TORONTO, June 6, 2012 /PRNewswire/ - Harry Winston Diamond Corporation (TSX:
HW, NYSE:HWD) (the "Company") today announced its first quarter Fiscal
2013 results for the quarter ending April 30, 2012.
Robert Gannicott, Chairman and Chief Executive Officer stated, "We have improved sales, operating margins and profitability in all
sectors of our business compared to the equivalent quarter of the prior
year. The Diavik mine continues its transition to underground mining
while jewelry and timepiece sales demonstrate our success in broadening
the reach of the brand beyond reliance on a small, ultra high end
market."
First Quarter Highlights:
-
Consolidated sales increased 34% to $192.5 million for the first quarter
compared to $143.9 million for the comparable quarter of the prior
year. Operating profit was $18.7 million compared to $4.7 million in
the comparable quarter of the prior year. EBITDA increased 77% to
$44.2 million compared to $25.0 million in the comparable quarter of
the prior year.
-
For the mining segment rough diamond sales for the quarter rose 43% to
$89.0 million, versus $62.0 million in the comparable quarter of the
prior year. The increase was due to a 116% increase in the quantity of
carats sold. This was primarily the result of the sale of almost all of
the remaining lower priced goods originally held back in inventory by
the Company at October 31, 2011 as well as higher production in the
first calendar quarter compared to the comparable quarter of the prior
year.
-
The Company sold approximately 1.0 million carats for an average price
of $88 per carat compared to approximately 0.5 million carats for an
average price per carat of $132 in the comparable quarter of the prior
year. The 34% decrease in the Company's achieved average rough diamond
prices in the first quarter resulted from a combination of three
factors:
-
The sale of the lower priced goods originally held back in inventory by
the Company at October 31, 2011.
-
The Company's decision to hold back some higher priced goods in the
first quarter of fiscal 2013 due to an observed imbalance in the rough
and polished diamond prices for these goods.
-
The Company's January 2012 sale straddled the fiscal 2012 year-end with
the lower priced portion of the sale, which occurs in India, pushed
into the first quarter.
-
Had the Company sold only the last production shipped for the first
quarter, the estimated achieved price would have been approximately
$125 per carat based on the prices achieved in the March/April 2012
sale.
-
Rough diamond production for the calendar quarter ended March 31, 2012
was 1.6 million carats compared to 1.4 million carats in the calendar
quarter of the prior year (on a 100% basis).
-
Luxury brand segment sales increased 26% (26% at constant exchange
rates) to $103.5 million compared to $81.9 million in the comparable
quarter of the prior year. Operating profit increased 68% to $7.1
million in the first quarter compared to $4.2 million in the comparable
quarter of the prior year. The increase was primarily driven by
positive mix with increased sales of higher-margin access and core
products.
-
Consolidated net profit attributable to shareholders for the first
quarter was $11.6 million or $0.14 per share compared to net profit
attributable to shareholders of $3.6 million or $0.04 per share in the
comparable quarter of the prior year.
Fiscal 2013 First Quarter Financial Summary
(US$ in millions except Earnings per Share amounts)
|
|
Three months
ended
Apr. 30, 2012
|
Three months
ended
Apr. 30, 2011
|
Sales
- Mining Segment
- Luxury Brand Segment
|
$192.5
89.0
103.5
|
$143.9
62.0
81.9
|
Operating profit (loss)
- Mining Segment
- Luxury Brand Segment
- Corporate Segment
|
18.7
16.4
7.1
(4.8)
|
4.7
4.0
4.2
(3.5)
|
|
Net profit
|
11.6
|
3.6
|
|
Earnings per share
|
$0.14
|
$0.04
|
Complete financial statements, MD&A and a discussion of risk factors are
included in the accompanying release.
Outlook
A mine plan and budget for calendar 2012 has been approved by Rio Tinto
plc, the operator of the Diavik Diamond Mine, and the Company. The
plan for calendar 2012 Diavik Diamond Mine production remains at
approximately 8.3 million carats (100% basis). Looking beyond calendar
2012, the objective is to fully utilize processing capacity with a
combination of production from the underground portions of A-154 South,
A-154 North and A-418 supplemented by the A-21 open pit. 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 dyke 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 being planned. The capital expenditures are
estimated to be in the region of $500 million (100% basis) at an
assumed average Canadian/US dollar exchange rate of $1.00. The Company
still expects that the A-21 pipe, if mined together with the other
pipes, would have a positive net present value.
The Company expects that global demand for luxury jewelry and watch
products will continue to increase. However, the sovereign debt crisis
in Europe and the slowdown in the growth of China's economy are
challenges that may impact the demand for luxury jewelry and watch
products in the near term. The Company remains confident that the
introduction of its new watch and jewelry products, supported by a
strong advertising campaign, will contribute to sales growth. Continued
expansion of the distribution network in prime locations around the
world should allow the Company to benefit from the increasing mobility
of high-end luxury consumers. A second, directly operated salon in
London, United Kingdom, is expected to be opened by the middle of the
fiscal year. A new licensed salon was opened in Moscow, Russia in May
2012, and an additional licensed salon is expected to be opened during
fiscal 2013, in Kuwait City, Kuwait. The Company plans to expand by 30
wholesale watch doors to more than 220 doors by the end of fiscal 2013.
Conference Call and Webcast
Beginning at 8:30AM (ET) on Thursday, June 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 800-510-9661 within North America or 617-614-3452 from
international locations and entering passcode 64912203.
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), Thursday, June 21, 2012 by dialing
888-286-8010 within North America or 617-801-6888 from international
locations and entering passcode 41756064.
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 $192.5 million for the first quarter compared to
$143.9 million for the comparable quarter of the prior year, resulting
in a 54% increase in gross margin to $73.3 million and operating profit
of $18.7 million, compared to operating profit of $4.7 million in the
comparable quarter of the prior year. Consolidated EBITDA was $44.2
million compared to $25.0 million in the comparable quarter of the
prior year.
The mining segment recorded sales of $89.0 million, a 43% increase from
$62.0 million in the comparable quarter of the prior year. The increase
in sales resulted primarily from a 116% increase in volume of carats
sold during the quarter. The mining segment recorded operating profit
of $16.4 million compared to $4.0 million in the comparable quarter of
the prior year. EBITDA for the mining segment was $38.6 million
compared to $21.0 million in the comparable quarter of the prior year.
The luxury brand segment recorded sales of $103.5 million, an increase
of 26% from sales of $81.9 million in the comparable quarter of the
prior year (26% at constant exchange rates). Operating profit was $7.1
million for the quarter compared to $4.2 million in the same quarter of
the prior year. EBITDA for the luxury brand segment was $10.3 million
compared to $7.3 million in the comparable quarter of the prior year.
The Company recorded a consolidated net profit attributable to
shareholders of $11.6 million or $0.14 per share for the quarter,
compared to a net profit attributable to shareholders of $3.6 million
or $0.04 per share in the first quarter of the prior year.
Management's Discussion and Analysis
PREPARED AS OF JUNE 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
months ended April 30, 2012, and its financial position as at April 30,
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 months ended April
30, 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 "first
quarter" refer to the three months ended April 30. 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" 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, and expected sales trends and market conditions
in the luxury brand segment. Actual results may vary from the
forward-looking information. See "Risks and Uncertainties" on page 16
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, and the worldwide demand for luxury goods.
Specifically, 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
16.
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 operations, including risks associated with
the inability to control the timing and scope of future capital
expenditures, 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 and of competition in the luxury
jewelry business as well as changes in demand for high-end luxury
goods. Please see page 16 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.
Market Commentary
The Diamond Market
Rough diamond prices have remained flat since the beginning of the year.
The mood in the rough diamond market is cautious as retailers are
reluctant to replenish polished inventory due to the impact of the
current global economic uncertainties on the major retail markets,
which has also led to reduced liquidity in the diamond market. The
Company believes that the industry views these current challenges as
short term, and that the industry is willing to hold inventory in
anticipation of a more buoyant market later in the year for both rough
and polished diamonds.
The Luxury Jewelry and Timepiece Market
Strong global demand for luxury products continues to have a positive
impact on the luxury jewelry and timepiece market. Demand has been
broad-based as a result of increased tourism by consumers from emerging
markets. The economic recovery in the US continues to gain traction,
providing further demand for luxury products. The Japanese market has
rebounded strongly from the impact of the earthquake and tsunami that
occurred during the first quarter of the prior year. The luxury market
could be impacted in the near term by global economic challenges,
including the sovereign debt issues in Europe, which have negatively
impacted global stock markets and consumer confidence. In addition,
economic growth in China appears to be slowing. Luxury retailers remain
focused on the longer term opportunities by continued expansion of
distribution networks into the Asian market.
