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Press release from CNW Group

Corby Distilleries announces quarterly dividend and reports fourth quarter & year-end financial results

Wednesday, August 24, 2011

Corby Distilleries announces quarterly dividend and reports fourth quarter & year-end financial results10:25 EDT Wednesday, August 24, 2011TORONTO, Aug. 24, 2011 /CNW/ - Corby Distilleries Limited ("Corby" or the "Company") (TSX:CDL.A, TSX:CDL.B) today reported its dividend and financial results for the fourth quarter ended June 30, 2011. The Corby Board of Directors today also declared a dividend of $0.14 per share payable on September 30, 2011 on Voting Class A Common Shares and Non-voting Class B Common Shares of the Company to shareholders of record as at the close of business on September 15, 2011. All financial results are reported in Canadian dollars.Net earnings for the fourth quarter and year ended June 30, 2011 totaled $6.6 million (or $0.23 per share) and $27.4 million (or $0.96 per share), respectively. Earnings for the quarter were consistent with the same quarter last year, while full year earnings increased $6.7 million. The comparability of full year earnings is significantly impacted by two events involving the Seagram Coolers brand. Specifically, current year results include a loss on sale of the brand in the amount of $1.7 million, while the comparative period included an impairment charge amounting to $9.4 million.Excluding the impact of these two events, net earnings for the year decreased $0.9 million (-3%), or $0.03 per share. The earnings decline is due to increased advertising and promotional spend being strategically invested behind the Company's key brands. In addition, favourable movements in product mix, general increases in selling prices, and reductions in the cost of certain production inputs were offset by volume declines in international markets and British Columbia.Operating revenue for the fourth quarter was $39.9 million compared to $42.0 million for the same quarter last year, representing a decrease of $2.1 million, or 5%. This decrease was primarily due to the inclusion of $2.3 million in sales related to the Seagram Coolers brand in the comparative period. Excluding this, operating revenues increased by $0.2 million compared to the fourth quarter last year."Corby continued to progress positively in fiscal 2011, as we were able to significantly increase the level of advertising and promotional investment behind our strategic brands, while delivering a solid performance. As a result, brands such as Wiser's Canadian whisky and Polar Ice vodka experienced strong performances and Lamb's Black Sheep spiced rum continues to build its position in the marketplace", noted Patrick O'Driscoll, President and Chief Executive Officer of Corby.For further details, please refer to Corby's management's discussion and analysis and consolidated financial statements and accompanying notes for the year ended June 30, 2011, prepared in accordance with Canadian generally accepted accounting principles.About Corby Corby's portfolio of owned-brands includes some of the most renowned brands in Canada, including Wiser's Canadian whiskies, Lamb's rum, Polar Ice vodka and McGuinness liqueurs. Through its affiliation with Pernod Ricard, Corby also represents leading international brands such as ABSOLUT vodka, Chivas Regal, The Glenlivet and Ballantine's Scotch whiskies, Jameson Irish whiskey, Beefeater gin, Malibu rum, Kahlúa liqueur, Mumm champagne, and Jacob's Creek and Wyndham Estate wines.The existing Voting Class A Common Shares and Non-voting Class B Common Shares of the Company are traded on the Toronto Stock Exchange under the symbols CDL.A and CDL.B.This press release contains forward-looking statements, including statements concerning possible or assumed future results of Corby's operations. Forward-looking statements typically are preceded by, followed by or include the words "believes", "expects", "anticipates", "estimates", "intends", "plans" or similar expressions. Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions and, as such, the Company's results could differ materially from those anticipated in these forward-looking statements. Accordingly, readers should not place undue reliance on forward-looking statements.CORBY DISTILLERIES LIMITEDManagement's Discussion and AnalysisJune 30, 2011 The following Management's Discussion and Analysis ("MD&A") dated August 24, 2011 should be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended June 30, 2011, prepared in accordance with Canadian generally accepted accounting principles ("GAAP").This MD&A contains forward-looking statements, including statements concerning possible or assumed future results of operations of Corby Distilleries Limited ("Corby" or the "Company"). Forward-looking statements typically are preceded by, followed by or include the words "believes", "expects", "anticipates", "estimates", "intends", "plans" or similar expressions. Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions, including, but not limited to: the impact of competition; consumer confidence and spending preferences; regulatory changes; general economic conditions; and the Company's ability to attract and retain qualified employees. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. These factors are not intended to represent a complete list of the factors that could affect the Company. Additional factors are noted elsewhere in this MD&A.This document has been reviewed by the Audit Committee of Corby's Board of Directors and contains certain information that is current as of August 24, 2011. Events occurring after that date could render the information contained herein inaccurate or misleading in a material respect. Corby will provide updates to material forward-looking statements, including in subsequent news releases and its interim management's discussion and analyses filed with regulatory authorities as required under applicable law. Additional information regarding Corby, including the Company's Annual Information Form, is available on SEDAR at www.sedar.com.Unless otherwise indicated, all comparisons of results for the fourth quarter of fiscal 2011 (three months ended June 30, 2011) are against results for the fourth quarter of fiscal 2010 (three months ended June 30, 2010). All dollar amounts are in Canadian dollars unless otherwise stated.Business OverviewCorby is a leading Canadian manufacturer and marketer of spirits and importer of wines. Corby's national leadership is sustained by a diverse brand portfolio which allows the Company to drive profitable organic growth with strong, consistent cash flows. Corby is a publicly traded company, with its shares listed on the Toronto Stock Exchange under the symbols "CDL.A" (voting Class A common shares) and "CDL.B" (non-voting Class B common shares). Corby's voting Class A common shares are majority-owned by Hiram Walker & Sons Limited ("HWSL") (a private company) located in Windsor, Ontario. HWSL is a wholly owned subsidiary of international spirits and wine company, Pernod Ricard S.A. ("PR") (a French public limited company), which is headquartered in Paris, France. Therefore, throughout the remainder of this MD&A, Corby refers to HWSL as its parent, and to PR as its ultimate parent. Affiliated companies are those that are also subsidiaries of PR.The Company derives its revenues from the sale of its owned-brands as well as earning commission income from the representation of selected non-owned brands in the Canadian market place. Revenue from Corby's owned-brands are denoted as "Sales" on the consolidated statements of earnings and while it predominantly consists of sales made to each of the provincial liquor boards in Canada, it also includes sales to international markets. Commission income earned from the representation of non-owned brands is denoted as "Commissions" on the consolidated statements of earnings.Corby's portfolio of owned-brands includes some of the most renowned brands in Canada, including Wiser's Canadian whisky, Lamb's rum, Polar Ice vodka and McGuinness liqueurs. Through its affiliation with PR, Corby also represents leading international brands such as ABSOLUT vodka, Chivas Regal, The Glenlivet and Ballantine's Scotch whiskies, Jameson Irish whiskey, Beefeater gin, Malibu rum, Kahlúa liqueur, Mumm champagne, and Jacob's Creek, Wyndham Estate, and Graffigna wines. In addition to representing PR's brands in Canada, Corby also provides representation for certain selected, unrelated third-party brands ("Agency brands") when they fit within the Company's strategic direction and, thus, complement Corby's existing brand portfolio.The Company sources more than 80% of its spirits production requirements from HWSL at its production facilities in Windsor, Ontario, with the balance of Corby's spirits production being sourced from the Company's owned-plant in Montréal, Québec.In September 2006, PR and Corby agreed upon terms for the continuation of production of Corby's owned-brands by PR at HWSL's production facility in Windsor, Ontario, for the next 10 years, expiring September 2016. Corby and PR further agreed that Corby will manage PR's business interests in Canada, including HWSL's production facility, during that same 10-year period.In most provinces, Corby's route to market in Canada entails shipping its products to government controlled liquor boards ("LBs"). The LBs then sell directly, or control the sale of, beverage alcohol products to end consumers. The exception to this model is Alberta, where the retail sector is privatized. In this province, Corby ships products to a bonded warehouse that is managed by a government-appointed service provider who is responsible for warehousing and distribution into the retail channel.Corby's shipment patterns to the LBs will not always exactly match short-term consumer purchase patterns. However, given the importance of monitoring consumer consumption trends over the long term, the Company stays abreast of consumer purchase patterns in Canada through its member affiliation with the Association of Canadian Distillers ("ACD"), which tabulates and disseminates consumer purchase information it receives from the LBs to its industry members. Corby refers to this data throughout this MD&A as "retail sales" which are measured both in volume (measured in nine-litre-case equivalents) and in retail value (measured in Canadian dollars).Corby's route to market for its international business primarily entails direct shipment of its products to international distributors, located mainly in the US and UK markets. International sales typically account for less than 10% of Corby's total annual sales. Distributors sell to various local wholesalers and retailers who in turn sell directly to the consumer. Reliable consumer purchase data is not readily available for these international markets and is, therefore, not discussed in this MD&A.Corby's operations are subject to seasonal fluctuations; as sales are typically strong in the first and second quarter due to increased purchases by consumers during the retail holiday season, while third-quarter sales (January, February and March) usually decline after the end of the retail holiday season. Fourth-quarter sales typically increase again with the onset of warmer weather as consumers tend to increase their purchasing levels during the summer season.Strategies and OutlookCorby's business strategies are designed to maximize sustainable long-term value growth, and thus deliver solid profit while continuing to produce strong and consistent cash flows from operating activities. The Company's portfolio of owned and represented brands provides an excellent platform from which to achieve its current and long-term objectives moving forward.Management believes that having a focused brand prioritization strategy will permit it to capture market share in the segments and markets which are expected to deliver the most growth in value over the long term. Therefore, the Company's strategy is to focus its investments on, and leverage the long term growth potential of, its key brands. As a result, Corby will continue to invest behind its brands to promote its premium offerings where it makes the most sense and drives the most value for shareholders.Brand prioritization requires an evaluation of each brand's potential to deliver upon this strategy, and facilitates Corby's marketing and sales teams' focus and resources allocation. Over the long term, management believes that effective execution of its strategy will result in value creation for shareholders.In addition, management is convinced that innovation is key to seizing new profit and growth opportunities. Successful innovation can be delivered through a structured and efficient process as well as consistent investment on consumer insight and research and development ("R&D"). As far as R&D is concerned, the Company benefits from access to leading edge practices at Pernod Ricard's North American hub, which is located in Windsor, Ontario.Finally, the Company is a strong advocate of social responsibility, especially with respect to its sales and promotional activities. Corby will continue to promote the responsible consumption of its products in its activities. The Company stresses its core values throughout its organization, including those of value creation, social responsibility, tradition, substance over style, and character above all.Current Market EnvironmentWhile there is evidence that a recovery in the Canadian economy is currently underway, not all indicators, including employment rates and consumer confidence, are recovering at the same pace and it appears that the recovery remains fragile. As well, the Canadian market is strongly influenced by events in the US, which have recently added a significant level of uncertainty. The Canadian dollar while continuing to be strong, has shown volatility and employment rates in Canada remain a concern. In addition, consumer confidence (based on the "Consumer Confidence Index", as reported by the Conference Board of Canada) has fallen in recent months.Furthermore, while a strong Canadian dollar may benefit some parts of the economy, it tends to negatively affect the export-driven manufacturing sector, which is a key pillar of Ontario's economy and one of Corby's largest markets. Given these facts, there remains substantial uncertainty regarding the strength of economic growth in Canada in the months ahead.The Company has a strong financial position, which has allowed it to better face the economic uncertainty. Of particular consideration are the following factors:Corby is a leader in the Canadian spirits market and has a long history of profitability and uninterrupted dividends;The Company has an exceptionally diverse and strong brand portfolio, which is well positioned to meet consumer tastes across spirit categories at a wide range of price points;Corby's largest customers are government-controlled LBs in each province, which greatly reduces the risk associated with the collection of accounts receivable;Corby has no long-term debt and, therefore, no financial or other covenants; andThe Company has significant sources of liquidity via its $96.6 million currently on deposit in cash management pools with PR's other Canadian affiliates.Moreover, the spirits business in Canada has, historically, been less affected by economic slowdowns than other consumer and manufacturing businesses. However, no business is completely immune to a slowdown in the economy. As a result, Corby closely monitors its exposure to the following potential risks, which could impact future profitability and cash flows, so it can be in a position to proactively respond should any of the following materialize:Long-term decline in the level of spirits consumption by consumers;Deterioration of the financial health of key suppliers;Impairment of goodwill and intangible assets; andHigher pension funding requirements.Corby's financial results in recent quarters have been unfavourably impacted by a short-term decline in consumer demand, and by an impairment charge recorded during the second quarter ended December 31, 2009 against its goodwill and intangible assets values. The other factors noted in the list above have not had a measurable impact on the Company. Management will continue to closely monitor the ongoing economic environment and take proactive measures, as necessary.Significant EventCorby Sells Seagram Coolers Effective March 16, 2011On March 16, 2011, Corby entered into an agreement with Brick Brewing Co. Limited ("Brick") whereby Brick purchased from Corby the Canadian rights to the Seagram Coolers brand for a purchase price of $7.3 million, plus the value of inventory on hand (the "Inventory Value"). The purchase price was satisfied by a $4.9 million cash payment on closing and a secured promissory note issued by Brick in favour of Corby for the remaining balance, which will be paid over the next four years with 5% interest per annum. The Inventory Value of $1.4 million will be paid by Brick to Corby one year after the closing date of the transaction. Payment for the inventory is secured by an insurance policy issued in favour of the Company and payable in the event of a default by or insolvency of Brick, subject to the terms and conditions of the policy. The transaction resulted in a net loss on sale of $1.7 million for the Company.The Seagram Coolers business in Canada was acquired by Corby on September 29, 2006. The brand had initially been quite successful and achieved the internal goals and objectives management had set for it. However, over the past several years, the brand underperformed relative to its competitive set due to aggressive competition from both category leaders as well as new entrants in adjacent categories. Although the Seagram Coolers brand had recently been the focus of a brand rejuvenation plan, the sale of the brand allows Corby to focus resources on the long-term growth of its core portfolio of premium spirits and wines.For the year ended June 30, 2010 (the last full year Seagram Coolers was owned by Corby), the brand contributed $0.7 million to net earnings on sales of $5.3 million. For the current fiscal year, up to March 16, 2011, the date of sale, the brand contributed $0.2 million to net earnings on $2.3 million of sales. Throughout this MD&A, when the discussion adds clarity for readers, the impact of Seagram Coolers on current year and prior year results has been considered.Non-GAAP Financial MeasureCorby defines "Earnings from Operations" as earnings before impairment, interest income, foreign exchange, gains or losses on disposal of assets, and income taxes. This non-GAAP financial measure has been included in this MD&A, as management believes it is useful in measuring the Company's operating performance.However, Earnings from Operations is not a measure recognized by GAAP and it does not have a standardized meaning prescribed by GAAP. Therefore, Earnings from Operations may not be comparable to similar measures presented by other issuers. Investors are cautioned that Earnings from Operations should not be construed as an alternative to net earnings, as determined in accordance with GAAP, as indicators of performance. A reconciliation of Earnings from Operations to net earnings can be found in the "Financial and Operating Results" section of this MD&A.Three-Year Review of Selected Financial InformationThe following table provides a summary of certain selected consolidated financial information for the Company. This information has been prepared in accordance with Canadian GAAP.                (in millions of Canadian dollars, except per share amounts)    2011    2010    2009                Operating revenue  $ 158.8  $ 162.2  $ 169.3                Earnings from operations    40.0    43.0    43.4- Earnings from operations per common share    1.40    1.51    1.52                Net earnings    27.4    20.7    30.4- Basic earnings per share    0.96    0.73    1.07- Diluted earnings per share    0.96    0.73    1.07                Net earnings excluding unusual items*    29.2    30.1    30.4- Basic earnings per share, excluding unusal items *    1.02    1.06    1.07- Diluted earnings per share, excluding unusual items *    1.02    1.06    1.07                Total assets    283.9    271.2    270.2Total liabilities    31.5    30.3    33.9                Dividends paid per share    0.56    0.56    0.56* Net earnings have been adjusted for the net after-tax loss on the sale of Seagram Coolers of $1.7 million in 2011 and the net after-tax impairment charge recognized in 2010 of $9.4 million.In fiscal 2009, Corby began to experience the impact of a global economic recession which has held back economic growth in Canada over the three year period. Difficult conditions continued in 2011 dampening consumer discretionary spending, and ultimately impacting Corby's financial results both in Canada and its international markets. Operating revenue since 2009 has decreased 6% or $10.5 million. Significant impacts to top line performance can be partially attributed to the decline, and eventual sale, of the Seagram Coolers brand. Revenues for this brand declined $5.5 million from 2009. As well, challenges experienced internationally as the Canadian dollar continued to strengthen relative to the US dollar ("USD") and UK pound sterling ("GBP") have impacted sales in these markets by 27% over the three year period. These trends have been partially offset by improved product mix and increases in average selling prices.Excluding the impact of the aforementioned sale of Seagram Coolers and the impairment charge in 2010, net earnings over the past three years have been fairly resilient in light of the difficult economic conditions and related drop in consumer confidence. In 2010, the Company became subject to a higher rate of excise tax on its Canadian whisky brands as a result of legislation passed by the federal government. It is estimated that this change in excise duty rates impacted net earnings by 2.5%; this impact carries through in 2011. It is also important to note that, throughout these economically challenging years, Corby continued to invest in the long-term success of its brands by increasing its advertising and promotional expenditures in each of the last three years. As well, the Company has continued to strengthen its balance sheet, as net equity increased by $16.1 million since 2009, while dividend levels have been maintained at $0.56 per share, which is consistent with Corby's dividend policy.Brand Performance ReviewCorby's portfolio of owned-brands accounts for more than 80% of the Company's total year to date operating revenue. Included in this portfolio are its key brands: Wiser's Canadian whisky, Lamb's rum, Polar Ice vodka, and Corby's mixable liqueur brands. The sales performance of these key brands significantly impacts Corby's net earnings. Therefore, understanding each key brand is essential to understanding the Company's overall performance.Shipment Volume and Sales Value PerformanceThe following chart summarizes the performance of Corby's owned-brands in terms of both shipment volume (as measured by shipments to customers in equivalent nine-litre cases) and shipment value (as measured by the change in sales revenue). The chart includes results for sales in both Canada and international markets. Specifically, the Wiser's, Lamb's and Polar Ice brands are also sold to international markets, particularly in the US and UK. International sales typically account for less than 10% of Corby's total annual sales. BRAND PERFORMANCE CHART - INCLUDES BOTH CANADIAN AND INTERNATIONAL SHIPMENTS                        Three Months Ended Year Ended    ShipmentShipment   ShipmentShipment  Jun. 30Jun. 30% Volume% Value Jun. 30Jun. 30% Volume% ValueVolumes (in 000's of 9L cases)20112010ChangeChange 20112010ChangeChange           Brand          Wiser's Canadian whisky204208(2%)0% 776780(1%)1%Lamb's rum 114138(17%)(14%) 549599(8%)(6%)Polar Ice vodka95100(5%)(4%) 363367(1%)2%Mixable liqueurs4951(4%)(3%) 207211(2%)(1%)           Total Key Brands462497(7%)(5%) 1,8951,957(3%)(1%)All other Corby-owned brands          excluding Seagram Coolers (1)124134(7%)(7%) 511536(5%)(2%)           Total excluding Seagram Coolers586631(7%)(5%) 2,4062,493(3%)(1%)           Seagram Coolers (1)-88(100%)(100%) 107237(55%)(58%)           Total 586719(18%)(11%) 2,5132,730(8%)(4%)           (1)The Seagram Coolers brand was sold March 16, 2011       As previously discussed in the "Strategies and Outlook" section of this MD&A, the Company has implemented a brand prioritization strategy that requires focused investments in key brands and in key markets, with the long-term objective of maximizing value growth. This strategy is designed to leverage the long-term growth potential of Corby's key brands. Note that the chart above segregates the Seagram Coolers brand from the other Corby-owned brands as it was disposed of on March 16, 2011. For further information regarding the sale of this brand, please refer to the "Significant Event" section of this MD&A.Throughout 2011, the Canadian economy continued to show mixed indicators across the provinces, with unemployment still a concern and hampering consumer demand. In addition to the overall market conditions, competition for market share has seen key competitors become increasingly aggressive, particularly as it relates to pricing strategies and discounting. The overall spirit market in Canada showed a 1% year over year growth in retail volume and 2% growth in value with softer than expected recoveries in certain markets. Most notably, the spirit market in British Columbia ("BC") has struggled, resulting in declines in volume and value of 3% and 2% this year, when compared to last year.Corby's performance in Canada (excluding Seagram Coolers) reflects the uncertainty in the market. Despite the decrease in shipment volume (a decrease of 3%, excluding Seagram Coolers), Corby's shipment value remained consistent with last year, which is primarily the result of having positive movements in both product and geographical mix, in addition to increases in average selling prices in several Canadian provinces, including key markets such as Ontario.Partially explaining the difference in performance between Corby products and the Canadian spirits industry is that Corby is heavily weighted in the Canadian whisky and white rum segments, which continue to experience declines in consumer purchases. Throughout Canada, these spirit categories delivered a lacklustre volume performance, decreasing 2% and 4%, respectively, when comparing market volumes year over year. Despite these market conditions, Wiser's continues to outperform its category with a 1% increase in retail volumes and 2% increase in retail value compared to the prior year. Meanwhile, the Lamb's overall brand performance has been assisted by growth of Lamb's spiced variant (named Lamb's Black Sheep), which has shown promising results in only its second year since being introduced.Shipment volumes in the fourth quarter were down considerably when compared with the same quarter last year. The same challenges impacting annual results combined with reduced inventory levels by certain key customers were the primary reasons for this decline. The Company's Lamb's rum brand was especially impacted by adjustments to customers' inventory levels this quarter.International shipment volume and value decreased 17% and 21%, respectively, when compared with the prior year. Difficult economic conditions in the UK, along with a saturated vodka market in the US, have contributed to the volume decline. Volumes in the UK market were further impacted by an inventory level reduction, planned as part of the Company's decision to relocate its production of Lamb's international products to the UK in early fiscal 2012. Further information regarding this decision has been provided in the "Financial and Operating Results" section of this MD&A. In addition to the aforementioned factors impacting volumes, Corby's international sales have also been unfavourably affected by the strengthening of the Canadian dollar relative to the USD and GBP. Fourth quarter international sales were impacted by these same factors.Retail Volume and Retail Value PerformanceIt is of critical importance to understand the performance of Corby's brands at the retail level in Canada. Analysis of performance at the retail level provides insight with regards to consumers' current purchase patterns and trends. Retail sales data, as provided by the ACD, is set out in the following chart and is discussed throughout this MD&A. It should be noted that the retail sales information presented does not include international retail sales of Corby-owned brands, as this information is not readily available. International sales typically account for less than 10% of Corby's total annual sales. RETAIL SALES FOR THE CANADIAN MARKET ONLY(1)                                    Three Months Ended Year Ended    % Retail% Retail   % Retail% Retail  Jun. 30Jun. 30VolumeValue Jun. 30Jun. 30VolumeValueVolumes (in 000's of 9L cases)20112010ChangeChange 20112010ChangeChange           Brand          Wiser's Canadian whisky1571514%3% 6956891%2%Lamb's rum 102108(5%)(4%) 455471(3%)(2%)Polar Ice vodka74705%5% 3213084%4%Mixable liqueurs4344(1%)(3%) 209211(1%)0%           Total Key Brands3763731%1% 1,6801,6790%1%All other Corby-owned brands          excluding Seagram Coolers (2)114120(5%)(5%) 488509(4%)(3%)           Total excluding Seagram Coolers4904930%(1%) 2,1682,188(1%)0%           Seagram Coolers (2)-66N/AN/A 137265(48%)(49%)           Total 490559(12%)(3%) 2,3052,453(6%)(1%)(1) Refers to sales at the retail store level in Canada, as provided by the Association of Canadian Distillers.        (2) The Seagram Coolers brand was sold March 16, 2011.        While ongoing uncertainty exists, the Canadian spirits market is showing some modest signs of recovery, as retail volumes increased 1% with retail value gaining 2% on a year over year comparison basis. As previously noted, the relative performance of Corby's owned-brands as against the Canadian spirits industry as a whole is largely attributable to the fact that Corby's brands are over weighted in the Canadian whisky and white rum categories, which continue to trend below that of other categories. In addition, Corby's brands are especially well represented in the BC market, which continues to underperform relative to other provincial markets with its total spirit retail volumes decreasing 3% on a year over year comparison basis. The Canadian whisky and white rum categories in Canada have retail volumes showing declining trends of 2% and 4%, respectively, compared to 2010. Corby's key brands in these categories (i.e., Wiser's Canadian whisky and Lamb's rum) are outperforming their categories at the retail level on an annual basis; nonetheless, they are impacted by overall consumer trends in Canada.As a result, management has responded with increased dedication to innovation, utilizing PR's North American research and development team to create Lamb's Black Sheep, a spiced rum variant of Corby's popular Lamb's rum brand family in an effort to diversify its rum portfolio and tap into a growing spiced rum segment. Furthermore, the Company has significantly increased its investment levels behind key brands and in key markets (especially Western Canada). With increased levels of advertising and promotional support this year, management continues to focus the Company's resources on long-term growth of its key brands.Summary of Corby's Key BrandsWiser's Canadian WhiskyCorby's flagship brand, Wiser's Canadian whisky, experienced retail volume growth of 1% while the Canadian whisky category as a whole declined by 2%, when measured on a year over year basis. The brand continues to gain market share from both a volume and value perspective, at the expense of its direct competitors in Canada. The Company continued to build upon the brand's popular "Welcome to the Wiserhood" television campaign with new television commercials and a social media campaign in addition to its continued involvement with sport sponsorships.Lamb's RumLamb's rum, one of the top-selling rum families in Canada, saw its retail volumes decrease by 3% this year versus last year while retail volumes for the rum segment in Canada increased 2%. The growth in the rum segment has been entirely driven by growth in the spiced and dark rum categories, while consumer consumption of white rum has been experiencing declines (4% year over year). As the Lamb's rum family has a significant amount of its volume weighted in white rum, its performance is reflective of the decline in this category.The Company has responded with the creation of a Lamb's spiced rum variant across Canada (named Lamb's Black Sheep) as Corby looks to capitalize on the growing consumer demand in the spiced rum segment. The product was launched in fiscal 2010, and while it's still in the early stages of its life cycle, initial results and indicators continue to be positive with strong growth being experienced in key markets. Moreover, the brand's development was supported by a new media campaign in the second and third quarter of fiscal 2011, in an effort to solidify the brand's position in the market and support future long-term growth.Polar Ice VodkaPolar Ice vodka, which is among the top three largest vodka brands in Canada, experienced 4% growth in retail volume and value for the year, with volumes outpacing it's category in Canada. The vodka category in Canada experienced an increase in retail value of 4%, while retail volumes increased 2% over last year. Polar Ice vodka's performance this year represents a dramatic turnaround from that experienced last year when retail volumes were trending at -4%. Aggressive investment in key markets supported with an outdoor "Canada's vodka" media campaign, were key reasons consumers re-engaged the brand. However, Polar Ice continues to face aggressive competition across most major markets, mainly in the form of price discounting by key competitors, and difficult market conditions in BC where volumes in the vodka category are trending at -3% on a year over year comparison basisMixable LiqueursCorby's portfolio of mixable liqueur brands consists of McGuinness liqueurs (which is Canada's largest mixable liqueur brand family), Meaghers liqueurs and De Kuyper liqueurs. Retail value for Corby's mixable liqueurs portfolio were flat with retail volume declining 1%, on a year to date comparison basis. The Canadian liqueur category, as a whole, was flat in both retail volumes and retail value on a year over year comparison basis. This year's performance, represents a significant improvement from trends experienced a year ago, where retail volumes in this category were trending at -4%. The liqueur segment is most affected by changes in consumer spending, particularly as it relates to consumption at licensed establishments, such as bars and restaurants.All Other Corby-Owned BrandsThis group includes various Corby brands, such as Royal Reserve and Silk Tassel Canadian whiskies, and Red Tassel vodka. The group experienced a decline in both retail value and volume on a year to date comparative basis of 3% and 4%, respectively. Given the relative weighting of this group of brands to the Canadian whisky category, and their relative weighting to the BC market, these trends are relatively consistent with market results.Seagram CoolersAs previously noted in the 'Significant Event' section of this MD&A, the Company sold the Seagram Coolers brand effective March 16, 2011. From the beginning of the fiscal year to the date of sale, the performance of this brand (retail volumes decreased 32%, retail value decreased 34%) was also adversely impacted by a poorly performing category. However, prior to the sale, the brand had been further impacted by a deliberate reduction made to its base number of products in an effort to focus the brand's core product lines and core markets, as originally contemplated in a comprehensive plan to rejuvenate the brand.Financial and Operating ResultsThe following table presents a summary of certain selected consolidated financial information of the Company for the year ended June 30, 2011 and 2010.                     (in millions of Canadian dollars, except per share amounts)     2011     2010     $ Change      % Change                      Sales  $  143.5  $ 147.0  $   (3.5)    (2%)Commissions    15.3    15.2    0.1    1%Operating revenue    158.8    162.2    (3.4)    (2%)                     Cost of sales    71.3    73.1    (1.8)    (2%)Marketing, sales and administration    45.8    44.4    1.4    3%Amortization    1.7    1.7    -    0%Operating costs    118.8    119.2    (0.4)    0%                     Earnings from operations    40.0    43.0    (3.0)    (7%)                     Loss on sale of Seagram Coolers    (2.2)    -    (2.2)    n/aImpairment charge    -     (11.5)    11.5    n/aInterest income    1.3     0.5    0.8    160%Foreign exchange loss    (0.1)    (0.6)    0.5    (83%)Gain on disposal of capital assets    (0.1)    0.1    (0.2)    (200%)Other income and expenses    (1.1)    (11.5)    10.4     (90%)                     Earnings before income taxes    38.9    31.5    7.4    23%Income taxes    11.5    10.8    0.7    6%                     Net earnings  $   27.4  $   20.7  $   6.7    32%                     Per common share                     - Basic net earnings  $   0.96  $   0.73  $   0.23    32% - Diluted net earnings  $   0.96  $   0.73  $   0.23    32%                     Overall Financial Results Overall financial results have been significantly impacted in 2011 and 2010 by two events involving the Seagram Coolers brand. Financial results for 2011 include a loss recognized on the sale of Seagram Coolers in the amount of $2.2 million (after-tax $1.7 million), while 2010 includes an impairment charge on the brand of $11.5 million (after-tax $9.4 million).Excluding the impact of the aforementioned events involving Seagram Coolers, Corby's net earnings and earnings per share declined 3% on a year over year comparison basis. The earnings decline is due to increased advertising and promotional spend being strategically invested behind the Company's key brands. In addition, favourable movements in product mix, general increases in selling prices, and reductions in the cost of certain production inputs were offset by volume declines in international markets and BC.The decreased sales in BC have been felt by the spirits industry as whole, as total spirit retail volumes decreased 3% this year. Lacklustre economic conditions combined with the effect of lapping the 2010 Winter Olympics have been identified as the most likely reasons for the industry-wide spirit decline in this province.Corby's international business also experienced difficulties as its primary foreign markets (i.e., the United States of America and the United Kingdom) continue to recover from the effects of the global recession. More specifically, economic conditions in these countries not only weaken consumer demand and intensify competition for market share, but also have weakened their respective currencies relative to the Canadian dollar, thus, adding further downward pressure on sales.Operating revenueOperating revenue, consisting of sales and commissions, decreased 2% when compared with last year. Sales revenue represents revenue earned from the sale of Corby-owned brands; while commissions are earned from the representation of PR brands in the Canadian market and, to a lesser extent, through the representation of a select number of Agency brands.Sales revenue declined by $3.5 million, or 2%, when compared with last year. The decrease was primarily volume driven as total shipments were down 8%, which includes the impact of the Seagram Coolers brand being sold on March 16, 2011 (and thus no shipments are included in results after this date). Prior to being sold, the Seagram Coolers brand saw shipments decline almost 30%, having been significantly impacted by a poor performing category. In addition, management rationalized the brand's base number of products in an effort to focus the brand's core product lines and core markets.Excluding the aforementioned impacts of the Seagram Coolers brand, the Company's sales were consistent with that of the prior year in spite of shipment volumes declining 3% on a year over year comparison basis. Shipment volumes were mainly impacted by Corby's performance in international markets (primarily the US and UK), while domestic volumes were mostly impacted by difficult market conditions existing in BC. More than offsetting the impact of reduced volumes, was growth in the Company's contract bottling business, and favourable effects from increases in average selling prices combined with positive changes in product and geographical mix.Shipment volume decreases experienced in the US market were primarily the result of the Company's Polar Ice vodka brand facing increased competition in what is considered to be a saturated vodka market. Shipments of the Company's Lamb's rum brand in the UK reduced sharply this year versus last, however, the decline was primarily due to an inventory level reduction, planned as part of the Company's decision to relocate its production of Lamb's international products to the UK in early fiscal 2012. The decision to relocate Lamb's international production from Canada to the UK has many advantages. Specifically, cost reduction, improved hedging of exposure to foreign currency fluctuations, and providing the Company's distributor (and now also the contract bottler) with more incentive to promote and grow the brand over the long-term in markets outside North America. In addition to the aforementioned volume impacts, Corby's international sales were also unfavourably impacted by the strengthening of the Canadian dollar relative to the US dollar and UK pound sterling.Domestically, the province of British Columbia struggled, as the entire spirits industry declined more than 3% in that province, while Canada as a whole experienced 1% growth in retail volumes. Corby's products are especially well represented in BC, and therefore the decline had a significant impact on the Company's total volume performance year over year. Also impacting Corby's domestic shipments this year was the overall consumer trend away from the Canadian whisky and white rum categories. More specifically, retail purchase information shows volumes in these categories were down 2% and 4%, respectively. Corby has a significant amount of its total volumes weighted in these categoriesThe following table highlights the primary components which comprise commissions, and show a relatively consistent performance year over year:                    (in millions of Canadian dollars)     2011     2010     $ Change   % Change                            Commission from PR brands  $  $ 16.7  $   16.4  $ 0.3     2%Commission from Agency brands    3.1    3.4    (0.3)     (9%)Amortization of representation rights     (4.5)      (4.6)      0.1     (2%)                    Commissions  $   15.3  $   15.2  $   0.1     1% Cost of salesCost of sales was $71.3 million, representing a decrease of 2% since last year. This change is commensurate with the change in sales on a year over year basis. Gross margin was 50.3% this year, consistent with 2010. Offsetting the impact of lower production volumes was the effect of having an improved product mix (lower sales in the US and of Seagram Coolers which both have lower gross margins than the domestic spirits business) along with increased average selling prices in certain Canadian provinces. Negatively impacting margins were the increased costs associated with promotional activity at the retail level, some of which are classified net of sales. This was partially offset by favourable price movements on certain of the Company's production inputs, some of which are procured from US based suppliers.Marketing, sales and administrationMarketing, sales and administration expenses were $45.8 million, as compared to $44.4 million during the prior year, reflecting a 3% increase. Such increase relates to sales and administrative cost increases, specifically increased head count related costs and costs related to the Company's employee future benefit plans, which were unfavourably impacted by market driven changes in discount rates used to value the Company's accrued benefit obligations. Discount rates are directly impacted by changes in the long-term yields earned on high-quality bonds in Canada.Other Income and ExpensesOther income and expenses were primarily impacted by two events related to the Seagram Coolers brand, occurring both this year and last. More specifically, current year results include the impact of the Company's decision to sell the Seagram Coolers brand, and in the prior year included an impairment charge against this brand's associated assets. For further information regarding the sale of the Seagram Coolers brand, please refer to the "Significant Event" section of this MD&A.Income taxesIncome tax expense is consistent with statutory tax rates for the year. The prior year was significantly impacted by changes to substantively enacted tax rates in Ontario and an impairment charge taken against the Seagram Coolers brand, as denoted in the chart below.                          2011    2010Combined basic Federal and Provincial tax rates         29%    31%Impact of impairment charge         0%    5%Impact of substantively enacted rate decreases in Ontario         0%    (2%)            29%    34%               . Liquidity and Capital ResourcesCorby's sources of liquidity are its deposits in cash management pools of $96.6 million as at June 30, 2011, and its cash generated from operating activities. Corby's total contractual maturities are represented by its accounts payable and accrued liabilities and income and other taxes payable balances, which totalled $19.6 million as at June 30, 2011, and are all due to be paid within one year.The Company also has funding obligations related to its employee future benefit plans, which include defined benefit pension plans. As at June 30, 2011, certain of the Company's defined benefit pension plans were in a deficit position. Of those plans in a funded deficit position, the unfunded accrued benefit obligation totalled $5.5 million.The Company has identified the area of employee future benefits as a critical accounting estimate in that accounting policies related to this area include various assumptions that incorporate a high degree of judgement and complexity. These assumptions may change in the future and may have a material impact on the accrued benefit obligations of the Company and the cost of these plans, which is reflected in the Company's consolidated statements of earnings. In addition, the actual rate of return on plan assets and changes in interest rates could result in changes in the Company's funding requirements for its defined benefit pension plans.The Company monitors its pension plan assets closely and follows strict guidelines to ensure pension fund investment portfolios are diversified in-line with industry best practices. Nonetheless, pension fund assets are not immune to market fluctuations and, as a result, the Company may be required to make additional cash contributions in the future. For more information regarding Corby's employee future benefit plans, please refer to Note 8 to the consolidated financial statements.The Company believes that its deposits in cash management pools, combined with its historically strong operational cash flows, provide for sufficient liquidity to fund its operations, investing activities and commitments for the foreseeable future. The Company's cash flows from operations are subject to fluctuation due to commodity, foreign exchange and interest rate risks. Please refer to the "Risks and Risk Management" section of this MD&A for further information.Cash flows                  (in millions of Canadian dollars)       2011    2010    Change                  Operating activities                  Net earnings, adjusted for non-cash items    $   35.6  $   36.5  $   (0.9) Net change in non-cash working capital      (0.4)    (7.9)    7.5       35.2    28.6    6.6                  Investing activities                  Additions to capital assets      (2.3)    (2.4)    0.1 Proceeds from disposition of capital assets      0.1    -    0.1 Proceeds from sale of Seagram Coolers      4.9    -    4.9 Proceeds on account of PR brand disposals      -     1.7    (1.7) Deposits in cash management pools      (22.0)    (12.0)    (10.0)       (19.3)    (12.7)    (6.6)                  Financing activities                  Dividends paid      (15.9)    (15.9)    -                  Net change in cash    $   -  $ -  $   -                   Operating activitiesCash flows from operating activities were $35.2 million this year, representing an increase of $6.6 million when compared with last year. Net earnings, adjusted for non-cash items, decreased $0.9 million this year versus last, and is primarily attributed to having reduced shipment volumes. The year over year change in non-cash working capital generated $7.5 million in operating cash, and is primarily due to the Company having made investments in its maturing inventories, and accounts payable balances (related to advertising and promotional activity) in the prior year. In addition, the Company increased its investment in accounts receivable this year, largely due to the terms of its sale of the Seagram Coolers brand, as it was agreed to defer collection of the inventory value transferred for one-year (further information regarding the sale of the Seagram Coolers brand is provided in the "Significant Event" section of this MD&A).Investing activitiesCorby used $19.3 million of its cash for investing activities, an increase of $6.6 million over the prior year. This was primarily due to the Company depositing a net $10.0 million more in cash management pools this year versus last. The increase in deposits is directly attributable to the increased cash flow provided by operating activities and cash proceeds of $4.9 million received on the sale of Seagram Coolers. Cash used to acquire capital assets was consistent with that of the prior year. In 2010, cash flows from investing activities also included early termination fees from PR, due to their decision to dispose of certain brands covered by the long-term representation rights agreement signed in 2006.Deposits made to cash management pools represent cash on deposit with The Bank of Nova Scotia via Corby's Mirror Netting Service Agreement with PR. Corby has daily access to these funds and earns a market rate of interest from PR on balances contained within. For more information related to these deposits, please refer to the "Related Party Transactions" section of this MD&A.Financing activitiesCash used for financing activities reflects regular dividends being paid to shareholders and totalled $15.9 million, or $0.56 per share, is equal to the amount of dividends paid last year. The amount of dividends paid is in accordance with the Company's stated dividend policy. For further information regarding the Company's dividend policy, please refer to Note 20 to the consolidated financial statements.Outstanding Share DataAs at August 24, 2011, Corby had 24,274,320 Voting Class A common shares and 4,194,536 Non-Voting Class B common shares outstanding. The company does not have a stock option plan, and therefore, there are no options outstanding.Contractual ObligationsThe following table presents a summary of the maturity periods of the Company's contractual obligations as at June 30, 2011:                                    Payments    Payments    Payments    Payments    Obligations          During    due in 2013    due in 2015    due after    with no fixed          2012    and 2014    and 2016    2016    maturity    TotalOperating lease obligations  $   1.6  $   2.5  $   1.6  $   1.5  $   -  $   7.2Employee future benefits    -    -    -    -    15.4    15.4   $ 1.6  $ 2.5  $ 1.6  $ 1.5  $ 15.4  $ 22.6                              . Operating lease obligations represent future minimum payments under long-term operating leases for premises and office equipment as at June 30, 2011. Employee future benefits represent the Company's unfunded pension and other post-retirement benefit plan obligations as at June 30, 2011. For further information regarding Corby's employee future benefit plans, please refer to Note 8 to the consolidated financial statements.Related Party TransactionsTransactions in the Normal Course of OperationsCorby engages in a significant number of transactions with its parent company, its ultimate parent and various affiliates. Specifically, Corby