Attached files
file | filename |
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8-K - FORM 8-K - KAISER ALUMINUM CORP | a55618e8vk.htm |
EX-4.1 - EX-4.1 - KAISER ALUMINUM CORP | a55618exv4w1.htm |
EX-10.2 - EX-10.2 - KAISER ALUMINUM CORP | a55618exv10w2.htm |
EX-99.1 - EX-99.1 - KAISER ALUMINUM CORP | a55618exv99w1.htm |
EX-10.3 - EX-10.3 - KAISER ALUMINUM CORP | a55618exv10w3.htm |
EX-10.4 - EX-10.4 - KAISER ALUMINUM CORP | a55618exv10w4.htm |
EX-10.1 - EX-10.1 - KAISER ALUMINUM CORP | a55618exv10w1.htm |
Exhibit 99.2
Description of Changes to Risk Factors
Introduction
The following risk factors included in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2009 have changed and are restated in their entirety below:
| Covenants and events of default in our debt instruments could limit our ability to undertake certain types of transactions and adversely affect our liquidity | ||
| We could engage in or approve transactions involving our common stock that inadvertently impair the use of our federal income tax attributes | ||
| We could engage in or approve transactions involving our common stock that adversely affect significant stockholders | ||
| Payment of dividends may not continue in the future and our payment of dividends and stock repurchases are subject to restriction |
Further, the risk factors included in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2009 have expanded to include the following additional risk factors as set forth
below:
| Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our debt | ||
| The conditional conversion features of our cash convertible senior notes, if triggered, may adversely affect our financial condition and operating results | ||
| The convertible note hedge and warrant transactions that we entered into in connection with the issuance of our cash convertible senior notes may affect the market price of our common stock | ||
| We are subject to counterparty risk with respect to the convertible note hedge transactions |
Restated Risk Factors
Covenants and events of default in our debt instruments could limit our ability to undertake
certain types of transactions and adversely affect our liquidity.
Our revolving credit facility contains negative and financial covenants and events of default
that limit our financial flexibility and ability to undertake certain types of transactions. For
instance, we are subject to negative covenants that restrict our activities, including restrictions
on our ability to, among other things, grant liens, engage in mergers, sell assets, incur debt,
enter into sale and leaseback transactions, make investments, undertake transactions with
affiliates, pay dividends and repurchase shares. If we fail to satisfy the covenants that are set
forth in our revolving credit facility or an event of default occurs under the revolving credit
facility, we could be prohibited from borrowing thereunder. If we cannot borrow under the revolving
credit facility, we could be required to seek additional financing, if available, or curtail our
operations. Additional financing may not be available on commercially acceptable terms, or
at all. If our revolving credit facility is terminated and we do not have sufficient cash on
hand to pay any amounts outstanding under the facility, we could be required to sell assets or to
obtain additional financing.
We could engage in or approve transactions involving our common stock that inadvertently impair
the use of our federal income tax attributes.
Section 382 of the Internal Revenue Code of 1986, or the Code, affects our ability to use our
federal income tax attributes, including our net operating loss carry-forwards, following an
ownership change as determined under the Code. Certain transactions may be included in the
calculation of an ownership change, including transactions involving our repurchase or issuance of
our common stock. When we engage in or approve any transaction involving our common stock that may
be included in the calculation of an ownership change, our practice is to first perform the
calculations necessary to confirm that our ability to use our federal income tax attributes will
not be affected. These calculations are complex and reflect certain necessary assumptions.
Accordingly, it is possible that we could approve or engage in a transaction involving our common
stock that causes an ownership change and inadvertently impair the use of our federal income tax
attributes.
In connection with our issuance of $175 million aggregate principal amount of 4.5% cash
convertible senior notes, which we refer to as our cash convertible senior notes, completed in
March 2010, we entered into privately negotiated convertible note hedge transactions and warrant
transactions with affiliates of the initial purchasers of our cash convertible senior notes, or the
option counterparties. We have been informed that the option counterparties have established hedge
positions with respect to the convertible note hedge transactions and warrant transactions and may
modify their hedge positions from time to time by, among other things, purchasing and selling
shares of our common stock. Under certain circumstances, these transactions may be included in the
calculation of an ownership change. The convertible note hedge transaction documents contain
provisions intended to ensure that we will be able to perform the calculations necessary to confirm
that such transactions will not affect our ability to use our federal income tax attributes.
However, as noted above, these calculations are complex and reflect certain necessary assumptions.
Moreover, we have agreed to repurchase shares of our common stock held by the option counterparties
as hedges in respect of the convertible note hedge transactions and the warrant transactions if the
option counterparties become 5% stockholders as a result of certain change of law events and we do
not approve their hedging transactions at the time. Accordingly, it is possible that we could
approve transactions in connection with the hedging activities by the option counterparties or
repurchase shares from them, which could cause an ownership change and inadvertently impair the use
of our federal income tax attributes.
We could engage in or approve transactions involving our common stock that adversely affect
significant stockholders.
