MANAGEMENT’S DISCUSSION AND ANALYSIS corresponding quarter of 2012. The operating margin during the fourth quarter of 2013 was $22,108,000  or $14,108 per operating day on an adjusted basis compared to $21,310,000 or $13,599 per operating day  on an adjusted basis during the fourth quarter of 2012. The higher operating margins were driven primarily  by the increase in pad rig activity as the Company had two more pad rigs at the end of 2013 compared to the  end of 2012. Please refer to “Basis of Analysis in this MD&A, Non-Standard and Additional GAAP Items” for commentary on  adjusted revenue, adjusted operating and maintenance expense and adjusted margin. Net income decreased to $7,723,000 or $0.43 per Class A Non-Voting and Class B Common share (basic and  diluted) for the fourth quarter of 2013 from $8,428,000 or $0.47 per share (basic and diluted) in the fourth  quarter of 2012. Funds flow from operations decreased to $17,213,000 in the fourth quarter of 2013 from  $19,874,000 in the corresponding quarter in 2012. The decrease in net income that occurred in the fourth  quarter of 2013 compared to the corresponding quarter in 2012 was the result of higher depreciation charges  due to having a higher proportion of pad rigs that were active, since depreciation is charged on a usage basis  and the average cost base of pad rigs is higher than for conventional rigs. Consistent with annual results,  funds flow from operations was also negatively affected by having a lower portion of income taxes deferred to  future periods when compared to the fourth quarter of 2012. Overall liquidity increased at December 31, 2013 compared to the corresponding 2012 year-end date by  $9,431,000 as measured in terms of overall working capital. In 2013, funds flow from operations was  significantly higher than capital expenditures for the Company. AKITA’s cash balance increased $2,995,000  on a year-over-year basis and was $13,998,000 at December 31, 2013 (December 31, 2012 - $11,003,000). In addition to cash, the Company held $5,000,000 in term deposits at December 31, 2013 (December 31,  2012 - $Nil). The following table highlights AKITA’s annual financial results for the last three years: Three Year Annual Financial Summary Three Year Summary  ($Thousands, except per share) (Unaudited) 2013 2012 2011 Revenue 167,533 203,440 199,934 Net income 26,515 28,755 23,353 Basic earnings per share 1.48 1.60 1.29 Diluted earnings per share 1.47 1.60 1.29 Dividends per Class A Non-Voting and Class B Common share 0.32 0.28 0.28 Funds flow from operations  (1) 57,619 59,412 42,895 Net cash from operating activities 39,554 41,998 34,196 Year-end working capital 40,645 31,214 44,265 Year-end other long-term liabilities 25,400 21,234 13,799 Year-end shareholders’ equity 245,288 223,695 201,104 Year-end total assets 291,748 289,368 247,130 (1) Funds flow from operations is an additional GAAP measure under IFRS. See commentary in “Basis of Analysis  in this MD&A, Non-Standard and Additional GAAP Items”. 17 AKITA DRILLING LTD.  ANNUAL REPORT