Condensed Consolidated Financial Results
The following is a summary of the Company's consolidated quarterly
results for the eight quarters ended April 30, 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)
(quarterly results are unaudited)
|
|
|
|
|
|
2013
|
|
2012
|
|
2012
|
|
2012
|
|
2012
|
|
2011
|
|
2011
|
|
2011
|
|
Three
months
ended
April 30,
|
|
Three
months
ended
April 30,
|
|
|
|
|
|
Q1
|
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Q4
|
|
Q3
|
|
Q2
|
|
2012
|
|
2011
|
|
Sales
|
|
|
$
|
192,461
|
$
|
216,017
|
$
|
119,716
|
$
|
222,378
|
$
|
143,932
|
$
|
215,358
|
$
|
140,877
|
$
|
153,728
|
$
|
192,461
|
$
|
143,932
|
|
Cost of sales
|
|
|
|
119,134
|
|
129,807
|
|
75,524
|
|
150,177
|
|
96,452
|
|
141,391
|
|
84,765
|
|
85,798
|
|
119,134
|
|
96,452
|
|
Gross margin
|
|
|
|
73,327
|
|
86,210
|
|
44,192
|
|
72,201
|
|
47,480
|
|
73,967
|
|
56,112
|
|
67,930
|
|
73,327
|
|
47,480
|
|
Gross margin (%)
|
|
|
|
38.1%
|
|
39.9%
|
|
36.9%
|
|
32.5%
|
|
33.0%
|
|
34.3%
|
|
39.8%
|
|
44.2%
|
|
38.1%
|
|
33.0%
|
Selling, general
and
administrative
expenses
|
|
|
|
54,669
|
|
55,500
|
|
46,155
|
|
49,101
|
|
42,795
|
|
52,722
|
|
41,282
|
|
37,998
|
|
54,669
|
|
42,795
|
Operating profit
(loss)
|
|
|
|
18,658
|
|
30,710
|
|
(1,963)
|
|
23,100
|
|
4,685
|
|
21,245
|
|
14,830
|
|
29,932
|
|
18,658
|
|
4,685
|
Finance
expenses
|
|
|
|
(3,880)
|
|
(3,481)
|
|
(4,040)
|
|
(5,183)
|
|
(3,983)
|
|
(3,727)
|
|
(3,835)
|
|
(2,985)
|
|
(3,880)
|
|
(3,983)
|
|
Exploration costs
|
|
|
|
(254)
|
|
(177)
|
|
(600)
|
|
(781)
|
|
(212)
|
|
(351)
|
|
(212)
|
|
(76)
|
|
(254)
|
|
(212)
|
Finance and other
income
|
|
|
|
65
|
|
81
|
|
164
|
|
83
|
|
258
|
|
278
|
|
69
|
|
154
|
|
65
|
|
258
|
Foreign exchange
gain (loss)
|
|
|
|
(364)
|
|
458
|
|
436
|
|
288
|
|
(177)
|
|
1,392
|
|
135
|
|
1,043
|
|
(364)
|
|
(177)
|
Profit (loss)
before income
taxes
|
|
|
|
14,225
|
|
27,591
|
|
(6,003)
|
|
17,507
|
|
571
|
|
18,837
|
|
10,987
|
|
28,068
|
|
14,225
|
|
571
|
Income tax
expense
(recovery)
|
|
|
|
2,615
|
|
11,001
|
|
(1,272)
|
|
7,519
|
|
(3,027)
|
|
5,137
|
|
(2,410)
|
|
10,877
|
|
2,615
|
|
(3,027)
|
|
Net profit (loss)
|
|
|
$
|
11,610
|
$
|
16,590
|
$
|
(4,731)
|
$
|
9,988
|
$
|
3,598
|
$
|
13,700
|
$
|
13,397
|
$
|
17,191
|
$
|
11,610
|
$
|
3,598
|
Attributable to
shareholders
|
|
|
$
|
11,610
|
$
|
16,602
|
$
|
(4,728)
|
$
|
9,986
|
$
|
3,596
|
$
|
13,693
|
$
|
12,657
|
$
|
13,043
|
$
|
11,610
|
$
|
3,596
|
Attributable to
non-controlling
interest
|
|
|
|
-
|
|
(12)
|
|
(3)
|
|
2
|
|
2
|
|
7
|
|
740
|
|
4,148
|
|
-
|
|
2
|
Basic earnings
(loss) per share
|
|
|
$
|
0.14
|
$
|
0.20
|
$
|
(0.06)
|
$
|
0.12
|
$
|
0.04
|
$
|
0.16
|
$
|
0.15
|
$
|
0.17
|
$
|
0.14
|
$
|
0.04
|
Diluted earnings
(loss) per share
|
|
|
$
|
0.14
|
$
|
0.19
|
$
|
(0.06)
|
$
|
0.12
|
$
|
0.04
|
$
|
0.16
|
$
|
0.15
|
$
|
0.17
|
$
|
0.14
|
$
|
0.04
|
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)
|
|
|
$
|
1,716
|
$
|
1,637
|
$
|
1,656
|
$
|
1,671
|
$
|
1,671
|
$
|
1,609
|
$
|
1,584
|
$
|
1,596
|
$
|
1,716
|
$
|
1,671
|
Total long-term
liabilities (i)
|
|
|
$
|
472
|
$
|
670
|
$
|
661
|
$
|
633
|
$
|
613
|
$
|
603
|
$
|
596
|
$
|
539
|
$
|
472
|
$
|
613
|
Operating profit
(loss)
|
|
|
$
|
18,658
|
$
|
30,710
|
$
|
(1,963)
|
$
|
23,100
|
$
|
4,685
|
$
|
21,245
|
$
|
14,830
|
$
|
29,932
|
$
|
18,658
|
$
|
4,685
|
Depreciation and
amortization (ii)
|
|
|
|
25,546
|
|
27,512
|
|
23,121
|
|
20,716
|
|
20,291
|
|
24,635
|
|
18,657
|
|
19,515
|
|
25,546
|
|
20,291
|
|
EBITDA (iii)
|
|
|
$
|
44,204
|
$
|
58,222
|
$
|
21,158
|
$
|
43,816
|
$
|
24,976
|
$
|
45,880
|
$
|
33,487
|
$
|
49,447
|
$
|
44,204
|
$
|
24,976
|
|
(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 15.
|
|
|
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 8 for additional information.
|
|
|
|
Three Months Ended April 30, 2012 Compared to Three Months Ended April
30, 2011
CONSOLIDATED NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS
The Company recorded a first quarter consolidated net profit
attributable to shareholders of $11.6 million or $0.14 per share
compared to a net profit attributable to shareholders of $3.6 million
or $0.04 per share in the first quarter of the prior year.
CONSOLIDATED SALES
Sales for the first quarter totalled $192.5 million, consisting of rough
diamond sales of $89.0 million and luxury brand segment sales of
$103.5 million. This compares to sales of $143.9 million in the
comparable quarter of the prior year (rough diamond sales of $62.0
million and luxury brand segment sales of $81.9 million).
See "Segmented Analysis" on page 8 for additional information.
CONSOLIDATED COST OF SALES AND GROSS MARGIN
The Company's first quarter cost of sales was $119.1 million for a gross
margin of 38.1% compared to a cost of sales of $96.5 million and a
gross margin of 33.0% for the comparable quarter of the prior year. The
Company's cost of sales includes costs associated with mining, rough
diamond sorting and luxury brand sales activities. See "Segmented
Analysis" on page 8 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 building related costs. The Company incurred SG&A
expenses of $54.7 million for the first quarter, compared to $42.8
million in the comparable quarter of the prior year.
Included in SG&A expenses for the first quarter was $2.5 million for the
mining segment compared to $4.6 million for the comparable quarter of
the prior year, $47.3 million for the luxury brand segment compared to
$34.7 million for the comparable quarter of the prior year, and $4.9
million for the corporate segment compared to $3.5 million for the
comparable quarter of the prior year. See "Segmented Analysis" on page
8 for additional information.
CONSOLIDATED INCOME TAXES
The Company recorded a net income tax expense of $2.6 million during the
first quarter, compared to a net income tax recovery of $3.0 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 first quarter, the Canadian dollar strengthened against the US
dollar. As a result, the Company recorded an unrealized foreign
exchange loss of $3.0 million on the revaluation of the Company's
Canadian dollar denominated deferred income tax liability. This
compares to an unrealized foreign exchange loss of $11.6 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 not deductible for Canadian income tax purposes. During the first
quarter, the Company also recognized a deferred income tax recovery of
$1.5 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 recovery of $12.5 million recognized in the
comparable quarter of the prior year. The recorded tax provision during
the quarter also included a net income tax recovery of $1.9 million
relating to foreign exchange differences between income in the currency
of the country of origin and the US dollars. This compares to a net
income tax recovery of $1.9 million recognized in the comparable
quarter of the prior year.
The Company also recognized a benefit of $1.1 million during the quarter
in relation to deductible temporary differences previously not
recognized as deferred tax assets.
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
Finance expenses of $3.9 million were incurred during the first quarter
compared to $4.0 million during the comparable quarter of the prior
year.
CONSOLIDATED EXPLORATION EXPENSE
Exploration expense of $0.3 million was incurred during the first
quarter compared to $0.2 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 first
quarter compared to $0.3 million in the comparable quarter of the prior
year.
