Management Discussion & Analysis FINANCIAL INSTRUMENTS  A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability  or equity instrument to another entity. Upon initial recognition all financial instruments, including  derivatives, are recognized on the balance sheet at fair value. Subsequent measurement is then based on the  financial instruments being classified into one of five categories: held for trading, held to maturity, loans  and receivables, available for sale and other liabilities. The Corporation has designated its financial  instruments into the following categories applying the indicated measurement methods:  The Corporation will assess at each reporting period whether there is a financial asset, other than those  classified as held for trading, that is impaired. An impairment loss, other than temporary, is included in  net earnings.  The Corporation holds derivative financial instruments to hedge its foreign currency exposure. The  Corporation has entered into forward contracts equal to the monthly and quarterly flow of funds from its  investment in Quetico, the Corporation’s lone foreign investment. The Corporation matched 100% of the  2012 scheduled distributions to the Canadian parent and 90% of the expected 2013 distributions resulting  in an economic hedge of the foreign currency exposure. The fair value of the forward contracts will be  estimated at each reporting date and any gain or loss on the contracts will be recognized in profit or loss.  The Corporation records all transaction costs incurred, in relation to the acquisition of investments  classified as “available for sale”, as an additional cost of the investment. The Corporation applies trade-date  accounting for the recognition of a purchase or sale of cash equivalents and derivative contracts.  The Corporation has the following financial instruments that mature as follows:  The Corporation has sufficient cash on hand to settle all current accounts payable, accrued liabilities,  dividends payable and all scheduled repayments on the senior debt. In the event the senior debt is not  renewed and principal payments become due, the debt would be refinanced, or alternatively, management  expects that there would be sufficient cash flow from operations to meet all required repayments. 60  2011 Annual Report  Alaris Royalty Corp. Total  0-6 Months  6 mo – 1 yr  1 – 2 years  3 – 4 years  Accounts payable and accrued  liabilities  1,546,705 1,546,705 0 0 0 Dividends payable  1,850,145  1,850,145  0  0  0  Income taxes payable  67,590  67,590  0  0  0  Bank indebtedness  6,500,000  0  0  4,333,333  2,166,667  Total 9,964,440 3,464,440 0 4,333,333 2,166,667 Financial Instrument  Category  Measurement Method  Cash and cash equivalents  Held for trading  Fair value  Accounts receivable  Loans and receivables  Amortized cost  Preferred LP units  Available for sale  Fair value  Accounts payable and accrued liabilities  Other liabilities  Amortized cost  Bank indebtedness  Other liabilities  Amortized cost  Derivative financial instruments  Loans and receivables  Fair value 