In TO403 sent on April 7, 2008 please note CNW transposed the
columns in the "Consolidated Financial Results" and this table
should not be used. No other changes were made to the release. Full
corrected copy follows: TORONTO, April 7 /PRNewswire-FirstCall/ --
Harry Winston Diamond Corporation (TSX: HW, NYSE: HWD) today
reported fourth quarter and annual results for the period ending
January 31, 2008. Fourth quarter sales increased 22% to $188.2
million with consolidated earnings from operations of $59.1
million, a 59% increase over the comparable quarter of the prior
year. As a result, net earnings grew to $90.4 million or $1.55 per
share, compared to $27.3 million or $0.47 per share for the fourth
quarter of the prior year. Net earnings for the fourth quarter were
impacted by a $22.3 million foreign exchange gain or $0.38 per
share related principally to an unrealized non-cash gain on future
income taxes payable as compared to a foreign exchange gain of $9.8
million or $0.17 per share in the comparable quarter of the prior
year. Also impacting the fourth quarter are a future income tax
recovery of $22.4 million or $0.38 per share and an after-tax gain
of $8.0 million or $0.14 per share pertaining to an insurance
settlement. Annual sales grew 22% to $679.3 million with
consolidated earnings from operations increasing 48% to $217.7
million for fiscal 2008. The Company posted net earnings of $106.4
million or $1.82 per share for fiscal 2008 compared to net earnings
of $104.3 million, or $1.79 earnings per share, in the prior year.
Net earnings for the year were reduced by a net $43.4 million
foreign exchange loss, or $0.74 per share, related primarily to an
unrealized non-cash loss on future income taxes, compared to a net
$8.8 million foreign exchange gain, or $0.15 per share, in the
prior year. The loss is a result of the 17% strengthening of the
Canadian dollar relative to the US dollar during the year. Fourth
Quarter and Fiscal 2008 Financial Highlights (US$ in millions
except Earnings per Share amounts)
-------------------------------------------------------------------------
Three Three Twelve Twelve months months months months ended ended
ended ended Jan. 31, Jan. 31, Jan. 31, Jan. 31, 2008 2007 2008 2007
-------------------------------------------------------------------------
Sales 188.2 154.3 679.4 558.8
-------------------------------------------------------------------------
Earnings from operations 59.1 37.2 217.7 146.8
-------------------------------------------------------------------------
Net earnings 90.4 27.3 106.4 104.3
-------------------------------------------------------------------------
Earnings per share $ 1.55 $ 0.47 $ 1.82 $ 1.79
-------------------------------------------------------------------------
"We are pleased with our progress this past year in building an
increasingly profitable business. Our two premium assets, at the
most profitable poles of the diamond business, inform each other
with respect to pricing and polished diamond supply. This enables
rough diamond sales from the mine to be priced quickly and
accurately against market changes. It also connects the jewelry and
watch business directly to the diamond polishers that are the
mine's customers making a more efficient supply chain," said Robert
Gannicott, Chairman and Chief Executive Officer. "In addition to
building on this shared strength, we have growth opportunities
specific to each of our businesses. On the mining side, we now have
a mine plan in place that confirms the mine life beyond 2020. After
processing more than 41 million carats of diamonds since production
began five years ago, there are still more than 77 million carats
in proven and probable reserves with an additional 11 million in
inferred resources. In our growing retail business, we posted
record global sales for the fiscal year and we opened our 18th
retail salon, tripling our retail portfolio since we acquired Harry
Winston Inc." Mr. Gannicott added, "We look forward to a year of
growth in global diamond demand generally and especially for the
high quality diamond jewelry that is the trademark of Harry Winston
and its worldwide retail network." Thomas J. O'Neill, President of
Harry Winston Diamond Corporation added, "Our retail business
continued to grow substantially last year as we achieved record
sales. Demand for our highly-designed jewelry continues to be very
strong despite uncertain domestic economic conditions. Our
customers are truly international clients. We have experienced a
noticeable shift in our customer base from what had been a U.S.
dominated market to one where the U.S. customer accounts for one
third of our global sales. Our new fiscal year is off to a good
start in retail sales and we will continue to focus on the high-net
worth individuals in markets such as Russia, China, the Middle East
and India to drive our luxury diamond jewelry and timepiece
business." Dividend Announcement Harry Winston Diamond Corporation
is pleased to declare an eligible quarterly dividend payment of
US$0.05 per share. Shareholders of record at the close of business
on April 17, 2008, will be entitled to receive payment of this
dividend on April 30, 2008. Conference Call and Webcast Beginning
at 11:00AM (EST), on Tuesday, April 8, 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 website at
http://investor.harrywinston.com/ or by dialing 866-825-1692 within
North America or 617-213-8059 from international locations and
entering passcode 33581211. An online archive of the broadcast will
be available by accessing the company's investor relations website
at http://investor.harrywinston.com/. A telephone replay of the
call will be available one-hour after the call through 11:00 PM
(EST) Tuesday, April 15, 2008, by dialing 888-286-8010 within North
America or 617-801-6888 from international locations and entering
passcode 79965342. Information in this news release that is not
current or historical factual information may constitute
forward-looking information or statements within the meaning of
applicable securities laws. Implicit in this information,
particularly in respect of statements as to future operating
results and economic performance of Harry Winston Diamond
Corporation, and capital commitments at the Diavik Mine, are
assumptions regarding projected revenue and expense, diamond
prices, mining and mine construction and development costs and the
Canadian/US dollar exchange rate. Specifically, in estimating Harry
Winston Diamond Corporation's share of the Diavik Mine capital
expenditure requirements, Harry Winston Diamond Corporation has
used a Canadian/US dollar exchange rate of $1.00, and has assumed
that construction will continue on schedule and without undue
disruption with respect to current underground mining construction
initiatives. These assumptions, although considered reasonable by
Harry Winston Diamond Corporation at the time of preparation, may
prove to be incorrect. Forward-looking information is subject to
certain factors, including risks and uncertainties, which could
cause actual results to differ materially from what we currently
expect. These factors include, among other things, the uncertain
nature of mining and mine development activities, risks associated
with underground construction activities, risks associated with
joint venture operations, risks associated with the remote location
of the Diavik Mine site, risks associated with regulatory and
financing requirements, fluctuations in diamond prices, changes in
world economic conditions, increased competition from other luxury
goods retailers, changes in consumer preferences and tastes in
jewelry, and the risk of continued fluctuations in the Canadian/US
dollar exchange rate. About Harry Winston Diamond Corporation Harry
Winston Diamond Corporation (TSX: HW; NYSE: HWD) is a specialist
diamond enterprise with assets in the mining and retail segments of
the diamond industry. The company supplies rough diamonds to the
global market from its 40% interest in the Diavik Diamond Mine,
located in Canada's Northwest Territories. The company's retail
division, Harry Winston, Inc., is a premier jewelry and timepiece
retailer with salons in key locations including New York, Paris,
London, Beijing, Tokyo and Beverly Hills. For more information,
please go to http://www.harrywinston.com/ or for investor
information, visit investor.harrywinston.com. Highlights (All
figures are in United States dollars unless otherwise indicated)
Harry Winston Diamond Corporation achieved record consolidated
sales for the year, generating a 35% increase in gross margin and a
48% increase in consolidated earnings from operations over the
prior year. The Company's consolidated sales for the year increased
by 22% to $679.3 million with earnings from operations of $217.7
million, compared to $558.8 million and $146.8 million,
respectively, for the prior year. Net earnings were $106.4 million,
or $1.82 per share, compared to net earnings of $104.3 million, or
$1.79 per share, respectively, in the prior year. Net earnings for
the year were reduced by a net $43.4 million foreign exchange loss,
or $0.74 per share, compared to a net $8.8 million foreign exchange
gain, or $0.15 per share, in the prior year. The loss is a result
of the 17% strengthening of the Canadian dollar relative to the US
dollar during the year. The mining segment posted a 24% annual
increase in sales to $413.8 million, while the retail segment
recorded a 17% increase in sales to $265.5 million. Earnings from
operations for the mining segment increased 53% to $220.7 million.
The retail loss from operations of $3.1 million compared to
earnings from operations of $2.3 million in the prior year reflects
increased investment for its continuing international salon
expansion. The Company opened five new salons in fiscal 2008
compared to three in the prior year. The Company's share of diamond
production at the Diavik Mine, which is recorded on a calendar
basis, increased by 22% to 4.8 million carats for the year ended
December 31, 2007, from 3.9 million carats for the prior year.
Management's Discussion and Analysis Prepared as of April 7, 2008
(all figures are in United States dollars unless otherwise
indicated) On November 9, 2007, Aber Diamond Corporation changed
its name to Harry Winston Diamond Corporation. 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 fiscal year ended
January 31, 2008, and its financial position as at January 31,
2008. This MD&A is based on the Company's consolidated
financial statements prepared in accordance with generally accepted
accounting principles in Canada ("Canadian GAAP") and should be
read in conjunction with the consolidated financial statements and
notes thereto. Unless otherwise specified, all financial
information is presented in United States dollars. Unless otherwise
indicated, all references to "year" refer to the fiscal year of
Harry Winston Diamond Corporation ended January 31. Unless
otherwise indicated, references to "international" for the retail
segment refer to Europe and Asia. Certain comparative figures have
been reclassified to conform with the current year's presentation.
