VMware 2011 Annual Report Download - page 28

Table of Contents
fall short of public expectations and our business, financial condition and results of operations could be materially adversely affected.
Acquisitions could disrupt our business, cause dilution to our stockholders and harm our business, financial condition and results of
operations.
We have acquired in the past and plan to acquire in the future other businesses, products or technologies. For example, 2011 we completed a
number of acquisitions, including acquisitions of Digital Fuel, Neo Accel, Packet Motion, Shavlik, SlideRocket, Socialcast and WaveMaker. We
also acquired certain assets from EMC's Mozy cloud-based data storage and data services and entered into an agreement with EMC to operate
the services on EMC's behalf. We may not be able to find suitable acquisition candidates, and we may not be able to complete acquisitions on
favorable terms, if at all. If we do complete acquisitions, we may not ultimately strengthen our competitive position or achieve our goals, or they
may be viewed negatively by customers, financial markets or investors.
Acquisitions may disrupt our ongoing operations, divert management from day-to-day responsibilities, increase our expenses and adversely
impact our business, financial condition and results of operations. An acquired business may not deliver the expected results. For example, an
acquisition may not further our strategies or results in expected benefits, which may include benefits relating to enhanced revenues, technology,
human resources, cost savings, operating efficiencies and other synergies. Acquisitions may reduce our cash available for operations and other
uses and could result in an increase in amortization expense related to identifiable intangible assets acquired, potentially dilutive issuances of
equity securities or the incurrence of debt.
Additionally, we have limited historical experience with the integration of acquired companies. There can be no assurance that we will be
able to manage the integration of acquired businesses effectively or be able to retain and motivate key personnel from these businesses. Any
difficulties we encounter in the integration process could divert management from day-to-day responsibilities, increase our expenses and have a
material adverse effect on our business, financial condition and results of operations. We may also face difficulties due to the lack of experience
in new markets, products or technologies or the initial dependence on unfamiliar supply or distribution partners. Other risks related to
acquisitions include the assumption of the liabilities of the acquired business, including litigation-related liabilities.
In addition, we review our amortizable intangible assets annually for impairment, or more frequently, when events or changes in
circumstances indicate the carrying value may not be recoverable, and we are required to test goodwill for impairment at least annually. We may
be required to record a significant charge to earnings in our financial statements during the period in which any impairment of our goodwill or
amortizable intangible assets resulting from an acquisition or otherwise is determined, resulting in an adverse impact on our results of operations.
In addition to the risks commonly encountered in the acquisition of a business as described above, we may also experience risks relating to the
challenges and costs of closing a transaction. Further, the risks described above may be exacerbated as a result of managing multiple acquisitions
at the same time. We also seek to invest in businesses that offer complementary products, services or technologies. These investments are
accompanied by risks similar to those encountered in an acquisition of a business.
If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud.
As a result, our stockholders could lose confidence in our financial reporting, which could harm our business and the trading price of our
Class A common stock.
We have complied with Section 404 of the Sarbanes-Oxley Act of 2002 by assessing and testing our system of internal controls. Even
though we concluded our system of internal controls was effective as of December 31, 2011 , we need to continue to maintain our processes and
systems and adapt them to changes as our business changes and we rearrange management responsibilities and reorganize our business
accordingly. We may seek to automate certain processes to improve efficiencies and better ensure ongoing compliance but such automation may
itself disrupt existing internal controls and introduce unintended vulnerability to error or fraud. This continuous process of maintaining and
adapting our internal controls and complying with Section 404 is expensive and time-consuming, and requires significant management attention.
We cannot be certain that our internal control measures will continue to provide adequate control over our financial processes and reporting and
ensure compliance with Section 404. Furthermore, as our business changes and as we expand through acquisitions of other companies, our
internal controls may become more complex and we will require significantly more resources to ensure our internal controls overall remain
effective. Failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating
results or cause us to fail to meet our reporting obligations. If we or our independent registered public accounting firm identify material
weaknesses, the disclosure of that fact, even if quickly remedied, could reduce the market's confidence in our financial statements and harm our
stock price. In addition, if we are unable to continue to comply with Section 404, our non-compliance could subject us to a variety of
administrative sanctions, including the suspension or delisting of our Class A common stock from the New York Stock Exchange and the
inability of registered broker-dealers to make a market in our Class A common stock, which could reduce our stock price.
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