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2012 - Q2 Interim report

VIEWS: 4 PAGES: 49

									           Second Quarter Report to Shareholders
               Thirteen and Twenty-Six Weeks Ended June 30, 2012
Fellow Shareholders:

We are pleased to report another good quarter, following a very strong start of the year.

The second quarter reflects the second full quarter that includes Icelandic USA in our operations. This
addition, as well as the continued improvement of our Canadian retail operations, combined to deliver
year-over-year sales growth of 42.9% to $219.0 million. Despite this robust number, our year-over-year
sales growth for the quarter on a pro forma basis (i.e., assuming Icelandic USA had been part of our
operations for the same period in 2011) was 1.8%, affected by the timing of the Lenten period this year,
which was mostly during the first quarter. Nonetheless, our total Canadian sales grew by 10.6% and
Canadian retail sales volume improved by 15.0%, supported in part by the successful launch of our Flame
Savours fire-roasted premium fillets at the beginning of the year.

Adjusted EBITDA 1 increased by 52.0% to $16.5 million, or 7.5% of sales, from $10.9 million, or 7.1% of
sales, for the same period in 2011. The increase in Adjusted EBITDA was due to higher sales volumes
resulting from the addition of Icelandic USA and higher selling prices, partially offset by higher seafood
and other input costs compared with last year. On a pro forma basis, Adjusted EBITDA grew by 7.3%
year over year; U.S. operations delivered Adjusted EBITDA growth of 14.5%.

Net income for the quarter was $1.0 million, or diluted EPS of $0.06, compared with net income of $4.8
million, or diluted EPS of $0.31, for the second quarter of 2011. Net income was adversely impacted by
after tax one-time integration costs incurred during the quarter related to the Icelandic USA acquisition
and the write-down of assets as part of the supply chain consolidation. Adjusted net income 2 was $5.5
million, or Adjusted diluted EPS of $0.36, equal to the previous year. While the earnings in the quarter
did not increase relative to last year due to timing issues, the Icelandic USA acquisition remains accretive
on a year-to-date basis and we expect it to be so for the full year.

We are pleased that we were able to maintain our pace during the quarter with regard to the integration of
Icelandic USA with High Liner’s existing operations, and continue to remain ahead of schedule. We

1
  Adjusted EBITDA is earnings before interest, taxes, depreciation and amortization, excluding impairment of
property, plant and equipment, business acquisition and integration expenses, stock compensation expense, gains or
losses on disposal of assets, and the increase in cost of goods sold relating to inventory acquired from the Icelandic
USA and Viking Acquisitions, above its historical cost, as part of the fair value requirements of purchase price
accounting.
2
  Adjusted net income is net income excluding the after tax impairment of property, plant and equipment, business
acquisition and integration expenses, stock compensation expense, the increase in cost of goods sold relating to
inventory acquired from the Icelandic USA and Viking Acquisitions, non-cash expense from revaluing an embedded
derivative associated with the long-term debt, as the interest rate is not less than LIBOR of 1.5%, which is currently
greater than prevailing interest rates, and withholding tax related inter-company dividends.
expect to benefit from an early completion of this undertaking, as it solidifies our leadership position in
the North American food service frozen seafood market. Already, we achieved synergies amounting to
$2.0 million during the quarter and $3.0 year to date. This puts us on track to realizing near-term
synergies of approximately $12 million and ongoing annual synergies of $16-18 million from this
acquisition.

In addition to synergies, we look to our Canadian operations continuing its momentum seen in the first
half of the year. The marketing initiatives that we began last year have helped turn around our Canadian
retail performance, and we expect the Flame Savours launch and other new product introductions to
further sustain this growth. Moreover, cost improvements expected during the second half of the year due
to earlier price decreases for several key raw materials should help improve our profitability.

The Board of Directors of the Company approved a quarterly dividend of $0.11 per Common and Non-
Voting Equity Share payable on September 15, 2012 to shareholders of record on September 1, 2012.
This represents a 10.0% increase from the $0.10-per-share quarterly dividend paid on June 15, 2012,
reflecting the Board’s continued confidence in the Company’s operations, and the third dividend increase
over the last seven quarters.

Lastly, we reiterate that we remain focused on our three strategic goals for this year: profitable growth,
sustainability, and system improvements. I look forward to reporting our continued progress in achieving
these goals throughout the remainder of the year.


On behalf of the Board,




Henry E. Demone
President and Chief Executive Officer




                                                                                                         2
                             Financial Results and
                  Management Discussion & Analysis (MD&A)
               Thirteen and Twenty-Six Weeks Ended June 30, 2012


Introduction
This MD&A includes the operating and financial results of High Liner Foods Incorporated for
the second quarter of 2012. It provides management’s perspective on our performance and
strategy for the future. This document should be read in conjunction with our Condensed Interim
Consolidated Financial Statements for the period ended June 30, 2012, as well as our 2011
Annual Report, which is available on High Liner’s website at www.highlinerfoods.com, and
SEDAR’s website at www.sedar.com. This MD&A provides an update from the annual MD&A
included in the 2011 Annual Report and from the MD&A for the first quarter ended March 31,
2012; since many factors described in those documents remain substantially unchanged, readers
should refer to them as well.

Important Notes

We, us, our, Company, High Liner

In this MD&A, these terms all refer to High Liner Foods Incorporated, and its businesses and
subsidiaries.

Review and approval by the Board of Directors

The Board of Directors, on recommendation of the Audit Committee, approved the content of
this MD&A on August 8, 2012. Disclosure contained in this document is current to this date,
unless otherwise stated.

Quarterly comparisons in this MD&A

Unless otherwise indicated, all comparisons of results for the second quarter of 2012 are against
results for the second quarter of 2011. Likewise, all comparisons of results for the first twenty-
six weeks of 2012 are against results for the first twenty-six weeks of 2011.

Currency

All dollar amounts are in Canadian dollars unless otherwise noted. Approximately 70% of our
operations, assets, and liabilities are denominated in U.S. dollars or are impacted by the
Canadian/U.S. exchange rate. Generally, a stronger Canadian dollar is beneficial to earnings.
Foreign currency fluctuations affect the reported values of individual lines on our balance sheet
and income statement. When the Canadian dollar strengthens, the reported values decrease and
the opposite occurs when the Canadian dollar weakens. As our Canadian operations are an




                                                                                                     3
importer of seafood and other products, a stronger Canadian dollar reduces costs and a weaker
dollar increases costs.

In some parts of this document, we discuss balance sheet and operating items in domestic
currency. This effectively means that the self-sustaining U.S. operations are converted to
Canadian dollars at par. We have done this to show the true changes in domestic currency,
eliminating the effect of fluctuating foreign exchange rates on the translation of our U.S.
subsidiary. U.S. dollar-denominated items in the Canadian operations continue to be converted
to Canadian dollars at the balance sheet date for balance sheet items and at the average daily rate
for the income statement.

Other important documents

High Liner also publishes year-end documents that include additional information of interest to
investors, such as our 2011 annual MD&A and Annual Information Form. These documents are
available on SEDAR’s website at www.sedar.com, and in the Investor Information section of
High Liner’s website at www.highlinerfoods.com.

Non-IFRS financial measures

The Company reports its financial results in accordance with International Financial Reporting
Standards (“IFRS”). We have included in our Quarterly and Annual Reports certain non-IFRS
financial measures and ratios. These non-IFRS/ financial measures are Adjusted EBITDA,
Standardized Free Cash Flow, Adjusted Net Income, and Adjusted Earnings per Share. Our
definition of Standardized Free Cash Flow and Adjusted EBITDA follows the October 2008
“General Principles and Guidance for Reporting EBITDA and Free Cash Flow” issued by the
Canadian Institute of Chartered Accountants. These measures are defined in more detail later in
this document.

The Company believes these non-IFRS financial measures provide useful information to both
management and investors in measuring the financial performance and financial condition of the
Company. These measures do not have a standardized meaning prescribed by IFRS and,
therefore, may not be comparable to similarly titled measures presented by other publicly traded
companies, nor should they be construed as an alternative to other financial measures determined
in accordance with IFRS.

Forward-looking statements

This MD&A contains forward-looking statements within the meaning of securities laws. In
particular, these forward-looking statements are based on a variety of factors and assumptions
that are discussed throughout this document. Specific forward-looking statements in this
document include, but are not limited to: statements with respect to future growth strategies and
impact on shareholder value; increased demand for our products due to the recognition of the
health benefits of seafood, increases in the disposable incomes of consumers, and economic
recovery in both Canada and the U.S. markets; changes in costs for seafood and other raw
materials; increases or decreases in processing costs; the exchange rate for the Canadian dollar
relative to the U.S. dollar compared to previous years; percentage of sales from our brands;
operating cost savings expected in 2012; expectations with regards to sales volumes, product



                                                                                                    4
innovations, brand development and anticipated financial performance; competitor reaction to
Company strategies and actions; impact of price increases on future profitability; sufficiency of
working capital facilities; future income tax rates; the anticipated efficient integration of the
operations of Icelandic USA with High Liner operations; the increased market share anticipated
due to the addition of Viking and Icelandic USA value-added seafood products; increased
leverage attributable to the acquisitions of Viking and Icelandic USA; decreased leverage in the
future; estimated capital spending; future inventory trends and seasonality; market forces and
the maintenance of existing customer relationships; expected changes in seafood costs;
financial performance from the Viking and Icelandic USA Acquisitions; improved U.S. food
service position from the Icelandic USA Acquisition; availability of credit facilities; our
projection of excess cash flow and minimum repayments under the Term Loan; expected
synergies from acquisitions; expected decreases in debt to capitalization ratio; dividend
payments; timing of plant closures and the amount and timing of the related one-time cash
expense; amount and timing of the write-down of plant and equipment; amount and timing of the
annual ongoing reduction in operating costs resulting from the plant consolidation; and amount
and timing of the capital expenditures in excess of normal requirements to allow the movement
of production between plants.

Forward-looking statements can generally be identified by the use of the conditional tense, the
words “may”, “should”, “would”, “believe”, “plan”, “expect”, “intend”, “anticipate”, “estimate”,
“foresee”, “objective” or “continue” or the negative of these terms or variations of them or words
and expressions of similar nature. Actual results could differ materially from the conclusion,
forecast or projection stated in such forward-looking information. As a result, we cannot
guarantee that any forward-looking statements will materialize. Assumptions, expectations and
estimates made in the preparation of forward-looking statements and risks that could cause our
actual results to differ materially from our current expectations are discussed in detail in the
Company’s materials filed with the Canadian securities regulatory authorities from time to time,
including the “Risk Management” section of our 2011 MD&A and the “Risk Factors” section of
our 2011 Annual Information Form. The risks and uncertainties that may affect the operations,
performance, development and results of High Liner Foods’ business include, but are not limited
to, the following factors: volatility in the U.S. / Canadian exchange rate; competitive
developments including increases in overseas seafood production and industry consolidation;
availability and price of seafood raw materials and finished goods; costs of commodity products
and other production inputs; successful integration of the operations of Icelandic with High Liner
Foods’ operations; potential increases in maintenance and operating costs; shifts in market
demands for seafood; performance of new products launched and existing products in the market
place; changes in laws and regulations, including environmental, taxation and regulatory
requirements; technology changes with respect to production and other equipment and software
programs; supplier fulfillment of contractual agreements and obligations; competitor reactions;
High Liner Foods’ ability to generate adequate cash flow or to finance its future business
requirements through outside sources; compliance with debt covenants; the availability of
adequate levels of insurance; management retention and development; and the timing and final
number of layoffs from plant closures.

Forward-looking information is based on management’s current estimates, expectations and
assumptions, which we believe are reasonable as of the current date. You should not place undue
importance on forward-looking information and should not rely upon this information as of any
other date. Except as required under applicable securities laws, we do not undertake to update



                                                                                                 5
these forward-looking statements, whether written or oral, that may be made from time to time
by us or on our behalf, whether as a result of new information, future events or otherwise.


Overview of the Company
High Liner has been in business since 1899. Our name has been a fixture in Canadian grocery
retailing for more than eighty years and today Captain High Liner is one of the most highly-
recognized consumer brand icons in Canada. We are leveraging our Canadian strength to build
upon our established retail presence in the United States by introducing more of North America
to the High Liner brand.

In late 2007, High Liner acquired the North American manufacturing and marketing business of
FPI Limited, including FPI’s prominent food service business headquartered in Danvers,
Massachusetts. At the end of 2010, High Liner acquired the business of Viking Seafoods, Inc.
(the “Viking Acquisition” or “Viking”). Viking is a value-added business serving the U.S. food
service seafood market from Malden, Massachusetts. At the end of 2011, High Liner acquired
the U.S. subsidiary and Asian procurement operations of Icelandic Group h.f., one of the largest
suppliers of value-added seafood to the U.S. food service market. See the Business Acquisition
Report filed on SEDAR on March 16, 2012 for more details on this important acquisition (the
“Icelandic USA Acquisition” or the “Acquisition”).

Although, our roots are in the Atlantic Canada fishery, we now purchase all our seafood raw
material and some finished goods from around the world. From our headquarters in Lunenburg,
Nova Scotia, we have transformed our long and proud heritage into worldwide seafood expertise.
We deliver on the expectations of the modern consumer by selling seafood products that respond
to their demands for convenient, tasty, and nutritional seafood at good value.


Vision, Core Business, Strategic Measures
At High Liner, our reputation for delivering outstanding seafood products is an advantage in the
competitive North American market. Our business is to provide frozen packaged seafood that
satisfies the preferences of North American consumers. We believe that focusing on global
procurement, product development, value-added processing and marketing will increase the
likelihood of achieving our strategy and we do not believe that we need to be vertically
integrated to achieve our goals.

As a consumer-driven sales and marketing company, we focus on matching supply to demand.
Buying seafood on global markets allows us to provide products based on consumer preferences
at reasonable cost. The eating preferences of North Americans are based on taste, value, quality,
health and convenience. They also want a variety of premium, restaurant quality food that can
be prepared at home.

Our strategic advantage comes from existing strengths in each of the following aspects of our
business model.




                                                                                                   6
   •   Broadest reach in the industry
       High Liner is the only seafood company in North America with a strong presence in all
       market segments in both Canada and the USA, as well as a retail presence in Mexico.
   •   Market leading brands
       The High Liner brand is the leading seafood brand in Canada and FPI, Viking and
       Icelandic Seafood are leading brands to restaurants and institutions in the USA. Fisher
       Boy and Sea Cuisine are important brands in the USA retail and club channels.
   •   Diversified global procurement
       High Liner’s state of the art procurement systems and long standing supplier relationships
       help us buy approximately 30 species from 20 countries around the world at reasonable
       cost.
   •   Frozen food logistics expertise
       Due to our broad industry reach we have trucks calling on all majors customers
       throughout North America on regular schedule which reduces logistics costs and makes it
       convenient for our customers to buy from us.
   •   Innovative product development
       From product development kitchens in Canada and the U.S., our chefs and food
       technologists continually develop differentiated seafood products in demand by
       consumers and operators, such as the recently introduced “Flame Savours” and “Fire
       Roasters”.

See the MD&A in our 2011 Annual Report for more details on our vision, core businesses and
strategy.

