TORONTO, June 7 /PRNewswire-FirstCall/ -- ABER DIAMOND CORPORATION
(TSE- ABZ, NASDAQ-ABER) announces its first quarter results for the
period ended April 30, 2006. Commenting on Aber's results, Chairman
and Chief Executive Officer Robert Gannicott stated, "Growth in
sales and margins at Harry Winston, combined with sustained
operational performance at the Diavik Mine and a lowered Northwest
Territories tax rate, have contributed strong results to the bottom
line. We look forward to expanded rough diamond production as we
enter our strongest seasonal operations period while the synergies
between our two business segments continue to improve." Thomas
O'Neill, President of Aber and Chief Executive Officer of Harry
Winston added, "Harry Winston has once again shown double-digit
comparable quarter sales growth and strengthened margins. These
gains are the result of the refinements we made to our product mix
and improvements in sourcing, purchasing and manufacturing, along
with strong performance in our core markets. Harry Winston
continues to strengthen its position as the pre-eminent purveyor of
fine diamond focused jewelry while promoting a broader high-end
diamond jewelry offer, delivering long-term value to its
shareholders." First Quarter Highlights Financial Highlights
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Three Three Three Twelve months months months months ended ended
ended ended April 30, April 30, January 31, January 31, 2006 2005
2006 2006
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Sales ($ millions) 119.3 110.1 125.9 505.2
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Earnings from operations ($ millions) 28.1 27.6 36.5 175.7
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Net Earnings ($ millions) 23.9 13.6 14.9 81.3
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Earnings per share ($) 0.41 0.23 0.26 1.40
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Cash Earnings per share ($)(1) 0.62 0.53 0.66 3.57
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(1) Cash earnings per share is not a recognized measure under
Canadian GAAP and does not have a standardized meaning prescribed
by Canadian GAAP and is therefore unlikely to be comparable to
similar measures presented by other issuers. Cash earnings per
share is earnings before non-cash income tax expense, non-cash
foreign exchange gains (loss), and depreciation and amortization on
a per share basis. See "Non-GAAP Performance Measures" in the
Company's Management's Discussion and Analysis for the three months
ended April 30, 2006, for a reconciliation of earnings to cash
earnings. Production Highlights (Aber's 40% share of Diavik Mine
production)
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Three Three Three Twelve months months months months ended ended
ended ended March 31, March 31, December 31, December 31, 2006 2005
2006 2006
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Diamond recovered (000s carats) 715 700 732 3,309
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Grade (carats/tonne) 3.62 3.55 3.68 3.72
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Operating costs, cash ($ millions) 21.6 18.2 20.8 76.6
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Operating costs per carat, cash ($) 30 26 28 23
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"We continue to be pleased with the sustained growth in retail
sales and improved retail margins, combined with the consistent
performance of our mining segment" stated Alice Murphy, Aber's
Chief Financial Officer. "During the quarter we benefited from a
reduction in the Northwest Territory's income tax rate, mitigating
some of the currency and transportation cost pressures experienced
on the mining side. The Company is well positioned to fund future
capital requirements and strategic growth objectives, as well as
continuing to reward its shareholders through its ongoing dividend
program." Returning Value to Shareholders Aber is pleased to
declare a quarterly dividend payment of US$0.25 per share.
Shareholders of record at the close of business on June 30, 2006,
will be entitled to receive payment of this dividend on July 14,
2006. Annual Meeting of Shareholders Aber will hold its Annual
Meeting of Shareholders today at 4 PM EST at the Toronto Board of
Trade located at 1 First Canadian Place, Toronto, Ontario.
Interested parties unable to attend may listen to a broadcast of
the meeting and a review of Aber's first quarter results on the
internet at http://www.aber.ca/ Information in this news release
that is not current or historical factual information may
constitute forward-looking information or statements within the
meaning of applicable securities laws. Implicit in this
information, particularly in respect of statements as to future
operating results and economic performance of Aber, and resources
and reserves at the Diavik Mine, are assumptions regarding
projected revenue and expense, diamond prices and mining costs.
These assumptions, although considered reasonable by Aber at the
time of preparation, may prove to be incorrect. Readers are
cautioned that actual results are subject to a number of risks and
uncertainties, including risks relating to general economic
conditions and mining operations, and could differ materially from
what is currently expected. The Company disclaims any intention or
obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
About Aber Aber Diamond Corporation is a specialist diamond company
focusing on the mining and retail segments of the diamond industry.
The Company supplies rough diamonds to the global market through
its 40% ownership in the Diavik Diamond Mine, located off Lac de
Gras in Canada's Northwest Territories. Aber also holds a 52.83%
interest in Harry Winston Inc., the premier retailer of diamond
jewelry. Highlights (All figures are in United States dollars
unless otherwise indicated) Aber's net earnings for the quarter
were $23.9 million with earnings per share of $0.41 (cash earnings
per share of $0.62(1)) as compared to net earnings of $13.6 million
and earnings per share of $0.23 (cash earnings per share of
$0.53(1)) for the comparable quarter of the prior year. Included in
net earnings for the current quarter is a tax recovery of $10.4
million resulting from a 2.5% decrease in the Northwest Territories
income tax rate. The Company recorded sales for the quarter ended
April 30, 2006, of $119.3 million compared to $110.1 million for
the comparable quarter of the prior year. Sales from the mining and
retail segments for the first quarter were 1% and 20% higher
respectively compared to the comparable quarter of the prior year.
Earnings from operations for the mining and retail segments were
$25.8 million and $2.4 million respectively for the first quarter
compared to $26.8 million and $0.8 million respectively for the
comparable quarter of the prior year. Aber's share of diamonds
recovered from the Diavik Mine was approximately 0.7 million carats
for the three months ended March 31, 2006, consistent with the
comparable quarter in 2005. Working capital increased to $305.8
million as of April 30, 2006, compared to $285.7 million at January
31, 2006. Continuing its existing dividend policy, the Company has
declared a quarterly dividend of $0.25 per share to be paid on July
14, 2006. (1) Cash earnings per share is not a recognized measure
under Canadian GAAP and does not have a standardized meaning
prescribed by Canadian GAAP and is therefore unlikely to be
comparable to similar measures presented by other issuers. Cash
earnings per share are earnings before non-cash income tax expense,
non-cash foreign exchange gains (loss), and depreciation and
amortization on a per share basis. Management believes that cash
earnings per share are a useful supplemental measure in evaluating
the performance of Aber. Management's Discussion and Analysis
------------------------------------ (All figures are in United
States dollars unless otherwise indicated) Prepared as of June 7,
2006 INTRODUCTION The following is management's discussion and
analysis ("MD&A") of the results of operations for Aber Diamond
Corporation ("Aber", or the "Company") for the three months ended
April 30, 2006, and its financial position as at April 30, 2006.
This MD&A is based on the Company's consolidated financial
statements prepared in accordance with generally accepted
accounting principles in Canada ("Canadian GAAP") and should be
read in conjunction with the unaudited consolidated financial
statements and notes thereto for the three months ended April 30,
2006 and the audited consolidated financial statements of Aber and
notes thereto for the year ended January 31, 2006. Unless otherwise
specified, all financial information is presented in United States
dollars. All references to "first quarter" refer to the three
months ended April 30. The following MD&A makes reference to
certain non-Canadian GAAP measures such as cash earnings and cash
earnings per share to assist in assessing the Company's financial
performance. Non-Canadian GAAP measures do not have any standard
meaning prescribed by Canadian GAAP and are therefore unlikely to
be comparable to similar measures presented by other issuers. See
"Non-Canadian GAAP Performance Measures". Certain comparative
figures have been reclassified to the current year's presentation.
