Cisco 2011 Annual Report Download - page 42

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Item 3. Legal Proceedings
Brazilian authorities have investigated our Brazilian subsidiary and certain of our current and former employees,
as well as a Brazilian importer of our 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 our Brazilian subsidiary based on a theory of joint liability with the
Brazilian importer for import taxes and related penalties. In addition to claims asserted during prior fiscal years
by Brazilian federal tax authorities, tax authorities from the Brazilian state of Sao Paulo asserted similar claims
on the same legal basis during the second quarter of fiscal 2011.
The asserted claims by Brazilian federal tax authorities are for calendar years 2003 through 2007 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 aggregated to approximately $522 million for the
alleged evasion of import taxes, 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. We do not expect a final judicial determination for several years.
On March 31, 2011, a purported shareholder class action lawsuit was filed in the United States District Court for
the Northern District of California against Cisco and certain of its officers and directors. A second lawsuit with
substantially similar allegations was filed with the same court on April 12, 2011 against Cisco and certain of its
officers and directors. The lawsuits are purportedly brought on behalf of those who purchased Cisco’s publicly
traded securities between May 12, 2010 and February 9, 2011, and between February 3, 2010 and February 9,
2011, respectively. Plaintiffs allege that defendants made false and misleading statements during quarterly
earnings calls, purport to assert claims for violations of the federal securities laws, and seek unspecified
compensatory damages and other relief. We believe the claims are without merit and intend to defend the actions
vigorously. While we believe there is no legal basis for liability, due to the uncertainty surrounding the litigation
process, we are unable to reasonably estimate a range of loss, if any, at this time.
Beginning in April 2011, purported shareholder derivative lawsuits were filed in both the United States District
Court for the Northern District of California and the California Superior Court for the County of Santa Clara
against our Board of Directors and several of our officers for allowing management to make allegedly false
statements during earnings calls. Our management of the stock repurchase program is also alleged to have
breached a fiduciary duty. The complaints include claims for violation of the federal securities laws, breach of
fiduciary duty, aiding and abetting breaches of fiduciary duty, waste of corporate assets, unjust enrichment, and
violations of the California Corporations Code. The complaint seeks compensatory damages, disgorgement, and
other relief.
In addition, we are 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, we do
not expect that the ultimate costs to resolve these matters will have a material adverse effect on our consolidated
financial position, results of operations, or cash flows. For additional information regarding intellectual property
litigation, see “Part I, Item 1A. Risk Factors—We may be found to infringe on intellectual property rights of
others” herein.
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