Annual Report 2011 - PGS

Notes to the consolidated financial statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Onerous contracts
An onerous contract is considered to exist where the Company has a contract under which the unavoidable costs of meeting the
obligations under the contract exceed the economic benefits expected to be received under it. Existing obligations arising under
onerous contracts are recognized and measured as a provision.
Employee benefits
Pension obligations
The Company operates various pension schemes. The schemes are funded through payments to insurance companies or
trustee-administered funds. The Company has both defined benefit and defined contribution plans. A defined benefit plan is a
pension plan which defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one
or more factors such as age, years of service and compensation.
The liability recognized in respect of defined benefit pension plans is the present value of the defined benefit obligation at the
end of the reporting period as adjusted for unrecognized actuarial gains or losses and past service costs, and as reduced by the
fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit
credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash
outflows using estimated interest rates of high-quality corporate bonds (or government bonds where there is no deep market in
high quality corporate bonds) that are denominated in the currency in which the benefits will be paid, and that have terms to
maturity approximating to the terms of the related pension liability.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions in excess of the greater
of 10% of the value of plan assets or 10% of the defined benefit obligation (the “corridor”) are recognized in the consolidated
statements of operations over the employees’ expected average remaining working lives.
Past service costs, which is an increase in the present value of the defined benefit obligation for employee services in prior
periods due to current period changes to a defined benefit plan, are recognized immediately in income unless the changes to
the defined benefit plan are conditional on the employees remaining in service for a specified period of time (the vesting period).
In this case, the past service costs are recognized on a straight-line basis over the vesting period.
For defined contribution plans, the Company pays contributions to privately administered pension insurance plans on a
mandatory, contractual or voluntary basis. The Company has no further payment obligations once the contributions have been
paid. The contributions are recognized as employee benefit expense when they are due. Prepaid contributions are recognized
as an asset to the extent that a cash refund or a reduction in the future payments is available.
Bonus plans
The Company recognizes a provision where contractually obliged or where there is a past practice that has created a
constructive obligation.
Share-based payments
Equity-settled share-based payments to employees are measured at the fair value of the equity instrument at the grant date.
Fair value is measured using the Black-Scholes pricing model. The expected life used in the model is based on management’s
best estimate and takes into account the effects of non-transferability, exercise restrictions and behavioural considerations.
Social security tax on options is based on the share value as of the end of the reporting period is recorded as a liability and is
recognized over the option period.
The dilutive effect of outstanding options is reflected as additional share dilution in computation of earnings per share.
Interest bearing debt and borrowings
Interest bearing loans are recognized initially at fair value less transaction costs. Subsequent to initial recognition, interest
bearing loans are measured at amortized cost using the effective interest method. Gains and losses are recognized in the
consolidated statements of operations when the liabilities are derecognized as well as through the amortization process.
Financial assets and liabilities
Financial assets and liabilities are recognized when the Company becomes party to the contractual obligations of the financial
instrument and are initially recognized at fair value.
Financial assets and liabilities are classified into categories as follows:
(a) Financial assets and liabilities measured at fair value through the consolidated statements of operations
This category includes financial assets and liabilities held-for-trading and financial assets and liabilities designated upon initial
recognition at fair value with change in fair value through the consolidated statements of operations. After initial measurement,
financial assets and liabilities in the category are measured at fair value with unrealized gains and losses being recognized
through the consolidated statements of operations.
Financial assets and liabilities are classified as held-for-trading if they are acquired for the purpose of selling in the near term.
Derivatives are also classified as held-for-trading unless they are designated as effective hedging instruments. Gains and losses
on financial assets held-for-trading are recognized in the consolidated statements of operations.
9 PGS ANNUAL REPORT 2011
80 PGS Annual Report 2011