SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Summary of Significant Accounting Policies

There have been no significant changes to the Company's significant accounting policies during the three months ended September 30, 2012. See Note 2 to the Company's consolidated financial statements included in the Company's 2012 Annual Report on Form 10-K for a comprehensive description of the Company's significant accounting policies.

Restricted Cash

During the fourth quarter of fiscal 2011, the Company purchased a building to serve as its new corporate headquarters. The building was acquired with cash and the assumption of a note, for which the lender required the Company to place $1,121,000 of cash in escrow consisting of $768,000 for building improvements and a leasing reserve totaling $353,000. As of September 30, 2012, the Company had remaining restricted cash of $572,000, consisting of $272,000 for building improvements and $300,000 for leasing reserve.

Foreign Currency Translation

Assets and liabilities denominated in foreign currency are translated into U.S. dollars using the exchange rates in effect at the balance sheet date. Statements of operations accounts are translated at the average exchange rates during the year. The impact of exchange rate fluctuations from translation of assets and liabilities is included in accumulated other comprehensive income, a component of stockholders' equity. Gains and losses resulting from other foreign currency transactions are included in interest and other income (expense) in the consolidated statements of operations. For the three months ended September 30, 2012 and 2011, the Company recognized unrealized gains (losses) of $(0.7) million and $1.8 million, respectively, on foreign exchange in the condensed consolidated statements of operations in connection with the translation adjustments of Euro denominated loans totaling $29.7 million and $30.9 million at September 30, 2012 and 2011, owed by SGI to certain of its subsidiaries included in its European Operations.

Income Taxes

The Company estimates its provision for income taxes in each of the tax jurisdictions in which it conducts business, in accordance with the provisions of the Income Taxes Topic 740 of the ASC. The Company computes its annual tax rate based on the statutory tax rates and tax planning opportunities available to it in the various jurisdictions in which it earns income. Significant judgment is required in determining the Company's annual tax rate and in evaluating uncertainty in its tax positions. The Company recognizes a benefit for tax positions that it believes will more likely than not be sustained upon examination. The amount of benefit recognized is the largest amount of benefit that the Company believes has more than a 50% probability of being realized upon settlement. The Company regularly monitors its tax positions and adjusts the amount of recognized tax benefit based on its evaluation of information that has become available since the end of its last financial reporting period. The annual tax rate includes the impact of these changes in recognized tax benefits. When adjusting the amount of recognized tax benefits, the Company does not consider information that has become available after the balance sheet date, but does disclose the effects of new information whenever those effects would be material to the Company's consolidated financial statements. The difference between the amount of benefit taken or expected to be taken in a tax return and the amount of benefit recognized for financial reporting represents unrecognized tax benefits. The total unrecognized tax benefit is $27.1 million; $6.8 million of this amount is presented as an accrued liability in the consolidated balance sheet as of September 30, 2012 and is presented within deferred and other long-term tax liabilities. The potential interest and/or penalties associated with an uncertain tax position are recorded in provision for income taxes (income tax benefit) in the consolidated statements of operations.

The Company records valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. When assessing the need for valuation allowances, the Company considers future taxable income and ongoing prudent and feasible tax planning strategies. Should a change in circumstances lead to a change in judgment about the realizability of deferred tax assets in future years, the Company would adjust related valuation allowances in the period that the change in circumstances occurs, along with a corresponding increase or charge to income.

Changes in recognized tax benefits and changes in valuation allowances could be material to the Company's results of operations for any period, but is not expected to be material to the Company's consolidated financial position.

Earnings Per Share

Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share utilizing the treasury stock method, adjusts the weighted average number of common shares for common stock issuable upon exercise of stock options and other commitments to issue common stock in periods in which they have a dilutive effect, and when the stock awards exercise price is lower than the Company's average share price for the period.

A reconciliation of shares used in calculating basic and diluted earnings per common shares follows. Since the Company incurred a net loss for the three months ended September 30, 2012, basic and diluted loss per share were the same because the inclusion of 1,139,918 potential common shares, related to 640,750 outstanding stock options, 461,668 restricted stock grants, and 37,500 stock appreciation rights (“SARs”), in the computation of net loss per share would have been anti-dilutive. In computing diluted earnings per share for the three months ended September 30, 2011, the Company excluded options to purchase 174,750 shares of common stock and 37,500 SARS where exercise prices were in excess of the quoted market price of the Company's common stock and 556,148 unvested restricted stock units because inclusion would be anti-dilutive. There is no dilutive effect of stock appreciation rights as such obligations are not settled and were out of the money at September 30, 2012 and 2011.

A reconciliation of basic and diluted shares is as follows:



	Three Months Ended
in thousands	September 30, 2012	September 30, 2011

Basic weighted average shares outstanding (1)	32,783	32,638
Effect of common stock equivalents — stock options and stock issuable under employee compensation plans	—	297
Diluted weighted average shares outstanding	32,783	32,935


(1)	Basic weighted average shares outstanding includes the effect of vested but unissued restricted stock grants (see note 15).

Recent Accounting Pronouncements

In July 2012, the FASB issued Accounting Standards Updated No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment. The amendments in this update permit the Company to assess qualitative factors when testing indefinite-lived intangible assets for impairment and, if based on that assessment, the Company determines that it is not more likely than not that the asset is impaired, the Company will have an option not to calculate the fair value of an indefinite-lived asset annually. These amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012. The adoption of the accounting principles in these updates did not have a material impact on the Company's consolidated financial position or results of operations.

In December 2011, the FASB issued Accounting Standards Update No. 2011-11, Disclosures about Offsetting Assets and Liabilities. The amendments in this update require an entity to disclose gross and net information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. These amendments are effective for annual and interim periods beginning on or after January 1, 2013. The adoption of the accounting principles in this update are not anticipated to have a material impact on the Company's consolidated financial position or results of operations. However, in its adoption, the Company is expecting to provide the proscribed supplemental disclosures.