EX-99.3

Exhibit 99.3

Management’s Report to the Shareholders

The accompanying consolidated financial statements and all information in this Annual Report are the responsibility of management. The consolidated financial statements have been prepared by management in accordance with the accounting policies in the notes to the consolidated financial statements. When necessary, management has made informed judgments and estimates in accounting for transactions that were not complete at the balance sheet date. In the opinion of management, the consolidated financial statements have been prepared within acceptable limits of materiality, and are in accordance with International Financial Reporting Standards (IFRS) appropriate in the circumstances. The financial information elsewhere in the Annual Report has been reviewed to ensure consistency with that in the consolidated financial statements.

Management has prepared Management’s Discussion and Analysis (MD&A). The MD&A is based on the financial results of Precision Drilling Corporation (the Corporation) prepared in accordance with IFRS. The MD&A compares the audited financial results for the years ended December 31, 2013 to December 31, 2012 and the years ended December 31, 2012 to December 31, 2011.

Management is responsible for establishing and maintaining adequate internal control over the Corporation’s financial reporting and is supported by an internal audit function that conducts periodic testing of these controls. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external reporting purposes in accordance with IFRS. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with direction from our principal executive officer and principal financial and accounting officer, management conducted an evaluation of the effectiveness of the Corporation’s internal control over financial reporting. Management’s evaluation of internal control over financial reporting was based on the Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (1992). Based on this evaluation, management concluded that the Corporation’s internal control over financial reporting was effective as of December 31, 2013. Also management determined that there were no material weaknesses in the Corporation’s internal control over financial reporting as of December 31, 2013.

KPMG LLP (KPMG), an independent firm of Chartered Accountants, was engaged, as approved by a vote of shareholders at the Corporation’s most recent annual meeting, to audit the consolidated financial statements and provide an independent professional opinion.

KPMG completed an audit of the design and effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2013, as stated in its report included herein, and expressed an unqualified opinion on the design and effectiveness of internal control over financial reporting as of December 31, 2013.

The Audit Committee of the Board of Directors, which is comprised of five independent directors who are not employees of the Corporation, provides oversight to the financial reporting process. Integral to this process is the Audit Committee’s review and discussion with management and KPMG of the quarterly and annual financial statements and reports prior to their respective release. The Audit Committee is also responsible for reviewing and discussing with management and KPMG major issues as to the adequacy of the Corporation’s internal controls. KPMG has unrestricted access to the Audit Committee to discuss its audit and related matters. The consolidated financial statements have been approved by the Board of Directors of Precision Drilling Corporation and its Audit Committee.




Kevin A. Neveu		Robert J. McNally
President and		Executive Vice President and
Chief Executive Officer		Chief Financial Officer
Precision Drilling Corporation		Precision Drilling Corporation

March 7, 2014		March 7, 2014

Independent Auditors’ Report of Registered Public Accounting Firm

To the Shareholders and Board of Directors of Precision Drilling Corporation

We have audited the accompanying consolidated financial statements of Precision Drilling Corporation (the Corporation), which comprise the consolidated statements of financial position as at December 31, 2013 and December 31, 2012, the consolidated statements of earnings, comprehensive income, changes in equity and cash flow for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Corporation as at December 31, 2013 and December 31, 2012, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Other Matter

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Corporation’s internal control over financial reporting as of December 31, 2013, based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (1992), and our report dated March 7, 2014 expressed an unqualified opinion on the effectiveness of the Corporation’s internal control over financial reporting.

LOGO

Chartered Accountants

Calgary, Canada

March 7, 2014

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of Precision Drilling Corporation

We have audited Precision Drilling Corporation’s (the Corporation) internal control over financial reporting as of December 31, 2013, based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (1992). The Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report to the Shareholders. Our responsibility is to express an opinion on the Corporation’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

An entity’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. An entity’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the entity; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the entity are being made only in accordance with authorizations of management and directors of the entity; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the entity’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (1992).

We also have audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Corporation as of December 31, 2013 and December 31, 2012, and the related consolidated statements of income, shareholders’ equity and cash flow for the years then ended, and our report dated March 7, 2014 expressed an unqualified opinion on those consolidated financial statements.

LOGO

Chartered Accountants

Calgary, Canada

March 7, 2014

Consolidated Statements of Financial Position

(Stated in thousands of Canadian dollars)

December 31,
2013

December 31,
2012

ASSETS

Current assets:

Cash

80,606

152,768

Accounts receivable

(Note 23)

549,697

509,547

Inventory

12,378

13,787

Total current assets

642,681

676,102

Non-current assets:

Income tax recoverable

58,435

64,579

Property, plant and equipment

(Note 4)

3,561,734

3,242,929

Intangibles

(Note 5)

3,917

6,101

Goodwill

(Note 6)

312,356

310,552

Total non-current assets

3,936,442

3,624,161

Total assets

4,579,123

4,300,263

LIABILITIES AND EQUITY

Current liabilities:

Accounts payable and accrued liabilities

(Note 23)

332,838

333,893

Income tax payable

4,060

64,188

Total current liabilities

336,898

398,081

Non-current liabilities:

Share based compensation

(Note 8)

14,431

8,676

Provisions and other

(Note 9)

17,836

17,818

Long-term debt

(Note 10)

1,323,268

1,218,796

Deferred tax liabilities

(Note 11)

487,347

485,592

Total non-current liabilities

1,842,882

1,730,882

Shareholders’ equity:

Shareholders’ capital

(Note 12)

2,305,227

2,251,982

Contributed surplus

29,175

24,474

Retained earnings (deficit)

88,416

(44,621

)

Accumulated other comprehensive loss

(Note 13)

(23,475

)

(60,535

)

Total shareholders’ equity

2,399,343

2,171,300

Total liabilities and shareholders’ equity

4,579,123

4,300,263

See accompanying notes to consolidated financial statements.


Approved by the Board of Directors:


	Allen R. Hagerman	Patrick M. Murray
	Director	Director

Consolidated Statements of Earnings


Years ended December 31, (Stated in thousands of Canadian dollars, except per share amounts)			2013			2012

Revenue		$	2,029,977		$	2,040,741

Expenses:

Operating	(Note 23)		1,248,637			1,243,301

General and administrative	(Note 23)		142,507			126,648
Earnings before income taxes, finance charges, foreign exchange, impairment of goodwill, loss on asset decommissioning and depreciation and amortization			638,833			670,792

Depreciation and amortization			333,159			307,525

Loss on asset decommissioning	(Note 4)		–			192,469
Operating earnings			305,674			170,798

Impairment of goodwill			–			52,539

Foreign exchange			(9,112	)		3,753

Finances charges	(Note 14)		93,248			86,829
Earnings before tax			221,538			27,677

Income taxes:	(Note 11)

Current			45,017			70,576

Deferred			(14,629	)		(95,259	)

			30,388			(24,683	)

Net earnings		$	191,150		$	52,360
Earnings per share:	(Note 18)

Basic		$	0.69		$	0.19

Diluted		$	0.66		$	0.18
See accompanying notes to consolidated financial statements. Consolidated Statements of Comprehensive Income
Years ended December 31, (Stated in thousands of Canadian dollars)			2013			2012

Net earnings		$	191,150		$	52,360

Unrealized gain (loss) on translation of assets and liabilities of operations denominated in foreign currency			109,195			(32,878	)

Foreign exchange gain (loss) on net investment hedge with U.S. denominated debt, net of tax			(72,135	)		23,205
Comprehensive income		$	228,210		$	42,687

See accompanying notes to consolidated financial statements.

Consolidated Statements of Cash Flow


Years ended December 31, (Stated in thousands of Canadian dollars)		2013			2012

Cash provided by (used in):

Operations:

Net earnings		$	191,150		$	52,360

Adjustments for:

Long-term compensation plans			20,708			19,350

Depreciation and amortization			333,159			307,525

Loss on asset decommissioning			–			192,469

Impairment of goodwill			–			52,539

Foreign exchange			(9,216	)		4,403

Finance charges			93,248			86,829

Income taxes			30,388			(24,683	)

Other			(3,754	)		1,018

Income taxes paid			(109,326	)		(10,403	)

Income taxes recovered			3,761			721

Interest paid			(89,156	)		(85,251	)

Interest received			1,011			1,935
Funds provided by operations			461,973			598,812

Changes in non-cash working capital balances	(Note 23)		(33,887	)		36,474
			428,086			635,286

Investments:

Business acquisitions, net of cash acquired	(Note 19)		–			(25	)

Purchase of property, plant and equipment	(Note 4)		(535,804	)		(868,057	)

Proceeds on sale of property, plant and equipment			13,372			31,423

Changes in income tax recoverable			6,144			–

Changes in non-cash working capital balances	(Note 23)		(10,247	)		(93,462	)
			(526,535	)		(930,121	)

Financing:

Debt issue costs			(883	)		(2,855	)

Debt facility amendment costs			–			(149	)

Dividends paid	(Note 12)		(58,113	)		(13,821	)

Increase in long-term debt			29,781			–

Issuance of common shares on the exercise of options	(Note 12)		2,432			1,926

Issuance of common shares on the exercise of warrants	(Note 12)		48,300			–
			21,517			(14,899	)

Effect of exchange rate changes on cash and cash equivalents			4,770			(4,974	)
Decrease in cash and cash equivalents			(72,162	)		(314,708	)

Cash and cash equivalents, beginning of year			152,768			467,476
Cash and cash equivalents, end of year		$	80,606		$	152,768

See accompanying notes to consolidated financial statements.

Consolidated Statements of Changes in Equity


(Stated in thousands of Canadian dollars)		Shareholders’ capital		Contributed surplus		Accumulated other comprehensive loss (Note 13)			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		–		–		–			191,150			191,150

Other comprehensive income for the period		–		–		37,060			–			37,060

Dividends		–		–		–			(58,113	)		(58,113	)

Share options exercised	(Note 12)	3,707		(1,275	)	–			–			2,432

Shares issued on redemption of non-management directors’ DSUs		1,238		(1,031	)	–			–			207

Warrants exercised		48,300		–		–			–			48,300

Share based compensation expense	(Note 8)	–		7,007		–			–			7,007
Balance at December 31, 2013		$ 2,305,227	$	29,175		$ (23,475	)	$	88,416		$	2,399,343


(Stated in thousands of Canadian dollars)		Shareholders’ capital		Contributed surplus		Accumulated other comprehensive loss (Note 13)			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		–		–		–			52,360			52,360

Other comprehensive loss for the period		–		–		(9,673	)		–			(9,673	)

Dividends		–		–		–			(13,821	)		(13,821	)

Share options exercised	(Note 12)	3,050		(1,124	)	–			–			1,926

Shares issued on redemption of non-management directors’ DSUs		706		(706	)	–			–			–

Shares issued on waiver of right to dissent by dissenting unitholder		9		(3	)	–			–			6

Share based compensation expense	(Note 8)	–		7,911		–			–			7,911
Balance at December 31, 2012		$ 2,251,982	$	24,474		$ (60,535	)	$	(44,621	)	$	2,171,300

See accompanying notes to consolidated financial statements.

