VMware 2012 Annual Report Download - page 29

Table of Contents
If our goodwill or amortizable intangible assets become impaired we may be required to record a significant charge to earnings.
We may not realize all the economic benefit from our acquisitions of other companies, which could result in an impairment of goodwill or
intangibles. During 2012, our goodwill balance increased by $1.1 billion or 62% as a result of acquisitions made during the year, primarily for
Nicira. Under GAAP, we review our amortizable intangible assets for impairment when events or changes in circumstances indicate the carrying
value may not be recoverable. We test goodwill for impairment at least annually. Factors that may be considered a change in circumstances,
indicating that the carrying value of our goodwill or amortizable intangible assets may not be recoverable, include a decline in stock price and
market capitalization or cash flows, reduced future cash flow estimates, and slower growth rates in our industry. We may be required to record a
significant charge in our financial statements during the period in which any impairment of our goodwill or amortizable intangible assets is
determined, negatively impacting our results of operations.
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.
In order to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, we need 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.
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 condition, 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, such as payroll, sales, use, value-added,
net worth, property and goods and services 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 and non-
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
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