FPI Limited Releases Third Quarter Results: 2007 Year to Date Improvements Attributable to Continued Focus on Higher Margin Business, Effective Currency Management and Return on Investment in United Kingdom



    TSX: FPL
    www.fpil.com

    ST. JOHN'S, NL, Nov. 13 /CNW/ - FPI Limited ("FPI" or "the Company")
today announced its financial results for the third quarter of 2007. The
Company reported net income for the quarter of $28.7 million as compared to a
net income of $3.6 million for the same period in 2006. Net income for the
thirty-nine weeks ended September 29, 2007 was $37.8 million as compared to a
net income of $3.7 million for the thirty-nine weeks ended September 30, 2006.
This performance reflects the combined results of the Company's two business
units: the Primary Group and the Marketing and Manufacturing Group, as well as
discontinued operations in Europe.
    Sales revenues from continued operations for the third quarter were
$124.4 million, a decrease of $19.5 million over the same quarter last year.
Gross profit from continued operations increased by $0.5 million to
$18.4 million for the quarter, and by $2.3 million to $49.4 million for the
year to date compared to the same periods last year. The improvements result
from the continued execution of the strategy to eliminate low margin products
from the Company's portfolio by focusing on categories, products and customers
that provide improved returns to the Company.
    For the year to date, gross profit as a percentage of sales has grown in
both of FPI's business units. The Primary Group's gross profit for the year to
date is $16.6 million, a $2.2 million increase over the first nine months of
last year. The Marketing and Manufacturing Group has recorded a gross profit
of $32.8 million for the year to date, an increase of $0.1 million over last
year's performance for the first thirty-nine weeks.
    The sale in August 2007 of FPI's investment in The Seafood Company
Limited, based in the United Kingdom, produced a net gain of $24.7 million
that is included in the statement of discontinued operations for the third
quarter and year to date. The net proceeds were used by the Company to reduce
debt. "In less than two years, our strategic investment in The Seafood Company
Limited proved to be a positive move and provided a useful mechanism to pay
down bank debt. It has certainly contributed to the improvement in the
Company's balance sheet," said Ms. Beverley Evans, Chief Financial Officer.
    "The renewed corporate focus on higher margin categories, products and
customers has contributed to the continued improvement in FPI's gross profit
performance for continuing operations," said Ms. Evans. "The tough environment
for exporters and strong competition in the seafood industry make it
imperative that you concentrate your efforts where they will make the greatest
positive impact on your profitability."
    Ms. Evans also acknowledged the difficulties for Canadian businesses
whose sales contracts are often denominated in U.S. dollars. "There is no
question that the volatility in currency exchange rates has required an
effective currency management strategy," she said. "The challenges to Canadian
exporters in every sector are significant. We are always cognizant of the need
to manage our currency exposure given the strength of our dollar relative to
that of the United States."
    On August 24, 2007, FPI announced definitive agreements for the sale of
certain assets to Ocean Choice International and High Liner Foods (TSX:HLF).
The agreements received FPI shareholder approval at the Annual and Special
Meeting of Shareholders held October 22, 2007. These sales transactions have
not yet closed, and progress toward their completion continues.

    About FPI: FPI is a Newfoundland and Labrador - based seafood company
engaged in harvesting, processing, global sourcing and marketing a wide
selection of high quality seafood products.
    For background on FPI's former investment in its United Kingdom
subsidiary, The Seafood Company Limited, please refer to the news releases of
July 26, 2007 and August 2, 2007. For background on the pending sales of
assets to Ocean Choice International and High Liner Foods, refer to the news
releases of April 30, May 2, August 24, October 5 and October 22, 2007. These
news releases are available through the CNW Group at www.newswire.ca.


    THIRD QUARTER REPORT TO SHAREHOLDERS
    ------------------------------------

    FINANCIAL RESULTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS
    OF OPERATIONS AND CHANGES IN FINANCIAL CONDITION

    THIRTEEN AND THIRTY-NINE WEEKS ENDED SEPTEMBER 29, 2007

    This Management's Discussion and Analysis ("MD&A") contains statements
and other forward-looking information about potential future circumstances,
results, and developments related to FPI Limited ("FPI" or the "Company") and
its business and operations. Such statements and information are qualified in
their entirety by the inherent risks and uncertainties surrounding future
expectations generally and may differ materially from the Company's actual
future results or events. There are a number of factors that could cause
results or events to differ from current expectations, including, among other
things, uncertainties regarding the continued availability of seafood
products, the significant level of government regulation of the seafood
industry, the inherent limitations on the Company's ability to restructure and
grow its business operations arising from the limitations of the FPI Act,
foreign exchange risk associated with the international nature of the
Company's operations, the reliance of the Company on certain contractual
arrangements and the ability of the Company to renew or renegotiate such
contracts on favourable terms, increasing competition in the industry and
general industry and economic conditions. For additional information with
respect to certain of these risks or factors, reference should be made to the
Company's Annual Information Form in respect of the fiscal year ended December
31, 2006 ("AIF") and other continuous disclosure materials filed from time to
time by the Company with Canadian securities regulatory authorities. The
Company's AIF is available on the Company's website at www.fpil.com or through
the SEDAR website of the Canadian Securities regulators at www.sedar.com.
    The Company disclaims any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. This MD&A should be read in conjunction with the
unaudited interim consolidated financial statements and the related MD&A for
the thirteen and thirty-nine weeks ended September 30, 2006, and the Company's
audited comparative consolidated financial statements and the related MD&A
(the "Annual MD&A") as at and for the year ended December 31, 2006, including
the notes thereto, set forth in the Company's 2006 Annual Report to
Shareholders. This MD&A updates the disclosure contained in the Annual MD&A
and should be read in conjunction with such Annual MD&A.
    All information reflected herein is expressed in Canadian dollars ("CAD")
and is determined on the basis of Canadian generally accepted accounting
principles ("GAAP"). Tabular amounts are expressed in thousands of dollars,
except where otherwise noted.

    
    This MD&A has been prepared as of November 13, 2007.

    FINANCIAL PERFORMANCE HIGHLIGHTS

    The following is a summary of FPI's consolidated financial performance
during the third quarter of 2007 and year to date, compared with the same
period of 2006.

    -------------------------------------------------------------------------
                                     Thirteen Weeks       Thirty-Nine Weeks
                                          Ended                 Ended
    -------------------------------------------------------------------------
    unaudited - dollars in
     thousands, except per         Sept. 29,  Sept. 30,  Sept. 29,  Sept. 30,
     share amounts                     2007       2006       2007       2006
    -------------------------------------------------------------------------
    Sales from continuing
     operations                    $124,402    143,880    377,855    485,221

    Gross profit from continuing
     operations                      18,364     17,898     49,357     47,122
    Net income (loss) from
     continuing operations (note 3)   3,373      2,137     11,086       (726)
    Net income (loss) per common
     share - from continuing
     operations
      Basic                            0.25       0.15       0.81      (0.05)
      Diluted                          0.25       0.15       0.81      (0.05)
    -------------------------------------------------------------------------
    Note : The results for the thirteen and thirty-nine weeks ended
    September 30, 2006 have been restated to reflect the classification of
    the operations of The Seafood Company Limited as a discontinued
    operation.

    During the thirteen and thirty-nine weeks ended September 29, 2007 the
Company recorded net income from continuing operations of $3.4 million and
$11.1 million compared to net income of $2.1 million and a net loss of
$0.7 million for the comparative periods ended 2006. While sales from
continuing operations have decreased for the quarter and year to date as
compared to the same period in the prior year, an increase in gross profit of
$0.5 million and $2.3 million respectively, is a result of the Company's
strategy to eliminate low margin products from its product portfolio by
focusing on categories, products and customers that provide improved returns
to the Company. Year to date net income from continuing operations for the
period ended September 29, 2007 increased by $11.8 million. Contributing to
this increase is a $1.8 million reduction in depreciation expense, a
$5.0 million reduction in interest expense, and an increase of $8.1 million as
a result of foreign exchange gains. Further, effective January 1, 2007, the
amendment of the Primary Group and Marketing and Manufacturing Group defined
benefit plans to a defined contribution plan for all members of those plans
resulted in a $0.6 million pension curtailment gain, which is offset by an
increase in tax expense of $1.7 million.
    On July 26, 2007 the Company reached a definitive agreement in respect of
the sale of The Seafood Company Limited with Young's Seafood Limited. On
August 2, 2007, the transaction was completed. In accordance with Canadian
Generally Accepted Accounting Principles, the operational results of The
Seafood Company Limited and the gain on sale of the investment for the quarter
and year to date are classified in net income for the period from discontinued
operations on the Consolidated Statements of Operations. Prior periods are
restated to reclass the results of The Seafood Company Limited to reflect this
change. Cash flows from discontinued operations are separately classified on
the Consolidated Statements of Cash Flows for current and prior periods. The
Consolidated Balance Sheets for the prior periods include The Seafood Company
Limited, and include reference to note disclosure that provides the carrying
values of the major assets and liabilities of The Seafood Company Limited.
Further information regarding this transaction is included in note 3 to the
Company's consolidated interim financial statements.

    CONSOLIDATED SALES AND GROSS PROFIT

    Consolidated sales and gross profit reflect the combined results of the
Company's two business units: the Primary Group and the Marketing and
Manufacturing Group.
    Sales from continuing operations for the third quarter of 2007 are
$124.4 million, a decrease of $19.5 million from $143.9 million in the same
quarter of the prior year. The Primary Group's sales of primary processed
product increased by $6.5 million while its sales of globally sourced product
decreased by $6.0 million. Value added sales in the Marketing and
Manufacturing Group decreased by $7.8 million as compared to the third quarter
of 2006 and globally sourced product sales decreased by $12.4 million as a
result of lower sales volumes and a weaker U.S. dollar.
    The Company's gross profit from continuing operations for the quarter
ended September 29, 2007 is $18.4 million as compared to $17.9 million in the
third quarter of 2006. An increase in gross profit of $0.9 million in the
Primary Group, and a decrease of $0.4 million in the Marketing and
Manufacturing Group, results in a total increase of $0.5 million or 2.6% from
the same period in the prior year. Gross profit as a percentage of sales is
14.8%, an increase of 2.4 percentage points from 12.4% achieved in 2006.
    The Company's year to date sales from continuing operations of
$377.9 million reflects a decrease of $107.3 million as compared to sales of
$485.2 million for the thirty-nine weeks ended September 30, 2006. This is the
result of a $87.8 million decrease in sales in the first half of 2007 and a
decrease of $19.5 million in sales in the third quarter of 2007 as compared to
the same periods of 2006. This decrease is attributable to lower sales volumes
and a weaker U.S. dollar.
    Gross profit from continuing operations for the thirty-nine weeks ended
September 29, 2007 is $49.4 million, an increase of $2.3 million from
$47.1 million for the same period in the prior year. This increase results
from an increase of $2.2 million in the Primary Group's gross profit and an
increase of $0.1 million in the Marketing and Manufacturing Group's gross
profit. Gross profit as a percentage of sales is 13.1%, an increase of
3.4 percentage points as compared to 9.7% for the same period in the prior
year.

    FOREIGN EXCHANGE IMPACT ON SALES. Foreign exchange has a net negative
impact on sales in the third quarter of 2007. The average effective U.S.
exchange rate for the quarter is 1.045, an overall decrease of approximately
760 basis points from the average effective rate of 1.121 in the same period
of the prior year. This has resulted in an effective decrease in sales of
$9.0 million when translating U.S. dollar sales to Canadian dollars. This is
partially offset by the positive impact of exchange rates for Euros and Pound
Sterling which both increased compared to the third quarter of 2006, resulting
in an effective increase in sales of $1.0 million.

