UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q
(Mark One) 
RQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31,June 30, 2014
OR
¨£TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 

Commission File Number 1-13884
Cameron International Corporation
(Exact Name of Registrant as Specified in its Charter)

Delaware76-0451843
(State or Other Jurisdiction of(I.R.S. Employer
Incorporation or Organization)Identification No.)
 
 
1333 West Loop South, Suite 1700, Houston, Texas77027
(Address of Principal Executive Offices)(Zip Code)

713/513-3300
(Registrant's Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes R No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 
Yes R No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer R Accelerated filer £
Non-accelerated filer £ (Do not check if a smaller reporting company) Smaller reporting company £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes £ No R

Number of shares outstanding of issuer's common stock as of April 15,July 17, 2014 was 204,188,177.202,901,463.

TABLE OF CONTENTS


 
PART I — FINANCIAL INFORMATION
   3
Item 1. Financial Statements
   3
Consolidated Condensed Statements of Comprehensive Income
   3
Consolidated Condensed Balance Sheets
   4
Consolidated Condensed Statements of Cash Flows
   5
Consolidated Condensed Statement of Changes in Equity
   6
Notes to Consolidated Condensed Financial Statements
   7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
  19
Item 3. Quantitative and Qualitative Disclosures About Market Risk
  3339
Item 4. Controls and Procedures
  3439
PART II — OTHER INFORMATION
  3540
Item 1. Legal Proceedings
  3540
Item 1A. Risk Factors
  3540
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  3540
Item 3. Defaults Upon Senior Securities
  3540
Item 4. Mine Safety Disclosures
  3540
Item 5. Other Information
  3541
Item 6. Exhibits
  3641
SIGNATURES
  3742
 

2
PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

CAMERON INTERNATIONAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(dollars and shares in millions, except per share data)

 
Three Months Ended
June 30,
  
Six Months Ended
June 30,
 
 
Three Months
Ended March 31,
  2014  2013  2014  2013 
 2014  2013  (unaudited) 
 
(unaudited)
  
  
  
  
 
REVENUES $2,431.5  $2,060.9  $2,641  $2,209  $5,072  $4,270 
COSTS AND EXPENSES        
COSTS AND EXPENSES:                
Cost of sales (exclusive of depreciation and amortization shown separately below)
  1,765.1   1,453.0   1,893   1,567   3,658   3,020 
Selling and administrative expenses  328.3   303.3   346   315   675   618 
Depreciation and amortization  86.8   67.3   90   67   177   135 
Interest, net  32.1   25.8   30   25   62   51 
Other costs (see Note 3)  49.0   31.0 
Other costs (credits) (see Note 3)  (4)  35   44   66 
Total costs and expenses  2,261.3   1,880.4   2,355   2,009   4,616   3,890 
                        
Income from continuing operations before income taxes  170.2   180.5   286   200   456   380 
Income tax provision  (48.5)  (34.1)  (66)  (64)  (114)  (97)
Income from continuing operations  121.7   146.4   220   136   342   283 
Income (loss) from discontinued operations, net of income taxes  (5.6)  1.9 
Income from discontinued operations, net of income taxes  13   4   7   6 
Net income  116.1   148.3   233   140   349   289 
                        
Net income attributable to noncontrolling interests  5.0   –   12   –   17   – 
Net income attributable to Cameron stockholders $111.1  $148.3  $221  $140  $332  $289 
                        
Amounts attributable to Cameron stockholders:                        
Income from continuing operations $116.7  $146.4  $208  $136  $325  $283 
Income (loss) from discontinued operations  (5.6)  1.9 
Income from discontinued operations  13   4   7   6 
Net income attributable to Cameron stockholders $111.1  $148.3  $221  $140  $332  $289 
                        
Earnings (loss) per common share attributable to Cameron stockholders:        
Earnings per common share attributable to Cameron stockholders:                
Basic                        
Continuing operations $0.54  $0.59  $1.02  $0.55  $1.55  $1.15 
Discontinued operations  (0.03)  0.01   0.06   0.02   0.04   0.02 
 $0.51  $0.60  $1.08  $0.57  $1.59  $1.17 
                
Diluted                        
Continuing operations $0.54  $0.59  $1.02  $0.55  $1.54  $1.14 
Discontinued operations  (0.03)  0.01   0.06   0.02   0.04   0.02 
 $0.51  $0.60 
         $1.08  $0.57  $1.58  $1.16 
Shares used in computing earnings per common share:                        
Basic  214.9   247.5   204   247   209   247 
Diluted  216.2   249.0   205   248   211   249 
                        
Comprehensive income $141.3  $71.4  $218  $91  $360  $163 
Comprehensive income attributable to noncontrolling interests  19.8   –   4   –   24   – 
Comprehensive income attributable to Cameron stockholders $121.5  $71.4  $214  $91  $336  $163 

The accompanying notes are an integral part of these statements.
3

CAMERON INTERNATIONAL CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(dollars in millions, except shares and per share data)


 
March 31,
2014
  
December 31,
2013
  
June 30,
2014
  
December 31,
2013
 
 (unaudited)  
  (unaudited)  
 
ASSETS 
  
  
  
 
Cash and cash equivalents $972.1  $1,812.9  $1,525  $1,813 
Short-term investments  41.0   41.0   56   41 
Receivables, net  2,668.5   2,719.1   2,548   2,719 
Inventories, net  3,193.0   3,132.4   3,268   3,133 
Other  448.1   463.2   385   463 
Assets of discontinued operations  483.0   – 
Total current assets  7,805.7   8,168.6   7,782   8,169 
Plant and equipment, net  1,995.3   2,036.9   2,015   2,037 
Goodwill  2,693.2   2,924.8   2,704   2,925 
Intangibles, net  892.0   903.7   856   904 
Other assets  254.3   214.5   235   214 
TOTAL ASSETS $13,640.5  $14,248.5  $13,592  $14,249 
                
LIABILITIES AND STOCKHOLDERS' EQUITY                
Short-term debt $626.7  $297.0  $562  $297 
Accounts payable and accrued liabilities  3,633.9   3,883.4   3,506   3,883 
Accrued income taxes  87.8   80.1   100   80 
Liabilities of discontinued operations  60.7   – 
Total current liabilities  4,409.1   4,260.5   4,168   4,260 
Long-term debt  2,563.1   2,562.8   2,814   2,563 
Deferred income taxes  273.5   276.8   251   277 
Other long-term liabilities  239.0   233.0   229   233 
Total liabilities  7,484.7   7,333.1   7,462   7,333 
Stockholders' Equity:
                
Common stock, par value $.01 per share, 400,000,000 shares authorized,
263,111,472 shares issued at March 31, 2014 and December 31, 2013
  2.6   2.6 
Common stock, par value $.01 per share, 400,000,000 shares authorized, 263,111,472 shares issued at June 30, 2014 and December 31, 2013
  3   3 
Capital in excess of par value  3,207.5   3,206.9   3,220   3,207 
Retained earnings  4,931.0   4,819.9   5,152   4,820 
Accumulated other elements of comprehensive income (loss)  (69.1)  (79.5)  (76)  (80)
Less: Treasury stock, 56,109,636 shares at March 31, 2014
(41,683,164 shares at December 31, 2013)
  (2,999.5)  (2,098.0)
Less: Treasury stock, 60,027,350 shares at June 30, 2014
(41,683,164 shares at December 31, 2013)
  (3,261)  (2,098)
Total Cameron stockholders' equity  5,072.5   5,851.9   5,038   5,852 
Noncontrolling interests  1,083.3   1,063.5   1,092   1,064 
Total equity  6,155.8   6,915.4   6,130   6,916 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $13,640.5  $14,248.5  $13,592  $14,249 


The accompanying notes are an integral part of these statements.
4
 
CAMERON INTERNATIONAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(dollars in millions)


 
 
Three Months Ended
March 31,
 
 
 2014  2013 
 
 (unaudited) 
 
 
  
 
Cash flows from operating activities: 
  
 
Net income $116.1  $148.3 
Adjustments to reconcile net income to net cash used for operating activities:        
Depreciation  67.8   56.1 
Amortization  19.0   13.9 
Non-cash stock compensation expense  14.0   13.4 
Deferred income taxes and tax benefit of stock compensation  plan transactions
  (16.5)  14.0 
Changes in assets and liabilities, net of translation and non-cash items:        
Receivables  (60.3)  165.2 
Inventories  (174.7)  (215.5)
Accounts payable and accrued liabilities  (213.3)  (204.5)
Other assets and liabilities, net  73.4   (13.6)
Net cash used for operating activities  (174.5)  (22.7)
Cash flows from investing activities:        
Proceeds from sales and maturities of short-term investments  5.0   275.2 
Purchases of short-term investments  (5.0)  (286.9)
Capital expenditures  (104.8)  (83.7)
Proceeds from sales of plant and equipment  6.3   3.0 
Net cash used for investing activities  (98.5)  (92.4)
Cash flows from financing activities:        
Short-term loan borrowings (repayments), net  330.1   36.9 
Purchase of treasury stock  (902.0)  (32.1)
Proceeds from stock option exercises, net of tax payments from stock  compensation plan transactions
  
9.0
   
22.2
 
Excess tax benefits from stock compensation plan transactions  2.0   5.6 
Principal payments on capital leases  (2.8)  (2.7)
Net cash provided by (used for) financing activities  (563.7)  29.9 
Effect of translation on cash  (4.1)  (18.2)
Decrease in cash and cash equivalents  (840.8)  (103.4)
Cash and cash equivalents, beginning of period  1,812.9   1,185.8 
Cash and cash equivalents, end of period $972.1  $1,082.4 
 
 
Three Months Ended
June 30,
  
Six Months Ended
June 30,
 
 
 2014  2013  2014  2013 
 
 (unaudited) 
 
 
  
  
  
 
Cash flows from operating activities: 
  
  
  
 
Net income $233  $140  $349  $289 
Adjustments to reconcile net income to net cash provided by operating activities:                
Gain on sale of Reciprocating Compression business  (95)  –   (95)  – 
Depreciation  71   59   139   115 
Amortization  19   11   38   25 
Non-cash stock compensation expense  15   14   30   27 
Gain from remeasurement of prior interest in equity method investment  (8)  –   (8)  – 
Deferred income taxes and tax benefit of  employee stock compensation plan transactions
  34   (2)  17   12 
Changes in assets and liabilities, net of translation, and non-cash  items:
                
Receivables  171   (236)  111   (71)
Inventories  (53)  (124)  (228)  (340)
Accounts payable and accrued liabilities  (257)  212   (471)  7 
Other assets and liabilities, net  83   (44)  157   (57)
Net cash provided by operating  activities
  213   30   39   7 
Cash flows from investing activities:                
Proceeds from sales and maturities of short-term investments  18   353   23   628 
Purchases of short-term investments  (33)  (135)  (38)  (421)
Capital expenditures  (73)  (99)  (178)  (182)
Proceeds received from sale of Reciprocating Compression business, net  547   –   547   – 
Other dispositions (acquisitions), net  (18)  8   (18)  9 
Proceeds received and cash acquired from
formation of OneSubsea
  –   603   –   603 
Proceeds from sales of plant and equipment  4   3   10   4 
Net cash provided by investing activities  445   733   346   641 
Cash flows from financing activities:                
Issuance of senior notes  500   –   500   – 
Debt issuance costs  (4)  –   (4)  – 
Short-term loan borrowings (repayments), net  (321)  (28)  9   9 
Purchase of treasury stock  (303)  (93)  (1,205)  (125)
Proceeds from stock option exercises, net of tax payments from stock compensation plan transactions  16   7   25   29 
Excess tax benefits from employee stock compensation plan transactions  4   2   6   8 
Principal payments on capital leases  (5)  (7)  (8)  (10)
Net cash used for financing activities  (113)  (119)  (677)  (89)
Effect of translation on cash  8   (8)  4   (27)
Increase (decrease) in cash and cash equivalents  553   636   (288)  532 
Cash and cash equivalents, beginning of period  972   1,082   1,813   1,186 
Cash and cash equivalents, end of period $1,525  $1,718  $1,525  $1,718 

The accompanying notes are an integral part of these statements.

5

CAMERON INTERNATIONAL CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN EQUITY
(dollars in millions)

 Cameron Stockholders  
  Cameron Stockholders  
 
 Common Stock  Capital in Excess of Par Value  Retained Earnings  
Accumulated Other
Elements of Comprehensive Income (Loss)
  Treasury Stock  Noncontrolling Interests  Common Stock  Capital in Excess of Par Value  Retained Earnings  
Accumulated Other
Elements of Comprehensive Income (Loss)
  Treasury Stock  Noncontrolling Interests 
 (Unaudited)  
  (Unaudited)  
 
 
  
  
  
  
  
  
  
  
  
  
  
 
Balance at December 31, 2013 $2.6  $3,206.9  $4,819.9  $(79.5) $(2,098.0) $1,063.5  $3  $3,207  $4,820  $(80) $(2,098) $1,064 
Net income  –   –   111.1   –   –   5.0   –   –   332   –   –   17 
Other comprehensive income (loss), net of tax  –   –   –   10.4   –   14.8   –   –   –   4   –   7 
Non-cash stock compensation expense  –   14.0   –   –   –   –   –   30   –   –   –   – 
Purchase of treasury stock  –   –   –   –   (925.6)  –   –   –   –   –   (1,210)  – 
Treasury stock issued under stock compensation plans  –   (15.1)  –   –   24.1   –   –   (22)  –   –   47   – 
Tax benefit of stock compensation plan transactions  –   1.7   –   –   –   –   –   5   –   –   –   – 
Balance at March 31, 2014 $2.6  $3,207.5  $4,931.0  $(69.1) $(2,999.5) $1,083.3 
Purchase of noncontrolling ownership interests  –   –   –   –   –   4 
Balance at June 30, 2014 $3  $3,220  $5,152  $(76) $(3,261) $1,092 


The accompanying notes are an integral part of these statements.

6

CAMERON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited
 
Note 1: Basis of Presentation

The accompanying Unaudited Consolidated Condensed Financial Statements of Cameron International Corporation (the Company) have been prepared in accordance with Rule 10-01 of Regulation S-X and do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.  Those adjustments, consisting of normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the financial information for the interim periods, have been made.  The results of operations for such interim periods are not necessarily indicative of the results of operations for a full year. The Unaudited Consolidated Condensed Financial Statements should be read in conjunction with the Current Report on Form 8-K dated June 16, 2014, which reflects a recasting of the Audited Consolidated Financial Statements and Notes thereto filed by the Company on Form 10-K for the year ended December 31, 2013.2013 to reflect the Reciprocating Compression business as a discontinued operation for all periods presented (see Note 2 of the Notes to Consolidated Condensed Financial Statements below for further information).
 
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates include, but are not limited to, estimates of total contract profit or loss on certain long-term productionproduction-type contracts, estimated losses on accounts receivable, estimated realizable value on excess and obsolete inventory, contingencies, including tax contingencies, estimated liabilities for litigation exposures and liquidated damages, estimated warranty costs, estimates related to pension accounting, estimates related to the fair value of reporting units for purposes of assessing goodwill for impairment, estimated proceeds from assets held for sale and estimates related to deferred tax assets and liabilities, including valuation allowances on deferred tax assets. Actual results could differ materially from these estimates.

Certain prior year amounts have been reclassified to conform to the current year presentation.

Note 2: Discontinued Operations
  
On January 20,Effective June 1, 2014, the Company completed its previously announced it had entered into a definitive agreement to sellsale of its Reciprocating Compression business, a division of the Process and Compression Systems (PCS) segment, to General Electric for cash consideration of approximately $550$547 million, subject to closing adjustments.  The sale is expected to close in the second quarternet of 2014.transaction costs.  As a result of this agreement,sale, the Reciprocating Compression business is being reported as a discontinued operation in the Company's results of operations for the three monththree- and six-month periods ended March 31,June 30, 2014 and 2013.
    
