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Harry Winston Diamond Corporation Reports Fiscal 2013 Third Quarter Results

December 6, 2012

TORONTO, Dec. 6, 2012 /PRNewswire/ – Harry Winston Diamond Corporation (TSX:
HW) (NYSE:HWD) (the “Company”) today announced its third quarter Fiscal
2013 results for the quarter ending October 31, 2012.

Robert Gannicott, Chairman and Chief Executive Officer stated, “This has been a quarter of solid progress on many fronts for us. Our
luxury brand business has demonstrated strong growth in its bridal
jewelry sales, with the higher margins and broader base that this
implies, while the Diavik Project has successfully switched fully to
underground ore production. Although the underground mine is still
tuning its operating procedures, it has already reached and exceeded
its planned underground production rate. The rough diamond market has
recovered its poise as optimism returns in America, still the world’s
largest consumer of diamond jewelry.”

The Company is pleased to announce the appointment of Chuck Strahl to
its Board of Directors. Mr. Gannicott added, “We welcome Chuck Strahl to our board of directors. Chuck recently
retired from almost 18 years in federal politics having served as both
Minister of Transport and Minister of Aboriginal Affairs and Northern
Development. His experience and interest in northern development is a
welcome addition to the board.”

Third Quarter Highlights:

Consolidated

        --  Consolidated sales increased 51% to $180.4 million for the
            third quarter compared to $119.7 million for the comparable
            quarter of the prior year.  Operating profit was $10.3 million
            compared to an operating loss of $2.0 million in the comparable
            quarter of the prior year.  (Included in the prior year's
            operating loss was a $13.0 million paste plant de-recognition
            charge for the mining segment.)  EBITDA increased 64% to $34.8
            million compared to $21.2 million in the comparable quarter of
            the prior year.
        --  Consolidated net profit attributable to shareholders for the
            third quarter was $3.4 million or $0.04 per share compared to
            net loss attributable to shareholders of $4.7 million or $0.06
            per share in the comparable quarter of the prior year.
            Included in the prior year period net loss was a $8.4 million
            (or $0.10 per share) after-tax paste plant de-recognition
            charge.

Mining Segment

        --  Rough diamond sales increased 134% to $84.8 million, versus
            $36.2 million in the comparable quarter of the prior year. The
            increase in sales resulted from a 286% increase in volume of
            carats sold during the quarter. The Company sold approximately
            0.88 million carats at an average price of $96 per carat versus
            approximately 0.23 million carats at an average price of $159
            per carat in the comparable quarter of the prior year.
        --  The 39% decrease in the Company's achieved average rough
            diamond prices during the third quarter resulted primarily from
            the sale of a higher portion of smaller size diamonds due to an
            improved market for these goods.  Had the Company sold only the
            last production shipped in the third quarter, the estimated
            achieved price would have been approximately $123 per carat
            based on the prices achieved in the October 2012 sale.
        --  Rough diamond production for the calendar quarter ended
            September 30, 2012 was 0.77 million carats (40% basis), which
            was consistent with the comparable period of the prior year.

Luxury Brand Segment

        --  Luxury brand segment sales increased 14% (17% at constant
            exchange rates) to $95.6 million compared to $83.5 million in
            the comparable quarter of the prior year.  The total number of
            units sold increased by 8% over the comparable quarter of the
            prior year.
        --  Operating profit for the luxury brand segment increased 265% to
            $5.3 million in the third quarter compared to $1.5 million in
            the comparable quarter of the prior year.
        --  On November 7, 2012, the luxury brand segment amended its
            senior secured revolving credit facility to add an additional
            $40 million of capacity, increasing the total facility to $300
            million.  The facility has a maturity date of August 30, 2017.

Fiscal 2013 Third Quarter Financial Summary

(US$ in millions except Earnings per Share amounts)

     _____________________________________________________________________
    |                 |Three months|Three months|Nine months |Nine months |
    |                 |   ended    |   ended    |   ended    |   ended    |
    |                 |Oct 31, 2012|Oct 31, 2011|Oct 31, 2012|Oct 31, 2011|
    |_________________|____________|____________|____________|____________|
    |Sales            |            |            |            |            |
    |-     Mining     |            |            |            |            |
    |Segment          |    $180.4  |    $119.7  |    $549.8  |    $486.0  |
    |-     Luxury     |     84.8   |     36.2   |    235.3   |    187.9   |
    |Brand Segment    |     95.6   |     83.5   |    314.5   |    298.1   |
    |_________________|____________|____________|____________|____________|
    |Operating profit |            |            |            |            |
    |(loss)           |            |            |            |            |
    |-     Mining     |            |            |            |            |
    |Segment          |            |            |            |            |
    |-     Luxury     |      10.3  |     (2.0)  |     45.4   |      25.8  |
    |Brand Segment    |      9.2   |     (1.2)  |     37.3   |      21.3  |
    |-     Corporate  |      5.3   |      1.5   |     20.5   |      12.6  |
    |Segment          |     (4.2)  |     (2.3)  |    (12.4)  |     (8.1)  |
    |_________________|____________|____________|____________|____________|
    |Net profit (loss)|            |            |            |            |
    |attributable to  |            |            |            |            |
    |shareholders     |      3.4   |     (4.7)  |      19.8  |      8.9   |
    |_________________|____________|____________|____________|____________|
    |Earnings (loss)  |            |            |            |            |
    |per share        |     $0.04  |   $(0.06)  |     $0.23  |     $0.10  |
    |_________________|____________|____________|____________|____________|


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

Outlook
Mining Segment
Diavik Diamond Mine’s full-year target production is expected to be
approximately 7.1 million carats from the mining of 2.1 million tonnes
of ore and the processing of 2.0 million tonnes of ore. The decrease in
carats from the original plan is primarily due to deferring the
processing and recovery of lower value carats from the re-processed
rejects (“RPR”) in favour of processing underground ore containing
higher valued carats.

A new mine plan and budget for calendar 2013 is under final review by
Rio Tinto plc and the Company. The plan for calendar 2013 foresees
Diavik Diamond Mine production of approximately 6 million carats from
the mining and processing of approximately 1.6 million tonnes of ore
with a further 0.2 million tonnes processed from stockpiled ore from
calendar 2012. Mining activities will be exclusively underground.
Included in the estimated production for calendar 2013 is approximately
0.6 million carats from RPR and 0.1 million carats from the improved
recovery process for small diamonds. These RPR and small diamond
recoveries are not included in the Company’s reserves and resource
statement and are therefore incremental to production.

On November 13, 2012, the Company entered into share purchase agreements
with BHP Billiton Canada Inc. and various affiliates to purchase all of
BHP Billiton’s diamond assets, including its controlling interest in
the Ekati Diamond Mine as well as the associated diamond sorting and
sales facilities in Yellowknife, Canada, and Antwerp, Belgium. The
Ekati Diamond Mine consists of the Core Zone, which includes the
current operating mine and other permitted kimberlite pipes, as well as
the Buffer Zone, an adjacent area hosting kimberlite pipes having both
development and exploration potential. The agreed purchase price,
payable in cash, is $400 million for the Core Zone interest and $100
million for the Buffer Zone interest, subject to adjustments in
accordance with the terms of the share purchase agreements. The share
purchase agreements include typical closing conditions, including
receipt of required regulatory and Competition Act approvals. Each of
the Core Zone and the Buffer Zone is subject to a separate joint
venture agreement. BHP Billiton holds an 80% interest in the Core Zone
and a 58.8% interest in the Buffer Zone, with the remainder held by the
Ekati minority joint venture parties. Pursuant to the joint venture
agreements, BHP Billiton will first separately offer to the joint
venture parties its interest in each of the Core and Buffer Zones on
the same terms as those agreed to by the Company. The joint venture
parties will then have 60 days to elect to acquire either or both of
those interests. Any interests that the joint venture parties do not
elect to acquire within that time period can then be transferred to the
Company in the following 60 days. If the Core Zone transaction is not
completed because the minority joint venture parties exercise their
pre-emptive rights, the Company will be entitled to be paid a
termination fee of $30 million by BHP Billiton. Closing of the
transactions is currently expected to occur before the end of March,
2013. The purchase price for the acquisitions will be satisfied from
cash resources on hand and from new debt financing that has been
arranged with two banks. The new facilities will comprise a $400
million term loan, a $100 million revolving credit facility (of which
$50 million will be available for purposes of funding the Ekati
acquisition) and a $140 million letter of credit facility in support of
the Core Zone environmental reclamation bond. The new facilities will
be secured and will replace the Company mining segment’s current $125
million facility with Standard Chartered Bank, which will be repaid and
terminated on closing.

Luxury Brand Segment
Continued economic uncertainty in Europe coupled with the softening in
consumer demand in China and the budget policy issues in the US are
likely to translate into slower growth in the near term, impacting the
holiday season. The Company believes that the Harry Winston brand is
well positioned to continue to increase its market share in the luxury
jewelry and timepiece sector. New salons in China have significantly
improved the distribution network in the fastest growing luxury market
in the world. During August 2012, a new directly operated salon was
opened in the Harrods department store in London, England. A new
directly operated salon is also expected to be opened early next year
in Geneva, Switzerland. In addition, a new licensed salon is expected
to be opened in Kuwait City, Kuwait, during the first quarter of next
fiscal year. The Company plans to expand by 15 wholesale watch doors to
216 doors by the end of fiscal 2013.

Conference Call and Webcast
Beginning at 8:30AM (ET) on Friday, December 7th, 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 web site at http://investor.harrywinston.com or by dialing 877-299-4454 within North America or 617-597-5447 from
international locations and entering passcode 95731015.

An online archive of the broadcast will be available by accessing the
Company’s investor relations web site at http://investor.harrywinston.com. A telephone replay of the call will be available one hour after the
call through 11:00PM (ET), Friday, December 21st, 2012 by dialing
888-286-8010 within North America or 617-801-6888 from international
locations and entering passcode 96824980.

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

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

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

Highlights

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

Consolidated sales were $180.4 million for the third quarter compared to
$119.7 million for the comparable quarter of the prior year, resulting
in an operating profit of $10.3 million compared to an operating loss
of $2.0 million in the comparable quarter of the prior year. Gross
margin increased 49% to $65.7 million from $44.2 million in the
comparable quarter of the prior year. Consolidated EBITDA was $34.8
million compared to $21.2 million in the comparable quarter of the
prior year. The Company had 0.8 million carats of rough diamond
inventory with an estimated current market value of approximately $110
million at October 31, 2012, of which approximately $60 million
represents rough diamond inventory available for sale.

The mining segment recorded sales of $84.8 million, a 134% increase from
$36.2 million in the comparable quarter of the prior year. The increase
in sales resulted from a 286% increase in volume of carats sold during
the quarter, offset by a 39% decrease in achieved rough diamond prices.
In the comparable quarter of the prior year, the Company chose to hold
inventory due to market conditions. Rough diamond production during the
third calendar quarter was consistent with the comparable period of the
prior year. The mining segment recorded operating profit of $9.2
million compared to an operating loss of $1.1 million in the comparable
quarter of the prior year. Included in the operating loss for the prior
year was a $13.0 million ($8.4 million after tax) non-cash charge
related to the de-recognition of certain assets associated with paste
production at the Diavik Diamond Mine, which were no longer expected to
be required for underground mining. EBITDA for the mining segment was
$29.8 million compared to $18.8 million in the comparable quarter of
the prior year.

The luxury brand segment recorded sales of $95.6 million, an increase of
14% from sales of $83.5 million in the comparable quarter of the prior
year (an increase of 17% at constant exchange rates). Operating profit
was $5.3 million for the quarter compared to $1.5 million in the
comparable quarter of the prior year. EBITDA for the luxury brand
segment was $9.1 million compared to $4.5 million in the comparable
quarter of the prior year.

The corporate segment recorded selling, general and administrative
expenses of $4.3 million compared to $2.3 million in the comparable
quarter of the prior year.

The Company recorded a consolidated net profit attributable to
shareholders of $3.4 million or $0.04 per share for the quarter,
compared to a net loss attributable to shareholders of $4.7 million or
$0.06 per share in the third quarter of the prior year.

Management’s Discussion and Analysis

PREPARED AS OF DECEMBER 6, 2012 (ALL FIGURES ARE IN UNITED STATES
DOLLARS UNLESS OTHERWISE INDICATED)

The following is management’s discussion and analysis (“MD&A”) of the
results of operations for Harry Winston Diamond Corporation
(“Harry Winston Diamond Corporation”, or the “Company”) for the three
and nine months ended October 31, 2012, and its financial position as
at October 31, 2012. This MD&A is based on the Company’s unaudited
interim condensed consolidated financial statements prepared in
accordance with International Financial Reporting Standards (“IFRS”)
and should be read in conjunction with the unaudited interim condensed
consolidated financial statements and notes thereto for the three and
nine months ended October 31, 2012 and the audited consolidated
financial statements of the Company and notes thereto for the year
ended January 31, 2012. Unless otherwise specified, all financial
information is presented in United States dollars. Unless otherwise
indicated, all references to “third quarter” refer to the three months
ended October 31. Unless otherwise indicated, references to
“international” for the luxury brand segment refer to Europe and Asia.

Certain information included in this MD&A may constitute forward-looking
information within the meaning of Canadian and United States securities
laws. In some cases, forward-looking information can be identified by
the use of terms such as “may”, “will”, “should”, “expect”, “plan”,
“anticipate”, “foresee”, “appears”, “believe”, “intend”, “estimate”,
“predict”, “potential”, “continue”, “objective”, “modeled”, “hope” or
other similar expressions concerning matters that are not historical
facts. Forward-looking information may relate to management’s future
outlook and anticipated events or results, and may include statements
or information regarding plans, timelines and targets for construction,
mining, development, production and exploration activities at the
Diavik Diamond Mine, future mining and processing at the Diavik Diamond
Mine, projected capital expenditure requirements and the funding
thereof, liquidity and working capital requirements and sources,
estimated reserves and resources at, and production from, the Diavik
Diamond Mine, the number and timing of expected rough diamond sales,
the demand for rough diamonds, expected diamond prices and expectations
concerning the diamond industry and the demand for luxury goods,
expected cost of sales and gross margin trends in the mining segment,
targets for compound annual growth rates of sales and operating income
in the luxury brand segment, plans for expansion of the luxury brand
retail salon network, expected sales trends and market conditions in
the luxury brand segment, and the ability to obtain the necessary
regulatory approvals to complete the Ekati transactions and the time
frame required to do so and to satisfy the other conditions to closing.
Actual results may vary from the forward-looking information. See
“Risks and Uncertainties” on page 21 for material risk factors that
could cause actual results to differ materially from the
forward-looking information.

Forward-looking information is based on certain factors and assumptions
regarding, among other things, mining, production, construction and
exploration activities at the Diavik Diamond Mine, world and US
economic conditions, the worldwide demand for luxury goods, and the
timeline for the funding of the Ekati transaction. In making statements
regarding expected diamond prices and expectations concerning the
diamond industry and expected sales trends and market conditions in the
luxury brand segment, the Company has made assumptions regarding, among
other things, the state of world and US economic conditions, worldwide
diamond production levels, and demand for luxury goods. While the
Company considers these assumptions to be reasonable based on the
information currently available to it, they may prove to be incorrect.
See “Risks and Uncertainties” on page 21.

