consolidated financial statements for the three
months ended October 31, 2012 and
2011.
|
(expressed in thousands of United States dollars) |
|
|
Three months
ended
October 31, 2012 |
|
|
Three months
ended
October 31, 2011 |
| Diavik cash cost of
production |
|
|
$ |
42,048 |
|
|
$ |
38,468 |
| Private royalty |
|
|
|
1,632 |
|
|
|
710 |
| Other cash costs |
|
|
|
1,057 |
|
|
|
988 |
| Total cash cost of
production |
|
|
|
44,737 |
|
|
|
40,166 |
| Depreciation and
amortization |
|
|
|
20,547 |
|
|
|
32,868 |
| Total cost of
production |
|
|
|
65,284 |
|
|
|
73,034 |
| Adjusted for stock
movements |
|
|
|
6,379 |
|
|
|
(38,922) |
| Total cost of
sales |
|
|
$ |
71,663 |
|
|
$ |
34,112 |
MINING SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Included in the SG&A expenses for the mining segment was
$1.0 million related to the Ekati
Diamond Mine acquisition.
Nine Months Ended October 31, 2012 Compared to Nine
Months Ended October 31, 2011
MINING SALES
During the nine months ended October 31,
2012, the Company sold approximately 2.3 million carats for
a total of $235.3 million for an
average price per carat of $101
compared to approximately 1.3 million carats for a total of
$187.9 million for an average price
per carat of $148 in the comparable
period of the prior year. The 84% increase in the quantity of
carats sold was primarily the result of decision by the Company to
hold back some lower priced goods at October
31, 2011 due to an oversupply in the market at that time and
the subsequent sale of almost all of these lower priced carryover
goods during the nine months ended October
31, 2012. The 32% decrease in the Company's achieved average
rough diamond prices in the nine-month period resulted from a
combination of two factors: first, the sale of the lower priced
goods originally held back in inventory by the Company at
October 31, 2011; and second, a
decrease in the market price for rough diamonds from the peak
achieved in the comparable period of the prior year.
MINING COST OF SALES AND GROSS MARGIN
The Company's cost of sales was $188.5
million during the nine months ended October 31, 2012, resulting in a gross margin of
19.9% compared to a cost of sales of $155.2
million and a gross margin of 17.4% in the comparable period
of the prior year. Included in the cost of sales for the prior year
was a non-cash $13.0 million charge
related to the de-recognition of certain components of the backfill
plant associated with paste production at the Diavik Diamond Mine.
Cost of sales for the nine months ended October 31, 2012, included $53.8 million of depreciation and amortization
compared to $52.6 million for the
comparable period 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
and rough diamond prices.
A substantial portion of cost of sales is mining
operating costs, which are incurred at the Diavik Diamond Mine.
During the nine months ended October 31,
2012, the Diavik cash cost of production was $126.7 million compared to $123.6 million in the comparable period of the
prior year. Cost of sales also includes sorting costs, which
consists of the Company's cost of handling and sorting product in
preparation for sales to third parties, and depreciation and
amortization, the majority of which is recorded using the
unit-of-production method over estimated proven and probable
reserves.
The following table provides a reconciliation of
cash cost of production to the mining segment cost of sales
disclosed in the interim condensed consolidated financial
statements for the nine months ended October
31, 2012 and 2011.
|
(expressed in thousands of United States dollars) |
|
|
Nine months ended
October 31, 2012 |
|
|
Nine months ended
October 31, 2011 |
| Diavik cash cost of
production |
|
|
$ |
126,679 |
|
|
$ |
123,600 |
| Private royalty |
|
|
|
5,359 |
|
|
|
4,006 |
| Other cash costs |
|
|
|
3,088 |
|
|
|
2,934 |
| Total cash cost of
production |
|
|
|
135,126 |
|
|
|
130,540 |
| Depreciation and
amortization |
|
|
|
50,334 |
|
|
|
66,554 |
| Total cost of
production |
|
|
|
185,460 |
|
|
|
197,094 |
| Adjusted for stock
movements |
|
|
|
3,086 |
|
|
|
(41,926) |
| Total cost of
sales |
|
|
$ |
188,546 |
|
|
$ |
155,168 |
MINING SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES
SG&A expenses for the mining segment decreased by $2.0 million from the comparable period of the
prior year primarily due to executive severance incurred in the
first quarter of the prior year, offset by $1.7 million related to the Ekati Diamond Mine
acquisition incurred in the nine months ended October 31, 2012.
MINING SEGMENT OPERATIONAL UPDATE
Ore production for the third calendar quarter consisted of
0.8 million carats produced from 0.21 million tonnes of ore
from the A-418 kimberlite pipe, 0.3 million carats produced
from 0.13 million tonnes of ore from the A-154 North kimberlite
pipe, and 0.9 million carats produced from 0.19 million
tonnes of ore from the A-154 South kimberlite pipe. Also included
in ore production for the third calendar quarter was an estimated
0.02 million carats from reprocessed plant rejects ("RPR"). RPR are
not included in the Company's reserves and resource statement and
are therefore incremental to production. Rough diamond production
was consistent with the comparable calendar quarter of the prior
year.
The Diavik Diamond Mine has made the transition
to underground mining more successfully than had been originally
anticipated. Expensive cut-and-fill mining has been replaced by a
much lower cost combination of sub level retreat and blasthole
stoping. Production levels have also ramped up faster than
initially planned despite the challenge of mining through the upper
level of ground impacted by the open pit activity above. In the
upper level of the A-418 underground this involved mining through,
and processing, ore that contained large amounts of steel support
material. This was a special challenge for the processing plant and
led to mine production exceeding processing capacity for a while.
As a result of this, 0.35 million tonnes of broken ore is now
stockpiled on the processing plant feed pad and about half of this
will provide incremental feed during calendar 2013.
HARRY WINSTON DIAMOND LIMITED PARTNERSHIP'S 40% SHARE OF DIAVIK
DIAMOND MINE PRODUCTION
| (reported on a one-month lag) |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three months
ended
September 30,
2012 |
|
|
Three months
ended
September 30,
2011 |
|
|
Nine months
ended
September 30,
2012 |
|
|
Nine months
ended
September 30,
2011 |
| Diamonds recovered (000s carats) |
|
773 |
|
|
773 |
|
|
2,132 |
|
|
2,030 |
| Grade (carats/tonne) |
|
3.68 |
|
|
3.00 |
|
|
3.35 |
|
|
3.03 |
| |
|
|
|
|
|
|
|
|
|
|
|
During the fiscal year, the Company expanded its
Mumbai, India, office to the
Bharat Diamond Bourse in Bandra, India. The new office will continue to support
the Company's polished buying and rough sorting and sales expansion
in India.
Mining Segment Outlook
PRODUCTION
Diavik Diamond Mine's full-year target production is expected to be
approximately 7.1 million carats from the mining of 2.1 million
tonnes of ore and the processing of 2.0 million tonnes of ore. The
decrease in carats from the original plan is primarily due to
deferring the processing and recovery of lower value carats from
the RPR in favour of processing underground ore containing higher
valued carats. Open pit mining of approximately 1.1 million tonnes
of ore was exclusively from the A-418 kimberlite pipe. Open pit
mining of the A-418 kimberlite pipe concluded in September,
although processing of this ore will continue into calendar 2013.
Underground mining of approximately 1.0 million tonnes of ore is
expected to be sourced principally from the A-154 South and A-154
North kimberlite pipes, with some production from A-418. Included
in the estimated production for calendar 2012 is approximately 0.1
million carats from RPR. These RPR recoveries are not included in
the Company's reserves and resource statement and are therefore
incremental to production. The decrease in production results from
a combination of a reduction in processing plant throughput due to
changes in the geological composition of the ore and the
deferral of RPR from calendar 2012.
A new mine plan and budget for calendar 2013 is
under final review by Rio Tinto plc and the Company. The plan for
calendar 2013 foresees Diavik Diamond Mine production of
approximately 6 million carats from the mining and processing of
approximately 1.6 million tonnes of ore with a further 0.2 million
tonnes processed from the stockpile ore. Mining activities will be
exclusively underground with approximately 0.7 million tonnes
expected to be sourced from A-154 North, approximately 0.5 million
tonnes from A-154 South and approximately 0.4 million tonnes from
A-418 kimberlite pipes. Included in the estimated production
for calendar 2013 is approximately 0.6 million carats from RPR and
0.1 million carats from the improved recovery process for small
diamonds. These RPR and small diamond recoveries are not included
in the Company's reserves and resource statement and are therefore
incremental to production.
The development of A-21, the last of the Diavik
Diamond Mine's kimberlite pipes in the original mine plan, has been
deferred due both to the diamond market conditions and decreased
urgency following the identification of extensions to the existing
pipes. Although these extension areas cannot be categorized as ore
at this time due to insufficient definition work, the Company
expects to extend the life of the existing developed pipes thereby
deferring the need for A-21 to keep the processing plant full. The
A-21 pre-feasibility study currently being undertaken assumes that
the A-21 pipe will be mined with the open pit methods used for the
other pipes. A dike would be constructed similar to the two other
pits but smaller in size. Detailed plans are still being refined
and optimized although no underground mining is currently
envisaged.
PRICING
Rough diamond prices have stabilized through the third calendar
quarter as demand has improved. Based on prices from the Company's
rough diamond sales during the third quarter and the current
diamond recovery profile of the Diavik processing plant, the
Company has modeled the current approximate rough diamond price per
carat for each of the Diavik ore types in the table that
follows:
| Ore type |
|
|
|
|
|
October 2012
average price per
carat
(in US dollars) |
| A-154 South |
|
|
|
|
$ |
135 |
| A-154 North |
|
|
|
|
|
170 |
| A-418 |
|
|
|
|
|
95 |
| RPR |
|
|
|
|
|
45 |
| |
|
|
|
|
|
|
COST OF SALES AND CASH COST OF PRODUCTION
The Company's share of the cash cost of production at the Diavik
Diamond Mine for calendar 2012 is expected to be approximately
$167 million at an assumed average
Canadian/US dollar exchange rate of $1.00.
The Company currently expects cost of sales in
fiscal 2014 to be approximately $255
million (including depreciation and amortization of
approximately $70 million). The
Company's share of the cash cost of production at the Diavik
Diamond Mine for calendar 2013 is expected to be approximately
$170 million at an assumed average
Canadian/US dollar exchange rate of $1.00.
CAPITAL EXPENDITURES
During fiscal 2013, HWDLP's 40% share of the planned capital
expenditures at the Diavik Diamond Mine is expected to be
approximately $71 million at an
assumed average Canadian/US dollar exchange rate of $1.00. HWDLP's share of capital expenditures was
$12.5 million for the three months
ended October 31, 2012, and
$42.9 million for the nine months
ended October 31, 2012. During fiscal
2014, HWDLP's 40% share of the planned capital expenditures is
expected to be approximately $28
million at an assumed average Canadian/US dollar exchange
rate of $1.00.
Luxury Brand
The luxury brand segment includes sales from 22 Harry Winston
salons, which are located in prime markets around the world,
including eight salons in the United
States: New York,
Beverly Hills, Bal Harbour, Honolulu, Las
Vegas, Dallas, Chicago and Costa
Mesa; five salons in Japan:
Ginza, Roppongi Hills, Osaka,
Omotesando and Nagoya; three
salons in Europe: Paris and two in London; and six salons in Asia outside of Japan: Beijing, two in Shanghai, Taipei, Hong
Kong and Singapore.
(expressed in thousands of United
States dollars)
(unaudited)
|
| |
|
|
2013 |
|
|
2013 |
|
|
2013 |
|
|
2012 |
|
|
2012 |
|
|
2012 |
|
|
2012 |
|
|
2011 |
|
|
Nine
months
ended
October
31, |
|
|
Nine
months
ended
October
31, |
| |
|
|
Q3 |
|
|
Q2 |
|
|
Q1 |
|
|
Q4 |
|
|
Q3 |
|
|
Q2 |
|
|
Q1 |
|
|
Q4 |
|
|
2012 |
|
|
2011 |
| Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| America |
|
$ |
30,751 |
|
$ |
35,759 |
|
$ |
32,286 |
|
$ |
41,537 |
|
$ |
28,817 |
|
$ |
27,183 |
|
$ |
35,487 |
|
$ |
46,489 |
|
$ |
98,796 |
|
$ |
91,487 |
| Europe |
|
|
27,297 |
|
|
15,636 |
|
|
30,054 |
|
|
31,204 |
|
|
19,561 |
|
|
26,098 |
|
|
17,446 |
|
|
15,701 |
|
|
72,987 |
|
|
63,105 |
| Asia (excluding Japan) |
|
|
15,493 |
|
|
33,956 |
|
|
20,385 |
|
|
17,272 |
|
|
13,133 |
|
|
59,056 |
|
|
14,354 |
|
|
50,817 |
|
|
69,834 |
|
|
86,543 |
| Japan |
|
|
22,040 |
|
|
30,073 |
|
|
20,727 |
|
|
23,772 |
|
|
21,966 |
|
|
20,433 |
|
|
14,610 |
|
|
19,654 |
|
|
72,840 |
|
|
57,009 |
| Total sales |
|
|
95,581 |
|
|
115,424 |
|
|
103,452 |
|
|
113,785 |
|
|
83,477 |
|
|
132,770 |
|
|
81,897 |
|
|
132,661 |
|
|
314,457 |
|
|
298,144 |
| Cost of sales |
|
|
43,027 |
|
|
57,910 |
|
|
49,035 |
|
|
57,024 |
|
|
41,378 |
|
|
82,513 |
|
|
42,958 |
|
|
79,518 |
|
|
149,972 |
|
|
166,850 |
| Gross margin |
|
|
52,554 |
|
|
57,514 |
|
|
54,417 |
|
|
56,761 |
|
|
42,099 |
|
|
50,257 |
|
|
38,939 |
|
|
53,143 |
|
|
164,485 |
|
|
131,294 |
| Gross margin (%) |
|
|
55.0% |
|
|
49.8% |
|
|
52.6% |
|
|
49.9% |
|
|
50.4% |
|
|
37.9% |
|
|
47.5% |
|
|
40.1% |
|
|
52.3% |
|
|
44.0% |
| Selling, general and administrative expenses |
|
|
47,205 |
|
|
49,495 |
|
|
47,311 |
|
|
49,929 |
|
|
40,635 |
|
|
43,331 |
|
|
34,716 |
|
|
47,866 |
|
|
144,011 |
|
|
118,682 |
| Operating profit |
|
$ |
5,349 |
|
$ |
8,019 |
|
$ |
7,106 |
|
$ |
6,832 |
|
$ |
1,464 |
|
$ |
6,926 |
|
$ |
4,223 |
|
$ |
5,277 |
|
$ |
20,474 |
|
$ |
12,612 |
| Depreciation and amortization
(i) |
|
|
3,726 |
|
|
3,681 |
|
|
3,235 |
|
|
3,089 |
|
|
3,048 |
|
|
3,115 |
|
|
3,069 |
|
|
3,688 |
|
|
10,642 |
|
|
9,233 |
| EBITDA (ii) |
|
$ |
9,075 |
|
$ |
11,700 |
|
$ |
10,341 |
|
$ |
9,921 |
|
$ |
4,512 |
|
$ |
10,041 |
|
$ |
7,292 |
|
$ |
8,965 |
|
$ |
31,116 |
|
$ |
21,845 |
| (i) |
Depreciation and amortization
included in cost of sales and selling, general and administrative
expenses. |
| (ii) |
Earnings before interest, taxes,
depreciation and amortization ("EBITDA"). See "Non-IFRS Measure" on
page 19. |
| |
|
Three Months Ended October 31, 2012 Compared to Three
Months Ended October 31, 2011
LUXURY BRAND SALES
Sales for the third quarter were $95.6
million compared to $83.5
million for the comparable quarter of the prior year,
an increase of 14% (an increase of 17% at constant exchange rates).