The following are some of the highlights, achievements and other developments during the
second quarter and first twenty-six weeks compared to the same period in the previous year:

   •   Sales increased by 42.9% to $219.0 million from $153.3 million;
   •   Adjusted EBITDA increased 52.0% to $16.5 million from $10.9 million;
   •   Reported net income for the second quarter, including one-time costs of the Icelandic
       USA acquisition, of $1.0 million, or diluted earnings per share (“EPS”) of $0.06,
       compared with $4.8 million, or diluted EPS of $0.31, in the second quarter of 2011 ($2.8
       million, or diluted EPS of $0.18, for the first twenty-six weeks of 2012, compared to
       $14.5 million, or diluted EPS of $0.94, the first twenty-six weeks of 2011);
   •   Adjusted Net Income of $5.5 million, or Adjusted diluted EPS of $0.36, compared with
       $5.5 million, or Adjusted diluted EPS of $0.36, in the second quarter of 2011 ($19.5
       million, or diluted EPS of $1.27, for the first twenty-six weeks of 2012, compared to
       $15.4 million, or diluted EPS of $1.00, the first twenty-six weeks of 2011);
   •   The integration of Icelandic USA is ahead of plan.




                                                                                                7
Capability: Resources and Core Competencies
High Liner has both the financial and operational resources to achieve our objectives.

Liquidity and Capital Resources

Our balance sheet is affected by foreign currency fluctuations. The affect of foreign currency is
discussed in this section and under the heading “Risk Factors” of this report.

Net Working Capital

Net working capital balances, consisting of accounts receivable, inventory, prepaid expenses less
accounts payable and provisions, are higher at June 30, 2012 than they were a year ago primarily
due to the Icelandic USA Acquisition. The Icelandic USA Acquisition added approximately
$82.8 million to our net working capital balances as of the end of the second quarter of 2012.

During the second quarter of 2012, accounts receivable and inventories decreased from their
March 2012 balances by $40.3 million in aggregate, which was partially offset by lower accounts
payable of $3.3 million. The reduction in net working capital allowed us to reduce our bank
loans by $37.3 million during the quarter. This reduction is attributed to seasonal variations in
required working capital due to sales and supply characteristics in the seafood business (see
“Seasonality” later in this document).

Accounts receivables are higher at the end of the second quarter of 2012 compared to 2011 as
sales have increased, particularly in the U.S., as a result of the Icelandic USA Acquisition
(addition of $27.3 million) and organic growth.

Our inventories increased at the end of the second quarter of 2012 due to the Icelandic USA
Acquisition which added approximately $74.2 million to the balance on June 30, 2012. The
company is also buying more raw materials for primary processing overseas and this accounted
for an inventory increase of $2.8 million during the period. The company believes that
controlling the purchase of its raw material earlier in the supply chain allows it better control
over the quality of the finished goods, higher continuity of supply and lower costs. The
Company had 78.4 million pounds of product inventory at the end of the second quarter of 2012,
excluding inventory at our joint venture, compared with 51.8 million pounds at the end of the
second quarter of 2011. In order to maintain our high customer service levels, we will be
building inventories in the third and fourth quarters of 2012 as we implement our plant
consolidation and distribution center changes related to the integration of the Icelandic USA
Acquisition. These increases should be reversed by the end of the first quarter of 2013.

Accounts payable balances at the end of the second quarter of 2012 are higher than the same
period last year, primarily resulting from the Icelandic USA Acquisition.

Equity

During the second quarter of 2011, we repurchased 31,958 non-voting equity shares for
cancelation under our normal course issuer bid that began in December 2010.




                                                                                                    8
We filed a new normal course issuer bid in January 2012 to purchase up to 100,000 common
shares, and up to 100,000 non-voting equity shares. During the current quarter, we repurchased
29,100 non-voting equity shares for cancelation under this normal course issuer bid. The
repurchase of these shares has resulted in a decrease of $0.3 million to contributed surplus. As
the cost of the repurchase was more than the assigned value of the shares, and as a company
cannot incur a profit or loss from a transaction of its own shares, the difference was included in
contributed surplus. The amount charged to retained earnings is equal to the difference between
the cost to repurchase the shares and their assigned value.

Debt

Our net cash position (cash and cash equivalents less current bank loans, excluding deferred
financing charges) on June 30, 2012 was a liability of $88.4 million, compared with a liability of
$57.9 million (domestic currency $59.4 million) on July 2, 2011. Our bank loans increased by
approximately US$60 million at the end of December 2011 due to the purchase of Icelandic
USA that was paid for through our pre-arranged working capital credit facility. In addition, bank
loans also increased to finance the increase in inventory described above.

Of our working capital credit facility of US$180.0 million, US$55 million is allocated to our
Canadian operations and US$125 million is allocated to our U.S. operations. At quarter end, the
Company had approximately USD$67 million of unused borrowing capacity taking into account
both margin calculations and the total line availability.

Excluding any additional new acquisitions, we believe the existing credit facility will be
sufficient to fund all of the Company’s current cash requirements for the next 12 months or
more.

At the end of the period, letters of credit were outstanding in the amount of US$1.4 million (July
2, 2011; US$1.2 million) to support raw material purchases. There were also standby letters of
credit in the amount of $9.6 million (July 2, 2011; $7.7 million) to secure obligations under the
Company’s supplemental executive retirement plan and certain lease obligations.

We obtained a new US$250.0 million senior secured term loan facility (“Term Loan”) in
December 2011 to finance the Icelandic USA Acquisition. Minimum repayments of US$2.5
million are required on an annual basis, plus 50% of defined excess cash flow beginning in 2013,
based on the previous year’s results. We have estimated the current portion of this Term Loan to
be US$17 million, based on our projection of excess cash flow for fiscal 2012.

The terms of the long-term debt facility required us to protect 50% of the variable interest rate
for a fixed rate for the first two years. A derivative financial instrument was purchased in the
second quarter of 2012 which results in the LIBOR rate on 50% of the Term Loan being capped
at 1.5%. Also on May 3, 2012, we entered into an interest rate swap to exchange floating 3-
month LIBOR for a fixed rate on our Term Loan, with an embedded floor of 1.5%, for a notional
amount of US$100.0 million for the period of April 4, 2014 until April 4, 2016. On a quarterly
basis starting in 2014, we are required to pay the fixed swap rate and expect to receive the
floating 3-month LIBOR rate (but no less than 1.5%), effectively fixing the rate at 1.997%.




                                                                                                     9
Additionally, we entered into interest rate swaps to hedge a portion of our working capital loans.
The swaps are for a notional US$50 million for the period of May 4, 2012 to March 4, 2014, and
then for US$30 million for the period March 5, 2014 to March 4, 2013, at an average LIBOR
rate of 0.719% and 0.726%, respectively. These swaps effectively fix the interest rate on a
portion of our working capital loans.

Cash Flow

Cash flow from operating activities, excluding the change in non-cash working capital balances,
improved from the second quarter of last year mainly due to improved results from operations
and the need to build inventories in 2011 from unusually low levels in 2010 was not necessary in
2012.

Standardized Free Cash Flow 1 was $40.8 million for the rolling four quarters ended June 30,
2012, up from a negative $4.0 million in the same period the previous year. Cash flow from
operations before changes in working capital increased by $3.8 million and non-cash working
capital decreased by $43.6 million relative to the previous rolling four quarters, increasing free
cash flow by approximately $47.4 million. After accounting for higher capital expenditures,
standard free cash flow increased $44.8 million over the prior period.

The table below reconciles our Standardized Free Cash Flow for the rolling four quarters with
measures that are in accordance with generally accepted accounting principles.

                                                                                      Rolling fifty-two
                                                                                        weeks ended
                                                                                     June 30       July 2,
                                                                                      2012          2011
               Amounts in ($000's)
               Cash flow from operating activities (see Statement of
               Consolidated Cash Flows)                                          $     49,321 $ 1,900
               Less: total capital expenditures, net of investment tax credits         (8,513)  (5,927)

               Standardized Free Cash Flow                                       $     40,808    $ (4,027)

Non-Current Assets and Liabilities, and Capital Expenditures

Gross capital additions were $2.9 million for the quarter. Estimated capital spending for all of
2012 will be in the range of $11 million to $15 million compared to $7.8 million in 2011. This is
up slightly from forecasted at the end of the first quarter due to moving planned expenditures on
the plant consolidation from 2013 into 2012. Approximately $5.8 million of our capital
expenditures in 2012 are expected to be for strategic initiatives or related to the achievement of
synergies pertaining to the Icelandic USA Acquisition and a further $1.8 million for projects that
should reduce the ongoing cost of our operations. The remainder of the capital budget is for
maintenance capital to remain compliant with regulatory and other requirements, and for
replacement of equipment that is at the end of its useful life. We expect that cash generated from
operations and short-term borrowings will fund capital additions in 2012.


1
    See “Important Notes – Non-IFRS Financial Measures”.



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As a result of the announcement we made on May 3, 2012 regarding optimization of our supply
chain, we will also be spending more capital in 2013 in order to achieve the targeted cost
savings. Capital expenditures were originally estimated for 2013 to be as much as $22 million of
which as much as $10 million was to be related to the movement of production from closed
plants. We are now confident that capacities can be expanded in the continuing plants by
changing shift patterns and we now estimate capital of approximately $12.0 million for 2013
with minimal capital needed for the plant consolidation.

Capital Structure

Net interest bearing debt at June 30, 2012 is 68.3% of total capitalization, substantially
unchanged from the end of fiscal 2011. This compares to 70.2% at March 31, 2012 and 40.5% at
the end of July 2, 2011. The increase of debt to capitalization ratio at June 30, 2012 compared to
the same period last year is due to the Icelandic USA Acquisition which increased the amount of
debt. As we achieve synergies from the Icelandic USA Acquisition, the net interest bearing debt
to capitalization ratio will decrease. We define capitalization as interest bearing debt plus
shareholders’ equity, excluding foreign currency hedging gains and losses included in
Accumulated Other Comprehensive Loss (AOCI), less cash balances, and excludes deferred
financing charges, as they are not interest bearing.

                                                           J une 30,       July 2,   December 31,
       Amounts in ($000s)                                    2012           2011        2011
       Current bank loans per financial statements       $      90,256   $    58,515 $ 120,980
       Add back deferred charges on current bank loans             927           307         995
       Long-term debt per financial statements                217,433         40,923     239,981
       Current portion of long-term debt per financial
       statements                                              17,325         4,335        2,543
       Add back deferred charges on long-term debt             18,744           218       14,269
       Current portion of finance lease obligation              1,026         1,095        1,064
       Long-term portion of finance lease obligation            2,582         2,685        2,599
       Cross currency swap mark to market                         -                          -
       Less: cash and cash equivalents                           (954)         (292)      (3,260)
            Total funded debt                                 347,339       107,786      379,171
       Shareholders' equity                                   160,536       155,882      161,527
       Unrealized losses on derivative financial
        instruments included in accumulated other
        comprehensive loss                                        751         1,725          110
          Total capitalization                           $    508,626 $     265,393 $    540,808
       Debt as % of capitalization                               68%            41%          70%

Funded debt to Adjusted EBITDA at the end of the second quarter using a rolling-four quarter
basis was 4.1 times compared to 6.0 times at year end. Including synergies expected to be
implemented by year end, the pro forma ratio is expected to be 3.5 times. This ratio will be
reduced even further with the repayment of debt from free cash flow once the integration and
plant closing costs are behind us.

We have met all of our financial covenants under our new debt facilities as expected.




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Dividends

The Company paid a $0.10 per share quarterly dividend on June 15, 2012 to common and non-
voting equity shareholders of record on June 1, 2012.

Subsequent to the end of the quarter, the Board of Directors of the Company approved a
quarterly dividend in the amount of $0.11 per Common and Non-Voting Equity Share payable
on September 15, 2012 to shareholders of record on September 1, 2012. This represents a 10.0%
increase from the $0.10-per-share quarterly dividend paid on June 15, 2012, reflecting the
Board’s continued confidence in the Company’s operations, and the third dividend increase over
the last seven quarters.

Dividends are subject to restrictions in our credit agreements. Availability under the working
capital facilities needs to be US$22.5 million or higher (actual at quarter end US$67 million).
Under the term loan, capital distributions including both normal course issuer bids (NCIB) and
dividends cannot exceed the greater of US$8 million per year or a percentage of defined excess
cash flow. Current annual dividends at $0.40 per share are expected to be less than $6.2 million.
Year to date purchases under the NCIB were $511,000.

Governance

In accordance with Multilateral Instrument 52-109 Certification of Disclosure in Issuers’ Annual
and Interim Filings, our certifying officers have limited the scope of their design of disclosure
controls and procedures, and our Company’s internal control over financial reporting to exclude
controls, policies and procedures relating to the Icelandic USA Acquisition (as it arose in late
2011) and they have not yet performed sufficient procedures to include it in our certifications.
Multilateral Instrument 52-109 permits a business that an issuer acquires not more than 365 days
before the issuer's financial year end be excluded from the scope of the certifications to allow it
sufficient time to perform adequate procedures to ensure controls, policies and procedures are
effective. We expect Icelandic USA to be transitioned to High Liner systems in the fall of 2012
with the corresponding scope limitation to be removed for the year end certificates. Summary
financial information for the Icelandic USA Acquisition for the second quarter of 2012 includes
sales of US$59.3 million (first twenty-six weeks of 2012: US$156.5 million) and income before
interest and taxes of US$5.6 million (first twenty-six weeks of 2012: US$15.8 million),
excluding business integration and other similar costs. Information concerning assets and
liabilities acquired is provided in note 3 to our condensed interim consolidated financial
statements and did not materially change from the end of fiscal 2011.

There has been no change in the Company’s internal control over financial reporting during the
period beginning on January 1, 2012 and ended June 30, 2012 that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over financial reporting.




                                                                                                   12
Other Items Important to Understanding our Results
Accounting Standards

During the second quarter of 2012 we did not change or adopt new accounting standards.

New Accounting Standards and Interpretations Issued But Not Yet Effective

The International Accounting Standards Board (IASB) and the IFRS Interpretations Committee
(IFRIC) have issued additional standards and interpretations with an effective date applicable for
High Liner in reporting periods subsequent to the second quarter of 2012 as follows:

   •   IFRS 10 – Consolidated Financial Statements;
   •   IFRS 12 – Disclosure of Interests in Other Entities;
   •   IFRS 11 – Joint Arrangements;
   •   IFRS 13 – Fair Value Measurement;
   •   IAS 19 – Post-employment Benefits (Including Pensions); and
   •   IAS 1 – Presentation of Financial Statements (IAS 1) and the presentation of Items in
          Other Comprehensive Income (OCI).

Our current evaluation is that the effect, if any, that these new standards and amendments will
have on our financial results is minimal as the changes applicable to the Company primarily
relate to disclosure requirements, or were previously anticipated and options were chosen on
transition to IFRS to minimize their impact on future reporting periods.

Non-operating costs and expenses

The table that follows shows the various items that are related to business acquisition and
integration and related impairments due to the pending closure of production facilities.




