Harry Winston Diamond Corporation Reports Fiscal 2013 Second Quarter Results (2 of 2)
TORONTO, September 6, 2012 /PRNewswire/ --
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 2013 2012 2012 2012 Q2 Q1 Q4 Q3 Q2 Operating profit (loss) $ 16,384 $ 18,658 $ 30,710 $ (1,963) $ 23,100 Depreciation and amortization 16,980 25,546 27,512 23,121 20,716 EBITDA $ 33,364 $ 44,204 $ 58,222 $ 21,158 $ 43,816
TABLE CONT'D
Six Six months months ended ended 2012 2011 2011 July 31, July 31, Q1 Q4 Q3 2012 2011 Operating profit (loss) $ 4,685 $ 21,245 $ 14,830 $ 35,042 $ 27,785 Depreciation and amortization 20,291 24,635 18,657 42,527 41,007 EBITDA $ 24,976 $ 45,880 $ 33,487 $ 77,569 $ 68,792
MINING SEGMENT
(expressed in thousands of United States dollars) (quarterly results are unaudited) 2013 2013 2012 2012 2012 Q2 Q1 Q4 Q3 Q2 Operating profit (loss) $ 11,723 $ 16,385 $ 27,388 $ (1,147) $ 18,506 Depreciation and amortization 13,160 22,172 24,284 19,932 17,461 EBITDA $ 24,883 $ 38,557 $ 51,672 $ 18,785 $ 35,967
TABLE CONT'D
Six Six months months ended ended 2012 2011 2011 July 31, July 31, Q1 Q4 Q3 2012 2011 Operating profit (loss) $ 3,962 $ 17,858 $ 12,638 $ 28,108 $ 22,468 Depreciation and amortization 17,083 20,669 15,428 35,332 34,544 EBITDA $ 21,045 $ 38,527 $ 28,066 $ 63,440 $ 57,012
LUXURY BRAND SEGMENT
(expressed in thousands of United States dollars) (quarterly results are unaudited) 2013 2013 2012 2012 2012 Q2 Q1 Q4 Q3 Q2 Operating profit $ 8,019 $ 7,106 $ 6,832 $ 1,464 $ 6,926 Depreciation and amortization 3,681 3,235 3,089 3,048 3,115 EBITDA $ 11,700 $ 10,341 $ 9,921 $ 4,512 $ 10,041
TABLE CONT'D
Six Six months months ended ended 2012 2011 2011 July 31, July 31, Q1 Q4 Q3 2012 2011 Operating profit $ 4,223 $ 5,277 $ 5,552 $ 15,125 $ 11,149 Depreciation and amortization 3,069 3,688 2,882 6,916 6,184 EBITDA $ 7,292 $ 8,965 $ 8,434 $ 22,041 $ 17,333
CORPORATE SEGMENT
(expressed in thousands of United States dollars) (quarterly results are unaudited) 2013 2013 2012 2012 2012 Q2 Q1 Q4 Q3 Q2 Operating loss $ (3,358) $ (4,833) $ (3,510) $ (2,280) $ (2,332) Depreciation and amortization 139 139 139 141 140 EBITDA $ (3,219) $ (4,694) $ (3,371) $ (2,139) $ (2,192)
TABLE CONT'D
Six Six months months ended ended 2012 2011 2011 July 31, July 31, Q1 Q4 Q3 2012 2011 Operating loss $ (3,500) $ (1,890) $ (3,360) $ (8,191) $ (5,832) Depreciation and amortization 139 278 347 279 279 EBITDA $ (3,361) $ (1,612) $ (3,013) $ (7,912) $ (5,553)
Risks and Uncertainties
Harry Winston Diamond Corporation is subject to a number of risks and uncertainties as a result of its operations. In addition to the other information contained in this MD&A and the Company's other publicly filed disclosure documents, readers should give careful consideration to the following risks, each of which could have a material adverse effect on the Company's business prospects or financial condition.
Nature of Mining
The operation of the Diavik Diamond Mine is subject to risks inherent in the mining industry, including variations in grade and other geological differences, unexpected problems associated with required water retention dikes, water quality, surface and underground conditions, processing problems, equipment performance, accidents, labour disputes, risks relating to the physical security of the diamonds, force majeure risks and natural disasters. Particularly with underground mining operations, inherent risks include variations in rock structure and strength as it impacts on mining method selection and performance, de-watering and water handling requirements, achieving the required crushed rock-fill strengths, and unexpected local ground conditions. Hazards, such as unusual or unexpected rock formations, rock bursts, pressures, collapses, flooding or other conditions, may be encountered during mining. Such risks could result in personal injury or fatality; damage to or destruction of mining properties, processing facilities or equipment; environmental damage; delays, suspensions or permanent reductions in mining production; monetary losses; and possible legal liability.
