VMware 2012 Annual Report Download - page 30

Table of Contents
for business combinations, changes in our international organization, and changes in overall levels of income before tax. For example, the U.S.
federal research credit, which provided a significant reduction in our effective tax rate, expired on December 31, 2011. Reinstatement of the U.S.
federal research credit would have a favorable effect on our effective tax rate. In January 2013, the United States Congress retroactively enacted
an extension of the federal research credit through December 31, 2013. As a result, we expect that our income tax provision for the first quarter
of 2013 will include an estimated discrete tax benefit reflecting the full year 2012 federal research credit, and our 2013 annual estimated
effective tax rate will also include the benefit expected for 2013. Accordingly, we expect our 2013 effective tax rate to be lower than the 2012
effective tax rate.
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.
Additionally, our rate of taxation in foreign jurisdictions is lower than the U.S. tax rate. Our international income is primarily earned by our
subsidiaries in Ireland, where the statutory tax rate is 12.5%. All income earned abroad, except for previously taxed income for U.S. tax
purposes, is considered indefinitely reinvested in our foreign operations and no provision for U.S. taxes has been provided with respect to such
income. If management determines these overseas funds are needed for our operations in the U.S., we would be required to accrue U.S. taxes on
the related undistributed earnings in the period management determines the earnings will no longer be indefinitely invested outside the U.S. to
repatriate these funds.
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.
Changes in accounting principles and guidance, or their interpretation, could result in unfavorable accounting charges or effects, including
changes to our previously-filed financial statements, which could cause our stock price to decline.
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of
America. These principles are subject to interpretation by the SEC and various bodies formed to interpret and create appropriate accounting
principles and guidance. A change in these principles or guidance, or in their interpretations, may have a significant effect on our reported results
and retroactively affect previously reported results.
Risks Related to Our Relationship with EMC
As long as EMC controls us, other holders of our Class A common stock will have limited ability to influence matters requiring stockholder
approval.
As of December 31, 2012 , EMC owned 41,050,000 shares of our Class A common stock and all 300,000,000 shares of our Class B
common stock, representing 79.6% of the total outstanding shares of common stock or 97.2%
of the voting power of outstanding common stock.
The holders of our Class A common stock and our Class B common stock have identical rights, preferences and privileges except with respect to
voting and conversion rights, the election of directors, certain actions that require the consent of holders of Class B common stock and other
protective provisions as set forth in our certificate of incorporation. Holders of our Class B common stock are entitled to 10 votes per share of
Class B common stock on all matters except for the election of our Group II directors, in which case they are entitled to one vote per share, and
the holders of our Class A common stock are entitled to one vote per share of Class A common stock. The holders of Class B common stock,
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