CAUTION REGARDING FORWARD-LOOKING INFORMATION Certain information
included in this MD&A may constitute forward-looking
information within the meaning of securities laws. In some cases,
forward- looking information can be identified by the use of terms
such as "may", "will", "should", "expect", "plan", "anticipate",
"believe", "intend", "estimate", "predict", "potential", "continue"
or other similar expressions concerning matters that are not
historical facts. Forward-looking information may relate to
management's future outlook and anticipated events or results, and
may include statements or information regarding projected capital
expenditure requirements, estimated production from the Diavik Mine
in 2006, timelines and targets for construction, development and
exploration activities at the Diavik Mine, projected sales growth
and new store openings at Harry Winston, expected diamond prices,
gross margin rates from jewelry sales by Harry Winston and
expectations concerning the diamond industry. Forward-looking
information is based on certain factors and assumptions regarding,
among other things, mining, construction and exploration activities
at the Diavik Mine, world economic conditions, the level of
worldwide diamond production, the expected sales mix at Harry
Winston and potential improvements in sourcing and purchasing
polished diamonds. Specifically, in making statements concerning
Aber's projected share of the Diavik Mine capital expenditure
requirements, Aber has used a Canadian/US dollar exchange rate of
$0.89, and has assumed that construction will continue on schedule
with respect to the A-418 dike and with respect to current
underground mining construction initiatives. In making statements
regarding estimated production at the Diavik Mine, Aber has assumed
that mining operations will proceed in the ordinary course
according to schedule. With respect to statements concerning sales
growth and new store openings at Harry Winston, as well as expected
gross margin rates, Aber has assumed that current world economic
conditions will not materially change or deteriorate, and that
Harry Winston will be able to realize improvements in the sourcing
and purchasing of inventory. While Aber considers these assumptions
to be reasonable based on information currently available to it,
they may prove to be incorrect. Forward looking-information is
subject to certain factors, including risks and uncertainties,
which could cause actual results to differ materially from what we
currently expect. These factors include, among other things, the
uncertain nature of mining activities, risks associated with joint
venture operations, risks associated with the remote location of
the Diavik Mine site, fluctuations in diamond prices and changes in
world economic conditions, the risk of fluctuations in the
Canadian/US dollar exchange rate, and the risks of competition in
the luxury jewelry segment. Please see page 16 of this Interim
Report, as well as Aber's annual report for a discussion of these
and other risks and uncertainties involved in Aber's operations.
You should not place undue importance on forward-looking
information and should not rely upon this information as of any
other date. While Aber may elect to, it is under no obligation and
does not undertake to update this information at any particular
time.
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Summary Discussion Aber Diamond Corporation is a specialist diamond
company focusing on the mining and retail segments of the diamond
industry. The Company supplies rough diamonds to the global market
from production received from its 40% ownership interest in the
Diavik Diamond Mine (the "Diavik Mine"), located off Lac de Gras in
Canada's Northwest Territories. Aber also holds a 52.83% interest
in Harry Winston Inc. ("Harry Winston"), the premier fine jewelry
and watch retailer. Aber's mission is to deliver shareholder value
through the enhanced earning power and longevity of the Diavik Mine
asset as the cornerstone of a profitable synergy with the Harry
Winston brand. In a changing diamond market- place, Aber has
charted a unique course to continue to build shareholder value. The
Company's most significant asset is a 40% interest in the Diavik
group of mineral claims. The Diavik Joint Venture (the "Joint
Venture") is an unincorporated joint arrangement between Diavik
Diamond Mines Inc. ("DDMI" - 60%) and Aber Diamond Mines Ltd. (40%)
where Aber owns an undivided 40% interest in the assets,
liabilities and expenses. DDMI is the operator of the Diavik Mine.
Both companies are headquartered in Yellowknife, Canada. DDMI is a
wholly owned subsidiary of Rio Tinto plc of London, England, and
Aber Diamond Mines Ltd. is a wholly owned subsidiary of Aber
Diamond Corporation of Toronto, Canada. Market Commentary The
Diamond Market Rough diamond prices remained stable in the first
quarter of fiscal 2007, after declining slightly at the end of last
year. Rough diamond prices have strengthened steadily over the past
few years and this trend is expected to continue as increased
retail demand remains undersupplied by foreseeable mine production.
The Retail Jewelry Market The broader diamond jewelry market in the
US exhibited some softness despite growth in the US economy. The
luxury goods segment of the retail jewelry industry, comprising
high-end diamond jewelry and watches, continued to post strong
sales growth. Consolidated Financial Results The following is a
summary of the Company's consolidated quarterly results for the
eight quarters ended April 30, 2006, following the basis of
presentation utilized in its Canadian GAAP financial statements:
(expressed in thousands of United States dollars, except per share
amounts and where otherwise noted) (unaudited) 2007 2006 2006 2006
2006 Q1 Q4 Q3 Q2 Q1
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Sales $ 119,271 $ 125,891 $ 153,512 $ 115,699 $ 110,132 Cost of
sales 63,845 52,782 57,641 53,065 59,119
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55,426 73,109 95,871 62,634 51,013 Selling, general and
administrative expenses 27,295 36,654 24,189 22,711 23,394
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Earnings from operations 28,131 36,455 71,682 39,923 27,619
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Interest and financing expenses (4,334) (4,511) (3,353) (3,668)
(3,401) Other income 1,623 1,767 795 885 886 Foreign exchange gain
(loss) (2,106) (5,392) (4,184) (2,263) 496
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Earnings before income taxes 23,314 28,319 64,940 34,877 25,600
Income tax expense (recovery) (1,036) 10,534 30,775 15,400 12,412
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Earnings before minority interest 24,350 17,785 34,165 19,477
13,188 Minority interest 471 2,876 423 457 (394)
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Net earnings 23,879 $ 14,909 $ 33,742 $ 19,020 $ 13,582
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Basic earnings per share $ 0.41 $ 0.26 $ 0.58 $ 0.33 $ 0.23 Diluted
earnings per share $ 0.40 $ 0.27 $ 0.57 $ 0.32 $ 0.23 Total
assets(i) $ 1,111 $ 1,044 $ 1,016 $ 928 $ 936 Total long-term
liabilities(i) $ 460 $ 434 $ 421 $ 378 $ 390
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Three Three months months ended ended 2005 2005 2005 April 30,
April 30, Q4 Q3 Q2 2006 2005
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Sales $ 144,581 $ 104,065 $ 84,487 $ 119,271 $ 110,132 Cost of
sales 77,730 45,244 37,746 63,845 59,119
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66,851 58,821 46,741 55,426 51,013 Selling, general and
administrative expenses 27,500 20,452 17,632 27,295 23,394
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Earnings from operations 39,351 38,369 29,109 28,131 27,619
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Interest and financing expenses (5,138) (3,522) (3,530) (4,334)
(3,401) Other income 8,102 574 467 1,623 886 Foreign exchange gain
(loss) 2,837 (8,543) 760 (2,106) 496
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Earnings before income taxes 45,152 26,878 26,806 23,314 25,600
Income tax expense (recovery) 13,755 18,921 14,798 (1,036) 12,412
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Earnings before minority interest 31,397 7,957 12,008 24,350 13,188
Minority interest 1,865 (503) (287) 471 (394)
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Net earnings $ 29,532 $ 8,460 $ 12,295 23,879 $ 13,582
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Basic earnings per share $ 0.51 $ 0.15 $ 0.21 $ 0.41 $ 0.23 Diluted
earnings per share $ 0.50 $ 0.14 $ 0.21 $ 0.40 $ 0.23 Total
assets(i) $ 897 $ 958 $ 835 $ 1,111 $ 936 Total long-term
liabilities(i) $ 312 $ 403 $ 334 $ 460 $ 390
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(i) Total assets and total long-term liabilities are expressed in
millions of United States dollars. The comparability of
quarter-over-quarter results is impacted by seasonality for both
the mining and retail segments. Aber expects that the quarterly
results for its mining segment will continue to fluctuate depending
on the seasonality of production at the Diavik Mine, the number of
sales events conducted during the quarter and the volume, size and
quality distribution of rough diamonds delivered from the Diavik
Mine in each quarter. The quarterly results for the retail segment
also fluctuate, with higher sales during the fourth quarter's
holiday season. Three Months Ended April 30, 2006 Compared to Three
Months Ended January 31, 2006 and April 30, 2005 Net Earnings The
first quarter earnings of $23.9 million or $0.41 per share
represent an increase of $9.0 million or $0.15 per share as
compared to the fourth quarter results of $14.9 million or $0.26
per share, and an increase of $10.3 million or $0.18 per share as
compared to the results from the first quarter of the prior year.
