## MANAGEMENT’S DISCUSSION & ANALYSIS (CONT’D) 

fish fillets, that are not hedged under this program as the price in the marketplace moves up or down with changes in the Canadian dollar cost of the product. Approximately US$85 million of the U.S. dollar purchases of the Canadian company are part of the hedging program and are usually hedged between 45-55% of the next twelve months of forecasted purchases. 

Details on the hedges in place on December 28, 2013 are included in note 22  to the Consolidated Financial Statements. 

## Balance Sheet Effects of Foreign Currency 

As we have operations in Canada, and some monetary assets and liabilities in the U.S. that are denominated in CAD, assets and liabilities of the consolidated company change as exchange rates fluctuate. At December 28, 2013, the Canadian dollar weakened by approximately 7.0% from its value at December 29, 2012. As such, the weakened Canadian dollar has decreased the carrying value of items such as accounts receivable, inventory, fixed assets, and accounts payable of the Canadian operations in our U.S. dollar balance sheet. The net offset of those changes flow through Other Comprehensive Income in shareholders’ equity on the balance sheet. Changes in monetary assets and liabilities in the U.S. that are denominated in CAD flow through the income statement, unless they are hedged. 

## 8.6 Non-Seafood Commodities 

Senior management accountability: Mario Marino, President and COO, Canadian Operations; Keith Decker, (Interim) President and COO, High Liner Foods (USA); Derivatives – Kelly Nelson, Executive Vice President & Chief Financial Officer; Rick Barnhardt, Vice President U.S. Supply Chain 

Board oversight accountability: Audit Committee 

Our operating costs are affected by changes in crude oil prices, which particularly influence the costs of our incoming and outgoing freight. When we experience higher crude oil prices, freight costs increase as our freight suppliers add fuel surcharges and our suppliers charge us more for ocean freight. To minimize our risk, and in accordance with the Price Risk Management Policy , we can enter into costless collar hedges but did not do so in the last five years. We do not plan to hedge fuel surcharges in 2014. 

Other commodities, whose fluctuating market prices may affect our financial results, are flour, corn, paper products, and frying oils. The Company’s Price Risk Management Policy  dictates that we use fixed pricing with suppliers whenever possible but allows the use of hedging with costless tunnels or swaps if deemed prudent. During 2012 and 2013, we have been able to deal with this risk to management’s satisfaction using contracts with our suppliers. World commodity prices for flour (wheat and corn) and oils (corn, soy and canola), important ingredients in the manufacture of many of the Company’s products, decreased in 2013 and are trending stable for 2014. Currently, we are still working with fixed price contracts with our suppliers and have most of 2014’s commodities under contract. 

## 8.7 Food Safety 

Senior management accountability: Mario Marino, President and COO Canadian Operations; Keith Decker, (Interim) President and COO High Liner Foods (USA) 

Board oversight accountability: Board of Directors 

At High Liner Foods, food safety is our top priority. Our brand equity and reputation are inextricably linked to the quality and safety of our food products. We must be vigilant in ensuring our products are safe and comply with all applicable laws and regulations. Consumers are also increasingly better informed about conscientious food choices. 

All of our processing plants have the required State or Provincial and Federal licenses to operate. The U.S. requires its seafood processing plants to adopt a quality management system based on Hazard Analysis Critical Control Points (“HACCP”) principles. Our plants in Portsmouth, Malden, New Bedford and Newport News are regularly inspected and meet or exceed all HACCP requirements. 

In Canada, all seafood-processing plants are required to adopt a Quality Management Plan (“QMP”) covering the regulatory and safety aspects of food processing. High Liner Foods’ QMP has been approved by the Canadian Food Inspection Agency (“CFIA”) and has been in good standing since inception of this requirement. Canada’s QMP is an accepted standard under the U.S. HACCP system. Our Lunenburg facility falls under this regulation and meets or exceeds the related regulations. 

Plants outside of North America must also pass HACCP audits to be able to export products to the U.S. All of the Company’s non-North American suppliers operate HACCP approved plants. The CFIA must inspect food that is procured outside of Canada. The Food and Drug Administration (“FDA”) inspects food that enters the U.S. In addition, all purchases are subject to quality inspection by the Company’s own quality inspectors. We have strict specifications for suppliers of both raw material and finished goods to ensure that procured goods are of the same quality as products made in our own plants, as indicated in our “ Supplier Standards and Audit Manual ”. 

All our plants in the U.S. and Canada are certified to Global Food Safety Initiative (“GFSI”) standards, and we are recommending our global suppliers work to achieve this standard too. Lunenburg, Portmouth and New Bedford have Safe Quality Foods (“SQF”) certifications and the Newport News is certified to British Retail Consortium (“BRC”) standards. 

We employ several experts in this area, including food scientists, quality technicians, raw material inspectors, and labeling and nutritional consultants. We also have a supplier code of conduct and retain independent auditors to monitor compliance. 

The Company has a Quality Steering Council comprised of all senior quality personnel in the Company. Their mission is to ensure that High Liner Foods has the best policies, consistently applied throughout the Company as well as implementing audit processes and ensuring quality personnel are adequately trained. Quality and food safety, including the implementation and maintenance of state-of-the-art product specification and traceability systems, were strategic goals of the Company in 2010 and progress was made on these initiatives in 2012 and 2013. 

