cisco systems, inc. securities litigation 01-cv-20418-supplemental evidentiary appendix in

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DEAN S. KRISTY (State Bar No . 157646)KEVIN P. MUCK (State Bar No . 120918)FELIX S. LEE (State Bar No . 197084)CHRISTOPHER A. GARCIA (State Bar No . 215184)JENNIFER C . BRETAN (State Bar No . 233475)FENWICK & WEST LL P275 Battery S treetSan Francisco, California 94111Telephone : (415) 875-2300Facsimile : (415) 281-1350E-mail : [email protected]

Attorneys for Defendants Cisco Systems, Inc ., JohnT. Chambers, Larry R. Carter, Steven M . West,Edward R. Kozel, Donald T. Valentine, Judith L .Estrin, Gary J . Daichendt, Donald J . Listwin, CarlRedfield and Michelangelo Volp i

DAN K. WEBB (Pro Hac Vice 2116105)ROBERT Y. SPERLING (Pro Hac Vice 2116105)ROBERT L . MICHELS (Pro Hac Vice 2116105)RONALD S . BETMAN (Pro Hac Vice 2116105)WINSTON & STRAWN LLP35 West Wacker DriveChicago, Illinois 60601-9703Telephone: (312) 558-5600Facsimile: (312) 558-5700e-mail address : rbetinan@winston .com

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UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

In re CISCO SYSTEMS , INC. Case No . C-01-20418-JWSECURITIES LITIGATION

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This Document Relates To :

ALL ACTIONS .

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SUPPLEMENTAL EVIDENTIARYAPPENDIX IN SUPPORT OF CISCODEFENDANTS' MOTION FOR SUMMARYJUDGMENT

Date: June 13, 2006Time: 9:00 a.m.Place : Courtroom of The Honorable James Ware

SUPPLEMENTAL EVIDENTIARY APPENDIX IN SUPPORT OF MSJ - COI -28418-JW

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Exhibit Description

120 December Fiscal Year 2000 Close Meeting Materials (excerpts )

121 December Fiscal Year 2001 Close Meeting Materials (excerpts )

122 January Fiscal Year 2001 Close Meeting Materials (excerpts )

123 Relevant portions of Plaintiffs' Amended Responses to Defendant Steven West' s

Second Set of Interrogatories to Plaintiffs Plumbers & Pipefitters Nationa l

Pension Fund, Central States, Southeast and Southwest Areas Pension Fund ,

Carpenters Pension Fund of Illinois and Alexander Nehring .

124 Relevant Portions of Defendant Cisco Systems, Inc's Third Amended Response s

to Plaintiff Central States, Southeast and Southwest Areas Pension Funds' Fifth

Set of Interrogatories to Defendant Cisco Systems, Inc .

125 Excerpts of September 15, 2005 deposition of Joseph Bass (Vice President &

General Manager, Wavelength Routing Business Unit) .

126 Excerpts of March 28, 2005 deposition of Carol Kelly (Director, Manufacturing

Finance) .

127 Excerpts of September 28, 2005 deposition of Jeffrey Kouohakji (Controller,

Cisco Systems Capital) .

128 Excerpts of February 21-22, 2006 deposition of Blaine F. Nye (expert for

plaintiffs) .

129 Excerpts of August 30, and September 1, 2005 deposition of Dennis Powell (Vice

President & Worldwide Corporate Controller) .

130 Excerpts of February 13-14, 2006 deposition of Paul Regan (expert for plaintiffs) .

131 Excerpts of February 23-24, 2006 deposition of Roman Weil (expert for Cisco

defendants) .

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SUPPLEMENTAL EVIDENTIARY APPENDIX IN SUPPORT OF MSJ - COI -20418-IW

EXHIBIT 120

Month 5

Cisco SYSTEMS

December FY 00 Close MeetingDecember 30, 1999

9:00 a.m. - 1 :00 P .m .Wall Street Conference Room - SJ-11T

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_ OL ic Person 'lime MinutesConsolidated P&L and Jonathan Chadwick 9:00-9:40 40B/S Review

Actual vs . BudgetlFcst Analysis Janice Mclelland 9:40- 10:00 20

CS, Professional Services Nick Howard/Mona Harris/ 10:00- 10 :25 25Larisa Mitroshkina/Mary Koonmen

Revenue Reserves Tom Cupples/ Darnell Brinkman 10:25 - 10 :45 20

■ Lease Accounting Rory Snyder/Sue Perkins 10:45 - 11 :00 1 5

Break : 11 :00- 11 :25 25

Other Income and Expense Laura Thien Wilson Tang 11 :25 - 11 :35 1 0Bal . Sheet Investment Accts .

A/P Accruals & Entries Michele Sordal/Wendy Ray 11 :35 - 11 :45 1 0

Inventory Trend Analysis Frank Atter/Dawn Hartman/ 11 :45 - 12 :15 30Gross Margin Bridge Laura Rivera/Donal Conroy0/H Spending & Variance s

Summarize Additional Dennis Powell 12 :15 - 1 :00 45Entries and Action Item s

General Comments:1 . Please plan on attending your portion of the meeting only.2. Final close entries will be booked by 6:00pm (WDI) and the final consolidation will be available by

9 :00 pm. WD4 .

