NOTE 18: Employee Benefit Plans Year ended Year ended January 31,
January 31, Expense for the year 2008 2007
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Defined benefit pension plan - Harry Winston retail segment(a) $
1,213 $ 61 Defined contribution plan - Harry Winston retail
segment(b) 1,063 389 Defined contribution plan - Diavik Mine(b) 833
701
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$ 3,109 $ 1,151 ------------------------ ------------------------
(a) Defined Benefit Pension Plan The Harry Winston retail segment
sponsors three separate defined benefit pension plans covering
substantially all of its employees in the United States, Japan and
Switzerland. The principal pension plan is the Harry Winston
Employee Retirement Plan for Harry Winston Inc. US employees. The
benefits for the Harry Winston Inc. plan are based on years of
service and the employee's compensation. In April 2001, Harry
Winston Inc. amended its defined benefit pension plan. The
amendment froze plan participation effective April 30, 2001. Harry
Winston Inc.'s funding policy for the US plan is to contribute
amounts to the plan sufficient to meet the minimum funding
requirements set forth in the Employee Retirement Income Security
Act of 1974. Plan assets consisted primarily of fixed income,
equity and other short-term investments. The other two defined
benefit pension plans are sponsored by retail segment subsidiaries
Harry Winston Japan, K.K. and Harry Winston S.A., which converted
their previous pension plan arrangements into defined benefit plans
effective February 1, 2007. Pension liabilities for these two
non-US plans are funded in accordance with local laws and
regulations. (i) Information about Harry Winston Inc.'s US defined
benefit plan is as follows: 2008 2007
-------------------------------------------------------------
Accrued benefit obligation: Balance, beginning of year $ 11,784 $
11,835 Interest cost 627 623 Actuarial loss (373) 410 Effects of
changes in assumptions - (278) Benefits paid (742) (806)
-------------------------------------------------------------
Balance, end of year 11,296 11,784
------------------------------------------------------------- Plan
assets: Fair value, beginning of year 10,574 9,594 Actual return on
plan assets 397 1,203 Employer contributions 155 583 Benefits paid
(742) (806)
------------------------------------------------------------- Fair
value, end of year 10,384 10,574
-------------------------------------------------------------
Funded status - plan deficit (included in accrued liabilities) $
(912) $ (1,210) ------------------------ ------------------------
US plan assets represented approximately 63% of total Harry Winston
retail segment plan assets at January 31, 2008. The unfunded status
of the retail segment plans are comprised of $0.9 million
attributed to the US-based Harry Winston Inc. plan, as reported in
the table above, and $0.8 million attributed to the Harry Winston
Japan, K.K. plan. The Harry Winston Japan, K.K. plan is non-funded
with a benefit obligation of $0.8 million. The Harry Winston S.A.
plan was fully funded at January 31, 2008 with a benefit obligation
of $6.0 million offset by plan assets of the same amount. The
following table provides the components of the net periodic pension
costs for the three plans for the years ended January 31. 2008 2007
-------------------------------------------------------------
Service cost $ (1,357) $ - Interest cost (808) (623) Expected
return on plan assets 952 705 Net actuarial loss - (103)
------------------------------------------------------------- Total
(1,213) (21)
-------------------------------------------------------------
------------------------------------------------------------- (ii)
Plan assets The asset allocation of Harry Winston Inc.'s US pension
benefits at January 31, 2008 were as follows: 2008 2007
------------------------------------------------------------- Asset
category: Cash equivalents 2% 3% Equity securities 72% 72% Fixed
income securities 24% 22% Other 2% 3%
------------------------------------------------------------- Total
100% 100%
-------------------------------------------------------------
------------------------------------------------------------- (iii)
The significant assumptions used for Harry Winston Inc.'s US plan
is as follows: 2008 2007
-------------------------------------------------------------
Accrued benefit obligation: Discount rate 6.24% 5.75% Expected
long-term rate of return 7.50% 7.50%
-------------------------------------------------------------
Benefit costs for the year: Discount rate 5.75% 5.50% Expected
long-term rate of return on plan assets 7.50% 7.50% Rate of
compensation increase 0.00% 0.00%
------------------------------------------------------------- Harry
Winston Inc's overall expected long-term rate of return on assets
is 7.50%. The expected long-term rate of return is based on the
portfolio as a whole and not on the sum of the returns on
individual asset categories. The return is based exclusively on
historical returns, without adjustments. Harry Winston S.A's
overall expected long-term rate of return on assets is 3.25%.
