Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2012

Fair Value of Financial Instruments [Abstract]

Fair Value of Financial Instruments

Note 13: Fair Value of Financial Instruments

Fair Value of Financial Instruments

        The Company's financial instruments consist primarily of cash and cash equivalents, short-term investments, trade receivables, trade payables, derivative instruments and debt instruments. The book values of trade receivables, trade payables and floating-rate debt instruments are considered to be representative of their respective fair values.

Following is a summary of the Company's financial instruments which have been valued at fair value in the Company's Consolidated Balance Sheets at March 31, 2012 and December 31, 2011:

	Fair Value Based on Quoted Prices in Active Markets for Identical Assets (Level 1)				Fair Value Based on Significant Other Observable Inputs (Level 2)						Fair Value Based on Significant Unobservable Inputs (Level 3)				Total
(dollars in millions)	2012		2011		2012			2011			2012		2011		2012			2011
Cash and cash equivalents:
Cash	$	426.9	$	491.7	$	–		$	–		$	–	$	–	$	426.9		$	491.7
Money market funds		65.9		133.4		–			–			–		–		65.9			133.4
Commercial paper		–		–		118.7			140.4			–		–		118.7			140.4
U.S.non-governmental agency asset-backed securities		–		–		26.2			27.8			–		–		26.2			27.8
U.S. corporate obligations		1.1		29.1		–			–			–		–		1.1			29.1
Non-U.S. bank and other obligations		23.7		76.5		–			–			–		–		23.7			76.5
Short-term investments:
Commercial paper		–		–		214.3			213.5			–		–		214.3			213.5
U.S. Treasury securities		–		10.1		–			–			–		–		–			10.1
U.S. non-governmental agency asset-backed securities		–		–		55.3			77.3			–		–		55.3			77.3
U.S. corporate obligations		75.1		122.6		–			–			–		–		75.1			122.6
Derivatives, net asset (liability):
Foreign currency contracts		–		–		(4.7	)		(13.8	)		–		–		(4.7	)		(13.8	)
Interest rate contracts		–		–		–			1.4			–		–		–			1.4
	$	592.7	$	863.4	$	409.8		$	446.6		$	–	$	–	$	1,002.5		$	1,310.0

         Fair values for financial instruments utilizing level 2 inputs were determined from information obtained from third party pricing sources, broker quotes, calculations involving the use of market indices or mutual fund unit values determined based upon the valuation of the funds' underlying assets.

        At March 31, 2012, the fair value of the Company's fixed-rate debt (based on Level 1 quoted market rates) was approximately $1.47 billion as compared to the $1.25 billion face value of the debt recorded, net of original issue discounts, in the Company's Consolidated Balance Sheet.  At December 31, 2011, the fair value of the Company's fixed-rate debt (based on Level 1 quoted market rates) was approximately $1.47 billion as compared to the $1.25 billion face value of the debt.

Derivative Contracts

         In order to mitigate the effect of exchange rate changes, the Company will often attempt to structure sales contracts to provide for collections from customers in the currency in which the Company incurs its manufacturing costs. In certain instances, the Company will enter into foreign currency forward contracts to hedge specific large anticipated receipts or disbursements in currencies for which the Company does not traditionally have fully offsetting local currency expenditures or receipts. The Company was party to a number of long-term foreign currency forward contracts at March 31, 2012. The purpose of the majority of these contracts was to hedge large anticipated non-functional currency cash flows on major subsea, drilling, valve or other equipment contracts involving the Company's United States operations and its wholly-owned subsidiaries in Italy, Romania, Singapore and the United Kingdom. Many of these contracts have been designated as and are accounted for as cash flow hedges with changes in the fair value of those contracts recorded in accumulated other comprehensive income (loss) in the period such change occurs.  Certain other contracts, many of which are centrally managed, are intended to offset other foreign currency exposures but have not been designated as hedges for accounting purposes and, therefore, any change in the fair value of those contracts are reflected in earnings in the period such change occurs.  The Company determines the fair value of its outstanding foreign currency forward contracts based on quoted exchange rates for the respective currencies applicable to similar instruments.

Total gross volume bought (sold) by notional currency and maturity date on open derivative contracts at March 31, 2012 was as follows (in millions):

	Notional Amount - Buy						Notional Amount - Sell
	2012		2013		Total		2012			2013			2014			Total
FX Forward Contracts
Notional currency in:
EUR		109.7		20.1		129.8		(23.7	)		(0.2	)		–			(23.9	)
GBP		35.2		–		35.2		(6.2	)		–			–			(6.2	)
NOK		90.0		–		90.0		(37.4	)		–			–			(37.4	)
SGD		11.5		–		11.5		–			–			–			–
USD		57.9		7.1		65.0		(80.7	)		(22.5	)		(0.5	)		(103.7	)

The fair values of derivative financial instruments recorded in the Company's Consolidated Condensed Balance Sheets at March 31, 2012 and December 31, 2011 were as follows:

	March 31, 2012				December 31, 2011
	Assets		Liabilities		Assets		Liabilities
Derivatives designated as hedges:
Foreign exchange contracts –
Current	$	1.8	$	3.7	$	1.9	$	7.0
Non-current		0.6		0.1		–		0.6
Total derivatives designated as hedges		2.4		3.8		1.9		7.6
Derivatives not designated as hedges:
Foreign exchange contracts –
Current		0.5		3.8		2.5		10.6
Non-current		–		–		–		–
Interest Rate Swaps –
Current		–		–		1.4		–
Non-current		–		–		–		–
Total derivatives not designated as hedges		0.5		3.8		3.9		10.6
Total derivatives	$	2.9	$	7.6	$	5.8	$	18.2

The effects of derivative financial instruments designated as cash flow hedges on the Company's consolidated condensed financial statements for the three months ended March 31, 2012 and 2011 were as follows (in millions):

	Effective Portion											Ineffective Portion and Other
Derivatives in Cash Flow Hedging Relationships	Amount of Pre-Tax Gain (Loss) Recognized in OCI on Derivatives at March 31,				Location of Gain (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income at March 31,						Location of Gain (Loss) Recognized in Income on Derivatives	Amount of Gain (Loss) Recognized in Income on Derivatives at March 31,
	2012		2011			2012			2011				2012		2011
Foreign exchange contracts	$	3.0	$	2.5	Revenues	$	(1.4	)	$	1.6		Cost of goods sold- ineffective portion	$	0.4	$	(0.3	)
					Cost of goods sold		(3.7	)		(5.7	)
					Depreciation expense		–			(0.1	)
Total	$	3.0	$	2.5		$	(5.1	)	$	(4.2	)		$	0.4	$	(0.3	)

The amount of pre-tax gain (loss) from the ineffective portion of derivatives not designated as hedging instruments was:

	Three Months Ended March 31,
(in millions)	2012		2011
Foreign currency contracts -
Cost of sales	$	0.8	$	0.6
Other costs		4.2
Interest rate swaps -
Interest, net		–		(0.2	)
Total pre-tax gain	$	5.0	$	0.4