                                                                                                13
                                     Thirteen weeks ended            Twenty six week ended
In $000s                          June 30, 2012 July 2, 2011      June 30, 2012 July 2, 2011
                                                            Pre tax
Impairment of property, plant
and equipment                               280          -               13,648          -
Business acquisition,
integration and other (expenses           2,924          230              5,270         493
Cost of Sales:
  Additional depreciation for
  Impairment of property, plant
  & equipment                               635          -                  635         -
                                          3,839          230             19,553         493

                                                             After tax
Impairment of property, plant
and equipment                               204          -                8,942          -
Business acquisition,
integration and other (expenses           1,869          136              3,330         302
Cost of Sales
  Additional depreciation for
  Impairment of property, plant
  & equipment                               390          -                  390         -
                                          2,463          136             12,662         302



Announced Plant Consolidation and Impairment of Property, Plant and Equipment

As part of an optimization of its supply chain after the additional production capacity upon the
Icelandic USA Acquisition, High Liner announced on May 3, 2012, that it will be closing two of
its production facilities within the next year. One-time expenses planned for 2013 directly
related to such plant closures have been accelerated to 2012 to realize synergies ahead of
schedule, which we expect will be partially offset by lower related capital expenditures in 2013.
As a result, expected pre-tax one-time cash expenses have increased to $6.1 million ($4.0 million
after tax) from the previously-reported pre-tax amount of $4.0 ($2.7 million after tax). In
addition, a pre-tax write-down of $15.6 million ($10.1 million after tax) for plant and equipment
to estimated net realizable value will be recorded in 2012. Under IFRS, $13.4 million ($8.7
million after tax) of this was reflected in the financial statements for the first quarter of 2012,
with the remainder being expensed as additional depreciation during periods between the
announcement and closure of the facilities. During the second quarter, this additional
depreciation amount of $0.6 million was expensed through cost of goods sold. In addition,
supplies and maintenance inventories at the Burin facility were valued at less than their book
value and consequently impairment of property, plant and equipment was increased by $0.3
million during the second quarter of 2012. Also, a further $1.3 million ($0.8 million after tax)
will be added to depreciation in the third and fourth quarters of 2012 in connection with the final
closure of the plants.

The annual ongoing pretax reduction in operating costs (increase in EBITDA) resulting from this
consolidation, once all the affected plants are closed, is estimated to be approximately $9.6
million, with savings scheduled to begin in January 2013. Approximately $7.5 million of these
savings were included in the previously announced $16-$18 million efficiencies estimated to



                                                                                                 14
result from the Icelandic USA acquisition concluded in December 2011. An additional $2
million of savings are also expected from the increased scope of the project, bringing the total to
$9.6 million.

As part of the FPI acquisition in 2007, the Company entered into an agreement with the Province
of Newfoundland and Labrador with respect to its operations in Burin, Newfoundland, and
relating to its U.S. operations. The Company has agreed to maintain specified volumes of
production in the plant until December 2012. Failure to maintain these volumes will result in a
payment to the Province of Newfoundland and Labrador of $0.07 per pound for each pound of
volume shortfall. In addition, over the period ending in December 2012, the Company has
committed to spend $3 million, in product development activities in the Province of
Newfoundland and Labrador and new equipment for Burin. Of these expenditures, 60% must be
product development expenditures. In fiscal 2011 and 2010, the Company paid $0.7 million in
each year (relating to the production shortfall). The Company will continue to pay the volume
penalty for the full term. This penalty is included as regular costs of goods sold. Any amount not
expended as required under the product development activities or equipment purchases will be
paid to the Province at the end of the contract. Amounts are not expected to be material and an
estimate is included in the one-time cash costs noted above.

Business Acquisition, Integration and other Expenses

During the second quarter of 2012, we incurred $2.9 million ($5.3 million for the first twenty-six
weeks of fiscal 2012) of business integration costs, comprised of severance, retention costs and
marketing-related costs in connection with the Icelandic USA Acquisition. This compares to
$0.2 million in the prior year ($0.5 million for the first twenty-six weeks of fiscal 2011) in
connection with the Viking Acquisition.

Amortization of Intangible Assets

This category consists of amortization of intangible assets, brands, and customer relationships
over their estimated useful lives. Amortization was $1.7 million in the second quarter of 2012
($3.6 million for the first twenty-six weeks of 2012) compared to $0.4 million in the comparative
period ($0.7 million for the first twenty-six weeks of 2011). The increase is due to the Icelandic
USA Acquisition, where management has estimated the amortization, as the purchase price
allocation has not yet been finalized. Amortization of intangible assets is recorded on the income
statement in “Selling, general and administrative expenses”.

Finance Costs

Interest expense in 2012 is higher than in 2011 as a result of higher average short-term and long-
term debt levels due principally to the Icelandic USA Acquisition, and due to deferred financing
costs and the valuation of an embedded derivative associated with the long-term debt, as the
applicable interest rate is not less than LIBOR of 1.5%, which is currently greater than prevailing
interest rates. While the change in the value of the embedded derivative is non-cash, it goes
through profit and loss, but over the term of the debt it will net to zero.

The table below shows the breakdown of the various components of finance costs.




                                                                                                 15
                                           Thirteen weeks ended         Twenty six week ended
In $000                                  June 30, 2012 July 2, 2011   June 30, 2012 July 2, 2011

Interest paid in cash during period             2,705        1,256          8,056         2,385
Cash interest accured at end of period          2,752          (11)         3,137           129
  Total Interest to be paid in cash             5,457        1,245         11,193         2,514
Deferred financing cost amortization              652           25          1,371            53
Valuation of embedded derivitive                1,567          -            1,781           -
  Total finance costs                           7,676        1,270         14,345         2,567


Income Taxes

Our effective income tax rate for the second quarter of 2012 was a recovery of income taxes
compared to the applicable statutory rate in Canada of approximately 27% and the statutory rate
in the U.S. of 39%. The effective tax rate in the second quarter of 2011 was 27.4% compared to
the applicable statutory rate in Canada of approximately 27% and in the U.S. of 39%. The
recoveries in 2012 are due primarily to the benefit of acquisition financing deductions in
connection with the Viking and Icelandic USA Acquisitions partially offset by non-deductible
stock-based compensation expense. In addition, the Company’s statutory and effective income
tax rates are lower in 2012 compared to 2011 as a result of lower statutory rates in Canada in
2012 which decreased by 1.5%.




                                                                                                   16
Performance
Overview

The table below summarizes key financial information.

 Selected Consolidated Financial Information
 (All amounts in thousand, except per share amounts)
                                                         Thirteen Weeks Ended        Thirty-Nine Weeks Ended
                                                          June 30     July 2,          June 30      July 2,
                                                            2012       2011              2012        2011

 Sales
   Canada                                                $    81,403   $ 73,608      $     159,012    $ 143,818
   United States                                             137,646     79,677            347,736      186,575
   Total                                                     219,049    153,285            506,748      330,393
 Net income:
     Total                                               $       995       4,776     $       2,773       14,505
     Adjusted net income is net income excluding the aft $      0.07        0.32     $        0.18         0.96

 Adjusted Net income *
    Total                                                $     5,512       5,461     $      19,531       15,441
    Diluted earnings per common share                    $      0.36        0.36     $        1.27         1.00
 Total assets                                            $ 645,163       336,262     $     645,163      336,262
 Total long-term financial liabilites                    $ 228,360        43,608     $     228,360       43,608
 Cash dividends per share:
    Common shares                                        $      0.10        0.10     $         0.20         0.19
    Non-voting equity shares                             $      0.10        0.10     $         0.20         0.19

 Total capital expenditures financed by operations       $     2,628       2,036     $       4,356         2,795

 Average foreign exchange
  spot rate (USD/CAD)                                         1.0105       0.9673           1.0057        0.9767


  * Adjusted net income is net income excluding the after-tax impairment of property, plant and equipment,
  business acquisition and integration expenses, stock compensation expense, the increase in cost of goods
  sold relating to inventory acquired from the Icelandic USA and Viking Acquisitions, non-cash expense from
  revaluing an embedded derivative associated with the long-term debt, as the interest rate is not less than
  LIBOR of 1.5%, which is currently greater than prevailing interest rates, and withholding tax related inter-
  company dividends. See pages 25and 26 for calculation.


Seasonality

The first quarter of the year is historically stronger than the other three quarters for both sales
and profits, depending on the timing of Lent. The Lenten period was earlier in 2012 than in 2011
with Good Friday falling on April 6, 2012 compared to April 22, 2011. Our U.S. retail business
and our U.S. food service business traditionally experiences a strong first quarter as retailers and
restaurants promote seafood during the Lenten period. For retail sales, the second and third
quarters are more challenging during the warmer months as consumers spend more time



                                                                                                                   17
outdoors, travel, and use ovens less often, resulting in a decreased demand for our products.
However, for the food service business, activities are usually elevated in the second and third
quarters as consumers are on vacation and travel more than during other times of the year. The
fourth quarter includes several festive occasions that increase demand for our products in both
retail and food service.

In our retail businesses, we spend significant amounts on consumer advertising and listing
allowances for new product launches. Although the related activities benefit more than one
period, the related costs must be expensed when the initial promotional activity takes place or
when new products are first shipped. The accounting periods during which we choose to incur
these expenditures may change from year to year. Therefore, there may be fluctuations in
income relating to these activities. A significant percentage of advertising is typically done in
either the first or fourth quarters.

Inventory levels fluctuate throughout the year, being higher to support strong sales periods such
as for the Lenten period. In addition to the sales demands, we must take early delivery of a
quantity of seafood prior to the seasonal closure of plants in Asia during the Lunar New Year
period. These events typically result in significantly higher inventories in December, January,
February and March than during the rest of the year.

The following table provides summarized information for our eight most recently completed
quarters.
(in thousands of Canadian dollars, except per share amounts)


                          2012           2012          2011          2011      2011        2011         2010      2010
                          Q2             Q1            Q4            Q3         Q2          Q1           Q4        Q3


Sales                 $   219,049    $   287,699   $   176,479   $   161,717   153,285     177,108      140,775   144,213
Adjusted EBITDA       $    16,529    $    31,545   $    14,640   $    12,120    10,876      18,336       12,814    13,068
Net income            $        995   $     1,778   $    (3,020) $      6,695     4,776       9,729        1,686     6,122
Adjusted Net
 Income               $     5,512    $    14,019   $     6,894   $     6,261     5,461       9,980        5,325     6,893


Earnings Per Common Share Based on Net Income
   Basic              $      0.07    $      0.12   $     (0.20) $       0.44      0.32           0.64      0.11      0.40
   Diluted            $      0.06    $      0.12   $     (0.20) $       0.44      0.31           0.63      0.11      0.40

Earnings Per Common Share Based on Adjusted Net Income
   Basic              $      0.36    $      0.93   $      0.46   $      0.41      0.36           0.66      0.35      0.46
   Diluted            $      0.36    $      0.91   $      0.45   $      0.41      0.36           0.65      0.35      0.45

Net Working Capital (Accounts receivable and inventory, less accounts payables and provisions)
                      $   222,751    $   259,812   $   237,448   $   140,203   144,348     158,156      121,815   108,624




                                                                                                                            18
Sales

Thirteen Weeks

For the Thirteen Weeks Ended June 30, 2012                                       Change over
                           2012          2011         2012          2011            2011
Amounts in ($000s)      Canadian $ Canadian $       Domestic $    Domestic $      Domestic $
External Sales
 Canada                 $    81,403 $      73,608   $    81,403   $    73,608          10.6%
 USA                    $ 137,646 $        79,677   $   136,262   $    82,346          65.5%
                        $ 219,049 $ 153,285         $   217,665   $   155,954          39.6%
 Conversion             $       -     $       -     $     1,384   $    (2,669)
                        $ 219,049 $ 153,285         $   219,049   $   153,285          42.9%

Adjusted EBITDA
 Canada                 $     6,057   $    6,505    $     6,057   $     6,505          -6.9%
 USA                    $    10,472   $    4,371    $    10,379   $     4,514         129.9%
                        $    16,529   $   10,876    $    16,436   $    11,019          49.2%
  Conversion            $       -     $      -      $        93   $      (143)
                        $    16,529   $   10,876    $    16,529   $    10,876          52.0%

Adjusted EBITDA as % of sales
 In Canadian dollars          7.5%           7.1%
 In domestic dollars                                       7.6%          7.1%

Sales for the second quarter of fiscal 2012 increased 42.9% to $219.0 million from $153.3
million for the same quarter in fiscal 2011 resulting from the Icelandic USA Acquisition. The
weaker Canadian dollar relative to the U.S. dollar also increased sales in Canadian dollars.

For the quarter, sales volume measured in pounds increased by 37% to 61.5 million compared to
44.8 million the previous year. Our base business increased by 1.0% in volume and Icelandic
USA Acquisition sales increased our total sales volume by an additional 36.0%.

Sales in domestic currency were $217.7 million compared to $156.0 million for the same period
in the previous year, representing an increase of 39.6%, due to the increase in sales volume from
the Icelandic USA Acquisition. Approximately two-thirds of the Company’s sales were
denominated in U.S. dollars. The weaker Canadian dollar increased the value of reported sales
by approximately $4.0 million, or 3.3%, relative to the same period for the prior year.




                                                                                                19
Twenty-Six Weeks

For the Twenty-Six Weeks Ended June 30, 2012                                   Change over
                           2012          2011       2012          2011            2011
Amounts in ($000s)      Canadian $ Canadian $     Domestic $    Domestic $      Domestic $
External Sales
 Canada                $ 159,012 $ 143,818        $   159,012   $   143,818          10.6%
 USA                   $ 347,736 $ 186,575        $   346,271   $   190,969          81.3%
                       $ 506,748 $ 330,393        $   505,283   $   334,787          50.9%
 Conversion            $        -    $        -   $     1,465   $    (4,394)
                       $ 506,748 $ 330,393        $   506,748   $   330,393          53.4%

Adjusted EBITDA
 Canada                $    13,688   $   13,850   $    13,688   $    13,850          -1.2%
 USA                   $    34,386   $   15,362   $    34,304   $    15,678         118.8%
                       $    48,074   $   29,212   $    47,992   $    29,528          62.5%
  Conversion           $       -     $      -     $        82   $      (316)
                       $    48,074   $   29,212   $    48,074   $    29,212          64.6%

Adjusted EBITDA as % of sales
 In Canadian dollars          9.5%         8.8%
 In domestic dollars                                     9.5%          8.8%

On a year-to-date basis, sales in Canadian dollars were $506.7 million, up from $330.4 million
for the previous year, an increase of more than 50% resulting from an increase in sales volume
from our pre-acquisition business as well as from the Icelandic USA Acquisition. Sales
increased for the same reasons as mentioned for the second quarter. The weaker Canadian dollar
increased the value of reported U.S. sales by approximately $5.9 million, or 2.5% relative to the
same period for the prior year.

On a year-to-date basis, sales in domestic currency were $505.3 million compared to $334.8
million for the previous year. Sales volume measured in pounds was 148.3 million compared to
101.6 million the previous year, a 45.8% increase. Our base business increased by 2.8% in
volume and Icelandic USA Acquisition sales increased our total sales volume by an additional
43.0%.

