Cisco 2011 Annual Report Download - page 39

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approximately $860 million for interest, and approximately $2.4 billion for various penalties, all determined
using an exchange rate as of July 30, 2011. We have completed a thorough review of the matter and believe the
asserted tax claims against us are without merit, and we intend to defend the claims vigorously. While we believe
there is no legal basis for our 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, we are unable to
determine the likelihood of an unfavorable outcome against us and are unable to reasonably estimate a range of
loss, if any. An unfavorable resolution of lawsuits or governmental investigations could have a material adverse
effect on our business, operating results, or financial condition. For additional information regarding certain of
the matters in which we are involved, see Item 3, “Legal Proceedings,” contained in Part I of this report.
CHANGES IN OUR PROVISION FOR INCOME TAXES OR ADVERSE OUTCOMES RESULTING
FROM EXAMINATION OF OUR INCOME TAX RETURNS COULD ADVERSELY AFFECT OUR
RESULTS
Our provision for income taxes is subject to volatility and could be adversely affected by earnings being lower
than anticipated in countries that have lower tax rates and higher than anticipated in countries that have higher
tax rates; by changes in the valuation of our deferred tax assets and liabilities; by expiration of or lapses in the
R&D tax credit laws; by transfer pricing adjustments, including the effect of acquisitions on our intercompany
R&D cost sharing arrangement and legal structure; by tax effects of nondeductible compensation; by tax costs
related to intercompany realignments; by changes in accounting principles; or by changes in tax laws and
regulations, including possible U.S. changes to the taxation of earnings of our foreign subsidiaries, the
deductibility of expenses attributable to foreign income, or the foreign tax credit rules. Significant judgment is
required to determine the recognition and measurement attribute prescribed in the accounting guidance for
uncertainty in income taxes. The accounting guidance for uncertainty in income taxes applies to all income tax
positions, including the potential recovery of previously paid taxes, which if settled unfavorably could adversely
impact our provision for income taxes or additional paid-in capital. Further, as a result of certain of our ongoing
employment and capital investment actions and commitments, our income in certain countries is subject to
reduced tax rates and in some cases is wholly exempt from tax. Our failure to meet these commitments could
adversely impact our provision for income taxes. In addition, we are subject to the continuous examination of our
income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood
of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income
taxes. There can be no assurance that the outcomes from these continuous examinations will not have an adverse
effect on our operating results and financial condition.
OUR BUSINESS AND OPERATIONS ARE ESPECIALLY SUBJECT TO THE RISKS OF
EARTHQUAKES, FLOODS, AND OTHER NATURAL CATASTROPHIC EVENTS
Our corporate headquarters, including certain of our research and development operations are located in the
Silicon Valley area of Northern California, a region known for seismic activity. Additionally, a certain number of
our facilities are located near rivers that have experienced flooding in the past. Also certain of our suppliers and
logistics centers are located in regions that have or may be affected by recent earthquake and tsunami activity
which has and could continue to disrupt the flow of components and delivery of products. A significant natural
disaster, such as an earthquake, a hurricane, volcano, or a flood, could have a material adverse impact on our
business, operating results, and financial condition.
MAN-MADE PROBLEMS SUCH AS COMPUTER VIRUSES OR TERRORISM MAY DISRUPT OUR
OPERATIONS AND HARM OUR OPERATING RESULTS
Despite our implementation of network security measures our servers are vulnerable to computer viruses, break-
ins, and similar disruptions from unauthorized tampering with our computer systems. Any such event could have
a material adverse effect on our business, operating results, and financial condition. Efforts to limit the ability of
malicious third parties to disrupt the operations of the Internet or undermine our own security efforts may meet
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