EX-99.2 3 huskyq32017-fs.htm EXHIBIT 99.2 Exhibit


CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Condensed Consolidated Balance Sheets
(millions of Canadian dollars)
September 30, 2017

 
December 31, 2016

Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
2,486

 
1,319

Accounts receivable
1,072

 
1,036

Income taxes receivable
175

 
186

Inventories
1,337

 
1,558

Prepaid expenses
131

 
135

Restricted cash (note 4)
92

 
84

 
5,293

 
4,318

Assets held for sale (note 6)
245

 

 
5,538

 
4,318

Restricted cash (note 4)
90

 
72

Exploration and evaluation assets (note 5)
1,217

 
1,066

Property, plant and equipment, net (note 6)
23,031

 
24,593

Goodwill
633

 
679

Investment in joint ventures (note 7)
1,231

 
1,128

Long-term income taxes receivable
232

 
232

Other assets
185

 
172

Total Assets
32,157

 
32,260

Liabilities and Shareholders’ Equity
 
 
 
Current liabilities
 
 
 
Accounts payable and accrued liabilities
2,322

 
2,226

Short-term debt (note 8)
200

 
200

Long-term debt due within one year (note 8)

 
403

Contribution payable due within one year
72

 
146

Asset retirement obligations (note 9)
238

 
218

 
2,832

 
3,193

Liabilities directly associated with assets held for sale (note 9)
209

 

 
3,041

 
3,193

Long-term debt (note 8)
5,236

 
4,736

Other long-term liabilities (note 10)
1,201

 
1,020

Asset retirement obligations (note 9)
2,293

 
2,573

Deferred tax liabilities
3,058

 
3,111

Total Liabilities
14,829

 
14,633

Shareholders’ equity
 
 
 
Contributed surplus
2

 

Common shares (note 11)
7,293

 
7,296

Preferred shares (note 11)
874

 
874

Retained earnings
8,547

 
8,457

Accumulated other comprehensive income
601

 
989

Non-controlling interest
11

 
11

Total Shareholders’ Equity
17,328

 
17,627

Total Liabilities and Shareholders’ Equity
32,157

 
32,260

The accompanying notes to the condensed interim consolidated financial statements are an integral part of these statements.

HUSKY ENERGY INC. | Q3 | CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS | 1



Condensed Consolidated Statements of Income
 
Three months ended
 
 
Nine months ended
 
 
September 30,
 
 
September 30,
 
(millions of Canadian dollars, except share data)
2017

 
2016

 
2017

 
2016

Gross revenues
4,717

 
3,515

 
13,381

 
9,438

Royalties
(71
)
 
(56
)
 
(266
)
 
(200
)
Marketing and other
(4
)
 
5

 
31

 
(79
)
Revenues, net of royalties
4,642

 
3,464

 
13,146

 
9,159

Expenses
 
 
 
 
 
 
 
Purchases of crude oil and products
2,884

 
2,113

 
8,119

 
5,223

Production, operating and transportation expenses (note 12)
657

 
663

 
2,016

 
2,024

Selling, general and administrative expenses (note 12)
142

 
106

 
418

 
369

Depletion, depreciation, amortization and impairment (note 6)
673

 
638

 
2,235

 
2,057

Exploration and evaluation expenses
31

 
17

 
108

 
110

Gain on sale of assets
(2
)
 
(1,680
)
 
(33
)
 
(1,582
)
Other – net
25

 
(10
)
 
(31
)
 
(54
)
 
4,410

 
1,847

 
12,832

 
8,147

Earnings from operating activities
232

 
1,617

 
314

 
1,012

Share of equity investment gain (loss)
12

 
(21
)
 
60

 
(23
)
Financial items (note 13)
 
 
 
 
 
 
 
Net foreign exchange gain (loss)
2

 
1

 
(11
)
 
5

Finance income
11

 
5

 
26

 
10

Finance expenses
(97
)
 
(98
)
 
(293
)
 
(301
)
 
(84
)
 
(92
)
 
(278
)
 
