Harry Winston Diamond Corporation Reports Fiscal 2012 First Quarter Results

TORONTO, June 8, 2011 /CNW/ - Harry Winston Diamond Corporation (TSX: HW) (NYSE: HWD) (the "Company") today announced its first quarter Fiscal 2012 results for the quarter ending April 30, 2011.

Robert Gannicott, Chairman and Chief Executive Officer stated, "This quarter's results reflect improving rough diamond prices combined with increasing sales and profit for the luxury brand segment. Both sides of our diamond business are performing well as we continue to achieve premium rough diamond prices and execute our luxury brand strategy. Our recently announced relationship with Diamond Asset Advisors in the creation of a polished diamond acquisition fund represents an innovative way for the Company to support its luxury brand growth objectives."

First Quarter Highlights:

    <<
    -   Consolidated sales were $143.9 million, an increase of 26% versus the
        prior year (22% at constant exchange rates). Mining sales were
        $62.0 million, an increase of 27% versus last year primarily due to
        higher rough diamond pricing versus the comparable prior year period.
        Luxury brand sales were $81.9 million, an increase of 26% versus the
        prior year (20% at constant exchange rates), primarily driven by
        stronger high jewelry sales in the United States and higher timepiece
        sales.
    -   Rough diamond production for the calendar quarter ended March 31,
        2011 was 0.5 million carats compared to 0.6 million carats in the
        calendar quarter of the prior year.
    -   Consolidated EBITDA (earnings before interest taxes depreciation and
        amortization) in the first quarter of Fiscal 2012 increased 51%
        versus a year ago to $25.0 million showing strength in both segments
        of the business. In the same period, Mining segment EBITDA increased
        48.5% to $17.6 million and Luxury Brand segment EBITDA increased
        57.3% to $7.3 million.
    -   Consolidated operating profit was $4.7 million or double the
        operating profit of $2.3 million from a year ago, with mining
        operating profits down $0.3 million and luxury brand profits up
        $2.7 million versus the prior year. Operating profit benefited from
        higher rough diamond prices and higher high-end jewelry and timepiece
        sales.
    -   Consolidated net profit attributable to shareholders for the first
        quarter was $3.6 million or $0.04 per share compared to net profit
        attributable to shareholders of $2.1 million or $0.03 per share in
        the comparable quarter of the prior year.
    >>

Fiscal 2012 First Quarter Financial Summary

    <<
    (US$ in millions except Earnings per Share amounts)
    -------------------------------------------------------------------------
                                                          Three        Three
                                                         months       months
                                                          ended        ended
                                                        Apr. 30,     Apr. 30,
                                                           2011         2010
    -------------------------------------------------------------------------
    Sales                                                $143.9       $114.0
    - Mining Segment                                       62.0         48.9
    - Luxury Brand Segment                                 81.9         65.1
    -------------------------------------------------------------------------
    Operating profit                                        4.7          2.3
    - Mining Segment                                        0.6          0.9
    - Luxury Brand Segment                                  4.1          1.4
    -------------------------------------------------------------------------
    Net profit                                              3.6          2.9
    -------------------------------------------------------------------------
    Earnings per share                                    $0.04        $0.03
    -------------------------------------------------------------------------
    >>

Complete financial statements, MD&A and a discussion of risk factors are included in the accompanying release.

Transition to IFRS from Canadian GAAP

The Company has adopted International Financial Reporting Standards ("IFRS") for its first quarter Fiscal 2012 unaudited interim condensed consolidated financial statements. The Company previously reported its results under Canadian GAAP, and continues to report results in US Dollars.

The results of the Company's conversion to IFRS can be found in Fiscal 2012 First Quarter Report and should be read in conjunction with the Company's Fiscal 2011 Annual Report.

Annual Meeting and First Quarter Results Webcast

Beginning at 10:00AM (ET) on Thursday, June 9, 2011, the Company will hold its Annual Meeting of Shareholders at the St. Andrew's Club and Conference Center, 150 King Street West, 27th Floor in Toronto, Ontario. Interested parties unable to attend may listen to a webcast of the meeting and a review of the first quarter results on the Company's website at http://investor.harrywinston.com.

An online archive of the webcast will be available later that same day by accessing the Company's investor relations web site at http://investor.harrywinston.com.

About Harry Winston Diamond Corporation

Harry Winston Diamond Corporation is a diamond enterprise with premium assets in the mining and retail segments of the diamond industry. Harry Winston supplies rough diamonds to the global market from its 40 percent ownership interest in the Diavik Diamond Mine. The Company's luxury brand segment is a premier diamond jeweler and luxury timepiece retailer with salons in key locations, including New York, Paris, London, Beijing, Tokyo, Hong Kong and Beverly Hills.

The Company focuses on the two most profitable segments of the diamond industry, mining and retail, in which its expertise creates shareholder value. This unique business model provides key competitive advantages; rough diamond sales and polished diamond purchases provide market intelligence that enhances the Company's overall performance.

For more information, please visit www.harrywinston.com or for investor information, visit http://investor.harrywinston.com.

    <<
                                 Highlights

     (ALL FIGURES ARE IN UNITED STATES DOLLARS UNLESS OTHERWISE INDICATED)
    >>

Consolidated sales were $143.9 million for the first quarter compared to $114.0 million for the comparable quarter of the prior year, resulting in a 24% increase in gross margin to $47.5 million and operating profit of $4.7 million, compared to operating profit of $2.3 million in the comparable quarter of the prior year.

The mining segment recorded sales of $62.0 million, a 27% increase from $48.9 million in the comparable quarter of the prior year. The increase in sales resulted primarily from a 34% increase in achieved rough diamond prices during the quarter. The mining segment recorded operating profit of $0.6 million compared to $0.9 million in the comparable quarter of the prior year. Cost of sales of $53.4 million included $16.4 million of depreciation and amortization.

The luxury brand segment recorded sales of $81.9 million, an increase of 26% from sales of $65.1 million in the comparable quarter of the prior year (20% at constant exchange rates). Operating profit was $4.1 million for the quarter compared to $1.4 million in the same quarter of the prior year.

The Company recorded a consolidated net profit attributable to shareholders of $3.6 million or $0.04 per share for the quarter, compared to a net profit attributable to shareholders of $2.1 million or $0.03 per share in the first quarter of the prior year.

    <<
                     Management's Discussion and Analysis

        PREPARED AS OF JUNE 8, 2011 (ALL FIGURES ARE IN UNITED STATES
                     DOLLARS UNLESS OTHERWISE INDICATED)
    >>

The following is management's discussion and analysis ("MD&A") of the results of operations for Harry Winston Diamond Corporation ("Harry Winston Diamond Corporation", or the "Company") for the three months ended April 30, 2011, and its financial position as at April 30, 2011. This MD&A is based on the Company's unaudited interim condensed consolidated financial statements prepared in accordance with International Financial Reporting Standards ("IFRS") and should be read in conjunction with the unaudited interim condensed consolidated financial statements and notes thereto for the three months ended April 30, 2011 and the audited consolidated financial statements of the Company and notes thereto for the year ended January 31, 2011 (prepared in accordance with generally accepted accounting principles in Canada ("Canadian GAAP" or "CDN GAAP")). Unless otherwise specified, all financial information is presented in United States dollars. Unless otherwise indicated, all references to "first quarter" refer to the three months ended April 30. Unless otherwise indicated, references to "international" for the luxury brand segment refer to Europe and Asia.

Certain comparative figures have been reclassified to conform to the current year's presentation.

Certain information included in this MD&A may constitute forward-looking information within the meaning of Canadian and United States securities laws. In some cases, forward-looking information can be identified by the use of terms such as "may", "will", "should", "expect", "plan", "anticipate", "foresee", "appears", "believe", "intend", "estimate", "predict", "potential", "continue", "objective" 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 plans, timelines and targets for construction, mining, development, production and exploration activities at the Diavik Diamond Mine, future mining and processing at the Diavik Diamond Mine, projected capital expenditure requirements and the funding thereof, liquidity and working capital requirements and sources, estimated reserves and resources at, and production from, the Diavik Diamond Mine, the number and timing of expected rough diamond sales, the demand for rough diamonds, expected diamond prices and expectations concerning the diamond industry and the demand for luxury goods, expected cost of sales and gross margin trends in the mining segment, targets for compound annual growth rates of sales and operating income in the luxury brand segment, plans for expansion of the retail salon network, and expected sales trends and market conditions in the luxury brand segment. Actual results may vary from the forward-looking information. See "Risks and Uncertainties" on page 15 for material risk factors that could cause actual results to differ materially from the forward-looking information.

Forward-looking information is based on certain factors and assumptions regarding, among other things, mining, production, construction and exploration activities at the Diavik Diamond Mine, world and US economic conditions and the worldwide demand for luxury goods. Specifically, in making statements regarding expected diamond prices and expectations concerning the diamond industry and expected sales trends and market conditions in the luxury brand segment, the Company has made assumptions regarding, among other things, continuing recovery of world and US economic conditions, worldwide diamond production levels, and demand for luxury goods. While the Company considers these assumptions to be reasonable based on the information currently available to it, they may prove to be incorrect. See "Risks and Uncertainties" on page 15.

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, including risks associated with underground construction and mining operations, risks associated with joint venture operations, risks associated with the remote location of and harsh climate at the Diavik Diamond Mine site, risks associated with regulatory requirements, fluctuations in diamond prices and changes in US and world economic conditions, the risk of fluctuations in the Canadian/US dollar exchange rate, cash flow and liquidity risks, the risks of competition in the luxury jewelry business as well as changes in demand for high-end luxury goods, and risks associated with the impact of the Company's transition to IFRS. Please see page 15 of this Interim Report, as well as the Company's current Annual Information Form, available at www.sedar.com, for a discussion of these and other risks and uncertainties involved in the Company's operations.

Readers are cautioned not to place undue importance on forward-looking information, which speaks only as of the date of this MD&A, and should not rely upon this information as of any other date. Due to assumptions, risks and uncertainties, including the assumptions, risks and uncertainties identified above and elsewhere in this MD&A, actual events may differ materially from current expectations. The Company uses forward-looking statements because it believes such statements provide useful information with respect to the expected future operations and financial performance of the Company, and cautions readers that the information may not be appropriate for other purposes. While the Company may elect to, it is under no obligation and does not undertake to update or revise any forward-looking information, whether as a result of new information, future events or otherwise at any particular time, except as required by law. Additional information concerning factors that may cause actual results to materially differ from those in such forward-looking statements is contained in the Company's filings with Canadian and United States securities regulatory authorities and can be found at www.sedar.com and www.sec.gov, respectively.

Summary Discussion

Harry Winston Diamond Corporation is a diamond enterprise with premium assets in the mining and retailing segments of the diamond industry. The Company supplies rough diamonds to the global market from its 40% ownership interest in the Diavik Diamond Mine, located in Canada's Northwest Territories. The Company's luxury brand segment is a premier diamond jeweler and luxury timepiece retailer with salons in key locations including New York, Paris, London, Beijing, Tokyo, Hong Kong and Beverly Hills.

The Company's mining asset is an ownership interest in the Diavik group of mineral claims. The Diavik Joint Venture (the "Joint Venture") is an unincorporated joint arrangement between Diavik Diamond Mines Inc. ("DDMI") (60%) and Harry Winston Diamond Limited Partnership ("HWDLP") (40%) where HWDLP holds an undivided 40% ownership interest in the assets, liabilities and expenses of the Diavik Diamond Mine. DDMI is the operator of the Diavik Diamond Mine. DDMI and HWDLP are headquartered in Yellowknife, Canada. DDMI is a wholly owned subsidiary of Rio Tinto plc of London, England.

Market Commentary

The Diamond Market

Continued increase in demand pushed the price of rough diamonds to new highs in the first quarter of fiscal 2012. The market price for rough diamonds has increased approximately 34% over the comparable quarter of the prior year. The driving markets remained the Far East and India. In addition, continued resurgence from the US market increased demand for certain popular ranges of polished diamonds. The demand for rough diamonds continues to outpace the increase in mine supply, which is expected to lead to further price growth in fiscal 2012.

The Luxury Brand Jewelry Market

The luxury jewelry market continues to show positive growth over the comparable quarter of the prior year, supported by increasing global wealth led by China. The positive sales trend in the luxury jewelry market continued despite the challenges of the earthquake and tsunami in Japan in early March and the political upheaval in the Middle East and North Africa. Significant increases in diamond and raw materials costs have led many retailers to respond by increasing prices. A weak US dollar led to strong tourism into the United States, and resulted in increased consumer demand especially from Asian clients.

Condensed Consolidated Financial Results

The following is a summary of the Company's consolidated quarterly results for the eight quarters ended April 30, 2011 following the basis of presentation utilized in its IFRS and Canadian GAAP financial statements:

    <<
    (expressed in thousands of United States dollars except per share amounts
    and where otherwise noted)
    (quarterly results are unaudited)
    -------------------------------------------------------------------------
                                                  IFRS
    -------------------------------------------------------------------------
                                2012      2011      2011      2011      2011
                                  Q1        Q4        Q3        Q2        Q1
    -------------------------------------------------------------------------
    Sales                   $143,932  $215,358  $140,877  $153,728  $114,000
    Cost of sales             96,452   141,391    84,765    85,798    75,711
    -------------------------------------------------------------------------
    Gross margin              47,480    73,967    56,112    67,930    38,289
    Gross margin (%)           33.0%     34.3%     39.8%     44.2%     33.6%
    Selling, general and
     administrative
     expenses                 42,795    52,722    41,282    37,998    35,948
    -------------------------------------------------------------------------
    Operating profit (loss)    4,685    21,245    14,830    29,932     2,341
    -------------------------------------------------------------------------
    Finance expenses          (3,983)   (3,727)   (3,835)   (2,985)   (2,880)
    Exploration costs           (212)     (351)     (212)      (76)      (27)
    Finance and other
     income                      258       278        69       154       168
    Insurance settlement           -         -         -         -         -
    Dilution loss                  -         -         -         -         -
    Foreign exchange gain
     (loss)                     (177)    1,392       135     1,043    (2,213)
    -------------------------------------------------------------------------
    Profit (loss) before
     income taxes                571    18,837    10,987    28,068    (2,611)
    Income tax expense
     (recovery)               (3,027)    5,261    (2,410)   10,877    (5,524)
    -------------------------------------------------------------------------
    Net profit (loss)       $  3,598  $ 13,576  $ 13,397  $ 17,191  $  2,913
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Attributable to
     shareholders           $  3,596  $ 13,569  $ 12,657  $ 13,043  $  2,137
    Attributable to
     non-controlling
     interest                      2         7       740     4,148       776
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Basic earnings (loss)
     per share              $   0.04  $   0.16  $   0.15  $   0.17  $   0.03
    Diluted earnings (loss)
     per share              $   0.04  $   0.16  $   0.15  $   0.17  $   0.03
    Cash dividends declared
     per share              $   0.00  $   0.00  $   0.00  $   0.00  $   0.00
    Total assets(i)         $  1,666  $  1,606  $  1,584  $  1,596  $  1,522
    Total long-term
     liabilities(i)         $    605  $    597  $    588  $    531  $    449
    -------------------------------------------------------------------------
    Operating profit (loss) $  4,685  $ 21,245  $ 14,830  $ 29,932  $  2,341
    Depreciation and
     amortization(ii)         20,291    24,635    18,657    19,515    14,200
    -------------------------------------------------------------------------
    EBITDA(iii)             $ 24,976  $ 45,880  $ 33,487  $ 49,447  $ 16,541
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                        CDN GAAP             IFRS      IFRS
    -------------------------------------------------------------------------
                                                             Three     Three
                                                            months    months
                                                             ended     ended
                                2010      2010      2010  April 30, April 30,
                                  Q4        Q3        Q2      2011      2010
    -------------------------------------------------------------------------
    Sales                   $133,654  $ 74,828  $ 94,776  $143,932  $114,000
    Cost of sales             96,257    45,227    66,294    96,452    75,711
    -------------------------------------------------------------------------
    Gross margin              37,397    29,601    28,482    47,480    38,289
    Gross margin (%)           28.0%     39.6%     30.1%     33.0%     33.6%
    Selling, general and
     administrative
     expenses                 40,479    34,542    32,380    42,795    35,948
    -------------------------------------------------------------------------
    Operating profit (loss)   (3,082)   (4,941)   (3,898)    4,685     2,341
    -------------------------------------------------------------------------
    Finance expenses          (2,396)   (2,448)   (2,998)   (3,983)   (2,880)
    Exploration costs              -         -         -      (212)      (27)
    Finance and other
     income                      129        99        83       258       168
    Insurance settlement           -       100         -         -         -
    Dilution loss                  -         -      (539)        -         -
    Foreign exchange gain
     (loss)                   (1,978)    1,598   (25,274)     (177)   (2,213)
    -------------------------------------------------------------------------
    Profit (loss) before
     income taxes             (7,327)   (5,592)  (32,626)      571    (2,611)
    Income tax expense
     (recovery)               (5,800)   (4,221)   (5,662)   (3,027)   (5,524)
    -------------------------------------------------------------------------
    Net profit (loss)       $ (1,527) $ (1,371) $(26,964) $  3,598  $  2,913
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Attributable to
     shareholders           $ (3,358) $   (214) $(24,521) $  3,596  $  2,137
    Attributable to
     non-controlling
     interest                  1,831    (1,157)   (2,443)        2       776
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Basic earnings (loss)
     per share              $  (0.04) $   0.00  $  (0.32) $   0.04  $   0.03
    Diluted earnings (loss)
     per share              $  (0.04) $   0.00  $  (0.32) $   0.04  $   0.03
    Cash dividends declared
     per share              $   0.00  $   0.00  $   0.00  $   0.00  $   0.00
    Total assets(i)         $  1,495  $  1,535  $  1,533  $  1,666  $  1,522
    Total long-term
     liabilities(i)         $    477  $    506  $    507  $    605  $    449
    -------------------------------------------------------------------------
    Operating profit (loss) $ (3,082) $ (4,941) $ (3,898) $  4,685  $  2,341
    Depreciation and
     amortization(ii)         18,258    11,208    16,971    20,291    14,200
    -------------------------------------------------------------------------
    EBITDA(iii)             $ 15,176  $  6,267  $ 13,073  $ 24,976  $ 16,541
    -------------------------------------------------------------------------

    (i)    Total assets and total long-term liabilities are expressed in
           millions of United States dollars.

    (ii)   Depreciation and amortization included in cost of sales and
           selling, general and administrative expenses.

    (iii)  Earnings before interest, taxes, depreciation and amortization
           ("EBITDA"). See "Non-GAAP Measure" on page 14.

           The comparability of quarter-over-quarter results is impacted by
           seasonality for both the mining and luxury brand segments. Harry
           Winston Diamond Corporation expects that the quarterly results for
           its mining segment will continue to fluctuate depending on the
           seasonality of production at the Diavik Diamond Mine, the number
           of sales events conducted during the quarter, and the volume, size
           and quality distribution of rough diamonds delivered from the
           Diavik Diamond Mine in each quarter. The quarterly results for the
           luxury brand segment are also seasonal, with generally higher
           sales during the fourth quarter due to the holiday season. See
           "Segmented Analysis" on page 8 for additional information.
    >>

Three Months Ended April 30, 2011 Compared to Three Months Ended April 30, 2010

CONSOLIDATED NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS

The Company recorded a first quarter consolidated net profit attributable to shareholders of $3.6 million or $0.04 per share compared to a net profit attributable to shareholders of $2.1 million or $0.03 per share in the first quarter of the prior year.

CONSOLIDATED SALES

Sales for the first quarter totalled $143.9 million, consisting of rough diamond sales of $62.0 million and luxury brand segment sales of $81.9 million. This compares to sales of $114.0 million in the comparable quarter of the prior year (rough diamond sales of $48.9 million and luxury brand segment sales of $65.1 million). The Company held two rough diamond sales in the first quarter, consistent with the comparable quarter of the prior year. See "Segmented Analysis" on page 8 for additional information.

CONSOLIDATED COST OF SALES AND GROSS MARGIN

The Company's first quarter cost of sales was $96.5 million for a gross margin of 33.0% compared to a cost of sales of $75.7 million and a gross margin of 33.6% for the comparable quarter of the prior year. The Company's cost of sales includes costs associated with mining, rough diamond sorting and luxury brand sales activities. See "Segmented Analysis" on page 8 for additional information.