Notes to Consolidated Financial Statements

(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 – 8th Avenue S.W., Calgary, Alberta, Canada, T2P 1G1.

NOTE 2. BASIS OF PREPARATION

(a) Statement of Compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

These consolidated financial statements were authorized for issue by the Board of Directors on March 7, 2014.

(b) Basis of Measurement

The consolidated financial statements have been prepared using the historical cost basis except as detailed in the Corporation’s accounting policies in Note 3 and are presented in thousands of Canadian dollars.

(c) Use of Estimates and Judgments

The preparation of the consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingencies. These estimates and judgments are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The estimation of anticipated future events involves uncertainty and, consequently, the estimates used in preparation of the consolidated financial statements may change as future events unfold, more experience is acquired or the Corporation’s operating environment changes. Significant estimates and judgments used in the preparation of the financial statements are described in Note 3.

NOTE 3. SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Consolidation

These consolidated financial statements include the accounts of the Corporation and all of its subsidiaries and partnerships substantially all of which are wholly-owned. The financial statements of the subsidiaries are prepared for the same period as the parent entity, using consistent accounting policies. All significant intercompany balances, transactions and any unrealized gains and losses arising from intercompany transactions, have been eliminated.

Subsidiaries are entities controlled by the Corporation. Control exists when Precision has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that currently are exercisable are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

Precision does not hold investments in any companies where it exerts significant influence and does not hold interests in any special-purpose entities.

The acquisition method is used to account for acquisitions of subsidiaries and assets that meet the definition of a business under IFRS. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the cost of acquisition over the fair value of the identifiable assets, liabilities and contingent liabilities acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized immediately in the statement of earnings. Transaction costs, other than those associated with the issuance of debt or equity securities, that the Corporation incurs in connection with a business combination are expensed as incurred.

(b) Cash and Cash Equivalents

Cash and cash equivalents consist of cash and short-term investments with original maturities of three months or less.

(c) Inventory

Inventory is primarily comprised of operating supplies and is carried at the lower of average cost, being the cost to acquire the inventory, and net realizable value. Inventory is charged to operating expenses as items are sold or consumed at the amount of the average cost of the item.

(d) Property, Plant and Equipment

Property, plant and equipment are carried at cost, less accumulated depreciation and any accumulated impairment losses.

Cost includes an expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use and borrowing costs on qualifying assets.

The cost of replacing a part of an item of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Corporation, and its cost can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing of property, plant and equipment (repair and maintenance) are recognized in profit or loss as incurred.

Property, plant, and equipment are depreciated as follows:


	Expected Life	Salvage Value	Basis of Depreciation
Drilling rig equipment:

– Power & Tubulars	1,700 utilization days	–	unit-of-production

– Dynamic	3,400 utilization days	–	unit-of-production

– Structural	5,000 utilization days	20%	unit-of-production

Seasonal, stratification and turnkey drilling equipment	4 years	0 to 20%	straight-line

Service rig equipment	24,000 service hours	20%	unit-of-production

Drilling rig spare equipment	up to 15 years	–	straight-line

Service rig spare equipment	up to 15 years	–	straight-line

Rental equipment	10 to 15 years	0 to 25%	straight-line

Other equipment	3 to 10 years	–	straight-line

Light duty vehicles	4 years	–	straight-line

Heavy duty vehicles	7 to 10 years	–	straight-line

Buildings	10 to 20 years	–	straight-line

Assets that are depreciated on a unit-of-production method that have less than 60 utilization days (drilling rig equipment) or 600 service hours (service rig equipment) in a rolling 12 month period are deemed to be idle and are depreciated at a rate of five utilization days or 50 service hours per month until the asset exceeds the utilization threshold.

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognized in the statements of earnings.

The estimated useful lives, residual values and methods or depreciation are reviewed annually, and adjusted prospectively if appropriate.

(e) Intangibles

Intangible assets that are acquired by the Corporation with finite lives are initially recorded at estimated fair value and subsequently measured at cost less accumulated amortization and any accumulated impairment losses.

Subsequent expenditures are capitalized only when it increases the future economic benefits of the specific asset to which it relates.

Amortization is recognized in profit and loss using the straight-line method based over the estimated useful lives of the respective assets as follows:


Customer relationships		1 to 5 years
Patents		10 years
Brand		1 to 5 years

The estimated useful lives and methods of amortization are reviewed annually, and adjusted prospectively if appropriate.

(f) Goodwill

Goodwill is the amount that results when the purchase price of an acquired business exceeds the sum of the amounts allocated to the assets acquired, less liabilities assumed, based on their fair values.

If the fair value of the identifiable net assets acquired exceeds the fair value of the consideration, Precision reassesses whether it has correctly identified and measured the assets acquired and liabilities assumed. If that excess remains after reassessment, Precision recognizes the resulting gain in profit or loss on the acquisition date.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, attributed to the cash generating unit or groups of cash generating units that are expected to benefit and as identified in the business combination.

(g) Impairment

(i) Financial Assets

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is tested for impairment if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.

Objective evidence that financial assets are impaired can include default or delinquency by a debtor, restructuring of an amount due to the Corporation on terms that the Corporation would not consider otherwise, and indications that a debtor will enter bankruptcy. Precision considers evidence of impairment for receivables at both a specific asset and collective level. All individually significant receivables are assessed for specific impairment. All significant receivables found not to be specifically impaired are then collectively assessed for impairment by grouping together receivables with similar risk characteristics.

An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate.

Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.

All impairment losses are recognized in profit or loss.

An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognized. For financial assets measured at amortized cost the reversal is recognized in profit or loss.

(ii) Non-Financial Assets

The carrying amounts of the Corporation’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill and other intangible assets that have indefinite lives or that are not yet available for use an impairment test is completed at the same time each year.

For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the cash-generating unit or CGU). The recoverable amount of an asset or a CGU is the greater of its value in use and its fair value less costs to sell.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Value in use is generally computed by reference to the present value of the future cash flows expected to be derived from the cash generating unit.

An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognized in prior years are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

(h) Borrowing Costs

Interest and borrowing costs that are directly attributable to the acquisition, construction or production of assets that take a substantial period of time to prepare for their intended use are capitalized as part of the cost of those assets. Capitalization ceases during any extended period of suspension of construction or when substantially all activities necessary to prepare the asset for its intended use are complete.

All other interest and borrowing costs are recognized in earnings in the period in which they are incurred.

(i) Income Taxes

Income tax expense is recognized in net earnings except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.

Current tax is the expected tax payable or receivable on the taxable earnings or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognized using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized on the initial recognition of assets or liabilities in a transaction that is not a business combination. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted at the reporting date. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in net earnings in the period that includes the date of enactment or substantive enactment. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities that are expected to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

(j) Revenue Recognition

The Corporation’s services are generally sold based on service orders or contracts with a customer that include fixed or determinable prices based on daily, hourly or job rates. Customer contract terms do not include provisions for significant post-service delivery obligations. Revenue is recognized when services and equipment rentals are rendered and only when collectability is reasonably assured. The Corporation also provides services under turnkey contracts whereby it drills a well to an agreed upon depth under specified conditions for a fixed price, regardless of the time required or the problems encountered in drilling the well. Revenue from turnkey drilling contracts is recognized using the percentage-of-completion method based on costs incurred to date and estimated total contract costs. Anticipated losses, if any, on uncompleted contracts are recorded at the time the estimated costs exceed the contract revenue.

(k) Employee Benefit Plans

Precision sponsors various defined contribution retirement plans for its employees. The Corporation’s contributions to defined contribution plans are expensed as employees earn the entitlement.

(l) Provisions

Provisions are recognized when the Corporation has a present obligation (legal or constructive) as a result of a past event, when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and when a reliable estimate can be made of the amount of the obligation.

The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.

(m) Share Based Incentive Compensation Plans

The Corporation has established several cash settled share based incentive compensation plans for officers, non-management directors and other eligible employees. The fair values as estimated by management of the amounts payable to eligible participants under these plans are recognized as an expense with a corresponding increase in liabilities over the period that the participants become unconditionally entitled to payment. The recorded liability is re-measured at the end of each reporting period until settlement with the resultant change to the fair value of the liability recognized in net earnings for the period. When the plans are settled, the cash paid reduces the outstanding liability.

Prior to January 1, 2012 the Corporation had an equity settled deferred share unit plan whereby non-management directors of Precision could elect to receive all or a portion of their compensation in fully-vested deferred share units. Compensation expense was recognized based on the fair value price of the Corporation’s shares at the date of grant with a corresponding increase to contributed surplus. Upon redemption of the deferred share units into common shares, the amount previously recognized in contributed surplus is recorded as an increase to shareholders’ capital. The Corporation continues to have obligations under this plan.

A share option plan has been established for certain eligible employees. Under this plan the fair value of share purchase options is calculated at the date of grant using the Black-Scholes option pricing model and that value is recorded as compensation expense over the grant’s vesting period with an offsetting credit to contributed surplus. A forfeiture rate is estimated on the grant date and is adjusted to reflect the actual number of options that vest. Upon exercise of the equity purchase option, the associated amount is reclassified from contributed surplus to shareholders’ capital. Consideration paid by employees upon exercise of the equity purchase options is credited to shareholders’ capital.

(n) Foreign Currency Translation

Transactions of the Corporation’s individual entities are recorded in the currency of the primary economic environment in which it operates (its functional currency). Transactions in currencies other than the entities’ functional currency are translated at rates in effect at the time of the transaction. At each period end, monetary assets and liabilities are translated at the prevailing period end rates. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Gains and losses are included in net earnings except for gains and losses on translation of long-term debt designated as a hedge of foreign operations, which are deferred and included in accumulated other comprehensive income.

For the purpose of preparing the Corporation’s consolidated financial statements, the financial statements of each foreign operation that does not have a Canadian dollar functional currency are translated into Canadian dollars. Assets and liabilities are translated at exchange rates in effect at the balance sheet date. Revenues and expenses are translated using average exchange rates for the month of the respective transaction. Gains or losses resulting from these translation adjustments are recognized initially in other comprehensive income and reclassified from equity to net earnings on disposal or partial disposal of the foreign operation.

