Harry Winston Diamond Corporation Announces First Quarter Fiscal 2009 Results



    TORONTO, June 4 /CNW/ - Harry Winston Diamond Corporation (TSX: HW; NYSE:  
HWD) today reported first quarter results for the period ending April 30,
2008. The Company recorded an increase in consolidated sales for the quarter
of 10%, generating an 18% increase in gross margin and a 10% increase in
consolidated earnings from operations compared to the results of the first
quarter of the prior year. Consolidated quarterly sales totalled $156.1
million with earnings from operations of $39.6 million compared to $141.4
million and $36.0 million, respectively, for the comparable quarter of the
prior year.
    Net earnings were $21.3 million, or $0.35 per share, compared to net
earnings of $3.3 million, or $0.06 per share, respectively, in the first
quarter of the prior year. Net earnings for the comparable quarter of the
prior year were reduced by a net $13.3 million foreign exchange loss, or $0.23
per share, as a result of the strengthening of the Canadian dollar relative to
the US dollar during the quarter, compared to a net $0.2 million foreign
exchange gain in the current quarter.
    Earnings from operations for the mining segment increased 13% to
$42.0 million compared to the comparable quarter of the prior year. Extreme
cold temperatures, compounded by the mining of a lower-grade section of the
A-154 South ore body, caused a 31% decrease in carat production, with 0.7
million being produced in the quarter versus 1.0 million for the comparable
quarter of the prior year. Mining sales, however, were down only 2% to
$81.4 million as higher diamond prices compensated for reduced volume.
    The retail segment recorded a 27% increase in sales to $74.7 million.
However, a $2.0 million non-recurring expense related to restructuring and
improvements carried out at the Geneva watch factory resulted in the retail
segment recording a loss from operations of $2.4 million. Excluding the impact
of the restructuring charge, loss from operations would have been $0.3 million
compared to a loss of $1.1 million in the comparable quarter of the prior
year.

    
    First Quarter Fiscal 2009 Financial Highlights
    (US$ in millions except Earnings per Share amounts)

    -------------------------------------------------------------------------
                                    Three months  Three months Twelve months
                                           ended         ended         ended
                                         Apr. 30,      Apr. 30,      Jan. 31,
                                            2008          2007          2008
    -------------------------------------------------------------------------
    Sales                                  156.1         141.4         679.4
    -------------------------------------------------------------------------
    Earnings from operations                39.6          36.0         217.7
    -------------------------------------------------------------------------
    Net earnings                            21.3           3.3         106.4
    -------------------------------------------------------------------------
    Earnings per share                     $0.35         $0.06         $1.82
    -------------------------------------------------------------------------
    

    "This quarter has delivered improved operating results in both of our
business segments despite a rough diamond production shortfall and a troubled
economy in the principle diamond retail market of the US. Robust pricing
continues for the white rough diamonds that are the signature of the Diavik
Mine as production shortfalls meet increased demand from emerging economies.
Our jewelry business has turned in exceptional sales growth, principally from
global customers beyond the US, as we continue to improve both revenues and
costs in this truly global brand," said Robert Gannicott, Chairman and Chief
Executive Officer.
    Thomas J. O'Neill, President of Harry Winston Diamond Corporation added,
"First quarter sales in our retail segment were particularly strong as our
strategy to build market share through a growing network of salons and
strengthening our watch business progressed. Although gross margin was
impacted by high value individual sales at lower margins, this was mitigated
by lower SG&A as a percentage of the increased sales base. Transactions to
Asian, Russian and Middle Eastern clients more than offset the decline in the
US and continue to grow as a proportion of our business. We look forward to a
year of continued sales growth and improved profitability."

    Dividend Announcement

    Harry Winston Diamond Corporation is pleased to declare an eligible
quarterly dividend payment of US$0.05 per share. Shareholders of record at the
close of business on July 15, 2008, will be entitled to receive payment of
this dividend on July 29, 2008.

    Annual Meeting of Shareholders and Webcast

    As previously announced, Harry Winston Diamond Corporation will hold its
Annual Meeting of Shareholders on June 4th at 10:00AM EDT at the Fairmont
Royal York Hotel located at 100 Front Street West, 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 web site at
http://investor.harrywinston.com. An online archive of the webcast will be
available on the company's website at http://investor.harrywinston.com later
the same day.

    Information in this news release that is not current or historical
factual information may constitute forward-looking information or statements
within the meaning of applicable securities laws. Implicit in this
information, particularly in respect of statements as to future operating
results and economic performance of Harry Winston Diamond Corporation, are
assumptions regarding world economic conditions, projected revenue and
expenses, diamond prices, and the Canadian/US dollar exchange rate.
Specifically, in estimating Harry Winston Diamond Corporation's share of the
Diavik Mine capital expenditure requirements, Harry Winston Diamond
Corporation has used a Canadian/US dollar exchange rate of $1.00, and has
assumed that construction will continue on schedule and without undue
disruption with respect to current underground mining construction
initiatives. These assumptions, although considered reasonable by Harry
Winston Diamond Corporation at the time of preparation, may prove to be
incorrect. Forward-looking information is subject to certain factors,
including risks and uncertainties, which could cause actual results to differ
materially from what we currently expect. These factors include, among other
things, the uncertain nature of mining and mine development activities, risks
associated with underground construction activities, risks associated with
joint venture operations, risks associated with the remote location of the
Diavik Mine site, risks associated with regulatory and financing requirements,
fluctuations in diamond prices, changes in world economic conditions,
increased competition from other luxury goods retailers, changes in consumer
preferences and tastes in jewelry, and the risk of continued fluctuations in
the Canadian/US dollar exchange rate.

    About Harry Winston Diamond Corporation

    Harry Winston Diamond Corporation (TSX: HW; NYSE:   HWD) is a specialist
diamond enterprise with assets in the mining and retail segments of the
diamond industry. The company supplies rough diamonds to the global market
from its 40% interest in the Diavik Diamond Mine, located in Canada's
Northwest Territories. The company's retail division, Harry Winston, Inc., is
a premier jewelry and timepiece retailer with salons in key locations
including New York, Paris, London, Beijing, Tokyo and Beverly Hills. For more
information, please go to www.harrywinston.com or for investor information,
visit investor.harrywinston.com.

    
                                 Highlights

    (All figures are in United States dollars unless otherwise indicated)
    

    The Company recorded an increase in consolidated sales for the quarter of
10%, generating an 18% increase in gross margin and a 10% increase in
consolidated earnings from operations compared to the results of the first
quarter of the prior year. Consolidated quarterly sales totalled $156.1
million with earnings from operations of $39.6 million compared to $141.4
million and $36.0 million, respectively, for the comparable quarter of the
prior year.
    Net earnings were $21.3 million, or $0.35 per share, compared to net
earnings of $3.3 million, or  $0.06 per share, respectively, in the first
quarter of the prior year. Net earnings for the comparable quarter of the
prior year were reduced by a net $13.3 million foreign exchange loss, or $0.23
per share, as a result of the strengthening of the Canadian dollar relative to
the US dollar during the quarter, compared to a net $0.2 million foreign
exchange gain in the current quarter.
    Earnings from operations for the mining segment increased 13% to
$42.0 million compared to the comparable quarter of the prior year. Extreme
cold temperatures compounded by the mining of a lower-grade section of the
A-154 South ore body, caused a 31% decrease to 0.7 million carats produced
versus 1.0 million for the comparable quarter of the prior year. Mining sales,
however, were down only 2% to $81.4 million as higher diamond prices
compensated for reduced volume.
    The retail segment recorded a 27% increase in sales to $74.7 million. 
Although the retail segment recorded a loss from operations of $2.4 million
compared to $1.1 million in the comparable quarter of the prior year, the
selling, general and administrative expenses included approximately $2.0
million of non-recurring expenses related to restructuring and improvements
carried out at the Geneva watch factory. Retail segment SG&A as a percentage
of sales decreased to 48% in the first quarter from 50% in the comparable
quarter of the prior year. Excluding the impact of the non-recurring expenses,
SG&A as a percentage of sales would have been 46%.

    
                     Management's Discussion and Analysis

    Prepared as of June 3, 2008 (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 (the "Company")
for the three months ended April 30, 2008, and its financial position as at
April 30, 2008. This MD&A is based on the Company's consolidated financial
statements prepared in accordance with generally accepted accounting
principles in Canada ("Canadian GAAP") and should be read in conjunction with
the unaudited consolidated financial statements and notes thereto for the
three months ended April 30, 2008 and the audited consolidated financial
statements of the Company and notes thereto for the year ended January 31,
2008. 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, 2008 and all references to
"international" for the retail segment refer to Europe and Asia.
    Certain comparative figures have been reclassified to conform with the
current year's presentation.

    Caution Regarding Forward-Looking Information

    Certain information included in this MD&A may constitute forward-looking
information within the meaning of 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",
"believe", "intend", "estimate", "predict", "potential", "continue" or other
similar expressions concerning matters that are not historical facts.
Forward-looking information may relate to management's future outlook and
anticipated events or results, and may include statements or information
regarding 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, new salon openings,
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, expected diamond prices and
expectations concerning the diamond industry, expected cost of sales and gross
margin trends in the mining segment, and expected sales trends in the retail
segment. Actual results may vary. See "Risks and Uncertainties".
    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, credit market conditions
and the ability of the Company to refinance its existing credit facilities,
the level of worldwide diamond production and world and US economic
conditions. Specifically, in estimating Harry Winston Diamond Corporation's
projected share of the Diavik Diamond Mine capital expenditure requirements
over the next two years, Harry Winston Diamond Corporation has used an average
Canadian/US dollar exchange rate of $0.99, and has assumed that construction
will continue on schedule and without undue disruption with respect to current
underground mining construction initiatives. In making statements regarding
estimated production at the Diavik Diamond Mine and future mining activity and
mine plans, including plans, timelines and targets for construction, mining,
development, production and exploration activities at the Diavik Diamond Mine,
and future rough diamond sales, Harry Winston Diamond Corporation has assumed,
among other things, that mining operations and construction and exploration
activities will proceed in the ordinary course according to schedule and
consistent with past results. In making statements regarding expected diamond
prices and expectations concerning the diamond industry and expected sales
trends in the retail segment, the Company has made assumptions regarding,
among other things, world and US economic conditions. While Harry Winston
Diamond Corporation considers these assumptions to be reasonable based on the
information currently available to it, they may prove to be incorrect. See
"Risks and Uncertainties".
    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, financing and credit market risk, risks relating to the
Company's salon expansion strategy and the risks of competition in the luxury
jewelry segment. Please see page 18 of this Interim Report, as well as the
Company's Annual Report, available at www.sedar.com, for a discussion of these
and other risks and uncertainties involved in Harry Winston Diamond
Corporation's operations.
    Readers are cautioned not to place undue importance on forward-looking
information, which speaks only as of the date of this Management's Discussion
and Analysis, 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 Management's
Discussion and Analysis, actual events may differ materially from current
expectations. While Harry Winston Diamond Corporation 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 Harry Winston Diamond Corporation'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 specialist diamond company
focusing on the mining and retail segments of the diamond industry. The
Company supplies rough diamonds to the global market from production received
from its 40% ownership interest in the Diavik Diamond Mine, located off Lac de
Gras in Canada's Northwest Territories. The Company also owns a 100% interest
in Harry Winston Inc., the premier fine jewelry and watch retailer. Harry
Winston Diamond Corporation's mission is to deliver shareholder value through
the enhanced earning power and longevity of the Diavik Diamond Mine asset as
the cornerstone of a profitable synergy with the Harry Winston brand. In a
changing diamond market-place, Harry Winston Diamond Corporation has charted a
unique course to continue to build shareholder value.
    The Company's most significant asset is a 40% interest in the Diavik
group of mineral claims. The Diavik Joint Venture (the "Joint Venture") is an
unincorporated joint arrangement between Diavik Diamond Mines Inc. ("DDMI")
(60%) and Harry Winston Diamond Mines Ltd. (40%) where Harry Winston Diamond
Corporation owns an undivided 40% interest in the assets, liabilities and
expenses. DDMI is the operator of the Diavik Diamond Mine. Both companies are
headquartered in Yellowknife, Canada. DDMI is a wholly owned subsidiary of Rio
Tinto plc of London, England, and Harry Winston Diamond Mines Ltd. is a wholly
owned subsidiary of Harry Winston Diamond Corporation of Toronto, Canada.

