With respect to SoftBank Group Corp. (“SBG”) and its subsidiaries and associates (“Group companies”; SBG and Group companies are collectively referred to as the “Group.”), SBG, the strategic investment holding company, exercises overall control of Group companies and manages them as an investment portfolio. Meanwhile, Group companies operate in a wide range of markets in Japan and overseas. Accordingly, a variety of risks accompany the execution of these corporate activities. The major risks envisaged by the Group as of June 19, 2019, that could significantly affect investors' investment decisions are outlined below. Moreover, these risks do not include all of the risks that the Group could face. Forward-looking statements were determined as of June 19, 2019, unless otherwise stated.
(1) The Group's Business Model
Based on its unique organizational strategy, the Cluster of No. 1 Strategy (see “Medium- to Long-term Strategies” under “Management Policy”), the Group will invest in its subsidiaries and associates (for example, SoftBank Corp. and Arm) and invest through participating in investment funds (for example, SoftBank Vision Fund) to build a group of companies engaged in diverse businesses in the information and technology field and endeavor to maximize corporate value over the medium to long term. In the process, portfolio companies (including Group companies) will seek autonomous growth. Meanwhile, as a strategic investment holding company, SBG will use its various networks to support portfolio companies through such means as promoting business collaborations among them, and thereby help enhance the corporate value of each company. If the business development and results of operations of these portfolio companies differ from the Group's expectations at the time of investment, the returns on these investments may not be in accordance with the Group's expectations, which could adversely affect the Group's business activities and results of operations.
As a pure holding company, SBG raises funds for the investment activities required to build the aforementioned group of companies. With its main sources of income being dividend income from Group companies and distributions from investment funds in which it participates as a limited partner, SBG also raises funds through monetization of its investment assets and debt to meet capital demand for contributions to investment funds and other investment activities. Decreases in dividend income or distributions from investment funds could adversely affect SBG's creditworthiness in relation to fund-raising or adversely affect its results of operations. Also, if in response to capital demand SBG is unable to raise appropriate amounts in a timely manner based on conditions that are favorable to it, its investment activities could be restricted. Either eventuality could hinder the Group's sustained growth.
(2) Global Trends in Political and Economic Situations and Financial Markets
In addition to Japan, the Group conducts investments and businesses in countries and regions overseas, such as the United States, China, India, Europe, and Latin America. Therefore, deterioration in economic situations or financial markets as a result of changes in the political or economic situations in such countries and regions or as a result of changes in international situations due to factors such as trade disputes or conflicts could lead to the Group being unable to conduct investments or businesses in accordance with expectations. For example, the equity value of the Group's shareholdings could fall, conditions for the monetization of investments could deteriorate, or monetization could be delayed, or a decrease in demand for the products or services that the Group or its portfolio companies provide could adversely affect the results of operations of respective companies. Further, a sudden deterioration in the market environment, among other reasons, could result in an inability to dispose of investments in low-liquidity unlisted companies at a time, on a scale, or under conditions desired by the Group. As a result, such factors could adversely affect the Group's results of operations and financial position.
The Group's foreign currency-denominated investments in overseas companies could incur foreign exchange losses due to changes in foreign exchange rates between the time of investment and the time of disposal. Further, in the preparation of the Group's consolidated financial statements, the local currency-based revenues, expenses, assets, and liabilities of Arm and other overseas Group companies are converted into Japanese yen. Consequently, fluctuations in foreign exchange rates could affect the Group's results of operations and financial position.
(3) Management Team
Unforeseen situations concerning key members of management—especially Chairman and CEO of SBG and Group Representative Masayoshi Son—could impede the Group's business activities.
(4) Investment Activities
The Group's investment activities are led by SBG and include corporate acquisitions, establishment of subsidiaries and joint ventures, and acquisitions of interests in operating companies or holding companies (including companies that effectively control other companies through various contracts) and investment funds. These investment activities are associated with risks such as those stated below. The materialization of these risks could adversely affect the Group's results of operations, financial position, and cash flows.
a. Risks associated with the results of operations of portfolio companies
Due to a deterioration in the results of operations of portfolio companies, such as a decrease in their profitability, or due to the inability of portfolio companies to develop businesses in accordance with expectations at the time of investment, impairment losses on or write-downs of assets acquired through investments—including goodwill; property, plant and equipment; intangible assets; or financial assets such as shares—could be recognized, expected profit distributions or other returns from portfolio companies could be unobtainable, or investments could be uncollectible.
