Corby Spirit and Wine announces quarterly dividend and reports fourth quarter and year end financial results

TORONTO, Aug. 27, 2014 /CNW/ - Corby Spirit and Wine Limited ("Corby" or the "Company") (TSX: CSW.A, CSW.B) today declared a dividend of $0.18 per share payable on September 30, 2014 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 September 15, 2014. The Company also reported its financial results for the fourth quarter and year ended June 30, 2014.

Q4 Highlights (vs. Q4 Last Year)

  • 2% increase in Case Goods revenue driven by shipments of JP Wiser's Canadian whisky to the US (product was launched in Q1).

  • Significant advertising and promotional ("A&P") investment focused on JP Wiser's in the US.

  • Corby implemented a cost reduction programme during the quarter designed to streamline and reduce administrative costs for the long-term. This programme resulted in severance and termination payments and involved the redesign of certain pension benefits.

  • Net earnings decreased 2 cents per share or $0.4M as our A&P investments and the impact of our cost reduction programme outweighed our top-line revenue growth.

Year End Highlights (vs. Last Year)

  • 3.4% increase in revenue (+$4.6M) was driven by shipments into the US for the first quarter launch and distribution build-up of JP Wiser's Canadian whisky. Commissions were consistent with the prior year with the addition of our new Agency wine partner in Q4 last year. Revenue growth was partially offset as we cycle against non-repeat bulk whisky sales of $1.8M from Q1 last year.

  • Significant increase in advertising and promotional investment to support JP Wiser's in the US market.  

  • Administrative expenses show the impact of a cost-reduction programme which resulted in severances and termination payments to certain employees; increasing administrative costs.

  • Net earnings decreased 7 cents per share or $2.0M as our A&P investment outweighed our top-line growth as we continue to create a strong platform for growth for JP Wiser's in the US.

"This year has been about investing behind our future growth drivers: taking share in our domestic market, creating a platform for growth in the US and ensuring that our organisation continues to be fit for purpose. Our results demonstrate strong progress on all these fronts." 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 annual consolidated financial statements and accompanying notes for the three- month period and year ended June 30, 2014, prepared in accordance with International Financial Reporting Standards.

About Corby
Corby Spirit and Wine Limited is a leading Canadian marketer of spirits and imported wines. 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 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®, Campo Viejo®, Graffigna®, and Kenwood® wines.

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. All financial results are reported in Canadian dollars.

CORBY SPIRIT AND WINE LIMITED
Management's Discussion and Analysis
June 30, 2014


The following Management's Discussion and Analysis ("MD&A") dated August 27, 2014, should be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended June 30, 2014, prepared in accordance with International Financial Reporting Standards ("IFRS").

This MD&A contains forward-looking statements, including statements concerning possible or assumed future results of operations of Corby Spirit and Wine Limited ("Corby" or the "Company"), including the statements made under the headings "Strategy and Outlook", "Liquidity and Capital Resources", "Recent Accounting Pronouncements" and "Risk and Risk Management." 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 and uncertainties, 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 and other factors could also affect Corby's results. For more information, please see the "Risk and Risk Management" section of this MD&A.

This document has been reviewed by the Audit Committee of Corby's Board of Directors and contains certain information that is current as of August 27, 2014. Events occurring after that date could render the information contained herein inaccurate or misleading in a material respect. Corby will provide updates to material forward-looking statements, including in subsequent news releases and its interim management's discussion and analyses filed with regulatory authorities as required under applicable law. Additional information regarding Corby, including the Company's Annual Information Form, is available on SEDAR at www.sedar.com.

Unless otherwise indicated, all comparisons of results for the fourth quarter of fiscal 2014 (three months ended June 30, 2014) are against results for the fourth quarter of fiscal 2013 (three months ended June 30, 2013). All dollar amounts are in Canadian dollars unless otherwise stated.

Business Overview

Corby 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 "CSW.A" (Voting Class A Common Shares) and "CSW.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 its core business, such as logistics fees. Revenue from Corby's owned-brands predominantly consists of sales made to each of the provincial liquor boards ("LBs") in Canada, and also includes sales to international markets.

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.

The Company expanded its agency portfolio, particularly with regard to our strategic priority of wines, through an agreement (which began April 2013) with The Wine Group LLC ("The Wine Group"), providing Corby with the exclusive rights to represent The Wine Group brands in Canada until May 15, 2018. The agreement complements Corby's owned and represented brands and expands Corby offerings in the premium wine sector. Corby now represents all The Wine Group brands, including Cupcake Vineyards, Big House Wine Co., Concannon Vineyard, Grayfox Vineyards and Mogen David Wine Co.

Pursuant 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.

Corby 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 various third party vendors; including a bottling plant in Montreal, Quebec and a third-party manufacturer in the United Kingdom ("UK"). The UK site blends and bottles Lamb's rum products destined for sale in countries located outside North America.

In most provinces, Corby's route to market in Canada entails shipping its products to government-controlled 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 international business is concentrated in the United States ("US") and UK and the Company has a different route to market for each. For the US market, Corby manufactures the majority of its products in Canada and ships to its US distributor, Pernod Ricard USA, LLC ("PR USA"), an affiliated company. For the UK market, Corby utilizes a third party contract bottler and distribution company for the production and distribution of Lamb's rum. Distributors sell to various local wholesalers and retailers who in turn sell directly to the consumer.

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 Outlook

Corby'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.

Management believes that having a focused brand prioritization strategy will permit Corby 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 resource allocation. Over the long-term, management believes that effective execution of its strategy will result in value creation for shareholders. Past disposal transactions reflect this strategy by streamlining Corby's portfolio and eliminating brands with below average performance trends, thus focusing resources on key brands.

Pursuing new growth opportunities outside of Canada is also a key strategic priority. Our agreement with PR USA to represent certain of Corby's owned brands in the US supports our goal of expanding our Canadian whisky business into this market where we believe there is growth potential in both volume and margin.

Of primary importance to the successful implementation of our brand strategies is an effective route to market strategy. Corby is committed to investing in its trade marketing expertise and ensuring that its commercial resources are focused around the differing needs of its customers and the selling channels they inhabit. In all areas of the business, management believes setting clear strategies, optimizing organization structure and increasing efficiencies is key to Corby's overall success.

In addition, management is convinced that innovation is essential to seizing new profit and growth opportunities. Successful innovation can be delivered through a structured and efficient process as well as consistent investment in 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. In 2013, Corby partnered with the Toronto Transit Commission to provide free transit on New Year's Eve for a three year period. The Company stresses its core values throughout its organization, including those of conviviality, straightforwardness, commitment, integrity and entrepreneurship.

Significant Events

Corby Distilleries Limited changes its name to Corby Spirit and Wine Limited
Effective November 7, 2013, Corby Distilleries Limited began operating under the name Corby Spirit and Wine Limited. The new name was approved at the Company's annual and special meeting held November 7th, 2013, and reflecting the change, Corby now trades on the TSX under the symbols CSW.A and CSW.B. The new name coincided with completely redesigned corporate branding and logos. The new name and branding better reflect Corby's growing activities with a strong focus on product, service and marketing.

Corby Launches J.P. Wiser's Rye and J.P. Wiser's Spiced Canadian Whisky in the US Market
In July 2012, the Company reached a new agreement with PR USA to represent Corby brands in the United States for a five year period, giving Corby access to one of the strongest spirits distribution networks in the US market.

Since signing the agreement, Corby and PR USA have readied Corby's whisky portfolio for a national launch which began in the first quarter of this fiscal year. Specifically, Corby developed two new Wiser's brand extensions under the names J.P. Wiser's Rye and J.P. Wiser's Spiced Whisky. Given this is the first year of the launch, Corby invested heavily into the market. The launch has had a significant impact on our financial results and as such will be discussed throughout this MD&A.

Corby Continues its Exclusive Canadian Representation of the Iconic ABSOLUT Vodka Brand
On September 30, 2013, Corby paid $10.3 million to continue its exclusive rights to represent the ABSOLUT vodka brand in Canada for an eight-year period ending September 29, 2021. The previous representation period expired September 29, 2013. The terms of this agreement are further described in the "Related Party Transactions" section of this MD&A. The transaction was accounted for as an increase in Intangible Assets and the purchase price is being amortized, straight-line, over the eight-year term of the agreement. Amortization expense is recorded net of commission revenues. The payment was funded from the Company's deposits in cash management pools.