The Diavik Diamond Mine, because of its remote northern location and access only by winter road or by air, is subject to special climate and transportation risks. These risks include the inability to operate or to operate efficiently during periods of extreme cold, the unavailability of materials and equipment, and increased transportation costs due to the late opening and/or early closure of the winter road. Such factors can add to the cost of mine development, production and operation and/or impair production and mining activities, thereby affecting the Company's profitability.
Nature of Interest in DDMI
HWDLP holds an undivided 40% interest in the assets, liabilities and expenses of the Diavik Diamond Mine and the Diavik group of mineral claims. The Diavik Diamond Mine and the exploration and development of the Diavik group of mineral claims is a joint arrangement between DDMI (60%) and HWDLP (40%), and is subject to the risks normally associated with the conduct of joint ventures and similar joint arrangements. These risks include the inability to exert influence over strategic decisions made in respect of the Diavik Diamond Mine and the Diavik group of mineral claims, including the inability to control the timing and scope of capital expenditures, risks that DDMI may decide not to proceed with the mining the A-21 pipe or may otherwise change the mine plan. By virtue of DDMI's 60% interest in the Diavik Diamond Mine, it has a controlling vote in virtually all Joint Venture management decisions respecting the development and operation of the Diavik Diamond Mine and the development of the Diavik group of mineral claims. Accordingly, DDMI is able to determine the timing and scope of future project capital expenditures, and therefore is able to impose capital expenditure requirements on HWDLP that the Company may not have sufficient cash to meet. A failure to meet capital expenditure requirements imposed by DDMI could result in HWDLP's interest in the Diavik Diamond Mine and the Diavik group of mineral claims being diluted. Rio Tinto plc, the parent of DDMI 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 five retail salons to operate under the Harry Winston name and currently expects to increase the number of licensed salons to 15 by fiscal 2016. There is no assurance that the Company will be able to find qualified third parties to enter into these licensing arrangements, or that the licensees will honour the terms of the agreements. The conduct of licensees may have a negative impact on the Company's distinctive brand name and reputation.
Competition in the Luxury Brand Segment
The Company is exposed to competition in the luxury brand market from other luxury goods, diamond, jewelry and watch retailers. The ability of Harry Winston Inc. to successfully compete with such luxury goods, diamond, jewelry and watch retailers is dependent upon a number of factors, including the ability to source high-end polished diamonds and protect and promote its distinctive brand name and reputation. If Harry Winston Inc. is unable to successfully compete in the luxury jewelry segment, the Company's results of operations will be adversely affected.
Cybersecurity
The Company and certain of its third-party vendors receive and store personal information in connection with human resources operations and other aspects of the business. Despite the Company's implementation of security measures, its IT systems are vulnerable to damage from computer viruses, natural disasters, unauthorized access, cyber attack and other similar disruptions. Any system failure, accident or security breach could result in disruptions to the Company's operations. A material network breach in the security of the IT systems could include the theft of intellectual property or trade secrets. To the extent that any disruption or security breach results in a loss or damage to the Company's data, or in inappropriate disclosure of confidential information, financial data, or credit cardholder data, it could cause significant damage to the Company's reputation, affect relationships with our customers, lead to claims against the Company and ultimately harm its business. In addition, the Company may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future. Although the Company believes that it has robust information security procedures and other safeguards in place, as cyber threats continue to evolve, the Company may be required to expend additional resources to continue to enhance its information security measures and/or to investigate and remediate any information security vulnerabilities.
Intellectual Property
The success of the luxury brand segment depends on the value and reputation of the Harry Winston brand and other proprietary property. The Company relies on various intellectual property rights, including copyrights, trademarks and trade secrets, to establish its proprietary rights. While the Company devotes considerable efforts and resources to protecting its intellectual property, if these efforts are not successful the value of the brand may be harmed, which could have a material adverse effect on the Company's financial position.
Changes in Disclosure Controls and Procedures and Internal Control over Financial Reporting
During the second quarter of fiscal 2013, there were no changes in the Company's disclosure controls and procedures or internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company's disclosure controls and procedures or internal control over financial reporting.
Critical Accounting Estimates
Management is often required to make judgments, assumptions and estimates in the application of IFRS that have a significant impact on the financial results of the Company. Certain policies are more significant than others and are, therefore, considered critical accounting policies. Accounting policies are considered critical if they rely on a substantial amount of judgment (use of estimates) in their application or if they result from a choice between accounting alternatives and that choice has a material impact on the Company's reported results or financial position.
The critical accounting estimates applied in the preparation of the Company's unaudited interim condensed consolidated financial statements are consistent with those applied and disclosed in the Company's MD&A for the year ended January 31, 2012.