(286
)
Earnings before income taxes
160

 
1,504

 
96

 
703

Provisions for (recovery of) income taxes
 
 
 
 
 
 
 
Current
(28
)
 
15

 
(19
)
 
(17
)
Deferred
52

 
99

 
1

 
(16
)
 
24

 
114

 
(18
)
 
(33
)
Net earnings
136

 
1,390

 
114

 
736

Earnings per share (note 11)
 
 
 
 
 
 
 
Basic
0.13

 
1.37

 
0.09

 
0.71

Diluted
0.13

 
1.37

 
0.08

 
0.70

Weighted average number of common shares outstanding (note 11)
 
 
 
 
 
 
 
Basic (millions)
1,005.2

 
1,005.5

 
1,005.4

 
1,004.7

Diluted (millions)
1,005.2

 
1,005.5

 
1,005.4

 
1,004.7

The accompanying notes to the condensed interim consolidated financial statements are an integral part of these statements.



HUSKY ENERGY INC. | Q3 | CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS | 2



Condensed Consolidated Statements of Comprehensive Income (Loss)
 
Three months ended
 
 
Nine months ended
 
 
September 30,
 
 
September 30,
 
(millions of Canadian dollars)
2017

 
2016

 
2017

 
2016

Net earnings
136

 
1,390

 
114

 
736

Other comprehensive income (loss)
 
 
 
 
 
 
 
Items that will not be reclassified into earnings, net of tax:
 
 
 
 
 
 
 
Actuarial loss on pension plans (note 16)
(3
)
 

 
(3
)
 

Items that may be reclassified into earnings, net of tax:
 
 
 
 
 
 
 
Derivatives designated as cash flow hedges (note 15)

 
(1
)
 
(2
)
 
(2
)
Equity investment - share of other comprehensive income
3

 

 
4

 

Exchange differences on translation of foreign operations
(338
)
 
68

 
(635
)
 
(453
)
Hedge of net investment (note 15)
130

 
(29
)
 
245

 
199

Other comprehensive income (loss)
(208
)
 
38


(391
)

(256
)
Comprehensive income (loss)
(72
)
 
1,428

 
(277
)
 
480

The accompanying notes to the condensed interim consolidated financial statements are an integral part of these statements.


HUSKY ENERGY INC. | Q3 | CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS | 3



Condensed Consolidated Statements of Changes in Shareholders’ Equity
 
Attributable to Equity Holders
 
 
 
 
 
AOCI (1)
 
 
(millions of Canadian dollars)
Common Shares

Preferred Shares

Contributed Surplus

Retained Earnings

Foreign
Currency Translation

Hedging

Non-Controlling Interest

Total Shareholders’
Equity

Balance as at December 31, 2015
7,000

874


7,589

1,103

20


16,586

Net earnings



736




736

Other comprehensive income (loss)
 
 
 
 
 
 
 
 
Derivatives designated as cash flow hedges (net of tax of less than $1 million) (Note 15)





(2
)

(2
)
Exchange differences on translation of foreign operations (net of tax of $70 million)




(453
)


(453
)
Hedge of net investment (net of tax of $31 million) (note 15)




199



199

Total comprehensive income (loss)



736

(254
)
(2
)

480

Transactions with owners recognized directly in equity:
 
 
 
 
 
 
 
 
Stock dividends paid
296







296

Dividends declared on preferred shares (note 11)



(27
)



(27
)
Non-controlling interest






11

11

Balance as at September 30, 2016
7,296

874


8,298

849

18

11

17,346

 
 
 
 
 
 
 
 
 
Balance as at December 31, 2016
7,296

874


8,457

969

20

11

17,627

Net earnings



114




114

Other comprehensive income (loss)
 
 

 
 
 
 
 
Actuarial loss on pension plans (net of tax of $1 million) (note 16)



(3
)



(3
)
Derivatives designated as cash flow hedges (net of tax less than $1 million) (note 15)





(2
)

(2
)
Equity investment - share of other comprehensive income





4


4

Exchange differences on translation of foreign operations (net of tax of $89 million)