renders services to its parent company, its ultimate parent, and affiliates for the marketing and sale of beverage alcohol products in Canada. Furthermore, Corby sub-contracts the large majority of its distilling, maturing, storing, blending, bottling and related production activities to its parent company. A significant portion of Corby's bookkeeping, record keeping services, data processing and other administrative services are also outsourced to its parent company.The companies operate under the terms of agreements which became effective on September 29, 2006. These agreements provide the Company with the exclusive right to represent PR's brands in the Canadian market for 15 years, as well as providing for the continuing production of certain Corby brands by PR at its production facility in Windsor, Ontario for 10 years. Corby also manages PR's business interests in Canada, including the Windsor production facility. Certain officers of Corby have been appointed as directors and officers of PR's Canadian entities, as approved by Corby's Board of Directors.In addition to the aforementioned agreements, Corby signed an agreement on September 26, 2008 with its ultimate parent to be the exclusive Canadian representative for the ABSOLUT vodka and Plymouth gin brands, for a five year term expiring October 1, 2013. These brands were acquired by PR subsequent to the original representation rights agreement dated September 29, 2006.All of the above-noted transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.Deposits in Cash Management PoolsCorby participates in a cash pooling arrangement under a Mirror Netting Service Agreement together with PR's other Canadian affiliates, the terms of which are administered by The Bank of Nova Scotia. The Mirror Netting Service Agreement acts to aggregate each participant's net cash balance for purposes of having a centralized cash management function for all of PR's Canadian affiliates, including Corby. As a result of Corby's participation in this agreement, Corby's credit risk associated with its deposits in cash management pools is contingent upon PR's credit rating. PR's credit rating as at August 24, 2011, as published by Standard & Poor's and Moody's, was BB+ and Ba1, respectively. PR compensates Corby for the benefit it receives from having the Company participate in the Mirror Netting Service Agreement by paying interest to Corby based upon the 30-day LIBOR rate plus 0.40%Corby accesses these funds on a daily basis and has the contractual right to withdraw these funds or terminate these cash management arrangements upon providing five days written notice.Other Contractual ObligationsAs part of the agreement with PR signed on September 26, 2008, Corby agreed to parameters governing certain of its obligations and continuing business practices. Specifically, Corby agreed that it would continue to participate in the existing cash pooling arrangement (i.e., the Mirror Netting Service Agreement) for a three-year period ending October 1, 2011. Corby further agreed that, barring any unanticipated developments, until October 1, 2011 regular dividends will be paid quarterly, on the basis of an annual amount equal to the greater of 50% of net earnings per share in the preceding fiscal year ended June 30, and $0.56 per share. In addition, it was agreed that Corby would not declare any special dividends, repurchase shares or make acquisitions or capital investments outside the normal course of business until October 1, 2011 without PR's prior approval.Results of Operations - Fourth Quarter of Fiscal 2011The following table presents a summary of certain selected consolidated financial information for the Company for the three month periods ended June 30, 2011 and 2010:                       Three Months Ended               June 30,     June 30,          (in millions of Canadian dollars, except per share amounts)     2011     2010      $ Change     % Change                     Sales  $   36.1  $   38.2  $   (2.1)   (5%)Commissions    3.8    3.8    -   0%Operating revenue    39.9    42.0    (2.1)   (5%)                    Cost of sales    17.9    19.3    (1.4)   (7%)Marketing, sales and administration    12.5    12.9    (0.4)   (3%)Amortization    0.4    0.4    -   0%Operating costs    30.8    32.6    (1.8)   (6%)                    Earnings from operations    9.1    9.4    (0.3)   (3%)                    Interest income    0.4    0.2    0.2   100%Foreign exchange gain (loss)    (0.2)    0.3    (0.5)   (167%)Other income and expenses    0.2     0.5    (0.3)   (60%)                    Earnings before income taxes    9.3    9.9    (0.6)   (6%)Income taxes    2.7    3.3    (0.6)   (18%)                    Net earnings  $   6.6  $   6.6  $   -   0%                    Per common share                    - Basic net earnings  $   0.23  $   0.23  $   -   0% - Diluted net earnings  $   0.23  $   0.23  $   -   0%                                        Operating RevenueOperating revenue, consisting of sales and commissions, was $39.9 million for the quarter, compared to $42.0 million for the same quarter last year, representing a decrease of $2.1 million, or 5%. As previously noted in the "Significant Event" section of this MD&A, the Seagram Coolers brand was sold prior to the start of the fourth quarter, and therefore, current period results do not include sales of this brand, while the comparative period includes $2.3 million. Excluding the impact of Seagram Coolers, operating revenue increased $0.2 million this quarter when compared with the same quarter last year.After adjusting for the aforementioned impact of Seagram Coolers, fourth-quarter sales increased slightly, however, shipment volumes this quarter versus the same period last year decreased 7%. The declines in shipment volumes were primarily the result of inventory level reductions being made by key customers, which especially impacted the Lamb's rum brand. In addition, difficult market conditions continued to exist in international markets and BC. Offsetting the reduction in volumes, was a significant increase in sales from the Company's contract bottling operation representing both growth in activity along with the impact of production phasing this year versus last. The Company also benefited from favourable changes in product mix and from the impact of having increased average selling prices.The following table highlights the various components that comprise commissions, and shows a consistent performance this quarter when compared with the same quarter last year.                       Three MonthsEnded         (in millions of Canadian dollars)    June 30, 2011    June 30, 2010    $ Change   % ChangeCommission from PR brands  $   4.2  $   4.2  $   -     0%Commission from Agency brands    0.7    0.7    -   0%Amortization of representation rights     (1.1)      (1.1)      -     0%Commissions  $   3.8  $   3.8  $   -     0%                                      Cost of SalesCost of sales decreased $1.4 million this period when compared to the same period last year. The decrease is relatively consistent with the decrease in sales over that same period. Gross margin was 50.3% this quarter and is consistent with the margin experienced on a year-to-date basis, however, was slightly improved versus the same period last year. The slight improvement was the result of increased average selling prices in Ontario and British Columbia and improved product mix (due to disposal of the Seagram Coolers, a low margin brand) and favourable pricing on certain production inputs.Net earnings and earnings per shareNet earnings for the fourth quarter were $6.6 million, or $0.23 per share, which was identical to that of the same quarter last year. The aforementioned impacts to sales and cost of sales were offset by having reduced administrative related costs, and from having a lower statutory rate of income tax this quarter when compared with same period last year.Selected Quarterly InformationSummary of Quarterly Financial Results                         (in millions of Canadian dollars,  Q4  Q3  Q2  Q1  Q4  Q3  Q2  Q1except per share amounts)  2011  2011  2011  2011  2010  2010  2010  2010Operating revenue - net $ 39.9 $32.2 $45.2 $41.5 $42.0 $32.2 $46.9 $41.1Earnings from operations  9.1  5.6  12.9  12.5  9.4  6.8  14.7  12.2Net earnings, excluding unusual items *  6.6  4.4  9.2  9.0  6.6  4.5  10.5  8.4Net earnings  6.6  2.7  9.2  9.0  6.6  4.5  1.1  8.4Basic EPS  0.23  0.09  0.32  0.32  0.23  0.16  0.04  0.30Diluted EPS  0.23  0.09  0.32  0.32  0.23  0.16  0.04  0.30                         * Net earnings have been adjusted for the net after-tax loss on the sale of Seagram Coolers of $1.7 million in 2011 andthe net after-tax impairment charge recognized in 2010 of $9.4 million.          The above chart demonstrates the seasonality of Corby's business, as sales are typically strong in the first and second quarter, while third-quarter sales (January, February and March) usually decline after the end of the retail holiday season. Fourth-quarter sales typically increase again with the onset of warmer weather as consumers tend to increase their consumption levels during the summer season.Also highlighted in the chart is the effect of the sale of the Seagram Coolers brand (sold in Q3 2011) and an impairment charge that was taken in the second quarter of 2010. Specifically, the Company's net earnings were impacted by a loss on sale of the Seagram Coolers brand in the amount of $1.7 million in the third quarter of 2011. Further information regarding the sale is located in the "Significant Event" section of this MD&A. The aforementioned impairment charge had the effect of reducing net earnings by $9.4 million in the second quarter of 2010. For further information related to the impairment charge, please refer to Note 17 to the consolidated financial statements.In addition to the aforementioned impacts Seagram Coolers had on net earnings, operating revenue was also unfavourably affected as Q4 2011 does not include any sales related to this brand given the timing of the sale. As a result, comparability of Q4 2011 with that of Q4 2010 should take into account the fact that Q4 2010's operating revenue includes $2.3 million of sales related to the Seagram Coolers brand.Critical Accounting EstimatesThe Company's consolidated financial statements are prepared in accordance with Canadian GAAP, which require management to make certain estimates, judgements and assumptions that affect the reported amounts of assets and liabilities and related disclosures as at the date of the consolidated financial statements. The Company bases its estimates, judgements and assumptions on historical experience, current trends and other factors that management believes to be important at the time the consolidated financial statements are prepared. The Company reviews its accounting policies and how they are applied on a regular basis. While the Company believes that the historical experience, current trends and other factors considered support the preparation of its consolidated financial statements in accordance with Canadian GAAP, actual results could differ from its estimates and such differences could be material.The Company's significant accounting policies are discussed in Note 1 to the consolidated financial statements. The following accounting policies incorporate a higher degree of judgement and/or complexity and, accordingly, are considered to be critical accounting policies.Goodwill and Indefinite-Lived Intangible AssetsThe Company records as goodwill the excess amount of the purchase price of an acquired business over the fair value of the underlying net assets, including intangible assets, at the date of acquisition. Indefinite-lived intangible assets represent the value of trademarks and licences acquired. Goodwill and indefinite-lived intangible assets account for a significant amount of the Company's total assets. These balances are evaluated annually for impairment. The process of evaluating these items for impairment involves the determination of fair value. Inherent in such fair value determinations are certain judgements and estimates including, but not limited to, projected future sales, earnings and capital investment; discount rates; and terminal growth rates. These judgements and estimates may change in the future due to uncertain competitive, market and general economic conditions, or as a result of changes in the business strategies and outlook of the Company.An impairment loss would be recognized to the extent that the carrying value of the goodwill or trademarks and licences exceeds the implied fair value. Any impairment would result in a reduction in the carrying value of these items on the consolidated balance sheets of the Company and the recognition of a non-cash impairment charge in net earnings. Based on analysis performed, the Company has not identified any impairment.Employee Future BenefitsThe cost and accrued benefit plan obligations of the Company's defined benefit pension plans and other post-retirement benefit plan are accrued based on actuarial valuations that are dependent upon assumptions determined by management. These assumptions include the discount rate, the expected long-term rate of return on plan assets, the rate of compensation increases, retirement ages, mortality rates and the expected inflation rate of health care costs. These assumptions are reviewed annually by the Company's management and its actuary. These assumptions may change in the future and may have a material impact on the accrued benefit obligations of the Company and the cost of these plans, which is reflected in the Company's consolidated statement of earnings. In addition, the actual rate of return on plan assets and changes in interest rates could result in changes in the Company's funding requirements for its defined benefit pension plans. See Note 8 to the consolidated financial statements for detailed information regarding the major assumptions utilized.Income and Other TaxesThe Company accounts for income taxes using the liability method of accounting. Under the liability method, future income tax assets and liabilities are determined based on differences between the carrying amounts of balance sheet items and their corresponding tax values. The determination of the income tax provision requires management to interpret regulatory requirements and to make certain judgements. While income, capital and commodity tax filings are subject to audits and reassessments, management believes that adequate provisions have been made for all income and other tax obligations. However, changes in the interpretations or judgements may result in an increase or decrease in the Company's income, capital or commodity tax provisions in the future. The amount of any such increase or decrease cannot be reasonably estimatedFuture Accounting StandardsInternational Financial Reporting Standards ("IFRS")In February 2008, the Canadian Accounting Standards Board ("AcSB") confirmed that Canadian GAAP for publicly accountable enterprises will be replaced by IFRS for fiscal years beginning on or after January 1, 2011. Accordingly, the conversion from Canadian GAAP to IFRS will be applicable to the Company's reporting for the first quarter of fiscal 2012, for which current and comparative information will be prepared under IFRS. IFRS uses a conceptual framework similar to Canadian GAAP; however, there are significant differences in regards to recognition, measurement and disclosures.The Company immediately responded via the creation of a transition plan, which established a timeline for the execution and completion of the conversion project and has been used to help guide Corby toward its reporting deadlines. In addition, the Company also engaged an external advisor, established a working team and held multiple IFRS training sessions tailored specifically to Corby for finance employees, members of management and the Audit Committee.The IFRS team has now completed its work on identifying and quantifying all differences impacting opening equity upon conversion to IFRS. The team has also completed its assessment of balance sheet presentation changes and obtained a detailed understanding of the additional note disclosure to be provided in the first quarter report for fiscal 2012. The remaining work relates primarily to that of compiling and formatting the financial statements and note disclosures in a manner appropriate for public release.The Company's current policy assessments and choices and an explanation of the financial impacts (and where applicable, balance sheet presentation changes) are provided below. The Company's review was based on IFRS as they currently exist. The Company is monitoring changes to IFRS as they develop. Certain standards have exposure drafts issued, however, as at the date of this MD&A, there are no IFRS exposure drafts that are expected to create a change during the Company's transition to IFRS.Certain major accounting policy decisions were approved by senior management and reviewed by the Audit Committee. The following highlights the differences management considers the most relevant but should not be viewed as an all-encompassing listing at this time. The financial and presentation impacts, as provided below, are considered preliminary and should not be regarded as a complete description of the changes that will result from the transition to IFRS. Readers are cautioned that the determinations and financial impacts are based on preliminary IFRS 1 elections and exemptions and IFRS policy choices, and may be subject to change.StandardsDescription of