In the non-consolidated financial statements of SBG, any decline in the value of assets that were obtained through these investment activities, including equity interests, could cause SBG to recognize a valuation loss, which could have an attendant impact on SBG's results of operations and the distributable amount. Furthermore, a deterioration in the results of operations of portfolio companies could result in an inability to obtain dividends from portfolio companies in accordance with expectations, which could adversely affect cash flows.
In some cases, SBG provides portfolio companies with financial assistance through loans, guarantees, and other means when it deems such assistance to be necessary for enhancement of the Group's corporate value. If portfolio companies are unable to develop businesses as anticipated at the time of investment, or are unable to create sufficient synergies with other subsidiaries and associates, or require more funds than anticipated to develop their businesses, SBG may provide them with financial assistance such as loans, which could increase risk assets in relation to said portfolio companies.
b. Regulatory risks
In some cases, the investment activities that the Group conducts (including corporate acquisitions and mergers) require approvals and permissions from regulatory authorities. An inability to obtain these approvals and permissions could result in the Group being unable to invest in accordance with expectations.
c. Risks related to mergers and acquisitions
With respect to the Group's investments conducted to acquire or merge companies, if the business development plan does not progress as expected at the time of the Group's investment, for such reasons as a loss of key members of management, employees, business partners, or customers at the acquired or merged companies after such investment, the business development and results of operations of these companies could be adversely affected, or sufficient synergies may not be created after the acquisition or merger. As a result, returns in accordance with expectations may be unobtainable from such investments.
d. Risks related to partners in joint ventures and business alliances
In some cases, the Group develops its business in Japan and overseas through the establishment of joint ventures, formation of business alliances, and so forth with other companies. Drastic changes in business strategy by these joint venture partners or business alliance partners or a drastic deterioration in their results of operations or financial position could lead to joint ventures or business alliances being unable to produce results in accordance with expectations or having difficulty continuing. In addition, the execution of a joint venture or business alliance with a particular third party could restrict the execution of joint ventures, business alliances, and so forth with other companies, which could lead to the loss of larger earnings opportunities.
e. Risks related to the governance and compliance of portfolio companies
Portfolio companies may be facing internal control problems or conducting unlawful activities that the Group was unable to discover at the time of investment. An inability to promptly correct such problems or activities, despite the introduction of measures for their monitoring and correction after investment, could impair the credibility and corporate image not only of portfolio companies but also of the Group, which could adversely affect business activities of the Group.
(5) Response to Changes in Technology and Business Models
The Group conducts investments and businesses in information and technology industries (for example, the telecommunications industry and the semiconductor industry), which are subject to rapid changes in technology and business models. If, for some reason, the Group is unable to develop or introduce outstanding technologies or business models in anticipation of market or other trends, the products and services that the Group offers based on its technologies or business models could lose competitiveness in the market, which could make it difficult to acquire and retain customers. This could adversely affect the Group's results of operations.
In certain instances, the Group's competitors may have a competitive advantage over the Group in terms of capital, technology development capabilities, price competitiveness, customer base, sales capabilities, brands, or public recognition, for example. If these competitors were to develop or sell services and products that harness these competitive advantages to a greater extent than at present, the Group may be placed at a disadvantage in sales competition, or may be unable to provide services and products, or acquire or retain customers as anticipated. This could adversely affect the Group's results of operations.
Moreover, even though the Group's services and products are introduced ahead of competitors' offerings or have strong competitive advantages relative to them, competitors' introduction of services and products that are equivalent or superior to the offerings of the Group could reduce its competitiveness, result in expenses incurred in development becoming unrecoverable, or impair related business assets (including intangible assets). This could adversely affect the Group's business activities, results of operations, and financial position.