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, including risks
associated with the inability to control the timing and scope of future
capital expenditures, and risks of changes to the mine plan for the
Diavik Diamond Mine, risks associated with the remote location of and
harsh climate at the Diavik Diamond Mine site, risks resulting from the
Eurozone financial crisis, risks associated with regulatory
requirements, fluctuations in diamond prices and changes in US and
world economic conditions, the risk of fluctuations in the Canadian/US
dollar exchange rate, cash flow and liquidity risks, the risks relating
to the Company’s expansion strategy, the risk of competition in the
luxury jewelry business as well as changes in demand for high-end
luxury goods, and risks relating to the timing of and ability to obtain
necessary regulatory approvals for, and to satisfy the other closing
conditions of, the Ekati transactions and the mining segment’s related
new credit facilities. Please see page 21 of this Interim Report, as
well as the Company’s current Annual Information Form, available at
www.sedar.com, for a discussion of these and other risks and
uncertainties involved in the Company’s operations.

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

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

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

On November 13, 2012, the Company entered into share purchase agreements
with BHP Billiton Canada Inc. and various affiliates to purchase all of
BHP Billiton’s diamond assets, including its controlling interest in
the Ekati Diamond Mine as well as the associated diamond sorting and
sales facilities in Yellowknife, Canada, and Antwerp, Belgium. The
Ekati Diamond Mine consists of the Core Zone, which includes the
current operating mine and other permitted kimberlite pipes, as well as
the Buffer Zone, an adjacent area hosting kimberlite pipes having both
development and exploration potential. The agreed purchase price,
payable in cash, is $400 million for the Core Zone interest and $100
million for the Buffer Zone interest, subject to adjustments in
accordance with the terms of the share purchase agreements. The share
purchase agreements include typical closing conditions, including
receipt of required regulatory and Competition Act approvals. Each of
the Core Zone and the Buffer Zone is subject to a separate joint
venture agreement. BHP Billiton holds an 80% interest in the Core Zone
and a 58.8% interest in the Buffer Zone, with the remainder held by the
Ekati minority joint venture parties. Pursuant to the joint venture
agreements, BHP Billiton will first separately offer to the joint
venture parties its interest in each of the Core and Buffer Zones on
the same terms as those agreed to by the Company. The joint venture
parties will then have 60 days to elect to acquire either or both of
those interests. Any interests that the joint venture parties do not
elect to acquire within that time period can then be transferred to the
Company in the following 60 days. If the Core Zone transaction is not
completed because the minority joint venture parties exercise their
pre-emptive rights, the Company will be entitled to be paid a
termination fee of $30 million by BHP Billiton. Closing of the
transactions is currently expected to occur before the end of March,
2013. The purchase price for the acquisitions will be satisfied from
cash resources on hand and from new debt financing that has been
arranged with two banks. The new facilities will comprise a $400
million term loan, a $100 million revolving credit facility (of which
$50 million will be available for purposes of funding the Ekati
acquisition) and a $140 million letter of credit facility in support of
the Core Zone environmental reclamation bond. The new facilities will
be secured and will replace the Company mining segment’s current $125
million facility with Standard Chartered Bank, which will be repaid and
terminated on closing.

Market Commentary
The Diamond Market
During the third quarter, improved retail sales, especially in India and
the US, have given a boost to the diamond market, resulting in
stabilization of both rough and polished diamond prices, despite
continued macroeconomic uncertainty. In China, renewed activity in the
retail market together with changes in the political landscape are
expected to have a positive impact on demand from this region. In light
of this improvement, the industry lending banks appear more relaxed
about the current level of credit notwithstanding some concerns about
profitability among diamond manufacturers. In recent months, the
industry has taken a more pragmatic approach to both rough diamond
buying and diamond manufacturing and is generally better positioned to
benefit from an improved market over the holiday season.

The Luxury Jewelry and Timepiece Market
The global luxury market for jewelry and timepieces continued to
generate healthy growth during the third quarter. Consumer demand for
luxury products from strong European and North American brands
continues to increase, supported by tourism from emerging markets.
Expansion of luxury brand networks in emerging markets combined with
targeted marketing campaigns is translating into growing numbers of new
luxury consumers. Against these general trends, Hurricane Sandy
negatively impacted retail businesses in the northeastern US at the end
of the Company’s third quarter, with store closures and power outages
of up to a week. This, together with continuing economic uncertainty in
Europe, softening demand in China and budget policy issues in the US,
are likely to result in slower growth in the near term. Longer term,
demand for luxury products is expected to continue to grow as a result
of the anticipated economic recovery in the US, increasing mobility of
consumers and growing demand from emerging markets. The Chinese market
is expected to continue to provide the strongest growth in demand for
luxury products, both directly in China as well as through tourism
abroad.

Condensed Consolidated Financial Results
The following is a summary of the Company’s consolidated quarterly
results for the eight quarters ended October 31, 2012 following the
basis of presentation utilized in its IFRS financial statements:


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

                                                                                                                            Nine         Nine
                                                                                                                          months       months
                                                                                                                           ended        ended
                                                                                                                         October      October
                           2013        2013        2013        2012        2012        2012        2012        2011          31,          31,

                             Q3          Q2          Q1          Q4          Q3          Q2          Q1          Q4         2012         2011

    Sales             $ 180,399   $ 176,897   $ 192,461   $ 216,017   $ 119,716   $ 222,378   $ 143,932   $ 215,358   $  549,757   $  486,026

    Cost of sales       114,690     104,694     119,134     129,807      75,524     150,177      96,452     141,391      338,518      322,153

    Gross margin         65,709      72,203      73,327      86,210      44,192      72,201      47,480      73,967      211,239      163,873

    Gross margin
    (%)                   36.4%       40.8%       38.1%       39.9%       36.9%       32.5%       33.0%       34.3%        38.4%        33.7%

    Selling,
    general and
    administrative
    expenses             55,387      55,819      54,669      55,500      46,155      49,101      42,795      52,722      165,875      138,051

    Operating
    profit (loss)        10,322      16,384      18,658      30,710     (1,963)      23,100       4,685      21,245       45,364       25,822

    Finance
    expenses            (4,811)     (4,028)     (3,880)     (3,481)     (4,040)     (5,183)     (3,983)     (3,727)     (12,719)     (13,206)

    Exploration
    costs                 (673)       (568)       (254)       (177)       (600)       (781)       (212)       (351)      (1,495)      (1,593)

    Finance and
    other income             96          90          65          81         164          83         258         278          251          505

    Foreign
    exchange gain
    (loss)                  767         153       (364)         458         436         288       (177)       1,392          556          547

    Profit (loss)
    before income
    taxes                 5,701      12,031      14,225      27,591     (6,003)      17,507         571      18,837       31,957       12,075

    Income tax
    expense
    (recovery)            1,687       7,278       2,615      11,001     (1,272)       7,519     (3,027)       5,137       11,580        3,220

    Net profit
    (loss)            $   4,014   $   4,753   $  11,610   $  16,590   $ (4,731)   $   9,988   $   3,598   $  13,700   $   20,377   $    8,855

    Attributable to
    shareholders      $   3,397   $   4,755   $  11,610   $  16,602   $ (4,728)   $   9,986   $   3,596   $  13,693   $   19,762   $    8,854

    Attributable to
    non-controlling
    interest                617         (2)           -        (12)         (3)           2           2           7          615            1

    Basic earnings
    (loss) per
    share             $    0.04   $    0.06   $    0.14   $    0.20   $  (0.06)   $    0.12   $    0.04   $    0.16   $     0.23   $     0.10

    Diluted
    earnings (loss)
    per share         $    0.04   $    0.06   $    0.14   $    0.19   $  (0.06)   $    0.12   $    0.04   $    0.16   $     0.23   $     0.10

    Cash dividends
    declared per
    share             $    0.00   $    0.00   $    0.00   $    0.00   $    0.00   $    0.00   $    0.00   $    0.00   $     0.00   $     0.00

    Total assets
    (i)               $   1,733   $   1,660   $   1,716   $   1,637   $   1,656   $   1,671   $   1,671   $   1,609   $    1,733   $    1,656

    Total long-term
    liabilities (i)   $     682   $     461   $     472   $     670   $     661   $     633   $     613   $     603   $      682   $      661

    Operating
    profit (loss)     $  10,322   $  16,384   $  18,658   $  30,710   $ (1,963)   $  23,100   $   4,685   $  21,245   $   45,364   $   25,822

    Depreciation
    and
    amortization
    (ii)                 24,453      16,980      25,546      27,512      23,121      20,716      20,291      24,635       66,980       64,129

    EBITDA (iii)      $  34,775   $  33,364   $  44,204   $  58,222   $  21,158   $  43,816   $  24,976   $  45,880   $  112,344   $   89,951

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

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

    (iii)  Earnings before interest, taxes, depreciation and amortization
           ("EBITDA"). See "Non-IFRS Measure" on page 19.

           The comparability of quarter-over-quarter results is impacted by
           seasonality for both the mining and luxury brand segments. Harry
           Winston Diamond Corporation expects that the quarterly results
           for its mining segment will continue to fluctuate depending on
           the seasonality of production at the Diavik Diamond Mine, the
           number of sales events conducted during the quarter, and the
           volume, size and quality distribution of rough diamonds
           delivered from the Diavik Diamond Mine in each quarter. The
           quarterly results for the luxury brand segment are also
           seasonal, with generally higher sales during the fourth quarter
           due to the holiday season. See "Segmented Analysis" on page 10
           for additional information.

Three Months Ended October 31, 2012 Compared to Three Months Ended
October 31, 2011

CONSOLIDATED NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS
The Company recorded a third quarter consolidated net profit
attributable to shareholders of $3.4 million or $0.04 per share
compared to a net loss attributable to shareholders of $4.7 million or
$0.06 per share in the third quarter of the prior year. Excluding the
$8.4 million after-tax de-recognition in the prior year of certain
paste production assets in the mining segment, the Company would have
recorded a net profit attributable to shareholders of $3.7 million or
$0.04 per share.

CONSOLIDATED SALES
Sales for the third quarter totalled $180.4 million, consisting of rough
diamond sales of $84.8 million and luxury brand segment sales of
$95.6 million. This compares to sales of $119.7 million in the
comparable quarter of the prior year (rough diamond sales of $36.2
million and luxury brand segment sales of $83.5 million).
See “Segmented Analysis” on page 10 for additional information.

CONSOLIDATED COST OF SALES AND GROSS MARGIN
The Company’s third quarter cost of sales was $114.7 million for a gross
margin of 36.4% compared to a cost of sales of $75.5 million and a
gross margin of 36.9% for the comparable quarter of the prior year. The
Company’s cost of sales includes costs associated with the Diavik
Diamond Mine, rough diamond sorting and luxury brand activities. See
“Segmented Analysis” on page 10 for additional information.

CONSOLIDATED SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The principal components of selling, general and administrative (“SG&A”)
expenses include expenses for salaries and benefits, advertising and
marketing, rent and related costs. The Company incurred SG&A expenses
of $55.4 million for the third quarter, compared to $46.2 million in
the comparable quarter of the prior year.

Included in SG&A expenses for the third quarter was $3.9 million for the
mining segment compared to $3.3 million for the comparable quarter of
the prior year, $47.2 million for the luxury brand segment compared to
$40.6 million for the comparable quarter of the prior year, and $4.3
million for the corporate segment compared to $2.2 million for the
comparable quarter of the prior year. See “Segmented Analysis” on page
10 for additional information.

CONSOLIDATED INCOME TAXES
The Company recorded a net income tax expense of $1.7 million during the
third quarter, compared to a net income tax recovery of $1.3 million in
the comparable quarter of the prior year. The Company’s combined
federal and provincial statutory income tax rate for the quarter is
26.5%. There are a number of items that can significantly impact the
Company’s effective tax rate, including foreign currency exchange rate
fluctuations, the Northwest Territories mining royalty, earnings
subject to tax different than the statutory rate, and the recognition
of previously unrecognized benefits. As a result, the Company’s
recorded tax provision can be significantly different than the expected
tax provision calculated based on the statutory tax rate.

The recorded tax provision is particularly impacted by foreign currency
exchange rate fluctuations. The Company’s functional and reporting
currency is US dollars; however, the calculation of income tax expense
is based on income in the currency of the country of origin. As such,
the Company is continually subject to foreign exchange fluctuations,
particularly as the Canadian dollar moves against the US dollar. During
the third quarter, the Canadian dollar strengthened against the US
dollar. As a result, the Company recorded an unrealized foreign
exchange loss of $0.7 million on the revaluation of the Company’s
Canadian dollar denominated deferred income tax liability. This
compares to an unrealized foreign exchange gain of $8.1 million in the
comparable quarter of the prior year. The unrealized foreign exchange
loss is recorded as part of the Company’s deferred income tax expense,
and is not deductible for Canadian income tax purposes. During the
third quarter, the Company also recognized a deferred income tax
expense of $1.0 million for temporary differences arising from the
difference between the historical exchange rate and the current
exchange rate translation of foreign currency non-monetary items. This
compares to a deferred income tax expense of $11.4 million recognized
in the comparable quarter of the prior year. The recorded tax provision
during the third quarter also included a net income tax recovery of
$2.1 million relating to foreign exchange differences between income in
the currency of the country of origin and the US dollar. This compares
to a net income tax recovery of $0.7 million recognized in the
comparable quarter of the prior 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
2032.

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

CONSOLIDATED FINANCE EXPENSES
Included in finance expenses for the third quarter was $2.3 million for
the mining segment compared to $2.6 million for the comparable quarter
of the prior year and $2.5 million for the luxury brand segment
compared to $1.5 million for the comparable quarter of the prior year.
Also included in finance expense for the mining segment is accretion
expense of $0.6 million (2012 – $0.7 million) related to the Diavik
Diamond Mine’s future site restoration liability.

CONSOLIDATED EXPLORATION EXPENSE
Exploration expense of $0.7 million was incurred during the third
quarter compared to $0.6 million in the comparable quarter of the prior
year.

CONSOLIDATED FINANCE AND OTHER INCOME
Finance and other income of $0.1 million was recorded during the third
quarter compared to $0.2 million in the comparable quarter of the prior
year.

CONSOLIDATED FOREIGN EXCHANGE
A net foreign exchange gain of $0.8 million was recognized during the
third quarter compared to a net foreign exchange gain of $0.4 million
in the comparable quarter of the prior year. The Company does not
currently have any significant foreign exchange derivative instruments
outstanding.

Nine Months Ended October 31, 2012 Compared to Nine Months Ended October
31, 2011

CONSOLIDATED NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS
The Company recorded a consolidated net profit attributable to
shareholders of $19.8 million or $0.23 per share for the nine months
ended October 31, 2012, compared to a net profit attributable to
shareholders of $8.9 million or $0.10 per share in the comparable
period of the prior year. Excluding the $8.4 million after-tax
de-recognition in the prior year of certain paste production assets in
the mining segment, the Company would have recorded a net profit
attributable to shareholders of $17.3 million or $0.20 per share.