(o) Per Share Amounts

Basic per share amounts are calculated using the weighted average number of shares outstanding during the period. Diluted per share amounts are calculated by using the treasury stock method for equity based compensation arrangements. The treasury stock method assumes that any proceeds obtained on exercise of equity based compensation arrangements would be used to purchase common shares at the average market price during the period. The weighted average number of shares outstanding is then adjusted by the difference between the number of shares issued from the exercise of equity based compensation arrangements and shares repurchased from the related proceeds.

(p) Financial Instruments

(i) Non-Derivative Financial Assets

Financial assets are classified as either fair value through profit and loss, loans and receivables, held to maturity or available for sale. Financial liabilities are classified as either fair value through profit and loss or other financial liabilities. Non-derivative financial instruments are recognized initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs. Transaction costs attributable to fair value through profit or loss items are expensed as incurred. Subsequent to initial recognition non-derivative financial instruments are measured based on their classification.

Accounts receivable are classified as “loans and receivables”. After their initial fair value measurement, they are measured at amortized cost using the effective interest rate method. For the Corporation, the measured amount generally corresponds to historical cost.

Accounts payable and accrued liabilities and long-term debt are classified as “other financial liabilities”. After their initial fair value measurement, they are measured at amortized cost using the effective interest rate method. For the Corporation, the measured amount generally corresponds to historical cost.

(ii) Derivative Financial Instruments

The Corporation may enter into certain financial derivative contracts in order to manage the exposure to market risks from fluctuations in interest rates or exchange rates. These instruments are not used for trading or speculative purposes. Precision has not designated its financial derivative contracts as effective accounting hedges, and thus has not applied hedge accounting, even though it considers certain financial contracts to be economic hedges. As a result, financial derivative contracts are classified as fair value through profit or loss and are recorded on the balance sheet at estimated fair value. Transaction costs are recognized in profit or loss when incurred.

Derivatives embedded in other instruments or host contracts are separated from the host contract and accounted for separately when their economic characteristics and risks are not closely related to the host contract. Embedded derivatives are recorded on the balance sheet at estimated fair value and changes in the fair value are recognized in earnings.

(q) Hedge Accounting

The Corporation utilizes foreign currency long-term debt to hedge its exposure to changes in the carrying values of the Corporation’s net investment in certain foreign operations as a result of changes in foreign exchange rates.

To be accounted for as a hedge, the foreign currency long-term debt must be designated and documented as a hedge, and must be effective at inception and on an ongoing basis. The documentation defines the relationship between the foreign currency long-term debt and the net investment in the foreign operations, as well as the Corporation’s risk management objective and strategy for undertaking the hedging transaction. The Corporation formally assesses, both at inception and on an ongoing basis whether the changes in fair value of the foreign currency long-term debt is highly effective in offsetting changes in fair value of the net investment in the foreign operations. The portion of gains or losses on the hedging item that is determined to be an effective hedge is recognized in other comprehensive income, net of tax, and is limited to the translation gain or loss on the net investment, while the ineffective portion is recorded in earnings. If the hedging relationship is terminated or ceases to be effective, hedge accounting is not applied to subsequent gains or losses. The amounts recognized in other comprehensive income are reclassified to net earnings when corresponding exchange gains or losses arising from the translation of the foreign operation are recorded in net earnings.

(r) Critical Accounting Judgments

(i) Depreciation and Amortization

Precision’s property, plant and equipment and its intangible assets are depreciated and amortized based on estimates of useful lives and salvage values. These estimates consider data and information from various sources including vendors, industry practice and Precision’s own historical experience and may change as more experience is gained, market conditions shift or new technological advancements are made.

Determination of which part of the drilling rig equipment represent significant cost relative to the entire rig and identifying the consumption patterns along with the useful lives of these significant parts, are matters of judgment. This determination can be complex and subject to differing interpretations and views, particularly when rig equipment comprises individual components for which different depreciation methods or rates are appropriate.

(ii) Income Taxes

Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws, and the amount and timing of future taxable income. Differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to taxable income and expense already recorded. The Corporation establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities of the respective countries in which it operates. The amount of such provisions is based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority.

In June 2013 a wholly owned subsidiary of the Corporation lost a tax appeal in the Ontario Superior Court of Justice related to a reassessment of Ontario income tax for the subsidiary’s 2001 thru 2004 taxation years. The Corporation has appealed the decision to the Ontario Court of Appeal and expects this appeal to be heard in 2014. Despite the decision in the Superior Court, management believes it is more likely than not that the Corporation would prevail on appeal. Should the Corporation lose on appeal, approximately $55 million of the long-tern income tax recoverable related to this issue would be expensed.

(s) Critical Accounting Assumptions and Estimates

Impairment of Long-Lived Assets

Long-lived assets, which include property, plant and equipment, intangibles and goodwill, comprise the majority of Precision’s assets. The carrying value of these assets is periodically reviewed for impairment or whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. For property, plant and equipment, this requires Precision to forecast future cash flows to be derived from the utilization of these assets based on assumptions about future business conditions and technological developments. Significant, unanticipated changes to these assumptions could require a provision for impairment in the future.

For goodwill, we conduct impairment tests annually in the fourth quarter or whenever there is change in circumstance that indicates that the carrying value may not be recoverable. The recoverability of goodwill requires a calculation of the recoverable amount of the CGU or groups of CGUs to which goodwill has been allocated. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Judgment is required in the aggregation of assets into CGUs. The recoverability calculation requires an estimation of the future cash flows from the CGU or group of CGUs and judgment is required in determining the appropriate discount rate. We use observable market data inputs to develop a discount rate that we believe approximates the discount rate from market participants.

In deriving the underlying projected cash flows, assumptions must also be made about future drilling activity, margins and market conditions over the long-term life of the assets or CGUs. Precision cannot predict if an event that triggers impairment will occur, when it will occur or how it will occur or how it will affect reported asset amounts. Although estimates are reasonable and consistent with current conditions, internal planning and expected future operations, such estimations are subject to significant uncertainty and judgment.

We performed an impairment test on the well servicing CGU at December 31, 2013 as described in note 6. This CGU has $89 million of goodwill allocated to it. An increase in the discount rate used by 1% would require an impairment charge being recognized on the goodwill assigned to the well servicing CGU.

(t) Accounting Policies Adopted January 1, 2013

The Corporation 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, with a date of initial application of January 1, 2013.

The adoption of these standards on January 1, 2013 had no impact on the amounts recorded in the Corporation’s financial statements.

(i) IFRS 10 Consolidated Financial Statements

IFRS 10 introduces a new control model that is applicable to all investees; among other things, it requires the consolidation of an investee if the Corporation controls the investee on the basis of de facto circumstances.

Subsidiaries are entities controlled by the Corporation. The Corporation controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

(ii) IFRS 11 Joint Arrangements

Joint arrangements are arrangements of which the Corporation has joint control, established by contracts requiring unanimous consent for decisions about the activities that significantly affect the arrangements’ returns. Under IFRS 11, joint arrangements are classified as either joint operations or joint ventures depending on the Corporation’s rights to the assets and obligations for the liabilities of the arrangements. When making this assessment, the Corporation considers the structure of the arrangements, the legal form of any separate vehicles, the contractual terms of the arrangement and other facts and circumstances. Previously, the structure of the arrangement was the sole focus of classification.

The Corporation has no joint arrangements under IFRS 11.

(iii) IFRS 12 Disclosures of Interests in Other Entities

IFRS 12 sets out certain disclosures that are required relating to interests in subsidiaries, associates, joint arrangements and unconsolidated structured entities. The Corporation does not have any investments that are not consolidated nor has it entered into any joint arrangements or structured entities.

The Corporation’s subsidiaries, as detailed in Note 25, are all wholly owned. The determination of whether to consolidate these entities did not involve any significant judgments or assumptions. There are no significant restrictions on the ability of the Corporation to access or use the assets, and settle the liabilities of the Corporation and its subsidiaries except for customary limitations in the Corporation’s credit facility.

(iv) IFRS 13 Fair Value Measurement

IFRS 13 defines fair value and sets out a single standard a framework for measuring fair value and the required disclosures about fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

IFRS 13 is applied prospectively to fair value measurements occurring on or after January 1, 2013. The additional disclosure requirements of IFRS 13 are also applied prospectively and have been presented, as relevant, in the 2013 interim and annual financial statements.

(u) Accounting Policies not yet Adopted

IFRS 9 Financial Instruments (2010), IFRS 9 Financial Instruments (2009)

IFRS 9 (2009) introduces new requirements for the classification and measurement of financial assets. Under IFRS 9 (2009), financial assets are classified and measured based on the business model in which they are held and the characteristics of their contractual cash flows. IFRS 9 (2010) introduces additions relating to financial liabilities. The IASB currently has an active project to make limited amendments to the classification and measurement requirements of IFRS 9 and add new requirements to address the impairment of financial assets and hedge accounting.

IFRS 9 (2010 and 2009) is effective for annual periods beginning on or after January 1, 2015, with early adoption permitted. The Corporation is currently evaluating the impact of adopting this standard on its financial statements.