(635
)


(635
)
Hedge of net investment (net of tax of $39 million) (note 15)




245



245

Total comprehensive income (loss)



111

(390
)
2


(277
)
Transactions with owners recognized directly in equity:
 
 
 
 
 
 
 
 
Dividends declared on preferred shares (note 11)



(26
)



(26
)
Share cancellation (note 11)
(3
)

2

5




4

Balance as at September 30, 2017
7,293

874

2

8,547

579

22

11

17,328

(1) 
Accumulated other comprehensive income (loss).
The accompanying notes to the condensed interim consolidated financial statements are an integral part of these statements.


HUSKY ENERGY INC. | Q3 | CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS | 4



Condensed Consolidated Statements of Cash Flows
 
Three months ended
 
 
Nine months ended
 
 
September 30,
 
 
September 30,
 
(millions of Canadian dollars)
2017

 
2016

 
2017

 
2016

Operating activities
 
 
 
 
 
 
 
Net earnings
136

 
1,390

 
114

 
736

Items not affecting cash:
 
 
 
 
 
 
 
Accretion (note 9, 13)
27

 
29

 
84

 
96

Depletion, depreciation, amortization and impairment (note 6)
673

 
638

 
2,235

 
2,057

Exploration and evaluation expenses (note 5)
1

 

 
6

 
30

Deferred income taxes
52

 
99

 
1

 
(16
)
Foreign exchange loss (gain)
(3
)
 
12

 
(5
)
 
25

Stock-based compensation (note 11, 12)
11

 
5

 
20

 
30

Gain on sale of assets
(2
)
 
(1,680
)
 
(33
)
 
(1,582
)
Unrealized mark to market loss (gain) (note 15)
31

 
(28
)
 
(1
)
 
12

Share of equity investment loss (gain)
(12
)
 
21

 
(60
)
 
23

Other
9

 
(2
)
 
8

 
(5
)
Settlement of asset retirement obligations (note 9)
(23
)
 
(11
)
 
(91
)
 
(56
)
Deferred revenue
(9
)
 
146

 
(11
)
 
186

Change in non-cash working capital (note 14)
3

 
124

 
61

 
(209
)
Cash flow – operating activities
894

 
743

 
2,328

 
1,327

Financing activities
 
 
 
 
 
 
 
Long-term debt issuance (note 8)

 
520

 
750

 
6,181

Long-term debt repayment (note 8)
(365
)
 
(720
)
 
(365
)
 
(6,680
)
Short-term debt issuance (note 8)

 
(660
)
 

 
(520
)
Debt issue costs (note 8)
1

 

 
(6
)
 

Dividends on preferred shares (note 11)

 
(8
)
 
(26
)
 
(27
)
Other
(3
)
 
(2
)
 
13

 
14

Change in non-cash working capital (note 14)
(11
)
 
3

 
(29
)
 
(48
)
Cash flow – financing activities
(378
)
 
(867
)
 
337

 
(1,080
)
Investing activities
 
 
 
 
 
 
 
Capital expenditures
(511
)
 
(309
)
 
(1,475
)
 
(1,314
)
Proceeds from asset sales
2

 
1,996

 
126

 
2,906

Contribution payable payment
(26
)
 
(57
)
 
(68
)
 
(169
)
Other
(27
)
 
(56
)
 
(85
)
 
(78
)
Change in non-cash working capital (note 14) 
86

 
(90
)
 
83

 
(286
)
Cash flow – investing activities
(476
)
 
1,484

 
(1,419
)
 
1,059

Increase in cash and cash equivalents
40

 
1,360

 
1,246

 
1,306

Effect of exchange rates on cash and cash equivalents
(54
)
 

 
(79
)
 
4

Cash and cash equivalents at beginning of period
2,500

 
20

 
1,319

 
70

Cash and cash equivalents at end of period
2,486

 
1,380

 
2,486

 
1,380

Supplementary Cash Flow Information
 
 
 
 
 
 
 
Net interest (paid)
(78
)
 
(63
)
 
(239
)
 
(242
)
Income taxes received (paid)
122

 
(47
)
 
35

 
9

The accompanying notes to the condensed interim consolidated financial statements are an integral part of these statements.