CONSOLIDATED SALES
Sales totalled $549.8 million for the nine months ended October 31,
2012, consisting of rough diamond sales of $235.3 million and luxury
brand segment sales of $314.5 million. This compares to sales of $486.0
million in the comparable period of the prior year (rough diamond sales
of $187.9 million and luxury brand segment sales of $298.1 million).
See “Segmented Analysis” on page 10 for additional information.

CONSOLIDATED COST OF SALES AND GROSS MARGIN
The Company’s cost of sales was $338.5 million for the nine months ended
October 31, 2012, for a gross margin of 38.4% compared to a cost of
sales of $322.2 million and a gross margin of 33.7% for the comparable
period of the prior year. The Company’s cost of sales includes costs
associated with the Diavik Diamond Mine, rough diamond sorting and
luxury brand activities. See “Segmented Analysis” on page 10 for
additional information.

CONSOLIDATED SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The principal components of SG&A expenses include expenses for salaries
and benefits, advertising and marketing, rent and related costs. The
Company incurred SG&A expenses of $165.9 million for the nine months
ended October 31, 2012, compared to $138.1 million in the comparable
period of the prior year.

Included in SG&A expenses for the nine months ended October 31, 2012,
was $9.4 million for the mining segment compared to $11.4 million for
the comparable period of the prior year, $144.0 million for the luxury
brand segment compared to $118.7 million for the comparable period of
the prior year, and $12.4 million for the corporate segment compared to
$8.0 million for the comparable period of the prior year.
See “Segmented Analysis” on page 10 for additional information.

CONSOLIDATED INCOME TAXES
The Company recorded a net income tax expense of $11.6 million during
the nine months ended October 31, 2012, compared to a net income tax
expense of $3.2 million in the comparable period of the prior year. The
Company’s combined federal and provincial statutory income tax rate for
the nine months ended October 31, 2012 is 26.5%. There are a number of
items that can significantly impact the Company’s effective tax rate,
including foreign currency exchange rate fluctuations, the Northwest
Territories mining royalty, earnings subject to tax different than the
statutory rate, and the recognition of previously unrecognized
benefits. As a result, the Company’s recorded tax provision can be
significantly different than the expected tax provision calculated
based on the statutory tax rate.

The recorded tax provision is particularly impacted by foreign currency
exchange rate fluctuations. The Company’s functional and reporting
currency is US dollars; however, the calculation of income tax expense
is based on income in the currency of the country of origin. As such,
the Company is continually subject to foreign exchange fluctuations,
particularly as the Canadian dollar moves against the US dollar. During
the nine months ended October 31, 2012, the Canadian dollar
strengthened against the US dollar. As a result, the Company recorded
an unrealized foreign exchange loss of $0.8 million on the revaluation
of the Company’s Canadian dollar denominated deferred income tax
liability. This compares to an unrealized foreign exchange loss of $1.7
million in the comparable period of the prior year. During the nine
months ended October 31, 2012, the Company recognized a deferred income
tax expense of $3.5 million for temporary differences arising from the
difference between the historical exchange rate and the current
exchange rate translation of foreign currency non-monetary items. This
compares to a deferred income tax expense of $2.8 million recognized in
the comparable period of the prior year. The recorded tax provision
during the nine months ended October 31, 2012 also included a net
income tax recovery of $4.0 million relating to foreign exchange
differences between income in the currency of the country of origin and
the US dollar. This compares to a net income tax recovery of $3.8
million recognized in the comparable period of the prior 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
2032.

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

CONSOLIDATED FINANCE EXPENSES
Included in finance expenses for the nine months ended October 31, 2012
was $6.7 million for the mining segment compared to $9.1 million for
the comparable period of the prior year and $6.0 million for the luxury
brand segment compared to $4.2 million for the comparable period of the
prior year. Also included in finance expense for the mining segment is
accretion expense of $1.9 million (2012 – $2.3 million) related to the
Diavik Diamond Mine’s future site restoration liability.

CONSOLIDATED EXPLORATION EXPENSE
Exploration expense of $1.5 million was incurred during the nine months
ended October 31, 2012, compared to $1.6 million in the comparable
period of the prior year.

CONSOLIDATED FINANCE AND OTHER INCOME
Finance and other income of $0.3 million was recorded during the nine
months ended October 31, 2012, compared to $0.5 million in the
comparable period of the prior year.

CONSOLIDATED FOREIGN EXCHANGE
A net foreign exchange gain of $0.6 million was recognized during the
nine months ended October 31, 2012, compared to $0.5 million in the
comparable period of the prior year. The Company does not currently
have any significant foreign exchange derivative instruments
outstanding.

Segmented Analysis
The operating segments of the Company include mining, luxury brand and
corporate segments. The corporate segment captures costs not
specifically related to operations of the mining or luxury brand
segments.

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


    (expressed in thousands of United States dollars)
    (unaudited)

                                                                                                                    Nine        Nine
                                                                                                                  months      months
                                                                                                                   ended       ended
                                                                                                                 October     October
                         2013       2013       2013        2012        2012       2012       2012       2011         31,         31,

                           Q3         Q2         Q1          Q4          Q3         Q2         Q1         Q4        2012        2011

    Sales                                                                                                                           

      America        $  7,697   $  2,269   $  7,432   $   2,727   $   8,835   $    447   $  3,009   $  2,689   $  17,398   $  12,291

      Europe           57,438     50,514     54,370      78,846      21,993     80,131     50,752     75,715     162,322     152,876

      Asia             19,683      8,690     27,207      20,659       5,411      9,030      8,274      4,293      55,580      22,715

    Total sales        84,818     61,473     89,009     102,232      36,239     89,608     62,035     82,697     235,300     187,882

    Cost of sales      71,663     46,784     70,099      72,783      34,112     67,613     53,443     61,822     188,546     155,168

    Gross margin       13,155     14,689     18,910      29,449       2,127     21,995      8,592     20,875      46,754      32,714

    Gross margin
    (%)                 15.5%      23.9%      21.2%       28.8%        5.9%      24.5%      13.9%      25.2%       19.9%       17.4%

    Selling,
    general and
    administrative
    expenses            3,932      2,966      2,525       2,061       3,274      3,489      4,630      3,017       9,423      11,393

    Operating
    profit (loss)    $  9,223   $ 11,723   $ 16,385   $  27,388   $ (1,147)   $ 18,506   $  3,962   $ 17,858   $  37,331   $  21,321

    Depreciation
    and
    amortization
    (i)                20,588     13,160     22,172      24,284      19,932     17,461     17,083     20,669      55,921      54,476

    EBITDA (ii)      $ 29,811   $ 24,883   $ 38,557   $  51,672   $  18,785   $ 35,967   $ 21,045   $ 38,527   $  93,252   $  75,797

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

    (ii)  Earnings before interest, taxes, depreciation and amortization
          ("EBITDA"). See "Non-IFRS Measure" on page 19.

Three Months Ended October 31, 2012 Compared to Three Months Ended
October 31, 2011

MINING SALES
During the third quarter the Company sold approximately 0.88 million
carats for a total of $84.8 million for an average price per carat of
$96 compared to approximately 0.23 million carats for a total of $36.2
million for an average price per carat of $159 in the comparable
quarter of the prior year. The 286% increase in the quantity of carats
sold was primarily the result of the Company’s decision in the prior
year to hold some inventory of lower than average price items until
stability returned to the rough diamond market. The 39% decrease in the
Company’s achieved average rough diamond prices during the third
quarter resulted from the sale of a higher portion of smaller size
diamonds due to an improved market for these goods.

Had the Company sold only the last production shipped in the third
quarter, the estimated achieved price would have been approximately
$123 per carat based on the prices achieved in the October 2012 sale.

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

MINING COST OF SALES AND GROSS MARGIN
The Company’s third quarter cost of sales was $71.7 million resulting in
a gross margin of 15.5% compared to a cost of sales of $34.1 million
and a gross margin of 5.9% in the comparable quarter of the prior year.
Included in the cost of sales for the prior year was a non-cash $13.0
million charge related to the de-recognition of certain components of
the backfill plant associated with paste production at the Diavik
Diamond Mine. Cost of sales for the third quarter included $19.8
million of depreciation and amortization compared to $19.3 million in
the comparable quarter of the prior year. The mining gross margin for
the third quarter was impacted by the sale of a higher portion of
smaller size goods, which carry lower-than-average gross margins. 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. During the third quarter, the
Diavik cash cost of production was $42.0 million compared to $38.5
million in the comparable quarter of the prior year. Cost of sales also
includes sorting costs, which consists of the Company’s cost of
handling and sorting product in preparation for sales to third parties,
and depreciation and amortization, the majority of which is recorded
using the unit-of-production method over estimated proven and probable
reserves.

The Company’s MD&A refers to cash cost of production, a non-IFRS
performance measure, in order to provide investors with information
about the measure used by management to monitor performance. This
information is used to assess how well the Diavik Diamond Mine is
performing compared to the mine plan and prior periods. Cash cost of
production includes mine site operating costs such as mining,
processing and administration, but is exclusive of amortization,
capital, and exploration and development costs. Cash cost of production
does not have any standardized meaning prescribed by IFRS and differs
from measures determined in accordance with IFRS. This performance
measure is intended to provide additional information and should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with IFRS. This measure is not necessarily
indicative of net profit or cash flow from operations as determined
under IFRS. The following table provides a reconciliation of cash cost
of production to the mining segment cost of sales disclosed in the
interim condensed consolidated financial statements for the three
months ended October 31, 2012 and 2011.


    (expressed in thousands       Three months ended     Three months ended
    of United States dollars)       October 31, 2012     October 31, 2011  

    Diavik cash cost of           $           42,048     $           38,468
    production

    Private royalty                            1,632                    710

    Other cash costs                           1,057                    988

    Total cash cost of                        44,737                 40,166
    production

    Depreciation and                          20,547                 32,868
    amortization

    Total cost of production                  65,284                 73,034

    Adjusted for stock                         6,379               (38,922)
    movements

    Total cost of sales           $           71,663     $           34,112

MINING SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Included in the SG&A expenses for the mining segment was $1.0 million
related to the Ekati Diamond Mine acquisition.

Nine Months Ended October 31, 2012 Compared to Nine Months Ended October
31, 2011

MINING SALES
During the nine months ended October 31, 2012, the Company sold
approximately 2.3 million carats for a total of $235.3 million for an
average price per carat of $101 compared to approximately 1.3 million
carats for a total of $187.9 million for an average price per carat of
$148 in the comparable period of the prior year. The 84% increase in
the quantity of carats sold was primarily the result of decision by the
Company to hold back some lower priced goods at October 31, 2011 due to
an oversupply in the market at that time and the subsequent sale of
almost all of these lower priced carryover goods during the nine months
ended October 31, 2012. The 32% decrease in the Company’s achieved
average rough diamond prices in the nine-month period resulted from a
combination of two factors: first, the sale of the lower priced goods
originally held back in inventory by the Company at October 31, 2011;
and second, a decrease in the market price for rough diamonds from the
peak achieved in the comparable period of the prior year.

MINING COST OF SALES AND GROSS MARGIN
The Company’s cost of sales was $188.5 million during the nine months
ended October 31, 2012, resulting in a gross margin of 19.9% compared
to a cost of sales of $155.2 million and a gross margin of 17.4% in the
comparable period of the prior year. Included in the cost of sales for
the prior year was a non-cash $13.0 million charge related to the
de-recognition of certain components of the backfill plant associated
with paste production at the Diavik Diamond Mine. Cost of sales for the
nine months ended October 31, 2012, included $53.8 million of
depreciation and amortization compared to $52.6 million for the
comparable period of the prior year. 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. During the nine months ended
October 31, 2012, the Diavik cash cost of production was $126.7 million
compared to $123.6 million in the comparable period of the prior year.
Cost of sales also includes sorting costs, which consists of the
Company’s cost of handling and sorting product in preparation for sales
to third parties, and depreciation and amortization, the majority of
which is recorded using the unit-of-production method over estimated
proven and probable reserves.

The following table provides a reconciliation of cash cost of production
to the mining segment cost of sales disclosed in the interim condensed
consolidated financial statements for the nine months ended October 31,
2012 and 2011.


    (expressed in thousands of     Nine months ended     Nine months ended
    United States dollars)          October 31, 2012      October 31, 2011

    Diavik cash cost of            $         126,679     $         123,600
    production

    Private royalty                            5,359                 4,006

    Other cash costs                           3,088                 2,934

    Total cash cost of                       135,126               130,540
    production

    Depreciation and                          50,334                66,554
    amortization

    Total cost of production                 185,460               197,094

    Adjusted for stock                         3,086              (41,926)
    movements

    Total cost of sales            $         188,546     $         155,168

MINING SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the mining segment decreased by $2.0 million from the
comparable period of the prior year primarily due to executive
severance incurred in the first quarter of the prior year, offset by
$1.7 million related to the Ekati Diamond Mine acquisition incurred in
the nine months ended October 31, 2012.

MINING SEGMENT OPERATIONAL UPDATE
Ore production for the third calendar quarter consisted of 0.8 million
carats produced from 0.21 million tonnes of ore from the A-418
kimberlite pipe, 0.3 million carats produced from 0.13 million tonnes
of ore from the A-154 North kimberlite pipe, and 0.9 million carats
produced from 0.19 million tonnes of ore from the A-154 South
kimberlite pipe. Also included in ore production for the third calendar
quarter was an estimated 0.02 million carats from reprocessed plant
rejects (“RPR”). RPR are not included in the Company’s reserves and
resource statement and are therefore incremental to production. Rough
diamond production was consistent with the comparable calendar quarter
of the prior year.

The Diavik Diamond Mine has made the transition to underground mining
more successfully than had been originally anticipated. Expensive
cut-and-fill mining has been replaced by a much lower cost combination
of sub level retreat and blasthole stoping. Production levels have also
ramped up faster than initially planned despite the challenge of mining
through the upper level of ground impacted by the open pit activity
above. In the upper level of the A-418 underground this involved mining
through, and processing, ore that contained large amounts of steel
support material. This was a special challenge for the processing plant
and led to mine production exceeding processing capacity for a while.
As a result of this, 0.35 million tonnes of broken ore is now
stockpiled on the processing plant feed pad and about half of this will
provide incremental feed during calendar 2013.

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


    (reported on a
    one-month lag)

                         Three         Three          Nine     Nine months
                        months        months        months           ended
                         ended         ended         ended       September
                     September     September     September             30,
                           30,           30,           30,            2011
                          2012          2011          2012

    Diamonds               773           773         2,132           2,030
    recovered
    (000s carats)

    Grade                 3.68          3.00          3.35            3.03
    (carats/tonne)

During the fiscal year, the Company expanded its Mumbai, India, office
to the Bharat Diamond Bourse in Bandra, India. The new office will
continue to support the Company’s polished buying and rough sorting and
sales expansion in India.