Long-term rate of return for Harry Winston Japan, K.K. plan assets
is not applicable due to the unfunded status of the plan. The
weighted average assumptions used to determine the benefit
obligations for Harry Winston Japan, K.K. and Harry Winston S.A. at
January 31, 2008 are a discount rate and expected long-term rate of
return of 2.00% and 0.00% and 3.00% and 3.25%, respectively. The
weighted average assumptions used to determine the benefit costs
for Harry Winston Japan, K.K. and Harry Winston S.A. at January 31,
2008 are a discount rate, expected long- term rate of return and a
rate of compensation increase of 2.00%, 0.00% and 4.60% and 3.00%,
3.25% and 1.00%, respectively. (iv) Harry Winston retail segment
expects to contribute $0.9 million to its pension plan in calendar
2008 Benefits of $1.3 million are expected to be paid by the retail
segment in each calendar year from 2009 to 2012. The aggregate
benefits expected to be paid in the five calendar years from 2013
to 2017 are $6.4 million. The expected benefits are based on the
same assumptions used to measure the retail segment's benefit
obligation at January 31, 2008. (b) Defined Contribution Plan Harry
Winston Inc. has a defined contribution 401(k) plan covering
substantially all employees in the United States. In the previous
year, the Company provided employer-matching contributions based on
amounts contributed by an employee, up to 50% of the first 6% of
the employee's salary. For the fiscal year ended January 31, 2008,
the Company elected to increase the employer-matching contribution
to 100% of the first 6% of the employee's salary. Employees must
meet minimum service requirements and be employed on December 31 of
each year in order to receive this matching contribution. The Joint
Venture sponsors a defined contribution plan whereby the employer
contributes 6% of the employee's salary. (c) Deferred Compensation
Plan On January 28, 2005, the Board of Directors of Harry Winston
Inc. approved an Equity Participation Plan (the "Plan") for certain
executives of Harry Winston Inc. The Plan involves "Phantom Stock"
awards, as defined in the executives' employment agreements, which
are payable in cash. These awards are split into a 40% time-vested
award and a 60% cliff-vested award. The value of the award for each
executive is calculated as a percentage of return on investment, as
defined in the agreements as the excess of the fair value of Harry
Winston Inc. at the date of calculation, over the fair value of
Harry Winston Inc. at April 2, 2004, adjusted for certain items as
defined in the agreements. The 40% time-vested award vests on the
six annual anniversaries of each executive's designated start date
and over the six-year period, the vesting percentages are 0%, 0%,
10%, 10%, 10% and 10%, respectively. The 60% cliff-vested award
vests in full on the date that Harry Winston Diamond Corporation
becomes the acquirer of 100% of the common stock of Harry Winston
Inc. The executives must remain employed by Harry Winston Inc.