The Company's cash earnings per share for the first quarter was
$0.62 compared to cash earnings per share of $0.66 in the fourth
quarter and $0.53 in the first quarter of the prior year. The
Company recorded a future income tax recovery of $10.4 million
attributable to a decrease in the Northwest Territories corporate
income tax rate from 14% to 11.5% that was substantively enacted
during the quarter. Revenue Sales for the first quarter totalled
$119.3 million, consisting of rough diamond sales of $69.3 million
and sales from Harry Winston of $50.0 million. This compares to
sales of $125.9 million in the prior quarter (rough diamond sales
of $62.5 million and sales from Harry Winston of $63.4 million) and
sales of $110.1 million in the comparable quarter of the prior year
(rough diamond sales of $68.5 million and sales from Harry Winston
of $41.6 million). Ongoing quarterly variations in revenues are
inherent in Aber's business, resulting from the seasonality of the
mining and retail activities as well as the variability of the
rough diamond sales schedule. Cost of Sales The Company's first
quarter cost of sales was $63.8 million compared to $52.8 million
for the previous quarter and $59.1 million for the comparable
quarter of the prior year. The Company's cost of sales includes
cash and non- cash costs associated with mining, sorting and retail
sales activities. See "Segmented Analysis" on page 8 for additional
information. Selling, General and Administrative Expenses The
principal components of selling, general and administrative
("SG&A") expenses include expenses for salaries and benefits
(including salon personnel), advertising, professional fees, rent
and building related costs. With the growth of the Company's
international selling activities and the underlying control
infrastructure, along with the opening of new Harry Winston salons,
SG&A expenses are expected to increase during the current year
over comparable quarters from the prior year. SG&A expenses for
the first quarter were $27.3 million as compared to $36.7 million
for the previous quarter and $23.4 million for the comparable
quarter of the prior year. SG&A expense decreased by $9.4
million compared to the previous quarter. A specific provision
against accounts receivable established in the fourth quarter of
fiscal 2006 was reversed in the first quarter of fiscal 2007 as it
was no longer required, with a consequent decrease of $2.2 million
of SG&A expense and a quarter-over-quarter decrease of $4.4
million. The balance of the decrease in SG&A expense of $5.0
million from the prior quarter related primarily to a decrease in
salaries and benefits of which $2.1 million reflected a reduction
of variable compensation, $1.6 million related to stock- based
compensation and the balance resulted from a net decrease in
salaries and remittances. The increase of $3.9 million from the
first quarter of the prior year resulted from an increase of $3.0
million in advertising expenses, an increase of $1.0 million in
each of salaries and benefits, rent and other expenses, offset by a
reversal of a $2.2 million specific provision against accounts
receivable. See "Segmented Analysis" on page 8 for additional
information. Income Taxes Aber recorded an income tax recovery of
$1.0 million during the first quarter of fiscal 2007, compared to
an income tax expense of $10.5 million in the previous quarter and
a tax expense of $12.4 million in the comparable quarter of the
previous year. Included in the current quarter's tax recovery is a
future income tax recovery of $10.4 million attributable to a
decrease in the Northwest Territories corporate income tax rate
from 14% to 11.5% that was substantively enacted during the
quarter. The Company's effective income tax rate for the quarter,
excluding Harry Winston, is -5%, which is based on a statutory
income tax rate of 36.5% adjusted for Large Corporations Tax, the
Northwest Territories mining royalty, items that are not deductible
for income tax purposes, impact of foreign exchange, earnings
subject to tax different than statutory rate, and impact of change
in future income tax rate, all as detailed in the table below. The
Company's functional and reporting currency is the US dollar;
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, as the Canadian dollar strengthened against the US
dollar, the Company recorded an unrealized foreign exchange loss of
$3.9 million on the revaluation of the Company's Canadian dollar
denominated future income tax liability, which is not deductible
for Canadian income tax purposes. The rate of income tax payable by
Harry Winston varies by jurisdiction. Net operating losses are
available in certain jurisdictions to offset future income taxes
payable in such jurisdictions. These net operating losses are
scheduled to expire through 2024. The Company has provided a table
below summarizing the movement from the Company's statutory to the
effective income tax rate as a percentage of earnings before taxes:
Three months Three months Three months ended ended ended April 30,
January 31, April 30, 2006 2006 2005
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Statutory income tax rate 37% 40% 40% Large Corporations Tax 1%
(1)% 3% Stock compensation 2% 3% 2% Resource allowance 0% 0% (6)%
Northwest Territories mining royalty 7% 11% 9% Impact of change in
future income tax rate (47)% 0% 0% Impact of foreign exchange 3% 3%
1% Earnings subject to tax different than statutory rate (4)% (5)%
(2)% Benefits of losses not previously recognized 0% (10)% 0% Other
items (3)% (4)% 1% Effective income tax rate (4)% 37% 48%
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Interest and Financing Expenses Interest and financing expenses of
$4.3 million were incurred during the first quarter compared to
$4.5 million for the preceding quarter and $3.4 million during the
comparable quarter of the prior year. Interest and financing
expenses are attributable to both Aber's and Harry Winston's credit
facilities. Other Income Other income of $1.6 million was recorded
during the quarter compared to $1.8 million in the preceding
quarter and $0.9 million in the comparable quarter of the prior
year. Other income includes interest income on the Company's
various bank balances. Foreign Exchange Gain (Loss) A foreign
exchange loss of $2.1 million was recognized during the quarter
compared to a loss of $5.4 million in the previous quarter and a
gain of $0.5 million in the comparable quarter of the prior year.