Three-Year Review of Selected Financial Information

The following table provides a summary of certain selected consolidated financial information for the Company. This information has been prepared in accordance with IFRS.

                                       
                                       
(in millions of Canadian dollars, except per share amounts)                  2014           2013       2012 (1)
                                       
Revenue           $     137.3     $     132.7     $ 146.7
                                       
Earnings from operations                 33.5           37.0       58.8
  - Earnings from operations per common share                 1.18           1.30       2.07
                                       
Net earnings                 25.0           27.0       46.0
  - Basic earnings per share                 0.88           0.95       1.62
  - Diluted earnings per share                 0.88           0.95       1.62
                                       
Net earnings adjusted excluding effect of disposal transaction (2)                 25.0           27.0       26.3
  - Adjusted basic earnings per share (2)                 0.88           0.95       0.92
  - Adjusted diluted earnings per share (2)                 0.88           0.95       0.92
                                       
Total assets                 254.0           246.9       255.9
Total liabilities                 44.8           45.5       47.6
                                       
Regular dividends paid per share                 0.71           0.66       0.59
Special dividends paid per share                 -           0.54       1.85
1 Earnings from operations and net earnings presented for 2012 does not reflect the impact of the adoption of the
amendments to IAS 19, Employee Benefits.  
2 Net earnings are adjusted in 2012 to remove the net after-tax gain from the sale of the Montreal plant and non-core
brands of $17.7 million and the financial impact of the brands disposed and the contract bottling activities.

The past three years have seen significant changes for Corby. The overall Canadian spirits market in 2012 was growing at a robust rate of 3% while 2013 and 2014 experienced only modest levels of growth (approximately 1%) in each of those years. So while the Canadian market in general has been soft, Corby has taken actions to streamline its Canadian business allowing greater focus on its key brands, while preparing for growth via its flagship Wiser's Canadian whisky brand in the US market.

Key actions taken in each of the following fiscal years:

In 2012, Corby re-focused its business away from the lower margin contract bottling and bulk whisky business by disposing of its Montreal production facility and various smaller non-strategic brands generating a significant one-time gain and cash infusion. Due to this cash position, Corby paid a special dividend of $0.54 per share being paid to shareholders in January 2013. While top line revenue has decreased since 2012, gross margins have improved and the Company was able to better focus its intellectual capital and financial resources behind its key brands.

In 2013, Corby forged a new five-year strategic distribution agreement with its affiliate, Pernod Ricard USA, LLC ("PR USA") allowing the Company to access an extensive national distribution network in addition to the benefits of being complimented by PR USA's premium brand portfolio. The Corby Board of Directors also revised the Company's dividend policy which has since resulted in a steady increase to the regular quarterly dividend rate (growing from $0.59 per share in 2012 to $0.71 per share in 2014, a compound annual growth rate of over 6%).

In 2014, the Company changed its name from Corby Distilleries Limited to Corby Spirit and Wine Limited to better reflect its strong focus on product, service and marketing. With the new name and clear focus, Corby leveraged its strategic relationship with PR USA and launched J.P. Wiser's Rye and J.P. Wiser's Spiced Canadian whisky in the US market. These two new brand extensions were based on Corby's highly successful Canadian flagship brand Wiser's Canadian whisky. The launch is mostly responsible for the top line revenue growth experienced in 2014 versus 2013 given the significant distribution fill required. While revenue grew, the advertising and promotional investment required to support the launch was substantial and as such reduced earnings levels when compared with 2013. In an effort to mitigate the earnings impact and ensure its cost base was right-sized for difficult market conditions in Canada, Corby underwent a cost reduction programme which resulted in severance and termination payments to certain employees. As well, the Company made amendments to certain of the Company's employee benefit pension plans which reduced early retirement provisions and included an increase in employee contribution levels.

Brand Performance Review

Corby's portfolio of owned-brands accounts for more than 80% of the Company's total annual revenue. Included in this portfolio are its key brands: Wiser's Canadian whisky, Lamb's rum, Polar Ice vodka and Corby's mixable liqueur brands. The sales performance of these key brands significantly impacts Corby's net earnings. Therefore, understanding each key brand is essential to understanding the Company's overall performance.

Shipment Volume and Shipment Value Performance

The following chart summarizes the performance of Corby's owned-brands (i.e., Case Goods) 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 gross 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.

                                     
                                     
BRAND PERFORMANCE CHART - INCLUDES BOTH CANADIAN AND INTERNATIONAL SHIPMENTS
                                     
                                     
        Three Months Ended   Year Ended
                Shipment   Shipment           Shipment   Shipment
        Jun. 30,   Jun. 30,   % Volume   % Value   Jun. 30,   Jun. 30,   % Volume   % Value
Volumes (in 000's of 9L cases)       2014   2013   Change   Change   2014   2013   Change   Change
                                     
Brand                                    
Wiser's Canadian whisky       200   200   0%   4%   861   809   6%   14%
Lamb's rum       131   134   (2%)   (1%)   522   543   (4%)   (3%)
Polar Ice vodka       92   94   (2%)   (3%)   381   385   (1%)   1%
Mixable liqueurs       41   42   (2%)   0%   183   178   3%   5%
                                     
Total Key Brands       464   470   (1%)   1%   1,947   1,915   2%   6%
All other Corby-owned brands       48   60   (20%)   (13%)   215   222   (3%)   8%
                                     
Total Corby brands       512   530   (3%)   0%   2,162   2,137   1%   6%
                                     

Overall, Corby owned-brands experienced growth in both shipment volume and shipment value on a year over year comparative basis. However, trends in Corby's domestic market (i.e., Canada - in which 86% of the Company's brands are sold) differ significantly from international markets as highlighted in the following chart:

                                     
                                     
        Three Months Ended   Year Ended
                Shipment   Shipment           Shipment   Shipment
        June 30,   June 30,   % Volume   % Value   June 30,   June 30,   % Volume   % Value
Volumes (in 000's of 9L cases)       2014   2013   Change   Change   2014   2013   Change   Change
                                     
Domestic       458   474   (3%)   (2%)   1,879   1,915   (2%)   0%
International       54   56   (4%)   20%   283   222   27%   94%
                                     
Total Corby brands       512   530   (3%)   0%   2,162   2,137   1%   6%
                                     

During fiscal year 2014, Corby's shipments benefited most significantly from the launch of JP Wiser's Canadian whisky brand into the US market. Internationally, shipment volume increased 27% over the prior year. International shipment value increased at an even higher rate, reflecting the more premium nature of this brand. However, domestic shipment volumes fell 2% on a year over year comparative basis. The Canadian spirit industry continues to experience soft market conditions, especially in key spirit categories (i.e., Canadian whisky, rum and vodka). Corby's shipment value performance continued to track ahead of volume as a result of our premiumization strategy, price increases and effective management of our promotional programming. Corby continues to gain market share in its key spirit categories (Canadian whisky and vodka). A more in-depth discussion of Corby's key brands in the Canadian market is provided in the "Summary of Corby's Key Brands" section of this MD&A.

During the fourth quarter ended June 30, 2014, Corby's domestic shipments pulled back after aggressive phasing of promotional activity in Western Canada during the third quarter (most significantly impacting Polar Ice vodka and Royal Reserve Canadian whisky). In international markets, Corby's key brands remained steady however the comparative period included a one-time shipment into Europe. Excluding this impact, key brands (JP Wiser's, and Lamb's rum) increased in shipment volumes when compared to the same quarter last year.