HUSKY ENERGY INC. | Q3 | CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS | 5


NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1Description of Business and Segmented Disclosures
Management has identified segments for the business of Husky Energy Inc. (“Husky” or the “Company”) based on differences in products, services and management responsibility. The Company’s business is conducted predominantly through two major business segments – Upstream and Downstream.
Upstream operations in the Integrated Corridor and Offshore include exploration for, and development and production of, crude oil, bitumen, natural gas and NGLs (Exploration and Production) and marketing of the Company’s and other producers’ crude oil, natural gas, NGLs, sulphur and petroleum coke, pipeline transportation, the blending of crude oil and natural gas, and storage of crude oil, diluent and natural gas (Infrastructure and Marketing). Infrastructure and Marketing markets and distributes products to customers on behalf of Exploration and Production and is grouped in the Upstream business segment based on the nature of its interconnected operations. The Company’s Upstream operations are located primarily in Western Canada, offshore east coast of Canada (Atlantic) and offshore China and offshore Indonesia (Asia Pacific).
Downstream operations in the Integrated Corridor include upgrading of heavy crude oil feedstock into synthetic crude oil in Canada (Upgrading), refining crude oil in Canada, marketing of refined petroleum products including gasoline, diesel, ethanol blended fuels, asphalt and ancillary products, and production of ethanol (Canadian Refined Products). It also includes refining in the U.S. of primarily crude oil to produce and market gasoline, jet fuel and diesel fuels that meet U.S. clean fuels standards (U.S. Refining and Marketing). Upgrading, Canadian Refined Products and U.S. Refining and Marketing all process and refine natural resources into marketable products and are grouped together as the Downstream business segment due to the similar nature of their products and services.



HUSKY ENERGY INC. | Q3 | CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS | 6



Segmented Financial Information
 
Upstream
 
Downstream
 
Corporate and Eliminations(2)
 
Total
($ millions)
Exploration and Production(1)
Infrastructure
and Marketing

Total
 
 
Upgrading
Canadian Refined Products
U.S. Refining
and Marketing

Total
 
 
 
 
 
 
 
Three months ended September 30,
2017

2016

2017

2016

2017

2016

 
2017

2016

2017

2016

2017

2016

2017

2016

 
2017

2016

 
2017

2016

Gross revenues
1,157

941

513

275

1,670

1,216

 
377

334

802

678

2,292

1,642

3,471

2,654

 
(424
)
(355
)
 
4,717

3,515

Royalties
(71
)
(56
)


(71
)
(56
)
 








 


 
(71
)
(56
)
Marketing and other


(4
)
5

(4
)
5

 








 


 
(4
)
5

Revenues, net of royalties
1,086

885

509

280

1,595

1,165

 
377

334

802

678

2,292

1,642

3,471

2,654

 
(424
)
(355
)
 
4,642

3,464

Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Purchases of crude oil and products

6

495

273

495

279

 
287

225

650

516

1,876

1,448

2,813

2,189

 
(424
)
(355
)
 
2,884

2,113

Production, operating and transportation expenses
413

429

1

2

414

431

 
45

43

63

62

135

127

243

232

 


 
657

663

Selling, general and administrative expenses
63

57

1

1

64

58

 
1


12

6

4

3

17

9

 
61

39

 
142

106

Depletion, depreciation, amortization and impairment
514

474

1

1

515

475

 
31

27

27

26

82

88

140

141

 
18

22

 
673

638

Exploration and evaluation expenses
31

17



31

17

 








 


 
31

17

Loss (gain) on sale of assets
3

(236
)

(1,442
)
3

(1,678
)
 


(5
)
(2
)


(5
)
(2
)
 


 
(2
)
(1,680
)
Other – net
(7
)
18

10

(3
)
3

15

 



(8
)
10


10

(8
)
 
