VMware 2010 Annual Report Download - page 30

Table of Contents
Additionally, experienced computer programmers may attempt to penetrate our network security or the security of our website and
misappropriate proprietary information and/or cause interruptions of our services. Because the techniques used by such computer programmers
to access or sabotage networks change frequently and may not be recognized until launched against a target, we may be unable to anticipate
these techniques. The theft and/or unauthorized use or publication of our trade secrets and other confidential business information as a result of
such an event could adversely affect our competitive position, reputation, brand and future sales of our products and our customers may assert
claims against us related to resulting losses of confidential or proprietary information. Our business could be subject to significant disruption,
and we could suffer monetary and other losses and reputational harm, in the event of such incidents and claims.
If we fail to manage future growth effectively, we may not be able to meet our customers
’ needs or be able to meet our future reporting
obligations.
We have rapidly expanded our operations since inception and anticipate further expansion in the future. This future growth, if it occurs,
will place significant demands on our management, infrastructure and other resources. Additionally, further international growth may occur in
regions where we presently have little or no infrastructure. To manage any future growth, we will need to hire, integrate and retain highly skilled
and motivated employees. We will also need to continue to improve our financial and management controls, reporting and operational systems
and procedures. If we do not effectively manage our growth, we may not be able to meet our customers’ needs, thereby adversely affecting our
sales, or be able to meet our future reporting obligations.
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, 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 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 financial condition or
results of operations.
Our future effective tax rate may be affected by such factors as changes in tax laws, regulations or rates, changing interpretation of existing
laws or regulations, the impact of accounting for stock-based compensation, the impact of accounting for business combinations, changes in our
international organization, and changes in overall levels of income before tax.
For example, during 2010, the IRS announced and finalized Schedule UTP, Uncertain Tax Positions Statement. This schedule is an annual
disclosure of certain federal UTPs, ranked in order of magnitude, to be included in corporate tax filings for U.S. federal income tax
purposes. According to the IRS, the disclosure is to include “
a concise description of the tax position, including a description of the relevant facts
affecting the tax treatment of the position and information that reasonably can be expected to apprise the Service of the identity of the tax
position.” As a result of this additional disclosure requirement, the amount of taxes paid could increase.
Also, in December 2010, H.R. 4853, Tax Relief, Unemployment Insurance Reauthorization, and the Job Creation Act of 2010, which
included an extension of a number of expired tax provisions, took effect retroactively to 2010 and prospectively through 2011. Among the
extended tax provisions was the U.S. Federal R&D tax credit, which provides a significant reduction in our effective tax rate. The renewal of this
credit beyond 2011 is uncertain.
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