Sales in America increased 7% to $30.8
million, sales in Europe
increased 40% to $27.3 million, sales
in Asia (excluding Japan) increased 18% to $15.5 million, and sales in Japan were flat at $22.0 million, each as compared to the comparable
quarter of the prior year. The total number of units sold during
the third quarter increased by 8% over the comparable quarter of
the prior year.
LUXURY BRAND COST OF SALES AND GROSS MARGIN
Cost of sales for the luxury brand segment for the third quarter
was $43.0 million compared to
$41.4 million for the comparable
quarter of the prior year. Gross margin for the quarter was
$52.6 million or 55.0% compared to
$42.1 million or 50.4% for the third
quarter of the prior year. The improvement in gross margin was
primarily due to strong growth in bridal and access product sales
combined with continued emphasis on supply chain efficiencies.
LUXURY BRAND SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES
SG&A expenses increased by 16% to $47.2
million from $40.6 million in
the comparable quarter of the prior year. The increase was due
primarily to higher advertising, marketing and selling expenses.
Fixed costs accounted for $5.1
million of the increase, while variable expenses linked to
volume of sales accounted for $1.5
million of the increase. Fixed costs include salaries and
benefits, advertising and marketing, rent and related costs and
depreciation and amortization. SG&A expenses included
depreciation and amortization expense of $3.3 million compared to $3.0 million in the comparable quarter of the
prior year.
Nine Months Ended October 31, 2012 Compared to Nine
Months Ended October 31, 2011
LUXURY BRAND SALES
Sales for the nine months ended October 31,
2012, were $314.5 million
compared to $298.1 million for the
comparable period of the prior year, an increase of 5% (7% at
constant exchange rates). Sales in America increased 8% to
$98.8 million, sales in Europe increased 16% to $73.0 million, sales in Asia (excluding Japan) decreased 19% to $69.8 million, and sales in Japan increased 28% to $72.8 million, each as compared to the comparable
period of the prior year. The comparable period of the prior year
included high-value transactions in Asia (excluding Japan) that were not repeated in the current
period. During the nine months ended October
31, 2012, there were $19.1
million of high-value transactions, which generally carry
lower-than-average gross margins, compared with $60.8 million in the comparable period of the
prior year. The Japanese market continued to rebound strongly from
the impact of the earthquake and tsunami that occurred in early
2011. The total number of units sold during the nine months ended
October 31, 2012, increased by 24%
over the comparable period of the prior year.
LUXURY BRAND COST OF SALES AND GROSS MARGIN
Cost of sales for the luxury brand segment for the nine months
ended October 31, 2012, was
$150.0 million compared to
$166.9 million for the comparable
period of the prior year. Gross margin for the nine months ended
October 31, 2012, was $164.5 million or 52.3% compared to $131.3 million or 44.0% for the comparable period
of the prior year. The improvement in gross margin was primarily
due to strong growth in bridal and access product sales, the
continued emphasis on supply chain efficiencies and a greater
portion of high-value transactions in the comparable period of the
prior year that generated lower-than-average gross margins.
LUXURY BRAND SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES
SG&A expenses increased by 21% to $144.0
million from $118.7 million in
the comparable period of the prior year. The increase was due
primarily to higher advertising, marketing and selling expenses.
Fixed costs accounted for $19.9
million of the increase, while variable expenses linked to
volume of sales accounted for $5.4
million of the increase. Fixed costs include salaries and
benefits, advertising and marketing, rent and related costs and
depreciation and amortization. SG&A expenses included
depreciation and amortization expense of $9.6 million compared to $9.0 million in the comparable period of the
prior year.
LUXURY BRAND SEGMENT OPERATIONAL UPDATE
At October 31, 2012, the luxury brand
segment's distribution network consisted of 22 directly operated
salons, five licensed salons (in Manila,
Philippines; Kiev, Ukraine;
Moscow, Russia; and two in
Dubai, United Arab Emirates) and
201 wholesale watch doors around the world. The Company opened a
new salon in Harrods in London,
England, during August, contributing to a strong increase in
sales in Europe. During September,
Harry Winston participated in the Biennale des Antiquaires at the
Grand Palais in Paris, France, the
most important fine jewelry exhibition in the world. At the
exhibition, the Company unveiled its latest high jewelry
collection, "Water by Harry Winston". The Company also announced
that it is the lead sponsor of Hollywood Costume, a major
new exhibition that is appearing at the Victoria and Albert Museum in London, England, between October 2012 and January
2013. The exhibition celebrates costume design in motion
pictures and showcases the connection between Harry Winston jewels
and Hollywood.
Luxury Brand Segment Outlook
Continued economic uncertainty in Europe coupled with the softening in consumer
demand in China and the budget
policy issues in the US are likely to translate into slower growth
in the near term, impacting the holiday season. The Company
believes that the Harry Winston brand is well positioned to
continue to increase its market share in the luxury jewelry and
timepiece sector. New salons in China have significantly improved the
distribution network in the fastest growing luxury market in the
world. During August 2012, a new
directly operated salon was opened in the Harrods department store
in London, England. A new directly
operated salon is expected to be opened early next year in
Geneva, Switzerland. In addition,
a new licensed salon is expected to be opened in Kuwait City, Kuwait, during the first quarter of next
fiscal year. The Company plans to expand by 15 wholesale watch
doors to 216 doors by the end of fiscal 2013. By the end of the
current fiscal year, the Company will have built an internal
wholesale infrastructure to distribute its timepieces in
Asia, Europe and Latin
America. The Company continues to focus on executing its
long-term plan of growing sales and profitability by expanding its
distribution network in prime locations around the world,
introducing new jewelry and timepiece collections supported by a
strong advertising program, and leveraging the heritage of the
Harry Winston brand.
Corporate
The corporate segment captures costs not specifically related to
operations of the mining or luxury brand segments.
(expressed in thousands of United
States dollars)
(unaudited)
|
| |
|
|
2013 |
|
|
2013 |
|
|
2013 |
|
|
2012 |
|
|
2012 |
|
|
2012 |
|
|
2012 |
|
|
2011 |
|
|
Nine months
ended
October 31, |
|
|
Nine months
ended
October 31, |
| |
|
|
Q3 |
|
|
Q2 |
|
|
Q1 |
|
|
Q4 |
|
|
Q3 |
|
|
Q2 |
|
|
Q1 |
|
|
Q4 |
|
|
2012 |
|
|
2011 |
| Sales |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
| Cost of sales |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
34 |
|
|
51 |
|
|
51 |
|
|
51 |
|
|
- |
|
|
135 |
| Gross margin |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(34) |
|
|
(51) |
|
|
(51) |
|
|
(51) |
|
|
- |
|
|
(135) |
| Gross margin (%) |
|
|
-% |
|
|
-% |
|
|
-% |
|
|
-% |
|
|
-% |
|
|
-% |
|
|
-% |
|
|
-% |
|
|
-% |
|
|
-% |
| Selling, general and administrative expenses |
|
|
4,250 |
|
|
3,358 |
|
|
4,833 |
|
|
3,510 |
|
|
2,246 |
|
|
2,281 |
|
|
3,449 |
|
|
1,839 |
|
|
12,441 |
|
|
7,976 |
| Operating loss |
|
$ |
(4,250) |
|
$ |
(3,358) |
|
$ |
(4,833) |
|
$ |
(3,510) |
|
$ |
(2,280) |
|
$ |
(2,332) |
|
$ |
(3,500) |
|
$ |
(1,890) |
|
$ |
(12,441) |
|
$ |
(8,111) |
| Depreciation and amortization (i) |
|
|
139 |
|
|
139 |
|
|
139 |
|
|
139 |
|
|
141 |
|
|
140 |
|
|
139 |
|
|
278 |
|
|
417 |
|
|
420 |
| EBITDA (ii) |
|
$ |
(4,111) |
|
$ |
(3,219) |
|
$ |
(4,694) |
|
$ |
(3,371) |
|
$ |
(2,139) |
|
$ |
(2,192) |
|
$ |
(3,361) |
|
$ |
(1,612) |
|
$ |
(12,024) |
|
$ |
(7,691) |
| (i) |
Depreciation and amortization
included in cost of sales and selling, general and administrative
expenses. |
| (ii) |
Earnings before interest, taxes,
depreciation and amortization ("EBITDA"). See "Non-IFRS Measure" on
page 19. |
| |
|
Three Months Ended October 31, 2012 Compared to Three
Months Ended October 31, 2011
CORPORATE SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the corporate segment increased by
$2.0 million from the comparable
quarter of the prior year due to travel expenses and salaries and
benefits related to additional corporate employees.
Nine Months Ended October 31, 2012 Compared to Nine
Months Ended October 31, 2011
CORPORATE SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the corporate segment increased by
$4.5 million from the comparable
period of the prior year due to severance costs and to travel
expenses and salaries and benefits related to additional corporate
employees.
Liquidity and Capital Resources
Working Capital
As at October 31, 2012, the Company
had unrestricted cash and cash equivalents of $110.8 million compared to $78.1 million at January 31, 2012. The Company had cash on hand
and balances with banks of $105.6
million and short-term investments of $5.2 million at October 31, 2012.
During the quarter ended October 31, 2012, the Company reported cash from
operations of $18.6 million
compared to a use of cash from operations of $23.8 million in the comparable quarter of the
prior year. The increase resulted primarily from the Company's
decision to hold rough diamond inventory due to market conditions
in the prior year. At October 31,
2012, the Company had 0.8 million carats of rough diamond
inventory with an estimated current market value of approximately
$110 million, of which approximately
$60 million represents inventory
available for sale.
Working capital increased to $461.9 million at October 31, 2012 from $439.0 million at January 31, 2012. During the quarter, the Company
increased accounts receivable by $5.7
million, decreased other current assets by $3.5 million, increased inventory and supplies by
$27.0 million, increased trade
and other payables by $19.2 million and increased employee benefit
plans by $0.6 million.
The Company's liquidity requirements fluctuate
from quarter to quarter depending on, among other factors, the
seasonality of production at the Diavik Diamond Mine, seasonality
of mine operating expenses, capital expenditure programs, the
number of rough diamond sales events conducted during the quarter
and the volume, size and quality distribution of rough diamonds
delivered from the Diavik Diamond Mine and sold by the Company in
each quarter, along with the seasonality of sales and salon
expansion in the luxury brand segment. The Company's principal
working capital needs include investments in inventory, other
current assets, and trade and other payables and income
taxes payable.
The Company assesses liquidity and capital
resources on a consolidated basis. The Company's requirements are
for cash operating expenses, working capital, contractual debt
requirements and capital expenditures. The Company believes that it
will generate sufficient liquidity to meet its anticipated
requirements for the next twelve months.
Financing Activities
The mining segment maintains a senior secured revolving credit
facility with Standard Chartered Bank. At October 31, 2012, $50.0
million was outstanding. On November
13, 2012, the Company entered into share purchase agreements
with BHP Billiton Canada Inc., and various affiliates to purchase
all of BHP Billiton's diamond assets, including its controlling
interest in the Ekati Diamond Mine. The purchase price for the
acquisitions will be satisfied from cash resources on hand and from
new debt financing that has been arranged with The Royal Bank of
Canada and Standard Chartered
Bank. The new facilities will comprise a $400 million term loan, a $100 million revolving credit facility (of which
$50 million will be available for
purposes of funding the Ekati acquisition) and a $140 million letter of credit facility in support
of the Core Zone environmental reclamation bond. The new
facilities will be secured and will replace the Company mining
segment's current $125 million
facility with Standard Chartered Bank, which will be repaid and
terminated on closing. The new facilities will include customary
covenants, including certain reporting and financial covenants, and
will bear interest at market rates. The term loan will be an
amortizing facility, with principal repayments beginning 30 months
following closing and a final bullet payment of 50 percent of the
principal amount being due on the date that is five years after
closing. The $100 million portion of
the revolving facility will be due five years after closing. The
letter of credit facility will expire 364 days after closing. The
facilities will be subject to customary closing conditions,
including closing of the Core Zone acquisition. If the Core Zone
acquisition is not completed but the Buffer Zone acquisition is
completed, then the Company expects to finance the acquisition of
the Buffer Zone using other cash resources available to it.
As at October 31,
2012, $15.7 million and
$2.1 million was outstanding under
the Company's revolving financing facility relating to its Belgian
subsidiary, Harry Winston Diamond International N.V., and its
Indian subsidiary, Harry Winston Diamond (India) Private Limited, respectively, compared
to $nil and $4.3 million at
January 31, 2012.
The amount outstanding on the secured five-year
revolving credit facility for the Company's luxury brand
subsidiary, Harry Winston Inc., was $223.0
million at October 31, 2012,
compared to $200.5 million at
January 31, 2012. On August 30, 2012, Harry Winston Inc. refinanced
its senior secured revolving credit facility by entering into a new
secured five-year credit agreement with a consortium of banks led
by Standard Chartered Bank establishing a $260.0 million facility for revolving credit
loans. Harry Winston Inc. amended its senior secured revolving
credit facility on November 7, 2012
by adding an additional $40.0 million
increasing the total facility to $300.0
million. The facility has a maturity date of August 30, 2017. See Contractual Obligations
below.
Investing Activities
During the quarter, the Company purchased property, plant and
equipment of $19.2 million, of
which $13.4 million was
purchased for the mining segment and $5.8
million for the luxury brand segment.