Other-Attendees Binder Distributio n

Jim Anderson Carter 001 Anderson 00 6Debi Normington Powell 002 Timmins 007Larry Carter Normington 003 Salhus 008David Rogan Chadwick 004 White 009Dan Salhus PwC 005 Rossman 01 0

Rogan 01 1

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Cisco Inc.CpMaudatad %tYt of Ope ration s

(In Thousands)

Qtr I Qtr 2 Qtr 3 Qtr 4 VT D QIr 1 November D ec ember Dec9mber QEr 2 Qtr 2 YTD VTDAetusl Actual Actual Actual Actua l Actual Actual Adu0i Conaaft Ac *l Cmnmlt Actual I1ud uUf5ommi t

Mookinp :Product $ 2 .6664. 982 8 2.977,897 $ 3 .293,878 $ 3.629 .727 S 12.566,484 S 4,006,682 $ 1 .387,442 S 1 .291 .114 $1,199.759 $2.679,556 S1399527 S 5 .394, 124 S 6,32,9,926Training/Royaky 10 .302 10,593 12„663 10,678 44,234 10, 366 5,112 2, 820 4,989 7,932 9 .978 15 ,478 5 88.71 9Sdvice 260 ,609 342,751 380,000 22 .753 1 .006,113 18,491 10,759 13.621 10.945 24 ,379 23 .645 29,249 1 48,994Support 391,832 391 , 832 457 ,462 137,788 185.617 165,703 343 ,405 321,066 615 ;250 $ 738.91 8

Total B ookjrtg5:Produce S 2,390,003 $ 2,606,151 $ 2,884, 441 S 3,209 ,088 $ 11,099,683 S 3,544,598 $ 1,255,996 S 1,223 ,563 $ 1,166,344 $ 2,479,559 8 2,337,289 S 6 ,024,151 $ 5,817,850TrrininglRoya.8y 10,302 10,591 12.663 10 .67 0 44,234 11,240 5.144 2,313 4,084 7.457 9.978 S 18 .697 S19,968Support 192,24 1 215,945 259, 347 317. 361 954134 334,990 14305 144 .167 123 .749 289,172 239, 898 $ 624 .162 S M6 .395Service 5,416 12,251 14,345 19,666 51 ,678 22,872 3 ,288 9,436 3,400 12,744 6,300 S35,616 S27 .

Net Sales ,

CastOF Salra •Pfadoct 668,430 740,994 825,176r 932 ,576 3 . 167 .228 1,016,029 353,944 356 .979 329,275 712,923 657,606 $ 1,728,952 S 1,665 .2500v~rhNW 55 ,475 61 ,529 66,454 71 ,711 255,169 82.957 28, 114 26,366 29,119 54,480 57.5.52 S 137,437 $141,80 1Reeetves 76.093 73,332 87,409 108 ,209 345 .443 130,837 39,299 39 ,374 38 .920 78473 77, 740 $ 209310 $ 186,28 0Su,pon 71 .475 86265 98,534 112,901 369 ,175 114,461 40X63 41 ,957 42,711 83,720 84,525 5197,181 S 193,806Service 15,273 34,454 27, 224 23,345 75,296 31057 10,159 19,940 9 ,526 21 ,099 19.019 1 52 .156 542,995Training ] 0903 11 ,774 12 ,406 10 ,702 44 ,883 11,302 4,376 5 .175 6007 965 1 12,079 $20,853 $ 74.092

Tom, Lest of 541. 2

GmsvMaig(n 1 .700.763 1.856,590 2038 ,591 2,297 ,289 7,913,233 2,526,957 928,778 900,708 842,924 1 .829.496 1 ,684,883 64,356,143 $4,154 .279655% 65. 3% 64 .9% 544111. 65 .0% 64.6% 66 .0% 65 .2% 64.9% 656% 65. 11% 65 .0% 64 .6%

Opersling Expenses"Einginevving 338,598 372.438 433,354 506 .27 $ 1 ,650,664 536 ,017 185 ,837 193 ,043 199,607 378,880 371 , 791 $ 914 ,897 $ 893,153

13 .0% 131 1% 13,7% 14 .2%. 13 .6% 13.7% 13,2% 14.0,% 14,3% 13.6% 14. 3% 13 .7% 13,9%

Sales 385,452 437,275 492 ,041 529 ,309 1,844 , 107 599, 389 203,043 224,117 70,422 427, 160 415,446 $ 1 , 026,548 S 1,023,97414.8% 15.4% 15 .5% 14 .9% 15 .2% 151 3% 14 .4% 16.2% 16.1% 15.3% 16. 0% 15 .3% 15 .9%

Marketing 134985 139.119 164,022 178,107 6 1 5 .333 213,654 7054 72 ,743 73,378 144,097 143. 886 $357,751 $ 358,99 65 .2% 4.9% 5 .2% 34 % 5 .1% 5 15% 5 .1% 53% 5,Mb 5.2,%, 5 .3 - 5 .6%%

G&A 87,669 94,288 112,422 143 ,802 438 , 182 134 ,825 66 .583 51,472 x,39 ,840 1118,0 `5a

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S 252 ,880 $ 198,33 73 .4% 3.3% 3 .5% 4.0% 3 .6% 3.49E 4 .7% 3.7% 2 .9% 4.2% 2.8% 3 .8% 3,196

Purchased R&D 40 ,900 348, 866 - 81,232 470,998 381,035 36213 30,21 1 S 4T 1,2461 .6% 12. 3% 2 .3 %

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3 .9% 9.7% 2. 1% 1 .1% 6 .1 %

Total Operating Expenses M,734 1,261,139 T32 M 3 .019 .2114 1 .164.919 557,028 341,373 ---301 .547 iM,4MI 11004.z77 $ 2.9fo 13U $2,474 .438 .0% 48.9% 37 .9% 40.5% 41 .2% 47.7% 39 .6% 39.2% 39 .795 39.4% 39. 7% 441% 58 .5 %

Operating Income27.59% 163 % 27.0% 24 .1% 23 .8% 16.9% 26 .6% 26.0% 25 .8% 26.2% 26. 2% 20.8% 26.1 '

