Our operating results were positively impacted by an approximate 2% weakening in the value of the Canadian dollar relative to the US dollar from the first quarter of 2012, which increased our Canadian dollar proceeds received on US dollar denominated sales (the major share of our lumber sales are denominated in US dollars, including those to China). However, the Japanese Yen weakened significantly against the Canadian dollar in the current quarter, falling by almost 15% compared to the first quarter of 2012, and had a negative effect on our results. Western mitigates its foreign exchange risk associated with sales transactions denominated in US dollars and Japanese Yen by utilizing forward currency transactions. At the end of the first quarter of 2012 we had significantly more Yen forward contracts outstanding compared to March 31, 2013.
No export taxes were incurred in the first quarter of 2013 compared to taxes of $2.0 million expensed in the same quarter in 2012. This change is a reflection of the increase in lumber prices this year. Under the Softwood Lumber Agreement with the US, the export tax rate is zero when the random lengths framing lumber composite index exceeds US$ 355 per thousand board feet.
Total freight costs were $19.4 million in the first quarter of 2013, compared to the first quarter of 2012 costs of $23.1 million. The reduction is because of reduced freight rates (a more favourable service agreement that combines both China and Japan shipments was introduced), a lower percentage of shipments to overseas customers (40% compared to 47% in 2012) and slightly lower shipment volumes.
Selling and administration costs increased from $7.7 million in the first quarter of 2012 to $8.0 million in the first quarter of 2013 primarily as a result of increases in stock option costs, legal fees and pension costs.
Non-operating income and costs
Finance costs decreased from $1.6 million in the first quarter of 2012 to $1.2 million in the current quarter. This decrease is primarily attributable to a reduction in the outstanding debt amount over the respective periods. In the twelve months to March 31, 2013 we have reduced debt by $53.3 million primarily from cash generated from operations.
Other income of $0.1 million for the first quarter of 2013 compares to other income of $1.0 million in the first quarter of 2012. Other income from the first quarter 2012 includes net gains on asset disposals of $1.1 million.
Adoption of New Accounting Policy
IAS 19 Employee Benefits (revised 2011) (IAS 19R) comprises a number of amendments to the accounting for defined benefit plans, including a change to the basis for determining the income or expense related to defined benefit plans. As a result of the change, the Company now determines the net interest expense (income) for the period on the net defined benefit obligation by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the net defined benefit liability at the beginning of the annual period. It takes into account any changes in the net defined benefit liability during the period as a result of contributions and benefits payments. Consequently, the net interest on the net defined benefit liability now comprises:
-- interest cost on the defined benefit obligation; and-- interest income on plan assets.
Previously, the Company determined interest income on plan assets based on their long-term rate of expected return on plan assets. The effect of adoption on the first quarter 2012 was a reduction to net income of $0.2 million. This comprised an increase to finance charges of $0.3 million and a decrease to selling and administration costs of $0.1 million. There was a corresponding reduction in the defined benefit plan actuarial losses recognized in other comprehensive income of $0.2 million for the quarter ending March 31, 2012. The revision had no impact on net assets at March 31, 2012 or December 31, 2012. The impact on earnings per share for the quarter ending March 31, 2012 was not material. The impact of adopting IAS 19R is more fully explained in Notes 3 and 14 in its First Quarter 2013 Financial Statements.