    -------------------------------------------------------------------------
                      Thirteen Weeks Ended         Thirty-Nine Weeks Ended
    -------------------------------------------------------------------------
    unaudited         Sept. 29,       Sept. 30,       Sept. 29,     Sept. 30,
                          2007            2006            2007          2006
                   %   Average     %   Average    %    Average    %  Average
    Currency     Sales    Rate   Sales    Rate  Sales     Rate  Sales   Rate
    -------------------------------------------------------------------------
    U.S. dollar   52.7   1.045    64.8   1.121   58.4    1.111   65.6  1.135
    Euro           3.2   1.437     4.2   1.425    3.6    1.485    3.0  1.409
    Pound Sterling 4.1   2.110     2.6   2.104    3.5    2.188    2.1  2.063
    Canadian
     dollar
     and other    40.0            28.4           34.5            29.3
    -------------------------------------------------------------------------
                 100.0%          100.0%         100.0%          100.0%
    -------------------------------------------------------------------------

    The average effective U.S. exchange rate year to date is 1.111, a decrease
of approximately 240 basis points from the average of 1.135 for the same
period of 2006. This results in an effective reduction in net sales of $9.1
million when translating U.S. dollar sales to Canadian dollars. This is
partially offset by the exchange rates for Euros and Pound Sterling which both
increased compared to the same period of 2006, resulting in an effective
increase in net sales of $1.4 million when translating Euros and Pound
Sterling sales to Canadian dollars. The above analysis is based on sales from
continuing operations.

    -------------------------------------------------------------------------
                                     Thirteen Weeks       Thirty-Nine Weeks
                                          Ended                 Ended
    -------------------------------------------------------------------------
    unaudited - dollars in         Sept. 29,  Sept. 30,  Sept. 29,  Sept. 30,
     thousands                         2007       2006       2007       2006
    -------------------------------------------------------------------------
    Sales to External Customers

    Primary Group
      Primary processed product    $ 25,690     19,190     69,061     79,634
      Globally sourced product        7,734     13,706     20,157     58,450
      Foreign exchange gain on
       hedging contracts              1,844      1,646      1,296      5,269
                                   ------------------------------------------
                                     35,268     34,542     90,514    143,353

    Marketing and Manufacturing
     Group
      Value added product            42,861     50,694    147,329    167,962
      Globally sourced product       46,273     58,644    140,012    173,906
                                   ------------------------------------------
                                     89,134    109,338    287,341    341,868
                                   ------------------------------------------

    Continuing operations           124,402    143,880    377,855    485,221

    Discontinued operations
      Value added product             5,353     17,444     41,514     43,288
      Globally sourced product        5,992     13,169     45,906     36,218
                                   ------------------------------------------
                                     11,345     30,613     87,420     79,506
    -------------------------------------------------------------------------
    Total Sales                    $135,747    174,493    465,275    564,727
    -------------------------------------------------------------------------

    Gross Profit

      Primary Group
        Primary processed product  $  4,096      2,872     10,898      4,355
        Globally sourced product      1,227      1,732      4,393      4,833
        Foreign exchange gain on
         hedging contracts            1,844      1,646      1,296      5,269
                                   ------------------------------------------
                                      7,167      6,250     16,587     14,457

    Marketing and Manufacturing
     Group
      Value added product             7,599      7,881     23,543     22,928
      Globally sourced product        3,598      3,767      9,227      9,737
                                   ------------------------------------------
                                     11,197     11,648     32,770     32,665
                                   ------------------------------------------
    Continuing operations            18,364     17,898     49,357     47,122

    Discontinued operations
      Value added product             1,125      2,062      5,651      6,613
      Globally sourced product          845      2,585      6,673      6,178
                                   ------------------------------------------
                                      1,970      4,647     12,324     12,791
    -------------------------------------------------------------------------
    Total Gross Profit             $ 20,334     22,545     61,681     59,913
    -------------------------------------------------------------------------

    Note: The results for the thirteen and thirty-nine weeks ended
    September 30, 2006 have been restated to reflect the classification of
    the operations of The Seafood Company Limited as a discontinued
    operation.

    THE PRIMARY GROUP. The Company's Primary Group is responsible for
harvesting and primary processing in Canada and Europe. This business unit
sells internally harvested and processed, as well as globally sourced seafood.
The Primary Group's sales consist of shellfish, groundfish, and pelagic
species.
    Sales in the Primary Group for the quarter ended September 29, 2007 total
$35.3 million, a $0.8 million, or 2.3% increase from sales of $34.5 million in
the third quarter of 2006. This increase is attributable to the timing of
certain groundfish sales in the quarter.
    Primary Group sales of $90.5 million year to date were $52.9 million, or
36.9%, lower than the $143.4 million of the prior year. The decrease in sales
is attributable to lower procurement activity.
    The Primary Group contributes $7.2 million toward the Company's total
gross profit for the quarter ended September 29, 2007, which is $0.9 million
higher than the $6.3 million contributed in the corresponding period in 2006.
Gross profit as a percentage of sales is 20.4%, representing an increase of
2.1 percentage points from the 18.3% gross profit percentage achieved in the
third quarter of the prior year. The increase in gross profit percentage over
the prior year is associated with a shift in sales mix towards higher margin
products within primary processed and globally sourced products.
    The Primary Group's gross profit for the year to date is $16.6 million, a
$2.2 million increase from the prior year gross profit of $14.4 million. Gross
profit as a percentage of sales is 18.3% representing an increase of
8.3 percentage points from the 10.0% gross profit percentage achieved in the
first nine months of the prior year. As discussed above, the increase in gross
profit is attributed to the Primary Group's change in sales mix, which
includes higher margin species within primary processed and globally sourced
product compared to the same period of 2006.
    The Primary Group experiences significant challenges with respect to
foreign exchange fluctuations, increasing competition from low cost producers,
such as China, and overhead and distribution costs. The Primary Group
continues to focus on various strategies to address these challenges and to
critically review the management of the Primary Group's operations with the
objective of enhancing profitability.

    MARKETING AND MANUFACTURING GROUP. The Marketing and Manufacturing Group
is responsible for sourcing customer demands for seafood from domestic and
international supply partners, adding value to seafood through further
processing and ensuring FPI seafood is on more plates, in more places, through
more channels.
    Sales in the Marketing and Manufacturing Group for the third quarter of
2007 total $89.1 million, as compared to $109.3 million in the third quarter
of 2006, a decrease of $20.2 million or 18.5%. This decrease in the North
American business of the Marketing and Manufacturing Group is driven by lower
volumes of both globally sourced and value added products in the U.S. during
the quarter, as well as management's continued focus on maximizing customer
and product profitability by choosing to forego sales that do not provide
adequate returns. The decrease of $20.2 million is inclusive of a $4.2 million
negative impact of the weaker U.S. dollar when translating the U.S. operations
of the Marketing and Manufacturing Group for the quarter ended September
29, 2007.
    The decrease in value added product sales during the quarter is primarily
in the U.S. market, where value added revenues are down 22%. The introduction
of new products within the Pan Seared Selects(TM) and UpperCrust(TM) value
added groundfish product lines resulted in increased sales revenues in the
U.S. Club, Grocery and Foodservice channels, which compensated for the losses
in the National Accounts channel. These net increases in value added
groundfish revenues are more than offset by the sales declines in value added
shrimp products due to lost distribution in the U.S. At Home and Away From
Home channels. In Canada, value added sales revenues increased 5% over the
prior year.
    Globally sourced product revenues for the quarter ended September 29, 2007
total $46.3 million, as compared to $58.6 million in the third quarter of
2006, a decrease by $12.3 million or 21.0%. The decrease in globally sourced
product sales resulted mainly from reduced U.S. sales volumes of lobster
species, king crab, warmwater shrimp and coldwater shrimp arising from product
line rationalization undertaken during 2006, focusing on activities that
maximized product returns for capital employed.
    Sales in the Marketing and Manufacturing Group for the thirty-nine weeks
ended September 29, 2007 are $287.4 million, as compared to the $341.9 million
reported for the same period of 2006. The $54.5 million net decrease results
from a $33.9 million decrease in globally sourced products in addition to a
$20.6 million decline in the sales of value added products. In the current
year the weakening U.S dollar has a negative impact of $4.3 million on sales.
Value added product sales declined primarily because of lost distribution on
certain value added shrimp items while globally sourced product revenues were
unfavourably impacted by reduced sales of warmwater shrimp, king crab, salmon,
sea bass and lobster.
    The Marketing and Manufacturing Group's gross profit of $11.2 million for
the quarter decreased by $0.4 million or 3.9% compared to the same period last
year. Gross profit as a percentage of sales is 12.6% representing an increase
of 1.9 percentage points from the 10.7% gross profit achieved in the second
quarter of the prior year. This improvement is a result of increased
contribution margins on lower sales volumes, combined with lower distribution
and storage expenses associated with the product line rationalization and
management focus.
    Year to date gross profit of the Marketing and Manufacturing Group of
$32.8 million is $0.1 million higher than the $32.7 million reported in the
same period of the prior year. Gross profit as a percentage of sales is
11.4% representing an increase of 1.8 percentage points from the 9.6% gross
profit percentage achieved in the first nine months of the prior year. Reduced
sales volumes at higher margins combined with lower distribution expenses,
resulted in an increase in the current year's gross profit.

    ADMINISTRATIVE AND MARKETING EXPENSES

    Administrative and marketing expenses of continuing operations are
$7.0 million for the third quarter of 2007, and $25.8 million for the
thirty-nine weeks ended September 29, 2007, a decrease of $2.8 million from
the $9.8 million incurred in the third quarter of 2006 and a decrease of
$5.7 million from the $31.5 million incurred during the thirty-nine weeks
ended September 30, 2006. This decrease is primarily due to gains realized on
the revaluation of foreign denominated intercompany accounts combined with
reduced discretionary spending on selling activities, offset by an increase in
compensation costs recognized during the period due to the cashless stock
option feature as discussed in financing activities within liquidity and
capital resources.

    DEPRECIATION

    Depreciation of capital assets from continuing operations during the third
quarter of 2007 is $2.6 million, a decrease of $0.7 million as compared to
$3.3 million in the third quarter of the prior year. Depreciation of capital
assets for the thirty-nine weeks ended September 29, 2007 is $8.1 million, a
decrease of $1.8 million as compared to $9.9 million incurred in the same
period of 2006. The primary contributor to this decrease was the sale of the
Newfoundland Otter in the first quarter of 2007 as well as a decrease in
capital expenditures during 2007.

    INTEREST EXPENSE

    Interest expense from continuing operations during the third quarter of
2007 is $3.2 million, an increase of $0.1 million as compared to $3.1 million
in the third quarter of the prior year. This increase results from the
amortization of deferred financing costs in the quarter, using the effective
interest method, due to the liquidation of a portion of long-term debt offset
by reduced interest costs as a result of repayment of this long-term debt.
Interest expense year to date totals $6.3 million, a decrease of $5.0 million,
as compared to $11.3 million in the same period of 2006. This year to date
decrease for 2007 as compared to the same period of 2006 relates to a decrease
in interest on bank indebtedness as a result of a significant decrease in the
Company's bank indebtedness due to lower inventory levels, in addition to
lower interest expense associated with the repayment of long-term debt offset
by the amortization of deferred financing costs as previously discussed.

    WORKERS TRANSITION FUND

    In discussion with the Government of Newfoundland and Labrador in relation
to the disposition of certain assets, as prescribed by the FPI Act, the
Company agrees to fund a $3.0 million Workers Transition Fund. This fund is
currently being used to supplement wages of Newfoundland plant workers and is
fully provided for in the 2007 third quarter financial results.

    INCOME TAXES

    The Company's consolidated income tax expense from continuing operations
is $0.4 million in the third quarter of 2007, a decrease of $1.1 million as
compared to the third quarter of 2006. Income tax expense is $4.4 million for
the thirty-nine weeks ended September 29, 2007, an increase of $1.7 million as
compared to the same period in 2006. The Company's increase in income tax
expense is due to the improved profitability reported for the year to date as
compared to the same period of 2006.
    The effective tax rate relating to continuing operations for the quarter
is 9.6%, compared to an effective rate of 40.1% for the quarter ended
September 30, 2006. The effective tax rate for the first three quarters of
2007 is 28.3% as compared to 136.4% in the first three quarters of 2006. The
reduction in the effective income tax rate for the quarter and year to date is
predominantly the result of the Company having favourably concluded a tax
audit and the required re-filings during the quarter. The increase in the
Company's effective tax rate in 2006 was largely due to a revaluation of the
Company's net future tax asset. The revaluation was a direct result of a
decrease in the anticipated tax recovery rate due to legislative rate changes
enacted by the Federal Government in the second quarter of 2006.