    Market Commentary

    The Diamond Market

    The current quarter saw continuing price rises in the larger,
better-quality rough diamonds, while the price of lower-quality rough diamonds
remained unchanged in response to softening US demand. The demand in the Asian
markets remained robust in all price ranges.

    The Retail Jewelry Market

    The global luxury diamond jewelry market continued to show strength in
the first quarter of calendar 2008. Luxury retailers with operations outside
of the US have experienced solid sales results, especially in the Asian,
Russian and Middle Eastern markets. In the US, the higher end of the retail
jewelry market has been impacted by the downturn in the economy but to a
lesser extent than the broad-based jewelry market, where Harry Winston does
not conduct business.

    Consolidated Financial Results

    The following is a summary of the Company's consolidated quarterly
results for the eight quarters ended April 30, 2008 following the basis of
presentation utilized in the Company's Canadian GAAP financial statements:

    
    (expressed in thousands of United States dollars except per share amounts
    and where otherwise noted)
    (quarterly results are unaudited)
    -------------------------------------------------------------------------



                                2009      2008      2008      2008      2008
                                  Q1        Q4        Q3        Q2        Q1
    -------------------------------------------------------------------------
    Sales                   $156,079  $188,195  $176,478  $173,269  $141,365
    Cost of sales             73,149    83,637    74,591    81,827    71,132
    -------------------------------------------------------------------------
    Gross margin              82,930   104,558   101,887    91,442    70,233
    Gross margin (%)           53.1%     55.6%     57.7%     52.8%     49.7%
    Selling, general and
     administrative
     expenses                 43,285    45,494    35,539    35,201    34,211
    -------------------------------------------------------------------------
    Earnings from operations  39,645    59,064    66,348    56,241    36,022
    -------------------------------------------------------------------------
    Interest and financing
     expenses                 (5,453)   (7,082)   (7,422)   (7,222)   (6,132)
    Other income (expense)       246       706       594       545       913
    Insurance settlement           -    13,488         -         -         -
    Foreign exchange gain
     (loss)                      155    22,270   (40,584)  (11,785)  (13,292)
    -------------------------------------------------------------------------
    Earnings before income
     taxes                    34,593    88,446    18,936    37,779    17,511
    Income taxes (recovery)   13,336    (1,968)   26,197    17,747    14,118
    -------------------------------------------------------------------------
    Earnings (loss) before
     minority interest        21,257    90,414    (7,261)   20,032     3,393
    Minority interest              1       (34)       90       (26)      140
    -------------------------------------------------------------------------
    Net earnings (loss)     $ 21,256  $ 90,448  $ (7,351) $ 20,058  $  3,253
                            -------------------------------------------------
                            -------------------------------------------------
    Basic earnings  (loss)
     per share              $   0.35  $   1.55  $  (0.13) $   0.34  $   0.06
    Diluted earnings (loss)
     per share              $   0.35  $   1.54  $  (0.13) $   0.33  $   0.05
    Cash dividends declared
     per share              $   0.05  $   0.05  $   0.25  $   0.25  $   0.25
    Total assets(i)         $  1,591  $  1,494  $  1,433  $  1,367  $  1,315
    Total long-term
     liabilities(i)         $    634  $    660  $    530  $    486  $    408
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                                             Three     Three
                                                            months    months
                                                             ended     ended
                                2007      2007      2007  April 30, April 30,
                                  Q4        Q3        Q2      2008      2007
    -------------------------------------------------------------------------
    Sales                   $154,328  $145,232  $139,962  $156,079  $141,365
    Cost of sales             78,559    74,636    68,458    73,149    71,132
    -------------------------------------------------------------------------
    Gross margin              75,769    70,596    71,504    82,930    70,233
    Gross margin (%)           49.1%     48.6%     51.1%     53.1%     49.7%
    Selling, general and
     administrative
     expenses                 38,590    33,480    27,171    43,285    34,211
    -------------------------------------------------------------------------
    Earnings from
     operations               37,179    37,116    44,333    39,645    36,022
    -------------------------------------------------------------------------
    Interest and financing
     expenses                 (6,441)   (5,570)   (4,805)   (5,453)   (6,132)
    Other income (expense)      (111)    1,764     1,805       246       913
    Insurance settlement           -         -         -         -         -
    Foreign exchange gain
     (loss)                    9,831    (1,560)    2,619       155   (13,292)
    -------------------------------------------------------------------------
    Earnings before income
     taxes                    40,458    31,750    43,952    34,593    17,511
    Income taxes (recovery)   13,169    13,005     9,692    13,336    14,118
    -------------------------------------------------------------------------
    Earnings (loss) before
     minority interest        27,289    18,745    34,260    21,257     3,393
    Minority interest             (5)      (86)       (5)        1       140
    -------------------------------------------------------------------------
    Net earnings (loss)     $ 27,294  $ 18,831  $ 34,265  $ 21,256  $  3,253
                            -------------------------------------------------
                            -------------------------------------------------
    Basic earnings  (loss)
     per share              $   0.47  $   0.32  $   0.59  $   0.35  $   0.06
    Diluted earnings (loss)
     per share              $   0.46  $   0.32  $   0.58  $   0.35  $   0.05
    Cash dividends declared
     per share              $   0.25  $   0.25  $   0.25  $   0.05  $   0.25
    Total assets(i)         $  1,288  $  1,246  $  1,116  $  1,591  $  1,315
    Total long-term
     liabilities(i)         $    536  $    530  $    460  $    634  $    408
    -------------------------------------------------------------------------
    (i) Total assets and total long-term liabilities are expressed in
        millions of United States dollars.

        The comparability of quarter-over-quarter results is impacted by
        seasonality for both the mining and retail segments. 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 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. The quarterly results for the retail
        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, 2008 Compared to Three Months Ended
    April 30, 2007

    Consolidated Net Earnings

    The first quarter earnings of $21.3 million or $0.35 per share represent
an increase of $18.0 million or $0.29 per share as compared to the results of
the first quarter of the prior year. The increase is due in part to a net
foreign exchange gain of $0.2 million in the current quarter compared to a
$13.3 million net foreign exchange loss, or $0.23 per share, recognized in the
comparable quarter of the prior year related principally to an unrealized
non-cash loss on future income taxes payable. For more detail on the impact of
the foreign exchange gain on future income taxes payable and the future income
tax recovery, see "Consolidated Income Taxes" below.

    Consolidated Sales

    Sales for the first quarter totalled $156.1 million, consisting of rough
diamond sales of $81.4 million and retail segment sales of $74.7 million. This
compares to sales of $141.4 million in the comparable quarter of the prior
year (rough diamond sales of $82.8 million and retail segment sales of
$58.6 million). The Company held two primary rough diamond sales, one of which
was an open-market tender, in the first quarter compared to the same number in
the comparable quarter of the prior year. Ongoing quarterly variations in
revenues are inherent in the Company's business, resulting from the
seasonality of the mining and retail activities as well as from the
variability of the rough diamond sales schedule.

    Consolidated Cost of Sales and Gross Margin

    The Company's first quarter cost of sales was $73.1 million for a gross
margin of 53.1% compared to $71.1 million cost of sales and a gross margin of
49.7% for the comparable quarter of the prior year. The Company's cost of
sales includes costs associated with mining, rough diamond sorting and retail
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 (including salon
personnel), advertising, professional fees, rent and building related costs.
The Company incurred SG&A expenses of $43.3 million for the first quarter,
compared to $34.2 million in the comparable quarter of the prior year.
    Included in SG&A expenses for the first quarter are $7.2 million for the
mining segment as compared to $5.1 million for the comparable quarter of the
prior year, and $36.1 million for the retail segment as compared to $29.1
million for the comparable quarter of the prior year. For the mining segment,
$0.9 million of the increase was due to a mark-to-market adjustment to
stock-based compensation, and $0.8 million of the increase related to higher
salaries and benefits. For the retail segment, the increase was as a result of
our continued investment in the Harry Winston brand, and reflected an increase
in salaries and benefits, rent and building related expenses and depreciation
and amortization expense. Retail segment SG&A expenses also included
approximately $2.0 million of non-recurring expenses related to restructuring
and improvements carried out at the Geneva watch factory. See "Segmented
Analysis" on page 8 for additional information.

    Consolidated Income Taxes

    The Company recorded a tax expense of $13.3 million during the first
quarter compared to a tax expense of $14.1 million in the comparable quarter
of the prior year. The Company's effective income tax rate for the quarter,
excluding Harry Winston's retail segment, is 38%, which is based on a
statutory income tax rate of 31% adjusted for various items including
Northwest Territories mining royalty, impact of foreign exchange, and earnings
subject to tax different than the statutory rate.
    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. The weakening of the Canadian dollar during the first quarter
resulted in an unrealized foreign exchange gain of $0.9 million on the
revaluation of the Canadian denominated future income tax liability, compared
to an unrealized foreign exchange loss of $13.6 million recorded in the
comparable quarter of the prior year. This unrealized foreign exchange gain is
not taxable for Canadian income tax purposes.
    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 2027.

    
                                                  Three months  Three months
                                                         ended         ended
                                                      April 30,     April 30,
                                                          2008          2007
    -------------------------------------------------------------------------
    Statutory income tax rate                              31%           34%
    Stock compensation                                      0%            1%
    Northwest Territories mining royalty (net of
     income tax relief)                                    12%           16%
    Impact of foreign exchange                            (3)%           29%
    Earnings subject to tax different than statutory
     rate                                                 (4)%          (5)%
    Changes in valuation allowance                          1%            0%
    Benefits of losses recognized through reduction
     of goodwill                                            0%            5%
    Assessments and adjustments                             2%            0%
    Other items                                           (1)%            1%
    Effective income tax rate                              38%           81%
    -------------------------------------------------------------------------
    

    Consolidated Interest and Financing Expenses

    Interest and financing expenses of $5.5 million were incurred during the
first quarter compared to $6.1 million during the comparable quarter of the
prior year.

