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.  LOGO

LOGOKevin A. Neveu

Robert J. McNallyPresident and

Executive Vice President andChief Executive Officer

Chief Financial OfficerPrecision Drilling Corporation

Precision Drilling CorporationMarch 7, 2014

March 7, 2014










46     Consolidated Financial Statements




---




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.  LOGOChartered AccountantsCalgary, CanadaMarch 7, 2014









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|Precision Drilling Corporation 2013 Annual Report     47



---




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.  LOGOChartered AccountantsCalgary, CanadaMarch 7, 2014










48     Consolidated Financial Statements




---




Consolidated Statements of Financial Position  (Stated in thousands of Canadian dollars)












December 31,2013




December 31,2012ASSETSCurrent assets:Cash













$
80,606




$
152,768Accounts receivable


(Note 23)











549,697





509,547Inventory














12,378





13,787Total current assets














642,681





676,102Non-current assets:Income tax recoverable














58,435





64,579Property, plant and equipment


(Note 4)











3,561,734





3,242,929Intangibles


(Note 5)











3,917





6,101Goodwill


(Note 6)











312,356





310,552Total non-current assets














3,936,442





3,624,161Total assets













$
4,579,123




$
4,300,263LIABILITIES AND EQUITYCurrent liabilities:Accounts payable and accrued liabilities


(Note 23)










$
332,838




$
333,893Income tax payable














4,060





64,188Total current liabilities














336,898





398,081Non-current liabilities:Share based compensation


(Note 8)











14,431





8,676Provisions and other


(Note 9)











17,836





17,818Long-term debt


(Note 10)











1,323,268





1,218,796Deferred tax liabilities


(Note 11)











487,347





485,592Total non-current liabilities














1,842,882





1,730,882Shareholders equity:Shareholders capital


(Note 12)











2,305,227





2,251,982Contributed surplus














29,175





24,474Retained earnings (deficit)














88,416





(44,621
)Accumulated other comprehensive loss


(Note 13)











(23,475
)




(60,535
)Total shareholders equity














2,399,343





2,171,300Total liabilities and shareholders equity













$
4,579,123




$
4,300,263 See accompanying notes to consolidated financial statements.  Approved by the Board of Directors:LOGO

LOGOAllen R. Hagerman

Patrick M. MurrayDirector

Director









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|Precision Drilling Corporation 2013 Annual Report     49



---




Consolidated Statements of Earnings  Years ended December 31,
(Stated in thousands of Canadian dollars, except per share amounts)










2013





2012Revenue









$
2,029,977




$
2,040,741Expenses:Operating


(Note 23)







1,248,637





1,243,301General and administrative


(Note 23)







142,507





126,648Earnings before income taxes, finance charges, foreign exchange, impairment of goodwill, loss on asset decommissioning and depreciation and
amortization










638,833





670,792Depreciation and amortization










333,159





307,525Loss on asset decommissioning


(Note 4)













192,469Operating earnings










305,674





170,798Impairment of goodwill
















52,539Foreign exchange










(9,112
)




3,753Finances charges


(Note 14)







93,248





86,829Earnings before tax










221,538





27,677Income taxes:


(Note 11)Current










45,017





70,576Deferred










(14,629
)




(95,259
)30,388





(24,683
)Net earnings









$
191,150




$
52,360Earnings per share:


(Note 18)Basic









$
0.69




$
0.19Diluted









$
0.66




$
0.18See accompanying notes to consolidated financial
statements.  Consolidated Statements of Comprehensive
IncomeYears ended December 31,
(Stated in thousands of Canadian dollars)










2013





2012Net earnings









$
191,150




$
52,360Unrealized 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
)




23,205Comprehensive income









$
228,210




$
42,687 See accompanying notes to consolidated financial statements.










