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 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 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 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. 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. 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  36 HIGH LINER FOODS INCORPORATED Sales Adjusted EBITDA Selling, General and Administrative Expense (SG&A) Distribution Expense Gross Profit