1376139--3/28/2008--CVR_ENERGY

related topics

{interest, director, officer}

{operation, natural, condition}

{cost, regulation, environmental}

{debt, indebtedness, cash}

{stock, price, operating}

{condition, economic, financial}

{stock, price, share}

{gas, price, oil}

{customer, product, revenue}

{tax, income, asset}

{regulation, change, law}

{control, financial, internal}

{investment, property, distribution}

{cost, operation, labor}

{property, intellectual, protect}

{personnel, key, retain}

{capital, credit, financial}

{loss, insurance, financial}

Our profitability is linked to the light/heavy and sweet/sour crude oil price spreads. A decrease in either of the spreads would negatively impact our profitability. The new and redesigned equipment in our facilities may not perform according to expectations, which may cause unexpected maintenance and downtime and could have a negative effect on our future results of operations and financial condition. If our access to the pipelines on which we rely for the supply of our feedstock and the distribution of our products is interrupted, our inventory and costs may increase and we may be unable to efficiently distribute our products. Our petroleum business financial results are seasonal and generally lower in the first and fourth quarters of the year, which may cause volatility in the price of our common stock. We face significant competition, both within and outside of our industry. Competitors who produce their own supply of feedstocks, have extensive retail outlets, make alternative fuels or have greater financial resources than we do may have a competitive advantage over us. Environmental laws and regulations will require us to make substantial capital expenditures in the future. Changes in our credit profile may affect our relationship with our suppliers, which could have a material adverse effect on our liquidity. We may have additional capital needs for which our internally generated cash flows and other sources of liquidity may not be adequate. Risks Related to the Nitrogen Fertilizer Business The nitrogen fertilizer business may not have sufficient cash to enable it to make quarterly distributions to us following the payment of expenses and fees and the establishment of cash reserves. The amount of cash the nitrogen fertilizer business has available for distribution to us depends primarily on its cash flow and not solely on its profitability. If the nitrogen fertilizer business has insufficient cash to cover intended distribution payments, it would need to reduce or eliminate distributions to us or, to the extent permitted under agreements governing indebtedness that the nitrogen fertilizer business may incur in the future, fund a portion of its distributions with borrowings. The nitrogen fertilizer plant has high fixed costs. If nitrogen fertilizer product prices fall below a certain level, which could be caused by a reduction in the price of natural gas, the nitrogen fertilizer business may not generate sufficient revenue to operate profitably or cover its costs. The nitrogen fertilizer business is cyclical and volatile, which exposes us to potentially significant fluctuations in our financial condition, cash flows and results of operations, which could result in volatility in the price of our common stock or an inability of the nitrogen fertilizer business to make quarterly distributions. Nitrogen fertilizer products are global commodities, and the nitrogen fertilizer business faces intense competition from other nitrogen fertilizer producers. Adverse weather conditions during peak fertilizer application periods may have a material adverse effect on our results of operations, financial condition and the ability of the nitrogen fertilizer business to make cash distributions, because the agricultural customers of the nitrogen fertilizer business are geographically concentrated. The nitrogen fertilizer business results of operations, financial condition and ability to make cash distributions may be adversely affected by the supply and price levels of pet coke and other essential raw materials. Ammonia can be very volatile and dangerous. Any liability for accidents involving ammonia that cause severe damage to property and/or injury to the environment and human health could have a material adverse effect on our results of operations, financial condition and the ability of the nitrogen fertilizer business to make cash distributions. In addition, the costs of transporting ammonia could increase significantly in the future. The nitrogen fertilizer business operations are dependent on third-party suppliers. Failure by key suppliers of oxygen, nitrogen and electricity to perform in accordance with their contractual obligations may have a negative effect upon our results of operations and financial condition and the ability of the nitrogen fertilizer business to make cash distributions. The nitrogen fertilizer business relies on third party providers of transportation services and equipment, which subjects us to risks and uncertainties beyond our control that may have a material adverse effect on our results of operations, financial condition and the ability of the nitrogen fertilizer business to make cash distributions. Environmental laws and regulations on fertilizer end-use and application could have a material adverse impact on fertilizer demand in the future. A major factor underlying the current high level of demand for the nitrogen fertilizer business nitrogen-based fertilizer products is the expanding production of ethanol. A decrease in ethanol production, an increase in ethanol imports or a shift away from corn as a principal raw material used to produce ethanol could have a material adverse effect on our results of operations, financial condition and the ability of the nitrogen fertilizer business to make cash distributions. The location of the nitrogen fertilizer business plant provides a transportation cost advantage over many of its competitors. However, there is no assurance that competitors transportation costs will not decline, reducing the nitrogen fertilizer business price advantage. Risks Related to Our Entire Business Our refinery and nitrogen fertilizer facilities face operating hazards and interruptions, including unscheduled maintenance or downtime. We could face potentially significant costs to the extent these hazards or interruptions are not fully covered by our existing insurance coverage. Insurance companies that currently insure companies in the energy industry may cease to do so or may substantially increase premiums in the future. We may not recover all of the costs we have incurred or expect to incur in connection with the flood and crude oil discharge that occurred at our refinery in June/July 2007. Environmental laws and regulations could require us to make substantial capital expenditures to remain in compliance or to remediate current or future