50     Consolidated Financial Statements




---




Consolidated Statements of Cash Flow  Years ended December 31, (Stated in
thousands of Canadian dollars)








2013




2012Cash provided by (used in):Operations:Net earnings









$
191,150




$
52,360Adjustments for:Long-term compensation plans










20,708





19,350Depreciation and amortization










333,159





307,525Loss on asset decommissioning
















192,469Impairment of goodwill
















52,539Foreign exchange










(9,216
)




4,403Finance charges










93,248





86,829Income taxes










30,388





(24,683
)Other










(3,754
)




1,018Income taxes paid










(109,326
)




(10,403
)Income taxes recovered










3,761





721Interest paid










(89,156
)




(85,251
)Interest received










1,011





1,935Funds provided by operations










461,973





598,812Changes in non-cash working capital balances


(Note 23)







(33,887
)




36,474428,086





635,286Investments: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





31,423Changes 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





1,926Issuance 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





467,476Cash and cash equivalents, end of year









$
80,606




$
152,768 See accompanying notes to consolidated financial statements.









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|Precision Drilling Corporation 2013 Annual Report     51



---




Consolidated Statements of Changes in Equity  (Stated in thousands of Canadian dollars)






Shareholderscapital



Contributedsurplus



Accumulatedothercomprehensiveloss (Note 13)



Retainedearnings(deficit)



Total equityBalance at January 1, 2013






$   2,251,982


$
24,474



$         (60,535
)

$
(44,621
)

$
2,171,300Net earnings for the period


















191,150



191,150Other comprehensive income for the period














37,060







37,060Dividends


















(58,113
)


(58,113
)Share options exercised


(Note 12)



3,707



(1,275
)










2,432Shares issued on redemption of non-management directors DSUs






1,238



(1,031
)










207Warrants exercised






48,300















48,300Share based compensation expense


(Note 8)







7,007











7,007Balance at December 31, 2013






$   2,305,227


$
29,175



$         (23,475
)

$
88,416


$
2,399,343(Stated in thousands of Canadian dollars)






Shareholderscapital



Contributedsurplus



Accumulatedothercomprehensiveloss (Note 13)



Deficit



Total equityBalance at January 1, 2012






$   2,248,217


$
18,396



$         (50,862
)

$
(83,160
)

$
2,132,591Net earnings for the period


















52,360



52,360Other comprehensive loss for the period














(9,673
)






(9,673
)Dividends


















(13,821
)


(13,821
)Share options exercised


(Note 12)



3,050



(1,124
)










1,926Shares issued on redemption of non-management directors DSUs






706



(706
)










Shares issued on waiver of right to dissent by dissenting unitholder






9



(3
)










6Share based compensation expense


(Note 8)







7,911











7,911Balance at December 31, 2012






$   2,251,982


$
24,474



$       (60,535
)

$
(44,621
)

$
2,171,300 See accompanying notes to consolidated financial statements.










52     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.









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|Precision Drilling Corporation 2013 Annual Report     53



---




(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 DepreciationDrilling 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-productionSeasonal, stratification and turnkey drilling equipment

4 years

0 to 20%

straight-lineService rig equipment

24,000 service hours

20%

unit-of-productionDrilling rig spare equipment

up to 15 years



straight-lineService rig spare equipment

up to 15 years



straight-lineRental equipment

10 to 15 years

0 to 25%

straight-lineOther equipment

3 to 10 years



straight-lineLight duty vehicles

4 years



straight-lineHeavy duty vehicles

7 to 10 years



straight-lineBuildings

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.










54     Notes to Consolidated Financial Statements




---




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 yearsPatents

10 yearsBrand

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.









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|Precision Drilling Corporation 2013 Annual Report     55



---




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.










56     Notes to Consolidated Financial Statements




---




(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.









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|Precision Drilling Corporation 2013 Annual Report     57



---




(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.










58     Notes to Consolidated Financial Statements




---




(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.









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|Precision Drilling Corporation 2013 Annual Report     59



---




(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.