7
Table of Contents
    
Summarized financial information for the Reciprocating Compression business is as follows (in millions):

 
Three Months Ended
March 31,
 
 
 2014  2013 
 
 
  
 
Results of Operations: 
  
 
Revenues $47.8  $56.8 
Cost of sales (excluding depreciation and amortization)  37.1   41.1 
All other costs  18.0   13.3 
Income (loss) before income taxes  (7.3)  2.4 
Income tax benefit (provision)  1.7   (0.5)
Income (loss) from discontinued operations, net of income taxes $(5.6) $1.9 
 
        
Balance sheet (as of period end):        
Receivables, net $83.2     
Inventories, net  114.9     
Other  12.9     
Total current assets  211.0     
 
        
Plant and equipment, net  51.2     
Goodwill  213.3     
Intangibles, net  1.1     
Other assets  6.4     
Assets of discontinued operations $483.0     
 
        
Short-term debt $0.9     
Accounts payable and accrued liabilities  58.0     
Total current liabilities  58.9     
 
        
Long-term debt  1.5     
Other long-term liabilities  0.3     
Liabilities of discontinued operations $60.7     

 
Three Months Ended
June 30,
  
Six Months Ended
June 30,
 
 
 2014  2013  2014  2013 
 
 
  
  
  
 
Results of Operations: 
  
  
  
 
Revenues $64  $78  $111  $135 
Cost of sales (excluding depreciation and amortization)  (49)  (58)  (86)  (99)
All other costs  (11)  (14)  (29)  (27)
Gain on sale of Reciprocating Compression business, before tax  95   –   95   – 
Income  before income taxes  99   6   91   9 
Income tax provision  (86)  (2)  (84)  (3)
Income from discontinued operations, net of income taxes $13  $4  $7  $6 

87

The gain on the sale of the Reciprocating Compression business was determined as follows (in millions):
 
 
 
Sales price $550 
Net assets sold  (442)
Transaction and other costs associated with the sale  (13)
Pre-tax gain  95 
Tax provision  (85)
Gain on sale $10 

The tax provision associated with the pre-tax gain is impacted by nondeductible goodwill of approximately $192 million included in the total net assets sold.

The net assets sold of the Reciprocating Compression business were as follows (in millions):

 
 
 
Accounts receivable $79 
Inventory  122 
Goodwill  214 
All other  27 
Net assets sold $442 

Note 3: Other Costs (Credits)

Other costs (credits) consisted of the following (in millions):

 
Three Months Ended
March 31,
  
Three Months Ended
June 30,
  
Six Months Ended
June 30,
 
 2014  2013  2014  2013  2014  2013 
 
  
  
  
  
  
 
Goodwill impairment $39.9  $–  $–  $–  $40  $– 
OneSubsea formation costs  –   28   –   45 
Gain from remeasurement of prior interest in equity method investment  (8)  –   (8)  – 
Impairment of intangible assets  4   –   4   – 
Acquisition and other integration costs  2.3   18.4   –   2   2   3 
Currency devaluation  –   7.5 
Mark-to-market impact on currency derivatives not designated as accounting hedges  0.1   2.7   –   (3)  –   – 
Severance, restructuring and other costs  6.7   2.4 
 $49.0  $31.0 
Currency devaluation, severance, restructuring and other costs, net  –   8   6   18 
Total other costs (credits) $(4) $35  $44  $66 

As described further in Note 2 of the Notes to Consolidated Condensed Financial Statements, the Company entered into a definitive agreement in January 2014 to sellcompleted the sale of its Reciprocating Compression business to General Electric.Electric, effective June 1, 2014.  Reciprocating Compression had previously been combinedincluded with the Process Systems and Equipment (PSE) business in the Process Systems & Reciprocating Compression reporting unit for goodwill impairment evaluation purposes.  As a result of the classification of Reciprocating Compression as a discontinued operation in the first quarter of 2014 when a definitive agreement to sell the business was entered into, total reporting unit goodwill was allocated between the two businesses.  Following this, the PSE business was evaluated as a separate reporting unit in connection with the Company's annual goodwill impairment review conducted prior to the end ofduring the first quarter of 2014.  As a result of this review, the PSE goodwill amount, totaling approximately $40 million, was deemed impaired.fully impaired at that time.

In May 2014, the Company increased its prior ownership interest in Cameron Services Middle East LLC from 49% to 90%, for approximately $18 million.  The Company recognized a pre-tax gain of nearly $8 million as a result of remeasuring its prior interest, which had been accounted for under the equity method, to fair value upon obtaining control of this entity during the second quarter of 2014.  At June 30, 2014, the purchase price allocation for this business has been based upon preliminary estimates and assumptions, which are subject to change upon the receipt of additional information required to finalize the valuation.  The primary areas that have not yet been finalized include amounts relating to inventory, property, plant and equipment, identifiable intangible assets, certain preacquisition contingencies, related adjustments to deferred income taxes and goodwill.  The final valuation will be completed no later than one year from the acquisition date.  Preliminary goodwill recognized at June 30, 2014 was approximately $21 million, which is not deductible for tax purposes.
 
8
Note 4: Receivables
 
Receivables consisted of the following (in millions):

 
March 31,
2013
  
December 31,
2013
  
June 30,
2014
  
December 31,
2013
 
 
  
  
  
 
Trade receivables $2,524.8  $2,621.5  $2,107  $2,368 
Costs and estimated earnings in excess of billings on uncompleted contracts  305   253 
Other receivables  162.2   118.5   160   119 
Allowance for doubtful accounts  (18.5)  (20.9)  (24)  (21)
Total receivables $2,668.5  $2,719.1  $2,548  $2,719 

Note 5: Inventories

Inventories consisted of the following (in millions):
 
 
 
March 31,
2014
  
December 31,
2013
 
 
 
  
 
Raw materials $227.7  $237.7 
Work-in-process  935.2   894.4 
Finished goods, including parts and subassemblies  2,213.9   2,207.8 
Other  20.1   21.5 
   3,396.9   3,361.4 
Excess of current standard costs over LIFO costs  (93.3)  (120.0)
Allowances  (110.6)  (109.0)
Total inventories $3,193.0  $3,132.4 
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June 30,
2014
  
December 31,
2013
 
 
 
  
 
Raw materials $375  $238 
Work-in-process  1,015   894 
Finished goods, including parts and subassemblies  2,067   2,208 
Other  25   22 
   3,482   3,362 
Excess of current standard costs over LIFO costs  (91)  (120)
Allowances  (123)  (109)
Total inventories $3,268  $3,133 
 
Note 6: Plant and Equipment and Goodwill

Plant and equipment consisted of the following (in millions):
 
 
June 30,
2014
  
December 31,
2013
 
 
 
  
 
Plant and equipment, at cost $3,671  $3,670 
Accumulated depreciation  (1,656)  (1,633)
Total plant and equipment $2,015  $2,037 

 
 
March 31,
2014
  
December 31,
2013
 
 
 
  
 
Plant and equipment, at cost $3,589.9  $3,670.1 
Accumulated depreciation  (1,594.6)  (1,633.2)
Total plant and equipment $1,995.3  $2,036.9 

Changes in goodwill during the threesix months ended March 31,June 30, 2014 were as follows (in millions):
Balance at December 31, 2013 $2,925 
Sale of Reciprocating Compression business  (213)
Impairment (See Note 3)  (40)
Acquisitions  21 
Adjustments to the purchase price allocation for prior year acquisitions  19 
Translation effect of currency changes and other  (8)
Balance at June 30, 2014 $2,704 
9
Balance at December 31, 2013 $2,924.8 
Reclassification to assets of discontinued operations  (213.3)
Adjustments to the purchase price allocation for prior year acquisitions  9.1 
Impairment  (39.9)
Translation effect of currency changes  12.5 
Balance at March 31, 2014 $2,693.2 

See Note 3 of the Notes to Consolidated Condensed Financial Statements for further information regarding the impairment of goodwill.

Note 7: Accounts Payable and Accrued Liabilities
 
Accounts payable and accrued liabilities consisted of the following (in millions):

 
March 31,
2014
  
December 31,
2013
  
June 30,
2014
  
December 31,
2013
 
 
  
  
  
 
Trade accounts payable and accruals $829.0  $1,184.4  $690  $1,184 
Advances from customers  1,777.8   1,675.8   1,737   1,676 
Other accruals  1,027.1   1,023.2   1,079   1,023 
Total accounts payable and accrued liabilities $3,633.9  $3,883.4  $3,506  $3,883 
Activity during the threesix months ended March 31,June 30, 2014 associated with the Company's product warranty accruals was as follows (in millions):
 
Balance
December 31,
2013
Balance
December 31,
2013
  
Net
warranty
provisions
  
Charges
against
accrual
  Reclassification to discontinued operations  
Translation
and other
  
Balance
March 31,
2014
 
Balance
December 31,
2013
  
Net
warranty
provisions
  
Charges
against
accrual
  Sale of Reciprocating Compression  
Translation
and other
  
Balance
June 30,
2014
 
  
  
  
  
  
 
  
  
  
  
  
 
$45.6  $11.8  $(10.2) $(4.5) $1.4  $44.1 46  $26  $(18) $(7) $–  $47 

 
Note 8: Debt

The Company's debt obligations were as follows (in millions):

 
March 31,
2014
  
December 31,
2013
  
June 30,
2014
  
December 31,
2013
 
 
  
  
  
 
Commercial paper (0.33% weighted average rate) $263  $– 
Senior notes: 
  
         
Floating rate notes due June 2, 2014 $250.0  $250.0   –   250 
1.6% notes due April 30, 2015  250.0   250.0   250   250 
1.15% notes due December 15, 2016  250.0   250.0   250   250 
1.40% notes due June 15, 2017  250   – 
6.375% notes due July 15, 2018  450.0   450.0   450   450 
4.5% notes due June 1, 2021  250.0   250.0   250   250 
3.6% notes due April 30, 2022  250.0   250.0   250   250 
4.0% notes due December 15, 2023  250.0   250.0   250   250 
3.7% notes due June 15, 2024  250   – 
7.0% notes due July 15, 2038  300.0   300.0   300   300 
5.95% notes due June 1, 2041  250.0   250.0   250   250 
5.125% notes due December 15, 2043  250.0   250.0   250   250 
Commercial paper (0.3% weighted average rate)  325.0   – 
Unamortized original issue discount  (6.8)  (7.0)  (7)  (7)
Other debt  62.3   56.6   60   57 
Obligations under capital leases  59.3   60.2   60   60 
  3,189.8   2,859.8   3,376   2,860 
Current maturities  (626.7)  (297.0)  (562)  (297)
Long-term maturities $2,563.1  $2,562.8  $2,814  $2,563 

On June 20, 2014, the Company completed the public offering of $500 million in aggregate principal amount of senior unsecured notes as follows:

·$250 million principal amount of 1.4% Senior Notes due June 15, 2017, sold at an offering price of 99.951%, and
·$250 million principal amount of 3.7% Senior Notes due June 15, 2024, sold at an offering price of 99.769%.
Interest on the notes will be payable semiannually on June 15 and December 15 of each year, beginning December 15, 2014.  The notes may be redeemed in whole or in part by the Company prior to maturity, as provided for in the terms of each note, for an amount equal to the principal amount of the notes redeemed plus a specified make-whole premium.  All of the Company's senior notes rank equally with the Company's other existing unsecured and unsubordinated debt.
Utilizing proceeds from these notes, on July 21, 2014, the Company paid approximately $253 million, which included a make-whole premium plus accrued interest, to redeem early its $250 million principal amount of 1.6% Senior Notes.

During the first quarter of 2014, the Company's Board of Directors authorized the establishment of a $500.0$500 million commercial paper program.  This program will allowallows for issuances of commercial paper with maturities of up to 364 days and willto be used for general corporate purposes.

At March 31,  The average term of the outstanding commercial paper at June 30, 2014 the Company had no amounts outstanding under its $835.0 million Amended Credit Agreement, and a total of $122.0 million of letters of credit issued and outstanding under its $170.0 million bi-lateral letter of credit facility, leaving $48.0 million remaining available for use under this facility.was approximately 62 days.

On April 11, 2014, the Company entered into a new $750.0$750 million three-year multi-currency syndicated Revolving Credit Facility expiring April 11, 2017.   Up to $200.0$200 million of this new facility may be used for letters of credit and $92.4$92 million of letters of credit issued and outstanding under the $170.0a previously existing $170 million bi-lateral facility were transferred to the new Revolving Credit Facility at close and concurrently the $170.0$170 million bi-lateral facility was amended to reduce its capacity to $40.0 million of which $31.7 million was used for letters of credits issued but not transferred to the new Revolving Credit Facility.$40 million.  The new Revolving Credit Facility contains covenants and terms consistent with the Company's existing Amended$835 million five-year multi-currency Revolving Credit Agreement.  It will serveFacility, which matures on June 6, 2016, and it serves as the primary backstop to the commercial paper program.  A totalAt June 30, 2014, no amounts had been borrowed under the $835 million Revolving Credit Facility.  The Company has issued letters of $657.6credit totaling $77 million ofunder the new $750 million Revolving Credit Facility wasand $29 million under the $40 million bi-lateral facility, leaving $673 million and $11 million, respectively, available for future use at close after the assumption of $92.4 million of letters of credit from the bi-lateral facility.  This facility is in addition to the $835.0 million Amended Credit Agreement referred to above.
11
June 30, 2014.