Mining Segment Outlook
PRODUCTION
Diavik Diamond Mine’s full-year target production is expected to be
approximately 7.1 million carats from the mining of 2.1 million tonnes
of ore and the processing of 2.0 million tonnes of ore. The decrease in
carats from the original plan is primarily due to deferring the
processing and recovery of lower value carats from the RPR in favour of
processing underground ore containing higher valued carats. Open pit
mining of approximately 1.1 million tonnes of ore was exclusively from
the A-418 kimberlite pipe. Open pit mining of the A-418 kimberlite pipe
concluded in September, although processing of this ore will continue
into calendar 2013. Underground mining of approximately 1.0 million
tonnes of ore is expected to be sourced principally from the A-154
South and A-154 North kimberlite pipes, with some production from
A-418. Included in the estimated production for calendar 2012 is
approximately 0.1 million carats from RPR. These RPR recoveries are not
included in the Company’s reserves and resource statement and are
therefore incremental to production. The decrease in production results
from a combination of a reduction in processing plant throughput due to
changes in the geological composition of the ore and the deferral of
RPR from calendar 2012.

A new mine plan and budget for calendar 2013 is under final review by
Rio Tinto plc and the Company. The plan for calendar 2013 foresees
Diavik Diamond Mine production of approximately 6 million carats from
the mining and processing of approximately 1.6 million tonnes of ore
with a further 0.2 million tonnes processed from the stockpile ore.
Mining activities will be exclusively underground with approximately
0.7 million tonnes expected to be sourced from A-154 North,
approximately 0.5 million tonnes from A-154 South and approximately 0.4
million tonnes from A-418 kimberlite pipes. Included in the estimated
production for calendar 2013 is approximately 0.6 million carats from
RPR and 0.1 million carats from the improved recovery process for small
diamonds. These RPR and small diamond recoveries are not included in
the Company’s reserves and resource statement and are therefore
incremental to production.

The development of A-21, the last of the Diavik Diamond Mine’s
kimberlite pipes in the original mine plan, has been deferred due both
to the diamond market conditions and decreased urgency following the
identification of extensions to the existing pipes. Although these
extension areas cannot be categorized as ore at this time due to
insufficient definition work, the Company expects to extend the life of
the existing developed pipes thereby deferring the need for A-21 to
keep the processing plant full. The A-21 pre-feasibility study
currently being undertaken assumes that the A-21 pipe will be mined
with the open pit methods used for the other pipes. A dike would be
constructed similar to the two other pits but smaller in size. Detailed
plans are still being refined and optimized although no underground
mining is currently envisaged.

PRICING
Rough diamond prices have stabilized through the third calendar quarter
as demand has improved. Based on prices from the Company’s rough
diamond sales during the third quarter and the current diamond recovery
profile of the Diavik processing plant, the Company has modeled the
current approximate rough diamond price per carat for each of the
Diavik ore types in the table that follows:


                               October 2012
                          average price per
                                      carat
    Ore type                (in US dollars)

    A-154 South         $               135

    A-154 North                         170

    A-418                                95

    RPR                                  45

COST OF SALES AND CASH COST OF PRODUCTION
The Company’s share of the cash cost of production at the Diavik Diamond
Mine for calendar 2012 is expected to be approximately $167 million at
an assumed average Canadian/US dollar exchange rate of $1.00.

The Company currently expects cost of sales in fiscal 2014 to be
approximately $255 million (including depreciation and amortization of
approximately $70 million). The Company’s share of the cash cost of
production at the Diavik Diamond Mine for calendar 2013 is expected to
be approximately $170 million at an assumed average Canadian/US dollar
exchange rate of $1.00.

CAPITAL EXPENDITURES
During fiscal 2013, HWDLP’s 40% share of the planned capital
expenditures at the Diavik Diamond Mine is expected to be approximately
$71 million at an assumed average Canadian/US dollar exchange rate of
$1.00. HWDLP’s share of capital expenditures was $12.5 million for the
three months ended October 31, 2012, and $42.9 million for the nine
months ended October 31, 2012. During fiscal 2014, HWDLP’s 40% share of
the planned capital expenditures is expected to be approximately $28
million at an assumed average Canadian/US dollar exchange rate of
$1.00.

Luxury Brand
The luxury brand segment includes sales from 22 Harry Winston salons,
which are located in prime markets around the world, including eight
salons in the United States: New York, Beverly Hills, Bal Harbour,
Honolulu, Las Vegas, Dallas, Chicago and Costa Mesa; five salons in
Japan: Ginza, Roppongi Hills, Osaka, Omotesando and Nagoya; three
salons in Europe: Paris and two in London; and six salons in Asia
outside of Japan: Beijing, two in Shanghai, Taipei, Hong Kong and
Singapore.


    (expressed in thousands of United States dollars)
    (unaudited)                                          

                                                                                                                       Nine        Nine
                                                                                                                     months      months
                                                                                                                      ended       ended
                                                                                                                    October     October
                         2013        2013        2013        2012       2012        2012       2012        2011         31,         31,

                           Q3          Q2          Q1          Q4         Q3          Q2         Q1          Q4        2012        2011

    Sales                                                                                                                              

      America        $ 30,751   $  35,759   $  32,286   $  41,537   $ 28,817   $  27,183   $ 35,487   $  46,489   $  98,796   $  91,487

      Europe           27,297      15,636      30,054      31,204     19,561      26,098     17,446      15,701      72,987      63,105

      Asia
    (excluding
    Japan)             15,493      33,956      20,385      17,272     13,133      59,056     14,354      50,817      69,834      86,543

      Japan            22,040      30,073      20,727      23,772     21,966      20,433     14,610      19,654      72,840      57,009

    Total sales        95,581     115,424     103,452     113,785     83,477     132,770     81,897     132,661     314,457     298,144

    Cost of sales      43,027      57,910      49,035      57,024     41,378      82,513     42,958      79,518     149,972     166,850

    Gross margin       52,554      57,514      54,417      56,761     42,099      50,257     38,939      53,143     164,485     131,294

    Gross margin
    (%)                 55.0%       49.8%       52.6%       49.9%      50.4%       37.9%      47.5%       40.1%       52.3%       44.0%

    Selling,
    general and
    administrative
    expenses           47,205      49,495      47,311      49,929     40,635      43,331     34,716      47,866     144,011     118,682

    Operating                                                                              $
    profit           $  5,349   $   8,019   $   7,106   $   6,832   $  1,464   $   6,926      4,223   $   5,277   $  20,474   $  12,612

    Depreciation
    and
    amortization
    (i)                 3,726       3,681       3,235       3,089      3,048       3,115      3,069       3,688      10,642       9,233

    EBITDA (ii)      $  9,075   $  11,700   $  10,341   $   9,921   $  4,512   $  10,041   $  7,292   $   8,965   $  31,116   $  21,845

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

    (ii)  Earnings before interest, taxes, depreciation and amortization
          ("EBITDA"). See "Non-IFRS Measure" on page 19.

Three Months Ended October 31, 2012 Compared to Three Months Ended
October 31, 2011

LUXURY BRAND SALES
Sales for the third quarter were $95.6 million compared to $83.5
million for the comparable quarter of the prior year, an increase of
14% (an increase of 17% at constant exchange rates). Sales in America
increased 7% to $30.8 million, sales in Europe increased 40% to $27.3
million, sales in Asia (excluding Japan) increased 18% to $15.5
million, and sales in Japan were flat at $22.0 million, each as
compared to the comparable quarter of the prior year. The total number
of units sold during the third quarter increased by 8% over the
comparable quarter of the prior year.

LUXURY BRAND COST OF SALES AND GROSS MARGIN
Cost of sales for the luxury brand segment for the third quarter was
$43.0 million compared to $41.4 million for the comparable quarter of
the prior year. Gross margin for the quarter was $52.6 million or 55.0%
compared to $42.1 million or 50.4% for the third quarter of the prior
year. The improvement in gross margin was primarily due to strong
growth in bridal and access product sales combined with continued
emphasis on supply chain efficiencies.

LUXURY BRAND SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses increased by 16% to $47.2 million from $40.6 million in
the comparable quarter of the prior year. The increase was due
primarily to higher advertising, marketing and selling expenses. Fixed
costs accounted for $5.1 million of the increase, while variable
expenses linked to volume of sales accounted for $1.5 million of the
increase. Fixed costs include salaries and benefits, advertising and
marketing, rent and related costs and depreciation and amortization.
SG&A expenses included depreciation and amortization expense of $3.3
million compared to $3.0 million in the comparable quarter of the prior
year.

Nine Months Ended October 31, 2012 Compared to Nine Months Ended October
31, 2011

LUXURY BRAND SALES
Sales for the nine months ended October 31, 2012, were $314.5 million
compared to $298.1 million for the comparable period of the prior year,
an increase of 5% (7% at constant exchange rates). Sales in America
increased 8% to $98.8 million, sales in Europe increased 16% to $73.0
million, sales in Asia (excluding Japan) decreased 19% to $69.8
million, and sales in Japan increased 28% to $72.8 million, each as
compared to the comparable period of the prior year. The comparable
period of the prior year included high-value transactions in Asia
(excluding Japan) that were not repeated in the current period. During
the nine months ended October 31, 2012, there were $19.1 million of
high-value transactions, which generally carry lower-than-average gross
margins, compared with $60.8 million in the comparable period of the
prior year. The Japanese market continued to rebound strongly from the
impact of the earthquake and tsunami that occurred in early 2011. The
total number of units sold during the nine months ended October 31,
2012, increased by 24% over the comparable period of the prior year.

LUXURY BRAND COST OF SALES AND GROSS MARGIN
Cost of sales for the luxury brand segment for the nine months ended
October 31, 2012, was $150.0 million compared to $166.9 million for the
comparable period of the prior year. Gross margin for the nine months
ended October 31, 2012, was $164.5 million or 52.3% compared to $131.3
million or 44.0% for the comparable period of the prior year. The
improvement in gross margin was primarily due to strong growth in
bridal and access product sales, the continued emphasis on supply chain
efficiencies and a greater portion of high-value transactions in the
comparable period of the prior year that generated lower-than-average
gross margins.

LUXURY BRAND SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses increased by 21% to $144.0 million from $118.7 million in
the comparable period of the prior year. The increase was due primarily
to higher advertising, marketing and selling expenses. Fixed costs
accounted for $19.9 million of the increase, while variable expenses
linked to volume of sales accounted for $5.4 million of the increase.
Fixed costs include salaries and benefits, advertising and marketing,
rent and related costs and depreciation and amortization. SG&A expenses
included depreciation and amortization expense of $9.6 million compared
to $9.0 million in the comparable period of the prior year.

LUXURY BRAND SEGMENT OPERATIONAL UPDATE
At October 31, 2012, the luxury brand segment’s distribution network
consisted of 22 directly operated salons, five licensed salons (in
Manila, Philippines; Kiev, Ukraine; Moscow, Russia; and two in Dubai,
United Arab Emirates) and 201 wholesale watch doors around the world.
The Company opened a new salon in Harrods in London, England, during
August, contributing to a strong increase in sales in Europe. During
September, Harry Winston participated in the Biennale des Antiquaires
at the Grand Palais in Paris, France, the most important fine jewelry
exhibition in the world. At the exhibition, the Company unveiled its
latest high jewelry collection, “Water by Harry Winston”. The Company
also announced that it is the lead sponsor of Hollywood Costume, a major new exhibition that is appearing at the Victoria and Albert
Museum in London, England, between October 2012 and January 2013. The
exhibition celebrates costume design in motion pictures and showcases
the connection between Harry Winston jewels and Hollywood.

Luxury Brand Segment Outlook
Continued economic uncertainty in Europe coupled with the softening in
consumer demand in China and the budget policy issues in the US are
likely to translate into slower growth in the near term, impacting the
holiday season. The Company believes that the Harry Winston brand is
well positioned to continue to increase its market share in the luxury
jewelry and timepiece sector. New salons in China have significantly
improved the distribution network in the fastest growing luxury market
in the world. During August 2012, a new directly operated salon was
opened in the Harrods department store in London, England. A new
directly operated salon is expected to be opened early next year in
Geneva, Switzerland. In addition, a new licensed salon is expected to
be opened in Kuwait City, Kuwait, during the first quarter of next
fiscal year. The Company plans to expand by 15 wholesale watch doors to
216 doors by the end of fiscal 2013. By the end of the current fiscal
year, the Company will have built an internal wholesale infrastructure
to distribute its timepieces in Asia, Europe and Latin America. The
Company continues to focus on executing its long-term plan of growing
sales and profitability by expanding its distribution network in prime
locations around the world, introducing new jewelry and timepiece
collections supported by a strong advertising program, and leveraging
the heritage of the Harry Winston brand.

Corporate
The corporate segment captures costs not specifically related to
operations of the mining or luxury brand segments.


    (expressed in thousands of United States dollars)
    (unaudited)                                        

                                                                                                                           Nine        Nine
                                                                                                                         months      months
                                                                                                                          ended       ended
                                                                                                                        October     October
                          2013        2013        2013        2012        2012        2012        2012        2011          31,         31,

                            Q3          Q2          Q1          Q4          Q3          Q2          Q1          Q4         2012        2011

    Sales            $       -   $       -   $       -   $       -   $       -   $       -   $       -   $       -   $        -   $       -

    Cost of sales            -           -           -           -          34          51          51          51            -         135

    Gross margin             -           -           -           -        (34)        (51)        (51)        (51)            -       (135)

    Gross margin
    (%)                     -%          -%          -%          -%          -%          -%          -%          -%           -%          -%

    Selling,
    general and
    administrative
    expenses             4,250       3,358       4,833       3,510       2,246       2,281       3,449       1,839       12,441       7,976

    Operating loss   $ (4,250)   $ (3,358)   $ (4,833)   $ (3,510)   $ (2,280)   $ (2,332)   $ (3,500)   $ (1,890)   $ (12,441)   $ (8,111)

    Depreciation
    and
    amortization
    (i)                    139         139         139         139         141         140         139         278          417         420

    EBITDA (ii)      $ (4,111)   $ (3,219)   $ (4,694)   $ (3,371)   $ (2,139)   $ (2,192)   $ (3,361)   $ (1,612)   $ (12,024)   $ (7,691)

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

    (ii)  Earnings before interest, taxes, depreciation and amortization
          ("EBITDA"). See "Non-IFRS Measure" on page 19.

Three Months Ended October 31, 2012 Compared to Three Months Ended
October 31, 2011

CORPORATE SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the corporate segment increased by $2.0 million from
the comparable quarter of the prior year due to travel expenses and
salaries and benefits related to additional corporate employees.

Nine Months Ended October 31, 2012 Compared to Nine Months Ended October
31, 2011

CORPORATE SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the corporate segment increased by $4.5 million from
the comparable period of the prior year due to severance costs and to
travel expenses and salaries and benefits related to additional
corporate employees.

Liquidity and Capital Resources
Working Capital
As at October 31, 2012, the Company had unrestricted cash and cash
equivalents of $110.8 million compared to $78.1 million at January 31,
2012. The Company had cash on hand and balances with banks of $105.6
million and short-term investments of $5.2 million at October 31, 2012.