NOTE 4. PROPERTY, PLANT AND EQUIPMENT


	2013		2012
Cost	$	5,260,263	$	4,608,381
Accumulated depreciation		(1,698,529)		(1,365,452)
	$	3,561,734	$	3,242,929
Rig equipment	$	3,033,159	$	2,819,491
Rental equipment		108,453		91,351
Other equipment		78,670		78,358
Vehicles		42,993		40,759
Buildings		49,506		50,585
Assets under construction		219,433		133,791
Land		29,520		28,594
	$	3,561,734	$	3,242,929

Cost


	Rig Equipment		Rental Equipment		Other Equipment		Vehicles		Buildings		Assets Under Construction		Land		Total
December 31, 2011	$	3,441,052	$	112,707	$	142,563	$	28,051	$	48,082	$	336,605	$	20,658	$	4,129,718
Additions		256,661		17,068		18,330		32,994		21,998		512,139		8,867		868,057
Disposals		(26,796)		(920)		(8,311)		(2,267)		(971)		(38,405)		(857)		(78,527)
Asset decommissioning		(262,192)		–		–		–		–		–		–		(262,192)
Reclassifications		619,351		24,530		19,144		4,959		2,295		(670,279)		–		–
Removal of fully depreciated assets		–		–		(71)		–		–		–		–		(71)
Effect of foreign currency exchange differences		(41,333)		(1,034)		(18)		(541)		665		(6,269)		(74)		(48,604)
December 31, 2012		3,986,743		152,351		171,637		63,196		72,069		133,791		28,594		4,608,381
Additions		143,252		6,346		1,651		3,588		–		380,788		179		535,804
Disposals		(52,659)		(1,126)		(2,971)		(5,324)		–		–		–		(62,080)
Reclassifications		270,615		10,508		14,141		4,900		825		(300,989)		–		–
Effect of foreign currency exchange differences		163,445		1,866		936		3,251		2,070		5,843		747		178,158
December 31, 2013	$	4,511,396	$	169,945	$	185,394	$	69,611	$	74,964	$	219,433	$	29,520	$	5,260,263

Accumulated Depreciation


	Rig Equipment		Rental Equipment		Other Equipment		Vehicles		Buildings		Assets Under Construction		Land		Total
December 31, 2011	$	1,008,185	$	54,118	$	87,358	$	17,812	$	19,949	$	–	$	–	$	1,187,422
Depreciation expense		274,129		7,901		14,280		6,917		2,341		–		–		305,568
Disposals		(35,697)		(785)		(8,213)		(2,132)		(884)		–		–		(47,711)
Asset decommissioning		(69,723)		–		–		–		–		–		–		(69,723)
Reclassifications		60		(156)		646		16		(566)		–		–		–
Removal of fully depreciated assets		–		–		(71)		–		–		–		–		(71)
Effect of foreign currency exchange differences		(9,702)		(78)		(721)		(176)		644		–		–		(10,033)
December 31, 2012		1,167,252		61,000		93,279		22,437		21,484		–		–		1,365,452
Depreciation expense		295,807		9,695		15,518		8,299		3,774		–		–		333,093
Disposals		(43,423)		(1,007)		(2,937)		(5,069)		–		–		–		(52,436)
Reclassifications		8,314		(8,557)		273		(20)		(10)		–		–		–
Effect of foreign currency exchange differences		50,287		361		591		971		210		–		–		52,420
December 31, 2013	$	1,478,237	$	61,492	$	106,724	$	26,618	$	25,458	$	–	$	–	$	1,698,529

In 2012, the Corporation incurred a $192.5 million loss on the decommissioning of certain drilling rigs. The assets were decommissioned due to the inefficient nature of the assets and the high cost to maintain. The charge was allocated fully to the Contract Drilling Services segment.

During 2012, the Corporation reviewed the remaining economic lives of certain drilling rigs and determined that, due to current market conditions, the lives of these rigs should be reduced to four years and depreciation be charged on a straight-line basis to their estimated salvage value. The effect of this change was to increase depreciation expense by $21.3 million in 2012.

NOTE 5. INTANGIBLES


							2013			2012
Cost							$	12,221		$	12,388
Accumulated amortization								(8,304	)		(6,287)
							$	3,917		$	6,101
Customer relationships							$	616		$	1,890
Patents and brands								16			21
Loan commitment fees related to revolving credit facility								3,285			4,190
							$	3,917		$	6,101
Cost
	Customer Relationships			Patents and Brands			Loan Commitment Fees			Total
December 31, 2011	$	4,600		$	420		$	4,905		$	9,925
Business acquisitions		–			–			–			–
Additions		–			–			2,855			2,855
Effect of foreign currency exchange differences		(25	)		(8	)		–			(33)
Removal of fully amortized assets					(359	)		–			(359)
December 31, 2012		4,575			53			7,760			12,388
Business acquisitions		–			–			–			–
Additions		–			–			883			883
Effect of foreign currency exchange differences		78			–			–			78
Removal of fully amortized assets		(1,128	)		–			–			(1,128)
December 31, 2013	$	3,525		$	53		$	8,643		$	12,221
Accumulated Amortization
	Customer Relationships			Patents and Brands			Loan Commitment Fees			Total
December 31, 2011	$	1,317		$	302		$	1,835		$	3,454
Amortization expense		1,376			96			1,735			3,207
Effect of foreign currency exchange differences		(8	)		(7	)		–			(15)
Removal of fully amortized assets		–			(359	)		–			(359)
December 31, 2012		2,685			32			3,570			6,287
Amortization expense		1,294			5			1,788			3,087
Effect of foreign currency exchange differences		58			–			–			58
Removal of fully amortized assets		(1,128	)		–			–			(1,128)
December 31, 2013	$	2,909		$	37		$	5,358		$	8,304

NOTE 6. GOODWILL


Balance, December 31, 2011	$	363,646
Business acquisitions		25
Impairment charge		(52,539)
Exchange adjustment		(580)
Balance, December 31, 2012		310,552
Exchange adjustment		1,804
Balance, December 31, 2013	$	312,356

The Corporation performed an impairment test on the well servicing CGU at December 31, 2013. This CGU has $89 million of goodwill allocated to it. The cash flow projections used in performing the impairment test were based on future expected outcomes taking into account past experience and management expectation of future market conditions. No terminal value growth rate was used due to the finite lives of the underlying assets of the CGU. An increase in the discount rate used by 1% would require an impairment charge being recognized on the goodwill assigned to the well servicing CGU.

During 2012 the Corporation determined that the carrying value of the goodwill allocated to the Canadian directional drilling CGU exceeded its recoverable amount and recognized an impairment loss of $52.5 million. The recoverable amount was based on its value in use determined by discounting expected future cash flows to be generated from the continuing use of the assets within the CGU.

Key assumptions used in the calculation of value in use included a discount rate of 15%, terminal value growth rate of nil % and average projected annual cash flow growth over the next four years of 40%. No terminal value growth rate was used due to the finite lives of the underlying assets of the CGU. Projected cash flow was based on future expected outcomes taking into account past experience and management expectation of future market conditions. A 10% change in the key assumptions would not change the amount of the impairment loss recognized.

NOTE 7. BANK INDEBTEDNESS

At December 31, 2013 and 2012, Precision had available $40.0 million and US$15.0 million under secured operating facilities, and a secured US$25.0 million facility for the issuance of letters of credit and performance and bid bonds to support international operations. As at December 31, 2013 and 2012, no amounts had been drawn on any of the facilities. Availability of the $40.0 million and US$25.0 million facility were reduced by outstanding letters of credit in the amount of $17.3 million (2012 – $18.9 million) and US$0.2 million (2012 – US $nil), respectively. The facilities are primarily secured by charges on substantially all present and future property of Precision and its material subsidiaries. Advances under the $40.0 million facility are available at the bank’s prime lending rate, U.S. base rate, U.S. LIBOR plus applicable margin, or Banker’s Acceptance plus applicable margin, or in combination, and under the US$15.0 million and US$25.0 million facilities at the bank’s prime lending rate.

NOTE 8. SHARE BASED COMPENSATION PLANS

Liability Classified Plans


	Deferred Share Units			Restricted Share Units			Performance Share Units			Share Appreciation Rights			Non- Management Directors’ DSUs			Total
December 31, 2011	$	762		$	12,529		$	25,250		$	1,693		$	–		$	40,234
Expensed (recovered) during the period		(44	)		5,094			6,022			(1,195	)		816			10,693
Payments		(718	)		(7,938	)		(17,494	)		(1	)		–			(26,151)
December 31, 2012		–			9,685			13,778			497			816			24,776
Expensed (recovered) during the period		–			11,622			8,137			(251	)		1,245			20,753
Payments and redemptions		–			(7,769	)		(8,953	)		–			(207	)		(16,929)
December 31, 2013	$	–		$	13,538		$	12,962		$	246		$	1,854		$	28,600
Current	$	–		$	9,027		$	4,896		$	246		$	–		$	14,169
Long-term		–			4,511			8,066			–			1,854			14,431
	$	–		$	13,538		$	12,962		$	246		$	1,854		$	28,600

(a) Restricted Share Units and Performance Share Units

Precision has two cash settled share based incentive plans for officers and other eligible employees. Under the Restricted Share Unit (RSU) incentive plan shares granted to eligible employees vest annually over a three year term. Vested shares are automatically paid out in cash at a value determined by the fair market value of the shares at the vesting date. Under the Performance Share Unit (PSU) incentive plan shares granted to eligible employees vest at the end of a three-year term. Vested shares are automatically paid out in cash in the first quarter following the vested term at a value determined by the fair market value of the shares at the vesting date and based on the number of performance shares held multiplied by a performance factor that ranges from zero to two times. The performance factor is based on Precision’s share price performance compared to a peer group over the three-year period. A summary of the RSUs and PSUs outstanding under these share based incentive plans is presented below:


	RSUs Outstanding			PSUs Outstanding
December 31, 2011		1,836,830			2,129,508
Granted		1,117,850			802,000
Issued as a result of cash dividends		11,566			11,972
Redeemed		(864,857	)		(851,499)
Forfeitures		(221,139	)		(143,029)
December 31, 2012		1,880,250			1,948,952
Granted		1,295,739			1,258,650
Issued as a result of cash dividends		51,113			54,623
Redeemed		(869,744	)		(696,171)
Forfeitures		(243,863	)		(128,126)
December 31, 2013		2,113,495			2,437,928

(b) Share Appreciation Rights

The Corporation has a U.S. dollar denominated Share Appreciation Rights (SAR) plan under which eligible participants were granted SARs that entitle the rights holder to receive cash payments calculated as the excess of the market price over the exercise price per share on the exercise date. The SARs vest over a period of 5 years and expire 10 years from the date of grant. At December 31, 2013, the intrinsic value of these awards was $7,000 (2012 – $nil).