Note 9: Income Taxes

The Company's effective tax rate on income from continuing operations for the first quartersix months of 2014 was 28.5%25.1% compared to 18.9%25.6% for the first quarterhalf of 2013.  The components of the effective tax rates for both periods were as follows (dollars in millions):

 
 Six Months Ended June 30, 
 
 2014  2013 
 
 Tax Provision  Tax Rate  Tax Provision  Tax Rate 
 
 
  
  
  
 
Forecasted tax expense by jurisdiction $109   24.0% $91   23.8%
Adjustments to income tax provision:                
Recognition of certain historical tax benefits as prior uncertainty regarding those benefits has been resolved  –   –   (1)  (0.1)
Tax effect of goodwill impairment  10   2.1   –   – 
Finalization of prior year returns  (4)  (0.9)  9   2.4 
Tax effects of changes in legislation  –   –   (7)  (1.9)
Changes in valuation allowances  –   –   5   1.4 
Accrual adjustments and other  (1)  (0.1)  –   – 
Tax provision $114   25.1% $97   25.6%

 
 Three Months Ended March 31, 
 
 2014  2013 
 
 Tax Provision  Tax Rate  Tax Provision  Tax Rate 
 
 
  
  
  
 
Forecasted tax expense by jurisdiction $40.8   24.0% $41.5   23.0%
Adjustments to income tax provision:                
Tax effect of goodwill impairment  9.6   5.6   –   – 
Finalization of prior year returns  (2.7)  (1.6)  (0.3)  (0.2)
Tax effects of changes in legislation  –   –   (7.1)  (3.9)
Accrual adjustments and other  0.8   0.5   –   – 
Tax provision $48.5   28.5% $34.1   18.9%
11

Note 10: Business Segments
 
The Company's operations are organized into three separate business segments – Drilling & Production Systems (DPS), Valves & Measurement (V&M) and PCS.  Summary financial data by segment follows (in millions):

 
Three Months Ended
March 31,
  
Three Months Ended
June 30,
  
Six Months Ended
June 30,
 
 2014  2013  2014  2013  2014  2013 
Revenues: 
  
  
  
  
  
 
DPS $1,705.1  $1,269.0  $1,903  $1,438  $3,608  $2,707 
V&M  492.3   521.5   536   534   1,028   1,056 
PCS  234.1   270.4   202   237   436   507 
Total revenues  $2,431.5  $2,060.9 
         $2,641  $2,209  $5,072  $4,270 
Income (loss) from continuing operations before income taxes:        
                
Income (loss) before income taxes:                
DPS $183.0  $154.4  $235  $196  $418  $350 
V&M  94.1   113.4   107   109   201   222 
PCS  15.5   19.6   13   17   28   37 
Corporate & other  (122.4)  (106.9)  (69)  (122)  (191)  (229)
Income (loss) from continuing operations before income taxes $170.2  $180.5 
 $286  $200  $456  $380 
 
Corporate & other includes expenses associated with the Company's back office support and public company costs, all of the Company's interest income and interest expense and other costs as described further in Note 3 of the Notes to the Consolidated Condensed Financial Statements.
12
 

Note 11: Earnings Per Share
 
The calculation of basic and diluted earnings per share for each period presented was as follows (dollars and shares in millions, except per share amounts):

 
Three Months Ended
March 31,
  
Three Months Ended
June 30,
  
Six Months Ended
June 30,
 
 2014  2013  2014  2013  2014  2013 
 
  
  
  
  
  
 
Net income from continuing operations $121.7  $146.4  $220  $136  $342  $283 
Net income attributable to noncontrolling interests  5.0   –   12   –   17   – 
Net income from continuing operations attributable to Cameron   116.7   146.4   208   136   325   283 
Income (loss) from discontinued operations, net of taxes  (5.6)  1.9 
Income from discontinued operations, net of taxes  13   4   7   6 
Net income attributable to Cameron $111.1  $148.3  $221  $140  $332  $289 
                        
Average shares outstanding (basic)  214.9   247.5   204   247   209   247 
Common stock equivalents  1.3   1.5   1   1   2   2 
Diluted shares  216.2   249.0   205   248   211   249 
                        
Basic earnings (loss) per share:        
Basic earnings per share:                
Continuing operations $0.54  $0.59  $1.02  $0.55  $1.55  $1.15 
Discontinued operations  (0.03)  0.01   0.06   0.02   0.04   0.02 
 $0.51  $0.60  $1.08  $0.57  $1.59  $1.17 
                        
Diluted earnings (loss) per share:        
Diluted earnings per share:                
Continuing operations $0.54  $0.59  $1.02  $0.55  $1.54  $1.14 
Discontinued operations  (0.03)  0.01   0.06   0.02   0.04   0.02 
 $0.51  $0.60  $1.08  $0.57  $1.58  $1.16 
12
Activity in the Company's treasury shares were as follows:

 
Three Months Ended
June 30,
  
Six Months Ended
June 30,
 
 
 2014  2013  2014  2013 
 
 
  
  
  
 
Treasury shares at beginning of period  56,109,636   15,768,832   41,683,164   16,415,336 
Purchases of treasury shares  4,516,668   1,500,002   19,673,771   2,113,455 
Net change in treasury shares owned by participants in nonqualified deferred compensation plans  
(1,614
)
  (1,068)  38,148   52,107 
Treasury shares issued in satisfaction of stock option exercises and vesting of restricted stock units  (597,340)  (266,036)  (1,367,733)  (1,579,168)
Treasury shares at end of period  
60,027,350
   17,001,730   60,027,350   17,001,730 

The average cost of treasury shares acquired for the three- and six-month periods ended June 30, 2014 was $63.00 and $61.37, respectively.  The average cost of treasury shares acquired for the three- and six-month periods ended June 30, 2013 was $60.93 and $61.77, respectively. 

The Company's Board of DirectorsCompany has given management the authority to purchase the Company's common stock.  Under this authorization, which was increased by $500.0 million in February 2014,an authorized stock repurchase program whereby the Company may purchase shares directly or indirectly by way of open market transactions or structured programs, including the use of derivatives, for the Company's own account or through commercial banks or financial institutions.  The program, initiated in October 2011, has had a series of authorizations by the Board of Directors totaling $3.2 billion since inception.  At March 31,June 30, 2014, the Company had remaining authority for future stock purchases totaling approximately $420.5$456 million.

The average cost of treasury shares acquired for the three-month periods ended March 31, 2014 and 2013 was $60.91 and $63.84, respectively.  Total treasury share purchases during the three months ended March 31, 2014 and 2013 were 15,198,264 and 613,453, respectively.  Treasury shares issued in satisfaction of stock option exercises and vesting of restricted stock units during the three months ended March 31, 2014 and 2013 were 770,393 and 1,313,132, respectively.  Remaining activity in treasury shares involved the Company's nonqualified deferred compensation plans.
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Note 12: Accumulated Other Comprehensive Income (Loss)

The changes in the components of accumulated other elements of comprehensive income (loss) for the three months ended March 31,June 30, 2014 and 2013 were as follows (in millions):

 Three Months Ended March 31, 2014  
  Three Months Ended June 30, 2014  
 
 
Accumulated Foreign Currency Translation
Gain (Loss)
  Prior Service Credits and Net Actuarial Losses  Accumulated Gain (Loss) on Cash Flow Hedge Derivatives  Total  Three Months Ended March 31, 2013  
Accumulated Foreign Currency Translation
Gain (Loss)
  Prior Service Credits and Net Actuarial Losses  Accumulated Gain (Loss) on Cash Flow Hedge Derivatives  Total  Three Months Ended June 30, 2013 
 
  
  
  
  
 
Balance at beginning of year $(48.4) $(45.0) $13.9  $(79.5) $(30.0)
Balance at beginning of period $(40) $(45) $16  $(69) $(107)
                                        
Other comprehensive income (loss) before reclassifications:                                        
Pre-tax  8.8   –   6.7   15.5   (81.3)  (3)  –   (3)  (6)  (51)
Tax effect  –   –   (3.5)  (3.5)  4.1   –   –   1   1   1 
                                        
Amounts reclassified from accumulated other comprehensive income to:                                        
Revenues  –   –   (2.7)  (2.7)  –   –   –   (2)  (2)  - 
Cost of sales  –   –   (0.3)  (0.3)  (1.2)  –   –   (2)  (2)  - 
Selling and administrative expense  –   0.1   –   0.1   1.7   –   –   –   –   1 
Tax effect  –   –   1.3   1.3   (0.2)  –   –   2   2   - 
                    
Net current period other comprehensive income  8.8   0.1   1.5   10.4   (76.9)
                    
Net current period other comprehensive loss  (3)  –   (4)  (7)  (49)
Balance at end of period $(39.6) $(44.9) $15.4  $(69.1) $(106.9) $(43) $(45) $12  $(76) $(156)
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The changes in the components of accumulated other elements of comprehensive income (loss) for the six months ended June 30, 2014 and 2013 were as follows (in millions):

 
 Six Months Ended June 30, 2014  
 
 
 
Accumulated Foreign Currency Translation
Gain (Loss)
  Prior Service Credits and Net Actuarial Losses  Accumulated Gain (Loss) on Cash Flow Hedge Derivatives  Total  Six Months Ended June 30, 2013 
 
 
  
  
  
  
 
Balance at beginning of  year $(49) $(45) $14  $(80) $(30)
 
                    
Other comprehensive income (loss) before reclassifications:                    
Pre-tax  6   –   4   10   (132)
Tax effect  –   –   (2)  (2)  5 
 
                    
Amounts reclassified from accumulated other comprehensive income to:                    
Revenues  –   –   (5)  (5)  (2)
Cost of sales  –   –   (2)  (2)    
Selling and administrative expense  –   –   –   –   3 
Tax effect  –   –   3   3   - 
Net current period other comprehensive income (loss)  6   –   (2)  4   (126)
Balance at end of period $(43) $(45) $12  $(76) $(156)
Note 13: Contingencies
 
The Company is subject to a number of contingencies, including litigation, tax contingencies and environmental matters.

Litigation

The Company has been and continues to be named as a defendant in a number of multi-defendant, multi-plaintiff tort lawsuits. At March 31,June 30, 2014, the Company's Consolidated Condensed Balance Sheet included a liability of approximately $14.9$16 million for such cases. The Company believes, based on its review of the facts and law, that the potential exposure from these suits will not have a material adverse effect on its consolidated results of operations, financial condition or liquidity.
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Tax and Other Contingencies

The Company has legal entities in over 50 countries. As a result, the Company is subject to various tax filing requirements in these countries. The Company prepares its tax filings in a manner which it believes is consistent with such filing requirements. However, some of the tax laws and regulations to which the Company is subject require interpretation and/or judgment. Although the Company believes the tax liabilities for periods ending on or before the balance sheet date have been adequately provided for in the financial statements, to the extent a taxing authority believes the Company has not prepared its tax filings in accordance with the authority's interpretation of the tax laws and regulations, the Company could be exposed to additional taxes.
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The Company has been assessed customs duties and penalties by the government of Brazil totaling almost $56.0$58 million at March 31,June 30, 2014, including interest accrued at local country rates, following a customs audit for the years 2003-2010.  The Company filed an administrative appeal and believes a majority of this assessment will ultimately be proven to be incorrect because of numerous errors in the assessment, and because the government has not provided appropriate supporting documentation for the assessment.  As a result, the Company currently expects no material adverse impact on its results of operations or cash flows as a result of the ultimate resolution of this matter.  No amounts have been accrued for this assessment as of March 31,June 30, 2014 as no loss is currently considered probable.

Environmental Matters

The Company is currently identified as a potentially responsible party (PRP) with respect to two sitesfor one site designated for cleanup under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA) or similar state laws. One of these siteslaw. The site is Osborne, Pennsylvania (a landfill into which a predecessor of the PCSReciprocating Compression operation in Grove City, Pennsylvania deposited waste), where remediation was completed in 2011 and remaining costs relate to ongoing ground water monitoring. The otherCompany is believed to bealso a party with de minimis exposure. exposure at other CERCLA sites.

The Company is also engaged in site cleanup under the Voluntary Cleanup Plan of the Texas Commission on Environmental Quality ("TCEQ") at a former manufacturing locationslocation in Houston, Texas and one in Missouri City, Texas.

In  With respect to the Missouri City site, the Company was notified in 2014 by the TCEQ that it may discontinue and decommission the ground-water treatment system there in preparation for site closure.  With respect to the Houston site, in 2001 the Company discovered that contaminated underground water from the former manufacturing site in Houston referenced above had migrated under an adjacent residential area. Pursuant to applicable state regulations, the Company notified the affected homeowners. Concerns over the impact on property values of the underground water contamination and its public disclosure led to a number of claims by homeowners.  The Company has settled these claims, primarily as a result of the settlement of a class action lawsuit, and is obligated to reimburse approximately 190 homeowners for any diminution in value of their property due to contamination concerns at the time of the property's sale. Test results of monitoring wells on the southeastern border of the plume indicate that the plume is moving in a new direction, likely as a result of a ground water drainage system completed as part of an interstate highway improvement project.  As a result, the Company notified 39 additional homeowners, and may provide notice to additional homeowners, whose property is adjacent to the class area that their property may be affected. The Company is reviewingcontinues to monitor the situation to determine whether additional remedial measures arewould be appropriate.  The Company believes, based on its review of the facts and law, that any potential exposure from existing agreements as well as any possible new claims that may be filed with respect to this underground water contamination will not have a material adverse effect on its financial position or results of operations. The Company's Consolidated Balance Sheet included a noncurrent liability of approximately $7.1$7 million for these matters as of March 31,June 30, 2014. 

With respect to the Missouri City site, during the first quarter of 2014, the Company was notified by the TCEQ that it may discontinue and decommission the ground-water treatment system there in preparation for site closure.  Additionally, the Company has discontinued operations at a number of other sites which had been active for many years and which may have yet undiscovered contamination. The Company does not believe, based upon information currently available, that there are any material environmental liabilities existing at these locations. At March 31,June 30, 2014, the Company's Consolidated Balance Sheet included a noncurrent liability of approximately $2.9nearly $3 million for these environmental matters.
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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.

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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,June 30, 2014 and December 31, 2013:
 
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  
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) 2014  2013  2014  2013  2014  2013  2014  2013  2014  2013  2014  2013 
 
  
  
  
  
  
  
  
  
  
  
  
 
Cash and cash equivalents: 
  
  
  
  
  
  
  
  
  
  
  
 
Cash $448.2  $617.8  $–  $–  $448.2  $617.8  $536  $618  $–  $–  $536  $618 
Money market funds  503.8   1,172.4   –   –   503.8   1,172.4   960   1,172   –   –   960   1,172 
Commercial paper  –   –   5.8   3.9   5.8   3.9   –   –   10   4   10   4 
Non-U.S. bank and other obligations  14.3   18.8   –   –   14.3   18.8   19   19   –   –   19   19 
Short-term investments:                                                
U.S. Treasury securities  41.0   41.0   –   –   41.0   41.0   56   41   –   –   56   41 
Non-qualified plan assets:                                                
Money market funds  1.1   1.0   –   –   1.1   1.0   1   1   –   –   1   1 
Domestic bond funds  3.0   2.9   –   –   3.0   2.9   3   3   –   –   3   3 
International bond fund  0.4   0.3   –   –   0.4   0.3 
Domestic equity funds  5.8   5.5   –   –   5.8   5.5   6   5   –   –   6   5 
International equity funds  2.7   2.7   –   –   2.7   2.7   3   3   –   –   3   3 
Blended equity funds  4.1   3.8   –   –   4.1   3.8   5   4   –   –   5   4 
Common stock  2.2   2.3   –   –   2.2   2.3   2   2   –   –   2   2 
Derivatives, net asset (liability):                                                
Foreign currency contracts  –   –   21.0   19.0   21.0   19.0   –   –   5   19   5   19 
 $1,026.6  $1,868.5  $26.8  $22.9  $1,053.4  $1,891.4  $1,591  $1,868  $15  $23  $1,606  $1,891 
Fair values for financial instruments utilizing level 2 inputs were determined from information obtained from third party pricing sources, broker quotes or calculations involving the use of market indices.

At March 31,June 30, 2014, the fair value of the Company's fixed-rate debt (based on Level 1 quoted market rates) was approximately $2.69$3.3 billion as compared to the $2.50$3.0 billion face value of the debt recorded, net of original issue discounts, in the Company's Consolidated Condensed Balance Sheet.  At December 31, 2013, the fair value of the Company's fixed-rate debt (based on Level 1 quoted market rates) was approximately $2.66$2.7 billion as compared to the $2.50$2.5 billion face value of the debt.

