VMware 2011 Annual Report Download - page 29

Table of Contents
Problems with our information systems could interfere with our business that could adversely impact our operations.
We rely on our information systems and those of third parties for processing customer orders, delivery of products, providing services and
support to our customers, billing and tracking our customers, fulfilling contractual obligations, and otherwise running our business. Any
disruption in our information systems and those of the third parties upon whom we rely could have a significant impact on our business. In
addition, we continuously work to enhance our information systems. The implementation of these types of enhancements is frequently disruptive
to the underlying business of an enterprise, which may especially be the case for us due to the size and complexity of our business. Any
disruptions relating to our systems enhancements, particularly any disruptions impacting our operations during the implementation period, could
adversely affect our business in a number of respects. Even if we do not encounter these adverse effects, the implementation of these
enhancements may be much more costly than we anticipated. If we are unable to successfully implement the information systems enhancements
as planned, our financial position, results of operations, and cash flows could be negatively impacted.
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, the U.S. federal R&D tax credit, which provided a significant reduction in our effective tax rate, has expired and is therefore
not available to us for our tax years beginning after December 31, 2011. If the R&D tax credit is not renewed, our effective tax rate will increase.
In addition, in the ordinary course of our global business, there are many intercompany transactions and calculations where the ultimate tax
determination is uncertain. Although we believe that our tax estimates are reasonable, we cannot ensure that the final determination of tax audits
or tax disputes will not be different from what is reflected in our historical income tax provisions and accruals.
We are also subject to non-income taxes, such as payroll, sales, use, value-added, net worth, property and goods and services taxes, in both
the United States and various foreign jurisdictions. We are under audit from time to time by tax authorities with respect to these non-income
taxes and may have exposure to additional non-income tax liabilities.
Our business is subject to the risks of earthquakes, fire, floods and other natural catastrophic events such as pandemics, and to interruption
by man-
made problems, such as computer viruses, unanticipated disruptions in local infrastructure or terrorism, which could result in delays
or cancellations of customer orders or the deployment of our products.
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, financial condition and results of
operations. As we continue to grow internationally, increasing amounts of our business will be located in foreign countries that may be more
subject to political or social instability that could disrupt operations. 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. In
addition, our servers are vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering with our computer
systems. 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. Natural disasters that affect the
manufacture of IT products, such as the 2011 flooding in Thailand, can also delay customer spending on our software, which is often coupled
with customer purchases of new servers and IT systems. Furthermore, acts of terrorism or war could cause disruptions in our or our customers'
business or the economy as a whole and disease pandemics could temporarily sideline a substantial part of our or our customers' workforce at
any particular time. 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.
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