12

(17
)
 
25

(10
)
 
1,017

765

508

(1,168
)
1,525

(403
)
 
364

295

747

600

2,107

1,666

3,218

2,561

 
(333
)
(311
)
 
4,410

1,847

Earnings (loss) from operating activities
69

120

1

1,448

70

1,568

 
13

39

55

78

185

(24
)
253

93

 
(91
)
(44
)
 
232

1,617

Share of equity investment gain (loss)
(1
)
(1
)
13

(20
)
12

(21
)
 








 


 
12

(21
)
Financial items
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net foreign exchange gain (loss)






 








 
2

1

 
2

1

Finance income
2

3



2

3

 








 
9

2

 
11

5

Finance expenses
(31
)
(35
)


(31
)
(35
)
 
(1
)
(1
)
(3
)
(2
)
(4
)

(8
)
(3
)
 
(58
)
(60
)
 
(97
)
(98
)
 
(29
)
(32
)


(29
)
(32
)
 
(1
)
(1
)
(3
)
(2
)
(4
)

(8
)
(3
)

(47
)
(57
)
 
(84
)
(92
)
Earnings (loss) before income taxes
39

87

14

1,428

53

1,515

 
12

38

52

76

181

(24
)
245

90

 
(138
)
(101
)
 
160

1,504

Provisions for (recovery of) income taxes
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
(25
)
(9
)


(25
)
(9
)
 
12


11


5


28


 
(31
)
24

 
(28
)
15

Deferred
36

33

4

122

40

155

 
(9
)
11

3

21

62

(8
)
56

24

 
(44
)
(80
)
 
52

99

 
11

24

4

122

15

146

 
3

11

14

21

67

(8
)
84

24

 
(75
)
(56
)
 
24

114

Net earnings (loss)
28

63

10

1,306

38

1,369

 
9

27

38

55

114

(16
)
161

66

 
(63
)
(45
)
 
136

1,390

Intersegment revenues
351

276



351

276

 
48

43

25

36



73

79

 


 
424

355

Expenditures on exploration and evaluation assets(3)
31

5



31

5

 








 


 
31

5

Expenditures on property, plant and equipment(3)
324

168


(5
)
324

163

 
27

13

14

3

88

107

129

123

 
27

18

 
480

304

(1) 
Includes allocated depletion, depreciation and amortization related to assets in Infrastructure and Marketing as these assets provide a service to Exploration and Production.
(2) 
Eliminations relate to sales and operating revenues between segments recorded at transfer prices based on current market prices. Segment results include transactions between business segments.
(3) 
Excludes capitalized costs related to asset retirement obligations and capitalized interest incurred during the period. Includes assets acquired through acquisitions.


HUSKY ENERGY INC. | Q3 | CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS | 7



Segmented Financial Information
 
Upstream
 
Downstream
 
Corporate and Eliminations(2)
 
Total
($ millions)
Exploration and Production(1)
Infrastructure
and Marketing

Total
 
 
Upgrading
Canadian Refined Products
U.S. Refining
and Marketing

Total
 
 
 
 
 
 
 
Nine months ended September 30,
2017

2016

2017

2016

2017

2016

 
2017

2016

2017

2016

2017

2016

2017

2016

 
2017

2016

 
2017

2016

Gross revenues
3,623

2,821

1,272

760

4,895

3,581

 
988

984

1,972

1,698

6,600

4,105

9,560

6,787

 
(1,074
)
(930
)
 
13,381

9,438

Royalties
(266
)
(200
)


(266
)
(200
)
 








 


 
(266
)
(200
)
Marketing and other


31

(79
)
31

(79
)
 








 


 
31

(79
)
Revenues, net of royalties
3,357

2,621

1,303

681

4,660

3,302

 
988

984

1,972

1,698

6,600

4,105

9,560

6,787

 
(1,074
)
(930
)
 
13,146

9,159

Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Purchases of crude oil and products
1

32

1,198

671

1,199

703

 
679

584

1,572

1,295

5,743

3,571

7,994

5,450

 
(1,074
)
(930
)
 