Caution Regarding Forward-Looking Information Certain information
included in this MD&A may constitute forward-looking
information within the meaning of 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", "believe", "intend", "estimate",
"predict", "potential", "continue" or other similar expressions
concerning matters that are not historical facts. Forward-looking
information may relate to management's future outlook and
anticipated events or results, and may include statements or
information regarding projected capital expenditure requirements,
the operation of the Geneva watch factory, estimated reserves and
resources at, and production from, the Diavik Mine, potential
improvements in grade and tonnage at the Diavik Mine, the expected
life of the Diavik Mine, the timing of a revised resource
statement, plans, timelines and targets for construction, mining,
development, production and exploration activities at the Diavik
Mine, future mining and processing at the Diavik Mine, the number
and timing of expected rough diamond sales, projected sales growth
and new store openings at Harry Winston Inc., expected gross margin
and expense trends in the retail segment, expected diamond prices
and expectations concerning the diamond industry. Actual results
may vary. See "Risks and Uncertainties". Forward-looking
information is based on certain factors and assumptions regarding,
among other things, mining, production, construction and
exploration activities at the Diavik Mine, the receipt of necessary
regulatory approvals, world and US economic conditions, the level
of worldwide diamond production, the expected sales mix at Harry
Winston's retail segment, expected salon openings and potential
improvements in sourcing and purchasing polished diamonds.
Specifically, in estimating Harry Winston Diamond Corporation's
projected share of the Diavik Mine capital expenditure
requirements, Harry Winston Diamond Corporation has used a
Canadian/US dollar exchange rate of $1.00 for fiscal 2009, and has
assumed that construction will continue on schedule and without
undue disruption with respect to current underground mining
construction initiatives. In making statements regarding estimated
production at the Diavik Mine, potential improvements in grade and
tonnage at the Diavik Mine, the expected life of the Diavik Mine,
future mining activity and mine plans, including plans, timelines
and targets for construction, mining, development, production and
exploration activities at the Diavik Mine, and future rough diamond
sales, Harry Winston Diamond Corporation has assumed, among other
things, that mining operations, construction and exploration
activities will proceed in the ordinary course according to
schedule and consistent with past results. While Harry Winston
Diamond Corporation considers these assumptions to be reasonable
based on the information currently available to it, they may prove
to be incorrect. See "Risks and Uncertainties". 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, risks
associated with the remote location of and harsh climate at the
Diavik Mine site, 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, risks relating to the Company's salon expansion
strategy and the risks of competition in the luxury jewelry
segment. Please see page 21 of this Annual Report, as well as Harry
Winston Diamond Corporation's current Annual Information Form,
available at http://www.sedar.com/, for a discussion of these and
other risks and uncertainties involved in Harry Winston Diamond
Corporation's operations. Readers are cautioned not to place undue
importance on forward-looking information, which speaks only as of
the date of this Management's Discussion and Analysis, 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
Management's Discussion and Analysis, actual events may differ
materially from current expectations. While Harry Winston Diamond
Corporation 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 Harry Winston Diamond Corporation's filings with
Canadian and United States securities regulatory authorities and
can be found at http://www.sedar.com/ and http://www.edgar.com/,
respectively. Summary Discussion Effective November 9, 2007, Aber
Diamond Corporation changed its name to Harry Winston Diamond
Corporation. The name change reflects the rebranding of the Company
and its international position as a premier diamond company. Harry
Winston Diamond Corporation is a specialist diamond company
focusing on the mining and retail segments of the diamond industry.
The Company supplies rough diamonds to the global market from
production received from its 40% ownership interest in the Diavik
Diamond Mine (the "Diavik Mine"), located off Lac de Gras in
Canada's Northwest Territories. Harry Winston Diamond Corporation
also owns a 100% interest in Harry Winston Inc., the premier fine
jewelry and watch retailer. Harry Winston Diamond Corporation's
mission is to deliver shareholder value through the enhanced
earning power and longevity of the Diavik Mine asset as the
cornerstone of a profitable synergy with the Harry Winston brand.
In a changing diamond market-place, Harry Winston Diamond
Corporation has charted a unique course to continue to build
shareholder value. The Company's most significant asset is a 40%
interest in the Diavik group of mineral claims. The Diavik Joint
Venture (the "Joint Venture") is an unincorporated joint
arrangement between Diavik Diamond Mines Inc. ("DDMI") (60%) and
Harry Winston Diamond Mines Ltd. (formerly Aber Diamond Mines Ltd.)
(40%) where Harry Winston Diamond Corporation owns an undivided 40%
interest in the assets, liabilities and expenses. DDMI is the
operator of the Diavik Mine. Both companies are headquartered in
Yellowknife, Canada. DDMI is a wholly owned subsidiary of Rio Tinto
plc of London, England, and Harry Winston Diamond Mines Ltd. is a
wholly owned subsidiary of Harry Winston Diamond Corporation of
Toronto, Canada. The name of Aber Diamond Mines Ltd. was changed to
Harry Winston Diamond Mines Ltd. on December 3, 2007. Market
Commentary The Diamond Market Rough diamond prices remained strong
throughout fiscal 2008. The upward trend in prices was particularly
evident in the larger, better-quality ranges, which began the year
positively and continued to rise throughout the year. This positive
growth was also evident in smaller, high-quality rough diamonds
driven by demand from the watch industry. After softening
throughout fiscal 2007, demand for lower end goods experienced
robust growth in the second half of fiscal 2008. At the end of the
year, the polished market showed strong sales growth in China,
India and the Middle East which offset the more moderate demand
from the US market. Prices rose in line with demand, with the
lower-quality ranges of polished diamonds benefiting from the
continuing scarcity of larger, better-quality goods. The Retail
Jewelry Market In 2007, the global luxury diamond jewelry market,
in which Harry Winston is positioned, experienced significant
demand. Strong momentum from Chinese, Russian and Middle Eastern
consumers more than offset a softness in spending from US customers
as a result of the volatility in the US financial markets. In the
broader retail jewelry market, where Harry Winston does not conduct
business, sales were negatively impacted by the US economic
downturn. Consolidated Financial Results The following is a summary
of the Company's consolidated quarterly results for the eight
quarters ended January 31, 2008 following the basis of presentation
utilized in its Canadian GAAP financial statements: (expressed in
thousands of United States dollars except per share amounts and
where otherwise noted) (quarterly results are unaudited)
-------------------------------------------------------------------------
2008 2008 2008 2008 Q4 Q3 Q2 Q1
-------------------------------------------------------------------------
Sales $ 188,195 $ 176,478 $ 173,269 $ 141,365 Cost of sales 83,637
74,591 81,827 71,132
-------------------------------------------------------------------------
Gross margin 104,558 101,887 91,442 70,233 Gross margin (%) 55.6%
57.7% 52.8% 49.7% Selling, general and administrative expenses
45,494 35,539 35,201 34,211
-------------------------------------------------------------------------
Earnings from operations 59,064 66,348 56,241 36,022
-------------------------------------------------------------------------
Interest and financing expenses (7,082) (7,422) (7,222) (6,132)
Other income (expense) 706 594 545 913 Insurance settlement 13,488
- - - Foreign exchange gain (loss) 22,270 (40,584) (11,785)
(13,292)
-------------------------------------------------------------------------
Earnings before income taxes 88,446 18,936 37,779 17,511 Income
taxes (recovery) (1,968) 26,197 17,747 14,118
-------------------------------------------------------------------------
Earnings (loss) before minority interest 90,414 (7,261) 20,032
3,393 Minority interest (34) 90 (26) 140
-------------------------------------------------------------------------
Net earnings (loss) $ 90,448 $ (7,351) $ 20,058 $ 3,253
----------------------------------------------
--------------------------------------------- Basic earnings (loss)
per share $ 1.55 $ (0.13) $ 0.34 $ 0.06 Diluted earnings (loss) per
share $ 1.54 $ (0.13) $ 0.33 $ 0.05 Cash dividends declared per
share $ 0.05 $ 0.25 $ 0.25 $ 0.25 Total assets(i) $ 1,494 $ 1,433 $
1,367 $ 1,315 Total long-term liabilities(i) $ 660 $ 530 $ 486 $
408
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2007 2007 2007 2007 Q4 Q3 Q2 Q1
-------------------------------------------------------------------------
Sales $ 154,328 $ 145,232 $ 139,962 $ 119,271 Cost of sales 78,559
74,636 68,458 63,845
-------------------------------------------------------------------------
Gross margin 75,769 70,596 71,504 55,426 Gross margin (%) 49.1%
48.6% 51.1% 46.5% Selling, general and administrative expenses
38,590 33,480 27,171 27,295
-------------------------------------------------------------------------
Earnings from operations 37,179 37,116 44,333 28,131
