Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2013

Fair Value of Financial Instruments [Abstract]

Fair Value of Financial Instruments

Note 14: 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 June 30, 2013 and December 31, 2012:

	Fair Value Based on Quoted Prices in Active Markets for Identical Assets (Level 1)				Fair Value Based on Significant Other Observable Inputs (Level 2)					Total
(in millions)	2013		2012		2013			2012		2013			2012
Cash and cash equivalents:
Cash	$	1,000.1	$	447.1	$	–		$	–	$	1,000.1		$	447.1
Certificates of deposit		–		0.2		–			–		–			0.2
Money market funds		586.8		429.1		–			–		586.8			429.1
Commercial paper		–		–		66.8			202.7		66.8			202.7
U.S. Treasury securities		–		17.6		–			–		–			17.6
U.S. non-governmentalagency asset-backed securities		–		–		15.2			41.4		15.2			41.4
U.S. corporate obligations		2.9		18.9		–			–		2.9			18.9
Non-U.S. bank and other obligations		46.3		28.8		–			–		46.3			28.8
Short-term investments:
Certificates of deposit		0.2		3.0		–			–		0.2			3.0
Commercial paper		–		–		187.9			253.9		187.9			253.9
U.S. Treasury securities		9.9		64.5		–			–		9.9			64.5
U.S. non-governmental agency asset-backed securities		–		–		59.8			99.5		59.8			99.5
U.S. corporate obligations		52.4		96.1		–			–		52.4			96.1
Non-qualified plan assets:
Money market funds		1.2		1.1		–			–		1.2			1.1
Domestic bond funds		2.6		2.4		–			–		2.6			2.4
International bond fund		0.3		0.1		–			–		0.3			0.1
Domestic equity funds		4.0		3.6		–			–		4.0			3.6
International equity funds		2.2		2.1		–			–		2.2			2.1
Blended equity funds		3.1		2.6		–			–		3.1			2.6
Common stock		3.2		2.1		–			–		3.2			2.1
Derivatives, net asset (liability):
Foreign currency contracts		–		–		(14.3	)		19.9		(14.3	)		19.9
	$	1,715.2	$	1,119.3	$	315.4		$	617.4	$	2,030.6		$	1,736.7

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 June 30, 2013, the fair value of the Company's fixed-rate debt (based on Level 1 quoted market rates) was approximately $1.92 billion as compared to the $1.75 billion face value of the debt recorded, net of original issue discounts, in the Company's Consolidated Balance Sheet.  At December 31, 2012, the fair value of the Company's fixed-rate debt (based on Level 1 quoted market rates) was approximately $2.06 billion as compared to the $1.75 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 June 30, 2013. 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 Australia, France, Italy, Malaysia, Norway, 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.

The Company manages its debt portfolio to achieve an overall desired position of fixed and floating rates and employs from time to time interest rate swaps as a tool to achieve that goal.

Total gross volume bought (sold) by notional currency and maturity date on open derivative contracts at June 30, 2013 was as follows (in millions):

	Notional Amount - Buy								Notional Amount - Sell
	2013		2014		2015		Total		2013			2014			2015			Total
FX Forward Contracts
Notional currency in:
EUR		150.7		82.9		–		233.6		(11.5	)		(1.5	)		–			(13.0	)
GBP		96.5		10.3		0.5		107.3		(32.9	)		(1.3	)		–			(34.2	)
MYR		–		28.4		–		28.4		–			–		–				–
NOK		816.7		801.5		128.5		1,746.7		(274.4	)		(134.4	)		–			(408.8	)
SGD		0.3		–		–		0.3		–			–			–			–
USD		60.1		6.2		–		66.3		(174.7	)		(112.4	)		(6.4	)		(293.5	)

While the Company reports and generally settles its individual derivative financial instruments on a gross basis, the agreements between the Company and its third party financial counterparties to the derivative contracts generally provide both the Company and its counterparties with the legal right to net settle contracts that are in an asset position with other contracts that are in an offsetting liability position, if required.  The fair values of derivative financial instruments recorded in the Company's Consolidated Condensed Balance Sheets at June 30, 2013 and December 31, 2012 were as follows (in millions):

	June 30, 2013				December 31, 2012
	Assets		Liabilities		Assets		Liabilities
Foreign exchange contracts designated as hedging instruments:
Current	$	10.2	$	16.2	$	20.4	$	5.7
Non-current		0.8		2.8		2.3		0.4
		11.0		19.0		22.7		6.1
Foreign exchange contracts not designated as hedging instruments:
Current		1.8		7.0		3.3		–
Non-current		–		1.1		–		–
		1.8		8.1		3.3		–
Total derivatives	$	12.8	$	27.1	$	26.0	$	6.1

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

	Three Months Ended June 30,								Six Months Ended June 30,
	2013				2012				2013				2012
Foreign currency contracts designated as hedging instruments:
Cost of sales		$	(0.7	)		$	(0.8	)		$	(5.4	)		$	(0.5	)
Foreign currency contracts not designated as hedging instruments:
Cost of sales			–				(0.5	)			–				0.5
Other costs			2.7				1.5				–				5.6
Total		$	2.0			$	0.2			$	(5.4	)		$	5.6