Harry Winston Diamond Corporation Announces Fourth Quarter and Fiscal 2009 Results



    TORONTO, April 2 /CNW/ - Harry Winston Diamond Corporation (TSX: HW,
NYSE:   HWD) today reported fourth quarter and annual results for the period
ending January 31, 2009. The Company recorded consolidated net earnings of
$70.1 million or $1.15 per share for the year, compared to net earnings of
$106.4 million or $1.82 per share in the prior year. Consolidated net earnings
for the year included a non-cash write-down of the goodwill relating to the
retail operations of $93.8 million or $1.54 per share. The write-down was
partially offset by a $59.1 million net foreign exchange gain or $0.96 per
share, compared to a net $43.4 million foreign exchange loss or $0.74 per
share in the prior year. Consolidated net earnings also included an after-tax
gain on insurance settlement of $9.9 million or $0.16 per share, compared to
$8.0 million or $0.14 per share in the prior year.
    Consolidated sales were $609.2 million for the year compared to $679.3
million for the prior year, resulting in a 13% decrease in gross margin and a
24% decrease in consolidated earnings from operations.
    The mining segment recorded sales of $328.2 million, a 21% decrease from
$413.8 million in the prior year. The decrease in sales resulted from lower
rough diamond production and lower rough diamond prices in the fourth quarter.
Rough diamond production for the calendar year was down 23% to 3.7 million
carats produced versus 4.8 million for the prior year. Earnings from
operations for the mining segment decreased 24% to $168.6 million compared to
the prior year. The decrease was due primarily to lower sales and to a lesser
degree a decrease in gross margin.
    The retail segment recorded a 6% increase in sales to $281.0 million,
with a loss from operations of $2.5 million compared to a loss from operations
of $3.1 million in the prior year. Retail segment SG&A as a percentage of
sales remained consistent with the prior year at 48%.

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

    -------------------------------------------------------------------------
                                      Three      Three     Twelve     Twelve
                                     months     months     months     months
                                      ended      ended      ended      ended
                                    Jan. 31,   Jan. 31,   Jan. 31,   Jan. 31,
                                       2009       2008       2009       2008
    -------------------------------------------------------------------------
    Sales                             118.4      188.2      609.2      679.3
    -------------------------------------------------------------------------
    Earnings from operations           10.1       59.1      166.1      217.7
    -------------------------------------------------------------------------
    Net earnings (loss)               (73.0)      90.4       70.1      106.4
    -------------------------------------------------------------------------
    Earnings (loss) per share        $(1.19)     $1.55      $1.15      $1.82
    -------------------------------------------------------------------------
    

    Robert Gannicott, Chairman and Chief Executive Officer said, "Credit is
the vascular system of the diamond industry. Its rapid decline last October
shocked the diamond supply chain to a sudden standstill that persisted into
this year. Our response, and that of our mine operating partner, Rio Tinto,
has been defensive while preserving the ability to increase production
promptly when conditions have sufficiently improved by reducing capital and
operating costs without jeopardizing the future of our production and sales
platforms. With the successful completion of the Kinross investment, we have
now paid down our mining segment debt.
    We now see some tentative recovery in the diamond market, albeit from a
reduced base compared to 6 months ago. Diamonds are underpinned by their
deeply rooted use in bridal ceremonies throughout the world. The Diavik Mine
remains one of the highest margin diamond mines and Harry Winston a premier
diamond brand. We are well positioned for an improvement in global economic
conditions."
    Thomas J. O'Neill, President added, "Harry Winston has met the economic
challenges with concentrated marketing and substantial cost reductions. The
premium position of the brand and the international diversity of our business
model support us through the present conditions and position us well for
future economic recovery."

    Conference Call and Webcast

    Beginning at 9:00AM ET, on Friday, April 3, the company will host a
conference call for analysts, investors and other interested parties.
Listeners may access a live broadcast of the conference call on the company's
investor relations website at http://investor.harrywinston.com or by dialing
800-510-0146 within North America or 617-614-3449 from international locations
and entering passcode 37236627.
    An online archive of the broadcast will be available by accessing the
company's investor relations website at http://investor.harrywinston.com. A
telephone replay of the call will be available one hour after the call through
11:00PM ET, April 16, 2009, by dialing 888-286-8010 within North America or
617-801-6888 from international locations and entering passcode 73080790.

    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 and
statements about the Diavik Diamond Mine are assumptions regarding world
economic conditions, projected revenue and expenses, diamond prices,
construction timelines and mine operating plans and budgets, ore grades and
the Canadian/US dollar exchange rate. Specifically, in estimating Harry
Winston Diamond Corporation's projected share of the Diavik Diamond Mine
capital expenditure requirements over the next five years, Harry Winston
Diamond Corporation has used an average Canadian/US dollar exchange rate of
$0.86. 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 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, changes in US and world economic conditions,
risks of competition in the luxury jewelry segment, financing and credit
market risk, risks relating to the Company's salon expansion strategy and the
risk of 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.
    Investor Relations - (416) 362-2237 ext 290 or investor@harrywinston.com.

    
                                 Highlights

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

    Harry Winston Diamond Corporation recorded consolidated net earnings of
$70.1 million or $1.15 per share for the year, compared to net earnings of
$106.4 million or $1.82 per share in the prior year. Consolidated net earnings
for the year included a non-cash write-down of the goodwill relating to the
retail operations of $93.8 million or $1.54 per share. The write-down was
partially offset by a $59.1 million net foreign exchange gain or $0.96 per
share, compared to a net $43.4 million foreign exchange loss or $0.74 per
share in the prior year. Consolidated net earnings also included an after-tax
gain on insurance settlement of $9.9 million or $0.16 per share, compared to
$8.0 million or $0.14 per share in the prior year.
    Consolidated sales were $609.2 million for the year compared to $679.3
million for the prior year, resulting in a 13% decrease in gross margin and a
24% decrease in consolidated earnings from operations.
    The mining segment recorded sales of $328.2 million, a 21% decrease from
$413.8 million in the prior year. The decrease in sales resulted from lower
rough diamond production and lower rough diamond prices in the fourth quarter.
Rough diamond production for the calendar year was down 23% to 3.7 million
carats produced versus 4.8 million for the prior year. Earnings from
operations for the mining segment decreased 24% to $168.6 million compared to
the prior year. The decrease was due primarily to lower sales and to a lesser
degree a decrease in gross margin.
    The retail segment recorded a 6% increase in sales to $281.0 million,
with a loss from operations of $2.5 million compared to a loss from operations
of $3.1 million in the prior year. Retail segment SG&A as a percentage of
sales remained consistent with the prior year at 48%.

    
                     Management's Discussion and Analysis

        Prepared as of April 2, 2009 (all figures are in United States
                     dollars unless otherwise indicated)
    

    The following is management's discussion and analysis ("MD&A") of the
results of operations for Harry Winston Diamond Corporation ("Harry Winston
Diamond Corporation", or the "Company") for the fiscal year ended January 31,
2009, and its financial position as at January 31, 2009. 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 consolidated financial statements and
notes thereto. Unless otherwise specified, all financial information is
presented in United States dollars. Unless otherwise indicated, all references
to "year" refer to the fiscal year of Harry Winston Diamond Corporation ended
January 31. Unless otherwise indicated, 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 from the forward looking information. See
"Risks and Uncertainties" on page 19 for material risk factors that could
cause actual results to differ materially from the forward looking
information.
    Forward-looking information is based on certain factors and assumptions
regarding, among other things, mining, production, construction and
exploration activities at the Diavik Diamond Mine, credit and general capital
market conditions and the ability of the Company to refinance or replace its
existing credit facilities, the level of worldwide diamond production and
world and US economic conditions and demand for luxury goods. Specifically, in
estimating Harry Winston Diamond Corporation's projected share of the Diavik
Diamond Mine capital expenditure requirements over the next five years, Harry
Winston Diamond Corporation has used an average Canadian/US dollar exchange
rate of $0.86. 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 and demand for luxury goods. 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" on page 19.
    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 19 of this Annual Report, as well as the
Company's current Annual Information Form, available at www.sedar.com, for a
discussion of these and other risks and uncertainties involved in 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. The Company uses forward looking statements because it believes
such statements provide useful information with respect to the future
operation and financial performance of the Company, and cautions readers that
the information may not be appropriate for other purposes. 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 operating
under the Harry Winston(R) brand.
    As at January 31, 2009, the Company's most significant asset is a 40%
ownership interest in the Diavik group of mineral claims. The Diavik Joint
Venture (the "Joint Venture") is an unincorporated joint arrangement between
Diavik Diamond Mines Inc. ("DDMI") (60%) and Harry Winston Diamond Mines Ltd.
(40%) where Harry Winston Diamond Corporation owns an undivided 40% ownership
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.
    On March 19, 2009, the Company announced a strategic investment by
Kinross Gold Corporation ("Kinross"), whereby Kinross will make a net
investment of $150.0 million to acquire an indirect interest in the Diavik
Diamond Mine and a direct equity stake in the Company. Kinross will subscribe
for 15.2 million of the Company's treasury shares at a price of $3.00 per
share, being approximately 19.9% of the Company's issued equity post the
transaction. Kinross will also subscribe for new partnership units
representing a 22.5% interest in the limited partnership which holds the
Company's 40% ownership interest in the Diavik Diamond Mine, for a net
effective subscription value of $104.4 million. The transaction closed on
March 31, 2009 and the Company's economic interest in the Diavik Diamond Mine
is now 31%. With the closing of the Kinross transaction, all amounts
outstanding on the Company's senior secured term and revolving credit
facilities were repaid as of March 31, 2009. If the transaction had closed on
January 31, 2009, the Company would have recorded a non-cash dilution loss of
approximately $30 million in respect of its interest in the Diavik Diamond
Mine.

    
    Market Commentary

    The Diamond Market
    

    During the first eight months of fiscal 2009 sales of rough diamonds were
strong and increases in prices were achieved. Commencing in the fourth quarter
of fiscal 2009, the diamond industry began to be significantly impacted by the
global economic slowdown and the ongoing world-wide credit crisis.
    The availability of credit to the diamond processing and jewelry
manufacturing sectors of the industry has declined, thus reducing demand for
rough diamonds as the industry supply lines de-stock. The Company anticipates
challenging trading conditions for the near-term although subdued demand has
returned for certain rough diamond categories reflecting the sell-through of
core engagement ring type products which account for about half of the overall
polished diamond market.
    The decline in polished diamond prices has been significantly less than
the price declines in rough diamonds although sales volumes have declined
substantially as the world economic crisis has deepened.

    
    (R) Harry Winston is a registered trademark of Harry Winston Inc.

    The Retail Jewelry Market
    

    The luxury diamond jewelry market has also been negatively affected by
the severity of the global economic downturn. The major markets of the United
States and Japan have experienced the most significant decreases in demand,
while consumers in the Middle East and parts of Asia continue to purchase
luxury diamond products.

    Consolidated Financial Results

    The following is a summary of the Company's consolidated quarterly
results for the eight quarters ended January 31, 2009 following the basis of
presentation utilized in its Canadian GAAP financial statements:

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

    -------------------------------------------------------------------------
                                       2009       2009       2009       2009
                                         Q4         Q3         Q2         Q1
    -------------------------------------------------------------------------
    Sales                         $ 118,399  $ 148,623  $ 186,119  $ 156,079
    Cost of sales                    68,908     71,679     73,542     73,149
    -------------------------------------------------------------------------
    Gross margin                     49,491     76,944    112,577     82,930
    Gross margin (%)                  41.8%      51.8%      60.5%      53.1%
    Selling, general and
     administrative expenses         39,399     33,998     39,194     43,285
    -------------------------------------------------------------------------
    Earnings from operations         10,092     42,946     73,383     39,645
    -------------------------------------------------------------------------
    Interest and financing
     expenses                        (4,960)    (4,678)    (5,366)    (5,453)
    Other income                        778        407        815        246
    Insurance settlement             17,240          -          -          -
    Impairment charge               (93,780)         -          -          -
    Foreign exchange gain (loss)      4,649     48,982      5,301        155
    -------------------------------------------------------------------------
    Earnings (loss) before
     income taxes                   (65,981)    87,657     74,133     34,593
    Income taxes (recovery)           7,052     15,685     24,185     13,336
    -------------------------------------------------------------------------
    Earnings (loss) before
     minority interest              (73,033)    71,972     49,948     21,257
    Minority interest                   (58)        81          1          1
    -------------------------------------------------------------------------
    Net Earnings (loss)           $ (72,975) $  71,891  $  49,947  $  21,256
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Basic earnings (loss)
     per share                    $   (1.19) $    1.17  $    0.81  $    0.35
    Diluted earnings (loss)
     per share                    $   (1.19) $    1.17  $    0.81  $    0.35
    Cash dividends
     declared per share           $    0.05  $    0.05  $    0.05  $    0.05
    Total assets(i)               $   1,567  $   1,645  $   1,637  $   1,591
    Total long-term
     liabilities(i)               $     550  $     562  $     617  $     634
    -------------------------------------------------------------------------


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


    --------------------------------------------------------------
                                       2009       2008       2007
                                      Total      Total      Total
    --------------------------------------------------------------
    Sales                         $ 609,220  $ 679,307  $ 558,793
    Cost of sales                   287,278    311,187    285,498
    --------------------------------------------------------------
    Gross margin                    321,942    368,120    273,295
    Gross margin (%)                  52.8%      54.2%      48.9%
    Selling, general and
     administrative expenses        155,876    150,445    126,536
    --------------------------------------------------------------
    Earnings from operations        166,066    217,675    146,759
    --------------------------------------------------------------
    Interest and financing
     expenses                       (20,457)   (27,858)   (21,150)
    Other income                      2,246      2,758      5,081
    Insurance settlement             17,240     13,488          -
    Impairment charge               (93,780)         -          -
    Foreign exchange gain (loss)     59,087    (43,391)     8,784
    --------------------------------------------------------------
    Earnings (loss) before
     income taxes                   130,402    162,672    139,474
    Income taxes (recovery)          60,256     56,094     34,830
    --------------------------------------------------------------
    Earnings (loss) before
     minority interest               70,146    106,578    104,644
    Minority interest                    25        170        375
    --------------------------------------------------------------
    Net Earnings (loss)           $  70,121  $ 106,408  $ 104,269
    --------------------------------------------------------------
    --------------------------------------------------------------
    Basic earnings (loss)
     per share                    $    1.15  $    1.82  $    1.79
    Diluted earnings (loss)
     per share                    $    1.15  $    1.81  $    1.76
    Cash dividends
     declared per share           $    0.20  $    0.80  $    1.00
    Total assets(i)               $   1,567  $   1,494  $   1,288
    Total long-term
     liabilities(i)               $     550  $     660  $     536
    --------------------------------------------------------------

    (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 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 9 for
        additional information.


    Year Ended January 31, 2009 Compared to Year Ended January 31, 2008

    Consolidated Net Earnings
    

    Harry Winston Diamond Corporation's net earnings for the fiscal year
ended January 31, 2009 totalled $70.1 million or $1.15 per share, compared to
net earnings of $106.4 million or $1.82 per share for the prior year. Net
earnings were impacted by a non-cash write-down of the goodwill relating to
the retail operations of $93.8 million or $1.54 per share. The write-down was
partially offset by a net $59.1 million foreign exchange gain or $0.96 per
share, compared to a net foreign exchange loss of $43.4 million or $0.74 per
share in the prior year. Also impacting results was an after-tax gain on
insurance settlement of $9.9 million or $0.16 per share that resulted from the
December 2008 robbery at the Harry Winston Paris salon, compared to an
after-tax gain of $8.0 million or $0.14 per share from the October 2007
robbery.

    Consolidated Sales

    The Company recorded sales for the fiscal year ended January 31, 2009 of
$609.2 million compared to sales of $679.3 million for the prior year. On a
segment basis, rough diamond sales accounted for $328.2 million of these sales
compared to $413.8 million for the prior year. The Company completed nine
rough diamond sales, one of which was an open-market tender, during the fiscal
year, compared to ten rough diamond sales the prior year. Harry Winston's
retail segment sales were $281.0 million, compared to $265.5 million for the
prior year.

    Consolidated Cost of Sales and Gross Margin

    The Company recorded cost of sales of $287.3 million for a gross margin
of 52.8% during the fiscal year compared to cost of sales of $311.2 million
and a gross margin of 54.2% during the prior year. The Company's cost of sales
includes costs associated with mining, sorting and retail activities. See
"Segmented Analysis" on page 9 for additional information.

