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Press release from CNW Group

Corby Distilleries Announces Quarterly Dividend and Reports Second Quarter Financial Results

Wednesday, February 08, 2012

Corby Distilleries Announces Quarterly Dividend and Reports Second Quarter Financial Results09:35 EST Wednesday, February 08, 2012TORONTO, Feb. 8, 2012 /CNW/ - Corby Distilleries Limited ("Corby" or the "Company") (TSX: CDL.A, TSX: CDL.B) today reported its dividend and financial results for the second quarter ended December 31, 2011. The Corby Board of Directors today also declared a dividend of $0.15 per share payable on March 15, 2012 on the 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 February 29, 2012. All financial results are reported in Canadian dollars.Two sale transactions had a substantial impact on the financial results for the quarter. Specifically, the sale of the Montreal plant and non-core brands on October 31, 2011 and the sale of the Seagram Coolers brand on March 16, 2011 (hereafter the "Sale Transactions"). Accordingly, it was necessary to exclude their impact in order to provide the following comparison on a like-for-like basis:Second quarter shipments grew by 2%,Revenue increased 3% and 4% for the three- and six-month periods, andNet earnings increased 10% and 9% for the current three- and six-month periods.The growth in net earnings were the result of revenue growth offset by continued increase in A&P investment, combined with the effect of bulk inventory sales, earning higher interest on cash deposits and having lower statutory rates of corporate income tax.Without adjustment for the Sale Transactions, Corby's second quarter revenue decreased 10% (or $4.6 million) when compared with the same three-month period last year, while on a year-to-date comparison basis, revenue decreased 2% (or $2.0 million).Additionally, unadjusted net earnings for the current three- and six-month periods were $27.1 million and $36.5 million (or $0.95 and $1.28 per share), respectively, compared to $9.8 million and $19.0 million (or $0.34 and $0.67 per share) for the same periods last year. Both the current three- and six-month periods were significantly impacted by the recognition of a $17.7 million gain this quarter as a result of the October 31, 2011 sale transaction."We are pleased to report a like-for-like net earnings increase while continuing to significantly increase investment in advertising and promotional support behind key brands, thus building a platform for long-term growth. Corby is well-positioned for sustained growth through continued investment in priority brands, specialization in our route to market and a steady pipeline of new product innovations," 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 interim consolidated financial statements and accompanying notes for the three- and six-month periods ended December 31, 2011, prepared in accordance with International Financial Reporting Standards.About CorbyCorby'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 Pernod Ricard S.A., 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, Stoneleigh and Graffigna 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, respectively.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 AnalysisDecember 31, 2011 The following Management's Discussion and Analysis ("MD&A") dated February 8, 2012, should be read in conjunction with the unaudited interim condensed consolidated financial statements and accompanying notes as at and for the three and six month periods ended December 31, 2011, prepared in accordance with International Financial Reporting Standards ("IFRS"). (See "Transition to International Financial Reporting Standards" under "New Accounting Pronouncements" in this MD&A). These unaudited interim condensed financial statements do not contain all disclosures required by IFRS for annual financial statements and, accordingly, should also be read in conjunction with the most recently prepared annual consolidated financial statements for the year ended June 30, 2011, which have been prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP"), with consideration given to the IFRS transition disclosures and the additional annual disclosures included in Note 13 to the interim condensed consolidated financial statements as at and for the three months ended September 30, 2011.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; business interruption; trademark infringement; 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 February 8, 2012. 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.The Company's fiscal year end is June 30. Unless otherwise indicated, all comparisons of results for the second quarter of fiscal 2012 (three months ended December 31, 2011) are against results for the second quarter of fiscal 2011 (three months ended December 31, 2010). Results for the three and six months ended December 31, 2010 have been restated to conform to IFRS. All dollar amounts are in Canadian dollars unless otherwise stated.Business OverviewCorby is a leading Canadian marketer of spirits and importer of wines. Corby's national leadership is sustained by a diverse brand portfolio that 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 ("Case Goods"), as well as earning commission income from the representation of selected non-owned brands in Canada ("Commissions"). The Company also supplements these primary sources of revenue with other ancillary activities incidental to the manufacture of case goods, such as  logistics fees and miscellaneous bulk spirit sales. Revenue from Corby's owned-brands predominately consists of sales made to each of the provincial liquor boards in Canada, and also includes sales to international markets. As noted in the "Significant Events" section of this MD&A, Corby sold its bottling facility on October 31, 2011. As a result of this transition Corby will no longer derive revenues from contract bottling services. All other activities will remain in place.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, Stoneleigh 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.Pursuit to a production agreement that expires in September 2016, PR produces Corby's owned-brands at HWSL's production facility in Windsor, Ontario. Under the production agreement, Corby manages PR's business interests in Canada, including HWSL's production facility, also until September 2016.The Company sources more than 80% of its spirits production requirements from HWSL at its production facility in Windsor, Ontario. The Company's remaining production requirements have been outsourced to third party vendors. The formerly owned plant in Montreal continues to manufacture most of the Corby products that were produced there prior to the sale. The Company also utilizes a third-party manufacturer in the UK to produce its Lamb's rum products destined for sale in countries located outside North America. Corby's Lamb's rum products sold in North America continue to be manufactured at HWSL's production facility.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: sales are typically strong in the first and second quarters, while third-quarter sales 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 that 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. Recent brands sales (Seagram Coolers brands in March 2011 and the sale of Montreal bottling facility, discussed below) reflect this strategy by streamlining its portfolio and thus refocusing resources on key brands.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 PR'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.Significant EventsCorby sells its Montreal bottling facility and certain non-core brandsOn October 31, 2011, the Company sold certain owned-brands as well as the shares of its subsidiary, Corby Manufacturing Inc., the owner of the manufacturing and bottling facility in Montréal, Québec, to Sazerac Company, Inc. ("Sazerac") for an aggregate purchase price of $39.7 million, including the cost of inventory and other working capital items associated with the brands and manufacturing facility sold and other related adjustments.The transaction involved the sale of 17 brands, including De Kuyper Geneva gin, De Kuyper Peachtree schnapps, Red Tassel vodka and Silk Tassel Canadian whisky, as well as the Montréal-based manufacturing facility where a significant portion of the brands are produced. As a result of this transaction, Corby recognized a gain on closing of $17.7 million, net of taxes and transaction costs. The book value of the assets disposed, including working capital items, was $17.8 million.The agreement contains customary representations, warranties and covenants. In addition, as part of the agreement, Corby agreed to indemnify Sazerac in respect of a misrepresentation, breach of covenant, pre-closing liabilities and certain environmental matters. Based on current facts and circumstances, no material liability is anticipated in respect of this indemnification, and no provision has been made in the financial results for this contingency.This transaction allows the Company to streamline its portfolio with a more focused and targeted collection of brands, and to focus resources on the long term growth of its core portfolio of premium spirits and wines as part of its brand prioritization strategy. The bottling facility in Montreal had been increasingly underutilized with Corby-owned brand production in recent years, and thus increased the Company's reliance on ancillary and low margin contract bottling activities to fill this capacity. Corby will continue its relationship with the facility and source the production of certain brands with the new ownership.In Corby's most recently completed annual financial statements for the year ended June 30, 2011, the brands and manufacturing facility disposed of contributed a combined $5.7 million to net earnings on sales of $32.2 million. Therefore, the transaction will have a material impact on Corby's future operating results. Direct comparisons to prior periods will be less meaningful, and as such, the impacts of the transaction will be explained throughout this MD&A, where applicable.Corby secures new term for ABSOLUT representation rightsOn November 9, 2011, Corby entered into an agreement with PR for a new term for Corby's exclusive right to represent ABSOLUT vodka in Canada from September 30, 2013 to September 29, 2021, which is consistent with the term of Corby's Canadian representation for the other PR brands in Corby's portfolio. Under the agreement, Corby will pay the present value of $10 million to PR at the commencement of the new term for the additional eight years of the new term. Since the agreement with PR is a related party transaction, the agreement was approved by the Independent Committee of the Corby Board of Directors following an extensive review and with external financial and legal advice. Pursuant to this agreement, Corby also agreed to continue with the mirror netting arrangement with PR and its affiliates, under which Corby's excess cash will continue to be deposited to cash management pools, as further described in the "Related Party Transactions" section of this MD&A.ABSOLUT is the number one premium vodka brand worldwide with around 11 million nine litre cases sold in 2011 and is an iconic brand with an image built around values of creativity, innovation and cultural leadership. It is one of only four international spirits brands in the world which sells more than 10 million cases a year and has an especially attractive growth profile. ABSOLUT vodka complements Corby's strategy, while further enhancing the Company's premium brands portfolio. With ABSOLUT vodka in the Corby portfolio, Corby is the number two player in the vodka category in Canada with a 22% volume share - combining ABSOLUT with other key Corby vodka brands, such as Polar Ice vodka.Brand Performance ReviewCorby's portfolio of owned-brands typically accounts for more than 80% of the Company's annual revenues. 