DERIVATIVE FINANCIAL INSTRUMENTS

3 Months Ended

Mar. 31, 2012

DERIVATIVE FINANCIAL INSTRUMENTS

NOTE 4 – DERIVATIVE FINANCIAL INSTRUMENTS

We enter into derivative financial instruments primarily to hedge certain firm purchase commitments and forecasted transactions denominated in foreign currencies. We record these contracts at fair value on our consolidated balance sheets. Depending on the hedge designation at the inception of the contract, the related gains and losses on these contracts are either: (1) deferred as a component of AOCI until the hedged item is recognized in earnings; (2) offset against the change in fair value of the hedged firm commitment through earnings; or (3) recognized immediately in earnings. At the inception and on an ongoing basis, we assess the hedging relationship to determine its effectiveness in offsetting changes in cash flows or fair value attributable to the hedged risk. We exclude from our assessment of effectiveness the portion of the fair value of the forward contracts attributable to the difference between spot exchange rates and forward exchange rates. The ineffective portion of a derivative’s change in fair value and any portion excluded from the assessment of effectiveness are immediately recognized in earnings. Gains and losses on derivative financial instruments that are immediately recognized in earnings are included as a component of gain (loss) on foreign currency—net in our condensed consolidated statements of income. At March 31, 2012, we had designated the majority of our foreign currency forward-exchange contracts as cash flow hedging instruments.

At March 31, 2012, we had deferred $1.7 million of net losses on these derivative financial instruments in AOCI, and we expect to reclassify approximately $4 million of deferred losses out of AOCI over the next 12 months.

At March 31, 2012, our derivative financial instruments consisted of foreign currency forward-exchange contracts. During the quarter ended March 31, 2012, we entered into derivative contracts with an aggregate notional value of approximately $825 million to mitigate currency exchange movements associated with various foreign currency expenditures we expect to incur on one of our EPCI projects through 2017. As a result, the notional value of our outstanding derivative contracts totaled approximately $1.2 billion at March 31, 2012, with maturities extending through 2017. The fair value of these contracts at March 31, 2012 was in a net liability position totaling $9.1 million.

The following tables summarize our derivative financial instruments:

Asset and Liability Derivatives

	March 31, 2012		December 31, 2011
	(Unaudited)
	(In thousands)
Derivatives Designated as Hedges:
Location
Accounts receivable–other	$	7,506	$	2,765
Other assets		2,738		66
Total asset derivatives	$	10,244	$	2,831
Accounts payable	$	11,073	$	6,891
Other liabilities		8,320		969
Total liability derivatives	$	19,393	$	7,860

The Effects of Derivative Instruments on our Financial Statements

	Three Months Ended March 31,
	2012			2011
	(Unaudited)
	(In thousands)
Derivatives Designated as Hedges:
Amount of gain (loss) recognized in other comprehensive income	$	(6,040	)	$	6,948
Income (loss) reclassified from AOCI into income: effective portion
Location
Cost of operations	$	1,294		$	(135	)
Gain (loss) recognized in income: ineffective portion and amount excluded from effectiveness testing
Location
Gain (loss) on foreign currency—net	$	2,350		$	(1,970	)