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Table of Contents
Financial Risks
Our substantial leverage could adversely affect our ability• to raise additional capital to fund our operations, limit our ability• to react to changes
in the economy or our industry•, expose us to interest rate risk to the extent of our variable rate debt and prevent us from meeting our debt
obligations.
We are highly leveraged. As of June 30, 2015, we had $21.0 billion of total debt. Our high degree of leverage could have important
consequences, including:
•
increasing ow vulnerability to adverse economic, industry, or competitive developments:
•
requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness.
therefore reducing our ability to use cash flow to fund our operations, capital expenditures, and future business opportunities;
•
making it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to comply with the obligations
of our debt instruments, including restrictive covenants and borrowing conditions, could result in an event of default under the
agreements governing such indebtedness;
•
restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;
•
making it more difficult for us to obtain network sponsorship and clearing services from financial institutions or to obtain or retain other
business with financial institutions;
•
limiting our ability to obtain additional financing for working capital, capital expenditures. product development. debt service
requirements, acquisitions, and general corporate or other purposes; and
•
limiting our flexibility in planning for, or reacting to, changes in our business or market conditions and placing us at a competitive
disadvantage compared to our competitors who are less highly leveraged and who, therefore, may be able to take advantage of
opportunities that our leverage prevents us from exploiting.
Our financial condition and results of operations are dependent in part upon our ongoing ability to refinance our maturing indebtedness at
attractive interest rates.
Successful execution of our business strategy is dependent in part upon our ability to manage our capital structure to reduce interest
expense and enhance free cash flow generation. Our senior =wed revolving credit facility has S1.25 billion in commitments that are scheduled to
mature in June 2020. In addition, approximately $3.5 billion of obligations under our existing senior notes are scheduled to mature prior to
December 31, 2020. We may not be able to refinance our senior secured credit facilities or our other existing indebtedness at or prior to their
maturity at attractive rates of interest because of our high levels of debt, debt incurrence restrictions under our debt agreements or because of
adverse conditions in credit markets generally.
An increase in interest rates may negatively impact our operating results and financial condition.
Certain of our borrowings, including borrowings under our senior secured credit facilities to the extent the interest rate is not fixed by an
interest rate swap. are at variable rates of interest. An increase in interest rates would have a negative impact on our results of operations by causing
an increase in interest expense.
As of June 30. 2015, we had $8.6 billion aggregate principal amount of variable rate long-term indebtedness as well as $200 million of
variable rate short-tenn indebtedness, of which interest rate swaps fix the interest rate on $5.0 billion in notional amount. As a result, as of June 30,
2015, the impact of a 100 basis point increase in interest rates would increase our annual interest expense by approximately S38 million.
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CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e)
CONFIDENTIAL
DB-SDNY-0082042
SONY GM_00228226
EFTA01382612