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 Shipment 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 revenues.                         BRAND PERFORMANCE CHART - INCLUDES BOTH CANADIAN AND INTERNATIONAL SHIPMENTS     Three Months Ended Six Months Ended          Shipment  Shipment       Shipment  Shipment    Dec. 31,  Dec. 31,  % Volume  % Value Dec. 31,  Dec. 31,  % Volume  % ValueVolumes (in 000's of 9L cases)   2011  2010  Change  Change 2011  2010  Change  Change                         Brand                        Wiser's Canadian whisky   230  225  2%  3% 426  426  0%  0%Lamb's rum   172  180  (4%)  (4%) 320  322  (1%)  0%Polar Ice vodka   113  91  24%  30% 207  179  16%  22%Mixable liqueurs   56  58  (3%)  (3%) 103  102  1%  0%                         Total Key Brands   571  554  3%  4% 1,056  1,029  3%  4%All other Corby-owned brands   59  61  (3%)  (2%) 122  126  (3%)  (2%)                         Total Corby brands   630  615  2%  4% 1,178  1,155  2%  3%                          Disposed brands   25  118  (79%)  (76%) 108  261  (59%)  (52%)                         Total Corby brands including                disposed brands   655  733  (11%)  (5%) 1,286  1,416  (9%)  (5%)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 "Disposed Brands" from the other Corby-owned brands. Disposed Brands includes the volumes related to Seagram Coolers (sold in the third quarter of fiscal 2011) and the brands sold in the recent transaction described in the "Significant Events" section of this MD&A to the extent that they were still owned during the periods presented in the above chart.The Canadian economy has shown indicators of improvement in recent months. The overall spirits market in Canada showed a 2% growth in retail volume and 4% growth in retail value when compared to the same three month period of the prior year. This is consistent with the trend for the six months ended December 31, 2011 which show retail volumes and retail value growing at 2% and 3%, respectively, when compared to the same six month period last year.The performance of Corby's key brands reflects overall sales improvement with shipment volume and value increases of 3% and 4%, respectively, for both the quarter and year-to-date results when compared to the same periods last year. In particular, strong growth from Polar Ice vodka in Canada has helped drive Corby's performance for the period. While Corby's flagship brand, Wiser's Canadian whisky, appears to have held flat on a year-to-date basis, the brand enjoyed a strong shipment quarter during the critical holiday season. In addition, retail information confirms that the brand has once again outperformed the Canadian whisky segment in Canada and thus continues to gain market share.Disposed Brands were mostly impacted by the fact the current quarter and year-to-date periods do not include sales of the Seagram Coolers brand as it is no longer owned by Corby, whereas the three and six month comparative periods included twenty-nine thousand and eighty-six thousand nine litre cases, respectively.  The remaining brands (i.e., brands that were sold in the recent transaction described in the "Significant Event" section of this MD&A) show activity up to and including October 31, 2011, the date the brands were sold. Excluding Seagram Coolers, up until the date of sale, the Disposed Brands were showing a trend of decline of 4% over prior year performance.Excluding Disposed Brands, shipments in Canada increased 4% for volumes and value on a quarter over quarter comparison basis. Polar Ice vodka leads sales growth for the quarter with increases in shipment volume of 27% as a result of successful new market strategies. This performance builds on trends established in the first quarter of the year for the brand, resulting in year to date domestic shipment volume increases of 19% for the six month period ended December 31, 2011.Corby's international shipment volume decreased 1% on a year-to-date basis, while the quarter showed a sharp decline of 9% largely associated with shipment timing into these markets. Specifically, the international business was driven by strong shipments of Wiser's into the US and a modest increase of Lamb's into the UK market. Polar Ice vodka shipments to the US declined year-to-date as it continues to compete in a crowded US vodka market.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 revenues.                         RETAIL SALES FOR THE CANADIAN MARKET ONLY1                                     Three MonthsEnded Six MonthsEnded            % Retail  % Retail       % Retail  % Retail      Dec. 31,  Dec. 31,  Volume  Value Dec. 31,  Dec. 31,  Volume  ValueVolumes (in 000's of 9L cases)   2011  2010  Change  Change 2011  2010  Change  Change                         Brand                        Wiser's Canadian whisky   235  229  2%  3% 402  395  2%  2%Lamb's rum   149  152  (2%)  (1%) 263  266  (1%)  0%Polar Ice vodka   112  92  22%  19% 198  169  17%  16%Mixable liqueurs   65  65  0%  0% 107  106  1%  1%                  -      Total Key Brands   561  538  4%  4% 970  936  4%  4%All other Corby-owned brands   60  60  (1%)  0% 116  114  2%  2%                         Total     621  598  4%  4% 1,086  1,050  3%  4%                           1 Refers to sales at the retail store level in Canada, asprovided by the Association of CanadianDistillers.In an effort to maintain focus on Corby's continuing business activities and the Company's brand prioritization strategy, brands impacted by the aforementioned sale transaction which closed on October 31, 2011, in addition to Seagram Coolers (which was sold in Q3 last year), have been excluded from the above chart.Overall, the performance of Corby-owned brands exceeded trends seen in the Canadian spirits industry as a whole with total retail volume increases of 3% and retail value increases of 4% year to date. The Canadian spirits industry saw volume and value growth of 2% and 3%, respectively, during the same six month period.The six-month growth trend currently experienced in the Canadian spirits industry has been led by the vodka and rum categories (especially spiced and dark rums). While the Company benefited by the growing vodka segment, Corby's portfolio is heavily weighted in the Canadian whisky and white rum categories; these categories are showing declines of -1% and -3% in the marketplace over that same period. However, Corby's key brand in the Canadian whisky segment, Wiser's, continued to outperform and gain market share from its competitors. The Company's strategy to significantly increase its investment levels behind key brands and in key markets (especially Western Canada) is showing positive results. Most notably Polar Ice vodka has gained significant momentum due to increased advertising and promotional support and Wiser's has continued to perform well compared to its category as a whole.Summary of Corby's Key BrandsWiser's Canadian WhiskyCorby's flagship brand, Wiser's Canadian whisky, experienced retail volume growth of 2% and retail value growth of 3%, while the Canadian whisky category as a whole declined 1% in retail value and remained relatively flat for value compared to the same quarter last year. These trends were consistent with year-to-date results. The brand has continued to gain market share from both a retail volume and value perspective, at the expense of its direct competitors in Canada. This year, the Company continued to build upon the brand's popular and award winning "Welcome to the Wiserhood" television campaign, as it launched new versions of its popular television commercials.Lamb's RumLamb's rum, one of the top-selling rum families in Canada, saw its retail volumes decrease 1% for the six month period ended December 31, 2011 versus the same period last year, while retail volumes for the rum segment in Canada increased by 3%. The growth in the rum segment has been entirely driven by the growth in spiced and dark rum categories, while consumer consumption of white rum has been experiencing declines (-3% on a six month comparison basis). The Lamb's rum family has a significant amount of its volume weighted in white rum, and its performance is reflective of the decline in the category. Compared to the white rum category, Lamb's rum is performing slightly ahead of the market. Corby continued to invest behind the brand this year as it launched a new campaign entitled "Lamb's Nation", which is focused in its key markets of Newfoundland and Labrador.Polar Ice VodkaPolar Ice vodka is among the top three largest vodka brands in Canada. Continuing on trends seen in the first quarter, second quarter results for Polar Ice vodka are impressive as the brand continued to vastly outpace its category. On a three month comparison basis, the brand increased retail volumes by 22% and value by 19%. Year-to-date, the brand increased retail volumes by 17% and retail value by 16%, when compared to the same six month period last year. The vodka category in Canada experienced an increase in retail value of 5%, while retail volumes increased 3% for the six month period.. Aggressive investment in key markets, specifically BC and Alberta, supported with an outdoor "Canada's Vodka" media campaign and strategic pricing were key reasons that consumers re-engaged with the brand.Mixable LiqueursCorby's portfolio of mixable liqueur brands consists of McGuinness liqueurs (which is Canada's largest mixable liqueur brand family) and Meaghers liqueurs. Retail value and volumes for Corby's mixable liqueurs portfolio grew 1% during the six month period compared to the same six months of the prior year, while the category as a whole remained relatively flat. Quarterly trends show similar results, as the Corby brands remained flat for volume while the category shows a slight decline of 1% for the three month period. 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.Other Corby-Owned BrandsRoyal Reserve, a Canadian whisky, the most significant brand in this grouping and achieved growth of 2% in both retail volume and value compared to the same six month period last year. On a quarterly basis the brand sales were flat when compared to the same period last year. The brand's performance exceeded its Canadian whisky category in Canada on both a quarterly and year-to-date basis.Financial and Operating ResultsThe following table presents a summary of certain selected consolidated financial information of the Company for the three month periods ended December 31, 2011 and 2010.                               Three Months Ended     Six Months Ended(in millions of Canadian dollars,   Dec. 31,  Dec. 31,         Dec. 31,  Dec. 31,      except per share amounts)    2011  2010 (1)  $ Change  % Change    2011  2010(1)  $ Change  % Change                           Revenue  $40.9 $45.5 $(4.6)  (10%)  $85.1 $87.1 $(2.0)  (2%)                           Cost of sales   (16.7)  (19.1)  2.4  (13%)   (36.1)  (36.8)  0.7  (2%)Marketing, sales and administration   (12.5)  (12.9)  0.4  (3%)   (24.4)  (23.8)  (0.6)  3%Gain on sale of plant and brands   22.0  -  22.0  N/A   21.6  -  21.6  N/AOther income (expense)   (0.1)  0.2  (0.3)  (150%)   -  0.3  (0.3)  (100%)                           Earnings from operations   33.6  13.7  19.9  145%   46.2  26.8  19.4  72%                           Financial income   0.5  0.3  0.2  67%   0.9  0.5  0.4  80%Financial expenses   (0.1)  (0.2)  0.1  (50%)   (0.3)  (0.5)  0.2  (40%)Net financial income   0.4  0.1  0.3  300%   0.6  -  0.6  N/A                           Earnings before income taxes   34.0  13.8  20.2  146%   46.8  26.8  20.0  75%Income taxes   (6.9)  (4.0)  (2.9)  73%   (10.3)  (7.8)  (2.5)  32%                           Net earnings  $27.1 $9.8 $17.3  177%  $36.5 $19.0 $17.5  92%                           Per common share                           - Basic net earnings  $0.95 $0.34 $0.61  179%  $1.28 $0.67 $0.61  91% - Diluted net earnings  $0.95 $0.34 $0.61  179%  $1.28 $0.67 $0.61  91%                           (1) In preparing the comparative information, the Company has adjusted amounts previously reported in financialstatements prepared in accordance with Canadian GAAP.  