We have audited the accompanying statements of net assets available for benefits of the Encana (USA) 401(k) Plan (the “Plan”) as of December 31, 2013 and 2012, and the related statement of changes in net assets available for benefits for the year ended December 31, 2013. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits.
| |
|
|
December 31,
|
|
| |
|
|
2013
|
|
|
2012
|
|
|
Assets
|
|
|
|
|
|
|
|
Investments, at fair value
|
|
|
|
|
|
|
|
|
Mutual funds
|
(Note 3)
|
|
$ |
139,799,819 |
|
|
$ |
113,340,921 |
|
|
Stocks
|
|
|
40,864,583 |
|
|
|
40,801,464 |
|
|
Total investments, at fair value
|
|
|
180,664,402 |
|
|
|
154,142,385 |
|
|
Receivables
|
|
|
|
|
|
|
|
|
|
Participant loans receivable
|
|
|
3,551,202 |
|
|
|
3,699,964 |
|
|
Net assets available for benefits
|
|
$ |
184,215,604 |
|
|
$ |
157,842,349 |
|
See Notes to Financial Statements and Supplemental Schedule.
For the Year Ended December 31, 2013
|
Investment income
|
|
|
|
|
Net appreciation in fair value of assets
|
(Note 2)
|
|
$ |
13,395,112 |
|
|
Interest and dividend income
|
|
|
5,429,113 |
|
|
Total investment income
|
|
|
18,824,225 |
|
|
Contributions
|
|
|
|
|
|
Employer
|
|
|
8,840,025 |
|
|
Employee
|
|
|
16,051,776 |
|
|
Rollover
|
|
|
839,601 |
|
|
Total contributions
|
|
|
25,731,402 |
|
|
Deductions
|
|
|
|
|
|
Benefits paid to participants
|
|
|
17,991,669 |
|
|
Administrative fees
|
|
|
190,703 |
|
|
Total deductions
|
|
|
18,182,372 |
|
|
Net increase
|
|
|
26,373,255 |
|
|
Net assets available for benefits
|
|
|
|
|
|
Beginning of year
|
|
|
157,842,349 |
|
|
End of year
|
|
$ |
184,215,604 |
|
See Notes to Financial Statements and Supplemental Schedule.
1. Description of the Plan and Significant Accounting Policies
The following description of the Encana (USA) 401(k) Plan (the "Plan") provides only general information. Participants and all others should refer to the Plan document for a more complete description of the Plan's provisions.
A) General
The Plan is a defined-contribution plan established on September 1, 1999, under which employer contributions are based on a fixed formula that is not related to profits and that is designated as a pension plan by the Plan Sponsor. The Plan Sponsor is Alenco Inc. (the “Company”). All employees of Encana Oil & Gas (USA) Inc., Encana Services Inc., and Encana Natural Gas Inc. are eligible to participate in the Plan. Eligibility to participate begins with the first day of the month coincident with or following employment. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA").
The Board of Directors of the Company administers the Plan. Great-West Life & Annuity Insurance Company ("Great-West") serves as trustee, manages Plan assets, and maintains the Plan's records. Great-West offers Plan participants a variety of investment options. Individual accounts are invested in the various investment options at the direction of the participants.
B) Contributions
Participants may make before-tax contributions up to 30% of their annual compensation, not to exceed $17,500 as limited by the Internal Revenue Service ("IRS"), which is adjusted annually by the Secretary of Treasury for inflation. This maximum percentage may be reduced by the Plan administrator in certain circumstances. The Plan also permits rollover contributions from other qualified retirement plans. Employee contributions to the Plan are made through regular payroll deductions, catch-up contributions, and Roth contributions, which are after-tax contributions tracked in a separate account but subject to the same limitations set forth under the Plan.
The Company will make a safe harbor matching contribution of 100% of elective deferrals up to 5% of compensation, which is invested in Encana Corporation common stock.
C) Participants' Accounts
Each participant's account is credited with the participant's contribution and an allocation of the Company's contribution, Plan earnings or losses, forfeitures, and an allocation of Plan expenses. Allocations are based upon Plan earnings or losses and account balances, as defined. The benefit to which a participant is entitled is the vested portion of the participant's account.
D) Vesting
Participants are vested immediately in their contributions plus actual earnings or losses thereon. Participants also have full and immediate vesting in the Company's contribution portion of their accounts.