through the vesting dates in order for the awards to vest. Both
awards would vest immediately upon the date of any future change in
control as defined in the employment agreements. On September 29,
2006, Harry Winston Diamond Corporation acquired 100% of the common
stock of Harry Winston Inc. As a result, the cliff-vested award has
vested. At January 31, 2008 and 2007, Harry Winston Inc. has
recorded a liability of $6.3 million and $7.2 million,
respectively, relating to the Plan. At January 21, 2008 and 2007,
Harry Winston Inc. has recorded a liability of $5.8 million and
$4.8 million, respectively, in connection with a deferred
compensation plan for a key executive. According to the terms of
this plan, the executive is entitled to deferred compensation of
$5.0 million, which vests in equal installments on the first
through the third anniversaries of the executive's first day of
employment with Harry Winston Inc. On each vesting date, the vested
portion of the deferred compensation will be paid to the executive
unless the executive provides Harry Winston Inc. with prior written
notice to defer receipt of all or a portion of the vested portion
of the deferred compensation. All such vested amounts deferred at
the request of the executive will be distributed to the executive
upon the executive's termination of employment with Harry Winston
Inc. The deferred compensation bears interest at LIBOR. NOTE 19:
Related Parties Transactions with related parties for the twelve
months ended January 31, 2008 include $1.8 million payable of rent
(2007 - $1.8 million) relating to the New York salon, payable to a
Harry Winston Inc. employee. NOTE 20: Insurance Settlement During
the third quarter of fiscal 2008, approximately $23.2 million in
Company-owned retail inventory at cost was stolen during a robbery
at the Harry Winston Paris salon. The Company was fully insured
against the loss, and recognized a pre-tax gain of $13.5 million in
the fourth quarter on settlement of the insurance claim. NOTE 21:
Subsequent Events On March 14, 2008, the Company completed a common
share private placement. The non-brokered private placement sold 3
million common shares at CDN $25 per share. No fees or commissions
were payable on this transaction which generated net proceeds of
CDN $75.0 million. This transaction diluted the Company's issued
and outstanding shares by 5%. On February 22, 2008, Harry Winston
Inc. entered into a credit agreement with a syndicate of banks for
$250.0 million, five-year revolving credit facility. No scheduled
repayments are required before the maturity date. NOTE 22:
Segmented Information The Company operates in two segments within
the diamond industry, mining and retail, as of January 31, 2008.
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 Inc. This segment consists of the
marketing of fine jewelry and watches on a worldwide basis. For the
twelve months ended January 31, 2008 Mining Retail Total
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Revenue Canada $ 413,772 $ - $ 413,772 United States - 112,453
112,453 Europe - 81,429 81,429 Asia - 71,653 71,653 Cost of sales
169,680 141,507 311,187
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Gross margin 244,092 124,028 368,120 Gross margin (%) 59.0% 46.7%
54.2% Selling, general and administrative expenses 23,359 127,086
150,445
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Earnings (loss) from operations 220,733 (3,058) 217,675
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Interest and financing expenses (14,940) (12,918) (27,858) Other
income 2,326 432 2,758 Insurance settlement - 13,488 13,488 Foreign
exchange gain (loss) (45,042) 1,651 (43,391)
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Segmented earnings (loss) before income taxes $ 163,077 $ (405) $
162,672 --------------------------------------
-------------------------------------- Segmented assets as at
January 31, 2008 Canada $ 856,841 $ - $ 856,841 United States -
459,525 459,525 Other foreign countries 22,466 155,116 177,582
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$ 879,307 $ 614,641 $ 1,493,948
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Goodwill as at January 31, 2008 $ - $ 93,780 $ 93,780 Capital
expenditures $ 163,312 $ 38,533 $ 201,845 Other significant
non-cash items: Income tax expense (recovery) $ 13,874 $ (5,296) $
8,578 Amortization and accretion $ 71,840 $ 9,334 $ 81,174
-------------------------------------------------------------------------
For the twelve months ended January 31, 2007 Mining Retail Total
-------------------------------------------------------------------------
Revenue Canada $ 332,573 $ - $ 332,573 United States - 97,989
97,989 Europe - 75,092 75,092 Asia - 53,139 53,139 Cost of sales
166,879 118,619 285,498
-------------------------------------------------------------------------
