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derivative instruments for trading purposes.
Net gains and (losses) realized by us related to these instruments
were $5.6 million, $(2.3) million and $(1.0) million or $0.98, $(0.50)
and $(0.21) per MMBtu for the years ended December 31, 2006, 2005
and 2004, respectively.
Interest Rate Risk. Our exposure to changes
in interest rates results from our floating rate debt. The result
of a 10% fluctuation in short-term interest rates would have impacted
2006 cash flow by approximately $1.8 million.
Financial Instruments and Debt Maturities.
Our financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable and bank borrowings, including
borrowings under our Senior Credit Facility and Second Lien Credit
Facility. The carrying amounts of cash and cash equivalents, accounts
receivable and accounts payable approximate fair value due to the
highly liquid nature of these short-term instruments. The fair values
of the bank and vendor borrowings approximate the carrying amounts
as of December 31, 2006 and 2005, and were determined based upon
interest rates currently available to us for borrowings with similar
terms. Maturities of long-term debt are $1.5 million in each of
the years 2007 through 2009 and the balance, or $184.3 million,
is due in 2010.
Item 8. Financial Statements and Supplementary
Data
The response to this item is included elsewhere
in this report.
Item 9. Changes In and Disagreements With
Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
(a) Disclosure Controls and Procedures.
We maintain disclosure controls and procedures that are designed
to provide reasonable assurance that information required to be
disclosed by us in the reports that we file or submit to the Securities
and Exchange Commission (“SEC”) under the Securities Exchange Act
of 1934, as amended (the “Exchange Act”), is recorded, processed,
summarized and reported within the time periods specified by the
SEC’s rules and forms, and that information is accumulated and communicated
to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding
required disclosure.
In accordance with Exchange Act Rules 13a-15
and 15d-15, we carried out an evaluation, under the supervision
and with the participation of management, including our Chief Executive
Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness
of our disclosure controls and procedures as of the end of the period
covered by this report. As described below under Management’s Annual
Report on Internal Control over Financial Reporting, our CEO and
CFO have concluded that, as of the end of the period covered by
this Annual Report on Form 10-K, the Company’s disclosure controls
and procedures were effective to provide reasonable assurance that
information required to be disclosed in our reports filed or submitted
under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms;
provided that we were required to seek relief under Rule 12b-25
in connection with the filing of this Annual Report on Form 10-K
as a result of the continued transition of newly hired accounting
professionals in the second half of 2006 and the first quarter of
2007.
Pannell Kerr Forster of Texas, P.C.’s audit
report, dated March 30, 2007, expressed an unqualified opinion on
our consolidated financial statements and its assessment of Management’s
Annual Report on Internal Control over Financial Reporting is included
herein under paragraph (d).
(b) Management’s Annual Report on Internal
Control over Financial Reporting. Management, including the
CEO and CFO, has the responsibility for establishing and maintaining
adequate internal control over financial reporting, as defined in
the Exchange Act, Rule 13a-15(f). Internal control over financial
reporting is a process designed by, or under the supervision of,
the Company’s principal executive and principal financial officers,
or persons performing similar functions and influenced by the Company’s
Board of Directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance
with U.S. generally accepted accounting principles (“GAAP”). Because
of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. In addition, projections
of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate or insufficient
because of changes in operating conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
A control deficiency exists when the design
or operation of a control does not allow management or employees,
in the ordinary course of performing their assigned functions, to
prevent or detect misstatements on a timely basis. A significant
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