CONSOLIDATED SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

The principal components of selling, general and administrative ("SG&A") expenses include expenses for salaries and benefits, advertising and marketing, rent and building related costs. The Company incurred SG&A expenses of $42.8 million for the first quarter, compared to $35.9 million in the comparable quarter of the prior year.

Included in SG&A expenses for the first quarter was $8.0 million for the mining segment compared to $3.9 million for the comparable quarter of the prior year and $34.8 million for the luxury brand segment compared to $32.1 million for the comparable quarter of the prior year. The increase from the comparable quarter of the prior year for the mining segment was due to executive severance and a mark-to-market on stock-based compensation. For the luxury brand segment, the increase was due primarily to higher variable compensation expenses resulting from higher sales and increased rent and building related expenses. See "Segmented Analysis" on page 8 for additional information.

CONSOLIDATED INCOME TAXES

The Company recorded a net income tax recovery of $3.0 million during the first quarter, compared to a net income tax recovery of $5.5 million in the comparable quarter of the prior year. The Company's combined federal and provincial statutory tax rate for the quarter is 27.9%. A number of items can significantly impact the Company's effective tax rate, including foreign currency exchange rate fluctuations, the Northwest Territories mining royalty, earnings subject to tax different than the statutory rate, and changes in valuation allowances. As a result, the Company's recorded tax provision can be significantly different than the expected tax provision calculated based on the statutory tax rate.

The recorded tax provision is particularly impacted by foreign currency exchange rate fluctuations. The Company's functional and reporting currency is US dollars; 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, the Canadian dollar strengthened against the US dollar. As a result, the Company recorded an unrealized foreign exchange loss of $11.6 million on the revaluation of the Company's Canadian dollar denominated deferred income tax liability. This compares to an unrealized foreign exchange loss of $8.0 million in the comparable quarter of the prior year. The unrealized foreign exchange loss is recorded as part of the Company's deferred income tax recovery, and is not deductible for Canadian income tax purposes. During the first quarter, the Company also recognized a deferred income tax recovery of $12.5 million for temporary differences arising from the difference between the historical exchange rate and the current exchange rate translation of foreign currency non-monetary items. This compares to a deferred income tax recovery of $10.2 million recognized in the comparable quarter of the prior year. The recorded tax provision during the quarter also included a net income tax recovery of $1.9 million relating to foreign exchange differences between income in the currency of the country of origin and the US dollars. This compares to a net income tax recovery of $1.7 million recognized in the comparable quarter of the prior year.

The Company also recorded a release of valuation allowance of $1.0 million during the quarter in relation to deductible temporary differences previously not recognized as deferred tax assets.

The rate of income tax payable by Harry Winston Inc. varies by jurisdiction. Net operating losses are available in certain jurisdictions to offset future income taxes payable in such jurisdictions. The net operating losses are scheduled to expire through 2031.

Due to the number of factors that can potentially impact the effective tax rate and the sensitivity of the tax provision to these factors, as discussed above, it is expected that the Company's effective tax rate will fluctuate in future periods.

CONSOLIDATED FINANCE EXPENSES

Finance expenses of $4.0 million were incurred during the first quarter compared to $2.9 million during the comparable quarter of the prior year. Finance expenses were impacted by increased debt levels primarily in the mining segment.

CONSOLIDATED EXPLORATION EXPENSE

Exploration expense of $0.2 million was incurred during the first quarter compared to $nil in the comparable quarter of the prior year.

CONSOLIDATED FINANCE AND OTHER INCOME

Finance and other income of $0.3 million was recorded during the quarter compared to $0.2 million in the comparable quarter of the prior year.

CONSOLIDATED FOREIGN EXCHANGE

A net foreign exchange loss of $0.2 million was recognized during the quarter compared to a net foreign exchange loss of $2.2 million in the comparable quarter of the prior year. The Company does not currently have any significant foreign exchange derivative instruments outstanding.

Segmented Analysis

The operating segments of the Company include mining and luxury brand segments.

Mining

The mining segment includes the production and sale of rough diamonds.

    <<
    (expressed in thousands of United States dollars)
    (quarterly results are unaudited)
    -------------------------------------------------------------------------
                                                    IFRS
    -------------------------------------------------------------------------

                                2012      2011      2011      2011      2011
                                  Q1        Q4        Q3        Q2        Q1
    -------------------------------------------------------------------------
    Sales                   $ 62,035  $ 82,697  $ 60,708  $ 86,827  $ 48,922
    Cost of sales             53,443    61,822    45,039    54,408    44,143
    -------------------------------------------------------------------------
    Gross margin               8,592    20,875    15,669    32,419     4,779
    Gross margin (%)           13.9%     25.2%     25.8%     37.3%      9.8%
    Selling, general and
     administrative
     expenses                  8,026     4,828     6,231     4,813     3,870
    -------------------------------------------------------------------------
    Operating profit (loss) $    566  $ 16,047  $  9,438  $ 27,606  $    909
    Depreciation and
     amortization(i)          17,083    20,669    15,428    16,352    10,975
    -------------------------------------------------------------------------
    EBITDA(ii)              $ 17,649  $ 36,716  $ 24,866  $ 43,958  $ 11,884
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                       CDN GAAP             IFRS      IFRS
    -------------------------------------------------------------------------
                                                             Three     Three
                                                            months    months
                                                             ended     ended
                                2010      2010      2010  April 30, April 30,
                                  Q4        Q3        Q2      2011      2010
    -------------------------------------------------------------------------
    Sales                   $ 63,489  $ 20,765  $ 45,941  $ 62,035  $ 48,922
    Cost of sales             57,027    20,319    40,049    53,443    44,143
    -------------------------------------------------------------------------
    Gross margin               6,462       446     5,892     8,592     4,779
    Gross margin (%)           10.2%      2.1%     12.8%     13.9%      9.8%
    Selling, general and
     administrative
     expenses                  4,885     4,932     4,182     8,026     3,870
    -------------------------------------------------------------------------
    Operating profit (loss) $  1,577  $ (4,486) $  1,710  $    566  $    909
    Depreciation and
     amortization(i)          14,976     7,845    13,760    17,083    10,975
    -------------------------------------------------------------------------
    EBITDA(ii)              $ 16,553  $  3,359  $ 15,470  $ 17,649  $ 11,884
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (i)  Depreciation and amortization included in cost of sales and
         selling, general and administrative expenses.

    (ii) Earnings before interest, taxes, depreciation and amortization
         ("EBITDA"). See "Non-GAAP Measure" on page 14.
    >>

Three Months Ended April 30, 2011 Compared to Three Months Ended April 30, 2010

MINING SALES

During the quarter the Company sold 0.5 million carats for a total of $62.0 million for an average price per carat of $132 compared to 0.5 million carats for a total of $48.9 million for an average price per carat of $105 in the comparable quarter of the prior year. The increase in the Company's achieved rough diamond prices was lower than the market price increase due to a shift in sales mix, with a lower proportion of carats sold from the higher value A-154 South ore and a higher proportion of carats sold from the lower value A-418 ore. The Company held two rough diamond sales in the first quarter, consistent with the comparable quarter of the prior year.

The Company expects that results for its mining segment will continue to fluctuate depending on the seasonality of production at the Diavik Diamond Mine, the number of sales events conducted during the quarter, rough diamond prices and the volume, size and quality distribution of rough diamonds delivered from the Diavik Diamond Mine in each quarter.

MINING COST OF SALES AND GROSS MARGIN

The Company's first quarter cost of sales was $53.4 million resulting in a gross margin of 13.9% compared to a cost of sales of $44.1 million and a gross margin of 9.8% in the comparable quarter of the prior year. Cost of sales of $53.4 million included $16.4 million of depreciation and amortization. The mining gross margin is anticipated to fluctuate between quarters, resulting from variations in the specific mix of product sold during each quarter and rough diamond prices.

A substantial portion of cost of sales is mining operating costs, which are incurred at the Diavik Diamond Mine. Cost of sales also includes sorting costs, which consist of the Company's cost of handling and sorting product in preparation for sales to third parties, and amortization and depreciation, the majority of which is recorded using the unit-of-production method over estimated proven and probable reserves.

MINING SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

SG&A expenses for the mining segment increased by $4.2 million from the comparable quarter of the prior year due to executive severance and a mark-to-market on stock-based compensation.

MINING SEGMENT OPERATIONAL UPDATE

Ore production for the first calendar quarter consisted of 1.1 million carats produced from 0.36 million tonnes of ore from the A-418 kimberlite pipe, 0.2 million carats produced from 0.10 million tonnes of ore from the A-154 North kimberlite pipe, and 0.1 million carats produced from 0.02 million tonnes of ore from the A-154 South kimberlite pipe. Rough diamond production was 14% lower than the comparable calendar quarter of the prior year due primarily to maintenance at the processing plant and a shift in ore mix from the higher grade A-154 South open pit to the lower grade A-154 North underground and A-418 open pit. This shift in ore mix resulted in average grade decreasing to 2.8 carats per tonne in the first calendar quarter from 4.0 carats per tonne in the comparable quarter of the prior year.

HARRY WINSTON DIAMOND LIMITED PARTNERSHIP'S 40% SHARE OF DIAVIK DIAMOND MINE PRODUCTION

    <<
    (reported on a one-month lag)
    -------------------------------------------------------------------------
                                            Three        Three        Twelve
                                           months       months        months
                                            ended        ended         ended
                                         March 31,    March 31,  December 31,
                                             2011         2010          2010
    -------------------------------------------------------------------------
    Diamonds recovered (000s carats)          540          625         2,599
    Grade (carats/tonne)                     2.80         4.03          3.15
    -------------------------------------------------------------------------
    >>

Mining Segment Outlook

PRODUCTION

The approved mine plan and budget for calendar 2011 estimates Diavik Diamond Mine production of approximately 6.9 million carats from the mining of 2.0 million tonnes of ore and processing of 2.2 million tonnes of ore, with the increment delivered from stockpile. Open pit mining of approximately 1.4 million tonnes is expected to be exclusively from A-418, almost all of which is expected to be sourced from the lower-grade mud-rich ore type. Underground mining of approximately 0.6 million tonnes is expected to be primarily sourced equally from the A-154 South and A-154 North kimberlite pipes. The Company expects that in the second half of the year, the higher grade A-154 South will be mined using a recently approved higher velocity and lower cost mining method. This may lead to augmentation of the production plan to include more ore from this pipe.

Looking beyond calendar 2011, the objective is to fully utilize processing capacity with a combination of underground and open pit production. Current plans see A-21 development beginning in 2013, with production in 2015. In addition, exploration work has identified extensions at depth to the A-418 and A-154 North kimberlite pipes. The inclusion of these extensions into ore reserves will be largely dependent upon the costs of new underground mining techniques currently under review. The Company is in the process of updating the life-of-mine plan, which it expects to release publicly later this year.

PRICING

The rough diamond market continued to improve into the first quarter of fiscal 2012 and the Company anticipates that market conditions will remain favourable throughout the rest of the year. Based on Harry Winston Diamond Corporation's current rough diamond sales prices as of May 2011 and the current diamond recovery profile of the Diavik processing plant, the Company has modeled the approximate rough diamond price per carat for each of the Diavik ore types as follows:

    <<
                                                               Average price
                                                                   per carat
    Ore type                                                  (in US dollars)
    -------------------------------------------------------------------------
    A-154 South                                                     $    165
    A-154 North                                                          215
    A-418 A Type Ore                                                     150
    A-418 B Type Ore                                                     105
    -------------------------------------------------------------------------
    >>

COST OF SALES

The Company expects cost of sales in fiscal 2012 to be approximately $265 million. Included in this amount is depreciation and amortization of approximately $80 million at an assumed average Canadian/US dollar exchange rate of $1.00. This increase in cost of sales is expected to result primarily from an increase in the proportion of underground ore mined.

CAPITAL EXPENDITURES

During fiscal 2012, HWDLP's 40% share of the planned capital expenditures at the Diavik Diamond Mine is expected to be approximately $62 million at an assumed average Canadian/US dollar exchange rate of $1.00. During the first quarter, HWDLP's share of capital expenditures was $10.3 million.

EXPLORATION

The Company has additionally staked 226,000 hectares of mineral claims on the prospective geological trend to the southwest of the existing mine site and is starting a small but important basal till drilling program to assess the potential for new diamondiferous kimberlite pipes over the coming years.

Luxury Brand

The luxury brand segment includes sales from Harry Winston salons, which are located in prime markets around the world, including eight salons in the United States: New York, Beverly Hills, Bal Harbour, Honolulu, Las Vegas, Dallas, Chicago and Costa Mesa; five salons in Japan: Ginza, Roppongi Hills, Osaka, Omotesando and Nagoya; two salons in Europe: Paris and London; and four salons in Asia outside of Japan: Beijing, Taipei, Hong Kong and Singapore.

    <<
    (expressed in thousands of United States dollars)
    (quarterly results are unaudited)
    -------------------------------------------------------------------------
                                                    IFRS
    -------------------------------------------------------------------------
                                2012      2011      2011      2011      2011
                                  Q1        Q4        Q3        Q2        Q1
    -------------------------------------------------------------------------
    Sales                   $ 81,897  $132,661  $ 80,169  $ 66,901  $ 65,078
    Cost of sales             43,009    79,569    39,726    31,390    31,568
    -------------------------------------------------------------------------
    Gross margin              38,888    53,092    40,443    35,511    33,510
    Gross margin (%)           47.5%     40.0%     50.4%     53.1%     51.5%
    Selling, general and
     administrative
     expenses                 34,769    47,894    35,051    33,185    32,078
    -------------------------------------------------------------------------
    Operating profit (loss) $  4,119  $  5,198  $  5,392  $  2,326  $  1,432
    Depreciation and
     amortization(i)           3,209     3,966     3,229     3,162     3,226
    -------------------------------------------------------------------------
    EBITDA(ii)              $  7,328  $  9,164  $  8,621  $  5,488  $  4,658
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                        CDN GAAP            IFRS      IFRS
    -------------------------------------------------------------------------
                                                             Three     Three
                                                            months    months
                                                             ended     ended
                                2010      2010      2010  April 30, April 30,
                                  Q4        Q3        Q2      2011      2010
    -------------------------------------------------------------------------
    Sales                   $ 70,165  $ 54,063  $ 48,835  $ 81,897  $ 65,078
    Cost of sales             39,230    24,908    26,245    43,009    31,568
    -------------------------------------------------------------------------
    Gross margin              30,935    29,155    22,590    38,888    33,510
    Gross margin (%)           44.1%     53.9%     46.3%     47.5%     51.5%
    Selling, general and
     administrative
     expenses                 35,594    29,610    28,198    34,769    32,078
    -------------------------------------------------------------------------
    Operating profit (loss) $ (4,659) $   (455) $ (5,608) $  4,119  $  1,432
    Depreciation and
     amortization(i)           3,282     3,363     3,211     3,209     3,226
    -------------------------------------------------------------------------
    EBITDA(ii)              $ (1,377) $  2,908  $ (2,397) $  7,328  $  4,658
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (i)   Depreciation and amortization included in cost of sales and
          selling, general and administrative expenses.
    (ii)  Earnings before interest, taxes, depreciation and amortization
          ("EBITDA"). See "Non-GAAP Measure" on page 14.
    >>

Three Months Ended April 30, 2011 Compared to Three Months Ended April 30, 2010

LUXURY BRAND SALES

Sales for the first quarter were $81.9 million compared to $65.1 million for the comparable quarter of the prior year, an increase of 26% (20% at constant exchange rates). US sales increased 65% to $36.4 million, sales in Asia increased 6% to $24.9 million, and European sales increased 6% to $20.6 million.

LUXURY BRAND COST OF SALES AND GROSS MARGIN

Cost of sales for the luxury brand segment for the first quarter was $43.0 million compared to $31.6 million for the comparable quarter of the prior year. Gross margin for the quarter was $38.9 million or 47.5% compared to $33.5 million or 51.5% for the first quarter of the prior year. The decrease in gross margin resulted primarily from increases in raw material costs.

LUXURY BRAND SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

SG&A expenses increased to $34.8 million from $32.1 million in the comparable quarter of the prior year. The increase was due primarily to higher variable compensation expenses resulting from higher sales and increased rent and building related expenses. SG&A expenses include depreciation and amortization expense of $3.1 million consistent with the comparable quarter of the prior year.

LUXURY BRAND SEGMENT OPERATIONAL UPDATE

During the first quarter, the luxury brand segment generated sales of $81.9 million, an increase of 26% over the comparable quarter of the prior year. Sales growth was achieved across all geographic regions. The US market generated sales of $36.4 million, an increase of 65% over the comparable quarter of the prior year. Strong tourism and the continuing economic recovery contributed to the solid performance in the US. In Japan, sales of $14.1 million increased 8% over the comparable quarter of the prior year despite the impact of the earthquake and tsunami that occurred in early March. Asia excluding Japan had sales of $10.8 million, which were 2% higher than the comparable quarter of the prior year. In Europe, sales of $20.6 million were 6% higher than the comparable quarter of the prior year.

The introduction of new watch collections, including the Opus 11 and Midnight Collection, at the Baselworld watch fair in March was well received, generating strong sales orders and interest from watch and fashion journalists around the world.

Harry Winston Inc. currently operates a network of 19 luxury brand salons worldwide.

LUXURY BRAND SEGMENT OUTLOOK

The Company expects continued strong consumer demand for luxury jewelry and watch products throughout the remainder of the fiscal year. The introduction of new watch and jewelry collections, supported by increased advertising, is expected to contribute to further sales growth. Management's long-term financial objectives for the luxury brand segment over the next five years (fiscal 2012 to fiscal 2016) include compound annual revenue growth in the mid-teens, a gross margin target in the low 50% range, and an operating profit margin target in the low to mid-teens.

A key component of the luxury brand's growth strategy is the expansion of its current salon network and wholesale distribution channel. The growth target is to expand to approximately 35 directly operated salons, 15 partner salons, and 300 wholesale doors by fiscal 2016. In line with this strategy, the Company is planning to open two new salons in Shanghai, China, during the fourth quarter of fiscal 2012.

On May 19, 2011, the Company announced that it had entered into a business arrangement with Diamond Asset Advisors AG ("DAA"), who are in the process of establishing a polished diamond investment fund (the "Fund"). The Fund will be structured as a limited partnership with total funding of up to $250 million, offering institutional investors direct exposure to the wholesale market price of polished diamonds. Under the terms of the Company's arrangement with the Fund, the Company's expert diamond team will source diamonds for the Fund that have the same high-quality characteristics that the luxury brand segment uses in its jewelry and watches, with a portion of the diamonds coming from the Company's existing inventory. The Fund will purchase the diamonds and then consign them to the Company, who will act as custodian. The Company will use the consigned polished diamonds in the manufacturing of its jewelry and watches, paying the Fund when the jewelry or watch is sold. The price paid by the Fund to replace the sold polished diamonds will be used to determine the Fund's market value. This arrangement will increase the inventory available to the Company's expanding international salon network without additional demands on working capital. The Fund is expected to raise the first capital subscription of approximately $100 million from investors later this fiscal year, with the remaining $150 million expected to be raised over the following year, subject to market conditions.

Liquidity and Capital Resources

Working Capital

As at April 30, 2011, the Company had unrestricted cash and cash equivalents of $101.2 million compared to $108.7 million at January 31, 2011. The Company had cash on hand and balances with banks of $94.7 million and short-term investments of $6.5 million at April 30, 2011. During the quarter ended April 30, 2011, the Company reported a use of cash from operations of $18.0 million compared to a source of cash of $24.9 million in the comparable quarter of the prior year. The current quarter use of cash resulted primarily from the acquisition of inventory for both the mining and luxury brand segments.

Working capital increased to $352.7 million at April 30, 2011 from $328.6 million at January 31, 2011. During the quarter, the Company increased accounts receivable by $5.4 million, increased other current assets by $0.6 million, increased inventory and supplies by $62.4 million, increased trade and other payables by $ 27.6 million and decreased employee benefit plans by $0.4 million.

The Company's liquidity requirements fluctuate from quarter to quarter depending on, among other factors, the seasonality of production at the Diavik Diamond Mine, seasonality of mine operating expenses, capital expenditure programs, the number of rough diamond sales events conducted during the quarter and the volume, size and quality distribution of rough diamonds delivered from the Diavik Diamond Mine in each quarter, along with the seasonality of sales and salon expansion in the luxury brand segment. The Company's principal working capital needs include investments in inventory, other current assets, and trade and other payables and income taxes payable.