16

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 expect to have fully offsetting local currency expenditures or receipts. The Company was party to a number of short- and long-term foreign currency forward contracts at March 31,June 30, 2014. 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, Brazil, France, Italy, Malaysia, Norway, Singapore and the United Kingdom.contracts. 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 is 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.
16
Total gross volume bought (sold) by notional currency and maturity date on open derivative contracts at March 31,June 30, 2014 was as follows (in millions):

 Notional Amount - Buy  Notional Amount - Sell  Notional Amount - Buy  Notional Amount - Sell 
 2014  2015  2016  Total  2014  2015  2016  Total  2014  2015  2016  Total  2014  2015  2016  Total 
Foreign exchange forward contracts - 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
Notional currency in: 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
Australian dollar  17   –   –   17   (17)  –   –   (17)
Chinese yuan  54.5   –   –   54.5   –   –   –   –   20   –   –   20   –   –   –   – 
Euro  121.4   28.0   10.2   159.6   (29.7)  –   –   (29.7)  107   28   10   145   (23)  (4)  (1)  (28)
Malaysian ringgit  64.7   215.0   3.5   283.2   –   –   –   –   51   215   3   269   (14)  –   –   (14)
Norwegian krone  994.5   360.3   10.6   1,365.4   (371.5)  (64.4)  –   (435.9)  612   513   54   1,179   (159)  (64)  –   (223)
Pound sterling  131.6   17.3   0.8   149.7   (89.5)  –   –   (89.5)  52   17   1   70   (37)  (17)  (1)  (55)
U.S. dollar  86.2   2.8   –   89.0   (569.1)  (205.1)  (46.6)  (820.8)  56   7   –   63   (389)  (215)  (47)  (651)

17

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 March 31,June 30, 2014 and December 31, 2013 were as follows (in millions):
 
 
 June 30, 2014  December 31, 2013 
 
 Assets  Liabilities  Assets  Liabilities 
 
 
  
  
  
 
Derivatives designated as hedging instruments: 
  
  
  
 
Current $18  $13  $28  $10 
Non-current  3   2   3   2 
Total derivatives designated as hedging instruments  21   15   31   12 
 
                
Derivatives not designated as hedging instruments:                
Current  2   3   6   6 
Non-current  –   –   –   – 
Total derivatives not designated as hedging instruments  2   3   6   6 
 
                
Total derivatives $23  $18  $37  $18 

 
 March 31, 2014  December 31, 2013 
 
 Assets  Liabilities  Assets  Liabilities 
 
 
  
  
  
 
Derivatives designated as hedging instruments: 
  
  
  
 
Current $29.2  $8.0  $28.3  $10.4 
Non-current  3.2   1.1   2.8   1.7 
Total derivatives designated as hedges  32.4   9.1   31.1   12.1 
 
                
Derivatives not designated as hedging instruments:                
Current  1.4   3.7   5.6   5.6 
Non-current  –   –   –   – 
Total derivatives not designated as hedges  1.4   3.7   5.6   5.6 
 
                
Total derivatives $33.8  $12.8  $36.7  $17.7 
17
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
March 31,
 
 
 2014  2013 
Derivatives designated as hedging instruments - 
  
 
Cost of sales $1.4  $(4.7)
Derivatives not designated as hedging instruments -        
Cost of sales  1.4   – 
Other costs  (0.1)  (2.7)
 $2.7  $(7.4)

18
 
 Three Months Ended  Six Months Ended 
 
 June 30,  June 30, 
 
 2014  2013  2014  2013 
 
 
  
  
  
 
Derivatives designated as hedging instruments - 
  
  
  
 
Cost of sales $(1) $(1) $1  $(5)
 
                
Derivatives not designated as hedging instruments -                
Cost of sales  1   –   2   – 
Other costs  –   3   –   – 
 
 $–  $2  $3  $(5)
 

Note 15: Recently Issued Accounting Pronouncements

TheRevenue
In May 2014, the U.S. Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) jointly issued a comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition guidance under U.S. GAAP and International Financial Reporting Standards (IFRS).

The core principle of Accounting Standards Update 2014-09, Revenue from Contracts with Customers (ASU 2014-09), is that a company will recognize revenue when it transfers promised goods and services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services.  Companies will need to:
·identify performance obligations in each contract,
·estimate the amount of variable consideration to include in the transaction price, and
·allocate the transaction price to each separate performance obligation.

ASU 2014-09 will be effective for Cameron no earlier than the first quarter of 2017.  The Company is beginning the process of evaluating the impact of the new standard on its business and addressing whether it will select either the full retrospective or the modified retrospective implementation method upon adoption in 2017.

Discontinued operations

The FASB issued Accounting Standards Update 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (ASU 2014-08) in April 2014.

This new standard:
raises the threshold for disposals to qualify as discontinued operations,
allows companies to have significant continuing involvement and continuing cash flows with the discontinued operation, and
provides for new and additional disclosures of discontinued operations and individually material disposal transactions.

The Company anticipates adoptingexpects to adopt the new standard when it becomes effective in the first quarter of 2015.
 
18

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations
 
In addition to the historical data contained herein, this document includes forward-looking statements regarding future market strength, customer spending and order levels, revenues and earnings of the Company, as well as expectations regarding equipment deliveries, margins, profitability, the ability to control and reduce raw material, overhead and operating costs, cash generated from operations, capital expenditures and the use of existing cash balances and future anticipated cash flows made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company's actual results may differ materially from those described in any forward-looking statements. Any such statements are based on current expectations of the Company's performance and are subject to a variety of factors, some of which are not under the control of the Company, which can affect the Company's results of operations, liquidity or financial condition. Such factors may include overall demand for, and pricing of, the Company's products; the size and timing of orders; the Company's ability to successfully execute large subsea and drilling projects it has been awarded; the possibility of cancellations of orders in backlog; the Company's ability to convert backlog into revenues on a timely and profitable basis; the impact of acquisitions the Company has made or may make; changes in the price of (and demand for) oil and gas in both domestic and international markets; raw material costs and availability; political and social issues affecting the countries in which the Company does business; fluctuations in currency markets worldwide; and variations in global economic activity. In particular, current and projected oil and gas prices historically have generally directly affected customers' spending levels and their related purchases of the Company's products and services. As a result, changes in oil and gas price expectations may impact the demand for the Company's products and services and the Company's financial results due to changes in cost structure, staffing and spending levels the Company makes in response thereto. See additional factors discussed in "Factors That May Affect Financial Condition and Future Results" contained herein.
 
 Because the information herein is based solely on data currently available, it is subject to change as a result of, among other things, changes in conditions over which the Company has no control or influence, and should not therefore be viewed as assurance regarding the Company's future performance. Additionally, the Company is not obligated to make public disclosure of such changes unless required under applicable disclosure rules and regulations. 

19

FIRSTSECOND QUARTER 2014 COMPARED TO FIRSTSECOND QUARTER 2013

Market Conditions

Information related to a measure of drilling activity and certain commodity spot and futures prices during each quarter and the number of deepwater floaters and semis under contract at the end of each period follows:

 Three Months Ended March 31,  Increase (Decrease)  
Three Months Ended
June 30,
  Increase (Decrease) 
 2014  2013  Amount  %  2014  2013  Amount  % 
Drilling activity (average number of working rigs during period)(1):
 
  
  
  
  
  
  
  
 
United States  1,780   1,758   22   1.3%  1,852   1,761   91   5.2%
Canada  526   535   (9)  (1.7)%  202   155   47   30.3%
Rest of world  1,337   1,274   63   4.9%  1,345   1,306   39   3.0%
Global average rig count  3,643   3,567   76   2.1%  3,399   3,222   177   5.5%
                
Commodity prices (average of daily U.S. dollar prices per unit during period)(2):
                                
West Texas Intermediate Cushing, OK crude spot price per barrel in U.S. dollars $98.65  $94.30  $4.35   4.6% $103.06  $94.14  $8.92   9.5%
Henry Hub natural gas spot price per MMBtu in U.S. dollars $5.16  $3.47  $1.69   48.7% $4.59  $4.02  $0.57   14.2%
Twelve-month futures strip price (U.S. dollar amount at period end)(2):
                                
West Texas Intermediate Cushing, OK crude oil contract (per barrel) $96.71  $96.26  $0.45   0.5% $101.10  $93.62  $7.48   8.0%
Henry Hub Natural Gas contract (per MMBtu) $4.46  $4.20  $0.26   6.2%
Contracted drillships and semi submersibles by location at period-end(3):
                
Henry Hub natural gas contract (per MMBtu) $4.35  $3.76  $0.59   15.7%
                
Contracted drillships and semi-submersibles by location at period-end(3):
                
U.S. Gulf of Mexico  45   39   6   15.4%  49   40   9   22.5%
Central and South America  72   83   (11)  (13.3)%  76   88   (12)  (13.6)%
Northwestern Europe  46   47   (1)  (2.1)%  46   47   (1)  (2.1)%
West Africa  44   32   12   37.5%  45   27   18   66.7%
Southeast Asia and Australia  27   22   5   22.7%  26   23   3   13.0%
Other  47   28   19   67.9%  44   45   (1)  (2.2)%
Total  281   251   30   12.0%  286   270   16   5.9%

(1)        Based on average monthly rig count data from Baker Hughes
(2)        Source: Bloomberg
(3)        Source: ODS-Petrodata Ltd.

The increase in average worldwide operating rigs during the firstsecond quarter of 2014 as compared to the firstsecond quarter of 2013 was primarily due to a 5%30% increase in activity outsidein Canada as a result of North America, mainlya 41% increase in Africa, the Middle East and the Asia Pacific region.  The average number of rigs drilling for gas in North America was down slightly in the first quarter of 2014 as comparedgas.  Also contributing to the firstincrease during the quarter of 2013.  This impact was more than offset by a 12%9% increase in the average number of North American rigs drilling for oil.oil in North America as compared to the second quarter of 2013.

Crude oil prices (West Texas Intermediate, Cushing, OK) were fairly consistent throughout muchbut trended upward towards the end of the firstsecond quarter of 2014 reaching a high of $104.92 per barrel at the beginning of March$107.26 in late June before closing the period at $101.58$105.37 per barrel.  On average, crude oil prices were almost 5%10% higher during the firstsecond quarter of 2014 as compared to the firstsecond quarter of 2013.  The twelve month futures price for crude oil at March 31,June 30, 2014 was slightly lower compared to spot prices near the end of the quarter.

20

 
Natural gas (Henry Hub) prices fluctuatedwere fairly consistent throughout the firstsecond quarter of 2014, reaching a high of $7.92averaging $4.59 per MMBtu, before dropping back to close the quarter at $4.47 per MMBtu.  Factors affecting natural gas prices during the first quarter of 2014 included, among other things,which is a colder than normal winter throughout much of the United States and higher than normal natural gas storage withdrawals. On average, prices during the first quarter of 2014 were up 48.7%14% increase as compared to the same period in 2013.  The 12-month futures strip price for natural gas at March 31,June 30, 2014 was $4.46$4.35 per MMBtu, which is comparable to the spot price at March 31,June 30, 2014. 

With the recent increase in the number of drillships and semi submersiblessemi-submersibles available for contract and under contract, a slowdown in demand for newbuild construction may occurhas occurred as the drilling industry undergoes a rebalancing of supply and demand for such rigs.

The oilfield service industry has also been experiencing customer slowdowns and delays on certain large subsea projects.  As an example, the Company announced in November 2013 that Chevron's Rosebank project in the UK North Sea was being deferred in order for Chevron to work with its partners to improve project economics.  The original award received by Cameron for this project totaled in excess of $500.0$500 million.  It was agreed that OneSubsea would continue to work on its awarded scope and work with Chevron on improving the project's economics.

Critical Accounting Policies

Goodwill – During the first quarter of each annual period, the Company reviews the carrying value of goodwill in accordance with accounting rules on impairment of goodwill, which require that the Company estimate the fair value of each of its reporting units annually, or when impairment indicators exist, and compare such amounts to their respective carrying values to determine if an impairment of goodwill is required. The estimated fair value of each reporting unit is determined using discounted future expected cash flow models (level 3 unobservable inputs) consistent with the accounting guidance for fair value measurements.  Certain estimates and judgments are required in the application of the discounted cash flow models, including, but not limited to, estimates of future cash flows and the selection of a discount rate.  

As described further in Note 2 of the Notes to Consolidated Condensed Financial Statements, effective June 1, 2014, the Company entered into a definitive agreement in January 2014 to sellcompleted the previously announced sale of its Reciprocating Compression business, a division of the Process and Compression Systems (PCS) segment, to General Electric.Electric for cash consideration of approximately $547 million, net of transaction costs.  Reciprocating Compression had previously been combinedincluded with the Process Systems and Equipment (PSE) business in the Process Systems & Reciprocating Compression reporting unit for goodwill impairment evaluation purposes.  As a result of the classification of Reciprocating Compression as a discontinued operation in the first quarter of 2014 when a definitive agreement to sell the business was entered into, total reporting unit goodwill was allocated between the two businesses.  Following this, the PSE business was evaluated as a separate reporting unit in connection with the Company's annual goodwill impairment review conducted prior to the end ofduring the first quarter of 2014.  As a result of this review, the PSE goodwill amount, totaling approximately $40 million, was deemed impaired.
fully impaired at that time.

Consolidated Results

Net income attributable to Cameron stockholders for the firstsecond quarter of 2014 totaled $111.1 million.$221 million, compared to $140 million for the second quarter of 2013.  Earnings from continuing operations per diluted share totaled $0.54$1.02 for the second quarter of 2014, compared to $0.59$0.55 per diluted share for the firstsecond quarter of 2013. Included in the firstsecond quarter 2014 results were chargescertain gains, net of $0.21costs, totaling $0.02 per diluted share, primarily associated with:

a goodwillgain from remeasurement of a prior interest in an equity method investment, and
an impairment charge related to the PSE business,of certain intangible assets.

acquisition and other integrationThe results for the second quarter of 2013 included after-tax charges of $0.22 per share, primarily related to formation costs and

for OneSubsea, including additional income tax expense incurred in connection with the formation, as well as currency devaluation, severance, restructuring and various other costs.

These costs are described further in Note 3 of the Notes to Consolidated Condensed Financial Statements.  Absent these gains, net of certain costs, and similarother costs for the same period in 2013, diluted earnings from continuing operations per share would have increased nearly 9%30% in the firstsecond quarter of 2014 as compared to the firstsecond quarter of 2013.
Total revenues for the Company increased $370.6$432 million, or 18%19.6%, primarily on the strength of higher sales in each major product line within the DPS segment during the three months ended March 31,June 30, 2014 as compared to the three months ended March 31,June 30, 2013. Nearly 35% of the increase was attributable to businesses acquired during the last twelve months with the remaining increase reflecting higher revenues in each major product line in the Drilling & Production Systems (DPS) segment.  Revenues in the Valves & Measurement (V&M) segment were relatively flat compared to the same period last year, while PCS segment revenues, excluding discontinued operations, were down nearly 15%.

As a percent of revenues, cost of sales (exclusive of depreciation and amortization) increased from 70.5%70.9% during the firstsecond quarter of 2013 to 72.6%71.7% for the firstsecond quarter of 2014, mainly as a result of higher costs in relation to revenues in each businessthe DPS segment as described further below under "Segment Results".

Selling and administrative expenses increased $25.0$31 million, or 8.2%9.8%, during the three months ended March 31,June 30, 2014 as compared to the three months ended March 31,June 30, 2013.  This increase was primarily due to higher employee-related costs as a result of increased headcount and higher business activity levels in the DPS segment, along with the impact of additional costs from newly acquired businesses.   Selling and administrative expenses were 13.5%13.1% of revenues for the firstsecond quarter of 2014, down from 14.7%14.3% for the firstsecond quarter of 2013.2013, reflecting the impact of cost control efforts initiated in 2014.

Depreciation and amortization expense totaled $86.8$90 million for the firstsecond quarter of 2014 as compared to $67.3$67 million during the firstsecond quarter of 2013, an increase of $19.5$23 million.  The increase was due mainly to higher depreciation expense as a result of recent increased levels of capital spending and the impact of additional depreciation and acquired intangible amortization expense associated mainly with newlybusinesses acquired businesses.from Schlumberger in connection with the formation of OneSubsea.

Net interest increased $6.3$5 million, from $25.8$25 million during the firstsecond quarter of 2013 to $32.1$30 million during the firstsecond quarter of 2014, mainly as a result of $750.0resulting from additional interest associated with $750 million of new senior notes issued by the Company in December 2013.

Other credits, net of costs totaled $49.0$4 million for the three months ended March 31,June 30, 2014 as compared to $31.0costs of $35 million for the three months ended March 31, 2013, an increase of $18 million.June 30, 2013.  See Note 3 of the Notes to Consolidated Condensed Financial Statements for further information on the nature of these items.