See Note 18 to the interim condensed consolidatedfinancial statements for an explanation of the transition to IFRS.Overall Financial Results Results of the second quarter were substantially impacted by three factors:The gain on sale of the Company's manufacturing plant and certain non-core brands on October 31, 2011. An after-tax gain on sale of $17.7 million was recognized in both the current and year-to-date financial results. Please refer to the "Significant Event" of this MD&A for further details regarding the sale transaction.The reduction of earnings resulting from the aforementioned October 31, 2011 sale transaction, as from November 1, 2011 onward, Corby's results will no longer include earnings associated with the brands and manufacturing facility sold. However, the comparative periods will include the financial results of those brands for the full period, given the Company's ownership at that time.The sale of the Company's formerly owned Seagram Coolers brand which occurred on March 16, 2011. There are no earnings associated with this brand in the current quarter and year-to-date period, however, the comparative periods include the financial results of this brand given the Company's ownership at that time.In order to effectively assess Corby's current period results against those of the comparative three and six-month periods, the impacts of the aforementioned three factors have been removed from the discussion, where noted.As noted in the Financial and Operating Results chart, the Company's net earnings increased $17.3 and $17.5 million for the three and six month periods, respectively. After removing the impacts of the aforementioned three factors, net earnings increased 10% and 9% for the quarter and six month periods ending December 31, 2011, respectively, when compared to the same periods in the prior year. Earnings per share increases mirror these results on the same comparative basis.These increases were primarily the result of having higher case good sales (driven by Polar Ice vodka in Canada, and Wiser's Canadian whisky internationally), increased bulk whisky sales activity, increased interest income earned on cash deposits, and lastly, the impact of having lower statutory corporate tax rates this period versus the same periods last year. The aforementioned growth in earnings was partially offset by increased advertising and promotional investment being spent on the Company's key brands.RevenueRevenue declined 10% (or $4.6 million) when compared with the same quarter last year and 2% (or $2.0 million) on a year to date comparative basis. This decrease is the result of the revenues from brands and activities no longer included in Corby's portfolio in the current year due to the aforementioned sale transactions (i.e., sale of the Montreal plant and certain non-core brands as of October 31, 2011, and the sale of the Seagram Coolers brand in March 2011). These disposed brands and activities accounted for a $5.6 million decrease in revenues for the quarter and $4.5 million year to date.The following highlights the key components of the Company's revenue streams:                                 Three Months Ended     Six Months Ended     Dec. 31,  Dec. 31,         Dec. 31,  Dec. 31,      (in millions of Canadian dollars)     2011  2010  $ Change  % Change    2011  2010  $ Change  % Change                            Revenue streams:                            Case goods (ex. disposed brands)   $30.5 $30.5 $-  0%  $58.6 $57.7 $0.9  2% Commissions    4.8  4.8  -  0%   9.4  9.1  0.3  3% Other services    2.5  1.5  1.0  67%   4.0  2.6  1.4  54%Revenue, ex. disposed brands    37.8  36.8  1.0  3%   72.0  69.4  2.6  4%                            Disposed brands    3.1  8.7  (5.6)  (64%)   13.1  17.7  (4.6)  (26%)                            Revenue   $40.9 $45.5 $(4.6)  (10%)  $85.1 $87.1 $(2.0)  (2%)Removing the impact of the aforementioned sale transactions (which is denoted in the above chart as "Disposed brands"), revenue from the remaining Corby brand portfolio and other business activities increased 3% for the quarter and 4% year to date when compared with the same periods in the prior year.For the quarter, the benefit of increased Case Goods shipment volumes (+2%) was offset by the cost of certain promotional activities having to be recorded net of revenue in accordance with accounting rules. Therefore, the revenue increase this quarter is primarily attributable to the sale of bulk whisky, which is the result of the Company continuing to supply liquid to a former contract bottling customer.The year to date revenue increase (excluding Disposed brands) was the combined result of increased net Case Goods revenue (driven by a shipment volume increase of 2%), increased Commission income being derived from the representation of PR brands in Canada, and also a significant increase coming from sales of bulk whisky to a former contract bottling. The increase in net Case Goods revenue was driven by new pricing strategies with certain key brands, notably Polar Ice vodka. Case Goods revenue also benefited from the impact of general price increases across most of Corby's brand portfolio in Canada. These trends are a continuation of results seen earlier in this fiscal year. The aforementioned bulk whisky sales are expected to continue past the current fiscal year-end, and supply of the liquid has no impact upon Corby's own supply requirements.Cost of salesCost of sales was $16.7 million, representing a decrease of 13% compared to the same three month period last year, and was mostly commensurate with the decrease in revenue. Gross margin was 53.6% this quarter, versus 53.0% for the same three month period last year. The increase in gross margin is the result of the loss of revenues associated with the sale of non-core brands and the Montreal plant which previously generated the Company's contract bottling revenues. These non-core brands and the contract bottling activities produce significantly lower margin than Corby's existing portfolio.Gross margin for the six month period was 52.3% versus 52.8%, showing a slight decline this period versus last. The decline is the result of having higher levels of lower margin contract bottling activities leading up to the sale transaction which occurred on October 31, 2011.Marketing, sales and administrationMarketing, sales and administration expenses were $12.5 million, as compared to $12.9 million during the same quarter last year, reflecting a 3% decrease. The decrease is primarily the result of both timing of advertising and promotional activities (the first quarter saw a 9% increase in advertising and promotional charges compared to the first quarter of 2012) and to a lesser extent, a reduction was realized as a result of the sale transactions.On a year-to-date basis, marketing, sales and administration expenses were $24.4 million, an increase of 3% or $0.6 million compared to the same period last year. The increase reflects higher advertising and promotional spending levels over the prior year in support of the Company's continued commitment to invest and support its key brands through various marketing and promotional activities. As well, sales and administration expenses experienced inflationary type increases typically expected on a year over year comparison basis and related primarily to headcount and other related costs.Other Income and ExpensesOther income and expenses include such items as realized foreign exchange gains and losses, gains on sale of property plant and equipment and amortization of actuarial gains and losses related to the Company's pension and post retirement benefit plans. The balances comprising this account were relatively consistent on both a three and six month comparison basis.Net Financial IncomeNet financial income is comprised of interest earned on deposits in cash management pools, offset by interest costs associated with the Company's pension and other post-employment obligations. The increased net financial income this quarter and year to date is primarily the result of increased market interest rates applicable to the Company's cash deposits in addition to having higher average amounts of cash on deposit.Income taxesThe sale of the Montreal plant and the non-core brands resulted in a tax impact of $3.9 million included in both the current three and six month periods ended December 31, 2011. Partially offsetting the increased tax as a result of the aforementioned sale transaction, were tax savings as a result of previously announced reductions in statutory income tax rates. Both the Canadian federal and Ontario provincial governments enacted reductions to corporate taxation rates.Liquidity and Capital ResourcesCorby's sources of liquidity are its deposits in cash management pools of $158.4 million as at December 31, 2011, and its cash generated from operating activities. The Company does not have any liabilities under short or long-term debt facilities.Subsequent to December 31, 2011, Corby paid a special dividend of $52.7 million, or $1.85 per common share, as approved by the Board of Directors on November 9, 2011. This dividend was paid on January 3, 2012 and sourced from the Company's deposits in cash management pools.Cash flows                           Three Months Ended   Six Months Ended     Dec. 31,  Dec. 31,  $   Dec.31,  Dec. 31,  $(in millions of Canadian dollars)    2011  2010  Change   2011  2010  Change                      Operating activities                      Net earnings, adjusted for non-cash items   $10.6 $14.2 $(3.6)  $25.3 $28.9 $(3.6) Net change in non-cash working capital    9.5  3.2  6.3   12.0  0.6  11.4 Net payments for interest and income taxes    (2.0)  (2.1)  0.1   (5.2)  (5.8)  0.6     18.1  15.3  2.8   32.1  23.7  8.4                      Investing activities                      Additions to capital assets    (0.3)  (0.2)  (0.1)   (0.3)  (0.3)  - Net proceeds from sale of plant and brands    38.5  -  38.5   38.1  -  38.1 Proceeds from disposition of capital assets    0.2  -  0.2   0.2  -  0.2 Deposits in cash management pools    (52.2)  (11.1)  (41.1)   (61.8)  (15.4)  (46.4)     (13.8)  (11.3)  (2.5)   (23.8)  (15.7)  (8.1)                      Financing activities                      Dividends paid    (4.3)  (4.0)  (0.3)   (8.3)  (8.0)  (0.3)                      Net change in cash   $- $- $-  $- $- $-Operating activitiesNet cash from operating activities was $18.1 million this quarter, representing an increase of $2.8 million when compared with the same quarter last year. The quarter-over-quarter change is mostly attributable to the net change in non-cash working capital, which generated $6.3 million of cash, and was driven mostly by higher balances owing to affiliates and related parties and other accounts payable and accrued liabilities.On a year-to-date basis, net cash from operating activities was $32.1 million compared to $23.7 million from the same six month period of the prior year. In addition to factors impacting the quarter, non-cash changes in working capital have increased $11.4 million compared to the prior year due to the reduction of accounts receivable and inventory balances related to brands impacted in the aforementioned sale transactions. In addition, the Company's relocation of production of its Lamb's rum international business to the UK effectively reduced the amount of bulk rum inventory levels this quarter when compared with the same period last year.Investing activitiesCash used in investing activities increased $2.5 million this quarter when compared with the same quarter last year. On a year-to-date basis the increase was $8.1 million. Investing activities have been significantly impacted by the sale of the Montreal plant and non-core brands, which generated $38.5 million for the quarter and $38.1 million year-to-date in net proceeds. Offsetting this cash inflow was increased deposits in cash management pools of $41.1 million during the quarter and $46.4 million on a year-to-date comparison basis.