ex99_2.htm

Interim Consolidated Statements of Financial Position (Unaudited)

	March 31,			December 31,
(Stated in thousands of Canadian dollars)	2013			2012
Assets
Current assets:
Cash	$	94,837		$	152,768
Accounts receivable		567,088			509,547
Inventory		12,030			13,787
Total current assets		673,955			676,102
Non-current assets:
Income tax recoverable		64,579			64,579
Property, plant and equipment		3,323,750			3,242,929
Intangibles		5,290			6,101
Goodwill		311,096			310,552
Total non-current assets		3,704,715			3,624,161
Total assets	$	4,378,670		$	4,300,263
Liabilities and Equity
Current liabilities:
Accounts payable and accrued liabilities	$	345,779		$	333,893
Income tax payable		11,096			64,188
Total current liabilities		356,875			398,081
Non-current liabilities:
Share based compensation (Note 7)		6,892			8,676
Provisions and other		19,829			17,818
Long-term debt (Note 3)		1,241,154			1,218,796
Deferred tax liabilities		490,338			485,592
Total non-current liabilities		1,758,213			1,730,882
Shareholders' equity:
Shareholders' capital (Note 5)		2,252,711			2,251,982
Contributed surplus		26,154			24,474
Retained earnings (deficit)		34,867			(44,621	)
Accumulated other comprehensive loss (Note 6)		(50,150	)		(60,535	)
Total shareholders' equity		2,263,582			2,171,300
Total liabilities and shareholders' equity	$	4,378,670		$	4,300,263

See accompanying notes to interim consolidated financial statements.

Precision Drilling Corporation | 11

Interim Consolidated Statements of Earnings (Unaudited)

	Three months ended March 31,
(Stated in thousands of Canadian dollars, except per share amounts)	2013			2012

Revenue	$	595,720		$	640,066

Expenses:
Operating		341,838			356,586
General and administrative		38,701			37,906
Earnings before income taxes, finance charges, foreign exchange and depreciation and amortization		215,181			245,574
Depreciation and amortization		84,893			74,824
Operating earnings		130,288			170,750
Foreign exchange		(3,294	)		5,367
Finance charges (Note 8)		22,559			21,920
Earnings before income taxes		111,023			143,463
Income taxes: (Note 4)
Current		18,095			22,839
Deferred		(385	)		9,543
		17,710			32,382
Net earnings	$	93,313		$	111,081
Net earnings per share: (Note 9)
Basic	$	0.34		$	0.40
Diluted	$	0.33		$	0.39

See accompanying notes to interim consolidated financial statements

Interim Consolidated Statements of Comprehensive Income (Unaudited)

	Three months ended March 31,
(Stated in thousands of Canadian dollars)	2013			2012
Net earnings	$	93,313		$	111,081
Unrealized gain (loss) on translation of assets and liabilities of operations denominated in foreign currency		32,120			(25,024	)
Foreign exchange gain (loss) on net investment hedge with U.S. denominated debt, net of tax		(21,735	)		18,795
Comprehensive income	$	103,698		$	104,852

See accompanying notes to interim consolidated financial statements

12 | Interim Consolidated Financial Statements

Interim Consolidated Statements of Cash Flow (Unaudited)

	Three months ended March 31,
(Stated in thousands of Canadian dollars)	2013			2012
Cash provided by (used in):
Operations:
Net earnings	$	93,313		$	111,081
Adjustments for:
Long-term compensation plans		6,517			9,451
Depreciation and amortization		84,893			74,824
Foreign exchange		(3,302	)		5,552
Finance charges		22,559			21,920
Income taxes		17,710			32,382
Other		938			171
Income taxes paid		(70,679	)		(810	)
Income taxes recovered		–			36
Interest paid		(7,493	)		(7,260	)
Interest received		226			392
Funds provided by operations		144,682			247,739
Changes in non-cash working capital balances		(81,734	)		(85,299	)
		62,948			162,440
Investments:
Purchase of property, plant and equipment		(130,605	)		(221,683	)
Proceeds on sale of property, plant and equipment		2,538			5,079
Changes in non-cash working capital balances		15,741			(38,111	)
		(112,326	)		(254,715	)
Financing:
Dividends paid		(13,825	)		–
Issuance of common shares on the exercise of options		480			1,172
		(13,345	)		1,172
Effect of exchange rate changes on cash and cash equivalents		4,792			(6,729	)
Decrease in cash and cash equivalents		(57,931	)		(97,832	)
Cash and cash equivalents, beginning of period		152,768			467,476
Cash and cash equivalents, end of period	$	94,837		$	369,644