The Company's effective tax rate on income from continuing operations for the firstsecond quarter of 2014 was 28.5%23.0% compared to 18.9%31.8% for the firstsecond quarter of 2013.  The components of the effective tax rates for both periods were as follows (dollars in millions):

 
 Three Months Ended June 30, 
 
 2014  2013 
 
 Tax Provision  Tax Rate  Tax Provision  Tax Rate 
 
 
  
  
  
 
Forecasted tax expense by jurisdiction $68   24.0% $50   24.7%
Adjustments to income tax provision:                
Recognition of certain historical tax benefits as prior uncertainty regarding those benefits has been resolved  –   –   (1)  (0.3)
Finalization of prior year returns  (1)  (0.5)  10   4.8 
Changes in valuation allowances  –   –   5   2.6 
Accrual adjustments and other  (1)  (0.5)  –   – 
Tax provision $66   23.0% $64   31.8%
 
 Three Months Ended March 31, 
 
 2014  2013 
 
 Tax Provision  Tax Rate  Tax Provision  Tax Rate 
 
 
  
  
  
 
Forecasted tax expense by jurisdiction $40.8   24.0% $41.5   23.0%
Adjustments to income tax provision:                
Tax effect of goodwill impairment  9.6   5.6   –   – 
Finalization of prior year returns  (2.7)  (1.6)  (0.3)  (0.2)
Tax effects of changes in legislation  –   –   (7.1)  (3.9)
Accrual adjustments and other  0.8   0.5   –   – 
Tax provision $48.5   28.5% $34.1   18.9%


Segment Results

DPS Segment –

 
 
Three Months Ended
June 30,
  Increase (Decrease) 
($ in millions) 2014  2013  $   % 
 
 
  
  
     
Revenues $1,903  $1,438  $465   32.3%
Income from continuing operations before income taxes $235  $196  $39   19.9%
Income from continuing operations before income taxes as a percent of revenues  12.3%  13.6%  N/A   (1.3)%
 
                
Orders $1,690  $1,503  $187   12.4%
Backlog (at period-end) $9,209  $8,470  $739   8.7%
 
 
Three Months Ended
March 31,
  Increase (Decrease) 
($ in millions) 2014  2013  $   % 
 
 
  
  
     
Revenues $1,705.1  $1,269.0  $436.1   34.4%
Income from continuing operations before income taxes $183.0  $154.4  $28.6   18.5%
Income from continuing operations before income taxes as a percent of revenues  10.7%  12.2%  N/A   (1.5)%
 
                
Orders $1,758.9  $2,743.0  $(984.1)  (35.9)%
Backlog (at period-end) $9,321.2  $7,970.7  $1,350.5   16.9%

Revenues

Businesses acquired during the last twelve months accounted for approximately 28% of the total changeThe increase in revenues from the first quarter of 2013.  Absent this effect,was due to:

a 37% increase in drilling equipment revenues, were up 37%, primarily related to increased shipments associated with higher beginning-of-the-period backlog levels and production efficiency improvements,

growth of 37% in subsea equipment sales rose 23% asrevenues, mainly due to businesses acquired during the last twelve months, which represented almost three-fourths of the change, along with higher revenues on a result of higherlarge project activity levels and increased demand for aftermarket parts and services,offshore West Africa, and

a 19% increase in sales of surface equipment, increased nearly 13%, largely as a result of higher shipments and aftermarket activity levels mainly in the unconventional resource regions of North America, the North Sea, Africa and the Caspian Sea region.

Income from continuing operations before income taxes as a percent of revenues

The decrease in the ratio of income from continuing operations before income taxes as a percent of revenues was due primarily to lower product margins in the drilling equipment product line due to sales mix and higher costs, as well as higher researchshipments to customers operating in the North Sea and development spending, particularly in OneSubsea.

Orders

Excluding the impact of businesses acquired during the last twelve months, total segment orders declined nearly 38% in the first quarter of 2014 as compared to the same period last year.  This decrease was primarily attributable to:

a 79% decline in subsea orders, mainly as a result of a large award from Petrobras for subsea trees and associated equipment for use in Pre- and Post-Salt basins offshore Brazil and a large booking for subsea production systems for a project offshore Nigeria, both of which were received in the first quarter of 2013 with no similar-sized large project awards received in the first quarter of 2014, and

a 10% decrease in orders for surface equipment due to timing of orders by customers in Iraq, Saudi Arabia and Latin America, which was partially offset by continued strong activity levels in North America.

Partially offsetting these declines was a 23% increase in orders for drilling equipment reflecting several large rig project awards received in the first quarter of 2014.


Backlog (at period-end)
Higher subsea equipment backlog, largely as a result of strong 2013 order rates, accounted for over 70% of the total increase in DPS segment backlog from March 31, 2013 to March 31, 2014.   Strong order rates in recent periods also led to a 21% increase in surface equipment backlog levels from March 31, 2013.  Drilling equipment backlog was up 5% despite the reversal of nearly $243 million in backlog in the first quarter of 2014 as the result of a customer cancellation of a large drilling project award issued in 2012.  The Company has sent a claim for damages to the customer arising from the contract cancellation and is currently evaluating its other legal remedies in the matter.

V&M Segment –

 
 
Three Months Ended
March 31,
  Decrease 
($ in millions) 2014  2013  $   % 
 
 
  
  
     
Revenues $492.3  $521.5  $(29.2)  (5.6)%
Income from continuing operations before income taxes $94.1  $113.4  $(19.3)  (17.0)%
Income from continuing operations before income taxes as a percent of revenues  19.1%  21.7%  N/A   (2.6)%
 
                
Orders $536.4  $538.5  $(2.1)  (0.4)%
Backlog (at period-end) $1,057.2  $1,083.5  $(26.3)  (2.4)%

Revenues

Project slippage and lower delivery levels from recent order weakness contributed to sales declines of 16% and 11% for engineered valves and process valves, respectively.  These declines were partially offset by a 13% increase in measurement product sales and a 3% improvement in sales of distributed valves reflecting strength in the North American markets and the impact of newly acquired businesses.

Income from continuing operations before income taxes as a percent of revenues

The decrease in the ratio of income from continuing operations before income taxes as a percent of revenues was attributable to:

a 1.3 percentage-point increase in the ratio of cost of sales to revenues resulting from an  unfavorable mix change related to project shipments and a decrease in engineered valve product line margins,

a 0.8 percentage-point increase in the ratio of selling and administrative costs to revenues due to higher overhead costs, and
a 0.5 percentage-point increase in the ratio of depreciation and amortization expense to revenues due to increased capital spending in recent periods.
Orders

Overall, total segment orders were relatively flat when compared to the same period last year.  A 31% improvement in measurement product orders for various pipeline and other energy related projects was offset by a 27% decrease in process valve orders due to the absence in the first quarter of 2014 of several large project awards received in the same period last year.

Backlog (at period-end)

Backlog levels for the V&M segment decreased slightly from March 31, 2013 as engineered and process valves order rates did not keep up with deliveries in 2013. These decreases were offset by strong measurement products bookings.
PCS Segment –

 
 
Three Months Ended
March 31,
  Increase (Decrease) 
($ in millions) 
2014(1)
  
2013(1)
  $   % 
 
 
  
  
     
Revenues $234.1  $270.4  $(36.3)  (13.4)%
Income from continuing operations before income taxes $15.5  $19.6  $(4.1)  (20.9)%
Income from continuing operations before income taxes as a percent of revenues  6.6%  7.2%  N/A   (0.6)%
 
                
Orders $186.6  $268.0  $(81.4)  (30.4)%
Backlog (at period-end) $890.7  $864.6  $26.1   3.0%

(1)Excluding discontinued operations
Revenues

Over 50% of the revenue decrease in the PCS segment was due to weaker demand for wellhead and midstream processing equipment.  In addition:

custom process systems revenues were down 9%, due mainly to timing of manufacturing activity on large projects, and

centrifugal compression revenues declined 6% mainly as a result of strong shipment levels for process gas equipment in the first quarter of 2013 which did not repeat at those same levels in the first quarter of 2014.  This decline was partially offset by higher shipments of plant air equipment in the first quarter of 2014 to various international customers.months.

Income from continuing operations before income taxes as a percent of revenues

The decrease in the ratio of income from continuing operations before income taxes as a percent of revenues was due primarily to:

a 1.60.9 percentage-point increase in the ratio of cost of sales to revenues resulting mainly from lower volumes,project margins in the drilling equipment product line due to higher costs, andas well as higher underabsorption, largely related to the wellhead and midstream processing business and, towarranty costs, partially offset by better cost recovery on a lesser extent, Centrifugal Compression,West African subsea project, and

a 0.90.6 percentage-point increase in the ratio of depreciation and amortization expense to revenues as a result of higher depreciation and amortization expense during the second quarter of 2014 largely related to (1) businesses acquired from Schlumberger as part of the formation of OneSubsea and (2) higher capital spending to (a) enhance the Company's aftermarket capabilities, and (b) expand the fleet of rental equipment available in the Surface Systems division.

Orders

The increase in total segment orders was primarily the result of a 70% increase in subsea orders mainly due to businesses acquired during the last twelve months, which accounted for approximately 63% of the growth, as well as changes to a large project offshore West Africa.

Partially offsetting these increases was a 5% decline in orders for drilling equipment primarily reflecting a slowdown in activity relating to jack-up rigs.
Backlog (at period-end)

Higher subsea equipment backlog, largely as a result of strong 2013 order rates, accounted for nearly 80% of the total increase in DPS segment backlog from June 30, 2013 to June 30, 2014.   Strong order rates, primarily in North America and the Asia Pacific/Middle East region, as well as backlog added from businesses acquired during the last twelve months, also led to a nearly 24% increase in surface equipment backlog levels from June 30, 2013.  Drilling equipment backlog was down less than 1% despite the reversal of nearly $243 million in backlog in the first quarter of 2014 as the result of a customer cancellation of a large drilling project award issued in relation2012.  The Company reached agreement with the customer in July 2014 which will result in an additional payment from the customer of $21 million in connection with the cancelled contract.

V&M Segment –

 
 
Three Months Ended
June 30,
  Increase/(Decrease) 
($ in millions) 2014  2013  $   % 
 
 
  
  
     
Revenues $536  $534  $2   0.4%
Income from continuing operations before income taxes $107  $109  $(2)  (1.8)%
Income from continuing operations before income taxes as a percent of revenues  20.0%  20.4%  N/A   (0.4)%
 
                
Orders $517  $524  $(7)  (1.3)%
Backlog (at period-end) $1,026  $1,063  $(37)  (3.5)%

Revenues

Favorable North American market conditions and the impact of businesses acquired in the last twelve months contributed to an increase of 25% in sales of measurement products and a 12% improvement in sales of distributed valves.  Mostly offsetting these gains were lower activity levels resulting from project slippage and recent order weakness for pipeline valves and the timing of valve deliveries due to various customer changes which resulted in sales declines of 14% and 7% for engineered valves and process valves, respectively.

Income from continuing operations before income taxes as a percent of revenues

The ratio of income from continuing operations before income taxes as a percent of revenues was down slightly compared to the same period of the year.  Increased overhead costs and higher depreciation and amortization expense as a result of increased capital spending in recent periods more than offset slightly higher product margins.

Orders

Overall, total segment orders were down modestly when compared to the same period last year.  Project timing delays contributed to a 19% decrease in engineered valve orders. Mostly offsetting this decline was a 28% improvement in distributed valve orders reflecting higher activity levels in North America.

Backlog (at period-end)

Backlog levels for the period,V&M segment decreased slightly from June 30, 2013, as mentioned above.recent order rates for new engineered and process valves have not kept up with recent deliveries. These decreases were partially offset by strong demand for distributed valves and measurement products reflecting continued strength in the North American market.


PCS Segment –

 
 
Three Months Ended
June 30,
  Increase (Decrease) 
($ in millions) 
2014(1)
  
2013(1)
  $   % 
 
 
  
  
     
Revenues $202  $237  $(35)  (14.8)%
Income from continuing operations before income taxes $13  $17  $(4)  (23.5)%
Income from continuing operations before income taxes as a percent of revenues  6.4%  7.2%  N/A   (0.8)%
 
                
Orders $229  $212  $17   8.0%
Backlog (at period-end) $908  $832  $76   9.1%

(1)Excluding discontinued operations

Revenues

The revenue decrease in the PCS segment was due primarily to:

an 18% decrease in custom process systems revenues largely as a result of the timing of manufacturing activity on large projects,

These decreases
a 7% decrease in centrifugal compression revenues mainly due to declines in deliveries of plant air equipment and aftermarket revenues as a result of recent weak order rates, and

a 4% decline in deliveries of wellhead and midstream processing equipment due to weak demand.


Income from continuing operations before income taxes as a percent of revenues

The decrease in the ratio of income from continuing operations before income taxes as a percent of revenues were partially offset bywas due primarily to a 1.91.1 percentage-point decreaseincrease in the ratio of sellingdepreciation and administrative expensesamortization expense to revenues as a result of higher depreciation and amortization expense during the second quarter of 2014 in relation to lower revenues for the period, as mentioned above.  Depreciation and amortization increased across each of the businesses mainly due mainly to the impact ofincreased capital spending in recent restructuring activities, primarily in the wellhead and midstream processing business, cost control efforts, headcount reductions and lower employee incentive costs.periods.

Orders

The decreaseincrease in segment orders was almost entirely attributable to:

to a 38% decline46% increase in ordersdemand for wellhead and midstream processing equipment, due mainly related to a large plant order awarded in the first quarter of 2013 that did not repeat in the first quarter of 2014,
award for a new cryogenic gas processing system.
a 32% decrease in custom process systems orders due to a number of large awards received in the first quarter of 2013 that did not repeat in the first quarter of 2014 and certain project delays that affected the timing of awards expected in the first quarter of 2014, and
a 20% decline in centrifugal compression equipment awards, mainly as a result of several large international project awards for plant air equipment received in the first quarter of 2013 that did not repeat during the first quarter of 2014.

Backlog (at period-end)

IncreasedOverall segment backlog was up 9% at June 30, 2014 as compared to June 30, 2013, as a 33% increase in backlog in the custom process systems business, largely resulting from strong 2013 order levels, more than offset demand-driven backlog declinesa $250 million award received in the fourth quarter of 2013 for equipment to be provided for a gas processing facility in Malaysia, was partially offset by a 19% decline in backlog for centrifugal compression equipment, due to recent weak order rates for new plant air, air separation and wellhead and midstream processing equipment product lines from March 31, 2013 to March 31, 2014.engineered air units.


Corporate Segment –

The $15.5$53 million increasedecrease in the loss from continuing operations before income taxes in the Corporate segment during the firstsecond quarter of 2014 as compared to the firstsecond quarter of 2013 (see Note 10 of the Notes to Consolidated Condensed Financial Statements) was due mainly to:

an $18.0a $39 million increasedecrease in other costs, net of credits, as described further in Note 3 of the Notes to Consolidated Condensed Financial Statements, and

a $6.3$12 million decrease in selling and administrative expenses, mainly reflecting the effects of cost control efforts put in place in 2014 which have lowered employee-related costs, including travel, and information technology and other facility costs.

SIX MONTHS ENDED JUNE 30, 2014 COMPARED TO SIX MONTHS ENDED JUNE 30, 2013

Market Conditions

Information related to drilling activity and certain commodity spot prices during the first six months of each period follows:
 
 
Six Months Ended
June 30,
  Increase 
 
 2014  2013  Amount  % 
Drilling activity (average number of working rigs during period)(1):
 
  
  
  
 
United States  1,816   1,760   56   3.2%
Canada  364   346   18   5.2%
Rest of world  1,341   1,290   51   4.0%
Global average rig count  3,521   3,396   125   3.7%
 
                
Commodity prices (average of daily U.S. dollar prices per unit during period)(2):
                
West Texas Intermediate Cushing, OK crude spot price per barrel in U.S. dollars $100.89  $94.22  $6.67   7.1%
Henry Hub natural gas spot price per MMBtu in U.S. dollars $4.95  $3.76  $1.19   31.6%

(1)Based on average monthly rig count data from Baker Hughes
(2)Source: Bloomberg

The increase in average worldwide operating rigs during the first six months of 2014 as compared to the first six months of 2013 was driven by higher North American oil drilling activity and higher foreign activity primarily in the Middle East and Africa. Despite the improvement in natural gas pricing, the challenging economics associated with horizontal shale development drilling at current prices continues to constrain the overall rig market.  The average number of rigs drilling for gas was flat in North America in the first half of 2014 as compared to the first half of 2013.