60     Notes to Consolidated Financial Statements




---




NOTE 4. PROPERTY, PLANT AND EQUIPMENT  2013


2012Cost

$
5,260,263


$
4,608,381Accumulated depreciation


(1,698,529)



(1,365,452)$
3,561,734


$
3,242,929Rig equipment

$
3,033,159


$
2,819,491Rental equipment


108,453



91,351Other equipment


78,670



78,358Vehicles


42,993



40,759Buildings


49,506



50,585Assets under construction


219,433



133,791Land


29,520



28,594$
3,561,734


$
3,242,929 Cost  Rig Equipment


Rental Equipment


Other Equipment


Vehicles


Buildings


Assets Under Construction


Land


TotalDecember 31, 2011

$
3,441,052


$
112,707


$
142,563


$
28,051


$
48,082


$
336,605


$
20,658


$
4,129,718Additions


256,661



17,068



18,330



32,994



21,998



512,139



8,867



868,057Disposals


(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



4,608,381Additions


143,252



6,346



1,651



3,588







380,788



179



535,804Disposals


(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



178,158December 31, 2013

$
4,511,396


$
169,945


$
185,394


$
69,611


$
74,964


$
219,433


$
29,520


$
5,260,263









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|Precision Drilling Corporation 2013 Annual Report     61



---




Accumulated Depreciation  Rig  Equipment


Rental   Equipment


Other  Equipment


Vehicles


Buildings


AssetsUnderConstruction


Land


TotalDecember 31, 2011

$
1,008,185


$
54,118


$
87,358


$
17,812


$
19,949


$



$



$
1,187,422Depreciation expense


274,129



7,901



14,280



6,917



2,341











305,568Disposals


(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











1,365,452Depreciation expense


295,807



9,695



15,518



8,299



3,774











333,093Disposals


(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











52,420December 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.










62     Notes to Consolidated Financial Statements




---




NOTE 5. INTANGIBLES  2013


2012Cost









$
12,221


$
12,388Accumulated amortization










(8,304
)


(6,287)$
3,917


$
6,101Customer relationships









$
616


$
1,890Patents and brands










16



21Loan commitment fees related to revolving credit facility










3,285



4,190$
3,917


$
6,101CostCustomer  Relationships


Patents andBrands


Loan      CommitmentFees


TotalDecember 31, 2011

$
4,600


$
420


$
4,905


$
9,925Business acquisitions














Additions










2,855



2,855Effect of foreign currency exchange
differences


(25
)


(8
)






(33)Removal of fully amortized assets






(359
)






(359)December 31, 2012


4,575



53



7,760



12,388Business acquisitions














Additions










883



883Effect of foreign currency exchange
differences


78











78Removal of fully amortized assets


(1,128
)










(1,128)December 31, 2013

$
3,525


$
53


$
8,643


$
12,221Accumulated AmortizationCustomer  Relationships


Patents andBrands


Loan      CommitmentFees


TotalDecember 31, 2011

$
1,317


$
302


$
1,835


$
3,454Amortization expense


1,376



96



1,735



3,207Effect of foreign currency exchange
differences


(8
)


(7
)






(15)Removal of fully amortized assets






(359
)






(359)December 31, 2012


2,685



32



3,570



6,287Amortization expense


1,294



5



1,788



3,087Effect of foreign currency exchange
differences


58











58Removal of fully amortized assets


(1,128
)










(1,128)December 31, 2013

$
2,909


$
37


$
5,358


$
8,304









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|Precision Drilling Corporation 2013 Annual Report     63



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NOTE 6. GOODWILL  Balance, December 31, 2011

$
363,646Business acquisitions


25Impairment charge


(52,539)Exchange adjustment


(580)Balance, December 31, 2012


310,552Exchange adjustment


1,804Balance, 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.










64     Notes to Consolidated Financial Statements




---




NOTE 8. SHARE BASED COMPENSATION PLANS Liability Classified Plans  Deferred  Share Units


Restricted  Share Units


PerformanceShare Units


ShareAppreciationRights


Non-ManagementDirectors DSUs


TotalDecember 31, 2011

$
762


$
12,529


$
25,250


$
1,693


$



$
40,234Expensed (recovered) during the
period


(44
)


5,094



6,022



(1,195
)


816



10,693Payments


(718
)


(7,938
)


(17,494
)


(1
)






(26,151)December 31, 2012






9,685



13,778



497



816



24,776Expensed (recovered) during the
period






11,622



8,137



(251
)


1,245



20,753Payments and redemptions






(7,769
)


(8,953
)






(207
)


(16,929)December 31, 2013

$



$
13,538


$
12,962


$
246


$
1,854


$
28,600Current

$



$
9,027


$
4,896


$
246


$



$
14,169Long-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:  RSUsOutstanding


