Cisco 2015 Annual Report Download - page 37

OUR OPERATING RESULTS MAY BE ADVERSELY AFFECTED AND DAMAGE TO OUR REPUTATION MAY
OCCUR DUE TO PRODUCTION AND SALE OF COUNTERFEIT VERSIONS OF OUR PRODUCTS
As is the case with leading products around the world, our products are subject to efforts by third parties to
produce counterfeit versions of our products. While we work diligently with law enforcement authorities in various countries to
block the manufacture of counterfeit goods and to interdict their sale, and to detect counterfeit products in customer networks,
and have succeeded in prosecuting counterfeiters and their distributors, resulting in fines, imprisonment and restitution to us,
there can be no guarantee that such efforts will succeed. While counterfeiters often aim their sales at customers who might not
have otherwise purchased our products due to lack of verifiability of origin and service, such counterfeit sales, to the extent they
replace otherwise legitimate sales, could adversely affect our operating results.
OUR OPERATING RESULTS AND FUTURE PROSPECTS COULD BE MATERIALLY HARMED BY
UNCERTAINTIES OF REGULATION OF THE INTERNET
Currently, few laws or regulations apply directly to access or commerce on the Internet. We could be materially adversely
affected by regulation of the Internet and Internet commerce in any country where we operate. Such regulations could include
matters such as voice over the Internet or using IP, encryption technology, sales or other taxes on Internet product or service
sales, and access charges for Internet service providers. The adoption of regulation of the Internet and Internet commerce could
decrease demand for our products and, at the same time, increase the cost of selling our products, which could have a material
adverse effect on our business, operating results, and financial condition.
CHANGES IN TELECOMMUNICATIONS REGULATION AND TARIFFS COULD HARM OUR PROSPECTS AND
FUTURE SALES
Changes in telecommunications requirements, or regulatory requirements in other industries in which we operate, in the United
States or other countries could affect the sales of our products. In particular, we believe that there may be future changes in U.S.
telecommunications regulations that could slow the expansion of the service providers’ network infrastructures and materially
adversely affect our business, operating results, and financial condition, including proposed “net neutrality” rules to the extent
they impact decisions on investment in network infrastructure.
Future changes in tariffs by regulatory agencies or application of tariff requirements to currently untariffed services could affect
the sales of our products for certain classes of customers. Additionally, in the United States, our products must comply with
various requirements and regulations of the Federal Communications Commission and other regulatory authorities. In countries
outside of the United States, our products must meet various requirements of local telecommunications and other industry
authorities. Changes in tariffs or failure by us to obtain timely approval of products could have a material adverse effect on our
business, operating results, and financial condition.
FAILURE TO RETAIN AND RECRUIT KEY PERSONNEL WOULD HARM OUR ABILITY TO MEET KEY
OBJECTIVES
Our success has always depended in large part on our ability to attract and retain highly skilled technical, managerial, sales, and
marketing personnel. Competition for these personnel is intense, especially in the Silicon Valley area of Northern California.
Stock incentive plans are designed to reward employees for their long-term contributions and provide incentives for them to
remain with us. Volatility or lack of positive performance in our stock price or equity incentive awards, or changes to our overall
compensation program, including our stock incentive program, resulting from the management of share dilution and share-based
compensation expense or otherwise, may also adversely affect our ability to retain key employees. As a result of one or more of
these factors, we may increase our hiring in geographic areas outside the United States, which could subject us to additional
geopolitical and exchange rate risk. The loss of services of any of our key personnel; the inability to retain and attract qualified
personnel in the future; or delays in hiring required personnel, particularly engineering and sales personnel, could make it
difficult to meet key objectives, such as timely and effective product introductions. In addition, companies in our industry whose
employees accept positions with competitors frequently claim that competitors have engaged in improper hiring practices. We
have received these claims in the past and may receive additional claims to this effect in the future.
ADVERSE RESOLUTION OF LITIGATION OR GOVERNMENTAL INVESTIGATIONS MAY HARM OUR
OPERATING RESULTS OR FINANCIAL CONDITION
We are a party to lawsuits in the normal course of our business. Litigation can be expensive, lengthy, and disruptive to normal
business operations. Moreover, the results of complex legal proceedings are difficult to predict. For example, Brazilian authorities
have investigated our Brazilian subsidiary and certain of its 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, interest, and penalties. In the first quarter of fiscal 2013, the Brazilian federal
tax authorities asserted an additional claim against our Brazilian subsidiary based on a theory of joint liability with respect
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