CONSOLIDATED FOREIGN EXCHANGE
A net foreign exchange loss of $0.4 million was recognized during the
first quarter compared to a net foreign exchange loss of $0.2 million
in the comparable quarter 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)
(quarterly results are unaudited)
|
|
|
|
|
|
2013
|
|
2012
|
|
2012
|
|
2012
|
|
2012
|
|
2011
|
|
2011
|
|
2011
|
|
Three
months
ended
April 30,
|
|
Three
months
ended
April 30,
|
|
|
|
|
|
Q1
|
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Q4
|
|
Q3
|
|
Q2
|
|
2012
|
|
2011
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
$
|
7,432
|
$
|
2,727
|
$
|
8,835
|
$
|
447
|
$
|
3,009
|
$
|
2,689
|
$
|
2,560
|
$
|
1,128
|
$
|
7,432
|
$
|
3,009
|
|
Europe
|
|
|
|
54,370
|
|
78,846
|
|
21,993
|
|
80,131
|
|
50,752
|
|
75,715
|
|
50,353
|
|
81,462
|
|
54,370
|
|
50,752
|
|
Asia
|
|
|
|
27,207
|
|
20,659
|
|
5,411
|
|
9,030
|
|
8,274
|
|
4,293
|
|
7,795
|
|
4,237
|
|
27,207
|
|
8,274
|
|
Total sales
|
|
|
|
89,009
|
|
102,232
|
|
36,239
|
|
89,608
|
|
62,035
|
|
82,697
|
|
60,708
|
|
86,827
|
|
89,009
|
|
62,035
|
|
Cost of sales
|
|
|
|
70,099
|
|
72,783
|
|
34,112
|
|
67,613
|
|
53,443
|
|
61,822
|
|
45,039
|
|
54,408
|
|
70,099
|
|
53,443
|
|
Gross margin
|
|
|
|
18,910
|
|
29,449
|
|
2,127
|
|
21,995
|
|
8,592
|
|
20,875
|
|
15,669
|
|
32,419
|
|
18,910
|
|
8,592
|
|
Gross margin (%)
|
|
|
|
21.2%
|
|
28.8%
|
|
5.9%
|
|
24.5%
|
|
13.9%
|
|
25.2%
|
|
25.8%
|
|
37.3%
|
|
21.2%
|
|
13.9%
|
Selling, general and
administrative expenses
|
|
|
|
2,525
|
|
2,061
|
|
3,274
|
|
3,489
|
|
4,630
|
|
3,017
|
|
3,031
|
|
2,872
|
|
2,525
|
|
4,630
|
|
Operating profit (loss)
|
|
|
$
|
16,385
|
$
|
27,388
|
$
|
(1,147)
|
$
|
18,506
|
$
|
3,962
|
$
|
17,858
|
$
|
12,638
|
$
|
29,547
|
$
|
16,385
|
$
|
3,962
|
Depreciation and
amortization (i)
|
|
|
|
22,172
|
|
24,284
|
|
19,932
|
|
17,461
|
|
17,083
|
|
20,669
|
|
15,428
|
|
16,352
|
|
22,172
|
|
17,083
|
|
EBITDA (ii)
|
|
|
$
|
38,557
|
$
|
51,672
|
$
|
18,785
|
$
|
35,967
|
$
|
21,045
|
$
|
38,527
|
$
|
28,066
|
$
|
45,899
|
$
|
38,557
|
$
|
21,045
|
|
(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 15.
|
|
|
|
Three Months Ended April 30, 2012 Compared to Three Months Ended April
30, 2011
MINING SALES
During the first quarter the Company sold approximately 1.0 million
carats for a total of $89.0 million for an average price per carat of
$88 compared to approximately 0.5 million carats for a total of $62.0
million for an average price per carat of $132 in the comparable
quarter of the prior year. The 116% increase in the quantity of carats
sold was primarily the result of the sale of almost all of the
remaining lower priced goods originally held back in inventory by the
Company at October 31, 2011 due to an oversupply in the market at that
time, along with higher production in the first calendar quarter
compared to the prior year. The 34% decrease in the Company's achieved
average rough diamond prices in the first quarter resulted from a
combination of three factors: first, the sale of the lower priced goods
originally held back in inventory by the Company at October 31, 2011;
second, the Company's decision to hold back some higher priced goods in
the first quarter of fiscal 2013 due to an observed imbalance in the
rough and polished diamond prices for these goods; and third, the
Company's January 2012 sale straddled the fiscal 2012 year-end with the
lower priced portion of the sale, which occurs in India, pushed into
the first quarter.
Had the Company sold only the last production shipped for the first
quarter, the estimated achieved price would have been approximately
$125 per carat based on the prices achieved in the March/April 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 first quarter cost of sales was $70.1 million resulting in
a gross margin of 21.2% compared to a cost of sales of $53.4 million
and a gross margin of 13.9% in the comparable quarter of the prior
year. Cost of sales included $21.5 million of depreciation and
amortization. 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 first quarter, the
Diavik cash cost of production was $44.0 million compared to $44.6
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 April 30, 2012 and 2011.
|
(expressed in thousands of United States dollars)
|
|
|
|
|
|
|
Three months ended
April 30, 2012
|
|
|
|
Three months ended
April 30, 2011
|
|
Diavik cash cost of production
|
|
|
|
|
|
$
|
44,036
|
|
|
$
|
44,591
|
|
Private royalty
|
|
|
|
|
|
|
2,638
|
|
|
|
1,578
|
|
Other cash costs
|
|
|
|
|
|
|
1,429
|
|
|
|
1,006
|
|
Total cash cost of production
|
|
|
|
|
|
|
48,103
|
|
|
|
47,175
|
|
Depreciation and amortization
|
|
|
|
|
|
|
13,772
|
|
|
|
15,722
|
|
Total cost of production
|
|
|
|
|
|
|
61,875
|
|
|
|
62,897
|
|
Adjusted for stock movements
|
|
|
|
|
|
|
8,225
|
|
|
|
(9,454)
|
|
Total cost of sales
|
|
|
|
|
|
$
|
70,100
|
|
|
$
|
53,443
|
|
|
|
|
|
|
|
|
|
|
|
MINING SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the mining segment decreased by $2.1 million from the
comparable quarter of the prior year primarily due to executive
severance incurred in the first quarter of the prior year.
MINING SEGMENT OPERATIONAL UPDATE
Ore production for the first calendar quarter consisted of 1.2 million
carats produced from 0.39 million tonnes of ore from the A-418
kimberlite pipe, 0.2 million carats produced from 0.10 million tonnes
of ore from the A-154 North kimberlite pipe, and 0.1 million carats
produced from 0.04 million tonnes of ore from the A-154 South
kimberlite pipe. Also included in production for the calendar quarter
was an estimated 0.08 million carats from reprocessed plant rejects
("RPR"). These RPR are not included in the Company's reserves and
resource statement and are therefore incremental to production. Rough
diamond production was 19% higher than the comparable calendar quarter
of the prior year due to a combination of higher average grade and an
increase in ore processed during the quarter.
HARRY WINSTON DIAMOND LIMITED PARTNERSHIP'S 40% SHARE OF DIAVIK DIAMOND
MINE PRODUCTION
|
(reported on a one-month lag)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended
March 31,
2012
|
|
|
|
Three months
ended
March 31,
2011
|
|
|
|
Twelve months
ended
December 31,
2011
|
|
Diamonds recovered (000s carats)
|
|
|
|
|
|
642
|
|
|
|
540
|
|
|
|
2,670
|
|
Grade (carats/tonne)
|
|
|
|
|
|
3.04
|
|
|
|
2.80
|
|
|
|
2.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mining Segment Outlook
PRODUCTION
A mine plan and budget for calendar 2012 has been approved by Rio Tinto
plc, the operator of the Diavik Diamond Mine, and the Company. The
plan for calendar 2012 foresees Diavik Diamond Mine production remains
at approximately 8.3 million carats from the mining of 2.0 million
tonnes of ore and processing of 2.2 million tonnes of ore. Open pit
mining of approximately 1.0 million tonnes is expected to be
exclusively from A-418. Underground mining of approximately 1.0 million
tonnes is expected to be sourced equally from the A-154 South and A-154
North kimberlite pipes. Included in the estimated production for
calendar 2012 is approximately 1.0 million carats from RPR and 0.1
million carats from the implementation of an 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.
Looking beyond calendar 2012, the objective is to fully utilize
processing capacity with a combination of production from the
underground portions of A-154 South, A-154 North and A-418 supplemented
by the A-21 open pit. 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 being
planned. The capital expenditures are estimated to be in the region of
$500 million (100% basis) at an assumed average Canadian/US dollar
exchange rate of $1.00. The Company still expects that the A-21 pipe,
if mined together with the other pipes, would have a positive net
present value.
PRICING
Rough diamond prices were relatively flat during the first quarter of
fiscal 2013. Based on prices from the Company's last complete rough
diamond sale in March/April 2012 and the current diamond recovery
profile of the Diavik processing plant, the Company has modeled the
approximate average rough diamond price per carat as of March/April
2012 for each of the Diavik ore types in the table that follows.
|
Ore type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March/April 2012
average price per
carat
(in US dollars)
|
|
A-154 South
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
160
|
|
A-154 North
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
205
|
|
A-418 A Type Ore
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
145
|
|
A-418 B Type Ore
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
RPR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF SALES AND CASH COST OF PRODUCTION
The Company expects cost of sales in fiscal 2013 to be approximately
$330 million. Included in this amount is depreciation and amortization
of approximately $110 million at an assumed average Canadian/US dollar
exchange rate of $1.00. At April 30, 2012, the Company had
approximately 0.5 million carats of rough diamond inventory available
for sale with an estimated current market value of approximately $90
million. Of this inventory, approximately 10% of the carats and 30% of
the value was comprised of the higher priced goods held back in the
first quarter.
The Company's share of the cash cost of production at the Diavik Diamond
Mine for calendar 2012 is expected to be approximately $173 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
$78 million at an assumed average Canadian/US dollar exchange rate of
$1.00. During the first quarter, HWDLP's share of capital expenditures
was $15.6 million.