Changes in Accounting Policies
The International Accounting Standards Board ("IASB") has issued a new standard, IFRS 9, "Financial Instruments" ("IFRS 9"), which will ultimately replace IAS 39, "Financial Instruments: Recognition and Measurement" ("IAS 39"). IFRS 9 provides guidance on the classification and measurement of financial assets and financial liabilities. This standard becomes effective for the Company's fiscal year end beginning February 1, 2015. The Company is currently assessing the impact of the new standard on its financial statements.
IFRS 10, "Consolidated Financial Statements" ("IFRS 10"), was issued by the IASB on May 12, 2011, and will replace the consolidation requirements in SIC-12, "Consolidation - Special Purpose Entities" and IAS 27, "Consolidated and Separate Financial Statements". The new standard establishes control as the basis for determining which entities are consolidated in the consolidated financial statements and provides guidance to assist in the determination of control where it is difficult to assess. IFRS 10 is effective for the Company's fiscal year end beginning February 1, 2013, with early adoption permitted. The Company is currently assessing the impact of IFRS 10 on its consolidated financial statements.
IFRS 11, "Joint Arrangements" ("IFRS 11"), was issued by the IASB on May 12, 2011 and will replace IAS 31, "Interest in Joint Ventures". The new standard will apply to the accounting for interests in joint arrangements where there is joint control. Under IFRS 11, joint arrangements are classified as either joint ventures or joint operations. The structure of the joint arrangement will no longer be the most significant factor in determining whether a joint arrangement is either a joint venture or a joint operation. Proportionate consolidations will no longer be allowed and will be replaced by equity accounting. IFRS 11 is effective for the Company's fiscal year-end beginning February 1, 2013, with early adoption permitted. The Company is currently assessing the impact of IFRS 11 on its results of operations and financial position.
IFRS 13, "Fair Value Measurement" ("IFRS 13"), was also issued by the IASB on May 12, 2011. The new standard makes IFRS consistent with generally accepted accounting principles in the United States ("US GAAP") on measuring fair value and related fair value disclosures. The new standard creates a single source of guidance for fair value measurements. IFRS 13 is effective for the Company's fiscal year end beginning February 1, 2013, with early adoption permitted. The Company is assessing the impact of IFRS 13 on its consolidated financial statements.
Amendments to IAS 19, "Employee Benefits" ("IAS 19"), was issued by the IASB on June 11, 2011. The amended standard eliminates the option to defer the recognition of actuarial gains and losses through the "corridor" approach, revises the presentation of changes in assets and liabilities arising from defined benefit plans and enhances the disclosures for defined benefit plans. IAS 19 is effective for the Company's fiscal year end beginning February 1, 2013, with early adoption permitted. The Company is assessing the impact of IAS 19 on its consolidated financial statements.
Outstanding Share Information
As at August 31, 2012 Authorized Unlimited Issued and outstanding shares 84,874,781 Options outstanding 2,319,727 Fully diluted 87,194,508
Additional Information
Additional information relating to the Company, including the Company's most recently filed Annual Information Form, can be found on SEDAR at http://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) January 31, January 31, July 31, 2012 2011 2012 (Recast - note 10) (Recast - note 10) ASSETS Current assets Cash and cash equivalents (note 3) $ 74,589 $ 78,116 $ 108,693 Accounts receivable 29,031 26,910 22,788 Inventory and supplies (note 4) 486,129 457,827 403,212 Other current assets 42,309 45,494 41,317 632,058 608,347 576,010 Property, plant and equipment - Mining 730,077 734,146 764,093 Property, plant and equipment - Luxury brand 67,106 69,781 61,019 Intangible assets, net 127,058 127,337 127,894 Other non-current assets 13,916 14,165 14,521 Deferred income tax assets 89,338 82,955 65,833 Total assets $ 1,659,553 $ 1,636,731 $ 1,609,370 LIABILITIES AND EQUITY Current liabilities Trade and other payables $ 119,981 $ 104,681 $ 139,551 Employee benefit plans 7,025 6,026 4,317 Income taxes payable 27,422 29,450 6,660 Promissory note - - 70,000 Current portion of interest-bearing loans and borrowings (note 6) 235,743 29,238 24,215 390,171 169,395 244,743 Interest-bearing loans and borrowings (note 6) 69,156 270,485 235,516 Deferred income tax liabilities 320,922 325,035 309,868 Employee benefit plans 9,391 9,463 7,287 Provisions 61,557 65,245 50,130 Total liabilities 851,197 839,623 847,544 Equity Share capital 507,975 507,975 502,129 Contributed surplus 18,618 17,764 16,233 Retained earnings 277,393 261,028 235,574 Accumulated other comprehensive income 4,117 10,086 7,624 Total shareholders' equity 808,103 796,853 761,560 Non-controlling