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 its deposits. 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 $4.3 million, or $0.15 per share for the quarter; this is an increase to dividends paid when compared to the same quarter last year, which were paid at $0.14 per share and totalled $4.0 million. For the six month period, dividends paid totalled $8.3 million versus $8.0 million for the same six month period in the prior year. The amount of dividends paid increased from $0.14 per share to $0.15 per share effective November 9, 2011. The payment of these dividends is in accordance with the Company's stated dividend policy.Outstanding Share DataThere has been no change in Corby's share data since June 30, 2011. As at February 8, 2012, 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.Related Party TransactionsTransactions with parent, ultimate parent, and affiliatesCorby 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, recordkeeping services, data processing and other administrative services is also outsourced to its parent company.The companies operate under the terms of agreements that 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. As noted in the "Significant Events" section of this MD&A, the Company entered into an agreement with PR on November 9, 2011, for a new term for Corby's exclusive right to represent ABSOLUT vodka in Canada from September 30, 2013 to September 29, 2021, which is consistent with the term of Canadian representation for the other PR brands in Corby's portfolio.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 February 8, 2012, as published by Standard & Poor's and Moody's, was BBB- and Baa3, 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.Selected Quarterly InformationSummary of Quarterly Financial Results                                      (in millions of Canadian dollars,     Q2    Q1    Q4    Q3    Q2    Q1  Q4  Q3except per share amounts)     2012    2012    2011    2011    2011    2011  2010 (1)  2010 (1)                                      Revenue  $  40.9 $  44.2 $  40.0 $  32.4 $  45.5 $  41.6 $42.0 $32.2Earnings from operations     33.6    12.6    9.4    4.3    13.7    13.1  9.4  6.8Net earnings, excluding undernoted items (2)     9.0    9.9    6.8    3.1    9.8    9.2  6.6  4.5Net earnings     27.1    9.5    6.8    4.8    9.8    9.2  6.6  4.5Basic EPS     0.95    0.33    0.24    0.11    0.34    0.32  0.23  0.16Diluted EPS     0.95    0.33    0.24    0.11    0.34    0.32  0.23  0.16                                      (1) The selected information that is presented forquarterly periods in fiscal 2010 does not reflect the impact of the adoption of IFRS.(2) Net earnings have been adjusted for the net after-tax gain on the sale of plant and brands of $17.7 million in the current year and for thenet after-tax loss on the sale of Seagram Coolers of$1.7 million in 2011          The above chart demonstrates the seasonality of Corby's business, as sales are typically strong in the first and second quarters, 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.Also highlighted in the chart is the effect the aforementioned sale transactions (i.e., the sale of the Montreal plant and non-core brands in Q2-2012, and the sale of the Seagram Coolers brand in Q3-2011) had on the quarter. Specifically, on a quarter over quarter comparative basis, revenues for Q2-2012 are lower by $5.6 million compared to Q2-2011 due to these aforementioned changes to the Company's brand portfolio. Removing the impact of the aforementioned sale transactions, revenue from the remaining Corby brand portfolio and other business activities increased 3% for the quarter when compared with the same period in the prior year. In addition, the Company's net earnings were impacted by the gain on the sale of the Montreal plant and non-core brands in the amount of $18.1 million in the current quarter. The third quarter of 2011 was impacted by a loss on the sale of the Seagram Coolers brand in the amount of $1.7 million.For further information regarding the sale of the Montreal plant and non-core brands please refer to the interim condensed consolidated financial statements for the period ending December 31, 2011. For further information regarding the sale of the Seagram Coolers brand please refer to the most recently completed annual report for the year ended June 30, 2011.New Accounting PronouncementsTransition to International Financial Reporting StandardsThe Company has adopted International Financial Reporting Standards ("IFRS") for its 2012 fiscal year as required by the Accounting Standards Board of the Canadian Institute of Chartered Accountants. The Company provided information on its transition to IFRS in its 2011 Annual MD&A. The assessments and impacts discussion in the 2011 Annual MD&A remain largely unchanged.The most significant impact of the transition to IFRS is the revaluation of the Company's provision for pensions to conform to Corby's parent company's measurement basis. Upon transition to IFRS, the Company's opening July 1, 2010 retained earnings balance has been reduced by $14.6 million, including the impact of taxes, due to the revaluation of its pension obligations.The Company has provided a detailed explanation of the impacts of this transition in Note 16 of the Company's first quarter 2012 unaudited condensed interim period financial statements ("Note 16"). Note 16 includes reconciliations of the Company's balance sheet and shareholders' equity from Canadian GAAP to IFRS as at June 30, 2011 and July 1, 2010 and its fiscal 2011 net earnings and comprehensive income for the year ending June 30, 2011. Explanation of the individual impacts of adopting IFRS identified in the reconciliations is also provided, as are the Company's elections under IFRS 1 "First-time Adoption of International Financial Reporting Standards".  Note 16 to the Company's second quarter 2012 unaudited condensed consolidated financial statements includes reconciliations of the Company's balance sheet and shareholders' equity from Canadian GAAP to IFRS as at December 31, 2011 and its net earnings and comprehensive income for the three and six months ended December 31, 2011.Recent accounting pronouncementsA number of new standards, amendments to standards and interpretations have been issued but are not yet effective for the financial year ending June 30, 2012, and accordingly, have not been applied in preparing the interim condensed consolidated financial statements for the three and six month periods ending December 31, 2011:(i)     Financial InstrumentsThe IASB has issued a new standard, IFRS 9, "Financial Instruments" ("IFRS 9"), which will ultimately replace IAS 39, "Financial Instruments: Recognition and Measurement" ("IAS 39"). The replacement of IAS 39 is a multi-phase project with the objective of improving and simplifying the reporting for financial instruments and the issuance of IFRS 9 is part of the first phase. This standard becomes effective on January 1, 2015. The Company is currently assessing the impact of this new standard on its consolidated financial statements.(ii)     Deferred Taxes - Recovery of Underlying AssetsThe IASB has issued an amendment to IAS 12, "Income Taxes" ("IAS 12 amendment"), which introduces an exception to the general measurement requirements of IAS 12 in respect of investment properties measured at fair value. The IAS 12 amendment is effective for annual periods beginning on or after January 1, 2012. The Company will apply the amendment at the beginning of its 2013 financial year, beginning July 1, 2012. The Company is currently assessing the impact of the IAS 12 amendment on its consolidated financial statements.(iii)     Consolidated Financial StatementsIn May 2011 the IASB issued IFRS 10, "Consolidated Financial Statements" ("IFRS 10"), IFRS 11, "Joint Ventures" ("IFRS 11"), and IFRS 12, "Disclosure of Interest in Other Entities" ("IFRS 12"). In addition, the IASB amended IAS 27, "Consolidated and Separate Financial Statements" ("IAS27") and IAS 28, "Investments in Associates and Joint Ventures" ("IAS 28"). The objective of IFRS 10 is to define the principles of control and establish the basis of determining when and how an entity should be included within a set of consolidated financial statements. IFRS 11 establishes principles to determine the type of joint arrangement and guidance for financial reporting activities required by entities that have an interest in an arrangement that is jointly controlled. IFRS 12 enables users of the financial statements to evaluate the nature and risks associated with its interest in other entities and the effects of those interests on its financial performance.IFRS 10, 11 and 12, and the amendments to IAS 27 and 28 are all effective for annual periods beginning on or after January 1, 2013. The Company is currently assessing the impact of these new standards on its consolidated financial statements.(iv)     Fair Value MeasurementOn May 12, 2011 the IASB issued IFRS 13, "Fair Value Measurement" ("IFRS 13") which defines fair value, provides guidance in a single IFRS framework for measuring fair value and identifies the required disclosures pertaining to fair value measurement. This standard is effective for annual periods beginning on or after January 1, 2013. The Company is currently assessing the impact of the new standard on its consolidated financial statements.(v)     Employee BenefitsOn June 16, 2011 the IASB revised IAS 19, "Employee Benefits" ("IAS 19"). The revisions include the elimination of the option to defer the recognition of actuarial gains and losses, enhancing the guidance around measurement of plan assets and defined benefit obligations, streamlining the presentation of changes in assets and liabilities arising from defined benefit plans and introduces enhanced disclosure for defined benefit plans. The amendments are effective for annual periods beginning on or after January 1, 2013. The Company is currently assessing the impact of this amendment on its consolidated financial statements.(vi)     Presentation of Financial StatementsOn June 16, 2011 the IASB issued amendments to IAS 1, "Presentation of Financial Statements." The amendments enhance the presentation of Other Comprehensive Income ("OCI") in the financial statements. The amendments are effective for annual periods beginning on or after July 1, 2012. The Company is currently assessing the impact of this amendment on its consolidated financial statements.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 IFRS. 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.