During the quarter ended October 31, 2012, the Company reported cash
from operations of $18.6 million compared to a use of cash from
operations of $23.8 million in the comparable quarter of the prior
year. The increase resulted primarily from the Company’s decision to
hold rough diamond inventory due to market conditions in the prior
year. At October 31, 2012, the Company had 0.8 million carats of rough
diamond inventory with an estimated current market value of
approximately $110 million, of which approximately $60 million
represents inventory available for sale.

Working capital increased to $461.9 million at October 31, 2012 from
$439.0 million at January 31, 2012. During the quarter, the Company
increased accounts receivable by $5.7 million, decreased other current
assets by $3.5 million, increased inventory and supplies by
$27.0 million, increased trade and other payables by $19.2 million and
increased employee benefit plans by $0.6 million.

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

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

Financing Activities
The mining segment maintains a senior secured revolving credit facility
with Standard Chartered Bank. At October 31, 2012, $50.0 million was
outstanding. On November 13, 2012, the Company entered into share
purchase agreements with BHP Billiton Canada Inc., and various
affiliates to purchase all of BHP Billiton’s diamond assets, including
its controlling interest in the Ekati Diamond Mine. The purchase price
for the acquisitions will be satisfied from cash resources on hand and
from new debt financing that has been arranged with The Royal Bank of
Canada and Standard Chartered Bank. The new facilities will comprise a
$400 million term loan, a $100 million revolving credit facility (of
which $50 million will be available for purposes of funding the Ekati
acquisition) and a $140 million letter of credit facility in support of
the Core Zone environmental reclamation bond. The new facilities will
be secured and will replace the Company mining segment’s current $125
million facility with Standard Chartered Bank, which will be repaid and
terminated on closing. The new facilities will include customary
covenants, including certain reporting and financial covenants, and
will bear interest at market rates. The term loan will be an amortizing
facility, with principal repayments beginning 30 months following
closing and a final bullet payment of 50 percent of the principal
amount being due on the date that is five years after closing. The $100
million portion of the revolving facility will be due five years after
closing. The letter of credit facility will expire 364 days after
closing. The facilities will be subject to customary closing
conditions, including closing of the Core Zone acquisition. If the Core
Zone acquisition is not completed but the Buffer Zone acquisition is
completed, then the Company expects to finance the acquisition of the
Buffer Zone using other cash resources available to it.

As at October 31, 2012, $15.7 million and $2.1 million was outstanding
under the Company’s revolving financing facility relating to its
Belgian subsidiary, Harry Winston Diamond International N.V., and its
Indian subsidiary, Harry Winston Diamond (India) Private Limited,
respectively, compared to $nil and $4.3 million at January 31, 2012.

The amount outstanding on the secured five-year revolving credit
facility for the Company’s luxury brand subsidiary, Harry Winston Inc.,
was $223.0 million at October 31, 2012, compared to $200.5 million at
January 31, 2012. On August 30, 2012, Harry Winston Inc. refinanced its
senior secured revolving credit facility by entering into a new secured
five-year credit agreement with a consortium of banks led by Standard
Chartered Bank establishing a $260.0 million facility for revolving
credit loans. Harry Winston Inc. amended its senior secured revolving
credit facility on November 7, 2012 by adding an additional $40.0
million increasing the total facility to $300.0 million. The facility
has a maturity date of August 30, 2017. See Contractual Obligations
below.

Investing Activities
During the quarter, the Company purchased property, plant and equipment
of $19.2 million, of which $13.4 million was purchased for the mining
segment and $5.8 million for the luxury brand segment.

Contractual Obligations
The Company has contractual payment obligations with respect to
interest-bearing loans and borrowings and, through its participation in
the Joint Venture, future site restoration costs at the Diavik Diamond
Mine level. Additionally, at the Joint Venture level, contractual
obligations exist with respect to operating purchase obligations, as
administered by DDMI, the operator of the mine. In order to maintain
its 40% ownership interest in the Diavik Diamond Mine, HWDLP is
obligated to fund 40% of the Joint Venture’s total expenditures on a
monthly basis. Not reflected in the table below are capital
expenditures for the calendar years 2012 to 2016 of approximately
$135 million assuming a Canadian/US average exchange rate of $1.00 for
each of the five years relating to HWDLP’s current projected share of
the planned capital expenditures (excluding the A-21 pipe) at the
Diavik Diamond Mine. Also not included is the potential impact of the
Ekati transaction. The most significant contractual obligations for the
ensuing five-year period can be summarized as follows:


    CONTRACTUAL                         Less        Year        Year       After
    OBLIGATIONS                         than

    (expressed in          Total      1 year         2-3         4-5     5 years
    thousands of
    United States
    dollars)

    Interest-bearing   $ 399,880   $  61,114   $  70,943   $ 243,429   $  24,394
    loans and
    borrowings (a)
    (b)

    Environmental         93,686      82,990       4,864           -       5,832
    and
    participation
    agreements
    incremental
    commitments (c)

    Operating lease      254,927      25,276      53,977      47,900     127,774
    obligations (d)

    Total              $ 748,493   $ 169,380   $ 129,784   $ 291,329   $ 158,000
    contractual
    obligations

    (a)   (i) Interest-bearing loans and borrowings presented in the
          foregoing table include current and long-term portions. The
          mining segment maintains a senior secured revolving credit
          facility with Standard Chartered Bank for $125.0 million. The
          facility has an initial maturity date of June 24, 2013 with two
          one-year extensions at the Company's option. There are no
          scheduled repayments required before maturity. At October 31,
          2012, $50.0 million was outstanding.

          (ii) The Company has available a $45.0 million revolving
          financing facility (utilization in either US dollars or Euros)
          with Antwerp Diamond Bank for inventory and receivables funding
          in connection with marketing activities through its Belgian
          subsidiary, Harry Winston Diamond International N.V., and its
          Indian subsidiary, Harry Winston Diamond (India) Private Limited.
          Borrowings under the Belgian facility bear interest at the bank's
          base rate plus 1.5%. Borrowings under the Indian facility bear an
          interest rate of 12.50%. At October 31, 2012, $15.7 million and
          $2.1 million were outstanding under this facility relating to its
          Belgian subsidiary, Harry Winston Diamond International N.V., and
          its Indian subsidiary, Harry Winston Diamond (India) Private
          Limited, respectively. The facility is guaranteed by
          Harry Winston Diamond Corporation.

          (iii) On August 30, 2012, Harry Winston Inc. refinanced its
          secured revolving credit facility by entering into a new secured
          five-year credit agreement with a consortium of banks led by
          Standard Chartered Bank establishing a $260.0 million facility
          for revolving credit loans. The new facility expires on August
          30, 2017. On November 7, 2012, Harry Winston Inc. signed the
          first amendment to its senior secured revolving credit agreement
          dated August 30, 2012. The amendment increased the current $260.0
          million facility to $300.0 million with Manufacturers and Traders
          Trust Company agreeing to provide an additional $40.0 million
          commitment, and being added as a new lender under the current
          credit agreement. There are no scheduled repayments required
          before maturity. As with the previous agreement, 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 the luxury brand segment. At
          October 31, 2012, $223.0 million was outstanding.

          The new Harry Winston Inc. credit agreement contains affirmative
          and negative non-financial and financial covenants, which apply
          to the luxury brand 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 new 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 luxury
          brand segment's assets, liabilities, consolidated financial
          position or consolidated results of operations constitutes
          default under the agreement.

          The luxury brand 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 this new 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 2.50% to 3.25% 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 1.50% to 2.25%
          above the bank's prime rate based upon a pricing grid determined
          by the fixed charge coverage ratio as well.

          (iv) Also included in long-term debt of Harry Winston Inc. is a
          25-year loan agreement for CHF 17.5 million ($18.5 million) used
          to finance the construction of the Company's watch factory in
          Geneva, Switzerland. The loan agreement is comprised of a CHF 3.5
          million ($3.7 million) loan and a CHF 14.0 million ($14.8
          million) loan. The CHF 3.5 million loan bears interest at a rate
          of 3.15% and matures on April 22, 2013. The CHF 14.0 million loan
          bears interest at a rate of 3.55% and matures on January 31,
          2033. At October 31, 2012, an aggregate of $15.7 million was
          outstanding. The bank has a secured interest in the factory
          building.

          (v) On August 21, 2012, Harry Winston S.A. entered into a credit
          facility with UBS AG establishing a CHF 7.0 million credit line.
          The new credit facility is available to Harry Winston S.A. for
          general corporate purposes. The new facility contains affirmative
          and negative non-financial and financial covenants. The Harry
          Winston S.A. factory building is pledged as collateral to secure
          the borrowings. Borrowings under the credit facility can be
          either fixed rate loans or revolving line of credit loans in CHF
          or any freely available and convertible currency. Interest under
          the fixed rate option will be based upon Euromarket rates for the
          relevant term and currency plus a bank margin.  Available terms
          under fixed rate borrowings are one to 12 months in minimum
          denominations of CHF 250,000. Interest under the
          revolving/overdraft option will bear interest at 4% per annum for
          CHF loans, and 5.5% per annum for USD loans. A 0.25% commission
          will be charged quarterly based upon the average debit balance.
          At October 31, 2012, $7.4 million was outstanding.

          (vi) Harry Winston S.A. has a CHF 0.5 million ($0.5 million)
          finance lease for machinery located at the watch factory in
          Geneva, Switzerland. The finance lease has an interest rate of
          1.97% and matures on April 1, 2017. At October 31, 2012, $0.4
          million was outstanding.

          (vii) Harry Winston Japan, K.K. maintains unsecured credit
          agreements with three banks, amounting to   1,284 million
          ($16.1 million). Harry Winston Japan, K.K. also maintains a
          secured credit agreement amounting to   575 million
          ($7.2 million). This facility is secured by inventory owned by
          Harry Winston Japan, K.K. At October 31, 2012, $23.3 million was
          outstanding.

          (viii) The Company's first mortgage on real property has
          scheduled principal payments of approximately $0.2 million
          quarterly, may be prepaid at any time, and matures on September
          1, 2018. On October 31, 2012, $5.8 million was outstanding on the
          mortgage payable.

    (b)   Interest on loans and borrowings is calculated at various fixed
          and floating rates. Projected interest payments on the current
          debt outstanding were based on interest rates in effect at
          October 31, 2012, and have been included under interest-bearing
          loans and borrowings in the table above. Interest payments for
          the next twelve months are approximated to be $11.0 million.

    (c)   The Joint Venture, under environmental and other agreements, must
          provide funding for the Environmental Monitoring Advisory Board.
          These agreements also state that the Joint Venture must provide
          security deposits for the performance by the Joint Venture of its
          reclamation and abandonment obligations under all environmental
          laws and regulations. The operator of the Joint Venture has
          fulfilled such obligations for the security deposits by posting
          letters of credit, of which HWDLP's share as at October 31, 2012,
          was $81.4 million based on its 40% ownership interest in the
          Diavik Diamond Mine. There can be no assurance that the operator
          will continue its practice of posting letters of credit in
          fulfillment of this obligation, in which event HWDLP would be
          required to post its proportionate share of such security
          directly, which would result in additional constraints on
          liquidity. The requirement to post security for the reclamation
          and abandonment obligations may be reduced to the extent of
          amounts spent by the Joint Venture on those activities. The Joint
          Venture has also signed participation agreements with various
          native groups. These agreements are expected to contribute to the
          social, economic and cultural well-being of area Aboriginal
          bands. The actual cash outlay for the Joint Venture's obligations
          under these agreements is not anticipated to occur until later in
          the life of the Diavik Diamond Mine.

    (d)   Operating lease obligations represent future minimum annual
          rentals under non-cancellable operating leases for Harry Winston
          Inc. salons and office space.

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

The term EBITDA (earnings before interest, taxes, depreciation and
amortization) does not have a standardized meaning according to IFRS
and therefore may not be comparable to similar measures presented by
other issuers. The Company defines EBITDA as sales minus cost of sales
and selling, general and administrative expenses, meaning it represents
operating profit before depreciation and amortization.

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


    CONSOLIDATED                                                                                                                         

    (expressed in thousands of United States dollars)
    (unaudited)                                                                                                                          

                                                                                                                         Nine        Nine
                                                                                                                       months      months
                                                                                                                        ended       ended
                                                                                                                      October     October
                        2013        2013        2013        2012        2012        2012        2012        2011          31,         31,

                          Q3          Q2          Q1          Q4          Q3          Q2          Q1          Q4         2012        2011

    Operating
    profit
    (loss)         $  10,322   $  16,384   $  18,658   $  30,710   $ (1,963)   $  23,100   $   4,685   $  21,245   $   45,364   $  25,822

    Depreciation
    and
    amortization      24,453      16,980      25,546      27,512      23,121      20,716      20,291      24,635       66,980      64,129

    EBITDA         $  34,775   $  33,364   $  44,204   $  58,222   $  21,158   $  43,816   $  24,976   $  45,880   $  112,344   $  89,951

    MINING SEGMENT                                                                                                                       

    (expressed in thousands of United States dollars)
    (unaudited)                                                                                                                          

                                                                                                                         Nine         Nine
                                                                                                                       months       months
                                                                                                                        ended        ended
                                                                                                                      October      October
                        2013        2013        2013        2012        2012        2012        2012        2011          31,          31,

                          Q3          Q2          Q1          Q4          Q3          Q2          Q1          Q4         2012         2011

    Operating
    profit
    (loss)         $   9,223   $  11,723   $  16,385   $  27,388   $ (1,147)   $  18,506   $   3,962   $  17,858   $   37,331   $   21,321

    Depreciation
    and
    amortization      20,588      13,160      22,172      24,284      19,932      17,461      17,083      20,669       55,921       54,476

    EBITDA         $  29,811   $  24,883   $  38,557   $  51,672   $  18,785   $  35,967   $  21,045   $  38,527   $   93,252   $   75,797

    LUXURY BRAND SEGMENT                                                                                                                 

    (expressed in thousands of United States dollars)
    (unaudited)                                                                                                                          

                                                                                                                         Nine        Nine
                                                                                                                       months      months
                                                                                                                        ended       ended
                                                                                                                      October     October
                        2013        2013        2013        2012        2012        2012        2012        2011          31,         31,

                          Q3          Q2          Q1          Q4          Q3          Q2          Q1          Q4         2012        2011

    Operating
    profit         $   5,349   $   8,019   $   7,106   $   6,832   $   1,464   $   6,926   $   4,223   $   5,277   $   20,474   $  12,612

    Depreciation
    and
    amortization       3,726       3,681       3,235       3,089       3,048       3,115       3,069       3,688       10,642       9,233

    EBITDA         $   9,075   $  11,700   $  10,341   $   9,921   $   4,512   $  10,041   $   7,292   $   8,965   $   31,116   $  21,845

    CORPORATE SEGMENT                                                                                                                    

    (expressed in thousands of United States dollars)
    (unaudited)                                                                                                                          