PSUs OutstandingDecember 31, 2011


1,836,830



2,129,508Granted


1,117,850



802,000Issued as a result of cash
dividends


11,566



11,972Redeemed


(864,857
)


(851,499)Forfeitures


(221,139
)


(143,029)December 31, 2012


1,880,250



1,948,952Granted


1,295,739



1,258,650Issued as a result of cash
dividends


51,113



54,623Redeemed


(869,744
)


(696,171)Forfeitures


(243,863
)


(128,126)December 31, 2013


2,113,495



2,437,928









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|--------------------------------------------------------
|Precision Drilling Corporation 2013 Annual Report     65



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(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 ofExercise Price(US$)


WeightedAverage ExercisePrice (US$)


ExercisableDecember 31, 2011


705,688


$
9.26   17.92



$  14.83



705,688Exercised


(721
)


9.26     9.59



9.45Forfeited


(26,725
)


15.22   17.92



15.55December 31, 2012


678,242



9.26   17.38



14.81



678,242Forfeited


(90,080
)


13.26   17.38



15.42December 31, 2013


588,162


$
9.26   17.38



$  14.71



588,162  Total SARs Outstanding and ExercisableRange of Exercise Prices (US$):

Number


WeightedAverage ExercisePrice (US$)


Weighted Average Remaining Contractual Life (Years)$    9.26  11.99


59,903



$           9.26



1.2312.00 
14.99


100,844



13.26



1.1015.00  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

OutstandingJanuary 1, 2011


Granted


101,535Issued as a result of cash dividends


429December 31, 2012


101,964Granted


105,338Issued as a result of cash
dividends


2,836Redeemed


(21,563)December 31, 2013


188,575










66     Notes to Consolidated Financial Statements




---




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

OutstandingDecember 31, 2011


417,495Issued as a result of cash dividends


1,630Redeemed


(83,179)December 31, 2012


335,946Issued as a result of cash dividends


5,459Redeemed


(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

OptionsOutstanding


Range of Exercise Prices


WeightedAverageExercise Price


Options
ExercisableDecember 31, 2011


3,267,571


$
5.22  14.50


$
8.45



1,008,305Granted


1,117,050



7.15  10.67



10.60Exercised


(237,545
)


5.85  10.44



6.01Forfeitures


(133,279
)


5.85  14.50



10.27December 31, 2012


4,013,797



5.22  14.50



9.13



1,846,603Granted


1,237,500



7.82    9.02



8.99Exercised


(172,158
)


5.85  10.67



7.43Forfeitures


(178,253
)


5.85  14.50



9.77December 31, 2013


4,900,886


$
5.22  14.50


$
9.14



2,676,865U.S. share options

OptionsOutstanding


Range of Exercise Prices (US$)


WeightedAverageExercise Price(US$)


Options  ExercisableDecember 31, 2011


1,886,552


$
4.95  15.21


$
8.61



396,188Granted


867,000



7.14  10.74



10.58Exercised


(72,409
)


4.95  10.55



6.94Forfeitures


(281,163
)


4.95  15.21



9.84December 31, 2012


2,399,980



4.95  15.21



9.23



935,035Granted


1,025,100



8.99    9.28



9.00Exercised


(189,887
)


4.95  10.55



5.89Forfeitures


(61,385
)


7.14  15.21



10.82December 31, 2013


3,173,808


$
4.95  15.21


$
9.32



1,438,335









|                                                        
|--------------------------------------------------------
|Precision Drilling Corporation 2013 Annual Report     67



---




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 OptionsRange of Exercise Prices:

Number


WeightedAverageExercise Price


Weighted AverageRemainingContractual Life(Years)


Number


WeightedAverageExercise Price$  5.22    6.99


706,438


$
5.85



2.35



706,438


$
5.857.00    8.99


981,297



8.53



3.25



942,662



8.569.00  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


$
8.64U.S. share options

Total Options Outstanding


Exercisable OptionsRange of Exercise Prices
(US$):

Number


WeightedAverageExercise Price
(US$)


Weighted AverageRemainingContractual Life(Years)


Number


WeightedAverageExercise Price
(US$)$  4.95    5.99


188,872


$
4.95



2.35



188,872


$
4.956.00    8.99


1,606,533



8.55



5.08



581,195



7.829.00  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).