Retail Volume and Retail Value Performance

It 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:

                                     
                                     
RETAIL SALES FOR THE CANADIAN MARKET ONLY(1)
                                     
                                     
        Three Months Ended   Year Ended
                % Retail   % Retail           % Retail   % Retail
        June 30,   June 30,   Volume   Value   June 30,   June 30,   Volume   Value
Volumes (in 000's of 9L cases)       2014   2013   Change   Change   2014   2013   Change   Change
                                     
Brand                                    
Wiser's Canadian whisky       161   164   (2%)   (1%)   717   725   (1%)   1%
Lamb's rum       89   95   (6%)   (5%)   413   427   (3%)   (2%)
Polar Ice vodka       78   81   (4%)   (2%)   355   356   0%   1%
Mixable liqueurs       37   39   (5%)   (4%)   172   176   (2%)   (1%)
                                     
Total Key Brands       365   379   (4%)   (2%)   1,657   1,684   (2%)   0%
All other Corby-owned brands       46   49   (7%)   (4%)   208   208   0%   2%
                                     
Total        411   428   (4%)   (2%)   1,865   1,892   (1%)   0%
(1) Refers to sales at the retail store level in Canada, as provided by the Association of Canadian Distillers.

The Canadian spirits industry continued to remain soft as industry retail sales volume declined 1% on an annual basis, while industry retail sales value increased 1% during the same twelve month period. As illustrated in the above chart, Corby's portfolio of owned brands has performed consistently with the total spirits market in retail volume and is consistent with the market performance for whisky, rum, vodka and liqueur categories (which were flat compared to the prior year). These categories make up over 80% of our portfolio and typically perform slightly below the Canadian Spirits industry as a whole. The following brand discussion provides a more detailed discussion of how each of Corby's key brands performed relative to their respective industry category.

Summary of Corby's Key Brands

Wiser's Canadian Whisky
Corby's flagship brand, Wiser's Canadian whisky, continued to outperform the Canadian whisky category and gained market share as its retail value grew 1% on a year-over-year comparison basis. The Canadian whisky category declined 2% in retail volume and 1% in retail value, when compared to last year. Corby continued its strong investment behind the brand, with a new version of its highly successful Welcome to the Wiserhood television commercial. In addition, Wiser's Spiced, launched last year in Canada in the new innovative spiced whisky category, and continued to be supported by the That's Spiced Up campaign.

Lamb's Rum
Lamb's rum, one of the top-selling rum families in Canada, experienced a 3% decline in retail volume and a 2% decline in retail value when compared to last year. The rum category in Canada decreased 2% in retail volume and was off only slightly on retail value when compared to the prior year. The rum category in Canada has been driven entirely by the spiced rum segment (+7% in retail volumes), while the dark and white rum segments are in decline (-4% and -7%, in retail volumes when compared to last year). Corby's Lamb's rum product line is heavily weighted in the dark and white segments, with its spiced rum product (i.e., Lamb's Black Sheep) continuing to build off of its small base.

Polar Ice Vodka
Polar Ice vodka is among the top three largest vodka brands in Canada. On an annual comparative basis, the brand's retail volumes remained steady and retail value increased 1%. These trends are consistent with the overall vodka category in Canada. During 2014 we continued to invest behind the brand with a label redesign, an exciting new digital marketing campaign, and the development of a new brand extension, Polar Ice 90° North, which began regional roll-out at the end of the quarter.

Mixable Liqueurs
Corby's portfolio of mixable liqueur brands consists of McGuinness liqueurs (which is Canada's largest mixable liqueur brand family) and Meaghers liqueurs. Retail volume and retail value for Corby's mixable liqueurs portfolio are relatively consistent with market trends (retail volume was -2% and retail value was -1%), as the category as a whole declined -2% for retail volume and showed a slight decline for retail value when compared to last year. The Company is in the process of moving production to the Corby managed HWSL production facility.

Other Corby-Owned Brands
Corby's other-owned brands grew in retail value by 2% as the group benefited from continued innovation, in particular, Pike Creek, Lot 40, Criollo® Chocolate Sea Salted Caramel and Criollo® Chocolate Raspberry Truffle. Lot 40 was recently named "Canadian Whisky of the Year" at the Canadian Whisky Awards. Additionally, the launch of the Criollo® range of luxury liqueurs was well received by key customers and consumers. Additionally Royal Reserve Canadian whisky benefited from up-weighted promotional activity in Western Canada (the largest brand in this grouping) during the third quarter of fiscal 2014.

Financial and Operating Results

The following table presents a summary of certain selected consolidated financial information of the Company for the year ended June 30, 2014 and 2013.

                                     
                                     
(in millions of Canadian dollars, except per share amounts)              2014       2013 (1)     $ Change     % Change
                                     
Revenue       $     137.3     $ 132.7     $ 4.6     3%
                                     
Cost of sales             (49.0)       (49.6)       0.6     (1%)
Marketing, sales and administration             (55.3)       (46.3)       (9.0)     19%
Other income              0.5       0.3       0.2     67%
                                     
Earnings from operations             33.5       37.1       (3.6)     (10%)
                                     
Financial income             1.7       1.7       -     0%
Financial expenses             (1.2)       (1.4)       0.2     (14%)
              0.5       0.3       0.2     67%
                                     
Earnings before income taxes             34.0       37.4       (3.4)     (9%)
Income taxes             (9.0)       (10.4)       1.4     (13%)
                                     
Net earnings       $     25.0     $ 27.0     $ (2.0)     (7%)
                                     
Per common share                                    
    - Basic net earnings       $     0.88     $ 0.95     $ (0.07)     (7%)
    - Diluted net earnings       $     0.88     $ 0.95     $ (0.07)     (7%)
1 In preparing its comparative information, the Company has adjusted amounts reported previously in the
consolidated financial statements as a result of the retrospective application of the amendments to IAS 19,
Employee Benefits. Refer to Note 3 for details regarding adjusted amounts.

Overall Financial Results

Net earnings decreased $2.0 million or 7%, when compared to the prior year. Increased revenue (driven by the launch of JP Wiser's in the US) was more than offset by increased advertising and promotional investment behind our JP Wiser's brand in the US market. Also, in response to challenging Canadian market conditions, Corby implemented a cost reduction programme during the current year in an effort to reduce its cost base while protecting key strategic platforms and maintaining the ability to grow the business. Execution of this plan resulted in severance and termination payments to certain employees and a charge to net earnings of $1.0 million. In addition, effective January 1, 2014, the Company made amendments to certain of the Company's employee benefit pension plans which reduced certain early retirement provisions and included an increase in employee contribution levels.

Revenue

The following highlights the key components of the Company's revenue streams:

                                             
                                             
(in millions of Canadian dollars)                  2014           2013     $ Change     % Change
                                             
Revenue streams:                                            
 Case goods            $     116.4     $     109.7     $ 6.7     6%
 Commissions                 16.7           16.4       0.3     2%
 Other services                 4.2           6.6       (2.4)     (36%)
                                             
Revenue                 137.3           132.7       4.6     3%
                                             

Case Goods revenue grew $6.7 million this year, or 6%, when compared to the prior year. Increased shipments to the US more than offset a 1% decline in net sales in Canada. Growth in the US has been mostly driven by the first quarter launch and distribution build-up of JP Wiser's, while the aforementioned reduction in shipment volumes to Canadian customers is mostly reflective of market conditions discussed previously.

Commissions were $16.7 million, an increase of 2% when compared to last year. The growth was driven by our new agency partner, The Wine Group, which more than offset the impacts of certain discontinued agency brands.

Other services represents ancillary revenue incidental to Corby's core business activities such as logistical fees and bulk whisky sales. The year-to-date decrease of $2.4 million in other services revenue is primarily due to the fact the Company ceased selling bulk whisky in this first quarter of fiscal 2013.

Cost of sales

Cost of sales was $49.0 million for the year, representing a decrease of 1%, or $0.6 million when compared to last year. Gross margin for the year was 59% versus 57% last year (note: commissions are not included in this calculation). The overall improved gross margin reflects superior margins of the US case goods business.

Marketing, sales and administration

On a year-to-date basis marketing, sales and administration expenses increased $9.0 million, or 19% over last year. As previously mentioned, Corby has made significant investments behind the launch of the JP Wiser's brands in the US market through increased advertising and promotional spend. In addition, the Company undertook a programme to streamline and reduce administrative type costs during the year which resulted in severance and termination payments to several employees. Furthermore, inflationary type cost increases were offset by cost savings realized on account of the aforementioned pension plan design changes.

Other income and expenses

Other income and expenses include such items as realized foreign exchange gains and losses, and gains on sale of property and equipment. The balances comprising this account are relatively consistent year over year.

