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The table below reconciles our Standardized Free Cash Flow and Adjusted Standardized Free Cash Flow for the rolling fifty-two weeks with measures that are in accordance with IFRS. 

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* As reported in the Consolidated Statement of Cash Flows 

** Refer to the description of Adjusted Standardized Free Cash Flow in the Introduction section of this MD&A 

We discuss liquidity risk in Section 8.10 below and note 24  to our Consolidated Financial Statements. 

## Other Liquidity Items 

## Stock Options and PSUs 

From 2000 to 2011 all stock options issued contained a tandem stock appreciation right (“SAR”) which allowed the option holder, upon exercise, to receive cash instead of shares. Under IFRS, these stock options are accounted for as a liability and marked-to-market at each reporting period based on the value of the Company’s stock price. The liability increases when stock prices rise with a corresponding expense and conversely, the liability decreases with income recorded when the stock declines in value. In comparison, stock options without SARs are valued once when granted using a trinomial model or similar method and are expensed once with no additional expense recorded based on changes in the market price of the stock in future periods. 

Due to the significant appreciation in the High Liner Foods stock price over the past two years, we have recorded a substantial stock compensation expense, which is non-cash until option holders exercise. An expense of $6.7 million was recorded in 2013 based on an increase in the Company’s stock price for options with SARs, the issuance of stock options during the year valued using a trinomial method, and the increase in the valuation of Performance Stock Units (“PSUs”). During 2013, holders exercised SARs for cash in the amount of $3.3 million (2012: $1.8 million). The liability for SARs at the end of 2013 was $2.9 million, compared to $10.8 million at the end of fiscal 2012. 

Any options exercised in shares are cash positive or cash neutral if the holder elects to use the cashless exercise method under the plan. Cash received from options exercised for shares during 2013 was $1.4 million. 

Recognizing the volatility of SARs on the Company’s profit and loss and the potential cash outflow if many of them were exercised for cash in a particular year, the stock options granted in 2013 and the third quarter of 2012 did not contain a SAR. As well, in March 2013, amendments were made to eliminate the SAR on substantially all of the stock options previously granted to the Company’s directors and senior management in prior years. Effective at that time, the liability for these individuals on the SARs ($7.6 million) was fixed and the liability was reclassified as Contributed surplus and no future profit and loss impact will be necessary going forward. 

## Defined Benefit Pension Plans 

The Company’s defined benefits pension plans can have an impact on the Company’s cash flow requirements and affects liquidity. In 2013, the defined benefit pension expense for accounting purposes was $1.7 million. However, due to the fact that these pension plans are not fully funded, the annual cash contributions were $1.0 million higher than the 2013 accounting expense (2012: $1.7 million). For 2014, we expect cash contributions of approximately $2.2 million compared to a defined benefit expense of $1.4 million. We have more than adequate availability under our working capital credit facility to make the required future cash contributions for our defined benefit pension plans. As well, we have a Supplemental Executive Retirement Plan (“SERP”) liability for accounting purposes of $7.0 million that is secured by a letter of credit in the amount of $11.2 million. Only small amounts of pension benefits are currently being paid from the SERP liability. 

## Capital Expenditures 

Gross capital (including finance leases) expenditures for 2013 were $15.4 million compared with $13.4 million in the previous year. 

As a result of the rationalization of our production facilities which saw the closure of our plants in Danvers and Burin at the end of 2012 and in early 2013, more capital was spent in 2013 in our other facilities in order to achieve the targeted cost savings associated with these plant closures. We have made a decision to invest in our Portsmouth plant to make it easier for us to continue to satisfy ever-increasing food safety requirements. We are confident that once the production challenges related to these facilities integrating products formerly produced by the Danvers plant are fully resolved, capacities can be expanded in the continuing plants by changing shift patterns. Approximately $6 million of our capital expenditures in 2013 was for strategic initiatives or related to the achievement of synergies and plant rationalization savings and a further $2 million for projects that reduced the cost of our operations. The remainder of the capital budget was for projects that will ensure that we continue to be in compliance with regulatory and other requirements, and for the replacement of aging equipment. 

In 2013, we entered into an agreement to purchase a previously leased cold storage distribution facility in Peabody, MA, for $8.6 million in March 2014. This will increase capital expenditures in 2014 and replace an operating lease payment of $1.2 million with depreciation and interest expense in 2014 onward. Capital expenditures will also increase in 2014 related to the New Bedford manufacturing facility acquired as part of the American Pride Acquisition and due to other strategic initiatives. 

