Liquidity and Capital Resources MANAGEMENT’S DISCUSSION AND ANALYSIS AKITA has typically generated sufficient cash flow from operations to fund its normal operating activities as well  as routine capital expenditures. The Company excludes new rig construction from its definition of routine capital  expenditures. In years in which no new rigs are built under contract, and occasionally in years when new rigs  are added to the fleet, the Company adheres to an internal capital expenditure discipline that typically restricts  capital expenditures to less than 50% of funds flow from operations. The Company has determined that such  a level is required to sustain the operations in a manner that maintains or enhances Company equipment  standards. In 2013, AKITA’s net capital expenditure program of $35,113,000 represented 61% of funds flow  from operations, while in 2012, AKITA’s net capital expenditure program of $65,356,000 represented 110%  of funds flow from operations. In addition to routine capital expenditures, the Company added new rigs in  each of 2013 and 2012 as these projects met appropriate hurdle rates to justify this higher level of capital  expenditures. Further details of AKITA’s capital expenditure program can be found in the next section of this  MD&A under the heading “Property, Plant and Equipment”. At December 31, 2013, AKITA had $40,645,000 in working capital, including $13,998,000 in cash, compared  to $31,214,000 in working capital, including $11,003,000 in cash, for the previous year. In 2013, AKITA  generated $39,554,000 from operating activities. Cash was also generated from joint venture distributions  ($13,525,000), from proceeds on exercise of stock options ($566,000) and from proceeds on sales of joint  venture rigs and other assets ($443,000). During the same period, cash was used for capital expenditures  ($37,290,000), payment of dividends ($5,567,000), investing in term deposits ($5,000,000), increasing  restricted cash balances used for loan guarantees ($2,950,000) repurchasing Class A Non-Voting shares  ($126,000), and payment of a loan commitment fee ($160,000). In 2011, the Company established an operating loan facility with its principal banker totalling $50,000,000,  having an initial five year term. This facility was increased to $75,000,000 in 2012 and the term was also  extended for an additional year. In the fourth quarter of 2013, this facility was increased to $100,000,000  and the term was extended for an additional year to 2018. Although the facility has been provided in order to  finance general corporate needs, capital expenditures and acquisitions, management intends to access this  facility primarily to enable the Company to fund new rig construction requirements related to drilling contracts  that it might be awarded. The interest rate on the facility varies based upon the actual amounts borrowed, but  ranges from 0.45% to 1.45% over prime interest rates or 1.45% to 2.45% over guaranteed notes, depending  on the preference of the Company. The Company accessed this facility during the second quarter of 2012 on  an interim basis with the borrowed amount being repaid within that quarter. The facility has not been accessed  since that date. During the third quarter of 2013, the Company was awarded a contract to construct and operate an ultra-deep  capacity rig on a long-term basis. The Company sourced approximately $16 Million of materials for this rig from  non-Canadian suppliers. In order to minimize the risk of currency translation adjustments, AKITA purchased  forward currency contracts totalling $13 Million, all of which remained outstanding at December 31, 2013. These contracts expire during the second quarter of 2014. The Company had outstanding normal course issuer bids throughout most of 2013 and 2012. During 2013,  the Company repurchased 9,065 Class A Non-Voting shares at an average price of $15.27 pursuant to its  normal course issuer bid. During 2012, the Company repurchased 104,179 Class A Non-Voting shares at an  average price of $10.48. 18 AKITA DRILLING LTD.  ANNUAL REPORT