MANAGEMENT’S DISCUSSION AND ANALYSIS Other Income (Expense) $Millions 2013 2012 Change % Change Interest income 0.3 0.4 (0.1)  (25%) Interest expense (0.1) 0.0 (0.1) N/A Gain on sale of joint venture interests in rigs and  other assets 0.1 1.1 (1.0) (91%) Net other gains 0.4 0.0 0.4 N/A Total other income 0.7 1.5 (0.8)  (53%) The Company invests any cash balances in excess of its ongoing operating requirements in bank guaranteed  highly liquid investments. Interest income decreased to $345,000 in 2013 from $385,000 in 2012 as a  result of reduced cash and term deposit balances for most of 2013. The Company has undertaken significant  capital expenditures related to the construction of new rigs and the conversion of conventional rigs into pad  rigs, thereby reducing cash balances over time. Interest expense of $108,000 (2012 – $4,000) has been accrued primarily to reflect the future cost of the  Company’s unfunded defined benefit pension plan.  During 2012, the Company disposed of its interests in its remaining two arctic drilling camps and other non- core assets resulting in a $1,082,000 gain. AKITA disposed of several minor assets in 2013, resulting in  $106,000 in gains. In 2013, amounts reported as “Net Other Gains” of $385,000 include unrealized amounts related to forward  exchange contracts purchased to provide a hedge for foreign rig equipment commitments for a rig under  construction ($235,000), an unrealized cost related to loan guarantees that the Company has provided on  behalf of certain joint venture partners ($106,000) and other ($44,000). Income Tax Expense Other than the foreign currency hedge on major capital expenditures noted above, readers should be aware  that in 2013 the Company conducted all of its operations in Canada, thereby reducing its exposure to foreign  currency fluctuations. $Millions, except income tax rate (%) 2013 2012 Change % Change Current tax 5.4 3.0 2.4 80% Deferred tax 3.8 6.7 (2.9) (43%) Total income tax expense 9.2 9.7 (0.5) (5%) Effective income tax rate 25.7% 25.1% Income tax expense decreased to $9,167,000 in 2013 from $9,658,000 in 2012, due to lower pre-tax income  which was partially offset by an increase in the Canadian federal income tax rate as a result of a change in  provincial allocations of revenue and expenses. AKITA’s proportion of income taxes that are deferred to future  years has declined as a result of lower capital expenditures in 2013 when compared to the previous year. 12 AKITA DRILLING LTD.  ANNUAL REPORT