Share Appreciation Rights	Outstanding			Range of Exercise Price (US$)		Weighted Average Exercise Price (US$)		Exercisable
December 31, 2011		705,688		$	9.26 – 17.92		$ 14.83		705,688
Exercised		(721	)		9.26 – 9.59		9.45
Forfeited		(26,725	)		15.22 – 17.92		15.55
December 31, 2012		678,242			9.26 – 17.38		14.81		678,242
Forfeited		(90,080	)		13.26 – 17.38		15.42
December 31, 2013		588,162		$	9.26 – 17.38		$ 14.71		588,162


	Total SARs Outstanding and Exercisable
Range of Exercise Prices (US$):	Number		Weighted Average Exercise Price (US$)		Weighted Average Remaining Contractual Life (Years)
$ 9.26 – 11.99		59,903		$ 9.26		1.23
12.00 – 14.99		100,844		13.26		1.10
15.00 – 17.38		427,415		15.82		3.43
$ 9.26 – 17.38		588,162		$ 14.71		2.71

(c) Non-Management Directors

Effective January 1, 2012, Precision instituted a new deferred share unit plan for non-management directors whereby fully vested deferred share units are granted quarterly based on 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 in cash or for an equal number of common shares upon the director’s retirement. The redemption of deferred share units in cash or common shares is solely at Precision’s discretion. Non-management directors can receive a lump sum payment or two separate payments any time up until December 15 of the year following retirement. If the non-management director does not specify a redemption date, the deferred share units will be redeemed on a single date six months after retirement. The cash settlement amount is based on the weighted average trading price for Precision’s shares on the Toronto Stock Exchange for the five days immediately prior to payout. A summary of the DSUs outstanding under this share based incentive plan is presented below:


Deferred Share Units	Outstanding
January 1, 2011		–
Granted		101,535
Issued as a result of cash dividends		429
December 31, 2012		101,964
Granted		105,338
Issued as a result of cash dividends		2,836
Redeemed		(21,563)
December 31, 2013		188,575

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 on 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 this share based incentive plan is presented below:


Deferred Share Units	Outstanding
December 31, 2011		417,495
Issued as a result of cash dividends		1,630
Redeemed		(83,179)
December 31, 2012		335,946
Issued as a result of cash dividends		5,459
Redeemed		(120,293)
December 31, 2013		221,112

(e) Option Plan

The Corporation has a share option plan under which a combined total of 16,569,134 options to purchase common shares are reserved to be granted to employees. Of the amount reserved, 9,357,588 options have been granted. Under this plan, the exercise price of each option equals the fair market of the option at the date of grant determined by the weighted average trading price for the five days preceding the grant. The options are denominated in either Canadian or U.S. dollars, and vest over a period of three years from the date of grant as employees render continuous service to the Corporation and have a term of seven years.

A summary of the status of the equity incentive plan is presented below:


Canadian share options	Options Outstanding			Range of Exercise Prices		Weighted Average Exercise Price		Options Exercisable
December 31, 2011		3,267,571		$	5.22 – 14.50	$	8.45		1,008,305
Granted		1,117,050			7.15 – 10.67		10.60
Exercised		(237,545	)		5.85 – 10.44		6.01
Forfeitures		(133,279	)		5.85 – 14.50		10.27
December 31, 2012		4,013,797			5.22 – 14.50		9.13		1,846,603
Granted		1,237,500			7.82 – 9.02		8.99
Exercised		(172,158	)		5.85 – 10.67		7.43
Forfeitures		(178,253	)		5.85 – 14.50		9.77
December 31, 2013		4,900,886		$	5.22 – 14.50	$	9.14		2,676,865

U.S. share options	Options Outstanding			Range of Exercise Prices (US$)		Weighted Average Exercise Price (US$)		Options Exercisable
December 31, 2011		1,886,552		$	4.95 – 15.21	$	8.61		396,188
Granted		867,000			7.14 – 10.74		10.58
Exercised		(72,409	)		4.95 – 10.55		6.94
Forfeitures		(281,163	)		4.95 – 15.21		9.84
December 31, 2012		2,399,980			4.95 – 15.21		9.23		935,035
Granted		1,025,100			8.99 – 9.28		9.00
Exercised		(189,887	)		4.95 – 10.55		5.89
Forfeitures		(61,385	)		7.14 – 15.21		10.82
December 31, 2013		3,173,808		$	4.95 – 15.21	$	9.32		1,438,335

The weighted average share price at the date of exercise for share options exercised in 2013 was $10.11 (2012 – $9.42) for the Canadian share options and US$9.90 (2012 – US$10.10) for the U.S. share options.

The range of exercise prices for options outstanding at December 31, 2013 is as follows:


Canadian share options	Total Options Outstanding						Exercisable Options
Range of Exercise Prices:	Number		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Number		Weighted Average Exercise Price
$ 5.22 – 6.99		706,438	$	5.85		2.35		706,438	$	5.85
7.00 – 8.99		981,297		8.53		3.25		942,662		8.56
9.00 – 14.50		3,213,151		10.04		5.16		1,027,765		10.62
$ 5.22 – 14.50		4,900,886	$	9.14		4.37		2,676,865	$	8.64

U.S. share options	Total Options Outstanding						Exercisable Options
Range of Exercise Prices (US$):	Number		Weighted Average Exercise Price (US$)		Weighted Average Remaining Contractual Life (Years)		Number		Weighted Average Exercise Price (US$)
$ 4.95 – 5.99		188,872	$	4.95		2.35		188,872	$	4.95
6.00 – 8.99		1,606,533		8.55		5.08		581,195		7.82
9.00 – 15.21		1,378,403		10.82		4.67		668,268		10.89
$ 4.95 – 15.21		3,173,808	$	9.32		4.74		1,438,335	$	8.87

The per option weighted average fair value of the share options granted during 2013 was $3.26 (2012 – $4.79) estimated on the grant date using the Black-Scholes option pricing model with the following assumption: average risk-free interest rate 1% (2012 – 1%), average expected life of four years (2012 – four years), expected forfeiture rate of 5% (2012 – 5%) and expected volatility of 53% (2012 – 59%). Included in net earnings for the year ended December 31, 2013 is an expense of $7.0 million (2012 – $7.9 million).

NOTE 9. PROVISIONS AND OTHER


			Workers’ Compensation
Balance December 31, 2011			$	23,984
Expensed during the year				11,604
Payment of deductibles and uninsured claims				(8,436)
Effects of foreign currency exchange differences				(551)
Balance December 31, 2012				26,601
Expensed during the year				4,350
Payment of deductibles and uninsured claims				(8,546)
Effects of foreign currency exchange differences				1,781
Balance December 31, 2013			$	24,186

	2013		2012
Current	$	6,350	$	8,783
Long-term		17,836		17,818
	$	24,186	$	26,601

Precision maintains a provision for the deductible and uninsured portions of workers’ compensation and general liability claims. The amount accrued for the provision for losses incurred varies depending on the number and nature of the claims outstanding at the balance sheet dates. In addition, the accrual includes management’s estimate of the future cost to settle each claim such as future changes in the severity of the claim and increases in medical costs. Precision uses third parties to assist in developing the estimate of the ultimate costs to settle each claim, which is based on historical experience associated with the type of each claim and specific information related to each claim. The specific circumstances of each claim may change over time prior to settlement and, as a result, the estimates made as of the balance sheet dates may change.

NOTE 10. LONG-TERM DEBT


	2013		2012
Secured revolving credit facility	$	29,781	$	–
Unsecured senior notes:
6.625% senior notes due 2020 (US$650.0 million)		691,340		646,685
6.5% senior notes due 2021 (US$400.0 million)		425,440		397,960
6.5% senior notes due 2019		200,000		200,000
		1,346,561		1,244,645
Less net unamortized debt issue costs		(23,293)		(25,849)
	$	1,323,268	$	1,218,796

(a) Secured Revolving Credit Facility

The secured revolving credit facility provides Precision with senior secured financing for general corporate purposes, including for acquisitions, of up to US$850 million with a provision for an increase in the facility of up to an additional US$250 million. The secured revolving credit facility is secured by charges on substantially all of Precision’s present and future assets and the present and future assets of its material U.S. and Canadian subsidiaries and, if necessary, in order to adhere to covenants under the revolving credit facility, on certain assets of certain subsidiaries organized in a jurisdiction outside of Canada or the U.S. The secured revolving credit facility requires that Precision comply with certain financial covenants including leverage ratios of consolidated senior debt to earnings before interest, taxes, depreciation and amortization as defined in the agreement (EBITDA) of less than 3:1 and consolidated total debt to EBITDA of less than 4:1 for the most recent four consecutive fiscal quarters; and a interest coverage ratio of greater than 2.75:1 for the most recent four consecutive fiscal quarters. As well the revolving credit facility contains certain covenants that place restrictions on Precision’s ability to dispose of assets; make or pay dividends, share redemptions or other distributions; change its primary business; incur liens on assets; enter into mergers, consolidations or amalgamations; and enter into speculative swap agreements. At December 31, 2013, Precision was in compliance with the covenants of the revolving credit facility.

The revolving credit facility has a term of five years, with an annual option on Precision’s part to request that the lenders extend, at their discretion, the facility to a new maturity date not to exceed five years from the date of the extension request. The current maturity date of the revolving credit facility is November 17, 2018.

Under the revolving credit facility amounts can be drawn in U.S. dollars and/or Canadian dollars and as at December 31, 2013, US$28.0 was outstanding (2012 – $nil). Up to US$200 million of the revolving credit facility is available for letters of credit denominated in U.S and/or Canadian dollars and as at December 31, 2013 outstanding letters of credit amounted to US$28.6 million (2012 – US$26.8 million).

The interest rate on loans that are denominated in U.S. dollars is, at the option of Precision, either a margin over a U.S. base rate or a margin over LIBOR. The interest rate on loans denominated in Canadian dollars is, at the option of Precision, either a margin over the Canadian prime rate or a margin over the bankers’ acceptance rate; such margins will be based on the then applicable ratio of consolidated total debt to EBITDA.

(b) Unsecured Senior Notes

Precision has outstanding the following unsecured senior notes:

US$650.0 million of 6.625% Senior Notes due 2020. These notes bear interest at a fixed rate of 6.625% per annum, and mature on November 15, 2020. Interest is payable semi-annually on May 15 and November 15 of each year

$200.0 million of 6.5% Senior Notes due 2019. These notes bear interest at a fixed rate of 6.5% per annum, and mature on March 15, 2019. Interest is payable semi-annually on March 15 and September 15 of each year.

US$400.0 million of 6.5% Senior Notes due 2021. These notes bear interest at a fixed rate of 6.5% per annum, and mature on December 15, 2021. Interest is payable semi-annually on June 15 and December 15 of each year.

The 6.625% Senior Notes due 2020 and the 6.5% Senior Notes due 2019 are unsecured, ranking equally with existing and future senior unsecured indebtedness, and have been guaranteed by current and future U.S. and Canadian subsidiaries that guaranteed the revolving credit facility. These notes contain certain covenants that limit Precision’s ability and the ability of certain subsidiaries to incur additional indebtedness and issue preferred stock; create liens; make restricted payments; create or permit to exist restrictions on the ability of Precision or certain subsidiaries to make certain payments and distributions; engage in amalgamations, mergers or consolidations; make certain dispositions and transfers of assets; and engage in transactions with affiliates. If the notes receive an investment grade rating by Standard & Poor’s and Moody’s Investors Service and Precision and its subsidiaries are not in default under the indenture governing the notes, then Precision will not be required to comply with particular covenants contained in the indenture.

