VMware 2015 Annual Report Download - page 23

TableofContents
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.Significantjudgmentisrequiredindeterminingourworldwideprovisionforincometaxesandothertaxliabilities.Wearesubjecttoincomeand
indirecttaxexaminations.TheInternalRevenueService(the“IRS”)iscurrentlyauditingtheEMCconsolidatedgroup'sfederaltaxreturnsfortaxyears2009
through2011.Whilewebelievewehavecompliedwithallapplicableincometaxlaws,agoverningtaxauthoritycouldhaveadifferentinterpretationofthelaw
andassessuswithadditionaltaxes.Anyassessmentofadditionaltaxescouldmateriallyaffectourfinancialconditionandoperatingresults.
Ourfutureeffectivetaxratemaybeaffectedbysuchfactorsaschangesintaxlaws,changinginterpretationofexistinglawsorregulations,theimpactof
accountingforstock-basedcompensation,theimpactofaccountingforbusinesscombinations,changesinthecompositionofglobalearnings,theexpirationof
statuteoflimitations,settlementsofaudits,changesinourinternationalorganizationandchangesinoveralllevelsofincomebeforetax.
Inaddition,intheordinarycourseofourglobalbusiness,therearemanyintercompanytransactions,includingthetransferofintellectualproperty,wherethe
ultimatetaxdeterminationisuncertain.Althoughwebelievethatourtaxestimatesarereasonable,thefinaldeterminationoftaxauditsortaxdisputesmaydiffer
fromwhatisreflectedinourhistoricalincometaxprovisionsandaccruals.
Ourrateoftaxationinforeignjurisdictionsislowerthanour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composition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of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,andwemayproactivelymakestructuralchangesthatimpactourtaxratespriortothatdate.The
OrganisationforEconomicCooperationandDevelopmentissuedguidelinesandproposalsduringOctober2015thatalsomaychangehowourtaxobligationsare
determinedinmanyofthecountriesinwhichwedobusiness.Thesepotentialchangescouldalsoadverselyaffectoureffectivetaxrate.
Catastrophic events or geo-political conditions could disrupt our business.
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andoperatingresults.Abruptpoliticalchange,terroristactivity
andarmedconflictposeariskofgeneraleconomicdisruptioninaffectedcountries,anddiseasepandemicscouldtemporarilysidelineasubstantialpartofouror
ourcustomers’workforceatanyparticulartime,anyofwhichcoulddisruptourbusiness.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.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.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 could result in unfavorable accounting charges or effects.
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createandinterpret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,aswellasourprocessesandrelatedcontrols,andmay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2018andpermitstheuse
ofeithertheretrospectiveorcumulativeeffecttransitionmethod.Earlyadoptionispermitted,butnotearlierthanthefirstquarterof2017.Wehavenotselecteda
transitionmethodandarecurrentlyevaluatingtheeffectthatASU2014-09willhaveonourconsolidatedfinancialstatementsandrelateddisclosures.
Risks Related to Our Relationship with EMC
Our stock price has declined significantly since the announcement of the Dell Acquisition, and its continuing pendency and potential completion may
adversely impact our business and stock price in the future.
OnOctober12,2015,EMCandDellannouncedtheDellAcquisition,pursuanttowhichDell’sparentcompany,Denali,wouldacquireEMCwhile
maintainingVMwareasanindependentpubliclytradedcompanyandissuingatrackingstock,ClassVcommonstock,intendedtoreflectVMware'seconomic
performanceaspartialconsiderationtotheEMCshareholders.Uponissuance,theClassVcommonstockisexpectedtotracktheperformanceofanapproximately
53%economicinterestintheVMwarebusiness.
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