interest 253 255 266 Total equity 808,356 797,108 761,826 Total liabilities and equity $ 1,659,553 $ 1,636,731 $ 1,609,370 Subsequent events (note 6) 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 Three Six Six months months months months ended ended ended ended July 31, July 31, July 31, July 31, 2012 2011 2012 2011 Sales $ 176,897 $ 222,378 $ 369,358 $ 366,310 Cost of sales 104,694 150,177 223,828 246,629 Gross margin 72,203 72,201 145,530 119,681 Selling, general and administrative expenses 55,819 49,101 110,488 91,896 Operating profit 16,384 23,100 35,042 27,785 Finance expenses (4,028) (5,183) (7,908) (9,166) Exploration costs (568) (781) (822) (993) Finance and other income 90 83 155 341 Foreign exchange gain (loss) 153 288 (211) 111 Profit before income taxes 12,031 17,507 26,256 18,078 Net income tax expense 7,278 7,519 9,893 4,492 Net profit $ 4,753 $ 9,988 $ 16,363 $ 13,586 Attributable to shareholders $ 4,755 $ 9,986 $ 16,365 $ 13,582 Attributable to non-controlling interest $ (2) $ 2 $ (2) $ 4 Earnings per share Basic $ 0.06 $ 0.12 $ 0.19 $ 0.16 Diluted $ 0.06 $ 0.12 $ 0.19 $ 0.16 Weighted average number of shares outstanding 84,874,781 84,688,002 84,874,781 84,491,901 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 Three Six Six months months months months ended ended ended ended July 31, July 31, July 31, July 31, 2012 2011 2012 2011 Net profit $ 4,753 $ 9,988 $ 16,363 $ 13,586 Other comprehensive income Net gain (loss) on translation of net foreign operations (net of tax of nil) (6,106) 8,531 (5,969) 15,777 Other comprehensive income, net of tax (6,106) 8,531 (5,969) 15,777 Total comprehensive income $ (1,353) $ 18,519 $ 10,394 $ 29,363 Attributable to shareholders $ (1,351) $ 18,517 $ 10,396 $ 29,359 Attributable to non-controlling interest $ (2) $ 2 $ (2) $ 4 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) Six Six months ended months ended July 31, July 31, 2012 2011 Common shares: Balance at beginning of period $ 507,975 $ 502,129 Issued during the period - 4,981 Transfer from contributed surplus on exercise of options - 2,300 Balance at end of period 507,975 509,410 Contributed surplus: Balance at beginning of period 17,764 16,233 Stock-based compensation expense 854 1,110 Transfer from contributed surplus on exercise of options - (2,300) Balance at end of period 18,618 15,043 Retained earnings: Balance at beginning of period (Recast - note 10) 261,028 235,574 Net profit attributable to common shareholders 16,365 13,582 Balance at end of period 277,393 249,156 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) (5,969) 15,777 Balance at end of period 4,117 23,401 Non-controlling interest: Balance at beginning of period 255 266 Non-controlling interest (2) 4 Balance at end of period 253 270 Total equity $ 808,356 $ 797,280 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 Three months ended months ended July 31, July 31, 2012 2011 Cash provided by (used in) Operating Net profit $ 4,753 $ 9,988 Depreciation and amortization 16,980 20,716 Deferred income tax recovery (1,068) (771) Current income tax expense 8,346 8,290 Finance expenses 4,028 5,183 Stock-based compensation 448 513 Other non-cash items (2,400) - Foreign exchange loss (gain) (415) (725) Loss (gain) on disposition of assets 22 - Change in non-cash operating working capital, excluding taxes and finance expenses (10,462) (16,302) Cash provided from operating activities 20,232 26,892 Interest paid (3,201) (3,689) Income and mining taxes paid (8,471) 13,165 Net cash from operating activities 8,560 36,368 FINANCING Decrease in interest-bearing loans and borrowings (185) (180) Increase in revolving credit 24,998 67,719 Decrease in revolving credit (48,909) (57,690) Issue of common shares, net of issue costs - 1,063 Cash provided from financing activities (24,096) 10,912 Investing Property, plant and equipment - Mining (15,788) (12,649) Property, plant and equipment - Luxury brand (1,981) (1,900) Net proceeds from sale of property, plant and equipment - - Other non-current assets (186) (427) Cash used in investing activities (17,955) (14,976) Foreign exchange effect on cash balances (4,738) 6,363 Increase (decrease) in cash and cash equivalents (38,229) 38,667 Cash and cash equivalents, beginning of period 112,818 101,214 Cash and cash equivalents, end of period $ 74,589 $ 139,881 Change in non-cash operating working capital, excluding taxes and finance expenses Accounts receivable (3,032) (2,845) Inventory and supplies 4,371 37,959 Other current assets 6,290 3,173 Trade and other payables (17,092) (54,726) Employee benefit plans (999) 137 $ (10,462) $ (16,302)
TABLE CONT'D