The Company assesses liquidity and capital resources on a consolidated basis. The Company's requirements are for cash operating expenses, working capital, contractual debt requirements and capital expenditures. The Company believes that it will generate sufficient liquidity to meet its anticipated requirements for the next twelve months.

Financing Activities

The mining segment maintains a senior secured revolving credit facility with Standard Chartered Bank that was increased from $100.0 million to $125.0 million on February 28, 2011. At April 30, 2011, $50.0 million was outstanding.

At April 30, 2011, $9.8 million was outstanding under the Company's revolving financing facility relating to its Belgian subsidiary, Harry Winston Diamond International N.V., compared to $nil at January 31, 2011.

During the quarter, the luxury brand subsidiary, Harry Winston Inc., increased the amount outstanding on its secured five-year revolving credit facility from $165.0 million to $172.0 million.

Investing Activities

During the quarter, the Company purchased property, plant and equipment of $13.8 million, of which $12.4 million was purchased for the mining segment and $1.4 million for the luxury brand segment.

Contractual Obligations

The Company has contractual payment obligations with respect to interest-bearing loans and borrowings and, through its participation in the Joint Venture, future site restoration costs at the Diavik Diamond 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 Diamond Mine, HWDLP is obligated to fund 40% of the Joint Venture's total expenditures on a monthly basis. HWDLP's current projected share of the planned capital expenditures at the Diavik Diamond Mine, which are not reflected in the table below, including capital expenditures for the calendar years 2011 to 2015, is approximately $140 million assuming a Canadian/US average exchange rate of $1.00 for the five years. The most significant contractual obligations for the ensuing five-year period can be summarized as follows:

    <<
    CONTRACTUAL OBLIGATIONS

    (expressed in
     thousands of United          Less than       Year       Year      After
     States dollars)       Total     1 year        2-3        4-5    5 years
    -------------------------------------------------------------------------
    Interest-bearing
     loans and
     borrowings (a)(b)  $376,105   $113,316   $238,781   $  4,997   $ 19,011
    Environmental and
     participation
     agreements
     incremental
     commitments (c)     100,125     86,940        720         42     12,423
    Operating lease
     obligations (d)     245,880     25,941     41,879     40,046    138,014
    -------------------------------------------------------------------------
    Total contractual
     obligations        $722,110   $226,197   $281,380   $ 45,085   $169,448
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (a) Interest-bearing loans and borrowings presented in the foregoing
        table include current and long-term portions. The mining segment
        maintains a senior secured revolving credit facility with Standard
        Chartered Bank for $125.0 million. The facility has an initial
        maturity date of June 24, 2013 with two one-year extensions at the
        Company's option. There are no scheduled repayments required before
        maturity. At April 30, 2011, $50.0 million was outstanding.

        On August 25, 2010, the Company issued a promissory note in the
        amount of $70.0 million, maturing on August 25, 2011, as part of the
        consideration for reacquiring its 9% indirect interest in the Diavik
        Joint Venture (the "Kinross Buy Back Transaction") from Kinross Gold
        Corporation ("Kinross"). The note bears interest at a rate of 5% per
        annum and can be repaid in cash or, subject to certain limitations,
        treasury common shares issued by the Company. The issuance of such
        shares is expected to be subject to approval by the Company's
        shareholders in most circumstances.

        The Company has available a $45.0 million revolving financing
        facility (utilization in either US dollars or Euros) for inventory
        and receivables funding in connection with marketing activities
        through its Belgian subsidiary, Harry Winston Diamond International
        N.V., and its Indian subsidiary, Harry Winston Diamond (India)
        Private Limited. Borrowings under the Belgian facility bear interest
        at the bank's base rate plus 1.5%. Borrowings under the Indian
        facility bear an interest rate of 10.75%. At April 30, 2011,
        $9.8 million and $nil were outstanding under this facility relating
        to its Belgian subsidiary, Harry Winston Diamond International N.V.,
        and its Indian subsidiary, Harry Winston Diamond (India) Private
        Limited, respectively. The facility is guaranteed by Harry Winston
        Diamond Corporation.

        Harry Winston Inc. maintains a credit agreement with a syndicate of
        banks for a $250.0 million five-year revolving credit facility, which
        expires on March 31, 2013. There are no scheduled repayments required
        before maturity. At April 30, 2011, $172.0 million had been drawn
        against this secured credit facility.

        Also included in long-term debt of Harry Winston Inc. is a 25-year
        loan agreement for CHF 17.5 million ($19.9 million) used to finance
        the construction of the Company's watch factory in Geneva,
        Switzerland. The loan agreement is comprised of a CHF 3.5 million
        ($4.0 million) loan and a CHF 14.0 million ($15.9 million) loan. The
        CHF 3.5 million loan bears interest at a rate of 3.15% and matures on
        April 22, 2013. The CHF 14.0 million loan bears interest at a rate of
        3.55% and matures on January 31, 2033. At April 30, 2011,
        $17.9 million was outstanding. The bank has a secured interest in the
        factory building.

        Harry Winston S.A. has a CHF 0.1 million ($0.1 million) finance lease
        for furniture located at the watch factory in Geneva, Switzerland.
        The finance lease has an interest rate of 3.85% and matures on July
        31, 2011. At April 30, 2011, $0.1 million was outstanding.

        Harry Winston Japan, K.K. maintains unsecured credit agreements with
        two banks, amounting to (Yen)1,260 million ($15.5 million). Harry
        Winston Japan, K.K. also maintains a secured credit agreement
        amounting to (Yen)575 million ($7.1 million). This facility is
        secured by inventory owned by Harry Winston Japan, K.K.

        The Company's first mortgage on real property has scheduled principal
        payments of approximately $0.2 million quarterly, may be prepaid at
        any time, and matures on September 1, 2018. On April 30, 2011,
        $7.3 million was outstanding on the mortgage payable.

    (b) Interest on loans and borrowings is calculated at various fixed and
        floating rates. Projected interest payments on the current debt
        outstanding were based on interest rates in effect at April 30, 2011,
        and have been included under interest-bearing loans and borrowings
        in the table above. Interest payments for the next twelve months are
        approximated to be $9.4 million.

    (c) The Joint Venture, under environmental and other agreements, must
        provide funding for the Environmental Monitoring Advisory Board.
        These agreements also state that the Joint Venture must provide
        security deposits for the performance by the Joint Venture of its
        reclamation and abandonment obligations under all environmental laws
        and regulations. The operator of the Joint Venture has fulfilled such
        obligations for the security deposits by posting letters of credit of
        which HWDLP's share as at April 30, 2011 was $85.1 million based on
        its 40% ownership interest in the Diavik Diamond Mine. There can be
        no assurance that the operator will continue its practice of posting
        letters of credit in fulfillment of this obligation, in which event
        HWDLP would be required to post its proportionate share of such
        security directly, which would result in additional constraints on
        liquidity. 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 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 Diamond
        Mine.

    (d) Operating lease obligations represent future minimum annual rentals
        under non-cancellable operating leases for Harry Winston Inc. salons
        and office space, and long-term leases for property, land, office
        premises and a fuel tank farm for the Diavik Diamond Mine.
    >>

Non-GAAP Measure

In addition to discussing earnings measures in accordance with IFRS, the MD&A provides the following non-GAAP measure, which is also used by management to monitor and evaluate the performance of the Company and its business segments.

The term EBITDA (earnings before interest, taxes, depreciation and amortization) does not have a standardized meaning according to IFRS. The Company defines EBITDA as sales minus cost of sales and selling, general and administrative expenses, meaning it represents operating profit before depreciation and amortization.

EBITDA is a measure commonly reported and widely used by investors and analysts as an indicator of the Company's operating performance and ability to incur and service debt and as a valuation metric. EBITDA margin is defined as the ratio obtained by dividing EBITDA by sales.

    <<
    CONSOLIDATED

    (expressed in thousands of United States dollars)
    (quarterly results are unaudited)
    ------------------------------------------------------------------------
                                                    IFRS
    -------------------------------------------------------------------------
                                2012      2011      2011      2011      2011
                                  Q1        Q4        Q3        Q2        Q1
    -------------------------------------------------------------------------
    Operating profit (loss) $  4,685  $ 21,245  $ 14,830  $ 29,932  $  2,341
    Depreciation and
     amortization              20,291   24,635    18,657    19,515    14,200
    -------------------------------------------------------------------------
    EBITDA                  $  24,976 $ 45,880  $ 33,487  $ 49,447  $ 16,541
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                        CDN GAAP            IFRS      IFRS
    -------------------------------------------------------------------------
                                                             Three     Three
                                                            months    months
                                                             ended     ended
                                2010      2010      2010  April 30, April 30,
                                  Q4        Q3        Q2      2011      2010
    -------------------------------------------------------------------------
    Operating profit (loss) $ (3,082) $ (4,941) $ (3,898) $  4,685  $  2,341
    Depreciation and
     amortization             18,258    11,208    16,971    20,291    14,200
    -------------------------------------------------------------------------
    EBITDA                  $ 15,176  $  6,267  $ 13,073  $ 24,976  $ 16,541
    -------------------------------------------------------------------------



    MINING SEGMENT

    (expressed in thousands of United States dollars)
    (quarterly results are unaudited)
    -------------------------------------------------------------------------
                                                    IFRS
    -------------------------------------------------------------------------
                                2012      2011      2011      2011      2011
                                  Q1        Q4        Q3        Q2        Q1
    -------------------------------------------------------------------------
    Operating profit (loss) $    566  $ 16,047  $  9,438  $ 27,606  $    909
    Depreciation and
     amortization             17,083    20,669    15,428    16,352    10,975
    -------------------------------------------------------------------------
    EBITDA                  $ 17,649  $ 36,716  $ 24,866  $ 43,958  $ 11,884
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                        CDN GAAP            IFRS      IFRS
    -------------------------------------------------------------------------
                                                             Three     Three
                                                            months    months
                                                             ended     ended
                                2010      2010      2010  April 30, April 30,
                                  Q4        Q3        Q2      2011      2010
    -------------------------------------------------------------------------
    Operating profit (loss) $  1,577  $ (4,486) $  1,710  $    566  $    909
    Depreciation and
     amortization             14,976     7,845    13,760    17,083    10,975
    -------------------------------------------------------------------------
    EBITDA                  $ 16,553  $  3,359  $ 15,470  $ 17,649  $ 11,884
    -------------------------------------------------------------------------



    LUXURY BRAND SEGMENT

    (expressed in thousands of United States dollars)
    (quarterly results are unaudited)
    -------------------------------------------------------------------------
                                                    IFRS
    -------------------------------------------------------------------------
                                2012      2011      2011      2011      2011
                                  Q1        Q4        Q3        Q2        Q1
    -------------------------------------------------------------------------
    Operating profit (loss) $  4,119  $  5,198  $  5,392  $  2,326  $  1,432
    Depreciation and
     amortization              3,209     3,966     3,229     3,162     3,226
    -------------------------------------------------------------------------
    EBITDA                  $  7,328  $  9,164  $  8,621  $  5,488  $  4,658
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                        CDN GAAP            IFRS      IFRS
    -------------------------------------------------------------------------
                                                             Three     Three
                                                            months    months
                                                             ended     ended
                                2010      2010      2010  April 30, April 30,
                                  Q4        Q3        Q2      2011      2010
    -------------------------------------------------------------------------
    Operating profit (loss) $ (4,659) $   (455) $ (5,608) $  4,119  $  1,432
    Depreciation and
     amortization              3,282     3,363     3,211     3,209     3,226
    -------------------------------------------------------------------------
    EBITDA                  $ (1,377) $  2,908  $ (2,397) $  7,328  $  4,658
    -------------------------------------------------------------------------
    >>

Risks and Uncertainties

Harry Winston Diamond Corporation is subject to a number of risks and uncertainties as a result of its operations. In addition to the other information contained in this MD&A and the Company's other publicly filed disclosure documents, readers should give careful consideration to the following risks, each of which could have a material adverse effect on the Company's business prospects or financial condition.

Nature of Mining

The operation of the Diavik Diamond Mine is subject to risks inherent in the mining industry, including variations in grade and other geological differences, unexpected problems associated with required water retention dikes, water quality, surface and underground conditions, processing problems, equipment performance, accidents, labour disputes, risks relating to the physical security of the diamonds, force majeure risks and natural disasters. Particularly with underground mining operations, inherent risks include variations in rock structure and strength as it impacts on mining method selection and performance, de-watering and water handling requirements, achieving the required paste backfill strengths, and unexpected local ground conditions. Hazards, such as unusual or unexpected rock formations, rock bursts, pressures, collapses, flooding or other conditions, may be encountered during mining. Such risks could result in personal injury or fatality; damage to or destruction of mining properties, processing facilities or equipment; environmental damage; delays, suspensions or permanent reductions in mining production; monetary losses; and possible legal liability.

The Diavik Diamond Mine, because of its remote northern location and access only by winter road or by air, is subject to special climate and transportation risks. These risks include the inability to operate or to operate efficiently during periods of extreme cold, the unavailability of materials and equipment, and increased transportation costs due to the late opening and/or early closure of the winter road. Such factors can add to the cost of mine development, production and operation and/or impair production and mining activities, thereby affecting the Company's profitability.

Nature of Joint Arrangement with DDMI

HWDLP holds an undivided 40% interest in the assets, liabilities and expenses of the Diavik Diamond Mine and the Diavik group of mineral claims. The Diavik Diamond Mine and the exploration and development of the Diavik group of mineral claims is a joint arrangement between DDMI (60%) and HWDLP (40%), and is subject to the risks normally associated with the conduct of joint ventures and similar joint arrangements. These risks include the inability to exert influence over strategic decisions made in respect of the Diavik Diamond Mine and the Diavik group of mineral claims. By virtue of DDMI's 60% interest in the Diavik Diamond Mine, it has a controlling vote in virtually all Joint Venture management decisions respecting the development and operation of the Diavik Diamond Mine and the development of the Diavik group of mineral claims. Accordingly, DDMI is able to determine the timing and scope of future project capital expenditures, and therefore is able to impose capital expenditure requirements on HWDLP that the Company may not have sufficient cash to meet. A failure to meet capital expenditure requirements imposed by DDMI could result in HWDLP's interest in the Diavik Diamond Mine and the Diavik group of mineral claims being diluted.

Diamond Prices and Demand for Diamonds

The profitability of the Company is dependent upon production from the Diavik Diamond Mine and on the results of the operations of its luxury brand operations. Each, in turn, is dependent in significant part upon the worldwide demand for and price of diamonds. Diamond prices fluctuate and are affected by numerous factors beyond the control of the Company, including worldwide economic trends, particularly in the US, Japan, China and India, worldwide levels of diamond discovery and production, and the level of demand for, and discretionary spending on, luxury goods such as diamonds and jewelry. Low or negative growth in the worldwide economy, renewed or additional credit market disruptions, natural disasters or the occurrence of further terrorist attacks or similar activities creating disruptions in economic growth could result in decreased demand for luxury goods such as diamonds and jewelry, thereby negatively affecting the price of diamonds and jewelry. Similarly, a substantial increase in the worldwide level of diamond production or in diamonds available for sale through recommencement of suspended mining activity or the release of stocks held back during recent periods of low demand could also negatively affect the price of diamonds. In each case, such developments could have a material adverse effect on the Company's results of operations.

Cash Flow and Liquidity

The Company's liquidity requirements fluctuate from quarter to quarter and year to year depending on, among other factors, the seasonality of production at the Diavik Diamond Mine, seasonality of mine operating expenses, capital expenditure programs, the number of rough diamond sales events conducted during the quarter and the volume, size and quality distribution of rough diamonds delivered from the Diavik Diamond Mine in each quarter, along with the seasonality of sales and salon refurbishment and expansion in the luxury brand segment. The Company's principal working capital needs include investments in inventory, prepaid expenses and other current assets, and accounts payable and income taxes payable. Pursuant to the August 25, 2010 Kinross agreement, a promissory note (the "Kinross Note") in the amount of $70.0 million was issued by the Company. The promissory note bears interest at a rate of 5% per annum with a maturity date of August 25, 2011 and can be paid in cash or, subject to certain limitations, in treasury common shares issued by the Company to Kinross. The issuance of such shares is expected to be subject to approval by the Company's shareholders in most circumstances. The Kinross Note is a significant short-term financial obligation. There can be no assurance that the Company will be able to meet each or all of its liquidity requirements. A failure by the Company to meet its liquidity requirements could result in the Company failing to meet its planned development objectives, or in the Company being in default of a contractual obligation, each of which could have a material adverse effect on the Company's business prospects or financial condition.

Economic Environment

The Company's financial results are tied to the global economic conditions and their impact on levels of consumer confidence and consumer spending. The global markets have experienced the impact of a significant US and international economic downturn since the fall of 2008. This has restricted the Company's growth opportunities both domestically and internationally, and a return to a recession or weak recovery, due to recent disruptions in financial markets in the European Union or otherwise, the recent disaster in Japan and political upheavals in the Middle East, could cause the Company to experience further revenue declines across both of its business segments due to deteriorated consumer confidence and spending, and a decrease in the availability of credit, which could have a material adverse effect on the Company's business prospects or financial condition. The Company monitors economic developments in the markets in which it operates and uses this information in its continuous strategic and operational planning in an effort to adjust its business in response to changing economic conditions.

Currency Risk

Currency fluctuations may affect the Company's financial performance. Diamonds are sold throughout the world based principally on the US dollar price, and although the Company reports its financial results in US dollars, a majority of the costs and expenses of the Diavik Diamond Mine are incurred in Canadian dollars. Further, the Company has a significant deferred income tax liability that has been incurred and will be payable in Canadian dollars. The Company's currency exposure relates primarily to expenses and obligations incurred by it in Canadian dollars and, secondarily, to revenues of Harry Winston Inc. in currencies other than the US dollar. The appreciation of the Canadian dollar against the US dollar, and the depreciation of other currencies against the US dollar, therefore, will increase the expenses of the Diavik Diamond Mine and the amount of the Company's Canadian dollar liabilities relative to the revenue the Company will receive from diamond sales, and will decrease the US dollar revenues received by Harry Winston Inc. From time to time, the Company may use a limited number of derivative financial instruments to manage its foreign currency exposure.

Licences and Permits

The operation of the Diavik Diamond Mine and exploration on the Diavik property requires licences and permits from the Canadian government. The Diavik Diamond Mine Type "A" Water Licence was renewed by the regional Wek'eezhii Land and Water Board to October 31, 2015. While the Company anticipates that DDMI, the operator of the Diavik Diamond Mine, will be able to renew this licence and other necessary permits in the future, there can be no guarantee that DDMI will be able to do so or obtain or maintain all other necessary licences and permits that may be required to maintain the operation of the Diavik Diamond Mine or to further explore and develop the Diavik property.

Regulatory and Environmental Risks

The operation of the Diavik Diamond Mine, exploration activities at the Diavik Project and the manufacturing of jewelry and watches are subject to various laws and regulations governing the protection of the environment, exploration, development, production, taxes, labour standards, occupational health, waste disposal, mine safety, manufacturing safety and other matters. New laws and regulations, amendments to existing laws and regulations, or more stringent implementation or changes in enforcement policies under existing laws and regulations could have a material adverse effect on the Company by increasing costs and/or causing a reduction in levels of production from the Diavik Diamond Mine and in the manufacture of jewelry and watches. As well, as the Company's international operations expand, it or its subsidiaries become subject to laws and regulatory regimes that could differ materially from those under which they operate in Canada and the US.

Mining and manufacturing are subject to potential risks and liabilities associated with pollution of the environment and the disposal of waste products occurring as a result of mining and manufacturing operations. To the extent that the Company's operations are subject to uninsured environmental liabilities, the payment of such liabilities could have a material adverse effect on the Company.

Climate Change

Canada ratified the Kyoto Protocol to the United Nations Framework Convention on Climate Change in late 2002 and the Kyoto Protocol came into effect in Canada in February 2005. The Canadian government has established a number of policy measures in order to meet its emission reduction guidelines. While the impact of these measures cannot be quantified at this time, the likely effect will be to increase costs for fossil fuels, electricity and transportation; restrict industrial emission levels; impose added costs for emissions in excess of permitted levels; and increase costs for monitoring and reporting. Compliance with these initiatives could have a material adverse effect on the Company's results of operations.