(7) Fund Procurement
In the Group, SBG procures the funds it requires for developing its business and conducting investment activities by borrowing from financial institutions, borrowings through the use of its shareholdings (asset-backed financing), issuing corporate bonds, and other sources. On the other hand, self-financing entities, including the listed subsidiaries and associates SoftBank Corp., Sprint, Yahoo Japan, and Alibaba, as well as Arm, Brightstar, and SoftBank Vision Fund, procure their respective funds independently. A rise in interest rates due to such factors as changes in respective countries' financial policies or in financial markets, or a decline in SBG or its subsidiaries and associates' creditworthiness, which could take the form of a downgrading of their credit ratings, due to a decrease in the value of owned assets or a deterioration in their results of operations, could increase the cost of procuring funds for Group companies and adversely affect the Group's results of operations. Further, an inability to procure funds at a time, on a scale, or under conditions as planned could adversely affect the Group's investment and business activities, results of operations, and financial position.
The Group may undertake new fund procurement or refinancing, sell some of its assets, or take other measures to secure resources for the repayment of procured funds. Such factors as a deterioration in the fund procurement environment could force the Group to dispose of assets under disadvantageous terms or execute unplanned disposals of assets in order to secure resources for repayment, which could adversely affect the Group's results of operations, business activities, and financial position.
In addition, various covenants may be attached to the Group's debt, including borrowings from financial institutions, corporate bonds, and other transactions. If the potential arises for any of these covenants to be breached and the Group is unable to take steps to avoid breaching them, the Group could forfeit the benefit of the term relating to the obligation concerned, and in conjunction with this forfeit the Group could be requested to repay other borrowings in lump sum payment as well. As a result, the Group's results of operations, business activities, and financial position could be adversely affected.
(8) SoftBank Vision Fund
SoftBank Vision Fund (“SVF”) invests in companies across a wide range of technology sectors, focusing on unlisted companies that are rolling out innovative business models or services. SVF is managed by SBG's wholly owned subsidiary in the United Kingdom, SB Investment Advisers (UK) Limited (“SBIA”), which is regulated by the United Kingdom's Financial Conduct Authority. SBG invests in SVF as a limited partner. Also, SBIA is entitled to receive management fees and performance fees, each of which is measured by reference to the investment activities of SVF.
As of March 31, 2019, total committed capital for SVF was USD 97.0 billion*1 (including USD 33.1 billion from the Group); cumulative contributions from limited partners were USD 50.9 billion (including USD 17.5 billion from SBG), and remaining committed capital was USD 46.1 billion (including USD 15.6 billion by the Group).
SVF and SBIA are subject to the particular risks stated below. If any of these risks were to emerge, they could adversely affect the results of operations of SVF and SBIA, and, subsequently, the results of operations, financial position, and cash flows of the Group. They could also adversely affect SBG's results of operations and the distributable amount.
a. Impact on the results of operations
All entities that comprise SVF are consolidated by the Group. Investments held by SVF are measured at fair value at the end of every quarter. Changes in fair value are recognized as gain and loss on investments (except for gain and loss on investments in subsidiaries) in operating income from SoftBank Vision Fund and Delta Fund in the consolidated statements of income. Fair value is measured by combining multiple methods, such as the price of recent transactions, discounted cash flow, and market comparable companies. A decline in the fair value of the investments—due to factors such as a deterioration in the results of operations of portfolio companies or a downturn in financial markets and economic conditions—could lead to a deterioration in the results of operations of SVF, which could have an adverse effect on the Group's results of operations and financial position. Further, in the non-consolidated financial statements of SBG, a deterioration in the results of operations of SVF could give rise to valuation loss on investment made as a limited partner, which could have an adverse effect on the results of operations and the distributable amount.
The portfolio companies in which SVF has invested that, based on IFRSs, the Group is deemed to control are treated as subsidiaries of the Group. The results of operations as well as assets and liabilities of said subsidiaries are reflected in the Group's consolidated financial statements. Therefore, a deterioration in the results of operations of said portfolio companies that are subsidiaries could have an adverse effect on the Group's results of operations and financial position. Gain and loss on investments in said subsidiaries that are recognized at SVF are eliminated in consolidation.