Net financial income

Net financial income is comprised of interest earned on deposits in cash management pools, offset by interest costs associated with the Company's pension and post-retirement benefit plans. This balance is relatively consistent with prior year.

Income taxes

A reconciliation of the effective tax rate to the statutory rates for each period is presented below.

                               
                               
                      2014       2013
                               
Combined basic Federal and Provincial tax rates                     27%       27%
Other                     0%       1%
                               
Effective tax rate                     27%       28%
                               

Liquidity and Capital Resources

Corby's sources of liquidity are its deposits in cash management pools of $108.0 million as at June 30, 2014, and its cash generated from operating activities. Corby's total contractual maturities are represented by its accounts payable and accrued liabilities, which totalled $26.8 million as at June 30, 2014, and are all due to be paid within one year. The Company does not have any liabilities under short- or long-term debt facilities.

The Company believes that its deposits in cash management pools, combined with its historically strong operational cash flows, provide for sufficient liquidity to fund its operations, investing activities and commitments for the foreseeable future. The Company's cash flows from operations are subject to fluctuation due to commodity, foreign exchange and interest rate risks. Please refer to the "Risks and Risk Management" section of this MD&A for further information.

Cash Flows

                                       
                                       
(in millions of Canadian dollars)                  2014           2013       $ Change
                                       
Operating activities                                      
  Net earnings, adjusted for non-cash items           $     38.9     $     41.3     $ (2.4)
  Net change in non-cash working capital                 (0.4)           4.8       (5.2)
  Net payments for interest and income taxes                 (7.1)           (13.3)       6.2
                  31.4           32.8       (1.4)
                                       
Investing activities                                      
  Additions to capital assets                 (2.2)           (1.8)       (0.4)
  Additions to intangible assets                 (10.3)           -       (10.3)
  Proceeds from disposition of capital assets                 0.4           0.5       (0.1)
  Proceeds from disposition of intangible asset                 0.3           -       0.3
  Deposits in cash management pools                 -           2.0       (2.0)
                  (11.8)           0.7       (12.5)
                                       
Financing activities                                      
  Proceeds from note receivable                 0.6           0.6       -
  Dividends paid                 (20.2)           (34.1)       13.9
                  (19.6)           (33.5)       13.9
                                       
Net change in cash           $     -     $     -     $ -
                                       

Operating activities

Net cash from operating activities was $31.4 million during the year compared to $32.8 million last year, representing a decrease of $1.4 million. The decrease is mostly attributable to lower net earnings and a decrease in the net change in non-cash working capital, which was significantly impacted by the timing of collections on accounts receivable and an increase in ending inventory balances. The increase in inventory is a result of both our investment in JP Wiser's for the US market and in preparation for the upcoming transition of the liqueurs production to the HWSL facility. The current year benefited from lower tax instalments.

Investing activities

On an annual basis, net cash used in investing activities was $11.8 million, compared to cash generated from investing activities of $0.7 million last year. The current year includes a payment of $10.3 million to PR for the exclusive right to represent the ABSOLUT vodka brand in Canada for an additional eight year term, as discussed in the "Related Party Transaction" section of this MD&A. The payment was made on September 30, 2013 and was funded through withdrawals from cash management pools.

Investing activities also reflect funds deposited in cash management pools. 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. Changes in cash management pools reflect amounts either deposited in or withdrawn from these bank accounts and are simply a function of Corby's cash requirements during the period of time being reported on. For more information related to these deposits, please refer to the "Related Party Transactions" section of this MD&A.

Financing activities

Cash used for financing activities was $19.6 million for the year and largely represents the payment of dividends to shareholders. The prior year includes a special dividend paid on January 10, 2013 of $0.54 per share, or $15.4 million. There was no special dividend paid in the current fiscal year. The payment of dividends is in accordance with the Company's previously disclosed dividend policy.

The following table summarizes dividends paid and payable by the Company over the last two fiscal years:

for   Declaration date   Record Date   Payment date   $ / Share
2014 - Q4   August 27, 2014   September 15, 2014   September 30, 2014    $  0.18
2014 - Q3   May 7, 2014   May 30, 2014   June 13, 2014   0.18
2014 - Q2   February 5, 2014   February 28, 2014   March 14, 2014   0.18
2014 - Q1   November 6, 2014   November 29, 2013   December 13, 2013   0.18
2013 - Q4   August 28, 2013   September 13, 2013   September 30, 2013   0.17
2013 - Q3   May 9, 2013   May 31, 2013   June 14, 2013   0.17
2013 - Q2   February 6, 2013   February 28, 2013   March 15, 2013   0.17
2013 - special   November 7, 2012 (special dividend)   December 14, 2012   January 10, 2013   0.54
2013 - Q1   November 7, 2012   November 30, 2012   December 14, 2012   0.17
2012 - Q4   August 29, 2012   September 15, 2012   September 30, 2012   0.15

Outstanding Share Data

As at August 27, 2014, Corby had 24,274,320 Voting Class A Common Shares and 4,194,536 Non-Voting Class B Common Shares outstanding. The Company does not have a stock option plan, and therefore, there are no options outstanding.

Contractual Obligations

The following table presents a summary of the maturity periods of the Company's contractual obligations as at June 30, 2014:

                                                       
                                                       
        Payments     Payments     Payments     Payments     Obligations            
        During     due in 2016     due in 2018     due after     with no fixed            
        2015     and 2017     and 2019     2019     maturity           Total
                                                       
Operating lease obligations       $ 1.7     $ 2.5     $ 1.0     $ -     $ -     $     5.2
Employee future benefits         -       -       -       -       18.0           18.0
                                                       
        $ 1.7     $ 2.5     $ 1.0     $ -     $ 18.0     $     23.2
                                                       

Operating lease obligations represent future minimum payments under long-term operating leases for premises and office equipment as at June 30, 2014. Employee benefits represent the Company's unfunded pension and other post-retirement benefit plan obligations as at June 30, 2014. For further information regarding Corby's employee future benefit plans, please refer to Note 10 to the audited consolidated financial statements.

Related Party Transactions

Transactions with parent, ultimate parent, and affiliates

Corby 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 outsources 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 are also outsourced to its parent company. Transactions with the parent company, ultimate parent and affiliates are subject to Corby's related party transaction policy, which requires such transactions to undergo an extensive review and receive approval from an Independent Committee of the Board of Directors.

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 fifteen years, as well as providing for the continuing production of certain Corby brands by PR at its production facility in Windsor, Ontario, for ten 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 and was extended as noted below. These brands were acquired by PR subsequent to the original representation rights agreement dated September 29, 2006.

Further, on November 9, 2011, Corby entered into an agreement with a PR affiliate 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 of the other PR brands in Corby's portfolio. On September 30, 2013, Corby paid the present value of $10 million, or $10.3 million, for the additional eight years of the new term pursuant to an agreement entered into between Corby and The Absolut Company, an affiliate of PR and owner of the Absolut brand, to satisfy the parties' obligations under the 2011 agreement. Since the agreement is a related party transaction, the agreement was approved by the Independent Committee of the Corby Board of Directors, in accordance with Corby's related party transaction policy, following an extensive review and with external financial and legal advice.

Pursuant to the November 9, 2011 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. The mirror netting arrangement with PR and its affiliates is further described below.

On July 1, 2012, the Company entered into a five year agreement with PR USA, an affiliated company, which provides PR USA the exclusive right to represent Wiser's Canadian whisky and Polar Ice vodka in the US. The agreement provides these key brands with access to PR USA's extensive national distribution network throughout the US and complements PR USA's premium brand portfolio. The agreement is effective for a five year period ending June 30, 2017. The agreement with PR USA is a related party transaction between Corby and PR USA, as such; the agreement was approved by the Independent Committee of the Board of Directors of Corby following an extensive review, in accordance with Corby's related party transaction policy.

Deposits in cash management pools

Corby 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 (effective July 17, 2014 this agreement is administered by Citibank N.A.). The Mirror Netting Service Agreement acts to aggregate each participant's net cash balance for purposes of having a centralized cash management function for all of PR's Canadian affiliates, including Corby. As a result of Corby's participation in this agreement, Corby's credit risk associated with its deposits in cash management pools is contingent upon PR's credit rating. PR's credit rating as at August 27, 2014, 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 Canadian Dealer Offered Rate ("CDOR") 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.

