EX-99.2 5 d718689dex992.htm EX-99.2

EX-99.2

Exhibit 99.2

Interim Consolidated Statements of Financial Position (Unaudited)

(Stated in thousands of Canadian dollars)		March 31, 2014				December 31,   2013
ASSETS
Current assets:
Cash		$	106,165			$	80,606
Accounts receivable			607,900				549,697
Inventory			13,606				12,378
Total current assets			727,671				642,681
Non-current assets:
Income tax recoverable			58,435				58,435
Property, plant and equipment			3,633,832				3,561,734
Intangibles			3,538				3,917
Goodwill			313,451				312,356
Total non-current assets			4,009,256				3,936,442
Total assets		$	4,736,927			$	4,579,123
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued liabilities		$	338,095			$	332,838
Income tax payable			157				4,060
Total current liabilities			338,252				336,898
Non-current liabilities:
Share based compensation (Note 7)			12,286				14,431
Provisions and other			20,512				17,836
Long-term debt (Note 3)			1,350,992				1,323,268
Deferred tax liabilities			500,957				487,347
Total non-current liabilities			1,884,747				1,842,882
Shareholders’ equity:
Shareholders’ capital (Note 5)			2,308,966				2,305,227
Contributed surplus			29,441				29,175
Retained earnings			172,446				88,416
Accumulated other comprehensive income (loss) (Note 6)			3,075				(23,475)
Total shareholders’ equity			2,513,928				2,399,343
Total liabilities and shareholders’ equity		$	4,736,927			$	4,579,123

See accompanying notes to interim consolidated financial statements.

14

Interim Consolidated Statements of Earnings (Unaudited)

		Three months ended March 31,
(Stated in thousands of Canadian dollars, except per share amounts)		2014				2013
Revenue		$	672,249			$	595,720
Expenses:
Operating			395,153				341,838
General and administrative			39,822				38,701
Earnings before income taxes, finance charges, foreign exchange and depreciation and amortization			237,274				215,181
Depreciation and amortization (Note 2(c))			105,705				84,893
Operating earnings			131,569				130,288
Foreign exchange			(3,629)				(3,294)
Finance charges (Note 8)			24,432				22,559
Earnings before income taxes			110,766				111,023
Income taxes: (Note 4)
Current			5,444				18,095
Deferred			3,765				(385)
			9,209				17,710
Net earnings		$	101,557			$	93,313
Net earnings per share: (Note 9)
Basic		$	0.35			$	0.34
Diluted		$	0.35			$	0.33

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)		2014				2013
Net earnings		$	101,557			$	93,313
Unrealized gain on translation of assets and liabilities of operations denominated in foreign currency			70,335				32,120
Foreign exchange loss on net investment hedge with U.S. denominated debt, net of tax			(43,785	)			(21,735	)
Comprehensive income		$	128,107			$	103,698

See accompanying notes to interim consolidated financial statements.

15

Interim Consolidated Statements of Cash Flow (Unaudited)

		Three months ended March 31,
(Stated in thousands of Canadian dollars)		2014				2013
Cash provided by (used in):
Operations:
Net earnings		$	101,557			$	93,313
Adjustments for:
Long-term compensation plans			10,311				6,517
Depreciation and amortization			105,705				84,893
Foreign exchange			(4,389)				(3,302)
Finance charges			24,432				22,559
Income taxes			9,209				17,710
Other			1,499				938
Income taxes paid			(9,031)				(70,679)
Income taxes recovered			12				–
Interest paid			(8,025)				(7,493)
Interest received			113				226
Funds provided by operations			231,393				144,682
Changes in non-cash working capital balances			(61,266)				(81,734)
			170,127				62,948
Investments:
Purchase of property, plant and equipment			(105,999)				(130,605)
Proceeds on sale of property, plant and equipment			7,257				2,538
Changes in non-cash working capital balances			(16,308)				15,741
			(115,050)				(112,326)
Financing:
Repayment of long-term debt			(16,728)				–
Dividends paid			(17,527)				(13,825)
Issuance of common shares on the exercise of options			2,610				480
			(31,645)				(13,345)
Effect of exchange rate changes on cash and cash equivalents			2,127				4,792
Increase (decrease) in cash and cash equivalents			25,559				(57,931)
Cash and cash equivalents, beginning of period			80,606				152,768
Cash and cash equivalents, end of period		$	106,165			$	94,837

See accompanying notes to interim consolidated financial statements.

