VMware 2015 Annual Report Download - page 21

TableofContents
defendpotentiallyprotractedandcostlylitigationontheirbehalf,regardlessofthemeritsoftheseclaims,becausewegenerallyindemnifyourcustomersand
channelpartnersfromclaimsofinfringementofproprietaryrightsofthirdpartiesinconnectionwiththeuseofourproducts.Thesematterscanbetime-
consuming,divertmanagement’sattentionandresourcesandcauseustoincursignificantexpenses.Allegationsmadeinthecourseofregulatoryorlegal
proceedingsmayalsoharmourreputation,regardlessofthemeritofsuchclaims.Furthermore,becauselitigationandtheoutcomeofregulatoryproceedingsare
inherentlyunpredictable,ourbusiness,financialconditionoroperatingresultscouldbemateriallyaffectedbyanunfavorableresolutionofoneormoreofthese
proceedings,claims,demandsorinvestigations.
RefertoNoteLtotheconsolidatedfinancialstatementsinPartII,Item8ofthisAnnualReportonForm10-Kforadescriptionofcertainclaimsand
litigations.
Improper disclosure of personal data could result in liability and harm our reputation.
Ourbusinessissubjecttoawidevarietyoffederal,stateandinternationallawsandregulationsregardingprivacyandprotectionofpersonaldata.Wecollect
contactandotherpersonaloridentifyinginformationfromourcustomers,andourcustomersincreasinglyuseourservicestostoreandprocesspersonal
informationandotherregulateddata,includingprotectedhealthinformationsubjecttostringentdataprivacylaws.Inthecourseofprovidingemployee
compensationandbenefits,wealsomaintainpersonaldataofouremployeesandsharethatinformationwiththirdpartypayrollandbenefitsproviders.Ourhybrid
cloudcomputingserviceofferings,pursuanttowhichweofferhybridcloudservicesandenablethird-partyserviceproviderstoofferhybridcloudservicesbuilton
ourtechnology,exposeustoparticularlysignificantrisks.TheapplicationofU.S.andinternationaldataprivacylawstocloudcomputingvendorsisevolvingand
uncertain,andourexistingcontractualprovisionsmayprovetobeinadequatetoprotectusfromclaimsfordatalossorregulatorynoncompliancemadeagainst
cloudcomputingproviderswhowemaypartnerwith.Anyfailurebyusorourbusinesspartnerstocomplywithpostedprivacypolicies,otherfederal,stateor
internationalprivacy-relatedordataprotectionlawsandregulations,ortheprivacycommitmentscontainedincontractscouldresultinproceedingsagainstusby
governmentalentitiesorothersandsignificantfines,whichcouldhaveamaterialadverseeffectonourbusinessandoperatingresultsandharmourreputation.
Further,anysystemsfailureorcompromiseofoursecuritythatresultsinthereleaseofourcustomers’andemployees’datacould(i)subjectustosubstantial
damageclaims,(ii)exposeustocostlyregulatoryremediationand(iii)harmourreputationandbrand.
If we fail to comply with our customer contracts or government contracting regulations, our business could be adversely affected.
Contractswithmanyofourcustomersincludeuniqueandspecializedperformancerequirements.Inparticular,ourcontractswithfederal,state,localandnon-
U.S.governmentalcustomersandourarrangementswithdistributorsandresellerswhomayselldirectlytogovernmentalcustomersaresubjecttovarious
procurementregulations,contractprovisionsandotherrequirementsrelatingtotheirformation,administrationandperformance.Anyfailurebyustocomplywith
provisionsinourcustomercontractsoranyviolationofgovernmentcontractingregulationscouldresultintheimpositionofvariouscivilandcriminalpenalties,
whichmayincludeterminationofcontracts,forfeitureofprofits,suspensionofpaymentsand,inthecaseofourgovernmentcontracts,finesandsuspensionfrom
futuregovernmentcontracting.Further,anynegativepublicityrelatedtoourcustomercontractsoranyproceedingssurroundingthem,regardlessofitsaccuracy,
maydamageourbusinessandaffectourabilitytocompetefornewcontracts.Intheordinarycourseofbusiness,wealsoreceiveinquiriesfromandhaveongoing
discussionswithgovernmententitiesregardingthecomplianceofourcontractingandsalespracticeswithlawsandregulations.InJune2015,wereachedan
agreementwiththeDepartmentofJustice(“DOJ”)andtheGeneralServicesAdministration(“GSA”)topay$76milliontoresolveallegationsthatourgovernment
salespracticesbetween2006and2013hadviolatedthefederalFalseClaimsAct.Assetforthinthesettlementagreement,VMwaredeniedtheallegationsanddid
notadmitliability.Afailureinthefuturetocomplywithfederalandstategovernmentalcontractingrequirementscouldresultintheterminationofcustomer
contracts,oursuspensionfromgovernmentwork,theimpositionoffinesorothergovernmentsanctionsoraninabilitytocompetefornewcontracts,anyofwhich
couldadverselyaffectourbusiness,operatingresultsorfinancialcondition.
Acquisitions could harm our business and operating results.
Wehaveacquiredinthepast,andplantoacquireinthefuture,otherbusinesses,productsortechnologies.Acquisitionsinvolvesignificantrisksand
uncertainties,whichinclude:
• disruptingourongoingoperations,divertingmanagementfromday-to-dayresponsibilities,increasingourexpenses,andadverselyimpactingour
business,financialconditionandoperatingresults;
• failureoftheacquiredbusinesstofurtherourbusinessstrategy;
• uncertaintiesinachievingtheexpectedbenefitsofanacquisition,includingenhancedrevenues,technology,humanresources,costsavings,operating
efficienciesandothersynergies;
20