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the year and new letters of credit were created during 2011 as required. On December 31, 2011, we had letters of credit outstanding in the amount of US$1.3 million to secure obli- gations for the purchase of seafood, US$0.2 million to secure lease obligations with respect to a leased cold storage facility, and CAD$9.3 million to secure certain obligations under the Company’s supplemental executive retirement plan. 

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## Working Capital 

Net working capital balances, consisting of accounts receivable, inventory, prepaid expenses, provisions and accounts payable, at the end of fiscal 2011 were $116 million higher than they were a year ago, principally as a result of the Icelandic USA Acquisition, which added $95 million in net working capital. Excluding this acquisition, net working capital balances in 2011 were higher than they were a year ago due to the Viking Acquisition, which increased both accounts receivable and inventory. In addition, the weaker Canadian dollar (US$1.000 = CAD$1.017) further increased working capital relative to the previous year (US$1.0000 = CAD$0.9946). As more than 50% of our operations are in the United States, and we translate the balance sheet of the U.S. subsidiary to Canadian dollars using the month-end exchange rate, the weaker Canadian dollar increases the carrying value of working capital. Also, many assets and liabilities in the Canadian operations are denominated in U.S. dollars, and are influenced by the value of the Canadian dollar. 

Excluding the Icelandic USA Acquisition, working capital assets increased $5.0 million over January 1, 2011, solely due to the conversion of the U.S. operation’s inventory ($1.3 million) and accounts receivable ($3.7 million). In addition, the Canadian company’s inventory, although denominated in Canadian dollars, is substantially purchased in U.S. dollars and therefore is impacted by changes in the Canadian/U.S. exchange rate. Inventory purchased by the Canadian operations had an increased cost of approximately 2.3% due to the exchange rates in effect for 2011 over the same period last year, after taking into account hedging activities, increasing inventory by approximately $1.0 million. 

The Company has 59.0 million pounds of product inventory, excluding Icelandic USA, at the end of 2011 compared with 51.2 million pounds at the end of fiscal 2010. 

Partially offsetting the increase in working capital assets is the foreign currency effect on accounts payable. The increase in accounts payable for the conversion of the U.S. operation’s balances at the end of fiscal 2011 was $1.8 million compared to the end of fiscal 2010. In addition, a significant portion of payables in the Canadian company are denominated in U.S. dollars for the purchase of seafood in U.S. dollars. 

Net working capital added by the Icelandic USA Acquisition was $94.5 million as at December 31, 2011. 

Our working capital requirements fluctuate during the year, peaking between December and April as our inventory is the highest at that time. We expect 1  this trend to continue and we have enough availability on our line of credit to finance our working capital requirements throughout 2012. If we were to do another acquisition, we would need to expand our working capital facility. 

## Cash Flow 

Cash flow provided by operations before changes in non- cash working capital items for 2011 decreased from the same period last year, mainly due to the costs incurred to complete the Icelandic USA Acquisition that were expensed in December 2011. In addition, non-cash working capital items used cash in the most recent year, primarily the result of an investment in inventory, compared to 2010 where working capital generated cash. 

Standardized free cash flow 2  was a negative $3.4 million for the year-ended December 31, 2011, compared to a positive $46.0 million for the year-ended January 1, 2011. Cash flow from operations before working capital changes was decreased by costs incurred to complete the Icelandic USA Acquisition that were expensed in December. As well, non-cash working capital used cash in the most recent year, compared to cash flow that was generated from working capital in the previous year. Standardized free cash flow also decreased during the most recent year due to higher capital expenditures. Capital expenditures in 2011 were higher than 2010 due primarily to information technology projects, including the Product Life Cycle software and other projects. 

We have adjusted Standardized Free Cash Flow in the table below for the impact of foreign exchange contracts that were unwound in 2008. In 2010, $0.2 million of the benefit relating to the unwound contracts has been excluded from cash flow from operations as it was cash received in a prior year. The Adjusted Free Cash Flow adds back to 2010 the impact of the foreign exchange gain realized on the contracts. 

2 Our definition of Standardized Free Cash Flow follows the general principles and guidance for reporting this measure issued by the Canadian Institute of Chartered Accountants 