Contractual Obligations
The Company has contractual payment obligations with respect to
interest-bearing loans and borrowings and, through its
participation in the Joint Venture, future site restoration
costs at the Diavik Diamond Mine level. Additionally, at the Joint
Venture level, contractual obligations exist with respect to
operating purchase obligations, as administered by DDMI, the
operator of the mine. In order to maintain its 40% ownership
interest in the Diavik Diamond Mine, HWDLP is obligated to fund 40%
of the Joint Venture's total expenditures on a monthly basis. Not
reflected in the table below are capital expenditures for the
calendar years 2012 to 2016 of approximately $135 million assuming a Canadian/US average
exchange rate of $1.00 for each of
the five years relating to HWDLP's current projected share of
the planned capital expenditures (excluding the A-21 pipe) at the
Diavik Diamond Mine. Also not included is the potential impact of
the Ekati transaction. The most significant contractual obligations
for the ensuing five-year period can be summarized as follows:
| CONTRACTUAL OBLIGATIONS |
|
|
|
|
|
Less than |
|
|
Year |
|
|
Year |
|
|
After |
| (expressed in thousands of United States
dollars) |
|
|
Total |
|
|
1 year |
|
|
2-3 |
|
|
4-5 |
|
|
5 years |
| Interest-bearing loans and borrowings (a)(b) |
|
$ |
399,880 |
|
$ |
61,114 |
|
$ |
70,943 |
|
$ |
243,429 |
|
$ |
24,394 |
| Environmental and participation
agreements incremental commitments (c) |
|
|
93,686 |
|
|
82,990 |
|
|
4,864 |
|
|
- |
|
|
5,832 |
| Operating lease obligations (d) |
|
|
254,927 |
|
|
25,276 |
|
|
53,977 |
|
|
47,900 |
|
|
127,774 |
| Total contractual obligations |
|
$ |
748,493 |
|
$ |
169,380 |
|
$ |
129,784 |
|
$ |
291,329 |
|
$ |
158,000 |
| |
|
|
| (a) |
|
(i) Interest-bearing loans and borrowings presented in the
foregoing table include current and long-term portions. The mining
segment maintains a senior secured revolving credit facility with
Standard Chartered Bank for $125.0 million. The facility has an
initial maturity date of June 24, 2013 with two one-year extensions
at the Company's option. There are no scheduled repayments
required before maturity. At October 31, 2012, $50.0 million was
outstanding. |
| |
|
|
| |
|
(ii) The Company has available a $45.0 million revolving
financing facility (utilization in either US dollars or Euros) with
Antwerp Diamond Bank for inventory and receivables funding in
connection with marketing activities through its Belgian
subsidiary, Harry Winston Diamond International N.V., and its
Indian subsidiary, Harry Winston Diamond (India) Private
Limited. Borrowings under the Belgian facility bear interest at the
bank's base rate plus 1.5%. Borrowings under the Indian facility
bear an interest rate of 12.50%. At October 31, 2012, $15.7 million
and $2.1 million were outstanding under this facility relating to
its Belgian subsidiary, Harry Winston Diamond International
N.V., and its Indian subsidiary, Harry Winston Diamond (India)
Private Limited, respectively. The facility is guaranteed by
Harry Winston Diamond Corporation. |
| |
|
|
| |
|
(iii) On August 30, 2012, Harry Winston Inc. refinanced its
secured revolving credit facility by entering into a new secured
five-year credit agreement with a consortium of banks led by
Standard Chartered Bank establishing a $260.0 million facility for
revolving credit loans. The new facility expires on August 30,
2017. On November 7, 2012, Harry Winston Inc. signed the first
amendment to its senior secured revolving credit agreement dated
August 30, 2012. The amendment increased the current $260.0 million
facility to $300.0 million with Manufacturers and Traders Trust
Company agreeing to provide an additional $40.0 million commitment,
and being added as a new lender under the current credit agreement.
There are no scheduled repayments required before maturity. As with
the previous agreement, the new credit facility is supported by a
$20.0 million limited guarantee provided by Harry Winston Diamond
Corporation. The amount available under this facility is subject to
a borrowing base formula based on certain assets of the luxury
brand segment. At October 31, 2012, $223.0 million was
outstanding. |
| |
|
|
| |
|
The new Harry Winston Inc. credit agreement contains
affirmative and negative non-financial and financial covenants,
which apply to the luxury brand segment. These provisions include
consolidated minimum tangible net worth, minimum coverage of fixed
charges, leverage ratio and limitations on capital expenditures and
certain investments. The new credit agreement also includes a
change of control provision, which would result in the entire
unpaid principal and all accrued interest of the facility becoming
due immediately upon change of control, as defined. Any material
adverse change, as defined, in the luxury brand segment's assets,
liabilities, consolidated financial position or consolidated
results of operations constitutes default under the agreement. |
| |
|
|
| |
|
The luxury brand segment has pledged 100% of Harry Winston
Inc.'s common stock and 66 2/3% of the common stock of its foreign
subsidiaries to the bank to secure the loan. Inventory and accounts
receivable of Harry Winston Inc. are pledged as collateral to
secure the borrowings of Harry Winston Inc. In addition, an
assignment of proceeds on insurance covering security collateral
was made. |
| |
|
|
| |
|
Loans under this new credit facility can be either fixed rate
loans or revolving line of credit loans. The fixed rate loans will
bear interest within a range of 2.50% to 3.25% above LIBOR based
upon a pricing grid determined by the fixed charge coverage ratio.
Interest under this option will be determined for periods of either
one, two, three or six months. The revolving line of credit loans
will bear interest within a range of 1.50% to 2.25% above the
bank's prime rate based upon a pricing grid determined by the fixed
charge coverage ratio as well. |
| |
|
|
| |
|
(iv) Also included in long-term debt of Harry Winston Inc. is a
25-year loan agreement for CHF 17.5 million ($18.5 million) used to
finance the construction of the Company's watch factory in Geneva,
Switzerland. The loan agreement is comprised of a CHF 3.5 million
($3.7 million) loan and a CHF 14.0 million ($14.8 million) loan.
The CHF 3.5 million loan bears interest at a rate of 3.15% and
matures on April 22, 2013. The CHF 14.0 million loan bears
interest at a rate of 3.55% and matures on January 31, 2033. At
October 31, 2012, an aggregate of $15.7 million was outstanding.
The bank has a secured interest in the factory building. |
| |
|
|
| |
|
(v) On August 21, 2012, Harry Winston S.A. entered into a
credit facility with UBS AG establishing a CHF 7.0 million credit
line. The new credit facility is available to Harry Winston S.A.
for general corporate purposes. The new facility contains
affirmative and negative non-financial and financial covenants. The
Harry Winston S.A. factory building is pledged as collateral to
secure the borrowings. Borrowings under the credit facility can be
either fixed rate loans or revolving line of credit loans in CHF or
any freely available and convertible currency. Interest under the
fixed rate option will be based upon Euromarket rates for the
relevant term and currency plus a bank margin. Available
terms under fixed rate borrowings are one to 12 months in minimum
denominations of CHF 250,000. Interest under the
revolving/overdraft option will bear interest at 4% per annum for
CHF loans, and 5.5% per annum for USD loans. A 0.25% commission
will be charged quarterly based upon the average debit balance. At
October 31, 2012, $7.4 million was outstanding. |
| |
|
|
| |
|
(vi) Harry Winston S.A. has a CHF 0.5 million ($0.5 million)
finance lease for machinery located at the watch factory in Geneva,
Switzerland. The finance lease has an interest rate of 1.97% and
matures on April 1, 2017. At October 31, 2012, $0.4 million was
outstanding. |
| |
|
|
| |
|
(vii) Harry Winston Japan, K.K. maintains unsecured credit
agreements with three banks, amounting to ¥1,284 million
($16.1 million). Harry Winston Japan, K.K. also maintains
a secured credit agreement amounting to ¥575 million
($7.2 million). This facility is secured by inventory owned by
Harry Winston Japan, K.K. At October 31, 2012, $23.3 million
was outstanding. |
| |
|
|
| |
|
(viii) The Company's first mortgage on real property has
scheduled principal payments of approximately $0.2 million
quarterly, may be prepaid at any time, and matures on September 1,
2018. On October 31, 2012, $5.8 million was outstanding on the
mortgage payable. |
| |
|
|
| (b) |
|
Interest on loans and borrowings is calculated at various fixed
and floating rates. Projected interest payments on the current debt
outstanding were based on interest rates in effect at October 31,
2012, and have been included under interest-bearing loans and
borrowings in the table above. Interest payments for the next
twelve months are approximated to be $11.0 million. |
| |
|
|
| (c) |
|
The Joint Venture, under environmental and other agreements,
must provide funding for the Environmental Monitoring Advisory
Board. These agreements also state that 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 operator of the Joint
Venture has fulfilled such obligations for the security deposits by
posting letters of credit, of which HWDLP's share as at October 31,
2012, was $81.4 million based on its 40% ownership interest in
the Diavik Diamond Mine. There can be no assurance that the
operator will continue its practice of posting letters of credit in
fulfillment of this obligation, in which event HWDLP would be
required to post its proportionate share of such security directly,
which would result in additional constraints on liquidity. 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 actual cash
outlay for the Joint Venture's obligations under these agreements
is not anticipated to occur until later in the life of the
Diavik Diamond Mine. |
| |
|
|
| (d) |
|
Operating lease obligations represent future minimum annual
rentals under non-cancellable operating leases for
Harry Winston Inc. salons and office space. |
| |
|
|
Non-IFRS Measure
In addition to discussing earnings measures in accordance with
IFRS, the MD&A provides the following non-IFRS measure, which
is also used by management to monitor and evaluate the performance
of the Company and its business segments.
The term EBITDA (earnings before interest,
taxes, depreciation and amortization) does not have a standardized
meaning according to IFRS and therefore may not be comparable to
similar measures presented by other issuers. The Company defines
EBITDA as sales minus cost of sales and selling, general and
administrative expenses, meaning it represents operating profit
before depreciation and amortization.
EBITDA is a measure commonly reported and widely
used by investors and analysts as an indicator of the Company's
operating performance and ability to incur and service debt and as
a valuation metric. EBITDA margin is defined as the ratio obtained
by dividing EBITDA by sales.
| CONSOLIDATED |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(expressed in
thousands of United States dollars)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
2013 |
|
|
2013 |
|
|
2013 |
|
|
2012 |
|
|
2012 |
|
|
2012 |
|
|
2012 |
|
|
2011 |
|
|
Nine
months
ended
October
31, |
|
|
Nine
months
ended
October
31, |
| |
|
|
Q3 |
|
|
Q2 |
|
|
Q1 |
|
|
Q4 |
|
|
Q3 |
|
|
Q2 |
|
|
Q1 |
|
|
Q4 |
|
|
2012 |
|
|
2011 |
| Operating profit (loss) |
|
$ |
10,322 |
|
$ |
16,384 |
|
$ |
18,658 |
|
$ |
30,710 |
|
$ |
(1,963) |
|
$ |
23,100 |
|
$ |
4,685 |
|
$ |
21,245 |
|
$ |
45,364 |
|
$ |
25,822 |
| Depreciation and amortization |
|
|
24,453 |
|
|
16,980 |
|
|
25,546 |
|
|
27,512 |
|
|
23,121 |
|
|
20,716 |
|
|
20,291 |
|
|
24,635 |
|
|
66,980 |
|
|
64,129 |
| EBITDA |
|
$ |
34,775 |
|
$ |
33,364 |
|
$ |
44,204 |
|
$ |
58,222 |
|
$ |
21,158 |
|
$ |
43,816 |
|
$ |
24,976 |
|
$ |
45,880 |
|
$ |
112,344 |
|
$ |
89,951 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| MINING SEGMENT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(expressed in thousands of United States
dollars)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
2013 |
|
|
2013 |
|
|
2013 |
|
|
2012 |
|
|
2012 |
|
|
2012 |
|
|
2012 |
|
|
2011 |
|
|
Nine
months
ended
October
31, |
|
|
Nine
months
ended
October
31, |
| |
|
|
Q3 |
|
|
Q2 |
|
|
Q1 |
|
|
Q4 |
|
|
Q3 |
|
|
Q2 |
|
|
Q1 |
|
|
Q4 |
|
|
2012 |
|
|
2011 |
| Operating profit (loss) |
|
$ |
9,223 |
|
$ |
11,723 |
|
$ |
16,385 |
|
$ |
27,388 |
|
$ |
(1,147) |
|
$ |
18,506 |
|
$ |
3,962 |
|
$ |
17,858 |
|
$ |
37,331 |
|
$ |
21,321 |
| Depreciation and amortization |
|
|
20,588 |
|
|
13,160 |
|
|
22,172 |
|
|
24,284 |
|
|
19,932 |
|
|
17,461 |
|
|
17,083 |
|
|
20,669 |
|
|
55,921 |
|
|
54,476 |
| EBITDA |
|
$ |
29,811 |
|
$ |
24,883 |
|
$ |
38,557 |
|
$ |
51,672 |
|
$ |
18,785 |
|
$ |
35,967 |
|
$ |
21,045 |
|
$ |
38,527 |
|
$ |
93,252 |
|
$ |
75,797 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| LUXURY BRAND SEGMENT |
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(expressed in thousands of United States
dollars)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
2013 |
|
|
2013 |
|
|
2013 |
|
|
2012 |
|
|
2012 |
|
|
2012 |
|
|
2012 |
|
|
2011 |
|
|
Nine
months
ended
October
31, |
|
|
Nine
months
ended
October
31, |
| |
|
|
Q3 |
|
|
Q2 |
|
|
Q1 |
|
|
Q4 |
|
|
Q3 |
|
|
Q2 |
|
|
Q1 |
|
|
Q4 |
|
|
2012 |
|
|
2011 |
| Operating profit |
|
$ |
5,349 |
|
$ |
8,019 |
|
$ |
7,106 |
|
$ |
6,832 |
|
$ |
1,464 |
|
$ |
6,926 |
|
$ |
4,223 |
|
$ |
5,277 |
|
$ |
20,474 |
|
$ |
12,612 |
| Depreciation and amortization |
|
|
3,726 |
|
|
3,681 |
|
|
3,235 |
|
|
3,089 |
|
|
3,048 |
|
|
3,115 |
|
|
3,069 |
|
|
3,688 |
|
|
10,642 |
|
|
9,233 |
| EBITDA |
|
$ |
9,075 |
|
$ |
11,700 |
|
$ |
10,341 |
|
$ |
9,921 |
|
$ |
4,512 |
|
$ |
10,041 |
|
$ |
7,292 |
|
$ |
8,965 |
|
$ |
31,116 |
|
$ |
21,845 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| CORPORATE SEGMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(expressed in thousands of United States
dollars)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
2013 |
|
|
2013 |
|
|
2013 |
|
|
2012 |
|
|
2012 |
|
|
2012 |
|
|
2012 |
|
|
2011 |
|
|
Nine
months
ended
October
31, |
|
|
Nine
months
ended
October
31, |
| |
|
|
Q3 |
|
|
Q2 |
|
|
Q1 |
|
|
Q4 |
|
|
Q3 |
|
|
Q2 |
|
|
Q1 |
|
|
Q4 |
|
|
2012 |
|
|
2011 |
| Operating loss |
|
$ |
(4,250) |
|
$ |
(3,358) |
|
$ |
(4,833) |
|
$ |
(3,510) |
|
$ |
(2,280) |
|
$ |
(2,332) |
|
$ |
(3,500) |
|
$ |
(1,890) |
|
$ |
(12,441) |
|
$ |
(8,111) |
| Depreciation and amortization |
|
|
139 |
|
|
139 |
|
|
139 |
|
|
139 |
|
|
141 |
|
|
140 |
|
|
139 |
|
|
278 |
|
|
417 |
|
|
420 |
| EBITDA |
|
$ |
(4,111) |
|
$ |
(3,219) |
|
$ |
(4,694) |
|
$ |
(3,371) |
|
$ |
(2,139) |
|
$ |
(2,192) |
|
$ |
(3,361) |
|
$ |
(1,612) |
|
$ |
(12,024) |
|
$ |
(7,691) |
Risks and Uncertainties
Harry Winston Diamond Corporation is subject to a number of risks
and uncertainties as a result of its operations. In addition
to the other information contained in this MD&A and the
Company's other publicly filed disclosure documents, readers should
give careful consideration to the following risks, each of which
could have a material adverse effect on the Company's business
prospects or financial condition.