-------------------------------------------------------------------------
Interest and financing expenses (6,441) (5,570) (4,805) (4,334)
Other income (expense) (111) 1,764 1,805 1,623 Insurance settlement
- - - - Foreign exchange gain (loss) 9,831 (1,560) 2,619 (2,106)
-------------------------------------------------------------------------
Earnings before income taxes 40,458 31,750 43,952 23,314 Income
taxes (recovery) 13,169 13,005 9,692 (1,036)
-------------------------------------------------------------------------
Earnings (loss) before minority interest 27,289 18,745 34,260
24,350 Minority interest (5) (86) (5) 471
-------------------------------------------------------------------------
Net earnings (loss) $ 27,294 $ 18,831 $ 34,265 $ 23,879
----------------------------------------------
--------------------------------------------- Basic earnings (loss)
per share $ 0.47 $ 0.32 $ 0.59 $ 0.41 Diluted earnings (loss) per
share $ 0.46 $ 0.32 $ 0.58 $ 0.40 Cash dividends declared per share
$ 0.25 $ 0.25 $ 0.25 $ 0.25 Total assets(i) $ 1,288 $ 1,246 $ 1,116
$ 1,111 Total long-term liabilities(i) $ 536 $ 530 $ 460 $ 460
-------------------------------------------------------------------------
--------------------------------------------------- 2008 2007 Total
Total --------------------------------------------------- Sales $
679,307 $ 558,793 Cost of sales 311,187 285,498
--------------------------------------------------- Gross margin
368,120 273,295 Gross margin (%) 54.2% 48.9% Selling, general and
administrative expenses 150,445 126,536
--------------------------------------------------- Earnings from
operations 217,675 146,759
--------------------------------------------------- Interest and
financing expenses (27,858) (21,150) Other income (expense) 2,758
5,081 Insurance settlement 13,488 - Foreign exchange gain (loss)
(43,391) 8,784 ---------------------------------------------------
Earnings before income taxes 162,672 139,474 Income taxes
(recovery) 56,094 34,830
--------------------------------------------------- Earnings (loss)
before minority interest 106,578 104,644 Minority interest 170 375
--------------------------------------------------- Net earnings
(loss) $ 106,408 $ 104,269
--------------------------------------------------- Basic earnings
(loss) per share $ 1.82 $ 1.79 Diluted earnings (loss) per share $
1.81 $ 1.76 Cash dividends declared per share $ 0.80 $ 1.00 Total
assets(i) $ 1,494 $ 1,288 Total long-term liabilities(i) $ 660 $
536 --------------------------------------------------- (i) Total
assets and total long-term liabilities are expressed in millions of
United States dollars. The comparability of quarter-over-quarter
results is impacted by seasonality for both the mining and retail
segments. 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 Mine, the
number of sales events conducted during the quarter, and the
volume, size and quality distribution of rough diamonds delivered
from the Diavik Mine in each quarter. The quarterly results for the
retail segment are also seasonal, with generally higher sales
during the fourth quarter due to the holiday season. See "Segmented
Analysis" on page 10 for additional information. Year Ended January
31, 2008 Compared to Year Ended January 31, 2007 Consolidated Net
Earnings Harry Winston Diamond Corporation's net earnings for the
fiscal year ended January 31, 2008 totalled $106.4 million or $1.82
per share, compared to net earnings of $104.3 million or $1.79 per
share for the prior year. Net earnings were impacted by a net $43.4
million foreign exchange loss, or $0.74 per share, related
primarily to an unrealized non-cash loss on future income taxes as
compared to a net foreign exchange gain of $8.8 million, or $0.15
per share, in the prior year. Also impacting results are a future
income tax recovery of $23.3 million or $0.40 per share compared to
$17.0 million or $0.29 cents per share in the prior year and an
after-tax gain on insurance settlement of $8.0 million or $0.14 per
share that resulted from a robbery at the Harry Winston Paris salon
in the third quarter. For more detail on the impact of the foreign
exchange loss on future income taxes payable and the future income
tax recovery, see "Consolidated Income Taxes" below. Consolidated
Sales The Company recorded sales for the fiscal year ended January
31, 2008 of $679.3 million compared to sales of $558.8 million for
the prior year. On a segment basis, rough diamond sales accounted
for $413.8 million of these sales compared to $332.6 million for
the prior year. The Company completed ten rough diamond sales
during the fiscal year, consistent with the prior year. Harry
Winston's retail segment sales were $265.5 million, compared to
$226.2 million for the prior year. Consolidated Cost of Sales and
Gross Margin The Company recorded cost of sales of $311.2 million
for a gross margin of 54.2% during the fiscal year compared to
$285.5 million and a gross margin of 48.9% during the prior year.
The Company's cost of sales includes costs associated with mining,
sorting and retail 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 (including salon personnel), advertising,
professional fees, rent and building related costs. Harry Winston
Diamond Corporation incurred SG&A expenses of $150.4 million
for the year compared to $126.5 million for the prior year. The
increase of $23.9 million in SG&A expenses from the prior year
is primarily due to an increase of $7.4 million in salaries and
benefits, $6.5 million in advertising and selling expenses, $6.2
million in rent and building related expenses, and $3.7 million in
amortization expense. Included in the prior year was a $6.3 million
adjustment to stock compensation triggered by the acquisition of
the remaining portion of the Harry Winston Inc. operations, which
was partially offset by the reversal of a specific provision
against accounts receivable of $2.2 million. SG&A expenses for
the current year included $23.3 million for the mining segment and
$127.1 million for the retail segment as compared to $21.2 million
and $105.3 million, respectively, for the prior year. For the
mining segment, the increase was as a result of the continued
development of our global selling, marketing and administrative
operations. For the retail segment the increase was as a result of
opening five new salons and refurbishing two existing salons during
the year. Consolidated Income Taxes The Company recorded a tax
expense of $56.1 million during the twelve months ended January 31,
2008, compared to $34.8 million for the prior fiscal year. The
Company's effective income tax rate for the fiscal year ended
January 31, 2008, excluding Harry Winston's retail segment, is 33%,
which is based on a statutory income tax rate of 34% adjusted for
various items including the Northwest Territories mining royalty,
impact of foreign exchange, impact of changes in future income tax
rates, earnings subject to tax different than the statutory rate,
and assessments and adjustments. During the current fiscal year,
Harry Winston Diamond Corporation recorded a future tax recovery of
$11.7 million as a result of the decrease in federal corporate
income tax rates. This compares to a future tax recovery of $17.0
million in the prior year as a result of the decrease in Northwest
Territories and federal corporate income tax rates and the
elimination of federal surtax. In addition, the Company reached a
settlement with tax authorities during the current fiscal year on
tax reassessments related to prior years' tax filings, resulting in
a recovery of $11.6 million of future taxes that were previously
recorded in prior years. 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. The strengthening of the Canadian dollar
versus the US dollar from January 31, 2007 to January 31, 2008
resulted in an unrealized foreign exchange loss of $37.0 million on
the revaluation of the Canadian dollar denominated future income
tax liability. This unrealized foreign exchange loss is not
deductible for Canadian income tax purposes. 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 2027. The Company has
provided a table below summarizing the movement from the statutory
to the effective income tax rate as a percentage of earnings before
taxes: Year Year ended ended January January 31, 31, 2008 2007
-------------------------------------------------------------------------
Statutory income tax rate 34% 37% Stock compensation 0% 1%
Northwest Territories mining royalty (net of income tax relief) 12%
9% Impact of foreign exchange 6% (6)% Impact of changes in future
income tax rates (7)% (12)% Earnings subject to tax different than
statutory rate (3)% (5)% Changes in valuation allowance (2)% 0%
Benefits of losses recognized through reduction of goodwill 3% 1%
Assessments and adjustments (7)% 0% Other items (2)% 0% Effective
income tax rate 34% 25%
-------------------------------------------------------------------------
Consolidated Interest and Financing Expenses Interest and financing
expenses of $27.9 million were incurred during the fiscal year
compared to $21.2 million for the prior year. The increase in
interest and financing expenses is due to a combination of higher
debt levels at Harry Winston's retail segment to finance increased
inventory levels and at Harry Winston Diamond Corporation to
finance its acquisition of the remaining portion of Harry Winston
Inc. in September 2006. Consolidated Other Income Other income,
which includes interest income on the Company's various bank
balances, was $2.8 million during the year compared to $5.1 million
in the prior year. The reduction in other income is due to higher
cash balances held in the prior year in advance of the Harry
Winston Inc. acquisition. Consolidated Insurance Settlement During
the third quarter of fiscal 2008, approximately $23.2 million in
Company-owned retail inventory at cost was stolen during a robbery
at the Harry Winston Paris salon. The Company was fully insured
against the loss, and recognized a pre-tax gain of $13.5 million in
the fourth quarter on settlement of the insurance claim.