Six Six months ended months ended July 31, July 31, 2012 2011 Cash provided by (used in) Operating Net profit $ 16,363 $ 13,586 Depreciation and amortization 42,527 41,007 Deferred income tax recovery (5,541) (3,419) Current income tax expense 15,434 7,911 Finance expenses 7,908 9,166 Stock-based compensation 854 1,110 Other non-cash items (2,518) - Foreign exchange loss (gain) 417 (192) Loss (gain) on disposition of assets (308) - Change in non-cash operating working capital, excluding taxes and finance expenses (16,578) (57,516) Cash provided from operating activities 58,558 11,653 Interest paid (6,014) (5,197) Income and mining taxes paid (19,038) 10,454 Net cash from operating activities 33,506 16,910 FINANCING Decrease in interest-bearing loans and borrowings (370) (354) Increase in revolving credit 106,182 85,604 Decrease in revolving credit (101,185) (58,007) Issue of common shares, net of issue costs - 4,981 Cash provided from financing activities 4,627 32,224 Investing Property, plant and equipment - Mining (33,937) (25,084) Property, plant and equipment - Luxury brand (6,423) (3,289) Net proceeds from sale of property, plant and equipment 2,619 - Other non-current assets (633) (823) Cash used in investing activities (38,374) (29,196) Foreign exchange effect on cash balances (3,286) 11,250 Increase (decrease) in cash and cash equivalents (3,527) 31,188 Cash and cash equivalents, beginning of period 78,116 108,693 Cash and cash equivalents, end of period $ 74,589 $ 139,881 Change in non-cash operating working capital, excluding taxes and finance expenses Accounts receivable (2,106) (8,226) Inventory and supplies (32,587) (24,436) Other current assets 3,179 2,617 Trade and other payables 13,927 (27,172) Employee benefit plans 1,009 (299) $ (16,578) $ (57,516) The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements
JULY 31, 2012 WITH COMPARATIVE FIGURES
(TABULAR AMOUNTS IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT AS OTHERWISE NOTED)
Note 1:
Nature of Operations
Harry Winston Diamond Corporation (the "Company") is a diamond enterprise with assets in the mining and luxury brand segments of the diamond industry.
The Company's mining asset is an ownership interest in the Diavik group of mineral claims. The Diavik Joint Venture (the "Joint Venture") is an unincorporated joint arrangement between Diavik Diamond Mines Inc. ("DDMI") (60%) and Harry Winston Diamond Limited Partnership ("HWDLP") (40%) where HWDLP holds an undivided 40% ownership interest in the assets, liabilities and expenses of the Diavik Diamond Mine. DDMI is the operator of the Diavik Diamond Mine. DDMI and HWDLP are headquartered in Yellowknife, Canada. DDMI is a wholly owned subsidiary of Rio Tinto plc of London, England, and Harry Winston Diamond Limited Partnership is a wholly owned subsidiary of Harry Winston Diamond Corporation of Toronto, Canada.
The Company also owns Harry Winston Inc., the premier fine jewelry and watch retailer with select locations throughout the world. Its head office is located in New York City, United States.
The Company's operations fluctuate from quarter to quarter depending on, among other factors, the seasonality of production at the Diavik Diamond Mine, seasonality of mine operating expenses, capital expenditure programs, the number of rough diamond sales events conducted during the quarter and the volume, size and quality distribution of rough diamonds delivered from the Diavik Diamond Mine in each quarter. The quarterly results for the luxury brand segment are also seasonal, with generally higher sales during the fourth quarter due to the holiday season.
The Company is incorporated and domiciled in Canada and its shares are publicly traded on the Toronto Stock Exchange and the New York Stock Exchange. The address of its registered office is Toronto, Ontario.
Note 2:
Basis of Preparation
(a) Statement of compliance These unaudited interim condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") International Accounting Standard ("IAS") 34, "Interim Financial Reporting". These unaudited interim condensed consolidated financial statements do not include all disclosures required by IFRS for annual consolidated financial statements and accordingly should be read in conjunction with the Company's audited consolidated financial statements and notes thereto for the year ended January 31, 2012. These statements have been prepared following the same accounting policies and methods of computation as the consolidated financial statements for the year ended January 31, 2012. (b) Basis of measurement These unaudited interim condensed consolidated financial statements have been prepared on the historical cost basis except for the following: - financial instruments held for trading are measured at fair value through profit and loss - liabilities for Restricted Share Unit and Deferred Share Unit plans are measured at fair value (c) Currency of presentation These unaudited interim condensed consolidated financial statements are expressed in United States dollars, consistent with the predominant functional currency of the Company's operations. All financial information presented in United States dollars has been rounded to the nearest thousand.Note 3:
Cash Resources
July 31, January 31, 2012 2012 Cash on hand and balances with banks $ 69,303 $ 76,030 Short-term investments (a) 5,286 2,086 Total cash resources $ 74,589 $ 78,116
Short-term investments are held in overnight deposits and money (a) market instruments with a maturity of 30 days.