                                                                                                                         Nine        Nine
                                                                                                                       months      months
                                                                                                                        ended       ended
                                                                                                                      October     October
                        2013        2013        2013        2012        2012        2012        2012        2011          31,         31,

                          Q3          Q2          Q1          Q4          Q3          Q2          Q1          Q4         2012        2011

    Operating
    loss           $ (4,250)   $ (3,358)   $ (4,833)   $ (3,510)   $ (2,280)   $ (2,332)   $ (3,500)   $ (1,890)   $ (12,441)   $ (8,111)

    Depreciation
    and
    amortization         139         139         139         139         141         140         139         278          417         420

    EBITDA         $ (4,111)   $ (3,219)   $ (4,694)   $ (3,371)   $ (2,139)   $ (2,192)   $ (3,361)   $ (1,612)   $ (12,024)   $ (7,691)

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

Nature of Mining
The operation of the Diavik Diamond Mine is subject to risks inherent in
the mining industry, including variations in grade and other geological
differences, unexpected problems associated with required water
retention dikes, water quality, surface and underground conditions,
processing problems, equipment performance, accidents, labour disputes,
risks relating to the physical security of the diamonds, force majeure
risks and natural disasters. Particularly with underground mining
operations, inherent risks include variations in rock structure and
strength as it impacts on mining method selection and performance,
de-watering and water handling requirements, achieving the required
crushed rock-fill 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 Interest in DDMI
HWDLP holds an undivided 40% interest in the assets, liabilities and
expenses of the Diavik Diamond Mine and the Diavik group of mineral
claims. The Diavik Diamond Mine and the exploration and development of
the Diavik group of mineral claims is a joint arrangement between DDMI
(60%) and HWDLP (40%), and is subject to the risks normally associated
with the conduct of joint ventures and similar joint arrangements.
These risks include the inability to exert influence over strategic
decisions made in respect of the Diavik Diamond Mine and the Diavik
group of mineral claims, including the inability to control the timing
and scope of capital expenditures, and risks that DDMI may decide not
to proceed with the mining the A-21 pipe or may otherwise change the
mine plan. By virtue of DDMI’s 60% interest in the Diavik Diamond Mine,
it has a controlling vote in virtually all Joint Venture management
decisions respecting the development and operation of the Diavik
Diamond Mine and the development of the Diavik group of mineral claims.
Accordingly, DDMI is able to determine the timing and scope of future
project capital expenditures, and therefore is able to impose capital
expenditure requirements on HWDLP that the Company may not have
sufficient cash to meet. A failure to meet capital expenditure
requirements imposed by DDMI could result in HWDLP’s interest in the
Diavik Diamond Mine and the Diavik group of mineral claims being
diluted. Rio Tinto plc, the parent of DDMI, announced a review of its
diamond operations in early 2012.

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

Cash Flow and Liquidity
The Company’s liquidity requirements fluctuate from quarter to quarter
and year to year depending on, among other factors, the seasonality of
production at the Diavik Diamond Mine, the seasonality of mine
operating expenses, exploration expenses, capital expenditure programs,
the number of rough diamond sales events conducted during the quarter
and the volume, size and quality distribution of rough diamonds
delivered from the Diavik Diamond Mine and sold by the Company in each
quarter, along with the seasonality of sales and salon refurbishment
and expansion in the luxury brand segment. The Company’s principal
working capital needs include investments in inventory, prepaid
expenses and other current assets, and accounts payable and income
taxes payable. There can be no assurance that the Company will be able
to meet each or all of its liquidity requirements. A failure by the
Company to meet its liquidity requirements could result in the Company
failing to meet its planned development objectives, or in the Company
being in default of a contractual obligation, each of which could have
a material adverse effect on the Company’s business prospects or
financial condition.

Economic Environment
The Company’s financial results are tied to the global economic
conditions and their impact on levels of consumer confidence and
consumer spending. The global markets have experienced the impact of a
significant US and international economic downturn since the fall of
2008. This has restricted the Company’s growth opportunities both
domestically and internationally, and a return to a recession or weak
recovery, due to recent disruptions in financial markets in the US, the
Eurozone or elsewhere, budget policy issues in the US and political
upheavals in the Middle East, could cause the Company to experience
revenue declines across both of its business segments due to
deteriorated consumer confidence and spending, and a decrease in the
availability of credit, which could have a material adverse effect on
the Company’s business prospects or financial condition. The credit
facilities essential to the diamond polishing industry are largely
underwritten by European banks that are currently under stress with the
European sovereign debt issue. The withdrawal or reduction of such
facilities could also have a material adverse effect on the Company’s
business prospects or financial condition. The Company monitors
economic developments in the markets in which it operates and uses this
information in its continuous strategic and operational planning in an
effort to adjust its business in response to changing economic
conditions.

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

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

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

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

Climate Change
The Canadian government has established a number of policy measures in
response to concerns relating to climate change. While the impact of
these measures cannot be quantified at this time, the likely effect
will be to increase costs for fossil fuels, electricity and
transportation; restrict industrial emission levels; impose added costs
for emissions in excess of permitted levels; and increase costs for
monitoring and reporting. Compliance with these initiatives could have
a material adverse effect on the Company’s results of operations.

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

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

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

Fuel Costs
The Diavik Diamond Mine’s expected fuel needs are purchased periodically
during the year for storage, and transported to the mine site by way of
the winter road. These costs will increase if transportation by air
freight is required due to a shortened “winter road season” or
unexpected high fuel usage.

The cost of the fuel purchased is based on the then prevailing price and
expensed into operating costs on a usage basis. The Diavik Diamond Mine
currently has no hedges for its future anticipated fuel consumption.

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

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

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

The Company has to date licensed five retail salons to operate under the
Harry Winston name and currently expects to increase the number of
licensed salons to 15 by fiscal 2016. There is no assurance that the
Company will be able to find qualified third parties to enter into
these licensing arrangements, or that the licensees will honour the
terms of the agreements. The conduct of licensees may have a negative
impact on the Company’s distinctive brand name and reputation.

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

Cybersecurity
The Company and certain of its third-party vendors receive and store
personal information in connection with human resources operations and
other aspects of the business. Despite the Company’s implementation of
security measures, its IT systems are vulnerable to damage from
computer viruses, natural disasters, unauthorized access, cyber attack
and other similar disruptions. Any system failure, accident or security
breach could result in disruptions to the Company’s operations. A
material network breach in the security of the IT systems could include
the theft of intellectual property or trade secrets. To the extent that
any disruption or security breach results in a loss or damage to the
Company’s data, or in inappropriate disclosure of confidential
information, financial data, or credit cardholder data, it could cause
significant damage to the Company’s reputation, affect relationships
with our customers, lead to claims against the Company and ultimately
harm its business. In addition, the Company may be required to incur
significant costs to protect against damage caused by these disruptions
or security breaches in the future. Although the Company believes that
it has robust information security procedures and other safeguards in
place, as cyber threats continue to evolve, the Company may be required
to expend additional resources to continue to enhance its information
security measures and/or to investigate and remediate any information
security vulnerabilities.

Intellectual Property
The success of the luxury brand segment depends on the value and
reputation of the Harry Winston brand and other proprietary property.
The Company relies on various intellectual property rights, including
copyrights, trademarks and trade secrets, to establish its proprietary
rights. While the Company devotes considerable efforts and resources to
protecting its intellectual property, if these efforts are not
successful the value of the brand may be harmed, which could have a
material adverse effect on the Company’s financial position.

Risks relating to the Ekati transactions
On November 13, 2012, the Company entered into share purchase agreements
with BHP Billiton Canada Inc. and various affiliates to purchase all of
BHP Billiton’s diamond assets, including its controlling interest in
the Ekati Diamond Mine as well as the associated diamond sorting and
sales facilities in Yellowknife, Canada and Antwerp, Belgium. As set
out in the share purchase agreements, the Company’s acquisition of BHP
Billiton’s interest in the Ekati Diamond Mine is subject to the
occurrence of certain events and the satisfaction of certain closing
conditions.

BHP Billiton’s interests in the Ekati Diamond Mine are subject to
separate joint venture agreements. Pursuant to the joint venture
agreements, BHP Billiton will first separately offer to the joint
venture parties its separate interests in the Ekati Diamond Mine on the
same terms as those agreed to by the Company. The joint venture parties
will then have 60 days to elect to acquire either or both of those
interests. Any interests that the joint venture parties do not elect to
acquire within that time period can then be transferred to the Company
in the following 60 days. There can be no assurance that the joint
venture parties will not elect to acquire BHP Billiton’s interests in
the Ekati Diamond Mine. In addition, the Ekati transactions are subject
to typical closing conditions including the receipt of Competition Act
approvals and other regulatory approvals required in connection with
the transfer of operatorship and ownership of the Core Zone and the
Buffer Zone interests of the Ekati Diamond Mine. The Company plans to
satisfy the total purchase price for the Ekati transactions from cash
resources on hand and from new debt financing that has been arranged
with The Royal Bank of Canada and Standard Chartered Bank. The new debt
financing facilities will be subject to customary closing conditions,
including closing of the Core Zone acquisition. There can be no
assurance that all of the closing conditions to the Ekati transaction
will be satisfied or as to the timing of closing to the Ekati
transactions.

Completion of the Ekati transactions and the integration of the Ekati
Diamond Mine into the Company’s operations will require significant
management time and resources.

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

During the third quarter of fiscal 2013, there were no changes in the
Company’s disclosure controls and procedures or internal control over
financial reporting that materially affected, or are reasonably likely
to materially affect, the Company’s disclosure controls and procedures
or internal control over financial reporting.

Critical Accounting Estimates
Management is often required to make judgments, assumptions and
estimates in the application of IFRS that have a significant impact on
the financial results of the Company. Certain policies are more
significant than others and are, therefore, considered critical
accounting policies. Accounting policies are considered critical if
they rely on a substantial amount of judgment (use of estimates) in
their application or if they result from a choice between accounting
alternatives and that choice has a material impact on the Company’s
reported results or financial position.

The critical accounting estimates applied in the preparation of the
Company’s unaudited interim condensed consolidated financial statements
are consistent with those applied and disclosed in the Company’s MD&A
for the year ended January 31, 2012.

Changes in Accounting Policies
The International Accounting Standards Board (“IASB”) has issued a new
standard, IFRS 9, “Financial Instruments” (“IFRS 9″), which will
ultimately replace IAS 39, “Financial Instruments: Recognition and
Measurement” (“IAS 39″). IFRS 9 provides guidance on the classification
and measurement of financial assets and financial liabilities. This
standard becomes effective for the Company’s fiscal year end beginning
February 1, 2015. The Company is currently assessing the impact of the
new standard on its financial statements.

IFRS 10, “Consolidated Financial Statements” (“IFRS 10″), was issued by
the IASB on May 12, 2011, and will replace the consolidation
requirements in SIC-12, “Consolidation – Special Purpose Entities” and
IAS 27, “Consolidated and Separate Financial Statements”. The new
standard establishes control as the basis for determining which
entities are consolidated in the consolidated financial statements and
provides guidance to assist in the determination of control where it is
difficult to assess. IFRS 10 is effective for the Company’s fiscal year
end beginning February 1, 2013, with early adoption permitted. The
Company is currently assessing the impact of IFRS 10 on its
consolidated financial statements.

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

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

Amendments to IAS 19, “Employee Benefits” (“IAS 19″), was issued by the
IASB on June 11, 2011. The amended standard eliminates the option to
defer the recognition of actuarial gains and losses through the
“corridor” approach, revises the presentation of changes in assets and
liabilities arising from defined benefit plans and enhances the
disclosures for defined benefit plans. IAS 19 is effective for the
Company’s fiscal year end beginning February 1, 2013, with early
adoption permitted. The Company is assessing the impact of IAS 19 on
its consolidated financial statements.

Outstanding Share Information


    As at November 30, 2012                

    Authorized                             Unlimited

    Issued and outstanding shares         84,874,781

    Options outstanding                    2,229,727

    Fully diluted                         87,104,508

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


                            Condensed Consolidated Balance Sheets

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

                           October 31,       January 31,       January 31,
                                  2012              2012              2011
                                               (Recast -         (Recast -
                                                note 10)          note 10)

    ASSETS                                                                

    Current assets                                                        

      Cash and cash      $     110,810     $      78,116     $     108,693
      equivalents
      (note 3)

      Accounts                  34,749            26,910            22,788
      receivable

      Inventory and            513,558           457,827           403,212
      supplies (note
      4)

      Other current             37,808            45,494            41,317
      assets

                               696,925           608,347           576,010

    Property, plant            724,146           734,146           764,093
    and equipment -
    Mining

    Property, plant             70,371            69,781            61,019
    and equipment -
    Luxury brand

    Intangible assets,         126,919           127,337           127,894
    net

    Other non-current           12,907            14,165            14,521
    assets

    Deferred income            101,924            82,955            65,833
    tax assets

    Total assets         $   1,733,192     $   1,636,731     $   1,609,370

    LIABILITIES AND
    EQUITY

    Current
    liabilities

      Trade and other    $     136,084     $     104,681     $     139,551
      payables

      Employee benefit           7,623             6,026             4,317
      plans

      Income taxes              41,290            29,450             6,660
      payable

      Promissory note                -                 -            70,000

      Current portion
      of
      interest-bearing
      loans and
      borrowings (note
      6)                        50,054            29,238            24,215

                               235,051           169,395           244,743

    Interest-bearing           288,098           270,485           235,516
    loans and
    borrowings (note
    6)

    Deferred income            321,175           325,035           309,868
    tax liabilities

    Employee benefit             9,273             9,463             7,287
    plans

    Provisions                  63,339            65,245            50,130

    Total liabilities          916,936           839,623           847,544

    Equity                                                                

      Share capital            507,975           507,975           502,129

      Contributed               19,052            17,764            16,233
      surplus

      Retained                 280,790           261,028           235,574
      earnings

      Accumulated                7,569            10,086             7,624
      other
      comprehensive
      income

      Total                    815,386           796,853           761,560
      shareholders'
      equity

      Non-controlling              870               255               266
      interest

    Total equity               816,256           797,108           761,826

    Total liabilities    $   1,733,192     $   1,636,731     $   1,609,370
    and equity

    Subsequent events
    (note 1)

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


                                  Condensed Consolidated Income Statements

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

                             Three            Three             Nine             Nine
                            months           months           months           months
                             ended            ended            ended            ended
                           October          October          October          October
                               31,              31,              31,              31,

                              2012             2011             2012             2011

    Sales             $    180,399     $    119,716     $    549,757     $    486,026

    Cost of sales          114,690           75,524          338,518          322,153

    Gross margin            65,709           44,192          211,239          163,873

    Selling,
    general and
    administrative
    expenses                55,387           46,155          165,875          138,051

    Operating
    profit (loss)           10,322          (1,963)           45,364           25,822

    Finance
    expenses               (4,811)          (4,040)         (12,719)         (13,206)

    Exploration
    costs                    (673)            (600)          (1,495)          (1,593)

    Finance and
    other income                96              164              251              505

    Foreign
    exchange gain              767              436              556              547