Results of Operations - Fourth Quarter of Fiscal 2014

The following table presents a summary of certain selected consolidated financial information for the Company for the three month periods ended June 30, 2014 and 2013:

                                 
                                 
        Three Months Ended              
                                 
          June 30,       June 30,              
(in millions of Canadian dollars, except per share amounts)          2014       2013 (1)     $ Change     % Change
                                 
Revenue       $ 33.4     $ 33.5     $ (0.1)     0%
                                 
Cost of sales         (10.8)       (12.4)       1.6     (13%)
Marketing, sales and administration         (13.4)       (11.0)       (2.4)     22%
Other income (expense)         0.0       0.1       (0.1)     (67%)
                                 
Earnings from operations         9.2       10.2       (1.0)     (10%)
                                 
Financial income         0.4       0.4       0.1     14%
Financial expenses         (0.3)       (0.5)       0.2     (44%)
          0.2       (0.1)       0.3     (218%)
                                 
Earnings before income taxes         9.4       10.1       (0.7)     (7%)
Income taxes         (2.5)       (2.8)       0.3     (11%)
                                 
Net earnings       $ 6.9     $ 7.3     $ (0.4)     (6%)
                                 
Per common share                                
   - Basic net earnings       $ 0.24     $ 0.26     $ (0.02)     (8%)
   - Diluted net earnings       $ 0.24     $ 0.26     $ (0.02)     (8%)
1 In preparing its comparative information, the Company has adjusted amounts reported previously in the consolidated 
financial statements as a result of the retrospective application of the amendments to IAS 19, Employee Benefits.
Refer to Note 3 for details regarding adjusted amounts.

Revenue

The following table highlights the various components of the Company's revenue streams for the quarter:

                                     
                                     
            Three Months Ended              
              June 30,       June 30,              
(in millions of Canadian dollars)              2014       2013     $ Change     % Change
                                     
Revenue streams:                                    
 Case goods            $ 28.4     $ 27.8     $ 0.6     2%
 Commissions             4.0       4.6       (0.6)     (13%)
 Other services             0.9       1.1       (0.2)     (14%)
                                     
Revenue           $ 33.4     $ 33.5     $ (0.1)     0%
                                     

Total revenue was relatively consistent on a quarter over quarter comparison basis. Case Goods revenue increased $0.6 million during the quarter and was most significantly driven by our international business, specifically by shipments of JP Wiser's to the US market. Shipment volumes to Canadian markets decreased 3% this quarter when compared to the same quarter last year; however a reduction to promotional activities, which are recorded against revenue as required by IFRS, resulted in a 1% increase in domestic revenues.  Commission decreased $0.6 million, or 13%, on a quarter-over-quarter comparative basis. The comparative period includes commission income from agency brands no longer represented by Corby.

Cost of Sales

Cost of goods sold was $10.8 million, or 13% lower than the same period last year. Gross margin was 63% this quarter compared to 57% for the same quarter last year (note: commissions are not included in this calculation). The increase in gross margin reflects a one-time adjustment for change in estimated contract bottling rates recorded in the current year quarter. If this adjustment is removed from the gross margin calculation, the current year quarter is 60%. In addition, higher margins are earned on JP Wiser's in the US market, and the current year quarter is favourably impacted by lower promotional activities (compared to the same quarter last year) as IFRS requires certain of these activities to be classified net of revenue.

Marketing, sales and administration

Marketing, sales and administration expenses increased $2.4 million, or 22% over the same quarter last year. As previously mentioned, Corby has made significant investments behind the launch of the JP Wiser's brands in the US market through increased advertising and promotional spend. As well, the quarter includes charges for severance and termination payments as a result of the Company's cost reduction programme.

Net earnings and earnings per share

Net earnings for the fourth quarter were $6.9 million, or $0.24 per share, which is a decrease of $0.4 million over the same quarter last year. As discussed previously improved gross margins were more than offset by increases to advertising and promotional spend and the impacts of the aforementioned severance charges.

Selected Quarterly Information

Summary of Quarterly Financial Results

                                                         
                                                         
(in millions of Canadian dollars,             Q4     Q3     Q2     Q1     Q4     Q3     Q2     Q1
except per share amounts)             2014     2014     2014     2014     2013     2013     2013     2013
                                                         
Revenue           $ 33.4   $ 28.6   $ 38.5   $ 36.7   $ 33.5   $ 25.7   $ 37.7   $ 35.9
Earnings from operations             9.2     4.1     10.2     9.9     10.0     5.4     12.0     9.5
Net earnings             6.9     3.1     7.5     7.5     7.3     3.9     8.9     6.9
Basic EPS             0.24     0.11     0.26     0.26     0.26     0.14     0.31     0.24
Diluted EPS             0.24     0.11     0.26     0.26     0.26     0.14     0.31     0.24
                                                         

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. The launch of JP Wiser's Canadian whisky brand in the US is reflected in the 2014 results above, and most significantly impacted revenues in the first and second quarters as distribution channels were being filled.

Critical Accounting Estimates

The Company's consolidated financial statements are prepared in accordance with IFRS, which require management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and related disclosures as at the date of the consolidated financial statements. The Company bases its estimates, judgments and assumptions on historical experience, current trends and other factors that management believes to be important at the time the consolidated financial statements are prepared. The Company reviews its accounting policies and how they are applied on a regular basis. While the Company believes that the historical experience, current trends and other factors considered support the preparation of its consolidated financial statements in accordance with IFRS, actual results could differ from its estimates and such differences could be material.

The Company's significant accounting policies are discussed in Note 4 to the consolidated financial statements. The following accounting policies incorporate a higher degree of judgment and/or complexity and, accordingly, are considered to be critical accounting policies.

Goodwill and Indefinite-Lived Intangible Assets

The Company records as goodwill the excess amount of the purchase price of an acquired business over the fair value of the underlying net assets, including intangible assets, at the date of acquisition. Indefinite-lived intangible assets represent the value of trademarks and licences acquired. Goodwill and indefinite-lived intangible assets account for $15.1 million of the Company's total assets. These balances are evaluated annually for impairment. The process of evaluating these items for impairment involves the determination of fair value. Inherent in such fair value determinations are certain 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 a result of changes in the business strategies and outlook of the Company.

An impairment loss would be recognized to the extent that the carrying value of the goodwill or trademarks and licences exceeds the implied fair value. Any impairment would result in a reduction in the carrying value of these items on the consolidated balance sheets of the Company and the recognition of a non-cash impairment charge in net earnings. Based on analyses performed, the Company has not identified any impairment.

Employee Future Benefits

The cost and accrued benefit plan obligations of the Company's defined benefit pension plans and its other post-retirement benefit plan are accrued based on actuarial valuations that are dependent upon assumptions determined by management. These assumptions include the discount rate, the rate of compensation increases, retirement ages, mortality rates and the expected inflation rate of health care costs. These assumptions are reviewed annually by the Company's management and its actuary. These assumptions may change in the future and may have a material impact on the accrued benefit obligations of the Company and the cost of these plans, which is reflected in the Company's consolidated statement of earnings. In addition, the actual rate of return on plan assets and changes in interest rates could result in changes in the Company's funding requirements for its defined benefit pension plans. See Note 10 to the consolidated financial statements for detailed information regarding the major assumptions utilized.

Income and Other Taxes

The Company accounts for income taxes using the liability method of accounting. Under the liability method, deferred income tax assets and liabilities are determined based on differences between the carrying amounts of balance sheet items and their corresponding tax values. The determination of the income tax provision requires management to interpret regulatory requirements and to make certain judgments. While income, capital and commodity tax filings are subject to audits and reassessments, management believes that adequate provisions have been made for all income and other tax obligations. However, changes in the interpretations or judgments may result in an increase or decrease in the Company's income, capital or commodity tax provisions in the future. The amount of any such increase or decrease cannot be reasonably estimated.

