8 ANNUAL REPORT 2012 MANAGEMENTS DISCUSSION AND ANAL YSIS OF OPERA TING RESUL TS AND FINANCIAL CONDITION DECEMBER 31 2012 FINANCIAL REPORTING STANDARDS The Company prepares its consolidated fnancial statements in accordance with International Financial Reporting Standards IFRS NONGAAP AND ADDITIONAL GAAP FINANCIAL MEASURES The MDA presents certain nonGAAP and additional GAAP GAAP refers to Canadian Generally Accepted Accounting Principles fnancial measures to assist readers in understanding the Companys performance Throughout this MDA the following terms are used which are not found in the CICA Handbook and do not have a standardized meaning under GAAP NONGAAP FINANCIAL MEASURES NonGAAP fnancial measures are measures that either exclude or include amounts that are not excluded or included in the most directly comparable measures calculated and presented in accordance with GAAP in the Companys consolidated fnancial statements EBITDA represents earnings or losses before net fnancing expense the fair value gain loss on convertible debentures income taxes depreciation and amortization and noncontrolling interests EBITDA margin represents EBITDA as a percentage of revenue Adjusted EBITDA represents EBITDA adjusted to exclude the gain loss on sales of assets and investments Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of revenue Adjusted proft loss attributable to shareholders represents the proft loss attributable to shareholders adjusted to exclude the aftertax fair value gain loss on the embedded derivative portion of Aecons convertible debentures Adjusted earnings loss per share represents earnings loss per share calculated using adjusted proft loss attributable to shareholders Backlog means the total value of work that has not yet been completed that a has a high certainty of being performed as a result of the existence of an executed contract or work order specifying job scope value and timing or b has been awarded to Aecon as evidenced by an executed binding letter of intent or agreement describing the general job scope value and timing of such work and where the fnalization of a formal contract respecting such work is reasonably assured ADDITIONAL GAAP FINANCIAL MEASURES Additional GAAP fnancial measures are presented on the face of the Companys consolidated statements of income and are not meant to be a substitute for other subtotals or totals presented in accordance with IFRS but rather should be evaluated in conjunction with such IFRS measures Gross proft represents revenue less direct costs and expenses Not included in the calculation of gross proft are marketing general and administrative expenses MGA depreciation and amortization income or losses from construction projects accounted for using the equity method foreign exchange interest gains or losses on the sale of assets income taxes and noncontrolling interests Gross proft margin represents gross proft as a percentage of revenue Operating proft loss represents the proft loss from operations before net fnancing expense income taxes and noncontrolling interests Operating margin represents operating proft loss as a percentage of revenue Proft loss before taxes represents proft or loss before income taxes and noncontrolling interests Aecon believes the above nonGAAP and additional GAAP fnancial measures which are commonly used by the investment community for valuation purposes are useful complementary measures of proftability The most directly comparable measures calculated in accordance with GAAP are proft loss attributable to shareholders or earnings loss per share Backlog is not a recognized performance measure under GAAP and does not have any standardized meaning prescribed by GAAP Aecon believes that backlog is a useful complementary measure commonly used by management and the investment community to evaluate the Companys projected activity in future periods There is no direct comparable measure to backlog in GAAP BUSINESS STRATEGY Aecons overall strategic goal is to be the premier construction and infrastructure development company in Canada Over the course of the last few years the Company has deliberately positioned itself in three key end markets infrastructure energy and mining Today Aecon has an unrivalled ability to provide a comprehensive suite of construction contracting and infrastructure development services across Canada Having built this foundation and national footprint the Company has been and will continue to be focused on operational execution project controls risk management and organic growth all within a disciplined framework towards reaching a target of 9 per cent EBITDA margin in 2015 Aecon has refned and simplifed its organizational structure to better serve its clients who operate in specifc market segments across Canada and to ensure that the One Aecon approach is refected in how it offers its capabilities in the most effective and effcient manner In addition to the focus on execution the Company strengthened its management team in 2012 bringing in additional talent and expertise as well as building up bench strength throughout the ranks of our 12000 employees There are four core elements that comprise the Aecon Advantage its strategic path and focus on performance and health