Luxury Brand
The luxury brand segment includes sales from 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; two salons in Europe:
Paris and 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)
(quarterly results are unaudited)
|
|
|
|
|
|
2013
|
|
2012
|
|
2012
|
|
2012
|
|
2012
|
|
2011
|
|
2011
|
|
2011
|
|
Three
months
ended
April 30,
|
|
Three
months
ended
April 30,
|
|
|
|
|
|
Q1
|
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Q4
|
|
Q3
|
|
Q2
|
|
2012
|
|
2011
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
$
|
32,286
|
$
|
41,537
|
$
|
28,817
|
$
|
27,183
|
$
|
35,487
|
$
|
46,489
|
$
|
20,977
|
$
|
19,456
|
$
|
32,286
|
|
35,487
|
|
Europe
|
|
|
|
30,054
|
|
31,204
|
|
19,561
|
|
26,098
|
|
17,446
|
|
15,701
|
|
27,155
|
|
20,327
|
|
30,054
|
|
17,446
|
|
Asia (excluding Japan)
|
|
|
|
20,385
|
|
17,272
|
|
13,133
|
|
59,056
|
|
14,354
|
|
50,817
|
|
16,671
|
|
10,858
|
|
20,385
|
|
14,354
|
|
Japan
|
|
|
|
20,727
|
|
23,772
|
|
21,966
|
|
20,433
|
|
14,610
|
|
19,654
|
|
15,366
|
|
16,260
|
|
20,727
|
|
14,610
|
|
Total sales
|
|
|
|
103,452
|
|
113,785
|
|
83,477
|
|
132,770
|
|
81,897
|
|
132,661
|
|
80,169
|
|
66,901
|
|
103,452
|
|
81,897
|
|
Cost of sales
|
|
|
|
49,035
|
|
57,024
|
|
41,378
|
|
82,513
|
|
42,958
|
|
79,518
|
|
39,675
|
|
31,339
|
|
49,035
|
|
42,958
|
|
Gross margin
|
|
|
|
54,417
|
|
56,761
|
|
42,099
|
|
50,257
|
|
38,939
|
|
53,143
|
|
40,494
|
|
35,562
|
|
54,417
|
|
38,939
|
|
Gross margin (%)
|
|
|
|
52.6%
|
|
49.9%
|
|
50.4%
|
|
37.9%
|
|
47.5%
|
|
40.1%
|
|
50.5%
|
|
53.2%
|
|
52.6%
|
|
47.5%
|
Selling, general and
administrative expenses
|
|
|
|
47,311
|
|
49,929
|
|
40,635
|
|
43,331
|
|
34,716
|
|
47,866
|
|
34,942
|
|
33,081
|
|
47,311
|
|
34,716
|
|
Operating profit (loss)
|
|
|
$
|
7,106
|
$
|
6,832
|
$
|
1,464
|
$
|
6,926
|
$
|
4,223
|
$
|
5,277
|
$
|
5,552
|
$
|
2,481
|
$
|
7,106
|
$
|
4,223
|
Depreciation and
amortization (i)
|
|
|
|
3,235
|
|
3,089
|
|
3,048
|
|
3,115
|
|
3,069
|
|
3,688
|
|
2,882
|
|
2,816
|
|
3,235
|
|
3,069
|
|
EBITDA (ii)
|
|
|
$
|
10,341
|
$
|
9,921
|
$
|
4,512
|
$
|
10,041
|
$
|
7,292
|
$
|
8,965
|
$
|
8,434
|
$
|
5,297
|
$
|
10,341
|
$
|
7,292
|
|
(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 15.
|
|
|
|
Three Months Ended April 30, 2012 Compared to Three Months Ended April
30, 2011
LUXURY BRAND SALES
Sales for the first quarter were $103.5 million compared to $81.9
million for the comparable quarter of the prior year, an increase of
26% (an increase of 26% at constant exchange rates). Sales in North
America decreased 9% to $32.3 million, European sales increased 72% to
$30.1 million, sales in Asia (excluding Japan) increased 42% to $20.4
million and sales in Japan increased 42% to $20.7 million, each as
compared to comparable quarter of the prior year. The first quarter of
the prior year included a high-value transaction in North America that
was not repeated in the current quarter. The Japanese market rebounded
strongly from the impact of the earthquake and tsunami that occurred
during the prior year. During the first quarter, there were no
high-value transactions, which carry generally lower-than-average gross
margins, compared with $5.2 million in the comparable period of the
prior year. The total number of units sold increased by 37% 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 first quarter was
$49.0 million compared to $43.0 million for the comparable quarter of
the prior year. Gross margin for the quarter was $54.4 million or 52.6%
compared to $38.9 million or 47.5% for the comparable quarter of the
prior year. The improvement in gross margin was primarily due to
product mix and a high-value transaction in the comparable period of
the prior year totaling $5.2 million that generated lower-than-average
gross margins.
LUXURY BRAND SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses increased 36% to $47.3 million from $34.7 million in the
comparable quarter of the prior year. The increase was due primarily to
higher advertising, marketing and selling expenses. The luxury brand
segment opened its first flagship salon in Shanghai during the quarter.
Fixed costs increased by $10.5 million as a result of higher
compensation, marketing and selling expenses primarily related to the
opening of the two new salons in Shanghai, while variable expenses
linked to higher volume of sales accounted for $2.1 million of the
increase. SG&A expenses included depreciation and amortization expense
of $2.9 million compared to $3.0 million in the comparable quarter of
the prior year.
LUXURY BRAND SEGMENT OPERATIONAL UPDATE
The luxury brand segment opened its first freestanding pavilion flagship
store in XinTianDi, Shanghai, China, during April 2012. The unique
pavilion concept was designed by architect William Sofield. The
opening generated strong editorial coverage in China and included the
showcasing of the history of Harry Winston and its collections of
jewelry and watches during an event held at the nearby Taiping Lake.
The luxury brand segment successfully launched its new bridal
collection, "Belle by Harry Winston", during the quarter, supported by
a strong advertising campaign.
The luxury brand segment presented its new watch products at the
Baselworld Watch Fair in Switzerland during March 2012. The new watch
collections, including the Opus 12, were well received by fashion
journalists and customers from around the world. The overall mood at
the watch fair was positive, reflecting the increasing demand for
watches driven by emerging markets.
The luxury brand segment's distribution network consists of 21 directly
operated salons, four licensed salons (in Manila, Philippines, Kiev,
Ukraine and two in Dubai, United Arab Emirates) and 190 wholesale watch
doors around the world.
Luxury Brand Segment Outlook
The Company expects that global demand for luxury jewelry and watch
products will continue to increase. However, the sovereign debt crisis
in Europe and the slowdown in the growth of China's economy are
challenges that may impact the demand for luxury jewelry and watch
products in the near term. The Company remains confident that the
introduction of its new watch and jewelry products, supported by a
strong advertising campaign, will contribute to sales growth. Continued
expansion of the distribution network in prime locations around the
world should allow the Company to benefit from the increasing mobility
of high-end luxury consumers. A second, directly operated salon in
London, United Kingdom, is expected to be opened by the middle of the
fiscal year. A new licensed salon was opened in Moscow, Russia in May
2012, and an additional licensed salon is expected to be opened during
fiscal 2013 in Kuwait City, Kuwait. The Company plans to expand by 30
wholesale watch doors to more than 220 doors by the end of fiscal 2013.
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)
(quarterly results are unaudited)
|
|
|
|
|
2013
|
|
2012
|
|
2012
|
|
2012
|
|
2012
|
|
2011
|
|
2011
|
|
2011
|
|
Three
months
ended
April 30,
|
|
Three
months
ended
April 30,
|
|
|
|
|
Q1
|
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Q4
|
|
Q3
|
|
Q2
|
|
2012
|
|
2011
|
|
Sales
|
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|
Cost of sales
|
|
|
-
|
|
-
|
|
34
|
|
51
|
|
51
|
|
51
|
|
51
|
|
51
|
|
-
|
|
51
|
|
Gross margin
|
|
|
-
|
|
-
|
|
(34)
|
|
(51)
|
|
(51)
|
|
(51)
|
|
(51)
|
|
(51)
|
|
-
|
|
(51)
|
|
Gross margin (%)
|
|
|
-%
|
|
-%
|
|
-%
|
|
-%
|
|
-%
|
|
-%
|
|
-%
|
|
-%
|
|
-%
|
|
-%
|
Selling, general and
administrative expenses
|
|
|
4,833
|
|
3,510
|
|
2,246
|
|
2,281
|
|
3,449
|
|
1,839
|
|
3,309
|
|
2,045
|
|
4,833
|
|
3,449
|
|
Operating loss
|
|
$
|
(4,833)
|
$
|
(3,510)
|
|
(2,280)
|
|
(2,332)
|
|
(3,500)
|
|
(1,890)
|
|
(3,360)
|
|
(2,096)
|
|
(4,833)
|
|
(3,500)
|
Depreciation and
amortization (i)
|
|
|
139
|
|
139
|
|
141
|
|
140
|
|
139
|
|
278
|
|
347
|
|
347
|
|
139
|
|
139
|
|
EBITDA (ii)
|
|
$
|
(4,694)
|
$
|
(3,371)
|
$
|
(2,139)
|
$
|
(2,192)
|
$
|
(3,361)
|
$
|
(1,612)
|
$
|
(3,013)
|
$
|
(1,749)
|
$
|
(4,694)
|
$
|
(3,361)
|
|
(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 15.
|
|
|
|
Three Months Ended April 30, 2012 Compared to Three Months Ended April
30, 2011
CORPORATE SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the corporate segment increased by $1.4 million from
the comparable quarter of the prior year due to severance and to travel
expenses and salaries and benefits related to additional corporate
employees.
