1375814--10/13/2009--MxEnergy_Holdings

related topics

{debt, indebtedness, cash}

{gas, price, oil}

{capital, credit, financial}

{operation, natural, condition}

{condition, economic, financial}

{personnel, key, retain}

{interest, director, officer}

{financial, litigation, operation}

{competitive, industry, competition}

{regulation, government, change}

{system, service, information}

{loss, insurance, financial}

{operation, international, foreign}

{provision, law, control}

{control, financial, internal}

Risks Related to Our Business Our risk management policies and hedging procedures may not mitigate risk as planned, and we may fail to fully or effectively hedge our commodity supply and price risk exposure against changes in consumption volumes or market rates. Actual customer attrition may exceed or be below expected attrition, which could result in a cost to cover previously purchased fixed price hedges and physical supplies. Most of our financial swap agreements are settled against published index prices which could cease to be reliable or could become unavailable. The accounting method utilized for our hedging activities results in volatility in our quarterly and annual financial results. We may not have sufficient liquidity or credit capacity to hedge market risks, to continue to grow our business, or to operate effectively. Despite our efforts to hedge risk and accurately forecast demand, our financial results are susceptible to changing weather conditions and commodity price fluctuations and therefore will fluctuate on a seasonal and quarterly basis. We are subject to direct credit risk for certain customers who may fail to pay their bills as they become due. We are subject to credit, operational and financial risks related to certain LDCs that provide billing services and guarantee the customer receivables for their markets. Settlements of imbalance receivables from certain LDCs and independent system operators may be subject to such LDCs or independent system operators ability to settle their imbalance receivables from other retail marketers. We depend on the accuracy of data in our billing systems. Inaccurate data could have a negative impact on our results of operations, financial condition, cash flows and reputation with customers and/or regulators. The Commodity Supply Facility is an exclusive arrangement to purchase natural gas from a single supplier. The lack of competitive suppliers could result in higher commodity supply prices for us. In connection with the Commodity Supply Facility, RBS Sempra currently manages the scheduling of natural gas deliveries to LDCs, transportation logistics and storage capacity that we formally managed internally. As a result, we have less direct control over storage and delivery of natural gas to LDCs, which could result in lower reliability for deliveries to customers We depend on local transportation and transmission facilities of third parties to supply our customers. Our financial results may be harmed if transportation and transmission availability is limited or unreliable. We are subject to competition in each of the markets that we serve. We depend on continued state and federal regulation to permit us to operate in deregulated segments of the natural gas and electricity industries. If competitive restructuring of the natural gas and electricity utility industries are altered, reversed, discontinued or delayed, our business prospects and financial results could be materially adversely affected. We may not be able to manage our growth successfully, which could strain our liquidity and other resources and lead to poor customer satisfaction with our services. Our success depends on key members of our management, the loss of whom could disrupt our business operations. We rely on a capable, well-trained workforce to operate effectively. Retention of employees with strong industry or operational knowledge is essential to our ongoing success. We are susceptible to downturns in general economic conditions, which could have a material adverse affect on our business, results of operations and financial condition. The successes, failures or activities of various LDCs and other retail marketers within the markets that we serve may impact the perception of the Company. We are subject to regulatory scrutiny in all of our markets. Failure to follow prescribed regulatory guidelines could result in customer complaints and regulatory sanctions. We expend extensive resources to convert, improve and maintain our information systems. Failure to continue to successfully do so may result in a negative impact on our results of operations, financial condition, cash flow and reputation with our customers and/or regulators. Our operations in Houston, Texas and the communities where our customers and employees live along the southeast coast of Texas are vulnerable to hurricanes in the Gulf of Mexico. Our reliance on the electrical power generation and transmission infrastructure within the U.S. and Canada makes us vulnerable to large scale power blackouts. We identified a material weakness in the design and operation of our internal controls over financial reporting as of June 30, 2009. Although we have developed a remediation plan for the material weakness, there can be no assurance that such controls will effectively prevent material misstatements in our consolidated financial statements in future periods. Risks Related to Liquidity, Indebtedness and Capital Structure We may need to raise additional debt or letter of credit capacity to fund growth or operations, which may not be available to us on favorable terms or at all. We will require a significant amount of cash to service our debt obligations. Our ability to generate sufficient cash to service debt depends on the ability of our primary operating subsidiaries to generate adequate cash flow. We are limited in our ability to utilize the proceeds from new debt and equity issuances to prepay and repay the Fixed Rate Notes due 2014. We are exposed to the risk of rapid and significant increases in market prices and their potential impact on our operations in general and on our liquidity under the Commodity Supply Facility in particular. Our substantial debt obligations could adversely affect our financial health and prevent us from fulfilling such obligations, including our obligations under the Fixed Rate Notes due 2014 and Floating Rate Notes due 2011 and we might have difficulty obtaining more financing. Restrictive covenants in the terms of our financings may reduce our operational and financial flexibility, which may prevent us from capitalizing on business opportunities. As a result of the Restructuring, amended organizational documents and governance agreements and the significant changes in our equity ownership and the composition of our board of directors could have a material impact on the Company s future strategic direction.

Full 10-K form ▸

1375814--10/13/2009--MxEnergy_Holdings_Inc