Crude oil prices (West Texas Intermediate, Cushing, OK) continued to trend upward throughout much of the first half of 2014 reaching a high of $107.26 per barrel in mid-June before closing the period at $105.37 per barrel.  On average, crude oil prices were 7% higher during the first half of 2014 as compared to the first half of 2013.
In early February 2014, natural gas (Henry Hub) prices reached their highest levels since September 2011, before leveling off to close at $4.41 per MMBtu at June 30, 2014.  On average, prices during the first half of 2014 were up 32% as compared to the same period in 2013.
Consolidated Results

Net income attributable to Cameron stockholders for the six months ended June 30, 2014 totaled $332 million, compared to $289 million for the first six months of 2013.  Earnings from continuing operations per diluted share totaled $1.54 for the first six months of 2014, compared to $1.14 per diluted share for the same period in 2013.  Included in the results for the six months ended June 30, 2014 were charges, net interest as described above.of certain gains, totaling $0.19 per diluted share, primarily associated with:
a goodwill impairment charge related to the PSE business and an impairment of certain intangible assets, 

These increases
a gain from remeasurement of a prior interest in an equity method investment, and

severance, restructuring, integration and other costs, net of certain gains.

The results for the first six months of 2013 included after-tax charges of $0.31 per share, primarily related to formation costs for OneSubsea, including additional income tax expense incurred in connection with the formation, as well as currency devaluation, severance, restructuring and other costs.

Absent these costs in both periods, diluted earnings from continuing operations per share would have increased nearly 19% as compared to the first half of 2013.

Total revenues for the Company increased $802 million, or 18.8%, during the six months ended June 30, 2014 as compared to the six months ended June 30, 2013.  Nearly 34% of the increase was attributable to businesses acquired during the last twelve months with the remaining increase reflecting higher revenues in each major product line in the DPS segment.  Revenues in the V&M segment were partiallydown 3% compared to the same period last year while PCS segment revenues, excluding discontinued operations, were down 14%.

As a percent of revenues, cost of sales (exclusive of depreciation and amortization) were 72.1% for the first six months of 2014 as compared to 70.7% for the first six months of 2013.  The increase was mainly the result of higher costs in relation to revenues in the DPS and PCS segments as described further below under "Segment Results".

Selling and administrative expenses increased $57 million, or 9.2%, during the six months ended June 30, 2014 as compared to the six months ended June 30, 2013.  This increase was primarily due to higher business activity levels in the DPS segment, along with the impact of additional costs from newly acquired businesses.   Selling and administrative expenses were 13.3% of revenues for the first six months of 2014, down from 14.5% for the same period in 2013, reflecting the impact of cost control efforts initiated in 2014.

Depreciation and amortization expense totaled $177 million for the six months ended June 30, 2014 as compared to $135 million for the six months ended June 30, 2013, an increase of $42 million.  The increase was due mainly to higher depreciation expense as a result of recent increased levels of capital spending and the impact of additional depreciation and acquired intangible amortization expense associated mainly with businesses acquired from Schlumberger in connection with the formation of OneSubsea.

Net interest increased $11 million, from $51 million during the first half of 2013 to $62 million during the first half of 2014, mainly resulting from additional interest associated with $750 million of new senior notes issued by the Company in December 2013.

Other costs, net of credits, totaled $44 million for the six months ended June 30, 2014 as compared to $66 million for the six months ended June 30, 2013, a decrease of $22 million.  See Note 3 of the Notes to Consolidated Condensed Financial Statements for further information on the nature of these items.


The effective income tax rate for the first six months of 2014 was 25.1% as compared to 25.6% for the first six months of 2013.  The components of the effective tax rates for both periods were as follows (dollars in millions):

 
 Six Months Ended June 30, 
 
 2014  2013 
 
 Tax Provision  Tax Rate  Tax Provision  Tax Rate 
 
 
  
  
  
 
Forecasted tax expense by jurisdiction $109   24.0% $91   23.8%
Adjustments to income tax provision:                
Recognition of certain historical tax benefits as prior uncertainty regarding those benefits has been resolved  –   –   (1)  (0.1)
Tax effect of goodwill impairment  10   2.1   –   – 
Finalization of prior year returns  (4)  (0.9)  9   2.4 
Tax effects of changes in legislation  –   –   (7)  (1.9)
Changes in valuation allowances  –   –   5   1.4 
Accrual adjustments and other  (1)  (0.1)  –   – 
Tax provision $114   25.1% $97   25.6%


Segment Results

DPS Segment –

 
 
Six Months Ended
June 30,
  Increase (Decrease) 
($ in millions) 2014  2013  $   % 
 
 
  
  
     
Revenues $3,608  $2,707  $901   33.3%
Income from continuing operations before income taxes $418  $350  $68   19.4%
Income from continuing operations before income taxes as a percent of revenues
  11.6%  12.9%  N/A   (1.3)%
 
                
Orders $3,449  $4,246  $(797)  (18.8)%

Revenues

The increase in revenues was due to:

an increase of 47% in subsea equipment revenues, over two-thirds of which was due to businesses acquired during the last twelve months, along with higher revenues associated with a large project offshore West Africa, higher project activity levels in the Europe/Africa region and increased aftermarket sales,

an increase of 37% in drilling equipment revenues, primarily related to increased shipments associated with higher beginning-of-the-year backlog levels and production efficiency improvements, and

growth of 16% in surface equipment revenues, largely as a result of increased activity levels in unconventional resource regions of North America, as well as increased deliveries to customers operating in the North Sea and the impact of businesses acquired during the last twelve months.


Income from continuing operations before income taxes as a percent of revenues

The decrease in the ratio of income from continuing operations before income taxes as a percent of revenues was due primarily to a 1.2 percentage-point increase in the ratio of cost of sales to revenues resulting mainly from:

a mix shift to a higher proportion of subsea project revenues, which inherently carry lower margins than non-project related businesses, during the first six months of 2014 as compared to the same period in 2013, and

lower margins in the drilling equipment product line due to higher project costs, as well as higher warranty costs.
Orders

The decrease in orders was primarily due to:

a 62% decrease in subsea orders, mainly as a result of an award received during the first six months of 2013 from Petrobras for subsea trees and associated equipment for use in Pre- and Post-Salt basins offshore Brazil, as well as a large booking in the same period to supply subsea production systems to a project offshore Nigeria, with no similar-sized large awards received in the first six months of 2014, and

a 5% decrease in orders for surface equipment due mainly to a slowdown in 2014 in the pace of orders from customers operating in Saudi Arabia and Iraq as compared to the record level of orders received in 2013.  This decline was largely offset by lower facility-relatedcontinued strength in activity levels in the unconventional resource regions in North America.

Offsetting these decreases were nearly $200 million of orders added from businesses acquired during the last twelve months and a 9% increase in orders for drilling equipment reflecting several large rig project awards received early in 2014.

V&M Segment –

 
 
Six Months Ended
June 30,
  Decrease 
($ in millions) 2014  2013  $   % 
 
 
  
  
     
Revenues $1,028  $1,056  $(28)  (2.7)%
Income from continuing operations before income taxes $201  $222  $(21)  (9.5)%
Income from continuing operations before income taxes as a percent of revenues
  19.6%  21.0%  N/A   (1.4)%
 
                
Orders $1,053  $1,062  $(9)  (0.8)%

Revenues

Overall segment sales were down modestly for the six months ended June 30, 2014 when compared to the same period last year.   Project slippage and recent order weakness for pipeline valves and the timing of valve deliveries due to various customer changes contributed to sales declines of 15% and 9% for engineered valves and process valves, respectively.   Partially offsetting these declines were increases of 8% and 19% for sales of distributed valves and measurement products, respectively, as a result of current strength in the North American market.

Income before income taxes as a percent of revenues

The decrease in the ratio of income from continuing operations before income taxes as a percent of revenues was primarily attributable to a 0.5 percentage-point increase in the ratio of selling and administrative costs to revenues, due mainly to higher employee-related costs in relation to the decline in revenues, and a 0.8 percentage-point increase in the ratio of depreciation and amortization expense to revenues due to higher depreciation from higher recent capital spending levels mainly in the engineered valve product line and the impact of businesses acquired during the first quarterlast twelve months.
Orders
Overall, total segment orders were relatively flat when compared to the same period last year.  Project slippage contributed to declines of approximately 10% and 20% in both engineered and process valve orders, respectively.  This was mostly offset by a 17% increase in orders for distributed valves resulting from higher North American activity levels.

PCS Segment –

 
 
Six Months Ended
June 30,
  Decrease 
($ in millions) 2014  2013  $   % 
 
 
  
  
     
Revenues $436  $507  $(71)  (14.0)%
Income from continuing operations before income taxes $28  $37  $(9)  (24.3)%
Income from continuing operations before income taxes as a percent of revenues
  6.4%  7.3%  N/A   (0.9)%
 
                
Orders $416  $480  $(64)  (13.3)%

Revenues

The decrease in revenues was due primarily to:

a 13% decline in custom process systems revenues largely as a result of the timing of manufacturing activity on large projects,

a 19% decline in wellhead and midstream processing equipment sales mainly to customers in North America, and

a 16% decrease in sales of centrifugal air separation and engineered air equipment due to recent weak order rates.

Income from continuing operations before income taxes as a percent of revenues

The decrease in the ratio of income before income taxes as a percent of revenues was primarily due to:

a 0.6 percentage-point increase in the ratio of cost of sales to revenues primarily due to lower product margins in the wellhead and midstream processing equipment product line, and

higher depreciation and amortization expense in relation to a decline in revenues, primarily due to increased capital spending in recent periods, the impact of which has been partially offset by an improvement in the ratio of selling and administrative costs to revenues due to the effect of cost control efforts implemented during 2014.


Orders

Overall, segment orders decreased across most major product lines. The decreases were primarily the result of:
a 15% decline in orders for custom process systems largely related to slippage of project timelines,

a 15% decline in centrifugal compression equipment orders driven mainly by a 45% decrease in demand for plant air machines, primarily from international customers, and

a 7% decline in demand for wellhead and midstream processing equipment, mainly from customers in North America.

Corporate Segment –

The $38 million decrease in the loss before income taxes in the Corporate segment during the six-month period ended June 30, 2014 as compared to the six-month period ended June 30, 2013 (see Note 10 of the Notes to Consolidated Condensed Financial Statements) was due primarily to:

a $22 million decrease in other costs, net of credits, as described further in Note 3 of the Notes to Consolidated Condensed Financial Statements, and

a $15 million decrease in selling and administrative expenses, mainly reflecting the effects of cost control efforts put in place in 2014 which have lowered employee-related costs, including travel, and certain facility costs.

Liquidity and Capital Resources

Consolidated Condensed Statements of Cash Flows

During the first threesix months of 2014, net cash used forprovided by operations totaled $174.5$39 million, an increase of $151.8$32 million from the $22.7$7 million of cash used forprovided by operations during the first threesix months of 2013.

Cash totaling $448.3$588 million was used to increase working capital during the first threesix months of 2014 compared to $254.8$404 million during the first threesix months of 2013, an increase of $193.5$184 million.  During the first threesix months of 2014, $174.7increased collections due to the high level of year end receivables added $111 million in cash.  Offsetting this was $228 million of cash was used to build inventory levels, primarily in the DPS segment, in order to meet the demands from increasedthe high backlog and activity levels in that business segment. The timing of payments to third parties and annual employee incentive payouts made in the first quarterhalf of 2014 also contributed to a use of cash totaling $213.3$471 million for the period.

Cash used forprovided by investing activities increased $6.1was $346 million for the first six months of 2014.  In June 2014, the Company received $547 million of cash, net of transaction costs, from $92.4 millionthe sale of the Reciprocating Compression business to General Electric.  Additionally, capital spending during the first threesix months of 2013 to $98.5 million during the first three months of 2014.  The increase is primarily the result of increased capital spending in the first quarter of 2014 partially offset by the redeployment of approximately $11.7 million of cash and cash equivalents to short-term investments during the first quarter of 2013.totaled $178 million.  Capital needs in the Surface Systems and OneSubsea divisions of the DPS segment, along with continued development of the Company's enhanced business information systems, accounted for the majority of the first quarter 2014 capital spending of $104.8 million.

26
spending.

Net cash used for financing activities totaled $563.7$677 million for the first threesix months of 2014.  Approximately $902.0 million$1.2 billion of cash was used to acquire over 15nearly 20 million shares of treasury stock during the first quarterhalf of 2014.  Also, during the current year period,In 2014, the Board of Directors authorized the Company to initiate a commercial paper program with authority to issue up to $500.0$500 million in short-term debt.  Under this program, the Company issued commercial paper totaling $325.0$263 million in principal amount for use in funding the treasury stock purchases referred to above and for other corporate needs.  The average term of the outstanding commercial paper as of March 31,June 30, 2014 was approximately 3662 days.  The Company currently anticipates being able to continue to issue new commercial paper to fund or extend outstanding commercial paper as it comes due for payment.  During June 2014, the Company repaid $250 million of floating rate notes upon maturity and issued a total of $500 million of new senior notes split equally between 3- and 10-year maturities.
31
Future liquidity requirements

At March 31,June 30, 2014, the Company had $1.0$1.6 billion of cash, cash equivalents and short-term investments.  Approximately $428.7$493 million of the Company's cash, cash equivalents and short-term investments at March 31,June 30, 2014 were in the OneSubsea venture.  Dividends of available cash from OneSubsea to the venture partners, 40% of which would go to Schlumberger, require approval of the OneSubsea Board of Directors prior to payment.  On July 11, 2014, a dividend of €75 million was paid to the venture partners with Cameron's non-U.S. partnership receiving €45 million and Schlumberger receiving €30 million.  Of the remaining cash, cash equivalents and short-term investments nearly $200not held by OneSubsea, $657 million was located in the United States.  Of this amount, approximately $253 million, which included a make-whole premium plus accrued interest, was used to redeem early the Company's $250 million principal amount of 1.6% Senior Notes on July 21, 2014.

Total debt at March 31, 2013June 30, 2014 was nearly $3.2$3.4 billion, most of which was in the United States.  Excluding capital leases, nearly $1.1approximately $1.0 billion of the debt obligations have maturities within the next three-year period.  The remainder of the Company's long-term debt is due in varying amounts between 2018 and 2043.

Excluding discontinued operations, the Company's backlog decreased slightly from December 31, 2013, mainly due to the cancellation of a large drilling project award in the first quarter of 2014 totaling nearly $243 million, but was still at a near record high.high at June 30, 2014.  Orders during the first quartersix months of 2014 were down nearly 30%15% from the first quarter ofsame period in 2013 due mainly to certain large subsea project awards received in the first quartersix months of 2013 that did not repeat during the first quarterhalf of 2014.  The timing of such large project awards are inconsistent period over period.  The Company views its backlog of unfilled orders, current order rates, current rig count levels and current and future expected oil and gas prices to be, in varying degrees, leading indicators of and factors in determining its estimates of future revenues, cash flows and profitability levels.  Information regarding actual first quarter 2014 and 2013 average rig count and commodity price levels and forward-looking twelve-month market-traded futures prices for crude oil and natural gas are shown in more detail under the caption "Recent Marketcaptions "Market Conditions" above.  A more detailed discussion of second quarter and year-to-date orders and June 30 backlog levels by segment may be found under "First Quarter 2014 Compared to First Quarter 2013 - Segment"Segment Results" for each period above.  As a result of these and other factors, theThe Company currently anticipates further growth in consolidated orders, backlog and revenues during the remaindersecond half of 2014.2014 in relation to the same period in 2013.  The Company also expects full year capital spending on new equipment and facilities to be between $450.0$450 million to $500.0$500 million for 2014, as compared to $520.0$520 million during 2013.  The high backlog levels and expected growth however, may increase working capital needs in certain businesses in order in order to meet the increased customer demand.