    Consolidated Selling, General and Administrative Expenses

    The principal components of selling, general and administrative ("SG&A")
expenses include expenses for salaries and benefits, advertising, professional
fees, rent and building related costs. Harry Winston Diamond Corporation
incurred SG&A expenses of $155.9 million for the fiscal year compared to
$150.4 million for the prior year. The increase of $5.4 million in SG&A
expenses from the prior year is primarily due to an increase of $4.0 million
in insurance premiums, $3.4 million in amortization expense, $3.0 million in
rent and building related expenses, $1.3 million in salaries and benefits,
partially offset by a decrease of $3.0 million in advertising and selling
expenses, $2.1 million in stock-based compensation, and $1.2 million in
professional fees.
    Included in SG&A expenses for the year are $19.9 million for the mining
segment as compared to $23.4 million for the prior year, and $136.0 million
for the retail segment as compared to $127.1 million for the prior year. For
the mining segment, the decrease in SG&A expenses was primarily due to a
mark-to-market reduction in stock-based compensation. 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. See "Segmented
Analysis" on page 9 for additional information.

    Consolidated Income Taxes

    The Company recorded a tax expense of $60.3 million during the twelve
months ended January 31, 2009, compared to a tax expense of $56.1 million in
the comparable period of the prior year. The Company's effective income tax
rate for the year, excluding Harry Winston's retail segment, is 27%, 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. During the twelve months ended January 31, 2009, the Company
recorded an unrealized foreign exchange gain of $48.6 million on the
revaluation of the Canadian dollar denominated future income tax liability, as
compared to an unrealized foreign exchange loss of $37.0 million recorded in
the comparable period of the prior year. The unrealized foreign exchange gain
is not taxable for Canadian income tax purposes. The Company also recorded a
non-cash impairment charge of $93.8 million in relation to the goodwill of
Harry Winston's retail segment in the current year. The impairment charge is
not deductible for Canadian income tax purposes. The impact of foreign
exchange and impairment charge on goodwill are the main causes of the unusual
effective tax rate for the current year.
    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 2028.
    The Company has provided a table below summarizing the movement from the
statutory to the effective income tax rate as a percentage of earnings before
taxes:

    
                                                    Year ended    Year ended
                                                    January 31,   January 31,
                                                          2009          2008
    -------------------------------------------------------------------------
    Statutory income tax rate                              31%           34%
    Northwest Territories mining royalty
     (net of income tax relief)                            12%           12%
    Impact of foreign exchange                           (16)%            6%
    Impact of changes in future income tax rates            -%          (7)%
    Earnings subject to tax different than
     statutory rate                                       (5)%          (4)%
    Changes in valuation allowance                          2%          (2)%
    Benefits of losses recognized through
     reduction of goodwill                                  -%            3%
    Assessments and adjustments                             -%          (7)%
    Impact of impairment charge on goodwill                22%            -%
    Other items                                             -%          (1)%
    Effective income tax rate                              46%           34%
    -------------------------------------------------------------------------
    

    Consolidated Interest and Financing Expenses

    Interest and financing expenses of $20.5 million were incurred during the
fiscal year compared to $27.9 million for the prior year. The reduction in
interest and financing expenses relates to a combination of reduction in debt
levels in the mining segment and lower interest rates.

    Consolidated Other Income

    Other income, which includes interest income on the Company's various
bank balances, was $2.2 million during the year compared to $2.8 million in
the prior year.

    Consolidated Insurance Settlement

    In December 2008, approximately $31.7 million in Company-owned and
consigned retail inventory at cost was stolen during a second robbery at the
Harry Winston Paris salon. The Company was fully insured against the loss, and
recognized a pre-tax gain of $16.7 million in the fourth quarter on settlement
of the insurance claim compared to a pre-tax gain of $13.5 million on the
first Paris salon robbery that occurred in the third quarter of the prior
year. The remaining balance of the insurance claim is $3.3 million, of which
$1.0 million was received in February 2009; the insurance company has agreed
to pay the balance of $2.3 million which is expected to be received during
April 2009. Also included in insurance settlement is a $0.5 million gain
resulting from an excavator fire that occurred in the fourth quarter of fiscal
2006 at the Diavik Diamond Mine.

    Consolidated Impairment Charge

    The Company tested goodwill for impairment and determined that the
carrying value of its retail segment is below the fair value as described on
page 17. The Company recorded a non-cash goodwill impairment charge of $93.8
million during the fourth quarter.

    Consolidated Foreign Exchange Gain (Loss)

    A net foreign exchange gain of $59.1 million was recognized during the
fiscal year compared with a net foreign exchange loss of $43.4 million
recognized during the prior year. The current year gain 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 January 31, 2009. 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.

    
    Three Months Ended January 31, 2009 Compared to Three Months Ended
    January 31, 2008
    

    Consolidated Net Earnings

    The Company recorded a fourth quarter loss of $73.0 million or $1.19 per
share compared to net earnings of $90.4 million or $1.55 per share in the
fourth quarter of the prior year. The net loss resulted from a non-cash
write-down of the goodwill relating to the retail operations of $93.8 million
or $1.53 per share. The Company recognized a net $4.6 million foreign exchange
gain or $0.08 per share, compared to a net foreign exchange gain of $22.3
million or $0.38 per share in the comparable quarter of the prior year. Also
impacting results was an after-tax gain on insurance settlement of $9.9
million or $0.16 per share that resulted from the December 2008 robbery at the
Harry Winston Paris salon, compared to a fourth quarter after-tax gain of $8.0
million or $0.14 per share from the October 2007 robbery.

    Consolidated Sales

    Sales for the fourth quarter totalled $118.4 million, consisting of rough
diamond sales of $51.1 million and retail segment sales of $67.3 million. This
compares to sales of $188.2 million in the comparable quarter of the prior
year (rough diamond sales of $103.2 million and retail segment sales of $85.0
million). The Company held two primary rough diamond sales in the fourth
quarter, consistent with the prior year. Ongoing quarterly variations in
revenues are inherent in Harry Winston Diamond Corporation'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 fourth quarter cost of sales was $68.9 million for a gross
margin of 41.8% compared to $83.6 million cost of sales and gross margin of
55.6% 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 9 for additional
information.

    Consolidated Selling, General and Administrative Expenses

    The principal components of SG&A expenses include expenses for salaries
and benefits, advertising, professional fees, rent and building related costs.
The Company incurred SG&A expenses of $39.4 million for the fourth quarter,
compared to $45.5 million in the comparable quarter of the prior year.
    Included in SG&A expenses for the fourth quarter are $4.4 million for the
mining segment as compared to $5.7 million for the comparable quarter of the
prior year, and $35.0 million for the retail segment as compared to $39.8
million for the comparable quarter of the prior year. For the mining segment,
the decrease was primarily due to a reduction in discretionary spending. For
the retail segment, the decrease was due to a combination of reduced
advertising and selling expenses and an adjustment to an equity-related
compensation program resulting from the reduction in fair value of the retail
segment. See "Segmented Analysis" on page 9 for additional information.

    Consolidated Income Taxes

    The Company recorded a tax expense of $7.1 million during the fourth
quarter, compared to a net tax recovery of $2.0 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 28%, 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. During the fourth quarter of fiscal 2009, the Canadian dollar
weakened against the US dollar. As a result, the Company recorded an
unrealized foreign exchange gain of $3.9 million on the revaluation of the
Company's Canadian dollar denominated future income tax liability. This
compares to an unrealized foreign exchange gain of $17.7 million in the
comparable quarter of the previous year. The unrealized foreign exchange gain
is not taxable for Canadian income tax purposes.
    During the fourth quarter of fiscal 2009, the Company also recorded a
non-cash impairment charge of $93.8 million in relation to the goodwill of
Harry Winston's retail segment. The impairment charge is not deductible for
Canadian income tax purposes and is the primary cause of the unusual effective
tax rate for the current quarter.
    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 2028.
    The Company has provided a table below summarizing the movement from the
statutory to the effective income tax rate as a percentage of earnings before
taxes:

    
                                               Three months     Three months
                                                      ended            ended
                                                 January 31,      January 31,
                                                       2009             2008
    -------------------------------------------------------------------------
    Statutory income tax rate                           31%              34%
    Stock compensation                                   -%             (1)%
    Northwest Territories mining royalty
     (net of income tax relief)                        (1)%               6%
    Impact of foreign exchange                           -%            (11)%
    Impact of changes in future income tax rates         -%            (12)%
    Earnings subject to tax different than
     statutory rate                                      4%             (1)%
    Changes in valuation allowance                     (2)%             (4)%
    Benefits of losses recognized through
     reduction of goodwill                               -%               3%
    Assessments and adjustments                          2%            (15)%
    Impact of impairment charge on goodwill           (44)%               -%
    Other items                                        (1)%             (1)%
    Effective income tax rate                         (11)%             (2)%
    -------------------------------------------------------------------------
    

    Consolidated Interest and Financing Expenses

    Interest and financing expenses of $5.0 million were incurred during the
fourth quarter compared to $7.1 million during the comparable quarter of the
prior year. The reduction in interest and financing expenses resulted from a
combination of a reduction in debt levels in the mining segment and lower
interest rates.

    Consolidated Other Income

    Other income of $0.8 million was recorded during the quarter compared to
other income of $0.7 million in the comparable quarter of the prior year.

    Consolidated Insurance Settlement

    In December 2008, approximately $31.7 million in Company-owned and
consigned retail inventory at cost was stolen during a second robbery at the
Harry Winston Paris salon. The Company was fully insured against the loss, and
recognized a pre-tax gain of $16.7 million in the fourth quarter on settlement
of the insurance claim compared to a fourth quarter pre-tax gain of $13.5
million on the first Paris salon robbery that occurred in the third quarter of
the prior year. The remaining balance of the insurance claim is $3.3 million,
of which $1.0 million was received in February 2009; the insurance company has
agreed to pay the balance of $2.3 million which is expected to be received
during April 2009. Also included in insurance settlement is a $0.5 million
gain resulting from an excavator fire that occurred in the fourth quarter of
fiscal 2006 at the Diavik Diamond Mine.

    Consolidated Impairment Charge

    The Company tested goodwill for impairment and determined that the
carrying value of its retail segment is below its fair value as described on
page 17. The Company recorded a non-cash goodwill impairment charge of $93.8
million during the fourth quarter.

    Consolidated Foreign Exchange Gain

    A net foreign exchange gain of $4.6 million was recognized during the
quarter compared to a net foreign exchange gain of $22.3 million in the
comparable quarter of the prior year. The gains relate 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 year 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       2009       2009       2009
                                         Q4         Q3         Q2         Q1
    -------------------------------------------------------------------------
    Sales                         $  51,100  $  90,716  $ 105,014  $  81,393
    Cost of sales                    34,612     40,617     32,390     32,150
    -------------------------------------------------------------------------
    Gross margin                     16,488     50,099     72,624     49,243
    Gross margin (%)                  32.3%      55.2%      69.2%      60.5%
    Selling, general and
     administrative expenses          4,430      3,114      5,151      7,208
    -------------------------------------------------------------------------
    Earnings from operations      $  12,058  $  46,985  $  67,473  $  42,035
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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


    --------------------------------------------------------------
                                       2009       2008       2007
                                      Total      Total      Total
    --------------------------------------------------------------
    Sales                         $ 328,223  $ 413,772  $ 332,573
    Cost of sales                   139,769    169,680    166,879
    --------------------------------------------------------------
    Gross margin                    188,454    244,092    165,694
    Gross margin (%)                  57.4%      59.0%      49.8%
    Selling, general and
     administrative expenses         19,903     23,359     21,222
    --------------------------------------------------------------
    Earnings from operations      $ 168,551  $ 220,733  $ 144,472
    --------------------------------------------------------------
    --------------------------------------------------------------


    Year Ended January 31, 2009 Compared to Year Ended January 31, 2008

    Mining Sales
    

    Rough diamond sales for the year totalled $328.2 million compared to
$413.8 million in the prior year resulting primarily from lower carat
production. The Company's share of rough diamond production during the
calendar year decreased 23% to 3.7 million carats compared to the prior year.
The lower production resulted from the negative grade variation in the A-154
South pipe combined with the mining of low grade, mud-rich material from the
top of the A-418 pipe and a higher volume of A-418 ore being processed due to
challenging mining conditions in the lower benches of the A-154 pit.
    The Company held nine primary rough diamond sales, one of which was an
open-market tender, during the fiscal year compared to ten in the prior year.
Harry Winston Diamond Corporation 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 year, rough diamond prices and the
volume, size and quality distribution of rough diamonds delivered from the
Diavik Diamond Mine in each year.

    Mining Cost of Sales and Gross Margin

    The Company's cost of sales for the fiscal year was $139.8 million for a
gross margin of 57.4% compared to $169.7 million cost of sales and gross
margin of 59.0% in the prior year. The decrease in the gross margin percentage
resulted primarily from lower production.
    A substantial portion of cost of sales is mining operating costs, which
are incurred at the Diavik Diamond Mine. Cost of sales also includes rough
diamond sorting costs, which consist of Harry Winston Diamond Corporation'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 decreased by $3.5 million from the
prior year primarily due to a mark-to-market reduction to stock-based
compensation and a reduction in discretionary spending.

    
    Three Months Ended January 31, 2009 Compared to Three Months Ended
    January 31, 2008
    

    Mining Sales

    Rough diamond sales for the quarter totalled $51.1 million compared to
$103.2 million in the comparable quarter of the prior year resulting from a
combination of lower carat production and a softening of the rough diamond
market, leading to lower sales volumes and prices. Rough diamond production
decreased 12% in the fourth calendar quarter from the prior year. The lower
production resulted from the negative grade variation in the A-154 South pipe
combined with a higher volume of A-418 ore being processed due to challenging
mining conditions in the lower benches of the A-154 pit.
    The Company held two primary rough diamond sales in the fourth quarter,
consistent with the prior year. The Company expects that results for its
mining segment will continue to fluctuate depending on the seasonality of
production at the Diavik Diamond Mine, the number of primary and secondary
sales events conducted at each sales location during the quarter, rough
diamond prices and the volume, size and quality distribution of rough diamonds
delivered from the Diavik Diamond Mine in each quarter.

    Mining Cost of Sales and Gross Margin

    The Company's fourth quarter cost of sales was $34.6 million for a gross
margin of 32.3% compared to $37.0 million cost of sales and gross margin of
64.2% in the comparable quarter of the prior year. The decrease in the gross
margin percentage was driven by lower carat production and lower prices. The
mining gross margin is anticipated to fluctuate between quarters, resulting
from variations in the specific mix of product sold during each quarter and
rough diamond prices.
    A substantial portion of cost of sales is mining operating costs, which
are incurred at the Diavik Diamond Mine. Cost of sales also includes sorting
costs, which consist of Harry Winston Diamond Corporation'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 decreased by $1.2 million from the
comparable period of the prior year primarily due to a reduction in
discretionary spending.

    Retail

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

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

    -------------------------------------------------------------------------
                                       2009       2009       2009       2009
                                         Q4         Q3         Q2         Q1
    -------------------------------------------------------------------------
    Sales                         $  67,299  $  57,907  $  81,105  $  74,686
    Cost of sales                    34,296     31,062     41,152     40,999
    -------------------------------------------------------------------------
    Gross margin                     33,003     26,845     39,953     33,687
    Gross margin (%)                  49.0%      46.4%      49.3%      45.1%
    Selling, general and
     administrative expenses         34,969     30,884     34,043     36,077
    -------------------------------------------------------------------------
    Earnings (loss) from
     operations                   $  (1,966) $  (4,039) $   5,910  $  (2,390)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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


    --------------------------------------------------------------
                                       2009       2008       2007
                                      Total      Total      Total
    --------------------------------------------------------------
    Sales                         $ 280,997  $ 265,535  $ 226,220
    Cost of sales                   147,509    141,507    118,619
    --------------------------------------------------------------
    Gross margin                    133,488    124,028    107,601
    Gross margin (%)                  47.5%      46.7%      47.6%
    Selling, general and
     administrative expenses        135,973    127,086    105,314
    --------------------------------------------------------------
    Earnings (loss) from
     operations                   $  (2,485) $  (3,058)  $  2,287
    --------------------------------------------------------------
    --------------------------------------------------------------


    Year Ended January 31, 2009 Compared to Year Ended January 31, 2008

    Retail Sales
    

    Sales for the fiscal year ending January 31, 2009 were $281.0 million
compared to $265.5 million for the prior year. Sales in the European market
increased 44% to $117.6 million, US sales decreased 16% to $94.0 million, and
Asian sales decreased 3% to $69.4 million.

    Retail Cost of Sales and Gross Margin

    Cost of sales for Harry Winston Inc. for the fiscal year was $147.5
million compared to $141.5 million for the prior year. Gross margin for the
fiscal year was $133.5 million or 47.5% compared to $124.0 million or 46.7%
for the prior year. Excluding the impact of sales of Harry Winston Inc.
pre-acquisition inventory, gross margin for the fiscal year and the prior year
would have been 49.4% and 50.3%, respectively. This decrease in gross margin
is the result of the product mix sold, in particular a lower proportion of
higher-margin sales in the Japanese market, an increased contribution of high
dollar value transactions which carry lower-than-average gross margins, and
higher research and development costs to support the growing watch business.