Liquidity and Capital Resources
Working Capital
As at April 30, 2012, the Company had unrestricted cash and cash
equivalents of $112.8 million compared to $78.1 million at January 31,
2012. The Company had cash on hand and balances with banks of $103.1
million and short-term investments of $9.7 million at April 30, 2012.
During the quarter ended April 30, 2012, the Company reported cash from
operations of $24.9 million compared to a use of cash of $19.5 million
in the comparable quarter of the prior year.
Working capital decreased to $239.7 million at April 30, 2012 from
$439.0 million at January 31, 2012. As at April 30, 2012, current
liabilities includes $204.0 million relating to the luxury brand
segment's five-year revolving credit facility (January 31, 2012 -
$nil), which matures on March 31, 2013. During the quarter, the Company
decreased accounts receivable by $0.9 million, increased other current
assets by $3.1 million, increased inventory and supplies by
$37.0 million, increased trade and other payables by $31.0 million and
increased employee benefit plans by $2.0 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 April 30, 2012, $50.0 million was
outstanding.
As at April 30, 2012, $27.5 million and $3.8 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.
During the quarter, the Company's luxury brand subsidiary, Harry Winston
Inc., increased the amount outstanding on its secured five-year
revolving credit facility to $204.0 million from $200.5 million at
January 31, 2012.
Investing Activities
During the quarter, the Company purchased property, plant and equipment
of $22.5 million, of which $18.1 million was purchased for the mining
segment and $4.4 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. HWDLP's current projected share of the planned capital
expenditures at the Diavik Diamond Mine, which are not reflected in the
table below, including capital expenditures for the calendar years 2012
to 2016, is approximately $140 million assuming a Canadian/US average
exchange rate of $1.00 for each of the five years. 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)
|
|
|
|
$
|
|
348,499
|
|
$
|
269,089
|
|
$
|
|
|
55,185
|
|
$
|
|
|
4,739
|
|
$
|
|
19,486
|
|
Environmental and participation agreements incremental commitments (c)
|
|
|
|
|
|
94,739
|
|
|
83,923
|
|
|
|
|
4,918
|
|
|
|
|
-
|
|
|
|
5,898
|
|
Operating lease obligations (d)
|
|
|
|
|
|
250,516
|
|
|
23,898
|
|
|
|
|
50,678
|
|
|
|
|
45,502
|
|
|
|
130,438
|
|
Total contractual obligations
|
|
|
|
$
|
|
693,754
|
|
$
|
376,910
|
|
$
|
|
|
110,781
|
|
$
|
|
|
50,241
|
|
$
|
|
155,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) 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
April 30, 2012, $50.0 million was outstanding.
The Company has available a $45.0 million revolving financing facility
(utilization in either US dollars or Euros) 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 April 30, 2012, $27.5 million and $3.8 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.
Harry Winston Inc. maintains a credit agreement with a syndicate of
banks for a $250.0 million five-year revolving credit facility, which
expires on March 31, 2013. There are no scheduled repayments required
before maturity. At April 30, 2012, $204.0 million had been drawn
against this secured credit facility. The Company is in the process of
negotiating a new credit facility with a group of banks.
Also included in long-term debt of Harry Winston Inc. is a 25-year loan
agreement for CHF 17.5 million ($19.0 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 ($3.8 million) loan
and a CHF 14.0 million ($15.2 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 April 30, 2012, an aggregate of $16.5 million was
outstanding. The bank has a secured interest in the factory building.
Harry Winston Japan, K.K. maintains unsecured credit agreements with
three banks, amounting to ¥1,190 million ($14.8 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 April 30, 2012, $22.0 million was
outstanding.
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 April 30, 2012, $6.3 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 April 30, 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 $10.3 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 April 30, 2012 was 82.4 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)
(quarterly results are unaudited)
|
|
|
|
|
|
2013
|
|
2012
|
|
2012
|
|
2012
|
|
2012
|
|
2011
|
|
2011
|
|
2011
|
|
Three
months
ended
April 30,
|
|
Three
months
ended
April 30,
|
|
|
|
|
|
Q1
|
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Q4
|
|
Q3
|
|
Q2
|
|
2012
|
|
2011
|
|
Operating profit (loss)
|
|
|
$
|
18,658
|
$
|
30,710
|
$
|
(1,963)
|
$
|
23,100
|
$
|
4,685
|
$
|
21,245
|
$
|
14,830
|
$
|
29,932
|
$
|
18,658
|
$
|
4,685
|
|
Depreciation and amortization
|
|
|
|
25,546
|
|
27,512
|
|
23,121
|
|
20,716
|
|
20,291
|
|
24,635
|
|
18,657
|
|
19,515
|
|
25,546
|
|
20,291
|
|
EBITDA
|
|
|
$
|
44,204
|
$
|
58,222
|
$
|
21,158
|
$
|
43,816
|
$
|
24,976
|
$
|
45,880
|
$
|
33,487
|
$
|
49,447
|
$
|
44,204
|
$
|
24,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MINING SEGMENT
(expressed in thousands of United States dollars)
(quarterly results are unaudited)
|
|
|
|
|
|
2013
|
|
2012
|
|
2012
|
|
2012
|
|
2012
|
|
2011
|
|
2011
|
|
2011
|
|
Three
months
ended
April 30,
|
|
Three
months
ended
April 30,
|
|
|
|
|
|
Q1
|
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Q4
|
|
Q3
|
|
Q2
|
|
2012
|
|
2011
|
|
Operating profit (loss)
|
|
|
$
|
16,385
|
$
|
27,388
|
$
|
(1,147)
|
$
|
18,506
|
$
|
3,962
|
$
|
17,858
|
$
|
12,638
|
$
|
29,547
|
$
|
16,385
|
$
|
3,962
|
|
Depreciation and amortization
|
|
|
|
22,172
|
|
24,284
|
|
19,932
|
|
17,461
|
|
17,083
|
|
20,669
|
|
15,428
|
|
16,352
|
|
22,172
|
|
17,083
|
|
EBITDA
|
|
|
$
|
38,557
|
$
|
51,672
|
$
|
18,785
|
$
|
35,967
|
$
|
21,045
|
$
|
38,527
|
$
|
28,066
|
$
|
45,899
|
$
|
38,557
|
$
|
21,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LUXURY BRAND SEGMENT
(expressed in thousands of United States dollars)
(quarterly results are unaudited)
|
|
|
|
|
|
2013
|
|
2012
|
|
2012
|
|
2012
|
|
2012
|
|
2011
|
|
2011
|
|
2011
|
|
Three
months
ended
April 30,
|
|
Three
months
ended
April 30,
|
|
|
|
|
|
Q1
|
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Q4
|
|
Q3
|
|
Q2
|
|
2012
|
|
2011
|
|
Operating profit
|
|
|
$
|
7,106
|
$
|
6,832
|
$
|
1,464
|
$
|
6,926
|
$
|
4,223
|
$
|
5,277
|
$
|
5,552
|
$
|
2,481
|
$
|
7,106
|
$
|
4,223
|
|
Depreciation and amortization
|
|
|
|
3,235
|
|
3,089
|
|
3,048
|
|
3,115
|
|
3,069
|
|
3,688
|
|
2,882
|
|
2,816
|
|
3,235
|
|
3,069
|
|
EBITDA
|
|
|
$
|
10,341
|
$
|
9,921
|
$
|
4,512
|
$
|
10,041
|
$
|
7,292
|
$
|
8,965
|
$
|
8,434
|
$
|
5,297
|
$
|
10,341
|
$
|
7,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CORPORATE SEGMENT
(expressed in thousands of United States dollars)
(quarterly results are unaudited)
|
|
|
|
|
|
2013
|
|
2012
|
|
2012
|
|
2012
|
|
2012
|
|
2011
|
|
2011
|
|
2011
|
|
Three
months
ended
April 30,
|
|
Three
months
ended
April 30,
|
|
|
|
|
|
Q1
|
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Q4
|
|
Q3
|
|
Q2
|
|
2012
|
|
2011
|
|
Operating loss
|
|
|
$
|
(4,833)
|
$
|
(3,510)
|
$
|
(2,280)
|
$
|
(2,332)
|
$
|
(3,500)
|
$
|
(1,890)
|
$
|
(3,360)
|
$
|
(2,096)
|
$
|
(4,833)
|
$
|
(3,500)
|
|
Depreciation and amortization
|
|
|
|
139
|
|
139
|
|
141
|
|
140
|
|
139
|
|
278
|
|
347
|
|
347
|
|
139
|
|
139
|
|
EBITDA
|
|
|
$
|
(4,694)
|
$
|
(3,371)
|
$
|
(2,139)
|
$
|
(2,192)
|
$
|
(3,361)
|
$
|
(1,612)
|
$
|
(3,013)
|
$
|
(1,749)
|
$
|
(4,694)
|
$
|
(3,361)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. 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 has recently announced a
review of its diamond operations.
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, 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 four 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.
Changes in Disclosure Controls and Procedures and Internal Control over
Financial Reporting
During the first 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.