Remlized gain on saia of in 51,Otherlncarne 56,888 86,442 91, 145 93,142 331 ,617 101 ,230 21 , 842 47 ,993 35,385 69 435 70,770 S 171,065 $ 165,770Miaorlty I0ure t 4721 (18) (402) (1,157 907 1 I,A27 1003 S 1,31 9Won* Before Taxes 4M353 J09 .752 KUIM 73 t,"6 $ 1,5E0,496 $1,94 . 97

3010% 19. 1% 29 .9% 26,7% 26 .5% 19. 5% 28.0% 29 .6% 28 .5% 28,8% 2910% 23. 4% 28.796

Income: Tnees 270,846 263,390 311,930 343,055 1 .189,7.,22 343,316 133,927 123 ,898 110,929 237 ,825 225,412 $608,141 $ 553,67534.7% 48.4% 32. 9% 36 .6% 36 .9% 45.0% 340% 30.3% 30.0% 32. 2% 30.0% 38A% 40%

Net Income ,

19.6% 9.9% 20. 1% 17.1 1k 16 .7 18, 10.7% 18,4% 20 .6% 19 .9% 10159E 20.3% 1 4.4% 20. 1

5ngs Aar Sberc - Diluted 5.15 5 108 5. 18 5.17 3,58 5 .117 3 .071 5 .078 $.071 3 .149 $ . 145 5 .266 5 .355

Shares used In FPS cakUlatian 3.419.307 3,486,162 3.526.988 3,561 ,620 3 ,497,550 3,601,681 3,631,519 3,650,226 3,639,800 3,641 ,300 3 ,639,800 3,620 ,540 3,639

ProF0tmeEP8 - Diluted 3 0.16 5 0 .18 $ 0.18 $ 0.20 5 0.72 5,228 3 .155 8 $ .081 2A78 3 .169 $. 145 $ .397 5 .35 5

Nolr1 Prior petlud gnartetly data llaa been restated for fnolhtp completed in the current quarter.PreTorma EPS In cludes Adj uignenls rolatad to IPR&D, tunorlizatiun of goodw0! and lamn5lblev end related sm effects

12128.1988 12:13 PM

EXHIBIT 121

CISCO SYSTEMS

December FY 01 Close MeetingDecember 28, 2000

10:00 a.mi. -1:30 p.m.Wall Street Conference Room - 53-1113

Topic Person Time Minutes

Consolidated P&L and Dan Salhus 10 :00 --10 :20 20

BIS Review Mohan Patel

Actual vs_ Budget/Fcst Analysis Mary Kadomoto 10 :20- 10 .30 to

CA (Customer Advocacy) Jim Fuller/Susan Powell/ 10:3 D -- 11 :00 3 0

Professional Services Tony Savastano/Susan Mcdonough

Break 11 :00- 11 :10 1 0

Revenue Reserves Mrinalini IngramlMichele Leung/ U .-ID-11 :50 40Marty Menz

Lease Accounting Cynthia Farrell 11 :5D- 12 :10 20

Other Income and Expense Wilson Tang/Greg Bromberger 12 :10 - 12 :20 1 0

Bal. Sheet Investment Accts .

Break 12 :20- 12:30 1 0

Inventory Trend Analysis Frank AtterlDawn Hartman/ 12:10 - 1 :00 30

Gross Margin Bridge Brian Karr

01H Spending & Variance s

Summarize Additional Dennis Powell 1 :00 - 1 :20 20

Entries and Action Item s

General Cori,nents,1 . Please plan on attending your po rtion of the meeting only.

2. Final close entries will be booked by 6 :00 pm and the final consolida tion will be available by

9:00 pm, W03.

Other Attendees Binder Distribution

Larry Carter Carter 001 White 009

David Rogan Powell 002 Rossman 010

Johnson 003 Rogan Oi l

Chadwick. 004 Ashby 01 2PwC 005 Pate! 01 3Kadomoto 006 Teh 014

Timmins 007 Holland 01 5Salhus 008

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EXHIBIT 122

Month 6

CISCO SYSTEMS._4

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January FY 01 Close MeetingJanuary 31, 200 1

10:00 a.m. - 1 :44 pm.Wa11 Street Conference Room - SJ-1113

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L 00C Person Time MinutesConsolidated P&L and Dan Salhus 10:00 - 10:20 .20$1S Review Mohan Patel

Actual vs. Budget/Fcst Analysis Mary Kadomoto 10:20 - 10:30 10

CA (Customer Advocacy) Jim Fuller/Tony Savastano/ 10:30 -11 :00 30Professional Services Susan Mcdonough/Susan Powel l

Break 11 .00- 11 :10 10

Revenue Reserves Mrinalini Ingram/Michelle Leung) 11 :10 - 11 :50 40Marty Men z

Lease Accounting Sue Perkins 11 :50 -12:10

Other Income and Expense Wilson Tang/Greg Bromberger 12:10 -12:20Bal . Sheet Investment Accts .

Break 12:20 -12:30

Inventory Trend Analysis Frank Atter/Dawn Hartman) 12:30 -1:00Gross Margin Bridge Brian KardCarol Kelly❑1H Spending & Variances

Tax Glen Rosman 1 :00 -1 :20

Summarize Addi tional Dennis Powell 1 :20- 1 :40Entries and Action Item s

Cgneral Comments:1 . Please plan on attending your portion off the meeting only.2 . Final close entries will be booked by 61K) pm and thefinal corssolidation will be available by

9:00 pm, WD3.

