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customers. The impact of these adjustments on earnings totalled $0.4 million. 

## The Economy 

The Cayman Islands have two main industries - financial services and tourism. These sectors were not immune to the effect of the global financial crisis. A fall in Gross Domestic Product (“GDP”) of 4% occurred in 2010 (2010 Cayman Islands’ Annual Economic Report; released July 2011) as compared to a decrease of 7.5% in 2009. The 2011 Semi-Annual Economic Report was released by the Government in late September 2011 and reported that the Cayman Islands’ real GDP grew by an estimated annualised rate of 1.3% for the first half of 2011. 

The tourist demographic is largely comprised of visitors from the US. In 2011, 79% of air arrivals to the country were citizens of the US. As such the US economy largely impacts that of the Cayman Islands. 2011 air arrivals were up 7% when compared to 2010 and cruise arrivals were down 12% when compared to 2010. Air arrivals have a direct impact on the Company’s sales growth as these 

visitors are stay-over visitors who occupy the hotels. Cruise arrivals have an indirect impact as they affect the opening hours of the establishments operating for that market. 

The 2010 Cayman Islands’ Annual Economic Report listed the 2010 population at 54,397 as compared to 57,009 estimated in 2008 due to declines in the non-Caymanian workforce. Cayman has a high proportion of foreign nationals that provide labour in various sectors of the economy. The 2011 Cayman Islands’ Semi-Annual Economic Report listed work permits as at June 2011 at 19,920, a 7.5% decline when compared to the same period in the prior year but an increase when compared to the first quarter figure of 19,877. Government attributes this decrease to “the sharp slowdown in construction, the largest employer of foreign labour”. 

The Government’s 2012/2013 Strategic Policy Statement document sets out its fiscal projections and the Government’s medium-term poilicies and initiatives underlying these projections. The document details Government’s key medium- term strategies as agreed with the United Kingdom Foreign 

and Commonwealth Office. The agreement includes reform of the public sector through limiting new borrowings, reallignment of existing revenue base, reducing operating expenditure and consideration of private finance initiatives as an alternative source of capital funding. The document also states Government’s commitment to enhancing tourism and financial services, supporting small businesses as well as maintaining a vibrant and stable economy. 

(All data is sourced from the Cayman Islands Government, Cayman Islands Economics and Statistics Office, Cayman Islands Monetory Authority and Cayman Islands Department of Tourism websites: www.gov.ky; www.eso.ky; www.cimoney.com.ky and www.caymanislands.ky). 

## Liquidity and Capital Resources 

The table “Summary of Cash Flows” on page 16 outlines the summary of cash flows for Fiscal 2011 and Fiscal 2010. 