Gross profit

Thirteen Weeks
Consolidated gross profit in the second quarter of 2012 was $44.4 million compared to $34.6
million in 2011. Gross profit as a percentage of sales was 20.3% compared to 22.6% the prior
year. Gross profit increased relative to the same period in the previous year by $9.8 million due
to an increase in sales, primarily due to the Icelandic USA Acquisition, but declined as a
percentage of sales due to an increase in seafood input costs and a result of additional trade
spending in Canadian retail.

Twenty-Six Weeks
Consolidated gross profit for 2012 year to date was $110.9 million compared to $79.7 million in
2011. Gross profit as a percentage of sales was 21.9% compared to 24.1% the prior year. Gross
profit increased by $31.2 million due to an increase in sales, primarily due to the Icelandic USA



                                                                                                20
Acquisition, but declined as a percentage of sales due to an increase in seafood input costs and as
a result of additional trade spending in Canadian retail. Also, included in the first twenty-six
weeks of 2012 is a charge of $1.2 million, compared with $0.3 million in the comparative period
last year, relating to an increase in the cost of the finished goods inventory on the Icelandic USA
and Viking Acquisitions, above its historical cost, as part of the fair value requirements of
purchase price accounting. It should be noted that this adjustment could change once we finalize
the Icelandic USA purchase price allocation, which is expected to occur during the fourth quarter
of 2012.

As we did not expect the increased seafood costs noted above to continue throughout 2012, we
did not increase our selling prices in the first part of the year.

Distribution expenses

Thirteen Weeks
Distribution expenses, consisting of freight and storage, for the second quarter of 2012 increased
by $1.9 million to $10.0 million compared to $8.2 million for the prior year, due to an increase in
sales volume primarily due to the Icelandic USA Acquisition. Distribution expenses were 4.6%
of sales, down from the 5.3% in the prior year. Distribution expenses decreased as a percentage
of sales due to lower fuel surcharges as well as a higher percentage of customer pickups.

Twenty-Six Weeks
For the first twenty-six weeks of 2012, distribution expenses increased by $5.8 million, or
32.4%, from the prior year. Distribution expenses were 4.6% of sales, down from the 5.4% in
the prior year. Distribution expenses decreased as a percentage of sales due to the same reasons
as for the quarter.

Selling, general and administrative expense (SG&A)

                                Thirteen weeks ended         Twenty six week ended
In $000s                     June 30, 2012 July 2, 2011   June 30, 2012 July 2, 2011

Selling, general and
administrative expenses as
reported                            23,898       18,378           52,843       37,864
Less:
  Stock compensation
  expense                              946          559            2,536          485
  Amortization expense               1,725          353            3,578          742
Net SGA                             21,227       17,466           46,729       36,637

Net SGA As a % of sales               9.7%        11.4%             9.2%        11.1%


Thirteen Weeks
SG&A expense for the second quarter of 2012 increased by $5.5 million, or 30.0%, to $23.9
million, compared to $18.4 million for the same period in fiscal 2011. SG&A expenses for the
second quarter of 2012 were 10.9% of sales, compared to 12.0% for the previous year. During
the current quarter, we recorded a stock-based compensation expense of $0.9 million compared
to the same quarter last year when the expense was $0.6 million. The increase in the stock-based



                                                                                                 21
compensation expense was due to an increase in our stock price. Excluding amortization and
stock-based compensation expense, SG&A in the second quarter of 2012 was 9.7% of sales,
compared to 11.4% for the comparative period in 2011. Higher amortization of intangibles
assets from the Icelandic USA and Viking acquisitions in the amount of $1.4 million was offset
by the achievement of approximately $2.0 million of synergies realized.

Twenty-Six Weeks
For the first twenty-six weeks of 2012, SG&A expense increased $15.0 million, or 39.6%, over
the same period in the previous year. SG&A expenses for 2012 year-to-date were 10.4% of
sales, down from 11.5% for the same period for the previous year. The increase in our stock
price increased our stock-based compensation by approximately $2.0 million in the first half of
2012. Excluding amortization and stock-based compensation expense, SG&A in the first half of
2012 was 9.2% of sales, compared to 11.1% for the comparative period. Higher amortization of
intangibles assets from the Icelandic USA and Viking acquisitions in the amount of $2.8 million
was offset by the achievement of approximately $3.0 million of synergies realized.

Adjusted EBITDA 2

Thirteen Weeks
                                             Thir teen weeks ended                   Thir teen weeks ended
                                                 J une 30, 2012                           J uly 2, 2011
Amounts in ($000s)                         Canada      U.S.     Total              Canada      U.S.     Total
Net income                                  2,400     (1,405)     995                3,501      1,275    4,776
Add back:
  Depreciation                                 924       2,646      3,570               878       1,000      1,878
  Amortization                                  54       1,671      1,725                69         284        353
  Financing costs                              311       7,365      7,676               225       1,045      1,270
  Income taxes                                 974      (2,449)    (1,475)            1,382         419      1,801
Standar dized EBITDA                         4,663       7,828     12,491             6,055       4,023     10,078
Add back (deduct):
  Business acquisition, integration
     and other expenses (income)               339       2,585       2,924               (39)       269         230
  Impairment of property, plant and
  equipment                                    280          -          280               -          -           -
  Loss (gain) on disposal of assets            (51)         (61)      (112)                  8      -               8
Adjusted EBITDA, including
stock compensation expense                   5,231      10,352     15,583             6,024       4,292     10,316
  Non-cash stock option expense                825         121        946               482          78        560
Adjusted EBITDA                              6,056      10,473     16,529             6,506       4,370     10,876

* The increase in cost of goods sold relating to inventory acquired from the Icelandic USA and Viking
Acquisitions, above its historical cost, as part of the fair value requirements of purchase price
accounting.




2
  See “Important Notes – Non-IFRS Financial Measures”. Note we changed our definition of Adjusted EBITDA in 2012 to
exclude the non-cash stock-based compensation expense, and the increase in cost of goods sold relating to inventory acquired
from the Icelandic USA and Viking Acquisitions, above its historical cost, as part of the fair value requirements of purchase price
accounting. Adjusted EBITDA for prior periods was restated to conform to the changes made in 2012.




                                                                                                                                22
Consolidated Adjusted EBITDA2 in the second quarter of 2012 was $16.5 million compared to
$10.9 million in 2011. Adjusted EBITDA2 increased as a result of higher sales volumes,
primarily from the Icelandic USA Acquisition, and was partially offset by higher seafood and
other input costs. In domestic currency, Adjusted EBITDA2 as a percentage of sales for the
second quarter of 2012 was 7.6% compared to 7.1% in same period in the previous year.

Twenty-Six Weeks
                                       Twenty-six weeks ended            Twenty-six weeks ended
                                            J une 30, 2012                     J uly 2, 2011
Amounts in ($000s)                    Canada     U.S.      Total        Canada      U.S.     Total
Net income                              2,791      (18)     2,773         8,081      6,424 14,505
Add back:
  Depreciation                          1,870     4,541     6,411         1,788      2,016     3,804
  Amortization                            108     3,470     3,578           121        620       741
  Financing costs                         776    13,569    14,345           445      2,122     2,567
  Income taxes                            700    (2,238)   (1,538)        3,063      3,298     6,361
Standar dized EBITDA                    6,245    19,324    25,569        13,498     14,480    27,978
Add back (deduct):
  Business acquisition, integration
     and other expenses (income)          517     4,753     5,270             10       483       493
  Impairment of property, plant and
  equipment                             4,879     8,769    13,648            -         -          -
  Increase in cost of sales*              -       1,153     1,153            -         271       271
  Loss (gain) on disposal of assets      (154)       52      (102)           (16)      -         (16)
Adjusted EBITDA, including
stock compensation expense             11,487    34,051    45,538        13,492     15,234    28,726
  Non-cash stock option expense         2,199       337     2,536           359        127       486
Adjusted EBITDA                        13,686    34,388    48,074        13,851     15,361    29,212

* The increase in cost of goods sold relating to inventory acquired from the Icelandic USA and Viking
Acquisitions, above its historical cost, as part of the fair value requirements of purchase price
accounting.

Consolidated Adjusted EBITDA2 for the first twenty-six weeks of 2012 was $48.1 million
compared to $29.2 million in 2011. Adjusted EBITDA2 increased 2012 year to date as a result
of the same factors that impacted the quarter. In domestic currency, Adjusted EBITDA2 as a
percentage of sales for the first half was 9.5% compared to 8.8% in the previous year. Margins
are typically higher in the first quarter due to the strong sales during Lent.

Impact of Icelandic USA Acquisition

The tables which follow show the results on a pro-forma basis, which includes the Icelandic
USA operations in the second quarter and first twenty-six weeks of 2011 as though they had
been part of High Liner’s results for the first two quarters of 2011. Synergies of US$2.0 million
were realized in the 2012 second quarter results (US$3.0 million for the first twenty six weeks of
2012).




                                                                                                        23
                                                                                 Adjusted
                                                           Sales      Pounds     EBITDA
         In 000s - Q2                                      $CAD        Sold       $CAD

         Actuals, Q2 2012, Excluding Icelandic USA          159,092     43,729      8,671
         Actuals, Q2 2012, Icelandic USA                     59,957     17,642      7,858
         Actuals, Q2 2012, Including Icelandic USA          219,049     61,371     16,529

         Actuals, Q2 2011                                   153,285     44,802     10,876
         Icelandic USA - Q2 2011                             61,820     17,724      4,528
         Actuals, Q2 2011 - Pro forma                       215,105     62,526     15,404


         Increase Q2 2012 vs Pro forma Q2 2011                 1.8%      -1.8%       7.3%

                                                                                 Adjusted
                                                           Sales      Pounds     EBITDA
         In 000s - First Twenty-Six Week s                 $CAD        Sold       $CAD

         Actuals, Q2 YTD 2012, Excluding Icelandic USA      349,566    100,050     27,763
         Actuals, Q2 YTD 2012, Icelandic USA                157,182     48,106     20,311
         Actuals, Q2 YTD 2012, Including Icelandic USA      506,748    148,156     48,074

         Actuals, Q2 YTD 2011                               330,393    101,641     29,212
         Icelandic USA - Q2 YTD 2011                        143,805     45,181     14,262
         Actuals, Q2 YTD 2011 - Pro forma                   474,198    146,822     43,474

         Increase Q2 YTD 2012 vs Pro forma Q2 YTD 2011         6.9%       0.9%      10.6%



Adjusted EBIT (Earnings before interest and taxes)

Adjusted earnings (before interest and taxes, excluding one-time integration costs, stock-based
compensation expense and increase in cost of goods sold due to the purchase price allocation),
was 5.1% of sales for the quarter (7.7% for the first half of 2012) compared to the same quarter
last year at 5.3% (7.5% for the first half of 2011). Margins are typically higher in the first
quarter due to the strong sales during Lent.

Net income and earnings per share

Net income for the second quarter of 2012 was $1.0 million, or $0.07 per share, ($2.8 million, or
$0.18 per share, for the first twenty-six weeks of 2012) compared to $4.8 million, or $0.31 per
share, for the same quarter last year ($14.5 million, or $0.94 per share, for the first twenty-six
weeks of 2011). However, for reasons described below, these metrics do not provide an accurate
portrayal of the operating results of the company as they contain a number of unusual items.

The tables below show the impact on our diluted earnings per share for the second quarter and
first twenty-six weeks of 2012 and 2011 of non-operating, one-time acquisition costs, stock-
based compensation expense and increase in cost of sales from the purchase price allocation for
acquisitions.




                                                                                                   24
                                                                        Q2 2012                     Q2 2011
                                                                             Diluted                      Diluted
                                                                           Earnings Per                Earnings Per
                                                                           Share Based                  Share Based
                                                                                on                          on
                                                                             Average                     Average
                                                                              Shares                      Shares
                                                                   $000     Outstanding        $000     Outstanding

        Net Income                                             $      995   $      0.06    $    4,776   $     0.31
        Add back (deduct)

          Business acquisition, integration, and other costs   $    1,869 $        0.12 $         136   $     0.01
          Additional depreciation on property that will be
          disposed as part of the acquisition                  $      390 $        0.03 $          - $          -
          Impairment of property, plant and equipment          $      204 $        0.01 $          - $          -
          Revaluation of embedded derivative on debt           $    1,139 $        0.07 $          - $          -
                                                               $    4,597 $        0.30 $       4,912 $       0.32
         Stock Compensation Expense                            $      915 $        0.06 $         549 $       0.04
        Adjusted Net Income                                    $    5,512 $        0.36 $       5,461 $       0.36


        Shares outstanding (000)                                                 15,450                     15,339

                                                                      YTD Q2 2012                YTD Q2 2011
                                                                             Diluted                    Diluted
                                                                           Earnings Per               Earnings Per
                                                                           Share Based                Share Based
                                                                                on                         on
                                                                             Average                    Average
                                                                              Shares                     Shares
                                                                   $000    Outstanding         $000   Outstanding

        Net Income                                             $    2,773   $      0.18    $ 14,505     $     0.94
        Add back (deduct)
         Business acquisition, integration, and other costs    $    3,330 $        0.22 $         302   $     0.02
         Impairment of property, plant and equipment           $    8,942 $        0.58 $           -   $        -
         Additional depreciation on property that will be
         disposed as part of the acquisition                   $      390 $        0.03 $          -    $        -
         Increase in cost of sales due to purchase price
         allocation to inventory                               $      764 $        0.05 $         166   $     0.01
         Revaluation of embedded derivative on debt            $    1,295 $        0.08 $          -    $       -
          Intercompany dividend withholding tax recovery       $   (400)    $     (0.03)   $     - $             -
                                                               $ 17,094     $      1.11    $ 14,973 $         0.97
         Stock Compensation Expense                            $ 2,437      $      0.16    $    468 $         0.03
        Adjusted Net Income                                    $ 19,531     $      1.27    $ 15,441 $         1.00


        Shares outstanding (000)                                                 15,419                     15,381



As can be seen, Adjusted Net Income2 for the quarter was unchanged at $5.5 million, or diluted
EPS of $0.36, from the second quarter of 2011. For the first half of 2012, Adjusted Net Income2
increased by 26.5% to $19.5 million, or diluted EPS of $1.27, from $15.4 million, or diluted EPS
of $1.00, in the first half of 2011.

The Icelandic USA Acquisition, although accretive to diluted EPS on a year to date basis, was
not accretive in the second quarter. As interest and amortization is relatively consistent quarter


                                                                                                                      25
over quarter, but our operations fluctuate, with the first and fourth quarters being stronger
quarters, net income for the second quarter of 2012 was affected by higher interest and
amortization expense relative to its Adjusted EBITDA2. It is expected that the Acquisition will
be accretive to earnings for the full year of 2012, subject to the final amortization expense that
will be finalized as part of the purchase price allocation in the fourth quarter of 2012.

Performance by segment

Canadian Operations

For the quarter, our Canadian operations had external sales of $81.4 million, compared to $73.6
million for the second quarter of last year, an increase of 10.6%. Sales volume increased 8.7% to
18.5 million pounds compared to the second quarter of last year. Canadian retail sales volume
increased 15.0% in pounds. Food service sales pounds for the second quarter increased 3.7%
relative to the same period last year.