The loss primarily related to the revaluation of the Canadian
dollar denominated future income tax liability on the balance sheet
of the Company, which resulted from the strengthening of the
Canadian dollar against the US dollar for the quarter. Aber's
ongoing currency exposure relates primarily to expenses and
obligations incurred in Canadian dollars, as well as the
revaluation of certain Canadian monetary balance sheet amounts. The
Company does not currently have any derivative instruments
outstanding. Segmented Analysis The operating segments of the
Company include mining and retail segments. Mining (expressed in
thousands of United States dollars) (unaudited) 2007 2006 2006 2006
2006 Q1 Q4 Q3 Q2 Q1
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Sales $ 69,308 $ 62,528 $ 112,243 $ 70,795 $ 68,507 Cost of sales
38,749 22,780 38,929 29,759 37,593
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30,559 39,748 73,314 41,036 30,914 Selling, general and
administrative expenses 4,787 8,221 4,809 3,991 4,108
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Earnings from operations $ 25,772 $ 31,527 $ 68,505 $ 37,045 $
26,806
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Three Three months months ended ended 2005 2005 2005 April 30,
April 30, Q4 Q3 Q2 2006 2005
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Sales $ 85,252 $ 68,980 $ 56,281 $ 69,308 $ 68,507 Cost of sales
46,356 26,203 23,234 38,749 37,593
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38,896 42,777 33,047 30,559 30,914 Selling, general and
administrative expenses 3,792 3,997 4,239 4,787 4,108
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Earnings from operations $ 35,104 $ 38,780 $ 28,808 $ 25,772 $
26,806
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The mining segment includes the production and sale of rough
diamonds. Sales for the quarter totalled $69.3 million compared to
$62.5 million in the fourth quarter and $68.5 million in the
comparable quarter of the prior year. The Company held two rough
diamond sales in each of the first quarter, previous quarter and
three in comparable quarter of the prior year. Aber expects that
the quarterly results for its mining segment will continue to
fluctuate depending on the seasonality of production at the Diavik
Mine, the number of sales events conducted during the quarter and
the volume, size and quality distribution of rough diamonds
delivered from the Diavik Mine in each quarter. Cost of sales
includes cash operating costs of $26.7 million, non-cash operating
costs of $10.5 million and private production royalties of $1.5
million. A substantial portion of cost of sales is mining operating
costs, which are incurred at the Joint Venture level. Cost of sales
also includes sorting costs, which consist of Aber's cost of
handling and sorting product in preparation for sales to third
parties. Non-cash costs include amortization and depreciation, the
majority of which is recorded using the unit-of-production method
over estimated proven and probable reserves. Private production
royalties are recorded based on actual production during each
accounting period. The first quarter gross margin was 44% compared
to 64% in the preceding quarter and 45% in the comparable quarter
of the prior year. The decrease in the gross margin from the fourth
quarter results from a higher cost per carat in the first quarter,
seasonal reduction in production during the winter months and
market variations in the sales mix. SG&A expense for the mining
segment decreased by $3.4 million from the fourth quarter but
increased by $0.7 million from the comparable quarter of the prior
year. The principal components of the decrease from the fourth
quarter are a $2.1 million decrease in salaries and benefits, a
$0.5 million decrease in capital tax expense, and a decrease of
$0.4 million in both professional fees and other expenses. The
decrease in salaries and benefits is comprised of a reduction of
$1.1 million in variable compensation and $1.0 million related to
stock-based compensation. Retail (expressed in thousands of United
States dollars) (unaudited) 2007 2006 2006 2006 2006 Q1 Q4 Q3 Q2 Q1
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Sales $ 49,963 $ 63,363 $ 41,269 $ 44,904 $ 41,625 Cost of sales
25,096 30,002 18,712 23,306 21,526
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24,867 33,361 22,557 21,598 20,099 Selling, general and
administrative expenses 22,508 28,433 19,380 18,720 19,286
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Earnings (loss) from operations $ 2,359 $ 4,928 $ 3,177 $ 2,878 $
813
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Three Three months months ended ended 2005 2005 2005 April 30,
April 30, Q4 Q3 Q2 2006 2005
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Sales $ 59,329 $ 35,085 $ 28,206 $ 49,963 $ 41,625 Cost of sales
31,374 19,041 14,512 25,096 21,526
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27,955 16,044 13,694 24,867 20,099 Selling, general and
administrative expenses 23,708 16,455 13,393 22,508 19,286
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Earnings (loss) from operations $ 4,247 $ (411) $ 301 $ 2,359 $ 813
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The retail segment includes sales from Harry Winston's eleven
salons, which are located in New York, Honolulu, Bal Harbour,
Beverly Hills, Las Vegas, Paris, Geneva, Tokyo (Ginza and
Omotesando), Osaka and Taipei. Aber's controlling interest in Harry
Winston was acquired on April 1, 2004. Sales for the first quarter
were $50.0 million compared to $63.4 million for the previous
quarter and $41.6 million for the comparable quarter of the prior
year. Jewelry sales follow a seasonal trend with sales expected to
be appreciably higher in the fourth quarter due to the holiday
season. The increase in sales of 20% from the comparable quarter of
the prior year is primarily attributed to the opening of two new
salons, an improved merchandising mix and the continued strength of
the luxury goods sector. Cost of sales for Harry Winston for the
first quarter was $25.1 million compared to $30.0 million in the
previous quarter and $21.5 million for the comparable quarter of
the prior year. Gross margin as a percentage of sales remained
consistent with the first quarter of the prior year and declined
slightly from the previous quarter, primarily due to the higher
margin holiday and custom sales. SG&A expenses decreased to
$22.5 million in the first quarter compared to $28.4 million in the
fourth quarter and $19.3 million in the comparable quarter of the
prior year. The decrease in SG&A expense from the fourth
quarter related primarily to the reversal of a $2.2 million
specific provision against accounts receivable, a decrease in
salaries and benefits of $1.9 million and a decrease in other
expenses of $0.5 million offset by higher advertising and selling
expenses of $0.6 million and an increase in rent and building
related expenses of $0.2 million. Fourth quarter SG&A expense
included a $2.2 million specific provision against accounts
receivable, which was no longer required in the first quarter of
fiscal 2007. This reversal of the provision resulted in a
quarter-over-quarter decrease in SG&A expense of $4.4 million.
The primary components of the increase in SG&A expenses over
the comparable quarter of the prior year are an increase in
advertising and selling expenses of $3.0 million, an increase in
salaries and benefits of $1.2 million, an increase in rent and
building related expenses of $0.9 million and an increase in other
expenses of $0.3 million, offset by a reversal of $2.2 million in
specific provision against accounts receivable. The increase in
salaries and benefits and rent and building related expenses over
the comparable quarter of the prior year was primarily as a result
of the opening of additional salons. Operational Update Aber's
results of operations include results from its mining operations
and results from Harry Winston. Mining Segment During the first
three months of calendar 2006, the Diavik Mine produced 1.79
million carats from 0.49 million tonnes of ore sourced from the
A-154 South (56%) and North (44%) kimberlite pipes. The effective
processing rate achieved during the first calendar quarter was 1.96
million tonnes per annum. The volume of carats produced and ore
processed were in line with the achievements of the first calendar
quarter of the prior year as well as the prior year's fourth
calendar quarter results. On February 4, 2006, the winter road that
services various mining and exploration operations located
northeast of Yellowknife, including the Diavik Mine, opened to
light traffic. Unseasonably warm temperatures prevented the ice
that forms the winter road from reaching the required thickness to
accommodate the weight of full loads. Deteriorating ice conditions
near the end of March forced an early closure of the road. Despite
this early closure, forecasted rough diamond production for the
current year remains at 8.5 million carats. Stripping capacity has
been temporarily reduced until the required equipment, all of which
is now on site, has been fully assembled. Heavy pieces of equipment
originally scheduled for transportation on the winter road have now
been delivered by air. With careful conservation, the Diavik Mine
expects to airlift a minimum of 8 million litres of fuel in order
to support the project until the next winter road. Bulk supplies,
such as cement, will be airlifted as required throughout the rest
of the year. As a result of the early closure of the winter road,
however, the Company estimates a potential increase of $9.0 million
in each of cash operating costs and capital expenditures for the
fiscal year, based on a budgeted Canadian exchange rate of $0.89
for this fiscal year. During the quarter, work crews commenced the
curtain and jet grouting processes for the A-418 dike that seal the
dike to the underlying bedrock. The decline to access the
underground portions of the A-154 and A-418 kimberlite pipes has
advanced just over one kilometre below the surface. The A-21 bulk
sample decline has advanced 500 metres of the eventual 1.2
kilometre length. Three-dimensional seismic test work conducted
during the first quarter of calendar 2006 on the A-418 kimberlite
pipe indicates that the pipe may be both larger and more extensive
in depth than current resource estimates suggest. Aber's 40% share
of Diavik Mine production: Three Three Three Twelve months months
months months ended ended ended ended March 31, December 31, March
31, December 31, 2006 2005 2005 2005
-------------------------------------------------------------------------
Diamonds recovered (000s carats) 715 732 700 3,309 Grade
(carats/tonne) 3.62 3.68 3.55 3.72 Operating costs, cash ($
millions) 21.6 20.8 18.0 76.6 Operating costs per carat, cash ($)
30 28 26 23
-------------------------------------------------------------------------
Cash operating costs for the three months ended March 31, 2006 of
$21.6 million increased by $3.6 million from the comparable period
of the prior year as the result of a $2.5 million increase in costs
and $1.1 million due to the strengthening of the Canadian dollar
against the US dollar. Retail Segment Harry Winston performed well
during a seasonally slow period, growing global sales over the
comparable period of the prior year by 20%. Comparable store sales
were stronger than the prior year in the US and Japan, and were
supplemented by sales from new stores in Bal Harbour, Honolulu and
Tokyo. The new salon in Tokyo opened in the Omotesando district
during the first quarter. The relocated Beverly Hills salon opened
in January 2006 has seen significant increases in customer traffic,
transactions and sales compared to the equivalent period of the
prior year. Harry Winston's watch division showcased its new line
of watches and "jewelry that tells time" at this year's Basel watch
and jewelry fair. The booth, modelled on the new store concept, was
well received and orders were up substantially over the prior year.