8,119

5,223

Production, operating and transportation expenses
1,260

1,322

6

17

1,266

1,339

 
148

119

190

175

412

391

750

685

 


 
2,016

2,024

Selling, general and administrative expenses
181

151

3

3

184

154

 
6

2

34

20

11

9

51

31

 
183

184

 
418

369

Depletion, depreciation, amortization and impairment
1,766

1,578

2

13

1,768

1,591

 
69

82

83

75

264

246

416

403

 
51

63

 
2,235

2,057

Exploration and evaluation expenses
108

110



108

110

 








 


 
108

110

Loss (gain) on sale of assets
(29
)
(137
)
1

(1,442
)
(28
)
(1,579
)
 


(5
)
(3
)


(5
)
(3
)
 


 
(33
)
(1,582
)
Other – net
(31
)
24

(2
)
(7
)
(33
)
17

 

(1
)

(9
)
(7
)
(175
)
(7
)
(185
)
 
9

114

 
(31
)
(54
)
 
3,256

3,080

1,208

(745
)
4,464

2,335

 
902

786

1,874

1,553

6,423

4,042

9,199

6,381

 
(831
)
(569
)
 
12,832

8,147

Earnings (loss) from operating activities
101

(459
)
95

1,426

196

967

 
86

198

98

145

177

63

361

406

 
(243
)
(361
)
 
314

1,012

Share of equity investment gain (loss)
(1
)
(3
)
61

(20
)
60

(23
)
 








 


 
60

(23
)
Financial items
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net foreign exchange gain (loss)






 








 
(11
)
5

 
(11
)
5

Finance income
4

3



4

3

 








 
22

7

 
26

10

Finance expenses
(98
)
(111
)


(98
)
(111
)
 
(1
)
(1
)
(9
)
(5
)
(10
)
(2
)
(20
)
(8
)
 
(175
)
(182
)
 
(293
)
(301
)
 
(94
)
(108
)


(94
)
(108
)

(1
)
(1
)
(9
)
(5
)
(10
)
(2
)
(20
)
(8
)

(164
)
(170
)

(278
)
(286
)
Earnings (loss) before income taxes
6

(570
)
156

1,406

162

836

 
85

197

89

140

167

61

341

398

 
(407
)
(531
)
 
96

703

Provisions for (recovery of) income taxes
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
(26
)
(112
)


(26
)
(112
)
 
39


27


6


72


 
(65
)
95

 
(19
)
(17
)
Deferred
28

(43
)
43

116

71

73

 
(16
)
54

(3
)
38

56

23

37

115

 
(107
)
(204
)
 
1

(16
)
 
2

(155
)
43

116

45

(39
)
 
23

54

24

38

62

23

109

115

 
(172
)
(109
)
 
(18
)
(33
)
Net earnings (loss)
4

(415
)
113

1,290

117

875

 
62

143

65

102

105

38

232

283

 
(235
)
(422
)
 
114

736

Intersegment revenues
864

698



864

698

 
133

116

77

116



210

232

 


 
1,074

930

Expenditures on exploration and evaluation assets(3)
187

32



187

32

 








 


 
187

32

Expenditures on property, plant and equipment(3)
764

566


51

764

617

 
216

32

62

40

191

556

469

628

 
55

37

 
1,288

1,282

As at September 30, 2017 and December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total exploration and evaluation assets, property, plant and equipment, net
16,603

17,872

39

41

16,642

17,913

 
1,151

1,004

1,217

1,156

4,991

5,341

7,359

7,501

 
247

245

 
24,248

25,659

Total assets held for sale
245




245


 








 


 
245


Total assets
18,021

19,098

1,447

1,582

19,468

20,680

 
1,261

1,076

1,533

1,410

6,676

7,017

9,470

9,503

 
3,219

2,077

 
32,157

32,260

(1) 
Includes allocated depletion, depreciation and amortization related to assets in Infrastructure and Marketing as these assets provide a service to Exploration and Production.
(2) 
Eliminations relate to sales and operating revenues between segments recorded at transfer prices based on current market prices. Segment results include transactions between business segments.
(3) 
Excludes capitalized costs related to asset retirement obligations and capitalized interest incurred during the period. Includes assets acquired through acquisitions.


