The value of the U.S. dollar compared to other world currencies has an impact on many commodities, including seafood, packaging, flour-based products, cooking oil and transportation costs that are either sold in U.S. dollars or have U.S.-dollar input costs. This is because many producing countries do not use the U.S. dollar as their functional currency, and therefore, changes in the value of the U.S. dollar means that producers in other countries need less or more U.S. dollars to obtain the same amount in their domestic currency. Changes in the value of the Canadian dollar by itself against the U.S. dollar simply result in an increase or decrease in the Canadian-dollar cost of inputs. 

The raw material for products sold in Canadian dollars for the Canadian market is purchased substantially in U.S. dollars. Flour-based ingredients, cooking oils and transportation costs all have significant components that are denominated in U.S. dollars, even if ultimately purchased in Canadian dollars. A strengthening Canadian dollar decreases the cost of these inputs and vice versa. Competitive factors on commodity products, primarily raw frozen shellfish and groundfish, especially in our Canadian food service business, come into play when the value of the Canadian dollar changes. Our Canadian food service competitors use a lower Canadian-dollar cost of imported products to decrease prices and, therefore, pass on the cost decrease to customers, and we react accordingly. Increasing Canadian-dollar costs result in higher selling prices to customers. 

For 2012 1 , approximately US$17 million of the Canadian operation’s external sales are expected to be in U.S. dollars. Approximately US$200 million of purchases of raw material and finished goods for the Canadian operation will be acquired with U.S. funds. Therefore, our exposure on purchases for the Canadian marketplace is expected to exceed our sales of products produced in Canada for the U.S. market by US$183 million in 2012. This exposure is estimated to increase to pre-tax US$196 million after taking into account the U.S.-dollar commodity cost in breading, paper and cooking oil that we purchase, partially offset by the conversion of U.S. subsidiary income to Canadian dollars and inter-company charges. Based on this, the net effect of a one- cent change in the U.S.-dollar exchange rate for the Canadian dollar, prior to hedging activities and price changes to customers, is a change in after-tax income of approximately $1.4 million. 

In accordance with the Price Risk Management Policy , we undertake hedging activities using various derivative products. The policy is approved and monitored by the Audit Committee. Our Treasury Team, under the direction of Chief Financial Officer Kelly Nelson, and with oversight from the Audit Committee, manages foreign exchange risk. Certain commodity products, such as raw and cooked shrimp, are not hedged under this program as the price in the marketplace moves up or down with changes in the Canadian-dollar cost of the product. To reduce our exposure to the U.S. dollar on the more price inelastic items, our policy allows us to hedge forward a maximum of 15 months; at 70%-90% of exposure for the first three months, 55%-85% for the next 

three months, 30%-75% for the next three, 10%-60% for the next three, and 0%-60% for the last three. The lower end of these ranges are required to be hedged by the policy, with the upper ranges allowed if management believes the situation warrants a higher level of purchases to be hedged. Variations from policy require the approval of the Audit Committee. 

The Company’s policy excludes food service commodity fillets from its hedging program as the price in the marketplace moves up or down with changes in the Canadian-dollar cost of this product. Approximately US$90 million of the U.S. purchases of the Canadian company are part of the hedging program and are usually hedged between 45%-55% of the next 12 months of forecasted purchases. 

Details on the hedges in place on December 31, 2011 are included on page 25 of this document. 

## Balance Sheet Effects of Foreign Currency 

As we have operations in the United States, and monetary assets and liabilities in Canada that are denominated in U.S. dollars, assets and liabilities of the consolidated company change as exchange rates fluctuate. At December 31, 2011, the Canadian dollar strengthened by approximately 2% from its value at January 1, 2011. As such, the strengthened Canadian dollar has decreased the carrying value of items such as accounts receivable, inventory, fixed assets and accounts payable. The net offset of those changes that relate to our self-sustaining U.S. subsidiary flows through Other Comprehensive Income in shareholders’ equity on the balance sheet. Changes in monetary assets and liabilities in Canada that are denominated in U.S. dollars flow through the income statement. 

## 8.5 OThER COMMODITIES 

## Senior management accountability: 

Mario Marino President and Chief Operating Officer Canadian Operations; Keith Decker, President and Chief Operating Officer (Derivatives – Kelly Nelson, Executive Vice President, CFO & Secretary); Mark Leslie, Vice President U.S. Supply Chain 

## Board oversight accountability:  Audit Committee 

Our operating costs are affected by changes in crude oil prices, which particularly influence the costs of our outgoing freight. When we experience higher crude oil prices, freight costs increase as our freight suppliers add fuel surcharges. To minimize our risk, and in accordance with the Price Risk Management Policy , we can enter into costless collar hedges but did not do so in the last four years. We do not plan to hedge fuel surcharges in 2012. 