Nature of Mining
The operation of the Diavik Diamond Mine is subject to risks
inherent in the mining industry, including variations in grade and
other geological differences, unexpected problems associated with
required water retention dikes, water quality, surface and
underground conditions, processing problems, equipment performance,
accidents, labour disputes, risks relating to the physical security
of the diamonds, force majeure risks and natural disasters.
Particularly with underground mining operations, inherent risks
include variations in rock structure and strength as it impacts on
mining method selection and performance, de-watering and water
handling requirements, achieving the required crushed rock-fill
strengths, and unexpected local ground conditions. Hazards, such as
unusual or unexpected rock formations, rock bursts, pressures,
collapses, flooding or other conditions, may be encountered during
mining. Such risks could result in personal injury or fatality;
damage to or destruction of mining properties, processing
facilities or equipment; environmental damage; delays, suspensions
or permanent reductions in mining production; monetary losses; and
possible legal liability.
The Diavik Diamond Mine, because of its remote
northern location and access only by winter road or by air, is
subject to special climate and transportation risks. These risks
include the inability to operate or to operate efficiently during
periods of extreme cold, the unavailability of materials and
equipment, and increased transportation costs due to the late
opening and/or early closure of the winter road. Such factors can
add to the cost of mine development, production and operation
and/or impair production and mining activities, thereby affecting
the Company's profitability.
Nature of Interest in DDMI
HWDLP holds an undivided 40% interest in the assets, liabilities
and expenses of the Diavik Diamond Mine and the Diavik group of
mineral claims. The Diavik Diamond Mine and the exploration and
development of the Diavik group of mineral claims is a joint
arrangement between DDMI (60%) and HWDLP (40%), and is subject to
the risks normally associated with the conduct of joint ventures
and similar joint arrangements. These risks include the inability
to exert influence over strategic decisions made in respect of the
Diavik Diamond Mine and the Diavik group of mineral claims,
including the inability to control the timing and scope of capital
expenditures, and risks that DDMI may decide not to proceed with
the mining the A-21 pipe or may otherwise change the mine plan.
By virtue of DDMI's 60% interest in the Diavik Diamond Mine,
it has a controlling vote in virtually all Joint Venture management
decisions respecting the development and operation of the Diavik
Diamond Mine and the development of the Diavik group of mineral
claims. Accordingly, DDMI is able to determine the timing and scope
of future project capital expenditures, and therefore is able to
impose capital expenditure requirements on HWDLP that the Company
may not have sufficient cash to meet. A failure to meet capital
expenditure requirements imposed by DDMI could result in HWDLP's
interest in the Diavik Diamond Mine and the Diavik group of mineral
claims being diluted. Rio Tinto plc, the parent of DDMI, announced
a review of its diamond operations in early 2012.
Diamond Prices and Demand for
Diamonds
The profitability of the Company is dependent upon production from
the Diavik Diamond Mine and on the results of the operations of its
luxury brand operations. Each, in turn, is dependent in significant
part upon the worldwide demand for and price of diamonds. Diamond
prices fluctuate and are affected by numerous factors beyond the
control of the Company, including worldwide economic trends,
particularly in the US, Japan,
China and India, worldwide levels of diamond discovery
and production, and the level of demand for, and discretionary
spending on, luxury goods such as diamonds and jewelry. Low or
negative growth in the worldwide economy, renewed or additional
credit market disruptions, natural disasters or the occurrence of
terrorist attacks or similar activities creating disruptions in
economic growth could result in decreased demand for luxury goods
such as diamonds and jewelry, thereby negatively affecting the
price of diamonds and jewelry. Similarly, a substantial increase in
the worldwide level of diamond production or the release of stocks
held back during recent periods of low demand could also negatively
affect the price of diamonds. In each case, such developments could
have a material adverse effect on the Company's results of
operations.
Cash Flow and Liquidity
The Company's liquidity requirements fluctuate from quarter to
quarter and year to year depending on, among other factors, the
seasonality of production at the Diavik Diamond Mine, the
seasonality of mine operating expenses, exploration expenses,
capital expenditure programs, the number of rough diamond sales
events conducted during the quarter and the volume, size and
quality distribution of rough diamonds delivered from the Diavik
Diamond Mine and sold by the Company in each quarter, along with
the seasonality of sales and salon refurbishment and expansion in
the luxury brand segment. The Company's principal working capital
needs include investments in inventory, prepaid expenses and other
current assets, and accounts payable and income taxes payable.
There can be no assurance that the Company will be able to meet
each or all of its liquidity requirements. A failure by the Company
to meet its liquidity requirements could result in the Company
failing to meet its planned development objectives, or in the
Company being in default of a contractual obligation, each of which
could have a material adverse effect on the Company's business
prospects or financial condition.
Economic Environment
The Company's financial results are tied to the global economic
conditions and their impact on levels of consumer confidence and
consumer spending. The global markets have experienced the impact
of a significant US and international economic downturn since the
fall of 2008. This has restricted the Company's growth
opportunities both domestically and internationally, and a return
to a recession or weak recovery, due to recent disruptions in
financial markets in the US, the Eurozone or elsewhere, budget
policy issues in the US and political upheavals in the Middle East, could cause the Company to
experience revenue declines across both of its business segments
due to deteriorated consumer confidence and spending, and a
decrease in the availability of credit, which could have a material
adverse effect on the Company's business prospects or financial
condition. The credit facilities essential to the diamond polishing
industry are largely underwritten by European banks that are
currently under stress with the European sovereign debt issue. The
withdrawal or reduction of such facilities could also have a
material adverse effect on the Company's business prospects or
financial condition. The Company monitors economic developments in
the markets in which it operates and uses this information in its
continuous strategic and operational planning in an effort to
adjust its business in response to changing economic
conditions.
Currency Risk
Currency fluctuations may affect the Company's financial
performance. Diamonds are sold throughout the world based
principally on the US dollar price, and although the Company
reports its financial results in US dollars, a majority of the
costs and expenses of the Diavik Diamond Mine are incurred in
Canadian dollars. Further, the Company has a significant deferred
income tax liability that has been incurred and will be payable in
Canadian dollars. The Company's currency exposure relates primarily
to expenses and obligations incurred by it in Canadian dollars and,
secondarily, to revenues of Harry Winston Inc. in currencies other
than the US dollar. The appreciation of the Canadian dollar against
the US dollar, and the depreciation of other currencies against the
US dollar, therefore, will increase the expenses of the Diavik
Diamond Mine and the amount of the Company's Canadian dollar
liabilities relative to the revenue the Company will receive
from diamond sales, and will decrease the US dollar revenues
received by Harry Winston Inc. From time to time, the Company
may use a limited number of derivative financial instruments to
manage its foreign currency exposure.
Licences and Permits
The operation of the Diavik Diamond Mine and exploration on the
Diavik property requires licences and permits from the Canadian
government. The Diavik Diamond Mine Type "A" Water Licence was
renewed by the regional Wek'eezhii Land and Water Board to
October 31, 2015. While the
Company anticipates that DDMI, the operator of the Diavik Diamond
Mine, will be able to renew this licence and other necessary
permits in the future, there can be no guarantee that DDMI will be
able to do so or obtain or maintain all other necessary licences
and permits that may be required to maintain the operation of the
Diavik Diamond Mine or to further explore and develop the
Diavik property.
Regulatory and Environmental Risks
The operation of the Diavik Diamond Mine, exploration activities at
the Diavik property and the manufacturing of jewelry and watches
are subject to various laws and regulations governing the
protection of the environment, exploration, development,
production, taxes, labour standards, occupational health, waste
disposal, mine safety, manufacturing safety and other matters. New
laws and regulations, amendments to existing laws and regulations,
or more stringent implementation or changes in enforcement policies
under existing laws and regulations could have a material adverse
effect on the Company by increasing costs and/or causing a
reduction in levels of production from the Diavik Diamond Mine
and in the manufacture of jewelry and watches. As well, as the
Company's international operations expand, it or its subsidiaries
become subject to laws and regulatory regimes that could
differ materially from those under which they operate in
Canada and the US.
Mining and manufacturing are subject to
potential risks and liabilities associated with pollution of the
environment and the disposal of waste products occurring as a
result of mining and manufacturing operations. To the extent that
the Company's operations are subject to uninsured environmental
liabilities, the payment of such liabilities could have a material
adverse effect on the Company.
Climate Change
The Canadian government has established a number of policy measures
in response to concerns relating to climate change. While the
impact of these measures cannot be quantified at this time, the
likely effect will be to increase costs for fossil fuels,
electricity and transportation; restrict industrial emission
levels; impose added costs for emissions in excess of permitted
levels; and increase costs for monitoring and reporting. Compliance
with these initiatives could have a material adverse effect on the
Company's results of operations.
Resource and Reserve Estimates
The Company's figures for mineral resources and ore reserves on the
Diavik group of mineral claims are estimates, and no assurance can
be given that the anticipated carats will be recovered. The
estimation of reserves is a subjective process. Forecasts are based
on engineering data, projected future rates of production and the
timing of future expenditures, all of which are subject to numerous
uncertainties and various interpretations. The Company expects that
its estimates of reserves will change to reflect updated
information as well as to reflect depletion due to production.
Reserve estimates may be revised upward or downward based on the
results of current and future drilling, testing or production
levels, and on changes in mine design. In addition, market
fluctuations in the price of diamonds or increases in the costs to
recover diamonds from the Diavik Diamond Mine may render the mining
of ore reserves uneconomical.
Mineral resources that are not mineral reserves
do not have demonstrated economic viability. Due to the uncertainty
that may attach to inferred mineral resources, there is no
assurance that mineral resources at the Diavik property will be
upgraded to proven and probable ore reserves.
Insurance
The Company's business is subject to a number of risks and hazards,
including adverse environmental conditions, industrial accidents,
labour disputes, unusual or unexpected geological conditions, risks
relating to the physical security of diamonds and jewelry held as
inventory or in transit, changes in the regulatory environment, and
natural phenomena such as inclement weather conditions. Such
occurrences could result in damage to the Diavik Diamond Mine,
personal injury or death, environmental damage to the Diavik
property, delays in mining, the closing of Harry Winston Inc.'s
manufacturing facilities or salons, monetary losses and possible
legal liability. Although insurance is maintained to protect
against certain risks in connection with the Diavik Diamond Mine
and the Company's operations, the insurance in place will not cover
all potential risks. It may not be possible to maintain insurance
to cover insurable risks at economically feasible premiums.
Fuel Costs
The Diavik Diamond Mine's expected fuel needs are purchased
periodically during the year for storage, and transported to
the mine site by way of the winter road. These costs will increase
if transportation by air freight is required due to a shortened
"winter road season" or unexpected high fuel usage.
The cost of the fuel purchased is
based on the then prevailing price and expensed into operating
costs on a usage basis. The Diavik Diamond Mine currently
has no hedges for its future anticipated fuel consumption.
Reliance on Skilled Employees
Production at the Diavik Diamond Mine is dependent upon the efforts
of certain skilled employees of DDMI. The loss of these employees
or the inability of DDMI to attract and retain additional skilled
employees may adversely affect the level of diamond production from
the Diavik Diamond Mine.
The Company's success in marketing rough
diamonds and operating the business of Harry Winston Inc. is
dependent on the services of key executives and skilled employees,
as well as the continuance of key relationships with certain third
parties, such as diamantaires. The loss of these persons or the
Company's inability to attract and retain additional skilled
employees or to establish and maintain relationships with required
third parties may adversely affect its business and future
operations in marketing diamonds and operating its luxury brand
segment.
Expansion and Refurbishment of the Existing
Salon Network
A key component of the Company's luxury brand strategy in recent
years has been the expansion of its salon network. The Company
currently expects to expand its retail salon network to a total of
35 salons and 300 wholesale doors worldwide by fiscal 2016. An
additional objective of the Company in the luxury brand segment is
to achieve a compound annual growth rate in sales in the mid-teens
and an operating profit in the low to mid-teens, in each case by
fiscal 2016. Although the Company considers these objectives to be
reasonable, they are subject to a number of risks and
uncertainties, and there can be no assurance that these objectives
will be realized. This strategy requires the Company to make
ongoing capital expenditures to build and open new salons, to
refurbish existing salons from time to time, and to incur
additional operating expenses in order to operate the new salons.
To date, much of this expansion has been financed by Harry Winston
Inc. through borrowings. The successful expansion of the Company's
global salon network, and achieving an increase in sales and in
operating profit, will depend on a variety of factors, including
worldwide economic conditions, market demand for luxury goods, the
strength of the Harry Winston brand and the availability of
sufficient funding. There can be no assurance that the expansion of
the salon network will continue or that the current expansion will
prove successful in increasing annual sales or earnings from the
luxury brand segment, and the increased debt levels resulting from
this expansion could negatively impact the Company's liquidity and
its results from operations in the absence of increased sales and
earnings.
The Company has to date licensed five retail
salons to operate under the Harry Winston name and currently
expects to increase the number of licensed salons to 15 by fiscal
2016. There is no assurance that the Company will be able to find
qualified third parties to enter into these licensing arrangements,
or that the licensees will honour the terms of the agreements. The
conduct of licensees may have a negative impact on the Company's
distinctive brand name and reputation.
Competition in the Luxury Brand
Segment
The Company is exposed to competition in the luxury brand market
from other luxury goods, diamond, jewelry and watch retailers. The
ability of Harry Winston Inc. to successfully compete with such
luxury goods, diamond, jewelry and watch retailers is dependent
upon a number of factors, including the ability to source high-end
polished diamonds and protect and promote its distinctive brand
name and reputation. If Harry Winston Inc. is unable to
successfully compete in the luxury jewelry segment, the Company's
results of operations will be adversely affected.