16

Interim Consolidated Statements of Changes in Equity (Unaudited)

(Stated in thousands of Canadian dollars)		Shareholders’ capital				Contributed surplus				Accumulated other comprehensive income (loss) (Note 6)				Retained earnings				Total   equity
Balance at January 1, 2014		$	2,305,227				$     29,175				$    (23,475)				$  88,416			$	2,399,343
Net earnings for the period			–				–				–				101,557				101,557
Other comprehensive income for the period			–				–				26,550				–				26,550
Dividends			–				–				–				(17,527)				(17,527)
Share options exercised (Note 5)			3,739				(1,129)				–				–				2,610
Share based compensation expense (Note 7)			–				1,395				–				–				1,395
Balance at March 31, 2014		$	2,308,966				$    29,441				$    3,075				$    172,446			$	2,513,928
(Stated in thousands of Canadian dollars)		Shareholders’ capital				Contributed surplus				Accumulated other comprehensive loss				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			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

See accompanying notes to interim consolidated financial statements.

17

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 the United States and certain international locations. The address of the registered office is 800, 525 - 8^th 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, 2013.

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, 2013 except for the adoption of the following new accounting standard. On January 1, 2014 Precision adopted IFRIC 21, Levies. The adoption of this standard 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 25, 2014.

(b) Seasonality

Precision has operations that are carried on in Canada which represent approximately 46% (2013 - 48%) of consolidated total assets as at March 31, 2014 and 54% (2013 - 61%) of consolidated revenue for the three months ended March 31, 2014. 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.

18

(c) Change in Accounting Estimate

Effective January 1, 2014, the Company changed the method for depreciating its drilling and service rig equipment from unit-of-production to straight-line. Precision believes that due to technological developments within the industry, straight-line depreciation better reflects the allocation of the cost of the assets over their expected lives. A summary of the new depreciation method for drilling and service rig equipment is as follows:

		Expected life		Salvage value		Basis of depreciation
Drilling rig equipment:
– Power & Tubulars		5 years		–		straight-line
– Dynamic		10 years		–		straight-line
– Structural		20 years		10%		straight-line
Service rig equipment		20 years		10%		straight-line

For the three months ended March 31, 2014 the change in depreciation method resulted in $4.7 million of additional depreciation over what would have been expensed had the previous method been continued. The estimated additional depreciation expense for the year ending December 31, 2014 from this change is approximately $45 million.

NOTE 3. LONG-TERM DEBT

		March 31,				December 31,
		2014				2013
Secured revolving credit facility		$	13,053			$	29,781
Unsecured senior notes:
6.625% senior notes due 2020 (US$650 million)			718,445				691,340
6.5% senior notes due 2021(US$400 million)			442,120				425,440
6.5% senior notes due 2019			200,000				200,000
			1,373,618				1,346,561
Less net unamortized debt issue costs			(22,626)				(23,293)
		$	1,350,992			$	1,323,268

Long-term debt obligations at March 31, 2014 will mature as follows:

2018		$	13,053
2019			200,000
Thereafter			1,160,565
		$	1,373,618

19

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,
		2014				2013
Earnings before income taxes		$	110,766			$	111,023
Federal and provincial statutory rates			25%				25%
Tax at statutory rates		$	27,692			$	27,756
Adjusted for the effect of:
Non-deductible expenses			1,688				1,727
Non-taxable capital gains			(88)				(29)
Income taxed at lower rates			(17,695)				(11,437)
Impact of foreign tax rates			(4,584)				(1,873)
Withholding taxes			717				855
Other			1,479				711
Income tax expense		$	9,209			$	17,710

NOTE 5. SHAREHOLDERS’ CAPITAL

Common shares		Number				Amount
December 31, 2013			291,979,671			$	2,305,227
Options exercised:
Cash consideration			294,496				2,610
Reclassification from contributed surplus			-				1,129
March 31, 2014			292,274,167			$	2,308,966

NOTE 6. ACCUMULATED OTHER COMPREHENSIVE LOSS

		Unrealized Foreign Currency Translation Gains				Foreign Exchange Loss on Net Investment Hedge				Accumulated   Other   Comprehensive   Income (Loss)
December 31, 2013		$	48,330			$	(71,805)			$	(23,475)
Other comprehensive income (loss)			70,335				(43,785)				26,550
March 31, 2014		$	118,665			$	(115,590)			$	3,075

