Derivative Financial Instruments

3 Months Ended

Mar. 31, 2012

Derivative Financial Instruments [Abstract]

Derivative Financial Instruments

11. Derivative Financial Instruments

Interest rate movements create a degree of risk to the Company's operations by affecting the amount of interest payments. Interest rate swap agreements are used to manage the Company's exposure to interest rate changes. The Company designates its floating-to-fixed interest rate swaps as cash flow hedges of the variability of future cash flows at the inception of the swap contract to support hedge accounting.

USSC entered into three separate swap transactions to mitigate USSC's floating rate risk on the noted aggregate notional amount of LIBOR based interest rate risk noted in the table below. These swap transactions occurred as follows:

• On November 6, 2007, USSC entered into an interest rate swap transaction (the "November 2007 Swap Transaction") with U.S. Bank National Association as the counterparty.

• On December 20, 2007, USSC entered into another interest rate swap transaction (the "December 2007 Swap Transaction") with KeyBank National Association as the counterparty.

• On March 13, 2008, USSC entered into an interest rate swap transaction (the "March 2008 Swap Transaction") with U.S. Bank National Association as the counterparty.

Approximately 85% ($435 million) of the Company's debt had its interest payments designated as the hedged forecasted transactions to interest rate swap agreements at March 31, 2012. The interest rate swap agreements accounted for as cash flow hedges that were outstanding and recorded at fair value on the statement of financial position as of March 31, 2012 were as follows (in thousands):

As of March 31, 2012	Notional Amount	Receive	Pay	Maturity Date	Fair Value Net Liability  (1)
November 2007 Swap Transaction	$135,000	Floating 3-month LIBOR	4.674%	January 15, 2013	$(4,534)
December 2007 Swap Transaction	200,000	Floating 3-month LIBOR	4.075%	June 21, 2012	(1,619)
March 2008 Swap Transaction	100,000	Floating 3-month LIBOR	3.212%	June 29, 2012	(677)

(1) These interest rate derivatives qualify for hedge accounting. All derivatives are in a net liability position. Therefore, the fair value of each interest rate derivative is included in the Company's Condensed Consolidated Balance Sheets as a component of "Accrued liabilities" given the maturity date of the instrument, with an offsetting component in "Stockholders' Equity" as part of "Accumulated Other Comprehensive Loss". Fair value adjustments of the interest rate swaps will be deferred and recognized as an adjustment to interest expense over the remaining term of the hedged instrument.

Under the terms of these swap transactions, USSC is required to make quarterly fixed rate payments to the counterparty calculated based on the notional amounts noted in the table above at a fixed rate also noted in the table above, while the counterparty is obligated to make quarterly floating rate payments to USSC based on the three-month LIBOR on the same referenced notional amount.

The hedged transactions described above qualify as cash flow hedges in accordance with accounting guidance on derivative instruments. This guidance requires companies to recognize all of their derivative instruments as either assets or liabilities in the statement of financial position at fair value. The Company does not offset fair value amounts recognized for interest rate swaps executed with the same counterparty.

For derivative instruments that are designated and qualify as a cash flow hedge (for example, hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same line item associated with the forecasted transaction in the same period or periods during which the hedged transaction affects earnings (for example, in "interest expense" when the hedged transactions are interest cash flows associated with floating-rate debt).

The Company has entered into these interest rate swap agreements, described above, that effectively convert a portion of its floating-rate debt to a fixed-rate basis. This reduces the impact of interest rate changes on future interest expense. By using such derivative financial instruments, the Company exposes itself to credit risk and market risk. Credit risk is the risk that the counterparty to the interest rate swap agreements (as noted above) will fail to perform under the terms of the agreements. The Company attempts to minimize the credit risk in these agreements by only entering into transactions with credit worthy counterparties. The market risk is the adverse effect on the value of a derivative financial instrument that results from a change in interest rates.

The Company's agreements with its derivative counterparties provide that if an event of default occurs on any Company debt of $25 million or more, the counterparties can terminate the swap agreements. If an event of default had occurred and the counterparties had exercised their early termination rights under the swap agreements as of March 31, 2012, the Company would have been required to pay the aggregate fair value net liability of $6.8 million plus accrued interest to the counterparties.

The Company's interest rate swaps contain no ineffectiveness; therefore, all gains or losses on these derivative instruments are reported as a component of other comprehensive income ("OCI") and reclassified into earnings as "interest expense" in the same period or periods during which the hedged transaction affects earnings. The following table depicts the effect of these derivative instruments on the statement of income for the three -month period ended March 31, 2012.

	Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion)						Location of Gain (Loss)	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
	At December 31, 2011			At March 31, 2012			Reclassified from Accumulated OCI into Income (Effective Portion)	For the Three Months Ended March 31, 2012
November 2007 Swap Transaction	$	(3,558	)	$	(2,847	)	Interest expense, net; income tax expense	$	711
December 2007 Swap Transaction		(2,065	)		(1,016	)	Interest expense, net; income tax expense		1,049
March 2008 Swap Transaction		(809	)		(425	)	Interest expense, net; income tax expense		384