Other Attendees Binder DistributionLarry Carter Carter 001 White 009David Rogan Powell 002 Roseman 010

Johnson 003 Rogan 01 lChadwick 004 Ashby 012

PwC 005 Patel 01 3Kadonmoty 006 Teh 014Timmins 007 Holland 01 5Salhus 008 Nelson 016

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EXHIBIT 123

LERACH COUGHLIN STOIA GELLERRUDMAN & R©BBINS LLP

WILLIAM S. LERACH (68581)SPENCER A. BURKHOLZ (147029)DANIEL S. DROSMAN (200643)JONAH H. GOLDSTEIN (193777)MATTHEW P. MONTGOMERY (180196)LUCAS F. OLTS (234843)JESSICA D. TALLY (234432)655 West Broadway, Suite 1900San Diego, CA 92101Telephone: 619/231-10586191231-7423 (fax)

.com

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-and-PATRICK T. COUGELIN (111070)LESLEY E. WEAVER (191305)100 Pine Street, Suite 2600San Francisco, CA 94111Telephone: 4151288-4545415/288-4534 (fax)[email protected] e[ Ierachlaw.com

CO-Lead Counsel for Plaintiffs

[Additional counsel appear on signature page.]

LEVIN, PAPANTONID, THOMAS,MITCHELL,

ECHSNER & PROCTOR, PA. .TIMOTHYM. O'BRIEN (pro hac vice)316 South Bayles Street , Suite 600Pensacola, FL 32501 -Telephone: 8501435-7000850/497-7057 (fax)


NORTHERN DISTRICT GF CALIFORNIA

SAN JOSE DIVISION

In re CISCO SYSTEMS, INC. SECURITIESLITIGATION

)This Document Relates To: )

ALL ACTIONS. )

Master File No. C-0 i20418-JW(PV )

CLASS ACTION

PLAINTIFFS' AMENDED RESPONSES TODEFENDANT STEVEN M . WEST'SSECOND SET OF INTERROGATORIES TOPLAR47IFFS PLUMBERS & PIPEFITTERSNATIONAL PENSION FUND, CENTRALSTATES, SOUTHEAST AND SOUTHWESTAREAS PENSION FUND, CARPENTERSPENSION FUND OF ILLINOIS ANDALEXANDER NEHRING

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1-9t Cir. 1992); In re Convergent Techs. Sec. LiUig.,108 F.R.D. 328 (N.D. Cal. 1985);In re Gupta

Corp. Sec. Luig., No. C-94-1517 FMS, 1995 U.S. Dist LEXIS 21847 (N.D. Cal . July 18, 1995); In

re Ashworth Sec. Litig , 213 F.R.D. 385, 389 (S .D. Cal . 2002); In re M77 Tech Corp. Sec. Litig. ll,

11 No. SACV 00-0745 DOC (ANx), 2002 U.S. Dist LEXIS 13015, at * 7-* 10 (C.D. Cal. June 14,

2002); In re Two Intl, Ltd Sec. Litig., MDL No. O0-MD-1335-B, 2001 U.S. Disk LEXIS 819

(D.N.H. Jan . 30, 2001) ; Elec. Data * Corp. v Steingraber, No. 4:02CV225, 2003 U.S. Dist .

LFXIS 11815, at *4-*8 (El). Tex. June 27,2003). Plaintiffs also object that the allegations at issue

contain specific facts that stand on their own, independent of any other facts . Finally, p1aintif

object to this interrogatory to the extent that it seeks information not with in plaintiffs' possession,

custody or control, or information that is equally available to defendants .

Notwithstanding and without waiving the foregoing objections, plaintiff respond as follows :

Plaintiffs direct dthndauts to the Ragan Expert Report.

Plaintiffs reserve the right to amend this response on an ongoing basis .

1 INTERROGATORY NO. 13 ;

IDENTIFY each customer YOU contend placed double or triple orders during anyquarter of

I the CLASS PERIOD, and provide the date and amount of each such order.

RESPQN---S-E TO INTERROGATDRYNO. 13 :

Plaintiffs incorporate herein each of the foregoing General Objections . Plaintiffs object to

this interrogatory to the extent that it seeks or purports to require disclosure of informat ion which is

protected from disclosure by the attorney-client privilege, the attorney work product doctrine and/or

any other applicable privilege or immunity. Plaintiffs objeetto this inuno storyon the grounds that

defendants have violated Fed. R. Ciro. P. 33(a) by propounding more than 25 interrogatories,

including discrete subparts, and that this intemgaIoy is therefore improper . In particular, the

identities of persons counsel selected to interview or relied upon in the FAC, and the memoranda

they prepared (through investigators), are privileged attorney work product . See, e.g. Wickman v

Taylor, 329 U .S. 495, 510-11 (1947) ; Holmgren v. State Farm Mur Auto Ins. Co., 976 F.2d 573, 576

(9th Cir. 1992); In re Convergent Terns. Sec. Litig.,108 FAD. 328 (N .D. Cal . 1985) ; In re Gupta

Corp. Sea Litlg_, No. C-94-1517 FMS, 1995 U.S. Dist. LEXIS 21847 (N.D. Cal . July 18, 1995) ; InPLS' AMENDED RESP . TO DEF_ STEVEN WEST'S RROGATORIES - SET TWO - C-01-20418 -JW(PVI) -7-

re Ashworth Sec_ Litig., 213 F.R.D. 385, 389 (S.D. Cal . 2002) ; In re M 7Tech. Corp. Sec. Litig. 3l,

No. SACV 00-0745 DOC (ANx), 2002 U.S. Dist LEXIS 13015, at *7-010 (C.D. Cal . June 14,

2002) ; In re Tyco Int'1, Ltd Sec. Litig., MDL No. 00-MD-1335-B, 2001 U .S. Dist. LEX[S 819

(D NX. Jan. 30, 2001); Elec_ Data Sys. Corp. v. Steingraber, No. 4:02CV225, 2003 U.S. Dist .