    DISCONTINUED OPERATIONS

    On August 2, 2007, the Company sold its investment in The Seafood Company
Limited to Young's Seafood Limited for net proceeds of (pnds stlg)26.2 million
(CAD $55.9 million). This transaction resulted in a $24.7 million gain that is
included in the statement of discontinued operations for the thirteen weeks
and thirty-nine weeks ending September 29, 2007. The net proceeds were used by
the Company to reduce current levels of debt. As part of the transaction, the
Company provided a (pnds stlg)3.3 million (CAD $7.0 million) seven-year
indemnity to the purchaser.
    Net income from discontinued operations of $25.3 million and $26.7 million
in the third quarter and year to date 2007 reflect the gain on disposal, net
of taxes, of The Seafood Company Limited. Net income from discontinued
operations of $1.4 million and $4.4 million in the third quarter and year to
date of 2006 represent the results of The Seafood Company Limited's
operations.

    LIQUIDITY AND CAPITAL RE

SOURCES As disclosed in note 3 to the Company's consolidated financial statements, components of assets and liabilities relating to The Seafood Company Limited are included in the comparative figures in the following discussion of liquidity and capital resources. OPERATING ACTIVITIES. The Company's cash provided by continuing operating activities of $8.0 million for the quarter ending September 29, 2007 represents a decrease of $27.5 million from the $35.5 million for the quarter ended September 30, 2006. The Company's cash provided by continuing operating activities of $31.0 million for the thirty-nine weeks ending September 29, 2007 is $77.3 million lower than the cash provided by operating activities for the same period ended September 30, 2006. The decrease in cash provided by continuing operating activities in both the quarter and year to date is primarily a result of various changes in non-cash working capital balances discussed below. As at September 29, 2007, the Company has working capital of $63.3 million and a current ratio of 1.8:1. This compares with working capital of $96.4 million and a current ratio of 1.7:1 as at September 30, 2006, and working capital of $109.5 million and a current ratio of 1.8:1 as at December 31, 2006. Accounts receivable at September 29, 2007 is $46.7 million, an $18.0 million decrease from $64.7 million at September 30, 2006. This is primarily attributable to a $14.9 million decrease in trade accounts receivable due to a decrease in sales revenues for the thirteen weeks ending September 29, 2007 as compared to the same period ended September 30, 2006. Also contributing to this decrease is a $3.4 million decrease in the Atlantic Queen Seafoods ("AQS") receivable due to timing differences, the disposition of The Seafood Company Limited, and foreign exchange impact of the strengthening Canadian dollar. Partially offsetting these decreases is a $3.1 million increase in other accounts receivable as compared to the same quarter of the prior year. Accounts receivable decreased by $32.9 million from the balance of $79.6 million at year-end. This decrease is primarily a result of a $30.0 million decrease in trade accounts receivable resulting from lower sales in the third quarter of 2007 as compared to the fourth quarter of 2006 as a result of the Company's strategy to exit low margin products. Also impacting this decrease is the disposition of The Seafood Company Limited and the foreign exchange impact of the strengthening Canadian dollar on revaluation of the U.S. operations. The inventory balance at September 29, 2007 is $89.4 million, a decrease of $57.0 million as compared to the balance of $146.4 million as at September 30, 2006. Consistent with the first and second quarters of 2007, this decrease is primarily due to management's continued focus on reducing the Company's inventory position through reduced procurement, a continuous initiative to maintain lower stock levels and streamlined purchasing efforts. In addition, inventory levels have further been reduced in comparison to 2006 as a result of the disposition of The Seafood Company Limited during the third quarter of 2007 and the foreign exchange impact of the strengthening Canadian dollar on revaluation of the U.S. operations. The decrease of $48.2 million in inventories as compared to the balance of $137.6 million at December 31, 2006 is reflective of management's continuing strategy to reduce inventory levels and is also a result of the disposition of The Seafood Company Limited and foreign exchange revaluations as previously discussed. Prepaid expenses at September 29, 2007 are $2.2 million, a decrease of $4.1 million from $6.3 million at September 30, 2006, and a decrease of $2.1 million from $4.3 million at December 31, 2006. This decrease as compared to the balance in the prior year and at year end is largely the result of a decrease in prepaid insurance coupled with the foreign exchange impact of the strengthening Canadian dollar. Insurance contracts held by the Company are being renewed for shorter time periods than previously in anticipation of the pending sales of certain of the Company's assets. Accounts payable and accrued liabilities at September 29, 2007 are $45.5 million, a decrease of $14.8 million from $60.3 million at September 30, 2006. Accounts payable and accrued liabilities decreased by $7.9 million as compared to $53.4 million at December 31, 2006. Trade accounts payable at September 29, 2007 are lower as compared to December 31, 2006 and September 30, 2006 as a result of decreased procurement activity throughout 2007 as compared to 2006 as well as the disposition of The Seafood Company Limited in the third quarter of 2007. Also impacting the decrease in accounts payable is the foreign exchange impact of the strengthening Canadian dollar as previously discussed. Accumulated other comprehensive loss at September 29, 2007 is $31.3 million representing a $17.4 million increase as compared to the balance of $13.9 million at December 31, 2006 and a $14.0 million increase as compared to the balance of $17.3 million at September 30, 2006. These increases result primarily from a $18.8 million unrealized loss, recognized during the thirty-nine weeks ending September 29, 2007, on translating the financial statements of the Company's self-sustaining foreign operations, primarily its U.S. subsidiary. The Company expects that its ability to generate sufficient amounts of cash as needed in the short-term and the long-term, and to maintain financial capacity and flexibility for its operating activities is adequate and there are no trends, demands, commitments, events, or uncertainties that are reasonably likely to impact the position by a material amount. If the Company is not able to adequately finance its working capital requirements, there may be a material adverse effect on the Company's financial condition and results of operations. INVESTING ACTIVITIES. Cash applied to investing activities for the quarter ended September 29, 2007 is $17.1 million, a change of $17.9 million as compared to $0.8 million provided by investing activities at September 30, 2006. This brings year to date cash applied to investing activities to $11.6 million, as compared to $11.3 million provided by investing activities for the same period of 2006. This change is partially due to premiums paid upon settlement of foreign exchange derivative instruments of $1.2 million year to date, as compared to premiums received of $11.6 million for the same period in 2006. Also, contributing to this change is a $20.2 million increase year to date in cash applied to other investing activities. This is largely a result of the elimination of the investment and corresponding goodwill as a result of the sale of The Seafood Company Limited. Offsetting those factors and contributing to a decrease in cash provided by investing activities is the proceeds of $10.6 million received on the disposition of the Newfoundland Otter in the first quarter of 2007. FINANCING ACTIVITIES. Cash applied to financing activities of $48.1 million for the quarter ended September 29, 2007 is $14.5 million higher than the $33.6 million applied to financing activities in the same quarter in the prior year. Year to date, cash applied to financing activities totals $81.0 million, as compared to $122.0 million applied in the same period of the prior year. Bank indebtedness of $25.7 million at September 29, 2007 is $28.1 million lower than the balance of $53.8 million balance at September 30, 2006. This is primarily due to management's focus on reducing inventory levels through reduced procurement and management of safety stock levels. Bank indebtedness at September 29, 2007 is $35.3 million lower than the balance as at December 31, 2006. This is a result of a decrease in inventory and accounts receivable balances as compared to year-end, as a result of management's continued effort to reduce inventory levels. FPI's overall capital structure is 11.9% funded by long-term debt (excluding current portion) at September 29, 2007, compared with 41.8% as at September 30, 2006 and 39.7% as at December 31, 2006. Long-term debt (excluding current portion) at September 29, 2007 totaled $24.5 million as compared to $119.9 million at September 30, 2006 and $110.9 million at December 31, 2006. The Company repaid $48.5 million during the third quarter of 2007. This represents a combination of scheduled long-term debt repayments as well as the extinguishment and/or reduction of specific debt issuances. The latter was paid with proceeds from the disposition of The Seafood Company Limited. As well, the Company disposed of the Newfoundland Otter in the first quarter of 2007 for proceeds of $10.6 million. This vessel was held as security on certain of the Company's secured bank term loans, and therefore, proceeds upon disposition were paid directly to the Company's third party lender for application against long-term debt. On December 4, 2006, the Company received approval from the Toronto Stock Exchange for the renewal of its normal course issuer bid, pursuant to which the Company may purchase up to 701,806 of its common shares during the one-year period commencing December 6, 2006. As at September 29, 2007, the Company had purchased 584,368 common shares during the year at an average cost of $11.49 per share. As at November 13, 2007, the Company had purchased 687,568 common shares pursuant to the bid at an average cost of $10.76 per share. The Company had approximately 13.5 million common shares outstanding as at September 29, 2007 (September 30, 2006; 14.0 million). As at November 13, 2007, common shares outstanding were approximately 13,5 million. The Company has stock-based compensation plans for directors, executives, and certain senior management. The 2000 Performance Stock Option Plan allows the Company to grant options for the purchase of up to 1,395,000 common shares. These options have a maximum term of ten years and vest according to certain pre-defined percentage increases in the market price of the Company's common shares. In the second quarter of 2007, this plan was amended in order to provide a cashless option exercise feature whereby the Company agrees to repurchase an option for a purchase price equal to the market value of the common shares of the Company less the exercise price of the option. This amendment changed the substance of the financial and equity instruments underlying this agreement, as option holders, under the terms of the amended agreement, have the ability to exercise their options, with Board approval, for cash or common shares. The ability of the holder to exercise options for cash combined with the recent trends of Board approval, has resulted in the Company recognizing a financial liability for those stock options outstanding as at September 29, 2007. There were no options granted under the Performance Stock Option Plan in the third quarter of 2007 (2006; nil). Options to purchase common shares granted and outstanding under this Plan as at September 29, 2007, were 191,000 (2006; 965,200). At September 29, 2007, the Company has 918,500 shares that remain available for issuance under this Plan. As at November 13, 2007, the Company has 918,500 shares available for grant under this Plan. The Executive Stock Option Plan allows the Company to grant options for the purchase of up to 1,000,000 common shares. In the second quarter of 2007, this plan was amended in order to provide a cashless option exercise feature whereby the Company agrees to purchase an option for a purchase price equal to the market value of the common shares of the Company less the exercise price of the option. As consistent with the 2000 Performance Stock Option Plan, as discussed above, the Company has recognized a financial liability for those stock options outstanding under this plan as at September 29, 2007. There were no options granted under the Executive Stock Option Plan during the third quarter of 2007 (2006; nil). Options to purchase common shares granted and outstanding under this Plan as at September 29, 2007, are nil (2006; 31,300). The Company has 4,000 shares remaining available for grant under this stock option plan as at September 29, 2007. As at November 13, 2007 the Company has 4,000 shares remaining available for grant under the stock option plan. Shareholders' equity totaled $181.6 million as at September 29, 2007, compared with $167.2 million at September 30, 2006 and $168.2 million at December 31, 2006. CONTRACTUAL OBLIGATIONS. The Company has long-term debt with contractual maturities ranging between 2012 and 2024 as set out in the Annual MD&A. The Company also has operating leases and purchase obligations entered into in the normal course of business. Purchase obligations include purchase orders outstanding relating primarily to inventories and capital assets. There were no significant changes to the Company's contractual obligations during the third quarter of 2007 that were outside the ordinary course of business. SUMMARY OF QUARTERLY RESULTS The following section provides financial data for the eight most recently completed financial quarters of the Company. The following financial data is derived from the Company's unaudited interim and audited annual financial statements both prepared in accordance with Canadian GAAP for each of the quarters then ended. Reference should be made to the Company's quarterly and annual report to shareholders for each such quarter for the complete financial statements and MD&A of such operating results. Summary of Quarterly Data ------------------------------------------------------------------------- Quarter ended ------------------------------------------------------------------------- unaudited - dollars in thousands, except per Dec. 31, Mar. 31, Jun. 30, Sept. 29, share data 2006 2007 2007 2007 ------------------------------------------------------------------------- Sales from continuing operations $139,444 133,573 119,880 124,402 Net income from continuing operations (3,710) 1,951 5,762 3,373 Net income (loss) $ (1,748) 2,860 6,273 28,652 Net income (loss) from continuing operations per common share Basic $ (0.27) 0.14 0.42 0.25 Diluted $ (0.27) 0.14 0.42 0.25 ------------------------------------------------------------------------- Net income (loss) per common share Basic $ (0.13) 0.21 0.46 2.11 Diluted $ (0.13) 0.21 0.46 2.10 ------------------------------------------------------------------------- ------------------------------------------------------------------------- unaudited - dollars in thousands, except per Dec. 31, Apr. 1, Jul. 1, Sept. 30, share data 2005 2006 2006 2006 ------------------------------------------------------------------------- Sales from continuing operations $213,346 178,688 162,653 143,880 Net income from continuing operations (4,025) (3,727) 862 2,137 Net income (loss) $ (3,045) (2,676) 2,771 3,568 Net in come (loss) from continuing operations per common share Basic $ (0.26) (0.25) 0.06 0.15 Diluted $ (0.26) (0.25) 0.06 0.15 ------------------------------------------------------------------------- Net income (loss) per common share Basic $ (0.20) (0.18) 0.19 0.25 Diluted $ (0.20) (0.18) 0.19 0.25 ------------------------------------------------------------------------- Note: The results for the thirteen and thirty-nine weeks ended September 30, 2006 restated to reflect the classification of the operations of The Seafood Company Limited as a discontinued operation. The Company's operations and, therefore, its sales and cash flows, are seasonally affected. Inventory levels normally fluctuate in the following manner: increasing during the late spring/early summer with the seasonal fisheries, particularly those for coldwater shrimp and snow crab; peaking in September/October with the global sourcing of warmwater shrimp for pre-holiday sales in the fall; and declining in the late fall/early winter with strong sales and slower global sourcing/harvesting activity. Sales, particularly those of value added products, are strong in the early spring, largely as a result of the Lenten period. Through the late spring and summer months, the sales mix incorporates more primary processed and globally sourced products, such as snow crab and lobster, as seasonal fisheries are underway. The fall and winter months are also strong periods as a result of increased sales, largely of shellfish, during the holiday season. The Company's operations can also be affected by weather in the winter months when ice and poor weather conditions impact the harvesting of fish. The Company reported sales of $213.3 million in the fourth quarter of 2005, an increase of $13.9 million over the third quarter of 2005. The negative exchange rates continued to impact results in this quarter. Notwithstanding, the Marketing and Manufacturing Group's North American sales of both value added and globally sourced products increased significantly over the third quarter of 2005 as a result of strong fourth quarter sales that typically result from strong seasonal sales during that time of year. A $1.8 million charge for the settlement of obligations for closed plants significantly contributed to a loss in the quarter, as did continuing reduced margins and the strengthening Canadian dollar. With sales of $178.7 million in the first quarter of 2006, the Company began the year with lower revenues than the first quarter of 2005, largely as a result of decreases in volumes and sales pricing of primary processed product primarily attributable to the decreases experienced in the groundfish species. Reduced margins in the Primary Group's groundfish operations, lower sales volumes of value added and globally sourced products in the Marketing and Manufacturing Group, and significant sales promotion allowances in the Marketing and Manufacturing Group all impacted profitability in this quarter. Sales of $162.7 million for the second quarter of 2006 were lower than the second quarter sales in 2005 of $203.6 million by $40.9 million. Lower sales of globally sourced and value added products during the second quarter of 2006 in the Marketing and Manufacturing Group and lower sales of primary processed product in Primary Group due to ceased production combined with a weaker U.S. dollar significantly contributed to this decline from the prior year. Sales promotion allowances continued to reduce margins during the second quarter of 2006 as well as higher costs due to storage and distribution expenses, as did the delay in the opening of certain fisheries within the Primary Group and the continuing negative impact of foreign exchange rates. Sales of $143.9 million in the third quarter of 2006 were $55.5 million lower than third quarter sales of $199.4 million in 2005. Lower sales of globally sourced and value added products in the Marketing and Manufacturing Group, lower sales of primary processed and globally sourced product sales in the Primary Group, combined with negative foreign exchange rate impact, are the primary factors contributing to the decrease from the prior year. Further, the reduction in sales and increase in gross profit is aligned with management's strategic plan to focus on profitability. Throughout 2006, the Company conducted a detailed evaluation of its customers and product portfolios, and concentrated efforts to maximize returns. For the fourth quarter of 2006, the Company continued its focus on profitability. It reported sales of $139.4 million, a decrease of $73.9 million from the same period in 2005. Contributing to the reduction of sales was the negative impact of exchange rates and the reduced sales and production of primary processed product, which continued to influence the Company's results. With sales of $133.6 million in the first quarter of 2007, the Company began the year with lower sales revenues than the first quarter of 2006, largely as a result of decreased sales volumes of globally sourced and value added products. Changes in the Primary Group's sales mix, within primary processed product, towards higher margin species resulted in a higher gross profit than in the prior year. This was offset with higher sales allowances and distribution expenses in the Marketing and Manufacturing Group resulting in lower gross profit in the division but a consolidated increase in gross profit as compared to the first quarter in 2006. Sales of $119.9 million in the second quarter of 2007 were lower than the second quarter sales in 2006 of $162.7 million by $42.8 million, largely as a result of lower sales volumes of globally sourced and value added products in the Marketing and Manufacturing Group and lower sales of primary processed and globally sourced products in the Primary Group. The Primary Group's continued focus on its sales mix, within primary processed product, towards higher margin products resulted in a higher gross profit as a percentage of sales than in the same period of the prior year. The Marketing and Manufacturing Group also had increased gross profit as a percentage of sales over the second quarter of 2006 through improved contribution margins on lower sales volumes combined with lower distribution and storage expenses associated with management's product line rationalization. The Company reported sales of $124.4 million in the third quarter of 2007, a decrease of $19.5 million from $143.9 million in the same quarter of the prior year. Lower procurement activity in the Primary Group has resulted in a decrease in sales volumes of globally sourced product. Both value added and globally sourced product sales within the Marketing and Manufacturing Group decreased as a result of lower sales volumes and a weaker U.S. dollar. The increase in gross profit as a percentage of sales over the prior year is associated with a shift in a sales mix towards higher margin products within primary processed and globally sourced products. Both lower spending on distribution expenses and higher margined product sales contributed to higher gross profits as a percentage of sales in the Marketing and Manufacturing Group. FINANCIAL INSTRUMENTS The financial instruments used by the Company are described in the Annual MD&A. FOREIGN EXCHANGE. The following table outlines the significant hedge and non-hedge foreign exchange contracts held by the Company as at September 29, 2007, shown in the currency in which they are denominated. Forward Foreign Exchange and Option Contracts ------------------------------------------------------------------------- unaudited - Outstanding To Average To Average dollars in Sept. 29, Expire Rate Expire Rate thousands 2007 2007 (CAD) 2008 (CAD) ------------------------------------------------------------------------- North American Operations Hedge contracts USD purchase - forwards 2,321 845 1.1215 1,476 1.1266 Non-hedge contracts Euro sale written options 8,000 8,000 1.4410 - - USD sale barrier options 10,000 - - 10,000 1.0535 Euro sale barrier options 8,000 8,000 1.5202 - - Yen sale barrier option 1,000,000 - - 1,000,000 111.55 ------------------------------------------------------------------------- Mark-to-market exchange losses associated with contracts outstanding at September 29, 2007 amount to $0.6 million (2006; $2.1 million). INTEREST RATE SWAP AGREEMENTS. As a significant portion of the floating rate term debt was repaid during the quarter, the associated interest rate swap hedging such floating rate debt was liquidated accordingly. Reference should be make to the Annual MD&A as well as the financing section of the third quarter MD&A. OTHER RISKS LABOUR CONTRACTS. The Company currently has four collective agreements with labour unions, representing approximately 2,100 employees: A collective agreement covering six primary processing plants and one secondary processing plant in Newfoundland and Labrador is in effect until December 31, 2009. A collective agreement covering groundfish-harvesting operations in Newfoundland and Labrador is in effect until June 30, 2009. A collective agreement covering scallop-harvesting operations in Nova Scotia is in effect until April 30, 2009. The fourth contract covering offshore shrimp-harvesting operations in Newfoundland and Labrador expired on December 31, 2006. There has been no significant change to the Company's other risks during the quarter as compared to year-end. Reference should be made to the Annual MD&A. OFF-BALANCE SHEET ARRANGEMENTS GUARANTEES. There have been no further significant changes to the Company's guarantees during the quarter, as compared to year end other than as disclosed in note 3 to the financial statements. Reference should be made to the Annual MD&A. LETTERS OF CREDIT. The Company has letters of credit outstanding as at September 29, 2007 of USD $4.0 million (2006; USD $8.8 million) related to the procurement of inventories. The Company also has various standby letters of credit outstanding as at September 29, 2007 of $3.3 million (2006; $3.6 million). CHANGES IN ACCOUNTING POLICY FINANCIAL INSTRUMENTS-RECOGNITION AND MEASUREMENT, HEDGES AND COMPREHENSIVE INCOME. On January 1, 2007, the Company adopted, on a retroactive basis without restatement, three new accounting standards that were issued by the Canadian Institute of Chartered Accountants ("CICA"): Handbook Section 3855, Financial Instruments - Recognition and Measurement; Handbook Section 1530, Comprehensive Income; and Handbook Section 3865, Hedges. These standards, and the impact on the Company's financial position is discussed in note 2 to the Interim Financial Statements. FUTURE CHANGES IN ACCOUNTING POLICIES FINANCIAL INSTRUMENTS DISCLOSURES. CICA Handbook Section 3862, Financial Instruments - Disclosures, increases the disclosures currently required that will enable users to evaluate the significance of financial instruments for an entity's financial position and performance, including disclosures about fair value. In addition, disclosure is required of qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum disclosures about liquidity risk and market risk. The quantitative disclosures must also include a sensitivity analysis for each type of market risk to which an entity is exposed, showing how net income and other comprehensive income would have been affected by reasonably possible changes in the relevant risk variable. This standard is effective for the Company for interim and annual financial statements beginning on January 1, 2008. The Company is currently evaluating the impact of this standard on its financial reporting. FINANCIAL INSTRUMENTS PRESENTATION. CICA Handbook Section 3863, Financial Instruments - Presentation, replaces the existing requirements on presentation of financial instruments which have been carried forward unchanged to this new section. This standard is effective for the Company for interim and annual financial statements beginning on January 1, 2008. The Company is currently evaluating the impact of this standard on its financial reporting. For details on other future changes in accounting policies that may have an impact on the Company's future financial reporting, reference should be made to the Annual MD&A. DISCLOSURE CONTROLS AND PROCEDURES Under the supervision and participation of Management, including the Chief Financial Officer of the Company, the Executive Vice President and Chief Operating Officer of the Primary Group division and the Chief Operating Officer of the U.S. Marketing and Manufacturing Group division, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures, as defined in Multilateral Instrument 52-109, Certification of Disclosure in Issuers' Annual and Interim Filings ("MI 52-109"), as of September 29, 2007. As the Company did not have an individual designated as Chief Executive Officer of the consolidated Company at such date, the Executive Vice President and Chief Operating Officer of the Primary Group and Chief Operating Officer of the U.S. Marketing and Manufacturing Group have signed and filed the Chief Executive Officer's Form 52-109F1 for the purposes of MI 52-109 as they performed similar functions to a Chief Executive Officer in respect of their operating divisions. Based on that evaluation, such officers concluded that the Company's disclosure controls and procedures