68     Notes to Consolidated Financial Statements




---




NOTE 9. PROVISIONS AND OTHER  Workers  CompensationBalance December 31, 2011





$
23,984Expensed during the year






11,604Payment of deductibles and uninsured claims






(8,436)Effects of foreign currency exchange differences






(551)Balance December 31, 2012






26,601Expensed during the year






4,350Payment of deductibles and uninsured claims






(8,546)Effects of foreign currency exchange differences






1,781Balance December 31, 2013





$
24,1862013


2012Current

$
6,350


$
8,783Long-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


2012Secured revolving credit facility

$
29,781


$
Unsecured senior notes:6.625% senior notes due 2020 (US$650.0 million)


691,340



646,6856.5% senior notes due 2021 (US$400.0 million)


425,440



397,9606.5% senior notes due 2019


200,000



200,0001,346,561



1,244,645Less net unamortized debt issue costs


(23,293)



(25,849)$
1,323,268


$
1,218,796









|                                                        
|--------------------------------------------------------
|Precision Drilling Corporation 2013 Annual Report     69



---




(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.










70     Notes to Consolidated Financial Statements




---




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

$
29,781Thereafter


1,316,780$
1,346,561









|                                                        
|--------------------------------------------------------
|Precision Drilling Corporation 2013 Annual Report     71



---




(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, 2013Parent


GuarantorSubsidiaries


Non-GuarantorSubsidiaries


Consolidating Adjustments


TotalAssetsCash

$
27,160


$
23,039


$
30,407


$



$
80,606Other current assets


3,592



456,574



101,906



3



562,075Intercompany 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







58,435Property, plant and equipment


56,501



3,261,610



243,858



(235)



3,561,734Intangibles


3,286



631











3,917Goodwill






312,356











312,356Total assets

$
6,419,512


$
6,396,746


$
509,401


$
(8,746,536)


$
4,579,123Liabilities and Shareholders EquityCurrent liabilities

$
40,624


$
240,052


$
56,222


$



$
336,898Intercompany payables and debt


2,442,373



202,986



196,081



(2,841,440)



Long-term debt


1,323,268















1,323,268Other long-term liabilities


263,410



262,308



(6,104)







519,614Total liabilities


4,069,675



705,346



246,199



(2,841,440)



2,179,780Shareholders equity


2,349,837



5,691,400



263,202



(5,905,096)



2,399,343Total liabilities and shareholders equity

$
6,419,512


$
6,396,746


$
509,401


$
(8,746,536)


$
4,579,123Condensed Consolidating Statement of Financial Position as at
December 31, 2012Parent


GuarantorSubsidiaries


Non-GuarantorSubsidiaries


Consolidating Adjustments


TotalAssetsCash

$
114,709


$
15,709


$
22,350


$



$
152,768Other current assets


9,238



465,695



48,398



3



523,334Intercompany 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







64,579Property, plant and equipment


57,939



3,043,239



142,104



(353)



3,242,929Intangibles


4,190



1,911











6,101Goodwill






310,552











310,552Total assets

$
6,001,797


$
5,922,821


$
333,269


$
(7,957,624)


$
4,300,263Liabilities and Shareholders EquityCurrent liabilities

$
103,383


$
264,788


$
29,910


$



$
398,081Intercompany payables and debt


2,200,650



185,855



155,502



(2,542,007)



Long-term debt


1,218,796















1,218,796Other long-term liabilities


245,377



273,547



(6,838)







512,086Total liabilities


3,768,206



724,190



178,574



(2,542,007)



2,128,963Shareholders equity


2,233,591



5,198,631



154,695



(5,415,617)



2,171,300Total liabilities and shareholders equity

$
6,001,797


$
5,922,821


$
333,269


$
(7,957,624)


$
4,300,263










72     Notes to Consolidated Financial Statements




---




Condensed Consolidating Statement of Earnings (Loss) for the Year ended December 31, 2013Parent


Guarantor Subsidiaries


Non-GuarantorSubsidiaries


Consolidating Adjustments


TotalRevenue

$
143


$
1,912,750


$
137,681


$
(20,597)