Canadian retail had a strong quarter compared to results in 2011 for the same period. We
invested in sales and marketing programs in 2011 to drive more volume through our customers’
stores, launched new value-pack commodity items to better compete with trader labels, and
reformulated some products to have more competitive price points. In addition, Flame Savours
were launched in 2012 based on our successful U.S. products, FireRoasters. These strategies
were successful in increasing retail sales volume in the second quarter of 2012.

For the first twenty-six weeks of 2012, sales for our Canadian operations were $159.0 million
compared to $143.8 for the same period last year. Sales volume in pounds increased 8.5%.
Food service sales volumes increased 0.9%. Retail volumes increased by 17.0%, the result of the
same factors that impacted the quarter.

Adjusted EBITDA2 for our Canadian operations for the second quarter of 2012 was $6.1 million
($13.7 million for the first twenty-six weeks) compared to $6.0 million ($13.5 million for the
first twenty-six weeks) for the same period last year. This increase for the quarter was the result
of an increase in sales volume, partially offset by higher input cost. As we did not expect the
increased seafood costs noted above to continue throughout the year, we did not increase our
selling prices in the first part of the 2012 year.

U.S. Operations

(All currency amounts in this section are in U.S. dollars, unless otherwise noted)

The second quarter of 2012 is the second full quarter where we included operating results for the
Icelandic USA Acquisition. We began the integration of the Icelandic USA Acquisition in the
first quarter of 2012 by consolidating our U.S. broker and sales forces. We continued the
integration in the second quarter of this year by finalizing the organization for our U.S.
operations, thereby eliminating the duplicate roles and functions between Icelandic and High
Liner. We also announced in May that we would be closing two of our production facilities
within the next year, including the Danvers plant. The annual ongoing pretax reduction in
operating costs (increase in EBITDA) resulting from this plant closure, once closed, is estimated
to be approximately $7.5 million. These savings were included in the previously announced



                                                                                                     26
$16-$18 million in efficiencies estimated to result from the Icelandic USA acquisition.
Integration efforts continue to go well and we expect to achieve all of the forecasted synergies as
expected.

For the second quarter of 2012, our U.S. operations had external sales of $136.3 million,
compared to $82.3 million for the second quarter of 2011, an increase of 65.5%. Much of the
increase in sales and profitability of our U.S. operations was due to the Icelandic USA
Acquisition. To better understand the trends in this operation, the remainder of this section will
be discussed on a pro-forma basis, which will include in the second quarter of 2011 the Icelandic
USA operating results as though they had been part of High Liner’s results for the 2011
comparable period.

The tables below show actual and pro-forma results for our U.S. Operations for 2011, compared
to actual results for 2012:

                                                                                  Adjus ted
                                                          Sales        Pounds     EBITDA
     In $000s - Q2                                         $US          Sold        $US

     Actuals , Q2 2012, Excluding Icelandic USA            76,922       25,163        2,766
     Actuals , Q2 2012, Icelandic USA                      59,340       17,742        7,613
     Actuals , Q2 2012, Including Icelandic USA           136,262       42,905       10,379

     Actuals , Q2 2011                                     82,347       27,817        4,513
     Icelandic USA - Q2 2011                               60,663       17,724        4,548
     Proforma, Q2 2011                                    143,010       45,541        9,061


     Increas e Q2 2012 vs Pro forma Q2 2011                  -4.7%        -5.8%       14.5%



                                                                                  Adjusted
                                                            Sales      Pounds     EBITDA
         In $000s - First Twenty-Six Week s                  $US        Sold        $US

         Actuals, YTD Q2 2012, Excluding Icelandic USA       189,766     62,748     13,994
         Actuals, YTD Q2 2012, Icelandic USA                 156,505     48,106     20,310
         Actuals, YTD Q2 2012, Including Icelandic USA       346,271    110,854     34,304

         Actuals, YTD Q2 2011                                190,970     67,249     15,677
         Icelandic USA - YTD Q2 2011                         143,804     45,181     14,419
         Proforma, YTD Q2 2011                               334,774    112,430     30,096


         Increase Q2 2012 vs Pro forma Q2 2011                  3.4%      -1.4%      14.0%



Pro forma sales volume for the quarter decreased by 5.8% to 42.9 million pounds, compared to
45.6 million pounds in the second quarter of 2011 (1.4% to 110.9 million pounds for the twenty-
six weeks of 2012, compared to 112.4 pounds in 2011); sales value in dollars for the quarter
decreased 4.7% (increased 3.4% for the twenty-six weeks).




                                                                                                 27
On a pro forma basis, our U.S. food service operations, including Icelandic USA experienced a
decrease in sales volume of 6.7% for the second quarter of 2012, compared to the second quarter
of 2011. Sales to both distributors and national accounts decreased during the quarter. This is
partly due to an earlier Lenten period in 2012 compared with 2011 that resulted in strong sales in
the first quarter of 2012 over the same period in 2011, on a pro forma basis.

U.S. retail operations experienced a 4.5% decrease in sales volume in the second quarter of 2012
compared to the second quarter of 2011 on a pro forma basis, largely as a result of an earlier
Lenten period in 2012 than 2011, noted above. Sales to traditional grocery stores decreased
0.7% due to lower Fisher Boy brand sales as we did not repeat a television and radio advertising
campaign that we ran in the second quarter of fiscal 2011 that increased Fisher Boy brand
awareness and sales in 2011. Sales volume for our private label products was down 10.7% in
volume from the second quarter of 2011, in spite of new business gained, due to a decrease in
private label seafood sales overall in the market place. Sales to club stores increased 3.3% in
volume during the 2012 quarter as a result of new product launches, increased distribution for
existing products, and strong sales for seasonal products.

For the first twenty-six weeks of 2012, sales for our U.S. operations were $346.3 million
compared to $334.8 for the same period last year on a pro forma basis. Sales volume in pounds
decreased 1.4%. Food service sales volumes decreased 0.6%. Retail volumes decreased by
3.5%, the result of the same factors that impacted the quarter.

Adjusted EBITDA2 for our U.S. operations in the second quarter increased to $10.4 million from
$9.1 million for the same period in 2011 on a pro forma basis ($34.3 million for the first half of
2012 compared to $30.1 million for the comparable period in 2011). Profitability improved as a
result due to an increase in new product volume and an increase in volume from the Icelandic
USA Acquisition, as well as realized synergies of $2.0 million in the second quarter and $3.0
million for the first twenty-six weeks of 2012.


Outlook
We remain ahead of schedule in combining the operations of Icelandic USA with our existing
operations, and expect to be rewarded with synergies a few months earlier than anticipated for
2013. We are confident that the successful integration will strengthen our leadership position in
the U.S. frozen seafood food service market. Equally important, we are pleased to be able to
sustain the improved performance at our Canadian operations, driven by our sales and marketing
programs and introduction of the ‘Flame Savours’ product in the retail market earlier this year,
and expect this momentum to continue for the rest of the year. While the quarter reflects flat
adjusted earnings per share versus last year due to timing issues and higher fixed interest and
amortization expenses, the acquisition of Icelandic USA remains accretive on a year-to-date
basis and we expect it to be so for the full year. Lastly, consistent with our comments last
quarter, we expect to see input cost improvements during the second half of the year as a result
of earlier price decreases for several key raw materials. All these should help deliver operating
strength as we enter the second half of 2012.




                                                                                                28
Risk Factors
While risk factors are described in detail in the MD&A found in our 2011 Annual Report and in
our 2011 Annual Information Form, we have updated certain risk factors below for the second
quarter of 2012. Readers should refer to the 2011 Annual Report and Annual Information Form
for a more detailed description of risk factors applicable to the Company.

Foreign Currency

Foreign currency values affect our operations in a number of ways. As we translate the results of
our U.S. subsidiary to Canadian dollars, a fluctuating exchange rate affects the individual line
items on our balance sheet and income statement. We have discussed the impact of foreign
currency fluctuations on sales and earnings for the quarter in various sections of this document.

The Canadian dollar weakened more than 5% as at June 30, 2012, compared to July 2, 2011
relative to the U.S. dollar. On our balance sheet, this increases the carrying value of both assets
and liabilities and increases the foreign exchange translation of our U.S. subsidiary included in
accumulated other comprehensive income (AOCI) in shareholders’ equity. As our Canadian
operations are a net importer of seafood and other products, a stronger Canadian dollar reduces
costs and a weaker Canadian dollar increases costs.

In order to minimize foreign exchange risk, we undertake hedging activities using various
derivative products in accordance with an internal policy on managing derivative usage and risk.
We hedge a portion of our raw material requirements and retail commodity products as price
increases on these products take more time to implement. We do not hedge commodity food
service products as the prices to our customers move in line with changes in the cost of these
products in Canadian dollars. The policy is approved and monitored by the Audit Committee of
the Board. During the quarter, our hedging activities resulted in an effective Canadian/U.S.
exchange rate of 1.0047 for inventory purchased in U.S. dollars by our Canadian Operations of
approximately $39.4 million, compared to 0.9802 for the second quarter of 2011 (1.0034 for the
twenty-six weeks of 2012, compared to 0.9919 in 2011).

Our risk management strategy with respect to exposure to the U.S. dollar is fully explained in our
Management Discussion and Analysis, available in our 2011 Annual Report. These documents
are available at www.sedar.com and at www.highlinerfoods.com.

Economic Environment

Uncertain economic conditions represent heightened potential risk to our operational results and
our financial performance and resources. Our diverse product offering (including a full range of
value and premium products), to multiple sales channels, helps mitigate the risk to our
operational results and thus, our financial performance. Management regularly monitors
economic conditions, including unemployment rates, interest rates, cash flow requirements,
customer creditworthiness, and capital markets. Management believes the Company has
sufficient financial resources to meet its ongoing business requirements.




                                                                                                  29
Product costs

We buy as much as $600 million of seafood, packaging, flour or corn based coatings, and
cooking oils. Seafood and other food inputs markets are global with values expressed in U.S.
dollars. We buy 30 species of seafood from 20 countries around the world. There are no formal
hedging mechanisms in the seafood market. Prices can change due to changes in the balance
between supply and demand. Weather, quota changes, disease and other environmental impacts
can affect supply. Changes in the relative values of currency can change the demand from a
particular country whose currency has risen or fallen as compared to the U.S. dollar. The
increasing middle class and government policies in emerging economies, as well as demand from
health conscious consumers, affect the demand side as well. Costs in Canada are also affected by
the Canadian / U.S. exchange rates.

Our broad product line and customer base and geographically diverse procurement operations
help us mitigate changes in the cost of our raw materials. In addition species substitution,
product formulation changes, long term relationship with suppliers, and price changes to
customers, are all important factors in our ability to manage margins to target.

Related Party Transactions
We refer to note 12 of our Condensed Interim Consolidated Financial Statements for the period
ended June 30, 2012, as well as to note 21 to our 2011 audited financial statements contained in
our 2011 Annual Report.


Disclosure of Outstanding Share Data
On August 8, 2012 13,360,006 common shares, 1,758,962 non-voting equity shares and 804,543
stock options were outstanding. The stock options are exercisable on a one-for-one basis for
common shares of the Company.

Dated: August 8, 2012.




                                                                                               30
 Q2 2012 Unaudited Condensed Interim Consolidated Financial Statements
             International Financial Reporting Standards
          As at and for the thirteen and twenty-six weeks ended June 30, 2012
With comparative periods as at and for the thirteen and twenty-six weeks ended July 2, 2011




                                                                                              31
                                          HIGH LINER FOODS INCORPORATED
                              (Incorporated under the laws of the Province of Nova Scotia)


                                                      UNAUDITED
                             CONSOLIDATED STATEMENT OF FINANCIAL POSITION
                                           (in thousands of Canadian dollars)



                                                        Notes         June 30, 2012    July 2, 2011 December 31, 2011
ASSETS
 Current:
  Cash and cash equivalents                                       $            954 $            292    $        3,260
  Accounts receivable                                                       76,844            48,616           84,587
  Income taxes receivable                                                    7,349             2,357            3,557
  Other financial assets                                  13                 1,034              449             1,346
  Inventories                                                              229,718           144,048         261,771
  Prepaid expenses                                                           3,195             2,848            3,019
 Total current assets                                                      319,094           198,610         357,540
 Non-current:
  Property, plant and equipment                           5                 92,589            65,175         107,832
  Deferred income taxes                                                      3,585             2,293            1,695
  Other receivables and miscellaneous assets                                 1,212              863             1,210
  Investment in equity accounted investee                                      159              236              275
  Other long-term financial assets                        13                      -             380                 -
  Employee future benefits                                                      94               89               94
  Intangible assets                                                        118,176            29,629         121,564
  Goodwill                                                4                110,254            38,987         110,056
                                                                           326,069           137,652         342,726
 Total assets                                                     $        645,163 $         336,262   $     700,266



LIABILITIES AND SHAREHOLDERS' EQUITY
 Current:
  Bank loans                                                      $         90,256 $          58,515   $     120,980
  Accounts payable and accrued liabilities                                  77,494            44,685         108,232
  Provisions                                              6                  6,318             3,631             675
  Other current financial liabilities                     13                   614             2,092             793
  Income taxes payable                                                       1,407               38             1,990
  Current portion of long-term debt                       8                 17,325             4,335            2,543
  Current portion of finance lease obligations                               1,026             1,095            1,064
 Total current liabilities                                                 194,440           114,391         236,277
 Non-current:
  Long-term debt                                          8                217,433            40,923         231,109
  Other long-term financial liabilities                   13                 8,345                 -            6,329
  Long-term finance lease obligations                                        2,582             2,685            2,599
  Deferred income taxes                                                     50,433            12,609           51,151
  Employee future benefits                                                  11,394             9,772           11,274
 Total liabilities                                                         484,627           180,380         538,739
 Shareholders' Equity
  Common shares                                           9                 78,999            78,056           78,067
  Contributed surplus                                                        8,127             8,441            8,406
  Retained earnings                                                         75,535            77,190           76,770
  Accumulated other comprehensive loss                                      (2,125)          (7,805)          (1,716)
 Total shareholders' equity                                                160,536           155,882         161,527
 Total liabilities and shareholders' equity                       $        645,163 $         336,262   $     700,266
                                                 See accompanying notes                                                  

                                                               
                                                                                                                            32
                                                  HIGH LINER FOODS INCORPORATED
                                        For the thirteen and twenty-six weeks ended June 30, 2012
                            (with comparative figures for the thirteen and twenty-six weeks ended July 2, 2011)


                                                                UNAUDITED
                                               CONSOLIDATED STATEMENT OF INCOME
                                    (in thousands of Canadian dollars, except per share information)