Liquidity and Capital Resources Working Capital Working capital
increased to $305.8 million at April 30, 2006 from $285.7 million
at January 31, 2006. As at April 30, 2006, Aber had unrestricted
cash and cash equivalents of $159.2 million and contingency cash
collateral and reserves of $26.8 million compared to $148.1 million
and $14.3 million, respectively, at January 31, 2006. Included in
unrestricted cash and cash equivalents at April 30, 2006 was $38.5
million held at the Diavik Mine compared to $10.5 million at
January 31, 2006. Cash Flow from Operations During the quarter
ended April 30, 2006, Aber generated $16.8 million in cash from
operations, compared to $21.9 million from the comparable quarter
of the previous year. Ongoing quarterly variations in revenues and
operating cash flows are inherent in Aber's business, resulting
from the seasonality of both the mining and retail activities as
well as the rough diamond sales schedule. During the quarter, the
Company purchased $25.8 million of inventory, increased accounts
payable and accrued liabilities by $3.8 million, increased accounts
receivable by $1.4 million and decreased prepaid expenses by $3.0
million. Financing Activities During the quarter, the Company drew
down $5.0 million of its $75.0 million senior secured revolving
credit facility. At April 30, 2006, the Company had $44.2 million
outstanding on its senior secured term facility and $75.0 million
outstanding on its senior secured revolving credit facility. As at
April 30, 2006, Harry Winston had $81.2 million outstanding on its
$110.0 million credit facility, which is used to fund salon
inventory and capital expenditure requirements. This represents an
increase of $18.7 million from January 31, 2006. At April 30, 2006,
$23.6 million was drawn under the Company's revolving financing
facility relating to its Belgian subsidiary, Aber International
N.V., compared to $4.8 million drawn at January 31, 2006. During
the first quarter, Aber made a dividend payment to its shareholders
of $0.25 per share for a total of $14.5 million. Investing
Activities During the quarter, the Company incurred $2.4 million on
deferred mineral property costs and purchased capital assets of
$22.1 million, of which $19.4 million was related to the mining
segment and $2.7 million to Harry Winston. Contractual Obligations
The Company has contractual payment obligations with respect to
long-term debt and, through its participation in the Joint Venture,
future site restoration costs at the Diavik Mine level.
Additionally, at the Joint Venture level, contractual obligations
exist with respect to operating purchase obligations, as
administered by DDMI, the operator of the mine. In order to
maintain its 40% ownership interest in the Diavik Mine, the Company
is obligated to fund 40% of the Joint Venture's total expenditures
on a monthly basis. Aber's currently estimated share of the capital
expenditures, which are not reflected in the table below, including
sustaining capital for the calendar years 2006 to 2010, is
approximately $196.0 million at a budgeted Canadian exchange rate
of $0.89. There can be no assurance, however, that actual capital
expenditure requirements will not be materially different from
Aber's current estimates. See "Caution Regarding Forward-Looking
Information" and "Risk Factors". The most significant contractual
obligations for the ensuing five-year period can be summarized as
follows: (expressed in thousands of United States dollars)
Contractual Less than Year Year After obligations Total 1 year 2-3
4-5 5 years
-------------------------------------------------------------------------
Long-term debt(a) $ 209,022 $ 32,931 $ 168,794 $ 1,135 $ 6,162
Environmental and participation agreements incremental
commitments(b) 41,123 8,945 13,953 2,862 15,363 Lease
obligations(c) 93,329 10,659 20,912 17,824 43,934
-------------------------------------------------------------------------
Total contractual obligations $ 343,474 $ 52,535 $ 203,659 $ 21,821
$ 65,459
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(a) Long-term debt presented in the foregoing table includes
current and long-term portions. The Company may at any time prepay,
in whole or in part, borrowings under the $100.0 million term
facility or the $75.0 million revolving facility, in minimum
amounts of $5.0 million. Scheduled repayment of the term facility
is over ten equal consecutive semi-annual installments of $10.0
million that commenced on June 15, 2004. The maximum amount
permitted to be drawn under the senior secured revolving facility
is reduced by $12.5 million semi- annually, commencing September
2006. The Company is required to repay borrowings under this
facility in excess of the maximum permitted at each semi-annual
date, to a maximum of $12.5 million. The Company's first mortgage
on real property has scheduled principal payments of $0.1 million
monthly, and may be prepaid after 2009. Harry Winston's $110.0
million credit facility is scheduled to increase to $130.0 million
on July 1, 2006. The Harry Winston credit facility expires on March
31, 2008, with no scheduled repayments required before that date.
(b) The Joint Venture, under environmental and other agreements,
must provide funding for the Environmental Monitoring Advisory
Board. These agreements also state the Joint Venture must provide
security deposits for the performance by the Joint Venture of its
reclamation and abandonment obligations under all environmental
laws and regulations. The Joint Venture has fulfilled its
obligations for the security deposits by posting letters of credit
of which Aber's share as at April 30, 2006 was $47.6 million. The
requirement to post security for the reclamation and abandonment
obligations may be reduced to the extent of amounts spent by the
Joint Venture on those activities. The Joint Venture has also
signed participation agreements with various native groups. These
agreements are expected to contribute to the social, economic and
cultural well-being of area Aboriginal bands. The letter of credit
in the amount of $47.6 million satisfies that part of the
respective contractual obligations included in the table above. The
actual cash outlay for the Joint Venture's obligations under these
agreements is not anticipated to occur until later in the life of
the Diavik Mine. (c) Lease obligations represent future minimum
annual rentals under non- cancellable operating leases for Harry
Winston salons and office space. Harry Winston's New York salon
lease, of which a shareholder has a 50% interest in the property,
has a remaining term of five years with an option to renew. Outlook
Forecasted rough diamond production for the current year remains at
8.5 million carats. Aber is expecting to hold three rough diamond
sales in the second quarter, one the rough diamond sale will be
sold by tender, followed by two rough diamond sales in the third
quarter and three in the final quarter of the fiscal year.