LEXIS 11816, at *4-*g (E.D. Tex. June 27, 2003). Finally, plaintiffs object to this interrogatory to

the extent that it seeks information not within plaintiffs' possession, custody or control, or

information that is equally available to defendants .

Notwithstanding and without waiving the foregoing objections, plaintiffs respond as follows:

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Plaintiffs have obtained evidence that Cisco customers placed double or triple orders in Q1 FY01

and Q2 FY01; however, despite knowledge of the problem, CEO Chambers and CFO Carter hav e

11testified. that the company itself did not b k double or triple ordering, so plaintiffs are unable to

quantify the amount of double or triple orders . Plaintiffs also direct defendants to the depositions

and the accompanying exhibits of: John Chambers on September 21 and 22, 2 005, Larry Carter on

September 29 and 30, 2005, long Dennerline on August 18, 2005, and James Gould on July 25,

2005.

Plaintiffs reserve the right to amend this response on an ongoing basis .

I INTERROGATORY NO . 14:

If YOU contend that CISCO's financial statements were misleading by reason of the amounts

I reserved for returns , IDENTIFY each affected financial statement and the amount of each

misstatement.

RESPONSE TO INTERROGATORY NO . 14 :

Plaintiffs incorporate herein each of the foregoing General Objections . Plaintiffs object to

this interrogatory to the extent that it seeks or purports to require disclosure of information which is

protected from disclosure by the attorney -client privilege, the atto rney work protect doctrine aw or

any other applicable pr ilege or immunity . Plaintiffs objectto this interrogatory on the grounds that

defendants have viol ated Fed. R. Civ. P. 33(a) by propounding more than 25 interrogatories,

including discrete subparts, and that this interrogatory is therefore improper . In particular, the

identities of persons counsel selected to interview or re lied upon in the FAC, and the memoranda

PLS' AMENDED P1 SP. TO DEF . STEVEN WEST'S INTERROGATOR IE .S - SET TWO - C-01-20418-JW(PVT) -9-

EXHIBIT 124

DEAN S. KRISTY (SBN 157646)KEVIN MUCK (SBN 120918)FELIX S. LEE (SBN 197084)ALICE L. JENSEN (SEN 203327)CHRISTOPHER A GARCIA (SBN 215184)DONALD W. SEARLES (SBN 135705)JENNIFER C . BRETAN (SEN 233475)FEI+ WICK & WEST LLP275 Battery StreetSan Francisco , California 94111Telephone: (415) 875-2300Facsimile: (415) 281-1350e-mail address . u k fearwick.cnra~

DAN K. WEBB (Pro Hac Vie 2116/05)ROBERT Y. SPERL NG (Pro Hac Vice 21165)ROBERT L. MICHELS (Pro Hac rice 2116/05)RONALD S. BETMAN (Pro Hac Vice -211"5)J. ERIK CONNOLLY (Pro Hac Vwe 2116105)KRISTA M. ENNS (SEN: 206430)WINSTON & STRAWN LLP35 West Wacker DriveChicago, Illinois 60601-9703Telephone: (312) 558-5600Facsimile: (312) 558-5700e-mail address: rb on.com

Attorney for DcfendaouCisco Systems, Inc, John T. Chambers, Larry RCater, Carol A . Bart, Steven M. West Edward It .Kozel, Donald T. Valdrtine, Robert L. Peke, JudithL. Estrin, Gary J . Daichendt, Donald J . Listwin, CarlRedfield and Michelangelo Volpi



SAN JOSE DIVISION

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in re CISCU S 7 S'1'bmSECURITIES LITIGA '

ALL ACTIONS.

Case No. C-0l -20418-. W

CLASS ACTION

DEFENDANT CISCO SYSTEMS, INC .'ST W AMENDED OBJECTIONS ANDRESPONSES TO PLAINTIFF CENTRALSTATES, SDUT}EEAST ANDSOUTHWEST AREAS PENSION FUNDS,FIFTH SET OF INTERROGATORIES TODEFENDANT CISCO SYSTEMS, INC .

Del .t Moo System . Inc. 3rd Amdea Ob vctionsand Rezpoi es to Phim i & Fifth Set of Iuteamgatories

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I RESPONSE TO INTERROGATORY NO. 15;

Defendant incorporates herein each of the foregoing General Objections. Defendant objects

to the interrogatory on the grounds that plaintiffi have violated Fed . R Civ. P. 33(a) by previously

propounding more than 25 interrogatories, including discrete subparts, and that this interrogatory is

therefore improper. In addition, since the Class Period encompasses at least six f scat quarters, this

interrogatory itself constitutes six separate intearrogatories . Defendant further objects to the

inteccogatory on the grounds that it is overly broad, unduly burdensome e, oppressive and harassing,

and purports to impose on Defindaut obligations inconsistent with the Federal Rules of Civil

Procedure. Defendant firmer objects that the interrogatory is vague and ambiguous, seeks

information which is neither relevant to the subject master of this action nor reasonably calculated to

lead to the discovery of admissible evidetioe . Defendant further objects to the interrogatory on the

grouW that, if any suchrevenue was recognized, plaintiffs can just as easily as defendants ascertain

the requested information from the business records of Cisco Capital that have already been

produced to plaintiffs .