                                                                                Thirteen weeks ended,             Twenty-six weeks ended,
                                                                     Notes    June 30, 2012 July 2, 2011          June 30, 2012 July 2, 2011
Revenues                                                                      $     219,049     $     153,285 $       506,748     $        330,393
Cost of sales                                                                       174,661           118,659         395,887              250,720
Gross profit                                                                         44,388            34,626         110,861               79,673
Distribution expenses                                                                10,030             8,158          23,544               17,778
Selling, general and administrative expenses                                         23,898            18,378          52,843               37,864
Impairment of property, plant and equipment                               5             280                  -         13,648                    -
Business acquisition, integration and other expenses                                   2,924              230            5,270                493
Results from operating activities                                                      7,256            7,860          15,556               23,538
Finance costs                                                                          7,676            1,270          14,345                2,567
Share of profit from equity accounted investee (net of income tax)                        60               13              (24)                105
Income (loss) before income taxes                                                       (480)           6,577            1,235              20,866
Income taxes
 Current                                                                                (515)           1,256             492                3,102
 Deferred                                                                               (960)             545           (2,030)              3,259
Total income taxes                                                                    (1,475)           1,801           (1,538)              6,361
Net income                                                                    $         995     $       4,776 $          2,773    $         14,505


PER SHARE EARNINGS
Earnings per common shares
 Basic                                                                                  0.07              0.32            0.18                0.96
 Diluted                                                                                0.06              0.31            0.18                0.94


Weighted average number of shares outstanding for the period
 Basic                                                                            15,131,254        15,102,135     15,117,601         15,128,394
 Diluted                                                                          15,449,522        15,338,666     15,419,094         15,380,690
                                                          See accompanying notes                                                                      

                                                                       

                                                                       

                                                                       

                                                                       

                                                                       

                                                                       

                                                                       

                                                                                                                                      33
                                                     HIGH LINER FOODS INCORPORATED
                                            For the thirteen and twenty-six weeks ended June 30, 2012
                                (with comparative figures for the thirteen and twenty-six weeks ended July 2, 2011)


                                                                   UNAUDITED
                                        CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
                                                       (in thousands of Canadian dollars)


                                                                                   Thirteen weeks ended,             Twenty-six weeks ended,
                                                                               June 30, 2012         July 2, 2011 June 30, 2012      July 2, 2011
Net income for the period                                              $                995 $                 4,776 $         2,773     $          14,505
Other comprehensive (loss) income, net of income taxes
 Gain on hedge of net investment in foreign operations                               (1,806)                    138            (268)                  268
 Loss on translation of net investment in foreign operations                          3,259                     133             500                (2,527)
                                                                                      1,453                     271             232                (2,259)
 Effective portion of changes in fair value of cash flow hedges                        (116)                   (259)           (492)               (1,250)
 Net change in fair value of cash flow hedges transferred to income                     153                     701            (149)                1,193
                                                                                         37                     442            (641)                  (57)
Defined benefit plan actuarial losses                                                  (982)                     -             (982)                   -
Other comprehensive income (loss), net of income tax                                    508                     713          (1,391)               (2,316)
Total comprehensive income                                             $              1,503    $              5,489 $         1,382     $          12,189



                                                                   UNAUDITED
                             CONSOLIDATED STATEMENT OF ACCUMULATED OTHER COMPREHENSIVE LOSS
                                                       (in thousands of Canadian dollars)

                                                                                                                                                    Total
                                                                                                                        Net exchange         acccumulated
                                                                                                   Foreign currency    (losses)/gains               other
                                                                                                         translation     on cash flow       comprehensive
                                                                                                        adjustments           hedges                 loss
Balance as at December 31, 2011                                                                $            (1,606) $          (110) $             (1,716)
For the twenty-six weeks ended June 30, 2012:
 Exchange differences on translation of foreign operations                                                     232                -                   232
 Cash flow hedges                                                                                                -             (641)                (641)
Balance as at June 30, 2012                                                                    $            (1,374) $          (751) $             (2,125)


Balance as at January 1, 2011                                                                  $             (3,821) $        (1,668) $            (5,489)
For the twenty-six weeks ended July 2, 2011:
 Exchange differences on translation of foreign operations                                                   (2,259)              -                (2,259)
 Cash flow hedges                                                                                                -              (57)                  (57)
Balance as at July 2, 2011                                                                     $             (6,080) $        (1,725) $            (7,805)
                                                             See accompanying notes                                                                           

                                                                            

                                                                            

                                                                            

                                                                            

                                                                                                                                              34
                                                                    

                                              HIGH LINER FOODS INCORPORATED
                                           For the twenty-six weeks ended June 30, 2012
                               (with comparative figures for the twenty-six weeks ended July 2, 2011)


                                                               UNAUDITED
                            CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                                                 (in thousands of Canadian dollars)


                                                                                                               Accumulated
                                                                                                                     other
                                              Non-voting        Common     Contributed       Retained        comprehensive
                                                  equity         shares       surplus        earnings                 loss             Total
Balance, December 31, 2011                $     14,301     $     63,766    $   8,406     $    76,770     $         (1,716) $     161,527
Other comprehensive loss                              -                -            -           (982)                (409)           (1,391)
Net income for the period                             -                -            -          2,773                     -            2,773
Non-voting share dividends                            -                -            -           (358)                    -             (358)
Common share dividends                                -                -            -         (2,668)                    -           (2,668)
Share-based payments                                  -           1,165             -               -                    -            1,165
Shares repurchased                                 (233)               -        (279)               -                    -             (512)
Balance, June 30, 2012                    $     14,068     $     64,931    $   8,127     $    75,535     $         (2,125) $     160,536



Balance, January 1, 2011                  $      15,011 $        63,315 $       8,917 $       65,557 $              (5,489) $        147,311
Other comprehensive loss                              -                -            -               -               (2,316)           (2,316)
Net income for the period                             -                -            -         14,505                     -            14,505
Non-voting share dividends                            -                -            -           (348)                    -              (348)
Common share dividends                                -                -            -          (2,524)                   -            (2,524)
Share based payments                                  -             385             -               -                    -              385
Shares repurchased                                 (655)              -          (476)             -                     -            (1,131)
Balance, July 2, 2011                     $      14,356 $        63,700 $       8,441 $       77,190 $              (7,805) $        155,882
                                                      See accompanying notes                                                                     

                                                                    

                                                                    

                                                                    

                                                                    

                                                                    

                                                                    

                                                                    

                                                                    


                                                                                                                                35
                                                   HIGH LINER FOODS INCORPORATED
                                         For the thirteen and twenty-six weeks ended June 30, 2012
                            (with comparative figures for the thirteen and twenty-six weeks ended July 2, 2011)


                                                                  UNAUDITED
                                             CONSOLIDATED STATEMENT OF CASH FLOWS
                                                     (in thousands of Canadian dollars)


                                                                                          Thirteen weeks ended,      Twenty-six weeks ended,
                                                                                 June 30, 2012        July 2, 2011 June 30, 2012   July 2, 2011
Cash provided by (used in) operations:
 Net income from operations for the period                                            $         995    $    4,776 $        2,773     $        14,505
 Charges (credits) to income not involving cash from operations:
   Depreciation and amortization                                                              5,295         2,231          9,989               4,545
   Share-based payments expense                                                                 945           524          2,535                 429
   Loss on disposal of assets and impairment                                                     19            41         13,550                  70
   Payments of employee future benefits (in excess of) less than expense                       (843)          162           (863)                150
   Finance cost                                                                               7,676         1,270         14,345               2,567
   Income tax (recovery) expense                                                             (1,475)        1,801          (1,538)             6,361
   Share of (profit) loss of equity accounted investee, net of income taxes                      60            13             (24)               105
   Movements in provisions                                                                    3,722         1,662          5,614               3,081
   Unrealized foreign exchange (loss) gain                                                     (159)          181             (98)               131
 Cash flow provided by operations before changes in non-cash working capital                 16,235        12,661         46,283              31,944
 Net change in non-cash working capital balances:
   Accounts receivable                                                                       25,290        14,351          3,775               (2,049)
   Inventories                                                                               16,558         1,967         31,903              (13,908)
   Prepaids                                                                                     183          (726)          (179)                963
   Accounts payable and accrued liabilities                                                 (11,266)        (4,880)       (34,761)            (15,121)
   Net change in non-cash working capital balances                                           30,765        10,712            738              (30,115)
 Interest paid                                                                               (2,716)        (1,264)        (8,084)             (2,398)
 Income taxes paid                                                                              (81)        (2,303)        (1,715)             (7,958)
 Net cash flows provided by (used in) operating activities                                   44,203        19,806         37,222               (8,527)
Cash (used in) provided by financing activities:
 (Decrease) increase in current working capital facilities                                  (39,302)       (14,736)       (30,667)            17,413
 Repayment of long-term debt                                                                   (646)        (1,107)        (1,272)             (2,227)
 Repayment of finance lease obligations                                                        (239)         (228)          (491)               (413)
 Common share dividends paid                                                                 (1,335)        (1,329)        (2,668)             (2,524)
 Non-voting share dividends paid                                                               (179)         (179)          (358)               (348)
 Share repurchase                                                                              (512)         (441)          (512)              (1,131)
 Stock options exercised                                                                        136            78            554                 224
 Net cash flows (used in) provided by financing activities                                  (42,077)       (17,942)       (35,414)            10,994
Cash (used in) provided by investing activities:
 Purchase of property, plant and equipment (net of investment tax credits)                   (2,628)        (2,036)        (4,356)             (2,795)
 Net proceeds on disposal of assets                                                              61            33            208                  97
 Change in other receivables and miscellaneous assets                                              -            (1)             -                 (65)
 Net cash flows used in investing activities                                                 (2,567)        (2,004)        (4,148)             (2,763)
Foreign exchange increase (decrease) on cash and cash equivalents                                87            27             34                  (10)
Change in cash and cash equivalents during the period                                          (354)         (113)         (2,306)              (306)
Cash and cash equivalents, beginning of period                                                1,308           405          3,260                 598
Cash and cash equivalents, end of period                                              $         954    $      292     $      954     $           292
                                                             See accompanying notes                                                                       
                                                                                                                                         36
Notes to the Unaudited Condensed Interim Consolidated Financial Statements



1. Reporting entity
High Liner Foods Incorporated (the “Company” or “High Liner”) is a company domiciled in Canada. The
address of the Company’s registered office is 100 Battery Point, P.O. Box 910, Lunenburg Nova Scotia,
B0J 2C0. The unaudited condensed interim consolidated financial statements of the Company as at and for
the thirteen and twenty-six weeks ended June 30, 2012 comprise the non-consolidated Parent and its
subsidiaries (herein together referred to as the “Company” and individually as “Company subsidiaries”)
and the Company’s interest in associates and jointly controlled entities. The Company is primarily involved
in the manufacturing and marketing of prepared and packaged frozen seafood products.


2. Basis of preparation
(a) Statement of compliance
These unaudited condensed interim consolidated financial statements are in compliance with International
Accounting Standard 34, Interim Financial Reporting (“IAS 34”). Accordingly, certain information and
footnote disclosure normally included in annual financial statements prepared in accordance with
International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards
Board ("IASB"), have been omitted or condensed. These unaudited condensed interim consolidated
financial statements should be read in conjunction with the Company’s consolidated financial statements
for the fifty-two weeks ended December 31, 2011 as set out in the 2011 Annual Report, available at
www.highlinerfoods.com.

These financial statements were authorized for issue in accordance with a resolution of the directors on
August 8, 2012.

(b) Functional and presentation currency
Unless otherwise noted, all amounts in these unaudited condensed interim consolidated financial statements
are in Canadian dollars, which is the Company’s presentation currency. Each of the Company’s
subsidiaries and its joint venture determines its own functional currency. The Company conducts its
business in Canadian and U.S. dollars. The average U.S. to Canadian dollar exchange rate throughout the
twenty-six week period ended June 30, 2012 was $1.0057 (July 2, 2011: $0.9767) and throughout the fifty-
two weeks ended December 31, 2011 was $0.9891. The June 30, 2012 period end exchange rate was
$1.0191, July 2, 2011 was $0.9643, and December 31, 2011 was $1.017. All financial information
presented in Canadian dollars has been rounded to the nearest thousand.

(c) Seasonality of operations
Due to the seasonality of the Company’s business, comparatives are presented on the consolidated
statement of financial position for the current and prior period quarter, in addition to the balances as of the
Company’s fiscal year end. Inventory levels fluctuate throughout the year. This is due to the seasonal
closure of plants in Asia during the Lunar New Year period, which results in significantly higher
inventories in December, January, February and March than during the rest of the year.

(d) Significant changes in accounting policies
There were no significant changes in accounting policies during the thirteen and twenty-six week periods
ended June 30, 2012.


3. Business combinations

Additional information on prior year acquisition
On December 19, 2011, the Company acquired Icelandic Group h.f.’s U.S. subsidiary, Icelandic USA and
its Asian procurement operations.




                                                                                                                  37
Notes to the Unaudited Condensed Interim Consolidated Financial Statements


The fair value of the identifiable assets and liabilities as at the date of acquisition, and adjustments to the
provision recognized during the period, were:

                                                                     Adjustments to
                                                                      the provision         Adjusted
                                              Provisional fair value    recognized provisional fair
                                                      recognised on      during the value recognized
Amounts in $000s                                         acquisition         period on acquisition
Assets
Property, plant and equipment                 $            33,052 $           7,883 $           40,935
Trade receivables                                          29,767              (338)            29,429
Prepaid expenses                                              780               -                  780
Inventories                                                91,942               448             92,390
Intangible assets                                          74,189            18,736             92,925
                                              $           229,730 $          26,729 $          256,459
Liabilities
Trade payables                                            (31,186)               326           (30,860)
Employee future benefit                                      (296)               -                (296)
Deferred income taxes                                     (28,136)           (10,205)          (38,341)
Total identifiable net assets at fair value   $           170,112 $           16,850 $         186,962

Goodwill arising on acquisition                            87,666            (16,850)           70,816
Purchase consideration recorded               $           257,778 $              -    $        257,778

During the thirteen and twenty-six weeks ended June 30, 2012, $2.7 million and $4.9 million respectively
of costs were expensed as business acquisition, integration and other expenses on the statement of income
(thirteen and twenty-six weeks ended July 2, 2011: $nil). There were no amounts capitalized as deferred
financing costs during thirteen and twenty-six weeks ended June 30, 2012 (fifty-two weeks ended
December 31, 2011: $15.1 million was capitalized which reduced the value of debt on the statement of
financial position to be amortized to interest expense).

The initial net assets recognized in the December 31, 2011 financial statements, and as adjusted during the
period, are based on a provisional assessment of fair value as the Company has sought an independent
valuation for the equipment, real estate, intangible assets and residual goodwill acquired for which the
accounting is incomplete. The results of the valuation for intangible assets, residual goodwill and some
fixed assets have not been received as at the date these financial statements were approved for issue by
management. As a result, the financial information disclosed is based on management’s best estimate and
are disclosed on a provisional basis.

Pending the finalization of the valuation reports noted above and its impact of accounting for taxes which is
incomplete at this time, the Company is only able to provide a provisional fair value for customer
relationships and brands acquired as part of the acquisition based on preliminary information we have
gathered during the due diligence phase of completing the acquisition and is subject to revisions in future
periods resulting from the finalization of the purchase price accounting. Any revisions to customer
relationships and brands may impact amortization recorded. Goodwill and intangible assets are allocated
entirely to the U.S. cash-generating unit. The goodwill recognized is not deductible for income tax
purposes.