Following the success of the marketing office in India, Aber is
looking to expand its rough diamond global sales network by
establishing a new branch in Israel. A new flagship Harry Winston
salon is scheduled to open in London on Old Bond Street in July,
thereby expanding Harry Winston's international network, with
flagship presences in the major luxury locations of the world: New
York, Paris, Tokyo, Beverly Hills and now London. There can be no
assurance that Aber's current plans and expectations will be
achieved or realized, or that Aber's outlook will not change as a
result of subsequent events or changing priorities. See "Caution
Regarding Forward- Looking Information" and "Risk Factors". Other
Disclosures Non-Canadian GAAP Performance Measures References to
"cash earnings" are earnings before non-cash income tax expense,
non-cash foreign exchange gain (loss), and depreciation and
amortization. Management believes that the inclusion of cash
earnings enables investors to better understand the impact of
certain non-cash items on Aber's financial results and as such
provides a useful supplemental measure in evaluating the
performance of Aber. Cash earnings is not, however, a measure
recognized by Canadian GAAP and does not have a standardized
meaning under Canadian GAAP. Management cautions investors that
cash earnings should not be construed as an alternative to earnings
(as determined in accordance with Canadian GAAP) as an indicator of
Aber's performance or cash flows from operating, investing and
financing activities as a measure of the Company's liquidity and
cash flows. Aber's method of calculating cash earnings may differ
from the methods used by other companies. Therefore, cash earnings
may not be comparable to similar measures presented by other
companies. See below for a reconciliation of earnings to cash
earnings. Reconciliation of Earnings to Cash Earnings (expressed in
thousands of United States dollars, except per share amounts)
(unaudited) 2007 2006 2006 2006 2006 Q1 Q4 Q3 Q2 Q1
-------------------------------------------------------------------------
Earnings $ 23,879 $ 14,909 $ 33,742 $ 19,020 $ 13,582 Non-cash
income tax (3,938) 10,412 31,264 12,788 5,320 Non-cash foreign
exchange loss (gain) 2,970 5,201 3,656 3,618 (1,896) Depreciation
and amortization 13,362 7,697 16,662 17,472 13,685
-------------------------------------------------------------------------
Cash earnings $ 36,273 $ 38,219 $ 85,324 $ 52,898 $ 30,691
-------------------------------------------------------------------------
Cash earnings per share $ 0.62 $ 0.66 $ 1.47 $ 0.91 $ 0.53
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three Three months months ended ended 2005 2005 2005 April 30,
April 30, Q4 Q3 Q2 2006 2005
-------------------------------------------------------------------------
Earnings $ 29,532 $ 8,460 $ 12,295 $ 23,879 $ 13,582 Non-cash
income tax 11,905 17,888 14,356 (3,938) 5,320 Non-cash foreign
exchange loss (gain) (1,550) 8,608 (888) 2,970 (1,896) Depreciation
and amortization 29,421 11,477 10,195 13,362 13,685
-------------------------------------------------------------------------
Cash earnings $ 69,308 $ 46,433 $ 35,958 $ 36,273 $ 30,691
-------------------------------------------------------------------------
Cash earnings per share $ 1.20 $ 0.80 $ 0.63 $ 0.62 $ 0.53
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Related Parties Transactions with related parties for the three
months ended April 30, 2006 include $0.1 million payable under
management agreements with all of Harry Winston's shareholders and
$0.4 million of rent relating to the New York salon, payable to a
Harry Winston employee and shareholder. Critical Accounting
Estimates Management is often required to make judgments,
assumptions and estimates in the application of generally accepted
accounting principles that have a significant impact on the
financial results of the Company. Certain policies are more
significant than others and are, therefore, considered critical
accounting policies. Accounting policies are considered critical if
they rely on a substantial amount of judgment (use of estimates) in
their application or if they result from a choice between
accounting alternatives and that choice has a material impact on
the Company's reported results or financial position. There have
been no changes to the Company's critical accounting policies or
estimates from those disclosed in the Company's MD&A for its
fiscal year ended January 31, 2006. Risks and Uncertainties Aber is
subject to a number of risks and uncertainties as a result of its
operations, including without limitation the following risks:
Nature of Mining The operation of the Diavik Mine is subject to
risks inherent in the mining industry, including variations in
grade and other geological differences, unexpected problems
associated with required water retention dikes, water quality,
surface or underground conditions, processing problems, mechanical
equipment performance, accidents, labour disputes, risks relating
to the physical security of the diamonds, force majeure risks and
natural disasters. Such risks could result in personal injury or
fatality; damage to or destruction of mining properties, processing
facilities or equipment; environmental damage; delays or reductions
in mining production; monetary losses; and possible legal
liability. Hazards, such as unusual or unexpected rock formations,
rock bursts, pressures, flooding or other conditions, may be
encountered in the drilling and removal of ore. The Diavik Mine,
because of its remote northern location and access only by winter
road or by air, is subject to special climate and transportation
risks. These risks include the inability to operate or to operate
efficiently during periods of extreme cold, the unavailability of
materials and equipment, and unanticipated transportation costs due
to an early closure of the winter road. Such factors can add to the
cost of mine development, production and operation, thereby
affecting the Company's profitability. Joint Venture Aber owns an
undivided 40% interest in the assets, liabilities and expenses of
the Diavik Mine and the Diavik group of mineral claims. The Diavik
Mine and the exploration and development of the Diavik group of
mineral claims is a joint arrangement between DDMI (60%) and Aber
Diamond Mines Ltd. (40%), and is subject to the risks normally
associated with the conduct of joint ventures and similar joint
arrangements. These risks include the inability to exert influence
over strategic decisions made in respect of the Diavik Mine and the
Diavik group of mineral claims. By virtue of DDMI's 60% interest in
the Diavik Mine, it has a controlling vote in virtually all Joint
Venture management decisions respecting the development and
operation of the Diavik Mine and the development of the Diavik
group of mineral claims. Accordingly, DDMI is able to determine the
timing and scope of future project capital expenditures, and is
therefore able to impose capital expenditure requirements on the
Company, that the Company may not have sufficient cash to meet. A
failure by the Company to meet capital expenditure requirements
imposed by DDMI could result in the Company's interest in the
Diavik Mine and the Diavik group of mineral claims being diluted.
Diamond Prices and Demand for Diamonds The profitability of Aber is
dependent upon production from the Diavik Mine and on the results
of the operations of Harry Winston. 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 and Japan, 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,
particularly in the US or Japan, or the recurrence of terrorist
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 could also negatively affect the price of diamonds. In
each case, such developments could materially adversely affect
Aber's results of operations. 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 Mine, which are
borne 40% by the Company, are incurred in Canadian dollars.
Further, the Company has a significant future income tax liability
that has been incurred and will be payable in Canadian dollars.
Aber's currency exposure relates primarily to expenses and
obligations incurred by it in Canadian dollars and, secondarily, to
revenues of Harry Winston in currencies other than the US dollar.
The appreciation of the Canadian dollar against the US dollar, and
the depreciation of such other currencies against the US dollar,
therefore, will increase the expenses of the Diavik Mine and the
amount of the Company's Canadian dollar liabilities relative to the
revenue Aber will receive from diamond sales, and will decrease the
US dollar revenues received by Harry Winston. From time to time,
the Company uses a limited number of derivative financial
instruments to manage its foreign currency exposure. Licences and
Permits The operation of the Diavik Mine and exploration on the
Diavik property requires licences and permits from the Canadian
government. The Diavik Mine Type "A" Water Licence granted by the
Mackenzie Valley Land and Water Board expires on August 31, 2007.
While DDMI, who is also the operator of the Diavik Mine,
anticipates being able to renew the licence, there can be no
guarantee that Aber and/or DDMI will be able to obtain or maintain
this or all other necessary licences and permits that may be
required to maintain the operation of the Diavik Mine or to further
explore and develop the Diavik property. Regulatory and
Environmental Risks The operation of the Diavik Mine, exploration
activities at the Diavik Project and the manufacturing of jewelry
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 of existing laws and regulations
could have a material adverse impact on the Company by increasing
costs and/or causing a reduction in levels of production from the
Diavik Mine. 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 retail operations. To the extent that Aber or Harry Winston is
subject to uninsured environmental liabilities, the payment of such
liabilities could have a material adverse effect on the Company.
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. Aber expects that its estimates of
reserves will change to reflect updated information. Reserve
estimates may be revised upward or downward based on the results of
future drilling, testing or production levels. In addition, market
fluctuations in the price of diamonds or increases in the costs to
recover diamonds from the Diavik 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 Aber's
business is subject to a number of risks and hazards generally,
including adverse environmental conditions, industrial accidents,
labour disputes, unusual or unexpected geological conditions, risks
relating to the physical security of diamonds and jewelry, changes
in the regulatory environment and natural phenomena such as
inclement weather conditions. Such occurrences could result in
damage to the Diavik Mine, personal injury or death, environmental
damage to the Diavik property, delays in mining, monetary losses
and possible legal liability. Although insurance is maintained to
protect against certain risks in connection with the Diavik Mine,
Aber's operations and the operations of Harry Winston, 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 Mine's
expected fuel needs are purchased annually in late winter 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 unexpectedly 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 Mine
currently has no hedges for its anticipated 2006 fuel consumption.
Reliance on Skilled Employees Production at the Diavik 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 Mine. Aber's success at
marketing diamonds and in operating the business of Harry Winston
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 in operating Harry Winston.
Competition in the Luxury Jewelry Segment Aber, through its 52.83%
interest in Harry Winston, is exposed to competition in the retail
diamond market from other luxury goods, diamond and jewelry
retailers. The ability of Harry Winston to successfully compete
with such luxury goods, diamond and jewelry retailers is dependent
upon a number of factors, including the ability of Harry Winston to
source high-end polished diamonds and protect and promote its
distinctive brand name and reputation. If Harry Winston is unable
to successfully compete in the luxury jewelry segment, then Aber's
results of operations will be adversely affected. Outstanding Share
Information as at April 30, 2006
-------------------------------------------------------------------------
Authorized Unlimited
-------------------------------------------------------------------------
Issued and outstanding shares 58,198,480 Diluted(i) 59,574,774
Weighted average outstanding shares 58,161,486 Options outstanding
1,894,738
-------------------------------------------------------------------------
(i) Diluted shares outstanding under the treasury stock method.