Outstanding Share Information
|
As at May 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
Authorized
|
|
|
|
|
|
|
|
|
|
|
Unlimited
|
|
Issued and outstanding shares
|
|
|
|
|
|
|
|
|
|
|
84,874,781
|
|
Options outstanding
|
|
|
|
|
|
|
|
|
|
|
2,375,399
|
|
Fully diluted
|
|
|
|
|
|
|
|
|
|
|
87,250,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30,
2012
|
|
|
|
January 31,
2012
(Recast - note 10)
|
|
|
|
January 31,
2011
(Recast - note 10)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (note 3)
|
|
$
|
|
|
|
|
112,818
|
|
|
$
|
78,116
|
|
|
$
|
108,693
|
|
|
Accounts receivable
|
|
|
|
|
|
|
25,981
|
|
|
|
26,910
|
|
|
|
22,788
|
|
|
Inventory and supplies (note 4)
|
|
|
|
|
|
|
486,714
|
|
|
|
457,827
|
|
|
|
403,212
|
|
|
Other current assets
|
|
|
|
|
|
|
48,600
|
|
|
|
45,494
|
|
|
|
41,317
|
|
|
|
|
|
|
|
|
674,113
|
|
|
|
608,347
|
|
|
|
576,010
|
|
Property, plant and equipment - Mining
|
|
|
|
|
|
|
738,635
|
|
|
|
734,146
|
|
|
|
764,093
|
|
Property, plant and equipment - Luxury brand
|
|
|
|
|
|
|
70,881
|
|
|
|
69,781
|
|
|
|
61,019
|
|
Intangible assets, net
|
|
|
|
|
|
|
127,198
|
|
|
|
127,337
|
|
|
|
127,894
|
|
Other non-current assets
|
|
|
|
|
|
|
14,192
|
|
|
|
14,165
|
|
|
|
14,521
|
|
Deferred income tax assets
|
|
|
|
|
|
|
90,956
|
|
|
|
82,955
|
|
|
|
65,833
|
|
Total assets
|
|
$
|
|
|
|
|
1,715,975
|
|
|
$
|
1,636,731
|
|
|
$
|
1,609,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables
|
|
$
|
|
|
|
|
137,271
|
|
|
$
|
104,681
|
|
|
$
|
139,551
|
|
|
Employee benefit plans
|
|
|
|
|
|
|
8,072
|
|
|
|
6,026
|
|
|
|
4,317
|
|
|
Income taxes payable
|
|
|
|
|
|
|
30,305
|
|
|
|
29,450
|
|
|
|
6,660
|
|
|
Promissory note
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
70,000
|
|
|
Current portion of interest-bearing loans and borrowings (note 6)
|
|
|
|
|
|
|
258,761
|
|
|
|
29,238
|
|
|
|
24,215
|
|
|
|
|
|
|
|
|
434,409
|
|
|
|
169,395
|
|
|
|
244,743
|
|
Interest-bearing loans and borrowings (note 6)
|
|
|
|
|
|
|
70,054
|
|
|
|
270,485
|
|
|
|
235,516
|
|
Deferred income tax liabilities
|
|
|
|
|
|
|
324,590
|
|
|
|
325,035
|
|
|
|
309,868
|
|
Employee benefit plans
|
|
|
|
|
|
|
9,344
|
|
|
|
9,463
|
|
|
|
7,287
|
|
Provisions
|
|
|
|
|
|
|
68,317
|
|
|
|
65,245
|
|
|
|
50,130
|
|
Total liabilities
|
|
|
|
|
|
|
906,714
|
|
|
|
839,623
|
|
|
|
847,544
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital
|
|
|
|
|
|
|
507,975
|
|
|
|
507,975
|
|
|
|
502,129
|
|
|
Contributed surplus
|
|
|
|
|
|
|
18,170
|
|
|
|
17,764
|
|
|
|
16,233
|
|
|
Retained earnings
|
|
|
|
|
|
|
272,638
|
|
|
|
261,028
|
|
|
|
235,574
|
|
|
Accumulated other comprehensive income
|
|
|
|
|
|
|
10,223
|
|
|
|
10,086
|
|
|
|
7,624
|
|
|
Total shareholders' equity
|
|
|
|
|
|
|
809,006
|
|
|
|
796,853
|
|
|
|
761,560
|
|
|
Non-controlling interest
|
|
|
|
|
|
|
255
|
|
|
|
255
|
|
|
|
266
|
|
Total equity
|
|
|
|
|
|
|
809,261
|
|
|
|
797,108
|
|
|
|
761,826
|
|
Total liabilities and equity
|
|
$
|
|
|
|
|
1,715,975
|
|
|
$
|
1,636,731
|
|
|
$
|
1,609,370
|
|
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
April 30,
|
|
|
|
Three
months ended
April 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
|
2011
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
$
|
192,461
|
|
|
$
|
143,932
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
119,134
|
|
|
|
96,452
|
|
Gross margin
|
|
|
|
|
|
|
|
|
|
|
|
73,327
|
|
|
|
47,480
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
54,669
|
|
|
|
42,795
|
|
Operating profit
|
|
|
|
|
|
|
|
|
|
|
|
18,658
|
|
|
|
4,685
|
|
Finance expenses
|
|
|
|
|
|
|
|
|
|
|
|
(3,880)
|
|
|
|
(3,983)
|
|
Exploration costs
|
|
|
|
|
|
|
|
|
|
|
|
(254)
|
|
|
|
(212)
|
|
Finance and other income
|
|
|
|
|
|
|
|
|
|
|
|
65
|
|
|
|
258
|
|
Foreign exchange loss
|
|
|
|
|
|
|
|
|
|
|
|
(364)
|
|
|
|
(177)
|
|
Profit before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
14,225
|
|
|
|
571
|
|
Net income tax expense (recovery )
|
|
|
|
|
|
|
|
|
|
|
|
2,615
|
|
|
|
(3,027)
|
|
Net profit
|
|
|
|
|
|
|
|
|
|
|
$
|
11,610
|
|
|
$
|
3,598
|
|
Attributable to shareholders
|
|
|
|
|
|
|
|
|
|
|
$
|
11,610
|
|
|
$
|
3,596
|
|
Attributable to non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
2
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
$
|
0.14
|
|
|
$
|
0.04
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
$
|
0.14
|
|
|
$
|
0.04
|
|
Weighted average number of shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
84,874,781
|
|
|
|
84,291,797
|
|
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
April 30,
|
|
|
|
Three
months ended
April 30,
|
|
|
|
|
|
|
|
|
2012
|
|
|
|
2011
|
|
Net profit
|
|
|
|
|
|
$
|
11,610
|
|
|
$
|
3,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) on translation of net foreign operations (net of tax of
nil)
|
|
|
|
|
|
|
137
|
|
|
|
7,246
|
|
Other comprehensive income, net of tax
|
|
|
|
|
|
|
137
|
|
|
|
7,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
$
|
11,747
|
|
|
$
|
10,844
|
|
Attributable to shareholders
|
|
|
|
|
|
$
|
11,747
|
|
|
$
|
10,842
|
|
Attributable to non-controlling interest
|
|
|
|
|
|
$
|
-
|
|
|
$
|
2
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended
April 30,
|
|
|
|
Three
months ended
April 30,
|
|
|
|
|
|
|
|
|
2012
|
|
|
|
2011
|
|
Common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
|
|
|
|
$
|
507,975
|
|
|
$
|
502,129
|
|
Issued during the period
|
|
|
|
|
|
|
-
|
|
|
|
3,918
|
|
Transfer from contributed surplus on exercise of options
|
|
|
|
|
|
|
-
|
|
|
|
1,160
|
|
Balance at end of period
|
|
|
|
|
|
|
507,975
|
|
|
|
507,207
|
|
Contributed surplus:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
|
|
|
|
|
17,764
|
|
|
|
16,233
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
406
|
|
|
|
597
|
|
Transfer from contributed surplus on exercise of options
|
|
|
|
|
|
|
-
|
|
|
|
(1,160)
|
|
Balance at end of period
|
|
|
|
|
|
|
18,170
|
|
|
|
15,670
|
|
Retained earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period (Recast - note 10)
|
|
|
|
|
|
|
261,028
|
|
|
|
235,574
|
|
Net profit attributable to common shareholders
|
|
|
|
|
|
|
11,610
|
|
|
|
3,596
|
|
Balance at end of period
|
|
|
|
|
|
|
272,638
|
|
|
|
239,170
|
|
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)
|
|
|
|
|
|
|
137
|
|
|
|
7,246
|
|
Balance at end of period
|
|
|
|
|
|
|
10,223
|
|
|
|
14,870
|
|
Non-controlling interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
|
|
|
|
|
255
|
|
|
|
266
|
|
Non-controlling interest
|
|
|
|
|
|
|
-
|
|
|
|
2
|
|
Balance at end of period
|
|
|
|
|
|
|
255
|
|
|
|
268
|
|
Total equity
|
|
|
|
|
|
$
|
809,261
|
|
|
$
|
777,185
|
|
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
April 30,
|
|
|
|
Three
months ended
April 30,
|
|
|
|
|
|
|
2012
|
|
|
|
2011
|
|
Cash provided by (used in)
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
|
|
|
|
|
|
|
|
Net profit
|
|
|
|
$
|
11,610
|
|
|
$
|
3,598
|
|
Depreciation and amortization
|
|
|
|
|
25,546
|
|
|
|
20,291
|
|
Deferred income tax recovery
|
|
|
|
|
(4,473)
|
|
|
|
(2,648)
|
|
Current income tax expense (recovery)
|
|
|
|
|
7,088
|
|
|
|
(379)
|
|
Finance expenses
|
|
|
|
|
3,880
|
|
|
|
3,983
|
|
Stock-based compensation
|
|
|
|
|
406
|
|
|
|
597
|
|
Other non-cash items
|
|
|
|
|
(118)
|
|
|
|
195
|
|
Foreign exchange loss
|
|
|
|
|
832
|
|
|
|
533
|
|
Gain on disposition of assets
|
|
|
|
|
(330)
|
|
|
|
-
|
|
Change in non-cash operating working capital, excluding taxes and
finance expenses
|
|
|
|
|
(6,116)
|
|
|
|
(41,410)
|
|
Cash provided from operating activities
