VMware 2013 Annual Report Download - page 30

Table of Contents
Additionally, we may not be able to find suitable acquisition candidates, and we may not be able to complete acquisitions on favorable terms, if at all. If
we do complete acquisitions, we may not ultimately strengthen our competitive position or achieve our goals, or they may be viewed negatively by
customers, financial markets or investors. If our acquisitions do not meet our expectations, or if our strategic focus subsequently changes, we may choose to
abandon certain acquired product lines and divest from acquired businesses. For example, in 2013, we divested certain business activities, including
SlideRocket, Shavlik, and Zimbra. It is generally difficult for an acquirer to completely recover the cost of an acquisition which is subsequently divested.
Accordingly, divestitures of acquired businesses and products may result in us taking charges for impairment of assets and goodwill, and result in cash
expenditures in connection with headcount reductions.
The risks described above may be exacerbated as a result of managing multiple acquisitions at the same time. We may also face difficulties due to the
lack of experience in new markets, products or technologies or the initial dependence on unfamiliar supply or distribution partners.
In addition to business acquisitions, we also seek to invest in businesses such as ventured financed companies and joint ventures that offer
complementary products, services or technologies. These investments are accompanied by risks similar to those encountered in an acquisition of a business.
Additionally, we do not control entities where we have a minority investment, and therefore cannot ensure that these investments and joint ventures will make
decisions that promote or are complementary to our business strategy.
If our goodwill or amortizable intangible assets become impaired we may be required to record a significant charge to earnings.
We may not realize all the economic benefit from our acquisitions of other companies, which could result in an impairment of goodwill or intangibles.
During 2013, our goodwill balance increased by $179 million or 6.3% primarily as a result of acquisitions made during the year. We review our amortizable
intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. We test goodwill for
impairment at least annually. Factors that may be considered a change in circumstances, indicating that the carrying value of our goodwill or amortizable
intangible assets may not be recoverable, include a decline in stock price and market capitalization or cash flows, reduced future cash flow estimates, and
slower growth rates in our industry. We may be required to record a significant charge in our financial statements during the period in which any impairment
of our goodwill or amortizable intangible assets is determined, negatively impacting our results of operations.
If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud. As a result,
our stockholders could lose confidence in our financial reporting, which could harm our business and the trading price of our Class A common stock.
In order to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, we need to maintain our processes and systems and adapt
them to changes in our business requirements and regulation. We may seek to automate certain processes to improve efficiencies and better ensure ongoing
compliance but such automation may itself disrupt existing internal controls and introduce unintended vulnerability to error or fraud. This continuous process
of maintaining and adapting our internal controls and compliance with Section 404 is expensive and time-consuming, and requires significant management
attention. We cannot be certain that our internal control measures will continue to provide adequate control over our financial processes and reporting and
ensure compliance with Section 404. Furthermore, as our business grows and changes and as we expand through acquisitions of other companies, our internal
controls may become more complex and we will require significantly more resources to ensure our internal controls overall remain effective. Failure to
implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet
our reporting obligations. If we or our independent registered public accounting firm identify material weaknesses, the disclosure of that fact, even if quickly
remedied, could reduce the market’s confidence in our financial statements and harm our stock price. In addition, if we are unable to continue to comply with
Section 404, our non-
compliance could subject us to a variety of administrative sanctions, including the suspension or delisting of our Class A common stock
from the New York Stock Exchange and the inability of registered broker-dealers to make a market in our Class A common stock, which could reduce our
stock price.
Problems with our information systems could interfere with our business and could adversely impact our operations.
We rely on our information systems and those of third parties for processing customer orders, delivery of products, providing services and support to our
customers, billing and tracking our customers, fulfilling contractual obligations and otherwise running our business. Any disruption in our information
systems and those of the third parties upon whom we rely could have a significant impact on our business. In addition, we continuously work to enhance our
information systems. The implementation of these types of enhancements is frequently disruptive to the underlying business of an enterprise, which may
especially be the case for us due to the size and complexity of our business. Additionally, our information systems may not support new business models and
initiatives and significant investments could be required in order to upgrade them. Any disruptions relating to our systems enhancements, particularly any
disruptions impacting our operations during the
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