VMware 2013 Annual Report Download - page 23

Table of Contents
deploy viruses, worms, and other malicious software programs that could attack our products or services. In the past, VMware has been made aware of public
postings by hackers of portions of our source code. It is possible that the released source code could expose unknown security vulnerabilities in our products
and services that could be exploited by hackers or others. We may also inherit unknown security vulnerabilities when we integrate the products or services of
companies that we acquire into existing and new VMware products or services.
Actual or perceived security vulnerabilities in our products or services could harm our reputation and lead some customers to return products or services,
to reduce or delay future purchases or to use competitive products or services. End users, who rely on our products and services for the interoperability of
enterprise servers and applications that are critical to their information systems, may have a greater sensitivity to product errors and security vulnerabilities
than customers for software products generally. Any security breaches could lead to interruptions, delays and data loss and protection concerns. By their
nature, security breaches are often difficult to detect and the failure to detect a breach for an extended period of time could significantly increase the damage
it could cause. In addition, we could face claims for product liability, tort or breach of warranty, including claims relating to changes to our products and
services made by our channel partners. Our contracts with customers contain provisions relating to warranty disclaimers and liability limitations, which may
not be upheld, and customers and channel partners may seek indemnification from us for their losses and those of their customers. Defending a lawsuit,
regardless of its merit, is costly and time-consuming and may divert management’s attention and adversely affect the market’s perception of us and our
products and services. In addition, if our business liability insurance coverage proves inadequate or future coverage is unavailable on acceptable terms or at
all, our business, financial condition and results of operations could be adversely impacted.
Operating in foreign countries subjects us to additional risks that may harm our ability to increase or maintain our international sales operations and
investments.
Revenues from customers outside the United States comprised approximately 52.3% , 51.6% and 51.6% of our total revenues in the years ended 2013 ,
2012
and 2011, respectively. We have sales, administrative, research and development and technical support personnel in numerous countries worldwide. We
expect to continue to add personnel in additional countries. Additionally, our investment portfolio includes investments in non-U.S. financial instruments and
holdings in non-U.S. financial institutions, including European institutions. Our international operations subject us to a variety of risks, including:
Additionally, as we continue to expand our business globally, we will need to maintain compliance with legal and regulatory requirements covering the
foreign activities of U.S. corporations, such as export control requirements and the Foreign Corrupt Practices Act, as well as with local regulatory
requirements in non-U.S. jurisdictions. These risks will increase as we expand our operations to locations with a higher incidence of corruption and
fraudulent business practices. Our success will depend, in large part, on our ability to anticipate and effectively manage these and other risks associated with
our international operations. We expect a significant portion of our growth to occur in foreign countries, which can add to the difficulties in maintaining
adequate management and compliance systems and internal controls over financial reporting, and increase challenges in managing an organization operating
in various countries. In addition, potential fallout from recent
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• the difficulty of managing and staffing international offices and the increased travel, infrastructure and legal compliance costs associated with
multiple international locations;
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increased exposure to foreign currency exchange rate risk;
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difficulties in enforcing contracts and collecting accounts receivable, and longer payment cycles, especially in emerging markets;
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difficulties in delivering support, training and documentation in certain foreign markets;
• tariffs and trade barriers and other regulatory or contractual limitations on our ability to sell or develop our products and services in certain foreign
markets;
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economic or political instability and security concerns in countries that are important to our international sales and operations;
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macroeconomic disruptions, such as monetary and credit crises, that can threaten the stability of local and regional financial institutions and decrease
the value of our international investments;
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the overlap of different tax structures or changes in international tax laws;
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reduced protection for intellectual property rights, including reduced protection from software piracy, in some countries;
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difficulties in transferring funds from certain countries; and
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difficulties in maintaining appropriate controls relating to revenue recognition practices.