Harry Winston Diamond Corporation Reports Fiscal 2012 Fourth Quarter And Year-End Results (3)

TORONTO, April 5, 2012 /PRNewswire/ --

The key assumptions used in performing the trademark intangible test were as follows:

                            2012  2011
    Royalty rate - watches    7%    7%
    Royalty rate - jewelry  3.5%    3%
    Terminal growth rate      3%    3%
    Discount rate            12%   12%
 

 

Note 11: Other Non-Current Assets

                                              2012     2011   February 1, 2010
    Prepaid pricing discount(a), net of
    accumulated amortization of $10.3
    million (2011 - $8.9 million)         $  1,680 $  3,120 $            4,560
    Other assets                             3,276    3,398              1,328
    Refundable security deposits             9,209    8,003              9,741
                                          $ 14,165 $ 14,521 $           15,629

^(a) Prepaid pricing discount represents funds paid to Tiffany & Co. by the Company to amend its rough diamond supply agreement. The amendment eliminated all pricing discounts on future sales. The payment has been deferred and is being amortized on a straight-line basis over the remaining life of the contract.

Note 12: Trade and Other Payables

                                                                   February 1,
                                               2012      2011             2010
    Trade and other payables              $  41,031 $  54,732 $         25,949
    Accrued expenses                         17,835    17,635           15,837
    Customer deposits                        14,070    38,752            9,175
    Payables and accruals at the Diavik
    Joint Venture                            31,745    28,432           24,932
                                          $ 104,681 $ 139,551 $         75,893
 

Note 13: Employee Benefit Plans

The employee benefit obligation reflected in the consolidated balance sheet is as follows:

                                        2012           2011   February 1, 2010
    Defined benefit plan
    obligation - Harry Winston
    luxury brand segment (a)      $   11,381     $    9,009 $            7,104
    Defined contribution plan
    obligation - Harry Winston
    luxury brand segment (b)              88             80                 70
    Deferred compensation plan
    obligation - Harry Winston
    luxury brand segment (b)               -              -              9,207
    Post-retirement benefit
    plan - Diavik Diamond Mine
    (c)                                  289              -                  -
    RSU and DSU plans (note
    17)                                3,731          2,515              1,801
    Total employee benefit
    plan obligation               $   15,489     $   11,604 $           18,182
 
                                        2012           2011   February 1, 2010
    Non-current                   $    9,463     $    7,287 $            6,898
    Current                            6,026          4,317             11,284
    Total employee benefit
    plan obligation               $   15,489     $   11,604 $           18,182
 

The amounts recognized in the consolidated income statement in respect of employee benefit plans are as follows:

                                                                  2012    2011
    Defined benefit pension plan - Harry Winston luxury
    brand segment (a)                                          $ 2,074 $ 1,907
    Defined contribution plan - Harry Winston luxury brand
    segment (b)                                                  1,065     783
    Defined contribution plan - Harry Winston mining
    segment (b)                                                    207     218
    Defined contribution plan - Diavik Diamond Mine (b)          2,081   1,061
    Post-retirement benefit plan - Diavik Diamond Mine (c)         299       -
    RSU and DSU plans (note 17)                                  2,169     936
                                                               $ 7,595 $ 4,905
    Cash settled share-based payment recovery                    2,091   1,338
    Total employee benefit plan expense                        $ 9,686 $ 6,243
 

Employee benefit plan expense has been included in the consolidated income statement as follows:

                                                     2012    2011
    Cost of sales                                 $ 3,135 $ 1,717
    Selling, general and administrative expenses    6,551   4,526
                                                  $ 9,686 $ 6,243
 

(a) Defined benefit pension plan

The luxury brand segment sponsors three separate defined benefit pension plans covering 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 consist primarily of fixed income, equity and other short-term investments. The other two defined benefit pension plans are sponsored by luxury brand 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:

                                              2012      2011
    ACCRUED BENEFIT OBLIGATION
    Balance, beginning of year          $   24,643 $  20,700
    Service costs                            1,788     1,646
    Interest cost                              904       857
    Employee contributions                     496       372
    Actuarial gain                             904     1,825
    Other net expenses                       (411)     (387)
    Benefits paid                          (1,544)   (1,617)
    Foreign exchange                           690     1,247
    Balance, end of year                    27,460    24,643
    PLAN ASSETS
    Fair value, beginning of year           15,656    13,728
    Actual return on plan assets             (109)     1,355
    Employee and employer contributions      1,968     1,556
    Other net expenses                       (411)     (387)
    Benefits paid                          (1,112)   (1,363)
    Foreign exchange                            87       745
    Fair value, end of year                 16,079    15,634
    Funded status - plan deficit        $ (11,381) $ (9,009)
 

The following table provides the components of the net periodic pension costs for the three plans for the years ended January 31:

 
                                            2012      2011
    Service cost                       $ (1,788) $ (1,646)
    Interest cost                          (904)     (857)
    Expected return on plan assets           618       663
    Amortization of prior service cost         -      (67)
    Total                              $ (2,074) $ (1,907)
 

(ii)   PLAN ASSETS

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