changesFindings and expected financial impactFirst-Time Adoption of IFRS (IFRS 1)This standard sets out the protocol for converting a set of financial statements from another basis of preparation (e.g., Canadian GAAP) to IFRS. IFRS 1 generally requires that a first-time adopter apply IFRS accounting principles retrospectively to all periods presented in its first IFRS financial statements. IFRS 1 also provides certain mandatory and optional exemptions to the full retrospective application.The following lists the key mandatory and optional exemptions selected by Corby and describes the anticipated impact on our financial statements:Assets and Liabilities of SubsidiariesAs Corby's ultimate parent company currently reports in accordance with IFRS, the Company is provided the option of using the carrying amount of assets and liabilities that would be included in the parent company's consolidated financial statements if no adjustments were made for consolidation procedures and for the effects of the business combination in which the parent company acquired its interest in Corby.Choosing this option simplifies Corby's conversion process and reduces the need for Corby to maintain two parallel sets of records in addition to providing other benefits.Therefore, Corby has decided to choose this option under IFRS 1. This decision impacts the optional exemptions for business combinations, employee benefits and capital assets. The individual accounting policy impacts are further described below.Business Combinations (IFRS 3)It should be noted that certain of Corby's business combinations are outside of the option discussed above which allows the Company to adopt the parent company's measurement basis, as certain business combinations are subject to adjustment by the parent company for consolidation procedures and for the effects of the business combination in which the parent company acquired Corby. Therefore, the IFRS 1 optional elections related to business combinations are applicable to Corby.Under this exemption, the Company may elect not to apply IFRS 3 retrospectively to past business combinations.The Company intends to use this exemption and apply IFRS 3 prospectively from the date of the opening IFRS balance sheet, July 1, 2010.Therefore, based on selection of this option, there is no impact to Corby's accounting for past business combinations and the related assets and liabilities acquired under those transactions upon conversion to IFRS.Employee Benefits (IAS 19)IFRS requires the past service cost element of defined benefit plans be expensed on an accelerated basis, with vested past service costs expensed immediately. Under Canadian GAAP, past service costs are generally amortized on a straight-line basis over the averaging remaining service period of active employees expected under the plan.IAS 19 also requires an entity to make an accounting policy choice regarding the treatment of actuarial gains and losses, subsequent to the transition date.  IAS 19 does allow the use of the "corridor approach" which is consistent with Canadian GAAP.Corby has elected to adopt the measurement basis of its ultimate parent company, which is an option available under IFRS 1, as discussed above. Under IFRS, Corby will continue to utilize the "corridor" approach currently followed under Canadian GAAP which is consistent with its parent company policies under IAS 19.Differences between Canadian GAAP and the measurement basis of its ultimate parent company have resulted over time and are due to differences of timing of recognition of various items between the standards, including the timing of recognition of actuarial gains and losses, transitional provisions and other items.As at Corby's opening balance sheet date, conversion to IFRS will result in a decrease in the accrued benefit asset of $12.3 million, an increase in accrued benefit liability of $7.4 million, and a decrease in equity of $19.7 million.Subsequent to transition, it is anticipated that pension cost will be lower given the reduced amount of unrecognized net actuarial losses, which is a direct result of Corby adopting its ultimate parent company's measurement basis, as permitted under IFRS 1.Impairment of Assets (IAS 36)IFRS requires a one-step impairment test for identifying and measuring impairment: comparing an asset's carrying value to the higher of its value in use and fair value less cost to sell. Under Canadian GAAP, impairment is based on discounted cash flows only if an asset's undiscounted cash flows are below its carrying value. In addition, IFRS requires the reversal of previously recognized impairment losses when a change in circumstances indicates that the impairment has been reduced, other than for goodwill, while Canadian GAAP does not allow a reversal under any circumstances.The Company has tested its assets using IFRS compliant methodologies and has concluded that its assets are not impaired at July 1, 2010, the date of transition to IFRS. The Company has also examined impairment indicators throughout 2011 under IFRS and has found no indications of impairment.Subsequent to transition, the one-step impairment test under IFRS may result in more frequent write-downs of assets, and reversals of previous write-downs may be required in future periods.Capital Assets (IAS 16)There are 4 specific differences between Canadian GAAP and IFRS which apply to Corby, as follows:Component AccountingIFRS requires that each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately.Measurement After RecognitionIFRS provides a choice between a cost model and a revaluation model. The revaluation model does not exist under Canadian GAAP.RecognitionIFRS contains more detail than Canadian GAAP for an item of property, plant and equipment that is recognized as an asset and how its cost is determined.DepreciationUnder IFRS, a change from one method of depreciation to another is treated as a change in estimate. Depending on the facts and circumstances, this might include some situations in which, under Canadian GAAP, the change would be viewed as a change in accounting policy and applied retrospectively.Corby has elected to adopt the measurement basis of its ultimate parent company, which as described above, is an option available under IFRS 1.Corby has determined that adoption of this IFRS will not have a significant impact on the Company's financial statements.The measurement basis of the parent company is substantially the same as previously recorded by Corby under Canadian GAAP.The assessment has found that Corby's accounting policies under Canadian GAAP are consistent with IFRS with respect to componentization and amortization of capital assets.The Company has opted to use the cost model to measure its assets subsequent to transition, which is consistent with current practice under Canadian GAAP.The Company has concluded that there will be no substantial impact on the opening balance sheet, nor is it expected that amortization expense will differ substantially subsequent to the transition date.It should be noted that more extensive disclosure is required under IFRS in the notes to the consolidated financial statements in this area.Income Taxes (IAS 12)The differences that exist between IFRS and Canadian GAAP for Corby relate primarily to changes as a result of adopting IFRS accounting policies in areas where such changes impact the timing and amount of temporary basis differences between accounting and taxation.The opening balance sheet will be impacted as future income tax assets and liabilities will be re-measured upon completion of the IFRS opening balance sheet. Due to current known differences, there will be a decrease in current deferred tax assets of $0.1 million, a decrease in long term deferred tax liabilities of $5.1 million, and an increase in equity of $5.0 million.Impact to equity as a result in changes to future tax balances relates to adoption of IAS 19Subsequent to transition, the impact of adopting IAS 12 will depend on the net amount of all differences in accounting policies.Under IFRS, deferred tax assets and deferred tax liabilities are classified as long term, whereas under Canadian GAAP deferred tax assets and deferred tax liabilities are classified as current or long term based upon the nature of the underlying assets and liabilities to which they relate.Financial Statement Presentation and Disclosure The Company has identified a number of balance sheet presentation changes that will have no significant retained earnings impact, as further discussed in the individual sections above (when applicable).IFRS transition guidelines require the presentation of comparative information in compliance with IFRS for the year ending June 30, 2010 at each reporting period. In addition, increased note disclosure will be required in most areas, when compared with Canadian GAAP. The Company does not foresee any significant issues in compiling the additional note disclosure information.Overall, the transition plan remains on track and the Company believes it is well positioned to transition to IFRS in accordance with the timelines mandated by the AcSB. The work completed to date confirms that there will be a minimal impact on the Company's business activities, IT systems, disclosure controls and procedures, and internal controls over financial reporting. However, these conclusions may change as Corby continues to progress through its transition plan and considers any new IFRS developments leading up to the release of the Company's first set of audited financial statements under IFRS, dated June 30, 2012.The Company will continue to execute the transition in accordance with its plan, and it will also continue to monitor standards development as issued by the International Accounting Standards Board and the AcSB, as well as regulatory developments as issued by the Canadian Securities Administrators, which may affect the timing, nature or disclosure of its adoption of IFRS.Impact of conversionThe following table is a summary of the above noted expected impacts to the Company's opening IFRS retained earnings as at July 1, 2010 based on preliminary IFRS 1 elections and exemptions and IFRS policy choices:     (in millions of Canadian dollars - unaudited)                 Retained earnings at July 1, 2010 as reported under Canadian GAAP  $   226.7         Quantified effect of known IFRS conversion adjustments       IFRS 1 - Employee benefits - adoption of parent company values    (14.7)         Retained earnings at July 1, 2010 under IFRS   $       212.0       Disclosure Controls and ProceduresThe Company maintains a system of disclosure controls and procedures that has been designed to provide reasonable assurance that information required to be disclosed by the Company in its public filings is recorded, processed, summarized and reported within required time periods and includes controls and procedures designed to ensure that all relevant information is accumulated and communicated to senior management, including the Company's Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), to allow timely decisions regarding required disclosure.Management, with the participation of the CEO and CFO, has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in National Instrument 52-109) as at June 30, 2011, and has concluded that such disclosure controls and procedures are effective based upon such evaluation.Internal Controls Over Financial ReportingThe Company maintains a system of disclosure controls and procedures to provide reasonable assurance that all material information relating to the Company is gathered and reported to senior management on a timely basis so that appropriate decisions can be made regarding public disclosure.In addition, the CEO and CFO have designed, or caused to be designed under their supervision, internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting, and the preparation of financial statements for external purposes in accordance with Canadian GAAP. Internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be designed effectively can provide only reasonable assurance with respect to financial reporting and financial statement preparation.Management, with the participation of the CEO and CFO, has evaluated the effectiveness of the Company's internal controls over financial reporting as at June 30, 2011, and has concluded that internal control over financial reporting is designed and operating effectively to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP. Management's assessment was based on the framework established in Internal Control - Integrated Framework, published by the Committee of Sponsoring Organizations of the Treadway Commission.There were no changes in internal control over financial reporting during the Company's most recent interim period that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.Risks & Risk ManagementThe Company is exposed to a number of risks in the normal course of its business that have the potential to affect its operating and financial performance.Industry and RegulatoryThe beverage alcohol industry in Canada is subject to government policy, extensive regulatory requirements and significant rates of taxation at both the federal and provincial levels. As a result, changes in the government policy, regulatory and/or taxation environments within the beverage alcohol industry may affect Corby's business operations, including changes in market dynamics or changes in consumer consumption patterns. In addition, the Company's provincial LB customers have the ability to mandate changes that can lead to increased costs, as well as other factors that may impact financial results.The Company continuously monitors the potential risk associated with any proposed changes to its government policy, regulatory and taxation environments, and, as an industry leader, actively participates in trade association discussions relating to new developments.Consumer Consumption PatternsBeverage alcohol companies are susceptible to risks relating to changes in consumer consumption patterns. Consumer consumption patterns are affected by many external influences, not the least of which is the current economic outlook and overall consumer confidence in the stability of the economy as a whole. The overall decline in consumer spending has resulted in more at-home consumption, as consumers are trending away from consumption at licensed establishments, such as bars and restaurants. As a result, the industry is experiencing declines in product categories that tend to have a higher consumption rate at these establishments, such as liqueurs. Corby offers a diverse portfolio of products across all major spirits categories and at various price points, which complements consumer desires and offers exciting innovation.Distribution/Supply Chain InterruptionThe Company is susceptible to risks relating to distributor and supply chain interruptions. Distribution in Canada is largely accomplished through the government-owned provincial LBs and, therefore, an interruption (e.g., labour strike) for any length of time may have a significant impact on the Company's ability to sell its products in a particular province and/or market.Supply chain interruptions, including manufacturing or inventory disruption, could impact product quality and availability. The Company adheres to a comprehensive suite of quality programs and proactively manages production and supply chains to mitigate any potential risk to consumer safety or Corby's reputation and profitability.Environmental ComplianceEnvironmental liabilities may potentially arise when companies are in the business of manufacturing products and, thus, required to handle potentially hazardous materials. As Corby outsources the majority of its production, including all of its storage and handling of maturing alcohol, the risk of environmental liabilities has been reduced to an acceptably low level. In addition, Corby's owned-production facility follows strict industry guidelines for the proper use and/or disposal of hazardous materials to further reduce environmental risks. Corby currently has no significant recorded or unrecorded environmental liabilities.Industry ConsolidationIn recent years, the global beverage alcohol industry has experienced a significant amount of consolidation. Industry consolidation can have varying degrees of impact and, in some cases, may even create exceptional opportunities. Either way, management believes that the Company is well positioned to deal with this or other changes to the competitive landscape in Canada.CompetitionThe Canadian beverage alcohol industry is extremely competitive. Competitors may take actions to establish and sustain a competitive advantage. They may also affect Corby's ability to attract and retain high-quality employees. The Company's long heritage attests to Corby's strong foundation and successful execution of its strategies. Being a leading Canadian beverage alcohol company helps facilitate recruitment efforts. Corby appreciates and invests in its employees to partner with them in achieving corporate objectives and creating value.Credit RiskCredit risk arises from deposits in cash management pools held with PR via Corby's participation in the Mirror Netting Service Agreement (as previously described in the "Related Party Transactions" section of this MD&A), as well as credit exposure to customers, including outstanding accounts and note receivable. The maximum exposure to credit risk is equal to the carrying value of the Company's financial assets. The objective of managing counter-party credit risk is to prevent losses in financial assets. The Company