ENCANA (USA) 401(K) PLAN
Notes to Financial Statements
1. Description of the Plan and Significant Accounting Policies
E) Participant Loans Receivable
Participants may borrow from their account a minimum of $1,000 up to a maximum equal to the lesser of $50,000 or 50% of their account balance. The loans are secured by the balance in the participant's account and bear interest at rates that range from 4.25% to 9.25%, which are fixed at the loan inception and are commensurate with local prevailing rates as determined quarterly by the Plan administrator. The loans mature at various dates through October 2028. Principal and interest is paid ratably through payroll deductions. Participant loans are recorded in the financial statements at amortized cost plus accrued interest.
F) Payments of Benefits
Upon termination of service, death, disability, or retirement, a participant may elect to receive either a lump-sum amount equal to the value of the participant's vested account balance or annual installments over a life annuity. For termination of service for other reasons, a participant may receive the value of the vested account balance as a lump-sum distribution. Accounts with balances less than $1,000 may be immediately distributed upon a distribution event. Benefits are recorded as distributions to participants when paid.
G) Participant Termination and Forfeitures
As participants are vested immediately in all contributions, forfeitures rarely occur. Forfeitures may occur due to participants contributing above the annual maximum contribution amount; thus, the amount gets repaid to the participant, causing a forfeiture of those additional contributed funds. Forfeitures can be used to pay Plan expenses or reduce employer contributions. For the year ended December 31, 2013, forfeitures of $270 were used to reduce employer contributions. For the years ended December 31, 2013 and 2012, forfeiture balances were $3,301 and $3,064, respectively.
H) Valuation of Investments and Income Recognition
Investments are recorded at fair value as reported to the Plan by the trustee. Fair value is 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. See Note 3 for discussion of fair value measurements.
The net realized and unrealized investments gain or loss (net appreciation or depreciation in fair value of investments) is reflected in the accompanying statement of changes in net assets available for benefits and is determined as the difference between fair value at the beginning of the year (or date purchased if during the year) and selling price (if sold during the year) or year-end fair value. Purchase and sales of investments are recorded on a trade-date basis. Interest income is recognized on the accrual basis. Dividends are recognized on the ex-dividend date.
ENCANA (USA) 401(K) PLAN
Notes to Financial Statements
1. Description of the Plan and Significant Accounting Policies
I) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Plan administrator to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
J) Risk and Uncertainties
The Plan provides for various investments that, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility risks. Due to the level of risk associated with certain investments, it is reasonably possible that changes in the value of investments will occur in the near term and that such changes could materially affect participants' account balances and the amounts reported in the statement of net assets available for benefits.
Additionally, some investments held by Great-West are invested in the securities of foreign companies, which involve certain risks and considerations not typically associated with investing in U.S. companies. These risks include devaluation of currencies, less reliable information about issuers, different securities transaction clearance and settlement practices, and possible adverse political and economic developments. Moreover, securities of many foreign companies and their markets may be less liquid and their prices more volatile than those of securities of comparable U.S. companies.
2. Investments
The Plan’s investments are stated at fair value. Fair value of a financial instrument is 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.
ENCANA (USA) 401(K) PLAN
Notes to Financial Statements
2. Investments (continued)
Investments with a fair value greater than 5% of the Net assets available for benefits are as follows:
| |
|
December 31,
|
|
| |
|
2013
|
|
|
2012
|
|
|
Mutual funds
|
|
|
|
|
|
|
|
DFA U.S. Small Cap
|
|
$ |
18,534,096 |
|
|
$ |
12,942,460 |
|
|
Vanguard Institutional Index Instl
|
|
$ |
18,520,918 |
|
|
$ |
15,133,102 |
|
|
PIMCO Total Return Instl
|
|
$ |
18,057,427 |
|
|
$ |
15,467,543 |
|
|
Vanguard Windsor II Fund - Admiral
|
|
$ |
16,277,822 |
|
|
$ |
11,016,708 |
|
|
Harbor International Fund Instl
|
|
$ |
14,924,086 |
|
|
$ |
13,141,733 |
|
|
Vanguard Prime Money Market Instl
|
|
$ |
9,245,647 |
|
|
$ |
10,114,073 |
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
Encana Corporation Common Stock
|
|
$ |
30,074,511 |
|
|
$ |
26,503,141 |
|
|
Cenovus Energy Inc. Common Stock
|
|
$ |
10,495,745 |
|
|
$ |
13,980,646 |
|
The Plan's investments (including investments bought and sold, as well as held, during the year) appreciated in fair value as follows:
| |
|
December 31,
|
|
| |
|
2013
|
|
|
Mutual funds
|
|
$ |
17,700,167 |
|
|
Common stock
|
|
|
(4,305,055 |
) |
| |
|
$ |
13,395,112 |
|
3. Fair Value Accounting
Accounting principles generally accepted in the United States of America require disclosure about how fair value is determined and establish a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
|
|
Level 1:
|
Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.
|
|
|
Level 2:
|
Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|
ENCANA (USA) 401(K) PLAN
Notes to Financial Statements
3. Fair Value Accounting (continued)
|
|
Level 3:
|
Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
The following tables set forth by level, within the fair value hierarchy, the Plan's investment assets at fair value as of December 31, 2013 and 2012.
