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.  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.  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.  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.  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.  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. Net working capital added by the Icelandic USA Acquisition  was $94.5 million as at December 31, 2011. 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. 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.  Management's Discussion and Analysis (cont’d) 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  23 ANNUAL REPORT 2011 Cash Flow  Working Capital Net debt to capitalization (in $000s) % 2007* 2008* 2009* 2010 2011 0 10 20 30 40 50 60 70 80 0 100,000 200,000 300,000 400,000 500,000 600,000 * In accordance with Canadian GAAP (not restated) Net debt Shareholders equity Net debt to capitalization RATIO CAPITALIZATION