XML 98 R16.htm IDEA: XBRL DOCUMENT

Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2011

(10) Fair Value of Financial Instruments

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset and liability in an orderly transaction between market participants at the measurement date. The Company estimates fair value of its financial instruments utilizing an established three-level hierarchy. The hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date as follows:

Level 1. Quoted prices in active markets for identical assets or liabilities.

Level 2. Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated with observable market data for substantially the full term of the assets or liabilities. Level 2 inputs also include non-binding market consensus prices that can be corroborated with observable market data, as well as quoted prices that were adjusted for security-specific restrictions.

Level 3. Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of assets or liabilities. Level 3 inputs also include non-binding market consensus prices or non-binding broker quotes that we were unable to corroborate with observable market data.

The fair value of financial instruments is determined by reference to market data and other valuation techniques as appropriate. We believe the fair value of our financial instruments, principally cash and cash equivalents, accounts receivable, other current assets, accounts payable and accrued liabilities approximates their recorded values.

We believe that the fair value of our fixed interest rate debt approximated $855,178 and $946,201 as of December 31, 2011 and 2010, respectively, based on quoted market prices for our securities. We believe that the fair value of our variable interest rate debt approximated $566,010 and $477,013 as of December 31, 2011 and 2010, respectively, based on market prices for debt instruments with similar credit profiles.

Effective October 17, 2008, SGI entered into a three-year interest rate swap agreement (the "2008 Hedge") with JPMorgan, which expired on October 17, 2011. Under the Hedge, which was designated as a cash flow hedge, SGI paid interest on a $100,000 notional amount of debt at a fixed rate of 3.49% and received interest on a $100,000 notional amount of debt at the then prevailing three-month LIBOR rate. The objective of the 2008 Hedge was to eliminate the variability of cash flows attributable to the LIBOR component of interest expense paid on $100,000 of our variable-rate debt.

We believe we matched the critical terms of the hedged variable-rate debt with the 2008 Hedge and believe the 2008 Hedge was highly effective in offsetting changes in the expected cash flows due to fluctuation in the three-month LIBOR-based rate over the term of the forecasted interest payments related to the $100,000 notional amount of variable-rate debt. 2008 Hedge effectiveness was measured quarterly on a retrospective basis using the cumulative dollar-offset approach in which the cumulative changes in the cash flows of the actual swap were compared to the cumulative changes in the cash flows of the hypothetical swap. As the 2008 Hedge was determined to be effective, it was recorded in other comprehensive income (loss). During the years ended December 31, 2011 and 2010, we recorded a gain of approximately $1,480 and $935, respectively, in "Accumulated other comprehensive income (loss)" in the Consolidated Statement of Stockholders' Equity and Comprehensive Income. There was no ineffective portion of the 2008 Hedge recorded in the Consolidated Statement of Operations.

During 2010, we entered into several short-term forward currency contracts (the "Forwards") with various counterparties, all of which were settled by December 31, 2010. Under the Forwards, we locked in prices to purchase or sell pre-determined amounts of Euros at a later date. The objective of the Forwards, which were not designated as hedges, was to mitigate the risk associated with cash payments required to be made by the Company in non-functional currencies.

For the year ended December 31, 2010, we recorded a net loss of approximately $12,559 on the Forwards in our Consolidated Statements of Operations. The loss on the Forwards was included in "other expense (income), net."

In January 2012, we entered into foreign currency forward contracts (the "2012 Hedges") to hedge a portion of the net investment in one of our subsidiaries that is denominated in Euros. The aggregate notional amount of the forward contracts, which provide for the sale of Euros for U.S.dollars at a weighted-average exchange rate of approximately 1.3194, is €23,500. The 2012 Hedges are scheduled for delivery between April and December 2012. We have designated the 2012 Hedges as hedges in accordance with ASC 815, Derivatives and Hedging. The fair value of the 2012 Hedges, and subsequent changes to the fair value, will be recorded on the Consolidated Balance Sheet within "Other long term assets" and "Accumulated other comprehensive income (loss)", respectively.