    Consolidated Other Income

    Other income of $0.2 million was recorded during the quarter compared to
other income of $0.9 million in the comparable quarter of the prior year.

    Consolidated Foreign Exchange Gain

    A net foreign exchange gain of $0.2 million was recognized during the
quarter compared to a net loss of $13.3 million in the comparable quarter of
the prior year. The gain in the current quarter relates principally to the
revaluation of the Company's Canadian dollar denominated long-term future
income tax liability as a result of the weakening of the Canadian dollar
against the US dollar at quarter end. The Company's ongoing currency exposure
relates primarily to expenses and obligations incurred in Canadian dollars, as
well as the revaluation of certain Canadian monetary balance sheet amounts.
The Company does not currently have any significant derivative instruments
outstanding.

    Segmented Analysis

    The operating segments of the Company include mining and retail segments.

    Mining

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

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



                                2009      2008      2008      2008      2008
                                  Q1        Q4        Q3        Q2        Q1
    -------------------------------------------------------------------------
    Sales                   $ 81,393  $103,238  $122,711  $105,071  $ 82,752
    Cost of sales             32,150    36,962    45,985    46,217    40,516
    -------------------------------------------------------------------------
    Gross margin              49,243    66,276    76,726    58,854    42,236
    Gross margin (%)           60.5%     64.2%     62.5%     56.0%     51.0%
    Selling, general and
     administrative
     expenses                  7,208     5,663     6,748     5,861     5,087
    -------------------------------------------------------------------------
    Earnings from
     operations             $ 42,035  $ 60,613  $ 69,978  $ 52,993  $ 37,149
                            -------------------------------------------------
                            -------------------------------------------------


    -------------------------------------------------------------------------
                                                             Three     Three
                                                            months    months
                                                             ended     ended
                                2007      2007      2007  April 30, April 30,
                                  Q4        Q3        Q2      2008      2007
    -------------------------------------------------------------------------
    Sales                   $ 81,035  $ 90,754  $ 91,476  $ 81,393  $ 82,752
    Cost of sales             39,413    45,461    43,256    32,150    40,516
    -------------------------------------------------------------------------
    Gross margin              41,622    45,293    48,220    49,243    42,236
    Gross margin (%)           51.4%     49.9%     52.7%     60.5%     51.0%
    Selling, general and
     administrative
     expenses                  7,397     4,665     4,373     7,208     5,087
    -------------------------------------------------------------------------
    Earnings from
     operations             $ 34,225  $ 40,628  $ 43,847  $ 42,035  $ 37,149
                            -------------------------------------------------
                            -------------------------------------------------
    

    Three Months Ended April 30, 2008 Compared to Three Months Ended
    April 30, 2007

    Mining Sales

    Rough diamond sales for the quarter totalled $81.4 million compared to
$82.8 million in the comparable quarter of the prior year resulting from a
combination of lower carat production offset by higher pricing. During the
quarter, the persistent very low temperatures that enabled an early start to a
successful winter road season made the challenges of winter mining in the open
pit more acute than usual, affecting equipment reliability and productivity
and resulting in lower processed ore and carats recovered. This was further
compounded by the mining of a lower grade section of the A-154 South pipe.
This section of the pipe yielded a grade of approximately 4.0 carats per tonne
versus a global grade for the entire pipe of 5.2 carats per tonne based on the
April 2000 feasibility study.
    The Company held two primary rough diamond sales, one of which was an
open-market tender, in the first quarter compared to the same number in the
comparable quarter of the prior year. With the Company's continued expansion
of its global rough diamond sales network, sales are now conducted throughout
the quarter in each of the Company's three selling offices located in Belgium,
Israel and India. 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 primary and secondary sales events conducted at
each sales location during the quarter, 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 $32.2 million for a gross
margin of 60.5% compared to a $40.5 million cost of sales and a gross margin
of 51.0% in the comparable quarter of the prior year. The reduction in cost of
sales resulted primarily from a greater proportion of cost attributable to
development activity versus production activity. The mining gross margin is
anticipated to fluctuate between quarters, resulting from variations in the
specific mix of product sold during each quarter and the nature of the mining
activities.
    A substantial portion of cost of sales is mine operating costs, which are
incurred at the Diavik Diamond Mine. Cost of sales also includes rough diamond
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 $2.1 million from the
comparable period of the prior year due to a $0.9 million mark-to-market
adjustment to stock-based compensation and a $0.8 million increase in salaries
and benefits.

    Retail

    The retail segment includes sales from Harry Winston's salons, which are
located in prime markets around the world including seven salons in the United
States: New York, Beverly Hills, Bal Harbour, Honolulu, Las Vegas, Dallas and
Chicago; five salons in Japan: Ginza, Roppongi Hills, Osaka, Omotesando and
Nagoya; three salons in Europe: Paris, London and Geneva; and three salons in
Asia outside of Japan: Beijing, Taipei and Hong Kong.

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



                                2009      2008      2008      2008      2008
                                  Q1        Q4        Q3        Q2        Q1
    -------------------------------------------------------------------------
    Sales                   $ 74,686  $ 84,957  $ 53,767  $ 68,198  $ 58,613
    Cost of sales             40,999    46,675    28,606    35,610    30,616
    -------------------------------------------------------------------------
    Gross margin              33,687    38,282    25,161    32,588    27,997
    Gross margin (%)           45.1%     45.1%     46.8%     47.8%     47.8%
    Selling, general and
     administrative
     expenses                 36,077    39,831    28,791    29,340    29,124
    -------------------------------------------------------------------------
    Earnings (loss) from
     operations             $ (2,390) $ (1,549) $ (3,630) $  3,248  $ (1,127)
                            -------------------------------------------------
                            -------------------------------------------------


    -------------------------------------------------------------------------
                                                             Three     Three
                                                            months    months
                                                             ended     ended
                                2007      2007      2007  April 30, April 30,
                                  Q4        Q3        Q2      2008      2007
    -------------------------------------------------------------------------
    Sales                   $ 73,293  $ 54,478  $ 48,486  $ 74,686  $ 58,613
    Cost of sales             39,146    29,175    25,202    40,999    30,616
    -------------------------------------------------------------------------
    Gross margin              34,147    25,303    23,284    33,687    27,997
    Gross margin (%)           46.6%     46.4%     48.0%     45.1%     47.8%
    Selling, general and
     administrative
     expenses                 31,193    28,815    22,798    36,077    29,124
    -------------------------------------------------------------------------
    Earnings (loss) from
     operations             $  2,954  $ (3,512) $    486  $ (2,390) $ (1,127)
                            -------------------------------------------------
                            -------------------------------------------------
    

    Three Months Ended April 30, 2008 Compared to Three Months Ended
    April 30, 2007

    Retail Sales

    Sales for the first quarter were $74.7 million compared to $58.6 million
for the comparable quarter of the prior year. The 27% increase in Harry
Winston Inc. sales relative to the comparable quarter of the prior year is
primarily attributable to strong momentum in Asia and Russia. Sales in the
Asian market increased 52% to $18.1 million, European sales increased 42% to
$31.7 million and US sales increased 2% to $24.9 million.

    Retail Cost of Sales and Gross Margin

    Cost of sales for Harry Winston Inc. for the first quarter was $41.0
million compared to $30.6 million for the comparable quarter of the prior
year. Gross margin for the quarter was $33.7 million or 45.1% compared to
$28.0 million or 47.8% for the first quarter of the prior year. Excluding the
impact of sales of Harry Winston Inc. pre-acquisition inventory, gross margin
for the first quarter and the comparable quarter of the prior year would have
been 47.3% and 51.6%, respectively. Gross margin for the first quarter was
impacted primarily by three factors: an increased contribution of high dollar
value transactions, which carry lower-than-average gross margins; an increase
in costs related to precious metals and gem stones; and an increase in
research and development costs to support the growing watch business.

    Retail Selling, General and Administrative Expenses

    With the expansion of the new international salon activity consistent
with the Company's retail growth strategy, SG&A expenses increased to $36.1
million from $29.1 million in the comparable quarter of the prior year.
However, SG&A as a percentage of sales decreased to 48.3% in the first quarter
from 49.7% in the comparable quarter of the prior year. The increase, which
was primarily due to the continued expansion of the retail salon network,
included an increase of $2.3 million in rent and building related expenses, an
increase of $1.6 million in salaries and benefits, and an increase of $1.3
million in depreciation and amortization. These increases were partially
offset by a $1.1 million decrease in advertising and selling expenses.
Additionally, SG&A expenses included approximately $2.0 million of
non-recurring expenses related to restructuring and improvements carried out
at the Geneva watch factory. SG&A expenses include depreciation and
amortization expense of $3.2 million compared to $1.9 million in the
comparable quarter of the prior year.

    Operational Update

    Harry Winston Diamond Corporation's results of operations include results
from its mining and retail operations.

    Mining Segment

    During the first calendar quarter of 2008, the Diavik Diamond Mine
produced 1.8 million carats from 0.47 million tonnes of ore sourced entirely
from the A-154 South kimberlite pipe. Extreme cold temperatures experienced in
the first calendar quarter affected equipment reliability and productivity,
resulting in lower processed ore and 31% less carats recovered. This was
further compounded by the mining of a lower-grade area of the A-154 pipe.
Detailed sampling of the area already mined shows sample grades ranging from
as low as 2 carats per tonne to over 9 carats per tonne, with an average of
4 carats per tonne. This short-range grade variation within the longer range
ore reserve is a common feature of diamond mineralization due to the size
range and distribution of the diamonds within the host rock. This shortfall is
not expected to persist through the balance of the A-154 South kimberlite
pipe. A program of detailed drilling to confirm the A-154 South underground
reserve grade will be undertaken from the pit floor after open pit mining
finishes at year end. Given that it has been the active mining area, there has
been less definition drilling on this pipe than on A-154 North and A-418,
which make up the bulk of the underground mining reserve.
    The Diavik Diamond Mine successfully completed its 2008 winter road
program in April, with 4,174 loads transported to the site. In addition to
supplies required to support day-to-day mining operations of its open pits,
the Diavik Diamond Mine trucked additional loads of fuel, cement, explosives,
equipment and materials to support construction currently underway to prepare
for underground mining, expected to begin in calendar 2009.
    Preparation of the new A-418 open pit is continuing as planned, with
sustainable diamond production expected to begin towards the end of the
calendar year. Construction of surface infrastructure to support underground
mining continues on the crusher and the paste backfill plant, and on the
expansion of the water treatment and power plants. A fifth fuel tank was
commissioned to meet the increasing electricity requirements of underground
mining. Diamond production from underground is scheduled to begin in calendar
2009, and is expected to replace open pit mining by calendar 2012.
    In exploration, a large diameter reverse circulation drilling program was
successfully conducted from the ice to obtain an additional bulk sample to
better define the A-21 kimberlite pipe, located near the existing mining
operations. The results of this drilling program are still pending. In
addition, an aggressive exploration program has been started on the Joint
Venture's substantial claim block around the mine site, with a budget of CDN
$10.0 million for calendar 2008.
    The Company's expectations for capital expenditures to support the new
mine plan's underground development remain at approximately $221 million over
the next two years, assuming among other factors a Canadian/US dollar average
exchange rate of $0.99. It is expected that the funds for this capital
expenditure program will come from a combination of cash from operations,
proceeds from the recent common share private placement and a refinancing of
the Company's credit facility.