Resource and Reserve Estimates

The Company's figures for mineral resources and ore reserves on the Diavik group of mineral claims are estimates, and no assurance can be given that the anticipated carats will be recovered. The estimation of reserves is a subjective process. Forecasts are based on engineering data, projected future rates of production and the timing of future expenditures, all of which are subject to numerous uncertainties and various interpretations. The Company expects that its estimates of reserves will change to reflect updated information as well as to reflect depletion due to production. Reserve estimates may be revised upward or downward based on the results of current and future drilling, testing or production levels, and on changes in mine design. In addition, market fluctuations in the price of diamonds or increases in the costs to recover diamonds from the Diavik Diamond Mine may render the mining of ore reserves uneconomical.

Mineral resources that are not mineral reserves do not have demonstrated economic viability. Due to the uncertainty that may attach to inferred mineral resources, there is no assurance that mineral resources at the Diavik property will be upgraded to proven and probable ore reserves.

Insurance

The Company's business is subject to a number of risks and hazards, including adverse environmental conditions, industrial accidents, labour disputes, unusual or unexpected geological conditions, risks relating to the physical security of diamonds and jewelry held as inventory or in transit, changes in the regulatory environment and natural phenomena such as inclement weather conditions. Such occurrences could result in damage to the Diavik Diamond Mine, personal injury or death, environmental damage to the Diavik property, delays in mining, the closing of Harry Winston Inc.'s manufacturing facilities or salons, monetary losses and possible legal liability. Although insurance is maintained to protect against certain risks in connection with the Diavik Diamond Mine and the Company's operations, the insurance in place will not cover all potential risks. It may not be possible to maintain insurance to cover insurable risks at economically feasible premiums.

Fuel Costs

The Diavik Diamond Mine's expected fuel needs are purchased periodically during the year for storage, and transported to the mine site by way of the winter road. These costs will increase if transportation by air freight is required due to a shortened "winter road season" or 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 Diamond Mine currently has no hedges for its future anticipated fuel consumption.

Reliance on Skilled Employees

Production at the Diavik Diamond Mine is dependent upon the efforts of certain skilled employees of DDMI. The loss of these employees or the inability of DDMI to attract and retain additional skilled employees may adversely affect the level of diamond production from the Diavik Diamond Mine.

The Company's success in marketing rough diamonds and operating the business of Harry Winston Inc. is dependent on the services of key executives and skilled employees, as well as the continuance of key relationships with certain third parties, such as diamantaires. The loss of these persons or the Company's inability to attract and retain additional skilled employees or to establish and maintain relationships with required third parties may adversely affect its business and future operations in marketing diamonds and operating its luxury brand segment.

Expansion and Refurbishment of the Existing Salon Network

A key component of the Company's luxury brand strategy in recent years has been the expansion of its salon network. The Company currently expects to expand its retail salon network to 35 salons (in total) worldwide by 2016. An additional objective of the Company is to achieve compound annual growth rate in sales in the mid-teens in the luxury brand segment and an operating profit in the low to mid-teens in the luxury brand segment, in each case over the five-year period from fiscal 2012 to 2016. Although the Company considers these objectives to be reasonable, they are subject to a number of risks and uncertainties, and there can be no assurance that these objectives will be realized. This strategy requires the Company to make ongoing capital expenditures to build and open new salons, to refurbish existing salons from time to time, and to incur additional operating expenses in order to operate the new salons. To date, much of this expansion has been financed by Harry Winston Inc. through borrowings. The successful expansion of the Company's global salon network, and achieving an increase in sales and in operating profit, will depend on a variety of factors, including worldwide economic conditions, market demand for luxury goods, the strength of the Harry Winston brand and the availability of sufficient funding. There can be no assurance that the expansion of the salon network will continue or that the current expansion will prove successful in increasing annual sales or earnings from the luxury brand segment, and the increased debt levels resulting from this expansion could negatively impact the Company's liquidity and its results from operations in the absence of increased sales and earnings.

Competition in the Luxury Brand Segment

The Company is exposed to competition in the luxury brand market from other luxury goods, diamond, jewelry and watch retailers. The ability of Harry Winston Inc. to successfully compete with such luxury goods, diamond, jewelry and watch retailers is dependent upon a number of factors, including the ability to source high-end polished diamonds and protect and promote its distinctive brand name and reputation. If Harry Winston Inc. is unable to successfully compete in the luxury jewelry segment, then the Company's results of operations will be adversely affected.

Changes in Disclosure Controls and Procedures and Internal Control over Financial Reporting

During the first quarter of fiscal 2012, there were no changes in the Company's disclosure controls and procedures or internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company's disclosure controls and procedures or internal control over financial reporting.

Critical Accounting Estimates

Management is often required to make judgments, assumptions and estimates in the application of IFRS that have a significant impact on the financial results of the Company. Certain policies are more significant than others and are, therefore, considered critical accounting policies. Accounting policies are considered critical if they rely on a substantial amount of judgment (use of estimates) in their application or if they result from a choice between accounting alternatives and that choice has a material impact on the Company's reported results or financial position. Information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the condensed consolidated interim financial statements is as follows:

Mineral reserves, mineral properties and exploration costs:

The estimation of mineral reserves is a subjective process. The Company estimates its mineral reserves based on information compiled by an appropriately qualified person. Forecasts are based on engineering data, projected future rates of production and the timing of future expenditures, all of which are subject to numerous uncertainties and various interpretations. The Company expects that its estimates of reserves will change to reflect updated information. Reserve estimates can be revised upward or downward based on the results of future drilling, testing or production levels, and diamond prices. Changes in reserve estimates may impact the carrying value of exploration and evaluation assets, mineral properties, property, plant and equipment, mine rehabilitation and site restoration provision, recognition of deferred tax assets and depreciation charges. Estimates and assumptions about future events and circumstances are also used to determine whether economically viable reserves exist that can lead to commercial development of an ore body.

Estimated mineral reserves are used in determining the depreciation of mine-specific assets. This results in a depreciation charge proportional to the depletion of the anticipated remaining life of mine production. A units-of-production depreciation method is applied, and depending on the asset, is based on carats of diamonds recovered during the period relative to the estimated proven and probable reserves of the ore deposit being mined or to the total ore deposit. Changes in estimates are accounted for prospectively.

Impairment of long-lived assets:

The Company assesses each cash-generating unit at least annually to determine whether any indication of impairment exists. Where an indicator of impairment exists, a formal estimate of the recoverable amount is made, which is considered to be the higher of the fair value of an asset less costs to sell and its value in use. These assessments require the use of estimates and assumptions such as long-term commodity prices, discount rates, future capital requirements, exploration potential and operating performance. Financial results as determined by actual events could differ from those estimated.

Impairment of intangible assets with an indefinite life:

The impairment assessment for trademark and drawings requires the use of estimates and assumptions. Financial results as determined by actual events could differ from those estimated.

Recovery of deferred tax assets:

Judgment is required in determining whether deferred tax assets are recognized in the interim condensed consolidated balance sheet. Deferred tax assets, including those arising from un-utilized tax losses, require management to assess the likelihood that the Company will generate taxable earnings in future periods in order to utilize recognized deferred tax assets. Estimates of future taxable income are based on forecasted income from operations and the application of existing tax laws in each jurisdiction. To the extent that future taxable income differs significantly from estimates, the ability of the Company to realize the deferred tax assets recorded at the consolidated balance sheet date could be impacted. Additionally, future changes in tax laws in the jurisdictions in which the Company operates could limit the ability of the Company to obtain tax deductions in future periods.

Mine rehabilitation and site restoration provision:

The mine rehabilitation and site restoration provision has been provided by management of the Diavik Diamond Mine and is based on internal estimates. Assumptions, based on the current economic environment, have been made which DDMI management believes are a reasonable basis upon which to estimate the future liability. These estimates are reviewed regularly by management of the Diavik Diamond Mine to take into account any material changes to the assumptions. However, actual rehabilitation costs will ultimately depend upon future costs for the necessary decommissioning work required, which will reflect market conditions at the relevant time. Furthermore, the timing of rehabilitation is likely to depend on when the Diavik Diamond Mine ceases to produce at economically viable rates. This, in turn, will depend upon a number of factors including future diamond prices, which are inherently uncertain.

Commitments and contingencies:

The Company has conducted its operations in the ordinary course of business in accordance with its understanding and interpretation of applicable tax legislation in the countries where the Company has operations. The relevant tax authorities could have a different interpretation of those tax laws that could lead to contingencies or additional liabilities for the Company. The Company believes that its tax filing positions as at the balance sheet date are appropriate and supportable. Should the ultimate tax liability materially differ from the provision, the Company's effective tax rate and its profit or loss could be affected positively or negatively in the period in which the matters are resolved.

Changes in Accounting Policies

International Financial Reporting Standards

Commencing February 1, 2011, the Company converted to IFRS and has prepared its first unaudited interim condensed consolidated financial statements in accordance with International Accounting Standard ("IAS") 34, "Interim Financial Reporting", for the three-month period ended April 30, 2011, with comparative information also presented under IFRS.

The Company's unaudited interim condensed consolidated financial statements for the first quarter of fiscal 2012 include reconciliations from the previous Canadian GAAP reporting to IFRS for the opening balance sheet as at February 1, 2010, the balance sheets as at April 30, 2010 and January 31, 2011 and the income statement and statement of comprehensive income for the three months ended April 30, 2010 and the fiscal year ended January 31, 2011.

Significant accounting policies under IFRS are disclosed in the unaudited interim condensed consolidated financial statements for the first quarter of 2012, and resulting accounting changes are highlighted in the reconciliations from previous Canadian GAAP reporting. The exemptions from full retrospective application elected by the Company in accordance with IFRS 1, "First time adoption of International Financial Reporting Standards", are also disclosed in our unaudited interim condensed consolidated financial statements for the first quarter of 2012.

Overall, the conversion from Canadian GAAP to IFRS has resulted in an increase in net profit attributable to shareholders for the three months ended April 30, 2010 and for the fiscal year ended January 31, 2011, from $(0.11) per share to $0.03 per share and from $0.27 per share to $0.52 per share, respectively. Substantially all of the adjustments under IFRS relate to the mining segment. The most significant component of this earnings per share change is attributable to new deferred income taxes recognized for temporary differences, arising from the difference between the historical exchange rate and the current exchange rate translation of foreign currency non-monetary items. Under Canadian GAAP, these temporary differences were not accounted for. The cost of the mining assets owned by the Diavik Joint Venture are denominated in Canadian dollars, which has resulted in additional deferred income taxes recognized by the Company under IFRS.

There were no material changes in internal control over financial reporting resulting from the adoption and implementation of IFRS. Approval and sign-off of all IFRS accounting changes has taken place within the Company's existing control framework.

The International Accounting Standards Board ("IASB") has issued a new standard, IFRS 9, "Financial Instruments" ("IFRS 9"), which will ultimately replace IAS 39, "Financial Instruments: Recognition and Measurement" ("IAS 39"). IFRS 9 provides guidance on the classification and measurement of financial assets and financial liabilities. This standard becomes effective for the Company's fiscal year-end beginning February 1, 2013. The Company is currently assessing the impact of the new standard on its financial statements.

IFRS 11, "Joint Arrangements" ("IFRS 11"), was issued by the IASB on May 12, 2011 and will replace IAS 31, "Interest in Joint Ventures". The new standard will apply to the accounting for interests in joint arrangements where there is joint control. Under IFRS 11, joint arrangements are classified as either joint ventures or joint operations. The structure of the joint arrangement will no longer be the most significant factor in determining whether a joint arrangement is either a joint venture or a joint operation. Proportionate consolidations will no longer be allowed and will be replaced by equity accounting. IFRS 11 is effective for the Company's fiscal year-end beginning February 1, 2013, with early adoption permitted. The Company is currently assessing the impact of IFRS 11 on its results of operations and financial position.

IFRS 13, "Fair Value Measurement" ("IFRS 13"), was also issued by the IASB on May 12, 2011. The new standard makes IFRS consistent with generally accepted accounting principles in the United States ("US GAAP") on measuring fair value and related fair value disclosures. The new standard creates a single source of guidance for fair value measurements. IFRS 13 is effective for the Company's fiscal year-end beginning February 1, 2013, with early adoption permitted. The Company is assessing the impact of IFRS 13 on its consolidated financial statements.

Outstanding Share Information

    <<
    As at May 31, 2011
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    Authorized                                                     Unlimited
    Issued and outstanding shares                                 84,727,131
    Options outstanding                                            2,651,049
    Fully diluted                                                 87,378,180
    -------------------------------------------------------------------------
    >>

Additional Information

Additional information relating to the Company, including the Company's most recently filed Annual Information Form, can be found on SEDAR at www.sedar.com, and is also available on the Company's website at http://investor.harrywinston.com.

    <<
                    Condensed Consolidated Balance Sheets

        (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS) (UNAUDITED)

                                                                  February 1,
                                                                        2010
                                        April 30,   January 31,  (Transition
                                            2011          2011          Date)
    -------------------------------------------------------------------------
    ASSETS

    Current assets
      Cash and cash
       equivalents (note 4)          $   101,214   $   108,693   $    62,969
      Accounts receivable                 28,292        22,788        23,598
      Inventory and supplies (note 5)    465,607       403,212       311,188
      Other current assets                39,205        38,662        36,644
    -------------------------------------------------------------------------
                                         634,318       573,355       434,399
    Property, plant and
     equipment - Mining                  761,955       764,093       783,432
    Property, plant and
     equipment - Luxury brand             62,006        61,019        62,277
    Intangible assets, net (note 7)      127,755       127,894       129,213
    Other non-current assets              16,391        16,626        15,629
    Deferred income tax assets            63,620        62,693        53,179
    -------------------------------------------------------------------------
    Total assets                     $ 1,666,045   $ 1,605,680   $ 1,478,129
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND EQUITY

    Current liabilities
      Trade and other payables       $   166,777   $   136,490   $    73,405
      Income taxes payable                 3,994         6,660        46,297
      Employee benefit plans (note 8)      6,947         7,378        13,774
      Promissory note (note 9)            70,000        70,000             -
      Current portion of interest
       bearing loans and
       borrowings (note 9)                33,884        24,215        23,829
    -------------------------------------------------------------------------
                                         281,602       244,743       157,305
    Interest bearing loans and
     borrowings (note 9)                 245,751       237,621       161,691
    Deferred income tax liabilities      300,985       301,980       238,385
    Employee benefit plans (note 8)        7,483         7,287         6,898
    Provisions                            50,946        50,130        43,691
    -------------------------------------------------------------------------
    Total liabilities                    886,767       841,761       607,970
    -------------------------------------------------------------------------
    Equity
      Share capital (note 10)            507,207       502,129       426,593
      Contributed surplus                 15,670        16,233        17,730
      Retained earnings                  241,263       237,667       250,070
      Accumulated other comprehensive
       income                             14,870         7,624        (2,571)
    -------------------------------------------------------------------------
      Total shareholders' equity         779,010       763,653       691,822
      Non-controlling interest               268           266       178,337
    -------------------------------------------------------------------------
    Total equity                         779,278       763,919       870,159
    -------------------------------------------------------------------------
    Total Liabilities and Equity     $ 1,666,045   $ 1,605,680   $ 1,478,129
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Commitments and guarantees (note 11)

    The accompanying notes are an integral part of these unaudited interim
    condensed consolidated financial statements.



                   Condensed Consolidated Income Statements

     (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT PER SHARE
                             AMOUNTS) (UNAUDITED)

                                                  Three months  Three months
                                                         ended         ended
                                                      April 30,     April 30,
                                                          2011          2010
    -------------------------------------------------------------------------
    Sales                                          $   143,932   $   114,000
    Cost of sales                                       96,452        75,711
    -------------------------------------------------------------------------
    Gross margin                                        47,480        38,289
    Selling, general and administrative expenses        42,795        35,948
    -------------------------------------------------------------------------
    Operating profit                                     4,685         2,341
    Finance expenses                                    (3,983)       (2,880)
    Exploration costs                                     (212)          (27)
    Finance and other income                               258           168
    Foreign exchange loss                                 (177)       (2,213)
    -------------------------------------------------------------------------
    Profit (loss) before income taxes                      571        (2,611)
    Net income tax recovery                             (3,027)       (5,524)
    -------------------------------------------------------------------------
    Net profit                                     $     3,598   $     2,913
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Attributable to shareholders                   $     3,596   $     2,137
    Attributable to non-controlling interest       $         2   $       776
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings per share
      Basic                                        $      0.04   $      0.03
      Diluted                                      $      0.04   $      0.03
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Weighted average number of shares outstanding   84,291,797    76,631,115
    -------------------------------------------------------------------------

    The accompanying notes are an integral part of these unaudited interim
    condensed consolidated financial statements.



          Condensed Consolidated Statements of Comprehensive Income

        (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS) (UNAUDITED)

                                                  Three months  Three months
                                                         ended         ended
                                                      April 30,     April 30,
                                                          2011          2010
    -------------------------------------------------------------------------
    Net profit                                     $     3,598   $     2,913

    Other comprehensive income (loss)
      Net gain (loss) on translation of net foreign
       operations (net of tax of nil)                    7,246        (1,753)
      Change in fair value of derivative financial
       instrument (net of tax of $0.1 million)               -           158
      Actuarial loss on employee benefit
       plans (net of tax of nil)                             -          (636)
    -------------------------------------------------------------------------
    Other comprehensive income (loss), net of tax        7,246        (2,231)
    -------------------------------------------------------------------------

    Total comprehensive income                     $    10,844   $       682
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Attributable to shareholders                   $    10,842   $       (94)
    Attributable to non-controlling interest       $         2   $       776
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The accompanying notes are an integral part of these unaudited interim
    condensed consolidated financial statements.



     Condensed Consolidated Statements of Changes in Shareholders' Equity

        (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS) (UNAUDITED)

                                                  Three months  Three months
                                                         ended         ended
                                                      April 30,     April 30,
                                                          2011          2010
    -------------------------------------------------------------------------
    Common shares:
    Balance at beginning of period                 $   502,129   $   426,593
    Issued during the period                             3,918           160
    Transfer from contributed surplus on
     exercise of options                                 1,160             -
    -------------------------------------------------------------------------
    Balance at end of period                           507,207       426,753
    -------------------------------------------------------------------------
    Contributed surplus:
    Balance at beginning of period                      16,233        17,730
    Stock-based compensation expense                       597           187
    Transfer from contributed surplus on
     exercise of options                                (1,160)            -
    -------------------------------------------------------------------------
    Balance at end of period                            15,670        17,917
    -------------------------------------------------------------------------
    Retained earnings:
    Balance at beginning of period                     237,667       250,070
    Net profit attributable to common shareholders       3,596         2,137
    -------------------------------------------------------------------------
    Balance at end of period                           241,263       252,207
    -------------------------------------------------------------------------
    Accumulated other comprehensive income:
    Balance at beginning of period                       7,624        (2,571)
    Other comprehensive income (loss)
      Net gain (loss) on translation of net foreign
       operations (net of tax of nil)                    7,246        (1,753)
      Change in fair value of derivative financial
       instruments (net of tax of $0.1 million)              -           158
      Actuarial loss on employee benefit
       plans (net of tax of nil)                             -          (636)
    -------------------------------------------------------------------------
    Balance at end of period                            14,870        (4,802)
    -------------------------------------------------------------------------
    NON-CONTROLLING INTEREST:
    Balance at beginning of period                         266       178,337
    Non-controlling interest                                 2           776
    -------------------------------------------------------------------------
    Balance at end of period                               268       179,113
    -------------------------------------------------------------------------
    Total Shareholders' Equity                     $   779,278   $   871,188
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The accompanying notes are an integral part of these unaudited interim
    condensed consolidated financial statements.



