Cisco 2012 Annual Report Download - page 125

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 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.
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 7. The Company’s other guarantee
arrangements as of July 28, 2012 and July 30, 2011 that were subject to recognition and disclosure requirements
were not material.
(f) Legal Proceedings
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, tax authorities from the Brazilian state of Sao Paulo have asserted similar
claims on the same legal basis. 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 $427 million for the
alleged evasion of import and other taxes, approximately $1.0 billion for interest, and approximately $1.9 billion
for various penalties, all determined using an exchange rate as of July 28, 2012. The Company has completed a
thorough review of the matters and believes the asserted tax claims against it are without merit, and the Company
is defending the claims vigorously. 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 determine the likelihood of an unfavorable
outcome against it and is unable to reasonably estimate a range of loss, if any. The Company does not expect a
final judicial determination for several years.
On March 31, 2011 and April 12, 2011, purported shareholder class action lawsuits were filed in the United
States District Court for the Northern District of California against the Company and certain of its officers and
directors. The lawsuits have been consolidated, and an amended consolidated complaint was filed on
December 2, 2011. The consolidated action is purportedly brought on behalf of purchasers of the Company’s
publicly traded securities between February 3, 2010 and May 11, 2011. Plaintiffs allege that defendants made
false and misleading statements, purport to assert claims for violations of the federal securities laws, and seek
unspecified compensatory damages and other relief. The Company believes the claims are without merit and
intends to defend the actions vigorously. While the Company believes there is no legal basis for liability, due to
the uncertainty surrounding the litigation process, the Company is unable to reasonably estimate a range of loss,
if any, at this time.
Beginning on April 8, 2011, a number of 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 the Company’s Board of Directors and several of its officers. The federal lawsuits have been
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