assesses the credit quality of its counter-parties, taking into account their financial position, past experience and other factors. As the large majority of Corby's accounts receivable balances are collectable from government-controlled LBs, management believes the Company's credit risk relating to accounts receivable is at an acceptably low level. The Company's note receivable is secured as further described in Note 3 to the consolidated financial statements.Exposure to Interest Rate FluctuationsThe Company does not have any short- or long-term debt facilities. Interest rate risk exists as Corby earns market rates of interest on its deposits in cash management pools and also has a note receivable that earns a fixed rate of interest. An active risk management program does not exist, as management believes that changes in interest rates would not have a material impact on Corby's financial position over the long term.Exposure to Commodity Price FluctuationsCommodity risk exists, as the manufacture of Corby's products requires the procurement of several known commodities, such as grains, sugar and natural gas. The Company strives to partially mitigate this risk through the use of longer-term procurement contracts where possible. In addition, subject to competitive conditions, the Company may pass on commodity price changes to consumers through pricing over the long term.Foreign Currency Exchange RiskThe Company has exposure to foreign currency risk as it conducts business in multiple foreign currencies; however, its exposure is primarily limited to the US dollar ("USD") and UK pound Sterling ("GBP"). Corby does not utilize derivative instruments to manage this risk. Subject to competitive conditions, changes in foreign currency rates may be passed on to consumers through pricing over the long-term.USD ExposureThe Company's demand for USD has traditionally outpaced its supply, due to USD sourcing of production inputs exceeding that of the Company's USD sales. Therefore, decreases in the value of the Canadian dollar ("CAD") relative to the USD will have an unfavourable impact on the Company's earnings.GBP ExposureThe Company's supply of GBP outpaces demand, as Corby's sales into the UK market are denominated in GBP, while having only an insignificant amount of GBP purchases. Therefore, increases in the value of the CAD relative to the GBP will have an unfavourable impact on the Company's earnings.Third-Party Service ProvidersThe Company is reliant upon third-party service providers in respect of certain of its operations. It is possible that negative events affecting these third-party service providers could, in turn, negatively impact the Company. While the Company has no direct control over how such third parties are managed, it has entered into contractual arrangements to formalize these relationships. In order to minimize operating risks, the Company actively monitors and manages its relationships with its third-party service providers.Brand Reputation and Trademark ProtectionThe Company promotes nationally branded, non-proprietary products as well as proprietary products. Damage to the reputation of any of these brands, or to the reputation of any supplier or manufacturer of these brands, could negatively impact consumer opinion of the Company or the related products, which could have an adverse impact on the financial performance of the Company. The Company strives to mitigate such risks by selecting only those products from suppliers which strategically complement Corby's existing brand portfolio and by actively monitoring brand advertising and promotion activities. The Company registers trademarks, as applicable, while constantly watching for and responding to competitive threats, as necessary.Valuation of Goodwill and Intangible AssetsGoodwill and intangible assets account for a significant amount of the Company's total assets. Goodwill and intangible assets are subject to impairment tests which involve the determination of fair value. Inherent in such fair value determinations are certain judgements and estimates including, but not limited to, projected future sales, earnings and capital investment; discount rates; and terminal growth rates. These judgements and estimates may change in the future due to uncertain competitive market and general economic conditions, or as the Company makes changes in its business strategies. Given the current state of the economy, certain of the aforementioned factors affecting the determination of fair value may be impacted and, as a result, the Company's financial results may be adversely affected.The following chart summarizes Corby's goodwill and intangible assets and details the amounts associated with each brand (or basket of brands) and market:                 Carrying Values as at June 30, 2011       Associated Brand Associated Market GoodwillIntangiblesTotal       Various PR brands Canada  $- $46.5 $46.5Lamb's rum International (1)  1.4 11.8 13.2Corby domestic brands Canada  4.5 - 4.5               $5.9 $58.3 $64.2       (1)The international business for Lamb's rum is primarily focused in the UK, however, the trademarks and licenses purchased, relate to all international markets outside of Canada, as Corby previously owned the Canadian rights.        Therefore, economic factors (such as consumer consumption patterns) specific to these brands and markets are primary drivers of the risk associated with their respective goodwill and intangible assets valuations.Employee Future BenefitsThe Company has certain obligations under its registered and non-registered defined benefit pension plans and other post-retirement benefit plan. There is no assurance that the Company's benefit plans will be able to earn the assumed rate of return. New regulations and market-driven changes may result in changes in the discount rates and other variables, which would result in the Company being required to make contributions in the future that differ significantly from estimates. An extended period of depressed capital markets and low interest rates could require the Company to make contributions to these plans in excess of those currently contemplated, which, in turn, could have an adverse impact on the financial performance of the Company. Somewhat mitigating the impact of a potential market decline is the fact that the Company monitors its pension plan assets closely and follows strict guidelines to ensure that pension fund investment portfolios are diversified in-line with industry best practices. For further details related to Corby's defined benefit pension plans, please refer to Note 8 of the consolidated financial statements for the year ended June 30, 2011.CORBY DISTILLERIES LIMITED   CONSOLIDATED BALANCE SHEETS   As at June 30, 2011 and 2010          (Unaudited)     (in thousands of Canadian dollars)             20112010      ASSETS     Current      Deposits in cash management pools  $96,636  $74,685 Accounts receivable (Notes 4 and 16)  31,005  28,340 Note receivable (Note 3)   600  - Income and other taxes recoverable  -  1,070 Inventories (Note 5)    59,654  60,502 Prepaid expenses    1,731  1,551 Future income taxes (Note 6)   161  135     189,787  166,283Note receivable (Note 3)   1,800  -Capital assets (Note 7)   15,646  15,238Employee future benefits (Note 8)  12,516  12,292Goodwill (Note 9)    5,886  6,857Intangible assets (Note 10)   58,302  70,571     $283,937  $271,241        LIABILITIES       Current        Accounts payable and accrued liabilities (Note 16)  $19,492  $18,285 Income and other taxes payable  115  -     19,607  18,285Employee future benefits (Note 8)  7,421  6,748Future income taxes (Note 6)   4,468  5,246     31,496  30,279        SHAREHOLDERS' EQUITY     Share capital (Note 11)   14,304  14,304Retained earnings    238,137  226,658     252,441  240,962     $283,937  $271,241      See accompanying notes to consolidated financial statements     CORBY DISTILLERIES LIMITED        CONSOLIDATED STATEMENTS OF EARNINGS                       (Unaudited)          (in thousands of Canadian dollars, except per share amounts)                       For the Three Months Ended For the Year Ended         June 30,June 30, June 30,June 30,  20112010 20112010       OPERATING REVENUE       Sales $36,130  $38,249  $143,544  $147,046  Commissions (Note 12) 3,792  3,777  15,246  15,184   39,922  42,026  158,790  162,230           OPERATING COSTS           Cost of sales 17,945  19,282  71,336  73,061  Marketing, sales and administration 12,431  12,934  45,764  44,440  Amortization 416  413  1,693  1,704   30,792  32,629  118,793  119,205           EARNINGS FROM OPERATIONS 9,130  9,397  39,997  43,025           OTHER INCOME AND EXPENSES           Loss on sale of Seagram Coolers (Note 3) -  -  (2,233) -  Impairment charge (Note 17) -  -  -  (11,510)  Interest income 394  166  1,288  537  Foreign exchange (loss) gain (151) 301  (115) (573)  (Loss) gain on disposal of capital assets (48) -  (52) 3   195  467  (1,112) (11,543)           EARNINGS BEFORE INCOME TAXES 9,325  9,864  38,885  31,482           INCOME TAXES (Note 6)           Current 2,482  2,750  12,266  12,750  Future 248  496  (804) (1,943)   2,730  3,246  11,462  10,807           NET EARNINGS $6,595  $6,618  $27,423  $20,675           BASIC EARNINGS PER SHARE (Note 14) $0.23  $0.23  $0.96  $0.73DILUTED EARNINGS PER SHARE (Note 14) $0.23  $0.23  $0.96  $0.73           WEIGHTED AVERAGE COMMON SHARES OUTSTANDING           Basic 28,468,856  28,468,856  28,468,856  28,468,856  Diluted 28,468,856  28,468,856  28,468,856  28,468,856                See accompanying notes to consolidated financial statements     CORBY DISTILLERIES LIMITED          CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME             (Unaudited)     (in thousands of Canadian dollars)              For the Three Months Ended For the Year Ended         June 30,June 30, June 30, June 30,  20112010 20112010        NET EARNINGS $6,595  $6,618    $27,423  $20,675OTHER COMPREHENSIVE INCOME -  -    -  -COMPREHENSIVE INCOME $6,595  $6,618    $27,423  $20,675              See accompanying notes to consolidated financial statements                                CORBY DISTILLERIES LIMITED          CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY               (Unaudited)     (in thousands of Canadian dollars)                  For the Year Ended             June 30,June 30,      20112010       SHARE CAPITAL       Balance, beginning of period    $14,304  $14,304  Transactions, net    -  -  Balance, end of period    $14,304  $14,304                  RETAINED EARNINGS         Retained earnings, beginning of period    $226,658  $221,927  Net earnings    27,423  20,675  Dividends    (15,944) (15,944)  Balance, end of period    $238,137  $226,658                 ACCUMULATED OTHER COMPREHENSIVE INCOME          Balance, beginning of period    $-  $-  Other comprehensive income for the period    -  -  Balance, end of period    $-  $-                 See accompanying notes to consolidated financial statements      CORBY DISTILLERIES LIMITED          CONSOLIDATED STATEMENTS OF CASH FLOW                       (Unaudited)          (in thousands of Canadiandollars)                          For the Three Months Ended For the Year Ended         June 30,June 30, June 30,June 30,  20112010 20112010       OPERATING ACTIVITIES     Net earnings $6,595  $6,618  $27,423  $20,675Items not affecting cash          Amortization 1,549  1,550  6,224  6,312 Impairment charge (Note 17) -  -  -  11,510 Loss on sale of Seagram Coolers (Note 3) -  -  2,233  - Loss (gain) on disposal of capital assets 48  -  52  (3) Future income taxes 248  496  (804) (1,943)Employee future benefits (388) (610)  449  (85)   8,052  8,054  35,577  36,466Net change in non-cash working capital balances (Note 15) 1,125  (1,101)  (371) (7,907)Cash flows provided by operating activities 9,177  6,953  35,206  28,559           INVESTING ACTIVITIES         Additions to capital assets (1,660) (1,343)  (2,288) (2,389)Proceeds from disposal of capital assets 60  -  77  3Proceeds from sale of Seagram Coolers (Note 3) -  -  4,900  -Proceeds on account of PR brand disposals (Note 10) -  -  -  1,730Deposits in cash management pools (3,591) (1,624)  (21,951) (11,959)Cash flows used in investing activities (5,191) (2,967)  (19,262) (12,615)           FINANCING ACTIVITY         Dividends paid  (3,986) (3,986)  (15,944) (15,944)Cash flows used in financing activity (3,986) (3,986)  (15,944) (15,944)           NET CHANGE IN CASH -  -  -  -CASH, BEGINNING OF PERIOD -  -  -  -CASH, END OF PERIOD $-  $-  $-  $-           SUPPLEMENTAL CASH FLOW INFORMATION         Interest received $394  $166  $1,288  $537Income taxes paid $3,288  $1,980  $11,536  $11,864         See accompanying notes to consolidated financial statements            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    FOR THE YEARS ENDED JUNE 30, 2011 AND 2010(in thousands of Canadian dollars, except per share amounts)1. SIGNIFICANT ACCOUNTING POLICIES         Description of BusinessCorby Distilleries Limited ("Corby" or the "Company") is a leading Canadian manufacturer and marketer of spirits and importer of wines. The Company derives its revenues from the sale of its owned-brands in Canada and other international markets, as well as earning commissions from the representation of selected non-owned brands in the Canadian marketplace. Revenues predominantly consist of sales made to each of the provincial liquor boards in Canada.Corby is controlled by Hiram Walker & Sons Limited ("HWSL"), which is a wholly owned subsidiary of Pernod Ricard, S.A. ("PR"), a French public limited company that owned 51.6% of the outstanding Voting Class A Common Shares of Corby as at June 30, 2011.Basis of Consolidation          The consolidated financial statements include the accounts of Corby and its subsidiaries. All intercompany balances and transactions are eliminated on consolidation.Use of Estimates               The preparation of the consolidated financial statements in conformity with Canadian generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting year.Estimates are used when accounting for items such as allowance for uncollectible accounts receivable, inventory obsolescence, allocating the fair value between goodwill and intangible assets, amortization, employee future benefits, income taxes, accruals and contingencies, and testing goodwill, intangible assets and long-lived assets for impairment. Changes in those estimates could materially affect the consolidated financial statements.Revenue Recognition          Sales and commissions are recognized when the price is fixed or determinable, collectability is reasonably assured, and title for goods passes to the customer. Sales are presented net of customer and consumer discounts and taxes. The large majority of the Company's sales are to government controlled liquor boards. As a result, collection of accounts receivable is reasonably assured.Deposits in Cash Management PoolsCorby participates in a cash pooling arrangement under a Mirror Netting Services Agreement together with PR's other Canadian affiliates, the terms of which are administered by The Bank of Nova Scotia. The Mirror Netting Services Agreement acts to aggregate each participant's net cash balance for the purposes of having a centralized cash management function for all of PR's Canadian affiliates, including Corby.Corby accesses these funds on a daily basis and has the contractual right to withdraw these funds or terminate these cash management arrangements upon providing five days' written notice. For additional information on these balances, see Note 16, "Related Party Transactions".Inventories          Inventories are measured at the lower of cost (acquisition cost and cost of production, including indirect production overheads) and net realizable value. Net realizable value is the selling price less the estimated cost of completion and sale of the inventories. Most inventories are valued using the average cost method. The cost of long-cycle inventories is calculated using a single method which includes distilling and ageing maturing costs but excludes finance costs. These inventories are classified in current assets, although a substantial part remains in inventory for more than one year before being sold in order to undergo the maturing process used for certain spirits.Capital Assets          Buildings, machinery and equipment, casks, and other capital assets are recorded at cost, net of accumulated amortization. Amortization is recorded on a straight-line basis over the estimated useful lives of the assets as indicated below:Buildings      40 to 50 years Machinery and equipment      3 to 12 years Casks      12 years Other capital assets      3 to 20 years Employee Future BenefitsThe Company accrues its obligations under employee future benefit plans and their related costs, net of plan assets, and recognizes the cost of retirement benefits and certain post-employment benefits over the periods in which employees render services to the Company in return for the benefits. Other post-employment benefits are recognized when the event that obligates the Company occurs.The Company has the following policies:Contributions to defined contribution plans are recognized to operating results in the year to which they relate.The cost of defined benefit pension and other retirement benefits earned by employees is actuarially determined using the projected benefit method prorated on service and management's best estimate of expected plan investment performance, salary escalation, retirement ages of employees and expected health care costs.For the purpose