$
2,029,977Operating expense


273



1,148,786



120,175



(20,597)



1,248,637General and administrative expense


29,174



101,407



11,926







142,507Earnings (loss) before income taxes, finance charges, foreign exchange, and depreciation and amortization


(29,304)



662,557



5,580







638,833Depreciation and amortization


7,393



309,939



15,576



251



333,159Operating earnings (loss)


(36,697)



352,618



(9,996)



(251)



305,674Foreign exchange


(3,356)



(5,198)



(558)







(9,112)Finance charges


92,112



1,141



(5)







93,248Equity in earnings of subsidiaries


(360,468)











360,468



Earnings (loss) before tax


235,015



356,675



(9,433)



(360,719)



221,538Income taxes


43,615



(15,431)



2,204







30,388Net earnings (loss)

$
191,400


$
372,106


$
(11,637)


$
(360,719)


$
191,150Condensed Consolidating Statement of Earnings (Loss) for the
Year ended December 31, 2012Parent


Guarantor Subsidiaries


Non-GuarantorSubsidiaries


Consolidating Adjustments


TotalRevenue

$
151


$
1,986,590


$
64,779


$
(10,779)


$
2,040,741Operating expense


82



1,173,157



80,841



(10,779)



1,243,301General and administrative expense


27,246



94,014



5,388







126,648Earnings (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)







670,792Depreciation and amortization


3,405



303,693



7,922



(7,495)



307,525Loss on asset decommissioning






192,469











192,469Operating earnings (loss)


(30,582)



223,257



(29,372)



7,495



170,798Impairment of goodwill






52,539











52,539Foreign exchange


4,252



(189)



(310)







3,753Finance charges


86,780



48



1







86,829Equity in earnings of subsidiaries


(196,489)











196,489



Earnings (loss) before tax


74,875



170,859



(29,063)



(188,994)



27,677Income taxes


30,011



(49,342)



(5,352)







(24,683)Net earnings (loss)

$
44,864


$
220,201


$
(23,711)


$
(188,994)


$
52,360









|                                                        
|--------------------------------------------------------
|Precision Drilling Corporation 2013 Annual Report     73



---




Condensed Consolidating Statement of Comprehensive Income (Loss) for the Year ended December 31, 2013Parent


Guarantor Subsidiaries


Non-Guarantor Subsidiaries


Consolidating Adjustments


TotalNet earnings

$
191,400


$
372,106


$
(11,637)


$
(360,719)


$
191,150Other comprehensive income (loss)


(72,135)



98,105



10,720



370



37,060Comprehensive income (loss)

$
119,265


$
470,211


$
(917)


$
(360,349)


$
228,210Condensed Consolidating Statement of Comprehensive Income (Loss)
for the Year ended December 31, 2012Parent


Guarantor Subsidiaries


Non-Guarantor Subsidiaries


Consolidating Adjustments


TotalNet earnings

$
44,864


$
220,201


$
(23,711)


$
(188,994)


$
52,360Other comprehensive income (loss)


23,205



(30,899)



(1,934)



(45)



(9,673)Comprehensive income (loss)

$
68,069


$
189,302


$
(25,645)


$
(189,039)


$
42,687Condensed Consolidating Statement of Cash Flow for the Year
ended December 31, 2013Parent


Guarantor Subsidiaries


Non-GuarantorSubsidiaries


Consolidating Adjustments


TotalCash provided by (used in):Operations

$
(207,558)


$
693,757


$
(58,113)


$



$
428,086Investments


96,685



(458,810)



(68,951)



(95,459)



(526,535)Financing


21,517



(229,688)



134,229



95,459



21,517Effects of exchange rate changes on cash and cash equivalents


1,807



2,071



892







4,770Increase (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







152,768Cash and cash equivalents, end of year

$
27,160


$
23,039


$
30,407


$



$
80,606Condensed Consolidating Statement of Cash Flow for the Year
ended December 31, 2012Parent


Guarantor Subsidiaries


Non-Guarantor Subsidiaries


Consolidating Adjustments


TotalCash provided by (used in):Operations

$
(135,797)


$
775,145


$
(65,654)