               Condensed Consolidated Statements of Cash Flows

        (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS) (UNAUDITED)

                                                  Three months  Three months
                                                         ended         ended
                                                      April 30,     April 30,
                                                          2011          2010
    -------------------------------------------------------------------------
    Cash provided by (used in)
    OPERATING
    Net profit                                     $     3,598   $     2,913
      Amortization and accretion                        20,291        14,200
      Deferred income tax recovery                      (2,648)       (6,039)
      Current income tax expense (recovery)               (379)          515
      Finance expenses                                   3,983         2,880
      Stock-based compensation                             597           187
      Foreign exchange loss                                533         2,970
      Loss on disposal of assets                             -           243
      Income tax paid                                   (2,711)       (1,445)
    Change in non-cash operating working capital,
     excluding taxes and finance expenses              (41,215)        8,500
    -------------------------------------------------------------------------
    Cash provided from operating activities            (17,951)       24,924
    -------------------------------------------------------------------------
    FINANCING
    Decrease in interest bearing loans and borrowings     (174)          (52)
    Increase in revolving credit                        17,885        25,426
    Decrease in revolving credit                          (317)      (12,033)
    Interest paid                                       (1,508)       (1,823)
    Issue of common shares, net of issue costs           3,918           160
    -------------------------------------------------------------------------
    Cash provided from financing activities             19,804        11,678
    -------------------------------------------------------------------------
    INVESTING
    Property, plant and equipment - Mining             (12,436)       (9,297)
    Property, plant and equipment - Luxury brand        (1,388)         (206)
    Other non-current assets                              (396)          294
    -------------------------------------------------------------------------
    Cash used in investing activities                  (14,220)       (9,209)
    -------------------------------------------------------------------------
    Foreign exchange effect on cash balances             4,888          (488)
    Increase (decrease) in cash and cash equivalents    (7,479)       26,905
    Cash and cash equivalents, beginning of
     period                                            108,693        62,969
    -------------------------------------------------------------------------
    Cash and cash equivalents, end of
     period                                        $   101,214   $    89,874
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Change in non-cash operating working
     capital, excluding taxes and finance expenses
    Accounts receivable                                 (5,381)         (592)
    Inventory and supplies                             (62,395)      (24,974)
    Other current assets                                  (556)        7,444
    Trade and other payables                            27,554        26,679
    Employee benefit plans                                (437)          (57)
    -------------------------------------------------------------------------
                                                   $   (41,215)  $     8,500
    -------------------------------------------------------------------------

    The accompanying notes are an integral part of these unaudited interim
    condensed consolidated financial statements.



             Notes to Condensed Consolidated Financial Statements

                   APRIL 30, 2011 WITH COMPARATIVE FIGURES
      (TABULAR AMOUNTS IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT AS
                               OTHERWISE NOTED)

    NOTE 1:

    Nature of Operations

    Harry Winston Diamond Corporation (the "Company") is a diamond enterprise
    with assets in the mining and luxury brand segments of the diamond
    industry.

    The Company's mining asset is an ownership interest in the Diavik group
    of mineral claims. The Diavik Joint Venture (the "Joint Venture") is an
    unincorporated joint arrangement between Diavik Diamond Mines Inc.
    ("DDMI") (60%) and Harry Winston Diamond Limited Partnership ("HWDLP")
    (40%) where HWDLP holds an undivided 40% ownership interest in the
    assets, liabilities and expenses of the Diavik Diamond Mine. DDMI is the
    operator of the Diavik Diamond Mine. DDMI and HWDLP are headquartered in
    Yellowknife, Canada. DDMI is a wholly owned subsidiary of Rio Tinto plc
    of London, England, and Harry Winston Diamond Limited Partnership is a
    wholly owned subsidiary of Harry Winston Diamond Corporation of Toronto,
    Canada.

    The Company also owns Harry Winston Inc., the premier fine jewelry and
    watch retailer with select locations throughout the world. Its head
    office is located in New York City, United States.

    Certain comparative figures have been reclassified to conform with
    current year's presentation.

    The Company is incorporated and domiciled in Canada and its shares are
    publicly traded on the Toronto Stock Exchange and the New York Stock
    Exchange. The address of its registered office is Toronto, Ontario.

    These unaudited interim condensed consolidated financial statements have
    been approved for issue by the Audit Committee on June 8, 2011.

    Note 2:

    Basis of Preparation

    (a) Statement of compliance
        These unaudited interim condensed consolidated financial statements
        have been prepared in accordance with International Financial
        Reporting Standards ("IFRS") International Accounting Standard
        ("IAS") 34, "Interim Financial Reporting". These are the Company's
        first unaudited interim condensed consolidated financial statements
        reported under IFRS, and IFRS 1, "First-time Adoption of
        International Financial Reporting Standards", has been applied.

        These unaudited interim condensed consolidated financial statements
        do not include all disclosures required by IFRS for annual
        consolidated financial statements and accordingly should be read in
        conjunction with the Company's audited consolidated financial
        statements for the year ended January 31, 2011 presented under
        generally accepted accounting principles in Canada (''Canadian
        GAAP'') and in conjunction with the IFRS transition disclosures in
        Note 15 to these interim statements.

        The preparation of these first interim condensed consolidated
        financial statements in accordance with IFRS has resulted in changes
        to the accounting policies as compared with the most recent annual
        financial statements prepared under Canadian GAAP. Canadian GAAP
        differs in some areas from IFRS. The accounting policies set out
        below have been applied consistently to all periods presented in
        these unaudited interim condensed consolidated financial statements.
        They have also been applied in preparing an opening IFRS balance
        sheet at February 1, 2010 for the purpose of transition to IFRS. IFRS
        1 generally requires full retrospective application of the standards
        and interpretations in force assuming that the IFRS accounting
        policies had always been applied. However, IFRS 1 allows certain
        exemptions in the application of particular standards to prior
        periods in order to assist companies with the transition process. The
        Company has elected to take certain key exemptions as permitted under
        IFRS 1. An explanation of how the transition to IFRS has affected the
        reported financial position and financial performance of
        the Company is contained in Note 15. This note includes
        reconciliations of equity, profit and loss and comprehensive income
        for the comparative periods and of equity at the date of transition
        reported under previous Canadian GAAP to those reported for those
        periods and at the date of transition under IFRS.

    (b) Basis of measurement
        These unaudited interim condensed consolidated financial statements
        have been prepared on the historical cost basis except for the
        following:

        -  financial instruments held for trading are measured at fair value
           through profit and loss
        -  liabilities for RSU and DSU plans are measured at fair value

    (c) Currency of presentation
        These condensed consolidated interim financial statements are
        expressed in United States dollars, consistent with the predominant
        functional currency of the Company's operations. All financial
        information presented in United States dollars has been rounded to
        the nearest thousand.

    Note 3:

    Significant Accounting Policies

    The accounting policies set out below have been applied consistently to
    all periods presented in these consolidated financial statements, and
    have been applied consistently by Company entities.

    (a) Basis of consolidation

        The unaudited interim condensed consolidated financial statements
        comprise the financial statements of the Company and its subsidiaries
        as at April 30, 2011. Subsidiaries are fully consolidated from the
        date of acquisition or creation, being the date on which the Company
        obtains control, and continue to be consolidated until the date that
        such control ceases. The financial statements of the subsidiaries are
        prepared for the same reporting period as the parent Company, using
        consistent accounting policies. All intercompany balances, income and
        expenses and unrealized gains and losses resulting from intercompany
        transactions are eliminated in full. For partly owned subsidiaries,
        the net assets and net earnings attributable to minority shareholders
        are presented as non-controlling interests on the consolidated
        balance sheet.

        Interest in DDMI
        The Diavik Joint Venture is an unincorporated joint arrangement.
        HWDLP owns an undivided 40% ownership interest in the assets,
        liabilities and expenses of the Joint Venture. The Company records
        its proportionate interest in the assets, liabilities and expenses of
        the Joint Venture in its consolidated financial statements with a
        one-month lag. The accounting policies described below include those
        of the Joint Venture.

    (b) Revenue

        Sales from the sale of rough diamonds, fine jewelry and watches are
        recognized when significant risks and rewards of ownership are
        transferred to the customer, the amount of sales can be measured
        reliably and the receipt of future economic benefits are probable.
        Sales are measured at the fair value of the consideration received or
        receivable, net of value-added taxes, duties, and other sales taxes,
        and after eliminating sales within the Company.

    (c) Cash resources

        Cash and cash equivalents consist of cash on hand, balances with
        banks and short-term money market instruments (with a maturity on
        acquisition of less than 90 days), and are carried at fair value.

    (d) Inventory and supplies

        Luxury brand raw materials and work in progress are valued at the
        lower of cost and net realizable value, with cost determined using
        either a weighted average or specific item identification basis
        depending on the nature of the inventory. Work in progress costs
        include an appropriate share of production costs such as material,
        labour and overhead costs.

        Luxury brand merchandise inventory is recorded at the lower of cost
        or net realizable value and includes jewelry and watches. Cost is
        determined on a specific item basis for jewelry and the average cost
        method is used for watches.

        Mining rough diamond inventory is recorded at the lower of cost or
        net realizable value. Cost is determined on an average cost basis
        including production costs and value-added processing activity.

        Mining supplies inventory is recorded at the lower of cost or net
        realizable value. Supplies inventory includes consumables and spare
        parts maintained at the Diavik Diamond Mine site and at the Company's
        sorting and distribution facility locations.

        Net realizable value is the estimated selling price in the ordinary
        course of business, less estimated costs of completion and costs of
        selling the final product. In order to determine net realizable
        value, the carrying amount of obsolete and slow moving items is
        written down on a basis of an estimate of their future use or
        realization. A provision for obsolescence is made when the carrying
        amount is higher than net realizable value.

    (e) Exploration, evaluation and development expenditures

        Exploration and evaluation activities include: acquisition of rights
        to explore; topographical, geological, geochemical and geophysical
        studies; exploratory drilling; trenching and sampling; and activities
        involved in evaluating the technical feasibility and commercial
        viability of extracting mineral resources. Capitalized
        exploration and evaluation expenditures are recorded as a component
        of property, plant and equipment. Exploration and evaluation assets
        are no longer classified as such when the technical feasibility and
        commercial viability of extracting a mineral resource are
        demonstrable. Before reclassification, exploration and evaluation
        assets are assessed for impairment. Recognized exploration and
        evaluation assets will be assessed for impairment when the facts and
        circumstances suggest that the carrying amount may exceed its
        recoverable amount.

        Drilling and related costs are capitalized for an ore body where
        proven and probable reserves exist and the activities are directed at
        either (a) obtaining additional information on the ore body that is
        classified within proven and probable reserves, or (b) converting
        non-reserve mineralization to proven and probable reserves and the
        benefit is expected to be realized over an extended period of time.
        All other drilling and related costs are expensed as incurred.

    (f) Property, plant and equipment

        Items of property, plant and equipment are measured at cost, less
        accumulated depreciation and accumulated impairment losses. The
        initial cost of an asset comprises its purchase price and
        construction cost, any costs directly attributable to bringing the
        asset into operation, including stripping costs incurred in open pit
        mining before production commences, the initial estimate of the
        rehabilitation obligation, and for qualifying assets, borrowing
        costs. The purchase price or construction cost is the aggregate
        amount paid and the fair value of any other consideration given to
        acquire the asset. Also included within property, plant and equipment
        is the capitalized value of finance leases.

        When parts of an item of property, plant and equipment have different
        useful lives, the parts are accounted for as separate items (major
        components) of property, plant and equipment.

        (i) Depreciation

            Depreciation commences when the asset is available for use.
            Depreciation is charged so as to write off the depreciable amount
            of the asset to its residual value over its estimated useful
            life, using a method that reflects the pattern in which the
            asset's future economic benefits are expected to be consumed by
            the Company. Depreciation methods, useful lives and residual
            values are reviewed, and adjusted if appropriate, at each
            reporting date.

            The unit-of-production method is applied to a substantial portion
            of Diavik Diamond Mine property, plant and equipment, and,
            depending on the asset, is based on carats of diamonds recovered
            during the period relative to the estimated proven and probable
            ore reserves of the ore deposit being mined, or to the total ore
            deposit. Other plant, property and equipment are depreciated
            using the straight-line method over the estimated useful lives of
            the related assets, for the current and comparative periods,
            which are as follows:

            Asset                               Estimated useful life (years)
            -----------------------------------------------------------------
            Buildings                                                  10-40

            Machinery and mobile equipment                              3-10

            Computer equipment and software                                3

            Furniture, fixtures and equipment                           2-10

            Leasehold and building improvements                     Up to 20
            -----------------------------------------------------------------

            Amortization for mine related assets was charged to mineral
            properties during the pre-commercial production stage.

            Upon the disposition of an asset, the accumulated depreciation
            and accumulated impairment losses are deducted from the original
            cost, and any gain or loss is reflected in current net profit or
            loss.

       (ii) Production phase stripping costs
            Stripping costs incurred during the production phase of an open
            pit mine are variable production costs that are included as a
            component of inventory to be recognized as a component of cost of
            sales in the same period as the sale of inventory.

      (iii) Major maintenance and repairs

            Expenditure on major maintenance refits or repairs comprises the
            cost of replacement assets or parts of assets and overhaul
            costs. When an asset, or part of an asset that was separately
            depreciated, is replaced and it is probable that future economic
            benefits associated with the new asset will flow to the Company
            through an extended life, the expenditure is capitalized. The
            unamortized value of the existing asset or part of the existing
            asset that is being replaced is expensed. Where part of the
            existing asset was not separately considered as a component, the
            replacement value is used to estimate the carrying amount of the
            replaced assets, which is immediately written off. All other
            day-to-day maintenance costs are expensed as incurred.

    (g) Intangible assets

        Intangible assets acquired separately are measured on initial
        recognition at cost, which comprises its purchase price plus any
        directly attributable cost of preparing the asset for its intended
        use. The cost of intangible assets acquired in a business combination
        is measured at fair value as at the date of acquisition.

        Intangible assets with indefinite useful lives are not amortized
        after initial recognition and are tested for impairment annually.
        Harry Winston's trademark and drawings are considered to have an
        indefinite life because it is expected that these assets will
        contribute to net cash inflows indefinitely. For purposes of
        impairment testing, trademark and drawings are tested for
        recoverability individually. The Harry Winston trademark is the
        premier luxury jewelry brand in the world with an established
        reputation and style that differentiates the Company from its
        competitors and justifies its leading position in the marketplace.
        The Company maintains a program to protect its trademark from
        unauthorized use by third parties. The Harry Winston drawings are
        very closely related with the brand and have an enduring life
        expectancy. The archive of drawings reflect unique designs for
        jewelry and watches that form the basis for newly inspired jewelry
        and watch designs that are exclusive to Harry Winston and attract its
        clientele.

        Following initial recognition, intangible assets with finite useful
        lives are carried at cost less any accumulated amortization and any
        accumulated impairment losses. Intangible assets with finite useful
        lives are amortized on a straight-line basis over their useful lives
        and recognized in profit or loss as follows:

        Asset                                   Estimated useful life (years)
        ---------------------------------------------------------------------
        Wholesale distribution network                                     10
        ---------------------------------------------------------------------

        The amortization methods and estimated useful lives of intangible
        assets are reviewed annually and adjusted if appropriate.

    (h) Other non-current assets

        Other non-current assets include depreciable assets amortized over a
        period not exceeding ten years.

    (i) Financial instruments

        From time to time, the Company may use a limited number of derivative
        financial instruments to manage its foreign currency and interest
        rate exposure. For a derivative to qualify as a hedge at inception
        and throughout the hedged period, the Company formally documents the
        nature and relationships between the hedging instruments and hedged
        items, as well as its risk-management objectives, strategies for
        undertaking the various hedge transactions and method of assessing
        hedge effectiveness. Financial instruments qualifying for hedge
        accounting must maintain a specified level of effectiveness between
        the hedge instrument and the item being hedged, both at inception and
        throughout the hedged period. Gains and losses resulting from any
        ineffectiveness in a hedging relationship must be recognized
        immediately in net profit or loss. The Company may also have a
        limited number of embedded derivatives relating to the Diavik Diamond
        Mine. Derivatives embedded in non-derivative host contracts are
        recognized separately unless closely related to the host contract.
        The Company does not use derivatives for trading or speculative
        purposes.

    (j) Provisions

        Provisions represent obligations to the Company for which the amount
        or timing is uncertain. Provisions are recognized when (a) the
        Company has a present obligation (legal or constructive) as a result
        of a past event, (b) it is probable that an outflow of resources
        embodying economic benefits will be required to settle the
        obligation, and (c) a reliable estimate can be made of the amount of
        the obligation. The expense relating to any provision is included in
        net profit or loss. If the effect of the time value of money is
        material, provisions are discounted using a current pre-tax rate that
        reflects, where appropriate, the risks specific to the obligation.
        Where discounting is used, the increase in the provision due to the
        passage of time is recognized as a finance cost in net profit or
        loss.

        Mine rehabilitation and site restoration provision:

        The Company records the present value of estimated costs of legal and
        constructive obligations required to restore operating locations in
        the period in which the obligation is incurred. The nature of these
        restoration activities includes dismantling and removing structures,
        rehabilitating mines and tailings dams, dismantling operating
        facilities, closure of plant and waste sites, and restoration,
        reclamation and re-vegetation of affected areas.

        The obligations generally arise when the asset is installed or the
        ground/environment is disturbed at the production location. When the
        liability is initially recognized, the present value of the estimated
        cost is capitalized by increasing the carrying amount of the related
        assets. Over time, the discounted liability is increased/decreased
        for the change in present value based on the discount rates that
        reflect current market assessments and the risks specific to the
        liability. Additional disturbances or changes in rehabilitation
        costs, including re-measurement from changes in the discount rate,
        are recognized as additions or charges to the corresponding assets
        and rehabilitation liability when they occur. The periodic unwinding
        of the discount is recognized in net profit or loss as a finance
        cost.

    (k) Foreign currency

        Foreign currency translation

        Monetary assets and liabilities denominated in foreign currencies are
        translated to US dollars at exchange rates in effect at the balance
        sheet date, and non-monetary assets and liabilities are translated at
        rates of exchange in effect when the assets were acquired or
        obligations incurred. Revenues and expenses are translated at rates
        in effect at the time of the transactions. Foreign exchange gains and
        losses are included in net profit or loss.

        For certain subsidiaries of the Company where the functional currency
        is not the US dollar, the assets and liabilities of these
        subsidiaries are translated at the rate of exchange in effect at the
        reporting date. Sales and expenses are translated at the rate of
        exchange in effect at the time of the transactions. Foreign exchange
        gains and losses are accumulated in other comprehensive income under
        shareholders' equity. When a foreign operation is disposed of, in
        part or in full, the relevant amount in the foreign exchange reserve
        account is reclassified to net profit or loss as part of profit or
        loss on disposal.

    (l) Income taxes

        Current and deferred taxes

        Income tax expense comprises current and deferred tax and is
        recognized in net profit or loss except to the extent that it relates
        to items recognized directly in equity, in which case it is
        recognized in equity or in other comprehensive income.

        Current tax expense is the expected tax payable on the taxable income
        for the year, using tax rates enacted or substantively enacted at the
        reporting date, and any adjustment to tax payable in respect of
        previous years. Deferred tax expense is recognized in respect of
        temporary differences between the carrying amounts of assets and
        liabilities for financial reporting purposes and the amounts used for
        taxation purposes. Deferred tax expense is measured at the tax rates
        that are expected to be applied to temporary differences when they
        reverse, based on the laws that have been enacted or substantively
        enacted by the reporting date.

        A deferred tax asset is recognized to the extent that it is probable
        that future taxable profits will be available against which the
        temporary difference can be utilised. Deferred tax assets are
        reviewed at each reporting date and are reduced to the extent that it
        is probable that the related tax benefit will not be realized.

        The Company classifies exchange differences on deferred tax assets or
        liabilities in jurisdictions where the functional currency is
        different from the currency used for tax purposes as income tax
        expense.

    (m) Stock-based payment transactions

        Stock-based compensation

        The Company applies the fair value method to all grants of stock
        options. The fair value of options granted is estimated at the date
        of grant using a Black-Scholes option pricing model incorporating
        assumptions regarding risk-free interest rates, dividend yield,
        volatility factor of the expected market price of the Company's
        stock, and a weighted average expected life of the options. When
        option awards vest in installments over the vesting period, each
        installment is accounted for as a separate arrangement. The estimated
        fair value of the options is recorded as an expense with an
        offsetting credit to shareholders' equity. Any consideration received
        on amounts attributable to stock options is credited to share
        capital.

        Restricted and Deferred Share Unit Plans

        The Restricted and Deferred Share Unit ("RSU" and "DSU") Plans are
        full value phantom shares that mirror the value of Harry Winston
        Diamond Corporation's publicly traded common shares. Grants under the
        RSU Plan are on a discretionary basis to employees of the Company
        subject to Board of Directors approval. Under the prior RSU Plan,
        each RSU grant vests on the third anniversary of the grant date.
        Under the 2010 RSU Plan, each RSU grant vests equally over a three-
        year period. Vesting under both RSU Plans is subject to special rules
        for death, disability and change in control. Grants under the DSU
        Plan are awarded to non-executive directors of the Company. Each DSU
        grant vests immediately on the grant date. The expenses related to
        the RSUs and DSUs are accrued based on fair value. When a share-based
        payment award vests in installments over the vesting period, each
        installment is accounted for as a separate arrangement. The
        liabilities for the RSU and DSU Plans are remeasured at each
        reporting date and at settlement date. Any changes in the fair value
        of the liability are recognized as employee benefit plan expense in
        net profit or loss.