Subject to and. without waiving these objections, and based on investigation to date ,

Defendant responds as follows. The amount of revenue Cisco recognized for sales lease transitions

for which there were no lease des signed by customers at the time the revenue was recognized

was :

Q1 FY00 -$9,157,799.08

Q2 FY'00 -$38,581,698.28

Q3 FY"00 $53,395,456.75

Q4 FY00 -$29,529,213 .60

Q1 FY01 -$80,315,717.07

Q2 FY01 -$23,495,083 .94

Sales lease transactions for which not a ll lease schedules had been signed were reported as

prefimded inventory ("PFI") on Cisco Capital's balance sheer. At the end of the quarter, Cisco

Capital aggregated the total dollar value oftthe sales lease transactions reported as PFI. The existing

PFI balance (i .e., the l ee from the prior quarter) was reversed and the new PFI balance was

5Defmdent Cisco Syste s, Inc . 3rd Amended Objectionsand Re es to Plaintiffs Fifth Set of ImUmmPtas s

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recorded. The revenue recorded was the difference between these two numbers (the balance sheet

chuge). In any given quarter, if the dollar-value of the sales lease transactions no longer reported as

PFI (La, sales lease transactions reported as PFI for which lease schedules had been signed) was

greater than the dollarvalue of all of the sales lease transactions reported as PF1, then Cisco Capital

would report a negative revenue entry for PF L

Defendant reserves the right to supplement its response to this interrogatory pursuant to Fed .

R. Civ. P. 26(e) to the extent it becomes aware of the existence of additional responsive information.

I INTERROGATORY NO. 16:

Identify by customer, shipping date, dollar volume, date revenue was recognized, invoice

number, and transaction number, each sales lease transaction from which Cisco or Cisco Capital

recognized revenue when there was no lease schedule for that transaction signed by a customer at the

time the revenue was recognized.

RESPONSE TO INTERROGATORY NO. 16;

Defendant incorporates herein each ofthe foregoing General Objections. Defendant objects

to the interrogatory on the grounds thatplaintiffs have violated. Fed. R. Civ. P. 33(a) by previously

propounding more than 25 interrogatones , including discrete subparts, and that this interrogatory is

therefore improper. Indeed , although plaintiffs have not specifically identified the transactions

subject to this interroga tory, the interrogatory as drafted calls for at least seven mbparts of

information as to any particular transaction. Defendant find= objects to the interrogatory on the

grounds that it is overly broad, maduly burdensome, oppressive and harassing, and purports to

impose on Defendant obligations inconsistent with the Federal Rules of Civil Procedure. Defendant

further objects that the interrogatory is vague and ambiguous, seeks information which is neither

relevant to the subject matter of this action nor reasonably calculated to lead to the discovery of

admissible evidence . Defeandant f rther objects to the interroga tory on the ground that, if any such

revenue was recognized, plaintiffs can just as easily as defendants ascertain the requested

information from the business records of Cisco Capital that have already been produced to plaintifs.

Subject to and without waiving these objections, and based on investigation to dam neither

Cisco or Cisco Capital determined the amount of revenue to be recognized for sales lease

6Defentant Cisco Systems, Im. 3rd Amended ObjectivesandResponses to Plaintiffs̀' Fifth Set of Interrogatories

EXHIBIT 125

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNI

---o00---

In Rem )

}

CISCO SYSTEMS, INC-, } No . C-01-20418-3W (PVT)

l

SECURITIES LITIGATION, ]

This document relates to )

ALL ACTIONS .

a

VIDEOTAPED DEPOSITION OP

JOE BASS

SEPTEMER 15, 2005

ORAL AND VIDEOTAPED DEPOSITION OF JOE BASS, produced

an a witness at the instance of the PLAINTXFF , and duly

sworn, was taken in the above-styled and numbered cause

on the 15th day of September , 2005 ,, from 10 :07 a .m. to

4 :33 p .m . & before April Eichelberger, CSR in and for the

State of Texas , reported by machine shorthand, at the

offices of Hundt Reporting , 703 Rcxinney Avenue , Suite

207, Dallas , Texas, pursuant to the Federal Rules of

Civil Procedure .

}

550 West C Stmt, Suite 600San Diego, CA 92101

619-235-2400

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wanted to cancel its orders for the 159007

A. At this time frame?

Q . Yeah.

A. No, sir.

Q- Dv you have some recollection at all whether

AT&T told Cisco it wanted to cancel its oxdesre at any

time frame?

A . Yes, sir.

Q . Okay. What time frame Oo yOU ha" in stied?

A . 1-do='t recall the date, but I know E&T did

cancel their orders for the trial systems.

Q. Okay . And are you able to place that at any

tim frame in conjunction with the -- with the date of

this *-mail, before or after?

A. I belief is after this time frame , but 1

don't recall specifically . Ia this time frame, the

February ML;ch, time fsa:us, Y believe .

Q . Okay . And I believe you -- and I don't want

to misquote you. = believe the first thi ng you said

was, "My belief is after this time frame .° Is that your

tastes

A. I dsu' t recall the time frame of when AT&T

canceled thqir orders .

Q• *11 , you'd agree with me that AT&T canceling

their orders was a big deal to you and your team,

EASTWOOD-ST INDeposition Management (800) 5142714

11t3SAM

12 :357K

11 :357K

13.=367[

11 :36AM72

Witness: }fie B t

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IN THE i]NITSD STATES ]DISTRICT COURT

FOR THE NORTHERN DISTR±`CT OF CALIPORNI .A

-- - Do*--

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CISCO SYSTffi+ S, INC., j

1

SFCCIRIT •S LITIGATION, ]

This document xei.atE to )

ALL ACTIQ,NS .