Consolidated Foreign Exchange Gain (Loss) A net foreign exchange
loss of $43.4 million was recognized during the fiscal year
compared with a net gain of $8.8 million recognized during the
prior year. The current year loss is comprised of a realized
foreign exchange gain of $1.8 million and an unrealized, non-cash
loss of $45.2 million relating principally to the revaluation of
the Company's Canadian dollar denominated long-term future income
tax liability as a result of the strengthening of the Canadian
dollar against the US dollar at year end. The Company's ongoing
currency exposure relates primarily to expenses and obligations
incurred in Canadian dollars, as well as the revaluation of certain
Canadian monetary balance sheet amounts. The Company does not
currently have any significant derivative instruments outstanding.
Three Months Ended January 31, 2008 Compared to Three Months Ended
January 31, 2007 Consolidated Net Earnings The fourth quarter
earnings of $90.4 million or $1.55 per share represent an increase
of $63.1 million or $1.08 per share as compared to the results of
the fourth quarter of the prior year. In addition to improved
operating results, the increase is due to a $22.3 million foreign
exchange gain or $0.38 per share related principally to an
unrealized non-cash gain on future income taxes payable as compared
to a foreign exchange gain of $9.8 million or $0.17 per share in
the comparable quarter of the prior year. Also impacting the fourth
quarter are an after-tax gain on insurance settlement of $8.0
million or $0.14 per share that resulted from a robbery at the
Harry Winston Paris salon in the third quarter and a future income
tax recovery of $22.4 million or $0.38 per share. For more detail
on the impact of the foreign exchange gain on future income taxes
payable and the future income tax recovery, see "Consolidated
Income Taxes" below. Consolidated Sales Sales for the fourth
quarter totalled $188.2 million, consisting of rough diamond sales
of $103.2 million and retail segment sales of $85.0 million. This
compares to sales of $154.3 million in the comparable quarter of
the prior year (rough diamond sales of $81.0 million and retail
segment sales of $73.3 million). The Company held two primary rough
diamond sales in the fourth quarter compared to three in the
comparable quarter of the prior year. Ongoing quarterly variations
in revenues are inherent in Harry Winston Diamond Corporation's
business, resulting from the seasonality of the mining and retail
activities as well as from the variability of the rough diamond
sales schedule. Consolidated Cost of Sales and Gross Margin The
Company's fourth quarter cost of sales was $83.6 million for a
gross margin of 55.6% compared to $78.6 million cost of sales and
gross margin of 49.1% for the comparable quarter of the prior year.
The Company's cost of sales includes cash and non-cash costs
associated with mining, sorting and retail sales activities. See
"Segmented Analysis" on page 10 for additional information.
Consolidated Selling, General and Administrative Expenses The
principal components of SG&A expenses include expenses for
salaries and benefits (including salon personnel), advertising,
professional fees, rent and building related costs. The Company
incurred SG&A expenses of $45.5 million for the fourth quarter,
compared to $38.6 million in the comparable quarter of the prior
year. Included in SG&A expenses for the fourth quarter are $5.7
million for the mining segment as compared to $7.4 million for the
comparable quarter of the prior year, and $39.8 million for the
retail segment as compared to $31.2 million for the comparable
quarter of the prior year. For the mining segment, the decrease was
due to a mark-to-market adjustment to stock-based compensation. For
the retail segment, the increase was as a result of our continued
investment in the Harry Winston brand and the expansion of our
retail salon base, and reflected an increase in salaries and
benefits, advertising and selling expenses, rent and building
related expenses and depreciation and amortization expense. See
"Segmented Analysis" on page 10 for additional information.
Consolidated Income Taxes Harry Winston Diamond Corporation
recorded a net tax recovery of $2.0 million during the fourth
quarter compared to a tax expense of $13.2 million in the
comparable quarter of the prior year. The net tax recovery includes
a future income tax recovery of $10.8 million as a result of the
decrease in federal corporate income tax rates. It also includes a
future income tax recovery of $11.6 million as a result of a
settlement with tax authorities on tax reassessments related to
prior years' tax filings. In addition, the Canadian dollar weakened
against the US dollar during the fourth quarter. As a result, the
Company recorded an unrealized foreign exchange gain of $17.7
million on the revaluation of the Canadian dollar denominated
future income tax liability, which is not taxable for Canadian
income tax purposes. All of these factors contributed to an overall
net tax recovery in the current quarter. 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 2027. The Company has
provided a table below summarizing the movement from the statutory
to the effective income tax rate as a percentage of earnings before
taxes: Three Three months months ended ended January January 31,
31, 2008 2007
-------------------------------------------------------------------------
Statutory income tax rate 34% 37% Stock compensation (1)% 2%
Northwest Territories mining royalty (net of income tax relief) 6%
9% Impact of foreign exchange (11)% (14)% Impact of changes in
future income tax rates (12)% 0% Earnings subject to tax different
than statutory rate (1)% (5)% Changes in valuation allowance (4)%
0% Benefits of losses recognized through reduction of goodwill 3%
2% Assessments and adjustments (15)% 0% Other items (1)% 2%
Effective income tax rate (2)% 33%
-------------------------------------------------------------------------
Consolidated Interest and Financing Expenses Interest and financing
expenses of $7.1 million were incurred during the fourth quarter
compared to $6.4 million during the comparable quarter of the prior
year. Consolidated Other Income (Expense) Other income of $0.7
million was recorded during the quarter compared to other expense
of $0.1 million in the comparable quarter of the prior year. Other
expense in the prior year included a write-off of $0.9 million on
an investment net of interest income on the Company's various bank
balances. Consolidated Insurance Settlement During the third
quarter of fiscal 2008, approximately $23.2 million in
Company-owned retail inventory at cost was stolen during a robbery
at the Harry Winston Paris salon. The Company was fully insured
against the loss, and recognized a pre-tax gain of $13.5 million in
the fourth quarter on settlement of the insurance claim.
Consolidated Foreign Exchange Gain A net foreign exchange gain of
$22.3 million was recognized during the quarter compared to $9.8
million in the comparable quarter of the prior year. The gains
relate principally to the revaluation of the Company's Canadian
dollar denominated long-term future income tax liability as a
result of the weakening of the Canadian dollar against the US
dollar at year end. The Company's ongoing currency exposure relates
primarily to expenses and obligations incurred in Canadian dollars,
as well as the revaluation of certain Canadian monetary balance
sheet amounts. The Company does not currently have any significant
derivative instruments outstanding. Segmented Analysis The
operating segments of the Company include mining and retail
segments. Mining The mining segment includes the production and
sale of rough diamonds. (expressed in thousands of United States
dollars) (quarterly results are unaudited)
-------------------------------------------------------------------------
2008 2008 2008 2008 Q4 Q3 Q2 Q1
-------------------------------------------------------------------------
Sales $103,238 $122,711 $105,071 $ 82,752 Cost of sales 36,962
45,985 46,217 40,516
-------------------------------------------------------------------------
Gross margin 66,276 76,726 58,854 42,236 Gross margin (%) 64.2%
62.5% 56.0% 51.0% Selling, general and administrative expenses
5,663 6,748 5,861 5,087
-------------------------------------------------------------------------
Earnings from operations $ 60,613 $ 69,978 $ 52,993 $ 37,149
------------------------------------------
------------------------------------------
-------------------------------------------------------------------------
2007 2007 2007 2007 Q4 Q3 Q2 Q1
-------------------------------------------------------------------------
Sales $ 81,035 $ 90,754 $ 91,476 $ 69,308 Cost of sales 39,413
45,461 43,256 38,749
-------------------------------------------------------------------------
Gross margin 41,622 45,293 48,220 30,559 Gross margin (%) 51.4%
49.9% 52.7% 44.1% Selling, general and administrative expenses
7,397 4,665 4,373 4,787
-------------------------------------------------------------------------
Earnings from operations $ 34,225 $ 40,628 $ 43,847 $ 25,772
------------------------------------------
------------------------------------------
--------------------------------------------------- 2008 2007 Total
Total --------------------------------------------------- Sales
$413,772 $332,573 Cost of sales 169,680 166,879
--------------------------------------------------- Gross margin
244,092 165,694 Gross margin (%) 59.0% 49.8% Selling, general and
administrative expenses 23,359 21,222
--------------------------------------------------- Earnings from
operations $220,733 $144,472 ---------------------
--------------------- Year Ended January 31, 2008 Compared to Year
Ended January 31, 2007 Mining Sales Rough diamond sales for the
year totalled $413.8 million compared to $332.6 million in the
prior year resulting from a combination of higher grade and pricing
as well as increased diamond recovery. The Company completed ten
rough diamond sales during the fiscal year, consistent with the
prior year. Mining Cost of Sales and Gross Margin The Company's
cost of sales for the fiscal year was $169.7 million for a gross
margin of 59.0% compared to $166.9 million cost of sales and gross
margin of 49.8% in the prior year. The increase in the gross margin
percentage was driven by higher carat production, reflecting both
higher grade and enhanced diamond recovery resulting from
processing improvements. A substantial portion of cost of sales is
mining operating costs, which are incurred at the Diavik Mine. The
prior year was negatively impacted by higher operating costs
incurred as a result of the early closure of the 2006 winter road.