    Retail Selling, General and Administrative Expenses

    SG&A expenses increased to $136.0 million for the fiscal year as compared
to $127.1 million in the prior year. However, SG&A as a percentage of sales
remained at 48% for the fiscal year consistent with the prior year. The
increase of $8.9 million in SG&A expenses from the prior year is primarily due
to an increase of $4.0 million in insurance premiums, $3.3 million in
amortization expense, $3.1 million in rent and building related expenses, $0.6
million in salaries and benefits, offset by a decrease of $3.0 million in
advertising and selling expenses. Included in these amounts was 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 $12.6 million compared to $9.3
million in the comparable period of the prior year.

    
    Three Months Ended January 31, 2009 Compared to Three Months Ended
    January 31, 2008
    

    Retail Sales

    Sales for the fourth quarter were $67.3 million compared to $85.0 million
for the comparable quarter of the prior year, a decrease of 21%. Sales in the
European market increased 77% to $30.9 million. US sales decreased 60% to
$18.8 million, and Asian sales decreased 16% to $17.6 million.

    Retail Cost of Sales and Gross Margin

    Cost of sales for Harry Winston Inc. for the fourth quarter was $34.3
million compared to $46.7 million for the comparable quarter of the prior
year. Gross margin for the quarter was $33.0 million or 49.0% compared to
$38.3 million or 45.1% for the fourth quarter of the prior year. Excluding the
impact of sales of Harry Winston Inc. pre-acquisition inventory, gross margin
for the fourth quarter and the comparable quarter of the prior year would have
been 50.1% and 47.4%, respectively. Gross margin in the fourth quarter of the
prior year was impacted by a significant sale of a wide range of jewelry items
to the Russian market, which generated a lower than average gross margin. This
sale was made to increase awareness of the Harry Winston brand in this market,
where demand for luxury brands has grown rapidly over the past several years.

    Retail Selling, General and Administrative Expenses

    SG&A expenses decreased to $35.0 million from $39.8 million in the
comparable quarter of the prior year. The decrease was due to a combination of
reduced advertising and selling expenses and an adjustment to an
equity-related compensation program resulting from the non-cash goodwill
impairment charge on the carrying value of the retail segment. SG&A expenses
include depreciation and amortization expense of $3.2 million, consistent with
the comparable quarter of the prior year. SG&A as a percentage of sales
increased to 52% compared to 47% 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

    Annual production at the Diavik Diamond Mine reached 9.2 million carats
for the calendar year ended December 31, 2008, representing a decrease of 23%
over the prior year. The lower production resulted from a local grade decrease
compared to the reserve grade in a part of the A-154 South pipe combined with
the mining of low grade, mud-rich material from the top of the A-418 pipe. A
higher volume of A-418 ore was processed compared to plan due to challenging
mining conditions in the lower benches of the A-154 pit.
    During the fourth quarter of 2008, the Diavik Diamond Mine reached a
milestone of 50 million carats produced. Ore production for the fourth
calendar quarter consisted of 1.5 million carats produced from 0.29 million
tonnes of ore from the A-154 South kimberlite pipe, and 1.1 million carats
produced from 0.28 million tonnes from the A-418 kimberlite pipe.

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

    (reported on a one-month lag)

    -------------------------------------------------------------------------
                                      Three      Three     Twelve     Twelve
                                     months     months     months     months
                                      ended      ended      ended      ended
                                   December   December   December   December
                                         31,        31,        31,        31,
                                       2008       2007       2008       2007
    -------------------------------------------------------------------------
    Diamonds recovered
     (000s carats)                    1,039      1,177      3,690      4,777
    Grade (carats/tonne)               4.56       5.06       3.82       4.97
    -------------------------------------------------------------------------
    

    Retail Segment

    For the fiscal year, the retail segment generated growth in sales of 6%
over the prior year period. Strong sales to clients in the Middle East, Russia
and Asia outside of Japan compensated for weaker sales in the US and Japan. A
new salon was opened in Costa Mesa, California in August 2008.
    For the fourth quarter, the retail segment recorded a 21% decline in
sales over the comparable quarter of the prior year. Weak sales in the US and
Japan were primarily responsible for the overall decrease in sales. Harry
Winston Inc. operated a network of 18 retail salons during the current year.
The retail segment has implemented a series of measures in response to the
global recession, including cost reduction initiatives, close monitoring of
inventory levels and a very selective expansion of the retail salon
distribution network.

    
    Liquidity and Capital Resources

    Working Capital
    

    As at January 31, 2009, Harry Winston Diamond Corporation had
unrestricted cash and cash equivalents of $16.7 million and contingency cash
collateral and reserves of $30.1 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
$14.1 million and short-term investments of $2.6 million at January 31, 2009.
The short-term investments were held in overnight deposits. Total cash
resources at January 31, 2009 were $28.3 million lower than $75.2 million at
January 31, 2008, resulting from additional joint venture cash calls to
support the development of underground mining and debt repayments.
    During the year ended January 31, 2009, the Company generated $144.1
million in cash from operations, compared to $193.9 million in the prior year.
    Working capital decreased to $195.1 million at January 31, 2009 from
$220.0 million at January 31, 2008. During the fiscal year, the Company
increased accounts receivable by $43.3 million, most of which related to an
insurance settlement receivable resulting from the Paris salon robbery (which
was received in February 2009), decreased prepaid expenses and other current
assets by $8.2 million, increased inventory by $24.0 million, decreased
accounts payable and accrued liabilities by $4.5 million, and increased income
taxes payable by $39.1 million.
    The Company's liquidity requirements fluctuate from quarter to quarter
depending on, among other factors, the seasonality of production at the Diavik
Diamond Mine, seasonality of mine operating expenses, capital expenditure
programs, the number of sales events conducted during the quarter and the
volume, size and quality distribution of rough diamonds delivered from the
Diavik Diamond Mine in each quarter, along with the seasonality of sales and
salon expansion in the 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 mining and retail segments maintain separate financing
arrangements. Accordingly, the Company assesses liquidity and capital
resources on a segmented basis. The retail segment's cash requirements are for
cash operating expenses, working capital and capital expenditures, including
salon expansion. The Company believes that cash on hand, cash generated from
operations and access to credit facilities will be sufficient to meet
anticipated cash requirements for the retail segment next fiscal year.
    The mining segment's cash requirements are for cash operating expenses,
working capital and capital expenditures. With the closing of the Kinross
transaction, the Company believes that cash on hand and cash generated from
the sale of rough diamonds will be sufficient to meet anticipated cash
requirements for the next fiscal year.

    Financing Activities

    During the fiscal year, Harry Winston Diamond Corporation repaid $52.2
million of its senior secured term facilities. At January 31, 2009, the
Company had $24.2 million outstanding on its senior secured term credit
facilities and $50.0 million outstanding on its senior secured revolving
credit facility. With the closing of the Kinross transaction, all amounts
outstanding on the Company's senior secured term and revolving credit
facilities were repaid as of March 31, 2009.
    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 January 31, 2009, Harry Winston Inc. had $179.6 million
outstanding on its $250.0 million secured five-year revolving credit facility,
which is used to fund salon inventory and capital expenditure requirements.
This represents an increase of $25.6 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 $15.0 million (17.5 million CHF) used to finance
the construction of the new watch factory in Geneva, Switzerland. At January
31, 2009, $14.7 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. On June 26, 2008, the bank further extended a demand credit facility
for 2.0 million CHF. The new facility is supported by a $2.0 million standby
letter of credit. At January 31, 2009, $0.5 million was drawn against this
demand credit facility.
    Harry Winston Japan, K.K. maintains secured and unsecured credit
agreements with three banks amounting to $23.1 million ((Yen)2,075 million).
At January 31, 2009, $23.1 million had been drawn against these facilities,
$5.5 million of which is long term, payable on June 28, 2010, with the balance
of $17.6 million classified as bank advances.
    At January 31, 2009, $18.4 million, $4.7 million and $1.5 million were
drawn under the Company's revolving financing facilities relating to its
Belgian subsidiary, Harry Winston Diamond International N.V., its Israeli
subsidiary, Harry Winston Diamond (Israel) Limited and its Indian subsidiary,
Harry Winston Diamond (India) Private Limited, respectively.
    During the fiscal year, the Company made dividend payments of $12.3
million or $0.20 per share to its shareholders.
    On March 14, 2008, the Company completed a 3 million common share private
placement. The non-brokered private placement sold 3 million common shares at
CDN $25 per share. No fees or commissions were payable on this transaction
which generated net proceeds of CDN $75.0 million. This transaction diluted
the Company's issued and outstanding shares by 5%.

    Investing Activities

    During the fiscal year, the Company purchased capital assets of $209.9
million, of which $200.3 million were purchased for the mining segment and
$9.6 million for the retail segment.

    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. Harry Winston Diamond Corporation'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 2009 to 2013, is approximately $170 million assuming a Canadian/US
average exchange rate of $0.86 for the five years. The most significant
contractual obligations for the ensuing five-year period can be summarized as
follows:

    
    Contractual Obligations

    (expressed in thousands
     of United States                Less than      Year      Year     After
     dollars)                  Total    1 year       2-3       4-5   5 years
    -------------------------------------------------------------------------
    Long-term debt(a)(b)    $245,198  $  9,488  $ 26,799  $192,135  $ 16,776
    Environmental and
     participation
     agreements incremental
     commitments(c)           77,345    64,243     2,609     1,011     9,482
    Operating lease
     obligations(d)          106,064    17,701    26,280    16,865    45,218
    Capital lease
     obligations(e)            1,389       844       545         -         -
    -------------------------------------------------------------------------
    Total contractual
     obligations            $429,996  $ 92,276  $ 56,233  $210,011  $ 71,476
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (a) Long-term debt presented in the foregoing table includes current and
        long-term portions. The mining segment's credit agreements are
        comprised of two senior secured term credit facilities and a senior
        secured revolving credit facility. The existing facilities had a
        maturity date of December 15, 2009. At January 31, 2009, $24.2
        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. With the closing of the Kinross
        transaction, these amounts outstanding on the Company's senior
        secured term and revolving credit facilities were repaid as of
        March 31, 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 January 31, 2009, $6.8 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 January 31, 2009, $179.6 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 $15.0 million (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.
        Quarterly payments on the loan began on June 30, 2008. At January 31,
        2009, $14.7 million was outstanding on these loan agreements. On
        June 26, 2008, the bank further extended a demand credit facility for
        2.0 million CHF. The new facility is supported by a $2.0 million
        standby letter of credit and bears interest at a rate of 5.0% per
        annum. At January 31, 2009, $0.5 million was drawn against the demand
        credit facility.

        Harry Winston Japan, K.K. maintains unsecured credit agreements with
        two banks each amounting to $8.4 million ((Yen)750 million). At
        January 31, 2009, $16.8 million had been drawn against these
        facilities, $5.5 million of which is long term, with the balance of
        $11.3 million classified as bank advances. The short-term portion of
        the credit facilities bear interest at 1.98% and expire on April 30,
        2009, and June 1, 2009, respectively. The long-term portion bears
        interest at 2.38% and expires on June 28, 2010. Harry Winston Inc.
        has also entered into a credit agreement to provide a credit facility
        to Harry Winston Japan, K.K. secured solely by the inventory of Harry
        Winston Japan, K.K. in an amount of $6.4 million ((Yen)575 million).
        This facility bears interest at 2.30% and expires on June 19, 2009.

    (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 January 31,
        2009 and have been included under long-term debt in the table above.
        Interest payments for fiscal 2010 are approximated to be
        $8.5 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 Harry Winston
        Diamond Corporation's share as at January 31, 2009 was $61.4 million
        based on the Company's 40% ownership interest in the Diavik Diamond
        Mine. Following the closing of the transaction with Kinross of an
        indirect interest in the Diavik Diamond Mine as described on page 16,
        the Company will effectively have a 31% economic interest in the
        Diavik Diamond Mine. The requirement to post security for the
        reclamation and abandonment obligations may be reduced to the extent
        of amounts spent by the Joint Venture on those activities. The Joint
        Venture has also signed participation agreements with various native
        groups. These agreements are expected to contribute to the social,
        economic and cultural well-being of area Aboriginal bands. The actual
        cash outlay for the Joint Venture's obligations under these
        agreements is not anticipated to occur until later in the life of the
        Diavik Diamond Mine.

    (d) Operating lease obligations represent future minimum annual rentals
        under non-cancellable operating leases for Harry Winston 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
    

    A mine plan and budget for calendar 2009 was approved in the fourth
quarter of calendar 2008 by both Rio Tinto plc, the operator of the Diavik
Diamond Mine, and the Company. However, as a result of the weakness in the
diamond industry and the global credit markets, significant changes to this
mine plan and budget are expected. On March 30, 2009, DDMI announced that it
plans to take a series of actions to preserve the strength of the Diavik
Diamond Mine during the challenging global market conditions. These actions
include two production shutdowns, further deferral of the start of underground
mine production, and accelerating the planned transition to a smaller work
force.
    Summer and winter production shutdowns of six weeks each in duration will
be implemented. During these shutdowns diamond production will cease and the
mine will be placed on a care and maintenance schedule. The summer shutdown is
scheduled for July 14, 2009 to August 24, 2009 inclusive. The winter shutdown
is scheduled for December 1, 2009 to January 11, 2010 inclusive. Approximately
500 full-time equivalent positions will be affected by the shutdowns, with
affected workers being provided with a number of options to fit their
circumstances.
    Additional actions include placing the underground mine on care and
maintenance by the third quarter of 2009, once the majority of its
construction is complete. Diavik Diamond Mine will also be accelerating the
process of employee reductions required for a fully operational underground
mine. This will be achieved primarily by natural attrition.
    These actions will reduce operating expenditures, defer a significant
amount of underground capital expenditures and reduce carat production in
calendar 2009 to ensure that the operation is well positioned for the future.
The operational plan for the Diavik Diamond Mine will remain flexible for the
balance of this calendar year to maintain the ability to respond to changing
diamond market conditions. Further details of the plan are expected to be
available by the end of April 2009.

    Retail

    Harry Winston Inc. expects sales in the luxury diamond jewelry industry
to continue to be negatively impacted by economic conditions through at least
the first half of the fiscal year. The Company has implemented a series of
cost reduction measures to align its cost structure with the realities of the
economy. The strength of the Harry Winston brand and international
distribution network has positioned the Company to withstand the unprecedented
economic challenges currently being faced throughout the world. Harry Winston
Inc. will continue to focus on providing our customers with the highest level
of quality and service in our industry.
    Notwithstanding the current economic conditions, Harry Winston Inc. will
continue its plan to strengthen its brand and expand its retail salon network
and product offering over the next several years. To that end, one salon is
planned to be opened in Singapore during in fiscal 2010.

    Dividend

    On March 19, 2009, the Company announced that it has suspended its
dividend for the time being.

    Subsequent Event

    On March 19, 2009, the Company announced a strategic investment by
Kinross Gold Corporation, whereby Kinross will make a net investment of $150.0
million to acquire an indirect interest in the Diavik Diamond Mine and a
direct equity stake in the Company. Kinross will subscribe for 15.2 million of
the Company's treasury shares at a price of $3.00 per share, being
approximately 19.9% of the Company's issued equity post the transaction.
Kinross will also subscribe for new partnership units representing a 22.5%
interest in the limited partnership which holds the Company's 40% ownership
interest in the Diavik Diamond Mine, for a net effective subscription value of
$104.4 million. The transaction closed on March 31, 2009 and the Company's
economic interest in the Diavik Diamond Mine is now 31%. With the closing of
the Kinross transaction, all amounts outstanding on the Company's senior
secured term and revolving credit facilities were repaid as of March 31, 2009.
If the transaction had closed on January 31, 2009, the Company would have
recorded a non-cash dilution loss of approximately $30 million in respect of
its interest in the Diavik Diamond Mine.

    Disclosure Controls and Procedures

    The Company has designed a system of disclosure controls and procedures
to provide reasonable assurance that material information relating to Harry
Winston Diamond Corporation, including its consolidated subsidiaries, is made
known to them by others within those entities, particularly during the period
in which the Company's annual filings are being prepared. In designing and
evaluating the disclosure controls and procedures, the management of the
Company recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives. The management of Harry Winston Diamond
Corporation was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. The result of the inherent
limitations in all control systems means no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any,
have been detected.
    The management of Harry Winston Diamond Corporation has evaluated the
effectiveness of the design and operation of its disclosure controls and
procedures as of the end of the period covered by the Annual Report. Based on
that evaluation, management has concluded that these disclosure controls and
procedures, as defined in Canada by Multilateral Instrument 52-109,
Certification of Disclosure in Issuers' Annual and Interim Filings, and in the
United States by Rule 13a-15(e) under the Securities Exchange Act of 1934 (the
"Exchange Act"), are effective as of January 31, 2009 to ensure that
information required to be disclosed in reports that the Company will file or
submit under Canadian securities legislation and the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in those
rules and forms.