    Profit before
    income taxes             5,701          (6,003)           31,957           12,075

    Net income tax
    expense
    (recovery)               1,687          (1,272)           11,580            3,220

    Net profit
    (loss)            $      4,014     $    (4,731)     $     20,377     $      8,855

    Attributable to
    shareholders      $      3,397     $    (4,728)     $     19,762     $      8,854

    Attributable to
    non-controlling
    interest          $        617     $        (3)     $        615     $          1

    Earnings (loss)
    per share                                                                        

      Basic           $       0.04     $     (0.06)     $       0.23     $       0.10

      Diluted         $       0.04     $     (0.06)     $       0.23     $       0.10

    Weighted
    average number
    of shares
    outstanding         84,874,781       84,809,781       84,874,781       84,597,861

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


              Condensed Consolidated Statements of Comprehensive Income

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

                          Three          Three          Nine           Nine
                         months         months        months         months
                          ended          ended         ended          ended
                        October        October       October        October
                            31,            31,           31,            31,

                           2012           2011          2012           2011

    Net profit        $             $              $              $
    (loss)                4,014        (4,731)        20,377          8,855

    Other
    comprehensive
    income                                                                 

      Net gain
      (loss) on
      translation
      of net
      foreign
      operations
      (net of tax
      of nil)             3,452        (7,337)       (2,517)          8,440

    Other
    comprehensive
    income, net of
    tax                   3,452        (7,337)       (2,517)          8,440

    Total             $             $              $              $
    comprehensive
    income                7,466       (12,068)        17,860         17,295

    Attributable to   $             $              $              $
    shareholders          6,849       (12,065)        17,245         17,294

    Attributable to   $             $              $              $
    non-controlling
    interest                617            (3)           615              1

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


                Condensed Consolidated Statements of Changes in Equity

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

                                                    Nine               Nine
                                            months ended       months ended
                                             October 31,        October 31,

                                                    2012               2011

    Common shares:                                                         

    Balance at beginning of period        $      507,975     $      502,129

    Issued during the period                           -              5,163

    Transfer from contributed surplus
    on exercise of options                             -              2,300

    Balance at end of period                     507,975            509,592

    Contributed surplus:                                                   

    Balance at beginning of period                17,764             16,233

    Stock-based compensation expense               1,288              1,602

    Transfer from contributed surplus
    on exercise of options                             -            (2,300)

    Balance at end of period                      19,052             15,535

    Retained earnings:                                                     

    Balance at beginning of period
    (Recast - note 10)                           261,028            235,574

    Net profit attributable to common
    shareholders                                  19,762              8,854

    Balance at end of period                     280,790            244,428

    Accumulated other comprehensive
    income:                                                                

    Balance at beginning of period                10,086              7,624

    Other comprehensive income                                             

      Net gain (loss) on translation
      of net foreign operations (net
      of tax of nil)                             (2,517)              8,440

    Balance at end of period                       7,569             16,064

    Non-controlling interest:                                              

    Balance at beginning of period                   255                266

    Non-controlling interest                         615                  1

    Balance at end of period                         870                267

    Total equity                          $      816,256     $      785,886

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


                          Condensed Consolidated Statements of Cash Flows

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

                             Three          Three            Nine            Nine
                            months         months          months          months
                             ended          ended           ended           ended
                           October        October         October         October
                               31,            31,             31,             31,

                              2012           2011            2012            2011

    Cash provided by
    (used in)                                                                    

    OPERATING                                                                    

    Net profit         $               $              $               $
    (loss)                   4,014        (4,731)          20,377           8,855

      Depreciation
      and
      amortization          24,453         23,121          66,980          64,129

      Deferred
      income tax
      recovery            (12,721)        (4,781)        (18,262)         (8,200)

      Current income
      tax expense           14,408          3,509          29,842          11,420

      Finance
      expenses               4,811          4,040          12,719          13,206

      Stock-based
      compensation             434            492           1,288           1,602

      Other non-cash
      items                  (118)            125         (2,636)             124

      Foreign
      exchange gain        (1,049)        (3,240)           (632)         (3,432)

      Gain on
      disposition of
      assets                  (49)              -           (357)               -

    Change in
    non-cash
    operating
    working capital,
    excluding taxes
    and finance
    expenses               (9,399)       (34,883)        (25,977)        (92,399)

    Cash provided
    from (used in)
    operating
    activities              24,784       (16,348)          83,342         (4,695)

      Interest paid        (4,068)        (6,329)        (10,082)        (11,526)

      Income and
      mining taxes
      paid                 (2,145)        (1,077)        (21,183)           9,376

    Net cash from
    (used in)
    operating
    activities              18,571       (23,754)          52,077         (6,845)

    FINANCING                                                                    

    Increase in
    interest-bearing
    loans and
    borrowings                  16              -              16               -

    Decrease in
    interest-bearing
    loans and
    borrowings               (193)          (178)           (563)           (532)

    Increase in
    revolving credit       308,966        126,286         415,148         211,890

    Decrease in
    revolving credit     (275,185)       (69,457)       (376,370)       (127,464)

    Repayment of
    promissory note              -       (70,000)               -        (70,000)

    Issue of common
    shares, net of
    issue costs                  -            182               -           5,163

    Cash provided
    from financing
    activities              33,604       (13,167)          38,231          19,057

    INVESTING                                                                    

    Property, plant
    and equipment -
    Mining                (13,446)       (10,796)        (47,383)        (35,880)

    Property, plant
    and equipment -
    Luxury brand           (5,778)        (4,050)        (12,201)         (7,338)

    Net proceeds
    from sale of
    property, plant
    and equipment                -              -           2,619               -

    Other
    non-current
    assets                     654          (363)              21         (1,185)

    Cash used in
    investing
    activities            (18,570)       (15,209)        (56,944)        (44,403)

    Foreign exchange
    effect on cash
    balances                 2,616        (4,568)           (670)           6,681

    Increase
    (decrease) in
    cash and cash
    equivalents             36,221       (56,698)          32,694        (25,510)

    Cash and cash
    equivalents,
    beginning of
    period                  74,589        139,881          78,116         108,693

    Cash and cash      $               $              $               $
    equivalents, end
    of period              110,810         83,183         110,810          83,183

    Change in
    non-cash
    operating
    working capital,
    excluding taxes
    and finance
    expenses                                                                     

    Accounts
    receivable             (5,701)          (890)         (7,807)         (9,116)

    Inventory and
    supplies              (26,974)       (37,522)        (59,561)        (61,958)

    Other current
    assets                   3,474        (2,806)           6,653           (189)

    Trade and other
    payables                19,230          5,865          33,157        (21,307)

    Employee benefit
    plans                      572            470           1,581             171

                       $   (9,399)     $ (34,883)     $  (25,977)     $  (92,399)

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


Notes to Condensed Consolidated Financial Statements

OCTOBER 31, 2012 WITH COMPARATIVE FIGURES
(TABULAR AMOUNTS IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT AS
OTHERWISE NOTED)

Note 1:
Nature of Operations
Harry Winston Diamond Corporation (the “Company”) is a diamond
enterprise with assets in the mining and luxury brand segments of the
diamond industry.

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

On November 13, 2012, the Company entered into share purchase agreements
with BHP Billiton Canada Inc. and various affiliates to purchase all of
BHP Billiton’s diamond assets, including its controlling interest in
the Ekati Diamond Mine as well as the associated diamond sorting and
sales facilities in Yellowknife, Canada, and Antwerp, Belgium. The
Ekati Diamond Mine consists of the Core Zone, which includes the
current operating mine and other permitted kimberlite pipes, as well as
the Buffer Zone, an adjacent area hosting kimberlite pipes having both
development and exploration potential. The agreed purchase price,
payable in cash, is $400 million for the Core Zone interest and $100
million for the Buffer Zone interest, subject to adjustments in
accordance with the terms of the share purchase agreements. The share
purchase agreements include typical closing conditions, including
receipt of required regulatory and Competition Act approvals. Each of
the Core Zone and the Buffer Zone is subject to a separate joint
venture agreement. BHP Billiton holds an 80% interest in the Core Zone
and a 58.8% interest in the Buffer Zone, with the remainder held by the
Ekati minority joint venture parties. Pursuant to the joint venture
agreements, BHP Billiton will first separately offer to the joint
venture parties its interest in each of the Core and Buffer Zones on
the same terms as those agreed to by the Company. The joint venture
parties will then have 60 days to elect to acquire either or both of
those interests. Any interests that the joint venture parties do not
elect to acquire within that time period can then be transferred to the
Company in the following 60 days. If the Core Zone transaction is not
completed because the minority joint venture parties exercise their
pre-emptive rights, the Company will be entitled to be paid a
termination fee of $30 million by BHP Billiton. Closing of the
transactions is currently expected to occur before the end of March,
2013. The purchase price for the acquisitions will be satisfied from
cash resources on hand and from new debt financing that has been
arranged with two banks. The new facilities will comprise a $400
million term loan, a $100 million revolving credit facility (of which
$50 million will be available for purposes of funding the Ekati
acquisition) and a $140 million letter of credit facility in support of
the Core Zone environmental reclamation bond. The new facilities will
be secured and will replace the Company mining segment’s current $125
million facility with Standard Chartered Bank, which will be repaid and
terminated on closing.

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

The Company’s operations fluctuate from quarter to quarter depending on,
among other factors, the seasonality of production at the Diavik
Diamond Mine, seasonality of mine operating expenses, capital
expenditure programs, the number of rough diamond sales events
conducted during the quarter and the volume, size and quality
distribution of rough diamonds delivered from the Diavik Diamond Mine
in each quarter. The quarterly results for the luxury brand segment are
also seasonal, with generally higher sales during the fourth quarter
due to the holiday season.

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

Note 2:
Basis of Preparation


    (a)  Statement of compliance

         These unaudited interim condensed consolidated financial
         statements have been prepared in accordance with International
         Financial Reporting Standards ("IFRS") International Accounting
         Standard ("IAS") 34, "Interim Financial Reporting".

         These unaudited interim condensed consolidated financial
         statements do not include all disclosures required by IFRS for
         annual consolidated financial statements and accordingly should be
         read in conjunction with the Company's audited consolidated
         financial statements and notes thereto for the year ended January
         31, 2012. These statements have been prepared following the same
         accounting policies and methods of computation as the consolidated
         financial statements for the year ended January 31, 2012.

    (b)  Basis of measurement

         These unaudited interim condensed consolidated financial
         statements have been prepared on the historical cost basis except
         for the following:

             --  financial instruments held for trading are measured at
                 fair value through profit and loss
             --  liabilities for Restricted Share Unit and Deferred Share
                 Unit plans are measured at fair value

    (c)  Currency of presentation

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

Note 3:
Cash Resources


                                         October 31,       January 31,
                                                2012              2012

    Cash on hand and balances with
    banks                              $     105,634     $      76,030

    Short-term investments (a)                 5,176             2,086

    Total cash resources               $     110,810     $      78,116

((a)) Short-term investments are held in overnight deposits and money market
instruments with a maturity of 30 days.

Note 4:
Inventory and Supplies


                                             October 31,       January 31,
                                                    2012              2012

    Luxury brand raw materials             $      67,200     $      62,188

    Mining rough diamond inventory                68,332            62,472

                                                 135,532           124,660

    Luxury brand work-in-progress                 59,159            45,407

    Luxury brand merchandise inventory           245,789           218,844

    Mining supplies inventory                     73,078            68,916

    Total inventory and supplies           $     513,558     $     457,827

Total inventory and supplies is net of a provision for obsolescence of
$3.7 million ($3.1 million at January 31, 2012).

Note 5:
Diavik Joint Venture

The following represents HWDLP’s 40% proportionate interest in the Joint
Venture as at September 30, 2012 and December 31, 2011:


                                      October 31,       January 31,
                                             2012              2012

    Current assets                  $     100,331     $     101,454

    Non-current assets                    673,571           685,590

    Current liabilities                    30,656            31,745

    Non-current liabilities and           743,246           755,298
    participant's account


                      Three           Three     Nine months     Nine months
                     months          months           ended           ended
                      ended           ended     October 31,     October 31,
                    October     October 31,            2012            2011
                        31,            2011
                       2012

    Expenses     $   61,087   $      57,918   $     176,410   $     181,576
    net of
    interest
    income (a)
    (b)

    Cash flows     (28,936)        (26,920)       (126,311)       (116,815)
    resulting
    from (used
    in)
    operating
    activities

    Cash flows       56,264          39,156         168,464         154,239
    resulting
    from
    financing
    activities

    Cash flows     (23,310)        (13,460)        (42,451)        (35,680)
    resulting
    from (used
    in)
    investing
    activities

    (a)  The Joint Venture only earns interest income.

         Expenses net of interest income for the three months and nine
    (b)  months ended October 31, 2012 of $nil and $0.1 million,
         respectively (three and nine months ended October 31, 2011 of $nil
         and $0.1 million, respectively).

HWDLP is contingently liable for DDMI’s portion of the liabilities of
the Joint Venture, and to the extent HWDLP’s participating interest has
increased because of the failure of DDMI to make a cash contribution
when required, HWDLP would have access to an increased portion of the
assets of the Joint Venture to settle these liabilities. Additional
information on commitments and contingencies related to the Diavik
Joint Venture is found in Note 7.

Note 6:
Interest-Bearing Loans and Borrowings


                                           October 31,       January 31,
                                                  2012              2012

    Mining segment credit facilities     $      49,284     $      48,460

    Harry Winston Inc. credit                  234,063           217,071
    facilities

    First mortgage on real property              5,804             6,342

    Bank advances                               48,570            27,850

    Finance leases                                 431                 -

    Total interest-bearing loans and           338,152           299,723
    borrowings

    Less current portion                      (50,054)          (29,238)

                                         $     288,098     $     270,485


                                                  Carrying      Face
                                                    amount     value
                                                        at        at
                            Nominal                October   October
                           interest     Date of        31,       31,
                Currency       rate    maturity       2012      2012        Borrower

    Secured           US      4.09%    June 24,      $49.3     $50.0   Harry Winston
    bank loan                              2013    million   million         Diamond
                                                                         Corporation
                                                                                 and
                                                                       Harry Winston
                                                                       Diamond Mines
                                                                                Ltd.

    Secured           US      3.51%      August     $218.3    $223.0   Harry Winston
    bank loan                           30,2017    million   million            Inc.

    Secured          CHF      3.15%     January       $3.7      $3.7   Harry Winston
    bank loan                          31, 2033    million   million            S.A.

    Secured          CHF      3.55%     January      $12.0     $12.0   Harry Winston
    bank loan                          31, 2033    million   million            S.A.

