The hearing in court of first instance took place in the Asker & Bærum Dis- trict Court in Norway on March 17-24, 2009. A court ruling is expected in the second quarter of 2009.
Cash Flow, Balance Sheet and Financing Net cash provided by operating activities totaled USD 914.6 million in 2008 compared to USD 722.8 million in 2007, primarily driven by strong improvement in profit.
Cash and cash equivalents (excluding restricted cash) totaled USD 95.2 mil- lion at December 31, 2008 compared to USD 145.3 million at December 31, 2007. Restricted cash at December 31, 2008 totaled USD 18.4 million, compared to USD 59.4 million at De- cember 31, 2007, which included USD 38.0 million of security deposit for the mandatory offer for Arrow.
In June 2007, PGS refinanced and established a USD 600 millionTerm Loan B maturing in 2015 and a USD 350 million revolving credit facility maturing in 2012. At December 31, 2008 there was USD 572.0 million outstanding under the term loan and USD 230.0 million outstanding under the revolving credit facility. In addi- tion, the Company has a remaining balance on the Oslo Seismic Notes of USD 49.1 million.
PGS issued USD 400 million of convertible notes in December 2007. The conversion price is NOK 216.19 per share, which represented a 40% premium over the volume weighted average share price of the ordinary shares at the time of offering. During 2008, the Company repurchased USD 45.5 million of nominal value of the convertible notes, representing 11.4% of the total outstanding issue at an average price below 60% of nomi- nal value. As of December 31, 2008, the carrying value of the convertible notes was USD 300.4 million (net of deferred loan costs).
Arrow had two secured loan facili- ties totaling approximately USD 350 million at December 31, 2007 relating to existing vessels and new-builds. In 2008, PGS reached agreements with the syndicate banks for the two Arrow facilities to terminate one of the facili- ties and continue a part of the other facility amounting to USD 125 million. As of December 31, 2008 drawing on the remaining Arrow facility totaled USD 83.9 million.The Company may have to reduce the facility amount and related drawings corresponding to a termination of any Arrow vessel new-build.
Total interest bearing debt, including capital leases but excluding deferred loan costs was USD 1,249.2 million as of December 31, 2008 compared to
USD 1,377.4 million as of December 31, 2007.
Net interest bearing debt (interest bearing debt less cash and cash equivalents, restricted cash and inter- est bearing investments) was USD 1,135.6 million at December 31, 2008 compared to USD 1,172.7 million at December 31, 2007.
PGS' interest bearing debt consisted of the components listed in the table at the bottom of the page.
investments During 2008, PGS made total cash investments, excluding capitalized interest, of USD 290.0 million in Multi- Client data library compared to USD 282.8 million in 2007, an increase of USD 7.2 million (3%).
Capital expenditures, excluding capital expenditures on new-builds on charter, totaled USD 450.6 million in 2008 compared to USD 260.4 million in 2007, an increase of USD 190.2 mil- lion. Capital expenditures in Marine increased by USD 163.2 million to USD 395.3 million in 2008.The in- crease is primarily due to the ongoing new-build programs.
Financial market Risk PGS is exposed to certain market risks, including adverse changes in interest rates and foreign currency
PGS' interest bearing debt (In millions of dollars)
unsecured: 10% Senior Notes, due 2010 Secured: Term loan, Libor, + margin due 2015 Revolving credit facility, due 2012 8.28% first preferred mortgage notes, due 2011 Revolving credit facility (Arrow), due 2017 Term loan (Arrow), Libor, + margin, due 2017 Convertible notes: Convertible notes, due 2012 total long-term debt Short-term debt total interest bearing debt
december 31, 2008
december 31, 2007
572 230 49 38 46
597 240 63
332 1,237 134 1,371
PGS ANNUAL REVIEW 2008 40
exchange rates, as discussed below.
interest Rate Risk PGS enters into financial instruments, such as interest rate swaps, to man- age the impact of possible changes in interest rates.
As of December 31, 2008, the Compa- ny had USD 885.8 million of floating rate interest bearing debt and USD 4.1 million of capital leases, both based on US dollar one to six month LIBOR rate, plus a margin. PGS has a fixed interest rate debt with a book value of USD 359.3 million.To reduce the impact of future rises in interest rates the Company has a portfolio of inter- est rate swaps (IRS) with a nominal amount totaling USD 400 million. Fair value of the IRS was negative USD 47.6 million as of December 31, 2008. These IRS's have terms covering a period between two and six years.The Company's annual interest expense would increase by USD 4.9 million for every one percentage point increase in the LIBOR rate.
