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DERIVATIVE INSTRUMENTS: | 12 Months Ended
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Dec. 31, 2011
DERIVATIVE INSTRUMENTS: |
DERIVATIVE INSTRUMENTS: |
NOTE 16-DERIVATIVE INSTRUMENTS: As part of its risk management policy, the Company occasionally uses derivative instruments to (i) safeguard the corporate assets; (ii) insure the value of its future revenue stream, and (iii) lessen the impact of unforeseen market swings of its sales revenues. To comply with these objectives the Company, from time to time, enters into commodities prices derivatives, interest rate derivative, exchange rate derivative and other instruments. The Company does not enter into derivative contracts unless it anticipates a future activity that is likely to occur that will result in exposing the Company to market risk. Copper hedges: In 2011 and 2010, the Company entered into copper swaps and zero cost collar derivative contracts to reduce price volatility and to protect its sales value as shown below. These transactions meet the requirements of hedge accounting. The realized gains and losses from these derivatives were recorded in net sales on the consolidated statement of earnings and included in operating activities on the consolidated statement of cash flows. The Company did not hold any copper derivatives in 2009. The following table summarized the copper derivative activity related to copper sales transactions realized in 2011 and 2010:
|  | 2011 |  | 2010 |
Zero cost collar contracts: |  |  |  |  |
Pounds (in millions) |  | 423.3 |  | — |
Average LME cap price |  | $ | 3.63 |  | — |
Average LME floor price |  | $ | 2.27 |  | — |
Swap contracts: |  |  |  |  |
Pounds (in millions) |  | 390.8 |  | 276.7 |
Weighted average COMEX price |  | $ | 3.46 |  | $ | 3.79 |
Realized gain (loss) on copper derivatives |  | $ | 13.5 |  | $ | (41.9 | )
In addition, the Company has a hedge program to protect the sales value of a portion of its copper production for the first quarter of 2012. The hedge instruments are based on LME copper prices. The Company performed statistical analysis on the difference between the average monthly copper price on the LME and the COMEX exchanges and determined that the correlation coefficient is greater than 0.999. Based on this analysis the Company considers that the LME underlying price matches its sales priced at COMEX prices. These cash flow hedge relationships qualify as critical matched terms hedge relationships and as a result have no ineffectiveness. The Company performs periodic quantitative assessments to confirm that the relationship was highly effective and that the ineffectiveness was de minimis. At the end of 2011 the Company held copper derivative contracts to protect a portion of its copper sales for the first quarter of 2012, as follows:
|  | 1st Quarter 2012 |
Zero cost collar contracts: |  |  |
Pounds (in millions) |  | 46.3 |
Average LME cap price |  | $ | 5.18 |
Average LME floor price |  | $ | 3.50 |
Estimated % of copper sales covered |  | 13.6 | %
Unrealized gain recognized in other comprehensive income (net of income taxes of $3.5 million) (in millions) |  | $ | 5.4 |
Transactions under these metal price protection programs are accounted for as cash flow hedges under ASC 815-30 “Derivatives and Hedging-Cash Flow Hedges” as they meet the requirements for this treatment and are adjusted to fair market value based on the metal prices as of the last day of the respective reporting period with the gain or loss recorded in other comprehensive income until settlement, at which time the gain or loss is reclassified to net sales in the consolidated statements of earnings. The Company expects to reclassify into earnings during the first quarter of 2012 the unrealized gain included in accumulated other comprehensive loss of approximately $5.4 million (net of income taxes) at the time the underlying hedged transactions are realized. However, changes in copper prices in that period could increase or decrease the amount of the gain to be reclassified into earnings. Please see additional disclosure about fair value on Note 17-”Financial instruments” below. Gas swaps: In 2009, the Company entered into gas swap contracts to protect the cost of its gas consumption for 306,000 MMBTUs at a fixed price of $3.6350. No gain or loss was realized on the contracts. During 2011 and 2010, and at December 31, 2011, the Company did not hold any gas swap contracts. Exchange rate derivatives, U.S. dollar/Mexican peso contracts: The Company occasionally entered into zero-cost derivative contracts with the purpose of protecting, within a range, against an appreciation of the Mexican peso to the U.S. dollar. Related to the exchange rate derivative contracts the Company recorded a gain of $4.2 million in 2009, which was recorded as gain (loss) on derivative instruments in the consolidated statements of earnings. During 2011 and 2010, and at December 31, 2011, the Company did not hold any exchange rate derivative contracts.

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- Definition The entire disclosure for the entity's entire derivative instruments and hedging activities. Describes an entity's risk management strategies, derivatives in hedging activities and non-hedging derivative instruments, the assets, obligations, liabilities, revenues and expenses arising therefrom, and the amounts of and methodologies and assumptions used in determining the amounts of such items. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. 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