HispanicBusiness

As a result of the lift in commodity lumber prices, the export tax rate under the Softwood Lumber Agreement declined to 0% for the first quarter, 2013, as compared to a 15% export tax rate in the first quarter, 2012.

Transaction and integration costs related to the acquisition of the U.S. Southeast sawmills were the primary drivers of the 33% increase in selling and administrative costs for the first quarter, 2013 compared to the same quarter, 2012.

First quarter, 2013 LTIC expense increased fivefold over the first quarter, 2012, reflecting changes in the estimated fair value of the share-based compensation plans. The movement in the Company's share price had the greatest impact on this expense, as reflected by an increase in the closing share price of 30% for the first quarter, 2013 (Quarter 1, 2012 - 10%).

First quarter, 2013, depreciation of plant and equipment at $8.6 million was 26% higher than the corresponding quarter in 2012, primarily due to increased operating rates in the U.S. Pacific Northwest, a higher depreciation base for the rebuilt Grand Forks sawmill which commenced operations in late 2012, and the inclusion of depreciation for the newly acquired U.S. Southeast sawmills.

Road amortization and depletion expense for the first quarter of 2013 was relatively unchanged over the same period, 2012, consistent with comparatively flat B.C. log production, quarter-over-quarter.

Finance Costs, Other Foreign Exchange Gain (loss), Other Income (Expense)

First quarter, 2013 finance costs increased by $0.2 million compared to the first quarter, 2012, primarily as a result of an overall increase in average debt levels compared to the same period in the prior year.

Other foreign exchange losses of $0.7 million for the first quarter, 2013 and gains of $0.4 million for the first quarter, 2012 are impacted by the volatility of the Canadian dollar and the timing and amount of derivative forward foreign exchange contracts. Over the first quarter, 2013, the Canadian dollar weakened by 2%, on average (Quarter 1, 2012 - strengthened by 2%) vis-a-vis its U.S. counterpart.

Income Taxes

In the first quarter of 2013, the Company recorded an income tax recovery of $0.4 million (Quarter 1, 2012 - negligible expense) and decreased its unrecognized deferred tax asset by $4.7 million (Quarter 1, 2012 - $1.9 million increase) in relation to certain unused tax losses that are available to be carried forward against future taxable income. Although the Company expects to realize the full benefit of the loss carry-forwards and other deferred tax assets, due to the cyclical nature of the wood products industry and the economic conditions over the last several years the Company has not recognized the benefit of its deferred tax asset in excess of its deferred tax liabilities, except in limited circumstances.

Cash Flow and Financial Position

Cash generated by the Company from operations, before changes in non-cash working capital items, was $32.9 million in the first quarter, 2013, an improvement of $24.4 million over the first quarter, 2012. Higher domestic shipments and North American lumber sales prices, lower export taxes, and the positive contributions of the newly acquired U.S. Southeast sawmills drove higher cash earnings for the first quarter, 2013 as compared to the first quarter, 2012.

Significantly higher shipments and lumber prices contributed to a working capital cash utilization of $23.4 million in the first quarter, 2013. In contrast, a seasonal build-up of log inventories in the B.C. Interior, lumber production in excess of shipment volumes, and timing of shipments were reflected in working capital cash utilization of $12.0 million in the first quarter, 2012.