Currency exchange Risk PGS conducts business in various currencies including Brazilian real, Indian rupee, Euro, Singapore dollar, Kazakhstan tenge, Mexican peso, Moroccan dirham, Nigerian naira, Peruvian nuevo sol, Saudi riyal, Brit- ish pound and the Norwegian kroner. PGS is subject to foreign currency exchange rate risk on cash flows related to sales, expenses, financing and investing transactions in curren- cies other than the US dollar.
Cash flow from operation(s) is prima- rily denominated in US dollars (USD), British pounds (GBP) and Norwegian kroner (NOK). PGS predominantly sells its products and services in US dollars, but also other currencies like Euro, British pounds and Norwegian kroner. In addition to US dollars, a significant portion of the operat- ing expenses are incurred in British pounds and Norwegian kroner, with less substantial portions in Singapore dollars and various other currencies. The Company, therefore, typically has higher expenses than revenue denom- inated in non US dollar currencies.
A stronger US dollar reduces PGS' operating expenses as reported in
US dollars.The Company estimates that an appreciation of the US dollar against the two most significant non US dollar currencies (NOK and GBP) by 10% would have an annual net positive EBIT impact of USD 20 to USD 25 million before currency hedg- ing activities.
PGS hedges a portion of its foreign currency exposure related to operat- ing income and expenses by entering into forward currency exchange contracts. While entering into these contracts with the purpose of reduc- ing exposure to changes in exchange rates, the Company does not account for the contracts as hedges except if they are specifically designated to firm commitments or certain cash flows. Consequently, these forward currency exchange contracts are recorded at estimated fair value and gains and losses are included in other financial items, net. During 2008, the Company had in place currency hedg- es for most of the payment that will be made in non US dollars for vessels under construction.The hull on the new vessels will be paid for in NOK and EUR and currency hedges put in place for these exposures are treated as fair value hedges in the accounts. As of December 31, 2008, the Com- pany had net open forward contracts to buy/sell British pounds, Norwe- gian kroner, Euro, Singapore dollars and Brazilian real.The total nominal amounts of these contracts are ap- proximately USD 514.2 million, com- pared to USD 804.8 million in 2007. Of this, contracts with a notional value of USD 150.8 million are accounted for as fair value hedges, compared to USD 146.7 million in 2007.There were no designated foreign currency cash flow hedges in 2008, as opposed to a notional value of USD 75.4 million in 2007.The outstanding contracts at year-end had a negative fair value of USD 35.3 million, compared to a positive fair value of USD 30.5 million in 2007.This is due to a significant ap- preciation of the US dollar during the second half of 2008.
A further 10% appreciation of the US dollar against all the currencies the Company has derivative contracts in, would decrease the fair value of these contracts by approximately USD 27.8 million.The profit and loss effect
of this change would be USD 20.7 million (loss).
All debt is denominated in US dollars.
Credit Risk The Company's trade receivables are primarily from multinational integrat- ed oil companies and larger independ- ent oil and natural gas companies, including companies that are owned in whole or in part by governments. PGS manages its exposure to credit risk through ongoing credit evalu- ations of customers.The Company believes its exposure to credit risk is relatively limited due to the nature of the customer base, the long-term relationship with most of customers and the historic low level of losses on trade receivables.
PGS also monitor the counter party credit risk of its banking partners, in- cluding counterparties on derivatives and where cash is held on deposit. In addition the Company is exposed to certain off balance sheet counter party credit risk related to refunds from the Spanish shipyard Factorias Vulcano, the refund guarantees from Spanish banks related to the Arrow new-builds and counterparties to the Arrow char- ter agreements. Except for the tight liquidity situation at the shipyard, PGS believes that other counterparties have the ability to meet their obliga- tions when due.
liquidity Risk At December 31, 2008, PGS had an unrestricted cash balance of USD 95.2 million and an unused USD 120.0 million of the USD 350.0 mil- lion secured revolving credit facility (maturing June 2012) and USD 41.1 million secured Arrow facility (matur- ing 2017).The Company also has an additional overdraft facility of NOK 50 million. PGS continuously monitor its banks and has no reason to believe that they will not meet their funding commitments if called upon.
Based on the year-end cash balance, available liquidity resources and the current structure and terms of debt, PGS believes that it has adequate liquidity to support its operations and investment program.
The credit agreement for the USD
PGS ANNUAL REVIEW 2008 41