The 6.5% Senior Notes due 2021 are unsecured, ranking equally with existing and future senior unsecured indebtedness, and have been guaranteed by current and future U.S. and Canadian subsidiaries that guaranteed the revolving credit facility. These notes contain certain covenants that limit Precision’s ability and the ability of certain subsidiaries to incur additional indebtedness and issue preferred stock; create liens; make restricted payments; create or permit to exist restrictions on the ability of Precision or certain subsidiaries to make certain payments and distributions; engage in amalgamations, mergers or consolidations; make certain dispositions and transfers of assets; and engage in transactions with affiliates. If the notes receive an investment grade rating by Standard & Poor’s or Moody’s Investors Service and Precision and its subsidiaries are not in default under the indenture governing the notes, then Precision will not be required to comply with particular covenants contained in the indenture.

Prior to November 15, 2015, Precision may redeem the 6.625% Senior Notes due 2020 in whole or in part at 100.0% of their principal amount, plus accrued interest and the greater of 1.0% of the principal amount of the note to be redeemed and the excess, if any, of the present value of the November 15, 2015 redemption price plus required interest payments through November 15, 2015 (calculated using the United States Treasury rate plus 50 basis points) over the principal amount of the note. As well, Precision may redeem these notes in whole or in part at any time on or after November 15, 2015 and before November 15, 2018, at redemption prices ranging between 103.313% and 101.104% of their principal amount plus accrued interest. Any time on or after November 15, 2018 these notes can be redeemed for their principal amount plus accrued interest. Upon specified change of control events, each holder of a note will have the right to sell to Precision all or a portion of its notes at a purchase price in cash equal to 101% of the principal amount, plus accrued interest to the date of purchase.

Prior to March 15, 2014, Precision may redeem up to 35% of the 6.5% Senior Notes due 2019 with the net proceeds of certain equity offerings at a redemption price equal to 106.5% of the principal amount plus accrued interest. Prior to March 15, 2015, Precision may redeem these notes in whole or in part at 100.0% of their principal amount, plus accrued interest and the greater of 1.0% of the principal amount of the note to be redeemed and the excess, if any, of the present value of the March 15, 2015 redemption price plus required interest payments through March 15, 2015 (calculated using the Government of Canada rate plus 100 basis points) over the principal amount of the note. As well, Precision may redeem these notes in whole or in part at any time on or after March 15, 2015 and before March 15, 2017, at redemption prices ranging between 103.250% and 101.6254% of their principal amount plus accrued interest. Any time on or after March 15, 2017 these notes can be redeemed for their principal amount plus accrued interest. Upon specified change of control events, each holder of a note will have the right to sell to Precision all or a portion of its notes at a purchase price in cash equal to 101% of the principal amount, plus accrued interest to the date of purchase.

Prior to December 15, 2014, Precision may redeem up to 35% of the 6.5% Senior Notes due 2021 with the net proceeds of certain equity offerings at a redemption price equal to 106.5% of the principal amount plus accrued interest. Prior to December 15, 2016, Precision may redeem these notes in whole or in part at 100.0% of their principal amount, plus accrued interest and the greater of 1.0% of the principal amount of the note to be redeemed and the excess, if any, of the present value of the December 15, 2016 redemption price plus required interest payments through December 15, 2016 (calculated using the United States Treasury rate plus 50 basis points) over the principal amount of the note. As well, Precision may redeem these notes in whole or in part at any time on or after December 15, 2016 and before December 15, 2019, at redemption prices ranging between 103.250% and 101.083% of their principal amount plus accrued interest. Any time on or after December 15, 2019 these notes can be redeemed for their principal amount plus accrued interest. Upon specified change of control events, each holder of a note will have the right to sell to Precision all or a portion of its notes at a purchase price in cash equal to 101% of the principal amount, plus accrued interest to the date of purchase.

Long-term debt obligations at December 31, 2013 will mature as follows:


2018	$	29,781
Thereafter		1,316,780
	$	1,346,561

(c) Guarantor Disclosures

The following presents supplemental condensed consolidating financial information for the parent company, guarantor subsidiaries and the non-guarantor subsidiaries, respectively.


Condensed Consolidating Statement of Financial Position as at December 31, 2013
	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidating Adjustments		Total
Assets
Cash	$	27,160	$	23,039	$	30,407	$	–	$	80,606
Other current assets		3,592		456,574		101,906		3		562,075
Intercompany receivables		424,178		2,342,467		74,795		(2,841,440)		–
Investments in subsidiaries		5,904,795		69		–		(5,904,864)		–
Income tax recoverable		–		–		58,435		–		58,435
Property, plant and equipment		56,501		3,261,610		243,858		(235)		3,561,734
Intangibles		3,286		631		–		–		3,917
Goodwill		–		312,356		–		–		312,356
Total assets	$	6,419,512	$	6,396,746	$	509,401	$	(8,746,536)	$	4,579,123
Liabilities and Shareholders’ Equity
Current liabilities	$	40,624	$	240,052	$	56,222	$	–	$	336,898
Intercompany payables and debt		2,442,373		202,986		196,081		(2,841,440)		–
Long-term debt		1,323,268		–		–		–		1,323,268
Other long-term liabilities		263,410		262,308		(6,104)		–		519,614
Total liabilities		4,069,675		705,346		246,199		(2,841,440)		2,179,780
Shareholders’ equity		2,349,837		5,691,400		263,202		(5,905,096)		2,399,343
Total liabilities and shareholders’ equity	$	6,419,512	$	6,396,746	$	509,401	$	(8,746,536)	$	4,579,123
Condensed Consolidating Statement of Financial Position as at December 31, 2012
	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidating Adjustments		Total
Assets
Cash	$	114,709	$	15,709	$	22,350	$	–	$	152,768
Other current assets		9,238		465,695		48,398		3		523,334
Intercompany receivables		394,112		2,082,616		65,279		(2,542,007)		–
Investments in subsidiaries		5,412,168		3,099		–		(5,415,267)		–
Income tax recoverable		9,441		–		55,138		–		64,579
Property, plant and equipment		57,939		3,043,239		142,104		(353)		3,242,929
Intangibles		4,190		1,911		–		–		6,101
Goodwill		–		310,552		–		–		310,552
Total assets	$	6,001,797	$	5,922,821	$	333,269	$	(7,957,624)	$	4,300,263
Liabilities and Shareholders’ Equity
Current liabilities	$	103,383	$	264,788	$	29,910	$	–	$	398,081
Intercompany payables and debt		2,200,650		185,855		155,502		(2,542,007)		–
Long-term debt		1,218,796		–		–		–		1,218,796
Other long-term liabilities		245,377		273,547		(6,838)		–		512,086
Total liabilities		3,768,206		724,190		178,574		(2,542,007)		2,128,963
Shareholders’ equity		2,233,591		5,198,631		154,695		(5,415,617)		2,171,300
Total liabilities and shareholders’ equity	$	6,001,797	$	5,922,821	$	333,269	$	(7,957,624)	$	4,300,263


Condensed Consolidating Statement of Earnings (Loss) for the Year ended December 31, 2013
	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidating Adjustments		Total
Revenue	$	143	$	1,912,750	$	137,681	$	(20,597)	$	2,029,977
Operating expense		273		1,148,786		120,175		(20,597)		1,248,637
General and administrative expense		29,174		101,407		11,926		–		142,507
Earnings (loss) before income taxes, finance charges, foreign exchange, and depreciation and amortization		(29,304)		662,557		5,580		–		638,833
Depreciation and amortization		7,393		309,939		15,576		251		333,159
Operating earnings (loss)		(36,697)		352,618		(9,996)		(251)		305,674
Foreign exchange		(3,356)		(5,198)		(558)		–		(9,112)
Finance charges		92,112		1,141		(5)		–		93,248
Equity in earnings of subsidiaries		(360,468)		–		–		360,468		–
Earnings (loss) before tax		235,015		356,675		(9,433)		(360,719)		221,538
Income taxes		43,615		(15,431)		2,204		–		30,388
Net earnings (loss)	$	191,400	$	372,106	$	(11,637)	$	(360,719)	$	191,150
Condensed Consolidating Statement of Earnings (Loss) for the Year ended December 31, 2012
	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidating Adjustments		Total
Revenue	$	151	$	1,986,590	$	64,779	$	(10,779)	$	2,040,741
Operating expense		82		1,173,157		80,841		(10,779)		1,243,301
General and administrative expense		27,246		94,014		5,388		–		126,648
Earnings (loss) before income taxes, finance charges, foreign exchange, impairment of goodwill, loss on asset decommissioning and depreciation and amortization		(27,177)		719,419		(21,450)		–		670,792
Depreciation and amortization		3,405		303,693		7,922		(7,495)		307,525
Loss on asset decommissioning		–		192,469		–		–		192,469
Operating earnings (loss)		(30,582)		223,257		(29,372)		7,495		170,798
Impairment of goodwill		–		52,539		–		–		52,539
Foreign exchange		4,252		(189)		(310)		–		3,753
Finance charges		86,780		48		1		–		86,829
Equity in earnings of subsidiaries		(196,489)		–		–		196,489		–
Earnings (loss) before tax		74,875		170,859		(29,063)		(188,994)		27,677
Income taxes		30,011		(49,342)		(5,352)		–		(24,683)
Net earnings (loss)	$	44,864	$	220,201	$	(23,711)	$	(188,994)	$	52,360


Condensed Consolidating Statement of Comprehensive Income (Loss) for the Year ended December 31, 2013
	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidating Adjustments		Total
Net earnings	$	191,400	$	372,106	$	(11,637)	$	(360,719)	$	191,150
Other comprehensive income (loss)		(72,135)		98,105		10,720		370		37,060
Comprehensive income (loss)	$	119,265	$	470,211	$	(917)	$	(360,349)	$	228,210
Condensed Consolidating Statement of Comprehensive Income (Loss) for the Year ended December 31, 2012
	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidating Adjustments		Total
Net earnings	$	44,864	$	220,201	$	(23,711)	$	(188,994)	$	52,360
Other comprehensive income (loss)		23,205		(30,899)		(1,934)		(45)		(9,673)
Comprehensive income (loss)	$	68,069	$	189,302	$	(25,645)	$	(189,039)	$	42,687
Condensed Consolidating Statement of Cash Flow for the Year ended December 31, 2013
	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidating Adjustments		Total
Cash provided by (used in):
Operations	$	(207,558)	$	693,757	$	(58,113)	$	–	$	428,086
Investments		96,685		(458,810)		(68,951)		(95,459)		(526,535)
Financing		21,517		(229,688)		134,229		95,459		21,517
Effects of exchange rate changes on cash and cash equivalents		1,807		2,071		892		–		4,770
Increase (decrease) in cash and cash equivalents		(87,549)		7,330		8,057		–		(72,162)
Cash and cash equivalents, beginning of year		114,709		15,709		22,350		–		152,768
Cash and cash equivalents, end of year	$	27,160	$	23,039	$	30,407	$	–	$	80,606
Condensed Consolidating Statement of Cash Flow for the Year ended December 31, 2012
	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidating Adjustments		Total
Cash provided by (used in):
Operations	$	(135,797)	$	775,145	$	(65,654)	$	61,592	$	635,286
Investments		(171,158)		(806,436)		(43,971)		91,444		(930,121)
Financing		(14,899)		41,996		111,040		(153,036)		(14,899)
Effects of exchange rate changes on cash and cash equivalents		(4,197)		(811)		34		–		(4,974)
Increase (decrease) in cash and cash equivalents		(326,051)		9,894		1,449		–		(314,708)
Cash and cash equivalents, beginning of year		440,760		5,815		20,901		–		467,476
Cash and cash equivalents, end of year	$	114,709	$	15,709	$	22,350	$	–	$	152,768