HUSKY ENERGY INC. | Q3 | CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS | 8



Note 2    Basis of Presentation
The condensed interim consolidated financial statements have been prepared by management and reported in Canadian dollars in accordance with International Accounting Standard (“IAS”) 34, “Interim Financial Reporting” as issued by the International Accounting Standards Board (“IASB”). These condensed interim consolidated financial statements do not include all of the information required for full annual consolidated financial statements and should be read in conjunction with the consolidated financial statements and the notes thereto in the Company’s 2016 Annual Report.
The condensed interim consolidated financial statements have been prepared, for all periods presented, following the same accounting policies and methods of computation as described in Note 3 to the consolidated financial statements for the fiscal year ended December 31, 2016, except for the newly issued standards and amendments as discussed below.
Certain prior period amounts have been reclassified to conform with the current period presentation.
These condensed interim consolidated financial statements were approved by the Chair of the Audit Committee and Chief Executive Officer on October 25, 2017.
Note 3    Significant Accounting Policies
Recent Accounting Standards
The Company has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.

Leases
In January 2016, the IASB issued IFRS 16 Leases, which replaces the current IFRS guidance on leases. Under the current guidance, lessees are required to determine if the lease is a finance or operating lease, based on specified criteria. Finance leases are recognized on the balance sheet, while operating leases are recognized in the Consolidated Statements of Income (Loss) when the expense is incurred. Under IFRS 16, lessees must recognize a lease liability and a right-of-use asset for virtually all lease contracts. The recognition of the present value of minimum lease payments for certain contracts currently classified as operating leases will result in increases to assets, liabilities, depletion, depreciation and amortization, and finance expense, and a decrease to production, operating and transportation expense upon implementation. An optional exemption to not recognize certain short-term leases and leases of low value can be applied by lessees. For lessors, the accounting remains essentially unchanged. The standard will be effective for annual periods beginning on or after January 1, 2019. Early adoption is permitted, provided IFRS 15 Revenue from Contracts with Customers, has been applied, or is applied at the same date as IFRS 16.
The implementation of IFRS 16 consists of four phases:
Project awareness and engagement - This phase includes identifying and engaging the appropriate members of the finance and operations teams, as well as communicating the key requirements of IFRS 16 to stakeholders, and creating a project steering committee.
Scoping - This phase focuses on identifying and categorizing the Company’s contracts, performing a high-level impact assessment and determining the adoption approach and which optional recognition exemptions will be applied by the Company. This phase also includes identifying the systems impacted by the new accounting standard and evaluating potential system solutions.
Detailed analysis and solution development - This phase includes assessing which agreements contain leases and determining the expected conversion differences for leases currently accounted for as operating leases under the existing standard. This phase also includes selection of the system solution.
Implementation - This phase includes implementing the changes required for compliance with IFRS 16. The focus of this phase is the approval and implementation of any new accounting and tax policies, processes, systems and controls, as required, as well as the execution of customized training programs and preparation of disclosures under IFRS 16.
The Company is currently in the scoping phase of implementing IFRS 16. The impact on the Company’s consolidated financial statements upon adoption of IFRS 16 is currently being assessed.