|
|
|
|
|
38,325
|
|
|
|
(15,240)
|
|
Interest paid
|
|
|
|
|
(2,813)
|
|
|
|
(1,508)
|
|
Income and mining taxes paid
|
|
|
|
|
(10,567)
|
|
|
|
(2,711)
|
|
Net cash from operating activities
|
|
|
|
|
24,945
|
|
|
|
(19,459)
|
|
FINANCING
|
|
|
|
|
|
|
|
|
|
|
Decrease in interest-bearing loans and borrowings
|
|
|
|
|
(185)
|
|
|
|
(174)
|
|
Increase in revolving credit
|
|
|
|
|
81,184
|
|
|
|
17,885
|
|
Decrease in revolving credit
|
|
|
|
|
(52,276)
|
|
|
|
(317)
|
|
Issue of common shares, net of issue costs
|
|
|
|
|
-
|
|
|
|
3,918
|
|
Cash provided from financing activities
|
|
|
|
|
28,723
|
|
|
|
21,312
|
|
Investing
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment - Mining
|
|
|
|
|
(18,149)
|
|
|
|
(12,436)
|
|
Property, plant and equipment - Luxury brand
|
|
|
|
|
(4,442)
|
|
|
|
(1,388)
|
|
Net proceeds from sale of property, plant and equipment
|
|
|
|
|
2,619
|
|
|
|
-
|
|
Other non-current assets
|
|
|
|
|
(447)
|
|
|
|
(396)
|
|
Cash used in investing activities
|
|
|
|
|
(20,419)
|
|
|
|
(14,220)
|
|
Foreign exchange effect on cash balances
|
|
|
|
|
1,453
|
|
|
|
4,888
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
|
|
34,702
|
|
|
|
(7,479)
|
|
Cash and cash equivalents, beginning of period
|
|
|
|
|
78,116
|
|
|
|
108,693
|
|
Cash and cash equivalents, end of period
|
|
|
|
$
|
112,818
|
|
|
$
|
101,214
|
|
Change in non-cash operating working capital, excluding taxes and finance expenses
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
926
|
|
|
|
(5,381)
|
|
Inventory and supplies
|
|
|
|
|
(36,958)
|
|
|
|
(62,395)
|
|
Other current assets
|
|
|
|
|
(3,111)
|
|
|
|
(556)
|
|
Trade and other payables
|
|
|
|
|
31,019
|
|
|
|
27,554
|
|
Employee benefit plans
|
|
|
|
|
2,008
|
|
|
|
(632)
|
|
|
|
|
|
$
|
(6,116)
|
|
|
$
|
(41,410)
|
|
The accompanying notes are an integral part of these unaudited interim
condensed consolidated financial statements.
|
|
|
|
|
Notes to Condensed Consolidated Financial Statements
APRIL 30, 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.
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, along with the seasonality of sales and salon
expansion in the luxury brand segment.
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.
These unaudited interim condensed consolidated financial statements have
been approved for issue by the Audit Committee on June 6, 2012.
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
|
|
|
|
|
|
April 30,
2012
|
|
|
|
|
January 31,
2012
|
|
Cash on hand and balances with banks
|
|
|
|
$
|
103,131
|
|
|
|
$
|
76,030
|
|
Short-term investments (a)
|
|
|
|
|
9,687
|
|
|
|
|
2,086
|
|
Total cash resources
|
|
|
|
$
|
112,818
|
|
|
|
$
|
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
|
|
|
|
|
|
April 30,
2012
|
|
|
|
|
January 31,
2012
|
|
Luxury brand raw materials
|
|
|
|
$
|
68,131
|
|
|
|
$
|
62,188
|
|
Mining rough diamond inventory
|
|
|
|
|
67,909
|
|
|
|
|
62,472
|
|
|
|
|
|
|
136,040
|
|
|
|
|
124,660
|
|
Luxury brand work-in-progress
|
|
|
|
|
38,005
|
|
|
|
|
45,407
|
|
Luxury brand merchandise inventory
|
|
|
|
|
233,586
|
|
|
|
|
218,844
|
|
Mining supplies inventory
|
|
|
|
|
79,083
|
|
|
|
|
68,916
|
|
Total inventory and supplies
|
|
|
|
$
|
486,714
|
|
|
|
$
|
457,827
|
Total inventory and supplies is net of a provision for obsolescence of
$3.1 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 March 31, 2012 and December 31, 2011:
|
|
|
|
|
|
April 30,
2012
|
|
|
|
|
January 31,
2012
|
|
Current assets
|
|
|
|
$
|
116,419
|
|
|
|
$
|
101,454
|
|
Non-current assets
|
|
|
|
|
687,898
|
|
|
|
|
685,590
|
|
Current liabilities
|
|
|
|
|
41,703
|
|
|
|
|
31,745
|
|
Non-current liabilities and participant's account
|
|
|
|
|
762,614
|
|
|
|
|
755,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30,
2012
|
|
|
|
|
April 30,
2011
|
|
Expenses net of interest income (a) (b)
|
|
|
|
$
|
56,738
|
|
|
|
$
|
60,883
|
|
Cash flows resulting from (used in) operating activities
|
|
|
|
|
(42,353)
|
|
|
|
|
(43,024)
|
|
Cash flows resulting from financing activities
|
|
|
|
|
61,532
|
|
|
|
|
53,983
|
|
Cash flows resulting from (used in) investing activities
|
|
|
|
|
(15,183)
|
|
|
|
|
(12,177)
|
(a) The Joint Venture only earns interest income.
(b) Expenses net of interest income for the three months ended April 30,
2012 of $0.1 million (three months ended April 30, 2011 of $0.1
million).
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
|
|
|
|
|
|
April 30,
2012
|
|
|
|
|
January 31,
2012
|
|
Mining segment credit facilities
|
|
|
|
$
|
48,735
|
|
|
|
$
|
48,460
|
|
Harry Winston Inc. credit facilities
|
|
|
|
|
220,485
|
|
|
|
|
217,071
|
|
First mortgage on real property
|
|
|
|
|
6,251
|
|
|
|
|
6,342
|
|
Bank advances
|
|
|
|
|
53,344
|
|
|
|
|
27,850
|
|
Total interest-bearing loans and borrowings
|
|
|
|
|
328,815
|
|
|
|
|
299,723
|
|
Less current portion
|
|
|
|
|
(258,761)
|
|
|
|
|
(29,238)
|
|
|
|
|
|
$
|
70,054
|
|
|
|
$
|
270,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
|
|
Nominal
interest
rate
|
|
Date of maturity
|
|
Carrying
amount at
April 30, 2012
|
|
Face value at
April 30, 2012
|
|
Borrower
|
|
Secured bank loan
|
US
|
|
4.00%
|
|
March 31, 2013
|
|
$204.0 million
|
|
$204.0 million
|
|
Harry Winston Inc.
|
|
Secured bank loan
|
CHF
|
|
3.15%
|
|
April 22, 2013
|
|
$3.8 million
|
|
$3.8 million
|
|
Harry Winston S.A.
|
|
Secured bank loan
|
CHF
|
|
3.55%
|
|
January 31, 2033
|
|
$12.7 million
|
|
$12.7 million
|
|
Harry Winston S.A.
|
|
Secured bank loan
|
US
|
|
4.19%
|
|
June 24, 2013
|
|
$48.7 million
|
|
$50.0 million
|
|
Harry Winston Diamond Corporation and
|
|
|
|
|
|
|
|
|
|
|
|
|
Harry Winston Diamond Mines Ltd.
|
|
First mortgage on real property
|
CDN
|
|
7.98%
|
|
September 1, 2018
|
|
$6.3 million
|
|
$6.3 million
|
|
6019838 Canada Inc.
|
|
Secured bank advance
|
US
|
|
4.80%
|
|
Due on demand
|
|
$27.5 million
|
|
$27.5 million
|
|
Harry Winston Diamond International N.V.
|
|
|
|
|
12.50%
|
|
|
|
$3.8 million
|
|
$3.8 million
|
|
Harry Winston Diamond (India) Private Limited
|
|
Secured bank advance
|
YEN
|
|
2.55%
|
|
August 22, 2012
|
|
$7.2 million
|
|
$7.2 million
|
|
Harry Winston Japan, K.K.
|
|
Unsecured bank advance
|
YEN
|
|
2.98%
|
|
May 27, 2012
|
|
$6.4 million
|
|
$6.4 million
|
|
Harry Winston Japan, K.K.
|
|
Unsecured bank advance
|
YEN
|
|
2.98%
|
|
May 27, 2012
|
|
$7.2 million
|
|
$7.2 million
|
|
Harry Winston Japan, K.K.
|
|
Unsecured bank advance
|
YEN
|
|
2.00%
|
|
October 31, 2012
|
|
$1.2 million
|
|
$1.2 million
|
|
Harry Winston Japan, K.K.
|
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 April 30, 2012, was $82.4 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 April 30, 2012 was $1.6 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 April 30, 2012 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within one year
|
|
|
|
|
$
|
|
23,898
|
|
|
|
|
After one year but not more than five years
|
|
|
|
|
|
|
96,180
|
|
|
|
|
More than five years
|
|
|
|
|
|
|
130,438
|
|
|
|
|
|
|
|
|
|
$
|
|
250,516
|
|
|
|
|
(d)
|
Capital commitments related to the Joint Venture
|
|
|
At April 30, 2012, Harry Winston Diamond Corporation's share of approved
capital expenditures at the Joint Venture was $23.8 million. At April
30, 2012, Harry Winston Diamond Corporation's current projected share
of the planned capital expenditures at the Diavik Diamond Mine for the
calendar years 2012 to 2016 is approximately $140 million assuming a
Canadian/US average exchange rate of $1.00 for the five years.
|
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.
