Cisco 2015 Annual Report Download - page 116

The Company believes that the service providers have strong defenses and that its products do not infringe the patents subject to
the claims and/or that the remaining patents are invalid. Due to the uncertainty surrounding the litigation process, which involves
numerous defendants, the Company is unable to reasonably estimate the ultimate outcome of this litigation at this time. Should
the plaintiff prevail in litigation, mediation, or settlement, the Company, in accordance with its agreement, may have an
obligation to indemnify its service provider customers for damages, mediation awards, or settlement amounts arising from their
use of Cisco products.
In addition, the Company has entered into indemnification agreements with its officers and directors, and the Company’s
Amended and Restated 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.
(h) Legal Proceedings
Brazil Brazilian authorities have investigated 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 alleged
evasion of import taxes and alleged improper transactions involving the subsidiary and the importer. Brazilian tax authorities
have assessed claims against the Company’s Brazilian subsidiary based on a theory of joint liability with the Brazilian importer
for import taxes, interest, and penalties. In addition to claims asserted by the Brazilian federal tax authorities in prior fiscal years,
tax authorities from the Brazilian state of Sao Paulo have asserted similar claims on the same legal basis in prior fiscal years. In
the first quarter of fiscal 2013, the Brazilian federal tax authorities asserted an additional claim against the Company’s Brazilian
subsidiary based on a theory of joint liability with respect to an alleged underpayment of income taxes, social taxes, interest, and
penalties by a Brazilian distributor.
The asserted claims by Brazilian federal tax authorities are for calendar years 2003 through 2008, and the asserted claims by the
tax authorities from the state of Sao Paulo are for calendar years 2005 through 2007. The total asserted claims by Brazilian state
and federal tax authorities aggregate to approximately $262 million for the alleged evasion of import and other taxes,
approximately $1.1 billion for interest, and approximately $1.2 billion for various penalties, all determined using an exchange
rate as of July 25, 2015. The Company has completed a thorough review of the matters and believes the asserted claims against
the Company’s Brazilian subsidiary are without merit, and the Company is defending the claims vigorously. While the Company
believes there is no legal basis for the 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 determine the likelihood of
an unfavorable outcome against its Brazilian subsidiary and is unable to reasonably estimate a range of loss, if any. The Company
does not expect a final judicial determination for several years.
Russia and the Commonwealth of Independent States At the request of the U.S. Securities and Exchange Commission (SEC) and
the U.S. Department of Justice, the Company is conducting an investigation into allegations that the Company and those agencies
received regarding possible violations of the U.S. Foreign Corrupt Practices Act involving business activities of the Company’s
operations in Russia and certain of the Commonwealth of Independent States, and by certain resellers of the Company’s products
in those countries. The Company takes any such allegations very seriously and is fully cooperating with and sharing the results of
its investigation with the SEC and the Department of Justice. While the outcome of the Company’s investigation is currently not
determinable, the Company does not expect that it will have a material adverse effect on its consolidated financial position,
results of operations, or cash flows. The countries that are the subject of the investigation collectively comprise less than 2% of
the Company’s revenues.
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.
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