Hi Slagel - Sounds like the carpet guys are pretty smart - lots of technical innovation. By the way, the North Geogria carpet industry is used by economists as an example of industry clustering, just like the knitware makers in Italy, Semis Silicon Valley.
Oil prices can be hedged -
SouthWest airlines did a very large hedge on oil prices - their cost of fuel is like $31 bbl. for the rest of 2005 ! Jet Blue also has some hedges, but not as heavy as South West. Most other airlines either couldn't afford to buy hedges or didn't want to...
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Mohawk also recent bought a ceramic tile maker, which is now a big chunk of sales. So they have wood, ceramic, and carpet.
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Looking in a recent Mohawk 10-k -
(9) Derivative Financial Instruments
Natural Gas Risk Management
The Company uses a combination of natural gas futures contracts and long-term supply agreements to
manage unanticipated changes in natural gas prices. The contracts are based on forecasted usage of natural gas
measured in Million British Thermal Units ("MMBTU").
The Company has designated the natural gas futures contracts as cash flow hedges. The outstanding
contracts are valued at market with the offset applied to other comprehensive income, net of applicable income
taxes and any hedge ineffectiveness.
Any gain or loss is reclassified from other comprehensive income and recognized in cost of goods sold in
the same period or periods during which the hedged transaction affects earnings. At December 31, 2004, the
Company had natural gas contracts that mature from January 2005 to March 2005 with an aggregate notional
amount of approximately 1,010 MMBTU's. The fair value of these contracts was a liability of $1,280. At
December 31, 2003, the Company had natural gas contracts outstanding with an aggregate notional amount of
approximately 3,950 MMBTU's. The fair value of these contracts was an asset of $3,565. The offset to these
assets is recorded in other comprehensive income, net of applicable income taxes. The ineffective portion of the
derivative is recognized in the cost of goods sold within the consolidated statements of earnings and was not
significant for the periods reported. The amount that the Company anticipates that will be reclassified out of
accumulated other comprehensive income in the next twelve months is a loss of approximately $1,280.
The Company's natural gas long-term supply agreements are accounted for under the normal purchases
provision within SFAS No. 133 and its amendments. At December 31, 2004, the Company had normal purchase
commitments of approximately 1,892 MMBTU's for periods maturing from January 2005 through March 2006.
The contracted value of these commitments was approximately $9,879 and the fair value of these commitments
was approximately $11,941, at December 31, 2004. At December 31, 2003, the Company had normal purchase
commitments of approximately 3,095 MMBTU's. The contracted value of these commitments was
approximately $13,774 and the fair value of these commitments was approximately $17,018.
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