HUSKY ENERGY INC. | Q3 | CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS | 9



Revenue from Contracts with Customers
In September 2015, the IASB published an amendment to IFRS 15, deferring the effective date of the standard by one year to annual periods beginning on or after January 1, 2018. IFRS 15 replaces existing revenue recognition guidance with a single comprehensive accounting model. The standard requires an entity to recognize revenue to reflect the transfer of goods and services for the amount it expects to receive, when control is transferred to the purchaser. Early adoption is permitted.
The implementation of IFRS 15 consists of four phases:
Project awareness and engagement - This phase includes identifying and engaging the appropriate members of the finance and operations teams, as well as communicating the key requirements of IFRS 15 to stakeholders.
Scoping - This phase focuses on identifying the Company’s major revenue streams, determining how and when revenue is currently recognized and determination of whether any changes are expected upon adoption.
Detailed analysis and solution development - Steps in this phase include addressing any potential differences in revenue recognition identified in the scoping phase, according to the priority assigned. This involves detailed analysis of the IFRS 15 revenue recognition criteria, review of contracts with customers to ensure revenue recognition practices are in accordance with IFRS 15 and evaluating potential changes to revenue processes and systems.
Implementation - This phase includes implementing the changes required for compliance with IFRS 15. The focus of this phase is the approval and implementation of any new accounting and tax policies, processes, systems and controls, as required, as well as the execution of customized training programs and preparation of disclosures under IFRS 15.
The Company is currently in the detailed analysis and solution development phase of implementing IFRS 15. The adoption of IFRS 15 is not expected to have a material impact on the Company's consolidated financial statements.
Financial Instruments
In July 2014, the IASB issued IFRS 9, “Financial Instruments” to replace IAS 39, which provides a single model for classification and measurement based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial instruments. For financial liabilities, the change in fair value resulting from an entity’s own credit risk is recorded in other comprehensive income rather than net earnings, unless this creates an accounting mismatch. IFRS 9 includes a new, forward-looking ‘expected loss’ impairment model that will result in more timely recognition of expected credit losses. In addition, IFRS 9 provides a substantially-reformed approach to hedge accounting. The standard is effective for annual periods beginning on or after January 1, 2018, with required retrospective application and early adoption permitted.
The implementation of IFRS 9 consists of four phases:
Project awareness and engagement - This phase includes identifying and engaging the appropriate members of the finance and operations teams, as well as communicating the key requirements of IFRS 9 to stakeholders.
Scoping - This phase focuses on identifying the Company’s financial instruments, determining accounting treatment for in-scope financial instruments under IFRS 9, and determination of whether any changes are expected upon adoption.
Detailed analysis and solution development - This phase includes addressing differences in accounting for financial instruments. Steps in this phase involve detailed analysis of the IFRS 9 recognition impacts, measurement and disclosure requirements, and evaluating potential changes to accounting processes.
Implementation - This phase includes implementing the changes required for compliance with IFRS 9. The focus of this phase is the approval and implementation of any new accounting and tax policies, processes, systems and controls, as required, as well as the preparation of disclosures under IFRS 9.
The Company is currently in the implementation phase of implementing IFRS 9. The Company intends to retrospectively adopt the standard on January 1, 2018. The adoption of IFRS 9 is not expected to have a material impact on the Company's consolidated financial statements.
Changes in Accounting Policy
Effective January 1, 2017, the Company adopted the following new accounting standards issued by the IASB:
Amendments to IAS 7 Statements of Cash Flows
In January 2016, the IASB issued amendments to IAS 7 to be applied prospectively for annual periods beginning on or after January 1, 2017 with early adoption permitted. The amendments require disclosure of information enabling users of financial statements to evaluate changes in liabilities arising from financing activities. The adoption of the IAS 7 amendments will require additional disclosure in the Company’s 2017 annual consolidated financial statements.


HUSKY ENERGY INC. | Q3 | CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS | 10



Adjustments to the Company's Condensed Interim Consolidated Statements of Income (Loss)
During the third quarter of 2017, the Company corrected the treatment of certain intrasegment sales eliminations. Gross revenues and purchases in the U.S. Refining and Marketing segment have been recast for the first two interim periods of 2017. The recasting reduced each of gross revenues and purchases of U.S. Refining and Marketing by $532 million for the six months ended June 30, 2017 and did not impact net earnings.
The following table reconciles the amounts previously reported in the applicable financial statements to the corresponding revised amounts:
($ millions)
U.S. Refining and Marketing
Three months ended March 31, 2017
As Previously Reported

Revision Adjustment

As Revised

Gross revenues