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, causing 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 economic outlook and overall consumer confidence in the stability of the economy as a whole. 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., a 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 a 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.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 it has 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. As a result of the Company's recent relocation of its Lamb's international production from Canada to the UK, Corby's exposure to fluctuations in GBP relative to the CAD will be reduced.Third-Party Service ProvidersHWSL, for which Corby manages on behalf of PR, provides more than 80% of the Company's production requirements, among other services including administration and information technology. However, the Company is reliant upon certain 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 that 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 that involve the determination of fair value. Inherent in such fair value determinations are certain judgments and estimates including, but not limited to, projected future sales, earnings and capital investment; discount rates; and terminal growth rates. These judgments 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 December 31, 2011                          Associated Brand       Associated Market      Goodwill  Intangibles      Total                          Various PR brands       Canada     $- $44.2 $    44.2Lamb's rum       United Kingdom(1)      1.4  11.8      13.2Corby domestic brands       Canada (2)      1.9  -      1.9                                        $3.3 $56.0 $    59.3                          (1) The international business for Lamb's rum is primarily focused in the UK, however, the trademarksand licences purchased, relate to all international markets outside of Canada, as Corby previouslyowned the Canadian rights.                          (2) Goodwill related to Corby domestic brands has been adjusted to reflect the impact of the sale ofcertain DeKuyper brands as discussed in the "Significant Events" section of this MD&A.    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.Provision for pensions The 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 21 of the interim condensed consolidated financial statements for the quarter ended September 30, 2011 which includes details of the provision for pensions under IFRS as at June 30, 2011.CORBY DISTILLERIES LIMITED    INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS                                    (Unaudited)                             (in thousands of Canadian dollars)                                                                      December 31,   December 31,      June 30,      July 1,      Note    2011   2010(1)      2011(1)      2010(1)                                                            ASSETS                             Deposits in cash management pools         $158,427  $90,062  $   96,636  $   74,685Accounts receivable     5    30,271   30,770      31,005      28,340Income and other taxes recoverable          -   -      -      1,070Inventories          49,089   61,472      59,654      60,502Prepaid expenses          806   627      1,731      1,551Current portion of note receivable          600   -      600      -                              Total current assets          239,193   182,931      189,626      166,148Note receivable          1,800   -      1,800      -Deferred income taxes          -   -      256      -Property, plant and equipment          6,691   14,679      15,646      15,238Goodwill          3,278   6,857      5,886      6,857Intangible assets          56,037   68,306      58,302      70,571                              Total assets         $306,999  $272,773  $   271,516  $   258,814                                                            LIABILITIES                             Accounts payable and accrued liabilities     6   $25,135  $20,720  $   19,492  $   18,285Income and other taxes payable          2,774   932      115      -Dividends payable     11    52,667   -      -      -                              Total current liabilities          80,576   21,652      19,607      18,285Provision for pensions          10,695   13,658      12,670      14,175Deferred income taxes          884   131      -      41                              Total liabiliites          92,155   35,441      32,277      32,501                              Shareholders' equity                             Share capital          14,304   14,304      14,304      14,304Retained earnings          200,540   223,028      224,935      212,009                              Total shareholders' equity          214,844   237,332      239,239      226,313                              Total liabilities and shareholders' equity         $306,999  $272,773  $   271,516  $   258,814(1) In preparing its comparative information, the Company has adjusted amounts reported previously in financial statements prepared in accordance with Canadian Generally Accepted Accounting Principles ("Canadian GAAP").  See Note 16 to the first interim condensed consolidated financial statements for the three month periods ending September 30, 2011 and 2010 for an explanation of the transition to IFRS on the balance sheet at July 1, 2010 and Note 16 to these condensed consolidated financial statements for an explanation of the impact on the three and six month periods ending December 31, 2010.The accompanying notes are an integral part of these interim condensed consolidated financial statements.CORBY DISTILLERIES LIMITED      INTERIM CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS                        (Unaudited)                               (in thousands of Canadian dollars, except per share amounts)                                     For the Three Months Ended   For the Six Months Ended                               December 31,   December 31,   December 31,   December 31,      Note    2011   2010(1)   2011   2010(1)                                            Revenue   7,13   $40,919  $45,501  $85,142  $87,111                      Cost of sales   8,13    (16,758)   (19,118)   (36,136)   (36,838)Marketing, sales and administration   8,13    (12,521)   (12,911)   (24,442)   (23,825)Gain on sale of plant and non-core brands   4, 16    21,936   -   21,532   -Other income and expenses   9    (22)   262   71   341                        Earnings from operations        33,554   13,734   46,167   26,789                      Financial income   10    501   310   996   549Financial expenses   10    (115)   (244)   (277)   (482)Net financial income        386   66   719   67                        Earnings before income taxes        33,940   13,800   46,886   26,856                      Current income taxes        (5,585)   (4,020)   (9,218)   (7,775)Deferred income taxes        (1,287)   6   (1,140)   (90)Income taxes   14    (6,872)   (4,014)   (10,358)   (7,865)                      Net earnings       $27,068  $9,786  $36,528  $18,991                      Basic earnings per share       $0.95  $0.34  $1.28  $0.67Diluted earnings per share       $0.95  $0.34  $1.28  $0.67                      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 (1) In preparing its comparative information, the Company has adjusted amounts reported previously in financial statements prepared in accordance with Canadian Generally Accepted Accounting Principles ("Canadian GAAP").  See Note 16 to the first interim condensed consolidated financial statements for the three month periods ending September 30, 2011 and 2010 for an explanation of the transition to IFRS on the balance sheet at July 1, 2010 and Note 16 to these condensed consolidated financial statements for an explanation of the impact on the three and six month periods ending December 31, 2010.The accompanying notes are an integral part of these interim condensed consolidated financial statements.CORBY DISTILLERIES LIMITEDINTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME                        (Unaudited)                     (in thousands of Canadian dollars)                                                    For the Three Months Ended   For the Six Months Ended                               December 31,   December 31,   December 31,   December 31,           2011   2010(1)   2011   2010(1)                      Net earnings       $27,068  $9,786  $36,528  $18,991                      Other comprehensive income        -   -   -   -                      Total comprehensive income       $27,068  $9,786  $36,528  $18,991 (1) In preparing its comparative information, the Company has adjusted amounts reported previously in financial statements prepared in accordance with Canadian Generally Accepted Accounting Principles ("Canadian GAAP").  See Note 16 to the first interim condensed consolidated financial statements for the three month periods ending September 30, 2011 and 2010 for an explanation of the transition to IFRS on the balance sheet at July 1, 2010 and Note 16 to these condensed consolidated financial statements for an explanation of the impact on the three and six month periods ending December 31, 2010.The accompanying notes are an integral part of these interim condensed consolidated financial statements.CORBY DISTILLERIES LIMITED                             INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES INSHAREHOLDERS' EQUITY                              (Unaudited)                             (in thousands of Canadian dollars)                                                                 Note    Share Capital   AccumulatedOtherComprehensiveIncome      RetainedEarnings      Total                              Balance as at July 1, 2011 (1)         $14,304  $-  $   224,935  $   239,239Net earnings          -   -      36,528      36,528Other comprehensive income          -   -      -      -Dividends     11    -   -      (60,923)      (60,923)                              Balance as at December 31, 2011         $14,304  $-  $   200,540  $   214,844                                                            Balance as at July 1, 2010 (1)         $14,304  $-  $   212,009  $   226,313Net earnings          -   -      18,991      18,991Other comprehensive income          -   -      -      -Dividends          -   -      (7,972)      (7,972)                              Balance as at December 31, 2010 (1)         $14,304  $-  $   223,028  $   237,332 (1) In preparing its comparative information, the Company has adjusted amounts reported previously in financial statements prepared in accordance with Canadian Generally Accepted Accounting Principles ("Canadian GAAP").  