Additional Information Additional information relating to the
Company, including the Company's most recently filed annual
information form, can be found on SEDAR at http://www.sedar.com/,
and is also available on the Company's website at
http://www.aber.ca/. Consolidated Balance Sheets
--------------------------- (expressed in thousands of United
States dollars) April 30, 2006 January 31, (unaudited) 2006
-------------------------------------------------------------------------
Assets Current assets: Cash and cash equivalents (note 3) $ 159,174
$ 148,116 Cash collateral and cash reserves (note 3) 26,781 14,276
Accounts receivable 16,577 14,917 Inventory and supplies (note 4)
228,361 202,571 Advances and prepaid expenses 24,423 27,437
-------------------------------------------------------------------------
455,316 407,317 Deferred mineral property costs 205,685 196,367
Capital assets 305,327 301,735 Intangible assets, net 42,753 42,922
Goodwill 41,966 41,966 Deferred charges and other assets 21,946
22,681 Future income tax asset 37,717 30,625
-------------------------------------------------------------------------
$ 1,110,710 $ 1,043,613
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and Shareholders' Equity Current liabilities: Accounts
payable and accrued liabilities $ 87,770 $ 83,822 Bank advances
28,821 9,882 Current portion of long-term debt 32,931 27,915
-------------------------------------------------------------------------
149,522 121,619 Long-term debt 176,091 157,344 Future income tax
liability 263,482 256,426 Other long-term liability 4,929 4,929
Future site restoration costs 15,521 15,316 Minority interest (note
1) 37,866 36,086 Shareholders' equity: Share capital (note 6)
297,854 297,114 Stock options 12,246 11,805 Retained earnings
135,961 126,630 Cumulative translation adjustment 17,238 16,344
-------------------------------------------------------------------------
463,299 451,893 Commitments and guarantees (note 7)
-------------------------------------------------------------------------
$ 1,110,710 $ 1,043,613
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Consolidated Statement of Earnings
---------------------------------- (expressed in thousands of
United States dollars, except per share amounts) (unaudited) April
30, April 30, For the quarter ended 2006 2005
-------------------------------------------------------------------------
Sales $ 119,271 $ 110,132 Cost of sales 63,845 59,119
-------------------------------------------------------------------------
55,426 51,013 Selling, general and administrative expenses 27,295
23,394
-------------------------------------------------------------------------
Earnings from operations 28,131 27,619
-------------------------------------------------------------------------
Interest and financing expenses (4,334) (3,401) Other income 1,623
886 Foreign exchange gain (loss) (2,106) 496
-------------------------------------------------------------------------
Earnings before income taxes 23,314 25,600 Income tax expense -
Current 2,902 7,092 Income tax expense (recovery) - Future (3,938)
5,320
-------------------------------------------------------------------------
Earnings before minority interest 24,350 13,188 Minority interest
471 (394)
-------------------------------------------------------------------------
Net earnings $ 23,879 $ 13,582
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per share Basic $ 0.41 $ 0.23
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Diluted $ 0.40 $ 0.23
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted average number of shares outstanding 58,161,486 57,917,611
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Consolidated Statement of Retained Earnings
------------------------------------------- (expressed in thousands
of United States dollars)(unaudited) April 30, April 30, For the
quarter ended 2006 2005
-------------------------------------------------------------------------
Retained earnings, beginning of period $ 126,630 $ 101,460 Net
earnings 23,879 13,582 Dividends paid (14,548) (8,687)
-------------------------------------------------------------------------
Retained earnings, end of period $ 135,961 $ 106,355
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows
------------------------------------- (expressed in thousands of
United States dollars) (unaudited) April 30, April 30, For the
quarter ended 2006 2005
-------------------------------------------------------------------------
Cash provided by (used in): Operating: Net earnings $ 23,879 $
13,582 Items not involving cash: Amortization and accretion 13,362
13,685 Future income taxes (3,938) 5,320 Stock-based compensation
441 872 Foreign exchange 2,970 (1,896) Minority interest 471 775
Change in non-cash operating working capital (20,419) (10,399)
-------------------------------------------------------------------------
16,766 21,939
-------------------------------------------------------------------------
Financing: Repayment of long-term debt (100) (86) Increase in
revolving credit 42,643 75,863 Deferred financing - (322) Dividends
paid (14,548) (8,687) Issue of common shares 740 1,244 Purchase of
subordinated convertible debt - (6,808) Cash advance from minority
shareholder 1,096 - Common shares purchased for cancellation -
(4,660)
-------------------------------------------------------------------------
29,831 56,544
-------------------------------------------------------------------------
Investing: Cash collateral and cash reserve (12,505) (46) Deferred
mineral property costs (2,374) (11,338) Capital assets (22,144)
(3,268) Deferred charges (98) (548) Repayment of promissory note -
(51,059)
-------------------------------------------------------------------------
(37,121) (66,259)
-------------------------------------------------------------------------
Foreign exchange effect on cash balances 1,582 (312) Increase in
cash and cash equivalents 11,058 11,912 Cash and cash equivalents,
beginning of period 148,116 123,596
-------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 159,174 $ 135,508
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Change in non-cash operating working capital: Accounts receivable
(1,397) (1,635) Advances and prepaid expenses 3,014 (7,650)
Inventory and supplies (25,790) (16,765) Accounts payable and
accrued liabilities 3,754 15,651
-------------------------------------------------------------------------
$ (20,419) $ (10,399)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplemental cash flow information: Cash taxes paid $ 1,720 $ 2,143
Cash interest paid $ 2,924 $ 3,191
-------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. Notes
to Consolidated Financial Statements
------------------------------------------ April 30, 2006 with
comparative figures (tabular amounts in thousands of United States
dollars, except as otherwise noted) NOTE 1: Nature of Operations
Aber Diamond Corporation (the "Company" or "Aber") is a specialist
diamond company focusing on the mining and retail segments of the
diamond industry. The Company's most significant asset is a 40%
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 Aber Diamond Mines Ltd. (40%). DDMI is the operator of the
Diavik Diamond Mine (the "Diavik Mine"). Both companies are
headquartered in Yellowknife, Canada. DDMI is a wholly owned
subsidiary of Rio Tinto plc of London, England, and Aber Diamond
Mines Ltd. is a wholly owned subsidiary of Aber Diamond Corporation
of Toronto, Canada. The Diavik Mine is located 300 kilometres
northeast of Yellowknife in the Northwest Territories. Aber records
its proportionate interest in the assets, liabilities and expenses
of the Joint Venture in the Company's financial statements with a
one-month lag. Aber owns a 52.83% share of Harry Winston Inc.