Note 4:
Inventory and Supplies
July 31, January 31, 2012 2012 Luxury brand raw materials $ 65,131 $ 62,188 Mining rough diamond inventory 70,181 62,472 135,312 124,660 Luxury brand work-in-progress 51,333 45,407 Luxury brand merchandise inventory 227,987 218,844 Mining supplies inventory 71,497 68,916 Total inventory and supplies $ 486,129 $ 457,827
Total inventory and supplies is net of a provision for obsolescence of $3.0 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 June 30, 2012 and December 31, 2011:
July 31, January 31, 2012 2012 Current assets $ 101,670 $ 101,454 Non-current assets 679,507 685,590 Current liabilities 29,568 31,745 Non-current liabilities and participant's account 751,609 755,298
Three Three Six Six months months months months ended ended ended ended July 31, July 31, July 31, July 31, 2012 2011 2012 2011 Expenses net of interest income (a) (b) $ 58,585 $ 62,775 $ 115,323 $ 123,658 Cash flows resulting from (used in) operating activities (55,022) (46,872) (97,375) (89,896) Cash flows resulting from financing activities 50,668 61,101 112,200 115,084 Cash flows resulting from (used in) investing activities (3,958) (10,044) (19,141) (22,221)
(a) The Joint Venture only earns interest income. Expenses net of interest income for the three months and six months ended July 31, 2012 of $nil and $0.1 million, respectively (three and six months ended July 31, 2011 of $nil and $0.1 million, (b) respectively).
HWDLP is contingently liable for DDMI's portion of the liabilities of the Joint Venture, and to the extent HWDLP's participating interest has increased because of the failure of DDMI to make a cash contribution when required, HWDLP would have access to an increased portion of the assets of the Joint Venture to settle these liabilities. Additional information on commitments and contingencies related to the Diavik Joint Venture is found in Note 7.
Note 6:
Interest-Bearing Loans and Borrowings
July 31, January 31, 2012 2012 Mining segment credit facilities $ 49,010 $ 48,460 Harry Winston Inc. credit facilities 219,199 217,071 First mortgage on real property 5,971 6,342 Bank advances 30,285 27,850 Finance leases 434 - Total interest-bearing loans and borrowings 304,899 299,723 Less current portion (235,743) (29,238) $ 69,156 $ 270,485
Nominal Carrying interest amount at Currency rate Date of maturity July 31, 2012 Secured bank loan US 3.74% March 31, 2013 $204.0 million Secured bank loan CHF 3.15% April 22, 2013 $3.5 million Secured bank loan CHF 3.55% January 31, 2033 $11.7 million Secured bank loan US 3.96% June 24, 2013 $49.0 million First mortgage on real property CDN 7.98% September 1, 2018 $6.0 million Secured bank advance US 4.80% Due on demand $6.6 million Secured bank advance YEN 2.55% August 22, 2012 $7.4 million Unsecured bank advance YEN 2.98% August 31, 2012 $6.6 million Unsecured bank advance YEN 2.98% August 31, 2012 $7.2 million Unsecured bank advance YEN 2.00% October 31, 2012 $1.3 million Unsecured bank advance YEN 1.88% November 22, 2012 $1.3 million Finance lease CHF 1.97% April 1, 2017 $0.4 million
TABLE CONT'D
Face value at July 31, 2012 Borrower Secured bank loan $204.0 million Harry Winston Inc. Secured bank loan $3.5 million Harry Winston S.A. Secured bank loan $11.7 million Harry Winston S.A. Harry Winston Diamond Corporation and Secured bank loan $50.0 million Harry Winston Diamond Mines Ltd. First mortgage on real property $6.0 million 6019838 Canada Inc. Harry Winston Diamond International N.V. Harry Winston Diamond (India) Secured bank advance $6.6 million Private Limited Secured bank advance $7.4 million Harry Winston Japan, K.K. Unsecured bank advance $6.6 million Harry Winston Japan, K.K. Unsecured bank advance $7.2 million Harry Winston Japan, K.K. Unsecured bank advance $1.3 million Harry Winston Japan, K.K. Unsecured bank advance $1.3 million Harry Winston Japan, K.K. Finance lease $0.4 million Harry Winston S.A.
On August 30, 2012, the Company's luxury brand subsidiary, Harry Winston Inc., refinanced its senior secured revolving credit facility by entering into a new secured five-year credit agreement with a consortium of banks led by Standard Chartered Bank establishing a $260 million facility for revolving credit loans. The facility has a maturity date of August 30, 2017.