Under the transfer restrictions in our certificate of incorporation, our 5% stockholders are,
in effect, required to seek the approval of, or a determination by, our board of directors before
they engage in transactions involving our common stock. We could engage in or approve transactions
involving our common stock, including transactions by option counterparties that become 5%
stockholders, if any, that limit our ability to approve future transactions involving our common
stock by our 5% stockholders, including option counterparties that become 5% stockholders, if any,
in accordance with the transfer restrictions in our certificate of incorporation without impairing
the use of our federal income tax attributes. In addition, we could engage in or approve
transactions involving our common stock that cause stockholders owning less than 5% to become 5%
stockholders, resulting in those stockholders having to seek the approval of, or a determination
by, our board of directors under our certificate of incorporation before they could engage in
future transactions involving our common stock. For example, share
repurchases reduce the number of shares of our common stock outstanding and could cause a
stockholder holding less than 5% to become a 5% stockholder even though it has not acquired any
additional shares.
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Payment of dividends may not continue in the future and our payment of dividends and stock
repurchases are subject to restriction.
In June 2007, our board of directors initiated the payment of a regular quarterly cash
dividend. A quarterly cash dividend has been paid in each subsequent quarter. The future
declaration and payment of dividends, if any, will be at the discretion of the board of directors
and will depend on a number of factors, including our results, financial condition, anticipated
cash requirements and ability to satisfy conditions reflected in our revolving credit facility. We
can give no assurance that dividends will be declared and paid in the future. Our revolving credit
facility restricts our ability to pay any dividends and to repurchase shares of our common stock.
More specifically, under our revolving credit facility, we are permitted to pay cash dividends and
repurchase common stock during any fiscal year generally only up to an aggregate amount not to
exceed (1) $50.0 million if our borrowing availability is equal to or greater than $150.0 million
and (2) $25.0 million if either (a) our borrowing availability is less than $150.0 million but
equal to or greater than $100.0 million, or (b) our borrowing availability is less than $100.0
million but equal to or greater than $50.0 million, and our fixed charges coverage ratio is greater
than 1.1 to 1.0. However, we are permitted to pay cash dividends and repurchase common stock
without limitation when there are no loans outstanding under our revolving credit facility.
Additional Risk Factors
Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow
from our business to pay our debt.
Our ability to make scheduled payments of the principal of, to pay interest on or to refinance
our debt, including our cash convertible senior notes, depends on our future performance, which is
subject to economic, financial, competitive and other factors beyond our control. Our business may
not continue to generate cash flow from operations in the future sufficient to service our debt and
make necessary capital expenditures. If we are unable to generate such cash flow, we may be
required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining
additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance
our debt will depend on the capital markets and our financial condition at such time. We may not be
able to engage in any of these activities or engage in these activities on desirable terms, which
could result in a default on our debt obligations.
The conditional conversion features of our cash convertible senior notes, if triggered, may
adversely affect our financial condition and operating results.
In the event the conditional conversion features of our cash convertible senior notes are
triggered, holders of such notes will be entitled to convert such notes at any time during
specified periods at their option. If one or more holders elect to convert their notes, we would be
required to settle our conversion obligation through the payment of cash, which could adversely
affect our liquidity. In addition, even if holders do not elect to convert their notes, we could be
required under applicable accounting rules to reclassify all or a portion of the outstanding
principal of our cash convertible senior notes as a current rather than long-term liability, which
would result in a material reduction of our net working capital.
The convertible note hedge and warrant transactions that we entered into in connection with the
issuance of our cash convertible senior notes may affect the market price of our common stock.
In connection with the issuance of our cash convertible senior notes, we entered into
privately negotiated convertible note hedge transactions and warrant transactions with the option
counterparties. Under the terms of the convertible note hedge transactions, we purchased from the
option counterparties
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cash-settled call options relating to shares of our common stock. Under the
terms of the warrant transactions, we sold to the option counterparties net-share-settled warrants
relating to our common stock.
We have been informed that, in connection with establishing their initial hedge positions with
respect to the convertible note hedge transactions and the warrant transactions, the option
counterparties and/or their affiliates entered into various derivative transactions with respect to
our common stock concurrently with or shortly after the pricing of our cash convertible senior
notes and that the option counterparties and/or their affiliates may modify their hedge positions
by entering into or unwinding various derivatives with respect to our common stock and/or
purchasing or selling our common stock in secondary market transactions prior to the maturity of
our cash convertible senior notes (and are likely to do so during any settlement averaging period
related to a conversion of our cash convertible senior notes). The effect, if any, of these
transactions and activities on the market price of our common stock will depend in part on market
conditions and cannot be ascertained at this time, but any of these activities could adversely
affect the market price of our common stock.
We are subject to counterparty risk with respect to the convertible note hedge transactions.
The option counterparties are financial institutions or affiliates of financial institutions,
and we will be subject to the risk that these option counterparties may default or otherwise fail
to perform, or may exercise certain rights to terminate their obligations, under the convertible
note hedge transactions. Our exposure to the credit risk of the option counterparties will not be
secured by any collateral. Recent global economic conditions have resulted in the actual or
perceived failure or financial difficulties of many financial institutions, including a bankruptcy
filing by Lehman Brothers Holdings Inc. and its various affiliates. If one or more of the option
counterparties to one or more of our convertible note hedge transactions becomes subject to
insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim
equal to our exposure at the time under those transactions. Our exposure will depend on many
factors but, generally, the increase in our exposure will be correlated to the increase in the
market price of our common stock and in volatility of our common stock. In addition, upon a default
or other failure to perform, or a termination of obligations, by one of the option counterparties,
we may suffer adverse tax consequences and dilution with respect to our common stock and we may be
prevented under the revolving credit facility (or any replacement credit facility) from paying the
cash amount due upon the conversion of our cash convertible senior notes. We can provide no
assurances as to the financial stability or viability of any of the option counterparties.
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