    (n) Employee benefit plans

        The Company operates defined benefit pension plans, which require
        contributions to be made to separately administered funds. The cost
        of providing benefits under the defined benefit plans is determined
        separately using the projected unit credit valuation method by
        qualified actuaries. Actuarial gains and losses are recognized
        immediately in other comprehensive income.

        The defined benefit asset or liability comprises the present value of
        the defined benefit obligation, plus any actuarial gains (less any
        losses) not recognized as a result of the treatment above, less past
        service cost not yet recognized and less the fair value of plan
        assets out of which the obligations are to be settled directly. The
        value of any asset is restricted to the sum of any past service cost
        not yet recognized and the present value of any economic benefits
        available in the form of refunds from the plan or reductions in
        future contributions to the plan.

    (o) Segment reporting

        A segment is a distinguishable component of the Company that is
        engaged either in providing related products or services (business
        segment) or in providing products or services within a particular
        economic environment (geographical segment), which is subject to
        risks and returns that are different from those of other segments.
        The Company's primary format for segment reporting is based on
        business segments. Each operating segment's operations are reviewed
        regularly by the Company's CEO to make decisions about resources to
        be allocated to the segment and to assess its performance, and for
        which discrete financial information is available.

    (p) Operating leases

        Minimum rent payments under operating leases, including any rent-free
        periods and/or construction allowances, are recognized on a straight-
        line basis over the term of the lease and included in net profit or
        loss.

    (q) Impairment of non-financial assets

        The carrying amounts of the Company's non-financial assets other than
        inventory and deferred taxes are reviewed at each reporting date to
        determine whether there is any indication of impairment. If any such
        indication exists, then the asset's recoverable amount is estimated.
        For an intangible asset that has an indefinite life, the recoverable
        amount is estimated annually at the same time, or more frequently if
        events or changes in circumstances indicate that the asset may be
        impaired.

        The recoverable amount of an asset is the greater of its fair value
        less costs to sell and its value in use. In the absence of a binding
        sales agreement, fair value is estimated on the basis of values
        obtained from an active market or from recent transactions or on the
        basis of the best information available that reflects the amount that
        the Company could obtain from the disposal of the asset. Value in use
        is defined as the present value of future pre-tax cash flows expected
        to be derived from the use of an asset, using a pre-tax discount rate
        that reflects current market assessments of the time value of money
        and the risks specific to the asset. For the purpose of impairment
        testing, assets are grouped together into the smallest group of
        assets that generates cash inflows from continuing use that are
        largely independent of the cash inflows of other assets or groups of
        assets (the "cash-generating unit").

        An impairment loss is recognized if the carrying amount of an asset
        or its cash-generating unit exceeds its estimated recoverable amount.
        Impairment losses are recognized in the consolidated statement of
        income in those expense categories consistent with the function of
        the impaired asset. Impairment losses recognized in respect of cash-
        generating units would be allocated to reduce the carrying amounts of
        the assets in the unit (group of units) on a pro rata basis.

        For property, plant and equipment, an assessment is made at each
        reporting date as to whether there is any indication that previously
        recognized impairment losses may no longer exist or may have
        decreased. If such indication exists, the Company makes an estimate
        of the recoverable amount. A previously recognized impairment loss is
        reversed only if there has been a change in the estimates used to
        determine the asset's recoverable amount since the last impairment
        loss was recognized. If this is the case, the carrying amount of the
        asset is increased to its recoverable amount. The increased amount
        cannot exceed the carrying amount that would have been determined,
        net of depreciation, had no impairment loss been recognized for the
        asset in prior years. Such reversal is recognized in the consolidated
        statement of income.

    (r) Basic and diluted earnings per share

        Basic earnings per share are calculated by dividing net profit or
        loss by the weighted average number of shares outstanding during the
        period. Diluted earnings per share are determined using the treasury
        stock method to calculate the dilutive effect of options and
        warrants. The treasury stock method assumes that the exercise of any
        "in-the-money" options with the option proceeds would be used to
        purchase common shares at the average market value for the
        period. Options with an exercise price higher than the average market
        value for the period are not included in the calculation of
        diluted earnings per share as such options are not dilutive.

    (s) Use of estimates, judgments and assumptions

        The preparation of the interim condensed consolidated financial
        statements in conformity with IFRS requires management to make
        judgments, estimates and assumptions that affect the application of
        accounting policies and reported amounts of assets and liabilities
        and contingent liabilities at the date of the interim condensed
        consolidated financial statements, and the reported amounts of sales
        and expenses during the reporting period. Estimates and assumptions
        are continually evaluated and are based on management's experience
        and other factors, including expectations of future events that are
        believed to be reasonable under the circumstances. However, actual
        outcomes can differ from these estimates. Revisions to accounting
        estimates are recognized in the period in which the estimates are
        revised and in any future periods affected. Information about
        significant areas of estimation uncertainty and critical judgments in
        applying accounting policies that have the most significant effect on
        the amounts recognized in the condensed consolidated interim
        financial statements is as follows:

        Mineral reserves, mineral properties and exploration costs

        The estimation of mineral reserves is a subjective process. The
        Company estimates its mineral reserves based on information compiled
        by an appropriately qualified person. Forecasts are based on
        engineering data, projected future rates of production and the timing
        of future expenditures, all of which are subject to numerous
        uncertainties and various interpretations. The Company expects that
        its estimates of reserves will change to reflect updated information.
        Reserve estimates can be revised upward or downward based on the
        results of future drilling, testing or production levels, and diamond
        prices. Changes in reserve estimates may impact the carrying value of
        exploration and evaluation assets, mineral properties, property,
        plant and equipment, mine rehabilitation and site restoration
        provision, recognition of deferred tax assets and depreciation
        charges. Estimates and assumptions about future events and
        circumstances are also used to determine whether economically viable
        reserves exist that can lead to commercial development of an ore
        body.

        Estimated mineral reserves are used in determining the depreciation
        of mine-specific assets. This results in a depreciation charge
        proportional to the depletion of the anticipated remaining life of
        mine production. A units-of-production depreciation method is
        applied, and depending on the asset, is based on carats of diamonds
        recovered during the period relative to the estimated proven and
        probable reserves of the ore deposit being mined or to the total ore
        deposit. Changes in estimates are accounted for prospectively.

        Impairment of long-lived assets

        The Company assesses each cash-generating unit at least annually to
        determine whether any indication of impairment exists. Where an
        indicator of impairment exists, a formal estimate of the recoverable
        amount is made, which is considered to be the higher of the fair
        value of an asset less costs to sell and its value in use. These
        assessments require the use of estimates and assumptions such as
        long-term commodity prices, discount rates, future capital
        requirements, exploration potential and operating performance.
        Financial results as determined by actual events could differ from
        those estimated.

        Impairment of intangible assets with an indefinite life

        The impairment assessment for trademark and drawings requires the use
        of estimates and assumptions. Financial results as determined by
        actual events could differ from those estimated.

        Recovery of deferred tax assets

        Judgment is required in determining whether deferred tax assets are
        recognized in the interim condensed consolidated balance sheet.
        Deferred tax assets, including those arising from un-utilized tax
        losses, require management to assess the likelihood that the Company
        will generate taxable earnings in future periods in order to utilize
        recognized deferred tax assets. Estimates of future taxable income
        are based on forecasted income from operations and the application of
        existing tax laws in each jurisdiction. To the extent that future
        taxable income differs significantly from estimates, the ability of
        the Company to realize the deferred tax assets recorded at the
        consolidated balance sheet date could be impacted. Additionally,
        future changes in tax laws in the jurisdictions in which the Company
        operates could limit the ability of the Company to obtain tax
        deductions in future periods.

        Mine rehabilitation and site restoration provision

        The mine rehabilitation and site restoration provision has been
        provided by management of the Diavik Diamond Mine and is based on
        internal estimates. Assumptions, based on the current economic
        environment, have been made which DDMI management believes are a
        reasonable basis upon which to estimate the future liability. These
        estimates are reviewed regularly by management of the Diavik Diamond
        Mine to take into account any material changes to the assumptions.
        However, actual rehabilitation costs will ultimately depend upon
        future costs for the necessary decommissioning work required, which
        will reflect market conditions at the relevant time. Furthermore, the
        timing of rehabilitation is likely to depend on when the Diavik
        Diamond Mine ceases to produce at economically viable rates. This, in
        turn, will depend upon a number of factors including future diamond
        prices, which are inherently uncertain.

        Commitments and contingencies

        The Company has conducted its operations in the ordinary course of
        business in accordance with its understanding and interpretation of
        applicable tax legislation in the countries where the Company has
        operations. The relevant tax authorities could have a different
        interpretation of those tax laws that could lead to contingencies or
        additional liabilities for the Company. The Company believes that its
        tax filing positions as at the balance sheet date are appropriate and
        supportable. Should the ultimate tax liability materially differ from
        the provision, the Company's effective tax rate and its profit or
        loss could be affected positively or negatively in the period in
        which the matters are resolved.

    (t) Standards issued but not yet effective

        The following standards and interpretations have been issued but are
        not yet effective and have not been early adopted in these financial
        statements. These standards may result in consequential changes to
        the accounting policies and other note disclosures.

        (i)   Fair Value Measurement Guidelines
        (ii)  IAS 1 (Revised) - Presentation of Financial Statements
        (iii) IAS17 (Replacement) - Leases
        (iv)  IAS 32 (Replacement) - Liabilities and Equity
        (v)   IAS 19 (Replacement) - Employee Benefits and Pensions
        (vi)  IAS 11 and IAS 18 (Replacement) - Revenue Recognition
        (vii) Improvements to IFRSs

        The International Accounting Standards Board ("IASB") has issued a
        new standard, IFRS 9, "Financial Instruments" ("IFRS 9"), which will
        ultimately replace IAS 39, "Financial Instruments: Recognition and
        Measurement" ("IAS 39"). IFRS 9 provides guidance on the
        classification and measurement of financial assets and financial
        liabilities. This standard becomes effective for the Company's fiscal
        year-end beginning February 1, 2013. The Company is currently
        assessing the impact of the new standard on its financial statements.

        IFRS 11, "Joint Arrangements" ("IFRS 11") was issued by the IASB on
        May 12, 2011 and will replace IAS 31, "Interest in Joint Ventures".
        The new standard will apply to the accounting for interests in joint
        arrangements where there is joint control. Under IFRS 11, joint
        arrangements are classified as either joint ventures or joint
        operations. The structure of the joint arrangement will no longer be
        the most significant factor in determining whether a joint
        arrangement is either a joint venture or a joint operation.
        Proportionate consolidations will no longer be allowed and will be
        replaced by equity accounting. IFRS 11 is effective for the Company's
        fiscal year-end beginning February 1, 2013, with early adoption
        permitted. The Company is currently assessing the impact of IFRS 11
        on its results of operations and financial position.

        IFRS 13, "Fair Value Measurement" ("IFRS 13") was also issued by the
        IASB on May 12, 2011. The new standard makes IFRS consistent with
        generally accepted accounting principles in the United States ("US
        GAAP") on measuring fair value and related fair value disclosures.
        The new standard creates a single source of guidance for fair value
        measurements. IFRS 13 is effective for the Company's fiscal year-end
        beginning February 1, 2013, with early adoption permitted. The
        Company is assessing the impact of IFRS 13 on its consolidated
        financial statements.

    Note 4:
    Cash Resources

                                                      April 30,   January 31,
                                                          2011          2011
    -------------------------------------------------------------------------
    Cash on hand and balances with banks           $    94,709   $   107,993
    Short-term investments(a)                            6,505           700
    -------------------------------------------------------------------------
    Total cash resources                           $   101,214   $   108,693
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (a) Short-term investments are held in overnight deposits and money
        market instruments with a maturity of 30 days.

    Note 5:
    Inventory and Supplies

                                                      April 30,   January 31,
                                                          2011          2011
    -------------------------------------------------------------------------
    Luxury brand raw materials and
     work-in-progress                              $   104,790   $    80,013
    Luxury brand merchandise inventory                 236,423       226,358
    Mining rough diamond inventory                      47,118        30,451
    Mining supplies inventory                           77,276        66,390
    -------------------------------------------------------------------------
    Total inventory and supplies                   $   465,607   $   403,212
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Total inventory and supplies is net of a provision for obsolescence of
    $1.9 million ($2.9 million at January 31, 2011).

    Note 6:
    Diavik Joint Venture

    The following represents HWDLP's 40% proportionate interest in the Joint
    Venture as at March 31, 2011 and December 31, 2010:

                                                      April 30,   January 31,
                                                          2011          2011
    -------------------------------------------------------------------------
    Current assets                                 $   107,451   $    92,487
    Non-current assets                                 711,474       714,386
    Current liabilities                                 45,708        31,493
    Non-current liabilities and participant's
     account                                           773,217       775,380
    -------------------------------------------------------------------------

                                                      April 30,     April 30,
                                                          2011          2010
    -------------------------------------------------------------------------
    Expenses net of interest income(a)(b)          $    60,883   $    52,647
    Cash flows resulting from (used in)
     operating activities                              (43,024)      (31,127)
    Cash flows resulting from financing activities      53,983        37,275
    Cash flows resulting from (used in) investing
     activities                                        (12,177)       (6,533)
    -------------------------------------------------------------------------
    (a) The Joint Venture only earns interest income.
    (b) Expenses net of interest income for the three months ended April 30,
        2011 of $0.1 million (three months ended April 30, 2010 of $0.1
        million)

    HWDLP is contingently liable for DDMI's portion of the liabilities of the
    Joint Venture, and to the extent HWDLP's participating interest has
    increased because of the failure of DDMI to make a cash contribution when
    required, HWDLP would have access to an increased portion of the assets
    of the Joint Venture to settle these liabilities.

    Note 7:
    Intangible Assets

                 Amortization            Accumulated   April 30,  January 31,
                    period       Cost    amortization  2011 net    2011 net
    -------------------------------------------------------------------------
    Trademark     indefinite  $  112,995  $        -  $  112,995  $  112,995
                   life
    Drawings      indefinite      12,365           -      12,365      12,365
                   life
    Wholesale
     distribution
     network      120 months       5,575      (3,180)      2,395       2,534
    -------------------------------------------------------------------------
    Intangible
     assets                   $  130,935  $   (3,180) $  127,755  $  127,894
    -------------------------------------------------------------------------

    Amortization expense for the three months ended April 30, 2011 was $0.1
    million ($0.3 million for the three months ended April 30, 2010). The
    Company completed a valuation of its trademark and drawings as of January
    31, 2011 and concluded that there was no impairment of these assets.

    Note 8:
    Employee Benefit Plans
    The employee benefit obligation reflected in the consolidated balance
    sheet is as follows:

                                                      April 30,   January 31,
                                                          2011          2011
    -------------------------------------------------------------------------
    Defined benefit plan obligation
     - Harry Winston luxury brand segment          $     9,724   $     9,009
    Defined contribution plan obligation
     - Harry Winston luxury brand segment                  320            80
    Defined contribution plan obligation
     - Harry Winston mining segment                         68             -
    Defined contribution plan obligation
     - Diavik Diamond Mine                               1,064         3,061
    RSU and DSU plans (note 10)                          3,254         2,515
    -------------------------------------------------------------------------
    Total employee benefit plan obligation         $    14,430   $    14,665
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                      April 30,   January 31,
                                                          2011          2011
    -------------------------------------------------------------------------
    Non-current                                    $     7,483   $     7,287
    Current                                              6,947         7,378
    -------------------------------------------------------------------------
    Total employee benefit plan obligation         $    14,430   $    14,665
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

                                                      April 30,     April 30,
                                                          2011          2010
    -------------------------------------------------------------------------
    Defined benefit pension plan - Harry Winston
     luxury brand segment                          $       631   $       409
    Defined contribution plan - Harry Winston
     luxury brand segment                                  240           210
    Defined contribution plan - Harry Winston
     mining segment                                         72            54
    Defined contribution plan - Diavik Diamond
     Mine                                                  650           212
    RSU and DSU plans (note 10)                          1,535           322
    -------------------------------------------------------------------------
                                                   $     3,128   $     1,207
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Note 9:
    Interest-Bearing Loans and Borrowings

                                                      April 30,   January 31,
                                                          2011          2011
    -------------------------------------------------------------------------

    Mining segment credit facilities               $    50,000   $    50,000
    Mining segment promissory note                      70,000        70,000
    Harry Winston Inc. credit facilities               189,890       181,715
    First mortgage on real property                      7,279         7,048
    Bank advances                                       32,389        22,902
    Finance leases                                          77           171
    -------------------------------------------------------------------------
    Total interest-bearing loans and borrowings        349,635       331,836
    -------------------------------------------------------------------------
    Less current portion                              (103,884)      (94,215)
    -------------------------------------------------------------------------
                                                   $   245,751   $   237,621
                                                  ---------------------------
                                                  ---------------------------


                                           Carrying       Face
                       Nominal            amount at   value at
                      interest   Date of   April 30,  April 30,
             Currency     rate  maturity       2011       2011      Borrower
    -------------------------------------------------------------------------
    Secured                                                     Harry Winston
     bank                       March 31,    $172.0     $172.0  Inc.
     loan          US    3.75%      2013    million    million
    -------------------------------------------------------------------------
    Secured                                                     Harry Winston
     bank                       April 22,      $3.8       $3.8  S.A.
     loan         CHF    3.15%      2013    million    million
    -------------------------------------------------------------------------
    Secured                                                     Harry Winston
     bank                        January      $14.1      $14.1  S.A.
     loan         CHF    3.55%  31, 2033    million    million
    -------------------------------------------------------------------------
    Secured                                                     Harry Winston
     bank                        June 24,     $50.0      $50.0  Diamond
     loan          US    4.41%      2013    million    million  Corporation
                                                                and Harry
                                                                Winston
                                                                Diamond Mines
                                                                Ltd.
    -------------------------------------------------------------------------
    First                                                       6019838
     mortgage                                                   Canada Inc.
     on real                   September       $7.3       $7.3
     property     CDN    7.98%   1, 2018    million    million
    -------------------------------------------------------------------------
    Promissory                 August 25,     $70.0      $70.0  Harry Winston
     note          US    5.00%      2011    million    million  Diamond
                                                                Corporation
    -------------------------------------------------------------------------
    Secured                                                     Harry Winston
     bank                         Due on       $9.8        $9.8 Diamond
     advance       US    4.55%    demand    million     million International
                                                                N.V.

                           N/A                 $nil        $nil Harry Winston
                                                                Diamond
                                                                (India)
                                                                Private
                                                                Limited
    -------------------------------------------------------------------------
    Secured
     bank                         May 20,      $7.1       $7.1  Harry Winston
     advance      YEN    2.25%      2011    million    million  Japan, K.K.
    -------------------------------------------------------------------------
    Unsecured
     bank                         May 20,      $7.7       $7.7  Harry Winston
     advance      YEN    2.98%      2011    million    million  Japan, K.K.
    -------------------------------------------------------------------------
    Unsecured
     bank                         May 31,      $7.8       $7.8  Harry Winston
     advance      YEN    2.98%      2011    million    million  Japan, K.K.
    -------------------------------------------------------------------------
    Finance                      July 31,      $0.1       $0.1  Harry Winston
     leases       CHF    3.85%      2011    million    million  S.A.
    -------------------------------------------------------------------------

    On February 28, 2011, the Company increased the mining segment senior
    secured revolving credit facility with Standard Chartered Bank by $25.0
    million to $125.0 million.

    On August 25, 2010, the Company issued a promissory note in the amount of
    $70.0 million, maturing on August 25, 2011, as part of the consideration
    for reacquiring its 9% indirect interest in the Diavik Joint Venture (the
    "Kinross Buy Back Transaction") from Kinross Gold Corporation
    ("Kinross"). The note bears interest at a rate of 5% per annum and can be
    repaid in cash or, subject to certain limitations, treasury common shares
    issued by the Company. The issuance of such shares is expected to be
    subject to approval by the Company's shareholders in most circumstances.