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 July 31, 2012, was $81.1 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 July 31, 2012 was $1.5 million. (c) Operating lease commitments The Company has entered into non-cancellable operating leases for the rental of luxury brand salons and office premises, which expire at various dates through 2029. The leases have varying terms, escalation clauses and renewal rights. Any renewal terms are at the option of the lessee at lease payments based on market prices at the time of renewal. Certain leases contain either restrictions relating to opening additional salons within a specified radius or contain additional rents related to sales levels. Minimum rent payments under operating leases are recognized on a straight-line basis over the term of the lease, including any periods of free rent. Future minimum lease payments under non-cancellable operating leases as at July 31, 2012 are as follows:
Within one year $ 26,581 After one year but not more than five years 102,092 More than five years 132,774 $ 261,447
(d) Capital commitments related to the Joint Venture At July 31, 2012, Harry Winston Diamond Corporation's share of approved capital expenditures at the Joint Venture was $23.4 million. At July 31, 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.
On August 30, 2012, the Company's luxury brand subsidiary, Harry Winston Inc., refinanced its secured revolving credit facility by entering into a new secured five-year credit agreement with a consortium of banks led by Standard Chartered Bank establishing a $260.0 million facility for revolving credit loans. The new facility expires on August 30, 2017. As with the previous agreement, the new credit facility is supported by a $20.0 million limited guarantee provided by Harry Winston Diamond Corporation. The amount available under this facility is subject to a borrowing base formula based on certain assets of the luxury brand segment.
Note 9:
Segmented Information
The Company operated in three segments within the diamond industry - mining, luxury brand and corporate - for the three months ended July 31, 2012.
The mining segment consists of the Company's rough diamond business. This business includes the 40% ownership interest in the Diavik group of mineral claims and the sale of rough diamonds.
The luxury brand segment consists of the Company's ownership in Harry Winston Inc. This segment consists of the marketing of fine jewelry and watches on a worldwide basis.
The corporate segment captures costs not specifically related to operations of the mining or luxury brand segments.
For the three months ended July 31, 2012 Mining Luxury brand Corporate Total Sales America $ 2,269 $ 35,759 $ - $ 38,028 Europe 50,514 15,636 - 66,150 Asia excluding Japan 8,690 33,956 - 42,646 Japan - 30,073 - 30,073 Total sales 61,473 115,424 - 176,897 Cost of sales Depreciation and amortization 12,449 277 - 12,726 All other costs 34,335 57,633 - 91,968 Total cost of sales 46,784 57,910 - 104,694 Gross margin 14,689 57,514 - 72,203 Gross margin (%) 23.9% 49.8% -% 40.8% Selling, general and administrative expenses Selling and related expenses 817 39,474 - 40,291 Administrative expenses 2,149 10,021 3,358 15,528 Total selling, general and administrative expenses 2,966 49,495 3,358 55,819 Operating profit (loss) 11,723 8,019 (3,358) 16,384 Finance expenses (2,151) (1,877) - (4,028) Exploration costs (568) - - (568) Finance and other income 67 23 - 90 Foreign exchange gain (loss) 1,048 (895) - 153 Segmented profit (loss) before income taxes $ 10,119 $ 5,270 $ (3,358) $ 12,031 Segmented assets as at July 31, 2012 Canada $ 937,687 $ - $ - $ 937,687 United States - 367,751 115,797 483,548 Other foreign countries 22,682 215,636 - 238,318 $ 960,369 $ 583,387 $ 115,797 $1,659,553 Capital expenditures $ 15,788 $ 1,981 $ - $ 17,769 Other significant non-cash items: Deferred income tax recovery $ (1,592) $ 581 $ (57) $ (1,068) For the three months ended July 31, 2011 Mining Luxury brand Corporate Total Sales America $ 447 $ 27,183 $ - $ 27,630 Europe 80,131 26,098 - 106,229 Asia excluding Japan (a) 9,030 59,056 - 68,086 Japan - 20,433 - 20,433 Total sales 89,608 132,770 - 222,378 Cost of sales Depreciation and amortization 16,802 77 - 16,879 All other costs 50,811 82,436 51 133,298 Total cost of sales 67,613 82,513 51 150,177 Gross margin 21,995 50,257 (51) 72,201 Gross margin (%) 24.5% 37.9% -% 32.5% Selling, general and administrative expenses Selling and related expenses 777 32,977 - 33,754 Administrative expenses 2,712 10,354 2,281 15,347 Total selling, general and administrative expenses 3,489 43,331 2,281 49,101 Operating profit (loss) 18,506 6,926 (2,332) 23,100 Finance expenses (3,787) (1,396) - (5,183) Exploration costs (781) - - (781) Finance and other income 78 5 - 83 Foreign exchange gain (loss) 846 (558) - 288 Segmented profit (loss) before income taxes $ 14,862 $ 4,977 $ (2,332) $ 17,507 Segmented assets as at July 31, 2011 Canada $ 983,625 $ - $ - $ 983,625 United States - 320,333 106,388 426,721 Other foreign countries 33,536 221,457 - 254,993 $ 1,017,161 $ 541,790 $ 106,388 $1,665,339 Capital expenditures $ 12,649 $ 1,900 $ - $ 14,549 Other significant non-cash items: Deferred income tax expense (recovery) $ (3,408) $ 2,714 $ (77) $ (771)
Sales to one significant customer in the luxury brand segment (a) totalled $45.0 million for the three months ended July 31, 2011.