b. Investments acquired from sale by the Group
In addition to direct purchases, SVF acquires some investments from the sale of investments held directly or indirectly by SBG, only if they are in accordance with SVF's investment eligibility criteria. The price of such sales to SVF is based on the fair value when SBG made its decision at its applicable authority to offer the transfer. In some cases, a transfer requires the approval of relevant regulatory authorities or the agreement of certain of SVF's limited partners. As a result, even if SBG has made a decision at its applicable authority, the sale could take time, or it may not be implemented. In such a case, SBG may be unable to receive proceeds from the sale of investments to SVF as planned, which could have an adverse effect on SBG's financial management by requiring measures such as additional financing.
c. Investment performance
Net proceeds from the investment performance of SVF are distributed to limited partners, who comprise SBG and third-party investors. They are also distributed to SBIA as performance fees. If SVF experiences a deterioration in investment profitability and an inability to obtain investment performance as planned, SBG could be unable to receive performance-based distributions as a limited partner in accordance with expectations or could be unable to recover its capital contributions. SBIA may also be unable to receive performance fees in accordance with expectations.
Further, SBIA receives performance fees after the disposition of investments, the receipt of dividends from investments, or the monetization of shares. The performance fees to SBIA from the monetization of investments are not paid to SBIA during the investment period of SVF (in principle, up to November 20, 2022). Instead, an amount equivalent to the performance fees attributable to SBIA is temporarily paid to the limited partners during the investment period, under the Limited Partnership Agreement. After the investment period, the equivalent amount is paid to SBIA as performance fees, which is given priority over the performance-based distributions to limited partners from monetization of investment in post-investment period. After the investment period, however, the performance fees received are subject to a clawback provision (a provision requiring the return of performance fees received in the past), which is triggered under certain conditions based on future investment performance. Therefore, if the investment performance of SVF does not exceed a certain level, SBIA may be unable to receive performance fees in accordance with expectations. Also, if the investment performance at the time of liquidation of SVF does not exceed a certain level, the amount of performance fees that have been received by SBIA up until then could be reduced, or SBIA may not be able to receive performance fees.
d. Securing and retaining human resources
SBIA seeks to maximize the equity value of the investment funds that it manages, including SVF, by carefully selecting investments and promoting growth after investment through the provision of a wide range of support. For the success of these investment activities, it is essential to secure and retain capable personnel who possess broad knowledge of technology and financial markets as well as specialized skills in managing investment businesses. SBIA is expanding and enhancing its investment and management capabilities. However, the inability of SBIA to secure or retain an adequate number of such capable personnel could have an adverse effect on the maintenance or expansion of the investment scale and future investment performance of the investment funds it manages.
e. Limited partners
For each of SVF's investments, SBIA issues capital calls to its limited partners. The inability of limited partners to contribute capital for any reason could restrict the investment amounts of SVF and result in it being unable to invest as planned. Also, because certain limited partners that provide large committed capital amounts have a veto for investments above a certain threshold amount, the exercise of a veto could result in SBIA being unable to conduct investments as planned.
f. Regulation of new technologies or business models
SVF's portfolio includes companies that are advancing the use of or conducting research and development in relation to new technologies such as AI and big data and companies that are rolling out new business models that are different from existing business models. The business fields in which these types of new technologies and business models are offered (for example, autonomous vehicles and ride-sharing services) may be subject to strict regulations in many countries and regions. With the development of related laws, the introduction of or changes in regulations could have an adverse effect on portfolio companies' business development and their results of operations by, for example, requiring portfolio companies to change, suspend, or discontinue the deployment of technologies, business models, or related research and development plans.
g. Concentration of investments in specific business fields
SVF invests in multiple companies in specific business fields, which in some cases leads to a high level of concentration of investments in said business fields. For example, SVF has invested in companies that provide ride-sharing services, including Uber Technologies, Inc., Xiaoju Kuaizhi Inc., and GRAB HOLDINGS INC. In such business fields, a deterioration in the business environment, such as sluggish demand or intensified market competition (including competition among portfolio companies), could result in a deterioration in the results of operations, such as a decrease in the profitability of a portfolio company; an inability to develop a business in accordance with expectations at the time of SVF's investment; or a deterioration in the market's valuation of said business fields. Such developments could adversely affect the results of operations or the fair value of portfolio companies.