    
    Harry Winston Diamond Corporation's 40% Share of Diavik Diamond Mine
    Production

    (reported on a one-month lag)

                                    Three months  Three months Twelve months
                                           ended         ended         ended
                                        March 31,     March 31,  December 31,
                                            2008          2007          2007
    -------------------------------------------------------------------------
    Diamonds recovered (000s carats)         714         1,034         4,777
    Grade (carats/tonne)                    4.08          4.97          4.97
    -------------------------------------------------------------------------
    

    Retail Segment

    For the quarter ended April 2008, the retail segment generated sales
growth of 27% over the comparable period of the prior year. Strong sales
growth outside of the US more than offset softer sales in the US market. Gross
margin for the first quarter was impacted primarily by three factors: an
increased contribution of high dollar value transactions, which carry
lower-than-average gross margins; an increase in costs related to precious
metals and gem stones; and an increase in research and development costs to
support the growing watch business. Harry Winston Inc. operated a network of
18 salons during the quarter as compared to 14 salons in the comparable
quarter of the prior year. The next new salon opening is scheduled for the
second quarter of fiscal 2009 in Costa Mesa, California.
    Harry Winston Inc. introduced its new watches at the watch and jewelry
fair in Basel, Switzerland, which was held in April 2008. The new offerings
were well received both by the press and customers. The sales orders taken
during the Basel Fair were significantly higher than the prior year, a
reflection of the continued strength of the watch business.

    Liquidity and Capital Resources

    Working Capital

    As at April 30, 2008, the Company had unrestricted cash and cash
equivalents of $61.8 million and contingency cash collateral and reserves of
$33.9 million as required under the Company's debt arrangements, compared to
$49.6 million and $25.6 million, respectively, at January 31, 2008. The
Company had cash on hand and balances with banks of $61.8 million and
short-term investments of $nil at April 30, 2008 compared to $33.0 million and
$16.6 million, respectively, at January 31, 2008. The short-term investments
were held in overnight deposits. Total cash resources at April 30, 2008 were
$20.5 million higher than $75.2 million at January 31, 2008, resulting
primarily from additional funds relating to the recent private equity
placement of CDN $75.0 million.
    Working capital increased to $232.3 million at April 30, 2008 from
$220.0 million at January 31, 2008.
    The Company's working capital and working capital requirements fluctuate
from quarter to quarter depending on, among other factors, 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, along with
the seasonality of the retail 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. The Company's cash
requirements are driven by differences in the timing of cash receipts and the
cash outflows. The Company has the ability to draw on its various credit
facilities to finance these timing differences.

    Cash Flow from Operations

    During the quarter ended April 30, 2008, the Company generated $34.3
million in cash from operations, compared to $14.3 million in the comparable
quarter of the prior year.
    During the quarter, the Company increased accounts payable and accrued
liabilities by $18.7 million, purchased inventory of $18.6 million, increased
income taxes payable by $9.6 million, decreased prepaid expenses and other
current assets by $4.4 million, and decreased accounts receivable by $1.7
million.
    The liquidity and capital requirements of the Company vary by quarter
depending on the seasonal and production variability of its mining and retail
segments. Timing differences in cash flow are financed by drawing down on the
Company's credit facilities. Over the course of a fiscal year, the Company
does not expect the fluctuations to be material. Over the next two fiscal
years, capital requirements for the mining segment are expected to increase
significantly in accordance with the expected investment program at the Diavik
Diamond Mine. Thereafter, capital requirements for the mining segment are
expected to moderate and the mining segment is expected to generate sufficient
cash flow to finance its operations and capital expenditure requirements. The
capital requirements for the retail segment are ordinary in course and are not
expected to fluctuate materially over the next few years. The retail segment
will finance its operations and capital requirements during these years from
operating cash flow and its credit facilities.

    Financing Activities

    During the quarter, the Company repaid $12.5 million of its senior
secured term facilities. At April 30, 2008, the Company had $63.9 million
outstanding on its senior secured term credit facilities and $50.0 million
outstanding on its senior secured revolving credit facility. In comparison, at
January 31, 2008, $76.4 million was outstanding on the term credit facilities
and $50.0 million was outstanding on the secured revolving credit facility.
    On February 22, 2008, Harry Winston Inc. entered into a new credit
agreement with a syndicate of banks for a $250.0 million, five-year revolving
credit facility. As at April 30, 2008, Harry Winston Inc. had $160.1 million
outstanding on its $250.0 million secured credit facility, which is used to
fund salon inventory and capital expenditure requirements. This represents an
increase of $6.1 million from the amount outstanding at January 31, 2008.
    Also included in long-term debt of the Company's retail operations is a
25-year loan agreement for 17.5 million CHF used to finance the construction
of the new watch factory in Geneva, Switzerland. At April 30, 2008, $16.7
million had been drawn against the facility compared to $16.1 million at
January 31, 2008. The bank has a secured interest in the factory building.
    Harry Winston Japan, K.K. maintains secured and unsecured credit
agreements with three banks amounting to (Yen)2,075 million. At April 30,
2008, $19.9 million had been drawn against these facilities, $4.8 million of
which is long term, payable on June 28, 2010, with the balance of $15.1
million classified as bank advances. At January 31, 2008, $19.4 million had
been drawn against these facilities, $4.7 million of which is long term with
the balance of $14.7 million classified as bank advances.
    At April 30, 2008, $0.6 million and $8.5 million was drawn under the
Company's revolving financing facilities relating to its Belgian subsidiary,
Harry Winston Diamond International N.V., and its Israeli subsidiary, Harry
Winston Diamond (Israel) Limited, respectively. At January 31, 2008,
$10.5 million and $9.4 million were drawn under the Company's revolving
financing facilities relating to Harry Winston Diamond International N.V. and
Harry Winston Diamond (Israel) Limited, respectively.
    During the first quarter, the Company made dividend payments of $3.1
million or $0.05 per share to its shareholders.
    On March 14, 2008, the Company completed a private placement of 3 million
common shares at a price of CDN $25 per share. The private placement was
completed on a non-brokered basis, with no fees or commissions payable. The
private placement generated net proceeds of CDN $75.0 million, and diluted the
Company's issued and outstanding shares by 5%.

    Investing Activities

    During the quarter, the Company purchased capital assets of $68.1
million, of which $64.9 million were purchased for the mining segment and
$3.2 million for the retail segment. Also included in deferred mineral
property costs were expenditures of $1.7 million made during the quarter.

    Contractual Obligations

    The Company has contractual payment obligations with respect to long-term
debt and, through its participation in the Joint Venture, future site
restoration costs at the Diavik 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, the
Company is obligated to fund 40% of the Joint Venture's total expenditures on
a monthly basis. Based on the current mine plan, the Company'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 2008 to 2012, is approximately $320
million assuming, among other factors, a Canadian/US average exchange rate of
$0.96 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               Less
     of United States                     than      Year      Year     After
     dollars)                  Total    1 year       2-3       4-5   5 years
    -------------------------------------------------------------------------
    Long-term debt(a)(b)    $370,557  $ 78,090  $ 84,326  $ 23,281  $184,860
    Environmental and
     participation
     agreements
     incremental
     commitments(c)           97,037    76,245     3,972     1,985    14,835
    Operating lease
     obligations(d)          121,030    16,642    28,332    18,029    58,027
    Capital lease
     obligations(e)            2,234       929     1,239        66         -
    -------------------------------------------------------------------------
    Total contractual
     obligations            $590,858  $171,906  $117,869  $ 43,361  $257,722
                            -------------------------------------------------
                            -------------------------------------------------

    (a) Long-term debt presented in the foregoing table includes current and
        long-term portions. The Company's credit agreements are comprised of
        two senior secured term credit facilities and a senior secured
        revolving credit facility. The existing facilities have a maturity
        date of December 15, 2009. At April 30, 2008, $63.9 million in total
        was outstanding on the senior secured term credit facilities, and
        $50.0 million was outstanding on the senior secured revolving credit
        facility. Scheduled repayments on the senior secured term credit
        facilities commenced March 15, 2008 with $12.5 million in repayments
        due every quarter. The maximum amount permitted to be drawn under the
        senior secured revolving credit facility will be reduced by
        $12.5 million on a quarterly basis commencing March 15, 2009.

        The Company's first mortgage on real property has scheduled principal
        payments of approximately $0.1 million quarterly, and may be prepaid
        after 2009. On April 30, 2008, $8.7 million was outstanding on the
        mortgage payable.

        On February 22, 2008, Harry Winston Inc. entered into a new credit
        agreement with a syndicate of banks for a $250.0 million, five-year
        revolving credit facility. There are no scheduled repayments required
        before maturity. At April 30, 2008, $160.1 million had been drawn
        against this secured credit facility which expires on March 31, 2013.

        Also included in long-term debt of Harry Winston Inc. is a 25-year
        loan agreement for 17.5 million CHF used to finance the construction
        of the new watch factory in Geneva, Switzerland. The bank has a
        secured interest in the factory building. The loan agreement is
        comprised of a 3.5 million CHF loan and a 14.0 million CHF loan. The
        3.5 million CHF loan bears interest at a rate of 3.9% and matures on
        April 22, 2010. The 14.0 million CHF loan bears interest at a rate of
        3.55% and matures on January 31, 2033, with quarterly payments
        commencing on June 30, 2008. At April 30, 2008, $16.7 million was
        outstanding on this loan agreement.

    (b) Interest on long-term debt 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, 2008
        and have been included under long-term debt in the table above.
        Interest payments for the next 12 months are approximated to be
        $14.5 million.

    (c) The Joint Venture, under environmental and other agreements, must
        provide funding for the Environmental Monitoring Advisory Board.
        These agreements also state the Joint Venture must provide security
        deposits for the performance by the Joint Venture of its reclamation
        and abandonment obligations under all environmental laws and
        regulations. The Joint Venture has fulfilled its obligations for the
        security deposits by posting letters of credit of which the Company's
        share as at April 30, 2008 was $74.8 million. The requirement to post
        security for the reclamation and abandonment obligations may be
        reduced to the extent of amounts spent by the Joint Venture on those
        activities. The Joint Venture has also signed participation
        agreements with various native groups. These agreements are expected
        to contribute to the social, economic and cultural well-being of area
        Aboriginal bands. The amounts reflected as contractual obligations in
        the table above represent obligations that are in addition to the
        $74.8 million in letters of credit posted. 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. Harry Winston Inc.'s New York salon lease expires
        on December 17, 2010 with an option to renew.