are effective in making known to them material information relating to the Company and its consolidated subsidiaries required to be disclosed in the reports filed or submitted under MI 52-109. Such officers certified the appropriateness of the financial disclosures in our interim filings with regulators, including this MD&A and the accompanying unaudited interim consolidated financial statements for the thirty-nine weeks ended September 29, 2007, and that they have caused disclosure controls and procedures to be designed. INTERNAL CONTROLS OVER FINANCIAL REPORTING During fiscal 2007, the Company continued the documentation and assessment of the design of internal controls over financial reporting. Similar to the evaluation of disclosure controls and procedures referred to above, the design of internal controls over financial reporting was evaluated as defined in Multilateral Instrument 52-109. Based on the results of this evaluation, the Chief Financial Officer of the Company, the Executive Vice President and Chief Operating Officer of the Primary Group division and the Chief Operating Officer of the U.S. Marketing and Manufacturing Group division certified that the internal controls over financial reporting are effectively designed to provide reasonable assurance that its financial reporting is reliable and that the Company's consolidated financial statements are prepared in accordance with Canadian GAAP. Management also concluded that during the quarter ended September 29, 2007, no changes were made to internal controls over financial reporting that materially affect, or would be reasonably considered to materially affect, these controls. CRITICAL ACCOUNTING ESTIMATES There has been no significant change to the Company's critical accounting estimates during the quarter as compared to year end other than the changes required in adopting new accounting standards as described in note 2 to the Interim Financial Statements. Reference should be made to the Annual MD&A. RELATED PARTY TRANSACTIONS In the normal course of business, the Company has transactions with companies with common directors and a company in which FPI holds an equity investment, as follows: ------------------------------------------------------------------------- Thirteen Weeks Thirty-Nine Weeks Ended Ended ------------------------------------------------------------------------- unaudited Sept. 29, Sept. 30, Sept. 29, Sept. 30, - dollars in thousands 2007 2006 2007 2006 ------------------------------------------------------------------------- Transactions Sales of product $ 15 - 91 261 Purchases of product and services 1,792 1,209 3,236 6,772 Net commissions and royalties 695 328 1,064 1,031 ------------------------------------------------------------------------- These transactions are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. The balance due to and due from affiliates outlined in the following tables are non-interest bearing and under normal credit terms, as would have applied with unrelated parties, and have arisen from the transactions referred to above. These balances are included in accounts receivable and accounts payable on the Company's balance sheets. ------------------------------------------------------------------------- Sept. 29, Dec. 31, Sept. 30, 2007 2006 2006 ------------------------------------------------------------------------- Balances Receivable from companies with common directors $ - 191 - Receivable from a company in which FPI holds an equity investment 3,006 3,007 6,404 Payable to companies with common directors 1,348 963 141 ------------------------------------------------------------------------- POTENTIAL SALE OF CERTAIN ASSETS In a series of public disclosure statements and status updates commencing January 11, 2007, the Company announced that preliminary discussions had been held with several interested parties with respect to the potential sale of certain FPI assets. An Independent Committee of the Board of Directors was struck to evaluate these offers. National Bank Financial and Glitnir Bank were engaged to assist and advise in this exercise. In accordance with its mandate, the Independent Committee reviewed the merits of each of these offers and prepared recommendations for the full Board of Directors. The Board subsequently met to consider the recommendations of the Independent Committee, and began a process of related discussions with the Government of Newfoundland and Labrador. Certain of these transactions are subject to shareholder and government approvals, as well as the repeal of the FPI Act. On August 24, 2007, the Company executed definitive agreements with Ocean Choice International with respect to the sale of certain FPI assets located in Atlantic Canada and Europe and with High Liner Foods in relation to the potential sale of certain FPI assets in Canada and the United States. On October 22, 2007, the shareholders approved these transactions. The gross purchase price payable to the Company under the definitive agreements is $301.5 million and is subject to a number of adjustments including but not limited to working capital and certain capital costs incurred by the Company. Each of the two transactions contemplated by the definitive agreements is conditional upon the completion of the other transaction, government approvals, as well as the repeal of the FPI Act. Further details can be obtained in note 19 of the financial statements, and the Company's Management Proxy Circular dated September 20, 2007. CONTINGENCIES From time to time, the Company is involved in various litigation matters arising in the ordinary course of business. The Company has no reason to believe that the disposition of any such current matters could reasonably be expected to have a material adverse impact on the Company's financial position, results of operations, or the ability to carry on any of its business activities. During the second quarter of 2006, the Government of Newfoundland and Labrador laid charges against the Company in relation to its export practices of Yellowtail Flounder. Management is presently not able to assess or predict the scope or outcome of these charges. Accordingly, no provision has been included in these financial statements. OUTLOOK FOR 2007 The Company and its business and operations are subject to a number of risks and uncertainties. These risks and uncertainties, in addition to those described below, are described in detail in the Company's AIF filed with the Canadian securities regulatory authorities. The strategy of the Primary Group is to continue to seek to drive operational efficiencies with the view to achieving acceptable returns on the significant capital investments that have been made by the Company during the last number of years. Significant factors with respect to the availability of the natural resource, the stability of the U.S. dollar, Pound Sterling and Euro, the rising cost of fuel and the impact of low cost producers on the world marketplace, on an individual basis and in combination, have negatively impacted the Primary Group's business and will continue to negatively impact this business in 2007. Management continues to move forward aggressively on initiatives to improve productivity and reduce costs in several areas of the Primary Group's business in order to mitigate the impact of foreign currency fluctuations, the global competition and the availability of the natural resource. The business is achieving stronger sales volumes and increasing prices in certain of its shellfish and groundfish species. The Primary Group is committed to reducing harvesting and processing costs as well as administrative and selling costs and is aggressively targeting international market development to expand its customer base. A key factor in achieving acceptable and consistent performance is the stability of the inshore snow crab and coldwater shrimp industries in Newfoundland and Labrador, which require the maintenance of a structure and regulatory framework that is acceptable to all stakeholders. The Marketing and Manufacturing Group will continue the initiatives and disciplines that were adopted during 2006 to ensure a more stable earnings performance during 2007. It is anticipated that there will be challenges with respect to raw material cost and availability during the year. However, the Marketing and Manufacturing Group is anticipating that the impact of price increases, continued new product rollouts, realignment of procurement activities, combined with operational efficiencies should offset the earnings impact of the supply chain challenges. Should the sale of substantially all the assets of the Company occur then a different set of risk factors will ensue. These risk factors are outlined in the Management Proxy Circular dated September 20, 2007. FORWARD-LOOKING STATEMENTS This MD&A contains, in accordance with applicable Canadian securities laws and policies, certain forward-looking information about the Company's business and anticipated trends and developments. Such disclosures amount to forward-looking statements, which are subject to significant risks and uncertainties. These forward-looking statements arise out of Management's experience, perception of trends, current conditions, and expected future developments, as well as other factors. Readers are cautioned not to place undue reliance on forward-looking statements, as a number of important factors, as discussed herein and in the Company's other continuous disclosure documents, could cause actual results to differ materially from historical results and from the results contemplated by such forward-looking statements. The Company includes in publicly available documents, filed from time to time with Canadian securities regulatory authorities, a thorough discussion of the risk factors that could cause the Company's anticipated outcomes to differ from actual outcomes. INVESTOR INFORMATION Financial and related information about the Company, including annual and quarterly reports, annual information forms, and press releases are available electronically on the Internet through SEDAR at www.sedar.com or on FPI's corporate website at www.fpil.com. CONSOLIDATED BALANCE SHEETS ------------------------------------------------------------------------- unaudited - dollars Sept. 29, Dec. 31, Sept. 30, in thousands 2007 2006 2006 ------------------------------------------------------------------------- Assets Current assets Cash (note 17) $ 304 9,103 6,442 Accounts receivable (note 15) 46,700 79,573 64,727 Inventories 89,431 137,649 146,426 Prepaid expenses 2,239 4,269 6,296 Future income tax assets 3,807 3,644 1,703 Derivative assets (note 2) - 475 949 Capital assets held for resale - 10,647 - ---------------------------------- Total current assets 142,481 245,360 226,543 Capital assets 111,777 133,285 156,081 Future income tax assets 10,002 12,837 11,783 Goodwill - 10,447 9,554 Intangible assets - 5,866 5,640 Other assets (note 5) 21,028 13,975 14,253 ---------------------------------- $ 285,288 421,770 423,854 ------------------------------------------------------------------------- Liabilities and Shareholders' Equity Current liabilities Bank indebtedness $ 25,746 61,046 53,793 Accounts payable and accrued liabilities (note 15) 45,491 53,386 60,286 Current portion of long-term debt (note 6) 4,541 10,135 10,001 Future income tax liabilities 2,725 1,212 2,460 Derivative liabilities (note 2) 652 10,070 3,183 Current deferred gains - - 385 ---------------------------------- Total current liabilities 79,155 135,849 130,108 Long-term debt (note 6) 24,452 110,909 119,917 Deferred gains and other - 1,988 2,297 Future income tax liabilities 82 4,861 4,374 ---------------------------------- 103,689 253,607 256,696 ---------------------------------- Shareholders' equity Share capital (note 4) 45,895 46,564 46,901 Contributed surplus (note 12) 61,875 67,386 67,717 Retained earnings 105,116 68,119 69,867 Accumulated other comprehensive loss (note 18) (31,287) (13,906) (17,327) ---------------------------------- 181,599 168,163 167,158 ------------------------------------------------------------------------- $ 285,288 421,770 423,854 ------------------------------------------------------------------------- Discontinued operations (note 3) Commitments and contingencies (note 16) See accompanying notes to unaudited interim consolidated financial statements. CONSOLIDATED STATEMENTS OF OPERATIONS ------------------------------------------------------------------------- Thirteen Weeks Thirty-Nine Weeks Ended Ended ------------------------------------------------------------------------ Sept. 30, Sept. 30, unaudited - dollars in 2006 2006 thousands, except per Sept. 29, (restated Sept. 29, (restated share amounts 2007 note 3) 2007 note 3) ------------------------------------------------------------------------- Sales $124,402 143,880 377,855 485 221 Cost of goods sold 106,038 125,982 328,498 438,099 ------------------------------------------ Gross profit 18,364 17,898 49,357 47,122 Commission income 781 468 1,353 1,239 ------------------------------------------ 19,145 18,366 50,710 48,361 Administrative and marketing expenses 7,009 9,764 25,826 31,500 Depreciation of capital assets 2,632 3,331 8,113 9,885 Amortization of intangible assets 43 127 317 377 Interest on bank indebtedness 928 1,029 887 6,016 Interest on long-term debt 2,276 2,111 5,393 5,313 Foreign exchange derivative gain (463) (1,586) (7,484) (6,592) Pension curtailment gain (note 13) - - (572) - (Gain) loss on disposal of capital assets (12) 25 (240) (135) Workers transition fund (note 8) 3,000 - 3,000 - ------------------------------------------ Income before income taxes 3,732 3,565 15,470 1,997 Income tax expense (note 9) 359 1,428 4,384 2,723 ------------------------------------------ Net income for the period from continuing operations 3,373 2,137 11,086 (726) Net income for the period from discontinued operations (note 3) 25,279 1,431 26,699 4,389 ------------------------------------------------------------------------- Net income for the period $ 28,652 3,568 37,785 3,663 ------------------------------------------------------------------------- Basic earnings per share : Basic from continuing operations $ 0.25 0.15 0.81 (0.05) Basic from discontinued operations $ 1.86 0.10 1.95 0.30 ------------------------------------------------------------------------- Basic (note 11) $ 2.11 0.25 2.76 0.25 Diluted earnings per share : Diluted from continuing operations $ 0.25 0.15 0.81 (0.05) Diluted from discontinued operations $ 1.85 0.10 1.94 0.30 ------------------------------------------------------------------------- Diluted (note 11) $ 2.10 0.25 2.75 0.25 ------------------------------------------------------------------------- See accompanying notes to unaudited interim consolidated financial statements. CONSOLIDATED STATEMENTS OF RETAINED EARNINGS ------------------------------------------------------------------------- Thirteen Weeks Thirty-Nine Weeks Ended Ended ------------------------------------------------------------------------ Sept. 30, Sept. 30, 2006 2006 unaudited - dollars in Sept. 29, (restated Sept. 29, (restated thousands 2007 note 3) 2007 note 3) ------------------------------------------------------------------------- Retained earnings, beginning of period $ 76,268 66,299 68,119 66,204 Adjustment to retained earnings (net of tax of $0.2 million), beginning of period (note 2) 196 - (788) - ------------------------------------------ Adjusted retained earnings (net of tax of $0.2 million), beginning of period 76,464 66,299 67,331 66,204 Net income for the period 28,652 3,568 37,785 3,663 ------------------------------------------ Retained earnings, end of period $105,116 69,867 105,116 69,867 ------------------------------------------------------------------------- See accompanying notes to unaudited interim consolidated financial statements. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ------------------------------------------------------------------------- Thirteen Weeks Thirty-Nine Weeks Ended Ended ------------------------------------------------------------------------ unaudited - dollars in Sept. 29, Sept. 30, Sept. 29, Sept. 30, thousands 2007 2006 2007 2006 ------------------------------------------------------------------------- Net income for the period $ 28,652 3,568 37,785 3,663 Unrealized (loss) gain on translating financial statements of self-sustaining foreign operations (8,364) 90 (18,883) (4,617) Gain on hedge of net investments in self-sustaining foreign operations, net of tax 763 17 1,829 2,955 ------------------------------------------ Unrealized foreign currency translation (losses) gains, net of hedging activities (7,601) 107 (17,054) (1,662) Unrealized (losses) gains on derivatives designated as cash flow hedges: Foreign exchange hedging instruments, net of tax (54) - (1) - Interest rate hedging instruments, net of tax (85) - 68 - Reclassification adjustment for (gains) losses included in net income: Foreign exchange hedging instruments, net of tax of $0.1 million and $0.15 million (quarter and year to date respectively) 296 - 667 - Interest rate hedging instruments, net of tax (15) - 71 - ------------------------------------------ Other comprehensive (loss) income, net of tax (7,459) 107 (16,249) (1,662) ------------------------------------------ Comprehensive income $ 21,193 3,675 21,536 2,001 ------------------------------------------------------------------------- See accompanying notes to unaudited interim consolidated financial statements. CONSOLIDATED STATEMENT OF ACCUMULATED OTHER COMPREHENSIVE LOSS ------------------------------------------------------------------------- Thirteen Weeks Thirty-Nine Weeks Ended Ended ------------------------------------------------------------------------- unaudited Sept. 29, Sept. 30, Sept. 29, Sept. 30, - dollars in thousands 2007 2006 2007 2006 ------------------------------------------------------------------------- Accumulated other comprehensive loss, beginning of period $(23,828) (17,434) - - Adjustment to accumulated other comprehensive loss, beginning of period Cumulative adjustment on translation of financial statements of self-sustaining foreign operations (note 2) - - (13,990) (15,665) Cumulative unrealized losses on derivatives designated as cash flow hedges at January 1, 2007: Foreign exchange hedging instruments, net of tax of $0.4 million (note 2) - - (899) - Interest rate hedging instruments, net of tax of $0.1 million (note 2) - - (149) - ------------------------------------------ Accumulated other comprehensive loss, beginning of period (23,828) (17,434) (15,038) (15,665) Other comprehensive (loss) income, net of tax (7,459) 107 (16,249) (1,662) ------------------------------------------ Accumulated other comprehensive loss, end of period $(31,287) (17,327) (31,287) (17,327) ------------------------------------------------------------------------- See accompanying notes to unaudited interim consolidated financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------------------------------------------- Thirteen Weeks Thirty-Nine Weeks Ended Ended Sept. 30, Sept. 30, 2006 2006 unaudited Sept. 29, (restated Sept. 29, (restated - dollars in thousands 2007 note 3) 2007 note 3) ------------------------------------------------------------------------- Operations Net income from continuing operations $3,373 2,137 11,086 (726) Add (deduct) items not affecting cash Amortization 2,675 3,458 8,430 10,262 Amortization of transaction costs 1,713 362 2,308 1,082 Future income tax 1,512 874 3,611 2,865 Net gain on disposal of capital assets (11) 25 (240) (135) Foreign exchange derivative gain (463) (1,586) (7,484) (6,592) Pension curtailment gain - - (572) - Stock based compensation (50) 71 (565) 227 Changes in non-cash working capital balances related to continuing operations (note 10) (726) 31,842 15,552 101,008 Deferred gains on terminated forward contracts - (1,693) - (2,395) Foreign currency translation adjustments 175 (81) 327 2,574 Accrued benefit asset (196) 57 (1,436) 172 ------------------------------------------ Cash provided by continuing operating activities 8,002 35,466 31,017 108,342 ------------------------------------------------------------------------- Investing Additions to capital assets (828) (550) (1,521) (949) Proceeds from disposal of capital assets 57 (1) 10,832 289 Increase in mortgages receivable 214 58 11 (73) Decrease in deferred revenues - (17) - (52) Premiums and funds received (paid) on foreign exchange derivative instruments 950 1,120 (1,220) 11,642 Other investing activities (17,479) 161 (19,674) 488 ------------------------------------------ Cash (applied to) provided by continuing investing activities (17,086) 771 (11,572) 11,345 ------------------------------------------------------------------------- Financing Issue of long-term debt - 112 - 12,424 Repayment of long-term debt (48,518) (15,687) (59,886) 3,191 Change in bank indebtedness 411 (14,800) (15,531) (133,451) Issue of common shares 20 5 1,277 66 Repurchase of common shares (8) (3,223) (6,891) (4,219) ------------------------------------------ Cash applied to continuing financing activities (48,095) (33,593) (81,031) (121,989) ------------------------------------------------------------------------- Effect of exchange rate changes on cash of continuing operations (44) (12) 151 17 Net cash flow from discontinued operations (note 3) 55,886 (4,498) 52,636 (52) Change in cash position during the period (1,339) (1,866) (8,799) (2,337) Cash position, beginning of period 1,643 8,308 9,103 8,779 ------------------------------------------ Cash position, end of period $ 304 6,442 304 6,442 ------------------------------------------------------------------------- See accompanying notes to unaudited interim consolidated financial statements. NOTES TO THIRD QUARTER 2007 INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited - tabular amounts expressed in thousands of dollars except where otherwise noted) ------------------------------------------------------------------------ 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These unaudited interim consolidated financial statements and notes have been prepared by Management in accordance with Canadian generally accepted accounting principles ("GAAP") with respect to the preparation of interim consolidated financial statements and are based upon accounting policies and methods consistent with those used and described in the audited annual financial statements as at and for the year ended December 31, 2006 with the exception of the application of the accounting policies described in note 2. Not all disclosures required by GAAP for annual consolidated financial statements are presented and accordingly, the interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements as at and for the year ended December 31, 2006. 2. ADOPTION OF NEW ACCOUNTING POLICIES On January 1, 2007, the Company adopted Section 3855, "Financial Instruments - Recognition and Measurement." The section defines the standards for recognizing and measuring financial instruments in the balance sheet and the standards for reporting gains and losses in the financial statements. Under Section 3855, all financial instruments are classified into one of five categories: held-for-trading, held-to-maturity investments, loans and receivables, available-for-sale financial assets or other financial liabilities. All financial instruments and derivatives are initially recorded on the balance sheet at fair value. In subsequent periods, loans and receivables, held-to-maturity investments and other financial liabilities are measured at amortized cost; held-for-trading financial assets and liabilities are measured at fair value and changes in fair value are recognized in net income, and available-for-sale financial instruments are measured at fair value with changes in fair value recorded in other comprehensive income until the instrument is settled. All derivative instruments, including embedded derivatives that are not closely related to the non-derivative host contract, are recorded in the balance sheet at fair value unless they qualify for the normal sale purchase exemption. All changes in their fair value are recorded in income unless cash flow hedge accounting or a hedge of a net investment in self-sustaining foreign operation is used, in which case changes in fair value are recorded in other comprehensive income. The Company has made the following classifications: i) Cash and cash equivalents are classified as held-for-trading financial assets. These assets are measured at fair value and changes in fair value are recognized in net income. ii) Trade accounts receivable are classified as loans and receivables and are measured at amortized cost. Due to the short-term nature of these assets, the carrying amounts approximate amortized cost. iii) Fishermen mortgage receivables are classified as loans and receivables and are measured at amortized cost with interest accretion recorded in net income. iv) Payables and accruals are classified as other financial liabilities and are measured at amortized cost. Due to the short-term nature of these liabilities, the carrying amounts approximate amortized cost. v) Long-term debt is classified as other financial liabilities and is measured at amortized cost, using the effective interest rate method. Transaction costs relating to other financial liabilities are applied against the carrying amount of the related financial liabilities, and are amortized into income using the effective interest rate method. As at January 1, 2007, the impact on the consolidated balance sheet of measuring the financial assets and liabilities using the effective interest rate method and of reclassifying the transaction costs directly attributable to the issuance of long-term debt and the acquisition of derivative liabilities were decreases of $4,057,000 in other assets, $3,084,000 in long-term debt, $73,000 in derivative liabilities, $788,000 in retained earnings, a $84,000 increase in the foreign currency translation account, and a $196,000 increase in future tax asset. There is no material impact on the consolidated statement of operations. vi) The Company's interest-free government loan is classified as loans and receivables and is measured at amortized cost, using the effective interest rate method. The difference between the fair value of the loan at inception and the loan proceeds received is recorded as a government grant and is offset against capital assets. As at January 1, 2007, the impact on the consolidated balance sheet of measuring the Company's interest-free government loan at amortized cost is a decrease in capital assets and long-term debt of $87,000. There is no material impact on the consolidated statement of operations. vii) Derivatives are recorded on the balance sheet at fair value with changes in fair value recorded in net income unless the derivative is designated as a cash flow hedge. Fair value of the forward exchange contracts and interest rate swap agreements reflect the cash flows due to or from the Company if settlement had taken place at the end of the period. For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative are recorded in other comprehensive income. Any ineffectiveness within an effective cash flow hedge is recognized in income as it arises in the same account as the hedged items when realized. This new policy is adopted on a prospective basis with changes related to the prior fiscal year recorded in opening retained earnings or opening accumulated other comprehensive loss. The impact on the consolidated balance sheet of measuring hedging derivatives at fair value at January 1, 2007 were increases in future tax assets of $471,200, in derivative assets of $171,300, in derivative liabilities of $1,641,300, in future tax liabilities of $48,300 and an increase in accumulated other comprehensive loss of $1,047,100. At September 29, 2007, the Company holds derivative contracts that hedge a portion of its exposure to variability in foreign currency cash flows until September 2008. The retroactive adoption of this section is completed without restatement of the consolidated financial statements of prior periods. An embedded derivative is a component of a financial instrument or another contract of which the characteristics are similar to a derivative. There is no material impact on the consolidated financial statements. FOREIGN CURRENCY TRANSLATION. The majority of the Company's foreign subsidiary operations are classified as self-sustaining operations. Assets and liabilities are translated at exchange rates in effect at the balance sheet date. Revenues and expenses are translated at average exchange rates prevailing during the period. The resulting net gains or losses, together with those related to short-term and long-term borrowings in U.S. dollars ("USD") and designated as a hedge of the self-sustaining foreign subsidiary operations, are included in other comprehensive income. The Company previously recorded these accumulated gains and losses in a separate component of shareholders equity entitled foreign currency translation adjustment. Comparative