See accompanying notes to interim consolidated financial statements

Precision Drilling Corporation | 13

Interim Consolidated Statements of Changes in Equity (Unaudited)

(Stated in thousands of Canadian dollars)	Shareholders’ capital		Contributed surplus			Accumulated other comprehensive loss (Note 6)			Retained earnings (deficit)			Total equity
Balance at January 1, 2013	$	2,251,982	$	24,474		$	(60,535	)	$	(44,621	)	$	2,171,300
Net earnings for the period		–		–			–			93,313			93,313
Other comprehensive income for the period		–		–			10,385			–			10,385
Dividends		–		–			–			(13,825	)		(13,825	)
Share options exercised (Note 5)		729		(249	)		–			–			480
Share based compensation expense (Note 7)		–		1,929			–			–			1,929
Balance at March 31, 2013	$	2,252,711	$	26,154		$	(50,150	)	$	34,867		$	2,263,582

(Stated in thousands of Canadian dollars)	Shareholders’ capital		Contributed surplus			Accumulated other comprehensive loss (Note 6)			Retained earnings (deficit)			Total equity
Balance at January 1, 2012	$	2,248,217	$	18,396		$	(50,862	)	$	(83,160	)	$	2,132,591
Net earnings for the period		–		–			–			111,081			111,081
Other comprehensive loss for the period		–		–			(6,229	)		–			(6,229	)
Share options exercised		1,713		(541	)		–			–			1,172
Issued on redemption of non-management directors DSUs		221		(221	)		–			–			–
Issued on waiver of right to dissent by dissenting unitholder		9		(3	)		–			–			6
Share based compensation expense (Note 7)		–		2,231			–			–			2,231
Balance at March 31, 2012	$	2,250,160	$	19,862		$	(57,091	)	$	27,921		$	2,240,852

See accompanying notes to interim consolidated financial statements.

14 | Interim Consolidated Financial Statements

Notes to Interim Consolidated Financial Statements (Unaudited)

(Tabular amounts are stated in thousands of Canadian dollars except share numbers and per share amounts)

NOTE 1. DESCRIPTION OF BUSINESS

Precision Drilling Corporation (“Precision” or the “Corporation”) is incorporated under the laws of the Province of Alberta, Canada and is a provider of contract drilling and completion and production services primarily to oil and natural gas exploration and production companies in Canada and the United States. The address of the registered office is 800, 525 - 8th Avenue S.W., Calgary, Alberta, Canada, T2P 1G1.

NOTE 2. BASIS OF PRESENTATION

(a) Statement of compliance

These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting using accounting policies consistent with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board and interpretations of the International Financial Reporting Interpretations Committee. The condensed consolidated interim financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Corporation as at and for the year ended December 31, 2012.

These condensed consolidated interim financial statements were prepared using accounting policies and methods of their application consistent with those used in the preparation of the Corporation’s consolidated audited annual financial statements for the year ended December 31, 2012 except for the adoption of the following new accounting standards. On January 1, 2013 Precision adopted IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosures of Interests in Other Entities, as well as the consequential amendments to IAS 28 Investments in Associates and Joint Ventures (2011) and IFRS 13 Fair Value Measurement. The adoption of these standards had no material impact on the amounts recorded in these financial statements.

These condensed consolidated interim financial statements were approved by the Board of Directors on April 24, 2013.

(b) Seasonality

Precision has operations that are carried on in Canada which represent approximately 48% (2011 - 49%) of consolidated total assets as at March 31, 2013 and 61% (2011 - 61%) of consolidated revenue for the three months ended March 31, 2013. The ability to move heavy equipment in Canadian oil and natural gas fields is dependent on weather conditions. As warm weather returns in the spring, the winter's frost comes out of the ground rendering many secondary roads incapable of supporting the weight of heavy equipment until they have thoroughly dried out. The duration of this “spring break-up” has a direct impact on Precision’s activity levels. In addition, many exploration and production areas in northern Canada are accessible only in winter months when the ground is frozen hard enough to support equipment. The timing of freeze up and spring break-up affects the ability to move equipment in and out of these areas. As a result, late March through May is traditionally Precision’s slowest time in this region.

NOTE 3. LONG-TERM DEBT

	March 31,			December 31,
	2013			2012
Secured revolving credit facility	$	-		$	-
Unsecured senior notes:
6.625% senior notes due 2020 (US$650.0 million)		660,140			646,685
6.5% senior notes due 2021(US$400.0 million)		406,240			397,960
6.5% senior notes due 2019		200,000			200,000
		1,266,380			1,244,645
Less net unamortized debt issue costs		(25,226	)		(25,849	)
	$	1,241,154		$	1,218,796

At March 31, 2013 no mandatory principal repayments are required in the next five years.