The Company believes, based on its current financial condition, existing backlog levels and current expectations for future market conditions, that it will be able to meet its short- and longer-term liquidity needs with existing cash, cash equivalents and short-term investments on hand, expected cash flow from future operating activities amounts expected to be received during the second quarter of 2014 from the sale of the Company's Reciprocating Compression division described further in Note 2 of the Notes to Consolidated Condensed Financial Statements and amounts available for borrowing under its $835.0$835 million five-year multi-currency Revolving Credit Facility, which ultimately expiresmatures on June 6, 2016, and its new three-year $750.0$750 million Revolving Credit Facility, effective April 11, 2014 described further in Note 8 of the Notes to Consolidated Condensed Financial Statements.  Up to $200 million of this new facility may be used for letters of credit. The Company also has a bi-lateral $40 million facility with a third-party bank, expiring on February 2, 2015.  At March 31,June 30, 2014, no amounts had been borrowed under the $835.0 million facility.  The Company also had a three-year $170.0 million committed multi-currency revolving letter of credit facility with a third-party bank, expiring on February 2, 2015.  At March 31, 2014, the Company had issued letters of credit totaling $122.0$77 million under this revolving credit facility, leaving a remaining amount of $48.0 million available for future use prior to collapsing $130.0 million of the capacity of this facility and transferring $92.4 million of issued letters of credit into the new $750 million syndicatedRevolving Credit Facility and $29 million under the $40 million bi-lateral facility, on April 11, 2014.
leaving $673 million and $11 million, respectively, available for future use.

In addition, to the agreement reachedCompany announced in January 2014 to sell the Company's Reciprocating Compression division to General Electric for $550 million, the Company also announced at the same time that it was exploring strategic alternatives for its Centrifugal Compression business.

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The Company's Board of DirectorsCompany has given management the authority to purchase the Company's common stock.  Under this authorization, which was increased by $500.0 million in February 2014,an authorized stock repurchase program whereby the Company may purchase shares directly or indirectly by way of open market transactions or structured programs, including the use of derivatives, for the Company's own account or through commercial banks or financial institutions.  The program, initiated in October 2011, has had a series of authorizations by the Board of Directors totaling $3.2 billion since inception.  At March 31,June 30, 2014, the Company had remaining authority for future stock purchases totaling approximately $420.5$456 million.

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Factors That May Affect Financial Condition and Future Results

The inability of the Company to deliver its backlog or future orders on time could affect the Company's future sales and profitability and its relationships with its customers.

At March 31,June 30, 2014, the Company's backlog was approximately $11.3$11 billion, excluding discontinued operations.  The ability to meet customer delivery schedules for this backlog, as well as future orders, is dependent on a number of factors including, but not limited to, access to the raw materials required for production, an adequately trained and capable workforce, project engineering expertise for large subsea projects, sufficient manufacturing plant capacity and appropriate planning and scheduling of manufacturing resources.  Many of the contracts the Company enters into with its customers require long manufacturing lead times and contain penalty clauses relating to on-time delivery. A failure by the Company to deliver in accordance with customer expectations could subject the Company to financial penalties or loss of financial incentives and may result in damage to existing customer relationships. Additionally, the Company bases its earnings guidance to the financial markets on expectations regarding future order rates and the timing of delivery of product currently in backlog.  Failure to deliver equipment in accordance with expectations could negatively impact the market price performance of the Company's common stock and other publicly-traded financial instruments.

Expansion of the Company's offerings in the drilling market creates additional risks not previously present.

The Company's acquisitions of LeTourneau Technologies Drilling Systems, Inc. and the TTS Energy Division of TTS Group ASA (TTS) expanded the Company's portfolio of products and services available to customers involved in oil and gas drilling activities.  These acquisitions brought large drilling rig construction projects not previously offered and a record backlog.  As a result of both, the complexity of execution within this business has increased from that of the past.  Also, the Company has recently struggled to increase production capacity to deliver its record backlog.

Large drilling rig projects are accounted for using accounting rules for production-type and construction-type contracts.  In accordance with this guidance, the Company estimates the expected margin on these projects and recognizes this margin as units are completed.  These projects (i) require significantly more engineering and project management expertise than are needed for projects involving the supply of drilling stacks and associated equipment to customers, (ii) are larger in financial scope and (iii) require longer lead times than many other projects involving the Company's Drilling Systems business.  Additionally, unplanned difficulties in engineering and managing the construction of such major projects could result in cost overruns and financial penalties which could negatively impact the Company's margins and cash flow.   Similar to subsea systems projects described below, a reduction in expected margins on these projects from such unplanned events would result in a cumulative adjustment to reduce margins previously recognized in the period a change in estimate is determined.

Execution of subsea systems projects exposes the Company to risks not present in its other businesses.

Cameron, through OneSubsea, is a significant participant in the subsea systems projects market.  This market is different from most of the Company's other markets since subsea systems projects are larger in scope and complexity, in terms of both technical and logistical requirements. Subsea projects typically (i) involve long lead times, (ii) are larger in financial scope, (iii) require substantial engineering resources to meet the technical requirements of the project and (iv) often involve the application of existing technology to new environments and, in some cases, may require the development of new technology. The Company's OneSubsea business has a backlog of approximately $2.9$4 billion for subsea systems projects at March 31,June 30, 2014.  To the extent the Company experiences unplanned difficulties in meeting the technical and/or delivery requirements of the projects or has difficulty fully integrating the businesses contributed by Schlumberger to OneSubsea into its operations, the Company's earnings or liquidity could be negatively impacted. TheAs the integration of the Schlumberger and Cameron businesses is in its early stages andcontinues, issues may arise as we continue to refine the technologies and scale up the combined operations to meet customer demand.  The Company accounts for its subsea projects, as it does its separation and drilling projects, using accounting rules for construction-type and production type contracts.  Factors that may affect future project costs and margins include the ability to properly execute the engineering and design phases consistent with our customers' expectations, production efficiencies obtained, and the availability and costs of labor, materials and subcomponents.  These factors can impact the accuracy of the Company's estimates and materially impact the Company's future period earnings.  If the Company experiences cost overruns, the expected margin could decline.  Were this to occur, in accordance with the accounting guidance, the Company would record a cumulative adjustment to reduce the margin previously recorded on the related project in the period a change in estimate is determined.   Subsea systems projects accounted for approximately 15.7%14.9% of total revenues in the first quarter 2014 revenues.six months of 2014.

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As a designer, manufacturer, installer and servicer of oil and gas pressure control equipment, the Company may be subject to liability, personal injury, property damage and environmental contamination should such equipment fail to perform to specifications.

Cameron provides products and systems to customers involved in oil and gas exploration, development and production, as well as in certain other industrial markets.  Some of the Company's equipment is designed to operate in high-temperature and/or high-pressure environments on land, on offshore platforms and on the seabed and some equipment is designed for use in hydraulic fracturing operations.  Cameron also provides aftermarket parts and repair services at numerous facilities located around the world or at customer sites for this and other equipment.  Because of applications to which the Company's products and services are put, particularly those involving the high temperature and/or pressure environments, a failure of such equipment, or a failure of our customer to maintain or operate the equipment properly, could cause damage to the equipment, damage to the property of customers and others, personal injury and environmental contamination, onshore or offshore, leading to claims against Cameron.

The implementation of an upgraded business information system may disrupt the Company's operations or its system of internal controls.

The Company has a project underway to upgrade its SAP business information systems worldwide.  The first stage of this multi-year effort was completed at the beginning of the third quarter of 2011 with the deployment of the upgraded system for certain businesses within the Company's PCS segment.  Certain other businesses began operating on the upgraded system during 2012.  As of December 2013, nearly all businesses within the V&M segment were utilizing the upgraded system and, effective July 1, 2014; the Surface Systems division of the DPS segment began operating on the upgraded system.  The Drilling Systems and OneSubsea divisions of the DPS segment and the corporate office functions are expected to be migrated to the upgraded system during the remainder of 2014 and 2015.beyond, with completion anticipated in 2016.  The DPS and V&M segments are major contributors to the Company's consolidated revenues and income before income taxes.

As this system continues to be deployed throughout the rest of the Company, during 2014 and 2015, delays or difficulties may be encountered in effectively and efficiently processing transactions and conducting business operations until such time as personnel are familiar with all appropriate aspects and capabilities of the upgraded systems.

The Company's operations and information systems are subject to cybersecurity risks.

Cameron continues to increase its dependence on digital technologies to conduct its operations. Many of the Company's files are digitized and more employees are working in almost paperless environments.  Additionally, the hardware, network and software environments to operate SAP, the Company's main enterprise-wide operating system, have been outsourced to third parties.  Other key software products used by the Company to conduct its operations either reside on servers in remote locations or are operated by the software vendors or other third parties for the Company's use as "Cloud-based" or "Web-based" applications.  The Company has also outsourced certain information technology development, maintenance and support functions.  As a result, the Company is exposed to potentially severe cyber incidents at both its internal locations and outside vendor locations that could result in a theft of intellectual property and/or disruption of its operations for an extended period of time resulting in the loss of critical data and in higher costs to correct and remedy the effects of such incidents, although no such material incidents have occurred to date.
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Fluctuations in currency markets can impact the Company's profitability.

The Company has established multiple "Centers of Excellence" facilities for manufacturing such products as subsea trees, subsea chokes, subsea production controls and blowout preventers.  These production facilities are located in the United Kingdom, Brazil, Romania, Italy, Norway and other European and Asian countries. To the extent the Company sells these products in U.S. dollars, the Company's profitability is eroded when the U.S. dollar weakens against the British pound, the euro, the Brazilian real and certain Asian currencies, including the Singapore dollar. Alternatively, profitability is enhanced when the U.S. dollar strengthens against these same currencies.  For further information on the use of derivatives to mitigate certain currency exposures, see Item 3, "Quantitative and Qualitative Disclosures about Market Risk" below and Note 14 of the Notes to Consolidated Condensed Financial Statements.
The Company's operations expose it to risks of non-compliance with numerous countries' import and export laws and regulations, and with various nations' trade regulations including U.S. sanctions.

The Company's operations expose it to trade and import and export regulations in multiple jurisdictions.  In addition to using "Centers of Excellence" for manufacturing products to be delivered around the world, the Company imports raw materials, semi-finished goods and finished products into many countries for use in country or for manufacturing and/or finishing for re-export and import into another country for use or further integration into equipment or systems.  Most movement of raw materials, semi-finished or finished products by the Company involves exports and imports.  As a result, compliance with multiple trade sanctions and embargoes and import and export laws and regulations pose a constant challenge and risk to the Company.  The Company has received a number of inquiries from U.S. governmental agencies, including the U.S. Securities and Exchange Commission and the Office of Foreign Assets Control, regarding compliance with U.S. trade sanction and export control laws, the most recent of which was received in December 2012 and replied to by the Company in January 2013.  The Company has undergone and will likely continue to undergo governmental audits to determine compliance with export and customs laws and regulations.

The Company's operations expose it to political and economic risks and instability due to changes in economic conditions, civil unrest, foreign currency fluctuations, and other risks, such as local content requirements, inherent to international businesses.

The political and economic risks of doing business on a worldwide basis include the following: 
•volatility in general economic, social and political conditions;
•the effects of civil unrest and sanctions imposed by the United States and other governments on transactions with various countries, such as Iran;
•the effects of civil unrest and, in some cases, military action on the Company's business operations, customers and employees, such as that recently occurring in several countries in the  Middle East, in Ukraine and in Venezuela;
•exchange controls or other similar measures that result in restrictions on repatriation of capital and/or income, such as those involving the currencies of, and the Company's operations in, Angola and Nigeria; and
•reductions in the number or capacity of qualified personnel.

In recent months, civil unrest and military action have increased in Iraq which may impact the ability of that country to continue to produce and export oil at current levels.  Such unrest may also jeopardize the Company's in-country investments and on-going business activities supporting Iraq's oil and gas production infrastructure.  At June 30, 2014, less than 1% of the Company's backlog related to future deliveries to customers doing business in Iraq.  Additionally, less than 1% of the Company's property, plant and equipment was located in Iraq and less than 1% of the Company's receivables were for sales into Iraq to multinational operators and to Iraqi drilling and production companies.  The Company is also evaluating its options under the force majeure clauses of each of the major contracts with its customers doing business in Iraq in the event the current situation in that country continues to deteriorate.

Cameron also has manufacturing and service operations that are essential parts of its business in other developing countries and volatile areas in Africa, Latin America, Russia and other countries that were part of the Former Soviet Union, the Middle East, and Central and South East Asia. Recent increases in activity levels in certain of these regions have increased the Company's risk of identifying and hiring sufficient numbers of qualified personnel to meet increased customer demand in selected locations.  The Company also purchases a large portion of its raw materials and components from a relatively small number of foreign suppliers in China, India and other developing countries. The ability of these suppliers to meet the Company's demand could be adversely affected by the factors described above.


In addition, customers in countries such as Angola and Nigeria increasingly are requiring the Company to accept payments in the local currencies of these countries.  These currencies do not currently trade actively in the world's foreign exchange markets.  The Company also has various manufacturing and aftermarket operations in Venezuela that contributed nearly $13.5$37 million in revenues during the first quartersix months of 2014.  The economy in Venezuela is highly inflationary and becoming more regulated.  These factors, along with recent civil unrest, create political and economic uncertainty with regard to their impact on the Company's continued operations in this country.  

The Venezuelan government has maintained currency controls and a fixed official exchange rate since February 2003.  In February 2013, the Venezuelan government devalued its currency from 4.3 bolivars to the U.S. dollar to an official rate of 6.3 bolivars to the U.S. dollar.  Since then, the Company has used the official rate of 6.3 bolivars to the U.S. dollar to remeasure non-functional currency transactions in its financial statements.  Due to the highly inflationary status of the Venezuelan economy, the Company's operations in Venezuela are accounted for as U.S. dollar functional currency entities.  In addition, the Company considers its earnings in Venezuela to be permanently reinvested.    In early 2014, Venezuelan government officials indicated that this official rate will increasingly be reserved only for settlement of U.S. dollar denominated obligations related to purchases of "essential goods and services."  Through the end of the firstsecond quarter of 2014, Petroleos de Venezuela (PDVSA), the Company's primary customer, has continued to pay its U.S. dollar denominated obligations to the Company at the official rate. Two recentRecent events, however, create uncertainty as to whether this will continue.  First, in January 2014, the Venezuelan government significantly expanded the use of the Supplementary Foreign Currency Administration System (SICAD) auction rate and indicated this rate (SICAD 1) would be used for certain transactions and activities.  In February 2014, the Venezuelan government signed into law a plan to open a new exchange control mechanism (SICAD 2) which may be available to all entities for all transactions.  On March 24,At June 30, 2014, the bolivar sold for an average of 51.86published SICAD 1 rate was 10.6 bolivars to the U.S. dollar through this market-based exchange mechanism, significantly less favorable thanand the published SICAD 2 rate of 10.8was approximately 49.98 bolivars to the U.S. dollardollar.  Recently, Rafael Ramirez, the Venezuelan Vice President for the Economy and Oil Minister announced that was recently established through the SICAD auction process.three exchange rates would progressively converge, with a new system involving a single unified rate that could be in place by the end of 2014.  The Company is currently evaluating the impact of these changes on its business and is monitoring the payment practices of its primary customer to determine what effect there may be on its non-functional currency assets and liabilities.  A foreign exchange loss during 2014 may ultimately result from this evaluation or from changes in the payment practices of the Company's primary customer.