statements have been restated to reflect the application of the new standards for foreign currency translation of self-sustaining foreign operations. The Company's foreign subsidiary sales operation based in Germany is classified as an integrated operation. Exchange gains or losses arising on the translation of the current and long-term monetary items of this operation are included in the determination of net income. Non-monetary assets and liabilities of this integrated operation are translated at historical exchange rates. There has been no change to the Company's accounting policy for integrated operations. COMPREHENSIVE INCOME. On January 1, 2007, the Company adopted Section 1530, Comprehensive Income. This section describes reporting and disclosure recommendations with respect to comprehensive income and its components. Comprehensive income includes net earnings and other comprehensive income ("OCI"). OCI refers to changes in net assets from certain transactions and other events and circumstances, other than transactions with shareholders. These changes are recorded directly as a separate component of shareholders' equity and are excluded from net earnings. The Company's OCI includes the foreign currency translation adjustment for its U.S. and U.K. subsidiaries that do not use the Canadian dollar as its measurement currency, the unrealized gain or loss on hedge of net investments on self-sustaining foreign operations and the change in cash flow on the effective portion of derivatives designated as cash flow hedges where the hedged item has not yet been recognized in income. The adoption of this section results in the Company now presenting a consolidated statement of comprehensive income integral to its consolidated financial statements. HEDGES. On January 1, 2007, the Company adopted Section 3865 of the CICA Handbook, Hedges. The recommendations of this section expand the guidelines required by Accounting Guideline ("AcG-13"), Hedging Relationships. This section describes when and how hedge accounting can be applied as well as the disclosure requirements. Hedge accounting enables the recording of gains, losses, revenues and expenses from the derivative financial instruments in the same period as for those related to the hedged item. 3. DISCONTINUED OPERATIONS On August 2, 2007, the Company sold its investment in The Seafood Company Limited to Young's Seafood Limited for proceeds of (pnds stlg)26.2 million (CAD $55.9 million). This transaction resulted in a $24.7 million gain that is included in the statement of discontinued operations for the thirteen weeks and thirty-nine weeks ended September 29, 2007. The net proceeds were used by the Company to reduce current levels of debt. As part of the transaction, the Company provided a (pnds stlg)3.3 million (CAD $7.0 million) seven-year indemnity to the purchaser. Below is a summary of the carrying value of the major assets and liabilities of The Seafood Company Limited's discontinued operations: ------------------------------------------------------------------------- unaudited - dollars in thousands Sept. 29, Dec. 31, Sept. 30, 2007 2006 2006 ------------------------------------------------------------------------- Assets Cash $ - 5,719 2,648 Accounts receivable - 20,227 8,259 Inventories - 38,833 39,268 Capital assets - 11,554 10,382 Goodwill and intangibles - 5,818 5,469 ------------------------------------------------------------------------- $ - 82,151 66,026 ------------------------------------------------------------------------- Liabilities Bank indebtedness $ - 19,313 11,482 Accounts payable and accrued liabilities - 13,049 12,984 Deferred revenue - 1,988 1,829 Long-term debt - 17,728 34,527 Future income tax liabilities - 1,547 1,415 ------------------------------------------------------------------------- $ - 53,625 62,237 ------------------------------------------------------------------------- Net income from discontinued operations is detailed as follows: Net Income from Discontinued Operations ------------------------------------------------------------------------- Thirteen Weeks Thirty-Nine Weeks Ended Ended ------------------------------------------------------------------------- unaudited Sept. 29, Sept. 30, Sept. 29, Sept. 30, - dollars in thousands 2007 2006 2007 2006 ------------------------------------------------------------------------- Sales $ 11,345 30,613 87,420 79,506 Cost of goods sold 9,375 25,966 75,096 66,715 ------------------------------------------ Gross profit 1,970 4,647 12,324 12,791 Administrative and marketing expenses 815 1,836 5,314 5,514 Depreciation and amortization of assets 143 432 1,102 1,252 Interest 139 387 2,682 262 Gain on sale of investment (24,668) - (24,668) - ------------------------------------------ Income before income taxes 25,541 1,992 27,894 5,763 Income tax expense (note 9) 262 561 1,195 1,374 ------------------------------------------ Net income for the period $ 25,279 1,431 26,699 4,389 ------------------------------------------------------------------------- Income tax expense is based upon the income before income taxes excluding the impact of the gain on the sale of the investment. The Company is able to avail of certain tax exemptions which result in the gain being treated as non-taxable and therefore no tax expense has been recorded on the gain. Cash flows from discontinued operations are detailed as follows: Cash flows from Discontinued Operations ------------------------------------------------------------------------- Thirteen Weeks Thirty-Nine Weeks Ended Ended ------------------------------------------------------------------------- unaudited Sept. 29, Sept. 30, Sept. 29, Sept. 30, - dollars in thousands 2007 2006 2007 2006 ------------------------------------------------------------------------- Cash (applied to) provided by operating activities (43) (29,486) 13,896 (24,229) Cash provided by (applied to) investing activities 55,900 (329) 54,467 (1,337) Cash provided by (applied to) financing activities - 25,264 (15,451) 25,244 Effect of exchange rate changes on cash 29 53 (276) 270 ------------------------------------------------------------------------- Change in cash position during the period 55,886 (4,498) 52,636 (52) ------------------------------------------------------------------------- 4. SHARE CAPITAL SHARE DATA. Common shares issued and outstanding as at September 29, 2007 were 13,490,085 (14,035,396 at September 30, 2006). Options to purchase common shares granted and outstanding under the Executive Stock Option Plan and the 2000 Performance Stock Option Plan as at September 29, 2007 are nil and 191,000, respectively (31,300 and 965,200, respectively, at September 30, 2006). SHARE REPURCHASE. Under a normal course issuer bid, which expires on December 5, 2007, the Company is authorized to purchase up to 701,806 common shares. In the third quarter of 2007, the Company purchased and cancelled 100 common shares at an average cost of $14.00. This brings the year to date repurchase to 584,368 common shares at an average cost of $11.49. The total remaining common shares that can be purchased under the current normal course issuer bid is 14,338. The excess of the purchase price over the carrying value of the common shares purchased, amounting to $1,067 for the thirteen weeks ended September 29, 2007, and $4,767,000 for the thirty-nine weeks ended September 29, 2007, has been charged to contributed surplus. 5. OTHER ASSETS Included in other assets at September 29, 2007 is an amount of $8.9 million (September 30, 2006; $nil) pertaining to the deferral of costs incurred in respect of the proposed sale transactions. These costs will be deferred until completion of the proposed sale transactions. 6. LONG-TERM DEBT As previously discussed in note 3, the Company sold its investment in The Seafood Company Limited on August 2, 2007. The Company used the proceeds of disposition to repay $58.8 million of long-term debt in the third quarter of 2007. 7. FINANCIAL INSTRUMENTS FAIR VALUES. Fair value estimates are made as of a specific point in time, using available information about the financial instruments and current market conditions. The estimates are subjective in nature involving uncertainties and significant judgment. The carrying values of financial instruments included in current assets and current liabilities in the consolidated balance sheets approximate their fair values, reflecting the short-term maturity and normal trade credit terms of these instruments. The fair value of long-term debt, interest-free government loans, and fishermen mortgage receivables is based on current pricing of financial instruments with comparable terms. This fair value reflects a point-in-time estimate that may not be relevant in predicting the Company's future income or cash flows. As at September 29, 2007, June 30, 2007, March 31, 2007 and December 31, 2006 the estimated fair value of long-term debt, interest-free government loans and fisherman mortgage receivables corresponds to its carrying value. 8. WORKERS TRANSITION FUND In discussion with the Government of Newfoundland and Labrador in relation to the disposition of certain assets, as prescribed by the FPI Act, the Company agrees to fund a $3.0 million Workers Transition Fund. This fund is currently being used to supplement wages of Newfoundland plant workers and is fully provided for in the 2007 third quarter financial results. 9. INCOME TAXES Major components of income tax expense are as follows: ------------------------------------------------------------------------- Thirteen Weeks Thirty-Nine Weeks Ended Ended ------------------------------------------------------------------------- unaudited Sept. 29, Sept. 30, Sept. 29, Sept. 30, - dollars in thousands 2007 2006 2007 2006 ------------------------------------------------------------------------- Income Taxes - Continuing Operations Current $ (951) 554 976 (142) Future 1,310 874 3,408 2,865 ------------------------------------------ $ 359 1,428 4,384 2,723 ------------------------------------------------------------------------- Income Taxes - Discontinued Operations Current $ 246 561 1,346 1,374 Future 16 - (151) - ------------------------------------------ $ 262 561 1,195 1,374 ------------------------------------------------------------------------- 10. SUPPLEMENTAL CASH FLOW INFORMATION CHANGES IN NON-CASH WORKING CAPITAL BALANCES RELATED TO CONTINUING OPERATIONS ------------------------------------------------------------------------- Thirteen Weeks Thirty-Nine Weeks Ended Ended ------------------------------------------------------------------------- unaudited Sept. 29, Sept. 30, Sept. 29, Sept. 30, - dollars in thousands 2007 2006 2007 2006 ------------------------------------------------------------------------- Accounts receivable (7,327) 23,562 3,415 53,847 Inventories (1,679) 4,869 2,059 70,004 Prepaid expenses 1,461 (1,908) 1,730 (123) Accounts payable and accrued liabilities 6,819 5,319 8,348 (22,720) ------------------------------------------ $ (726) 31,842 15,552 101,008 ------------------------------------------------------------------------- CASH PAID FOR INTEREST AND INCOME TAXES ------------------------------------------------------------------------- Thirteen Weeks Thirty-Nine Weeks Ended Ended ------------------------------------------------------------------------- unaudited Sept. 29, Sept. 30, Sept. 29, Sept. 30, - dollars in thousands 2007 2006 2007 2006 ------------------------------------------------------------------------- Interest $ 5,314 2,688 10,473 10,984 Income taxes 1,347 681 6,379 2,686 ------------------------------------------------------------------------- 11. EARNINGS PER COMMON SHARE ------------------------------------------------------------------------- Thirteen Weeks Thirty-Nine Weeks Ended Ended ------------------------------------------------------------------------- unaudited - dollars in thousands, except per share Sept. 29, Sept. 30, Sept. 29, Sept. 30, amounts 2007 2006 2007 2006 ------------------------------------------------------------------------- Earnings per share Net income for the period $ 28,652 3,568 37,785 3,663 Basic Weighted average number of common shares outstanding 13,585 14,381 13,682 14,558 ------------------------------------------ Per share amount $ 2.11 0.25 2.76 0.25 ------------------------------------------ Diluted Weighted average number of common shares outstanding 13,585 14,381 13,682 14,558 Impact of outstanding stock options 85 - 65 - ------------------------------------------ $ 13,670 14,381 13,747 14,558 ------------------------------------------ Per share amount $ 2.10 0.25 2.75 0.25 ------------------------------------------------------------------------- For the thirteen weeks and thirty-nine weeks ended September 30, 2006, common shares issuable under the terms of the Company's stock option plans were not included in the calculation of diluted earnings per share as their effect was anti-dilutive. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants: Assumption ------------------------------------------------------------------------- unaudited 2007 2006 ------------------------------------------------------------------------- Dividend yield 0.0% 0.0% Expected volatility 22.7% 22.7% Risk free interest rate 4.2% 4.2% Expected life 7.5 years 7.5 years ------------------------------------------------------------------------- The Company has stock-based compensation plans for directors, executives, and certain senior management. In the second quarter of 2007, these plans were amended in order to provide a cashless option exercise feature whereby the Company agrees to repurchase an option for a purchase price equal to the market value of the common shares of the Company less the exercise price of the option. This amendment changed the substance of the financial and equity instruments underlying this agreement, as option holders, under the terms of the amended agreement, have the ability to exercise their options, with Board approval, for cash or common shares. The ability of the holder to exercise options for cash, combined with the recent trends of Board approval, has resulted in the Company recognizing a financial liability for those stock options outstanding as at September 29, 2007. Stock option expense recognized as part of the liability and equity instruments discussed above for the thirteen weeks and thirty-nine weeks ended September 29, 2007 amounted to $927,202 (2006; $71,000) and $3,259,235 (2006; $227,000), respectively. 