The first quarter of the year is historically better than the other three quarters for both sales and profits, depending on the timing of Lent. This modest benefit is usually offset in the third quarter, with both the first and second halves of the year comparable. Our U.S. retail business and, to a lesser degree, our U.S. food service business traditionally experience a strong first quarter as retailers and restaurants promote seafood during the Lenten period. For retail sales, the second and third quarters are more challenging during the warmer months as consumers spend more time outdoors, travel, and use ovens less often, resulting in a decreased demand for our products. However, for the food service business, activities are usually elevated in the second and third quarters as consumers are on vacation and travel more than other times of the year. The fourth quarter includes several festive occasions that increase demand for our products in both retail and food service. 

In our retail businesses, we spend significant amounts on consumer advertising and new product launches. Although the related activities benefit more than one period, the related costs must be expensed when the initial promotional activity takes place. The accounting periods during which we choose to incur these expenditures may change from year to year. Therefore, there may be fluctuations in income relating to these activities. A significant percentage of advertising is usually done in either the first or fourth quarters. 

Inventory levels fluctuate throughout the year, being higher to support strong sales periods, especially in the first quarter of the year. Inventories are seasonally high at the end of the year and throughout the first quarter. This is due to the seasonal closure of plants in Asia during the Lunar New Year period, which results in significantly higher inventories in December, January, February and March than during the rest of the year. 

Going forward, we expect 1  seasonality to be similar to 2011. 

## Sales 

Sales for fiscal 2011 were $668.6 million, compared to $584.7 million in fiscal 2010. In 2011, more than 55% of the Company’s operations, including sales, were denominated in U.S. dollars. The stronger Canadian dollar decreased the value of reported U.S. sales by approximately $12.7 million. The Viking Acquisition added $37.5 million to our sales in 2011 compared to $1.7 million in 2010. The Icelandic USA Acquisition added $9.0 million to our sales in 2011. 

Sales in domestic currency for 2011, including the Viking Acquisition, were $672.3 million compared to $575.7 million for the previous year. Sales volume measured in pounds, excluding the Icelandic USA Acquisition, was 198.2 million (including 14.6 million pounds coming from the Viking brand) compared to 176.6 million the previous year, an increase of 12.2%. This was the result of improving economic conditions and new product introductions. We increased prices on commodity and value-added products as a result of input cost increases, and this increased sales relative to the 

previous year. Icelandic USA Acquisition added 2.5 million pounds in the year. Sales trends are discussed in more detail below in the section called Performance by Segment. 

## Gross Profit 

Gross profit in 2011 was $151.9 million compared to $137.2 million in 2010. Gross profit as a percentage of sales was 22.7% in 2011 compared to 23.5% the previous year. Gross profit increased by $14.8 million in 2011 due to an increase in sales but decreased slightly as a percentage of sales due to an increase in input costs, primarily in seafood, and additional trade spending to promote products and increase distribution. 

## Distribution Expense 

Distribution expense in 2011 increased by $5.0 million, or 16.6% from the previous year, due to higher sales volumes resulting from Viking  products and organic growth. Distribution expenses in 2011 were 5.2% of sales, up slightly from 5.1% in the previous year, primarily due to higher fuel surcharges passed on to the Company in 2011 by third-party freight carriers. 

## Selling, General and Administrative Expense (SG&A) 

SG&A expense in 2011 increased $3.6 million, or 5.2%, over the previous year. SG&A expense for 2011 was 10.8% of sales, compared to 11.7% for the previous year. In 2011, our U.S. operations advertised on television, radio and other means, adding $1.1 million to our consumer marketing costs in 2011. During 2011, we recorded a stock option expense of $0.7 million, which was recorded in SG&A, compared to the previous year where we recorded a $3.7 million expense. The stock option expense in 2010 was affected by a significant increase in our stock price, increasing from $9.25 to $16.25. The methodology to value options is very much influenced by the value of our stock price. Excluding stock option expense, SG&A in 2011 was 10.7% of sales, compared to 11.1% in 2010. 

## Adjusted EBITDA 

Our consolidated Adjusted EBITDA 4  in 2011 was $54.7 million, an increase of 15.9% compared to $47.2 million in 2010. The change in the value of the Canadian dollar, excluding its impact on purchases of seafood for the Canadian market, reduced EBITDA by $0.9 million due to the conversion of U.S. results to Canadian dollars. 

Included in Adjusted EBITDA 4  of 2011 is a stock option expense of $0.7 million compared to $3.7 million in 2010, as mentioned above. Excluding stock option expense, Adjusted EBITDA 4  in 2011 was $55.3 million, compared to $50.9 million in 2010. 

In domestic currency, Adjusted EBITDA 4  for 2011 was $54.9 million compared to $46.5 million in 2010. The increase was due to an increase in sales volume, including Viking, cost reduction strategies, and lower exchange rates that 

4 See definition on page 37 

