Orbit Garant 2012 annual rep O rt 17 RESULTS OF OPERATIONS Fiscal 2012 compared to fiscal 2011 Contract revenue For the fscal year ended June 30, 2012, the Company recorded contract revenue of $154.8 million compared to $127.7 million in fscal 2011, representing an increase of $27.1 million, or 21.2%. The increase is attributable to new drilling contracts, higher revenue per meter drilled and the acquisition of Lantech Drilling in the second quarter of fscal 2012. The Company increased its total metres drilled by 5.4% to 1.49 million metres in fscal 2012, primarily due to the acquisition of Lantech Drilling. Domestic drilling contract revenue increased to $133.0 million in fscal 2012, compared to $108.7 million in fscal 2011, representing an increase of $24.3 million, or 22.3%. The increase refects additional metres drilled from new and existing contracts and the contribution from Lantech Drilling’s operations in Canada. International drilling contract revenue increased 14.8% to $21.8 million in fscal 2012, compared to $19.0 million in fscal 2011. The increase of $2.8 million is attributable to higher revenue per meter drilled and the contribution from Lantech Drilling’s operations in West Africa. Gross profit and margins (see Reconciliation of non-IFRS measures) Gross proft for fscal 2012 increased 18.2% to $33.7 million, compared to $28.5 million in fscal 2011. Increased gross proft was primarily attributable to price increases and higher overall business volumes, including increased higher margin international drilling a ctivity in the frst half of fscal 2012. Gross margin for fscal 2012 decreased to 21.8% from 22.3% in fscal 2011. In accordance with IFRS, amortization expenses totalling $8.5 million are included in cost of contract revenue for fscal 2012, compared to $6.8 million for fscal 2011. Adjusted gross margin, excluding amortization expenses, decreased slightly to 27.3% in fscal 2012, compared to 27.6% in fscal 2011. The decline in gross margins for fscal 2012 primarily resulted from: unseasonably warm weather in Quebec and Ontario in March, 2012, which resulted in an early spring break-up and the premature suspension of drilling activities on certain project sites; lower overall productivity rates due to the introduction of new drillers and decreased business activity in the second half of the year from the Company’s junior minin g company customers. General and administrative expenses General and administrative (G&A) expenses were $17.1 million for fscal 2012, compared to $11.6 million in fscal 2011. G&A expenses represented 11.1% of sales during fscal 2012, compared to 9.1% in fscal 2011. In accordance with IFRS, amortization expenses of $2.9 million are included in G&A expenses for fscal 2012, compared to $1,9 million for fscal 2011. Adjusted G&A expenses, excluding amortization expenses and $0.4 million in acquisition costs related to the acquisition of Lantech Drilling, totalled $13.8 million (8.9% of revenue) for fscal 2012, compared to $9.7 million (7.6% of revenue) for fscal 2011. Higher G&A expenses resulted primarily from increased personnel, the Company’s acquisition of Advantage Control Technologies and Morris Drilling Inc. in the sec ond quarter of fscal 2011, the acquisition of Lantech Drilling in the second quarter of fscal 2012 and the amortization expenses rel ated to the Company’s new head offce in Val-d’Or, Quebec. EBITDA (see Reconciliation of non-IFRS measures) EBITDA was $27.9 million for fscal 2012, compared to $26.0 million in fscal 2011, an increase of $1.9 million, or 7.4%. EBITDA represented 18.0% of sales in fscal 2012, compared to 20.3% of sales in fscal 2011. Financial expenses Interest costs related to long-term debt and bank charges for fscal 2012 were $1.3 million, compared to $0.6 million in fscal 2011. Increased interest costs resulted from business acquisitions and working capital increases. Income taxes Income taxes were $4.7 million in fscal 2012, compared to $5.3 million in fscal 2011. Net earnings Net earnings in fscal 2012 totalled $10.4 million, or $0.31 per common share ($0. 30 per share diluted), compared to $11.4 million, or $0.35 per common share ($0.34 per share diluted) in fscal 2011. This decrease is primarily attributable to increased G&A expenses and fnance costs.