    Note 10:
    Share Capital

    (a) Authorized
        Unlimited common shares without par value.

    (b) Issued
                                              Number of shares        Amount
    -------------------------------------------------------------------------
    Balance, January 31, 2011                       84,159,851   $   502,129
    Shares issued for:
    Exercise of options                                360,280         3,918
    Transfer from contributed surplus on
     exercise of options                                     -         1,160
    -------------------------------------------------------------------------
    Balance, April 30, 2011                         84,520,131   $   507,207
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (c) RSU and DSU Plans
    RSU                                                      Number of units
    -------------------------------------------------------------------------
    Balance, January 31, 2011                                        155,946
    Awards and payouts during the year (net)
      RSU awards                                                      66,991
      RSU payouts                                                    (46,963)
    -------------------------------------------------------------------------
    Balance, April 30, 2011                                          175,974
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    DSU                                                      Number of units
    -------------------------------------------------------------------------
    Balance, January 31, 2011                                        193,214
    Awards and payouts during the year (net)
      DSU awards                                                      10,186
      DSU payouts                                                    (17,127)
    -------------------------------------------------------------------------
    Balance, April 30, 2011                                          186,273
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    During the first quarter, the Company granted 66,991 RSUs (net of
    forfeitures) and 10,186 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 Harry Winston Diamond
    Corporation's publicly traded common shares.

    Grants under the RSU Plan are on a discretionary basis to employees of
    the Company subject to Board of Directors approval. The RSUs granted in
    fiscal 2012 vest one-third on March 31, 2012, and one-third on each
    anniversary thereafter. The vesting of grants of RSUs is subject to
    special rules for a change in control, death and disability. The Company
    shall pay out cash on the respective vesting dates of RSUs and redemption
    dates of 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 fair
    value. This expense is recognized on a straight-line basis over the
    vesting period.

    Note 11:
    Commitments and Guarantees

    (a) Environmental agreements

        Through negotiations of environmental and other agreements, the Joint
        Venture must provide funding for the Environmental Monitoring
        Advisory Board. HWDLP anticipates its share of this funding
        requirement will be approximately $0.2 million for calendar 2011.
        Further funding will be required in future years; however, specific
        amounts have not yet been determined. These agreements also state
        that the Joint Venture must provide security deposits for the
        performance by the Joint Venture of its reclamation and abandonment
        obligations under all environmental laws and regulations. HWDLP's
        share of the letters of credit outstanding posted by the operator of
        the Joint Venture with respect to the environmental agreements as at
        April 30, 2011, was $85.1 million. The agreement specifically
        provides that these funding requirements will be reduced by amounts
        incurred by the Joint Venture on reclamation and abandonment
        activities.

    (b) Participation agreements

        The Joint Venture has signed participation agreements with various
        native groups. These agreements are expected to contribute to the
        social, economic and cultural well-being of the Aboriginal bands. The
        agreements are each for an initial term of twelve years and shall be
        automatically renewed on terms to be agreed for successive periods of
        six years thereafter until termination. The agreements terminate in
        the event that the mine permanently ceases to operate. Harry Winston
        Diamond Corporation's share of the Joint Venture's participation
        agreements as at April 30, 2011 was $1.8 million.

    (c) Commitments

        Commitments include the cumulative maximum funding commitments
        secured by letters of credit of the Joint Venture's environmental and
        participation agreements at HWDLP's 40% ownership interest, before
        any reduction of future reclamation activities; and future minimum
        annual rentals under non-cancellable operating and capital leases for
        luxury brand salons and corporate office space, and long-term leases
        for property, land, office premises and a fuel tank farm at the
        Diavik Diamond Mine; and are as follows:

        2012                                                     $   112,960
        2013                                                         109,581
        2014                                                         107,561
        2015                                                         112,983
        2016                                                         107,502
        Thereafter                                                   238,139
        ---------------------------------------------------------------------

    Note 12:
    Capital Management

    The Company's capital includes cash and cash equivalents, short-term
    debt, long-term debt and equity, which includes issued common shares,
    contributed surplus and retained earnings.

    The Company's primary objective with respect to its capital management is
    to ensure that it has sufficient cash resources to maintain its ongoing
    operations, to provide returns to shareholders and benefits for other
    stakeholders, and to pursue growth opportunities. To meet these needs,
    the Company may from time to time raise additional funds through
    borrowing and/or the issuance of equity or debt or by securing strategic
    partners, upon approval by the Board of Directors. The Board of Directors
    reviews and approves any material transactions out of the ordinary course
    of business, including proposals on acquisitions or other major
    investments or divestitures, as well as annual capital and operating
    budgets.

    The Company assesses liquidity and capital resources on a consolidated
    basis. The Company's requirements are for cash operating expenses,
    working capital, contractual debt requirements and capital expenditures.
    The Company believes that it will generate sufficient liquidity to meet
    its anticipated requirements for the next twelve months.

    Note 13:
    Financial Instruments

    The Company has various financial instruments comprising cash and cash
    equivalents, cash collateral and cash reserves, accounts receivable,
    accounts payable and accrued liabilities, bank advances, promissory note
    and long-term debt.

    Cash and cash equivalents consist of cash on hand and balances with banks
    and short-term investments held in overnight deposits with a maturity on
    acquisition of less than 90 days. Cash and cash equivalents, which are
    designated as held-for-trading, are carried at fair value based on quoted
    market prices and are classified within Level 1 of the fair value
    hierarchy established by the International Accounting Standards Board.

    The fair value of accounts receivable is determined by the amount of cash
    anticipated to be received in the normal course of business from the
    financial asset.

    The promissory note is short term in nature; hence the fair value of this
    instrument at April 30, 2011 is considered to approximate its carrying
    value.

    The Company's interest-bearing loans and borrowings are fully secured;
    hence the fair values of these instruments at April 30, 2011 are
    considered to approximate their carrying value.

    The carrying values of these financial instruments are as follows:

                                  April 30, 2011            January 31, 2011
    -------------------------------------------------------------------------
                         Estimated      Carrying     Estimated      Carrying
                        fair value         value    fair value         value
    -------------------------------------------------------------------------
    Financial Assets
      Cash and cash
       equivalents     $   101,214   $   101,214   $   108,693   $   108,693
      Accounts
       receivable           28,292        28,292        22,788        22,788
    -------------------------------------------------------------------------
                       $   129,506   $   129,506   $   131,481   $   131,481
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Financial
     Liabilities
      Trade and other
       payables        $   166,777   $   166,777   $   136,490   $   136,490
      Bank advances         32,389        32,389        22,902        22,902
      Promissory note       70,000        70,000        70,000        70,000
      Interest-bearing
       loans and
       borrowings          247,246       247,246       238,934       238,934
    -------------------------------------------------------------------------
                       $   516,412   $   516,412   $   468,326   $   468,326
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Note 14:
    Segmented Information

    The Company operates in two segments within the diamond industry, mining
    and luxury brand, for the three months ended April 30, 2011.

    The mining segment consists of the Company's rough diamond business. This
    business includes the 40% ownership interest in the Diavik group of
    mineral claims and the sale of rough diamonds.

    The luxury brand segment consists of the Company's ownership in Harry
    Winston Inc. This segment consists of the marketing of fine jewelry and
    watches on a worldwide basis.

    For the three months ended
     April 30, 2011                       Mining  Luxury brand         Total
    -------------------------------------------------------------------------
    Sales
      Canada (a)                     $    62,035   $         -   $    62,035
      United States                            -        36,394        36,394
      Europe                                   -        20,588        20,588
      Asia                                     -        24,915        24,915
    -------------------------------------------------------------------------
      Total sales                         62,035        81,897       143,932
    -------------------------------------------------------------------------
    Cost of sales
      Depreciation and amortization       16,430            80        16,510
      All other costs                     37,013        42,929        79,942
    -------------------------------------------------------------------------
      Total cost of sales                 53,443        43,009        96,452
    -------------------------------------------------------------------------
    Gross margin                           8,592        38,888        47,480
    Gross margin (%)                       13.9%         47.5%         33.0%
    Selling, general and
     administrative expenses
      Selling and related expenses           648        26,321        26,969
      Administrative expenses              7,378         8,448        15,826
    -------------------------------------------------------------------------
      Total other operating expenses       8,026        34,769        42,795
    -------------------------------------------------------------------------
    Operating profit                         566         4,119         4,685
    Finance expense                       (2,693)       (1,290)       (3,983)
    Exploration costs                       (212)            -          (212)
    Finance and other income                  77           181           258
    Foreign exchange gain (loss)            (977)          800          (177)
    -------------------------------------------------------------------------
    Segmented profit (loss) before
     income taxes                    $    (3,239)  $     3,810   $       571
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Segmented assets as at
     April 30, 2011
      Canada                         $   971,628   $         -   $   971,628
      United States                            -       455,639       459,521
      Other foreign countries             36,411       202,367       234,896
    -------------------------------------------------------------------------
                                     $ 1,008,039   $   658,006   $ 1,666,045
    -------------------------------------------------------------------------
    Capital expenditures             $    12,436   $     1,388   $    13,824
    Other significant non-cash
     items:
      Deferred income tax expense
       (recovery)                    $    (4,555)  $     1,907   $    (2,648)

    (a) Sales to four significant customers in the mining segment totalled
        $12.3 million for the three months ended April 30, 2011.


    For the three months ended
     April 30, 2010                       Mining  Luxury brand         Total
    -------------------------------------------------------------------------
    Sales
      Canada (a)                     $    48,922   $         -   $    48,922
      United States                            -        22,040        22,040
      Europe                                   -        19,434        19,434
      Asia                                     -        23,604        23,604
    -------------------------------------------------------------------------
      Total sales                         48,922        65,078       114,000
    -------------------------------------------------------------------------
    Cost of sales
      Depreciation and amortization       10,346            80        10,426
      All other costs                     33,797        31,488        65,285
    -------------------------------------------------------------------------
      Total cost of sales                 44,143        31,568        75,711
    -------------------------------------------------------------------------
    Gross margin                           4,779        33,510        38,289
    Gross margin (%)                        9.8%         51.5%         33.6%
    Selling, general and
     administrative expenses
      Selling and related expenses           566        21,434        22,000
      Administrative expenses              3,304        10,644        13,948
    -------------------------------------------------------------------------
      Total other operating expenses       3,870        32,078        35,948
    -------------------------------------------------------------------------
    Operating profit                         909         1,432         2,341
    Finance expense                       (1,313)       (1,567)       (2,880)
    Exploration costs                        (27)            -           (27)
    Finance and other income                  72            96           168
    Foreign exchange gain (loss)          (2,395)          182        (2,213)
    -------------------------------------------------------------------------
    Segmented profit (loss) before
     income taxes                    $    (2,754)  $       143   $    (2,611)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Segmented assets as at
     April 30, 2010
      Canada                         $   949,308   $         -   $   949,308
      United States                            -       378,649       378,649
      Other foreign countries             30,526       163,404       193,930
    -------------------------------------------------------------------------
                                     $   979,834   $   542,053   $ 1,521,887
    -------------------------------------------------------------------------
    Capital expenditures             $     9,297   $       206   $     9,503
    Other significant non-cash
     items:
      Deferred income tax expense
       (recovery)                    $    (6,673)  $       634   $    (6,039)

    (a) Sales to four significant customers in the mining segment totalled
        $14.0 million for the three months ended April 30, 2010.

    Note 15:
    Explanation of Transition to IFRS

    As stated in Note 2(a), these are the Company's first consolidated
    interim financial statements prepared in accordance with IFRS.

    The accounting policies in Note 3 have been applied in preparing: the
    interim financial statements for the three months ended April 30, 2011,
    the comparative information presented in these interim financial
    statements for both the three months ended April 30, 2010 and year ended
    January 31, 2011, and in the preparation of an opening IFRS balance sheet
    at February 1, 2010 (the Company's date of transition). In preparing the
    Company's opening IFRS balance sheet, the Company has adjusted amounts
    reported previously in financial statements prepared in accordance with
    Canadian GAAP. An explanation of how the transition from Canadian GAAP to
    IFRS has affected the Company's financial position and financial
    performance is set out in the following tables and the notes that
    accompany the tables.

    Explanation of Transition to IFRS: Reconciliation of Equity

    (in thousands of
     United States
     dollars)                                 February 1, 2010
    (unaudited)
                                                     Effect of
                                        Canadian    Transition
                               Ref.         GAAP       to IFRS          IFRS
    -------------------------------------------------------------------------
    ASSETS
    Current assets:
      Cash and cash
       equivalents                   $    62,969   $         -   $    62,969
      Accounts
       receivable               (a)       23,520            78        23,598
      Inventory and
       supplies                          311,188             -       311,188
      Other current
       assets                   (b)       44,220        (7,576)       36,644
    -------------------------------------------------------------------------
                                         441,897        (7,498)      434,399
    Property, plant and
     equipment - Mining         (c)      802,984       (19,552)      783,432
    Property, plant and
     equipment - Luxury
     brand                                62,277             -        62,277
    Intangible assets,
     net                                 129,213             -       129,213
    Other non-current
     assets                               15,629             -        15,629
    Deferred income tax
     assets                     (a)       42,805        10,374        53,179
    -------------------------------------------------------------------------
    Total assets                     $ 1,494,805   $   (16,676)  $ 1,478,129
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND EQUITY
    Current liabilities:
      Trade and other
       payables                 (d)  $    87,448   $   (14,043)  $    73,405
      Employee benefit
       plans                    (d)            -        13,774        13,774
      Income taxes
       payable                            46,297             -        46,297
      Bank advances             (d)       22,485       (22,485)            -
      Promissory note                          -             -             -
      Interest-bearing
       loans and
       borrowings               (d)        1,154        22,675        23,829
    -------------------------------------------------------------------------
                                         157,384           (79)      157,305
    Interest-bearing
     loans and
     borrowings                 (d)      161,538           153       161,691
    Employee benefit
     plans                      (e)        2,201         4,697         6,898
    Provisions                  (f)       41,275         2,416        43,691
    Deferred income
     tax liabilities            (g)      271,822       (33,437)      238,385
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total liabilities                    634,220       (26,250)      607,970
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Equity:
      Share capital                      426,593             -       426,593
      Contributed
       surplus                            17,730             -        17,730
      Retained earnings         (h)      210,001        40,069       250,070
      Accumulated other
       comprehensive
       income                   (i)       28,445       (31,016)       (2,571)
    -------------------------------------------------------------------------
    Total shareholders'
     equity                              682,769         9,053       691,822
    Non-controlling
     interest                   (j)      177,816           521       178,337
    -------------------------------------------------------------------------
    Total equity                         860,585         9,574       870,159
    Total liabilities
     and equity                      $ 1,494,805   $   (16,676)  $ 1,478,129
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    (in thousands of
     United States
     dollars)                     April 30, 2010
    (unaudited)
                                       Effect of
                          Canadian    Transition
                              GAAP       to IFRS          IFRS
    -----------------------------------------------------------
    ASSETS
    Current assets:
      Cash and cash
       equivalents     $    89,874   $         -   $    89,874
      Accounts
       receivable           24,379             -        24,379
      Inventory and
       supplies            342,678             -       342,678
      Other current
       assets               37,217        (8,029)       29,188
    ------------------- ---------------------------------------
                           494,148        (8,029)      486,119
    Property, plant and
     equipment - Mining    796,159       (19,093)      777,066
    Property, plant and
     equipment - Luxury
     brand                  58,095             -        58,095
    Intangible assets,
     net                   128,866             -       128,866
    Other non-current
     assets                 14,905             -        14,905
    Deferred income tax
     assets                 46,346        10,490        56,836
    ------------------- ---------------------------------------
    Total assets       $ 1,538,519   $   (16,632)  $ 1,521,887
    ------------------- ---------------------------------------
    ------------------- ---------------------------------------

    LIABILITIES AND
     EQUITY
    Current liabilities:
      Trade and other
       payables        $   116,523   $   (13,344)  $   103,179
      Employee benefit
       plans                     -        13,717        13,717
      Income taxes
       payable              47,226             -        47,226
      Bank advances         36,521       (36,521)            -
      Promissory note            -             -             -
      Interest-bearing
       loans and
       borrowings            1,181        36,815        37,996
    ------------------- ---------------------------------------
                           201,451           667       202,118
    Interest-bearing
     loans and
     borrowings            161,094           148       161,242
    Employee benefit
     plans                   2,388         4,588         6,976
    Provisions              41,881         2,416        44,297
    Deferred income
     tax liabilities       281,137       (45,071)      236,066
    ------------------- ---------------------------------------
    ------------------- ---------------------------------------
    Total liabilities      687,951       (37,252)      650,699
    ------------------- ---------------------------------------
    ------------------- ---------------------------------------
    Equity:
      Share capital        426,753             -       426,753
      Contributed
       surplus              17,917             -        17,917
      Retained earnings    201,347        50,860       252,207
      Accumulated other
       comprehensive
       income               26,850       (31,652)       (4,802)
    ------------------- ---------------------------------------
    Total shareholders'
     equity                672,867        19,208       692,075
    Non-controlling
     interest              177,701         1,412       179,113
    ------------------- ---------------------------------------
    Total equity           850,568        20,620       871,188
    Total liabilities
     and equity        $ 1,538,519   $   (16,632)  $ 1,521,887
    ------------------- ---------------------------------------
    ------------------- ---------------------------------------



    (in thousands of
     United States
     dollars)                   January 31, 2011
    (unaudited)
                                       Effect of
                          Canadian    Transition
                              GAAP       to IFRS          IFRS
    -----------------------------------------------------------
    ASSETS
    Current assets:
      Cash and cash
       equivalents     $   108,693   $         -   $   108,693
      Accounts
       receivable           22,723            65        22,788
      Inventory and
       supplies            403,212             -       403,212
      Other current
       assets               45,681        (7,019)       38,662
    ------------------- ---------------------------------------
                           580,309        (6,954)      573,355
    Property, plant and
     equipment - Mining    777,807       (13,714)      764,093
    Property, plant and
     equipment - Luxury
     brand                  61,019             -        61,019
    Intangible assets,
     net                   127,894             -       127,894
    Other non-current
     assets                 16,626             -        16,626
    Deferred income tax
     assets                 53,857         8,836        62,693
    ------------------- ---------------------------------------
    Total assets       $ 1,617,512   $   (11,832)  $ 1,605,680
    ------------------- ---------------------------------------
    ------------------- ---------------------------------------

    LIABILITIES AND
     EQUITY
    Current liabilities:
      Trade and other
       payables        $   142,339   $    (5,849)  $   136,490
      Employee benefit
       plans                     -         7,378         7,378
      Income taxes
       payable               6,660             -         6,660
      Bank advances         22,902       (22,902)            -
      Promissory note       70,000             -        70,000
      Interest-bearing
       loans and
       borrowings            1,313        22,902        24,215
    ------------------- ---------------------------------------
                           243,214         1,529       244,743
    Interest-bearing
     loans and
     borrowings            237,450           171       237,621
    Employee benefit
     plans                   3,001         4,286         7,287
    Provisions              43,390         6,740        50,130
    Deferred income
     tax liabilities       355,531       (53,551)      301,980
    ------------------- ---------------------------------------
    ------------------- ---------------------------------------
    Total liabilities      882,586       (40,825)      841,761
    ------------------- ---------------------------------------
    ------------------- ---------------------------------------
    Equity:
      Share capital        502,129             -       502,129
      Contributed
       surplus              16,233             -        16,233
      Retained earnings    176,620        61,047       237,667
      Accumulated other
       comprehensive
       income               39,678       (32,054)        7,624
    ------------------- ---------------------------------------
    Total shareholders'
     equity                734,660        28,993       763,653
    Non-controlling
     interest                  266             -           266
    ------------------- ---------------------------------------
    Total equity           734,926        28,993       763,919
    Total liabilities
     and equity        $ 1,617,512   $   (11,832)  $ 1,605,680
    ------------------- ---------------------------------------
    ------------------- ---------------------------------------