    (e) Capital lease obligations represent future minimum annual rentals
        under non-cancellable capital leases for Harry Winston Inc. retail
        exhibit space.
    

    Outlook

    Mining

    Production

    During the first calendar quarter, the persistent very low temperatures
that enabled an early start to a successful winter road season at the Diavik
Diamond Mine made the challenges of winter mining in the open pit more acute
than usual, resulting in a lower tonnage of processed ore. This was compounded
by the mining of a lower-grade section of the A-154 South kimberlite pipe
together resulting in 31% less carats recovered than in the comparable period
of the prior year. This lower grade ore has a grade of approximately 4 carats
per tonne versus a global grade for the entire pipe of 5.2 carats per tonne
based on the April 2000 feasibility study.
    Detailed sampling of the area already mined shows sample grades ranging
from as low as 2 carats per tonne to over 9 carats per tonne, with an average
of 4 carats per tonne. This short-range grade variation within the longer
range ore reserve is a common feature of diamond mineralization due to the
size range and distribution of the diamonds within the host rock. This
shortfall is not expected to persist through the balance of the A-154 South
kimberlite pipe. A program of detailed drilling to confirm the A-154 South
underground reserve grade will be undertaken from the pit floor after open pit
mining finishes at year end. Given that it has been the active mining area,
there has been less definition drilling on this pipe than on A-154 North and
A-418 that make up the bulk of the underground mining reserve.
    The grade variance in the A-154 South pipe has persisted, to some extent,
into the second quarter. As a result, the Company expects about a 10%
shortfall in carat production from the original forecast of approximately
12 million carats although price increases are expected to significantly
offset this.
    Pre-stripping of the A-418 kimberlite pipe continues, with sustainable
production from the A-418 open pit anticipated towards late in the calendar
year. The expected start date of 2009 for underground production from A-154
South, A-154 North and A-418 remains unchanged. The Company expects diamond
prices to remain robust with softness in the US being offset by strong demand
in the world economy, especially in the Far East.

    Cost of Sales

    The continuation of pre-stripping of the A-418 kimberlite pipe is
expected to result in lower cost of sales in calendar 2008 than previously
anticipated. Cost of sales will also be impacted by the expected reduction in
production from the original estimate of approximately 12 million carats. The
Company continues to expect cost of sales to peak in calendar 2009, followed
by an anticipated decline in cost of sales over the following two years as the
overlap between open pit and underground mining diminishes.

    Capital Expenditures

    The Company continues to expect capital contributions of approximately
$221 million over the next two years in support of the underground development
project. Financing for this capital contribution is expected to be drawn from
a combination of cash from operations, proceeds from the recent common share
private placement and refinancing of the Company's credit facility. Based on
the current mine plan, the Company's portion of planned capital expenditures
at the Diavik Diamond Mine for calendar years 2008 to 2012 is expected to be
approximately $320 million at a Canadian/US dollar average exchange rate of
$0.96.

    Rough Diamond Sales Cycle

    The Company is expecting to hold two rough diamond sales in the second
quarter, two in the third quarter and three in the fourth. Sales are now
conducted throughout the quarter in each of the Company's three selling
offices located in Belgium, Israel and India.

    Retail

    Harry Winston Inc. expects sales in the luxury jewelry industry to remain
robust. The retail segment is strategically well positioned to withstand
regional economic disruptions as a result of its diverse global distribution
network. Continued strong demand for luxury diamond jewelry and watches from
markets in Asia, Russia and the Middle East is expected to offset the
difficult retail environment in the US market. The sales performance in the
first quarter leaves us well positioned to achieve our annual sales growth
objective of in excess of 15%.
    Harry Winston Inc. will continue to strengthen its brand in mature and
emerging markets through the expansion of the salon network over the next
several years and introduction of new jewelry offerings using the highest
quality of diamonds and other gemstones. One salon is scheduled to be opened
in Costa Mesa, California during the second quarter.

    Related Parties

    Transactions with related parties for the three months ended April 30,
2008 include $0.4 million of rent relating to the New York salon, payable to a
Harry Winston Inc. employee.

    Changes in Internal Control over Financial Reporting

    During the first quarter of fiscal 2009, there were no changes in the
Company's internal control over financial reporting that materially affected,
or are reasonably likely to materially affect, the Company's internal control
over financial reporting.

    Critical Accounting Estimates

    Management is often required to make judgments, assumptions and estimates
in the application of Canadian generally accepted accounting principles that
have a significant impact on the financial results of the Company. Certain
policies are more significant than others and are, therefore, considered
critical accounting policies. Accounting policies are considered critical if
they rely on a substantial amount of judgment (use of estimates) in their
application or if they result from a choice between accounting alternatives
and that choice has a material impact on the Company's reported results or
financial position. There have been no changes to the Company's critical
accounting policies or estimates from those disclosed in the Company's MD&A
for its fiscal year ended January 31, 2008.

    Changes in Accounting Policies

    Capital Disclosures

    Effective February 1, 2008, the Company adopted new accounting
recommendations from the Canadian Institute of Chartered Accountants ("CICA"),
Handbook Section 1535, "Capital Disclosures". This new standard specifies the
requirements for disclosure of both qualitative and quantitative information
to enable users of financial statements to evaluate the Company's objectives,
policies and processes for managing capital. This disclosure is contained in
note 12 to the interim consolidated financial statements.

    Inventories

    Effective February 1, 2008, the Company adopted new accounting
recommendations from the CICA, Handbook Section 3031, "Inventories", which
supersedes the previously issued standard on inventory. The new standard
introduces significant changes to the measurement and disclosure of inventory.
The measurement changes include: the elimination of LIFO, the requirement to
measure inventories at the lower of cost and net realizable value method, for
inventories that are not ordinarily interchangeable and goods or services
produced for specific purposes, the requirement for an entity to use a
consistent cost formula for inventory of a similar nature and use, and the
reversal of previous write-downs to net realizable value when there is a
subsequent increase in the value of inventories. Disclosures of inventories
have also been enhanced. Inventory policies, carrying amounts, amounts
recognized as an expense, write-downs and the reversals of write-downs are
required to be disclosed. This standard has had no material impact on the
Company's consolidated financial statements.

    Financial Instruments

    Effective February 1, 2008, the Company adopted new accounting
recommendations from the CICA, Handbook Section 3862, "Financial Instruments -
Disclosures" and Handbook Section 3863, "Financial Instruments -
Presentation". Section 3862 provides guidance on disclosure of risks
associated with both recognized and unrecognized financial instruments and how
the Company manages these risks. Section 3863 details financial instruments
presentation requirements, which are unchanged from those discussed in Section
3861, "Financial Instruments - Disclosure and Presentation". This disclosure
is contained in note 13 to the interim consolidated financial statements.

    Recently Issued Accounting Standards

    Goodwill and Intangibles

    On February 1, 2008 the CICA issued Handbook Section 3064, "Goodwill and
Intangible Assets". This Section establishes revised standards for the
recognition, measurement, presentation and disclosure of goodwill and
intangible assets. Concurrent with the introduction of this standard, the CICA
withdrew EIC 27, "Revenues and Expenses During the Pre-operating Period,"
which eliminates the ability for companies to defer costs and revenues
incurred prior to commercial production at new mine operations. The changes
are effective for interim and annual financial statements beginning January 1,
2009. The Company is currently assessing the impact of this standard on its
consolidated financial statements.

    International Financial Reporting Standards ("IFRS")

    In 2006, the Canadian Accounting Standards Board ("AcSB") published a new
strategic plan that will significantly impact financial reporting requirements
for Canadian companies. The AcSB strategic plan outlines the convergence of
Canadian GAAP with IFRS over an expected five-year transitional period. In
February 2008, the AcSB announced that 2011 is the changeover date for public
accountable companies to convert from Canadian GAAP to IFRS. The transition
date is for interim and annual financial statements relating to fiscal years
beginning on or after January 1, 2011. Accordingly, this new standard will
apply to the Company effective for the fiscal year commencing February 1,
2011. While the Company has begun assessing the adoption of IFRS for 2011, the
financial reporting impact of the transition to IFRS cannot be reasonably
estimated at this time.

    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 Management's Discussion and Analysis 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

    The Company owns 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 Harry
Winston Diamond Mines Ltd. (40%), and is subject to the risks normally
associated with the conduct of joint ventures and similar joint arrangements.
These risks include the limited ability 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 the Company
that the Company may not have sufficient cash to meet. The Company's
contribution to capital requirements to complete the underground development
and supporting infrastructure contemplated by the new mine plan is estimated
to be $221 million over the next two years, with funding expected to be
provided in part from a CDN $75 million private placement completed on
March 14, 2008, cash flow from operations and a refinancing of the Company's
existing credit facilities. There can be no assurance that the Company will be
able to refinance its current credit facilities on satisfactory terms and
conditions, or at all. A failure by the Company to meet capital expenditure
requirements imposed by DDMI could result in the Company'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 retail
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, prolonged credit market disruptions
or the occurrence of terrorist 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 could also negatively affect the price of diamonds. In each case,
such developments could materially adversely affect the Company's results of
operations.

    Currency Risk

    Currency fluctuations may affect the Company's financial performance.
Diamonds are sold throughout the world based principally on the US dollar
price, and although the Company reports its financial results in US dollars, a
majority of the costs and expenses of the Diavik Diamond Mine, which are borne
40% by the Company, are incurred in Canadian dollars. Further, the Company has
a significant future income tax liability that has been incurred and will be
payable in Canadian dollars. 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 such 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.

    Licenses and Permits

    The operation of the Diavik Diamond Mine and exploration on the Diavik
property require licenses and permits from the Canadian government. Renewal of
the Diavik Diamond Mine Type "A" Water License was granted by the regional
Wek'eezhii Land and Water Board on November 1, 2007 for an eight-year period.
While the Company anticipates that DDMI, which is also the operator of the
Diavik Diamond Mine, will be able to renew this license 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 licenses 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 impact 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 which 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 is currently
developing 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. 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
generally, 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, closing of Harry Winston Inc. 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.
Currently, there is significant competition for skilled workers in remote
northern operations due to the significant number of large-scale construction
projects ongoing and planned in Canada's north, including the various
construction projects relating to the development of the oil sands in northern
Alberta.
    The Company's success at marketing rough diamonds and in 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 in
operating its retail segment.

    Expansion of the Existing Salon Network

    A key component of the Company's retail strategy is the expansion of its
existing salon network. 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
through borrowings by Harry Winston Inc. There can be no assurance that the
expansion of the salon network will prove successful in increasing annual
sales or earnings from the retail 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 Jewelry Segment

    The Company is exposed to competition in the retail diamond 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.

    
    Outstanding Share Information

    As at April 30, 2008
    -------------------------------------------------------------------------
    Authorized                                                     Unlimited
    Issued and outstanding shares                                 61,372,091
    Options outstanding                                            1,619,338
    Fully diluted                                                 62,991,429
    -------------------------------------------------------------------------

    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.

