EMC 2006 Annual Report Download - page 16

Table of Contents
or permanent injunction entered prohibiting us from marketing or selling certain of our products or a successful claim of infringement against us requiring us
to pay royalties to a third party, and we fail to develop or license a substitute technology, our business, results of operations or financial condition could be
materially adversely affected.
We may become involved in litigation that may materially adversely affect us.
From time to time in the ordinary course of our business, we may become involved in various legal proceedings, including patent, commercial, product
liability, employment, class action, whistleblower and other litigation and claims, and governmental and other regulatory investigations and proceedings. Such
matters can be time-consuming, divert management's attention and resources and cause us to incur significant expenses. Furthermore, because litigation is
inherently unpredictable, there can be no assurance that the results of any of these actions will not have a material adverse effect on our business, results of
operations or financial condition.
We may have exposure to additional income tax liabilities.
As a multinational corporation, we are subject to income 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. From time
to time, we are subject to income tax audits. 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 results of operations or financial condition.
There are risks associated with our previously-announced proposed initial public offering of VMware.
We announced that we intend to sell approximately 10% of our wholly-owned subsidiary, VMware, via an initial public offering (an "IPO"). We may
not complete the IPO, in which event we will have incurred significant expenses which we will be unable to recover, and for which we will not receive any
benefit. Additionally, our strategic objectives for the IPO, including improving visibility into VMware's performance and growth relative to the market and
strengthening VMware employee retention and recruitment, are based on the completion of the IPO. If we do not complete the IPO, we will need to pursue
alternative means of accomplishing these strategic objectives.
If the IPO is completed, VMware would be a new public company. We are unable to predict what the market price of our common stock would be after
the IPO. We cannot assure you that the IPO, if completed, will produce any increase for our shareholders in the market value of their holdings in our
company. In addition, the market price of our common stock could be volatile for several months after the IPO and may continue to be more volatile than our
common stock would have been if a transaction had not occurred.
Changes in regulations could materially adversely affect us.
Our business, results of operations or financial conditions could be materially adversely affected if laws, regulations or standards relating to us or our
products are newly implemented or changed. In addition, our compliance with existing regulations may have a material adverse impact on us. Under
applicable federal securities laws, including the Sarbanes-Oxley Act of 2002, we are required to evaluate and determine the effectiveness of our internal
control structure and procedures for financial reporting. Should we or our independent auditors determine that we have material weaknesses in our internal
controls, our results of operations or financial condition may be materially adversely affected or our stock price may decline.
Our stock price is volatile.
Our stock price, like that of other technology companies, is subject to significant volatility because of factors such as:
• the announcement of acquisitions, new products, services or technological innovations by us or our competitors
• quarterly variations in our operating results
• changes in revenue or earnings estimates by the investment community
• speculation in the press or investment community
In addition, our stock price is affected by general economic and market conditions and has been negatively affected by unfavorable global economic
and market conditions. If such conditions deteriorate, our stock price could decline.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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