No . C -O1-2041$-JW (PVT )

REPORTER ` S CERTIFICATION

DEPOSITION OF JOE BASS

SEPTEMBER 26, 2 O 5

1, April Eichelberger, Certified Shorthand Reporter

in. ane for the State of Texas, hereby certify to -the

follow g

That the witness . JOE BASS, was duly sworn by., the

oftice± and that the transcript of the oral deposition

is a true record of the testimony given. by the witness ;

That pursuant to information, given to the deposit-ion

bff .ce'r at the time said testimony was taken, the

is

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Witty s: Joe Buss

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following includes counsel for all parties of record :

FOR THE PLAINTIFFS :

Mr. Jonah Goldstein, Mr . Lucas F . Alts

LERPCH COIIGHL-IN STOIA GELLER RUD ' & R013EINS

( 619) 231-1050, (619) 231_.7423 (Fax)

FOR THE M PENDANT tI SCC SYSTEMS :

Ms . Monika M, B2acha

KNSTQN & STRAWN, LISP

-(312) 558 .8064, (31.2) 5 58-5700 (Fax)

FOR THE DEFENDANT PRICEWATERHOUSECOOPERS

Mr . Renato Mariotti

HELLER EHRMAN, LLP

(415) 772-6000 ■. (415) 712-6268 (Fax- }

I further certify that I apt neither counsel for,

related to, nor employed by any of the parties or

attorneys in the action in which this proceeding was

taken, and further that I am not financially or

otherwise interested in the ou~cpthe of the action .

Certified to by me this day of

2005 .

April Eichelberger, Texas CSR No. . 7495

Expiration Date : December 31, 200 5

indt Reporting . LLC

Fix,n Timber 357

703 McKinney 1venue, Suite 207

Dallas, Texas 75202

(214') 220-1 .122, Fax (214) 220- 1127

EXHIBIT 126


NORTHERN DISTRICT OF CALIFORNI A

r

---000---

In re :

CISCO SYSTEMS , INC ., ]

SECURITIES LITIGATION j

}

This Document relates to: )

}

ALL ACTIONS . ]

l

No. C-O1-20418-JW

(PVT )

VIDEOTAPE DEPOSITION OF CAROL KELLY

MONDAY. MARCH 28, 2005

e S eastward-stei ndeposition services & litigation support

550 West C Street, Suite 600San Diego, CA 92101

619-235-2400

1 A Those are the general factors I'd be 11 53 :45AN

2 referring to at the time .

3 Q But in terms of being contained withi n

d this E-mail, are those the only ones that you're

5 identifying as relating to pipeline? 11 :53 :52AN

6 A Yes .

7 Q Okay .

8 The sentence goes on to say 'pipeline

versus shipments . "

10 Can you explain to me, when you use the 11 : 54 : O3AM

11 term "shipments ." what you were referring to?

12 A The way I'm using 'shipments' there would

13 be I think somewhat correlated to build plan .

14 Q Okay .

is Why don't you start by telling me what you 11 :54 :46AM

3.6 mean by "build plan . "

17 A 'Build plans is how -- what -- the number

18 manufacturing is committing to building in th e

19 quarter .

20 Now, some of that may go into finished 11 :54 :56AN

21 goods, so that would not constitute a shipaaent . A

22 shipment would be, you know, fully out the door and

23 we would recognize revenue on it . However, in thi s

24 case the word "shipments," it's loosely correlated

25 to 'build plan ." 11 :55 :11AM

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EA„STWOOD-STEINdeposition services & litigation support (M) $14-2714

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REPORTER'S CERTIFICATE

1, KELLI COMBS, a Certified Shorthand

Reporter of the State of California, do hereby

certify :

That the foregoing proceedings were

taken before me at the time and pl ace herein set

forth; that any witnesses in the foregoing

proceedings, prior to testifying, were placed under

oath ; that a verbatim record of the proceedings was

made by me using machine shorthand which was

thereafter transcribed under my direction ; further,

that the foregoing is an accurate transcription

thereof .

I further certify that I am neither

financially interested in the action nor a relative

or employee of any attorney or any of the parties .

IN WITNESS WHEREOF, I have this date

subscribed my name .

Dated ;

25 KELLI COWS ■ CSR NC. 7705

EXHIBIT 127


NQRTHERH DISTRICT OF CALIFORNIA

In re;

CISCO SYSTEMS, INC. ,

SECURITIES LITIGATION, ) No . C-01-20418-JW (PVT)

This document relates to ) VOLT D I

ALL ACTIONS .

Videotaped Deposition of JEFFREY KOtICHAA.7I ■

PM of CISCO SYSTEMS, INC ., taken at

100 Pine Street, San Francisco.

California, commencing at 9 : 08 a .rn. ,

Wednesday, September 28, 2005, before

Janice Schutzman , CSR No. 950 9

w 44

66:550 West C Stmet, Suits 600

San Diego, CA 9210 1619-235-2400

I payment is for this particular transaction ?

2 MS . EM M ; Objection.

3 MS . RYAN: Objection, vague .

4 TEE WITNESS : So it could be 36 moths or

5 it could be 30 days . 12 :09PK

6 SY MR. J ONTGKMRY :

7 Q . And at the time that this dcaumient, Exhibit

8 313 was executed , you can 't tell whether or not it' s

9 going to be 30 days or three years , is that correct?

10 MS . EMS .- Objection , form, vague . 12 :10PH

11 THE WITMSS : That ' s correct .

L2 BY MR . MDbi'1'60Y1

13 Q . And in that instance, with that loam of

14 information , would you feel that the recognition of

15 revenue an the transaction , msnoriali$ed by this, 12 :1OPM

16 asstiming all other requirements were met, would b e

17 appropriate?

18 MS . EMS : Objection, form, vague .

19 TM WITNESS : I would, because it' s

20 probably the most conservative approach because you 12 :10PM

21 wouldn't take it as typically just not 30, so youo d

22 aasime, for lack of anything else , that the lease

23 term specified here is what the lease would look to .