    Internal Control over Financial Reporting

    The certifying officers of Harry Winston Diamond Corporation have
designed a system of internal control over financial reporting to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements in accordance with Canadian GAAP and the
requirements of the Securities and Exchange Commission in the United States,
as applicable. Management is responsible for establishing and maintaining
adequate internal control over financial reporting for the Company, including
its consolidated subsidiaries.
    Management has evaluated the effectiveness of internal control over
financial reporting using the framework and criteria established in the
Internal Control - Integrated Framework, issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation, management
has concluded that internal control over financial reporting was effective as
of January 31, 2009.

    Changes in Internal Control over Financial Reporting

    During the fourth 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. The following discussion outlines the accounting policies
and practices that are critical to determining Harry Winston Diamond
Corporation's financial results.

    Goodwill

    The Company tests goodwill for impairment on an annual basis as of
January 31 of each year and at any other time if an event occurs or
circumstances change that would more likely than not reduce the fair value of
the retail reporting unit below its carrying amount. The Company's goodwill
relates to its retail segment, which was acquired through its purchase of
Harry Winston Inc.
    The impairment test for goodwill is a two-step process. Step one consists
of a comparison of the fair value of the reporting unit with its carrying
amount, including goodwill allocated to the reporting unit. Measurement of the
fair value of the reporting unit is based on the amount of consideration that
would be agreed upon in an arm's length transaction between knowledgeable,
willing parties who are under no compulsion to act. The Company determined the
fair value of the retail reporting unit using the discounted cash flow as the
primary methodology. To support the fair value conclusion based on the
discounted cash flow method the Company compared the implied multiples of
enterprise value to revenue and enterprise value to EBITDA to those multiples
for comparable publicly traded companies and acquisition transactions for
comparable companies. These approaches involve significant management
judgment.
    If the carrying amount of the reporting unit exceeds its fair value, step
two requires that the fair value of the reporting unit be allocated to the
underlying assets and liabilities of that reporting unit, whether or not
previously recognized, resulting in an implied fair value of goodwill. If the
carrying amount of the reporting unit goodwill exceeds the implied fair value
of that goodwill, a non-cash impairment charge equal to the excess is recorded
in earnings.
    The significant adverse changes in the global business climate that began
in the third quarter of fiscal 2009 have worsened, resulting in a
deterioration in the operating environment for the Company's retail segment.
This has resulted in adverse changes to the Company's financial forecasts for
the retail reporting unit. As at January 31, 2009, the Company determined that
the fair value of the retail reporting unit was less than its carrying value
and a non-cash goodwill impairment charge of $93.8 million was made during the
fourth quarter. This charge eliminates the goodwill recorded on the
acquisition of Harry Winston Inc.

    Use of Estimates

    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of earnings, revenues and expenses during
the reporting year. Significant areas requiring the use of management
estimates relate to the determination of impairment of capital assets,
intangible assets, goodwill and deferred mineral property costs, estimation of
future site restoration costs and future income taxes. Financial results as
determined by actual events could differ from those estimated.
    The most significant estimates relate to the valuation of deferred
mineral property costs and future site restoration costs. Management makes
significant estimates related to the measurement of reclamation obligations
and the timing of the related cash flows and future income tax liabilities.
Such timing and measurement uncertainty could have a material effect on the
reported results of operations and the financial position of the Company.
    Actual results could differ materially from those estimates in the near
term.

    Deferred Mineral Property Costs and Mineral Reserves

    Harry Winston Diamond Corporation capitalizes all direct development and
pre-production costs relating to mineral properties and amortizes such costs
on a unit-of-production basis upon commencement of commercial production
relating to the underlying property. Deferred mineral property costs are
amortized based on estimated proven and probable reserves at the property.
    On an ongoing basis, the Company evaluates deferred costs relating to
each property to ensure that the estimated recoverable amount exceeds the
carrying value. Based on the Diavik Diamond Mine's latest projected open pit
and underground life from the mine plan and diamond prices from the Diavik
Project feasibility study, there is no requirement to write down deferred
mineral property costs.
    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 can be revised
upward or downward based on the results of future drilling, testing or
production levels, and diamond prices. Changes in reserve estimates can impact
the evaluation of net recoverable deferred costs.

    Future Site Restoration Costs

    The Company has obligations for future site restoration costs. The
Company records the fair value of an asset retirement obligation as a
liability in the period in which it incurs a legal obligation associated with
the retirement of tangible long-lived assets that result from the acquisition,
construction, development and/or normal use of the assets. The fair value of
the liability is added to the carrying amount of the associated asset and this
additional carrying amount is depreciated over the life of the asset.
Subsequent to the initial measurement of the asset retirement obligation, the
obligation is adjusted at the end of each period to reflect the passage of
time and changes in the estimated future cash flows underlying the obligation.
If the obligation is settled for other than the carrying amount of the
liability, the Company will recognize a gain or loss on settlement. As at
January 31, 2009, estimates of all legal obligations at the joint venture
level have been included in the consolidated financial statements of the
Company. Processes to track and monitor these obligations are carried out at
the joint venture level.

    Intangible Assets

    Certain of the Company's intangible assets are recorded at fair value
upon acquisition and have an indefinite useful life. The Company assesses
impairment of such intangible assets by determining whether the carrying value
exceeds the fair value. If the fair value is determined to be less than the
net book value, the excess of the net book value over the fair value is
charged to earnings in the year in which such impairment is determined by
management. These approaches involve significant management judgment and, as a
result, are subject to change.

    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 inability to exert influence over strategic decisions
made in respect of the Diavik Diamond Mine and the Diavik group of mineral
claims. By virtue of DDMI's 60% interest in the Diavik Diamond Mine, it has a
controlling vote in virtually all Joint Venture management decisions
respecting the development and operation of the Diavik Diamond Mine and the
development of the Diavik group of mineral claims. Accordingly, DDMI is able
to determine the timing and scope of future project capital expenditures, and
therefore is able to impose capital expenditure requirements on 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 current mine plan is
estimated to be $75 million for fiscal 2010 at an average Canadian/US dollar
exchange rate of $0.85, with funding expected to be provided by cash flow from
operations and a refinancing of the Company's 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.

    Agreement with Kinross

    Under the amended partnership agreement of Harry Winston Diamond Limited
Partnership, the general partner is entitled to request that the partners in
the partnership advance funds to the partnership pro rata based on their
holdings of partnership units for the purpose of satisfying the partnership's
obligations under various contractual commitments, including those deriving
from the joint arrangement between DDMI and Harry Winston Diamond Mines Ltd.
The partners may unanimously determine to fund any cash call by way of a loan
rather than equity contribution. If a partner fails to contribute its
proportion of funds with respect to a cash call, the non-defaulting partner or
partners will have the option, but not the obligation, to fund the defaulting
partner's portion of the cash call by way of equity contribution or loan or a
combination of the two; provided that if any equity contribution is made, the
non-defaulting partner's interest in the Harry Winston Diamond Limited
Partnership will be increased proportionately through the issuance of
additional partnership units.
    As DDMI, under the joint arrangement between DDMI and Harry Winston
Diamond Mines Ltd, is able to determine the timing and scope of future project
capital expenditures and to impose capital expenditure requirements on the
Company that the Company may not have sufficient cash to meet, the Company's
interest in the Harry Winston Diamond Limited Partnership could be diluted
under the amended partnership agreement as a failure by the Company to meet
cash call requirements imposed by the amended partnership agreement which
could result in the Company's interest in the partnership 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.

    Cash Flow and Liquidity

    The Company's liquidity requirements fluctuate from quarter to quarter
depending on, among other factors, the seasonality of production at the Diavik
Diamond Mine, seasonality of mine operating expenses, capital expenditure
programs, the number of sales events conducted during the quarter and the
volume, size and quality distribution of rough diamonds delivered from the
Diavik Diamond Mine in each quarter, along with the seasonality of sales and
salon expansion in the 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. There can be no
assurance that the Company will be able to meet each or all of its liquidity
requirements. A failure by the Company to meet its liquidity requirements
could result in the Company failing to meet its planned developments
objectives, or in the Company being in default of a contractual obligation,
each of which could have a material adverse effect on the Company's business
prospects or financial condition.

    Economic Environment

    The Company's financial results are tied to the global economic
environment. The global markets are experiencing the impact of a significant
US and International economic downturn. This could restrict the Company's
growth opportunities both domestically and internationally. Should economic
conditions not improve or further deteriorate, the Company could experience
revenue pressure across both its business segments and a decrease in the
availability of credit, which could have a material adverse effect on the
Company's business prospects or financial condition.

    Currency Risk

    Currency fluctuations may affect the Company's financial performance.
Diamonds are sold throughout the world based principally on the US dollar
price, and although the Company reports its financial results in US dollars, a
majority of the costs and expenses of the Diavik Diamond Mine are incurred in
Canadian dollars. Further, the Company has a significant 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 requires 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,
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.'s manufacturing
facilities or salons, monetary losses and possible legal liability. Although
insurance is maintained to protect against certain risks in connection with
the Diavik Diamond Mine and the Company's operations, the insurance in place
will not cover all potential risks. It may not be possible to maintain
insurance to cover insurable risks at economically feasible premiums.

    Fuel Costs

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

    Reliance on Skilled Employees

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

    
    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 17 to the 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 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
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 notes 18 and 19 to the 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. 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 February 2008, the Canadian Accounting Standards Board confirmed that
publically accountable enterprises will be required to adopt IFRS in place of
Canadian Generally Accepted Accounting Principles (GAAP) for financial periods
beginning on or after January 1, 2011. Accordingly, commencing February 1,
2011 the Company will convert over to IFRS and prepare its first financial
statements in accordance with IFRS for the three month period ended April 30,
2011, with comparative information also prepared under IFRS.
    The conversion project from Canadian GAAP to IFRS is led by finance
management, and will include representatives from various areas of the Company
as necessary to plan for and achieve a smooth transition. The Company has
engaged the services of a third party expert advisor to assist. Regular
progress reporting to senior management and to the Audit Committee on the
status of the IFRS conversion project has been instituted. The conversion
project consists of three phases:

    
        Assessment Phase - This phase involves: a review of accounting
        differences between Canadian GAAP and IFRS; an evaluation of IFRS 1
        exemptions for first time IFRS adopters; and a high level impact
        assessment on systems and business processes.

        Design Phase - This phase involves: prioritizing and resolving
        accounting treatment issues; quantifying the impact of converting to
        IFRS; reviewing and approving accounting policy choices; performing a
        detailed impact assessment on systems and processes; designing system
        and business process changes; developing IFRS training material; and
        drafting IFRS financial statement content.

        Implementation Phase - This phase involves: changes to systems and
        business processes; determining the opening IFRS transition balance
        sheet; dual accounting under both Canadian GAAP and IFRS; and
        preparing detailed reconciliations of Canadian GAAP to IFRS financial
        statements.
    

    The Company is currently in the assessment phase of its IFRS conversion
project and expects this phase to be completed during the second quarter of
fiscal 2010. The Company cannot at this time reasonably estimate the impact of
adopting IFRS on its consolidated financial statements.

    
    Outstanding Share Information

    As at January 31, 2009
    -------------------------------------------------------------------------
    Authorized                                                     Unlimited
    Issued and outstanding shares                                 61,372,092
    Options outstanding                                            1,604,338
    Fully diluted                                                 62,976,430
    -------------------------------------------------------------------------
    

    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)


    As at January 31,                                      2009         2008
    -------------------------------------------------------------------------
    Assets
    Current assets:
      Cash and cash equivalents (note 3)            $    16,735  $    49,628
      Cash collateral and cash reserves (note 3)         30,145       25,615
      Accounts receivable (note 20)                      66,980       25,505
      Inventory and supplies (note 4)                   346,235      322,228
      Prepaid expenses and other current assets          48,130       58,617
    -------------------------------------------------------------------------
                                                        508,225      481,593
    Mining capital assets (note 5)                      800,358      658,200
    Retail capital assets (note 5)                       68,258       70,617
    Intangible assets, net (note 8)                     130,752      132,628
    Goodwill (note 7)                                         -       93,780
    Other assets (note 9)                                15,644       16,167
    Future income tax asset (note 11)                    43,338       40,963
    -------------------------------------------------------------------------
                                                    $ 1,566,575  $ 1,493,948
                                                   --------------------------
                                                   --------------------------
    Liabilities and Shareholders' Equity
    Current liabilities:
      Accounts payable and accrued liabilities      $   118,390  $   124,426
      Income taxes payable                               76,987       48,118
      Bank advances (note 10(ii))                        42,621       34,928
      Current portion of long-term debt (note 10)        75,097       54,137
    -------------------------------------------------------------------------
                                                        313,095      261,609
    Long-term debt (note 10)                            205,625      255,212
    Future income tax liability (note 11)               303,284      370,500
    Other long-term liability                             1,946        1,730
    Future site restoration costs (note 12)              39,506       32,980
    Minority interest                                       280          255

    Shareholders' equity:
      Share capital (note 13)                           381,541      305,502
      Contributed surplus                                16,079       15,614
      Retained earnings                                 283,177      225,334
      Accumulated other comprehensive income             22,042       25,212
    -------------------------------------------------------------------------
                                                        702,839      571,662
    Commitments and guarantees (note 15)
    -------------------------------------------------------------------------
                                                    $ 1,566,575  $ 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)


    Years ended January 31,                                2009         2008
    -------------------------------------------------------------------------
    Sales                                           $   609,220  $   679,307
    Cost of sales                                       287,278      311,187
    -------------------------------------------------------------------------
    Gross margin                                        321,942      368,120

    Selling, general and administrative expenses        155,876      150,445
    -------------------------------------------------------------------------
    Earnings from operations                            166,066      217,675
    -------------------------------------------------------------------------
    Interest and financing expenses                     (20,457)     (27,858)
    Other income                                          2,246        2,758
    Insurance settlement (note 20)                       17,240       13,488
    Impairment charge                                   (93,780)           -
    Foreign exchange gain (loss)                         59,087      (43,391)
    -------------------------------------------------------------------------
    Earnings before income taxes                        130,402      162,672
    Income tax expense - Current (note 11)               81,787       47,516
    Income tax expense (recovery) - Future (note 11)    (21,531)       8,578
    -------------------------------------------------------------------------
    Earnings before minority interest                    70,146      106,578
    Minority interest                                        25          170
    -------------------------------------------------------------------------
    Net earnings                                    $    70,121  $   106,408
                                                   --------------------------
                                                   --------------------------
    Earnings per share
      Basic                                         $      1.15  $      1.82
                                                   --------------------------
                                                   --------------------------
      Fully diluted (note 13)                       $      1.15  $      1.81
                                                   --------------------------
                                                   --------------------------
    Weighted average number of shares outstanding    61,013,758   58,369,338
                                                   --------------------------
                                                   --------------------------

    See accompanying notes to consolidated financial statements.



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


    Years ended January 31,                                2009         2008
    -------------------------------------------------------------------------
    Net earnings                                    $    70,121  $   106,408
    Other comprehensive income (loss)
      Net gain (loss) on translation of net
       foreign operations (net of tax - nil)             (3,170)       9,196
    -------------------------------------------------------------------------
    Total comprehensive income                      $    66,951  $   115,604
                                                   --------------------------
                                                   --------------------------

    See accompanying notes to consolidated financial statements.



          Consolidated Statements of Changes in Shareholders' Equity
              (expressed in thousands of United States dollars)


    Years ended January 31,                                2009         2008
    -------------------------------------------------------------------------
    Common shares:
    Balance at beginning of year                    $   305,502  $   305,165
    Issued during the year                               76,039          337
    -------------------------------------------------------------------------
    Balance at end of year                              381,541      305,502
    -------------------------------------------------------------------------
    Contributed surplus:
    Balance at beginning of year                         15,614       14,922
    Stock option expense                                    465          692
    -------------------------------------------------------------------------
    Balance at end of year                               16,079       15,614
    -------------------------------------------------------------------------
    Retained earnings:
    Balance at beginning of year                        225,334      165,625
    Net earnings                                         70,121      106,408
    Dividends paid                                      (12,278)     (46,699)
    -------------------------------------------------------------------------
    Balance at end of year                              283,177      225,334
    -------------------------------------------------------------------------
    Accumulated other comprehensive income:
    Balance at beginning of year                         25,212       16,016
    Other comprehensive income (loss)
      Net gain (loss) on translation of net
       foreign operations (net of tax - nil)             (3,170)       9,196
    -------------------------------------------------------------------------
    Balance at end of year                               22,042       25,212
    -------------------------------------------------------------------------
    Total shareholders' equity                      $   702,839  $   571,662
                                                   --------------------------
                                                   --------------------------

    See accompanying notes to consolidated financial statements.