For the six months ended July 31, 2012 Mining Luxury brand Corporate Total Sales America $ 9,701 $ 68,045 $ - $ 77,746 Europe 104,884 45,690 - 150,574 Asia excluding Japan 35,897 54,341 - 90,238 Japan - 50,800 - 50,800 Total sales 150,482 218,876 - 369,358 Cost of sales Depreciation and amortization 33,954 660 - 34,614 All other costs 82,929 106,285 - 189,214 Total cost of sales 116,883 106,945 - 223,828 Gross margin 33,599 111,931 - 145,530 Gross margin (%) 22.3% 51.1% -% 39.4% Selling, general and administrative expenses Selling and related expenses 1,710 76,933 - 78,643 Administrative expenses 3,781 19,873 8,191 31,845 Total selling, general and administrative expenses 5,491 96,806 8,191 110,488 Operating profit (loss) 28,108 15,125 (8,191) 35,042 Finance expenses (4,393) (3,515) - (7,908) Exploration costs (822) - - (822) Finance and other income 119 36 - 155 Foreign exchange gain (loss) 678 (889) - (211) Segmented profit (loss) before income taxes $ 23,690 $ 10,757 $ (8,191) $ 26,256 Segmented assets as at July 31, 2012 Canada $ 937,687 $ - $ - $ 937,687 United States - 367,751 115,797 483,548 Other foreign countries 22,682 215,636 - 238,318 $ 960,369 $ 583,387 $ 115,797 $ 1,659,553 Capital expenditures $ 33,937 $ 6,423 $ - $ 40,360 Other significant non-cash items: Deferred income tax recovery $ (4,159) $ (1,268) $ (114) $ (5,541) For the six months ended July 31, 2011 Mining Luxury brand Corporate Total Sales America $ 3,456 $ 62,670 $ - $ 66,126 Europe 130,883 43,544 - 174,427 Asia excluding Japan (a) 17,304 73,410 - 90,714 Japan - 35,043 - 35,043 Total sales 151,643 214,667 - 366,310 Cost of sales Depreciation and amortization 33,232 157 - 33,389 All other costs 87,824 125,315 101 213,240 Total cost of sales 121,056 125,472 101 246,629 Gross margin 30,587 89,195 (101) 119,681 Gross margin (%) 20.2% 41.6% -% 32.7% Selling, general and administrative expenses Selling and related expenses 1,426 59,298 - 60,724 Administrative expenses 6,693 18,748 5,731 31,172 Total selling, general and administrative expenses 8,119 78,046 5,731 91,896 Operating profit (loss) 22,468 11,149 (5,832) 27,785 Finance expenses (6,480) (2,686) - (9,166) Exploration costs (993) - - (993) Finance and other income 155 186 - 341 Foreign exchange gain (loss) (131) 242 - 111 Segmented profit (loss) before income taxes $ 15,019 $ 8,891 $ (5,832) $ 18,078 Segmented assets as at July 31, 2011 Canada $ 983,625 $ - $ - $ 983,625 United States - 320,333 106,388 426,721 Other foreign countries 33,536 221,457 - 254,993 $ 1,017,161 $ 541,790 $ 106,388 $ 1,665,339 Capital expenditures $ 25,084 $ 3,289 $ - $ 28,373 Other significant non-cash items: Deferred income tax expense (recovery) $ (7,963) $ 4,699 $ (155) $ (3,419)
Sales to one significant customer in the luxury brand segment (a) totalled $45.0 million for the six months ended July 31, 2011.
Note 10:
Recast
During the preparation of the income tax provision for the quarter ended April 30, 2012, the Company noted a historical difference related to the accounting for Northwest Territories mining royalty taxes in connection with the Company's rough diamond inventory. For Northwest Territories mining royalty tax purposes, the Company is subject to mining royalty taxes, which includes a requirement to treat the rough diamond inventory when it comes out of the Diavik Diamond Mine as taxable. This results in an accounting timing difference between the mining and extraction of the diamonds and when they are sold. The Company did not previously record the corresponding deferred tax asset on the rough diamond inventory related to royalty taxes payable. The Company has revised the comparative figures to correct the immaterial impact of this item with the offset recorded in retained earnings, amounting to $5.8 million as at January 31, 2011.
For further information:
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
(HW. HWD)
SOURCE Harry Winston Diamond Corporation