Cost of sales also includes sorting costs, which consist of Harry
Winston Diamond Corporation's cost of handling and sorting product
in preparation for sales to third parties, and amortization and
depreciation, the majority of which is recorded using the
unit-of-production method over estimated proven and probable
reserves. Mining Selling, General and Administrative Expenses
SG&A expenses for the mining segment increased by $2.1 million
from the prior year primarily due to the continued development of
our global selling, marketing and administrative operations. Three
Months Ended January 31, 2008 Compared to Three Months Ended
January 31, 2007 Mining Sales Rough diamond sales for the quarter
totalled $103.2 million compared to $81.0 million in the comparable
quarter of the prior year resulting from a combination of higher
grade and pricing as well as increased diamond recovery. The
Company held two primary rough diamond sales in the fourth quarter
compared to three in the comparable quarter of the prior year. With
Harry Winston Diamond Corporation's continued expansion of its
global rough diamond sales network, sales are now conducted
throughout the quarter in each of the Company's three selling
offices located in Belgium, Israel and India. Harry Winston Diamond
Corporation expects that results for its mining segment will
continue to fluctuate depending on the seasonality of production at
the Diavik Mine, the number of primary and secondary sales events
conducted at each sales location during the quarter, and the
volume, size and quality distribution of rough diamonds delivered
from the Diavik Mine in each quarter. Mining Cost of Sales and
Gross Margin The Company's fourth quarter cost of sales was $37.0
million for a gross margin of 64.2% compared to $39.4 million cost
of sales and gross margin of 51.4% in the comparable quarter of the
prior year. The increase in the gross margin percentage was driven
by higher carat production, reflecting both higher grade and
enhanced diamond recovery resulting from processing improvements.
The mining gross margin is anticipated to fluctuate between
quarters, resulting from variations in the specific mix of product
sold during each quarter. A substantial portion of cost of sales is
mining operating costs, which are incurred at the Diavik Mine.
Prior year operating costs were negatively impacted by higher
expenditures resulting from the early closure of the 2006 winter
road. Cost of sales also includes sorting costs, which consist of
Harry Winston Diamond Corporation's cost of handling and sorting
product in preparation for sales to third parties, and amortization
and depreciation, the majority of which is recorded using the
unit-of-production method over estimated proven and probable
reserves. Mining Selling, General and Administrative Expenses
SG&A expenses for the mining segment decreased by $1.7 million
from the comparable period of the prior year due to a
mark-to-market adjustment to stock-based compensation. Retail The
retail segment includes sales from Harry Winston's salons which are
located in prime markets around the world including seven salons in
the United States: New York, Beverly Hills, Bal Harbour, Honolulu,
Las Vegas, Dallas and Chicago; five salons in Japan: Ginza,
Roppongi Hills, Osaka, Omotesando and Nagoya; two salons in Europe:
Paris and London; and three salons in Asia outside of Japan:
Beijing, Taipei and Hong Kong. (expressed in thousands of United
States dollars) (quarterly results are unaudited)
-------------------------------------------------------------------------
2008 2008 2008 2008 Q4 Q3 Q2 Q1
-------------------------------------------------------------------------
Sales $ 84,957 $ 53,767 $ 68,198 $ 58,613 Cost of sales 46,675
28,606 35,610 30,616
-------------------------------------------------------------------------
Gross margin 38,282 25,161 32,588 27,997 Gross margin (%) 45.1%
46.8% 47.8% 47.8% Selling, general and administrative expenses
39,831 28,791 29,340 29,124
-------------------------------------------------------------------------
Earnings (loss) from operations $ (1,549) $ (3,630) $ 3,248 $
(1,127) ------------------------------------------
------------------------------------------
-------------------------------------------------------------------------
2007 2007 2007 2007 Q4 Q3 Q2 Q1
-------------------------------------------------------------------------
Sales $ 73,293 $ 54,478 $ 48,486 $ 49,963 Cost of sales 39,146
29,175 25,202 25,096
-------------------------------------------------------------------------
Gross margin 34,147 25,303 23,284 24,867 Gross margin (%) 46.6%
46.4% 48.0% 49.8% Selling, general and administrative expenses
31,193 28,815 22,798 22,508
-------------------------------------------------------------------------
Earnings (loss) from operations $ 2,954 $ (3,512) $ 486 $ 2,359
-------------------------------------------
-------------------------------------------
-------------------------------------------------- 2008 2007 Total
Total -------------------------------------------------- Sales
$265,535 $226,220 Cost of sales 141,507 118,619
-------------------------------------------------- Gross margin
124,028 107,601 Gross margin (%) 46.7% 47.6% Selling, general and
administrative expenses 127,086 105,314
-------------------------------------------------- Earnings (loss)
from operations $ (3,058) $ 2,287 --------------------
-------------------- Year Ended January 31, 2008 Compared to Year
Ended January 31, 2007 Retail Sales Salon sales for the fiscal year
ending January 31, 2008 were $265.5 million compared to $226.2
million for the prior year. The increase of 17% was supported by
the opening of five new salons during the year as well as strong
demand from Chinese, Russian and Middle Eastern customers for
high-end jewelry and watches. Sales in the Asian market increased
35% from $53.1 million to $71.7 million, US sales increased 15%
from $98.0 million to $112.5 million and European sales rose 8%
from $75.1 million to $81.4 million. European sales were impacted
by the temporary business disruption late in the third quarter and
early in the fourth quarter relating to the Paris salon robbery
that occurred in October 2007. Retail Cost of Sales and Gross
Margin Cost of sales for Harry Winston Inc. for the year was $141.5
million compared to $118.6 million for the prior yea Gross margin
for the year was $124.0 million or 46.7% comped to $107.6 million
or 47.6% for the prior year. Excluding the impact of sales of Harry
Winston Inc. pre-acquisition ventory, the gross margin for the year
and the prior year would have been 50.3% and 50.7%, respectively.
Retail Selling, General and Administrative Expenses With the
expansion of the new international salon activity consistent with
the retail growth strategy, SG&A expenses for the year
increased to $127.1 million or 47.9% of revenue as compared to
$105.3 million or 46.6% of revenue in the prior year. This increase
was primarily due to the opening of five salons and refurbishing of
two salons in fiscal 2008, including an increase in salaries and
benefits of $8.3 million, a $6.5 million increase in advertising
and selling expenses, an increase in rent and building related
expenses of $6.5 million, an increase in depreciation and
amortization expense of $3.2 million and an increase in office
expenses of $1.5 million. The SG&A expenses as a percentage of
revenue for fiscal 2008 was also negatively impacted by the
business disruption resulting from the Paris salon robbery that
occurred in October 2007. Included in the prior year was a $6.3
million adjustment to stock compensation triggered by the
acquisition of the remaining portion of Harry Winston Inc. and a
reversal of a specific provision against accounts receivable of
$2.2 million. SG&A expenses include depreciation and
amortization expense of $9.3 million compared to $6.2 million in
the prior year. Three Months Ended January 31, 2008 Compared to
Three Months Ended January 31, 2007 Retail Sales Salon sales for
the fourth quarter were $85.0 million compared to $73.3 million for
the comparable quarter of the prior year. The 16% increase in Harry
Winston sales relative to the comparable quarter of the prior year
is primarily attributed to the opening of two flagship salons in
Chicago and Nagoya, Japan. Strong momentum in emerging markets such
as China and Russia supported the positive results despite the
challenging US economic environment. Sales in the Asian market
increased 46% to $21.0 million, US sales increased 38% to $46.5
million, offset by a 31% decrease in European sales to $17.4
million due primarily to the temporary business disruption late in
the third quarter and early in the fourth quarter relating to the
Paris salon robbery that occurred in October 2007. Retail Cost of
Sales and Gross Margin Cost of sales for Harry Winston Inc. for the
fourth quarter was $46.7 million compared to $39.1 million for the
comparable quarter of the prior year. Gross margin for the quarter
was $38.3 million or 45.1% compared to $34.1 million or 46.6% for
the fourth quarter of the prior year. Excluding the impact of sales
of Harry Winston Inc. pre-acquisition inventory, gross margin for
the fourth quarter and the comparable quarter of the prior year
would have been 47.4% and 51.8%, respectively. Gross margins for
the fourth quarter were impacted by two significant sales which
generated lower margins. One of these sales to the Russian market
involved a wide range of jewelry items to increase awareness of the
Harry Winston brand in this market where demand for luxury brands
has grown rapidly over the past several years. Retail Selling,
General and Administrative Expenses With the expansion of the new
international salon activity consistent with the retail growth
strategy, SG&A expenses increased to $39.8 million or 46.9% of
revenue in the fourth quarter as compared to $31.2 million or 42.6%
of revenue in the comparable quarter of the prior year. This
increase was primarily due to an increase in rent and building
related expenses of $2.5 million, an increase in salaries and
benefits of $2.1 million, and an increase in advertising and
selling expenses of $2.0 million. The SG&A expenses as a
percentage of revenue for the current fourth quarter was also
negatively impacted by the business disruption resulting from the
Paris salon robbery that occurred in October 2007. SG&A
expenses include depreciation and amortization expense of $3.2
million compared to $2.4 million in the comparable quarter of the
prior year. Operational Update Harry Winston Diamond Corporation's
results of operations include results from its mining and retail
operations. Mining Segment Annual production at the Diavik Mine
reached a record 11.9 million carats for the calendar year ended
December 31, 2007, representing an increase of 22% over the prior
year. The increase in diamond production resulted from both higher
grade and increased diamond recovery due to processing
improvements. Ore production for the fourth calendar quarter of
2007 was all from the high-grade A-154 South kimberlite pipe with
2.9 million carats produced from 0.58 million tonnes. On March 14,
2008, the Company announced an updated ore reserve and resource
statement and mine plan for the Diavik Mine. As a result of the new
mine plan, underground mining is projected to begin at the Diavik
Mine in 2009. The diversity of both open pit and underground mining
areas will secure the Diavik Mine's ability to maintain production
through seasonal changes. The first phase of the underground mine
development of the A-154 South, A-154 North and A-418 kimberlite
pipes has been substantially completed. At present, production
principally comes from A-154 South open pit with A-418 being
prepared for open pit mining in calendar 2008. The Company expects
to contribute approximately $221 million for capital expenditures
to the Diavik Mine over the next two years at a Canadian/US dollar
average exchange rate of $0.99 in support of the new mine plan's
underground development. It is expected that the funds will come
from a combination of cash from operations, proceeds from a recent
common share private placement and a refinancing of the Company's
existing credit facility. The federal government recently approved
the renewal of the Diavik Mine water license for a period of eight
years, effective from November 1, 2007. The regional Wek'eezhii
Land and Water Board, created under the Tli Cho land claim
agreement, recommended license renewal after an intensive two-year
public review. The license was granted subject to increased
environmental monitoring, reporting and management controls. Harry
Winston Diamond Corporation's 40% Share of Diavik Mine Production
(reported on a one-month lag) Three Three Twelve Twelve months
months months months ended ended ended ended December December
December December 31, 31, 31, 31, 2007 2006 2007 2006
-------------------------------------------------------------------------
Diamonds recovered (000s carats) 1,177 997 4,777 3,931 Grade
(carats/tonne) 5.06 4.91 4.97 4.21
-------------------------------------------------------------------------
Retail Segment For the fiscal year, the retail segment generated
strong double-digit growth in sales and maintained healthy
underlying gross margins. Harry Winston Inc. increased its salon
network to 18 salons around the world from 13 in the prior year.