    First            CDN      7.98%   September       $5.8      $5.8         6019838
    mortgage                            1, 2018    million   million     Canada Inc.
    on real
    property

    Secured           US      4.80%      Due on     $ 15.7    $ 15.7   Harry Winston
    bank                                 demand    million   million         Diamond
    advance                                                            International
                                                                                 N.V

                      US     12.50%      Due on      $ 2.1     $ 2.1   Harry Winston
                                         demand    million   million        Diamond
                                                                             (India)
                                                                             Private
                                                                             Limited

    Secured          CHF      4.00%      Due on      $ 7.4     $ 7.4   Harry Winston
    bank                                 demand    million   million            S.A.
    advance

    Secured          YEN      2.55%   February        $7.2      $7.2   Harry Winston
    bank                               22, 2013    million   million     Japan, K.K.
    advance

    Unsecured        YEN      2.98%    November       $6.5      $6.5   Harry Winston
    bank                               30, 2012    million   million     Japan, K.K.
    advance

    Unsecured        YEN      2.98%    November       $7.0      $7.0   Harry Winston
    bank                               30, 2012    million   million     Japan, K.K.
    advance

    Unsecured        YEN      2.48%   March 29,       $1.0      $1.0   Harry Winston
    bank                                   2013    million   million     Japan, K.K.
    advance

    Unsecured        YEN      2.00%    November       $1.3      $1.3   Harry Winston
    bank                               30, 2012    million   million     Japan, K.K.
    advance

    Unsecured        YEN      1.88%    November       $0.3      $0.3   Harry Winston
    bank                               22, 2012    million   million      Japan, K.K
    advance

    Finance          CHF      1.97%    April 1,       $0.4      $0.4   Harry Winston
    lease                                  2017    million   million            S.A.

    (a)      On August 30, 2012, Harry Winston Inc. refinanced its secured
             revolving credit facility by entering into a new secured
             five-year credit agreement with a consortium of banks led by
             Standard Chartered Bank establishing a $260.0 million facility
             for revolving credit loans. The new facility expires on August
             30, 2017. On November 7, 2012, Harry Winston Inc. signed the
             first amendment to its senior secured revolving credit
             agreement dated August 30, 2012. The amendment increased the
             current $260.0 million facility to $300.0 million with
             Manufacturers and Traders Trust Company agreeing to provide an
             additional $40.0 million commitment, and being added as a new
             lender under the current credit agreement. There are no
             scheduled repayments required before maturity. As with the
             previous agreement, 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 the luxury brand segment. At October 31, 2012, $223.0
             million was outstanding.

             The new credit agreement contains affirmative and negative
             non-financial and financial covenants, which apply to the
             luxury brand 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 new 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 luxury brand
             segment's assets, liabilities, consolidated financial position
             or consolidated results of operations constitutes default
             under the agreement.

             The luxury brand 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 new 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 2.50% to 3.25% 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 1.50% to 2.25% above the bank's prime rate based upon
             a pricing grid determined by the fixed charge coverage ratio
             as well.

    (b)      On August 21, 2012, Harry Winston S.A. entered into a credit
             facility with UBS AG establishing a CHF 7.0 million credit
             line.  The new credit facility is available to Harry Winston
             S.A. for general corporate purposes. The new facility contains
             affirmative and negative non-financial and financial
             covenants. The Harry Winston S.A. factory building is pledged
             as collateral to secure the borrowings. Borrowings under the
             credit facility can be either fixed rate loans or revolving
             line of credit loans in CHF or any freely available and
             convertible currency. Interest under the fixed rate option
             will be based upon Euromarket rates for the relevant term and
             currency plus a bank margin. Available terms under fixed rate
             borrowings are one to 12 months in minimum denominations of
             CHF 250,000. Interest under the revolving / overdraft option
             will bear interest at 4% per annum for CHF loans, and 5.5% per
             annum for USD loans. A 0.25% commission will be charged
             quarterly based upon the average debit balance. At October 31,
             2012, $7.4 million was outstanding.

Note 7:
Commitments and Guarantees


    (a)  Environmental agreements

         Through negotiations of environmental and other agreements, the
         Joint Venture must provide funding for the Environmental
         Monitoring Advisory Board. HWDLP anticipates its share of this
         funding requirement will be approximately $0.3 million for
         calendar 2012. Further funding will be required in future years;
         however, specific amounts have not yet been determined. These
         agreements also state that the Joint Venture must provide security
         deposits for the performance by the Joint Venture of its
         reclamation and abandonment obligations under all environmental
         laws and regulations. HWDLP's share of the letters of credit
         outstanding posted by the operator of the Joint Venture with
         respect to the environmental agreements as at October 31, 2012,
         was $81.4 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 upon for
         successive periods of six years thereafter until termination. The
         agreements terminate in the event that the mine permanently ceases
         to operate. Harry Winston Diamond Corporation's share of the Joint
         Venture's participation agreements as at October 31, 2012 was $1.5
         million.

    (c)  Operating lease commitments

         The Company has entered into non-cancellable operating leases for
         the rental of luxury brand salons and office premises, which
         expire at various dates through 2029. The leases have varying
         terms, escalation clauses and renewal rights. Any renewal terms
         are at the option of the lessee at lease payments based on market
         prices at the time of renewal. Certain leases contain either
         restrictions relating to opening additional salons within a
         specified radius or contain additional rents related to sales
         levels. Minimum rent payments under operating leases are
         recognized on a straight-line basis over the term of the lease,
         including any periods of free rent. Future minimum lease payments
         under non-cancellable operating leases as at October 31, 2012 are
         as follows:

    Within one year                                     $  25,276

    After one year but not more than five years           101,877

    More than five years                                  127,774

                                                        $ 254,927


    (d)  Capital commitments related to the Joint Venture

         At October 31, 2012, Harry Winston Diamond Corporation's share of
         approved capital expenditures at the Joint Venture was $23.5
         million.

Note 8:
Capital Management
The Company’s capital includes cash and cash equivalents, current and
non-current interest-bearing loans and borrowings and equity, which
includes issued common shares, contributed surplus and retained
earnings.

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

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

On August 30, 2012, the Company’s luxury brand subsidiary, Harry Winston
Inc., refinanced its secured revolving credit facility by entering into
a new secured five-year credit agreement with a consortium of banks led
by Standard Chartered Bank establishing a $260.0 million facility for
revolving credit loans. Harry Winston Inc. amended its senior secured
revolving credit facility on November 7, 2012, by adding an additional
$40.0 million increasing the total facility to $300.0 million. The new
facility expires on August 30, 2017. As with the previous agreement,
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 the luxury brand segment.

Note 9:
Segmented Information
The Company operated in three segments within the diamond industry -
mining, luxury brand and corporate – for the three months ended October
31, 2012.

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

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

The corporate segment captures costs not specifically related to
operations of the mining or luxury brand segments.


    For the three           Mining      Luxury     Corporate         Total
    months ended                         brand
    October 31, 2012

    Sales                                                                 

      America           $    7,697   $  30,751   $         -   $    38,448

      Europe                57,438      27,297             -        84,735

      Asia (excluding       19,683      15,493             -        35,176
      Japan)

      Japan                      -      22,040             -        22,040

      Total sales           84,818      95,581             -       180,399

    Cost of sales                                                         

      Depreciation          19,800         392             -        20,192
      and
      amortization

      All other costs       51,863      42,635             -        94,498

      Total cost of         71,663      43,027             -       114,690
      sales

    Gross margin            13,155      52,554             -        65,709

    Gross margin (%)         15.5%       55.0%            -%         36.4%

    Selling, general
    and
    administrative
    expenses

      Selling and              957      37,396             -        38,353
      related
      expenses

      Administrative         2,975       9,809         4,250        17,034
      expenses

      Total selling,         3,932      47,205         4,250        55,387
      general and
      administrative
      expenses

    Operating profit         9,223       5,349       (4,250)        10,322
    (loss)

    Finance expenses       (2,308)     (2,503)             -       (4,811)

    Exploration costs        (673)           -             -         (673)

    Finance and other           60          36             -            96
    income

    Foreign exchange         (301)       1,068             -           767
    gain (loss)

    Segmented profit    $    6,001   $   3,950   $   (4,250)   $     5,701
    (loss) before
    income taxes

    Segmented assets
    as at October 31,
    2012

      Canada            $  953,484   $       -   $         -   $   953,484

      United States              -     394,366       115,657       510,023

      Other foreign         34,651     235,034             -       269,685
      countries

                        $  988,135   $ 629,400   $   115,657   $ 1,733,192

    Capital             $   13,446   $   5,778   $         -   $    19,223
    expenditures

    Other significant
    non-cash items:

      Deferred income   $ (11,087)   $ (1,577)   $      (57)   $  (12,721)
      tax
      recovery   

    For the three           Mining      Luxury     Corporate         Total
    months ended                         brand
    October 31, 2011

    Sales                                                                 

      America           $    8,835   $  28,817   $         -   $    37,652

      Europe                21,993      19,561             -        41,554

      Asia (excluding        5,411      13,133             -        18,544
      Japan)

      Japan                      -      21,966             -        21,966

      Total sales           36,239      83,477             -       119,716

    Cost of sales                                                         

      Depreciation          19,340          57             -        19,397
      and
      amortization

      All other costs       14,772      41,321            34        56,127

      Total cost of         34,112      41,378            34        75,524
      sales

    Gross margin             2,127      42,099          (34)        44,192

    Gross margin (%)          5.9%       50.4%            -%         36.9%

    Selling, general
    and
    administrative
    expenses

      Selling and              966      30,800             -        31,766
      related
      expenses

      Administrative         2,308       9,835         2,246        14,389
      expenses

      Total selling,         3,274      40,635         2,246        46,155
      general and
      administrative
      expenses

    Operating profit       (1,147)       1,464       (2,280)       (1,963)
    (loss)

    Finance expenses       (2,691)     (1,474)           125       (4,040)

    Exploration costs        (600)           -             -         (600)

    Finance and other          256          33         (125)           164
    income

    Foreign exchange           285         151             -           436
    gain

    Segmented profit    $  (3,897)   $     174   $   (2,280)   $   (6,003)
    (loss) before
    income taxes

    Segmented assets
    as at October 31,
    2011

      Canada            $  941,028   $       -   $         -   $   941,028

      United States              -     337,501       106,215       443,716

      Other foreign         57,853     208,012             -       265,865
      countries

                        $  998,881   $ 545,513   $   106,215   $ 1,650,609

    Capital             $   10,796   $   4,050   $         -   $    14,846
    expenditures

    Other significant
    non-cash items:

      Deferred income   $  (4,190)   $   (520)   $      (71)   $   (4,781)
      tax recovery

    For the nine            Mining      Luxury     Corporate         Total
    months ended                         brand
    October 31, 2012

    Sales                                                                 

      America           $   17,398   $  98,796   $         -   $   116,194

      Europe               162,322      72,987             -       235,309

      Asia (excluding       55,580      69,834             -       125,414
      Japan)

      Japan                      -      72,840             -        72,840

      Total sales          235,300     314,457             -       549,757

    Cost of sales                                                         

      Depreciation          53,754       1,052             -        54,806
      and
      amortization

      All other costs      134,792     148,920             -       283,712

      Total cost of        188,546     149,972             -       338,518
      sales

    Gross margin            46,754     164,485             -       211,239

    Gross margin (%)         19.9%       52.3%            -%         38.4%

    Selling, general
    and
    administrative
    expenses

      Selling and            2,667     114,329             -       116,996
      related
      expenses

      Administrative         6,756      29,682        12,441        48,879
      expenses

      Total selling,         9,423     144,011        12,441       165,875
      general and
      administrative
      expenses

    Operating profit        37,331      20,474      (12,441)        45,364
    (loss)

    Finance expenses       (6,701)     (6,018)             -      (12,719)

    Exploration costs      (1,495)           -             -       (1,495)

    Finance and other          179          72             -           251
    income

    Foreign exchange           377         179             -           556
    gain

    Segmented profit    $   29,691   $  14,707   $  (12,441)   $    31,957
    (loss) before
    income taxes

    Segmented assets
    as at October 31,
    2012

      Canada            $  953,484   $       -   $         -   $   953,484

      United States              -     394,366       115,657       510,023

      Other foreign         34,651     235,034             -       269,685
      countries

                        $  988,135   $ 629,400   $   115,657   $ 1,733,192

    Capital             $   47,383   $  12,201   $         -   $    59,584
    expenditures

    Other significant
    non-cash items:

      Deferred income   $ (15,246)   $ (2,845)   $     (171)   $  (18,262)
      tax
      recovery   

    For the nine            Mining      Luxury     Corporate         Total
    months ended                         brand
    October 31, 2011

    Sales                                                                 

      America           $   12,291   $  91,487   $         -   $   103,778

      Europe               152,876      63,105             -       215,981

      Asia (excluding       22,715      86,543             -       109,258
      Japan) (a)

      Japan                      -      57,009             -        57,009

      Total sales          187,882     298,144             -       486,026

    Cost of sales                                                         

      Depreciation          52,572         215             -        52,787
      and
      amortization

      All other costs      102,596     166,635           135       269,366

      Total cost of        155,168     166,850           135       322,153
      sales

    Gross margin            32,714     131,294         (135)       163,873

    Gross margin (%)         17.4%       44.0%            -%         33.7%

    Selling, general
    and
    administrative
    expenses

      Selling and            2,392      90,098             -        92,490
      related
      expenses

      Administrative         9,001      28,584         7,976        45,561
      expenses

      Total selling,        11,393     118,682         7,976       138,051
      general and
      administrative
      expenses

    Operating profit        21,321      12,612       (8,111)        25,822
    (loss)

    Finance expenses       (9,171)     (4,160)           125      (13,206)

    Exploration costs      (1,593)           -             -       (1,593)

    Finance and other          411         219         (125)           505
    income

    Foreign exchange           154         393             -           547
    gain

    Segmented profit    $   11,122   $   9,064   $   (8,111)   $    12,075
    (loss) before
    income taxes

    Segmented assets
    as at October 31,
    2011

      Canada            $  941,028   $       -   $         -   $   941,028

      United States              -     337,501       106,215       443,716

      Other foreign         57,853     208,012             -       265,865
      countries

                        $  998,881   $ 545,513   $   106,215   $ 1,650,609

    Capital             $   35,880   $   7,338   $         -   $    43,218
    expenditures

    Other significant
    non-cash items:

      Deferred income   $ (12,154)   $   4,180   $     (226)   $   (8,200)
      tax expense
      (recovery)

    (a) Sales to one significant customer in the luxury brand segment
        totalled $45.0 million for the nine months ended October 31, 2011.

Note 10:
Recast
During the preparation of the income tax provision for the quarter ended
April 30, 2012, the Company noted a historical difference related to
the accounting for Northwest Territories mining royalty taxes in
connection with the Company’s rough diamond inventory. For Northwest
Territories mining royalty tax purposes, the Company is subject to
mining royalty taxes, which includes a requirement to treat the rough
diamond inventory when it comes out of the Diavik Diamond Mine as
taxable. This results in an accounting timing difference between the
mining and extraction of the diamonds and when they are sold. The
Company did not previously record the corresponding deferred tax asset
on the rough diamond inventory related to royalty taxes payable. The
Company has revised the comparative figures to correct the immaterial
impact of this item with the offset recorded in retained earnings,
amounting to $5.8 million as at January 31, 2011 and 2012.

SOURCE Harry Winston Diamond Corporation


Source: PR Newswire