Management's Discussion and Analysis (cont’d) Balance Sheet Effects of Foreign Currency 8.5 OThER COMMODITIES Senior management accountability: 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.  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. 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 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  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. 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. 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. 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. Board oversight accountability:  Audit Committee ANNUAL REPORT 2011 45