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.  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. 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. 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. 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. 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. *  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. Defined Benefit Pension Plans Other Liquidity Items Stock Options and PSUs Capital Expenditures 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. Fifty-two weeks ended December 28, December 29,  (Amounts in $000s) 2013  2012 Net change in non-cash working capital items*  $ (26,122) $ 26,162 Cash flow from operating activities, including interest and income taxes*  53,433 52,822 Cash flow from operating activities*  27,311 78,984 Less: total capital expenditures, net of investment tax credits*  (14,734) (12,709) Standardized Free Cash Flow 12,577 66,275 Add back: approximate value of the accounts receivable of American Pride excluded from the acquisition**  15,500 — Adjusted Standardized Free Cash Flow $ 28,077 $ 66,275 ANNUAL REPORT 2013 23