AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The information set forth under the subcaption “Market Risk” contained in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is incorporated herein by reference.
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The Company is exposed to market risk from changes in interest rates on debt and changes in commodity prices. The Company's net exposure to interest rate risk consists of its Revolving Credit that is benchmarked to the prime rate, and the Term Loan Agreement and Subordinated Promissory Notes that are benchmarked to the LIBOR rate. The impact on the Company's results of operations of a one-point interest rate change on the outstanding debt balance as of December 25, 2000 would be approximately $226,000 in incremental interest expense. The Company does not use derivative instruments to manage borrowing costs or reduce exposure to adverse fluctuations in the interest rate. The Company does not use derivative instruments for trading purposes. The Company purchases certain commodities such as beef, seafood, chicken, and cooking oil. These commodities are generally purchased based upon purchase agreements or arrangements with vendors. These purchase agreements or arrangements may contain features that fix the commodity price or define the price from an agreed upon formula. The Company does not use financial instruments to hedge commodity prices because these purchase arrangements help control the ultimate cost paid and any commodity price fluctuations are generally short term in nature. These disclosures contain forward-looking statements. Actual results may differ based upon general market conditions.
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. In the normal course of business, GFC is exposed to interest rate and foreign currency exchange rate risks that could impact results of its operations. To manage these risks, GFC, pursuant to authorized policies, may enter into certain derivative transactions, principally interest rate swaps, Treasury note derivatives and currency forwards and swaps. These instruments and other derivatives are entered into only for hedging existing underlying exposures. GFC does not hold or issue derivative financial instruments for speculative purposes. Interest Rate Exposure -- GFC's interest expense is affected by changes in interest rates, primarily LIBOR, as a result of its use of variable rate debt instruments. GFC generally manages its variable rate debt instruments in relation to its variable rate investments. Based on GFC's variable rate debt instruments at December 31, 2006, and giving affect to related derivatives, a hypothetical increase in market interest rates of 100 basis points would cause an increase in interest expense of $2.9 million after-tax in 2007. Comparatively, at December 31, 2005, a hypothetical 100 basis point increase in interest rates would have resulted in a $10.4 million increase in after-tax interest expense in 2006. The decrease in sensitivity to interest rates is primarily due to the repayment of variable rate debt resulting from the sale of the former Air segment, which is reported as discontinued operations. Excluding variable rate liabilities related to the Air segment at December 31, 2005, a 100 basis point increase in interest rates would have resulted in an increase in after-tax interest expense of approximately $4.3 million in 2006. Functional Currency/Reporting Currency Exchange Rate Exposure -- GFC conducts operations in foreign countries, principally Poland, Germany, Austria and Canada. As a result, changes in the value of the U.S. dollar as compared to foreign currencies, primarily the Canadian dollar, Euro and Polish zloty, would affect GFC's reported earnings when they are converted to U.S. dollars upon consolidation. Based on earnings from continuing operations in 2006, a uniform and hypothetical 10% strengthening in the U.S. dollar versus applicable foreign currencies would decrease after-tax income from continuing operations in 2007 by approximately $7.3 million. Comparatively, at December 31, 2005, a uniform and hypothetical 10% increase in the U.S. dollar versus applicable foreign currencies would have resulted in a decr...
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The Company is subject to market risk associated with changes in interest rates and foreign currency exchange rates. Interest rate exposure is limited to the $269.9 million of long-term debt of the Company outstanding at March 31, 1999. Approximately one-quarter of the debt is priced at interest rates that float with the market. A 50 basis point movement in the interest rate on the floating rate debt would result in an approximate $325,000 annualized increase or decrease in interest expense and cash flows. The remaining debt is either fixed rate debt or debt that has been essentially fixed through the use of interest rate swaps. The Company will from time to time enter into interest rate swaps on its debt when it believes there is a clear financial advantage for doing so. A formalized treasury risk management policy adopted by the Board of Directors exists that describes the procedures and controls over derivative financial and commodity instruments, including interest rate swaps. Under the policy, the Company does not use derivative financial or commodity instruments for trading purposes, and the use of such instruments is subject to strict approval levels by senior officers. Typically, the use of such derivative instruments is limited to interest rate swaps on the Company's outstanding long-term debt. The Company's exposure related to such derivative instruments is, in the aggregate, not material to the Company's financial position, results of operations and cash flows. The Company's foreign currency exchange rate risk is limited principally to the British Pound, German Xxxx, Dutch Guilder, Euro and other Western European currencies. The Company manages its foreign exchange risk principally through the invoicing of its customers in the same currency as the source of the products.
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. We are exposed to risks associated with natural gas prices, interest rates, credit and fuel prices. Natural gas price risk results from changes in the fair value of natural gas. Interest rate risk is caused by fluctuations in interest rates related to our portfolio of debt and equity instruments that we issue to provide financing and liquidity for our business. Credit risk results from the extension of credit throughout all aspects of our business but is particularly concentrated at Atlanta Gas Light in distribution operations and in wholesale services. Fuel price risk, primarily in our cargo shipping segment, is a product of the fluctuation in fuel prices; however, this risk is partially reduced through fuel surcharges. Our use of derivative instruments is governed by a risk management policy, approved and monitored by our Risk Management Committee (RMC), which prohibits the use of derivatives for speculative purposes. Our RMC is responsible for establishing the overall risk management policies and monitoring compliance with, and adherence to, the terms within these policies, including approval and authorization levels and delegation of these levels. Our RMC consists of members of senior management who monitor open natural gas price risk positions and other types of risk, corporate exposures, credit exposures and overall results of our risk management activities. It is chaired by our chief risk officer, who is responsible for ensuring that appropriate reporting mechanisms exist for the RMC to perform its monitoring functions. Natural Gas Price Risk