(9) Telecommunications Business
There are particular risks associated with the telecommunications business, which in the Group is mainly operated by SoftBank Corp. and Sprint, as listed below.
a. Capacity enhancement of telecommunications networks
To maintain and enhance the quality of its telecommunications services, the Group must continuously increase the capacity of its telecommunications networks (by securing required spectrum, for example) based on predictions regarding the amount of future network traffic. The Group thus intends to systematically increase network capacity. However, if the actual amount of network traffic was to drastically exceed the Group's predictions, or if the Group was unable to carry out network capacity enhancement in accordance with plans, service quality could decline, which could have an adverse effect on the acquisition and retention of customers. In this case, the Group would need to execute additional capital expenditure. These outcomes could adversely affect the Group's results of operations and financial position.
b. Dependence on management resources of other companies
ⅰ. Use of facilities, etc., of other companies
The Group makes use of certain telecommunications lines and facilities owned by other operators when constructing the telecommunications networks required for providing telecommunications services. The Group's business activities and results of operations could therefore be adversely affected if it becomes difficult to continue to use those facilities, or if utilization or connection rates for those facilities were to be increased.
ⅱ. Procurement of various equipment
The Group procures telecommunications equipment, network devices, and so forth (mobile devices and radio equipment for mobile phone base stations, for example) from other companies. The Group may be unable to switch suppliers or equipment in a timely manner should problems occur with the procurement of equipment in a case where the Group relies heavily on a specific supplier. Such problems could include supply interruptions, delivery delays, order volume shortfalls, and defects. Suppliers may also cease to provide the maintenance and inspection services required for telecommunications equipment to maintain performance. Either of these situations could impede the Group's provision of services, making it difficult to acquire and retain customers, or cause the Group to incur additional costs for changing a supplier, or cause a decline in sales of telecommunications equipment. This could adversely affect the Group's results of operations.
ⅲ. Consignment of operations
The Group consigns sales activities, acquisition and retention of customers mainly for telecommunications services, and the execution of other related operations in whole or part to subcontractors. The Group's business activities could therefore be adversely affected if these subcontractors are unable to execute operations in line with the Group's expectations.
As these subcontractors are responsible for the sale of the Group's services and products, damage to the credibility or corporate image of these subcontractors would also have a negative impact on the Group's credibility or corporate image. This could hinder business development and the acquisition and retention of customers, which could adversely affect the Group's results of operations. Furthermore, if these subcontractors should fail to comply with laws and regulations, the Group could receive a warning or administrative guidance from the relevant regulatory authorities, or be investigated for non-fulfillment of its supervisory responsibility, and the Group's credibility or corporate image could deteriorate as a result, making it difficult to acquire and retain customers. As a result, the Group's results of operations could be adversely affected.
c. Regulations about health risks associated with electromagnetic waves
There have been some research results that have indicated the possibility that electromagnetic waves emitted from mobile devices and base stations have adverse health effects, such as increasing the risk of cancer. The International Commission on Non-Ionizing Radiation Protection (ICNIRP) has prescribed guidelines relating to the amplitude of these electromagnetic waves. The World Health Organization (WHO) has issued an opinion that there is no clear evidence showing that electromagnetic waves have adverse effects on health when their amplitude is within the reference values stated in the ICNIRP's guidelines and recommends that all countries adopt them.
The Group complies with a policy for protection from electromagnetic waves based on the ICNIRP's guidelines in Japan, and complies with the requirements of the Federal Communications Commission (FCC) in the U.S. However, the WHO and other organizations continue to conduct research and investigations, the results of which may lead to regulations being revised in the future, or new regulations being introduced. Complying with such revision or introduction of regulations may incur costs, or may restrict the Group's business operations, which could adversely affect the Group's results of operations.
Moreover, regardless of the presence of such regulations, concerns over the adverse effects on health associated with the use of mobile devices could make it difficult for the Group to acquire and retain customers, which could adversely affect the Group's results of operations.
(10) Renewable Energy Business
The Group conducts renewable energy businesses engaged in solar power generation and wind power generation in Japan, India, Mongolia, and other countries. In principle, these businesses are conducted based on investment from the Group and project finance formats that entail financing from financial institutions and other third parties. However, weather conditions, the malfunction of power generation or transmission facilities, and other factors that cause the volume of power generated or sold to be dramatically lower than projections could result in the Group being unable to receive returns in accordance with expectations.
