VMware 2014 Annual Report Download - page 32

Table of Contents
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 2014, our goodwill balance increased by $938 million or 31% 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. If our systems
fail, our disaster recovery planning and capacity may prove insufficient to enable timely recovery of important functions and business records.
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 implementation
period, could adversely affect our business in a number of respects. Additionally, delays in adapting our information systems to address new
business models could limit the success or result in the failure of such initiatives and impair the effectiveness of our internal controls. Even if we
do not encounter these adverse effects, the implementation of these enhancements may be much more costly than we anticipated. If we are
unable to successfully implement the information systems enhancements as planned, our financial condition, results of operations and cash flows
could be negatively impacted.
Our financial results may be adversely impacted by higher than expected tax rates, and we may have exposure to additional tax liabilities.
As a multinational corporation, we are subject to income taxes as well as non-income based taxes, such as payroll, sales, use, value-added,
net worth, property and goods and services taxes, in both the United States and various foreign jurisdictions. Our domestic and international tax
liabilities are subject to the allocation of revenues and expenses in different jurisdictions and the timing of recognizing revenues and expenses.
Additionally, the amount of income taxes paid is subject to our interpretation of applicable tax laws in the jurisdictions in which we file and
changes to tax laws. Significant judgment is required in determining our worldwide provision for income taxes and other tax liabilities. From
time to time, we are subject to income and non-
income tax examinations. Currently, the EMC consolidated tax group is under federal income tax
audit for 2009 and
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