4.5  Financing Costs 4.6  Income taxes High Liner Foods’ effective income tax rate in 2013 is 28.2%  compared to a recovery of income taxes in 2012 despite having  pre-tax income. Our Canadian statutory rate for 2013 was 27.9%.  The higher effective income tax rate is due to higher net income,  non-deductible stock compensation expense and a higher U.S.  statutory tax rate of 38.9%. The recovery in 2012 is due primarily to  the benefit of acquisition financing deductions in connection with  the Viking and Icelandic USA acquisitions and integrations,  partially offset by non-deductible stock compensation expense  and a higher U.S. statutory tax rate. In 2012, the non-deductible  withholding tax relating to a dividend that was paid in connection  with the financing for the Viking Acquisition was reduced by  $0.4 million once the liability was finalized after the income tax  return for 2011 was filed. See  note 20  to the Consolidated Financial Statements for full  information with respect to income taxes. Loss carry forwards are  still available in the U.S. operations to reduce cash taxes for the  next year or two. The Canadian statutory income tax rate for 2014 is 28.8%. We have no material contingencies that are outstanding. Included in finance costs is the value of marking-to-market an  embedded derivative that is included in long-term debt at year- end. The embedded derivative relates to a LIBOR floor of 1.25%  (2012; 1.50%) on our term debt that, under IFRS Financial  Instruments, must be separated, or bifurcated, from the long-term  debt and presented as “Other long-term financial liabilities” on the  balance sheet on inception, and then marked-to-market at each  reporting date. The embedded derivative increases as interest  rates decrease and vice versa. This “floor” is currently greater than  the prevailing interest rates. As the derivative gets revalued, the  mark-to-market amount is accounted for as a non-cash expense or  income in finance costs, which creates volatility in this expense.  The associated non-cash amortization of the original value of the  option is charged to income as financing costs using the effective  interest method on the associated debt. The revaluation of the  embedded derivative as it is marked-to-market at each reporting  date, and the related amortization of deferred financing charges,  are non-cash as they will never result in a cash payment above  actual interest expense and principal payments. As the principal of  the term loan is repaid, the expense or income charged to finance  costs on the embedded derivative in a prior period will be reversed  so that over the remaining term that the loan is outstanding it will  have no effect on earnings. However, as interest rates fluctuate the  timing of these two items will not perfectly offset one another and  non-cash volatility will result in fluctuating financing costs from  period to period. We expect our short-term bank loans in 2014 to be higher than  those of 2013 due to the American Pride Acquisition in the fourth  quarter of 2013. However, we expect lower interest rates on our  short-term and long-term debt due to the to amendments made in  February 2013. Overall, we expect interest expense in 2014 to be  similar to that of 2013. The earnings per share implications for 2013 and 2012 of marking- to-market the embedded derivative and the interest rate swap are  disclosed in the table in Section 5.3 of this document. Also included in finance costs is a charge for marking-to-market an  interest rate swap containing an embedded floor entered into in  2012 related to long-term debt. Due to the requirement to bifurcate  the value of the embedded floor from the long-term debt, this swap  does not qualify for hedge accounting. As a result of amendments made to our long-term debt in the first  quarter of 2013, accounting practices required us to accelerate the  amortization of the deferred financing costs less the recovery of  amounts previously expensed related to the embedded derivative  in 2012 year-end financial results due to the significantly  favourable changes in the future cash flows under the amendments  which resulted in the amendment being accounted for as an  extinguishment of debt in fiscal 2013. Previously deferred fees  were expensed over the revised remaining life of the original debt  resulting in increased amortization in 2012 of $8.7 million. The  amended long-term debt also contains an embedded derivative  related to a LIBOR floor of 1.25%. The value of the new embedded  derivative was $6.0 million on inception. The cost of obtaining the  amendments to the loan in the first quarter, that on a new debt  would be deferred and amortized, was required to be expensed as  incurred in the amount of $1.0 million. Interest expense in 2013 was lower than in 2012 as a result of: lower  average short-term and long-term debt levels; lower interest rates  as a result of the debt amendments made in February of 2013; lower  amortization of deferred financing costs as the amortization of the  majority of the deferred financing costs associated with the  long-term debt obtained in late 2011 was accelerated in 2012; a  lower expense associated with the valuation of an embedded  derivative included in the long-term debt; and a lower mark-to- market loss related to an interest rate swap that does not qualify for  hedge accounting. The table below shows the breakdown of the various components  of the Company’s finance costs. Fifty-two weeks ended December 28, December 29,  (Amounts in $000s) 2013 2012 Interest paid in cash during period  $ 16,786 $ 19,145 Change in cash interest accrued during the period  (2,363) 2,579 Total interest to be paid in cash 14,423 21,724 Deferred financing cost amortization  888 2,775 Accelerated deferred cost amortization 1,063 8,755 Mark-to-market on embedded  derivative (149) 2,605 Mark-to-market on interest rate swap  104 726 Total finance costs $ 16,329 $ 36,585 4.7 Contingencies ANNUAL REPORT 2013 29