NOTE 11. 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 at December 31 is as follows:


	2013			2012
Earnings before income taxes	$	221,538		$	27,677

Federal and provincial statutory rates		25%			25%
Tax at statutory rates	$	55,385		$	6,919

Adjusted for the effect of:

Non-deductible expenses		4,097			15,975

Non-taxable capital gains		(626	)		(546	)

Income taxed at lower rates		(31,118	)		(30,191	)

Impact of foreign tax rates		(5,957	)		(26,559	)

Withholding taxes		3,343			4,009

Taxes related to prior years		4,738			1,053

Other		526			4,657
Income tax expense (recovery)	$	30,388		$	(24,683	)

The net deferred tax liability is comprised of the tax effect of the following temporary differences:
	2013			2012
Deferred income tax liability:

Property, plant and equipment and intangibles	$	749,760		$	686,833

Partnership deferrals		34,938			60,906

Debt issue costs		2,966			1,561

Other		6,569			4,260
		794,233			753,560

Deferred income tax assets:

Losses (expire from time to time up to 2033)		285,438			244,888

Long-term incentive plan		14,800			13,917

Other		6,648			9,163
Net deferred income tax liability	$	487,347		$	485,592

Included in the net deferred tax liability is $257.8 million (2012 – $242.6 million) of tax effected temporary differences related to the Corporation’s United States operations. As at December 31, 2013, the Corporation had unrecognized net deferred tax assets related to its foreign operations of $7.2 million (2012 – $5.9 million).

The movement in temporary differences is as follows:


	Property, Plant and Equipment and Intangibles			Partnership Deferrals			Other Deferred Income Tax Liabilities		Losses			Debt Issue Costs			Long-Term Incentive Plan			Other Deferred Income Tax Assets			Net Deferred Income Tax Liability
December 31, 2011	$	735,815			$ 91,319		$	5,704	$	(221,982	)	$	(2,568	)	$	(13,026	)	$	(7,472	)	$	587,790
Recognized in net earnings		(37,034	)		(30,413	)		(1,413)		(27,784	)		4,129			(1,058	)		(1,686	)		(95,259)
Effect of foreign currency exchange differences		(11,948	)		–			(31)		4,878			–			167			(5	)		(6,939)
December 31, 2012		686,833			60,906			4,260		(244,888	)		1,561			(13,917	)		(9,163	)		485,592
Recognized in net earnings		28,176			(25,968	)		2,312		(22,968	)		1,405			(173	)		2,587			(14,629)
Effect of foreign currency exchange differences		34,751			–			(3)		(17,582	)		–			(710	)		(72	)		16,384
December 31, 2013	$	749,760			$ 34,938		$	6,569	$	(285,438	)	$	2,966		$	(14,800	)	$	(6,648	)	$	487,347

On December 31, 2013, Precision had $30.9 million (2012 – $34.4 million) of unrecognized tax benefits that, if recognized, would have a favourable impact on Precision’s effective income tax rate in future periods. Precision classifies interest accrued on unrecognized tax benefits and income tax penalties as income tax expense. Included in the unrecognized tax benefit, as at December 31, 2013 was interest and penalties of $10.1 million (2012 – $9.2 million).

Reconciliation of Unrecognized Tax Benefits


Year ended December 31,	2013			2012
Unrecognized tax benefits, beginning of year	$	34,357		$	34,300
Additions:
Prior year’s tax positions		2,031			2,033
Reductions:
Prior year’s tax positions		(5,458	)		(1,976)
Unrecognized tax benefits, end of year	$	30,930		$	34,357

It is anticipated that approximately $0.5 million (2012 – $0.6 million) of an unrecognized tax position that relates to prior year activities will be realized during the next 12 months. Subject to the results of audit examinations by taxing authorities and/or legislative changes by taxing jurisdictions, Precision does not anticipate further adjustments of unrecognized tax positions during the next 12 months that would have a material impact on the financial statements of Precision.

NOTE 12. SHAREHOLDERS’ CAPITAL

(a) Authorized

–

unlimited number of voting common shares

–

unlimited number of preferred shares, issuable in series, limited to an amount

equal to one half of the issued and outstanding common shares

(b) Issued


Common shares			Number		Amount
December 31, 2011				276,081,797	$	2,248,217
Options exercised	–	cash consideration		309,954		1,926
	–	reclassification from contributed surplus		–		1,124
Issued on redemption of non-management directors’ DSUs				83,179		706
Issued on waiver of right to dissent by dissenting unitholder				840		9
December 31, 2012				276,475,770	$	2,251,982
Options exercised	–	cash consideration		362,045		2,432
	–	reclassification from contributed surplus		–		1,275
Issued on redemption of non-management directors’ DSUs				141,856		1,238
Issued on exercise of warrants				15,000,000		48,300
December 31, 2013				291,979,671	$	2,305,227

(c) Dividends

During 2013, the Corporation approved and paid dividends of $0.21 per common share (2012 – $0.05) for total payments of $58 million (2012 – $14 million). On February 12, 2014, the Board of Directors declared a dividend of $0.06 per common share payable on March 14, 2014 to shareholders of record on February 27, 2014.

NOTE 13. ACCUMULATED OTHER COMPREHENSIVE LOSS


	Unrealized Foreign Currency Translation Gains (Losses)		Foreign Exchange Gain (Loss) on Net Investment Hedge		Accumulated Other Comprehensive Loss
December 31, 2011		$ (27,987)	$	(22,875)	$	(50,862)
Other comprehensive loss		(32,878)		23,205		(9,673)
December 31, 2012		(60,865)		330		(60,535)
Other comprehensive income		109,195		(72,135)		37,060
December 31, 2013		$ 48,330	$	(71,805)	$	(23,475)

NOTE 14. FINANCE CHARGES


	2013			2012
Interest:
Long-term debt	$	88,516		$	85,113
Other		1,356			138
Income		(967	)		(1,933)
Amortization of debt issue costs		4,343			4,120
Debt amendment fees		–			149
Other		–			(758)
Finance charges	$	93,248		$	86,829

NOTE 15. EMPLOYEE BENEFIT PLANS

The Corporation has a defined contribution pension plan covering a significant number of its employees. Under this plan, the Corporation matches individual contributions up to 5% of the employee’s eligible compensation. Total expense under the defined contribution plan in 2013 was $13.0 million (2012 – $11.1 million).

NOTE 16. RELATED PARTY TRANSACTIONS

Compensation of Key Management Personnel

The remuneration of key management personnel is as follows:


	2013		2012
Salaries and other benefits	$	6,752	$	6,988
Equity settled share based compensation		3,433		3,257
Cash settled share based compensation		8,051		4,872
	$	18,236	$	15,117

Key management personnel are comprised of the directors and executive officers of the Corporation. Certain executive officers have entered into employment agreements with Precision that provide termination benefits of up to 24 months base salary plus up to two times targeted incentive compensation upon dismissal without cause.

NOTE 17. COMMITMENTS

(a) Operating Lease Commitments

The Corporation has commitments under various operating lease agreements, primarily for vehicles and office space. Terms of the office leases run for a period of one to 10 years while the vehicle leases are typically for terms of between three and four years. Expected non-cancellable operating lease payments are as follows:


	2013		2012
Less than one year	$	16,833	$	15,561
Between one and five years		41,258		41,898
Later than five years		15,714		23,161
	$	73,805	$	80,620

Three of the leased properties was sublet by the Corporation.

The following amounts were recognized as expenses in respect of operating leases in the consolidated statement of earnings:


	2013			2012
Operating leases	$	19,578		$	19,075
Sub-lease recoveries		(1,024	)		(583)
	$	18,554		$	18,492

(b) Capital Commitments

At December 31, 2013 the Corporation had commitments to purchase property, plant and equipment totaling $178.8 million (2012 – $157.5 million). Payments of $178.8 million for these commitments are expected to be made in 2014.

NOTE 18. PER SHARE AMOUNTS

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


	2013		2012
Net earnings – basic and diluted	$	191,150	$	52,360

(Stated in thousands)	2013		2012
Weighted average shares outstanding – basic		277,583		276,276
Effect of share warrants		9,327		9,418
Effect of stock options and other equity compensation plans		971		933
Weighted average shares outstanding – diluted		287,881		286,627

NOTE 19. BUSINESS ACQUISITIONS

In 2012 a contingent liability from a previous acquisition was settled, resulting in a $758 thousand recovery in the statement of earnings and a $25 thousand increase to goodwill.

NOTE 20. 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 units, oilfield equipment rental, camp and catering services, and wastewater treatment units.

2013

Contract
Drilling
Services

Completion
and
Production
Services

Corporate
and Other

Inter-
Segment
Eliminations

Total

Revenue

1,719,910

323,353

–

(13,286)

2,029,977

Operating earnings

361,447

28,402

(84,175

)

–

305,674

Depreciation and amortization

292,217

32,630

8,312

–

333,159

Total assets

3,837,919

590,992

150,212

–

4,579,123

Goodwill

200,217

112,139

–

312,356

Capital expenditures

446,566

83,470

5,768

–

535,804

2012

Contract
Drilling
Services

Completion
and
Production
Services

Corporate

and Other

Inter-
Segment
Eliminations

Total

Revenue

1,725,240

326,079

–

(10,578)

2,040,741

Operating earnings

184,819

62,796

(76,817

)

–

170,798

Depreciation and amortization

271,993

30,758

4,774

–

307,525

Loss on asset decommissioning

192,469

–

192,469

Total assets

3,495,604

551,893

252,766

–

4,300,263

Goodwill

198,413

112,139

–

310,552

Capital expenditures*

750,763

109,202

8,092

–

868,057

* Excludes business acquisitions

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

2013

Canada

United States

International

Inter-
Segment
Eliminations

Total

Revenue

1,002,199

901,246

137,681

(11,149)

2,029,977

Total assets

2,082,958

2,006,519

489,646

–

4,579,123

2012

Canada

United States

International

Inter-
Segment
Eliminations

Total

Revenue

1,053,966

936,113

64,017

(13,355)

2,040,741

Total assets

2,119,891

1,913,810

266,562

–

4,300,263

During the year ended December 31, 2013, no one individual customer accounted for more than 10% of the Corporation’s total revenue. For the year ended December 31, 2012 revenues from one customer of the Corporation’s Contract Drilling Services and Completion and Production Services segments accounted for $222.7 million of the Corporation’s total revenue.