contamination that could give rise to material liabilities. CO 2 and other greenhouse gas emissions may be the subject of federal or state legislation or regulated in the future as an air pollutant. We are subject to strict laws and regulations regarding employee and process safety, and failure to comply with these laws and regulations could have a material adverse effect on our results of operations, financial condition and the ability of the nitrogen fertilizer business to make cash distributions. We have a limited operating history as a stand-alone company. Our commodity derivative activities could result in losses and may result in period-to-period earnings volatility. Both the petroleum and nitrogen fertilizer businesses depend on significant customers, and the loss of one or several significant customers may have a material adverse impact on our results of operations and financial condition. The petroleum and nitrogen fertilizer businesses may not be able to successfully implement their business strategies, which include completion of significant capital programs. The acquisition strategy of our petroleum business and the nitrogen fertilizer business involves significant risks. We have agreed with the Partnership that we will not own or operate any fertilizer business in the United States or abroad (with limited exceptions). We are a holding company and depend upon our subsidiaries for our cash flow. Our significant indebtedness may affect our ability to operate our business, and may have a material adverse effect on our financial condition and results of operations. In connection with the Partnership s initial public offering, we will be required to use our commercially reasonable efforts to amend our credit facility to remove the Partnership as a guarantor. Any such amendment could result in increased fees to us or other onerous terms in our credit facility. In addition, we may not be able to obtain such an amendment on terms acceptable to us or at all. If we lose any of our key personnel, we may be unable to effectively manage our business or continue our growth. A substantial portion of our workforce is unionized and we are subject to the risk of labor disputes and adverse employee relations, which may disrupt our business and increase our costs. The requirements of being a public company, including compliance with the reporting requirements of the Exchange Act and the requirements of the Sarbanes-Oxley Act, may strain our resources, increase our costs and distract management, and we may be unable to comply with these requirements in a timely or cost-effective manner. We will be exposed to risks relating to evaluations of controls required by Section 404 of the Sarbanes-Oxley Act. We are a controlled company within the meaning of the New York Stock Exchange rules and, as a result, qualify for, and are relying on, exemptions from certain corporate governance requirements. New regulations concerning the transportation of hazardous chemicals, risks of terrorism and the security of chemical manufacturing facilities could result in higher operating costs. We may face third-party claims of intellectual property infringement, which if successful could result in significant costs for our business. If licensed technology is no longer available, the refinery and nitrogen fertilizer businesses may be adversely affected. Risks Related to Our Common Stock If our stock price fluctuates, investors could lose a significant part of their investment. The Goldman Sachs Funds and the Kelso Funds continue to control us and may have conflicts of interest with other stockholders. Conflicts of interest may arise because our principal stockholders or their affiliates have continuing agreements and business relationships with us. Shares eligible for future sale may cause the price of our common stock to decline. Risks Related to the Limited Partnership Structure Through Which We Hold Our Interest in the Nitrogen Fertilizer Business Because we neither serve as, nor control, the managing general partner of the Partnership, the managing general partner may operate the Partnership in a manner with which we disagree or which is not in our interest. Our rights to receive distributions from the Partnership may be limited over time. The managing general partner of the Partnership has a fiduciary duty to favor the interests of its owners, and these interests may differ from, or conflict with, our interests and the interests of our stockholders. The partnership agreement limits the fiduciary duties of the managing general partner and restricts the remedies available to us for actions taken by the managing general partner that might otherwise constitute breaches of fiduciary duty. If the Partnership completes a public offering or private placement of limited partner interests, our voting power in the Partnership would be reduced and our rights to distributions from the Partnership could be materially adversely affected. If the Partnership does not consummate an initial offering by October 24, 2009, Fertilizer GP can require us to purchase its managing general partner interest in the Partnership. We may not have requisite funds to do so. Fertilizer GP can require us to be a selling unit holder in the Partnership s initial offering at an undesirable time or price. Our rights to remove Fertilizer GP as managing general partner of the Partnership are extremely limited. If we were deemed an investment company under the Investment Company Act of 1940, applicable restrictions would make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business. We may in the future be required to sell some or all of our Partnership interests in order to avoid being deemed an investment company, and such sales could result in gains taxable to the company. The tax treatment of publicly traded partnerships could be subject to potential legislative, judicial or administrative changes and differing interpretations, possibly on a retroactive basis. If the IRS contests the federal income tax positions the Partnership takes, the cost of any IRS contest will reduce the Partnership s cash available for distribution to unitholders. The sale or exchange of 50% or more of the Partnership s capital and profits interests during any twelve-month period will result in the termination of the Partnership s partnership for federal income tax purposes. Fertilizer GP s interest in the Partnership and the control of Fertilizer GP may be transferred to a third party without our consent. The new owners of Fertilizer GP may have no interest in CVR Energy and may take actions that are not in our interest. The Partnership may elect not to or may be unable to consummate an initial public offering or one or more private placements. This could negatively impact the value and liquidity of our investment in the Partnership, which could impact the value of our common stock.

Full 10-K form ▸

1376139--3/28/2008--CVR_ENERGY_INC