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


    For the years ended January 31,                        2009         2008
    -------------------------------------------------------------------------
    Cash provided by (used in):
    Operating
    Net earnings                                    $    70,121  $   106,408
    Items not involving cash:
      Amortization and accretion                         76,970       81,174
      Future income tax expense (recovery)              (21,531)       8,578
      Stock-based compensation and pension expense          683        2,422
      Foreign exchange loss (gain)                      (60,996)      45,201
      Loss on disposal of assets                            494            -
    Minority interest                                        25          170
    Impairment charge                                    93,780            -
    Change in non-cash operating working capital        (15,470)     (50,069)
    -------------------------------------------------------------------------
                                                        144,076      193,884
    -------------------------------------------------------------------------
    Financing
    Decrease in long-term debt                          (52,194)     (19,637)
    Increase in revolving credit                        191,799       52,722
    Repayment of Harry Winston Inc. revolving credit   (159,109)           -
    Dividends paid                                      (12,278)     (46,699)
    Issue of common shares                               76,039          337
    -------------------------------------------------------------------------
                                                         44,257      (13,277)
    -------------------------------------------------------------------------
    Investing
    Cash collateral and cash reserve                     (4,530)      25,701
    Mining capital assets                              (200,289)    (170,711)
    Retail capital assets                                (9,574)     (38,656)
    Other assets                                         (3,035)      (2,115)
    -------------------------------------------------------------------------
                                                       (217,428)    (185,781)
    -------------------------------------------------------------------------
    Foreign exchange effect on cash balances             (3,798)         628
    Decrease in cash and cash equivalents               (32,893)      (4,546)
    Cash and cash equivalents, beginning of year
     (note 3)                                            49,628       54,174
    -------------------------------------------------------------------------
    Cash and cash equivalents, end of year (note 3) $    16,735  $    49,628
                                                   --------------------------
                                                   --------------------------
    Change in non-cash operating working capital
    Accounts receivable                                 (43,311)      (8,641)
    Prepaid expenses and other current assets             8,230      (32,756)
    Inventory and supplies                              (24,007)     (48,489)
    Accounts payable and accrued liabilities              4,470        9,622
    Income taxes payable                                 39,148       30,195
    -------------------------------------------------------------------------
                                                    $   (15,470) $   (50,069)
    -------------------------------------------------------------------------
    Supplemental cash flow information
    Cash taxes paid                                 $    35,986  $    11,052
    Cash interest paid                              $    17,570  $    24,946
    -------------------------------------------------------------------------

    See accompanying notes to consolidated financial statements.



                 Notes to Consolidated Financial Statements

                    Years ended January 31, 2009 and 2008
           (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.

    At January 31, 2009, the Company's most significant asset is a 40%
    ownership interest in the Diavik group of mineral claims. The Diavik
    Joint Venture (the "Joint Venture") is an unincorporated joint
    arrangement between Diavik Diamond Mines Inc. ("DDMI") (60%) and Harry
    Winston Diamond 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.

    On March 19, 2009, the Company announced a strategic investment by
    Kinross Gold Corporation ("Kinross"), whereby Kinross will make a net
    investment of $150.0 million to acquire an indirect interest in the
    Diavik Diamond Mine and a direct equity stake in the Company. Kinross
    will subscribe for 15.2 million of the Company's treasury shares at a
    price of $3.00 per share, being approximately 19.9% of the Company's
    issued equity post the transaction. Kinross will also subscribe for new
    partnership units representing a 22.5% interest in the limited
    partnership which holds the Company's 40% ownership interest in the
    Diavik Diamond Mine, for a net effective subscription value of $104.4
    million. The transaction closed on March 31, 2009 and the Company's
    economic interest in the Diavik Diamond Mine is now 31%. With the closing
    of the Kinross transaction, all amounts outstanding on the Company's
    senior secured term and revolving credit facilities were repaid as of
    March 31, 2009. If the transaction had closed on January 31, 2009, the
    Company would have recorded a non-cash dilution loss of approximately
    $30 million in respect of its interest in the Diavik Diamond Mine. With
    this transaction, the Company believes it will have sufficient resources
    to meet anticipated cash requirements for the next fiscal year.

    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.

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

    NOTE 2:

    Significant Accounting Policies

    The consolidated financial statements are prepared by management in
    accordance with accounting principles generally accepted in Canada. The
    principal accounting policies presently followed by the Company are
    summarized as follows:

    (a) Principles of Consolidation

        The consolidated financial statements include the accounts of the
        Company and all of its subsidiaries as well as its proportionate
        share of unincorporated joint arrangements.

        Subsidiaries

        A subsidiary is an entity that is controlled by the Company. The
        consolidated financial statements include all the assets,
        liabilities, revenues, expenses and cash flows of the Company and its
        subsidiaries after eliminating intercompany balances and
        transactions. For partly owned subsidiaries, the net assets and net
        earnings attributable to minority shareholders are presented as
        minority interests on the consolidated balance sheet and consolidated
        statement of earnings.

        Joint Arrangements That Are Not Entities ("Joint Arrangements")

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

    (b) Measurement Uncertainty

        The preparation of financial statements in conformity with generally
        accepted accounting principles requires management to make estimates
        and assumptions that affect the reported amounts of assets and
        liabilities and disclosure of contingent assets and liabilities at
        the date of the financial statements, and the reported amounts of
        earnings, revenues and expenses during the reporting year.
        Significant areas requiring the use of management estimates relate to
        the determination of impairment of capital assets, intangible assets,
        goodwill and deferred mineral property costs, estimation of future
        site restoration costs and future income taxes. Financial results as
        determined by actual events could differ from those estimated.

    (c) Revenue Recognition

        Revenue from rough diamond sales is recognized upon delivery of
        merchandise when the customer takes ownership and assumes risk of
        loss, persuasive evidence of an arrangement exists, the Company's
        price to the customer is fixed or determinable and collection of the
        resulting receivable is reasonably assured.

        Revenue from fine jewelry and watch sales is recognized upon delivery
        of merchandise when the customer takes ownership and assumes risk of
        loss, collection of the relevant receivable is probable, persuasive
        evidence of an arrangement exists and the sales price is fixed or
        determinable. Sales are reported net of returns.

    (d) Cash Resources

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

        Funds in cash collateral and cash reserves are maintained as
        prescribed under the Company's debt financing arrangements and will
        become available to Harry Winston Diamond Corporation for general
        corporate purposes and for debt servicing as prescribed by the terms
        of credit facility agreements.

    (e) Trade Accounts Receivable

        Trade accounts receivable are recorded at the invoiced amount and
        generally do not bear interest. The allowance for doubtful accounts
        is the Company's best estimate of the amount of probable credit
        losses in the existing accounts receivable. The Company reviews its
        allowance for doubtful accounts monthly. Account balances are written
        off against the allowance after all means of collection have been
        exhausted and the potential for recovery is considered remote.

    (f) Inventory

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

        Merchandise inventory is recorded at the lower of cost or net
        realizable value and includes fine jewelry and watches. Included in
        merchandise inventory are production costs such as material, labour
        and overhead costs.

        For the prior year, supplies inventory was recorded at the lower of
        average cost or replacement value and includes consumables and spare
        parts to be maintained at the Diavik Diamond Mine site and at the
        Company's sorting and distribution facility locations.

        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. Under
        the new standard, major spare parts are classifed as capital assets
        and previous write-downs to net realizable value are reversed where
        there is a subsequent increase in the value of inventories. This
        standard has had no material impact on the consolidated financial
        statements.

    (g) Deferred Mineral Property Costs

        All direct costs relating to mineral properties, including mineral
        claim acquisition costs, exploration and development expenditures in
        the pre-production stage, ongoing property exploration expenditures,
        pre-production operating costs net of any recoveries, interest, and
        amortization, are capitalized and accumulated on a
        property-by-property basis.

        The costs of deferred mineral properties from which there is
        production are amortized using the units-of-production method based
        upon estimated proven and probable reserves.

        General exploration expenditures which do not relate to specific
        resource properties are expensed in the period incurred.

        On an ongoing basis, the Company evaluates each property based on
        results to date to determine the nature of exploration and
        development activities that are warranted in the future. If there is
        little prospect of the Joint Venture continuing to explore or develop
        a property, the deferred costs related to that property are written
        down to the estimated fair value.

    (h) Capital Assets

        Capital assets are stated at cost less accumulated depreciation and
        amortization. Depreciation and amortization are provided using the
        units-of-production method or straight-line method as appropriate.
        The units-of-production method is applied to a substantial portion of
        Diavik Diamond Mine capital assets and, depending on the asset, is
        based on carats of diamonds recovered during the period relative to
        the proven and probable ore reserves of the ore deposit being mined
        or to the total ore deposit. Other capital assets are depreciated
        using the straight-line method over the estimated useful lives of the
        related assets, which are as follows:

        Asset                                   Estimated useful life (years)
        ---------------------------------------------------------------------
        Buildings                                                      10-40
        Machinery and mobile equipment                                  3-10
        Computer equipment and software                                    3
        Furniture and equipment                                         2-10
        Leasehold and building improvements                         Up to 20
        ---------------------------------------------------------------------

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

        Maintenance and repair costs are charged to earnings while
        expenditures for major renewals and improvements are capitalized.

        The recoverability of the amounts shown for the Diavik Diamond Mine
        capital assets is dependent upon the continued existence of
        economically recoverable reserves, upon maintaining title and
        beneficial interest in the property, and upon future profitable
        production or proceeds from disposition of the diamond properties.
        The amounts representing Diavik Diamond Mine capital assets do not
        necessarily represent present or future values.

        Upon the disposition of capital assets, the accumulated amortization
        is deducted from the original cost and any gain or loss is reflected
        in current earnings.

    (i) Intangible Assets

        Intangible assets acquired individually or as part of a group of
        other assets are initially recognized and measured at cost. The cost
        of a group of intangible assets acquired in a transaction, including
        those acquired in a business combination that meet the specified
        criteria for recognition apart from goodwill, is allocated to the
        individual assets acquired based on their fair values at acquisition.

        Intangible assets with finite useful lives are amortized on a
        straight-line basis over their useful lives as follows:

        Asset                                   Estimated useful life (years)
        ---------------------------------------------------------------------
        Wholesale distribution network                                    10
        Store leases                                                 Up to 9
        ---------------------------------------------------------------------

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

        Intangible assets with indefinite useful lives are not amortized and
        are tested for impairment annually, or more frequently if events or
        changes in circumstances indicate that the asset might be impaired.
        The impairment test compares the carrying amount of the intangible
        asset with its fair value, and an impairment loss is recognized in
        income for the excess, if any.

    (j) Goodwill

        Goodwill is the residual amount that results when the purchase price
        of an acquired business exceeds the sum of the amounts allocated to
        the assets acquired, less liabilities assumed, based on their fair
        values. Goodwill is allocated, as of the date of the business
        combination, to the Company's reporting units that are expected to
        benefit from the synergies of the business combination.

        Goodwill is not amortized and is tested for impairment annually, or
        more frequently if events or changes in circumstances indicate that
        the asset might be impaired. The impairment test is carried out in
        two steps. In the first step, the carrying amount of the reporting
        unit is compared with its fair value. When the fair value of a
        reporting unit exceeds its carrying amount, goodwill of the reporting
        unit is considered not to be impaired and the second step of the
        impairment test is unnecessary.

        The second step is carried out when the carrying amount of a
        reporting unit exceeds its fair value, in which case the implied fair
        value of the reporting unit's goodwill is compared with its carrying
        amount to measure the amount of the impairment loss, if any. When the
        carrying amount of the reporting unit goodwill exceeds the implied
        fair value of the goodwill, an impairment loss is recognized in an
        amount equal to the excess and is presented as a separate line item
        in the consolidated statement of earnings before extraordinary items
        and discontinued operations.

    (k) Other Assets

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

    (l) Future Site Restoration Costs

        The Company records the fair value of any asset retirement obligation
        as a long-term liability in the year in which the related
        environmental disturbance occurs, based on the net present value of
        the estimated future costs. The fair value of the liability is added
        to the carrying amount of the deferred mineral property and this
        additional carrying amount is amortized over the life of the asset
        based on units of production. The obligation is adjusted periodically
        to reflect the passage of time and changes in the estimated future
        cash flows underlying the obligation. If the obligation is settled
        for other than the carrying amount of the liability, the Company will
        recognize a gain or loss on settlement.

    (m) Foreign Currency Translation

        The functional currency of the Company is the US dollar. At year end,
        monetary assets and liabilities denominated in foreign currencies are
        translated to US dollars at exchange rates in effect at the balance
        sheet date and non-monetary assets and liabilities are translated at
        rates of exchange in effect when the assets were acquired or
        obligations incurred. Revenues and expenses are translated at rates
        in effect at the time of the transactions. Foreign exchange gains and
        losses are included in earnings.

        For certain subsidiaries of the Company where the functional currency
        is not the US dollar, the assets and liabilities of these
        subsidiaries are translated at the rate of exchange in effect at the
        balance sheet date. Revenues and expenses are translated at the rate
        of exchange in effect at the time of the transactions. Foreign
        exchange gains and losses are accumulated in other comprehensive
        income under shareholders' equity.

    (n) Income and Mining Taxes

        The Company accounts for income taxes under the asset and liability
        method. Under this method, future tax assets and liabilities are
        recognized for future tax consequences attributable to differences
        between the financial statement carrying value and the tax basis of
        assets and liabilities.

        Future tax assets and liabilities are measured using enacted or
        substantively enacted tax rates expected to apply to taxable income
        in the years in which those temporary differences are expected to be
        recovered or settled. A reduction in respect of the benefit of a
        future tax asset (a valuation allowance) is recorded against any
        future tax asset if it is not likely to be realized. The effect on
        future tax assets and liabilities of a change in tax rates is
        recognized in earnings in the year during which the change in tax
        rates is considered to be substantively enacted.

    (o) Stock-Based Compensation

        The Company applies the fair value method to all grants of stock
        options.

        The fair value of options granted is estimated at the date of grant
        using a Black-Scholes option pricing model incorporating assumptions
        regarding risk-free interest rates, dividend yield, volatility factor
        of the expected market price of the Company's stock, and a weighted
        average expected life of the options. The estimated fair value of the
        options is recorded as an expense on a straight-line basis over the
        vesting period, with an offsetting credit to shareholders' equity.
        Any consideration received on amounts attributable to stock options
        is credited to share capital.

    (p) Restricted and Deferred Share Unit ("RSU" and "DSU") Plans

        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. Grants under the DSU Plan
        are awarded to non-executive directors of the Company. Each DSU grant
        vests immediately on the grant date.

    (q) Post Retirement Benefits

        The expected costs of post retirement benefits under defined benefit
        arrangements are charged to the profit and loss account over the
        service lives of employees entitled to those benefits. Variations
        from the regular cost are spread on a straight-line basis over the
        expected average remaining service lives of relevant current
        employees. The plan assets and liabilities are valued annually by
        qualified actuaries.

    (r) Financial Instruments

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

    (s) Basic and Diluted Earnings per Share

        Basic earnings per share are computed by dividing net earnings (loss)
        by the weighted average number of shares outstanding during the year.

        Diluted earnings per share are prepared using the treasury stock
        method to compute the dilutive effect of options and warrants. The
        treasury stock method assumes the exercise of any "in-the-money"
        options with the option proceeds would be used to purchase common
        shares at the average market value for the year. Options with an
        average market value for the year higher than the exercise price are
        not included in the calculation of diluted earnings per share as such
        options are not dilutive.

    (t) Impairment of Long-Lived Assets

        Long-lived assets, including property, plant and equipment and
        purchased intangibles subject to amortization, are reviewed for
        impairment whenever events or changes in circumstances indicate that
        the carrying amount of an asset may not be recoverable.
        Recoverability of assets to be held and used is measured by a
        comparison of the carrying amount of an asset to estimated
        undiscounted future cash flows expected to be generated by the asset.
        If the carrying amount of an asset exceeds its estimated future cash
        flows, an impairment charge is recognized by the amount by which the
        carrying amount of the asset exceeds the fair value of the asset.
        Assets to be disposed of by sale would be separately presented in the
        balance sheet and reported at the lower of the carrying amount or
        fair value less costs to sell, and are no longer depreciated. The
        assets and liabilities of a disposed group classified as held for
        sale would be presented separately in the appropriate asset and
        liability sections of the balance sheet.

