Orbit Garant 2012 annual rep O rt 19 Gross profit and margins (see Reconciliation of non-IFRS measures) Gross proft for Q4 FY2012 decreased 23.9% to $7.7 million from $10.1 million in Q4 FY2011. Gross margin for Q4 FY2012 decreased to 17.7% from 24.7% in the fourth quarter a year ago. In accordance with IFRS, amortization expenses totalling $2.1 million are included in cost of contract revenue for Q4 FY2012, compared to $1.9 million for Q4 FY2011. Adjusted gross margin, excluding amortization expenses, decreased to 22.6% in Q4 FY2012, from 29.2% in Q4 FY2011. Decreased gross proft and gross margin in Q4 FY2012 refect a decline in higher margin international business activity from the Company’s junior mining company customers. General and administrative expenses General and administrative (G&A) expenses increased to $5.1 million (11.7% of revenue) in Q4 FY2012, from $3.4 million (8.3% of revenue) in Q4 FY2011. In accordance with IFRS, amortization expenses of $0.9 million are included in G&A expenses for fscal 2012, compared to $0,6 million for fscal 2011. Adjusted G&A expenses, excluding amortization expenses, totalled $4.2 million (9.7% of revenue) for fscal 2012, compared to $2.8 million (6.8% of revenue) for fscal 2011. Higher G&A expenses in Q4 FY2012 resulted primarily from increased personnel, the Company’s new branch offce in Sudbury, Ontario, the acquisition of Lantech Drilli ng and the amortization expenses related to the Company’s new head offce in Val-d’Or, Quebec. EBITDA (see Reconciliation of non-IFRS measures) EBITDA totalled $5.5 million (12.9% of revenue) in the fourth quarter of fscal 2012, compared to $9.3 million (22.7% of revenue) in the same period a year ago, a decrease of $3.8 million, or 39.6%. The decline is primarily attributable to decreased international drilling activity in the quarter. Financial expenses Interest costs related to long-term debt and bank charges were $0.4 million in Q4 FY2012, comparable to $0.2 million in Q4 FY2011. Income taxes Income taxes were $0.8 million for Q4 FY2012 compared to $2.0 million for the same period last year. Net earnings Net earnings for Q4 FY2012 were $1.3 million, or $0.04 per share (basic and diluted), compared to $4.6 million, or $0.14 per share ($0.13 per diluted share) for Q4 FY2011. The decline in net earnings resulted from decreased international drilling activity and higher G&A expenses. E FFECT OF E x C h ANGE RATE Aside from the US dollars referenced below, all of the Company’s revenue was denominated in Canadian dollars. The Company’s mai n exposure to exchange rate fuctuations arose from certain purchases denominated in US dollars which were offset in part by revenue of approximately $13.0 million earned in US dollars, related primarily to the international drilling business. As at June 30, 2012, the Company has cash in US dollars for an amount of $0.9 million (June 30, 2011, $0.3 million) and accounts receivable in US dollars for an amount of $2.2 million (June 30, 2011, $0.4 million). As at June 30, 2012, the Company has estimated that a 10% increase or decrease of the US exchange rate would have caused a corresponding annual increase or decrease in net earnings and comprehensive earnings of approximately $0.2 million (June 30, 2011, negligible). LIQUIDITY AND CAPITAL RESOURCES Operating activities Cash fow from operations before non-cash operating working capital items was $28.7 million in fscal 2012, compared to $26.3 million in fscal 2011. The use of cash and non cash working capital items is mainly due to the increase of receivables and inventories. These increas es are attributable to increased drilling activities and the decision to replenish consumable products with larger orders to ensure s uffcient supplies to meet operational requirements.