See Note 16 to the first interim condensed consolidated financial statements for the three month periods ending September 30, 2011 and 2010 for an explanation of the transition to IFRS on the balance sheet at July 1, 2010 and Note 16 to these condensed consolidated financial statements for an explanation of the impact on the three and six month periods ending December 31, 2010.The accompanying notes are an integral part of these interim condensed consolidated financial statements.CORBY DISTILLERIES LIMITEDINTERIM CONDENSED CONSOLIDATED STATEMENTSOF CASH FLOW                          (Unaudited)                       (in thousands of Canadian dollars)                                                            For the Three Months Ended   For the Six Months Ended                                   December 31,   December 31,   December 31,   December 31,      Notes    2011   2010(1)   2011   2010(1)                        Operating activities                       Net earnings         $27,068  $9,786  $36,528  $18,991Adjustments for:                       Amortization and depreciation     8    1,423   1,567   2,991   3,133Net financial income     10    (386)   (66)   (719)   (67)Gain on sale of plant and non-core brands          (21,936)   -   (21,532)   -(Gain) loss on disposal of property and equipment          (86)   (7)   (86)   4Income tax expense          6,872   4,014   10,358   7,865Provision for pensions          (2,383)   (1,047)   (2,231)   (999)           10,572   14,247   25,309   28,927Net change in non-cash working capital balances     12    9,458   3,163   12,014   585Interest received          481   303   915   545Income taxes paid          (2,411)   (2,399)   (6,140)   (6,395)                        Net cash from operating activities          18,100    15,314   32,098   23,662                        Investing activities                       Additions to property, plant and equipment          (309)   (252)   (309)   (330)Net proceeds from sale of plant and non-core brands          38,491   -   38,087   -Proceeds from disposition of property and equipment          171   11   171   17Deposits in cash management pools          (52,183)   (11,087)   (61,791)   (15,377)                        Net cash used in investing activities          (13,830)   (11,328)   (23,842)   (15,690)                        Financing activity                       Dividends paid      11    (4,270)   (3,986)   (8,256)   (7,972)                        Net cash used in financing activity          (4,270)   (3,986)   (8,256)   (7,972)                        Net increase in cash          -   -   -   -Cash, beginning of period          -   -   -   -                        Cash, end of period         $-  $-  $-  $- (1) In preparing its comparative information, the Company has adjusted amounts reported previously in financial statements prepared in accordance with Canadian Generally Accepted Accounting Principles ("Canadian GAAP").  See Note 16 to the first interim condensed consolidated financial statements for the three month periods ending September 30, 2011 and 2010 for an explanation of the transition to IFRS on the balance sheet at July 1, 2010 and Note 16 to these condensed consolidated financial statements for an explanation of the impact on the three and six month periods ending December 31, 2010.The accompanying notes are an integral part of these interim condensed consolidated financial statements. CORBY DISTILLERIES LIMITEDNOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(in thousands of Canadian dollars, except per share amounts)1.GENERAL INFORMATION         Corby 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.Corby is a public company incorporated and domiciled in Canada, whose shares are traded on the Toronto Stock Exchange. The Company's registered address is 225 King Street West, Suite 1100, Toronto, ON M5V 3M2.2.BASIS OF PREPARATIONStatement of complianceThese interim condensed consolidated financial statements have been prepared in accordance with International Accounting Standard 34 - Interim Financial Reporting ("IAS 34") as issued by the International Accounting Standards Board ("IASB"). They have been prepared using the accounting policies the Company expects to adopt in its consolidated financial statements as at and for the financial year ending June 30, 2012 that were described in Note 3 to the Company's first quarter interim condensed consolidated financial statements as at and for the three months ended September 30, 2011 and 2010.As these interim condensed consolidated financial statements are prepared using International Financial Reporting Standards ("IFRS"), certain disclosures that are required to be included in the annual financial statements prepared in accordance with IFRS that were not included in the Company's most recent annual financial statements prepared in accordance with Canadian Generally Accepted Accounting Principles ("Canadian GAAP"), were included in Note 3 to the Company's first quarter interim condensed consolidated financial statements as at and for the three months ended September 30, 2011 and 2010.These interim condensed consolidated financial statements should be read in conjunction with the Company's 2011 annual financial statements and in consideration of the IFRS transitional disclosures included in Note 16 to these interim condensed consolidated financial statements and Note 16 to the first quarter interim condensed consolidated financial statements as at and for the three months ended September 30, 2011 2010 and the additional annual disclosures included in the Company's interim condensed consolidated financial statements as at and for the three months ended September 30, 2011 and 2010 (Notes 17 through 25).These interim condensed consolidated financial statements were approved by the Company's Board of Directors on February 8, 2012.Functional and presentation currencyThe Company's interim condensed consolidated financial statements are presented in Canadian dollars, which is the Company's functional and presentation currency.Foreign currency translationTransactions denominated in foreign currencies are translated into the functional currency using the exchange rate applying at the transaction date. Non-monetary assets and liabilities denominated in foreign currencies are recognized at the historical exchange rate applicable at the transaction date. Monetary assets and liabilities dominated in foreign currencies are translated at the exchange rate applying at the balance sheet date. Foreign currency differences related to operating activities are recognized in earnings from operations for the period; foreign currency differences related to financing activities are recognized within net financial income.Basis of MeasurementThese interim condensed consolidated financial statements are prepared in accordance with the historical cost model, except for certain categories of assets and liabilities, which are measured in accordance with the methods provided for by IFRS and as described in Note 3 of the first quarter interim condensed consolidated financial statements for the three months ended September 30, 2011 and 2010. Historical cost is generally based on the fair value of the consideration given in exchange for assets.SeasonalityThe interim condensed consolidated financial statements should not be taken as indicative of the performance to be expected for the full year due to the seasonal nature of the spirits business. Corby's operations are subject to seasonal fluctuations as sales are typically strong in the first and second quarters, while third-quarter sales 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.Use of Estimates and Judgements            The preparation of the interim condensed consolidated financial statements in conformity with IFRS requires management to make certain judgements, estimates and assumptions that affect the application of accounting policies, the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates are made on the assumption the Company will continue as a going concern and are based on information available at the time of preparation. Estimates may be revised where the circumstance on which they were based change or where new information becomes available. Future outcomes can differ from these estimates.Judgement is commonly used in determining whether a balance or transaction should be recognized in the consolidated financial statements and estimates and assumptions are more commonly used in determining the measurement of recognized transactions and balances. However, judgement and estimates are often interrelated.The Company has applied judgement in its determining the tax rates used for measuring deferred taxes and identifying the indicators of impairment for property, plant and equipment, goodwill and intangible assets. In the absence of standards or interpretations applicable to a specific transaction, management uses its judgement to define and apply accounting policies that provide relevant and reliable information in the context of the preparation of the financial statements.Estimates are used when estimating the useful lives of property, plant and equipment and intangible assets for the purpose of depreciation and amortization, when accounting for or measuring items such as allowances for uncollectible accounts receivable and inventory obsolescence, assumptions underlying the actuarial determination of provision for pensions, income and other taxes, provisions, certain fair value measures including those related to the valuation of share-based payments and financial instruments, and when testing goodwill, intangible assets and other assets for impairment. Actual results may differ from these estimates.Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.3.SIGNIFICANT ACCOUNTING POLICIESRecent accounting pronouncementsA number of new standards, amendments to standards and interpretations have been issued but are not yet effective for the financial year ending June 30, 2012, and accordingly, have not been applied in preparing these consolidated financial statements:(i)     Financial InstrumentsThe IASB has issued a new standard, IFRS 9, "Financial Instruments" ("IFRS 9"), which will ultimately replace IAS 39, "Financial Instruments: Recognition and Measurement" ("IAS 39"). The replacement of IAS 39 is a multi-phase project with the objective of improving and simplifying the reporting for financial instruments and the issuance of IFRS 9 is part of the first phase. This standard becomes effective on January 1, 2015. The Company is currently assessing the impact of the new standard on its results of operations, financial position and disclosures.(ii)     Deferred Taxes - Recovery of Underlying AssetsThe IASB has issued an amendment to IAS 12, "Income Taxes" ("IAS 12 amendment"), which introduces an exception to the general measurement requirements of IAS 12 in respect of investment properties measured at fair value. The IAS 12 amendment is effective for annual periods beginning on or after January 1, 2012. The Company will apply the amendment at the beginning of its 2013 financial year, beginning July 1, 2012. The Company is currently assessing the impact of the IAS 12 amendment on its results of operations, financial position and disclosures.(iii)     Consolidated Financial StatementsIn May 2011 the IASB issued IFRS 10, "Consolidated Financial Statements" ("IFRS 10"), IFRS 11, "Joint Ventures" ("IFRS 11"), and IFRS 12, "Disclosure of Interest in Other Entities" ("IFRS 12"). In addition, the IASB amended IAS 27, "Consolidated and Separate Financial Statements" ("IAS27") and IAS 28, "Investments in Associates and Joint Ventures" ("IAS 28"). The objective of IFRS 10 is to define the principles of control and establish the basis of determining when and how an entity should be included within a set of consolidated financial statements. IFRS 11 establishes principles to determine the type of joint arrangement and guidance for financial reporting activities required by entities that have an interest in an arrangement that is jointly controlled. IFRS 12 enables users of the financial statements to evaluate the nature and risks associated with its interest in other entities and the effects of those interests on its financial performance.IFRS 10, 11 and 12, and the amendments to IAS 27 and 28 are all effective for annual periods beginning on or after January 1, 2013. The Company is currently assessing the impact of these new standards on its consolidated financial statements.