Cybersecurity
The Company and certain of its third-party vendors receive and
store personal information in connection with human resources
operations and other aspects of the business. Despite the Company's
implementation of security measures, its IT systems are vulnerable
to damage from computer viruses, natural disasters, unauthorized
access, cyber attack and other similar disruptions. Any system
failure, accident or security breach could result in disruptions to
the Company's operations. A material network breach in the security
of the IT systems could include the theft of intellectual property
or trade secrets. To the extent that any disruption or security
breach results in a loss or damage to the Company's data, or in
inappropriate disclosure of confidential information, financial
data, or credit cardholder data, it could cause significant damage
to the Company's reputation, affect relationships with our
customers, lead to claims against the Company and ultimately harm
its business. In addition, the Company may be required to incur
significant costs to protect against damage caused by these
disruptions or security breaches in the future. Although the
Company believes that it has robust information security procedures
and other safeguards in place, as cyber threats continue to evolve,
the Company may be required to expend additional resources to
continue to enhance its information security measures and/or to
investigate and remediate any information security
vulnerabilities.
Intellectual Property
The success of the luxury brand segment depends on the value and
reputation of the Harry Winston brand and other proprietary
property. The Company relies on various intellectual property
rights, including copyrights, trademarks and trade secrets, to
establish its proprietary rights. While the Company devotes
considerable efforts and resources to protecting its intellectual
property, if these efforts are not successful the value of the
brand may be harmed, which could have a material adverse effect on
the Company's financial position.
Risks relating to the Ekati
transactions
On November 13, 2012, the Company
entered into share purchase agreements with BHP Billiton Canada
Inc. and various affiliates to purchase all of BHP Billiton's
diamond assets, including its controlling interest in the Ekati
Diamond Mine as well as the associated diamond sorting and sales
facilities in Yellowknife, Canada
and Antwerp, Belgium. As set out
in the share purchase agreements, the Company's acquisition of BHP
Billiton's interest in the Ekati Diamond Mine is subject to the
occurrence of certain events and the satisfaction of certain
closing conditions.
BHP Billiton's interests in the Ekati Diamond
Mine are subject to separate joint venture agreements. Pursuant to
the joint venture agreements, BHP Billiton will first separately
offer to the joint venture parties its separate interests in the
Ekati Diamond Mine on the same terms as those agreed to by the
Company. The joint venture parties will then have 60 days to elect
to acquire either or both of those interests. Any interests that
the joint venture parties do not elect to acquire within that time
period can then be transferred to the Company in the following 60
days. There can be no assurance that the joint venture parties will
not elect to acquire BHP Billiton's interests in the Ekati Diamond
Mine. In addition, the Ekati transactions are subject to typical
closing conditions including the receipt of Competition Act
approvals and other regulatory approvals required in connection
with the transfer of operatorship and ownership of the Core Zone
and the Buffer Zone interests of the Ekati Diamond Mine. The
Company plans to satisfy the total purchase price for the Ekati
transactions from cash resources on hand and from new debt
financing that has been arranged with The Royal Bank of
Canada and Standard Chartered
Bank. The new debt financing facilities will be subject to
customary closing conditions, including closing of the Core Zone
acquisition. There can be no assurance that all of the closing
conditions to the Ekati transaction will be satisfied or as to the
timing of closing to the Ekati transactions.
Completion of the Ekati transactions and the
integration of the Ekati Diamond Mine into the Company's operations
will require significant management time and resources.
Changes in Disclosure Controls and Procedures
and Internal Control over Financial Reporting
During the third quarter of fiscal 2013, there were no changes in
the Company's disclosure controls and procedures or internal
control over financial reporting that materially affected, or are
reasonably likely to materially affect, the Company's disclosure
controls and procedures or internal control over financial
reporting.
Critical Accounting Estimates
Management is often required to make judgments, assumptions and
estimates in the application of IFRS that have a significant impact
on the financial results of the Company. Certain policies are more
significant than others and are, therefore, considered critical
accounting policies. Accounting policies are considered critical if
they rely on a substantial amount of judgment (use of estimates) in
their application or if they result from a choice between
accounting alternatives and that choice has a material impact on
the Company's reported results or financial position.
The critical accounting estimates applied in the
preparation of the Company's unaudited interim condensed
consolidated financial statements are consistent with those applied
and disclosed in the Company's MD&A for the year ended
January 31, 2012.
Changes in Accounting Policies
The International Accounting Standards Board ("IASB") has issued a
new standard, IFRS 9, "Financial Instruments" ("IFRS 9"), which
will ultimately replace IAS 39, "Financial Instruments: Recognition
and Measurement" ("IAS 39"). IFRS 9 provides guidance on the
classification and measurement of financial assets and financial
liabilities. This standard becomes effective for the Company's
fiscal year end beginning February 1,
2015. The Company is currently assessing the impact of the
new standard on its financial statements.
IFRS 10, "Consolidated Financial Statements"
("IFRS 10"), was issued by the IASB on May
12, 2011, and will replace the consolidation requirements
in SIC-12, "Consolidation - Special Purpose Entities" and IAS
27, "Consolidated and Separate Financial Statements". The new
standard establishes control as the basis for determining which
entities are consolidated in the consolidated financial statements
and provides guidance to assist in the determination of control
where it is difficult to assess. IFRS 10 is effective for the
Company's fiscal year end beginning February
1, 2013, with early adoption permitted. The Company is
currently assessing the impact of IFRS 10 on its consolidated
financial statements.
IFRS 11, "Joint Arrangements" ("IFRS 11"), was
issued by the IASB on May 12, 2011
and will replace IAS 31, "Interest in Joint Ventures". The new
standard will apply to the accounting for interests in joint
arrangements where there is joint control. Under IFRS 11, joint
arrangements are classified as either joint ventures or joint
operations. The structure of the joint arrangement will no longer
be the most significant factor in determining whether a joint
arrangement is either a joint venture or a joint operation.
Proportionate consolidations will no longer be allowed and will be
replaced by equity accounting. IFRS 11 is effective for the
Company's fiscal year-end beginning February
1, 2013, with early adoption permitted. The Company is
currently assessing the impact of IFRS 11 on its results of
operations and financial position.
IFRS 13, "Fair Value Measurement" ("IFRS 13"),
was also issued by the IASB on May 12,
2011. The new standard makes IFRS consistent with generally
accepted accounting principles in the
United States ("US GAAP") on measuring fair value and
related fair value disclosures. The new standard creates a single
source of guidance for fair value measurements. IFRS 13 is
effective for the Company's fiscal year end beginning February 1, 2013, with early adoption permitted.
The Company is assessing the impact of IFRS 13 on its consolidated
financial statements.
Amendments to IAS 19, "Employee Benefits" ("IAS
19"), was issued by the IASB on June 11,
2011. The amended standard eliminates the option to defer
the recognition of actuarial gains and losses through the
"corridor" approach, revises the presentation of changes in assets
and liabilities arising from defined benefit plans and enhances the
disclosures for defined benefit plans. IAS 19 is effective for
the Company's fiscal year end beginning February 1, 2013, with early adoption permitted.
The Company is assessing the impact of IAS 19 on its consolidated
financial statements.
Outstanding Share Information
| As at November 30, 2012 |
|
|
|
|
|
| Authorized |
|
|
|
|
Unlimited |
| Issued and outstanding shares |
|
|
|
|
84,874,781 |
| Options outstanding |
|
|
|
|
2,229,727 |
| Fully diluted |
|
|
|
|
87,104,508 |
| |
|
|
|
|
|
Additional Information
Additional information relating to the Company, including the
Company's most recently filed Annual Information Form, can be
found on SEDAR at www.sedar.com, and is also available on the
Company's website at http://investor.harrywinston.com.
| Condensed Consolidated Balance
Sheets |
| (EXPRESSED IN THOUSANDS OF UNITED
STATES DOLLARS) (UNAUDITED) |
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
October 31,
2012 |
|
|
|
January 31,
2012
(Recast - note 10) |
|
|
|
January 31,
2011
(Recast - note 10) |
| ASSETS |
|
|
|
|
|
|
|
|
|
|
|
| Current
assets |
|
|
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents (note
3) |
|
$ |
110,810 |
|
|
$ |
78,116 |
|
|
$ |
108,693 |
| |
Accounts receivable |
|
|
34,749 |
|
|
|
26,910 |
|
|
|
22,788 |
| |
Inventory and supplies (note
4) |
|
|
513,558 |
|
|
|
457,827 |
|
|
|
403,212 |
| |
Other current assets |
|
|
37,808 |
|
|
|
45,494 |
|
|
|
41,317 |
| |
|
|
696,925 |
|
|
|
608,347 |
|
|
|
576,010 |
| Property, plant and equipment -
Mining |
|
|
724,146 |
|
|
|
734,146 |
|
|
|
764,093 |
| Property, plant and
equipment - Luxury brand |
|
|
70,371 |
|
|
|
69,781 |
|
|
|
61,019 |
| Intangible assets, net |
|
|
126,919 |
|
|
|
127,337 |
|
|
|
127,894 |
| Other non-current assets |
|
|
12,907 |
|
|
|
14,165 |
|
|
|
14,521 |
| Deferred income tax assets |
|
|
101,924 |
|
|
|
82,955 |
|
|
|
65,833 |
| Total assets |
|
$ |
1,733,192 |
|
|
$ |
1,636,731 |
|
|
$ |
1,609,370 |
| |
|
|
|
|
|
|
|
|
|
|
|
| LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
|
|
| Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
| |
Trade and other payables |
|
$ |
136,084 |
|
|
$ |
104,681 |
|
|
$ |
139,551 |
| |
Employee benefit plans |
|
|
7,623 |
|
|
|
6,026 |
|
|
|
4,317 |
| |
Income taxes payable |
|
|
41,290 |
|
|
|
29,450 |
|
|
|
6,660 |
| |
Promissory note |
|
|
- |
|
|
|
- |
|
|
|
70,000 |
| |
Current portion of interest-bearing loans and
borrowings (note 6) |
|
|
50,054 |
|
|
|
29,238 |
|
|
|
24,215 |
| |
|
|
235,051 |
|
|
|
169,395 |
|
|
|
244,743 |
| Interest-bearing loans and borrowings
(note 6) |
|
|
288,098 |
|
|
|
270,485 |
|
|
|
235,516 |
| Deferred income tax liabilities |
|
|
321,175 |
|
|
|
325,035 |
|
|
|
309,868 |
| Employee benefit plans |
|
|
9,273 |
|
|
|
9,463 |
|
|
|
7,287 |
| Provisions |
|
|
63,339 |
|
|
|
65,245 |
|
|
|
50,130 |
| Total liabilities |
|
|
916,936 |
|
|
|
839,623 |
|
|
|
847,544 |
| Equity |
|
|
|
|
|
|
|
|
|
|
|
| |
Share capital |
|
|
507,975 |
|
|
|
507,975 |
|
|
|
502,129 |
| |
Contributed surplus |
|
|
19,052 |
|
|
|
17,764 |
|
|
|
16,233 |
| |
Retained earnings |
|
|
280,790 |
|
|
|
261,028 |
|
|
|
235,574 |
| |
Accumulated other comprehensive
income |
|
|
7,569 |
|
|
|
10,086 |
|
|
|
7,624 |
| |
Total shareholders' equity |
|
|
815,386 |
|
|
|
796,853 |
|
|
|
761,560 |
| |
Non-controlling interest |
|
|
870 |
|
|
|
255 |
|
|
|
266 |
| Total equity |
|
|
816,256 |
|
|
|
797,108 |
|
|
|
761,826 |
| Total liabilities and
equity |
|
$ |
1,733,192 |
|
|
$ |
1,636,731 |
|
|
$ |
1,609,370 |
| Subsequent events
(note 1) |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of
these unaudited interim condensed consolidated financial
statements.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Condensed Consolidated Income
Statements |
| (EXPRESSED IN THOUSANDS OF UNITED
STATES DOLLARS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Three
months ended
October 31, |
|
|
|
Three
months ended
October 31, |
|
|
|
Nine
months ended
October 31, |
|
|
|
Nine
months ended
October 31, |
| |
|
|
2012 |
|
|
|
2011 |
|
|
|
2012 |
|
|
|
2011 |
| Sales |
|
$ |
180,399 |
|
|
$ |
119,716 |
|
|
$ |
549,757 |
|
|
$ |
486,026 |
| Cost of sales |
|
|
114,690 |
|
|
|
75,524 |
|
|
|
338,518 |
|
|
|
322,153 |
| Gross margin |
|
|
65,709 |
|
|
|
44,192 |
|
|
|
211,239 |
|
|
|
163,873 |
| Selling, general and administrative
expenses |
|
|
55,387 |
|
|
|
46,155 |
|
|
|
165,875 |
|
|
|
138,051 |
| Operating profit (loss) |
|
|
10,322 |
|
|
|
(1,963) |
|
|
|
45,364 |
|
|
|
25,822 |
| Finance expenses |
|
|
(4,811) |
|
|
|
(4,040) |
|
|
|
(12,719) |
|
|
|
(13,206) |
| Exploration costs |
|
|
(673) |
|
|
|
(600) |
|
|
|
(1,495) |
|
|
|
(1,593) |
| Finance and other income |
|
|
96 |
|
|
|
164 |
|
|
|
251 |
|
|
|
505 |
| Foreign exchange gain |
|
|
767 |
|
|
|
436 |
|
|
|
556 |
|
|
|
547 |
| Profit before income taxes |
|
|
5,701 |
|
|
|
(6,003) |
|
|
|
31,957 |
|
|
|
12,075 |
| Net income tax expense (recovery) |
|
|
1,687 |
|
|
|
(1,272) |
|
|
|
11,580 |
|
|
|
3,220 |
| Net profit (loss) |
|
$ |
4,014 |
|
|
$ |
(4,731) |
|
|
$ |
20,377 |
|
|
$ |
8,855 |
| Attributable to shareholders |
|
$ |
3,397 |
|
|
$ |
(4,728) |
|
|
$ |
19,762 |
|
|
$ |
8,854 |
| Attributable to non-controlling
interest |
|
$ |
617 |
|
|
$ |
(3) |
|
|
$ |
615 |
|
|
$ |
1 |
| Earnings (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic |
|
$ |
0.04 |
|
|
$ |
(0.06) |
|
|
$ |
0.23 |
|
|
$ |
0.10 |
| |
Diluted |
|
$ |
0.04 |
|
|
$ |
(0.06) |
|
|
$ |
0.23 |
|
|
$ |
0.10 |
| Weighted average number of shares
outstanding |
|
|
84,874,781 |
|
|
|
84,809,781 |
|
|
|
84,874,781 |
|
|
|
84,597,861 |
The accompanying notes are an integral part of these unaudited
interim condensed consolidated financial statements.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Condensed Consolidated
Statements of Comprehensive Income |
| (EXPRESSED IN THOUSANDS OF UNITED
STATES DOLLARS) (UNAUDITED) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Three
months ended
October 31, |
|
|
|
Three
months ended
October 31, |
|
|
|
Nine
months ended
October 31, |
|
|
|
Nine
months ended
October 31, |
| |
|
|
2012 |
|
|
|
2011 |
|
|
|
2012 |
|
|
|
2011 |
| Net profit (loss) |
|
$ |
4,014 |
|
|
$ |
(4,731) |
|
|
$ |
20,377 |
|
|
$ |
8,855 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net gain (loss) on translation of
net foreign operations (net of tax of nil) |
|
|
3,452 |
|
|
|
(7,337) |
|
|
|
(2,517) |
|
|
|
8,440 |
| Other comprehensive income, net of
tax |
|
|
3,452 |
|
|
|
(7,337) |
|
|
|
(2,517) |
|
|
|
8,440 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total comprehensive income |
|
$ |
7,466 |
|
|
$ |
(12,068) |
|
|
$ |
17,860 |
|
|
$ |
17,295 |
| Attributable to shareholders |
|
$ |
6,849 |
|
|
$ |
(12,065) |
|
|
$ |
17,245 |
|
|
$ |
17,294 |
| Attributable to non-controlling
interest |
|
$ |
617 |
|
|
$ |
(3) |
|
|
$ |
615 |
|
|
$ |
1 |
The accompanying notes are an integral part of these unaudited
interim condensed consolidated financial statements.