    Explanation of Transition to IFRS: Reconciliation of Profit
    (in thousands of
     United States dollars)             For the quarter ended April 30, 2010
    (unaudited)
                                                     Effect of
                                        Canadian    Transition
                               Ref.         GAAP       to IFRS          IFRS
    -------------------------------------------------------------------------
    Sales                            $   114,000   $         -   $   114,000
    Cost of sales               (k)       76,692          (981)       75,711
    -------------------------------------------------------------------------
    Gross margin                          37,308           981        38,289
    Selling, general and
     administrative
     expenses                             35,948             -        35,948
    -------------------------------------------------------------------------
    Operating profit                       1,360           981         2,341
    Finance expenses            (l)       (2,384)         (496)       (2,880)
    Exploration costs           (m)            -           (27)          (27)
    Finance and other
     income                                  168             -           168
    Foreign exchange
     gain (loss)                (n)      (11,792)        9,579        (2,213)
    -------------------------------------------------------------------------
    Profit (loss) before
     income taxes                        (12,648)       10,037        (2,611)
    Current income tax
     expense (recovery)                      515             -           515
    Deferred income tax
     expense (recovery)         (o)       (4,394)       (1,645)       (6,039)
    -------------------------------------------------------------------------
    Net profit (loss)                $    (8,769)  $    11,682   $     2,913
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Attributable to:
      Shareholders                   $    (8,654)  $    10,791   $     2,137
      Non-controlling
       interest                             (115)          891           776
    -------------------------------------------------------------------------
    Net profit (loss)                $    (8,769)  $    11,682   $     2,913
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings (loss)
     per share
      Basic                          $     (0.11)  $      0.14   $      0.03
      Fully diluted                  $     (0.11)  $      0.14   $      0.03
    Weighted average
     number of share
     outstanding                      76,631,115    76,631,115    76,631,115
    -------------------------------------------------------------------------





    (in thousands of                 For the fiscal year ended
     United States dollars)                   January 31, 2011
    (unaudited)
                                       Effect of
                          Canadian    Transition
                              GAAP       to IFRS          IFRS
    -----------------------------------------------------------
    Sales              $   623,963   $         -  $    623,963
    Cost of sales          391,562        (3,897)      387,665
    ------------------- ---------------------------------------
    Gross margin           232,401         3,897       236,298
    Selling,
     general and
     administrative
     expenses              167,950             -       167,950
    ------------------- ---------------------------------------
    Operating profit        64,451         3,897        68,348
    Finance expenses       (11,527)       (1,900)      (13,427)
    Exploration costs            -          (666)         (666)
    Finance and other
     income                    486           183           669
    Foreign exchange
     gain (loss)           (14,406)       14,763           357
    ------------------- ---------------------------------------
    Profit (loss) before
     income taxes           39,004        16,277        55,281
    Current income tax
     expense (recovery)     (8,737)            -        (8,737)
    Deferred income tax
     expense (recovery)     21,121        (4,180)       16,941
    ------------------- ---------------------------------------
    Net profit (loss)  $    26,620   $    20,457   $    47,077
    ------------------- ---------------------------------------
    ------------------- ---------------------------------------
    Attributable to:
      Shareholders     $    21,669   $    19,737   $    41,406
      Non-controlling
       interest              4,951           720         5,671
    ------------------- ---------------------------------------
    Net profit (loss)  $    26,620   $    20,457   $    47,077
    ------------------- ---------------------------------------
    ------------------- ---------------------------------------
    Earnings (loss)
     per share
      Basic            $      0.27   $      0.25   $      0.52
      Fully diluted    $      0.27   $      0.24   $      0.51
    Weighted average
     number of share
     outstanding        79,858,018    79,858,018    79,858,018
    ------------------- ---------------------------------------



    Explanation of Transition to IFRS: Reconciliation of Comprehensive Income
    (in thousands of
     United States dollars)             For the quarter ended April 30, 2010
    (unaudited)
                                                     Effect of
                                        Canadian    Transition
                               Ref.         GAAP       to IFRS          IFRS
    -------------------------------------------------------------------------
    Net profit (loss) -
     as above                        $    (8,769)   $   11,682   $     2,913
    Other comprehensive
     income
      Net gain(loss) on
       translation of
       net foreign
       operations                         (1,753)            -        (1,753)
      Change in fair
       value of
       derivative
       financial
       instrument                            158             -           158
      Actuarial loss on
       employee benefit
       plans                 (e)(i)            -          (636)         (636)
    -------------------------------------------------------------------------
    Total comprehensive
     income (loss)                   $   (10,364)   $   11,046   $       682
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Attributable to:
      Shareholders                   $   (10,249)   $   10,155   $       (94)
      Non-controlling
       interest                             (115)          891           776
    -------------------------------------------------------------------------
    Total comprehensive
     income (loss)                   $   (10,364)   $   11,046   $       682
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    (in thousands of                 For the fiscal year ended
     United States dollars)                   January 31, 2011
    (unaudited)
                                       Effect of
                          Canadian    Transition
                              GAAP       to IFRS          IFRS
    -----------------------------------------------------------
    Net profit (loss) -
     as above          $    26,620   $    20,457   $    47,077
    Other comprehensive
     income
      Net gain(loss) on
       translation of
       net foreign
       operations           10,879             -        10,879
      Change in fair
       value of
       derivative
       financial
       instrument              354             -           354
      Actuarial loss on
       employee benefit
       plans                     -        (1,038)       (1,038)
    ------------------- ---------------------------------------
    Total comprehensive
     income (loss)     $    37,853   $    19,419   $    57,272
    ------------------- ---------------------------------------
    ------------------- ---------------------------------------
    Attributable to:
      Shareholders     $    32,902   $    18,699   $    51,601
      Non-controlling
       interest              4,951           720         5,671
    ------------------- ---------------------------------------
    Total comprehensive
     income (loss)     $    37,853   $    19,419   $    57,272
    ------------------- ---------------------------------------
    ------------------- ---------------------------------------


    References to the reconciliation of equity and profit

    (a) Reclassification of assets

        To conform to IFRS presentation requirements, certain asset balances
        have been reclassified to current or non-current asset accounts.

    (b) Other current assets
                                      February 1,     April 30,   January 31,
                               Ref.         2010          2010          2011
        ---------------------------------------------------------------------
        Reclassification
         of assets          See (a)  $   (10,452)  $   (10,490)  $    (8,901)
        Deferred tax impact
         on intra-group
         transfer of assets     (i)        2,876         2,461         1,882
        ---------------------------------------------------------------------
        Net decrease in
         other current
         assets                      $    (7,576)  $    (8,029)  $    (7,019)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    (i) Under IFRS, deferred taxes are recognized for the difference in tax
        bases between jurisdictions as a result of an intra-group transfer of
        assets. The deferred tax component under IFRS is computed using the
        tax rate applicable to the purchaser, whereas the seller's tax rate
        was applied under Canadian GAAP. On transition to IFRS at February 1,
        2010, deferred income tax asset increased by $2.9 million along with
        a corresponding increase in retained earnings.

        During the three months ended April 30, 2010, the accounting under
        IFRS resulted in a reduction of $0.4 million in both deferred income
        tax asset and deferred income tax recovery.

        For the fiscal year ended January 31, 2011, the accounting under IFRS
        resulted in a reduction of $1.0 million in both deferred income tax
        asset and deferred income tax recovery.

    (c) Property, plant and equipment - Mining

                                      February 1,     April 30,   January 31,
                               Ref.         2010          2010          2011
        ---------------------------------------------------------------------
        Derecognition of
         exploration costs
         capitalized            (i)  $   (18,632)  $   (18,173)  $   (17,072)
        Remeasurement of
         the asset
         retirement
         obligation      See (f)(i)         (920)         (920)        3,358
        ---------------------------------------------------------------------
        Total decrease in
         property, plant
         and equipment
         - Mining                    $   (19,552)  $   (19,093)  $   (13,714)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    (i) Under Canadian GAAP, the Company's policy on exploration expenditures
        incurred is to capitalize and to amortize using the units-of-
        production method. For IFRS purposes, the Company's accounting policy
        on exploration expenditures is to expense unless the exploration
        activity relates to proven and probable reserves. The retrospective
        application of this new accounting policy at the date of transition
        has resulted in the $18.6 million write-off of the net book value of
        capitalized exploration costs, and a decrease in deferred income tax
        liability, non-controlling interest and retained earnings by $5.5
        million, $0.9 million, and $12.2 million, respectively.

        For the three months ended April 30, 2010, the accounting under IFRS
        increased mining capital assets by $0.5 million, decreased cost of
        goods sold by approximately $0.5 million, and increased exploration
        costs nominally reflecting the net impact of reversing Canadian GAAP
        depreciation on capitalized exploration costs, partially offset by
        the expensing of exploration costs incurred in the quarter. Nominal
        changes were also made to deferred income tax liabilities, non-
        controlling interest and deferred income tax recovery.

        For the fiscal year ended January 31, 2011, the accounting under IFRS
        increased mining capital assets, deferred income tax liabilities and
        non-controlling interest by $1.6 million, $0.6 million and $0.2
        million, respectively. Cost of sales decreased by $2.0 million, and
        exploration costs, deferred income tax expense and profit
        attributable to non-controlling interest increased by $0.5 million,
        $0.6 million and $0.2 million, respectively.

    (d) Reclassification of liabilities

        To conform to IFRS presentation requirements, various liability
        balances have been reclassified.

    (e) Employee benefit plans

                                 Ref.   February 1,    April 30,  January 31,
                                              2010         2010         2011
        ---------------------------------------------------------------------
        Retrospective
         application
         of IAS 19 employee
         benefits                 (i)   $    4,771   $    5,402   $    5,986
        Reclassification of
         liabilities          See (d)          (74)        (814)      (1,700)
        ---------------------------------------------------------------------
        Net increase in
         employee benefit
         plans                          $    4,697   $    4,588   $    4,286
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        (i) Under Canadian GAAP, actuarial gains or losses for defined
            benefit plans that exceeded the corridor threshold (10% of the
            greater of the obligation and fair value of plan assets at the
            beginning of the period) were recognized over the remaining
            average service life of active employees. For IFRS purposes, the
            Company's accounting policy is to recognize its actuarial gains
            and losses immediately in other comprehensive income, and has
            retrospectively applied this approach at the date of transition.
            As a result, $2.2 million in previously unrecognized cumulative
            actuarial losses at February 1, 2010 were recognized in
            accumulated other comprehensive income within equity, along with
            a $4.8 million increase in the defined benefit plan obligation
            and a $2.6 million decrease in deferred income tax liabilities.

            For the three months ended April 30, 2010, the accounting under
            IFRS resulted in a $0.6 million increase to the defined benefit
            plan obligation and a corresponding charge to other comprehensive
            income, reflecting the recognition of actuarial losses in the
            quarter. A nominal change was made to deferred income tax
            liabilities.

            For the fiscal year ended January 31, 2011, the accounting under
            IFRS resulted in a $1.2 million increase to the defined benefit
            plan obligation, a $1.0 million charge to other comprehensive
            income, and a $0.2 million decrease in deferred income tax
            liabilities.

    (f) Provisions

                                 Ref.   February 1,    April 30,  January 31,
                                              2010         2010         2011
        ---------------------------------------------------------------------
        Remeasurement of the
         asset retirement
         obligation               (i)   $    2,416   $    2,416   $    6,740
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        (i) The Company has elected to utilize the IFRS 1 optional exemption
            relating to "Changes in decommissioning, restoration and similar
            liabilities" in preparing its opening balance sheet under IFRS.
            Through application of this IFRS exemption, the site restoration
            provision under Canadian GAAP has been increased by $2.4 million
            along with reductions in mining capital assets, deferred income
            tax liability, non-controlling interest and retained earnings by
            $0.9 million, $1.0 million, $0.2 million and $2.1 million,
            respectively.

            For the fiscal year ended January 31, 2011, the accounting under
            IFRS resulted in increases of $4.3 million in both mining capital
            assets and restoration site provision. Nominal changes were also
            made to deferred income tax liabilities, cost of sales, finance
            expenses and deferred income tax recovery.

    (g) Deferred income tax liabilities

                                 Ref.   February 1,    April 30,  January 31,
                                              2010         2010         2011
        ---------------------------------------------------------------------
        Recognition of new
         deferred tax
         balances                 (i)   $  (24,376)  $  (34,542)  $  (42,637)
        Derecognition of
         exploration costs
         capitalized       See (c)(i)       (5,521)      (5,369)      (4,887)
        Retrospective
         application of IAS
         19 employee
         benefits          See (e)(i)       (2,555)      (2,550)      (2,732)
        Remeasurement of
         the asset
         retirement
         obligation        See (f)(i)         (985)        (985)      (1,002)
        Revaluation of
         deferred income
         tax liabilities         (ii)            -       (1,625)      (2,293)
        ---------------------------------------------------------------------
        Total decrease in
         deferred income
         tax liabilities                $  (33,437)  $  (45,071)  $  (53,551)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        (i) Under IFRS, in the determination of temporary differences, the
            carrying value of non-monetary assets and liabilities is
            translated into the functional currency at the historical rate
            and compared to its tax value translated into the functional
            currency at the current rate. The resulting temporary difference
            (measured in the functional currency) is then multiplied by the
            appropriate tax rate to determine the related deferred tax
            balance.

            Under Canadian GAAP, in the determination of temporary
            differences related to non-monetary assets and liabilities, the
            temporary differences computed in local currency are multiplied
            by the appropriate tax rate. The resulting future income tax
            amount is then translated into the Company's functional currency
            if it is different from the local currency.

            On transition, the accounting under IFRS related to the
            determination of temporary differences of foreign currency
            non-monetary assets and liabilities has reduced deferred tax
            liability by $24.4 million and increased retained earnings and
            non-controlling interest by $22.8 million and $1.6 million,
            respectively.

            For the three months ended April 30, 2010, the accounting under
            IFRS resulted in a $10.2 million decrease in deferred income tax
            liabilities and a $10.2 million increase in deferred income tax
            recovery. Net profit attributable to non-controlling interest
            also increased by $0.7 million.

            For the fiscal year ended January 31, 2011, the accounting under
            IFRS resulted in a $18.3 million decrease in deferred income tax
            liabilities and a $18.3 million increase in deferred income tax
            recovery. Net profit attributable to non-controlling interest
            also increased by $0.5 million.

       (ii) For the three months ended April 30, 2010, the above IFRS
            adjustments to deferred income tax liabilities required a
            revaluation of the account balance resulting in a $1.6 million
            reduction in deferred income tax liabilities and a corresponding
            increase in deferred income tax recovery. Net profit attributable
            to non-controlling interest also increased by $0.1 million.

            For the full year ended January 31, 2011, the above IFRS
            adjustments to deferred income tax liabilities required a
            revaluation of the account balance resulting in a $2.3 million
            reduction in deferred income tax liabilities and a corresponding
            increase in deferred income tax recovery. Nominal changes were
            also made to non-controlling interest.

    (h) Retained earnings

        The effect of all IFRS adjustments has increased (decreased) retained
        earnings as follows:

                                 Ref.   February 1,    April 30,  January 31,
                                              2010         2010         2011
        ---------------------------------------------------------------------
        Reset of cumulative
         translation
         differences        See (i)(i)  $   28,800   $   28,800   $   28,800
        Recognition of new
         deferred tax
         balances           See (g)(i)      22,788       32,263       40,580
        Derecognition of
         exploration costs
         capitalized        See (c)(i)     (12,243)     (12,030)     (11,496)
        Deferred tax impact
         on intra-group
         transfer of
         assets             See (b)(i)       2,876        2,461        1,882
        Remeasurement of
         the asset
         retirement
         obligation         See (f)(i)      (2,152)      (2,152)      (2,181)
        Revaluation of
         deferred income
         tax liabilities   See (g)(ii)           -        1,518        2,221
        Reacquisition of
         partnership units  See (i)(i)           -            -        1,241
        ---------------------------------------------------------------------
        Net increase in
         retained earnings              $   40,069   $   50,860   $   61,047
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    (i) Accumulated other comprehensive income

                                 Ref.   February 1,    April 30,  January 31,
                                              2010         2010         2011
        ---------------------------------------------------------------------
        Reset of cumulative
         translation
         differences               (i)  $  (28,800)  $  (28,800)  $  (28,800)
        Retrospective
         application of IAS
         19 employee
         benefits           See (e)(i)      (2,216)      (2,852)      (3,254)
        ---------------------------------------------------------------------
        Total decrease in
         accumulated other
         comprehensive income           $  (31,016)  $  (31,652)  $  (32,054)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        (i) The Company has elected to utilize the IFRS 1 optional exemption
            relating to "Cumulative translation differences" in preparing its
            opening balance sheet under IFRS. Through application of this
            exemption on transition date, existing cumulative translation
            differences have been reset to zero and retained earnings has
            been increased by $28.8 million.

    (j) Non-controlling interest

                                 Ref.   February 1,    April 30,  January 31,
                                              2010         2010         2011
        ---------------------------------------------------------------------
        Derecognition of
         exploration costs
         capitalized        See (c)(i)        (868)        (775)        (689)
        Remeasurement of
         the asset
         retirement
         obligation         See (f)(i)        (199)        (199)        (199)
        Recognition of new
         deferred tax
         balances           See (g)(i)       1,588        2,279        2,057
        Revaluation of
         deferred income
         tax liabilities   See (g)(ii)           -          107           72
        Reacquisition of
         partnership units         (i)           -            -       (1,241)
        ---------------------------------------------------------------------
        Net change in
         non-controlling
         interest                       $      521   $    1,412   $        -
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        (i) During the third quarter of fiscal 2011, the Company reacquired
            its 9% indirect interest in the Diavik Joint Venture from Kinross
            resulting in the reversal of previously recorded profit
            adjustments attributable to non-controlling interest.

    (k) Cost of sales

                                              Ref.     April 30,  January 31,
                                                           2010         2011
        ---------------------------------------------------------------------
        Reclassification of accretion
         expense                                (i)  $     (496)  $   (2,004)
        Derecognition of exploration
         costs capitalized               See (c)(i)        (485)      (2,043)
        Remeasurement of the asset
         retirement obligation           See (f)(i)           -          150
        ---------------------------------------------------------------------
        Decrease in cost of sales                    $     (981)  $   (3,897)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        (i) In accordance with IFRIC 1, "Changes in Existing Decommissioning,
            Restoration and Similar Liabilities", accretion expense is
            treated as interest expense whereas under Canadian GAAP it had
            been recorded as a component of cost of sales.

    (l) Finance expenses

                                              Ref.     April 30,  January 31,
                                                           2010         2011
        ---------------------------------------------------------------------
        Reclassification of accretion
         expense                         See (k)(i)  $     (496)  $   (2,004)
        Remeasurement of the asset
         retirement obligation           See (f)(i)           -          104
        ---------------------------------------------------------------------
        Increase in finance expenses                 $     (496)  $   (1,900)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    (m) Exploration costs

                                              Ref.     April 30,  January 31,
                                                           2010         2011
        ---------------------------------------------------------------------
        Derecognition of exploration
         costs capitalized               See (c)(i)  $      (27)  $     (483)
        Reclassification of exploration
         costs                                                -         (183)
        ---------------------------------------------------------------------
        Increase in exploration costs                $      (27)  $     (666)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    (n) Decrease in foreign exchange loss

                                              Ref.     April 30,  January 31,
                                                           2010         2011
        ---------------------------------------------------------------------
        Reclassification of foreign
         exchange loss                          (i)  $    9,579   $   14,763
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        (i) Under Canadian GAAP, the foreign exchange difference from the
            translation of deferred taxes was presented within the foreign
            exchange gain/loss account. For IFRS reporting purposes, these
            foreign exchange differences have been reclassified to deferred
            income tax recovery/expense.

    (o) Deferred income tax expense (recovery)

                                              Ref.     April 30,  January 31,
                                                           2010         2011
        ---------------------------------------------------------------------
        Derecognition of exploration
         costs capitalized               See (c)(i)  $      152   $      634
        Recognition of new deferred
         income tax liability balances   See (g)(i)     (10,166)     (18,261)
        Deferred tax impact on
         intra-group transfer of assets  See (b)(i)         415          994
        Remeasurement of the asset
         retirement obligation           See (f)(i)           -          (17)
        Reclassification of foreign
         exchange loss                   See (n)(i)       9,579       14,763
        Revaluation of deferred income
         tax liabilities                See (g)(ii)      (1,625)      (2,293)
        ---------------------------------------------------------------------
        Total increase in deferred
         income tax recovery                         $   (1,645)  $   (4,180)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
    >>

SOURCE Harry Winston Diamond Corporation

For further information: Ms. Laura Kiernan, Director, Investor Relations - (212) 315-7934 or lkiernan@harrywinston.com; Ms. Kelley Stamm, Manager, Investor Relations - (416) 205-4380 or kstamm@harrywinston.com

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Harry Winston Diamond Corporation

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