(iv)     Fair Value MeasurementOn May 12, 2011 the IASB issued IFRS 13, "Fair Value Measurement" ("IFRS 13") which defines fair value, provides guidance in a single IFRS framework for measuring fair value and identifies the required disclosures pertaining to fair value measurement. This standard is effective for annual periods beginning on or after January 1, 2013. The Company is currently assessing the impact of the new standard on its consolidated financial statements.(v)     Employee BenefitsOn June 16, 2011 the IASB revised IAS 19, "Employee Benefits" ("IAS 19"). The revisions include the elimination of the option to defer the recognition of actuarial gains and losses, enhancing the guidance around measurement of plan assets and defined benefit obligations, streamlining the presentation of changes in assets and liabilities arising from defined benefit plans and introduces enhanced disclosure for defined benefit plans. The amendments are effective for annual periods beginning on or after January 1, 2013. The Company is currently assessing the impact of this amendment on its consolidated financial statements.(vi)     Presentation of Financial StatementsOn June 16, 2011 the IASB issued amendments to IAS 1, "Presentation of Financial Statements." The amendments enhance the presentation of Other Comprehensive Income ("OCI") in the financial statements. The amendments are effective for annual periods beginning on or after July 1, 2012. The Company is currently assessing the impact of this amendment on its consolidated financial statements.4.SALE OF PLANT AND NON-CORE BRANDSOn October 31, 2011, the Company completed a transaction to sell the shares of the wholly-owned subsidiary that owned the manufacturing and bottling facility located in Montreal, Quebec. The transaction resulted in the sale of 17 brands, as well as the Montreal-based manufacturing facility where a significant portion of the brands were produced, for a total purchase price of $39,660; including the cost of inventory and other working capital items associated with the brands and manufacturing facility sold. For the six months ended December 31, 2011 the gain on sale was calculated as follows:Proceeds, including inventory and other working capital items  $   39,660       Book value of assets sold, including inventory and other working capital items (17,820)Curtailment gain with respect to employee future benefit plans   2,168 Transaction costs    (2,476)      Gain on sale before income taxes    21,532 Income taxes    (3,855)      Net gain on sale   $   17,677  Transaction costs includes $404 of costs expensed during the first quarter ended September 30, 2011, where at that time they were classified as "Other income and expenses" given the transaction had not yet closed.The agreement contains customary representations, warranties and covenants. In addition, as part of the agreement, Corby agreed to indemnify Sazerac in respect of a misrepresentation, breach of covenant, pre-closing liabilities and certain environmental matters. Based on current facts and circumstances, no material liability is anticipated in respect of this indemnification, and no provision has been made in the financial results for this contingency.5.ACCOUNTS RECEIVABLE               December 31, December 31, June 30, July 1,     2011   2010   2011   2010            Trade receivables$  20,707 $  24,262$  21,398$  22,144Due from related parties 8,113  6,508 8,216 6,196Other receivables 1,451  - 1,391 -              $  30,271 $  30,770$  31,005$  28,340 Other receivables include amounts owing from Brick Brewing Co., Limited for inventory transferred as part of the sale of the Seagram Coolers brand, and also includes interest accrued on the secured promissory note receivable also due from Brick Brewing Co., Limited. These amounts are due and payable within the next 12 months. Further information regarding the sale of the Seagram Coolers brand is provided in the Company's most recently completed annual report for the year ended June 30, 2011.6.ACCOUNTS PAYABLE AND ACCRUALS               December 31, December 31, June 30, July 1,     2011   2010   2011   2010            Trade payables and accruals$  18,285 $  15,641$  13,375$  12,554Due to related parties 6,850  5,079 6,117 5,731              $  25,135 $  20,720$  19,492$  18,285 7. REVENUESThe Company's revenue consists of the following streams:                 Three Months Ended Six Months Ended                 December 31, December 31, December 31, December 31,      2011   2010   2011   2010             Case good sales $  31,054 $  34,299$  62,081 $  65,814Commissions  4,782  4,797 9,465  9,073Other services  5,083  6,405 13,596  12,224                $  40,919 $  45,501$  85,142 $  87,111 Commissions for the three and six month periods are shown net of the long-term representation rights amortization of $1,133 and $2,265 (2010 - $1,133 and $2,265). Other services include revenues incidental to the manufacture of case goods, such as contract bottling revenues, logistics fees and miscellaneous bulk spirit sales.8.EXPENSES BY NATUREEarnings from operations include depreciation and amortization, as well as personnel expenses as follows:                 Three Months Ended Six Months Ended                 December 31, December 31, December 31, December 31,      2011   2010   2011   2010             Depreciation of property, plant and equipment $  290 $  434$  726 $  868Amortization of intangible assets  1,133  1,133 2,265  2,265Salary and payroll costs  4,719  5,163 10,863  10,791(Recoveries) expenses related to pensions and benefits  (1,743) (20) (1,252) 422                $  4,399 $  6,710$  12,602 $  14,346 9. OTHER INCOME AND EXPENSESThe Company's other income (expense) consist of the following amounts:                 ThreeMonths Ended Six Months Ended                 December 31, December 31, December 31, December 31,      2011   2010   2011   2010             Foreign exchange gain (loss) $  (48)$  (190)$  33 $  (84)Gain (loss) on disposal of property and equipment  86  7 86  (4)Amortization of actuarial gains (losses) under defined benefit plans  (60) 445 (48) 429                $  (22)$  262$  71 $  341 10. NET FINANCIAL INCOMEThe Company's financial income (expense) consists of the following amounts:                 Three Months Ended Six Months Ended                 December 31, December 31, December 31, December 31,      2011   2010   2011   2010             Interest income $  501 $  310$  996 $  556Interest expense  (8) (3) (21) (7)Net financial impact of pensions  (107) (241) (256) (482)                $  386 $  66$  719 $  67 11. DIVIDENDSOn November 9, 2011, the Company's Board of Directors declared a special dividend of $1.85 per common share, to shareholders of record as at the close of business on December 15, 2011, payable January 3, 2012. Subsequent to the quarter-ended December 31, 2011, and in-line with the terms of the dividend declaration just described, the Company paid the full amount of the dividend of $52,667 on January 3, 2012. The payment was sourced from the Company's deposits in cash management pools.On February 8, 2012, subsequent to the quarter ended December 31, 2011, the Board of Directors declared its regular quarterly dividend of $0.15 per common share, payable March 15, 2012, to shareholders of record as at the close of business on February 29, 2012. This dividend is in accordance with the Company's dividend policy.12.NET CHANGE IN NON-CASH WORKING CAPITAL BALANCES                   Three Months Ended Six Months Ended                   December 31, December 31, December 31, December 31,       2011   2010   2011   2010              Accounts receivable  $   (1,100)$  (466)$  734 $  (2,430)Inventories   3,272  1,874 4,348  (970)Prepaid expenses   801  253 925  924Other taxes recoverable   (1,279) (651) (961) 622Accounts payable and accrued liabilities   7,764  2,153 6,968  2,439                  $   9,458 $  3,163$  12,014 $  585 13. RELATED PARTY TRANSACTIONS Transactions with parent, ultimate parent, and affiliatesThe majority of Corby's issued and outstanding voting Class A shares are owned by HWSL. HWSL is a wholly-owned subsidiary of PR. Therefore, HWSL is Corby's parent and PR is Corby's ultimate parent. Affiliated companies are subsidiaries which are controlled by Corby's parent and/or ultimate parent.The companies operate under the terms of agreements that 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.On November 9, 2011, the Company announced that it has entered into an agreement with PR for a new term for Corby's exclusive right to represent ABSOLUT vodka in Canada from September 30, 2013 to September 29, 2021, which is consistent with the term of Canadian representation for the other PR brands in Corby's portfolio. Under the agreement, Corby will pay the present value of $10 million to PR at the commencement of the new term for the additional eight years of the new term.Transactions between Corby and its parent, ultimate parent and affiliates during the period are as follows:                 Three Months EndedSix Months Ended                 December 31, December 31, December 31, December 31,       2011   2010   2011   2010              Sales to related parties            Commissions - parent, ultimate parent and affiliated companies$  5,012 $  4,927$  9,873 $  9,518 Blending and bottling services - parent   33  80 217  137 Products for resale at an export level - affiliated companies 119  81 248  201 Bulk spirits - parent    37  - 150  -                  $  5,201 $  5,088$  10,488 $  9,856             Cost of goods sold, purchased from related parties          Distilling, blending, and production services - parent  $  4,652 $  4,694$  9,073 $  10,432 Bulk spirits - parent    148  337 700  1,008                  $  4,800 $  5,031 $  9,773 $  11,440              Administrative services purchased from related parties         Marketing, selling and administraton services- parent $  511 $  549$  1,022 $  1,108 Outstanding balances with these related parties are priced on an arm's length basis and are to be settled in cash within two months of the reporting date. None of the balances are secured.Deposits in cash management poolsCorby participates in a cash pooling arrangement under the 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 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 February 8, 2012, as published by Standard & Poor's and Moody's, was BBB- and Baa3, 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%. During the three and six month periods ending December 31, 2011, Corby earned interest income of $463 and $850 from PR (2010 - $308 and $549). Corby has the right to terminate its participation in the Mirror Netting Services Agreement at any time, subject to five days' written notice.Corby has a number of defined benefit pension plans; for the three and six month periods ending December 31, 2011, contributions to these plans totaled $322 and $639, (2010 - $569 and $1094), respectively.During the three month period ending December 31, 2011, Corby sold machinery and equipment to its parent company for net proceeds of $168 (2010 - $nil).14.INCOME TAXESThe effective tax rate for the three and six month period ended December 31, 2011 was substantially impacted by the effect of the October 31, 2011 sale transaction, whereby the Company sold its Montreal bottling facility and certain non-core brands. Further details regarding the aforementioned sale transaction, including the income tax impact, please refer to Note 4 of these interim condensed consolidated financial statements.15.