| |
|
|
|
|
|
|
|
|
| Condensed Consolidated
Statements of Changes in Equity |
| (EXPRESSED IN THOUSANDS OF UNITED
STATES DOLLARS) (UNAUDITED) |
| |
|
|
|
|
|
|
|
|
| |
|
|
|
Nine
months ended
October 31, |
|
|
|
Nine
months ended
October 31, |
| |
|
|
|
2012 |
|
|
|
2011 |
| Common shares: |
|
|
|
|
|
|
|
|
| Balance at beginning of period |
|
|
$ |
507,975 |
|
|
$ |
502,129 |
| Issued during the period |
|
|
|
- |
|
|
|
5,163 |
| Transfer from contributed surplus on
exercise of options |
|
|
|
- |
|
|
|
2,300 |
| Balance at end of period |
|
|
|
507,975 |
|
|
|
509,592 |
| Contributed surplus: |
|
|
|
|
|
|
|
|
| Balance at beginning of period |
|
|
|
17,764 |
|
|
|
16,233 |
| Stock-based compensation expense |
|
|
|
1,288 |
|
|
|
1,602 |
| Transfer from
contributed surplus on exercise of options |
|
|
|
- |
|
|
|
(2,300) |
| Balance at end of period |
|
|
|
19,052 |
|
|
|
15,535 |
| Retained
earnings: |
|
|
|
|
|
|
|
|
| Balance at beginning of period (Recast
- note 10) |
|
|
|
261,028 |
|
|
|
235,574 |
| Net profit
attributable to common shareholders |
|
|
|
19,762 |
|
|
|
8,854 |
| Balance at end of period |
|
|
|
280,790 |
|
|
|
244,428 |
| Accumulated other comprehensive
income: |
|
|
|
|
|
|
|
|
| Balance at beginning of period |
|
|
|
10,086 |
|
|
|
7,624 |
| Other comprehensive
income |
|
|
|
|
|
|
|
|
| |
Net gain (loss) on translation of
net foreign operations (net of tax of nil) |
|
|
|
(2,517) |
|
|
|
8,440 |
| Balance at end of period |
|
|
|
7,569 |
|
|
|
16,064 |
| Non-controlling interest: |
|
|
|
|
|
|
|
|
| Balance at beginning of period |
|
|
|
255 |
|
|
|
266 |
| Non-controlling interest |
|
|
|
615 |
|
|
|
1 |
| Balance at end of period |
|
|
|
870 |
|
|
|
267 |
| Total equity |
|
|
$ |
816,256 |
|
|
$ |
785,886 |
The accompanying notes are an integral part of these unaudited
interim condensed consolidated financial statements.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Condensed Consolidated
Statements of Cash Flows |
| (EXPRESSED IN THOUSANDS OF UNITED
STATES DOLLARS) (UNAUDITED) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Three
months ended
October 31, |
|
|
|
Three
months ended
October 31, |
|
|
|
Nine
months ended
October 31, |
|
|
|
Nine
months ended
October 31, |
| |
|
|
2012 |
|
|
|
2011 |
|
|
|
2012 |
|
|
|
2011 |
| Cash provided by (used in) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| OPERATING |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net profit (loss) |
|
$ |
4,014 |
|
|
$ |
(4,731) |
|
|
$ |
20,377 |
|
|
$ |
8,855 |
| |
Depreciation and amortization |
|
|
24,453 |
|
|
|
23,121 |
|
|
|
66,980 |
|
|
|
64,129 |
| |
Deferred income tax recovery |
|
|
(12,721) |
|
|
|
(4,781) |
|
|
|
(18,262) |
|
|
|
(8,200) |
| |
Current income tax expense |
|
|
14,408 |
|
|
|
3,509 |
|
|
|
29,842 |
|
|
|
11,420 |
| |
Finance expenses |
|
|
4,811 |
|
|
|
4,040 |
|
|
|
12,719 |
|
|
|
13,206 |
| |
Stock-based compensation |
|
|
434 |
|
|
|
492 |
|
|
|
1,288 |
|
|
|
1,602 |
| |
Other non-cash items |
|
|
(118) |
|
|
|
125 |
|
|
|
(2,636) |
|
|
|
124 |
| |
Foreign exchange gain |
|
|
(1,049) |
|
|
|
(3,240) |
|
|
|
(632) |
|
|
|
(3,432) |
| |
Gain on disposition of assets |
|
|
(49) |
|
|
|
- |
|
|
|
(357) |
|
|
|
- |
| Change in non-cash operating working
capital, excluding taxes and finance expenses |
|
|
(9,399) |
|
|
|
(34,883) |
|
|
|
(25,977) |
|
|
|
(92,399) |
| Cash provided from
(used in) operating activities |
|
|
24,784 |
|
|
|
(16,348) |
|
|
|
83,342 |
|
|
|
(4,695) |
| |
Interest paid |
|
|
(4,068) |
|
|
|
(6,329) |
|
|
|
(10,082) |
|
|
|
(11,526) |
| |
Income and mining taxes paid |
|
|
(2,145) |
|
|
|
(1,077) |
|
|
|
(21,183) |
|
|
|
9,376 |
| Net cash from (used in) operating
activities |
|
|
18,571 |
|
|
|
(23,754) |
|
|
|
52,077 |
|
|
|
(6,845) |
| FINANCING |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Increase in interest-bearing loans and
borrowings |
|
|
16 |
|
|
|
- |
|
|
|
16 |
|
|
|
- |
| Decrease in interest-bearing loans and
borrowings |
|
|
(193) |
|
|
|
(178) |
|
|
|
(563) |
|
|
|
(532) |
| Increase in revolving credit |
|
|
308,966 |
|
|
|
126,286 |
|
|
|
415,148 |
|
|
|
211,890 |
| Decrease in revolving credit |
|
|
(275,185) |
|
|
|
(69,457) |
|
|
|
(376,370) |
|
|
|
(127,464) |
| Repayment of promissory note |
|
|
- |
|
|
|
(70,000) |
|
|
|
- |
|
|
|
(70,000) |
| Issue of common shares, net of issue
costs |
|
|
- |
|
|
|
182 |
|
|
|
- |
|
|
|
5,163 |
| Cash provided from financing
activities |
|
|
33,604 |
|
|
|
(13,167) |
|
|
|
38,231 |
|
|
|
19,057 |
| INVESTING |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Property, plant and equipment -
Mining |
|
|
(13,446) |
|
|
|
(10,796) |
|
|
|
(47,383) |
|
|
|
(35,880) |
| Property, plant and equipment - Luxury
brand |
|
|
(5,778) |
|
|
|
(4,050) |
|
|
|
(12,201) |
|
|
|
(7,338) |
| Net proceeds from sale of property,
plant and equipment |
|
|
- |
|
|
|
- |
|
|
|
2,619 |
|
|
|
- |
| Other non-current assets |
|
|
654 |
|
|
|
(363) |
|
|
|
21 |
|
|
|
(1,185) |
| Cash used in investing
activities |
|
|
(18,570) |
|
|
|
(15,209) |
|
|
|
(56,944) |
|
|
|
(44,403) |
| Foreign exchange effect on cash
balances |
|
|
2,616 |
|
|
|
(4,568) |
|
|
|
(670) |
|
|
|
6,681 |
| Increase (decrease) in cash and cash
equivalents |
|
|
36,221 |
|
|
|
(56,698) |
|
|
|
32,694 |
|
|
|
(25,510) |
| Cash and cash equivalents, beginning
of period |
|
|
74,589 |
|
|
|
139,881 |
|
|
|
78,116 |
|
|
|
108,693 |
| Cash and cash equivalents, end of
period |
|
$ |
110,810 |
|
|
$ |
83,183 |
|
|
$ |
110,810 |
|
|
$ |
83,183 |
| Change in non-cash operating
working capital, excluding taxes and finance expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accounts receivable |
|
|
(5,701) |
|
|
|
(890) |
|
|
|
(7,807) |
|
|
|
(9,116) |
| Inventory and supplies |
|
|
(26,974) |
|
|
|
(37,522) |
|
|
|
(59,561) |
|
|
|
(61,958) |
| Other current assets |
|
|
3,474 |
|
|
|
(2,806) |
|
|
|
6,653 |
|
|
|
(189) |
| Trade and other payables |
|
|
19,230 |
|
|
|
5,865 |
|
|
|
33,157 |
|
|
|
(21,307) |
| Employee benefit plans |
|
|
572 |
|
|
|
470 |
|
|
|
1,581 |
|
|
|
171 |
| |
|
$ |
(9,399) |
|
|
$ |
(34,883) |
|
|
$ |
(25,977) |
|
|
$ |
(92,399) |
The accompanying notes are an integral part of these unaudited
interim condensed consolidated financial statements.
Notes to Condensed Consolidated Financial
Statements
OCTOBER 31, 2012
WITH COMPARATIVE FIGURES
(TABULAR AMOUNTS IN THOUSANDS OF UNITED
STATES DOLLARS, EXCEPT AS OTHERWISE NOTED)
Note 1:
Nature of Operations
Harry Winston Diamond Corporation (the "Company") is a diamond
enterprise with assets in the mining and luxury brand segments of
the diamond industry.
The Company's mining asset is an 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
Harry Winston Diamond Limited Partnership ("HWDLP") (40%)
where HWDLP holds an undivided 40% ownership interest in the
assets, liabilities and expenses of the Diavik Diamond Mine. DDMI
is the operator of the Diavik Diamond Mine. DDMI and HWDLP are
headquartered in Yellowknife,
Canada. DDMI is a wholly owned subsidiary of Rio Tinto plc
of London, England, and Harry
Winston Diamond Limited Partnership is a wholly owned subsidiary of
Harry Winston Diamond Corporation of Toronto, Canada.
On November 13,
2012, the Company entered into share purchase agreements
with BHP Billiton Canada Inc. and various affiliates to purchase
all of BHP Billiton's diamond assets, including its controlling
interest in the Ekati Diamond Mine as well as the associated
diamond sorting and sales facilities in Yellowknife, Canada, and Antwerp, Belgium. The Ekati Diamond Mine
consists of the Core Zone, which includes the current operating
mine and other permitted kimberlite pipes, as well as the Buffer
Zone, an adjacent area hosting kimberlite pipes having both
development and exploration potential. The agreed purchase price,
payable in cash, is $400 million for
the Core Zone interest and $100
million for the Buffer Zone interest, subject to adjustments
in accordance with the terms of the share purchase agreements. The
share purchase agreements include typical closing conditions,
including receipt of required regulatory and Competition Act
approvals. Each of the Core Zone and the Buffer Zone is subject to
a separate joint venture agreement. BHP Billiton holds an 80%
interest in the Core Zone and a 58.8% interest in the Buffer Zone,
with the remainder held by the Ekati minority joint venture
parties. Pursuant to the joint venture agreements, BHP Billiton
will first separately offer to the joint venture parties its
interest in each of the Core and Buffer Zones on the same terms as
those agreed to by the Company. The joint venture parties will then
have 60 days to elect to acquire either or both of those interests.
Any interests that the joint venture parties do not elect to
acquire within that time period can then be transferred to the
Company in the following 60 days. If the Core Zone
transaction is not completed because the minority joint venture
parties exercise their pre-emptive rights, the Company will be
entitled to be paid a termination fee of $30
million by BHP Billiton. Closing of the transactions is
currently expected to occur before the end of March, 2013. The
purchase price for the acquisitions will be satisfied from cash
resources on hand and from new debt financing that has been
arranged with two banks. The new facilities will comprise a
$400 million term loan, a
$100 million revolving credit
facility (of which $50 million will
be available for purposes of funding the Ekati acquisition) and a
$140 million letter of credit
facility in support of the Core Zone environmental reclamation
bond. The new facilities will be secured and will replace the
Company mining segment's current $125
million facility with Standard Chartered Bank, which will be
repaid and terminated on closing.
The Company also owns Harry Winston Inc., the
premier fine jewelry and watch retailer with select locations
throughout the world. Its head office is located in New York City, United States.
The Company's operations fluctuate from quarter
to quarter depending on, among other factors, the seasonality of
production at the Diavik Diamond Mine, seasonality of mine
operating expenses, capital expenditure programs, the number of
rough diamond sales events conducted during the quarter and the
volume, size and quality distribution of rough diamonds delivered
from the Diavik Diamond Mine in each quarter. The quarterly results
for the luxury brand segment are also seasonal, with generally
higher sales during the fourth quarter due to the holiday
season.
The Company is incorporated and domiciled in
Canada and its shares are publicly
traded on the Toronto Stock Exchange and the New York Stock
Exchange. The address of its registered office is Toronto, Ontario.
Note 2:
Basis of Preparation
| (a) |
Statement of compliance |
| |
These unaudited interim condensed consolidated financial
statements have been prepared in accordance with International
Financial Reporting Standards ("IFRS") International Accounting
Standard ("IAS") 34, "Interim Financial Reporting". |
| |
| |
These unaudited interim condensed consolidated financial
statements do not include all disclosures required by IFRS for
annual consolidated financial statements and accordingly should be
read in conjunction with the Company's audited consolidated
financial statements and notes thereto for the year ended January
31, 2012. 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, 2012. |
| |
| (b) |
Basis of measurement |
| |
These unaudited interim condensed consolidated financial
statements have been prepared on the historical cost basis except
for the following: |
|
- financial instruments held for trading are measured at fair
value through profit and loss
- liabilities for Restricted Share Unit and Deferred Share Unit
plans are measured at fair value
|
| |
| (c) |
Currency of presentation |
| |
These unaudited interim condensed consolidated financial
statements are expressed in United States dollars, consistent with
the predominant functional currency of the Company's operations.