    (u) 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 17 to the 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 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 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 notes 18 and 19 to the consolidated financial
        statements.

    (v) 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. 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.

    NOTE 3:

    Cash Resources

                                                           2009         2008
    -------------------------------------------------------------------------
    Cash on hand and balances with banks             $   14,118   $   33,028
    Short-term investments(a)                             2,617       16,600
    -------------------------------------------------------------------------
    Total cash and cash equivalents                      16,735       49,628
    Cash collateral and cash reserves                    30,145       25,615
    -------------------------------------------------------------------------
    Total cash resources                             $   46,880   $   75,243
                                                    -------------------------
                                                    -------------------------

    (a) Short-term investments are held in overnight deposits.


    NOTE 4:

    Inventory and Supplies

                                                           2009         2008
    -------------------------------------------------------------------------
    Rough diamond inventory                          $   31,872   $   17,097
    Merchandise inventory                               240,419      254,101
    Supplies inventory                                   73,944       51,030
    -------------------------------------------------------------------------
    Total inventory and supplies                     $  346,235   $  322,228
                                                    -------------------------
                                                    -------------------------

    NOTE 5:

    Capital Assets

                                                                        2009
    -------------------------------------------------------------------------
                                                    Accumulated          Net
                                            Cost   amortization   book value
    -------------------------------------------------------------------------
    MINING:
    Deferred mineral property costs(a)  $  283,049   $  113,679   $  169,370
    Diavik equipment and leaseholds(b)     776,638      171,571      605,067
    Furniture, equipment and other(c)        7,912        4,814        3,098
    Real property - land and
     building(d)                            27,758        4,935       22,823
    -------------------------------------------------------------------------
                                        $1,095,357   $  294,999   $  800,358
                                       --------------------------------------
                                       --------------------------------------
    RETAIL:
    Furniture, equipment and other(c)   $   27,265   $   13,586   $   13,679
    Real property - land and
     building(d)                            72,686       18,107       54,579
    -------------------------------------------------------------------------
                                        $   99,951   $   31,693   $   68,258
                                       --------------------------------------
                                       --------------------------------------


                                                                        2008
    -------------------------------------------------------------------------
                                                    Accumulated          Net
                                            Cost   amortization   book value
    -------------------------------------------------------------------------
    MINING:
    Deferred mineral property costs(a)  $  271,316   $   91,326   $  179,990
    Diavik equipment and leaseholds(b)     586,208      136,771      449,437
    Furniture, equipment and other(c)        5,383        3,783        1,600
    Real property - land and
     building(d)                            31,729        4,556       27,173
    -------------------------------------------------------------------------
                                        $  894,636   $  236,436   $  658,200
                                       --------------------------------------
                                       --------------------------------------
    RETAIL:
    Furniture, equipment and other(c)   $   23,780   $    9,261   $   14,519
    Real property - land and
     building(d)                            66,016        9,918       56,098
    -------------------------------------------------------------------------
                                        $   89,796   $   19,179   $   70,617
                                       --------------------------------------
                                       --------------------------------------

    (a) The Company holds a 40% ownership interest in the Diavik group of
        mineral claims, which contains commercially mineable diamond
        reserves. DDMI, a subsidiary of Rio Tinto plc, is the operator of the
        Joint Venture and holds the remaining 60% interest. The claims are
        subject to private royalties which are in the aggregate 2% of the
        value of production.
    (b) Diavik equipment and leaseholds are project related assets at the
        Joint Venture level.
    (c) Furniture, equipment and other includes equipment located at the
        Company's diamond sorting facility and at Harry Winston Inc. salons.
    (d) Real property is comprised of land and a building that houses the
        corporate activities of the Company and various leasehold
        improvements to Harry Winston Inc. salons and corporate offices.

    Amortization expense for 2009 was $71.8 million (2008 - $76.6 million).


    NOTE 6:

    Diavik Joint Venture

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

                                                           2009         2008
    -------------------------------------------------------------------------
    Current assets                                   $  105,612   $  110,199
    Long-term assets                                    754,886      605,300
    Current liabilities                                  38,808       40,631
    Long-term liabilities and participant's account     821,690      674,868
    YEAR ENDED:
    Expenses net of interest income of $0.3 million
     and an insurance settlement of $0.5 million
     (2008 - interest income of $0.5 million)(a)        187,839      177,049
    Cash flows resulting from (used in)
     operating activities                              (121,955)    (121,440)
    Cash flows resulting from financing activities      292,208      290,615
    Cash flows resulting from (used in)
     investing activities                              (183,552)    (165,645)
    -------------------------------------------------------------------------

    (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 7:

    Goodwill

    The Company tests goodwill for impairment on an annual basis as of
    January 31 of each year and at any other time if an event occurs or
    circumstances change that would more likely than not reduce the fair
    value of the retail reporting unit below its carrying amount. The
    Company's goodwill relates to its retail segment, which was acquired
    through its purchase of Harry Winston Inc.

    The impairment test for goodwill is a two-step process. Step one consists
    of a comparison of the fair value of the reporting unit with its carrying
    amount, including goodwill allocated to the reporting unit. Measurement
    of the fair value of the reporting unit is based on the amount of
    consideration that would be agreed upon in an arm's length transaction
    between knowledgeable, willing parties who are under no compulsion to
    act. The Company determined the fair value of the retail reporting unit
    using the discounted cash flow as the primary methodology. To support the
    fair value conclusion based on the discounted cash flow method the
    Company compared the implied multiples of enterprise value to revenue and
    enterprise value to EBITDA to those multiples for comparable publicly
    traded companies and acquisition transactions for comparable companies.
    These approaches involve significant management judgment.

    If the carrying amount of the reporting unit exceeds its fair value, step
    two requires that the fair value of the reporting unit be allocated to
    the underlying assets and liabilities of that reporting unit, whether or
    not previously recognized, resulting in an implied fair value of
    goodwill. If the carrying amount of the reporting unit goodwill exceeds
    the implied fair value of that goodwill, a non-cash impairment charge
    equal to the excess is recorded in earnings.

    The significant adverse changes in the global business climate that began
    in the third quarter of fiscal 2009 have worsened, resulting in a
    deterioration in the operating environment for the Company's retail
    segment. This has resulted in adverse changes to the Company's financial
    forecasts for the retail reporting unit. As at January 31, 2009, the
    Company determined that the fair value of the retail reporting unit was
    less than its carrying value and a non-cash goodwill impairment charge of
    $93.8 million was made during the fourth quarter. This charge eliminates
    the goodwill recorded on the acquisition of Harry Winston Inc.

    NOTE 8:

    Intangible Assets

                                            Accumulated
                    Amortization                amorti-
                          period       Cost     zation   2009 net   2008 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      1,926      3,649      4,206
    Store
     leases     65 to 105 months      5,639      3,896      1,743      3,062
    -------------------------------------------------------------------------
    Intangible
     assets                       $ 136,574  $   5,822  $ 130,752  $ 132,628
                                 --------------------------------------------
                                 --------------------------------------------

    Amortization expense for 2009 was $1.9 million (2008 - $1.7 million). The
    Company completed a valuation of its trademark and drawings as of
    January 31, 2009 and concluded that there was no impairment of these
    assets.

    NOTE 9:

    Other Assets

                                                           2009         2008
    -------------------------------------------------------------------------
    Prepaid pricing discount(a), net of
     accumulated amortization of $6.0 million
     (2008 - $4.6 million)                           $    6,000   $    7,440
    Other assets                                          2,391        2,512
    Refundable security deposits                          7,253        6,215
    -------------------------------------------------------------------------
                                                     $   15,644   $   16,167
                                                    -------------------------
                                                    -------------------------

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


    NOTE 10:

    Long-Term Debt and Bank Advances

    (i)  Long-Term Debt

                                                           2009         2008
         --------------------------------------------------------------------
         Credit facility(a)                          $   74,107   $  125,677
         Harry Winston Inc. credit facilities(b)        199,846      174,850
         First mortgage on real property                  6,769        8,822
         --------------------------------------------------------------------
         Total long-term debt                           280,722      309,349
         --------------------------------------------------------------------
         Less current portion                           (75,097)     (54,137)
         --------------------------------------------------------------------
                                                     $  205,625   $  255,212
                                                    -------------------------
                                                    -------------------------

         (a) Credit Facility

             The Company's credit agreement includes two senior secured term
             facilities and a senior secured revolving facility with a
             maturity date of December 15, 2009. With the closing of the
             Kinross transaction, all amounts outstanding on the Company's
             senior secured term and revolving credit facilities were repaid
             as of March 31, 2009. The facilities have underlying interest
             rates, which at the option of the Company are either LIBOR plus
             a spread of 1.25% to 2.375%, or US Base Rate plus a spread of
             0.25% to 1.375%. The Company is required to comply with certain
             financial and non-financial covenants. These covenants include
             consolidated tangible net worth at the Harry Winston Diamond
             Corporation level, and debt to free cash flow, current assets to
             current liabilities, mine life protection ratio, historical debt
             service coverage ratio and annual loan life coverage ratio at
             the Harry Winston Diamond Mines Ltd. level. Under the
             facilities, the Company is required to establish a debt reserve
             account of $25.0 million and an amount equal to the billing
             delivered by DDMI reflecting estimated operating expenses,
             maintenance capital expenditures and other capital expenditures
             of the Diavik Diamond Mine for 30 days following each reporting
             period. The effective interest rate at January 31, 2009 was
             2.45%.

             Scheduled amortization of the Company's senior secured term
             facilities of $12.5 million payable quarterly commenced March
             2008 with the remaining balance paid out with the closing of the
             Kinross transaction on March 31, 2009. The maximum amount
             permitted to be drawn under the senior secured revolving
             facility was reduced by $12.5 million quarterly, commencing
             March 2009. As at January 31, 2009, the Company had
             $24.1 million of senior secured term facilities and had
             $50.0 million drawn under its senior secured revolving facility.
             Interest and financing charges include interest incurred on
             long-term debt, as well as amortization of deferred financing
             charges.

         (b) Harry Winston Inc. Credit Facilities

             (i)   On February 22, 2008, Harry Winston Inc. refinanced its
                   secured credit agreement by entering into a new secured
                   five-year agreement with a consortium of banks,
                   establishing a $250.0 million facility for revolving
                   credit loans. The new facility expires on March 31, 2013.
                   In addition, Harry Winston Inc. may increase the credit
                   facility by an additional $50.0 million to $300.0 million
                   during the term of the facility. There are no scheduled
                   repayments required before maturity. The new credit
                   facility is supported by a $20.0 million limited guarantee
                   provided by Harry Winston Diamond Corporation. The amount
                   available under this facility is subject to a borrowing
                   base formula based on certain assets of Harry Winston Inc.
                   At January 31, 2009, $179.6 million had been drawn against
                   this facility.

                   The new credit agreement contains affirmative and negative
                   non-financial and financial covenants, which apply to the
                   retail segment. These provisions include consolidated
                   minimum tangible net worth, minimum coverage of fixed
                   charges, leverage ratio and limitations on capital
                   expenditures and certain investments. The credit agreement
                   also includes a change of control provision, which would
                   result in the entire unpaid principal and all accrued
                   interest of the facility becoming due immediately upon
                   change of control, as defined. Any material adverse
                   change, as defined, in the retail segment's business,
                   assets, liabilities, consolidated financial position or
                   consolidated results of operations constitutes default
                   under the agreement.

                   The retail segment has pledged 100% of Harry Winston
                   Inc.'s common stock and 66 2/3% of the common stock of its
                   foreign subsidiaries to the bank to secure the loan.
                   Inventory and accounts receivable of Harry Winston Inc.
                   are pledged as collateral to secure the borrowings of
                   Harry Winston Inc. In addition, an assignment of proceeds
                   on insurance covering security collateral was made.

                   Loans under the credit facility can be either fixed rate
                   loans or revolving line of credit loans. The fixed rate
                   loans will bear interest within a range of 1.50% to 2.25%
                   above LIBOR based upon a pricing grid determined by the
                   fixed charge coverage ratio. Interest under this option
                   will be determined for periods of either one, two, three
                   or six months. The revolving line of credit loans will
                   bear interest within a range of 0.50% to 0.75% above the
                   bank's prime rate based upon a pricing grid determined by
                   the fixed charge coverage ratio as well.

             (ii)  Harry Winston S.A. maintains a 25-year loan agreement for
                   $15.0 million (17.5 million CHF) used to finance the
                   construction of the new watch factory in Geneva,
                   Switzerland. At January 31, 2009, $14.7 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. On June 26, 2008, the bank further
                   extended a demand credit facility for 2.0 million CHF. The
                   new facility is supported by a $2.0 million standby letter
                   of credit. At January 31, 2009, $0.5 million was drawn
                   against this demand credit facility. The loan agreement
                   bears interest at 3.55% and matures on January 31, 2033.
                   Quarterly payments on the loan began on June 30, 2008.

             (iii) Harry Winston Japan, K.K. maintains unsecured credit
                   agreements with two banks each amounting to $8.4 million
                   ((Yen)750 million). At January 31, 2009, $16.8 million had
                   been drawn against these facilities, $5.5 million of which
                   is long term, with the balance of $11.3 million classified
                   as bank advances. The short-term portions of the credit
                   facilities bear interest at 1.98% and expire on April 30,
                   2009, and June 1, 2009, respectively. The long-term
                   portion bears interest at 2.38% and expires on June 28,
                   2010.

         (c) Required Principal Repayments

             2010                                                 $   75,097
             2011                                                      9,613
             2012                                                      1,073
             2013                                                      1,119
             2014                                                    180,778
             Thereafter                                               13,042
             ----------------------------------------------------------------
                                                                  $  280,722
                                                                 ------------
                                                                 ------------

        (ii) Bank Advances

             The Company operates two other revolving financing facilities.
             The Company has available $45.0 million (utilization in either
             US dollars or Euros) and $10.0 million for inventory and
             receivables funding in connection with marketing activities
             through its Belgian subsidiary, Harry Winston Diamond
             International N.V., its Israeli subsidiary, Harry Winston
             Diamond (Israel) Limited, and its Indian subsidiary, Harry
             Winston Diamond (India) Private Limited, respectively.
             Borrowings under the Belgium facility bear interest at the
             bank's base rate plus 1.5% and borrowings under the Israeli
             facility bear interest at LIBOR plus 1%. At January 31, 2009,
             $18.4 million, $4.7 million and $1.5 million were drawn under
             the Company's revolving financing facilities relating to its
             Belgian subsidiary, Harry Winston Diamond International N.V.,
             its Israeli subsidiary, Harry Winston Diamond (Israel) Limited
             and its Indian subsidiary, Harry Winston Diamond (India) Private
             Limited, respectively. Harry Winston Diamond (Israel) Limited
             has scheduled repayments of $1.0 million per month on the
             outstanding balance commencing February 2009. The Belgium
             facility has an annual commitment fee of 0.75% per annum. Both
             facilities are guaranteed by Harry Winston Diamond Corporation.

             Harry Winston Japan, K.K. maintains unsecured credit agreements
             with two banks each amounting to $8.4 million
             ((Yen)750 million). At January 31, 2009, $16.8 million had been
             drawn against these facilities, $5.5 million of which is long
             term, with the balance of $11.3 million classified as bank
             advances. The short-term portions of the credit facilities bear
             interest at 1.98% and expire on April 30, 2009, and June 1,
             2009, respectively. The long-term portion bears interest at
             2.38% and expires on June 28, 2010. Harry Winston Inc. has also
             entered into a credit agreement to provide a credit facility to
             Harry Winston Japan, K.K. secured solely by the inventory of
             Harry Winston Japan, K.K. in an amount of $6.4 million
             ((Yen)575 million). This facility bears interest at 2.30% and
             expires on June 19, 2009.

    NOTE 11:

    Income Tax

    The future income tax asset of the Company is $43.3 million, of which
    $29.3 million relates to the retail segment. Included in the future tax
    asset is $22.5 million that has been recorded to recognize the benefit of
    $69.6 million of net operating losses that Harry Winston Inc. and its
    subsidiaries have available for carryforward to shelter income taxes for
    future years. The net operating losses are scheduled to expire between
    2014 and 2028.

    The future income tax liability of the Company is $303.3 million of which
    $82.7 million relates to the retail segment. Harry Winston Inc.'s future
    income tax liabilities include $56.7 million from the purchase price
    allocation. The Company's future income tax asset and liability accounts
    are revalued to take into consideration the change in the Canadian dollar
    compared to the US dollar and the unrealized foreign exchange gain or
    loss is recorded in net earnings for each year.