The Company is in the process of negotiating a new credit facility for
the luxury brand segment with a group of banks to replace the current
facility, which expires on March 31, 2013.
Note 9:
Segmented Information
The Company operated in three segments within the diamond industry -
mining, luxury brand and corporate - for the three months ended April
30, 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 April 30, 2012
|
|
|
|
Mining
|
|
|
|
Luxury brand
|
|
|
|
Corporate
|
|
|
|
Total
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
$
|
7,432
|
|
|
$
|
32,286
|
|
|
$
|
-
|
|
|
$
|
39,718
|
|
|
Europe
|
|
|
|
54,370
|
|
|
|
30,054
|
|
|
|
-
|
|
|
|
84,424
|
|
|
Asia excluding Japan
|
|
|
|
27,207
|
|
|
|
20,385
|
|
|
|
-
|
|
|
|
47,592
|
|
|
Japan
|
|
|
|
-
|
|
|
|
20,727
|
|
|
|
-
|
|
|
|
20,727
|
|
|
Total sales
|
|
|
|
89,009
|
|
|
|
103,452
|
|
|
|
-
|
|
|
|
192,461
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
21,505
|
|
|
|
383
|
|
|
|
-
|
|
|
|
21,888
|
|
|
All other costs
|
|
|
|
48,594
|
|
|
|
48,652
|
|
|
|
-
|
|
|
|
97,246
|
|
|
Total cost of sales
|
|
|
|
70,099
|
|
|
|
49,035
|
|
|
|
-
|
|
|
|
119,134
|
|
Gross margin
|
|
|
|
18,910
|
|
|
|
54,417
|
|
|
|
-
|
|
|
|
73,327
|
|
Gross margin (%)
|
|
|
|
21.2%
|
|
|
|
52.6%
|
|
|
|
-%
|
|
|
|
38.1%
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and related expenses
|
|
|
|
893
|
|
|
|
37,459
|
|
|
|
-
|
|
|
|
38,352
|
|
|
Administrative expenses
|
|
|
|
1,632
|
|
|
|
9,852
|
|
|
|
4,833
|
|
|
|
16,317
|
|
|
Total selling, general and administrative expenses
|
|
|
|
2,525
|
|
|
|
47,311
|
|
|
|
4,833
|
|
|
|
54,669
|
|
Operating profit (loss)
|
|
|
|
16,385
|
|
|
|
7,106
|
|
|
|
(4,833)
|
|
|
|
18,658
|
|
Finance expenses
|
|
|
|
(2,242)
|
|
|
|
(1,638)
|
|
|
|
-
|
|
|
|
(3,880)
|
|
Exploration costs
|
|
|
|
(254)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(254)
|
|
Finance and other income
|
|
|
|
52
|
|
|
|
13
|
|
|
|
-
|
|
|
|
65
|
|
Foreign exchange gain (loss)
|
|
|
|
(370)
|
|
|
|
6
|
|
|
|
-
|
|
|
|
(364)
|
|
Segmented profit (loss) before income taxes
|
|
|
$
|
13,571
|
|
|
$
|
5,487
|
|
|
$
|
(4,833)
|
|
|
$
|
14,225
|
|
Segmented assets as at April 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
|
$
|
967,834
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
967,834
|
|
|
United States
|
|
|
|
-
|
|
|
|
361,418
|
|
|
|
115,937
|
|
|
|
477,355
|
|
|
Other foreign countries
|
|
|
|
45,668
|
|
|
|
225,118
|
|
|
|
-
|
|
|
|
270,786
|
|
|
|
|
$
|
1,013,502
|
|
|
$
|
586,536
|
|
|
$
|
115,937
|
|
|
$
|
1,715,975
|
|
Capital expenditures
|
|
|
$
|
18,149
|
|
|
$
|
4,442
|
|
|
$
|
-
|
|
|
$
|
22,591
|
|
Other significant non-cash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax recovery
|
|
|
$
|
(2,567)
|
|
|
$
|
(1,849)
|
|
|
$
|
(57)
|
|
|
$
|
(4,473)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended April 30, 2011
|
|
|
|
Mining
|
|
|
|
Luxury brand
|
|
|
|
Corporate
|
|
|
|
Total
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
$
|
3,009
|
|
|
$
|
35,487
|
|
|
$
|
-
|
|
|
$
|
38,496
|
|
|
Europe
|
|
|
|
50,752
|
|
|
|
17,446
|
|
|
|
-
|
|
|
|
68,198
|
|
|
Asia excluding Japan
|
|
|
|
8,274
|
|
|
|
14,354
|
|
|
|
-
|
|
|
|
22,628
|
|
|
Japan
|
|
|
|
-
|
|
|
|
14,610
|
|
|
|
-
|
|
|
|
14,610
|
|
|
Total sales
|
|
|
|
62,035
|
|
|
|
81,897
|
|
|
|
-
|
|
|
|
143,932
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
16,430
|
|
|
|
80
|
|
|
|
-
|
|
|
|
16,510
|
|
|
All other costs
|
|
|
|
37,013
|
|
|
|
42,878
|
|
|
|
51
|
|
|
|
79,942
|
|
|
Total cost of sales
|
|
|
|
53,443
|
|
|
|
42,958
|
|
|
|
51
|
|
|
|
96,452
|
|
Gross margin
|
|
|
|
8,592
|
|
|
|
38,939
|
|
|
|
(51)
|
|
|
|
47,480
|
|
Gross margin (%)
|
|
|
|
13.9%
|
|
|
|
47.5%
|
|
|
|
-%
|
|
|
|
33.0%
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and related expenses
|
|
|
|
648
|
|
|
|
26,321
|
|
|
|
-
|
|
|
|
26,969
|
|
|
Administrative expenses
|
|
|
|
3,982
|
|
|
|
8,395
|
|
|
|
3,449
|
|
|
|
15,826
|
|
|
Total selling, general and administrative expenses
|
|
|
|
4,630
|
|
|
|
34,716
|
|
|
|
3,449
|
|
|
|
42,795
|
|
Operating profit (loss)
|
|
|
|
3,962
|
|
|
|
4,223
|
|
|
|
(3,500)
|
|
|
|
4,685
|
|
Finance expenses
|
|
|
|
(2,693)
|
|
|
|
(1,290)
|
|
|
|
-
|
|
|
|
(3,983)
|
|
Exploration costs
|
|
|
|
(212)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(212)
|
|
Finance and other income
|
|
|
|
77
|
|
|
|
181
|
|
|
|
-
|
|
|
|
258
|
|
Foreign exchange gain (loss)
|
|
|
|
(977)
|
|
|
|
800
|
|
|
|
-
|
|
|
|
(177)
|
|
Segmented profit (loss) before income taxes
|
|
|
$
|
157
|
|
|
$
|
3,914
|
|
|
$
|
(3,500)
|
|
|
$
|
571
|
|
Segmented assets as at April 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
|
$
|
977,423
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
977,423
|
|
|
United States
|
|
|
|
-
|
|
|
|
349,061
|
|
|
|
106,578
|
|
|
|
455,639
|
|
|
Other foreign countries
|
|
|
|
36,411
|
|
|
|
202,367
|
|
|
|
-
|
|
|
|
238,778
|
|
|
|
|
$
|
1,013,834
|
|
|
$
|
551,428
|
|
|
$
|
106,578
|
|
|
$
|
1,671,840
|
|
Capital expenditures
|
|
|
$
|
12,436
|
|
|
$
|
1,388
|
|
|
$
|
-
|
|
|
$
|
13,824
|
|
Other significant non-cash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax expense (recovery)
|
|
|
$
|
(4,555)
|
|
|
$
|
1,985
|
|
|
$
|
(78)
|
|
|
$
|
(2,648)
|
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.
SOURCE Harry Winston Diamond Corporation
Mr. Richard Chetwode, Vice President, Corporate Development - +44 (0) 7720-970-762 or rchetwode@harrywinston.com
Ms. Laura Kiernan, Director, Investor Relations - (212) 315-7934 or lkiernan@harrywinston.com
Ms. Kelley Stamm, Manager, Investor Relations - (416) 205-4380 or kstamm@harrywinston.com |