Assets at fair value as of December 31, 2013 are as follows:
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Common stock
|
|
$ |
40,864,583 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
40,864,583 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic equity funds
|
|
|
60,866,508 |
|
|
|
- |
|
|
|
- |
|
|
|
60,866,508 |
|
|
Target-date funds
|
|
|
25,947,216 |
|
|
|
- |
|
|
|
- |
|
|
|
25,947,216 |
|
|
Bond funds
|
|
|
20,843,102 |
|
|
|
- |
|
|
|
- |
|
|
|
20,843,102 |
|
|
International equity funds
|
|
|
20,126,503 |
|
|
|
- |
|
|
|
- |
|
|
|
20,126,503 |
|
|
Money market funds
|
|
|
9,245,647 |
|
|
|
- |
|
|
|
- |
|
|
|
9,245,647 |
|
|
Other equity funds
|
|
|
2,770,843 |
|
|
|
- |
|
|
|
- |
|
|
|
2,770,843 |
|
|
Total mutual funds
|
|
|
139,799,819 |
|
|
|
- |
|
|
|
- |
|
|
|
139,799,819 |
|
|
Total
|
|
$ |
180,664,402 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
180,664,402 |
|
Assets at fair value as of December 31, 2012 are as follows:
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Common stock
|
|
$ |
40,801,464 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
40,801,464 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic equity funds
|
|
|
44,779,388 |
|
|
|
- |
|
|
|
- |
|
|
|
44,779,388 |
|
|
Target-date funds
|
|
|
19,832,042 |
|
|
|
- |
|
|
|
- |
|
|
|
19,832,042 |
|
|
Bond funds
|
|
|
17,959,280 |
|
|
|
- |
|
|
|
- |
|
|
|
17,959,280 |
|
|
International equity funds
|
|
|
17,355,472 |
|
|
|
- |
|
|
|
- |
|
|
|
17,355,472 |
|
|
Money market funds
|
|
|
10,114,073 |
|
|
|
- |
|
|
|
- |
|
|
|
10,114,073 |
|
|
Other equity funds
|
|
|
3,300,666 |
|
|
|
- |
|
|
|
- |
|
|
|
3,300,666 |
|
|
Total mutual funds
|
|
|
113,340,921 |
|
|
|
- |
|
|
|
- |
|
|
|
113,340,921 |
|
|
Total
|
|
$ |
154,142,385 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
154,142,385 |
|
ENCANA (USA) 401(K) PLAN
Notes to Financial Statements
3. Fair Value Accounting (continued)
Level 1 assets in the Plan are funds with quoted daily net asset values that are directly observable in the marketplace by market participants. The fair value of the funds is equivalent to the net asset value at the close of business on the reporting date. Investments in common stock are valued at its year-end closing price (comprised of year-end market price reported on the active market plus uninvested cash portion).
There were no changes to the valuation methods used during the year.
4. Income Taxes
The Plan obtained a favorable opinion letter, dated March 31, 2008, from the IRS as to the qualified status of the Plan. The Plan administrator believes that the Plan continues to be operated and administered in compliance with the applicable requirements of the Internal Revenue Code. Therefore, no provisions for income tax have been included in the Plan financial statements.
Generally accepted accounting principles in the United States of America require Plan management to evaluate tax positions taken by the Plan and recognize a tax liability if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the IRS. The Plan administrator has analyzed the tax positions taken by the Plan and has concluded that, as of December 31, 2013, there are no uncertain positions taken or expected to be taken that would require recognition of a liability or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. The Plan administrator believes it is no longer subject to income tax examinations for years prior to 2010.
5. Administration of the Plan
The Company provides, at no cost to the Plan, certain administrative, accounting, and legal services to the Plan and also pays the cost of certain outside services for the Plan.
6. Partial Termination
As a result of a reduction of the Plan Sponsor’s workforce in 2013, the Plan experienced a partial plan termination as defined by ERISA. Under ERISA, a partial plan termination may occur if a significant percentage of the Plan participants are terminated because of an action taken by the Plan Sponsor. If a partial plan termination occurs, full vesting is required for the terminated participants, but the remaining participants’ vesting continues to be determined according to the plan provisions.