                         Consolidated Balance Sheets

              (expressed in thousands of United States dollars)

                                                     April 30,
                                                         2008     January 31,
                                                   (unaudited)          2008
    -------------------------------------------------------------------------
    Assets
    Current assets:
      Cash and cash equivalents (note 3)         $     61,776   $     49,628
      Cash collateral and cash
       reserves (note 3)                               33,938         25,615
      Accounts receivable                              23,726         25,505
      Inventory and supplies (note 4)                 340,805        322,228
      Prepaid expenses and other current
       assets                                          59,484         58,617
    -------------------------------------------------------------------------
                                                      519,729        481,593
    Deferred mineral property costs                   177,549        179,990
    Capital assets                                    610,180        548,827
    Intangible assets, net (note 6)                   131,986        132,628
    Goodwill                                           93,780         93,780
    Other assets                                       17,587         16,167
    Future income tax asset                            39,920         40,963
                                                 $  1,590,731   $  1,493,948
                                                 ----------------------------
                                                 ----------------------------
    Liabilities and Shareholders' Equity
    Current liabilities:
      Accounts payable and accrued
       liabilities                               $    141,871   $    124,426
      Income taxes payable                             57,684         48,118
      Bank advances                                    24,228         34,928
      Current portion of long-term debt
       (note 7)                                        63,618         54,137
    -------------------------------------------------------------------------
                                                      287,401        261,609
    Long-term debt (note 7)                           240,007        255,212
    Future income tax liability                       359,100        370,500
    Other long-term liability                           1,931          1,730
    Future site restoration costs                      33,404         32,980
    Minority interest                                     256            255

    Shareholders' equity:
      Share capital (note 8)                          381,541        305,502
      Contributed surplus                              15,769         15,614
      Retained earnings                               243,521        225,334
      Accumulated other comprehensive
       income                                          27,801         25,212
    -------------------------------------------------------------------------
                                                      668,632        571,662
    Commitments and guarantees (note 9)
    -------------------------------------------------------------------------
                                                 $  1,590,731   $  1,493,948
                                                 ----------------------------
                                                 ----------------------------

    See accompanying notes to consolidated financial statements.



                     Consolidated Statements of Earnings
              (expressed in thousands of United States dollars,
                    except per share amounts) (unaudited)

                                                 Three Months   Three Months
                                                        Ended          Ended
                                                     April 30,      April 30,
                                                         2008           2007
    -------------------------------------------------------------------------
    Sales                                        $    156,079   $    141,365
    Cost of sales                                      73,149         71,132
    -------------------------------------------------------------------------
    Gross margin                                       82,930         70,233
    Selling, general and administrative
     expenses                                          43,285         34,211
    -------------------------------------------------------------------------
    Earnings from operations                           39,645         36,022
    -------------------------------------------------------------------------
    Interest and financing expenses                    (5,453)        (6,132)
    Other income                                          246            913
    Foreign exchange gain (loss)                          155        (13,292)
    -------------------------------------------------------------------------
    Earnings before income taxes                       34,593         17,511
    Income tax expense - Current                       21,501         17,440
    Income tax recovery - Future                       (8,165)        (3,322)
    -------------------------------------------------------------------------
    Earnings before minority interest                  21,257          3,393
    Minority interest                                       1            140
    -------------------------------------------------------------------------
    Net earnings                                 $     21,256   $      3,253
                                                 ----------------------------
                                                 ----------------------------
    Earnings per share
      Basic                                      $       0.35   $       0.06
                                                 ----------------------------
                                                 ----------------------------
      Fully diluted                              $       0.35   $       0.05
                                                 ----------------------------
                                                 ----------------------------
    Weighted average number of shares
     outstanding                                   59,905,424     58,362,128
                                                 ----------------------------
                                                 ----------------------------

    See accompanying notes to consolidated financial statements.



               Consolidated Statements of Comprehensive Income
        (expressed in thousands of United States dollars) (unaudited)


                                                 Three Months   Three Months
                                                        Ended          Ended
                                                     April 30,      April 30,
                                                         2008           2007
    -------------------------------------------------------------------------
    Net earnings                                 $     21,256   $      3,253
    Other comprehensive income
      Net gain on translation of
       foreign operations
       (net of tax - nil)                               2,589          1,991
    -------------------------------------------------------------------------
                                                 ----------------------------
    Total comprehensive income                   $     23,845   $      5,244
                                                 ----------------------------
                                                 ----------------------------

    See accompanying notes to consolidated financial statements.



         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,
                                                         2008           2007
    -------------------------------------------------------------------------
    Common shares:
    Balance at beginning of period               $    305,502   $    305,165
    Issued during the period                           76,039             43
    -------------------------------------------------------------------------
    Balance at end of period                          381,541        305,208
    -------------------------------------------------------------------------
    Contributed surplus:
    Balance at beginning of period                     15,614         14,922
    Stock option expense                                  155            185
    -------------------------------------------------------------------------
    Balance at end of period                           15,769         15,107
    -------------------------------------------------------------------------
    Retained earnings:
    Balance at beginning of period                    225,334        165,625
    Net earnings                                       21,256          3,253
    Dividends paid                                     (3,069)       (14,593)
    -------------------------------------------------------------------------
    Balance at end of period                          243,521        154,285
    -------------------------------------------------------------------------
    Accumulated other comprehensive
     income:
    Balance at beginning of period                     25,212         16,016
    Other comprehensive income
      Net gain on translation of
       foreign operations
       (net of tax - nil)                               2,589          1,991
    -------------------------------------------------------------------------
    Balance at end of period                           27,801         18,007
    -------------------------------------------------------------------------
    Total shareholders' equity                   $    668,632   $    492,607
                                                 ----------------------------
                                                 ----------------------------

    See accompanying notes to consolidated financial statements.



                    Consolidated Statements of Cash Flows
        (expressed in thousands of United States dollars) (unaudited)

                                                 Three Months   Three Months
                                                        Ended          Ended
                                                     April 30,      April 30,
                                                         2008           2007
    -------------------------------------------------------------------------
    Cash provided by (used in):

    Operating
    Net earnings                                 $     21,256   $      3,253
    Items not involving cash:
    Amortization and accretion                         13,955         19,603
    Future income taxes                                (8,165)        (3,194)
    Stock-based compensation and
     pension expense                                      357          1,282
    Foreign exchange                                     (574)        13,461
    Loss on disposal of assets                            469              -
    Minority interest                                       1            140
    Change in non-cash operating
     working capital                                    7,008        (20,219)
    -------------------------------------------------------------------------
                                                       34,307         14,326
    -------------------------------------------------------------------------
    Financing
    Decrease in long-term debt                        (12,477)        (3,626)
    Increase in revolving credit                      155,190         19,011
    Repayment of Harry Winston Inc.
     revolving credit                                (159,109)             -
    Dividends paid                                     (3,069)       (14,593)
    Issue of common shares                             76,039             34
    -------------------------------------------------------------------------
                                                       56,574            826
    -------------------------------------------------------------------------
    Investing
    Cash collateral and cash reserve                   (8,323)        12,259
    Deferred mineral property costs                    (1,727)        (3,782)
    Capital assets                                    (68,139)       (37,566)
    Other assets                                            -         (1,091)
    -------------------------------------------------------------------------
                                                      (78,189)       (30,180)
    -------------------------------------------------------------------------
    Foreign exchange effect on
     cash balances                                       (544)           382
    Increase/(decrease) in cash
     and cash equivalents                              12,148        (14,646)
    Cash and cash equivalents,
     beginning of period (note 3)                      49,628         54,174
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period (note 3)                      $     61,776   $     39,528
                                                 ----------------------------
                                                 ----------------------------
    Change in non-cash operating
     working capital
    Accounts receivable                                 1,732         (4,285)
    Prepaid expenses and other current
     assets                                            (4,435)         1,512
    Inventory and supplies                            (18,577)       (43,582)
    Accounts payable and accrued liabilities           18,699         18,909
    Income tax payable                                  9,589          7,227
    -------------------------------------------------------------------------
                                                 $      7,008   $    (20,219)
    -------------------------------------------------------------------------
    Supplemental cash flow information
    Cash taxes paid                              $     12,195   $        736
    Cash interest paid                           $      4,408   $      5,743
    -------------------------------------------------------------------------

    See accompanying notes to consolidated financial statements.



                 Notes to Consolidated Financial Statements
    April 30, 2008 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 specialist diamond
    company focusing on the mining and retail segments of the diamond
    industry.

    The Company's most significant asset is a 40% interest in the Diavik
    group of mineral claims. The Diavik Joint Venture (the "Joint Venture")
    is an unincorporated joint arrangement between Diavik Diamond Mines Inc.
    ("DDMI") (60%) and Harry Winston Diamond Mines Ltd. (40%). DDMI is the
    operator of the Diavik Diamond Mine. Both companies are headquartered in
    Yellowknife, Canada. DDMI is a wholly owned subsidiary of Rio Tinto plc
    of London, England, and Harry Winston Diamond Mines Ltd. is a wholly
    owned subsidiary of Harry Winston Diamond Corporation of Toronto, Canada.
    The Diavik Diamond Mine is located 300 kilometres northeast of
    Yellowknife in the Northwest Territories. The Company records its
    proportionate interest in the assets, liabilities and expenses of the
    Joint Venture in the Company's financial statements with a one-month lag.

    The Company also owns a 100% interest in Harry Winston Inc., the premier
    fine jewelry and watch retailer. The results of Harry Winston Inc.,
    located in New York City, US, are consolidated in the financial
    statements of the Company.

    NOTE 2:

    Significant Accounting Policies

    The interim consolidated financial statements are prepared by management
    in accordance with accounting principles generally accepted in Canada.
    The interim consolidated financial statements include the accounts of the
    Company and all of its subsidiaries as well as its proportionate interest
    in the assets, liabilities and expenses of joint arrangements.
    Intercompany transactions and balances have been eliminated.

    The interim consolidated financial statements should be read in
    conjunction with the consolidated financial statements and the notes
    thereto in the Company's Annual Report for the year ended January 31,
    2008, since these interim financial statements do not include all
    disclosures required by Canadian generally accepted accounting principles
    ("Canadian GAAP"). Excluding adoption of the new accounting standards
    described below, these statements have been prepared following the same
    accounting policies and methods of computation as the consolidated
    financial statements for the year ended January 31, 2008.

    Adoption Of New Accounting Standards And Developments

    Capital Disclosures

    Effective February 1, 2008, the Company adopted new accounting
    recommendations from the Canadian Institute of Chartered Accountants
    ("CICA"), Handbook Section 1535, "Capital Disclosures". This new standard
    specifies the requirements for disclosure of both qualitative and
    quantitative information to enable users of financial statements to
    evaluate the Company's objectives, policies and processes for managing
    capital. This disclosure is contained in note 12 to the interim
    consolidated financial statements.