NOTE 21. FINANCIAL INSTRUMENTS

Financial Risk Management

The Board of Directors is responsible for identifying the principal risks of Precision’s business and for ensuring the implementation of systems to manage these risks. With the assistance of senior management, who report to the Board of Directors on the risks of Precision’s business, the Board of Directors considers such risks and discusses the management of such risks on a regular basis.

Precision has exposure to the following risks from its use of financial instruments:

(a) Credit Risk

Accounts receivable includes balances from a large number of customers primarily operating in the oil and gas industry. The Corporation manages credit risk by assessing the creditworthiness of its customers before providing services and on an ongoing basis as well as monitoring the amount and age of balances outstanding. In some instances the Corporation will take additional measures to reduce credit risk including obtaining letters of credit and prepayments from customers. When indicators of credit problems appear the Corporation takes appropriate steps to reduce its exposure including negotiating with the customer, filing liens and entering into litigation. The Corporation views the credit risks on these amounts as normal for the industry. Precision’s most significant customer accounted for $19.6 million of the trade receivables amount at December 31, 2013 (2012 – $23.0 million).

The movement in the allowance for doubtful accounts during the year was as follows:


	2013			2012
Balance at January 1	$	12,187		$	12,179

Impairment loss recognized		325			348

Amounts written off as uncollectible		(1,172	)		(174)

Impairment loss reversed		(138	)		–

Effect of movement in exchange rates		501			(166)
Balance at December 31	$	11,703		$	12,187

The ageing of trade receivables at December 31 was:


		2013						2012
		Gross			Provision for Impairment			Gross			Provision for Impairment
Not past due	$		177,141	$		–	$		197,194	$		–

Past due 0-30 days			98,529			–			100,217			–

Past due 31-120 days			28,897			–			27,861			–

Past due more than 120 days			21,584			11,703			15,016			12,187
	$		326,151	$		11,703	$		340,288	$		12,187

(b) Interest Rate Risk

As at December 31, 2013 and 2012, all of Precision’s long-term debt, with the exception of the secured revolving credit facility, bears fixed interest rates. As a result Precision is not exposed to significant fluctuations in interest expense as a result of changes in interest rates. Based on the debt outstanding at the end of the year, a 100 basis point change in interest rates would change the annual interest expense by $0.3 million (2012 – $nil).

(c) Foreign Currency Risk

The Corporation is exposed to foreign currency fluctuations in relation to the working capital and long-term debt of its United States operations and certain long-term debt facilities of its Canadian operations. The Corporation has no significant exposures to foreign currencies other than the U.S. dollar. The Corporation monitors its foreign currency exposure and attempts to minimize the impact by aligning appropriate levels of U.S. denominated debt with cash flows from U.S. based operations.

The following financial instruments were denominated in U.S. dollars:


		2013								2012
		Canadian Operations⁽¹⁾				U.S. Operations				Canadian Operations⁽¹⁾				U.S. Operations
Cash	$		995		$		53,327		$		39,693		$		61,515

Accounts receivable			26				290,995				56				237,370

Accounts payable and accrued liabilities			(13,385	)			(180,626	)			(13,028	)			(184,593	)

Long-term liabilities, excluding long-term incentive plans			–				(16,770	)			–				(17,909	)
Net foreign currency exposure	$		(12,364	)	$		146,926		$		26,721		$		96,383
Impact of $0.01 change in the U.S. dollar to Canadian dollar exchange rate on net earnings	$		124		$		–		$		267		$		–
Impact of $0.01 change in the U.S. dollar to Canadian dollar exchange rate on comprehensive income	$		–		$		1,469		$		–		$		964

(1)	Excludes US$1,050 million of long-term debt that has been designated as a hedge of the Corporation’s net investment in certain self-sustaining foreign operations.

(d) Liquidity Risk

Liquidity risk is the exposure of the Corporation to the risk of not being able to meet its financial obligations as they become due. The Corporation manages liquidity risk by monitoring and reviewing actual and forecasted cash flows to ensure there are available cash resources to meet these needs. The following are the contractual maturities of the Corporation’s financial liabilities as at December 31, 2013:


	2014		2015		2016		2017		2018		Thereafter		Total
Long-term debt	$	–	$	–	$	–	$	–	$	29,781	$	1,316,780	$	1,346,561

Interest on long-term debt ⁽¹⁾		87,176		87,176		87,176		87,176		87,087		170,394		606,185

Commitments		195,589		14,061		11,373		8,467		7,357		15,714		252,561
Total	$	282,765	$	101,237	$	98,549	$	95,643	$	124,225	$	1,502,888	$	2,205,307

(1)	Interest has been calculated based on debt balances, interest rates and foreign exchange rates in effect as at December 31, 2013 and excludes amortization of long-term debt issue costs.

Fair Values

The carrying value of cash, accounts receivable, and accounts payable and accrued liabilities approximates their fair value due to the relatively short period to maturity of the instruments. The fair value of the unsecured senior notes at December 31, 2013 was approximately $1,403 million (2012 – $1,330 million).

Financial assets and liabilities recorded or disclosed at fair value in the consolidated balance sheet are categorized based on 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.

NOTE 22. CAPITAL MANAGEMENT

The Corporation’s strategy is to carry a capital base to maintain investor, creditor and market confidence and to sustain future development of the business. The Corporation seeks to maintain a balance between the level of long-term debt and shareholders’ equity to ensure access to capital markets to fund growth and working capital given the cyclical nature of the oilfield services sector. The Corporation strives to maintain a conservative ratio of long-term debt to long-term debt plus equity. As at December 31, 2013 and 2012 these ratios were as follows:


	2013		2012
Long-term debt	$	1,323,268	$	1,218,796

Shareholders’ equity		2,399,343		2,171,300
Total capitalization	$	3,722,611	$	3,390,096
Long-term debt to long-term debt plus equity ratio		0.36		0.36

As at December 31, 2013 liquidity remained sufficient as Precision had $80.6 million (2012 – $152.8 million) in cash and access to a US$850.0 million senior secured revolving credit facility (2012 – US$850.0 million) and $82.5 million (2012 – $79.8 million) secured operating facilities. As at December 31, 2013, US$28 million (2012 – US $nil) was drawn on the US$850 million secured revolving credit facility with availability further reduced by US$28.6 million (2012 – US$26.8 million) in outstanding letters of credit. Availability of the $40 million and US$25 million secured operating facilities were reduced by outstanding letters of credit of $17.3 million (2012 – $18.9 million) and US$0.2 million (2012 – US$ nil), respectively. There was no amount drawn on the US$15 million secured operating facility.

NOTE 23. SUPPLEMENTAL INFORMATION

Components of changes in non-cash working capital balances are as follows:


	2013			2012
Accounts receivable	$	(23,110	)	$	61,052

Inventory		1,658			(6,707)

Accounts payable and accrued liabilities		(22,682	)		(111,333)
	$	(44,134	)	$	(56,988)
Pertaining to:

Operations	$	(33,887	)	$	36,474

Investments	$	(10,247	)	$	(93,462)

The components of accounts receivable are as follows:


	2013		2012
Trade	$	314,448	$	328,101

Accrued trade		152,768		125,035

Prepaids and other		82,481		56,411
	$	549,697	$	509,547

The components of accounts payable and accrued liabilities are as follows:


	2013		2012
Accounts payable	$	148,081	$	146,234

Accrued liabilities:

Payroll		81,586		79,978

Other		103,171		107,681
	$	332,838	$	333,893

Precision presents expenses in the consolidated statement of earnings by function with the exception of depreciation and amortization and loss on asset decommissioning which are presented by nature. Operating expense and general and administrative expense would include $324.8 million and $8.3 million (2012 – $495.2 million and $4.8 million) respectively of depreciation and amortization and loss on asset decommissioning if the statements of earnings were presented purely by function. The following table presents operating and general and administrative expenses by nature:


	2013		2012
Wages, salaries and benefits	$	773,901	$	795,243

Purchased materials, supplies and services		589,394		556,103

Share-based compensation		27,849		18,603
	$	1,391,144	$	1,369,949
Allocated to:

Operating expense	$	1,248,637	$	1,243,301

General and administrative		142,507		126,648
	$	1,391,144	$	1,369,949

NOTE 24. CONTINGENCIES AND GUARANTEES

The business and operations of the Corporation are complex and the Corporation has executed a number of significant financings, business combinations, acquisitions and dispositions over the course of its history. The computation of income taxes payable as a result of these transactions involves many complex factors as well as the Corporation’s interpretation of relevant tax legislation and regulations. The Corporation’s management believes that the provision for income tax is adequate and in accordance with IFRS and applicable legislation and regulations. However, there are tax filing positions that have been and can still be the subject of review by taxation authorities who may successfully challenge the Corporation’s interpretation of the applicable tax legislation and regulations, with the result that additional taxes could be payable by the Corporation and the amount owed, with estimated interest but without penalties, could be up to $58 million and is included in long-term income tax recoverable on the balance sheet.

The Corporation, through the performance of its services, product sales and business arrangements, is sometimes named as a defendant in litigation. The outcome of such claims against the Corporation is not determinable at this time; however, their ultimate resolution is not expected to have a material adverse effect on the Corporation.

The Corporation has entered into agreements indemnifying certain parties primarily with respect to tax and specific third party claims associated with businesses sold by the Corporation. Due to the nature of the indemnifications, the maximum exposure under these agreements cannot be estimated. No amounts have been recorded for the indemnities as the Corporation’s obligations under them are not probable or estimable.

NOTE 25. SUBSIDIARIES

Significant Subsidiaries


			Ownership Interest
	Country of Incorporation		2013		2012
Precision Limited Partnership		Canada		100		100

Precision Drilling Canada Limited Partnership		Canada		100		100

Precision Diversified Oilfield Services Corp.		Canada		100		100

Precision Directional Services Ltd.		Canada		100		100

Precision Drilling (US) Corporation		United States		100		100

Precision Drilling Company LP		United States		100		100

Precision Completion & Production Services Ltd.		United States		100		100

Precision Directional Services, Inc.		United States		100		100

Grey Wolf Drilling Limited		Cyprus		100		100