All financial information presented in United States dollars has
been rounded to the nearest thousand. |
| |
|
Note 3:
Cash Resources
| |
|
|
|
October 31,
2012 |
|
|
|
January 31,
2012 |
| Cash on hand and balances with banks |
|
|
$ |
105,634 |
|
|
$ |
76,030 |
| Short-term investments (a) |
|
|
|
5,176 |
|
|
|
2,086 |
| Total cash resources |
|
|
$ |
110,810 |
|
|
$ |
78,116 |
(a) Short-term investments are held in overnight
deposits and money market instruments with a maturity of 30
days.
Note 4:
Inventory and Supplies
| |
|
|
|
October 31,
2012 |
|
|
|
January 31,
2012 |
| Luxury brand raw materials |
|
|
$ |
67,200 |
|
|
$ |
62,188 |
| Mining rough diamond inventory |
|
|
|
68,332 |
|
|
|
62,472 |
| |
|
|
|
135,532 |
|
|
|
124,660 |
| Luxury brand work-in-progress |
|
|
|
59,159 |
|
|
|
45,407 |
| Luxury brand merchandise inventory |
|
|
|
245,789 |
|
|
|
218,844 |
| Mining supplies inventory |
|
|
|
73,078 |
|
|
|
68,916 |
| Total inventory and supplies |
|
|
$ |
513,558 |
|
|
$ |
457,827 |
Total inventory and supplies is net of a
provision for obsolescence of $3.7
million ($3.1 million at
January 31, 2012).
Note 5:
Diavik Joint Venture
The following represents HWDLP's 40%
proportionate interest in the Joint Venture as at September 30, 2012 and December 31, 2011:
| |
|
|
|
October 31,
2012 |
|
|
|
January 31,
2012 |
| Current assets |
|
|
$ |
100,331 |
|
|
$ |
101,454 |
| Non-current assets |
|
|
|
673,571 |
|
|
|
685,590 |
| Current liabilities |
|
|
|
30,656 |
|
|
|
31,745 |
| Non-current liabilities and participant's
account |
|
|
|
743,246 |
|
|
|
755,298 |
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Three months
ended
October 31,
2012 |
|
|
Three months
ended
October 31,
2011 |
|
|
Nine months
ended
October 31,
2012 |
|
|
Nine months
ended
October 31,
2011 |
| Expenses net of interest income (a)
(b) |
|
$ |
61,087 |
|
$ |
57,918 |
|
$ |
176,410 |
|
$ |
181,576 |
| Cash flows resulting from (used
in) operating activities |
|
|
(28,936) |
|
|
(26,920) |
|
|
(126,311) |
|
|
(116,815) |
| Cash flows resulting from financing
activities |
|
|
56,264 |
|
|
39,156 |
|
|
168,464 |
|
|
154,239 |
| Cash flows resulting from (used in) investing
activities |
|
|
(23,310) |
|
|
(13,460) |
|
|
(42,451) |
|
|
(35,680) |
| (a) |
The Joint Venture only earns interest income. |
| (b) |
Expenses net of interest income for the three months and nine
months ended October 31, 2012 of $nil and $0.1 million,
respectively (three and nine months ended October 31, 2011 of $nil
and $0.1 million, respectively). |
| |
|
HWDLP is contingently liable for DDMI's portion
of the liabilities of the Joint Venture, and to the extent HWDLP's
participating interest has increased because of the failure of DDMI
to make a cash contribution when required, HWDLP would have access
to an increased portion of the assets of the Joint Venture to
settle these liabilities. Additional information on commitments and
contingencies related to the Diavik Joint Venture is found in Note
7.
Note 6:
Interest-Bearing Loans and Borrowings
| |
|
|
|
October 31,
2012 |
|
|
|
January 31,
2012 |
| Mining segment credit facilities |
|
|
$ |
49,284 |
|
|
$ |
48,460 |
| Harry Winston Inc. credit facilities |
|
|
|
234,063 |
|
|
|
217,071 |
| First mortgage on real property |
|
|
|
5,804 |
|
|
|
6,342 |
| Bank advances |
|
|
|
48,570 |
|
|
|
27,850 |
| Finance leases |
|
|
|
431 |
|
|
|
- |
| Total interest-bearing loans and borrowings |
|
|
|
338,152 |
|
|
|
299,723 |
| Less current portion |
|
|
|
(50,054) |
|
|
|
(29,238) |
| |
|
|
$ |
288,098 |
|
|
$ |
270,485 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Currency |
|
Nominal
interest
rate |
|
Date of
maturity |
|
Carrying
amount at
October 31,
2012 |
|
Face value
at
October 31, 2012 |
|
Borrower |
| Secured bank loan |
|
US |
|
4.09% |
|
June 24, 2013 |
|
$49.3 million |
|
$50.0 million |
|
Harry Winston Diamond Corporation
and
Harry Winston Diamond Mines Ltd. |
| Secured bank loan |
|
US |
|
3.51% |
|
August 30,2017 |
|
$218.3 million |
|
$223.0 million |
|
Harry Winston Inc. |
| Secured bank loan |
|
CHF |
|
3.15% |
|
January 31, 2033 |
|
$3.7 million |
|
$3.7 million |
|
Harry Winston S.A. |
| Secured bank loan |
|
CHF |
|
3.55% |
|
January 31, 2033 |
|
$12.0 million |
|
$12.0 million |
|
Harry Winston S.A. |
| First mortgage on real
property |
|
CDN |
|
7.98% |
|
September 1, 2018 |
|
$5.8 million |
|
$5.8 million |
|
6019838 Canada Inc. |
| Secured bank advance |
|
US |
|
4.80% |
|
Due on demand |
|
$ 15.7 million |
|
$ 15.7 million |
|
Harry Winston Diamond International N.V |
| |
|
US |
|
12.50% |
|
Due on demand |
|
$ 2.1 million |
|
$ 2.1 million |
|
Harry Winston Diamond (India)
Private Limited |
| Secured bank advance |
|
CHF |
|
4.00% |
|
Due on demand |
|
$ 7.4 million |
|
$ 7.4 million |
|
Harry Winston S.A. |
| Secured bank advance |
|
YEN |
|
2.55% |
|
February 22, 2013 |
|
$7.2 million |
|
$7.2 million |
|
Harry Winston Japan, K.K. |
| Unsecured bank advance |
|
YEN |
|
2.98% |
|
November 30, 2012 |
|
$6.5 million |
|
$6.5 million |
|
Harry Winston Japan, K.K. |
| Unsecured bank advance |
|
YEN |
|
2.98% |
|
November 30, 2012 |
|
$7.0 million |
|
$7.0 million |
|
Harry Winston Japan, K.K. |
| Unsecured bank advance |
|
YEN |
|
2.48% |
|
March 29, 2013 |
|
$1.0 million |
|
$1.0 million |
|
Harry Winston Japan, K.K. |
| Unsecured bank advance |
|
YEN |
|
2.00% |
|
November 30, 2012 |
|
$1.3 million |
|
$1.3 million |
|
Harry Winston Japan, K.K. |
| Unsecured bank advance |
|
YEN |
|
1.88% |
|
November 22, 2012 |
|
$0.3 million |
|
$0.3 million |
|
Harry Winston Japan, K.K |
| Finance lease |
|
CHF |
|
1.97% |
|
April 1, 2017 |
|
$0.4 million |
|
$0.4 million |
|
Harry Winston S.A. |
|
(a) |
On August 30, 2012, Harry Winston Inc. refinanced its secured
revolving credit facility by entering into a new secured five-year
credit agreement with a consortium of banks led by Standard
Chartered Bank establishing a $260.0 million facility for revolving
credit loans. The new facility expires on August 30, 2017. On
November 7, 2012, Harry Winston Inc. signed the first amendment to
its senior secured revolving credit agreement dated August 30,
2012. The amendment increased the current $260.0 million facility
to $300.0 million with Manufacturers and Traders Trust Company
agreeing to provide an additional $40.0 million commitment, and
being added as a new lender under the current credit agreement.
There are no scheduled repayments required before maturity. As with
the previous agreement, the new credit facility is supported by a
$20.0 million limited guarantee provided by Harry Winston Diamond
Corporation. The amount available under this facility is subject to
a borrowing base formula based on certain assets of the luxury
brand segment. At October 31, 2012, $223.0 million was
outstanding. |
| |
| |
The new credit agreement contains affirmative and negative
non-financial and financial covenants, which apply to the luxury
brand segment. These provisions include consolidated minimum
tangible net worth, minimum coverage of fixed charges, leverage
ratio and limitations on capital expenditures and certain
investments. The new credit agreement also includes a change of
control provision, which would result in the entire unpaid
principal and all accrued interest of the facility becoming due
immediately upon change of control, as defined. Any material
adverse change, as defined, in the luxury brand segment's assets,
liabilities, consolidated financial position or consolidated
results of operations constitutes default under the agreement. |
| |
| |
The luxury brand segment has pledged 100% of Harry Winston
Inc.'s common stock and 66 2/3% of the common stock of its foreign
subsidiaries to the bank to secure the loan. Inventory and accounts
receivable of Harry Winston Inc. are pledged as collateral to
secure the borrowings of Harry Winston Inc. In addition, an
assignment of proceeds on insurance covering security collateral
was made. |
| |
| |
Loans under the new credit facility can be either fixed rate
loans or revolving line of credit loans. The fixed rate loans will
bear interest within a range of 2.50% to 3.25% above LIBOR based
upon a pricing grid determined by the fixed charge coverage ratio.
Interest under this option will be determined for periods of either
one, two, three or six months. The revolving line of credit loans
will bear interest within a range of 1.50% to 2.25% above the
bank's prime rate based upon a pricing grid determined by the fixed
charge coverage ratio as well. |
| |
|
(b) |
On August 21, 2012, Harry Winston S.A. entered into a credit
facility with UBS AG establishing a CHF 7.0 million credit
line. The new credit facility is available to Harry Winston
S.A. for general corporate purposes. The new facility contains
affirmative and negative non-financial and financial covenants. The
Harry Winston S.A. factory building is pledged as collateral to
secure the borrowings. Borrowings under the credit facility can be
either fixed rate loans or revolving line of credit loans in CHF or
any freely available and convertible currency. Interest under the
fixed rate option will be based upon Euromarket rates for the
relevant term and currency plus a bank margin. Available terms
under fixed rate borrowings are one to 12 months in minimum
denominations of CHF 250,000. Interest under the revolving /
overdraft option will bear interest at 4% per annum for CHF loans,
and 5.5% per annum for USD loans. A 0.25% commission will be
charged quarterly based upon the average debit balance. At October
31, 2012, $7.4 million was outstanding. |
| |
Note 7:
Commitments and Guarantees
| (a) |
Environmental agreements |
| |
Through negotiations of environmental and other agreements, the
Joint Venture must provide funding for the Environmental Monitoring
Advisory Board. HWDLP anticipates its share of this funding
requirement will be approximately $0.3 million for calendar 2012.
Further funding will be required in future years; however, specific
amounts have not yet been determined. These agreements also state
that 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. HWDLP's
share of the letters of credit outstanding posted by the operator
of the Joint Venture with respect to the environmental agreements
as at October 31, 2012, was $81.4 million. The agreement
specifically provides that these funding requirements will be
reduced by amounts incurred by the Joint Venture on reclamation and
abandonment activities. |
| |
| (b) |
Participation agreements |
| |
The Joint Venture has signed participation agreements with
various native groups. These agreements are expected to contribute
to the social, economic and cultural well-being of the Aboriginal
bands. The agreements are each for an initial term of twelve years
and shall be automatically renewed on terms to be agreed upon for
successive periods of six years thereafter until termination. The
agreements terminate in the event that the mine permanently ceases
to operate. Harry Winston Diamond Corporation's share of the
Joint Venture's participation agreements as at October 31, 2012 was
$1.5 million. |
| |
| (c) |
Operating lease commitments |
| |
The Company has entered into non-cancellable operating leases
for the rental of luxury brand salons and office premises, which
expire at various dates through 2029. The leases have varying
terms, escalation clauses and renewal rights. Any renewal terms are
at the option of the lessee at lease payments based on market
prices at the time of renewal. Certain leases contain either
restrictions relating to opening additional salons within a
specified radius or contain additional rents related to sales
levels. Minimum rent payments under operating leases are recognized
on a straight-line basis over the term of the lease, including any
periods of free rent. Future minimum lease payments under
non-cancellable operating leases as at October 31, 2012 are as
follows: |
| |
|
|
|
|
|
|
| Within one year |
|
|
|
|
$ |
25,276 |
| After one year but not more than five years |
|
|
|
|
|
101,877 |
| More than five years |
|
|
|
|
|
127,774 |
| |
|
|
|
|
$ |
254,927 |
| (d) |
Capital commitments related to the Joint Venture |
| |
At October 31, 2012, Harry Winston Diamond Corporation's share
of approved capital expenditures at the Joint Venture was $23.5
million. |
| |
|
Note 8:
Capital Management
The Company's capital includes cash and cash equivalents, current
and non-current interest-bearing loans and borrowings and equity,
which includes issued common shares, contributed surplus and
retained earnings.
The Company's primary objective with respect to
its capital management is to ensure that it has sufficient cash
resources to maintain its ongoing operations, to provide returns to
shareholders and benefits for other stakeholders, and to pursue
growth opportunities. To meet these needs, the Company may from
time to time raise additional funds through borrowing and/or the
issuance of equity or debt or by securing strategic partners, upon
approval by the Board of Directors. The Board of Directors reviews
and approves any material transactions out of the ordinary course
of business, including proposals on acquisitions or other major
investments or divestitures, as well as annual capital and
operating budgets.
The Company assesses liquidity and capital
resources on a consolidated basis. The Company's requirements are
for cash operating expenses, working capital, contractual debt
requirements and capital expenditures. The Company believes that it
will generate sufficient liquidity to meet its anticipated
requirements for the next twelve months.
On August 30,
2012, the Company's luxury brand subsidiary, Harry Winston
Inc., refinanced its secured revolving credit facility by entering
into a new secured five-year credit agreement with a consortium of
banks led by Standard Chartered Bank establishing a $260.0 million facility for revolving credit
loans. Harry Winston Inc. amended its senior secured revolving
credit facility on November 7, 2012,
by adding an additional $40.0 million
increasing the total facility to $300.0
million. The new facility expires on August 30, 2017. As with the previous agreement,
the new credit facility is supported by a $20.0 million limited guarantee provided by Harry
Winston Diamond Corporation. The amount available under this
facility is subject to a borrowing base formula based on certain
assets of the luxury brand segment.
Note 9:
Segmented Information
The Company operated in three segments within the diamond industry
- mining, luxury brand and corporate - for the three months ended
October 31, 2012.
