DERIVATIVE FINANCIAL INSTRUMENTS

9 Months Ended

Sep. 30, 2011

DERIVATIVE FINANCIAL INSTRUMENTS

NOTE 5 – DERIVATIVE FINANCIAL INSTRUMENTS

Our worldwide operations give rise to exposure to changes in certain market conditions, which may adversely impact our financial performance. When we deem it appropriate, we use derivatives as a risk management tool to mitigate the potential impacts of certain market risks. The primary market risk we manage through the use of derivative instruments is movement in foreign currency exchange rates. We use foreign currency forward-exchange contracts to reduce the impact of changes in foreign currency exchange rates on our operating results. We use these instruments to hedge our exposure associated with revenues or costs on our long-term contracts and other cash flow exposures that are denominated in currencies other than our operating entities’ functional currencies. We do not hold or issue financial instruments for trading or other speculative purposes.

In certain cases, contracts with our customers may contain provisions under which payments from our customers are denominated in U.S. Dollars and in a foreign currency. The payments denominated in a foreign currency are designed to compensate us for costs that we expect to incur in such foreign currency. In these cases, we may use derivative instruments to reduce the risks associated with foreign currency exchange rate fluctuations arising from differences in timing of our foreign currency cash inflows and outflows.

We enter into derivative financial instruments primarily as hedges of certain firm purchase and sale commitments denominated in foreign currencies. We record these contracts at fair value on our consolidated balance sheets. Depending on the hedge designation at the inception of the contract, the related gains and losses on these contracts are either (1) deferred as a component of AOCI until the hedged item is recognized in earnings or (2) offset against the change in fair value of the hedged firm commitment through earnings. At the inception and on an ongoing basis, we assess the hedging relationship to determine its effectiveness in offsetting changes in cash flows attributable to the hedged risk. We exclude from our assessment of effectiveness the portion of the fair value of the forward contracts attributable to the difference between spot exchange rates and forward exchange rates. The ineffective portion of a derivative’s change in fair value and any portion excluded from the assessment of effectiveness are immediately recognized in earnings. Gains and losses on derivative financial instruments that are immediately recognized in earnings are included as a component of other income (expense)—net in our condensed consolidated statements of income. At September 30, 2011, we had designated the majority of our foreign currency forward-exchange contracts as cash flow hedging instruments.

At September 30, 2011, we had deferred approximately $3.2 million of net gains on these derivative financial instruments in AOCI, and we expect to reclassify the net gains on the derivative financial instruments in the periods that we reclassify the net losses on the forecasted transactions. We expect to reclassify approximately $3.7 million of the net deferred gains out of AOCI over the next 12 months.

At September 30, 2011, the majority of our derivative financial instruments consisted of foreign currency forward-exchange contracts. The notional value of our forward contracts totaled $391.9 million at September 30, 2011, with maturities extending to December 2013. These instruments consist of contracts to purchase or sell foreign-denominated currencies. At September 30, 2011, the fair value of these contracts was in a net liability position totaling $8.3 million. The fair value of outstanding derivative instruments is determined using observable financial market inputs, such as quoted market prices, and is classified as Level 2 in nature.

The following tables summarize our derivative financial instruments:

Asset and Liability Derivatives

	September 30, 2011		December 31, 2010
	(Unaudited)
	(In thousands)
Derivatives Designated as Hedges:
Location
Accounts receivable–other	$	5,350	$	6,066
Other assets		552		3,225
Total asset derivatives	$	5,902	$	9,291
Accounts payable	$	11,535	$	2,207
Other liabilities		2,659		5,733
Total liability derivatives	$	14,194	$	7,940

The Effects of Derivative Instruments on our Financial Statements

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
	(Unaudited) (In thousands)
Derivatives Designated as Hedges:
Amount of gain (loss) recognized in other comprehensive income (loss) attributable to MII	$	(6,536	)	$	9,957		$	4,842		$	(2,314	)
Income (loss) reclassified from AOCI into income: effective portion attributable to MII
Location
Cost of operations	$	468		$	(906	)	$	426		$	1,980
Gain (loss) recognized in income: ineffective portion and amount excluded from effectiveness testing attributable to MII
Location
Other income (expense) – net	$	(1,437	)	$	3,116		$	(3,260	)	$	(950	)