New Accounting Pronouncements

New accounting standards

The following new and revised standards and interpretations were effective for Corby on July 1, 2013:

(i)     Fair Value Measurement

The IASB issued a new standard, 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. IFRS 13 applies to all International Financial Reporting Standards that require or permit fair value measurements or disclosures. IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This standard is effective for annual periods beginning on or after January 1, 2013, and must be applied prospectively. For Corby, this standard became effective July 1, 2013. The Company determined that the adoption of IFRS 13 had no impact on its results of operations and financial position. See Note 5 to the consolidated financial statements for additional information for assets and liabilities not measured at fair value, but for which fair value is disclosed.

(ii)     Financial Instruments - Asset and Liability Offsetting

The IASB has issued amendments to IFRS 7, "Financial Instruments: Disclosures" ("IFRS 7 amendment") which clarify the requirements for offsetting financial instruments and require new disclosures on the effect of offsetting arrangements on an entity's financial position. The IFRS 7 amendment is effective for annual periods beginning on or after January 1, 2013 and must be applied retrospectively. For Corby, this amendment became effective July 1, 2013.  The adoption of the IFRS 7 amendment did not have an impact on the Company's consolidated results of operations and financial position.

(iii)     Consolidated Financial Statements

The IASB issued new standards, IFRS 10, "Consolidated Financial Statements" ("IFRS 10"), IFRS 11, "Joint Arrangements" ("IFRS 11"), and IFRS 12, "Disclosure of Interest in Other Entities" ("IFRS 12"). In addition, the IASB amended IAS 27, "Separate Financial Statements" ("IAS 27") 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 effective for annual periods beginning on or after January 1, 2013 and must be applied retrospectively. For Corby, this set of standards and amendments became effective July 1, 2013. The adoption of IFRS 10, 11, and 12 and the amendments to IAS 27 and 28 did not have an impact on the Company's results of operations, financial position and disclosures.

(iv)     Employee Benefits

The IASB issued amendments to IAS 19, "Employee Benefits" ("IAS 19 (Amended 2011)"), which eliminate the option to defer the recognition of actuarial gains and losses through the "corridor" approach, replaces the expected return on plan assets calculation with a discount rate methodology in calculating pension expense for defined benefit plans, revises the presentation of changes in assets and liabilities arising from defined benefit plans and enhances the disclosures for defined benefit plans. IAS 19 (Amended 2011) is effective for annual periods beginning on or after January 1, 2013, and must be applied retrospectively.

As a result of adoption IAS 19 (Amended 2011), primarily the elimination of the "corridor" approach and the impact of the replacement of the expected return on plan assets with a discount rate methodology in calculating pension expense, the following are the impacts on the Company's net earnings and comprehensive income for the year ended June 30, 2013 and its financial position as at July 1, 2012 and June 30, 2013:

              Year Ended
              June 30,
Net earnings and total comprehensive income impacts             2013
               
Marketing, sales and administration             $ 637
Other income             (41)
Earnings from operations             596
               
Financial expense             (910)
Earnings before income tax             (314)
               
Income tax              84
Net earnings             (230)
               
Other comprehensive income             256
Tax impact of other comprehensive income             (68)
Net comprehensive income             188
               
Total comprehensive income             $ (42)
               
Decrease in basic and diluted net earnings per common share             $ (0.01)
Basic and diluted net earnings per common share, as restated             $ 0.95

                       
                       
                       
              June 30,       July 1,
Balance sheet impacts             2013       2012
                       
Other assets           $ 569     $ 702
Provision for pensions             (10,914)       (10,989)
Deferred income taxes             2,752       2,736
Retained earnings             230       -
Accumulated other comprehensive loss             7,363       7,551
                       

Recent accounting pronouncements

A number of new standards, amendments to standards and interpretations have been issued but are not yet effective for the financial year ending June 30, 2014, and accordingly, have not been applied in preparing these consolidated financial statements:

(v)     Financial Instruments - Asset and Liability Offsetting

The IASB has issued amendments to IAS 32, "Financial Instruments: Presentation" ("IAS 32"), which clarify the requirements which permit offsetting a financial asset and liability in the financial statements. The amendments to IAS 32 are effective for annual periods beginning on or after January 1, 2014 and must be applied retrospectively. For Corby, this amendment will become effective July 1, 2014. The Company does not expect the amendments to IAS 32 to have a significant impact on its consolidated financial statements.

(vi)     Levies

The IFRS Interpretations Committee ("IFRIC") of the IASB has issued a new interpretation, "Levies" ("IFRIC 21"), which addresses the accounting for a liability to pay a levy to a government. IFRIC 21 applies to levy liabilities within the scope of IAS 37, "Provisions, Contingent Liabilities and Contingent Assets", and to levy liabilities when the timing and amount is certain. IFRIC 21 is effective for annual periods beginning on or after January 1, 2014 and must be applied retrospectively. For Corby, this interpretation will become effective July 1, 2014. The Company is assessing the impact on its consolidated financial statements.

(vii)     Revenue

In May 2014, the IASB released IFRS 15, Revenue from contracts with customers, which supersedes IAS 11, Construction Contracts, IAS 18, Revenues, IFRIC 13, Customer Loyalty Programmes, IFRIC 15, Agreement for the Construction of Real Estate, IFRIC 18, Transfers of Assets from Customers and SIC-31, Revenue - Barter Transactions Involving Advertising Services. The core principle of IFRS 15 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. IFRS 15 will also result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and improve guidance for multiple-element arrangements. IFRS 15 will be effective for Corby's fiscal year beginning on July 1, 2017, with earlier application permitted. The Company has not yet assessed the impact of the adoption of this standard on its consolidated financial statements.

(viii)     Financial Instruments

The 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 of this project. IFRS 9 uses a single approach to determine whether a financial asset or liability is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. For financial assets, the approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. IFRS 9 requires a single impairment method to be used, replacing multiple impairment methods in IAS 39. For financial liabilities measured at fair value, fair value changes due to changes in an entity's credit risk are presented in other comprehensive income. The IASB has tentatively decided to require implementation of this standard for annual periods beginning on or after January 1, 2018 and must be applied retrospectively. For Corby, this standard will become effective July 1, 2018. The Company is currently assessing the impact of the new standard on its consolidated financial statements.

Disclosure Controls and Procedures

The Company maintains a system of disclosure controls and procedures that has been designed to provide reasonable assurance that information required to be disclosed by the Company in its public filings is recorded, processed, summarized and reported within required time periods and includes controls and procedures designed to ensure that all relevant information is accumulated and communicated to senior management, including the Company's Chief Executive Officer ("CEO ") and Chief Financial Officer ("CFO"), to allow timely decisions regarding required disclosure.

Management, with the participation of the CEO and CFO, has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in National Instrument 52-109) as at June 30, 2014, and has concluded that such disclosure controls and procedures are effective based upon such evaluation.

Internal Controls Over Financial Reporting

The 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.

Management, with the participation of the CEO and CFO, has evaluated the effectiveness of the Company's internal controls over financial reporting as at June 30, 2014, and has concluded that internal control over financial reporting is designed and operating effectively to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Management's assessment was based on the framework established in Internal Control - Integrated Framework (1992), published by the Committee of Sponsoring Organizations of the Treadway Commission.

There were no changes in internal control over financial reporting during the Company's most recent interim period that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.

Risks & Risk Management

The 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 Regulatory
The 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 Patterns
Beverage 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 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 Interruption
The 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 programmes and proactively manages production and supply chains to mitigate any potential risk to consumer safety or Corby's reputation and profitability.

Environmental Compliance
Environmental liabilities may potentially arise when companies are in the business of manufacturing products and, thus, required to handle potentially hazardous materials. As Corby outsources its production, including all of its storage and handling of maturing alcohol, the risk of environmental liabilities is considered minimal. Corby currently has no significant recorded or unrecorded environmental liabilities.

Industry Consolidation
The global beverage alcohol industry has continued to experience consolidation in 2014. 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 and other markets in which it carries on business.

Competition
The Canadian beverage alcohol industry is extremely competitive. Competitors may take actions to establish and sustain a competitive advantage through advertising and promotion and pricing strategies in an effort to maintain market share. Corby constantly monitors the market and adjusts its own strategies as appropriate. Competitors 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. Its role as a leading Canadian beverage alcohol company helps facilitate recruitment efforts.