Gross margin 165,694 107,601 273,295 Gross margin (%) 49.8% 47.6%
48.9% Selling, general and administrative expenses 21,222 105,314
126,536
-------------------------------------------------------------------------
Earnings from operations 144,472 2,287 146,759
-------------------------------------------------------------------------
Interest and financing expenses (13,008) (8,142) (21,150) Other
income (expense) 5,323 (242) 5,081 Foreign exchange gain (loss)
9,775 (991) 8,784
-------------------------------------------------------------------------
Segmented earnings (loss) before income taxes $ 146,562 $ (7,088) $
139,474 --------------------------------------
-------------------------------------- Segmented assets as at
January 31, 2007 Canada $ 731,194 $ - $ 731,194 United States -
451,934 451,934 Other foreign countries 14,775 90,011 104,786
-------------------------------------------------------------------------
$ 745,969 $ 541,945 $ 1,287,914
-------------------------------------------------------------------------
Goodwill as at January 31, 2007 $ - $ 98,142 $ 98,142 Capital
expenditures $ 100,325 $ 19,579 $ 119,904 Other significant
non-cash items: Income tax expense (recovery) $ 22,972 $ (2,905) $
20,067 Amortization and accretion $ 62,553 $ 6,175 $ 68,728
-------------------------------------------------------------------------
Sales to one customer in the mining segment totalled $28.4 million
(2007 - $29.0 million) for the twelve months ended January 31,
2008. Diavik Diamond Mine Mineral Reserve and Mineral Resource
Statement as of December 31, 2007 Proven and Probable Reserves
Proven and Proven Probable Probable
-------------------------------------------------------------------------
Open Mill- Mill- Mill- Mill- Mill- Mill- pit and ions Carats ions
ions Carats ions ions Carats ions underground of per of of per of
of per of mining tonnes tonne carats tonnes tonne carats tonnes
tonne carats
-------------------------------------------------------------------------
A-154 South Open Pit 1.2 5.8 7.1 0.7 7.3 5.0 1.9 6.3 12.2
Underground - - - 3.0 4.9 14.8 3.0 4.9 14.8
-------------------------------------------------------------------------
Total A-154 South 1.2 5.8 7.1 3.7 5.4 19.8 4.9 5.5 27.0
-------------------------------------------------------------------------
A-154 North Open Pit 0.1 3.3 0.3 - - - 0.1 3.3 0.3 Underground 2.8
2.3 6.3 5.9 2.2 12.7 8.7 2.2 19.0
-------------------------------------------------------------------------
Total A-154 North 2.9 2.3 6.6 5.9 2.2 12.7 8.7 2.2 19.3
-------------------------------------------------------------------------
A-418 Open Pit 4.3 3.4 14.6 - - - 4.3 3.4 14.6 Underground 0.5 4.2
2.1 3.5 4.1 14.2 3.9 4.1 16.3
-------------------------------------------------------------------------
Total A-418 4.8 3.4 16.6 3.5 4.1 14.2 8.3 3.7 30.9
-------------------------------------------------------------------------
Total Open Pit 5.7 3.9 22.0 0.7 7.3 5.0 6.3 4.3 27.0 Underground
3.3 2.5 8.4 12.3 3.4 41.7 15.6 3.2 50.1
-------------------------------------------------------------------------
Total Reserves 9.0 3.4 30.3 13.0 3.6 46.7 21.9 3.5 77.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Note: Totals may not add up due to rounding. Additional Indicated
and Inferred Resources
-------------------------------------------------------------------------
Measured Indicated Inferred Resources Resources Resources
-------------------------------------------------------------------------
Mill- Mill- Mill- Mill- Mill- Mill- ions Carats ions ions Carats
ions ions Carats ions Kimberlite of per of of per of of per of pipe
tonnes tonne carats tonnes tonne carats tonnes tonne carats
-------------------------------------------------------------------------
A-154 South - - - - - - 0.6 4.3 2.5 A-154 North - - - - - - 1.7 2.6
4.4 A-418 - - - - - - 0.6 4.5 2.7 A-21 - - - 4.1 3.1 12.7 0.7 2.8
1.9
-------------------------------------------------------------------------
Total - - - 4.1 3.1 12.7 3.6 3.2 11.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Note: Totals may not add up due to rounding. The above mineral
reserve and mineral resource statement was prepared by Diavik
Diamond Mines Inc., operator of the Diavik Mine, under the
supervision of Calvin Yip, P.Eng., Manager, Strategic Planning of
Diavik Diamond Mines Inc., a Qualified Person within the meaning of
National Instrument 43-101 of the Canadian Securities
Administrators. For further details and information concerning
Harry Winston Diamond Corporation's Mineral Reserves and Resources,
readers should reference Harry Winston Diamond Corporation's Annual
Information Form available through http://www.sedar.com/ and
http://investor.harrywinston.com/. DATASOURCE: HARRY WINSTON
DIAMOND CORPORATION CONTACT: PRNewswire - - 04/07/2008
Copyright