4. Goodwill

Goodwill is tested for impairment annually (as at the first day of the Company’s fourth quarter) and when
circumstances indicate the carrying value may be impaired. The method used to determine the Company’s
fair value less costs to sell uses a discounted cash flow model. The key assumptions used to determine the



                                                                                                                  38
Notes to the Unaudited Condensed Interim Consolidated Financial Statements


recoverable amount for the different cash generating units is discussed in note 5 of the Company’s 2011
Annual Report. The Company has not identified any indicators of impairment at any other date and as such
has not completed an additional impairment calculation.


5. Property, plant and equipment

For the thirteen and twenty-six weeks ended June 30, 2012, the Company recorded an impairment loss of
$0.2 million and $13.6 million respectively representing the write-down of certain property, plant and
equipment due to the May 2012 announced closure of the Burin and Danvers plants. This has been
recognized in the consolidated statement of income, and operating segment information (note 7), in line
item “Impairment of property, plant, and equipment”. The fair value for the Danvers plant was determined
by a third-party market estimate, and the fair value for the Burin plant was based on the outcome of recent
transactions for similar assets in the same industry. The impairment loss relating to the Burin closure of
$4.8 million has been allocated to the Canadian reportable operating segment, and the impairment loss
relating to the Danvers closure of $8.8 million has been allocated to the U.S. reportable operating segment.
The Company has not identified any additional indicators of impairment as at June 30, 2012.


6. Provisions

All provisions are considered current. The carrying amounts are analysed as follows:

Amounts in ($000s)
Carrying amount, January 1, 2011                    550
 New provisions added                               952
 Provisions utilized                               (827)
Carrying amount, December 31, 2011                  675
 New provisions added                             6,100
 Provisions utilized                               (457)
Carrying amount, June 30, 2012                    6,318

The amounts recognized include the Company’s coupon redemption costs and miscellaneous other items.
Employee incentives are included as other provisions in the first, second and third quarters of the year until
the amounts can be estimated with certainty in the fourth quarter. Provision amounts are usually settled
within eleven months from initiation, depending on the procedures used for negotiating the claims, and
changes are not material to the Company on an individual basis. Management does not expect the outcome
of any of the recorded amounts will give rise to any significant loss beyond the amounts recognized at June
30, 2012. The Company is not eligible for any reimbursement by third parties in this regard for these
amounts.


7. Operating segment information

Operations and identifiable assets and liabilities by reporting segment are as follows:




                                                                                                                 39
   Notes to the Unaudited Condensed Interim Consolidated Financial Statements


                                                               Thirte e n we e ks                    T hirt een weeks                         Twe nty-si x we e ks                  T wenty-six weeks
                                                                June 30, 2012                         July 2, 2011                              June 30, 2012                          July 2, 2011
Am ounts in ($000s)                                     C anada     U.S.          Total       Canada       U.S.       T otal            C anada      U.S.          Total     Canada        U.S.       T otal
Sales within geographic region                           81,403     135,953       217,356     73,602        79,183        152,785       159,012      344,669     503,681     143,049       184,541       327,590
Sales outside of geographic region                        1,425        5,097         6,522     1,588         2,122           3,710         3,409       9,448       12,857       4,100         5,581         9,681
                                                         82,828     141,050       223,878     75,190        81,305        156,495       162,421      354,117     516,538     147,149       190,122       337,271
Intercompany sales outside of geographic region           (1,425)     (3,404)       (4,829)    (1,582)       (1,628)        (3,210)       (3,409)     (6,381)      (9,790)     (3,331)       (3,547)       (6,878)
Re ve nue (e xcluding i nte rcompany sal e s)            81,403     137,646       219,049     73,608        79,677        153,285       159,012      347,736     506,748     143,818       186,575       330,393
Cost of sales (excluding int ercompany sales)           (64,443)    (110,218)     (174,661)   (56,512)      (62,147)      (118,659)     (123,837)   (272,050)   (395,887)    (108,133)     (142,587)     (250,720)
Gross profit                                             16,960      27,428        44,388     17,096        17,530         34,626        35,175       75,686     110,861      35,685        43,988        79,673
Dist ribution expenses                                    (3,673)     (6,357)      (10,030)    (3,696)       (4,462)        (8,158)       (7,503)    (16,041)     (23,544)     (7,403)      (10,375)      (17,778)
Selling, general and administrat ive expenses             (8,952)    (14,946)      (23,898)    (8,325)      (10,053)       (18,378)      (18,020)    (34,823)     (52,843)    (16,631)      (21,233)      (37,864)
Impairment of property, plant and equipment                (280)         -            (280)           39      (269)           (230)       (4,880)     (8,768)     (13,648)        (10)         (483)         (493)
Business acquisition, integration and ot her expenses      (340)      (2,584)       (2,924)       -             -              -            (518)     (4,752)      (5,270)        -             -             -
Financing cost s                                           (311)      (7,365)       (7,676)     (225)        (1,045)        (1,270)         (776)    (13,569)     (14,345)       (445)       (2,122)       (2,567)
(Loss) gain from equity accounted investee                   (30)        (30)          (60)           (6)           (7)        (13)           12           12          24         (52)          (53)         (105)
Income (loss) be fore i ncome tax                         3,374       (3,854)         (480)    4,883         1,694           6,577         3,490      (2,255)       1,235     11,144          9,722       20,866
Income tax recovery (expense)                               (974)      2,449         1,475     (1,382)        (419)         (1,801)       (1,204)      2,742        1,538      (3,063)       (3,298)       (6,361)
Ne t income (loss)                                        2,400       (1,405)         995      3,501         1,275           4,776         2,286         487        2,773       8,081         6,424       14,505
Add back:
  Depreciation included in:
     Cost of sales                                          586        2,190         2,776       556           910           1,466         1,171       3,620        4,791       1,131         1,831         2,962
     Distribution                                             38         380          418             44            55             99         83         763          846             87       108           195
   Selling, general and administ rative expenses            300              76       376        278                35        313            616         158          774        570                77       647
Total de pre ci ati on                                      924        2,646         3,570       878         1,000           1,878         1,870       4,541        6,411       1,788         2,016         3,804
  Amortization included in:
   Selling, general and administ rative expenses              54       1,671         1,725            69       284            353            108       3,470        3,578        121           620           741
Total de pre ci ati on and amortiz ati on                   978        4,317         5,295       947         1,284           2,231         1,978       8,011        9,989       1,909         2,636         4,545
Financing cost s                                            311        7,365         7,676       225         1,045           1,270           776      13,569       14,345        445          2,122         2,567
Income tax recovery (expense)                               974       (2,449)       (1,475)    1,382           419           1,801         1,204      (2,742)      (1,538)      3,063         3,298         6,361
Income be fore de pre ci ati on, amortiz ati on,
financing and i ncome taxe s                              4,663        7,828       12,491      6,055         4,023         10,078          6,244      19,325       25,569     13,498        14,480        27,978




40
                     Notes to the Unaudited Condensed Interim Consolidated Financial Statements



                                     Thirteen weeks                    Thirteen weeks              Twenty-six weeks              Twenty-six weeks
                                      June 30, 2012                     July 2, 2011                 June 30, 2012                  July 2, 2011
Amounts in ($000s)              Canada    U.S .     Total        Canada     U.S.      Total      Canada U.S .    Total         Canada   U.S.     Total
Capital Expenditures
Financed by operations             1,268      1,413     2,681      1,275        761      2,036      2,191   2,165      4,356    1,535        1,260   2,795
Financed by finance leases           270          -       270        267          -        267        585       -        585      317            -     317
Total capital expenditures         1,538      1,413     2,951      1,542        761      2,303      2,776   2,165      4,941    1,852        1,260   3,112

                                     Twenty-six weeks                  Fifty-two weeks
                                       June 30, 2012                  December 31, 2011
Amounts in ($000s)              Canada     U.S .     Total       Canada      U.S.      Total
Total assets                    134,000 511,163 645,163          160,271 539,995 700,266
Goodwill                         12,475    97,779 110,254         12,474     97,582 110,056
Liabilities                     315,261 169,366 484,627          317,621 221,118 538,739



                     For the thirteen and twenty-six weeks ended June 30, 2012, the Company has recognized $40.1 million and
                     $87.6 million respectively (thirteen and twenty-six weeks ended July 2, 2011: $25.9 million and $52.9
                     million) of sales from one customer that represents more than 10% of the Company’s total consolidated
                     sales, which are reported in both the Canadian and U.S. operating segments.



                     8. Long-term debt

                     Long-term debt                                                     June 30,      December 31,
                     Amounts in ($000s)                                                     2012               2011
                     Term loan at 5.5% plus LIBOR (floor at 1.5%)                       253,502             254,250
                     Less: financing charges                                            (12,989)            (14,269)
                     Less: embedded derivative, at cost, amortized using
                      the effective interest method (note 13)                             (5,755)            (6,329)
                                                                                        234,758             233,652
                     Less: current portion                                              (17,325)             (2,543)
                                                                                $       217,433      $      231,109




                     9. Share capital

                     A summary of the Company’s non-voting equity share transactions is as follows:

                     During the thirteen weeks ended June 30, 2012, the Company repurchased 29,100 non-voting equity shares
                     for $17.56 per share for a total cost of $0.5 million resulting in a decrease to contributed surplus of $0.3
                     million.


                     During the thirteen weeks ended July 2, 2011, the Company repurchased 31,958 non-voting equity shares
                     for $13.81 per share for a total cost of $0.4 million resulting in a decrease to contributed surplus of $0.5
                     million.




                                                                                                                                        41
                 Notes to the Unaudited Condensed Interim Consolidated Financial Statements


                                                        Thirteen weeks ended                                      Twenty-six weeks ended
                                               June 30, 2012                July 2, 2011                June 30, 2012                July 2, 2011
                                            Shares         ($000s)       Shares       ($000s)        Shares        ($000s)      Shares         ($000s)
Common shares:
Balance, beginning of period                 13,344,506       64,619      13,286,909      63,552     13,298,784         63,766    13,271,809        63,315
Stock options exercised                          15,500          312           9,500         148         61,222          1,165        24,600           385
Balance, end of period                       13,360,006       64,931      13,296,409      63,700     13,360,006         64,931    13,296,409        63,700
Non-voting equity shares:
Balance, beginning of period                  1,788,062       14,301       1,826,820      14,611      1,788,062         14,301     1,876,820        15,011
Shares repurchased                              (29,100)        (233)        (31,958)       (255)       (29,100)          (233)      (81,958)         (655)
Balance, end of period                        1,758,962       14,068       1,794,862      14,356      1,758,962         14,068     1,794,862        14,356
                                             15,118,968       78,999      15,091,271      78,056     15,118,968         78,999    15,091,271        78,056




                 The following dividends were declared and paid by the Company:


                                                                     June 30, 2012                   July 2, 2011
                  Amounts:                                       per share    ($000s)           per share     ($000s)

                  Dividends on common and non-voting
                  shares declared and paid during the:
                    Thirteen weeks ended                                 0.10          1,514         0.10          1,508
                    Twenty-six weeks ended                               0.20          3,026         0.19          2,872
                  Dividends on common and non-voting
                  shares proposed for approval after the
                  respective reporting period (not
                  recognized as a liability during the
                  period):                                               0.11          1,663         0.10          1,508


                 10. Share-based payments

                 The carrying amount of the liability and related compensation expense recognized relating to the options as
                 at and for each of the reporting periods ended as noted below are:


                                                                   Thirteen weeks                Twenty-six weeks
                                                                June 30,      July 2,           June 30,     July 2,
                  Amounts in ($000s)                              2012         2011               2012        2011
                  Fair value of liability                               5,553           4,238       5,553           4,238
                  Compensation expense recognized                        846             524        2,357             429

                 The liability is included in accounts payable and accrued liabilities on the consolidated statement of
                 financial position and the related expense is recognized in the following line items in the consolidated
                 statement of income:




                                                                                                                                               42
                 Notes to the Unaudited Condensed Interim Consolidated Financial Statements


                                                                                   Thirteen weeks ended,         Twenty-six weeks ended,
                                                                                   June 30,     July 2,          June 30,      July 2,
                  Amounts in ($000s)                                                2012         2011              2012         2011
                  Cost of sales resulting from:
                    Cash-settled options                                                  22              -            37               97
                    Equity-settled options                                                35              -            35                7
                    Changes in the the fair value of the liability                        6               48          113              (76)

                  Selling, general and administrative expenses
                   resulting from:
                    Cash-settled options                                                  58          102             365              461
                    Equity-settled options                                              156               70          576              154
                   Changes in the the fair value of the liability                       569           304           1,231             (214)
                  Compensation expense recognized                                       846           524           2,357              429



                 During the thirteen and twenty-six weeks ended June 30, 2012, nil and 233,793 options were granted to
                 designated directors and key executives under the share option plan (thirteen and twenty-six weeks ended
                 July 2, 2011: nil and 142,750).

                 The fair value of the options granted is estimated at the date of grant using a binomial pricing model, taking
                 into account the terms and conditions upon which the options were granted. The assumptions used in
                 determining the fair value of the liability as at June 30, 2012 and related compensation expense for the
                 options granted were as follows:

                                         March       February   August    February    August   February       February May February     December
                                         2012          2012      2011       2011       2010      2010           2009   2008  2008         2007
     Dividend yield (%)                   2.00         2.00      2.00       2.00       2.00      2.00           2.00    2.00  2.00        2.00
     Expected volatility (%)             36.15        36.15     37.48      37.48      35.96     36.88          28.48   27.14 27.59       27.62
     Risk-free interest rate (%)          1.23         1.23      1.33       1.33       1.18      1.14           1.07    1.03  1.03        1.03
     Expected life (years)               4.75          4.75      5.75       5.75       4.17      3.75           2.75   1.75  1.64         1.48
     Weighted average share price ($)     5.83         5.87      8.07       7.34       9.11     10.01          12.94   10.63 10.19       10.01

    The following table illustrates the number (“No.”) and weighted average exercise prices (“WAEP”) of, and movements
    in, share options during the year:

                                        Thirteen weeks ended Thirteen weeks ended              Twenty-six weeks ended Twenty-six weeks ended
                                            June 30, 2012         July 2, 2011                     June 30, 2012           July 2, 2011
                                            No.       WAEP      No.        WAEP                   No.         WAEP       No.         WAEP
Outstanding, beginning of period           831,043      13.45  725,750       10.87                675,250        11.10   665,500        9.51
Granted                                         -           -          -         -                233,793        18.78   142,750       16.50
Exercised for shares                       (15,500)      8.79    (9,500)      8.24                (61,222)        9.06   (24,600)       9.12
Exercised for cash                         (11,000)     12.17  (22,000)       8.36                (43,278)        9.83   (89,400)       9.36
Outstanding, end of period                 804,543      13.56  694,250       10.98                804,543        13.56   694,250       10.98
Excercisable, end of period                492,631      10.67  448,500        9.07                492,631        10.67   448,500        9.07
Weighted average fair value of
options granted during the period                -               -             -          -        233,793            5.70     142,750           5.71
Range of exercise prices
outstanding at the end of the
period                                     $6.90 - $18.88                $6.90 - $16.50            $6.90 - $18.88               $6.90 - $16.50




                                                                                                                                         43
Notes to the Unaudited Condensed Interim Consolidated Financial Statements



Performance share units (PSU)
During the thirteen and twenty-six weeks ended June 30, 2012, the Company issued nil and 38,040
performance share units to named executive officers (thirteen and twenty-six weeks ended July 2, 2011: nil
and 16,459).