    (a) The income tax provision consists of the following:

                                                           2009         2008
        ---------------------------------------------------------------------
        Current expense                              $   81,787   $   47,516
        Future expense                                  (21,531)       8,578
        ---------------------------------------------------------------------
                                                     $   60,256   $   56,094
                                                    -------------------------
                                                    -------------------------

    (b) The tax effects of temporary differences that give rise to
        significant portions of the future tax assets and liabilities at
        January 31, 2009 and 2008 are as follows:

                                                           2009         2008
        ---------------------------------------------------------------------
        FUTURE INCOME TAX ASSETS:
        Net operating loss carryforwards             $   27,199   $   23,458
        Capital assets                                    1,267        1,158
        Future site restoration costs                    12,691       13,135
        Retail inventory                                  2,635        1,426
        Other future income tax assets                    4,959        4,983
        ---------------------------------------------------------------------
        Gross future income tax assets                   48,751       44,160
        Valuation allowance                              (5,413)      (3,197)
        ---------------------------------------------------------------------
        Future income tax assets                         43,338       40,963
        FUTURE INCOME TAX LIABILITIES:
        Deferred mineral property costs                 (38,813)     (56,776)
        Capital assets                                 (151,579)    (160,319)
        Retail inventory                                (25,735)     (13,781)
        Goodwill                                        (56,748)     (57,718)
        Unrealized foreign exchange gains                  (580)      (3,194)
        Other future income tax liabilities             (29,829)     (78,712)
        ---------------------------------------------------------------------
        Future income tax liabilities                  (303,284)    (370,500)
        ---------------------------------------------------------------------
        Future income tax liability, net             $ (259,946)  $ (329,537)
                                                    -------------------------
                                                    -------------------------

    (c) The difference between the amount of the reported consolidated income
        tax provision and the amount computed by multiplying the earnings
        (loss) before income taxes by the statutory tax rate of 31% (2008 -
        34%) is a result of the following:

                                                           2009         2008
        ---------------------------------------------------------------------
        Expected income tax expense                  $   40,424   $   55,308
        Non-deductible (non-taxable) items              (20,884)       9,773
        Northwest Territories mining royalty
         (net of income tax relief)                      15,686       18,856
        Impact of changes in future corporate
         income tax rates                                     -      (11,697)
        Earnings subject to tax different than
         statutory rate                                  (6,032)      (5,293)
        Benefit on losses recognized through
         reduction of goodwill                                -        4,362
        Impact of impairment charge on goodwill          29,034            -
        Assessments and adjustments                         (64)     (11,649)
        Change in valuation allowance                     2,603       (2,477)
        Other                                              (511)      (1,089)
        ---------------------------------------------------------------------
        Recorded income tax expense                  $   60,256   $   56,094
                                                    -------------------------
                                                    -------------------------

    (d) The Company has net operating loss carryforwards for Canadian income
        tax purposes of approximately $1.1 million. Harry Winston Inc. has
        net operating loss carryforwards for US income tax purposes of
        $54.9 million and $14.7 million for other foreign jurisdiction tax
        purposes.


    NOTE 12:

    Future Site Restoration Costs

                                                           2009         2008
    -------------------------------------------------------------------------
    At February 1, 2008 and 2007                     $   32,980   $   17,200
    Revision of previous estimates                        4,880       14,897
    Accretion of provision                                1,646          883
    -------------------------------------------------------------------------
    At January 31, 2009 and 2008                     $   39,506   $   32,980
                                                    -------------------------
                                                    -------------------------

    The Joint Venture has an obligation under various agreements (note 15) to
    reclaim and restore the lands disturbed by its mining operations.

    The Company's share of the total undiscounted amount of the future cash
    flows that will be required to settle the obligation incurred at
    January 31, 2009 is estimated to be $49.9 million of which approximately
    $32.4 million is expected to occur at the end of the mine life. The
    revision of previous estimates in fiscal 2008 reflects anticipated higher
    costs for fuel, labour and equipment based on a significant escalation in
    these key operating costs in recent years. The anticipated cash flows
    relating to the obligation at the time of the obligation have been
    discounted at a credit adjusted risk-free interest rate of 4.96%.

    NOTE 13:

    Share Capital

    (a) Authorized

        Unlimited common shares without par value.

    (b) Issued

                                                      Number of
                                                         shares       Amount
        ---------------------------------------------------------------------
        Balance, January 31, 2007                    58,360,755  $   305,165
        SHARES ISSUED FOR:
        Exercise of options                              11,336          337
        ---------------------------------------------------------------------
        Balance, January 31, 2008                    58,372,091  $   305,502
        SHARES ISSUED FOR:
        Cash                                          3,000,001       76,039
        ---------------------------------------------------------------------
        Balance, January 31, 2009                    61,372,092  $   381,541
                                                    -------------------------
                                                    -------------------------

    (c) Stock Options

        The Corporation currently has in place a stock option plan, which was
        approved by the shareholders of the Corporation on July 27, 2000,
        amended by the shareholders on June 28, 2001 and amended by the
        directors on March 28, 2002 (the "Stock Option Plan"). On March 31,
        2008, the Board of Directors approved amendments to the Stock Option
        Plan which were approved by the shareholders on June 4, 2008:

            a) an increase in the size of the Stock Option Plan, such that a
               maximum of 6,000,000 Common Shares may be issued pursuant to
               the Stock Option Plan after March 31, 2008;

            b) the introduction of a "cashless" settlement alternative in
               connection with the exercise of options under the Stock Option
               Plan;

            c) the addition of a provision whereby, if the expiry date of an
               option granted under the Stock Option Plan would otherwise
               occur during or within ten days following a Black-Out Period
               the expiry date of such option shall be extended to the first
               business day which is at least ten days after the end of the
               Black-Out Period.

        Options may be granted to any director, officer, employee or
        consultant of the Company or any of its affiliates. Options granted
        to directors vest immediately and options granted to officers,
        employees or consultants vest over three to four years. The maximum
        term of an option is ten years. The number of shares reserved for
        issuance to any one optionee pursuant to options cannot exceed 2% of
        the issued and outstanding common shares of the Company at the date
        of grant of such options.

        The exercise price of each option cannot be less than the fair market
        value of the shares on the last trading day preceding the date of the
        grant.

        The Company's shares are primarily traded on a Canadian dollar based
        exchange, and accordingly stock option information is presented in
        Canadian dollars, with conversion to US dollars at the average
        exchange rate for the year.

        Compensation expense for stock options was $0.5 million for fiscal
        2009 (2008 - $0.2 million) and is presented as a component of both
        cost of sales and selling, general and administrative expenses. The
        amount credited to share capital for the exercise of the options is
        the sum of (a) the cash proceeds received and (b) the amount debited
        to contributed surplus upon exercise of stock options by optionees
        (2009 - $nil; 2008 - $0.1 million).

        Changes in share options outstanding are as follows:

                                             2009                       2008
        ---------------------------------------------------------------------
                                 Weighted average           Weighted average
                        Options    exercise price  Options    exercise price
        ---------------------------------------------------------------------
                           000s     CDN$      US$     000s     CDN$      US$
        ---------------------------------------------------------------------
        Outstanding,
         beginning
         of year          1,719  $ 23.52  $ 22.19    1,631  $ 23.43  $ 20.63
        Granted               -        -        -      100    25.52    24.08
        Exercised             -        -        -      (11)   27.01    25.48
        Expired            (115)   38.49    31.38       (1)   26.45    24.95
        ---------------------------------------------------------------------
                          1,604  $ 22.45  $ 18.30    1,719  $ 23.52  $ 22.19
                        -----------------------------------------------------
                        -----------------------------------------------------

        The following summarizes information about stock options outstanding
        at January 31, 2009:

                                 Options outstanding     Options exercisable
                 ------------------------------------------------------------
                                 Weighted
                                  average   Weighted                Weighted
    Range of                    remaining    average                 average
    exercise          Number  contractual   exercise       Number   exercise
    prices       outstanding         life      price  exercisable      price
    CDN$                000s     in years       CDN$         000s       CDN$
    -------------------------------------------------------------------------
    $9.10-$9.15          268          0.8    $  9.15          268    $  9.15
    10.60-12.45          302          1.9      12.36          302      12.36
    17.50-17.50           39          2.8      17.50           39      17.50
    23.35-29.25          750          4.3      25.30          675      25.27
    36.38-40.00           10          6.7      36.38            8      36.38
    41.45-41.95          235          5.4      41.66          235      41.66
    -------------------------------------------------------------------------
                       1,604                 $ 22.45        1,527    $ 22.28
                 ------------------------------------------------------------
                 ------------------------------------------------------------

    (d) Stock-Based Compensation

        The Company applies the fair value method to all grants of stock
        options.

        The fair value of options granted during the year ended January 31,
        2008 was estimated using a Black-Scholes option pricing model with
        the following weighted average assumptions. The Company did not grant
        any options during fiscal 2009.

                                                           2009         2008
        ---------------------------------------------------------------------
        Risk-free interest rate                               -        3.45%
        Dividend yield                                        -        0.00%
        Volatility factor                                     -       39.18%
        Expected life of the options                          -    3.6 years
        Average fair value per option, CDN                    -   $     8.53
        Average fair value per option, US                     -   $     8.50
        ---------------------------------------------------------------------

    (e) RSU and DSU Plans

        RSU                                                  Number of units
        ---------------------------------------------------------------------
        Balance, January 31, 2007                                    174,390
        AWARDS AND PAYOUTS DURING THE YEAR (NET):
          RSU awards                                                  21,873
          RSU payouts                                                (52,548)
        ---------------------------------------------------------------------
        Balance, January 31, 2008                                    143,715
        AWARDS AND PAYOUTS DURING THE YEAR (NET):
          RSU awards                                                  (2,500)
          RSU payouts                                                (32,616)
        ---------------------------------------------------------------------
        Balance, January 31, 2009                                    108,599
                                                             ----------------
                                                             ----------------


        DSU                                                  Number of units
        ---------------------------------------------------------------------
        Balance, January 31, 2007                                     59,149
        AWARDS AND PAYOUTS DURING THE YEAR (NET):
          DSU awards                                                  21,626
          DSU payouts                                                 (8,577)
        ---------------------------------------------------------------------
        Balance, January 31, 2008                                     72,198
        AWARDS AND PAYOUTS DURING THE YEAR (NET):
          DSU awards                                                  56,790
          DSU payouts                                                      -
        ---------------------------------------------------------------------
        Balance, January 31, 2009                                    128,988
                                                             ----------------
                                                             ----------------

        During the fiscal year, the Company granted (2,500) RSUs (net of
        forfeitures) and 56,790 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 the grant. The
        Company recognized a recovery of $1.9 million (2008 - recovery of
        $0.1 million) for the twelve months ended January 31, 2009.

    NOTE 14:

    Earnings per Share

    The following table sets forth the computation of diluted earnings per
    share:

                                                           2009         2008
    -------------------------------------------------------------------------
    NUMERATOR:
    Net earnings for the year                        $   70,121   $  106,408
                                                    -------------------------
                                                    -------------------------
    DENOMINATOR (THOUSANDS OF SHARES):
    Weighted average number of shares outstanding        61,014       58,369
    Dilutive effect of employee stock options               193          530
    -------------------------------------------------------------------------
                                                         61,207       58,899
                                                    -------------------------
                                                    -------------------------

    NOTE 15:

    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. Harry Winston Diamond Corporation's share of this
        funding requirement was $0.2 million for calendar 2009. 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. Harry Winston Diamond
        Corporation's share of the Joint Venture's letters of credit
        outstanding with respect to the environmental agreements as at
        January 31, 2009 was $61.4 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 Harry Winston Diamond Corporation's 40%
        ownership percentage, 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:

        2010                                                      $   82,787
        2011                                                          81,507
        2012                                                          78,044
        2013                                                          76,620
        2014                                                          75,612
        Thereafter                                                   122,563
        ---------------------------------------------------------------------

    NOTE 16:

    Employee Benefit Plans

                                                     Year ended   Year ended
                                                     January 31,  January 31,
    Expense for the year                                   2009         2008
    -------------------------------------------------------------------------
    Defined benefit pension plan - Harry Winston
     retail segment(a)                               $    1,527   $    1,213
    Defined contribution plan - Harry Winston
     retail segment(b)                                      866        1,063
    Defined contribution plan - Harry Winston
     mining segment(b)                                      223            -
    Defined contribution plan - Diavik Diamond
     Mine(b)                                                916          833
    -------------------------------------------------------------------------
                                                     $    3,532   $    3,109
                                                    -------------------------
                                                    -------------------------

    (a) Defined Benefit Pension Plan

        The Harry Winston retail segment sponsors three separate defined
        benefit pension plans covering substantially all of its employees in
        the United States, Japan and Switzerland. The principal pension plan
        is the Harry Winston Employee Retirement Plan for Harry Winston Inc.
        US employees. The benefits for the Harry Winston Inc. plan are based
        on years of service and the employee's compensation. In April 2001,
        Harry Winston Inc. amended its defined benefit pension plan. The
        amendment froze plan participation effective April 30, 2001. Harry
        Winston Inc.'s funding policy for the US plan is to contribute
        amounts to the plan sufficient to meet the minimum funding
        requirements set forth in the Employee Retirement Income Security Act
        of 1974. Plan assets consist primarily of fixed income, equity and
        other short-term investments. The other two defined benefit pension
        plans are sponsored by retail segment subsidiaries Harry Winston
        Japan, K.K. and Harry Winston S.A., which converted their previous
        pension plan arrangements into defined benefit plans effective
        February 1, 2007. Pension liabilities for these two non-US plans are
        funded in accordance with local laws and regulations.

        (i)   INFORMATION ABOUT HARRY WINSTON INC.'S US DEFINED BENEFIT PLAN
              IS AS FOLLOWS:

                                                           2009         2008
              ---------------------------------------------------------------
              ACCRUED BENEFIT OBLIGATION:
              Balance, beginning of year             $   11,296   $   11,784
              Interest cost                                 656          627
              Actuarial gain                             (3,171)        (373)
              Effects of changes in assumptions               -            -
              Benefits paid                                (738)        (742)
              ---------------------------------------------------------------
              Balance, end of year                        8,043       11,296
              PLAN ASSETS:
              Fair value, beginning of year              10,384       10,574
              Actual return on plan assets               (2,426)         397
              Employer contributions                          -          155
              Benefits paid                                (738)        (742)
              ---------------------------------------------------------------
              Fair value, end of year                     7,220       10,384
              ---------------------------------------------------------------
              Funded status - plan deficit
               (included in accrued liabilities)     $     (823)  $     (912)
                                                    -------------------------
                                                    -------------------------

              US plan assets represented approximately 61% of total Harry
              Winston retail segment plan assets at January 31, 2009. The
              unfunded status of the retail segment plans are comprised of
              $0.8 million attributed to the US-based Harry Winston Inc.
              plan, as reported in the table above, and $1.4 million
              attributed to the Harry Winston Japan, K.K. plan. The Harry
              Winston Japan, K.K. plan is non-funded with a benefit
              obligation of $1.4 million. The Harry Winston S.A. plan was
              fully funded at January 31, 2009 with a benefit obligation of
              $4.3 million offset by plan assets of $4.5 million.

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

                                                           2009         2008
              ---------------------------------------------------------------
              Service cost                           $   (1,408)  $   (1,357)
              Interest cost                                (863)        (808)
              Expected return on plan assets                923          952
              Net actuarial loss                              -            -
              ---------------------------------------------------------------
              Total                                  $   (1,348)  $   (1,213)
                                                    -------------------------
                                                    -------------------------

        (ii)  PLAN ASSETS

              The asset allocation of Harry Winston Inc.'s US pension
              benefits at January 31, 2009 were as follows:

                                                           2009         2008
              ---------------------------------------------------------------
              ASSET CATEGORY:
              Cash equivalents                              10%           2%
              Equity securities                             54%          72%
              Fixed income securities                       36%          24%
              Other                                          0%           2%
              ---------------------------------------------------------------
              Total                                        100%         100%
                                                    -------------------------
                                                    -------------------------

        (iii) THE SIGNIFICANT ASSUMPTIONS USED FOR HARRY WINSTON INC.'S US
              PLAN ARE AS FOLLOWS:

                                                           2009         2008
              ---------------------------------------------------------------
              ACCRUED BENEFIT OBLIGATION:
              Discount rate                               6.53%        6.24%
              Expected long-term rate of return           7.50%        7.50%
              ---------------------------------------------------------------
              BENEFIT COSTS FOR THE YEAR:
              Discount rate                               6.24%        5.75%
              Expected long-term rate of return
               on plan assets                             7.50%        7.50%
              Rate of compensation increase               0.00%        0.00%
              ---------------------------------------------------------------

              Harry Winston Inc's overall expected long-term rate of return
              on assets is 7.50%. The expected long-term rate of return is
              based on the portfolio as a whole and not on the sum of the
              returns on individual asset categories. The return is based
              exclusively on historical returns, without adjustments. Harry
              Winston S.A.'s overall expected long-term rate of return on
              assets is 3.25%. Long-term rate of return for Harry Winston
              Japan, K.K. plan assets is not applicable due to the unfunded
              status of the plan.