During the year the retail segment consolidated its watch
manufacturing operations into a new facility located in Geneva,
Switzerland. The new facility will provide manufacturing capacity
to support the future growth of the watch business. Harry Winston
Inc. delivered strong revenue growth over the comparable quarter of
the prior year. Gross margins were impacted by two significant
sales which generated lower margins. One of these sales to the
Russian market involved a wide range of jewelry items to increase
awareness of the Harry Winston brand in this market where demand
for luxury brands has grown rapidly over the past several years.
Strong holiday sales of traditional Harry Winston retail products
as well as new collections introduced in the current year were both
major contributors to the results. New salon openings in fiscal
2008 included, Tokyo (Roppongi), Beijing, Hong Kong, Chicago and
Nagoya. Liquidity and Capital Resources Working Capital As at
January 31, 2008, Harry Winston Diamond Corporation had
unrestricted cash and cash equivalents of $49.6 million and
contingency cash collateral and reserves of $25.6 million as
required under the Company's debt arrangements, compared to $54.2
million and $51.4 million, respectively, at January 31, 2007. The
Company had cash on hand and balances with banks of $33.0 million
and short-term investments of $16.6 million at January 31, 2008
compared to $44.4 million and $9.8 million, respectively, at
January 31, 2007. The short-term investments were held in overnight
deposits. Total cash resources at January 31, 2008 were $30.4
million lower than $105.6 million at January 31, 2007, resulting
primarily from additional Joint Venture cash calls to support the
development of underground mining. Working capital increased to
$220.0 million at January 31, 2008 from $164.0 million at January
31, 2007. The Company's working capital fluctuates depending on the
seasonality of production at the Diavik Mine, the number of sales
events conducted during the quarter and the volume, size and
quality distribution of rough diamonds delivered from the Diavik
Mine in each quarter along with the seasonality of the retail
segment. The Company's cash requirements are driven by differences
in the timing of cash receipts and the cash outflows. The Company
has the ability to draw on its various credit facilities to finance
these timing differences. Cash Flow from Operations For the year
ended January 31, 2008, Harry Winston Diamond Corporation generated
$193.9 million in cash from operations, compared to $177.6 million
in the prior year. During the fiscal year, the Company purchased
inventory of $48.5 million, increased prepaid expenses and other
current assets by $32.8 million, increased income taxes payable by
$30.2 million, increased accounts payable and accrued liabilities
by $9.6 million and increased accounts receivable by $8.6 million.
The liquidity and capital requirements vary by quarter for the
Company depending on the seasonal and production variability of its
mining and retail segments. Timing differences in cash flow are
financed by drawing down on the Company's credit facilities. Over
the course of a fiscal year, the Company does not expect the
fluctuations to be material. Over the next two fiscal years,
capital requirements for the mining segment are expected to
increase significantly in accordance with the expected investment
program at the Diavik Mine. Thereafter, capital requirements for
the mining segment are expected to moderate and the mining segment
is expected to generate sufficient cash flow to finance its
operations and capital expenditure requirements. The capital
requirements for the retail segment are ordinary in course and are
not expected to fluctuate materially over the next few years. The
retail segment will finance its operations and capital requirements
during these years from operating cash flow and its credit
facilities. Financing Activities During the year, Harry Winston
Diamond Corporation repaid $19.3 million of its $100.0 million
senior secured term facility that was used to finance the
acquisition of the remaining portion of Harry Winston Inc. At
January 31, 2008, the Company had $76.4 million outstanding on its
senior secured term credit facilities and $50.0 million outstanding
on its senior secured revolving credit facility. In comparison, at
January 31, 2007, $95.6 million was outstanding on the term credit
facilities and $62.5 million was outstanding on the secured
revolving credit facility. As at January 31, 2008, Harry Winston
Inc. had $154.0 million outstanding on its $200.0 million secured
credit facility, which is used to fund salon inventory and capital
expenditure requirements. This represents an increase of $42.0
million from the amount outstanding at January 31, 2007. On
February 22, 2008, Harry Winston Inc. entered into a new credit
agreement with a syndicate of banks for a $250.0 million, five-year
revolving credit facility. Also included in long-term debt of the
Company's retail operations is a 25-year loan agreement for 17.5
million CHF used to finance the construction of the new watch
factory in Geneva, Switzerland. At January 31, 2008, $16.1 million
had been drawn against the facility compared to $2.8 million at
January 31, 2007. The bank has a secured interest in the factory
building. Harry Winston Japan, K.K. maintains secured and unsecured
credit agreements with three banks amounting to (Yen)2,075 million.
At January 31, 2008, $19.4 million had been drawn against these
facilities, $4.7 million of which is long term, payable on June 28,
2010, with the balance of $14.7 million classified as bank
advances. At January 31, 2007, $5.8 million drawn against the
unsecured facilities was classified as bank advances. At January
31, 2008, $10.5 million and $9.4 million was drawn under the
Company's revolving financing facilities relating to its Belgian
subsidiary, Harry Winston Diamond International N.V. (formerly
called Aber International N.V.) and its Israeli subsidiary, Harry
Winston Diamond (Israel) Limited (formerly called Aber Diamond
Israel 2006 Ltd.), respectively. At January 31, 2007, $18.4 million
and $5.6 million was drawn under the Company's revolving financing
facilities relating to Harry Winston Diamond International N.V. and
Harry Winston Diamond (Israel) Limited, respectively. During the
fiscal year, the Company made dividend payments of $46.7 million or
$0.80 per share to its shareholders. On March 14, 2008, the Company
completed a 3 million common share private placement. The
non-brokered private placement sold 3 million common shares at CDN
$25 per share. No fees or commissions were payable on this
transaction which generated net proceeds of CDN $75.0 million. This
transaction diluted the Company's issued and outstanding shares by
5%. Investing Activities During the fiscal year, the Company
purchased capital assets of $201.8 million, of which $163.3 million
were purchased for the mining segment and $38.5 million for the
retail segment. Also included in deferred mineral property costs
were purchases of $7.5 million made during the fiscal year.