(11) Laws, Regulations, and Systems
The Group conducts its business and investments under laws, regulations, systems, and so forth in various fields in each country, and is affected by these both directly and indirectly. Specifically, these range from laws, regulations, systems, and so forth pertaining to the telecommunications business through to various laws, regulations, systems, and so forth pertaining to businesses such as investment, Internet advertising, e-commerce, energy, artificial intelligence, robotics, finance and settlement services, and other corporate business activities (including but not limited to laws, regulations, systems, and so forth related to the environment, product liability, fair competition, consumer protection, protection of personal information and privacy, anti-bribery, labor affairs, intellectual property, prevention of money laundering, taxation, foreign exchange, business and investment permits, and import and export activities).
Revisions to such laws, regulations, systems, and so forth; the enforcement of new laws, regulations, systems, and so forth; or new interpretations and applications of laws, regulations, systems, and so forth (including amendments thereof) could hinder the Group's investment activities or business activities. For example, the Group may be unable to develop its investment activities or business activities in accordance with expectations, new businesses or investments may be restricted, or the monetization of investments may be delayed or become impossible. In addition, incurring an increased financial burden could adversely affect the Group's results of operations.
Further, in countries and regions in which the Group or the Group's portfolio companies conduct business activities, the introduction of or changes to tax laws or regulations or changes to their interpretations or enforcement or the incurrence of additional tax burdens due to differences of views with tax authorities could adversely affect the Group's results of operations or financial position.
In addition, if the Group (including officers and employees) conducts business activities in breach of those laws, regulations, systems, and so forth, regardless of whether the Group was aware of it or not, the Group may be subject to sanctions or guidance by government agencies (including deregistration, revocation of licenses and fines), or may face cancellation of business agreements by business partners. As a result, the Group's credibility and corporate image may be impaired, or its business activities may be hindered. In addition, the Group may incur a financial burden, which could adversely affect the Group's results of operations.
(12) Country Risk
The Group's entry into a country or region with respect to which the Group has insufficient knowledge or experience to conduct investment activities or business activities could hinder said activities. For example, the Group may be unable to conduct investment activities or business activities in accordance with expectations.
Moreover, the occurrence of political, social, or economic turbulence in countries and regions, due to the outbreak of wars, conflicts, or terror attacks, the enactment of economic sanctions, the outbreak of communicable diseases, and other events, could prevent the Group from carrying out its business activities as anticipated, or delay or prevent the recovery of its investments.
(13) Intellectual Property
Infringement of the Group's SoftBank brand or Arm's intellectual property by a third party could have a negative impact on the Group's competitiveness, credibility, or corporate image. On the other hand, if the Group were to unintentionally infringe on intellectual property rights held by a third party, it may be prevented from using the intellectual property or subjected to claims for compensatory damages, license fees, and so forth from the third party. Such actions could impact the Group's results of operations. Corporations and persons who have acquired usage rights for Arm's technology (licensees) could become subject to such claims, and Arm could be obliged to provide compensation to licensees based on license agreements.
Further, in the businesses of SoftBank Corp. and Yahoo Japan, the Group makes use of Yahoo! brands belonging to a subsidiary of U.S. company Verizon Communications Inc. in certain service names, such as Yahoo! JAPAN, Y!mobile, and Yahoo! BB. If the Group were to become unable to use these brands due to a drastic change in its relationship with the subsidiary of Verizon Communications or other reasons, the Group may be prevented from developing businesses as anticipated.
(14) Information Leaks
In its business operations, the Group handles customer information (including personal information) and other confidential information. This information could be leaked, lost, or involved in a similar incident, either intentionally or accidentally by the Group (including officers and employees of the Group and people related to subcontractors), or through a malicious cyberattack by a third party or other means. Such an occurrence could damage the Group's competitiveness, and incur significant costs to the Group for payment of damages and modification of security systems, in addition to having an adverse impact on the Group's credibility or corporate image and making it difficult to acquire and retain customers. These outcomes could adversely affect the Group's results of operations.
(15) Service Disruptions or Decline in Quality Due to Human Error and Other Factors
In its provision of various services, including telecommunications services, there is a possibility that a major problem could occur if the Group were to become unable to continuously provide these services, or suffered a decline in the quality of these services, due to human error, problems with equipment or systems, or other causes. If such disruptions or a decline in quality were to become widespread and/or if significant time were required to restore services, the Group's credibility or corporate image could deteriorate, making it difficult to acquire and retain customers. This could adversely affect the Group's results of operations.