of calculating the expected return on plan assets, those assets are valued at fair values.Past service costs from plan amendments and the transitional asset are amortized on a straight-line basis over the average remaining service life of active members expected to receive benefits under the plan.Net actuarial gains or losses are amortized based on the corridor method. Under the "corridor" method, cumulative gains and losses in excess of 10% of the greater of the accrued benefit obligation and the market value of plan assets are amortized over the average remaining service period of active members expected to receive benefits under the plan.The measurement date of the plans' assets and obligations is June 30, 2011.Long-Lived AssetsThe Company's long-lived assets are comprised of its capital assets and its finite-lived intangible assets relating to Corby's long-term representation rights. Long-lived assets are tested for impairment when events or changes in circumstances indicate that their carrying value exceeds the sum of the undiscounted cash flows expected from their use and eventual disposal. If estimated future undiscounted cash flows are not sufficient to recover the carrying value of the assets, an impairment charge is recorded for the amount by which the long-lived assets' carrying value exceeds fair value. Fair value is determined using appraisals, management estimates or discounted cash flows calculations.Goodwill                  Goodwill represents the excess amount of the purchase price of an acquired business over the fair value of the underlying net assets, including intangible assets, at the date of acquisition. Goodwill is deemed to have an indefinite life and is, therefore, not amortized. Goodwill is tested for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the asset might be impaired. In the event of impairment, the excess of the carrying amount over the fair value of these assets would be charged to earnings.Intangible AssetsIntangible assets are comprised of long-term representation rights and trademarks and licences. Long-term representation rights represent the cost of the Company's exclusive right to represent PR's brands in Canada. These representation rights are carried at cost, less accumulated amortization. Amortization is provided for on a straight-line basis over the 15-year term of the agreement, which began on October 1, 2006, and is scheduled to expire on September 30, 2021.Trademarks and licences represent the value of trademarks and licences of businesses acquired. These intangible assets are deemed to have an indefinite life and are, therefore, not amortized. Trademarks and licences are tested for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the assets might be impaired. In the event of impairment, the excess of the carrying amount over the fair value of these assets would be charged to earnings.Income TaxesIncome taxes are accounted for using the asset and liability method. Under this method, future income tax assets and liabilities are recognized for temporary differences between financial statement carrying amounts of assets and liabilities and their respective income tax bases. A future income tax asset or liability is estimated for each temporary difference using substantively enacted income tax rates and laws expected to be in effect when the asset is realized or the liability is settled. A valuation allowance is established, if necessary, to reduce any future income tax asset to an amount that is more likely than not to be realized.Foreign Currency Translation         Monetary assets and liabilities of the Company are translated at exchange rates in effect on the balance sheet dates. Revenues and expenses are translated at rates of exchange prevailing on the transaction dates. All exchange gains or losses are included in earnings.Stock-Based Compensation PlansThe Company utilizes a Restricted Share Units Plan as its long-term incentive plan. Through this plan, restricted share units ("RSUs") will be granted to certain officers and employees at a grant price equal to the market closing price of the Company's Voting Class A Common Shares on the last day prior to grant. RSUs vest at the end of a three-year term, subject to the achievement of pre-determined corporate performance targets. The related compensation expense is recognized over this period.Unvested RSUs will attract dividend-equivalent units whenever dividends are paid on the Voting Class A Common Shares of the Company and will be immediately reinvested into additional RSUs, which will vest and become payable at the end of the three-year vesting period, subject to the same performance conditions as the original RSU award.  On the date of vesting, the holder will be entitled to the cash value of the number of RSUs granted, plus any RSUs received from reinvested dividend-equivalents. RSUs do not entitle participants to acquire any rights or entitlements as a shareholder of the Company.Classification of Financial InstrumentsFinancial instruments are classified into one of the following five categories: held for trading, held-to-maturity investments, loans and receivables, available-for-sale financial assets, or other financial liabilities. The classification determines the accounting treatment of the instrument. The classification is determined by the Company when the financial instrument is initially recorded, based on the underlying purpose of the instrument.Corby's financial assets and liabilities are classified and measured as follows:        Financial Asset/Liability    Category   Measurement         Deposits in cash management pools   Held for trading   Fair value Accounts receivable and note receivable   Loans and receivables   Amortized cost Accounts payable and accrued liabilities   Other financial liabilities   Amortized cost Financial instruments measured at amortized cost are initially recognized at fair value and then, subsequently, at amortized cost, with gains and losses recognized in earnings in the period in which the gain or loss occurs. Changes in fair value of financial instruments classified as held for trading are recorded in net earnings in the period of change.2. FUTURE ACCOUNTING STANDARDSInternational Financial Reporting StandardsIn February 2008, the Canadian Accounting Standards Board ("AcSB") confirmed that Canadian GAAP for publicly accountable enterprises will be replaced by International Financial Reporting Standards ("IFRS") for fiscal years beginning on or after January 1, 2011. IFRS uses a conceptual framework similar to Canadian GAAP; however, there are significant differences in regards to recognition, measurement and disclosures. Accordingly, the conversion from Canadian GAAP to IFRS will be applicable to the Company's reporting for the first quarter of fiscal 2012, for which current and comparative information will be prepared under IFRS.The transition to IFRS will impact accounting, financial reporting, internal control over financial reporting, disclosure controls and procedures, taxes, and information systems and processes. The Company has established a transition plan to ensure the timely conversion to IFRS.3. LOSS ON SALE OF SEAGRAM COOLERSOn March 16, 2011, the Company entered into an agreement with Brick Brewing Co. Ltd. ("Brick"), pursuant to which Brick purchased from Corby the Canadian rights to the Seagram Coolers brand, for a purchase price of $7,300.The loss on sale of Seagram Coolers was calculated as follows:Proceeds on sale of Seagram Coolers     $7,300         Book value of assets sold      9,061Transaction costs      472         Loss on sale before income taxes      (2,233)Income tax effect      500        Net loss on sale of Seagram Coolers     $(1,733)The purchase price was satisfied by a $4,900 cash payment on closing and a secured promissory note issued by Brick in favour of Corby for the remaining balance of $2,400, which will be paid over the next four years in equal annual installments of $600, with 5% interest per annum.In addition, the Company has also transferred its remaining Seagram Coolers inventory to Brick upon closing of the transaction. The book value of inventory transferred was $1,356. Brick will reimburse Corby for the inventory value one-year after the closing date. Corby has recorded the $1,356 receivable from Brick as accounts receivable on its balance sheet as at June 30, 2011. Payment for the inventory is secured by an insurance policy issued in favour of Corby and payable in the event of a default by or insolvency of Brick, subject to the terms and conditions of the policy.4. RECEIVABLES          2011  2010          Trade receivables     $29,614  $28,340Other receivables     1,391  -       $31,005  $28,340Other receivables include amounts owing from Brick for the sale of Seagram Coolers inventory transferred as part of the sale of the Seagram Coolers brand and interest accrued on the secured promissory note receivable from Brick. Please see Note 3 for further information regarding repayment terms and security.5. INVENTORIES          2011  2010         Raw materials     $5,429  $6,390Work-in-progress     45,079  43,990Finished goods     9,146  10,122       $59,654  $60,502The cost of inventory recognized as an expense and included in cost of goods sold during the year ended June 30, 2011, was $60,010 (2010 - $59,810). During the year, there were no significant write-downs of inventory as a result of net realizable value being lower than cost, and no inventory write-downs recognized in previous years were reversed.6. INCOME TAXESThe tax effects of temporary differences and loss carry-forwards that give rise to significant portions of the future income tax assets and future income tax liabilities are presented below:       2011  2010         Future income tax assets         Current        Bad debt and inventory reserves    $41 $106 Restricted stock unit reserve     120  29       $161  $135 Future income tax liabilities      Long term       Employee future benefits     $1,062  $1,160 Capital assets     2,051  1,772 Inventories     605  696 Intangible assets and goodwill     750  1,618       $4,468  $5,246There are no capital loss carry-forwards available for tax purposes.The Company's effective tax rates are comprised of the following items:       2011  2010         Combined basic Federal and Provincial tax rates   29%31%Impact of impairment charge    0%5%Impact of substantively enacted rate decreases in Ontario  0%(2%)      29%34% 7. CAPITAL ASSETS     2011    2010     Accum.  Net Book   Accum.  Net Book   Cost Amort.  Value Cost Amort.  Value         Land  $638  $-  $638  $638 $- $638Buildings 8,125  5,106  3,019  7,931 4,864 3,067Machinery and equipment 14,399  7,048  7,351  13,954 6,765 7,189Casks 6,121  1,752  4,369  5,387 1,331 4,056Other 452  183  269  538 250 288   $29,735  $14,089  $15,646  $28,448 $13,210 $15,238 8. EMPLOYEE FUTURE BENEFITSThe Company has two defined benefit pension plans for executives and salaried employees, two supplementary executive retirement plans for retired and current senior executives of the Company, and a post-retirement benefit plan covering retiree life insurance, health care and dental care. Benefits under these plans are based on years of service and compensation levels. The latest valuations completed for these plans are dated December 31, 2010. The next required valuations must be completed with an effective date no later than December 31, 2013.Beginning July 1, 2010, employees hired on or after this date, will no longer be offered enrolment into the Company's defined benefit pension plans.  Instead, the Company will now provide these employees a defined contribution pension plan.  To become eligible, most employees must first accrue one year of service before joining the new plan.  As at June 30, 2011, there were no active participants enrolled in this new defined contribution plan.Details of the Company's defined benefit pension and other post-retirement benefit plans are as follows:     2011  2010     PensionOther Benefit Pension  Other Benefit     PlansPlans Plans  Plans         Fair value of plan assets      Fair value of plan assets, beginning of year  $41,605  $-  $39,188 $- Actual return on plan assets   5,524  -  2,561 -  Employer contributions   2,973  691  2,727 672 Employee contributions   221  -  208 -  Benefits paid   (3,915) (691) (3,079) (672)Fair value of plan assets, end of year  $46,408  $-  $41,605 $-            Accrued benefit obligation          Benefit obligation, beginning of year  $47,707  $13,848  $37,787 $11,487 Service cost   1,474  361  885 336 Interest cost   2,408  626  2,581 763 Employee contributions   221  -  208 - Actuarial loss   1,950  323  9,325 2,749 Extraordinary item   -  (661) - - Past service costs   - (1,836) - (815) Benefits paid   (3,915) (691) (3,079) (672)Accrued benefit obligation, end of year  $49,845  $11,970  $47,707 $13,848            Funded status          Funded status: plan deficit   $(3,437) $(11,970) $(6,102) $(13,848) Unamortized net transition asset (obligation)  (1,470) 487  (1,802) 2,512 Unamortized past service costs   617  -  697 - Unamortized net actuarial loss   16,806  4,062  19,499 4,588Accrued benefit asset (liability)   $12,516  $(7,421) $12,292 $(6,748)All defined benefit pension plans, other than one of the supplementary executive retirement plans, are in a funded deficit position. The aggregate fair value of plan assets and accrued benefit obligation for these deficit position plans as at June 30, 2011, are $36,534 and $42,129, respectively (2010 - $32,756 and $40,673).Significant actuarial assumptions adopted are as follows:     2011  2010     PensionOther Benefit Pension  Other Benefit     PlansPlans Plans  Plans         Accrued benefit obligation, end of year     Discount rate  4.90%4.90%5.25%5.25%Compensation increase  3.50%N/A3.50%N/ABenefit expense, for the year      Discount rate  5.25%5.25%7.10%7.10%Expected long term return on assets 6.50%N/A6.25%N/ACompensation increase  3.50%N/A3.50%N/AThe medical cost trend rate used was 9.0% for 2011 (2010 - 10%), with 5.0% being the ultimate trend rate for 2015 and years thereafter. The dental cost trend rate used was 5.0% for 2011 (2010 - 5.0%).Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects in 2011:           Increase  Decrease         Service and interest cost     $ 164  $ (128)Accrued benefit obligation    1,524 (1,245)Components of the Company's defined benefit pension and other post-retirement benefit plans expenses are as follows:     2011  2010     PensionOther Benefit Pension  Other Benefit     PlansPlans Plans  Plans         Service cost (including provision for plan expenses) $1,474  $361  $885 $336Interest cost   2,408  626  2,581 763Actual return on plan assets   (5,524) -  (2,561) -Actuarial loss   1,950  323  9,325 2,749Plan amendments   -  (1,836) - (815)Costs (recoveries) arising in the period  308  (526) 10,230 3,033            Differences between:           Actual and expected return on plan assets  3,489  -  665 - Actuarial gain or loss recognized for the year and actuarial gain or loss on accrued benefit obligation (796) (135) (8,825) (2,706) Amortization of plan amendments and actual plan amendments   80  1,836  80 815 Amortization of transitional (asset) obligation  (333) 188  (333) 356Net expense   $2,748  $1,363  $1,817 $1,498         Plan assets by category are as follows:       2011  2010         Equity    52.0%50.0%Fixed income    37.0%38.0%Refundable taxes at Canada Revenue Agency / other  11.0%12.0%      100.0%100.0%9. GOODWILLChanges in the carrying amount of goodwill are as follows:       2011  2010                 Balance, beginning of year     $6,857  $9,856Decreases in goodwill     (971) (2,999)Balance, end of year     $5,886  $6,857The decrease in goodwill recognized in 2011 was the result of the Company's decision to sell Seagram Coolers (Note 3) and in 2010 reflects an impairment charge also associated with Seagram Coolers (Note 17).10. INTANGIBLE ASSETS         2011             Movements in the Year     Opening     Ending     Book Value  Amortization  Impairments  Disposals  Book Value         Long-term representation rights  $51,032  $(4,531) $-  $-  $46,501 Trademarks and licenses  19,539  -  -  (7,738) $11,801     $70,571  $(4,531) $-  $(7,738) $58,302                 2010             Movements in the Year     Opening     Ending     Book Value  Amortization  Impairments  Disposals  Book Value         Long-term representation rights  $57,370 $(4,608) $- $(1,730) $51,032Trademarks and licenses  28,050 - (8,511) - 19,539    $85,420 $(4,608) $(8,511) $(1,730) $70,571Disposals in 2011 reflect the Company's decision to sell the trademark and licenses associated with the Seagram Coolers brand (Note 3).The 2010 carrying amount of trademarks and licenses were impacted by an impairment charge related to Seagram Coolers (Note 17). The 2010 carrying amount of long-term representation rights were reduced as a result of PR's decision to sell certain of its international brands covered under Corby's long-term representation agreement. Specifically, PR sold the Wild Turkey bourbon, Tia Maria coffee liqueur and Lemon Hart rum brands, and thus early terminated Corby's representation of these brands. The amount of the disposal reflects the cash compensation PR paid to Corby, as calculated in accordance with a prescribed formula contained in the representation agreement.11. SHARE CAPITAL       2011  2010           Number of shares authorized:         Voting Class A Common Shares - no par value    Unlimited   Unlimited  Non-voting Class B Common Shares - no par value    Unlimited   Unlimited           Number of shares issued