Tesla 2016 Annual Report Download - page 26

Servicing our indebtedness requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substanti al
debt.
Wehaveincurred$3.0billioninaggregateprincipalamountofconvertibleseniornotesissuedinregisteredpublicofferings.Undercertaincircumstances
relatingtothereportedtradingpriceofourcommonstock,theholdersofourconvertibleseniornotesmayconverttheirnotesattheiroption,uponwhichwewould
beobligatedtodelivercashpaymentsand/orsharesofourcommonstocktotheconvertingholders.Currently,holdersofanaggregate$660.0milliontrancheof
noteshavetherighttoconverttheirnotes.Moreover,holdersofthenoteshavetherighttorequireustorepurchasetheirnotesupontheoccurrenceofa
fundamentalchangewithrespecttous.Inaddition,wehaveaseniorsecuredasset-basedrevolvingcreditfacility(theCreditFacility),underwhichwehad$135
millionofborrowingsasofDecember31,2015.
Ourabilitytomakescheduledpaymentsofprincipalwhendue,tomakeperiodicinterestpaymentsortomakeotherpaymentspursuanttothetermsofour
indebtedness,suchaswithrespecttoourconvertibleseniornotesupontheirconversionorupondemandfollowingafundamentalchange,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satisfytheseobligationsorobligationsunderanyfutureindebtednesswemayincurandto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reducingordelayinginvestmentsor
capitalexpenditures,sellingassets,refinancingorobtainingadditionalequitycapitalontermsthatmaybeonerousorhighlydilutive.Ourabilitytorefinanceour
existingoranyfutureindebtednesswilldependonthecapitalmarketsandourfinancialconditionatsuchtime.Inaddition,ourabilitytomakerequiredpayments
underourindebtednessmaybelimitedbylaw,byregulatoryauthorityorbyagreementsgoverningourfutureindebtedness.Wemaynotbeabletoengageinanyof
theseactivitiesorengageintheseactivitiesondesirabletermsoratall,whichcouldresultinadefaultonourexistingorfutureindebtedness.Furthermore,any
repaymentofanyofourexistingorfutureindebtednesspriortotheirscheduledmaturitycouldhaveamaterialadverseeffectonourbusiness,resultsofoperations
andfinancialcondition.
Our debt agreements contain covenant restrictions that may limit our ability to operate our business.
ThetermsofourCreditFacilitycontain,andanyofourotherfuturedebtagreementsmaycontain,covenantrestrictionsthatlimitourabilitytooperateour
business,includingrestrictionsonourabilityto,amongotherthings,incuradditionaldebtorissueguarantees,createliensandmakecertainvoluntaryprepayments
ofspecifieddebt.Inaddition,undercertaincircumstanceswearerequiredtocomplywithafixedchargecoverageratio.
Asaresultofthesecovenants,ourabilitytorespondtochangesinbusinessandeconomicconditionsandtoobtainadditionalfinancing,ifneeded,maybe
restricted,andwemaybepreventedfromengagingintransactionsthatmightotherwisebebeneficialtous.Inaddition,ourfailuretocomplywithourdebt
covenantscouldresultinadefaultunderourdebtagreements,whichcouldpermittheholderstoaccelerateourobligationtorepaythedebt.Ifanyofourdebtis
accelerated,wemaynothavesufficientfundsavailabletorepayit.
We may still incur substantially more debt or take other actions, which would intensify the risks discussed immediately above.
Weandoursubsidiariesmay,subjecttothelimitationsinthetermsofourCreditFacility,incuradditionaldebt,secureexistingorfuturedebt,recapitalize
ourdebtortakeanumberofotheractionsthatarenotlimitedbythetermsoftheindenturegoverningourconvertibleseniornotesthatcouldhavetheeffectof
diminishingourabilitytomakepaymentsonthenoteswhendue.
The classification of our convertible senior notes may have a material effect on our reported financial results.
AsdescribedintheRiskFactor“Servicingourindebtednessrequiresasignificantamountofcash,andwemaynothavesufficientcashflowfromour
businesstopayoursubstantialdebt,”ourconvertibleseniornoteshavebeenhistorically,andmaybecomeinthefuture,convertibleattheoptionoftheirholders
priortotheirscheduledtermsundercertaincircumstances.Evenifholdersdonotelecttoconverttheirnotes,thenotesbecomeconvertiblepriortotheirscheduled
maturitydates,wewouldberequiredtoreclassifysuchnotesandtherelateddebtissuancecostsascurrentliabilitiesandcertainportionsofourequityoutsideof
equitytomezzanineequity,whichwouldhaveanadverseimpactonourreportedfinancialresultsforsuchquarter,andcouldhaveanadverseimpactonthemarket
priceofourcommonstock.
25