VMware 2012 Annual Report Download - page 25

Table of Contents
Euro, the British Pound, the Japanese Yen and the Australian Dollar relative to the U.S. Dollar. While variability in operating margin may be
reduced due to invoicing in certain of the local currencies in which we also recognize expenses, increased exposure to foreign currency
fluctuations will introduce additional risk for variability in revenue-related components of our consolidated financial statements.
We enter into foreign currency forward contracts to hedge a portion of our net outstanding monetary assets and liabilities against movements
in certain foreign exchange rates. Although we expect the gains and losses on our foreign currency forward contracts to generally offset the
majority of the gains and losses associated with the underlying foreign-currency denominated assets and liabilities that we hedge, our hedging
transactions may not yield the results we expect. Additionally, we expect to continue to experience foreign currency gains and losses in certain
instances where it is not possible or cost effective to hedge our foreign currency exposures.
We may become involved in litigation and regulatory inquiries and proceedings that could negatively affect us.
From time to time, we are involved in various legal, administrative and regulatory proceedings, claims, demands and investigations relating
to our business, which may include claims with respect to patent, commercial, product liability, employment, class action, whistleblower and
other matters. From time to time, we receive inquiries from government entities regarding the compliance of our contracting and sales practices
with applicable regulations. Such matters can be time-consuming, divert management’s attention and resources and cause us to incur significant
expenses. While no formal legal proceedings that could have a material impact on our financial condition or results of operations have been
taken, there can be no assurance that actions will not be taken in the future. Furthermore, because litigation and the outcome of regulatory
proceedings are inherently unpredictable, it is possible that our business, financial condition or results of operations could be negatively affected
by an unfavorable resolution of one or more of such proceedings, claims, demands or investigations.
Our business is subject to a variety of U.S. and international laws and regulations regarding data protection.
Our business is subject to federal, state and international laws and regulations regarding privacy and protection of personal data. We collect
contact and other personal or identifying information from our customers. Additionally, in connection with some of our new product initiatives,
our customers may use our services to store and process personal information and other user data. We post, on our websites, our privacy policies
and practices concerning our treatment of personal data. We also often include privacy commitments in our contracts. Any failure by us to
comply with our posted privacy policies, other federal, state or international privacy-related or data protection laws and regulations, or the
privacy commitments contained in our contracts could result in proceedings against us by governmental entities or others which could have a
material adverse effect on our business, financial condition and results of operations. In addition, the increased attention focused upon liability
issues as a result of lawsuits and legislative proposals could harm our reputation or otherwise impact the growth of our business.
It is possible that these laws and regulations may be interpreted and applied in a manner that is inconsistent with our data practices. If so, in
addition to the possibility of fines and penalties, a governmental order requiring that we change our data practices could result, which in turn
could have a material adverse effect on our business. Compliance with such an order may involve significant costs or require changes in business
practices that result in reduced revenue. Noncompliance could result in penalties being imposed on us or we could be ordered to cease
conducting the noncompliant activity.
In addition to government regulation, privacy advocacy and industry groups or other third parties may propose new and different self-
regulatory standards that either legally or contractually apply to our customers or us. Any inability to adequately address privacy concerns, even
if unfounded, or comply with applicable privacy or data protection laws, regulations and standards, could result in additional cost and liability to
us, damage our reputation, inhibit sales and harm our business.
Additionally, our virtualization technology is used by cloud computing vendors, and we have expanded our involvement in the delivery and
provision of cloud computing through business alliances with various providers of cloud computing services and software and expect to continue
to do so in the future. The application of U.S. and international data privacy laws to cloud computing vendors is uncertain, and our existing
contractual provisions may prove to be inadequate to protect us from claims for data loss or regulatory noncompliance made against cloud
computing providers who we may partner with. Accordingly, the failure to comply with data protection laws and regulations by our customers
and business partners who provide cloud computing services could have a material adverse effect on our business.
If we fail to comply with our customer contracts or government contracting regulations, our business could be adversely affected.
Our contracts with our customers may include unique and specialized performance requirements. In particular, our contracts with federal,
state, local and non-U.S. governmental customers and our arrangements with distributors and resellers who may sell directly to governmental
customers are subject to various procurement regulations, contract provisions and other requirements relating to their formation, administration
and performance. Any failure by us to comply with provisions in our customer contracts or any violation of government contracting regulations
could result in the imposition of various civil and
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