$
61,592


$
635,286Investments


(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







467,476Cash and cash equivalents, end of year

$
114,709


$
15,709


$
22,350


$



$
152,768










74     Notes to Consolidated Financial Statements




---




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




2012Earnings before income taxes

$
221,538




$
27,677Federal and provincial statutory rates


25%





25%Tax at statutory rates

$
55,385




$
6,919Adjusted for the effect of:Non-deductible expenses


4,097





15,975Non-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





4,009Taxes related to prior years


4,738





1,053Other


526





4,657Income tax expense (recovery)

$
30,388




$
(24,683
)The net deferred tax liability is comprised of the tax
effect of the following temporary differences:2013




2012Deferred income tax liability:Property, plant and equipment and intangibles

$
749,760




$
686,833Partnership deferrals


34,938





60,906Debt issue costs


2,966





1,561Other


6,569





4,260794,233





753,560Deferred income tax assets:Losses (expire from time to time up to 2033)


285,438





244,888Long-term incentive plan


14,800





13,917Other


6,648





9,163Net 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).









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|Precision Drilling Corporation 2013 Annual Report     75



---




The movement in temporary differences is as follows:  Property,Plant andEquipmentandIntangibles


PartnershipDeferrals


Other Deferred Income TaxLiabilities


Losses


Debt IssueCosts


Long-TermIncentivePlan


OtherDeferredIncome TaxAssets


Net  Deferred  Income Tax  LiabilityDecember 31, 2011

$
735,815



$    91,319


$
5,704


$
(221,982
)

$
(2,568
)

$
(13,026
)

$
(7,472
)

$
587,790Recognized 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
)


485,592Recognized 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
)


16,384December 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


2012Unrecognized tax benefits, beginning of year

$
34,357


$
34,300Additions:Prior years tax positions


2,031



2,033Reductions: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.










76     Notes to Consolidated Financial Statements




---




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


AmountDecember 31, 2011


276,081,797


$
2,248,217Options exercised



cash consideration


309,954



1,926

reclassification from contributed
surplus






1,124Issued on redemption of
non-management directors DSUs


83,179



706Issued on waiver of right to dissent by dissenting unitholder


840



9December 31, 2012


276,475,770


$
2,251,982Options exercised



cash consideration


362,045



2,432

reclassification from contributed surplus






1,275Issued on redemption of
non-management directors DSUs


141,856



1,238Issued on exercise of warrants


15,000,000



48,300December 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  UnrealizedForeign CurrencyTranslation Gains(Losses)


Foreign Exchange Gain (Loss) on NetInvestment Hedge


Accumulated Other  Comprehensive LossDecember 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)



37,060December 31, 2013


$            48,330


$
(71,805)


$
(23,475)









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|Precision Drilling Corporation 2013 Annual Report     77



---




NOTE 14. FINANCE CHARGES  2013


2012Interest:Long-term debt

$
88,516


$
85,113Other


1,356



138Income


(967
)


(1,933)Amortization of debt issue costs


4,343



4,120Debt amendment fees






149Other






(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


2012Salaries and other benefits

$
6,752


$
6,988Equity settled share based
compensation


3,433



3,257Cash 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.










78     Notes to Consolidated Financial Statements




---




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


2012Less than one year

$
16,833


$
15,561Between one and five years


41,258



41,898Later 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


2012Operating leases

$
19,578


$
19,075Sub-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


2012Net earnings  basic and diluted

$
191,150


$
52,360(Stated in thousands)

2013


2012Weighted average shares outstanding  basic


277,583



276,276Effect of share warrants


9,327



9,418Effect of stock options and other equity compensation plans


971



933Weighted average shares outstanding  diluted


287,881



286,627









|                                                        
|--------------------------------------------------------
|Precision Drilling Corporation 2013 Annual Report     79



---




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

ContractDrillingServices


CompletionandProductionServices


Corporateand Other


Inter-SegmentEliminations


TotalRevenue

$
1,719,910


$
323,353


$



$
(13,286)


$
2,029,977Operating earnings


361,447



28,402



(84,175
)