20

NOTE 7. SHARE BASED COMPENSATION PLANS

Liability Classified Plans

		Restricted Share Units(a)				Performance Share Units(a)				Share Appreciation Rights(b)				Non- Management Directors’ DSUs(c)				Total
December 31, 2013		$	13,538			$	12,962			$	246			$	1,854			$	28,600
Expensed during the period			5,324				4,713				185				825				11,047
Payments			(7,529)				(4,128)				(33)				–				(11,690)
March 31, 2014		$	11,333			$	13,547			$	398			$	2,679			$	27,957
Current		$	8,560			$	6,713			$	398			$	–			$	15,671
Long-term			2,773				6,834				–				2,679				12,286
		$	11,333			$	13,547			$	398			$	2,679			$	27,957

(a) Restricted Share Units and Performance Share Units

 A summary of the activity under the restricted share unit (RSU) and the performance share unit (PSU) plans are presented below:

		RSUs				PSUs
		Outstanding				Outstanding
December 31, 2013			2,113,495				2,437,928
Granted			1,206,200				1,630,638
Issued as a result of cash dividends			12,626				17,886
Redeemed			(780,691)				(422,910)
Forfeitures			(63,055)				(116,439)
March 31, 2014			2,488,575				3,547,103

(b) Share Appreciation Rights

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

		Outstanding				Range of Exercise Price (US$)				Weighted Average Exercise Price (US$)				Exercisable
December 31, 2013			588,162			$	9.26 – 17.38			$	14.71			$	588,162
Redeemed			(31,506)				9.26 – 9.26				9.26
Forfeitures			(105,397)				9.26 – 17.38				13.73
March 31, 2014			451,259			$	9.26 – 17.38			$	15.32			$	451,259

21

 (c) Non-Management Directors

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

Deferred Share Units		Outstanding
December 31, 2013			188,575
Granted			18,150
Issued as a result of cash dividends			946
March 31, 2014			207,671

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
December 31, 2013			221,112
Issued as a result of cash dividends			1,113
March 31, 2014			222,225

(e) Option Plan

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

Canadian share options		Outstanding				Range of Exercise Price				Weighted Average Exercise Price				Exercisable
December 31, 2013			4,900,886			$	5.22 – 14.50			$	9.14			$	2,676,865
Granted			862,000				10.15 – 10.15				10.15
Exercised			(164,462)				5.85 – 10.67				8.31
Forfeitures			(18,700)				5.85 – 10.67				9.49
March 31, 2014			5,579,724			$	5.22 – 14.50			$	9.32			$	3,548,265
U.S. share options		Outstanding				Range of Exercise Price (US$)				Weighted Average Exercise Price (US$)				Exercisable
December 31, 2013			3,173,808			$	4.95 – 15.21			$	9.32			$	1,438,335
Granted			827,300				9.18 – 9.18				9.18
Exercised			(130,034)				4.95 – 10.74				8.64
Forfeitures			(62,218)				4.95 – 10.74				8.43
March 31, 2014			3,808,856			$	4.95 – 15.21			$	9.33			$	2,014,518

22

The per option weighted average fair value of the share options granted during 2014 was $3.16 estimated on the grant date using the Black-Scholes option pricing model with the following assumptions: average risk-free interest rate 1%, average expected life of four years, expected forfeiture rate of 5% and expected volatility of 46%. Included in net earnings for the three months ended March 31, 2014 is an expense of $1.4 million (2013 - $1.9 million).

NOTE 8. FINANCE CHARGES

		Three months ended March 31,
		2014				2013
Interest:
Long-term debt			$  23,575				$  21,582
Other			198				67
Income			(91)				(186)
Amortization of debt issue costs			750				1,096
Finance charges			$  24,432				$  22,559

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,
		2014				2013
Net earnings - basic and diluted		$	101,557				$      93,313
		2014				2013
(Stated in thousands)
Weighted average shares outstanding – basic			292,060				276,499
Effect of share warrants			–				9,553
Effect of stock options and other equity compensation plans			1,298				934
Weighted average shares outstanding – diluted			293,358				286,986

23

NOTE 10. SEGMENTED INFORMATION

The Corporation operates primarily in Canada, the United States and certain international locations, 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.

