Howard Hldg Asd (LSE:HWD)
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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
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(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
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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)
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Balance, end of year 11,296 11,784
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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)
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Fair value, end of year 10,384 10,574
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Funded status - plan deficit
(included in accrued liabilities) $ (912) $ (1,210)
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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
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Service cost $ (1,357) $ -
Interest cost (808) (623)
Expected return on plan assets 952 705
Net actuarial loss - (103)
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Total (1,213) (21)
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(ii) Plan assets
The asset allocation of Harry Winston Inc.'s US pension
benefits at January 31, 2008 were as follows:
2008 2007
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Asset category:
Cash equivalents 2% 3%
Equity securities 72% 72%
Fixed income securities 24% 22%
Other 2% 3%
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Total 100% 100%
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(iii) The significant assumptions used for Harry Winston Inc.'s US
plan is as follows:
2008 2007
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Accrued benefit obligation:
Discount rate 6.24% 5.75%
Expected long-term rate of return 7.50% 7.50%
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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%
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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
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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
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For the twelve months ended
January 31, 2007 Mining Retail Total
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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
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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
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Earnings from operations 144,472 2,287 146,759
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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
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Segmented earnings (loss) before
income taxes $ 146,562 $ (7,088) $ 139,474
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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
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$ 745,969 $ 541,945 $ 1,287,914
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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
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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
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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
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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
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Total A-154
South 1.2 5.8 7.1 3.7 5.4 19.8 4.9 5.5 27.0
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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
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Total A-154
North 2.9 2.3 6.6 5.9 2.2 12.7 8.7 2.2 19.3
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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
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Total A-418 4.8 3.4 16.6 3.5 4.1 14.2 8.3 3.7 30.9
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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
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Total
Reserves 9.0 3.4 30.3 13.0 3.6 46.7 21.9 3.5 77.1
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Note: Totals may not add up due to rounding.
Additional Indicated and Inferred Resources
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Measured Indicated Inferred
Resources Resources Resources
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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
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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
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Total - - - 4.1 3.1 12.7 3.6 3.2 11.5
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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