12. CONTRIBUTED SURPLUS ------------------------------------------------------------------------- Thirteen Weeks Thirty-Nine Weeks Ended Ended ------------------------------------------------------------------------- unaudited Sept. 29, Sept. 30, Sept. 29, Sept. 30, - dollars in thousands 2007 2006 2007 2006 ------------------------------------------------------------------------- Contributed surplus, beginning of period $ 61,631 69,003 67,386 69,251 Acquisition of common shares; normal course issuance bid 290 (1,357) (4,767) (1,761) Stock option expense - 71 51 227 Stock option liability accrual (46) - (269) - Exercise of options - - (526) - ------------------------------------------ Contributed surplus, end of period $ 61,875 67,717 61,875 67,717 ------------------------------------------------------------------------- 13. EMPLOYEE FUTURE BENEFITS ------------------------------------------------------------------------- Thirteen Weeks Thirty-Nine Weeks Ended Ended ------------------------------------------------------------------------- Sept. 29, Sept. 30, Sept. 29, Sept. 30, unaudited 2007 2006 2007 2006 ------------------------------------------------------------------------- Defined benefit pension (income) expense $ (672) 52 (2,016) 156 Other benefit plans expense 137 135 411 405 ------------------------------------------------------------------------- Effective December 31, 2006, the Company amended certain of its Canadian defined benefit pension plans, in particular the Primary Group and Marketing and Manufacturing Group plans, to provide a defined contribution accrual from January 1, 2007 onward for all members of those plans. The members of these plans were also given a one-time option to convert their accrued defined benefits under these plans to an opening balance in the new defined contribution provisions. As these plan amendments curtail defined benefit accrual, the Company recognized a $572,000 pension curtailment gain in the first quarter of 2007. Settlement of a portion of the defined benefit obligation is expected to occur in the fourth quarter of 2007, at which time a settlement gain will be recognized upon conversion. Further, as a result of plan conversions, an estimated valuation allowance of $2,866,000 is expected to be recognized by the Company in the fourth quarter of 2007 after an actuarial valuation is performed on October 31, 2007, the Company's measurement date. The total expense for the Company's defined contribution plans for the thirteen weeks and thirty-nine weeks ended September 29, 2007 were $302,408 (2006; $366,000) and $938,579 (2006; $1,271,000), respectively. 14. BUSINESS SEGMENTS The Company operates within two distinct business units: the Primary Group and The Marketing and Manufacturing Group. This structure supports a customer and product management focus and decentralized decision-making. Both business units have specific activities and mandates with the common goal of providing the best products and value to all FPI customers. The Company evaluates performance and allocates resources based on segment gross profit. All inter-segment transactions are recorded at an exchange amount and are eliminated upon consolidation. SEGMENTED OPERATIONS. ------------------------------------------------------------------------- Thirteen Weeks Ended Sept. 29, 2007 ------------------------------------------ Marketing Total and from Manufac- Conti- Primary turing nuing unaudited - dollars in thousands Group Group Operations ------------------------------------------------------------------------- Total sales Canada $ 50,096 34,416 84,512 Inter-segment (31,938) (1,690) (33,628) ------------------------------------------ 18,158 32,726 50,884 ------------------------------------------ United States 115 57,781 57,896 Inter-segment - (1,373) (1,373) ------------------------------------------ 115 56,408 56,523 ------------------------------------------ Europe 15,151 - 15,151 ------------------------------------------ Foreign exchange gain on hedging contracts 1,844 - 1,844 ------------------------------------------ Net sales to customers 35,268 89,134 124,402 ------------------------------------------ Segment gross profit $ 7,167 11,197 18,364 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Thirteen Weeks Ended Sept. 30, 2006 ------------------------------------------ Marketing Total and from Manufac- Conti- Primary turing nuing unaudited - dollars in thousands Group Group Operations ------------------------------------------------------------------------- Total sales Canada $ 53,210 36,709 89,919 Inter-segment (35,138) (5,128) (40,266) ------------------------------------------ 18,072 31,581 49,653 ------------------------------------------ United States 5,300 78,610 83,910 Inter-segment (4,000) (853) (4,853) ------------------------------------------ 1,300 77,757 79,057 ------------------------------------------ Europe 13,524 - 13,524 ------------------------------------------ Foreign exchange gain on hedging contracts 1,646 - 1,646 ------------------------------------------ Net sales to customers 34,542 109,338 143,880 ------------------------------------------ Segment gross profit $ 6,250 11,648 17,898 ------------------------------------------------------------------------- Note: The results for the thirteen and thirty-nine weeks ended September 30, 2006 have been restated to reflect the classification of the operations of The Seafood Company Limited as a discontinued operation. SEGMENTED OPERATIONS. ------------------------------------------------------------------------- Thirty-Nine Weeks Ended Sept. 29, 2007 ------------------------------------------ Marketing Total and from Manufac- Conti- Primary turing nuing unaudited - dollars in thousands Group Group Operations ------------------------------------------------------------------------- Total sales Canada $125,200 101,511 226,711 Inter-segment (79,302) (7,369) (86,671) ------------------------------------------ 45,898 94,142 140,040 ------------------------------------------ United States 653 197,402 198,055 Inter-segment (2) (4,203) (4,205) ------------------------------------------ 651 193,199 193,850 ------------------------------------------ Europe 42,669 - 42,669 ------------------------------------------ Foreign exchange gain on hedging contracts 1,296 - 1,296 ------------------------------------------ Net sales to customers 90,514 287,341 377,855 ------------------------------------------ Segment gross profit $ 16,587 32,770 49,357 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Thirty-Nine Weeks Ended Sept. 30, 2006 ------------------------------------------ Marketing Total and from Manufac- Conti- Primary turing nuing unaudited - dollars in thousands Group Group Operations ------------------------------------------------------------------------- Total sales Canada $133,886 107,521 241,407 Inter-segment (62,902) (20,855) (83,757) ------------------------------------------ 70,984 86,666 157,650 ------------------------------------------ United States 32,352 256,352 288,704 Inter-segment (5,308) (1,150) (6,458) ------------------------------------------ 27,044 255,202 282,246 ------------------------------------------ Europe 40,056 - 40,056 ------------------------------------------ Foreign exchange gain on hedging contracts 5,269 - 5,269 ------------------------------------------ Net sales to customers 143,353 341,868 485,221 ------------------------------------------ Segment gross profit $ 14,457 32,665 47,122 ------------------------------------------------------------------------- Note: The results for the thirteen and thirty-nine weeks ended September 30, 2006 have been restated to reflect the classification of the operations of The Seafood Company Limited as a discontinued operation. SEGMENTED ASSETS. ------------------------------------------------------------------------- unaudited - dollars in thousands Sept. 29, Dec. 31, Sept.30, 2007 2006 2006 ------------------------------------------------------------------------- Primary Group $157,790 315,357 325,901 Marketing and Manufacturing Group 127,498 106,413 97,953 ------------------------------------------------------------------------- $285,288 421,770 423,854 ------------------------------------------------------------------------- 15. RELATED PARTY TRANSACTIONS In the normal course of business, the Company has transactions with companies with common directors and a company in which FPI holds an equity investment, as follows: ------------------------------------------------------------------------- Thirteen Weeks Thirty-Nine Weeks Ended Ended ------------------------------------------------------------------------- unaudited Sept. 29, Sept. 30, Sept. 29, Sept. 30, - dollars in thousands 2007 2006 2007 2006 ------------------------------------------------------------------------- Transactions Sales of product $ 15 - 91 261 Purchases of product and services 1,792 1,209 3,236 6,772 Net commissions and royalties 695 328 1,064 1,031 ------------------------------------------------------------------------- These transactions are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. The balance due to and due from affiliates outlined in the following tables are non-interest bearing and under normal credit terms, as would have applied with unrelated parties, and have arisen from the transactions referred to above. These balances are included in accounts receivable and accounts payable on the Company's balance sheets. ------------------------------------------------------------------------- Sept. 29, Dec. 31, Sept. 30, 2007 2006 2006 ------------------------------------------------------------------------- Balances Receivable from companies with common directors $ - 191 - Receivable from a company in which FPI holds an equity investment 3,006 3,007 6,404 Payable to companies with common directors 1,348 963 141 ------------------------------------------------------------------------- 16. COMMITMENTS AND CONTINGENCIES From time to time, the Company is involved in various litigation matters arising in the ordinary course of business. The Company has no reason to believe that the disposition of any such current matters could reasonably be expected to have a material adverse impact on the Company's financial position, results of operations, or the ability to carry on any of its business activities. During the second quarter of 2006, charges were laid against the Company by the Government of Newfoundland and Labrador in relation to its export practices of Yellow Tail Flounder. Management is presently not able to assess or predict the scope or outcome of these charges. Accordingly, no provision has been included on these financial statements. 17. RESTRICTED CASH Cash balances include restricted cash of $nil (2006; $3,913,787) in support of the Company's foreign exchange derivative contracts. 18. ACCUMULATED OTHER COMPREHENSIVE LOSS Included in accumulated other comprehensive loss are unrealized losses of $213,807 and $10,369, net of tax, in relation to the Company's forward contracts and interest rate swap agreements, respectively, that the Company expects will be reclassified into income in the next 12 months. 19. POTENTIAL SALE OF CERTAIN ASSETS In a series of public disclosure statements and status updates commencing January 11, 2007, the Company announced that preliminary discussions had been held with several interested parties with respect to the potential sale of certain FPI assets. An Independent Committee of the Board of Directors was struck to evaluate these offers. National Bank Financial and Glitnir Bank were engaged to assist and advise in this exercise. In accordance with its mandate, the Independent Committee reviewed the merits of each of these offers and prepared recommendations for the full Board of Directors. The Board subsequently met to consider the recommendations of the Independent Committee, and began a process of related discussions with the Government of Newfoundland and Labrador. Certain of these transactions are subject to shareholder and government approvals, as well as the repeal of the FPI Act. On August 24, 2007, the Company executed definitive agreements with Ocean Choice International with respect to the sale of certain FPI assets located in Atlantic Canada and Europe and with High Liner Foods in relation to the potential sale of certain FPI assets in Canada and the United States. On October 22, 2007, the shareholders approved these transactions. The gross purchase price payable to the Company under the definitive agreements is $301.5 million and is subject to a number of adjustments including but not limited to working capital and certain capital costs incurred by the Company. Each of the two transactions contemplated by the definitive agreements is conditional upon the completion of the other transaction, government approvals, as well as the repeal of the FPI Act. Further details can be obtained in the Company's Management Proxy Circular dated September 20, 2007. 20. COMPARATIVE FIGURES Certain amounts as at and for the thirteen weeks and thirty-nine weeks ended September 30, 2006 have been reclassified to conform with the presentation adopted for the current period. 21. SEASONALITY The Company's operations and, therefore, its sales and cash flows, are seasonally affected. Inventory levels normally fluctuate in the following manner: increasing during the late spring/early summer with the seasonal fisheries, particularly those for coldwater shrimp and snow crab; peaking in September/October with the global sourcing of warmwater shrimp for pre-holiday sales in the fall; and declining in the late fall/early winter with strong sales and slower global sourcing/harvesting activity. Sales, particularly those of value added products, are strong in the early spring, largely as a result of the Lenten period. Through the late spring and summer months, the sales mix incorporates more primary and globally sourced products, such as snow crab and lobster, as seasonal fisheries are underway. The fall and winter months are also strong periods as a result of increased sales of product, largely shellfish, during the holidays. The Company's operations can also be affected by weather in the winter months when ice and poor weather conditions impact the harvesting of fish.

For further information:

For further information: Investors: Beverley Evans, Chief Financial
Officer, (709) 570-0331, bevans@fpil.com; Media: Russ Carrigan, Corporate
Communications and Government Relations, (709) 570-0130, rcarrigan@fpil.com;
www.fpil.com

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FP RESOURCES LIMITED

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