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" in Note 7 of these consolidated statements. Therefore, a chart detailing operational results by segment has not been provided as no additional meaningful information would result.16.EXPLANATION OF TRANSITION TO IFRSAs stated in Note 2 to these condensed consolidated financial statements, the Company adopted IFRS effective July 1, 2010. Prior to the adoption of IFRS, the Company prepared its financial statements in accordance with Canadian Generally Accepted Accounting Principles ("Canadian GAAP" or "previous GAAP"). The Company's financial statements for the financial year ending June 30, 2012 will be the first annual financial statements that comply with IFRS. Accordingly, the Company will make an unreserved statement of compliance with IFRS beginning with its 2012 annual financial statements.The accounting policies set out in Note 3 to the Company's first quarter interim condensed consolidated financial statements as at and for the three month periods ending September 30, 2011 and 2010 have been applied in preparing the interim condensed consolidated financial statements for the three and six months ended December 31, 2011, the comparative information presented in these financial statement for the three and six months ended December 31, 2010 and in the preparation of an opening IFRS balance sheet at July 1, 2010 (the Company's date of transition). The Company will ultimately prepare its opening IFRS statement of financial position and the financial statements for 2011 and 2012 by applying existing IFRS with an effective date of June 30, 2012. Accordingly, the opening IFRS statement of financial position and the financial statements for 2011 and 2012 may differ from these interim condensed consolidated financial statements.The Company has provided a detailed explanation of the impacts of this transition in Note 16 of the Company's first quarter interim condensed consolidated financial statements as at and for the three months ended September 30, 2011 and 2010 ("Note 16"). Note 16 includes reconciliations of the Company's balance sheet and shareholders' equity from previous Canadian GAAP as at July 1, 2010, June 30, 2011 and September 30, 2010, and its fiscal 2011 net earnings and comprehensive income for the year ended June 30, 2011 and the three months ended September 30, 2010. Explanation of the individual impacts of adopting IFRS identified in the reconciliations are also provided, as are the Company's elections under IFRS 1 "First-time Adoption of International Financial Reporting Standards." Accordingly, these disclosures have not been repeated within these financial statements.An explanation of how the transition from previous GAAP to IFRS has affected the Company's financial position and financial performances as at December 31, 2010 and for the three and six months ended December 31, 2010 is set out in the following tables and the notes that accompany the tables.The adoption of IFRS has had no impact on the net cash flows of the Company. The changes made to the statements of financial position, statements of earnings, statements of comprehensive income and statements of equity have resulted in reclassifications of various amounts on the statements of cash flows, however, as there has been no change to net cash flows, no reconciliations have been presented.Reconciliation of Consolidated Statement of Earnings for the three months ended December 31, 2010(in thousands of Canadian dollars, except per share amounts)               Note   Previous GAAP Presentationadjustments fromprevious GAAPto IFRS Employeebenefits IFRS            Revenueb)$  45,218$  283$  -$  45,501             Cost of salesb) (19,513) 395 - (19,118)Marketing, sales and administrationa); b) (12,406) (1,112) 607 (12,911)Amortization and depreciationb) (434) 434 - - Other income (expense)a); b) - (183) 445 262             Earnings from operations  12,865 (183) 1,052 13,734             Financial incomeb) - 310   310 Financial expensea); b) - (3) (241) (244)Interest incomeb) 307 (307)   - Interest expenseb) - - - - Foreign exchange lossb) (190) 190 - - Loss on disposal of property, plant and equipmentb) 7 (7) - - Net financial income  124 183 (241) 66             Earnings before income taxes  12,989 - 811 13,800             Current income taxes  (4,020) - - (4,020)Deferred income taxes  213 - (207) 6 Income taxes  (3,807) - (207) (4,014)            Net earnings $  9,182$  -$  604$  9,786             Basic earnings per share $  0.32    $  0.34 Diluted earnings per share $  0.32    $  0.34  Reconciliation of Consolidated Comprehensive Income for the three months ended December 31, 2010(in thousands of Canadian dollars)                             Previous GAAP Effect oftransition toIFRS IFRS         NET EARNINGS $  9,182$  604$  9,786 OTHER COMPREHENSIVE INCOME - - -          COMPREHENSIVE INCOME $  9,182$  604$  9,786 Reconciliation of Consolidated Statement of Earnings for the six months ended December 31, 2010(in thousands of Canadian dollars, except per share amounts)                   Note Previous GAAP Presentationadjustments from previous GAAPto IFRS Employeebenefits IFRS            Revenue b) $  86,711$  400$  -$  87,111             Cost of sales b)  (37,398) 560 - (36,838)Marketing, sales and administration a); b)  (23,137) (1,828) 1,140 (23,825)Amortization and depreciation b)  (868) 868 - - Other income (expense)  a); b)  - (88) 429 341             Earnings from operations  25,308 (88) 1,569 26,789             Financial income b)  - 549 - 549 Financial expenses a); b)  - - (482) (482)Interest income a); b)  549 (549) - - Foreign exchange loss a); b)  (84) 84 - - Loss on disposal of property, plant and equipment b)  (4) 4 - - Net financial income  461 88 (482) 67             Earnings before income taxes  25,769 - 1,087 26,856             Current income taxes  (7,775) - - (7,775)Deferred income taxes  187 - (277) (90)Income taxes  (7,588) - (277) (7,865)            Net earnings $  18,181$  -$  810$  18,991             Basic earnings per share $  0.64    $  0.67 Diluted earnings per share $  0.64    $  0.67  Reconciliation of Consolidated Comprehensive Income for the six months ended Decemer 31, 2010(in thousands of Canadian dollars)                     Previous GAAPEffect oftransition toIFRSIFRS      NET EARNINGS  $ 18,181 $ 810 $ 18,991 OTHER COMPREHENSIVE INCOME ---       COMPREHENSIVE INCOME  $ 18,181 $ 810 $ 18,991  Reconciliation of Consolidated Balance Sheet as at December 31, 2010    (in thousands of Canadian dollars)                            Notes   PreviousGAAP Presentationadjustments fromprevious GAAPto IFRS   Employeebenefits    IFRS           ASSETS          Deposits in cash management pools  $  90,062$  -$  -$  90,062 Accounts receivable   30,770 - - 30,770 Income and other taxes recoverable   -     - Inventories   61,472 - - 61,472 Prepaid expenses   627 - - 627 Deferred income taxes b) 206 (206) - -            Total current assets   183,137 (206) - 182,931 Property, plant and equipment   14,679 - - 14,679 Provision for pensions a) 12,053 - (12,053) - Goodwill   6,857 - - 6,857 Intangible assets   68,306 - - 68,306            Total assets  $  285,032$  (206)$  (12,053)$  272,773                       LIABILITIES          Accounts payable and accrued liabilities  $  20,720$  -$  -$  20,720 Income and other taxes payable   932 - - 932            Total current liabilities   21,652 - - 21,652 Provision for pensions a) 7,079 - 6,579 13,658 Deferred income taxes a); b) 5,130 (206) (4,793) 131            Total liabilities   33,861 (206) 1,786 35,441            Shareholders' equity          Share capital   14,304 - - 14,304 Retained earnings a) 236,867 - (13,839) 223,028            Total shareholders' equity   251,171 - (13,839) 237,332            Total liabilities and shareholders' equity  $  285,032$  (206)$  (12,053)$  272,773  Reconciliation of Consolidated Shareholders' Equity as at December 31, 2010    (in thousands of Canadian dollars)                      Note PreviousGAAPEffect oftransition toIFRSIFRS      Share capital  $ 14,304 $ - $ 14,304 Accumulated other comprehensive income --- Retained earnings a) 236,867(13,839)223,028       Total shareholders' equity  $ 251,171 $ (13,839) $ 237,332   Notes to Reconciliations(a)  Financial Impacts of Adopting IFRSEmployee benefitsThe Company has elected under IFRS 1 - First-time Adoption of International Financial Reporting Standards ("IFRS 1") to measure its assets and liabilities in its financial statements at the carrying amounts that would be included in the parent's consolidated financial statements, if no adjustments were made for consolidation procedures and the effect of the business combination in which the parent acquired the subsidiary. As a result, the Company will revalue the provision for pensions to the carrying amounts recorded by the parent company.Deferred income tax assets and liabilities have been re-measured for the IFRS transition adjustments related to employee future benefits, as described above.The following is the impact of electing under IFRS 1 to measure its provision for pensions and the associated impact to deferred tax liabilities based on the parent company's carrying values on the Company's net earnings and other comprehensive income for the three and six months ended December 31, 2010 and the Company's financial position as at December 31, 2010.    3 months ended  6 months ended    Dec. 31  Dec. 31Net earnings impact  2010  2010        Marketing, sales and administration   $ 607   $ 1,140Other income  445  429Earnings from operations  1,052  1,569        Financial expense  (241)  (482)Earnings before income taxes  811  1,087        Income tax expense  (207)  (277)        Increase in net earnings   $ 604   $ 810                       as at       Dec. 31Balance sheet impact     2010        Provision for pensions     $ (18,632)Deferred tax liabilities     4,793        Decrease in retained earnings      $ (13,839) (b) Presentation Impacts of Adopting IFRSCertain presentation differences between Canadian GAAP and IFRS have no impact on reported earnings or shareholder's equity. Certain assets and liabilities have been reclassified into another line item under IFRS at the date of transition. Certain line items are described differently (renamed) under IFRS compared to Canadian GAAP, although the asset and liability amounts included in these items are unaffected. The following summarizes these changes:"Deferred taxes" was previously described as future income taxes under Canadian GAAP. As well, under IFRS, deferred tax assets and liabilities may not be presented as current. The Company has reclassified deferred taxes into non-current assets and liabilities based on the net asset and liability positions of the entities that have generated the balances."Air miles" under previous GAAP Air Miles were deemed to be a sales discount and reflected on the statement of profit and loss as a reduction in Net Revenues. IFRIC 13 - Customer Loyalty Programmes ("IFRIC 13"), requires the value of Air Miles to be presented at gross fair value in revenues, with an offsetting cost reflected in Marketing, sales and administration expenses."Functional presentation" these IFRS financial statements have been presented by function. As a result certain expenses, such as depreciation expense, interest income and foreign exchange gains and losses, have been reclassified by function. Depreciation of property, plant and equipment is reported in costs of goods sold and in marketing, sales and administrative expenses. Foreign exchange gains and losses are included in earnings from operations as they relate to operating assets and liabilities. Interest earned on deposits in cash management pools is recorded in net financial income.   For further information: CORBY DISTILLERIES LIMITEDJohn Leburn, Vice-President and Chief Financial OfficerTel.: 416-479-2400 investors@corby.ca www.Corby.ca