Three months ended March 31, 2014		Contract Drilling Services				Completion and Production Services				Corporate and Other				Inter- Segment Eliminations				Total
Revenue		$	571,922			$	103,065			$	-			$	(2,738)			$	672,249
Operating earnings			147,587				8,025				(24,043)				-				131,569
Depreciation and amortization			92,111				11,428				2,166				-				105,705
Total assets			3,991,086				613,741				132,100				-				4,736,927
Goodwill			201,312				112,139				-				-				313,451
Capital expenditures			99,884				4,490				1,625				–				105,999
Three months ended March 31, 2013		Contract Drilling Services				Completion and Production Services				Corporate and Other				Inter- Segment 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
The Corporation’s operations are carried on in the following geographic locations:
Three months ended March 31, 2014		Canada				United States				International				Inter- Segment Eliminations				Total
Revenue		$	364,331			$	267,492			$	42,489			$	(2,063)			$	672,249
Total assets			2,171,662				2,045,075				520,190				-				4,736,927
Three months ended March 31, 2013		Canada				United States				International				Inter- Segment 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

24

NOTE 11. FAIR VALUES OF FINANCIAL INSTRUMENTS

The carrying value of cash, accounts receivable, and accounts payable and accrued liabilities approximate their fair value due to the relatively short period to maturity of the instruments. The fair value of the unsecured senior notes at March 31, 2014 was approximately $1,467 million (December 31, 2013 -$1,403 million).

Financial assets and liabilities recorded or disclosed at fair value in the consolidated balance sheet are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels are based on the amount of subjectivity associated with the inputs in the fair determination and are as follows:

Level I—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level II—Inputs (other than quoted prices included in Level I) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

Level III—Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

The estimated fair value of unsecured senior notes is based on level II inputs. The fair value is estimated considering the risk free interest rates on government debt instruments of similar maturities, adjusted for estimated credit risk, industry risk and market risk premiums.

25

SHAREHOLDER INFORMATION   STOCK EXCHANGE LISTINGS Shares of Precision Drilling Corporation are listed on the Toronto Stock Exchange under the trading symbol PD and on the New York Stock Exchange under the trading symbol PDS.   TRANSFER AGENT AND REGISTRAR Computershare Trust Company of Canada Calgary, Alberta   TRANSFER POINT Computershare Trust Company NA Denver, Colorado   Q1 2014 TRADING PROFILE Toronto (TSX: PD) High: $13.32 Low: $9.43 Close: $13.24 Volume Traded: 81,812,633   New York (NYSE: PDS) High: US$12.06 Low: US$8.51 Close: US$11.97 Volume Traded: 113,670,700   ACCOUNT QUESTIONS Precision’s Transfer Agent can help you with a variety of shareholder related services, including:   —    change of address —    lost unit certificates —     transfer of shares to another person —     estate settlement   Computershare Trust Company of Canada 100 University Avenue 9th Floor, North Tower Toronto, Ontario M5J 2Y1 Canada   1-800-564-6253 (toll free in Canada and the United States) 1-514-982-7555 (international direct dialing) Email: service@computershare.com   ONLINE INFORMATION To receive news releases by email, or to view this interim report online, please visit Precision’s website at www.precisiondrilling.com and refer to the Investor Relations section. Additional information relating to Precision, including the Annual Information Form, Annual Report and Management Information Circular has been filed with SEDAR and is available at www.sedar.com. CORPORATE INFORMATION   DIRECTORS   William T. Donovan Brian J. Gibson Allen R. Hagerman, FCA Catherine Hughes Stephen J.J. Letwin Kevin O. Meyers Patrick M. Murray Kevin A. Neveu Robert L. Phillips   OFFICERS Kevin A. Neveu President and Chief Executive Officer   Joanne L. Alexander Senior Vice President, General Counsel and Corporate Secretary   Niels Espeland President, International Operations   Douglas B. Evasiuk Senior Vice President, Sales and Marketing   Kenneth J. Haddad Senior Vice President, Business Development   Robert J. McNally Executive Vice President and Chief Financial Officer   Darren J. Ruhr Senior Vice President, Corporate Services   Gene C. Stahl President, Drilling Operations   Douglas J. Strong President, Completion and Production Services   LEAD BANK Royal Bank of Canada Calgary, Alberta   AUDITORS KPMG LLP Calgary, Alberta   HEAD OFFICE 800, 525-8^th Avenue SW Calgary, Alberta, Canada T2P 1G1 Telephone: 403-716-4500 Facsimile: 403-264-0251 Email: info@precisiondrilling.com www.precisiondrilling.com

26