Contractual Obligations The Company has contractual payment
obligations with respect to long-term debt and, through its
participation in the Joint Venture, future site restoration costs
at the Diavik Mine level. Additionally, at the Joint Venture level,
contractual obligations exist with respect to operating purchase
obligations, as administered by DDMI, the operator of the mine. In
order to maintain its 40% ownership interest in the Diavik Mine,
the Company is obligated to fund 40% of the Joint Venture's total
expenditures on a monthly basis. Harry Winston Diamond
Corporation's current projected share of the planned capital
expenditures at the Diavik Mine, which are not reflected in the
table below, including capital expenditures for the calendar years
2008 to 2012, is approximately $320 million assuming a Canadian/US
average exchange rate of $0.96 for the five years. The most
significant contractual obligations for the ensuing five-year
period can be summarized as follows: Contractual Obligations
(expressed in thousands of United States dollars) Less than Year
Year After Total 1 year 2-3 4-5 5 years
-------------------------------------------------------------------------
Long-term debt(a)(b) $385,867 $ 71,628 $110,248 $ 27,371 $176,620
Environmental and participation agreements incremental
commitments(c) 97,366 76,504 3,985 1,992 14,885 Operating lease
obligations(d) 121,959 16,197 29,303 17,849 58,610 Capital lease
obligations(e) 2,315 872 1,307 136 -
-------------------------------------------------------------------------
Total contractual obligations $607,507 $165,201 $144,843 $ 47,348
$250,115 -----------------------------------------------------
----------------------------------------------------- (a) Long-term
debt presented in the foregoing table includes current and
long-term portions. The Company's credit agreements are comprised
of two senior secured term credit facilities and a senior secured
revolving credit facility. On May 31, 2007, Harry Winston Diamond
Corporation amended its existing credit facilities to extend the
maturity date to December 15, 2009 from December 15, 2008. At
January 31, 2008, $76.4 million in total was outstanding on the
senior secured term credit facilities, and $50.0 million was
outstanding on the senior secured revolving credit facility.
Scheduled repayments on the senior secured term credit facilities
commenced March 15, 2008 with $12.5 million in repayments due every
quarter. The maximum amount permitted to be drawn under the senior
secured revolving credit facility will be reduced by $12.5 million
on a quarterly basis commencing March 15, 2009. The Company's first
mortgage on real property has scheduled principal payments of
approximately $0.1 million quarterly, and may be prepaid after
2009. On January 31, 2008, $8.8 million was outstanding on the
mortgage payable. At January 31, 2008, $154.0 million had been
drawn against Harry Winston Inc.'s $200.0 million secured credit
facility which expires on March 31, 2008. On February 22, 2008,
Harry Winston Inc. entered into a new credit agreement with a
syndicate of banks for a $250.0 million, five-year revolving credit
facility. There are no scheduled repayments required before
maturity. Also included in long-term debt of Harry Winston Inc. is
a 25-year loan agreement for 17.5 million CHF used to finance the
construction of the new watch factory in Geneva, Switzerland. The
bank has a secured interest in the factory building. The loan bears
interest at a rate of 3.55% and matures on January 31, 2033, with
quarterly payments commencing on June 30, 2008. (b) Interest on
long-term debt is calculated at various fixed and floating rates.
Projected interest payments on the current debt outstanding were
based on interest rates in effect at January 31, 2008 and have been
included under long-term debt in the table above. Interest payments
for fiscal 2009 are approximated to be $17.5 million. (c) The Joint
Venture, under environmental and other agreements, must provide
funding for the Environmental Monitoring Advisory Board. These
agreements also state the Joint Venture must provide security
deposits for the performance by the Joint Venture of its
reclamation and abandonment obligations under all environmental
laws and regulations. The Joint Venture has fulfilled its
obligations for the security deposits by posting letters of credit
of which Harry Winston Diamond Corporation's share as at January
31, 2008 was $61.5 million. The requirement to post security for
the reclamation and abandonment obligations may be reduced to the
extent of amounts spent by the Joint Venture on those activities.
The Joint Venture has also signed participation agreements with
various native groups. These agreements are expected to contribute
to the social, economic and cultural well-being of area Aboriginal
bands. The amounts reflected as contractual obligations in the
table above represent obligations that are in addition to the $61.5
million in letters of credit posted. The actual cash outlay for the
Joint Venture's obligations under these agreements is not
anticipated to occur until later in the life of the Diavik Mine.
(d) Operating lease obligations represent future minimum annual
rentals under non-cancellable operating leases for Harry Winston
salons and office space. Harry Winston Inc.'s New York salon lease
expires on December 17, 2010 with an option to renew. (e) Capital
lease obligations represent future minimum annual rentals under
non-cancellable capital leases for Harry Winston Inc. retail
exhibit space. Outlook Mining A new mine plan approved in the
fourth quarter by both Rio Tinto plc, the operator of the Diavik
Mine, and the Company secures the future of the Diavik Project to
beyond 2020 and sets the foundation for the transition from open
pit to underground mining over the next five years. This mine plan
currently excludes the development of the A-21 kimberlite pipe. A
bulk sample from the A-21 kimberlite pipe is expected in calendar
2008 to provide a definitive planning price for A-21 rough
diamonds. Production Rough diamond production is expected to reach
a record annual level in the 2008 calendar year. The Diavik Mine is
forecasted to deliver approximately 12 million carats in calendar
2008, predominately sourced from the high-grade A-154 South
kimberlite pipe. Depletion of the A-154 South open pit ore is
expected in December 2008. Pre-stripping of the A-418 kimberlite
pipe will continue into 2008, with commercial production
anticipated during the second calendar quarter. In calendar years
2009 and 2010, the lower-grade A-418 kimberlite pipe will become
the primary ore source, with open pit production scheduled to end
in calendar 2011. Underground production is expected to commence in
2009, sourced from A-154 South, A-154 North and A-418
simultaneously. The three kimberlite pipes are located in relative
proximity to one another, allowing a common underground
infrastructure. Processing plant throughput is expected to remain
at 2.3 million tonnes of kimberlite per year. Underground ore
volumes are expected to increase steadily beginning in 2009 as
underground mining ramps up and open pit volumes decline. In the
absence of A-21, underground mining would be the sole source of
production from 2012 onwards. Average recovered grade is forecasted
to be approximately 5.7 carats/tonne of ore processed in calendar
2008, and approximately 3.5 carats/tonne thereafter. The Company
has commissioned WWW Diamond Consultants Ltd. ("WWW") to provide an
independent view of diamond prices for the proven and probable
reserve categories based on the examination of both production and
bulk sample diamond parcels. As of January 2008, WWW modelled and
assigned diamond prices of $93 per carat to A-154 South, $117 to
A-154 North and $85 to A-418. Cost of Sales In calendar 2008, cost
of sales is expected to increase approximately 25% compared to
calendar 2007 primarily due to an anticipated stronger Canadian
dollar, higher labour, fuel, material costs and higher
depreciation. Cost of sales is forecasted to peak in calendar 2009
at a further 30% over calendar 2008 reflecting the higher costs
associated with the overlap of underground and open pit mining.
Thereafter, open pit mining volumes are projected to decrease with
the transition to solely underground mining. Accordingly, over the
following two years cost of sales is also expected to decline as
the overlap between open pit and underground mining diminishes.
Capital Expenditures Over the next five years, the Company's
portion of planned capital expenditures is expected to be
approximately $320 million at a Canadian/US dollar average exchange
rate of $0.96. The Company expects to contribute approximately $221
million over the next two years at a Canadian/US dollar average
exchange rate of $0.99 in support of the underground development
project. Financing for the two-year period is expected from a
combination of cash from operations, proceeds from a recent common
share private placement and refinancing of the Company's existing
credit facility. In addition to constructing over 20 km of
underground tunnelling and raisebore shafts, underground facilities
will include maintenance shops and warehousing for mobile equipment
servicing, refuge stations, fuelling areas, electrical power
distributions, communication networks, water handling and pumping
systems, ore and waste loading areas and ventilations. To support
the underground development and construction phase, more camp
accommodations for an expanding workforce is required in addition
to several large surface facilities. These facilities include a
crushing and paste plant to produce backfill, expansion of the
processed kimberlite containment dam, power generation expansion,
and fuel storage capacity. Construction of these facilities began
in calendar 2007 and completion is expected in 2008. Exploration
Accelerated exploration activities are planned over the next two
years on existing property holdings. None of the exploration
activities has any impact on the Diavik mineral resources and
mineral reserves at this time. As underground mining advances to
greater depths in the coming years, resource classifications will
be upgraded through additional drilling, which might add production
volume or longevity to the mine life. Rough Diamond Sales Cycle The
rough diamond sales cycle in the coming year is expected to be two
primary sales in the first quarter including an open-market tender,
two in the second quarter, two in the third quarter and three in
the fourth. Sales are now conducted throughout the quarter in each
of the Company's three selling offices located in Belgium, Israel
and India. Cash Tax Profile The Company has been able to defer the
majority of its cash income taxes since the Diavik Mine began
commercial production in fiscal 2004, as accelerated tax deductions
were available from its initial investments in the mine.
Accordingly, the Company has recorded a significant future income
tax liability. As the accelerated tax deductions become fully
utilized, the Company expects an increase in current income tax
payable and a reversal in future income tax liability beginning in
fiscal 2009. The Company anticipates that a significant portion of
the existing future income tax liability will reverse over the next
two years, with the highest cash tax payment anticipated in fiscal
2010. Retail The high-end luxury goods industry has historically
been more resilient to economic fluctuations than general retail.
