Cisco 2009 Annual Report Download - page 66

Notes to Consolidated Financial Statements
(e) Product Warranties and Guarantees
The following table summarizes the activity related to the product warranty liability during fiscal 2009 and 2008 (in millions):
July 25, 2009 July 26, 2008
Balance at beginning of fiscal year $ 399 $ 340
Provision for warranties issued 374 511
Payments (452) (455)
Fair value of warranty liability acquired —3
Balance at end of fiscal year $ 321 $ 399
The Company accrues for warranty costs as part of its cost of sales based on associated material product costs, labor costs for technical
support staff, and associated overhead. The products sold are generally covered by a warranty for periods ranging from 90 days to five
years, and for some products the Company provides a limited lifetime warranty.
In the normal course of business, the Company indemnifies other parties, including customers, lessors, and parties to other
transactions with the Company, with respect to certain matters. The Company has agreed to hold the other parties harmless against losses
arising from a breach of representations or covenants, or out of intellectual property infringement or other claims made against certain
parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. In addition,
the Company has entered into indemnification agreements with its officers and directors, and the Company’s bylaws contain similar
indemnification obligations to the Company’s agents. It is not possible to determine the maximum potential amount under these
indemnification agreements due to the Company’s limited history with prior indemnification claims and the unique facts and circumstances
involved in each particular agreement. Historically, payments made by the Company under these agreements have not had a material
effect on the Company’s operating results, financial position, or cash flows.
The Company also provides financing guarantees, which are generally for various third-party financing arrangements to channel
partners and other end-user customers. See Note 6. The Company’s other guarantee arrangements as of July 25, 2009 that are subject to
recognition and disclosure requirements were not material.
(f) Legal Proceedings
Brazilian authorities are investigating the Company’s Brazilian subsidiary and certain of its current and former employees, as well as a
Brazilian importer of the Company’s products, and its affiliates and employees, relating to the allegation of evading import taxes and other
alleged improper transactions involving the subsidiary and the importer. The Company is conducting a thorough review of the matter.
During fiscal 2009, Brazilian authorities asserted claims against the Company for calendar years 2003 and 2004, and the Company
believes claims may also be asserted for calendar year 2005 through calendar year 2007. The Company believes the asserted claims are
without merit and intends to defend the claims vigorously. The Company is unable to determine the likelihood of an unfavorable outcome
on any potential further claims against it. While the Company believes there is no legal basis for its alleged liability, due to the complexities
and uncertainty surrounding the judicial process in Brazil, and the nature of the claims asserting joint liability with the importer, the
Company is unable to reasonably estimate a range of loss, if any. In addition, the Company is investigating the allegations regarding
improper transactions. The Company has proactively communicated with United States authorities to provide information and report on its
findings, and the United States authorities are currently investigating such allegations.
In addition, the Company is subject to legal proceedings, claims, and litigation arising in the ordinary course of business, including
intellectual property litigation. While the outcome of these matters is currently not determinable, the Company does not expect that the
ultimate costs to resolve these matters will have a material adverse effect on its consolidated financial position, results of operations, or
cash flows.
64 Cisco Systems, Inc.