Credit Risk
Credit 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 Fluctuations
The Company does not have any short- or long-term debt facilities. Interest rate risk exists, as Corby earns market rates of interest on its deposits in cash management pools and also has a note receivable that earns a fixed rate of interest. An active risk management programme 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 Fluctuations
Commodity 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 Risk
The 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 Exposure
The 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 Exposure
The Company's exposure to fluctuations in the value of the GBP relative to the CAD was reduced as both sales and cost of production are denominated in GBP. While Corby's exposure has been minimized, increases in the value of the CAD relative to the GBP will have an unfavourable impact on the Company's earnings.

Third-Party Service Providers
HWSL, 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 Protection
The 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 Assets
Goodwill 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 June 30, 2014
                                             
Associated Brand           Associated Market           Goodwill     Intangibles           Total
                                             
Various PR brands           Canada         $ -     $ 42.4     $     42.4
Lamb's rum           International (1)           1.4       11.8           13.2
Corby domestic brands           Canada           1.9       -           1.9
                                             
                      $ 3.3     $ 54.2     $     57.5
(1) The international business for Lamb's rum is primarily focused in the UK, however, the
trademarks and licenses purchased, relate to all international markets outside of Canada,
as Corby previously owned the Canadian rights.

Therefore, economic factors (such as consumer consumption patterns) specific to these brands and markets are primary drivers of the risk associated with their respective goodwill and intangible assets valuations.

Employee Future Benefits
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 10 of the consolidated financial statements for the year ended June 30, 2014.

CORBY SPIRIT AND WINE LIMITED                  
CONSOLIDATED BALANCE SHEETS                  
(unaudited)                    
                     
(in thousands of Canadian dollars)                  
                     
        June 30,     June 30,     July 1
    Notes   2014     2013 (1)     2012 (1)
                     
ASSETS                    
Deposits in cash management pools   $   108,029   $   108,043   $   110,113
Accounts receivable   7   23,249     23,642     28,611
Income and other taxes recoverable     980     1,055     -
Inventories   8   52,561     49,083     47,760
Prepaid expenses       256     533     555
Current portion of note receivable 9   600     600     600
                     
Total current assets     185,675     182,956     187,639
Note receivable   9   -     600     1,200
Other assets   10   1,554     569     702
Deferred income taxes 11   658     1,699     1,753
Property and equipment 12   8,632     8,092     7,524
Goodwill   13   3,278     3,278     3,278
Intangible assets   14   54,163     49,665     53,771
                     
Total assets     $   253,960   $   246,859   $   255,867
                     
                     
LIABILITIES                    
Accounts payable and accrued liabilities 16 $   26,774   $   24,185   $   22,400
Income and other taxes payable     -     -     3,656
                     
Total current liabilities     26,774     24,185     26,056
Provision for employee benefits 10   18,045     21,363     21,539
                     
Total liabilities       44,819     45,548     47,595
                     
Shareholders' equity                  
Share capital   17   14,304     14,304     14,304
Accumulated other comprehensive loss 18   (4,303)     (7,363)     (7,551)
Retained earnings       199,140     194,370     201,519
                     
Total shareholders' equity     209,141     201,311     208,272
                     
Total liabilities and shareholders' equity   $   253,960   $   246,859   $   255,867

                   
1 In preparing its comparative information, the Company has adjusted amounts reported previously in the consolidated financial statements as a result of the retrospective application of the amendments to IAS 19, Employee Benefits. Refer to Note 3 for details regarding adjusted amounts.
The accompanying notes are an integral part of these consolidated financial statements.        

CORBY SPIRIT AND WINE LIMITED                        
CONSOLIDATED STATEMENTS OF EARNINGS                        
(unaudited)                          
                             
(in thousands of Canadian dollars, except per share amounts)                      
                             
          For the Three Months Ended     For the Year Ended
                             
          Jun. 30     Jun. 30     Jun. 30     Jun. 30
      Notes   2014     2013 (1)     2014     2013 (1)
                             
Revenue   19 $   33,366   $ 33,464   $   137,279   $   132,743
                             
Cost of sales       (10,761)     (12,370)     (48,973)     (49,643)
Marketing, sales and administration       (13,409)     (10,998)     (55,304)     (46,334)
Other income   20   46     139     458     277
                             
Earnings from operations       9,242     10,235     33,460     37,043
                             
Financial income   21   445     390     1,755     1,707
Financial expenses   21   (291)     (521)     (1,234)     (1,357)
          154     (131)     521     350
                             
Earnings before income taxes       9,396     10,104     33,981     37,393
                             
Current income taxes       (2,747)     (2,766)     (9,066)     (10,393)
Deferred income taxes       216     (71)     68     14
Income taxes   11   (2,531)     (2,837)     (8,998)     (10,379)
                             
Net earnings     $   6,865   $   7,267   $   24,983   $   27,014
                             
Basic earnings per share   22 $   0.24   $   0.26   $   0.88   $   0.95
Diluted earnings per share   22 $   0.24   $   0.26   $ 0.88   $   0.95
                             
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

                             

1In preparing its comparative information, the Company has adjusted amounts reported previously in the consolidated financial statements as a result of the retrospective application of the amendments to IAS 19, Employee Benefits. Refer to Note 3 for details regarding adjusted amounts.

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

CORBY SPIRIT AND WINE LIMITED                            
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME                          
(unaudited)                                
                                 
(in thousands of Canadian dollars)                              
                                 
              For the Three Months Ended     For the Year Ended
                                 
              Jun. 30     Jun. 30     Jun. 30     Jun. 30
        Notes     2014     2013 (1)     2014     2013 (1)
                                 
Net earnings           $   6,865   $   7,267   $   24,983   $   27,014
                                 
Amounts that will not be subsequently reclassified to earnings:                          
  Net actuarial gains       10     857     64     4,169     256
  Income taxes             (227)     (17)     (1,109)     (68)
              630     47     3,060     188
                                 
Total comprehensive income         $ 7,495   $  $ 7,314   $ 28,043   $   27,202

 

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY                    
(unaudited)                            
                             
(in thousands of Canadian dollars)                          
                             
    Notes     Share Capital     Accumulated
Other
Comprehensive
Loss
    Retained
Earnings
    Total
                             
Balance as at June 30, 2013(1)     $   14,304   $   -   $   194,600   $   208,904
  Restatement of Employee Benefits  3     -     (7,363)     (230)     (7,593)
Restated balance as at June 30, 2013       14,304     (7,363)     194,370     201,311
Total comprehensive income       -     3,060     24,983     28,043
Dividends         -     -     (20,213)     (20,213)
                             
Balance as at June 30, 2014     $   14,304   $   (4,303)   $   199,140   $   209,141
                             
                             
Balance as at July 1, 2012(1)     $   14,304   $   -   $   201,519    $ 215,823
  Restatement of Employee Benefits  3     -     (7,551)     -     (7,551)
Restated balance as at July 1, 2012       14,304     (7,551)     201,519     208,272
Total comprehensive income       -     188     27,014     27,202
Dividends         -     -     (34,163)     (34,163)
                             
Balance as at June 30, 2013(1)     $   14,304   $  (7,363)   $   194,370   $   201,311

1In preparing its comparative information, the Company has adjusted amounts reported previously in the consolidated financial statements as a result of the retrospective application of the amendments to IAS 19, Employee Benefits. Refer to Note 3 for details regarding adjusted amounts.
The accompanying notes are an integral part of these consolidated financial statements.