With a diverse global distribution network, the retail segment is
positioned to withstand regional economic disruptions. Volatility
in the US financial markets is expected to be offset by continued
strong demand for high-end diamond jewelry and watches from markets
in China, Russia and the Middle East. Harry Winston Inc. will
continue to support its expanded salon network and introduce new
limited hand-crafted jewelry designs using the highest quality of
diamonds in the upcoming year. In addition, new jewelry collections
will be introduced to expand product assortment. Harry Winston Inc.
remains well positioned to continue to leverage its brand equity in
support of future sales growth. One store is scheduled to be opened
in Costa Mesa, California in fiscal 2009. In fiscal 2009, Harry
Winston Inc. expects to continue to record double-digit sales
growth and strong underlying gross margins, resulting in an
improvement in earnings from operations. Related Parties
Transactions with related parties for the year ended January 31,
2008 include $1.8 million of rent (2007 - $1.8 million) relating to
the New York salon, payable to a Harry Winston Inc. employee.
Disclosure Controls and Procedures The Company has designed a
system of disclosure controls and procedures to provide reasonable
assurance that material information relating to Harry Winston
Diamond Corporation, including its consolidated subsidiaries, is
made known to them by others within those entities, particularly
during the period in which the Company's annual filings are being
prepared. In designing and evaluating the disclosure controls and
procedures, the management of the Company recognized that any
controls and procedures, no matter how well designed and operated,
can provide only reasonable assurance of achieving the desired
control objectives. The management of Harry Winston Diamond
Corporation was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures. The
result of the inherent limitations in all control systems means no
evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, have been detected.
The management of Harry Winston Diamond Corporation has evaluated
the effectiveness of the design and operation of its disclosure
controls and procedures as of the end of the period covered by the
Annual Report. Based on that evaluation, management has concluded
that these disclosure controls and procedures, as defined in Canada
by Multilateral Instrument 52-109, Certification of Disclosure in
Issuers' Annual and Interim Filings, and in the United States by
Rule 13a-15(e) under the Securities Exchange Act of 1934 (the
"Exchange Act"), are effective to ensure that information required
to be disclosed in reports that the Company will file or submit
under Canadian securities legislation and the Exchange Act is
recorded, processed, summarized and reported within the time
periods specified in those rules and forms. Internal Control over
Financial Reporting The certifying officers of Harry Winston
Diamond Corporation have designed a system of internal control over
financial reporting to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements in accordance with Canadian GAAP and the requirements of
the Securities and Exchange Commission in the United States, as
applicable. Management is responsible for establishing and
maintaining adequate internal control over financial reporting for
the Company, including its consolidated subsidiaries. Management
has evaluated the effectiveness of internal control over financial
reporting using the framework and criteria established in the
Internal Control - Integrated Framework, issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this
evaluation, management has concluded that internal control over
financial reporting was effective as of January 31, 2008. Changes
in Internal Control over Financial Reporting During the fourth
quarter of fiscal 2008 there were no changes in the Company's
internal control over financial reporting that materially affected,
or are reasonably likely to materially affect, the Company's
internal control over financial reporting. Critical Accounting
Estimates Management is often required to make judgments,
assumptions and estimates in the application of Canadian generally
accepted accounting principles 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 following
discussion outlines the accounting policies and practices that are
critical to determining Harry Winston Diamond Corporation's
financial results. Use of Estimates The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of earnings,
revenues and expenses during the reporting year. Significant areas
requiring the use of management estimates relate to the
determination of impairment of capital assets, intangible assets,
goodwill and deferred mineral property costs, estimation of future
site restoration costs and future income taxes. Financial results
as determined by actual events could differ from those estimated.
The most significant estimates relate to the valuation of deferred
mineral property costs and future site restoration costs.
Management makes significant estimates related to the measurement
of reclamation obligations and the timing of the related cash flows
and future income tax liabilities. Such timing and measurement
uncertainty could have a material effect on the reported results of
operations and the financial position of the Company. Actual
results could differ materially from those estimates in the near
term. Deferred Mineral Property Costs and Mineral Reserves Harry
Winston Diamond Corporation capitalizes all direct development and
pre-production costs relating to mineral properties and amortizes
such costs on a unit-of-production basis upon commencement of
commercial production relating to the underlying property. The
Company has determined that commercial production related to the
Diavik Mine was achieved during the fiscal year ended January 31,
2004. Deferred mineral property costs are amortized based on
estimated proven and probable reserves at the property. On an
ongoing basis, the Company evaluates deferred costs relating to
each property to ensure that the estimated recoverable amount
exceeds the carrying value. Based on the Diavik Mine's latest
projected open pit and underground life from the mine plan and
diamond prices from the Diavik Project feasibility study, there is
no requirement to write down deferred mineral property costs. 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. Reserve estimates can be revised upward or downward
based on the results of future drilling, testing or production
levels, and diamond prices. Changes in reserve estimates can impact
the evaluation of net recoverable deferred costs. Future Site
Restoration Costs The Company has obligations for future site
restoration costs. The Company records the fair value of an asset
retirement obligation as a liability in the period in which it
incurs a legal obligation associated with the retirement of
tangible long-lived assets that result from the acquisition,
construction, development and/or normal use of the assets. The fair
value of the liability is added to the carrying amount of the
associated asset and this additional carrying amount is depreciated
over the life of the asset. Subsequent to the initial measurement
of the asset retirement obligation, the obligation is adjusted at
the end of each period to reflect the passage of time and changes
in the estimated future cash flows underlying the obligation. If
the obligation is settled for other than the carrying amount of the
liability, the Company will recognize a gain or loss on settlement.
The Company adopted Section 3110, "Accounting for Asset Retirement
Obligations", effective November 1, 2003 and as at January 31,
2008, estimates of all legal obligations at the Joint Venture level
have been included in the consolidated financial statements of the
Company. Processes to track and monitor these obligations are
carried out at the Joint Venture level. Income Tax The Company
accounts for income taxes under the asset and liability method.
Under this method, future tax assets and liabilities are recognized
for future tax consequences attributable to differences between the
financial statement carrying value and the tax basis of assets and
liabilities. Future tax assets and liabilities are measured using
enacted or substantively enacted tax rates expected to apply to
taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on future tax
assets and liabilities of a change in tax rates is recognized in
earnings in the period during which the change in tax rates is
considered to be substantively enacted. Intangible Assets and
Goodwill Certain of the Company's intangible assets are recorded at
fair value upon acquisition and have an indefinite useful life. The
Company assesses impairment of such intangible assets by
determining whether the carrying value exceeds the fair value. If
the fair value is determined to be less than the net book value,
the excess of the net book value over the fair value is charged to
earnings in the year in which such impairment is determined by
management. The goodwill recorded on the Company's books is
reviewed at least annually for impairment; however, if there is
indication of impairment in goodwill during the year, an assessment
at the time will be completed. 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 Management's Discussion and
Analysis 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 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 paste backfill
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 Mine, because of its remote
northern location and access only by winter road or by air, is
subject to special climate and transportation risks. These risks
include the inability to operate or to operate efficiently during
periods of extreme cold, the unavailability of materials and
equipment, and increased transportation costs due to the late
opening and/or early closure of the winter road. Such factors can
add to the cost of mine development, production and operation,
thereby affecting the Company's profitability. Nature of Joint
Arrangement with DDMI Harry Winston Diamond Corporation owns an
undivided 40% interest in the assets, liabilities and expenses of
the Diavik Mine and the Diavik group of mineral claims. The Diavik
Mine and the exploration and development of the Diavik group of
mineral claims is a joint arrangement between DDMI (60%) and Harry
Winston Diamond Mines Ltd. (formerly Aber Diamond Mines Ltd.)
(40%), and is subject to the risks normally associated with the
conduct of joint ventures and similar joint arrangements. These
risks include the inability to exert influence over strategic
decisions made in respect of the Diavik Mine and the Diavik group
of mineral claims. By virtue of DDMI's 60% interest in the Diavik
Mine, it has a controlling vote in virtually all Joint Venture
management decisions respecting the development and operation of
the Diavik Mine and the development of the Diavik group of mineral
claims. Accordingly, DDMI is able to determine the timing and scope
of future project capital expenditures, and therefore is able to
impose capital expenditure requirements on the Company that the
Company may not have sufficient cash to meet. A failure by the
Company to meet capital expenditure requirements imposed by DDMI
could result in the Company's interest in the Diavik Mine and the
Diavik group of mineral claims being diluted. The Company's
contribution to capital requirements to complete the underground
development and supporting infrastructure contemplated by the new
mine plan is estimated to be $221 million over the next two years,
with funding expected to be provided in part from a CAD $75 million
private placement completed on March 14, 2008, cash flow from
operations and a refinancing of the Company's existing credit
facilities. There can be no assurance that the Company will be able
to refinance its current credit facilities on satisfactory terms
and conditions, or at all. DATASOURCE: HARRY WINSTON DIAMOND
CORPORATION CONTACT: Kelley Stamm, , (416) 362-2237 ext.223
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