Precision Drilling Corporation | 15

NOTE 4. INCOME TAXES

The provision for income taxes differs from that which would be expected by applying statutory Canadian income tax rates. A reconciliation of the difference is as follows:

	Three months ended March 31,
	2013			2012
Earnings before income taxes	$	111,023		$	143,463
Federal and provincial statutory rates		25	%		25	%
Tax at statutory rates	$	27,756		$	35,866
Adjusted for the effect of:
Non-deductible expenses		1,727			1,098
Non-taxable capital gains		(29	)		(170	)
Income taxed at lower rates		(11,437	)		(8,887	)
Impact of foreign tax rates		(1,873	)		561
Withholding taxes		855			1,113
Taxes related to prior years		–			1,899
Other		711			902
Income tax expense	$	17,710		$	32,382

NOTE 5. SHAREHOLDERS’ CAPITAL

Issued
Common shares	Number		Amount
Balance, December 31, 2012		276,475,770	$	2,251,982
Options exercised - cash consideration		71,885		480
- reclassification from contributed surplus		-		249
Balance, March 31, 2013		276,547,655	$	2,252,711

NOTE 6. ACCUMULATED OTHER COMPREHENSIVE LOSS

	Unrealized foreign currency translation losses			Foreign exchange gain (loss) on net investment hedge			Accumulated other comprehensive loss
Balance, December 31, 2012	$	(60,865	)	$	330		$	(60,535	)
Other comprehensive income (loss)		32,120			(21,735	)		10,385
Balance, March 31, 2013	$	(28,745	)	$	(21,405	)	$	(50,150	)

16 | Notes to Interim Consolidated Financial Statements

NOTE 7. SHARE BASED COMPENSATION PLANS

Liability classified plans

	Restricted Share Units(a)			Performance Share Units(a)			Share Appreciation Rights(b)		Non- Management Directors’ DSU(c)		Total
Balance, December 31, 2012	$	9,685		$	13,778		$	497	$	816	$	24,776
Expensed during the period		3,085			1,681			52		355		5,173
Payments		(5,019	)		(8,841	)		–		–		(13,860	)
Balance, March 31, 2013	$	7,751		$	6,618		$	549	$	1,171	$	16,089

Current	$	5,198		$	3,450		$	549	$	–	$	9,197
Long-term		2,553			3,168			–		1,171		6,892
	$	7,751		$	6,618		$	549	$	1,171	$	16,089

(a) Restricted Share Units and Performance Share Units

A summary of the activity under the restricted share unit (“RSUs”) and the performance share unit (“PSUs”) plans are presented below:

	RSUs			PSUs
Outstanding at December 31, 2012		1,880,250			1,948,952
Granted		1,097,500			1,172,900
Issued as a result of cash dividends		13,848			14,098
Redeemed		(577,702	)		(689,957	)
Forfeitures		(40,551	)		(17,747	)
Outstanding at March 31, 2013		2,373,345			2,428,246

(b) Share Appreciation Rights

A summary of the activity under the share appreciation rights plan is presented below:

				Range of		Weighted Average
				Exercise Price		Exercise Price
Share Appreciation Rights	Outstanding			(US$)		(US$)		Exercisable
Outstanding at December 31, 2012		678,242		$	9.26 - 17.38	$	14.81		678,242
Forfeitures		(83,246	)		13.26 - 17.38		15.42
Outstanding at March 31, 2013		594,996		$	9.26 - 17.38	$	14.72		594,996

A summary of the activity under the non-management director deferred share unit plan is presented below:

Deferred Share Units	Outstanding
Outstanding at December 31, 2012		101,964
Granted		25,296
Issued as a result of cash dividends		998
Outstanding at March 31, 2013		128,258

Precision Drilling Corporation | 17

Equity settled plans

(d) Non-management directors

Prior to January 1, 2012, Precision had a deferred share unit plan for non-management directors. Under the plan fully vested deferred share units were granted quarterly based upon an election by the non-management director to receive all or a portion of their compensation in deferred share units. These deferred share units are redeemable into an equal number of common shares any time after the director's retirement. A summary of the activity under this share based incentive plan is presented below:

Deferred Share Units	Outstanding
Outstanding at December 31, 2012		335,946
Issued as a result of cash dividends		1,536
Outstanding at March 31, 2013		337,482

(e) Option plan

A summary of the activity under the option plan is presented below:

Canadian share options	Options Outstanding			Range of Exercise Price		Weighted Average Exercise Price		Options Exercisable
Outstanding as at December 31, 2012		4,013,797		$	5.22 – 14.50	$	9.13		1,846,603
Granted		1,209,100			9.02 – 9.02		9.02
Exercised		(43,000	)		5.85 – 8.59		6.81
Forfeitures		(9,358	)		7.33 – 10.67		9.63
Outstanding as at March 31, 2013		5,170,539		$	5.22 – 14.50	$	9.13		2,847,781

U.S. share options	Options Outstanding			Range of Exercise Price (US$)		Weighted Average Exercise Price (US$)		Options Exercisable
Outstanding as at December 31, 2012		2,399,980		$	4.95 – 15.21	$	9.23		935,035
Granted		1,005,600			8.99 – 8.99		8.99
Exercised		(28,885	)		4.95 – 8.06		6.42
Forfeitures		(5,051	)		10.55 – 10.96		10,74
Outstanding as at March 31, 2013		3,371,644		$	4.95 – 15.21	$	9.18		1,518,742

The per option weighted average fair value of the share options granted during 2013 was $3.26 estimated on the grant date using the Black-Scholes option pricing model with the following assumption: average risk-free interest rate 1%, average expected life of four years, expected forfeiture rate of 5% and expected volatility of 53%. Included in net earnings for the three months ended March 31, 2013 is an expense of $1.9 million (2012 - $2.2 million).

NOTE 8. FINANCE CHARGES

	Three months ended March 31,
	2013			2012
Interest:
Long-term debt	$	21,582		$	21,283
Other		67			49
Income		(186	)		(400	)
Amortization of debt issue costs		1,096			988
Finance charges	$	22,559		$	21,920

18 | Notes to Interim Consolidated Financial Statements

NOTE 9. PER SHARE AMOUNTS

The following tables reconcile the net earnings and weighted average shares outstanding used in computing basic and diluted earnings per share:

	Three months ended March 31,
	2013		2012
Net earnings - basic and diluted	$	93,313	$	111,081

	Three months ended March 31,
(Stated in thousands)		2013		2012
Weighted average shares outstanding – basic		276,499		276,113
Effect of share warrants		9,553		10,529
Effect of stock options and other equity compensation plans		934		1,406
Weighted average shares outstanding – diluted		286,986		288,048

NOTE 10. SEGMENTED INFORMATION

The Corporation operates primarily in Canada and the United States, in two industry segments; Contract Drilling Services and Completion and Production Services. Contract Drilling Services includes drilling rigs, directional drilling, procurement and distribution of oilfield supplies, and manufacture, sale and repair of drilling equipment. Completion and Production Services includes service rigs, snubbing units, coil tubing services, oilfield equipment rental, camp and catering services, and wastewater treatment units.

			Completion
	Contract		and					Inter-
	Drilling		Production		Corporate			segment
Three months ended March 31, 2013	Services		Services		and Other			Eliminations			Total
Revenue	$	496,238	$	103,588	$	-		$	(4,106	)	$	595,720
Operating earnings		133,494		20,870		(24,076	)		-			130,288
Depreciation and amortization		73,711		9,245		1,937			-			84,893
Total assets		3,601,909		588,084		188,677			-			4,378,670
Goodwill		198,957		112,139		-			-			311,096
Capital expenditures		110,445		19,157		1,003			-			130,605

			Completion
	Contract		and					Inter-
	Drilling		Production		Corporate			segment
Three months ended March 31, 2012	Services		Services		and Other			Eliminations			Total
Revenue	$	531,066	$	111,085	$	-		$	(2,085	)	$	640,066
Operating earnings		160,221		31,170		(20,641	)		-			170,750
Depreciation and amortization		67,335		8,034		(545	)		-			74,824
Total assets		3,546,803		509,026		432,641			-			4,488,470
Goodwill		251,037		112,139		-			-			363,176
Capital expenditures		198,468		21,534		1,681			-			221,683

Precision Drilling Corporation | 19

The Corporation’s operations are carried on in the following geographic locations:

								Inter-
								segment
Three months ended March 31, 2013	Canada		United States			International		Eliminations			Total
Revenue	$	360,521		$	212,040	$	24,203	$	(1,044	)	$	595,720
Total assets		2,114,781			1,950,500		313,389		-			4,378,670

							Inter-
							segment
Three months ended March 31, 2012	Canada		United States		International		Eliminations			Total
Revenue	$	392,234	$	245,952	$	4,755	$	(2,875	)	$	640,066
Total assets		2,216,831		2,077,556		194,083		-			4,488,470

20 | Notes to Interim Consolidated Financial Statements