 

CORBY SPIRIT AND WINE LIMITED                      
CONSOLIDATED STATEMENTS OF CASH FLOW                      
(unaudited)                        
                           
(in thousands of Canadian dollars)                        
                           
        For the Three Months Ended     For the Nine Months Ended
                           
        Jun. 30     Jun. 30     Jun. 30     Jun. 30
    Notes   2014     2013 (1)     2014     2013 (1)
                           
Operating activities                        
Net earnings   $   6,865   $   7,267   $   24,983   $   27,014
Adjustments for:                        
Amortization and depreciation 23   1,873     1,403     7,054     5,534
Net financial income 21   (154)     131     (521)     (350)
Gain on disposal of property and equipment     (53)     (81)     (196)     (224)
Income tax expense 11   2,531     2,837     8,998     10,379
Provision for employee benefits     (293)     (916)     (1,369)     (1,068)
        10,769     10,641     38,949     41,285
Net change in non-cash working capital balances 25   (55)     7,588     (380)     4,835
Interest received     437     373     1,767     1,642
Income taxes paid     (2,444)     (2,468)     (8,918)     (14,934)
Net cash from operating activities     8,707     16,134     31,418     32,828
                         
Investing activities                        
Additions to property and equipment 12   (1,521)     (1,221)     (2,176)     (1,845)
Additions to intangible assets 14   -     -     (10,293)     -
Proceeds from disposition of property and equipment   83     201     385     510
Proceeds from disposition of intangible asset     265     -     265     -
Deposits in cash management pools     (2,409)     (10,274)     14     2,070
Net cash used in investing activities     (3,582)     (11,294)     (11,805)     735
                           
Financing activities                        
Proceeds from note receivable 9   -     -     600     600
Dividends paid      (5,125)     (4,840)     (20,213)     (34,163)
                           
Net cash used in financing activities     (5,125)     (4,840)     (19,613)     (33,563)
                           
Net increase in cash     -     -     -     -
Cash, beginning of period     -     -     -     -
Cash, end of period   $   -   $   -   $   -   $   -
                     
1In preparing its comparative information, the Company has adjusted amounts reported previously in the consolidated financial statements as a result of the retrospective application of the amendments to IAS 19, Employee Benefits. Refer to Note 3 for details regarding adjusted amounts.
The accompanying notes are an integral part of these consolidated financial statements.

 

CORBY SPIRIT AND WINE LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except per share amounts)


1. GENERAL INFORMATION        

Corby Spirit and Wine Limited ("Corby" or the "Company") is a leading Canadian 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. The Company also supplements these primary sources of revenue with other ancillary activities incidental to its core business, such as logistics fees.

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 controls 51.6% of the outstanding Voting Class A Common Shares of Corby as at June 30, 2014.

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.

Effective November 7, 2013, Corby changed its name and began operating as Corby Spirit and Wine Limited. Prior to this date, Corby operated as Corby Distilleries Limited. Reflecting the change Corby began trading on the TSX under the symbols CSW.A and CSW.B.

2. BASIS OF PREPARATION

Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") and using the accounting policies described herein.

These consolidated financial statements were approved by the Company's Board of Directors on August 27, 2014.

Functional and presentation currency
The Company's consolidated financial statements are presented in Canadian dollars, which is the Company's functional and presentation currency.

Foreign currency translation
Transactions 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 denominated 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 Measurement
These 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 other methods provided for by IFRS as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for assets.

Use of Estimates and Judgements
The preparation of the 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 determining the tax rates used for measuring deferred taxes and identifying the indicators of impairment for property 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 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. ADOPTION OF NEW AND REVISED STANDARDS AND INTERPRETATIONS

The following new and revised standards and interpretations were effective for Corby on July 1, 2013:

(i)     Fair Value Measurement

The IASB issued a new standard, IFRS 13, "Fair Value Measurement" ("IFRS 13") which provides a standard definition of fair value, sets out a framework for measuring fair value and provides for specific disclosures about fair value measurements. IFRS 13 applies to all IFRS that require or permit fair value measurements or disclosures. IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This standard is effective for annual periods beginning on or after January 1, 2013, and must be applied prospectively. For Corby, this standard became effective July 1, 2013. The Company determined that the adoption of IFRS 13 had no impact on its results of operations and financial position. The adoption of IFRS 13 has resulted in additional disclosure in Note 5 to these consolidated financial statements.

(ii)     Financial Instruments - Asset and Liability Offsetting

The IASB has issued amendments to IFRS 7, "Financial Instruments: Disclosures" ("IFRS 7 amendment") which clarify the requirements for offsetting financial instruments and require new disclosures on the effect of offsetting arrangements on an entity's financial position. The IFRS 7 amendment is effective for annual periods beginning on or after January 1, 2013 and must be applied retrospectively. For Corby, this amendment became effective July 1, 2013.  The adoption of the IFRS 7 amendment did not have an impact on the Company's consolidated results of operations and financial position.

(iii)     Consolidated Financial Statements

The IASB issued new standards, IFRS 10, "Consolidated Financial Statements" ("IFRS 10"), IFRS 11, "Joint Arrangements" ("IFRS 11"), and IFRS 12, "Disclosure of Interest in Other Entities" ("IFRS 12"). In addition, the IASB amended IAS 27, "Separate Financial Statements" ("IAS 27") 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 effective for annual periods beginning on or after January 1, 2013 and must be applied retrospectively. For Corby, this set of standards and amendments became effective July 1, 2013. The adoption of IFRS 10, 11, and 12 and the amendments to IAS 27 and 28 did not have an impact on the Company's results of operations, financial position and disclosures.

(iv)     Employee Benefits

The IASB issued amendments to IAS 19, "Employee Benefits" ("IAS 19 (Amended 2011)"), which eliminate the option to defer the recognition of actuarial gains and losses through the "corridor" approach, replaces the expected return on plan assets calculation with a discount rate methodology in calculating pension expense for defined benefit plans, revises the presentation of changes in assets and liabilities arising from defined benefit plans and enhances the disclosures for defined benefit plans. IAS 19 (Amended 2011) is effective for annual periods beginning on or after January 1, 2013, and must be applied retrospectively.

As a result of adoption IAS 19 (Amended 2011), primarily the elimination of the "corridor" approach and the impact of the replacement of the expected return on plan assets with a discount rate methodology in calculating pension expense, the following are the impacts on the Company's net earnings and comprehensive income for the year ended June 30, 2013 and its financial position as at July 1, 2012 and June 30, 2013:

              Year Ended
              June 30,
Net earnings and total comprehensive income impacts             2013
               
Marketing, sales and administration             $ 637
Other income             (41)
Earnings from operations             596
               
Financial expense             (910)
Earnings before income tax             (314)
               
Income tax              84
Net earnings             (230)
               
Other comprehensive income             256
Tax impact of other comprehensive income             (68)
Net comprehensive income             188
               
Total comprehensive income             $ (42)
               
Decrease in basic and diluted net earnings per common share             $ (0.01)
Basic and diluted net earnings per common share, as restated             $ 0.95

                       
                       
                       
              June 30,       July 1,
Balance sheet impacts             2013       2012
                       
Other assets           $ 569     $ 702
Provision for pensions             (10,914)       (10,989)
Deferred income taxes             2,752       2,736
Retained earnings             230       -
Accumulated other comprehensive loss             7,363       7,551
                       
            $ -     $ -

Certain additional information with respect to the net defined benefit expense and liability associated with the Company's pension and post-employment benefit plans, as restated for the impact of IAS 19 (Amended 2011), for the financial year ended June 30, 2013 has been included in Note 10 to these financial statements.

Recent accounting pronouncements

A number of new standards, amendments to standards and interpretations have been issued but are not yet effective for the financial year ending June 30, 2014, and accordingly, have not been applied in preparing these consolidated financial statements:

(i)     Financial Instruments - Asset and Liability Offsetting

The IASB has issued amendments to IAS 32, "Financial Instruments: Presentation" ("IAS 32"), which provides further guidance on the requirements for offsetting a financial instruments. The amendments to IAS 32 are effective for annual periods beginning on or after January 1, 2014 and must be applied retrospectively. For Corby, this amendment will become effective July 1, 2014. The Company does not expect the amendments to IAS 32 to have a significant impact on its consolidated financial statements.

(ii)     Levies

The IFRS Interpretations Committee ("IFRIC") of the IASB has issued a new interpretation, "Levies" ("IFRIC 21"), which addresses the accounting for a liability to  pay a levy to a government. IFRIC 21 applies to levy liabilities within the scope of IAS 37, "Provisions, Contingent Liabilities and Contingent Assets", and to levy liabilities when the timing and amount is certain. IFRIC 21 is effective for annual periods beginning on or after January 1, 2014 and must be applied retrospectively. For Corby, this interpretation will become effective July 1, 2014. The Company is assessing the impact of this interpretation on its consolidated financial statements.