VMware 2014 Annual Report Download - page 33

Table of Contents
2010 and the audit is not expected to be completed until 2015. While we believe we have complied with all applicable income tax laws, there can
be no assurance that a governing tax authority will not have a different interpretation of the law and assess us with additional taxes. Should we
be assessed with additional taxes, there could be a material adverse effect on our financial condition or results of operations.
Our future effective tax rate may be affected by such factors as changes in tax laws, our business, rates, changing interpretation of existing
laws or regulations, the impact of accounting for stock-based compensation, the impact of accounting for business combinations, and shifts in
the amount of earnings in the U.S. compared with other regions in the world as well as the expiration of statute of limitations and settlements of
audits, changes in our international organization, and changes in overall levels of income before tax. For example, the U.S. federal research
credit, which provided a significant reduction in our effective tax rate, expired on December 31, 2014. Without the reinstatement of the U.S.
federal research credit, we expect our 2015 effective tax rate to be higher than the 2014 effective tax rate.
In addition, in the ordinary course of our global business, there are many intercompany transactions and calculations where the ultimate tax
determination is uncertain. Although we believe that our tax estimates are reasonable, we cannot ensure that the final determination of tax audits
or tax disputes will not be different from what is reflected in our historical income tax provisions and accruals.
Additionally, our rate of taxation in foreign jurisdictions is lower than the U.S. tax rate. Our international income is primarily earned by our
subsidiaries organized in Ireland and as such, our effective tax rate can be impacted by the mix of our earnings in the U.S. and foreign
jurisdictions.
During October 2014, Ireland announced revisions to its tax regulations that will require foreign earnings earned by our subsidiaries
organized in Ireland to be taxed at higher rates. We will be impacted by the changes in tax regulations in Ireland beginning in 2021.
Additionally, the U.S. and other countries where we do business have been considering changes to existing tax laws. These potential changes
could also adversely affect our effective tax rate.
Our business is subject to the risks of earthquakes, fire, floods and other natural catastrophic events such as pandemics, and to interruption
by man-
made problems, such as computer viruses, unanticipated disruptions in local infrastructure or terrorism, which could result in delays
or cancellations of customer orders or the deployment of our products and services.
Our corporate headquarters are located in the San Francisco Bay Area, a region known for seismic activity. A significant natural disaster,
such as an earthquake, fire, flood or other act of God, could have a material adverse impact on our business, financial condition and results of
operations. As we continue to grow internationally, increasing amounts of our business will be located in foreign countries that may be more
subject to political or social instability that could disrupt operations. Furthermore, some of our new product initiatives and business functions are
hosted and carried out by third parties that may be vulnerable to disruptions of these sorts, many of which may be beyond our control. In
addition, our servers are vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering with our computer
systems. Unanticipated disruptions in services provided through localized physical infrastructure, such as utility or telecommunication outages,
can curtail the functioning of local offices as well as critical components of our information systems, and adversely affect our ability to process
orders, provide services, respond to customer requests and maintain local and global business continuity. Natural disasters that affect the
manufacture of IT products can also delay customer spending on our software, which is often coupled with customer purchases of new servers
and IT systems. Furthermore, acts of terrorism or war could cause disruptions in our or our customers’ business or the economy as a whole, and
disease pandemics could temporarily sideline a substantial part of our or our customers’ workforce at any particular time. To the extent that such
disruptions result in delays or cancellations of customer orders, or the deployment or availability of our products and services, our revenues
would be adversely affected. Additionally, any such catastrophic event could cause us to incur significant costs to repair damages to our
facilities, equipment and infrastructure.
Changes in accounting principles and guidance, or their interpretation, could result in unfavorable accounting charges or effects, including
changes to our previously-filed financial statements, which could cause our stock price to decline.
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States. These
principles are subject to interpretation by the SEC and various bodies formed to interpret and create appropriate accounting principles and
guidance. A change in these principles or guidance, or in their interpretations, may have a significant effect on our reported results and
retroactively affect previously reported results. For example, during May 2014, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Update ( “ ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606). The updated standard is effective
for us in the first quarter of 2017. We have not selected a transition method and are currently evaluating the effect that the updated standard will
have on our consolidated financial statements and related disclosures.
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