305,674Depreciation and amortization


292,217



32,630



8,312







333,159Total assets


3,837,919



590,992



150,212







4,579,123Goodwill


200,217



112,139











312,356Capital expenditures


446,566



83,470



5,768







535,8042012

ContractDrillingServices


CompletionandProductionServices


Corporate
and Other


Inter-SegmentEliminations


TotalRevenue

$
1,725,240


$
326,079


$



$
(10,578)


$
2,040,741Operating earnings


184,819



62,796



(76,817
)






170,798Depreciation and amortization


271,993



30,758



4,774







307,525Loss on asset decommissioning


192,469















192,469Total assets


3,495,604



551,893



252,766







4,300,263Goodwill


198,413



112,139











310,552Capital expenditures*


750,763



109,202



8,092







868,057* Excludes business acquisitionsThe Corporations operations are carried on in
the following geographic locations:2013

Canada


United States


International


Inter-Segment  Eliminations


TotalRevenue

$
1,002,199


$
901,246


$
137,681


$
(11,149)


$
2,029,977Total assets


2,082,958



2,006,519



489,646







4,579,1232012

Canada


United States


International


Inter-SegmentEliminations


TotalRevenue

$
1,053,966


$
936,113


$
64,017


$
(13,355)


$
2,040,741Total 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.










80     Notes to Consolidated Financial Statements




---




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


2012Balance at January 1

$
12,187


$
12,179Impairment loss recognized


325



348Amounts 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





2012Gross





Provision forImpairment





Gross





Provision for ImpairmentNot 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.









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|Precision Drilling Corporation 2013 Annual Report     81



---




The following financial instruments were denominated in U.S. dollars:  2013





2012CanadianOperations(1)





U.S.Operations





CanadianOperations(1)





U.S.OperationsCash

$




995


$




53,327


$




39,693


$




61,515Accounts receivable






26







290,995







56







237,370Accounts 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


$




96,383Impact 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


TotalLong-term debt

$



$



$



$



$
29,781


$
1,316,780


$
1,346,561Interest on long-term debt (1)


87,176



87,176



87,176



87,176



87,087



170,394



606,185Commitments


195,589



14,061



11,373



8,467



7,357



15,714



252,561Total

$
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.










82     Notes to Consolidated Financial Statements




---




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


2012Long-term debt

$
1,323,268


$
1,218,796Shareholders equity


2,399,343



2,171,300Total capitalization

$
3,722,611


$
3,390,096Long-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


2012Accounts receivable

$
(23,110
)

$
61,052Inventory


1,658



(6,707)Accounts payable and accrued liabilities


(22,682
)


(111,333)$
(44,134
)

$
(56,988)Pertaining to:Operations

$
(33,887
)

$
36,474Investments

$
(10,247
)

$
(93,462) The components of accounts receivable are as follows:  2013


2012Trade

$
314,448


$
328,101Accrued trade


152,768



125,035Prepaids and other


82,481



56,411$
549,697


$
509,547









|                                                        
|--------------------------------------------------------
|Precision Drilling Corporation 2013 Annual Report     83



---




The components of accounts payable and accrued liabilities are as follows:  2013


2012Accounts payable

$
148,081


$
146,234Accrued liabilities:Payroll


81,586



79,978Other


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


2012Wages, salaries and benefits

$
773,901


$
795,243Purchased materials, supplies and services


589,394



556,103Share-based compensation


27,849



18,603$
1,391,144


$
1,369,949Allocated to:Operating expense

$
1,248,637


$
1,243,301General 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. 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. 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.










84     Notes to Consolidated Financial Statements




---




NOTE 25. SUBSIDIARIES Significant Subsidiaries  Ownership InterestCountry ofIncorporation




2013


2012Precision Limited Partnership


Canada





100



100Precision Drilling Canada Limited Partnership


Canada





100



100Precision Diversified Oilfield Services Corp.


Canada





100



100Precision Directional Services Ltd.


Canada





100



100Precision Drilling (US) Corporation


United States





100



100Precision Drilling Company LP


United States





100



100Precision Completion & Production Services Ltd.


United States





100



100Precision Directional Services, Inc.


United States





100



100Grey Wolf Drilling Limited


Cyprus





100



100









|                                                        
|--------------------------------------------------------
|Precision Drilling Corporation 2013 Annual Report     85