With re-invested dividends, the total performance share units outstanding at June 30, 2012 were 55,415
(July 2, 2011 - 16,569).

The assumptions used in determining the fair value of the liability at June 30, 2012 and related
compensation expense for the performance share units were as follows:

                                       June 30, 2012          July 2, 2011
                                    February    March             March
                                      2012       2011              2011
Dividend yield (%)                      2.00       2.00                 2.00
Expected life of the PSU (years)        2.50       1.50                 3.50
Forfeiture rate (%)                       0%         0%                   0%
Share price at reporting date ($)      20.00      20.00                16.01


Restricted share units (RSU)
During the thirteen and twenty-six weeks ended June 30, 2012, the Company issued nil and 15,975
restricted share units to certain executive officers (thirteen and twenty-six weeks ended July 2, 2011: nil).

With re-invested dividends, the total restricted share units outstanding at June 30, 2012 were 16,143 (July
2, 2011 - nil).

The assumptions used in determining the fair value of the liability at June 30, 2012 and related
compensation expense for the restricted share units were as follows:

                                    February
                                      2012
Dividend yield (%)                      2.00
Expected life of the PSU (years)        3.50
Forfeiture rate (%)                       0%
Share price at reporting date ($)      20.00




11. Income tax expense

The Company's statutory tax rate for the thirteen and twenty-six weeks ended June 30, 2012 is 27.26%
(July 2, 2011: 28.8%).

The statutory and effective tax rates are lower in 2012 compared to 2011 as a result of lower statutory rates
in Canada in 2012 which decreased by 1.5%. The Company's effective tax rate was also lower than its
statutory rate due to the benefit of acquisition financing deductions, which was partially offset by a higher
statutory tax rate of 38.6% (2011 – 38.6%) applicable to the Company's US operations and non-deductible
stock based compensation expense.

The major components of income tax expense (recovery) in the interim consolidated statement of other
comprehensive loss for the thirteen and twenty-six week periods ended June 30, 2012 and July 2, 2011
were as follows:




                                                                                                                44
Notes to the Unaudited Condensed Interim Consolidated Financial Statements


                                                                    Thirteen weeks ended,             Twenty-six weeks ended,
                                                                     June 30      July 2,               June 30      July 2,
Amounts in ($000s)                                                    2012         2011                  2012         2011
Deferred tax expense (recovery) related to items
charged or credited directly to other comprehensive
(loss) income during the period:
  Gain on hedge of net investment in foreign operations                     (158)              36                (20)            88
  Effective portion of changes in fair value of cash flow
  hedges                                                                       (60)           (126)             (233)       (530)
  Net change in fair value of cash flow hedges tranferred to
  income                                                                      56              296                (61)        450
  Employee future benefits                                                  (365)             -                 (365)        -
Income tax expense (recovery) directly to other
comprehensive (loss) income                                                 (527)             206               (679)             8



12. Related party transactions

The aggregate value of transactions and outstanding balances with related parties were as follows:
                                                                Thirteen weeks ended,           Twenty-six weeks ended,
                                                                 June 30,    July 2,            June 30,       July 2,
Amounts in ($000s)                                                2012        2011                2012          2011
Associates to the Company:
                                   (2)
Maritime Paper Products Ltd.
  Purchases from related party                                           NA           1,126              NA              2,528
                                (1)
  Amounts owed to related party                                                                          NA                  -
                                                (3)
Clearwater Seafoods Limited Partnership
  Purchases from related party                                           NA             867              NA              2,088
                                (1)
  Amounts owed to related party                                                                          NA               (115)
Other Related Parties:
Crystal Cold Storage & Warehousing Inc.
  Purchases from related party                                            76            NA              528               NA
                                (1)
  Amounts owed to related party                                                                         (217)             NA

Pier 17 Realty Trust Inc.
  Purchases from related party                                          100             NA              200               NA
                                (1)
  Amounts owed to related party                                                                            -              NA
Joint venture in which the Company is a venturer:
Qingdao Dencan Seafoods Ltd.
 Purchases from related party                                         5,234           7,387           10,740            12,059
                                (1)
 Amounts owed to related party                                                                             -                 -
Total purchases from related parties                                  5,410           9,380           11,468            16,675
Total amounts owed to related parties                                                                   (217)             (115)
(1) Amounts out standing are classified as accounts receivable / accounts payables respect ively.
(2) Maritime Paper Products Ltd. ceased t o be a related party to the Company effective May 17, 2011; therefore,
disclosing transactions and outstanding balances after this date is not applicable ("NA").
(3) Clearwater Seafoods Limited Partnership ceased to be a relat ed party to t he Company effective June 16, 2011;
therefore, disclosing transactions and outstanding balances after this date is not applicable ("NA").




                                                                                                                            45
Notes to the Unaudited Condensed Interim Consolidated Financial Statements



All outstanding balances with these related parties are priced on an arm’s length basis and are to be settled
in cash within twelve months of the reporting date. None of the balances are secured. There have been no
guarantees provided or received for any related party receivables or payables. As at June 30, 2012, the
Company has not recorded any impairment of receivables for amounts owed by related parties. This
assessment is undertaken each financial year through examining the financial position of the related party
and the market in which the related party operates.


13. Financial instruments

Hedging activities
Foreign currency hedge
At June 30, 2012 the Company held foreign currency forward contracts designated as hedges of expected
future purchases from suppliers transacting in U.S. dollars which the Company has qualified as highly
probable forecasted transactions. The foreign currency forward contracts are being used to hedge the
foreign currency risk of the highly probable forecasted transactions. There were no highly probable
transactions for which hedge accounting has been claimed that have not occurred and no significant
element of hedge ineffectiveness requiring recognition in the income statement.

At the end of the thirteen and twenty-six weeks ended June 30, 2012, the cash flow hedges of the expected
future purchases in the future quarters of 2012 were assessed to be highly effective and were therefore
included in other comprehensive loss as follows:

                          Thirteen weeks ended,       Twenty-six weeks ended,
                           June 30,      July 2,        June 30,       July 2,
Amounts in ($000s)              2012       2011             2012         2011
Unrealized loss                (175)      (372)            (724)      (1,780)
Deferred tax recovery            (59)     (126)            (233)        (530)

The amount removed from other comprehensive loss during the thirteen and twenty-six weeks ended June
30, 2012 and included in the carrying amount of the hedging items was a loss of $0.2 million and a gain of
$0.1 million respectively, net of tax (July 2, 2011: $0.7 million and $1.2 million).

Interest rate swaps
On March 22, 2012, the Company entered into an interest rate swap to exchange floating 1-month LIBOR
for a fixed rate on the revolving credit facility for a three-year period. Effective May 4, 2012 until March 4,
2015, the Company entered into a swap on floating 1-month LIBOR for a fixed rate of 0.763% on a
notional amount of US$10.0 million. The Company’s U.S. subsidiary also entered into a swap on floating
1-month LIBOR for a fixed rate of 0.708% on a notional amount of US$40.0 million reducing to US$20.0
million during the last twelve months of the tenure. On a monthly basis, the Company will pay the fixed
swap rate and we will receive the floating 1-month LIBOR rate, effectively fixing the rate at 0.763% and
0.708% for the Canadian and U.S. borrowers, respectively.

On March 12, 2012, the Company entered into an interest rate cap with a strike price of 1.5% on a notional
amount of US$125.0 million of the term loan. Effective March 30, 2012 until April 4, 2014 the Company
will receive a payment from the seller at the end of each three month period in which the 3 month LIBOR
rate exceeds the strike price, thus, effectively fixing the rate at 1.5%.

The swaps are valued at rates prevailing at the balance sheet date. Gains and losses on the swap are
included in other comprehensive income and are transferred to income to offset interest costs on the debt
when recorded in income.

Hedge of net investment in foreign operations
As at June 30, 2012, included in current bank loans was a borrowing of US$15 million (July 2, 2011:




                                                                                                                  46
Notes to the Unaudited Condensed Interim Consolidated Financial Statements


US$10.0 million) which has been designated as a hedge of the net investment in the U.S. subsidiary and is
being used to hedge the Company’s exposure to foreign exchange risk on this investment. Gains or losses
on the retranslation of this borrowing are transferred to equity to offset any gains or losses on translation of
the net investments in the subsidiaries. There is no ineffectiveness for the thirteen weeks ending June 30,
2012 or July 2, 2011.

Financial assets and liabilities at fair value through profit and loss
Financial assets and liabilities at fair value through profit and loss are those interest rate swaps that are not
designated in hedge relationships.

On May 3, 2012, the Company entered into an interest rate swap to exchange floating 3-month LIBOR for
a fixed rate on its term loan credit facility, with an embedded floor of 1.5% for a fixed rate of 1.997% on a
notional amount of US$100.0 million for the period of April 4, 2014 until April 4, 2016. On a quarterly
basis starting in 2014, the Canadian company will pay the fixed swap rate and receive the floating 3-month
LIBOR rate (but no less than 1.5%), effectively fixing the rate at 1.997%.

Embedded derivatives
In 2011 the Company secured a US$250 million long-term loan, bearing interest at LIBOR plus 5.5%, with
a LIBOR floor of 1.5%. This interest rate floor represents an embedded interest rate derivative that requires
bifurcation.

This embedded interest rate derivative has been separated and carried at fair value, with changes going
though profit or loss. The fair value of the embedded derivative at June 30, 2012 amounted to $7.5 million
(December 31, 2011: $6.3), with any offset to profit or loss reflected in finance costs.

Forward exchange contracts
The Company systematically enters into foreign exchange contracts, with maturities of 15 months or less,
to hedge future cash outflows for the purchase of raw materials. The Company uses hedge accounting to
account for these foreign exchange contracts.

At period-end, the Company had the following total foreign exchange forward single rate contracts
outstanding:

                                             June 30, 2012
                                          Sell     Receive
                                        CAD$           US$
Forward rate                        2,153,464   2,152,270

The forward single rate contracts at June 30, 2012 have a rate of $1.0006 with maturities ranging from July
2012 to April 2013.

At period-end, the Company had the following foreign exchange “average rate” purchase contracts
outstanding:
                                                    June 30, 2012
                                     Weighted        Weighted
                                     Average         Average        Total
Average rate forwards                Put Rate        Call Rate    US$ Value
Average rate                          1.0099          1.0099       35,240,419

With the exception of US$1,215,805 average rate forward contracts with maturities ranging from July 2013
to December 2013, all foreign exchange purchase contracts have maturities that are less than one year.




                                                                                                                    47
Notes to the Unaudited Condensed Interim Consolidated Financial Statements


Estimated fair value of financial instruments
The estimated fair value of financial instruments as at June 30, 2012 and July 2, 2011 are based on relevant
market prices and information available at that time. The fair value estimates are not necessarily indicative
of the amounts that the Company might receive or pay in actual market transactions. The total fair value of
all of the foreign exchange future contracts as at June 30, 2012 was an asset of $1.0 million (December 31,
2011: an asset of $0.6 million). The fair value of the interest and principal cross currency swap at June 30,
2012 was a liability of $0.6 million (December 31, 2011: $nil).

The fair value of the Company’s long-term debt that was entered into in December 2011 is estimated to be
$269.2 million at June 30, 2012 (December 31, 2011: $254.2 million). The fair value of the Company’s
capital lease obligations at June 30, 2012 is estimated to be $3.6 million (December 31, 2011: $4.0
million). These fair values are calculated by discounting the future cash flows of each loan at the estimated
yield to maturity based on publicly available information. Since the Company does not intend to settle its
long-term debt or capital lease obligations prior to maturity, the fair values do not represent an actual
liability and, therefore, does not include exchange or settlement costs.

The Company’s remaining financial instruments consist of cash and cash equivalents, trade and other
accounts receivables and sundry investments and current liabilities. The difference between the carrying
values and the fair market values of these financial instruments are not significant given the short-term
maturities and, or the credit terms of those instruments.

Fair value hierarchy
All financial instruments carried at fair value are categorized in three categories defined as follows:

Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Other techniques which use inputs other than quoted market prices included within Level 1 that
are observable, either directly (as prices) or indirectly (derived from prices).
Level 3: Valuation techniques which use inputs that are not based on observable market data.

As at the dates indicated below, the Company had the following financial instruments measured at fair
value categorized into the following levels:

                                                        June 30,
All amounts in ($000s)                                   2012         Level 1       Level 2     Level 3
Assets measured at fair value
  Foreign exchange contracts; hedged                         1,034           -          1,034             -
Liabilities measured at fair value
  Foreign exchange contracts; hedged                           614           -            614             -
  Interest rate swaps                                          804           -            804             -
  Embedded derivative                                        7,541           -          7,541             -

                                                      December 31,
All amounts in ($000s)                                   2011      Level 1          Level 2     Level 3
Assets measured at fair value
  Foreign exchange contracts; hedged                          1,346             -       1,346             -
Liabilities measured at fair value
  Foreign exchange contracts; hedged                            793             -         793             -
  Embedded derivative                                         6,329             -       6,329             -

During the thirteen and twenty-six weeks ended June 30, 2012 and July 2, 2011 there were no transfers
between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value
measurements.




                                                                                                                48
 Notes to the Unaudited Condensed Interim Consolidated Financial Statements


 14. Comparative figures

 Certain comparative figures on the unaudited condensed interim consolidated statement of financial
 position have been reclassified. This is due to adjustments made upon finalization of the Viking business
 combination purchase price allocation, Icelandic provisional purchase price allocation adjustments, as well
 as an adjustment made to bifurcate an embedded interest rate derivative from long-term debt (see note 8).


 15. Employee benefits expense

 As a result of the Icelandic USA acquisition, and the May 2012 announced plant closures, the Company
 issued communications to certain employees indicating the anticipated dates whereby their employment
 would be terminated. If the employee continues to provide service until the date as communicated, they
 will be entitled to receive severance and retention payments. If the employee does not remain in service
 with the Company, no severance or retention payments will be made. The Company has therefore
 recognized the related short-term employee benefit expense for the pro-rata service provided, from the date
 communicated to the current reporting date. For the thirteen and twenty-six weeks ended June 30, 2012,
 $1.7 million and $3.0 million respectively (thirteen and twenty-six weeks ended July 2, 2011 - $nil) has
 been recorded and is included in business acquisition, integration and other expenses on the unaudited
 consolidated statement of income.

 The Company has also expensed termination benefits during the period, which are recorded as of the date
 the committed plan is in place and communication is made. These termination benefits relate to severance
 which is not based on a future service requirement and are included in the following line items in the
 unaudited consolidated statement of income:
                                                              Thirteen weeks           Twenty-six weeks
                                                           June 30,      July 2,     June 30,        July 2,
Amounts in ($000s)                                           2012         2011          2012          2011
Cost of sales                                                       -          25               -          51
Business acquisition, integration and other expenses             366             -          456              -
Selling, general and administrative                              119           58           189           212
                                                                 485           83           645           263




                                                                                                               49

								
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