Derivative Financial Instruments

9 Months Ended

Sep. 30, 2011

Derivative Financial Instruments

Derivative Financial Instruments

(7) Derivative Financial Instruments

Effective October 17, 2008, SGI entered into a three-year interest rate swap agreement (the “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 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. As of September 30, 2011, the Hedge was measured at a fair value of $126 using Level 2 valuation techniques of the fair value hierarchy and included in accrued liabilities on the Consolidated Balance Sheet.

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. The effective portion of the Hedge was recorded in other comprehensive (loss) income and any ineffective portion of the Hedge was recorded in the Consolidated Statements of Operations. During the three and nine months ended September 30, 2011, we recorded a gain of approximately $505 and $1,417, respectively, in other comprehensive (loss) income. During the three and nine months ended September 30, 2010, we recorded a gain of approximately $27 and $315, respectively, in other comprehensive (loss) income. There was no ineffective portion of the Hedge recorded in the Consolidated Statements of Operations in either period. Amounts recorded in other comprehensive (loss) income that were deferred on the effective hedged forecasted transactions were reclassified to earnings when the interest expense related to the hedged item affected earnings.