(16) Natural Disasters, Accidents, and Other Unpredictable Events
The Group constructs and maintains telecommunications networks, information systems, and other systems necessary for the provision of various services, including Internet and telecommunications services. Natural disasters such as earthquakes, typhoons, hurricanes, floods, tsunamis, tornadoes, heavy rainfall, snowfall, or volcanic activity; other unexpected disruptions such as fires or power outages or shortages; or incidents such as terrorist attacks, cyberattacks, unauthorized access, or infection by computer viruses could interfere with the normal operation of telecommunications networks and information systems and other systems. This could hinder the provision of various services by the Group.
If these impacts were to become widespread and/or if significant time were required to restore services, the Group's credibility or corporate image could deteriorate, making it difficult to acquire and retain customers. Moreover, significant costs may be incurred by the Group for recovery and repair of telecommunications networks, information systems, and other systems. This could adversely affect the Group's results of operations.
Moreover, regarding Arm's business, Arm's technology is used in billions of consumer and enterprise products, many of which are used to store, manage, or transmit huge amounts of personal information and confidential information. Further increases in the complexity of Arm's technology could increase the likelihood of a fault or bug. A fault or bug associated with one of Arm's products could result in the deterioration of Arm's credibility or corporate image and damage to Arm's brand value.
In Japan, the head offices and business offices of various Group companies are concentrated in the Tokyo metropolitan area. The possibility therefore exists that a major earthquake or other force majeure event in the area could incapacitate these business locations, impeding the continuity of the Group's business.
(17) Measures to Protect U.S. National Security
In relation to certain investments in the U.S., SBG and the companies receiving these investments (investees) have entered into a National Security Agreement with the relevant departments of the U.S. government. Under the National Security Agreement, SBG and the investees have agreed to implement certain measures to protect U.S. national security. Implementing these measures could increase costs and limit control over certain U.S. facilities, contracts, personnel, vendor selection, and business operations. This could adversely affect the Group's results of operations.
The Group faces the possibility of lawsuits by third parties claiming compensatory damages for the alleged infringement of rights or benefits. These third parties may include customers, business partners, shareholders (including shareholders of subsidiaries, associates, and investees), and employees. Such lawsuits could hinder the Group's business activities or may impair the Group's corporate image, as well as create a financial burden that could adversely affect the Group's results of operations.
(19) Merger of Sprint and T-Mobile
On April 29, 2018, Sprint and T-Mobile entered into a definitive agreement to merge in an all-stock transaction (the “Transaction” herein (19)). The Transaction is subject to Sprint and T-Mobile US, Inc. stockholder approval, regulatory approvals, and other customary closing conditions. As of June 19, 2019, not all required approvals have been obtained from the relevant regulatory authorities, including the U.S. Department of Justice. If, due to various factors including the status of the acquisition of regulatory approvals, the Transaction is unable to close under the conditions and schedule as planned by the Group, Sprint's business development could be adversely affected. This could adversely affect the Group's results of operations and financial position.
The committed capital of the Group includes USD 5.0 billion earmarked for use in an incentive scheme related to SVF.
“Co. Ltd.,” “Corporation,” etc., are omitted from the names of companies and organizations in principle.Company names or abbreviations, except as otherwise stated or interpreted differently in the context, are as follows:
Company names / Abbreviations Definition SoftBank Group Corp. or SBG SoftBank Group Corp. (stand-alone basis) The Company SoftBank Group Corp. and its subsidiaries
Each of the following abbreviations indicates the respective company and its subsidiaries, if any.
Company names / Abbreviations Definition Sprint Sprint Corporation Arm Arm Limited SoftBank Vision Fund, Vision Fund or SVF SoftBank Vision Fund L.P. and its alternative investment vehicles Delta Fund SB Delta Fund (Jersey) L.P. SBIA SB Investment Advisers (UK) Limited Brightstar Brightstar Global Group Inc. T-Mobile T-Mobile US, Inc. Alibaba Alibaba Group Holding Limited