              The weighted average assumptions used to determine the benefit
              obligations for Harry Winston Japan, K.K. and Harry Winston
              S.A. at January 31, 2009 are a discount rate and expected long-
              term rate of return of 1.70% and 0.00% and 2.50% and 3.25%,
              respectively.

              The weighted average assumptions used to determine the benefit
              costs for Harry Winston Japan, K.K. and Harry Winston S.A. at
              January 31, 2009 are a discount rate, expected long-term rate
              of return and a rate of compensation increase of 1.70%, 0.00%
              and 4.42%, and 3.00%, 3.25% and 3.00%, respectively.

        (iv)  Harry Winston retail segment expects to contribute $0.9 million
              to its pension plan in calendar 2009

              Benefits of approximately $1.4 million are expected to be paid
              by the retail segment in each calendar year from 2010 to 2014.
              The aggregate benefits expected to be paid in the five calendar
              years from 2015 to 2019 are $6.9 million. The expected benefits
              are based on the same assumptions used to measure the retail
              segment's benefit obligation at January 31, 2009.

    (b) Defined Contribution Plan

        Harry Winston Inc. has a defined contribution 401(k) plan covering
        substantially all employees in the United States. For the fiscal
        years ended January 31, 2009 and 2008, Harry Winston Inc. elected to
        increase the employer-matching contribution to 100% of the first 6%
        of the employee's salary from 50% in fiscal 2007 and prior. Employees
        must meet minimum service requirements and be employed on December 31
        of each year in order to receive this matching contribution.

        The Joint Venture sponsors a defined contribution plan whereby the
        employer contributes 6% of the employee's salary.

        Harry Winston Diamond Corporation introduced a defined contribution
        plan in fiscal 2009 whereby the employer contributes to a maximum of
        6% of the employee's salary to the maximum contribution limit under
        Canada's Income Tax Act.

    (c) Deferred Compensation Plan

        On January 28, 2005, the Board of Directors of Harry Winston Inc.
        approved an Equity Participation Plan (the "Plan") for certain
        executives of Harry Winston Inc. The Plan involves "Phantom Stock"
        awards, as defined in the executives' employment agreements, which
        are payable in cash. These awards are split into a 40% time-vested
        award and a 60% cliff-vested award. The value of the award for each
        executive is calculated as a percentage of return on investment, as
        defined in the agreements as the excess of the fair value of Harry
        Winston Inc. at the date of calculation, over the fair value of Harry
        Winston Inc. at April 2, 2004, adjusted for certain items as defined
        in the agreements. The 40% time-vested award vests on the six annual
        anniversaries of each executive's designated start date and over the
        six-year period, the vesting percentages are 0%, 0%, 10%, 10%, 10%
        and 10%, respectively. The 60% cliff-vested award vests in full on
        the date that Harry Winston Diamond Corporation becomes the acquirer
        of 100% of the common stock of Harry Winston Inc. The executives must
        remain employed by Harry Winston Inc. through the vesting dates in
        order for the awards to vest. Both awards would vest immediately upon
        the date of any future change in control as defined in the employment
        agreements. On September 29, 2006, Harry Winston Diamond Corporation
        acquired 100% of the common stock of Harry Winston Inc. As a result,
        the cliff-vested award has vested. At January 31, 2009 and 2008,
        Harry Winston Inc. has recorded a liability of $3.1 million and
        $6.3 million, respectively, relating to the Plan.

        At January 31, 2009 and 2008, Harry Winston Inc. has recorded a
        liability of $6.0 million and $5.8 million, respectively, in
        connection with a deferred compensation plan for a key executive.
        According to the terms of this plan, the executive is entitled to
        deferred compensation of $5.0 million, which vests in equal
        installments on the first through the third anniversaries of the
        executive's first day of employment with Harry Winston Inc. On each
        vesting date, the vested portion of the deferred compensation will be
        paid to the executive unless the executive provides Harry Winston
        Inc. with prior written notice to defer receipt of all or a portion
        of the vested portion of the deferred compensation. All such vested
        amounts deferred at the request of the executive will be distributed
        to the executive upon the executive's termination of employment with
        Harry Winston Inc. The deferred compensation bears interest at LIBOR.

    NOTE 17:

    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's mining and retail segments maintain separate financing
    arrangements. Accordingly, the Company assesses liquidity and capital
    resources on a segmented basis. The retail segment's cash requirements
    are for cash operating expenses, working capital and capital
    expenditures, including salon expansion. The Company believes that cash
    on hand, cash generated from operations and access to credit facilities
    will be sufficient to meet anticipated cash requirements for the retail
    segment next fiscal year.

    The mining segment's cash requirements are for cash operating expenses,
    working capital and capital expenditures. With the closing of the Kinross
    transaction, the Company believes that cash on hand and cash generated
    from the sale of rough diamonds will be sufficient to meet anticipated
    cash requirements for the next fiscal year.

    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. There has been no change with respect to the Company's
    overall capital risk management strategy. At January 31, 2009, the
    Company is in compliance with this covenant.

    NOTE 18:

    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 Company's long-term debt is fully secured; hence the fair value of
    this instrument at January 31, 2009 is considered to approximate its
    carrying value.

    The carrying values of these financial instruments are as follows:

                                    January 31, 2009        January 31, 2008
    -------------------------------------------------------------------------
                               Estimated    Carrying   Estimated    Carrying
                              Fair Value       Value  Fair Value       Value
    -------------------------------------------------------------------------
    FINANCIAL ASSETS:
      Cash and cash
       equivalents            $   16,735  $   16,735  $   49,628  $   49,628
      Cash collateral and
       cash reserves              30,145      30,145      25,615      25,615
      Accounts receivable         66,980      66,980      25,505      25,505
    -------------------------------------------------------------------------
                              $  113,860  $  113,860  $  100,748  $  100,748
                             ------------------------------------------------
                             ------------------------------------------------
    FINANCIAL LIABILITIES:
      Accounts payable and
       accrued liabilities    $  118,390  $  118,390  $  124,426  $  124,426
      Bank advances               42,621      42,621      34,928      34,928
      Long-term debt             280,722     280,722     309,349     309,349
    -------------------------------------------------------------------------
                              $  441,733  $  441,733  $  468,703  $  468,703
                             ------------------------------------------------
                             ------------------------------------------------

    NOTE 19:

    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 to 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. 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 January 31, 2009, a one-cent change in the
         exchange rate would have impacted pre-tax net earnings for the year
         by $2.5 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. Based on the
         Company's LIBOR based credit facilities at January 31, 2009, a 100
         basis point change in the LIBOR rate would have impacted pre-tax net
         earnings for the year by $1.9 million.

    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 sales policy, which requires receipt of cash prior
         to the delivery of rough diamonds to its customers.

         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 January 31, 2009, 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 January 31, 2009, the Company had $16.7 million of cash and cash
        equivalents and $70.4 million available under credit facilities.

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

    (expressed in thousands of       Less than      Year      Year     After
     United States dollars)    Total    1 year       2-3       4-5   5 years
    -------------------------------------------------------------------------
    Accounts payable and
     accrued liabilities    $118,390  $118,390  $      -  $      -  $      -
    Income taxes payable      76,987    76,987         -         -         -
    Bank advances             42,621    42,621         -         -         -
    Long-term debt(a)        320,118    84,408    26,799   192,135    16,776
    Environmental and
     participation
     agreements
     incremental
     commitments              77,345    64,243     2,609     1,011     9,482
    Operating lease
     obligations             106,064    17,701    26,280    16,865    45,218
    Capital lease
     obligations               1,389       844       545         -         -
    -------------------------------------------------------------------------
    (a) Includes projected interest payments on the current debt outstanding
        based on interest rates in effect at January 31, 2009.

    NOTE 20:

    Insurance Settlements

    In December 2008, approximately $31.7 million in Company-owned and
    consigned retail inventory at cost was stolen during a second robbery at
    the Harry Winston Paris salon. The Company was fully insured against the
    loss, and recognized a pre-tax gain of $16.7 million in the fourth
    quarter on settlement of the insurance claim compared to a pre-tax gain
    of $13.5 million on the first Paris salon robbery that occurred in the
    third quarter of the prior year. Included in accounts receivable at
    January 31, 2009 is a $48.4 million receivable relating to the insurance
    settlement that was received in February 2009. The remaining balance of
    the insurance claim is $3.3 million, of which $1.0 million was received
    in February 2009; the insurance company has agreed to pay the balance of
    $2.3 million which is expected to be received during April 2009. Also
    included in insurance settlement is a $0.5 million gain resulting from an
    excavator fire that occurred in the fourth quarter of fiscal 2006 at the
    Diavik Diamond Mine.

    NOTE 21:

    Segmented Information

    The Company operates in two segments within the diamond industry, mining
    and retail, as of January 31, 2009.

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

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

    For the twelve months ended
     January 31, 2009                       Mining       Retail        Total
    -------------------------------------------------------------------------
    Revenue
      Canada                            $  328,223   $        -   $  328,223
      United States                              -       93,978       93,978
      Europe                                     -      117,588      117,588
      Asia                                       -       69,431       69,431
    Cost of sales                          139,769      147,509      287,278
    -------------------------------------------------------------------------
    Gross margin                           188,454      133,488      321,942
    Gross margin (%)                         57.4%        47.5%        52.8%
    Selling, general and
     administrative expenses                19,903      135,973      155,876
    -------------------------------------------------------------------------
    Earnings (loss) from operations        168,551       (2,485)     166,066
    -------------------------------------------------------------------------
    Interest and financing expenses         (9,183)     (11,274)     (20,457)
    Other income                             2,595         (349)       2,246
    Insurance settlement                       558       16,682       17,240
    Impairment charge                            -      (93,780)     (93,780)
    Foreign exchange gain (loss)            60,879       (1,792)      59,087
    -------------------------------------------------------------------------
    Segmented earnings (loss) before
     income taxes                       $  223,400   $  (92,998)  $  130,402
                                       --------------------------------------
                                       --------------------------------------
    Segmented assets as at
     January 31, 2009
      Canada                            $  980,500   $        -   $  980,500
      United States                              -      404,952      404,952
      Other foreign countries               27,243      153,880      181,123
    -------------------------------------------------------------------------
                                        $1,007,743   $  558,832   $1,566,575
    -------------------------------------------------------------------------
    Capital expenditures                $  200,289   $    9,574   $  209,863
    OTHER SIGNIFICANT NON-CASH ITEMS:
      Income tax recovery               $  (17,789)  $   (3,742)  $  (21,531)
      Amortization and accretion        $   64,374   $   12,596   $   76,970
    -------------------------------------------------------------------------



    For the twelve months ended
     January 31, 2008                       Mining       Retail        Total
    -------------------------------------------------------------------------
    Revenue
      Canada                            $  413,772   $        -   $  413,772
      United States                              -      112,453      112,453
      Europe                                     -       81,429       81,429
      Asia                                       -       71,653       71,653
    Cost of sales                          169,680      141,507      311,187
    -------------------------------------------------------------------------
    Gross margin                           244,092      124,028      368,120
    Gross margin (%)                         59.0%        46.7%        54.2%
    Selling, general and
     administrative expenses                23,359      127,086      150,445
    -------------------------------------------------------------------------
    Earnings (loss) from operations        220,733       (3,058)     217,675
    -------------------------------------------------------------------------
    Interest and financing expenses        (14,940)     (12,918)     (27,858)
    Other income                             2,326          432        2,758
    Insurance settlement                         -       13,488       13,488
    Foreign exchange gain (loss)           (45,042)       1,651      (43,391)
    -------------------------------------------------------------------------
    Segmented earnings (loss) before
     income taxes                       $  163,077   $     (405)  $  162,672
                                       --------------------------------------
                                       --------------------------------------
    Segmented assets as at
     January 31, 2008
      Canada                            $  856,841   $        -   $  856,841
      United States                              -      459,525      459,525
      Other foreign countries               22,466      155,116      177,582
    -------------------------------------------------------------------------
                                        $  879,307   $  614,641   $1,493,948
    -------------------------------------------------------------------------
    Goodwill as at January 31, 2008     $        -   $   93,780   $   93,780
    Capital expenditures                $  170,711   $   38,656   $  209,367
    OTHER SIGNIFICANT NON-CASH ITEMS:
      Income tax expense (recovery)     $   13,874   $   (5,296)  $    8,578
      Amortization and accretion        $   71,840   $    9,334   $   81,174
    -------------------------------------------------------------------------

    Sales to one customer in the mining segment totalled $20.8 million
    (2008 - $28.4 million) for the twelve months ended January 31, 2009.



                     Diavik Diamond Mine Mineral Reserve
                       and Mineral Resource Statement

                           AS OF DECEMBER 31, 2008

    Proven and Probable Reserves

                                                                  Proven and
                              Proven            Probable            Probable
    -------------------------------------------------------------------------
    Open           Mill-        Mill-  Mill-        Mill-  Mill-        Mill-
     pit and       ions Carats  ions   ions Carats  ions   ions Carats  ions
     underground     of   per     of     of   per     of     of   per     of
     mining      tonnes tonne carats tonnes tonne carats tonnes tonne carats
    -------------------------------------------------------------------------
    A-154 South
      Open Pit        -     -      -    0.7   6.1    4.3    0.7   6.1    4.3
      Underground     -     -      -    2.9   4.8   13.8    2.9   4.8   13.8
    -------------------------------------------------------------------------
      Total A-154
       South          -     -      -    3.6   5.0   18.2    3.6   5.0   18.2
    -------------------------------------------------------------------------
    A-154 North
      Open Pit        -     -      -      -     -      -      -     -      -
      Underground   2.9   2.2    6.3    5.7   2.1   12.2    8.6   2.1   18.4
    -------------------------------------------------------------------------
      Total A-154
       North        2.9   2.2    6.3    5.7   2.1   12.2    8.6   2.1   18.4
    -------------------------------------------------------------------------
    A-418
      Open Pit      3.6   3.0   10.7      -     -      -    3.6   3.0   10.7
      Underground   0.5   3.9    1.9    3.8   3.7   13.9    4.3   3.7   15.9
    -------------------------------------------------------------------------
      Total A-418   4.1   3.1   12.7    3.8   3.7   13.9    7.9   3.4   26.6
    -------------------------------------------------------------------------
    Total
      Open Pit      3.6   3.0   10.7    0.7   6.1    4.3    4.3   3.5   15.1
      Underground   3.4   2.4    8.2   12.4   3.2   39.9   15.8   3.0   48.1
    -------------------------------------------------------------------------
      Total
       Reserves     7.0   2.7   18.9   13.1   3.4   44.3   20.1   3.1   63.2
                  -----------------------------------------------------------
                  -----------------------------------------------------------

    Note: Totals may not add up due to rounding.


    Additional Indicated and Inferred Resources

                            Measured           Indicated            Inferred
                           Resources           Resources           Resources
    -------------------------------------------------------------------------
                   Mill-        Mill-  Mill-        Mill-  Mill-        Mill-
                   ions Carats  ions   ions Carats  ions   ions Carats  ions
    Kimberlite       of   per     of     of   per     of     of   per     of
     pipe        tonnes tonne carats tonnes tonne carats tonnes tonne carats
    -------------------------------------------------------------------------
    A-154 South       -     -      -      -     -      -    0.6   5.0    2.9
    A-154 North       -     -      -      -     -      -    2.0   2.5    5.0
    A-418             -     -      -      -     -      -    0.6   4.0    2.5
    A-21              -     -      -    4.1   3.1   12.7    0.7   2.8    1.9
    -------------------------------------------------------------------------
    Total             -     -      -    4.1   3.1   12.7    3.9   3.2   12.4
                  -----------------------------------------------------------
                  -----------------------------------------------------------

    Note: Totals may not add up due to rounding.


    The above mineral reserve and mineral resource statement was prepared by
    Diavik Diamond Mines Inc., operator of the Diavik Diamond Mine, under the
    supervision of Calvin Yip, P.Eng., Principal Advisor, Strategic Planning
    of Diavik Diamond Mines Inc., a Qualified Person within the meaning of
    National Instrument 43-101 of the Canadian Securities Administrators.

    For further details and information concerning Harry Winston Diamond
    Corporation's Mineral Reserves and Resources, readers should reference
    Harry Winston Diamond Corporation's Annual Information Form available
    through www.sedar.com and http://investor.harrywinston.com.
    

    %SEDAR: 00003786E




For further information:

For further information: Investor Relations, (416) 362-2237 ext 290 or
investor@harrywinston.com

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Dominion Diamond Corporation

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