    Inventories

    Effective February 1, 2008, the Company adopted new accounting
    recommendations from the CICA, Handbook Section 3031, "Inventories",
    which supersedes the previously issued standard on inventory. The new
    standard introduces significant changes to the measurement and disclosure
    of inventory. The measurement changes include: the elimination of LIFO,
    the requirement to measure inventories at the lower of cost and net
    realizable value method, for inventories that are not ordinarily
    interchangeable and goods or services produced for specific purposes, the
    requirement for an entity to use a consistent cost formula for inventory
    of a similar nature and use, and the reversal of previous write-downs to
    net realizable value when there is a subsequent increase in the value of
    inventories. Disclosures of inventories have also been enhanced.
    Inventory policies, carrying amounts, amounts recognized as an expense,
    write-downs and the reversals of write-downs are required to be
    disclosed. This standard has had no material impact on the Company's
    consolidated financial statements.

    Financial Instruments

    Effective February 1, 2008, the Company adopted new accounting
    recommendations from the CICA, Handbook Section 3862, "Financial
    Instruments - Disclosures" and Handbook Section 3863, "Financial
    Instruments - Presentation". Section 3862 provides guidance on disclosure
    of risks associated with both recognized and unrecognized financial
    instruments and how the Company manages these risks. Section 3863 details
    financial instruments presentation requirements, which are unchanged from
    those discussed in Section 3861, "Financial Instruments - Disclosure and
    Presentation". This disclosure in contained in note 13 to the interim
    consolidated financial statements.

    Recently Issued Accounting Standards

    Goodwill and Intangibles

    On February 1, 2008 the CICA issued Handbook Section 3064, "Goodwill and
    Intangible Assets". This Section establishes revised standards for the
    recognition, measurement, presentation and disclosure of goodwill and
    intangible assets. Concurrent with the introduction of this standard, the
    CICA withdrew EIC 27, "Revenues and Expenses During the Pre-operating
    Period," which eliminates the ability for companies to defer costs and
    revenues incurred prior to commercial production at new mine operations.
    The changes are effective for interim and annual financial statements
    beginning January 1, 2009. The Company is currently assessing the impact
    of this standard on its consolidated financial statements.

    International Financial Reporting Standards ("IFRS"):

    In 2006, the Canadian Accounting Standards Board ("AcSB") published a new
    strategic plan that will significantly impact financial reporting
    requirements for Canadian companies. The AcSB strategic plan outlines the
    convergence of Canadian GAAP with IFRS over an expected five-year
    transitional period. In February 2008, the AcSB announced that 2011 is
    the changeover date for public accountable companies to convert from
    Canadian GAAP to IFRS. The transition date is for interim and annual
    financial statements relating to fiscal years beginning on or after
    January 1, 2011. Accordingly, this new standard will apply to the Company
    effective for the fiscal year commencing February 1, 2011. While the
    Company has begun assessing the adoption of IFRS for 2011, the financial
    reporting impact of the transition to IFRS cannot be reasonably estimated
    at this time.

    NOTE 3:

    Cash Resources

                                                     April 30,    January 31,
                                                         2008           2008
    -------------------------------------------------------------------------
    Cash on hand and balances with banks         $     61,776   $     33,028
    Short-term investments (a)                              -         16,600
    -------------------------------------------------------------------------
    Total cash and cash equivalents                    61,776         49,628
    Cash collateral and cash reserves                  33,938         25,615
    -------------------------------------------------------------------------
    Total cash resources                         $     95,714   $     75,243
                                                 ----------------------------
                                                 ----------------------------
    (a) Short-term investments are held in overnight deposits.


    NOTE 4:

    Inventory and Supplies
                                                     April 30,    January 31,
                                                         2008           2008
    -------------------------------------------------------------------------
    Rough diamond inventory                      $     22,349   $     17,097
    Merchandise inventory                             256,908        254,101
    Supplies inventory                                 61,548         51,030
    -------------------------------------------------------------------------
    Total inventory and supplies                 $    340,805     $  322,228
                                                 ----------------------------
                                                 ----------------------------


    NOTE 5:

    Diavik Joint Venture

    The following represents Harry Winston Diamond Corporation's 40%
    proportionate interest in the Joint Venture as at March 31, 2008 and
    December 31, 2007:

                                                     April 30,    January 31,
                                                         2008           2008
    -------------------------------------------------------------------------
    Current assets                               $    118,617   $    110,199
    Long-term assets                                  663,300        605,300
    Current liabilities                                47,455         40,631
    Long-term liabilities and
     participant's account                            734,462        674,868


                                                     April 30,      April 30,
    Three months ended:                                  2008           2007
    -------------------------------------------------------------------------
    Expenses net of interest income
     of $0.1 million
     (2007 - $0.1 million) (a)                         33,959         40,101
    Cash flows resulting from (used in)
     operating activities                             (27,391)       (44,042)
    Cash flows resulting from financing
     activities                                        89,124         64,272
    Cash flows resulting from (used in)
     investing activities                             (64,792)       (29,622)
    -------------------------------------------------------------------------
    (a) The Joint Venture only earns interest income.

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

    NOTE 6:

    Intangible Assets
                                                 Accum-     April    January
                                                ulated         30,        31,
                    Amortization                amorti-      2008       2008
                          period       Cost     zation        net        net
    -------------------------------------------------------------------------
    Trademark    indefinite life  $ 112,995  $       -  $ 112,995  $ 112,995
    Drawings     indefinite life     12,365          -     12,365     12,365
    Wholesale
     distribution
     network          120 months      5,575     (1,508)     4,067      4,206
    Store
     leases     65 to 105 months      5,639     (3,080)     2,559      3,062
    -------------------------------------------------------------------------
    Intangible assets             $  136,574 $  (4,588) $ 131,986  $ 132,628
                                  -------------------------------------------
                                  -------------------------------------------
    Amortization expense for the three months ended April 30, 2008 was
    $0.6 million (2007 - $0.4 million).

    NOTE 7:

    Long-Term Debt
                                                        April 30, January 31,
                                                            2008        2008
    -------------------------------------------------------------------------
    Credit facilities                                  $ 113,335   $ 125,677
    Harry Winston Inc. credit facilities                 181,631     174,850
    First mortgage on real property                        8,659       8,822
    -------------------------------------------------------------------------
    Total long-term debt                                 303,625     309,349
    -------------------------------------------------------------------------
    Less current portion                                 (63,618)    (54,137)
    -------------------------------------------------------------------------
                                                       $ 240,007   $ 255,212
                                                       ----------------------
                                                       ----------------------

    On February 22, 2008, Harry Winston Inc. entered into a new credit
    agreement with a syndicate of banks for a $250.0 million, five-year
    revolving credit facility. There are no scheduled repayments required
    before maturity. At April 30, 2008, $160.1 million had been drawn against
    this secured credit facility, which expires on March 31, 2013.

    NOTE 8:

    Share Capital

    (a) Authorized

    Unlimited common shares without par value.

    (b) Issued

                                                       Number of
                                                          shares      Amount
    -------------------------------------------------------------------------
    Balance, January 31, 2008                         58,372,091   $ 305,502
    Shares issued for:
    Cash                                               3,000,000      76,039
    -------------------------------------------------------------------------
    Balance, April 30, 2008                           61,372,091   $ 381,541
                                                      -----------------------
                                                      -----------------------

    (c) RSU and DSU Plans

    RSU                                                      Number of units
    -------------------------------------------------------------------------
    Balance, January 31, 2008                                        143,715
    Awards and payouts during the period (net):
      RSU awards                                                      11,172
      RSU payouts                                                     (2,687)
    -------------------------------------------------------------------------
    Balance, April 30, 2008                                          152,200
                                                      -----------------------
                                                      -----------------------


    DSU                                                      Number of units
    -------------------------------------------------------------------------
    Balance, January 31, 2008                                         72,198
    Awards during the period (net):
    DSU awards                                                         6,839
    -------------------------------------------------------------------------
    Balance, April 30, 2008                                           79,037
                                                      -----------------------
                                                      -----------------------


                                                           Three       Three
                                                          Months      Months
                                                           Ended       Ended
                                                        April 30,   April 30,
    Expense for the period:                                 2008        2007
    -------------------------------------------------------------------------
    RSU                                                $     509   $     165
    DSU                                                      567         (73)
    -------------------------------------------------------------------------
                                                       $   1,076   $      92
                                                      -----------------------
                                                      -----------------------

    During the period, the Company granted 11,172 RSUs (net of forfeitures)
    and 6,839 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 Director approval. Each RSU grant vests
    on the third anniversary of the grant date, subject to special rules for
    death and disability. The Company anticipates paying out cash on maturity
    of RSUs and DSUs.

    Only non-executive directors of the Company are eligible for grants under
    the DSU Plan. Each DSU grant vests immediately on the grant date.

    The expenses related to the RSUs and DSUs are accrued based on the price
    of Harry Winston Diamond Corporation's common shares at the end of the
    period and on the probability of vesting. This expense is recognized on a
    straight-line basis over the term of vesting.

    NOTE 9:

    Commitments and Guarantees

    (a) Environmental Agreement

        Through negotiations of environmental and other agreements, the Joint
        Venture must provide funding for the Environmental Monitoring
        Advisory Board. The Company's share of this funding requirement was
        $0.2 million for calendar 2008. Further funding will be required in
        future years; however, specific amounts have not yet been determined.
        These agreements also state the Joint Venture must provide security
        deposits for the performance by the Joint Venture of its reclamation
        and abandonment obligations under all environmental laws and
        regulations. The Company's share of the Joint Venture's letters of
        credit outstanding with respect to the environmental agreements as at
        April 30, 2008 was $74.8 million. The agreement specifically provides
        that these funding requirements will be reduced by amounts incurred
        by the Joint Venture on reclamation and abandonment activities.

    (b) Participation Agreements

        The Joint Venture has signed participation agreements with various
        native groups. These agreements are expected to contribute to the
        social, economic and cultural well-being of the Aboriginal bands. The
        agreements are each for an initial term of twelve years and shall be
        automatically renewed on terms to be agreed for successive periods of
        six years thereafter until termination. The agreements terminate in
        the event the mine permanently ceases to operate.

    (c) Commitments

        Commitments include the cumulative maximum funding commitments
        secured by letters of credit of the Joint Venture's environmental and
        participation agreements at the Company's 40% share, before any
        reduction of future reclamation activities, and future minimum annual
        rentals under non-cancellable operating and capital leases for retail
        salons and corporate office space, and are as follows:

        2009                                                       $  93,816
        2010                                                          95,028
        2011                                                          92,991
        2012                                                          91,055
        2013                                                          90,650
        Thereafter                                                   155,064
        ---------------------------------------------------------------------

    NOTE 10:

    Employee Benefit Plans

                                                           Three       Three
                                                          Months      Months
                                                           Ended       Ended
                                                        April 30,   April 30,
    Expense for the period:                                 2008        2007
    -------------------------------------------------------------------------
    Defined benefit pension plan - Harry Winston
     retail segment                                    $     411   $       6
    Defined contribution plan - Harry Winston retail
     segment                                                 234         210
    Defined contribution plan - Diavik Diamond Mine          212         163
    -------------------------------------------------------------------------
                                                       $     857   $     379
                                                      -----------------------
                                                      -----------------------

    NOTE 11:

    Related Parties

    Transactions with related parties for the three months ended April 30,
    2008 include $0.4 million payable of rent ($0.4 million for the three
    months ended April 30, 2007) relating to the New York salon, payable to a
    Harry Winston Inc. employee.