and fully paid:        Voting Class A Common Shares     24,274,320  24,274,320 Non-voting Class B Common Shares    4,194,536  4,194,536       28,468,856  28,468,856          Stated value     $14,304  $ 14,304 12. COMMISSIONSCommissions are reported net of long-term representation rights amortization in the amount of $4,531 (2010 - $4,608). Long-term representation rights represent the cost of the Company's exclusive right to represent PR's brands in Canada. These rights are being amortized on a straight-line basis over the 15-year term of the agreement that began on October 1, 2006, and is scheduled to expire on September 30, 2021.13. RESTRICTED SHARE UNITS PLAN      2011   2010       Weighted   Weighted      Restricted  Average  Restricted  Average      Share  Grant Date  Share  Grant Date      Units  Fair Value  Units  Fair Value         Non-vested, beginning of year  57,414  $21.73 69,740 $22.42 Granted  24,474  15.10 - - Reinvested dividend equivalent units 2,044  16.07 2,044 15.37 Vested  (30,164) 24.09 (14,370) 24.18Non-vested, end of year  53,768  $ 17.17 57,414 $21.73Compensation expense related to this plan for the year ended June 30, 2011, was $292 (2010 - $329).14. EARNINGS PER SHAREThe following table sets forth the numerator and denominator utilized in the computation of basic and diluted earnings per share:       2011  2010          Numerator:        Net earnings     $27,423  $20,675Denominator:         Weighted average shares outstanding     28,468,856  28,468,85615. CHANGES IN NON-CASH WORKING CAPITAL       2011  2010         Accounts receivable     $(2,665) $300Inventories     554  (6,515)Prepaid expenses     (180) 31Income tax and other taxes recoverable / payable   1,185  408Accounts payable and accrued liabilities    735  (2,131)       $(371) $(7,907)16. RELATED PARTY TRANSACTIONSDeposits in Cash Management PoolsCorby participates in a cash management pooling arrangement under the Mirror Netting Services Agreement together with PR's other Canadian affiliates, the terms of which are administered by The Bank of Nova Scotia. The Mirror Netting Services Agreement acts to aggregate each participant's net cash balance for the purposes of having a centralized cash management function for all of PR's Canadian affiliates, including Corby. As a result of Corby's participation in this agreement, Corby's credit risk associated with its deposits in cash management pools is contingent upon PR's credit rating. PR's credit rating as at August 24, 2011, as published by Standard & Poor's and Moody's, was BB+ and Ba1, respectively. PR compensates Corby for the benefit it receives from having the Company participate in the Mirror Netting Services Agreement by paying interest to Corby based upon the 30-day LIBOR rate plus 0.40%. Corby earned interest income of $1,250 from PR during the year ended June 30, 2011 (2010 - $529). Corby has the right to terminate its participation in the Mirror Netting Services Agreement at any time, subject to five days' written notice.ABSOLUT Vodka Representation AgreementOn September 26, 2008, Corby entered into an agreement with its ultimate parent company, PR. The agreement provides Corby with the exclusive right to represent the ABSOLUT vodka brand in Canada effective October 1, 2008, for the next five years to September 30, 2013. As part of this agreement, Corby also received the exclusive right to represent the Plymouth gin and Level vodka brands. Corby also agreed to continue to participate in the cash management pooling arrangement (the Mirror Netting Service Agreement) with PR's wholly owned Canadian subsidiaries until October 1, 2011, unless earlier terminated by Corby. Further, until October 1, 2011, Corby agreed that it will not declare any special dividends, repurchase shares or make acquisitions or capital investments outside the normal course of business without PR's prior approval.Related Party Transactions in the Normal Course of OperationsHWSL, a wholly owned subsidiary of PR, owns in excess of 50% of the issued voting common shares of Corby and, therefore, for the purposes of the chart below, HWSL is considered to be the Company's parent. PR is considered to be Corby's ultimate parent, and affiliated companies are also subsidiaries of PR.Transactions and balances with parent and affiliated companies include the following:     Financial       Statement  Nature of Transaction Nature of RelationshipClassification 2011  2010          IThe Company renders blending andParent companySales, accounts $227  $331 bottling services   receivable                        IIThe Company sells certain of itsAffiliated companiesSales, accounts $393  $372 products for resale at an export level  receivable                        IIIThe Company renders services, as theParent company, UltimateCommissions, $16,650  $16,428 sole and exclusive representative, forParent company andaccounts     purposes of marketing and sales ofAffiliated companiesreceivable     beverage alcohol products in Canada                           IVThe Company sub-contracts the largeParent companyCost of sales, $20,371  $23,328 majority of its distilling, blending,  inventories and     bottling, storing and production activities  accounts payable                        VThe Company sub-contracts a Parent companyMarketing, $2,118  $2,299 significant portion of its bookkeeping,  sales and     record keeping services, certain   administration     administrative services, related data        processing and maintenance of data        processing activities                            VIThe Company purchases a portion ofParent companyCost of sales,  $1,807  $3,071 its inventory used in production activities  inventories and         accounts payable    These transactions, which are settled the following month, are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. Transactions III, IV, and V above are covered under the terms of agreements with related parties. These agreements include a non-competition clause wherein the Company cedes its right to sell beverage alcohol in bulk to third parties in favour of its parent company.Amounts included in accounts receivable and accounts payable and accrued liabilities with respect to Corby's affiliates, parent company and ultimate parent company are as follows:       2011    2010           Accounts receivable - related parties  $8,216   $  6,196Accounts payable - related parties   (6,117)   (5,730)Net amount receivable from related parties  $2,099   $46617. IMPAIRMENT CHARGEThe fiscal year ending June 30, 2010 includes a non-cash impairment charge against the Company's goodwill and intangible assets related to its Seagram Coolers brand as outlined in the following chart:        2010        Intangible assets    $  8,511Goodwill     2,999        Impairment charged against goodwill and intangible assets   11,510Income tax effect     (2,128)        Net earnings impact of impairment charge   $9,38218. SEGMENT INFORMATIONCorby has two reportable segments: Case Goods and Commissions. Corby's Case Goods segment derives its revenue from the production and distribution of its owned beverage alcohol brands. Corby's portfolio of owned-brands includes some of the most renowned and respected brands in Canada, such as Wiser's Canadian whisky, Lamb's rum, Polar Ice vodka and McGuinness liqueurs.Corby's Commissions segment earns commission income from the representation of non-owned beverage alcohol brands in Canada. Corby represents leading international brands such as ABSOLUT vodka, Chivas Regal, The Glenlivet and Ballantine's scotches, Jameson Irish whiskey, Beefeater gin, Malibu rum, Kahlúa liqueur, Mumm champagne, and Jacob's Creek and Wyndham Estate wines.The Commissions segment's financial results are fully reported as "Commissions" on the consolidated statements of earnings. Therefore, a chart detailing operational results by segment has not been provided as no additional meaningful information would result.Geographic information regarding the Company is as follows:                     2011        Canada    United Statesof America   UnitedKingdom    Rest of World     TotalOperating revenue $148,773   $5,862  $3,712  $443  $158,790Capital assets and goodwill  20,122    -   1,410   -   21,532                                           2010         United States   United    Rest of        Canada    of America   Kingdom    World    TotalOperating revenue $151,522   $5,060  $4,441  $1,207  $162,230Capital assets and goodwill  20,685    -   1,410   -   22,095                      In 2011, operating revenue to three major customers accounted for 29%, 15% and 14%, respectively (2010 - 28%, 16% and 13%).19. FINANCIAL INSTRUMENTSCorby's financial instruments consist of its deposits in cash management pools, accounts and note receivable and accounts payable and accrued liabilities balances. Corby does not use derivative financial instruments.Financial Risk Management Objectives and PoliciesIn the normal course of business, the Company is exposed to financial risks that have the potential to negatively impact its financial performance. The Company does not use derivative financial instruments to manage these risks, as management believes that the risks arising from the Company's financial instruments are already at an acceptably low level. These risks are discussed in more detail below.Credit RiskCredit risk arises from cash held with PR via Corby's participation in the Mirror Netting Services Agreement (further described in Note 16), as well as credit exposure to customers, including outstanding accounts and note receivable. The maximum exposure to credit risk is equal to the carrying value of the financial assets.The objective of managing counter-party credit risk is to prevent losses in financial assets. The Company assesses the credit quality of its counter-parties, taking into account their financial position, past experience and other factors.As the large majority of Corby's accounts receivable balances are collectable from government-controlled liquor boards, management believes that the Company's credit risk relating to accounts receivable is at an acceptably low level. With respect to Corby's deposits in PR's cash management pools, the Company monitors PR's credit rating in the normal course of business and has the right to terminate its participation in the Mirror Netting Services Agreement at any time, subject to five days' written notice. The note receivable is secured as described in Note 3.Liquidity RiskCorby's sources of liquidity are its deposits in cash management pools of $96,636 and its cash generated by operating activities. Corby's total contractual maturities are represented by its accounts payable and accrued liabilities balances which totaled $19,492 as at June 30, 2011, and are all due to be paid within one year. The Company believes that its deposits in cash management pools, combined with its historically strong and consistent operational cash flows, is more than sufficient to fund its operations, investing activities and commitments for the foreseeable future.Corby does not have any investments in asset-backed commercial paper ("ABCP") and, therefore, has no exposure to this type of liquidity risk.Interest Rate RiskInterest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company does not have any short- or long-term debt facilities. Interest rate risk exists as Corby earns market rates of interest on its deposits in cash management pools and also has a note receivable earning a fixed rate of interest.As the note receivable earns interest at a fixed rate, there is no cash flow exposure associated with this instrument. However, the fair value of the note receivable will fluctuate with changes in market interest rates. An active risk management program does not exist, as management believes that changes in interest rates would not have a material impact on Corby's financial position over the long term.Foreign Currency RiskThe Company has exposure to foreign currency risk as it conducts business in multiple foreign currencies; however, its exposure is primarily limited to the US dollar ("USD") and UK pound Sterling ("GBP"). Corby does not utilize derivative instruments to manage this risk. Subject to competitive conditions, changes in foreign currency rates may be passed on to consumers through pricing over the long-term.USD ExposureThe Company's demand for USD has traditionally outpaced its supply, due to USD sourcing of production inputs exceeding that of the Company's USD sales. Therefore, decreases in the value of the Canadian dollar ("CAD") relative to the USD will have an unfavourable impact on the Company's earnings.GBP ExposureThe Company's supply of GBP outpaces demand, as Corby's sales into the UK market are denominated in GBP, while having only an insignificant amount of GBP purchases. Therefore, increases in the value of the CAD relative to the GBP will have an unfavourable impact on the Company's earnings.Commodity RiskCommodity risk exists, as the manufacture of Corby's products requires the procurement of several known commodities such as grains, sugar and natural gas. The Company strives to partially mitigate this risk through the use of longer-term procurement contracts where possible. In addition, subject to competitive conditions, the Company may pass on commodity price changes to consumers via pricing.Fair Value of Financial InstrumentsThe Company uses a fair value hierarchy in order to classify the fair value disclosures related to the Company's financial assets and financial liabilities recognized in the balance sheets at fair value.The fair value hierarchy has the following levels:Level 1 - Quoted market prices in active markets for identical assets or liabilities;Level 2 - Inputs other than quoted market prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); andLevel 3 - Unobservable inputs such as inputs for the asset or liability that are not based on observable market data.The level in the fair value hierarchy within which the fair value measurement is categorized in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety.Corby only has one financial instrument that it records at fair value in its balance sheets - "deposits in cash management pools". Based on the hierarchy just described, this financial asset is categorized as Level 1. For Corby's financial assets and liabilities that are valued at other than fair value on its balance sheets (i.e., accounts receivable, accounts payable and accrued liabilities), fair value approximates their carrying value at June 30, 2011 and 2010, due to their short-term maturities.The carrying value of the note receivable approximates fair value. Fair value is determined using the present value of future cash flows, based on the estimated market rates for instruments with similar terms and conditions.20. CAPITAL MANAGEMENTThe Company's objectives when managing capital are:To ensure sufficient capital exists to allow management the flexibility to execute its strategic plans; andTo ensure shareholders receive a reasonable return on their investment in the form of quarterly dividends.Management includes the following items in its definition of capital:       2011    2010            Share capital   $14,304   $14,304Retained earnings    238,137    226,658            Net capital under management   $252,441   $240,962The Company is not subject to any externally imposed capital requirements.The Company's dividend policy stipulates that, barring any unanticipated developments, regular dividends will be paid quarterly, on the basis of an annual amount equal to the greater of 50% of net earnings per share in the preceding fiscal year ended June 30, and $0.56 per share. In addition, Corby has agreed with PR on certain restrictions, one of which precludes the Company from declaring any special dividends until after October 1, 2011. These restrictions are further described in Note 16.The Company is meeting all of its objectives and stated policies with respect to its management of capital.21. COMMITMENTSFuture minimum payments under operating leases for premises and equipment for the next five years and thereafter are as follows:                                2012             $1,5922013              1,3182014              1,1752015              8872016              713Thereafter             1,476              $7,161 22. GUARANTEESThe Company may enter into agreements that may contain features that meet the definition of a guarantee. A guarantee is defined to be a contract (including an indemnity) that contingently requires the Company to make payments to the guaranteed party in certain situations.In the ordinary course of business, the Company provides indemnification commitments to counter-parties in transactions such as leasing and service arrangements. These indemnification agreements require the Company to compensate the counter-parties for certain amounts and costs incurred as a result of litigation claims. The terms of the indemnification agreements will vary based on the contract and do not provide any limit on the maximum potential liability.23. CONTINGENCIESThe Company is contingently liable with respect to pending litigation and claims arising in the normal course of business. Although the ultimate outcome of these matters is not presently determinable, at this point in time, management believes that the resolution of all such pending matters will not have a material adverse effect on the Company's financial position or results of operations.   For further information: CORBY DISTILLERIES LIMITED Thierry Pourchet, Vice President and Chief Financial OfficerTel.: 416-479-2400  investors@corby.ca www.Corby.ca