("Harry Winston") located in New York City, US. The results of
Harry Winston are consolidated in the financial statements of the
Company. Minority interest primarily represents the remaining
ownership of Harry Winston not held by Aber. NOTE 2: Significant
Accounting Policies The interim consolidated financial statements
are prepared by management in accordance with accounting principles
generally accepted in Canada. The interim consolidated financial
statements include the accounts of the Company and all of its
subsidiaries as well as its proportionate interest in the assets,
liabilities and expenses of joint arrangements. Intercompany
transactions and balances have been eliminated. These statements
have been prepared following the same accounting policies and
methods of computation as the consolidated financial statements for
the year ended January 31, 2006. The interim consolidated financial
statements should be read in conjunction with the consolidated
financial statements and the notes thereto in the Company's annual
report for the year ended January 31, 2006, since these financial
statements do not include all disclosures required by generally
accepted accounting principles. NOTE 3: Cash Resources April 30,
January 31, 2006 2006
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Diavik Joint Venture $ 38,547 $ 10,523 Cash and cash equivalents
120,627 137,593
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Total cash and cash equivalents 159,174 148,116 Cash collateral and
cash reserves 26,781 14,276
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Total cash resources $ 185,955 $ 162,392
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NOTE 4: Inventory and Supplies April 30, January 31, 2006 2006
-------------------------------------------------------------------------
Rough diamond inventory $ 29,009 $ 21,612 Merchandise inventory
181,535 164,691 Supplies inventory 17,817 16,268
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Total inventory and supplies $ 228,361 $ 202,571
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NOTE 5: Diavik Joint Venture The following represents Aber's 40%
proportionate interest in the Joint Venture as at March 31, 2006
and December 31, 2005. April 30, January 31, 2006 2006
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Current assets $ 77,552 $ 52,845 Long-term assets 422,543 408,967
Current liabilities 27,392 14,600 Long-term liabilities and
participant's account 472,703 447,212 April 30, April 30, Three
months ended 2006 2005 Net expense 33,757 28,855 Cash flows
resulting from operating activities (6,711) (37,752) Cash flows
resulting from financing activities 52,069 49,681 Cash flows
resulting from investing activities (18,412) (13,887)
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The Company is contingently liable for the other participant's
portion of the liabilities of the Joint Venture and to the extent
the Company's participating interest has increased because of the
failure of the other participant to make a cash contribution when
required, the Company would have access to an increased portion of
the assets of the Joint Venture to settle such liabilities. NOTE 6:
Share Capital (a) Authorized Unlimited common shares without par
value. (b) Issued Number of shares Amount
---------------------------------------------------------------------
Balance, January 31, 2006 58,133,780 $ 297,114 Shares issued for:
Cash on exercise of options 64,700 740
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Balance, April 30, 2006 58,198,480 $ 297,854
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(c) Restricted and Deferred Share Unit Plans ("RSU" and "DSU"
Plans) Number of units
---------------------------------------------------------------------
Balance, January 31, 2006 145,038 Awards during the period (net):
RSU 56,297 DSU 12,654
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Balance, April 30, 2006 213,989
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Three months Three months ended ended April 30, April 30, Expenses
for the period: 2006 2005
---------------------------------------------------------------------
RSU $ 386 $ 112 DSU 136 230
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$ 522 $ 342
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During the period, the Company granted 56,297 RSUs (net of
decreases) and 12,654 DSUs under an employee and director incentive
compensation program, respectively. The RSU and DSU Plans are full
value phantom shares that mirror the value of Aber's publicly
traded common shares. Grants under the RSU Plan are on a
discretionary basis to employees of the Company subject to Board of
Director approval. Each RSU grant vests on the third anniversary of
the grant date, subject to special rules for death and disability.
The Company anticipates paying out cash on maturity of RSUs and
DSUs. Only non-executive directors of the Company are eligible for
grants under the DSU Plan. Each DSU grant vests immediately on the
grant date. The expenses related to the RSUs and DSUs are accrued
based on the price of Aber's common shares at the end of the period
and the probability of vesting. This expense is recognized on a
straight-line basis over the term of the grant. NOTE 7: Commitments
and Guarantees (a) Environmental Agreement Through negotiations of
environmental and other agreements, the Joint Venture must provide
funding for the Environmental Monitoring Advisory Board. Aber's
share of this funding requirement was $0.2 million for calendar
2006. Further funding will be required in future years; however,
specific amounts have not yet been determined. These agreements
also state the Joint Venture must provide security deposits for the
performance by the Joint Venture of its reclamation and abandonment
obligations under all environmental laws and regulations. Aber's
share of the Joint Venture's letters of credit outstanding with
respect to the environmental agreements as at April 30, 2006 was
$46.3 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 for successive periods of six years thereafter
until termination. The agreements terminate in the event the mine
permanently ceases to operate. (c) Commitments Commitments include
the cumulative maximum funding commitments secured by letters of
credit of the Joint Venture's environmental and participation
agreements at Aber's 40% share, before any reduction of future
reclamation activities and future minimum annual rentals under
non-cancellable operating leases for retail salons and corporate
office space, and are as follows: 2006 $ 67,184 2007 78,992 2008
81,087 2009 82,370 2010 81,061 Thereafter 132,637
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NOTE 8: Employee Benefit Plans Three months Three months ended
ended April 30, April 30, Expenses for the period: 2006 2005
-------------------------------------------------------------------------
Defined benefit pension plan at Harry Winston $ 30 $ 36 Defined
contribution plan at Harry Winston 90 66 Defined contribution plan
at the Diavik Mine 178 123
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$ 298 $ 225
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NOTE 9: Related Parties Transactions with related parties for the
three months ended April 30, 2006 include $0.1 million payable
(fiscal 2006 - $0.1 million) under management agreements with all
of Harry Winston's shareholders and $0.4 million (fiscal 2006 -
$0.8 million) of rent relating to the New York salon, payable to an
employee and shareholder. NOTE 10 Segmented Information The Company
operates in two segments within the diamond industry, mining and
retail, for the three months ended April 30, 2006. The mining
segment consists of the Company's rough diamond business. This
business includes the 40% interest in the Diavik group of mineral
claims and the sale of rough diamonds in the market-place. The
retail segment consists of the Company's ownership in Harry
Winston. This segment consists of the marketing of fine jewelry and
watches on a worldwide basis. For the three months ended April 30,
2006 Mining Retail Total
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Revenue Canada $ 69,308 $ - $ 69,308 United States - 21,148 21,148
Europe - 16,459 16,459 Asia - 12,356 12,356 Cost of sales 38,749
25,096 63,845
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30,559 24,867 55,426 Selling, general and administrative expenses
4,787 22,508 27,295
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Earnings from operations 25,772 2,359 28,131
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Interest and financing expenses (2,797) (1,537) (4,334) Other
income 1,602 21 1,623 Foreign exchange gain (loss) (2,247) 141
(2,106)
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Segmented earnings before income taxes $ 22,330 $ 984 $ 23,314
-------------------------------------------------------------------------
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Segmented assets as at April 30, 2006 Canada $ 755,561 $ - $
755,561 United States - 271,878 271,878 Other foreign countries
18,727 64,544 83,271
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$ 774,288 $ 336,422 $ 1,110,710
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Goodwill as at April 30, 2006 $ - $ 41,966 $ 41,966 Capital
expenditures $ 19,458 $ 2,686 $ 22,144 Other significant non-cash
items: Income tax expense (recovery) $ (3,835) $ (103) $ (3,938)
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For the three months ended April 30, 2005 Mining Retail Total
-------------------------------------------------------------------------
Revenue Canada $ 68,507 $ - $ 68,507 United States - 13,748 13,748
Europe - 18,168 18,168 Asia - 9,709 9,709 Cost of sales 37,593
21,526 59,119
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30,914 20,099 51,013 Selling, general and administrative expenses
4,108 19,286 23,394
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Earnings from operations 26,806 813 27,619
-------------------------------------------------------------------------
Interest and financing expenses (2,247) (1,154) (3,401) Other
income 843 43 886 Foreign exchange gain 468 28 496
-------------------------------------------------------------------------
Segmented earnings (loss) before income taxes $ 25,870 $ (270) $
25,600
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Segmented assets as at April 30, 2005 Canada $ 664,668 $ - $
664,668 United States - 195,588 195,588 Other foreign countries
9,869 66,060 75,929
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$ 674,537 $ 261,648 $ 936,185
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Goodwill as at April 30, 2005 $ - $ 41,966 $ 41,966 Capital
expenditures $ 2,853 $ 415 $ 3,268 Other significant non-cash
items: Income tax expense $ 4,910 $ 410 $ 5,320
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Sales to one customer in the mining segment totalled $5.7 million
(fiscal 2006 - $6.4 million) for the three months ended April 30,
2006. DATASOURCE: Aber Diamond Corporation CONTACT: Robert A.
Gannicott, Chairman and Chief Executive Officer, (416) 362-2237;
Amir Kalman, Director, Investor Relations, (416) 362-2237 (ext.
244)
Copyright