    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 is subject to externally imposed capital requirements related
    to its senior secured term and revolving credit facilities, whereby it is
    required to maintain a consolidated tangible net worth in excess of
    $250 million, and there has been no change with respect to the Company's
    overall capital risk management strategy. At April 30, 2008, the Company
    is in compliance with this covenant.

    NOTE 13:

    Financial Instruments

    The Company has various financial instruments comprised of cash and cash
    equivalents, cash collateral and cash reserves, accounts receivable,
    accounts payable and accrued liabilities, bank advances 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 are
    designated as held-for-trading and are carried at fair value.

    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 carrying values of these financial instruments are as follows:

                               April 30, 2008           January 31, 2008
    -------------------------------------------------------------------------
                            Estimated     Carrying    Estimated     Carrying
                           Fair Value        Value   Fair Value        Value
    -------------------------------------------------------------------------
    Financial Assets:
      Cash and cash
       equivalents          $  61,776    $  61,776    $  49,628    $  49,628
      Cash collateral and
       cash reserves           33,938       33,938       25,615       25,615
      Accounts receivable      23,726       23,726       25,505       25,505
    -------------------------------------------------------------------------
                            $ 119,440    $ 119,440    $ 100,748    $ 100,748
                            -------------------------------------------------
                            -------------------------------------------------
    Financial Liabilities:
      Accounts payable and
       accrued liabilities  $ 141,871    $ 141,871    $ 124,426    $ 124,426
      Bank advances            24,228       24,228       34,928       34,928
      Long term debt          303,625      303,625      309,349      309,349
    -------------------------------------------------------------------------
                            $ 469,724    $ 469,724    $ 468,703    $ 468,703
                            -------------------------------------------------
                            -------------------------------------------------

    NOTE 14:

    Financial Risk Exposure and Risk Management

    The Company is exposed in varying degrees to a variety of financial
    instrument related risks by virtue of its activities. The Company's
    overall financial risk management program focuses on the preservation of
    capital and protecting current and future Company assets and cash flows
    by minimizing exposure to risks posed by the uncertainties and
    volatilities of financial markets.

    The Company's Audit Committee has responsibility to review and discuss
    significant financial risks or exposures and assess the steps management
    has taken to monitor, control, report and mitigate such risks to the
    Company.

    Financial risk management is carried out by the Finance department, which
    identifies and evaluates financial risks and establishes controls and
    procedures to ensure financial risks are mitigated.

    The types of risk exposure and the way in which such exposures are
    managed are as follows:

    i) Currency Risk

    The Company's sales are predominately denominated in US dollars. As the
    Company operates in an international environment, some of the Company's
    financial instruments and transactions are denominated in currencies
    other than the US dollar. The results of the Company's operations are
    subject to currency transaction risk and currency translation risk. From
    time to time, the Company may use a limited number of derivative
    financial instruments to manage its foreign currency exposure. The
    operating results and financial position of the Company are reported in
    US dollars in the Company's consolidated financial statements.

    The Company's primary foreign exchange exposure impacting pre-tax
    earnings arises from the following sources:

    -   Net Canadian dollar-denominated monetary assets and liabilities. The
        most significant exposure relates to its Canadian dollar future
        income tax liability. 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. The
        weakening/strengthening of the Canadian dollar versus the US dollar
        results in an unrealized foreign exchange gain/loss on the
        revaluation of the Canadian dollar denominated future income tax
        liability.

    Committed or anticipated foreign currency denominated transactions,
    primarily Canadian dollar costs at the Diavik Diamond Mine.

    Based on the Company's net exposure to Canadian dollar monetary assets
    and liabilities at April 30, 2008, a one cent change in the exchange rate
    would have impacted pre-tax net earnings for the quarter by $2.8 million.

    ii)  Interest Rate Risk

         Interest rate risk is the risk borne by an interest-bearing asset or
         liability as a result of fluctuations in interest rates.

         Financial assets and financial liabilities with variable interest
         rates expose the Company to cash flow interest rate risk. The
         Company's most significant interest rate risk arises from its
         various credit facilities which bear variable interest based on
         LIBOR.

    iii) Concentration of Credit Risk

         Credit risk is the risk of a financial loss to the Company if a
         customer or counterparty to a financial instrument fails to meet its
         contractual obligation.

         Financial instruments that potentially subject the company to credit
         risk consist of trade receivables from retail segment clients. While
         economic factors can affect credit risk, the Company manages risk by
         providing credit terms on a case-by-case basis only after a review
         of the client's financial position and past credit history. The
         Company has not experienced significant losses in the past from its
         customers.

         The Company's exposure to credit risk in the mining segment is
         minimized by its ongoing review of customer credit-worthiness.

         The Company manages credit risk, in respect of short-term
         investments, by maintaining bank accounts with Tier 1 banks and
         investing only in term deposits or banker's acceptances with highly-
         rated financial institutions that are capable of prompt liquidation.
         The Company monitors and manages its concentration of counterparty
         credit risk on an ongoing basis.

         At April 30, 2008, the Company's maximum counterparty credit
         exposure consists of the carrying amount of cash and cash
         equivalents and accounts receivable, which approximates fair value.

    iv)  Liquidity Risk

         Liquidity risk is the risk that the Company will not be able to meet
         its financial obligations as they fall due.

         The Company manages its liquidity by ensuring that there is
         sufficient capital to meet short and long-term business
         requirements, after taking into account cash flows from operations
         and the Company's holdings of cash and cash equivalents. The Company
         also strives to maintain sufficient financial liquidity at all times
         in order to participate in investment opportunities as they arise,
         as well as to withstand sudden adverse changes in economic
         circumstances. Management forecasts cash flows for its current and
         subsequent fiscal years to predict future financing requirements.
         Future requirements are met through a combination of committed
         credit facilities and access to capital markets.

         At April 30, 2008, the Company had $61.8 million of cash and cash
         equivalents and $47.2 million available under credit facilities.

         The following table summarizes the aggregate amount of contractual
         future cash outflows for the Company's financial liabilities:

                                     Less than      Year      Year     After
                               Total    1 year       2-3       4-5   5 years
    -------------------------------------------------------------------------
    Accounts payable and
     accrued liabilities    $141,871  $141,871  $      -  $      -  $      -
    Income taxes payable      57,684    57,684         -         -         -
    Bank advances             24,228    24,228         -         -         -
    Long-term debt(a)        370,557    78,090    84,326    23,281   184,860
    Environmental and
     participation
     agreements
     incremental
     commitments              97,037    76,245     3,972     1,985    14,835
    Operating lease
     obligations             121,030    16,642    28,332    18,029    58,027
    Capital lease
     obligations               2,234       929     1,239        66         -
    -------------------------------------------------------------------------
    (a) Includes projected interest payments on the current debt outstanding
        based on interest rates in effect at April 30, 2008.

    NOTE 15:

    Segmented Information

    The Company operates in two segments within the diamond industry, mining
    and retail, for the three months ended April 30, 2008.

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

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

    For the three months ended
     April 30, 2008                       Mining        Retail         Total
    -------------------------------------------------------------------------
    Revenue
      Canada                           $  81,393     $       -    $   81,393
      United States                            -        24,926        24,926
      Europe                                   -        31,630        31,630
      Asia                                     -        18,130        18,130
    Cost of sales                         32,150        40,999        73,149
    -------------------------------------------------------------------------
    Gross margin                          49,243        33,687        82,930
    Gross margin (%)                       60.5%         45.1%         53.1%

    Selling, general and
     administrative expenses               7,208        36,077        43,285
    -------------------------------------------------------------------------
    Earnings (loss) from operations       42,035        (2,390)       39,645
    -------------------------------------------------------------------------
    Interest and financing expenses       (2,479)       (2,974)       (5,453)
    Other income (expense)                   632          (386)          246
    Foreign exchange gain                     74            81           155
    -------------------------------------------------------------------------
    Segmented earnings (loss) before
     income taxes                      $  40,262     $  (5,669)   $   34,593
                                       --------------------------------------
                                       --------------------------------------
    Segmented assets as at April 30,
     2008
      Canada                           $ 944,842     $       -    $  944,842
      United States                            -       461,519       461,519
      Other foreign countries             18,049       166,321       184,370
    -------------------------------------------------------------------------
                                       $ 962,891     $ 627,840    $1,590,731
    -------------------------------------------------------------------------
    Goodwill as at April 30, 2008      $       -     $  93,780    $   93,780
    Capital expenditures               $  64,896     $   3,243    $   68,139
    Other significant non-cash items:
      Income tax recovery              $  (6,628)    $  (1,537)   $   (8,165)
      Amortization and accretion       $  10,739     $   3,216    $   13,955
    -------------------------------------------------------------------------


    For the three months ended
     April 30, 2007                       Mining        Retail         Total
    -------------------------------------------------------------------------
    Revenue
      Canada                          $   82,752    $        -    $   82,752
      United States                            -        24,341        24,341
      Europe                                   -        22,347        22,347
      Asia                                     -        11,925        11,925
    Cost of sales                         40,516        30,616        71,132
    -------------------------------------------------------------------------
    Gross margin                          42,236        27,997        70,233
    Gross margin (%)                       51.0%         47.8%         49.7%

    Selling, general and
     administrative expenses               5,087        29,124        34,211
    -------------------------------------------------------------------------
    Earnings (loss) from operations       37,149        (1,127)       36,022
    -------------------------------------------------------------------------
    Interest and financing expenses       (3,675)       (2,457)       (6,132)
    Other income                             766           147           913
    Foreign exchange gain (loss)         (13,311)           19       (13,292)
    -------------------------------------------------------------------------
    Segmented earnings (loss)
     before income taxes              $   20,929    $   (3,418)   $   17,511
                                      ---------------------------------------
                                      ---------------------------------------
    Segmented assets as at April 30,
     2007
      Canada                          $  735,349    $        -    $  735,349
      United States                            -       464,003       464,003
      Other foreign countries              5,542       110,459       116,001
    -------------------------------------------------------------------------
                                      $  740,891    $  574,462    $1,315,353
    -------------------------------------------------------------------------
    Goodwill as at April 30, 2007     $        -    $   97,207    $   97,207
    Capital expenditures              $   29,010    $    8,556    $   37,566
    Other significant non-cash items:
      Income tax recovery             $   (2,683)   $     (639)   $   (3,322)
      Amortization and accretion      $   17,690    $    1,913    $   19,603
    -------------------------------------------------------------------------

    Sales to one customer in the mining segment totalled $3.6 million for the
    three months ended April 30, 2008 ($4.6 million for the three months
    ended April 30, 2007).
    

    %SEDAR: 00003786E




For further information:

For further information: Kelley Stamm, kstamm@harrywinston.com, (416)
362-2237 ext.223

Organization Profile

Dominion Diamond Corporation

More on this organization


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890