All terminated employees who were participants in the Plan were fully vested in their account balances at the date of the partial plan termination.
ENCANA (USA) 401(K) PLAN
Notes to Financial Statements
7. Plan Termination
Although it has not expressed any intent to do so, the Company has the right under the Plan to terminate the Plan subject to the provisions of ERISA. If the Plan is terminated for any reason, all participants become 100% vested and the Plan administrator is to distribute each participant's interest to the participant or their beneficiary.
8. Party-in-Interest
Certain Plan investments are shares of Encana Corporation’s common stock. As the Company is the sponsoring entity of the Plan, these transactions qualify as party-in-interest transactions.
9. Subsequent Events
On January 1, 2014, all employees of Encana Oil & Gas (USA) Inc., Encana Services Inc., and Encana Natural Gas Inc. were transferred into Encana Services Company Ltd.
Effective March 14, 2014, Principal Financial Group manages the Plan assets, maintains the Plan’s records, and serves as trustee.
As of December 31, 2013
Employer Identification Number 98-0087563
Plan Number - 002
|
(a)
|
|
(b) Identity of Issuer, Borrower, Lessor, or Similar Party
|
|
(c) Description of Investment,
Including Maturity Date, Rate of Interest,
Collateral, Par, or Maturity Value
|
|
(e) Current Value
|
|
| |
|
DFA U.S. Small Cap
|
|
Mutual fund
|
|
$ |
18,534,096 |
|
| |
|
Vanguard Institutional Index Instl
|
|
Mutual fund
|
|
|
18,520,918 |
|
| |
|
PIMCO Total Return Instl
|
|
Mutual fund
|
|
|
18,057,427 |
|
| |
|
Vanguard Windsor II Fund - Admiral
|
|
Mutual fund
|
|
|
16,277,822 |
|
| |
|
Harbor International Fund Instl
|
|
Mutual fund
|
|
|
14,924,086 |
|
| |
|
Vanguard Prime Money Market Fund Instl
|
|
Mutual fund
|
|
|
9,245,647 |
|
| |
|
Principal Large Cap Growth I Inst
|
|
Mutual fund
|
|
|
7,533,672 |
|
| |
|
Vanguard Target Retirement 2025 Fund
|
|
Mutual fund
|
|
|
6,676,165 |
|
| |
|
Vanguard Target Retirement 2035 Fund
|
|
Mutual fund
|
|
|
6,166,018 |
|
| |
|
Vanguard Target Retirement 2015 Fund
|
|
Mutual fund
|
|
|
5,057,295 |
|
| |
|
Vanguard Target Retirement 2045 Fund
|
|
Mutual fund
|
|
|
4,225,629 |
|
| |
|
DFA International Small Company Fund Inst
|
|
Mutual fund
|
|
|
3,576,983 |
|
| |
|
Vanguard Target Retirement Income Inv
|
|
Mutual fund
|
|
|
3,160,627 |
|
| |
|
Morgan Stanley Inst U.S. Real Estate I
|
|
Mutual fund
|
|
|
2,770,843 |
|
| |
|
Vanguard Short Term Investment Grade Adm
|
|
Mutual fund
|
|
|
1,957,829 |
|
| |
|
T. Rowe Price Inst Emerging EQ
|
|
Mutual fund
|
|
|
1,625,435 |
|
| |
|
PIMCO Global Bond (Unhedged) Instl
|
|
Mutual fund
|
|
|
827,845 |
|
| |
|
Vanguard Target Retirement 2055 Fund
|
|
Mutual fund
|
|
|
661,482 |
|
| |
|
Total mutual funds
|
|
|
|
|
139,799,819 |
|
| * |
|
Encana Corporation common stock
|
|
Common stock
|
|
|
30,074,511 |
|
| |
|
Cenovus Energy Inc. common stock
|
|
Common stock
|
|
|
10,495,745 |
|
| |
|
Total common stock
|
|
|
|
|
40,570,256 |
|
| * |
|
Encana Corporation common stock
|
|
Employer stock awaiting purchase
|
|
|
294,327 |
|
| * |
|
Participant loans receivable
|
|
Interest rates range from 4.25% to 9.25%.
Maturities at various dates through October 2028,
collateralized by participant accounts.
|
|
|
3,551,202 |
|
| |
|
|
|
|
|
$ |
184,215,604 |
|
* Party-in-interest