Increasingly, some of the Company's customers, particularly the national oil companies, have required a certain percentage, or an increased percentage, of local content in the products they buy directly or indirectly from the Company.  This requires the Company to add to or expand manufacturing capabilities in certain countries that are presently without the necessary infrastructure or human resources in place to conduct business in a manner as typically done by Cameron.  This increases the risk of untimely deliveries, cost overruns and defective products.

The Company's operations expose it to risks resulting from differing and/or increasing tax rates.

Economic conditions around the world have resulted in decreased tax revenues for many governments, which have led and could continue to lead to changes in tax laws in countries where the Company does business, including further changes in the United States.  Changes in tax laws could have a negative impact on the Company's future results.

The Company's operations require it to deal with a variety of cultures, as well as agents and other intermediaries, exposing it to anti-corruption compliance risks.

Doing business on a worldwide basis necessarily involves exposing the Company and its operations to risks inherent in complying with the laws and regulations of a number of different nations. These laws and regulations include various anti-bribery and anti-corruption laws.

The Company does business and has operations in a number of developing countries that have relatively underdeveloped legal and regulatory systems compared to more developed countries. Several of these countries are generally perceived as presenting a higher than normal risk of corruption, or as having a culture in which requests for improper payments are not discouraged. Maintaining and administering an effective anti-bribery compliance program under the U.S. Foreign Corrupt Practices Act (FCPA), the United Kingdom's Bribery Act of 2010, and similar statutes of other nations, in these environments presents greater challenges to the Company than is the case in other, more developed countries.
 
Additionally, the Company's business involves the use of agents and other intermediaries, such as customs clearance brokers, in these countries as well as others.  As a result, the risk to the Company of compliance violations is increased because actions taken by any of them when attempting to conduct business on our behalf could be imputed to us by law enforcement authorities.
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The Company is subject to environmental, health and safety laws and regulations that expose the Company to potential liability and proposed new regulations that would restrict activities to which the Company currently provides equipment and services.

The Company's operations are subject to a variety of national and state, provincial and local laws and regulations, including laws and regulations relating to the protection of the environment. The Company is required to invest financial and managerial resources to comply with these laws and expects to continue to do so in the future. To date, the cost of complying with governmental regulation has not been material, but the fact that such laws or regulations are frequently changed makes it impossible for the Company to predict the cost or impact of such laws and regulations on the Company's future operations. The modification of existing laws or regulations or the adoption of new laws or regulations imposing more stringent environmental restrictions could adversely affect the Company.

The Company provides equipment and services to companies employing hydraulic fracturing or "fracking" and could be adversely impacted by additional regulations of this enhanced recovery technique.  

Environmental concerns have been raised regarding the potential impact on underground water supplies of hydraulic fracturing which involves the pumping of water and certain chemicals under pressure into a well to break apart shale and other rock formations in order to increase the flow of oil and gas embedded in these formations.  Recently, a number of U.S. states have proposed regulations regarding disclosure of chemicals used in fracking operations or have temporarily suspended issuance of permits for such operations.  Additionally, the United States Environmental Protection Agency (EPA) issued rules, which become effective in January 2015, that are designed to limit the release of volatile organic compounds, or pollutants, from natural gas wells that are hydraulically fractured.  The EPA has published draft permitting guidance for oil and gas hydraulic fracturing activities using diesel fuels and is continuing to study whether the fracking process has any negative impact on underground water supplies.  A draft of the final report on the results of the study is expected in 2014.  Should these regulations, or additional regulations, restrict or curtail hydraulic fracturing activities, the Company's revenues and earnings could be negatively impacted.

Enacted and proposed climate protection regulations and legislation may impact the Company's operations or those of its customers.

The EPA has made a finding under the United States Clean Air Act that greenhouse gas emissions endanger public health and welfare and the EPA has enacted regulations requiring monitoring and reporting by certain facilities and companies of greenhouse gas emissions.  In June 2014, the U.S. Supreme Court prohibited the EPA from being able to require limits on carbon dioxide and other heat trapping gases from sources that would otherwise not need an air pollution permit.

Also, in June 2014, the EPA, acting under President Obama's Climate Action Plan, proposed its Clean Power Plan, which would set U.S. state-by-state guidelines for power plants to meet by 2030 to cut their carbon emissions by 30% nationwide from 2005 levels.  The guidelines are also intended to cut pollution, nitrogen oxides and sulfur dioxide by more than 25% during the same period.  Under the Clean Power Plan, states are to develop plans to meet state-specific goals to reduce carbon pollution and submit those plans to the EPA by June 2016, with a later deadline provided under certain circumstances.  While these proposed rules may hasten the switch from coal to cleaner burning fuels such as natural gas, the overall long-term economic impact of the plan is uncertain at this point.

Carbon emission reporting and reduction programs have also expanded in recent years at the state, regional and national levels with certain countries having already implemented various types of cap-and-trade programs aimed at reducing carbon emissions from companies that currently emit greenhouse gases.
To the extent the Company's customers are subject to these or other similar proposed or newly enacted laws and regulations, the Company is exposed to risks that the additional costs by customers to comply with such laws and regulations could impact their ability or desire to continue to operate at current or anticipated levels in certain jurisdictions, which could negatively impact their demand for the Company's products and services.

To the extent Cameron becomes subject to any of these or other similar proposed or newly enacted laws and regulations, the Company expects that its efforts to monitor, report and comply with such laws and regulations, and any related taxes imposed on companies by such programs, will increase the Company's cost of doing business in certain jurisdictions, including the United States, and may require expenditures on a number of its facilities and possibly on modifications of certain of its products.

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The Company could also be impacted by new laws and regulations establishing cap-and-trade and those that might favor the increased use of non-fossil fuels, including nuclear, wind, solar and bio-fuels or that are designed to increase energy efficiency.  If the proposed or newly executed laws dampenhave the effect of dampening demand for oil and gas production, they could lower spending by the Company's customers for the Company's products and services.

Downturns in the oil and gas industry have had, and will likely in the future have, a negative effect on the Company's sales and profitability.

Demand for most of the Company's products and services, and therefore its revenue, depends to a large extent upon the level of capital expenditures related to oil and gas exploration, development, production, processing and transmission. Declines, as well as anticipated declines, in oil and gas prices could negatively affect the level of these activities, or could result in the cancellation, modification or rescheduling of existing orders. As an example, natural gas spot prices in the United States declined during the first half of 2012 to less than $2 per MMBtu, the lowest level in the last decade.  Although natural gas prices have subsequently increased, current rig count levels associated with dry gas extraction activities have not fully recovered to previous levels.  This price decline negatively impacted 2012 order levels by certain of the Company's customers which affected the Company's 2012 and 2013 revenues and profitability.  See also the discussion in "Market Conditions" above.

Environmental Remediation

The Company's worldwide operations are subject to domestic and international regulations with regard to air, soil and water quality as well as other environmental matters. The Company, through its environmental management system and active third-party audit program, believes it is in substantial compliance with these regulations. 

The Company is heir to a number of older manufacturing plants that conducted operations in accordance with the standards of the time, but which have since changed.  The Company has undertaken clean-up efforts at these sites and now conducts its business in accordance with today's standards.  The Company's clean-up efforts have yielded limited releases of liability from regulators in some instances, and have allowed sites with no current operations to be sold.  The Company conducts environmental due diligence prior to all new site acquisitions.  For further information, refer to Note 13 of the Notes to Consolidated Condensed Financial Statements.

Environmental Sustainability

The Company has pursued environmental sustainability in a number of ways. Processes are monitored in an attempt to produce the least amount of waste. All of the waste disposal firms used by the Company are carefully selected in an attempt to prevent any future Superfund involvements. Actions are taken in an attempt to minimize the generation of hazardous wastes and to minimize air emissions. Recycling of process water is a common practice. Best management practices are used in an effort to prevent contamination of soil and ground water on the Company's sites.

Cameron has implemented a corporate "HSE Management System" based on the principles of ISO 14001 and OHSAS 18001.  The HSE Management System contains a set of corporate standards that are required to be implemented and verified by each business unit. Cameron has also implemented a corporate regulatory compliance audit program to verify facility compliance with environmental, health and safety laws and regulations.  The compliance program employs or uses independent third-party auditors to audit facilities on a regular basis specific to country, region, and local legal requirements.  Audit reports are circulated to the senior management of the Company and to the appropriate business unit.  The compliance program requires corrective and preventative actions be taken by a facility to remedy all findings of non-compliance which are tracked on the corporate HSE data base.

Item 3. Quantitative and Qualitative Disclosures about Market Risk
 
The Company is currently exposed to market risk from changes in foreign currency exchange rates, changes in the value of its equity instruments and changes in interest rates. A discussion of the Company's market risk exposure in financial instruments follows.
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Foreign Currency Exchange Rates 

A large portion of the Company's operations consist of manufacturing and sales activities in foreign jurisdictions, principally in Europe, Canada, West Africa, the Middle East, Latin America and the Pacific Rim. As a result, the Company's financial performance may be affected by changes in foreign currency exchange rates in these markets. Overall, for those locations where the Company is a net receiver of local non-U.S. dollar currencies, Cameron generally benefits from a weaker U.S. dollar with respect to those currencies. Alternatively, for those locations where the Company is a net payer of local non-U.S. dollar currencies, a weaker U.S. dollar with respect to those currencies will generally have an adverse impact on the Company's financial results. The impact on the Company's financial results of gains or losses arising from foreign currency denominated transactions, if material, have been described under "Results of Operations" in this Management's Discussion and Analysis of Financial Condition and Results of Operations for the periods shown.

Capital Markets and Interest Rates 

The Company is subject to interest rate risk on its variable-interest rate and commercial paper borrowings. Variable-rate debt, where the interest rate fluctuates periodically, exposes the Company's cash flows to variability due to changes in market interest rates. Additionally, the fair value of the Company's fixed-rate debt changes with changes in market interest rates.

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. The major risks from interest rate derivatives include changes in the interest rates affecting the fair value of such instruments, potential increases in interest expense due to market increases in floating interest rates and the creditworthiness of the counterparties in such transactions.
 
The fair values of the 1.15% and 1.6%1.4% 3-year Senior Notes, the 3.6%, 3.7%, 4.0%, 4.5% and 6.375% 10-year Senior Notes and the 5.125%, 5.95% and 7.0% 30-year Senior Notes are principally dependent on prevailing interest rates.   The fair value of the floating rate notes due June 2, 2014 and commercial paper is expected to approximate its book value.

The Company has various other long-term debt instruments, but believes that the impact of changes in interest rates in the near term will not be material to these instruments.

Item 4. Controls and Procedures
 
In accordance with Exchange Act Rules 13a-15 and 15d-15, the Company carried out an evaluation, under the supervision and with the participation of the Company's Sarbanes-Oxley Disclosure Committee and the Company's management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures, as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of March 31,June 30, 2014 to ensure that information required to be disclosed by the Company that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. There were no material changes in the Company's internal control over financial reporting during the quarter ended March 31,June 30, 2014.



 
PART II — OTHER INFORMATION
 
Item 1. Legal Proceedings
 
The Company also has been and continues to be named as a defendant in a number of multi-defendant, multi-plaintiff tort lawsuits. At March 31,June 30, 2014, the Company's Consolidated Condensed Balance Sheet included a liability of approximately $14.9$16 million for such cases. The Company believes, based on its review of the facts and law, that the potential exposure from these suits will not have a material adverse effect on its consolidated results of operations, financial condition or liquidity.

Item 1A. Risk Factors
 
The information set forth under the caption "Factors That May Affect Financial Condition and Future Results" on pages 2833 – 3338 of this Quarterly Report on Form 10-Q is incorporated herein by reference.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
The Board of DirectorsCompany has given management the authority to purchase the Company's common stock.  Under this authorization, which was increased by $500.0 million in February 2014,an authorized stock repurchase program whereby the Company may purchase shares directly or indirectly by way of open market transactions or structured programs, including the use of derivatives, for the Company's own account or through commercial banks or financial institutions.  The program, initiated in October 2011, has had a series of authorizations by the Board of Directors totaling $3.2 billion since inception.  At March 31,June 30, 2014, the Company had remaining authority for future stock purchases totaling approximately $420.5$456 million.

Shares of common stock purchased and placed in treasury during the three months ended March 31,June 30, 2014 under the Board's authorization program described above were as follows:

  
Period  
 Total number of shares purchased during the period  Average price paid per share  Cumulative number of shares purchased as part of repurchase program  
Maximum number of shares that may yet be purchased under
repurchase program(1)
 
4/1/14 – 4/30/14  3,788,207  $62.73   46,362,733   2,815,393 
5/1/14 – 5/31/14  452,100  $63.62   46,814,833   7,416,387 
6/1/14 – 6/30/14  276,361  $65.76   47,091,194   6,736,137 
Total  4,516,668  $63.00   47,091,194   6,736,137 
  
Period  
 Total number of shares purchased during the period  Average price per share  Cumulative number of shares purchased as part of repurchase program  
Maximum number of share that may yet be purchased under repurchase program(1)
 
1/1/14 – 1/31/14  4,437,785  $58.44   31,814,047   9,786,072 
2/1/14 – 2/28/14  5,212,586  $61.40   37,026,633   11,970,414 
3/1/14 – 3/31/14  5,547,893  $62.42   42,574,526   6,807,860 
Total  15,198,264  $60.91   42,574,526   6,807,860 

(1)
Based upon month-end stock price.  At March 31,June 30, 2014, the closing stock price was $61.77$67.71 per share.


Item 3. Defaults Upon Senior Securities
None

Item 4. Mine Safety Disclosures

N/A


Item 5. Other Information
 
(a)Information Not Previously Reported in a Report on Form 8-K
 
None
 
(b)Material Changes to the Procedures by Which Security Holders May Recommend Board Nominees.
 
There have been no material changes to the procedures enumerated in the Company's definitive proxy statement filed on Schedule 14A with the Securities and Exchange Commission on April 1, 2014 with respect to the procedures by which security holders may recommend nominees to the Company's Board of Directors.

Item 6. Exhibits
    Exhibit 31.1 –

Certification

Exhibit 31.2 –

Certification 

Exhibit 32.1 –

Certification of the CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 101.INS –

XBRL Instance Document

Exhibit 101.SCH –

XBRL Taxonomy Extension Schema Document

Exhibit 101. CAL –

XBRL Taxonomy Extension Calculation Linkbase Document

Exhibit 101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

Exhibit 101.LAB –

XBRL Taxonomy Extension Label Linkbase Document

Exhibit 101.PRE –

XBRL Taxonomy Extension Presentation Linkbase Document

SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
Date:                    April 28,July 24, 2014
CAMERON INTERNATIONAL CORPORATION
 (Registrant)
  
 
By:  /s/ Charles M. Sledge     
 
         Charles M. Sledge
 
        Senior Vice President and Chief Financial Officer
        and authorized to sign on behalf of the Registrant

EXHIBIT INDEX

Exhibit NumberDescription
 
 
31.1
Certification
 
31.2
Certification
 
32.1
Certification of the CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
101.INS
XBRL Instance Document
 
101.SCH
XBRL Taxonomy Extension Schema Document
 
101.CAL
XBRL Extension Calculation Linkbase Document
 
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
 
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
 






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