Annual Report 2011 - PGS

Notes to the consolidated financial statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Fair value hierarchy
As at 31 December 2011 and 2010, the Company held the following financial instruments carried at fair value on the statement
of financial position:
The Company is required to disclose the hierarchy of how fair value is determined for financial instruments recorded at fair value
in the consolidated financial statements:
Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities
Level 2: assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are
observable either directly or indirectly
Level 3: techniques for which all inputs which have a significant effect on the recorded fair value that are not
based on observable market data.
Assets measured at fair value
31 December Level 1 Level 2 Level 3
(In thousands of dollars)
2011
Financial assets at fair value through profit or loss
Forward exchange contracts (non-hedge) 170 --- 170 ---
Debt instruments 507 --- 507 ---
Available-for-sale financial assets
Equity shares 7,779 6,205 --- 1,574
Debt securities 23,290 --- 23,290 ---
Liabilities measured at fair value
31 December Level 1 Level 2 Level 3
(In thousands of dollars)
2011
Financial liabilities at fair value through profit or loss
Interest rate swaps (hedge) (25,535) --- (25,535) ---
Forward exchange contracts (hedge) (1,338) --- (1,338) ---
Forward exchange contracts (non-hedge) (3,384) --- (3,384) ---
Assets measured at fair value
31 December Level 1 Level 2 Level 3
(In thousands of dollars)
2010
Financial assets at fair value through profit or loss
Forward exchange contracts 4,387 --- 4,387 ---
Debt instruments 4,070 --- 4,070 ---
Available-for-sale financial assets
Equity shares 33,282 31,629 --- 1,653
Liabilities measured at fair value
31 December Level 1 Level 2 Level 3
(In thousands of dollars)
2010
Financial liabilities at fair value through profit or loss
Interest rate swaps (hedge) (28,117) --- (28,117) ---
Forward exchange contracts (4,422) --- (4,422) ---
The fair values of the long-term debt instruments, forward exchange contracts and interest rate swaps are estimated using
quotes obtained from dealers in such financial instruments or latest quoted prices or indexes at Reuters or Bloomberg. Where
market prices are not observed or quotes form dealers not obtained an indirect method is used by use of implied credit spread
from debt instrument with similar risk characteristics. The fair value of the liability component of convertible notes is determined
by obtaining quotes from dealers.
In February 2011 SeaBird Exploration PLC issued a convertible loan of $42.9 million directed towards the Company. In
December 2011 the instrument was partially repaid and partially restructured as a Senior Secured Bond (Coupon rate 6%) with
a nominal value of $31.7 million. A loss of $7.5 million was recognized in the consolidated statement of operations in 2011 as
the fair value of the new bond was lower than the nominal value. The carrying amount of the Bond at December 31, 2011 is
equal to the fair value of $23.9 million.
Financial risk management policies
As a worldwide provider of seismic data the Company is exposed to market risks such as exchange rate risk and interest rate
risk, credit risk and liquidity risk. The Company has established procedures and policies for determining appropriate risk levels
for the main risks and monitoring these risk exposures.
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in
order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to
reduce the cost of capital.
31 PGS ANNUAL REPORT 2011
102 PGS Annual Report 2011