The mining segment consists of the Company's
rough diamond business. This business includes the 40% ownership
interest in the Diavik group of mineral claims and the sale of
rough diamonds.
The luxury brand segment consists of the
Company's ownership in Harry Winston Inc. This segment consists of
the marketing of fine jewelry and watches on a worldwide basis.
The corporate segment captures costs not
specifically related to operations of the mining or luxury brand
segments.
| For the three
months ended October 31, 2012 |
|
|
Mining |
|
|
Luxury brand |
|
|
Corporate |
|
|
Total |
| Sales |
|
|
|
|
|
|
|
|
|
|
|
|
| |
America |
|
$ |
7,697 |
|
$ |
30,751 |
|
$ |
- |
|
$ |
38,448 |
| |
Europe |
|
|
57,438 |
|
|
27,297 |
|
|
- |
|
|
84,735 |
| |
Asia (excluding Japan) |
|
|
19,683 |
|
|
15,493 |
|
|
- |
|
|
35,176 |
| |
Japan |
|
|
- |
|
|
22,040 |
|
|
- |
|
|
22,040 |
| |
Total sales |
|
|
84,818 |
|
|
95,581 |
|
|
- |
|
|
180,399 |
| Cost of
sales |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Depreciation and amortization |
|
|
19,800 |
|
|
392 |
|
|
- |
|
|
20,192 |
| |
All other costs |
|
|
51,863 |
|
|
42,635 |
|
|
- |
|
|
94,498 |
| |
Total cost of sales |
|
|
71,663 |
|
|
43,027 |
|
|
- |
|
|
114,690 |
| Gross
margin |
|
|
13,155 |
|
|
52,554 |
|
|
- |
|
|
65,709 |
| Gross margin
(%) |
|
|
15.5% |
|
|
55.0% |
|
|
-% |
|
|
36.4% |
| Selling, general and
administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Selling and related expenses |
|
|
957 |
|
|
37,396 |
|
|
- |
|
|
38,353 |
| |
Administrative expenses |
|
|
2,975 |
|
|
9,809 |
|
|
4,250 |
|
|
17,034 |
| |
Total selling, general and
administrative expenses |
|
|
3,932 |
|
|
47,205 |
|
|
4,250 |
|
|
55,387 |
| Operating profit (loss) |
|
|
9,223 |
|
|
5,349 |
|
|
(4,250) |
|
|
10,322 |
| Finance expenses |
|
|
(2,308) |
|
|
(2,503) |
|
|
- |
|
|
(4,811) |
| Exploration costs |
|
|
(673) |
|
|
- |
|
|
- |
|
|
(673) |
| Finance and other
income |
|
|
60 |
|
|
36 |
|
|
- |
|
|
96 |
| Foreign exchange gain
(loss) |
|
|
(301) |
|
|
1,068 |
|
|
- |
|
|
767 |
| Segmented profit
(loss) before income taxes |
|
$ |
6,001 |
|
$ |
3,950 |
|
$ |
(4,250) |
|
$ |
5,701 |
| Segmented assets as at October 31,
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Canada |
|
$ |
953,484 |
|
$ |
- |
|
$ |
- |
|
$ |
953,484 |
| |
United States |
|
|
- |
|
|
394,366 |
|
|
115,657 |
|
|
510,023 |
| |
Other foreign countries |
|
|
34,651 |
|
|
235,034 |
|
|
- |
|
|
269,685 |
| |
|
$ |
988,135 |
|
$ |
629,400 |
|
$ |
115,657 |
|
$ |
1,733,192 |
| Capital expenditures |
|
$ |
13,446 |
|
$ |
5,778 |
|
$ |
- |
|
$ |
19,223 |
| Other significant non-cash
items: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Deferred income tax recovery |
|
$ |
(11,087) |
|
$ |
(1,577) |
|
$ |
(57) |
|
$ |
(12,721) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| For the three
months ended October 31, 2011 |
|
|
Mining |
|
|
Luxury brand |
|
|
Corporate |
|
|
Total |
| Sales |
|
|
|
|
|
|
|
|
|
|
|
|
| |
America |
|
$ |
8,835 |
|
$ |
28,817 |
|
$ |
- |
|
$ |
37,652 |
| |
Europe |
|
|
21,993 |
|
|
19,561 |
|
|
- |
|
|
41,554 |
| |
Asia (excluding Japan) |
|
|
5,411 |
|
|
13,133 |
|
|
- |
|
|
18,544 |
| |
Japan |
|
|
- |
|
|
21,966 |
|
|
- |
|
|
21,966 |
| |
Total sales |
|
|
36,239 |
|
|
83,477 |
|
|
- |
|
|
119,716 |
| Cost of sales |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Depreciation and amortization |
|
|
19,340 |
|
|
57 |
|
|
- |
|
|
19,397 |
| |
All other costs |
|
|
14,772 |
|
|
41,321 |
|
|
34 |
|
|
56,127 |
| |
Total cost of sales |
|
|
34,112 |
|
|
41,378 |
|
|
34 |
|
|
75,524 |
| Gross
margin |
|
|
2,127 |
|
|
42,099 |
|
|
(34) |
|
|
44,192 |
| Gross margin (%) |
|
|
5.9% |
|
|
50.4% |
|
|
-% |
|
|
36.9% |
| Selling, general and administrative
expenses |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Selling and related expenses |
|
|
966 |
|
|
30,800 |
|
|
- |
|
|
31,766 |
| |
Administrative expenses |
|
|
2,308 |
|
|
9,835 |
|
|
2,246 |
|
|
14,389 |
| |
Total selling, general and
administrative expenses |
|
|
3,274 |
|
|
40,635 |
|
|
2,246 |
|
|
46,155 |
| Operating profit (loss) |
|
|
(1,147) |
|
|
1,464 |
|
|
(2,280) |
|
|
(1,963) |
| Finance expenses |
|
|
(2,691) |
|
|
(1,474) |
|
|
125 |
|
|
(4,040) |
| Exploration costs |
|
|
(600) |
|
|
- |
|
|
- |
|
|
(600) |
| Finance and other
income |
|
|
256 |
|
|
33 |
|
|
(125) |
|
|
164 |
| Foreign exchange gain |
|
|
285 |
|
|
151 |
|
|
- |
|
|
436 |
| Segmented profit
(loss) before income taxes |
|
$ |
(3,897) |
|
$ |
174 |
|
$ |
(2,280) |
|
$ |
(6,003) |
| Segmented assets as
at October 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Canada |
|
$ |
941,028 |
|
$ |
- |
|
$ |
- |
|
$ |
941,028 |
| |
United States |
|
|
- |
|
|
337,501 |
|
|
106,215 |
|
|
443,716 |
| |
Other foreign countries |
|
|
57,853 |
|
|
208,012 |
|
|
- |
|
|
265,865 |
| |
|
$ |
998,881 |
|
$ |
545,513 |
|
$ |
106,215 |
|
$ |
1,650,609 |
| Capital expenditures |
|
$ |
10,796 |
|
$ |
4,050 |
|
$ |
- |
|
$ |
14,846 |
| Other significant
non-cash items: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Deferred income tax recovery |
|
$ |
(4,190) |
|
$ |
(520) |
|
$ |
(71) |
|
$ |
(4,781) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| For the nine months
ended October 31, 2012 |
|
|
Mining |
|
|
Luxury brand |
|
|
Corporate |
|
|
Total |
| Sales |
|
|
|
|
|
|
|
|
|
|
|
|
| |
America |
|
$ |
17,398 |
|
$ |
98,796 |
|
$ |
- |
|
$ |
116,194 |
| |
Europe |
|
|
162,322 |
|
|
72,987 |
|
|
- |
|
|
235,309 |
| |
Asia (excluding Japan) |
|
|
55,580 |
|
|
69,834 |
|
|
- |
|
|
125,414 |
| |
Japan |
|
|
- |
|
|
72,840 |
|
|
- |
|
|
72,840 |
| |
Total sales |
|
|
235,300 |
|
|
314,457 |
|
|
- |
|
|
549,757 |
| Cost of sales |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Depreciation and amortization |
|
|
53,754 |
|
|
1,052 |
|
|
- |
|
|
54,806 |
| |
All other costs |
|
|
134,792 |
|
|
148,920 |
|
|
- |
|
|
283,712 |
| |
Total cost of sales |
|
|
188,546 |
|
|
149,972 |
|
|
- |
|
|
338,518 |
| Gross margin |
|
|
46,754 |
|
|
164,485 |
|
|
- |
|
|
211,239 |
| Gross margin (%) |
|
|
19.9% |
|
|
52.3% |
|
|
-% |
|
|
38.4% |
| Selling, general and administrative
expenses |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Selling and related expenses |
|
|
2,667 |
|
|
114,329 |
|
|
- |
|
|
116,996 |
| |
Administrative expenses |
|
|
6,756 |
|
|
29,682 |
|
|
12,441 |
|
|
48,879 |
| |
Total selling, general and
administrative expenses |
|
|
9,423 |
|
|
144,011 |
|
|
12,441 |
|
|
165,875 |
| Operating profit (loss) |
|
|
37,331 |
|
|
20,474 |
|
|
(12,441) |
|
|
45,364 |
| Finance expenses |
|
|
(6,701) |
|
|
(6,018) |
|
|
- |
|
|
(12,719) |
| Exploration costs |
|
|
(1,495) |
|
|
- |
|
|
- |
|
|
(1,495) |
| Finance and other income |
|
|
179 |
|
|
72 |
|
|
- |
|
|
251 |
| Foreign exchange gain |
|
|
377 |
|
|
179 |
|
|
- |
|
|
556 |
| Segmented profit
(loss) before income taxes |
|
$ |
29,691 |
|
$ |
14,707 |
|
$ |
(12,441) |
|
$ |
31,957 |
| Segmented assets as
at October 31, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Canada |
|
$ |
953,484 |
|
$ |
- |
|
$ |
- |
|
$ |
953,484 |
| |
United States |
|
|
- |
|
|
394,366 |
|
|
115,657 |
|
|
510,023 |
| |
Other foreign countries |
|
|
34,651 |
|
|
235,034 |
|
|
- |
|
|
269,685 |
| |
|
$ |
988,135 |
|
$ |
629,400 |
|
$ |
115,657 |
|
$ |
1,733,192 |
| Capital expenditures |
|
$ |
47,383 |
|
$ |
12,201 |
|
$ |
- |
|
$ |
59,584 |
| Other significant non-cash
items: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Deferred income tax recovery |
|
$ |
(15,246) |
|
$ |
(2,845) |
|
$ |
(171) |
|
$ |
(18,262) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| For the nine months
ended October 31, 2011 |
|
|
Mining |
|
|
Luxury brand |
|
|
Corporate |
|
|
Total |
| Sales |
|
|
|
|
|
|
|
|
|
|
|
|
| |
America |
|
$ |
12,291 |
|
$ |
91,487 |
|
$ |
- |
|
$ |
103,778 |
| |
Europe |
|
|
152,876 |
|
|
63,105 |
|
|
- |
|
|
215,981 |
| |
Asia (excluding Japan) (a) |
|
|
22,715 |
|
|
86,543 |
|
|
- |
|
|
109,258 |
| |
Japan |
|
|
- |
|
|
57,009 |
|
|
- |
|
|
57,009 |
| |
Total sales |
|
|
187,882 |
|
|
298,144 |
|
|
- |
|
|
486,026 |
| Cost of sales |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Depreciation and amortization |
|
|
52,572 |
|
|
215 |
|
|
- |
|
|
52,787 |
| |
All other costs |
|
|
102,596 |
|
|
166,635 |
|
|
135 |
|
|
269,366 |
| |
Total cost of sales |
|
|
155,168 |
|
|
166,850 |
|
|
135 |
|
|
322,153 |
| Gross margin |
|
|
32,714 |
|
|
131,294 |
|
|
(135) |
|
|
163,873 |
| Gross margin (%) |
|
|
17.4% |
|
|
44.0% |
|
|
-% |
|
|
33.7% |
| Selling, general and administrative
expenses |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Selling and related expenses |
|
|
2,392 |
|
|
90,098 |
|
|
- |
|
|
92,490 |
| |
Administrative expenses |
|
|
9,001 |
|
|
28,584 |
|
|
7,976 |
|
|
45,561 |
| |
Total selling, general and
administrative expenses |
|
|
11,393 |
|
|
118,682 |
|
|
7,976 |
|
|
138,051 |
| Operating profit (loss) |
|
|
21,321 |
|
|
12,612 |
|
|
(8,111) |
|
|
25,822 |
| Finance expenses |
|
|
(9,171) |
|
|
(4,160) |
|
|
125 |
|
|
(13,206) |
| Exploration costs |
|
|
(1,593) |
|
|
- |
|
|
- |
|
|
(1,593) |
| Finance and other income |
|
|
411 |
|
|
219 |
|
|
(125) |
|
|
505 |
| Foreign exchange gain |
|
|
154 |
|
|
393 |
|
|
- |
|
|
547 |
| Segmented profit
(loss) before income taxes |
|
$ |
11,122 |
|
$ |
9,064 |
|
$ |
(8,111) |
|
$ |
12,075 |
| Segmented assets as
at October 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Canada |
|
$ |
941,028 |
|
$ |
- |
|
$ |
- |
|
$ |
941,028 |
| |
United States |
|
|
- |
|
|
337,501 |
|
|
106,215 |
|
|
443,716 |
| |
Other foreign countries |
|
|
57,853 |
|
|
208,012 |
|
|
- |
|
|
265,865 |
| |
|
$ |
998,881 |
|
$ |
545,513 |
|
$ |
106,215 |
|
$ |
1,650,609 |
| Capital expenditures |
|
$ |
35,880 |
|
$ |
7,338 |
|
$ |
- |
|
$ |
43,218 |
| Other significant
non-cash items: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Deferred income tax expense
(recovery) |
|
$ |
(12,154) |
|
$ |
4,180 |
|
$ |
(226) |
|
$ |
(8,200) |
| (a) |
Sales to one significant customer in the luxury brand segment
totalled $45.0 million for the nine months ended October 31,
2011. |
| |
|
Note 10:
Recast
During the preparation of the income tax provision for the quarter
ended April 30, 2012, the Company
noted a historical difference related to the accounting for
Northwest Territories mining
royalty taxes in connection with the Company's rough diamond
inventory. For Northwest
Territories mining royalty tax purposes, the Company is
subject to mining royalty taxes, which includes a requirement to
treat the rough diamond inventory when it comes out of the Diavik
Diamond Mine as taxable. This results in an accounting timing
difference between the mining and extraction of the diamonds and
when they are sold. The Company did not previously record the
corresponding deferred tax asset on the rough diamond inventory
related to royalty taxes payable. The Company has revised the
comparative figures to correct the immaterial impact of this item
with the offset recorded in retained earnings, amounting to
$5.8 million as at January 31, 2011 and 2012.
SOURCE Harry Winston Diamond Corporation