24 So in order to determine whether it wa s

25 going to be an operating lease or finance lease , you 12 :11PM

12 6

EASTWovn scEnvDemo tion Moment ( 800) 514-2714

I would, if thin in all you had, there would be enough

2 information here to make that judgment call .

3 BY MR. TQQM$RY =

Q . And you believe that revenue recognition

5 would be appropriate, assuming all other

6 requirements are stet ?

7 MS. ffi]N3 : Objection, vague .

8 'f8$ WI SS t I'd have to calculate out

9 whether its an operating lease or a finance lease .

10 BY MR. N TCOI tY:

11 Q. Let's assume that the ragairrasents are met

12 for a capital lease .

1.3 A. Okay.

Q . Then, based on the information contained in

15 hews, do you believe that there is sufficient

16 information about the term of payment to recognize

17 revue?

18 MS. YES : Objection, vaguer calls for

19 speculation.

20 TEE WITNESS : So there is enough

21 information here to m aka the determination of

32 tether it would be an operating lea se or a capital

23 lease . So if this document, I think this document

24 would need to be in conjunction with an WA , which

25 governs the overall terms and conditions .

12=J.1J[

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EASTWOOD- STEINDeposition Maaagemeat (800) 5142714

I BT MR.

2 Q. Right.

3 A. So this alone could, I think it's any

4 cambination of documents, there is no one specific

3 document that would have everything you would

6 need --

7 Q. Right .

8 A. -- either to =ake the call whether the

9 revenue should be recognized or not or to detexwJze

10 whether it's a capital or an operating lease . I

11 think it's multiple documents .

12 Q . Lotus go bad[ to the term of payment issue,

13 though.

14 Do you believe, though, that it could be

13 appropriate, if all other require ate are net, to

1s recognize revenue in a situation such as Exhibl.t 313

17 where Cisco doesn't know whether it's going to be

1$ paid in 30 days or 35 montbs ?

19 MS. S: Objection, vague, form ,

20 aischaracttrizes .

11 TIR WITI.SS : Sorry. Rephrase the

22 question, or repeat the question.

23 BY 1R. MCNTGK=RY i

24 Q. Assuming all other requirements are met --

35 A. okay, meaning what requirements?

12r12PK

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12 :12PM

12 22PH

12 :12PM12 8

EAS '■ OOD.SrKIN

Dqm"aa Management (800) 514-2714

I Q. For a capital lease .

2 A. Okay.

3 Q- Any other revenue recognition requirements,

4 assuming those requirements are met, is it your

5 Opinion that, in a situation such as that 12 :13PB

6 memorialized in Exhibit 313, that it would be

7 aprcpriate to recognise revenue when Chaco does not

8 yet know whether it's going to get paid in 30 days

9 or 35 months?

10 US. NMI: Same objections. 12113PM

11 THE WITNESS: Fes, in this case you would

12 because in both cases, whether it's not 30 or it's a

13 capital lease, under GAAP you' =a allowed t o

1 ■ recognize revenue . So in thin case, yes .

15 BY HR. CRY:

18 Q . Are you familiar with the phrase "tune

17 value of soaey■ ?

is A. Yea .

29 Q . And is the same amount of revenue -- strike

20 that . 12 :13PM

21 Rxplain to me your understanding of the

22 time value of money, please .

23 A. It takes into consideration interest over a

24 period of time, so it compares dollars today versu s

25 dollars in the future . 12 :14PR

129

EASTWOOD-STE[iDeposition Managenwut (800) 514-2714

1- STATE OF CALIFORNI A

2 COUNTY OF LOS ANGELES l

3

+ I ■ DICE SCHUTZMRN, C .S .R. No . 9509 , do hereby

certify :

6

7 That the foregoing deposition testimony of

B ,JEFFREY XOUCHALJI, PMK of CISCO SYSTEMS, INC ., was

9 taken before me at the time and place therein set

10 forth, at which time the witness was placed under

11 oath and was sworn by me to tell the truth, the

12 whole truth and nothing but the troth ;

13 That the testimony of the witness and all

1.+ objections made by counsel at the time of the

3.5 examination were recorded stenographically by me,

is and were thereafter transcribed under ny direction

17 and supervision, and that the foregoing page s

is contain a full, true and accurate record of all

19 proceedings and testimony to the best of my skill

20 and ability .

21 I further certify that I am neither counsel for

22 any party to said action, nor am I related to any

23 party to said actionr nor am I in any way interested

2; in the outcome thereof .

25

158

EASTWOOD-STEINDgio itian Man meat (800) 514-2714

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IN WITNESS WHEREOF ,, i have subscribed my name

this Jday of , k6uk , 2005 .

EAST WOOD-STEI Ndeposition services & litigation snpporl (800) 5142714

EXHIBIT 128

BLAINE F . NYE February 21, 200 6

Page 1


FOR THE NORTHERN DISTRICT OF CALIFORNIA

--000--

In Re :

CISCO SYSTEMS, INC .,

SECURITIES LITIGATIO N

This document relates to :

ALL ACTIONS. }

C-01-20418-JW

EXPERT DEPOSITION OF BLAINE F . NYE

VOLUME 1 PAGES 1 -- 25 9

TUESDAY, FEBRUARY 21, 200 6

REPORTED BY : DIANE M . WINTER, CSR NO . 3186 (377365 )

LegaLink San Francisco (800) 869-9132de57d349 .8 924145-bfO3-66e7482c7422


Page 6 8

10 :48 :36 1 original report ?

10 :48 :38 2 A I don't believe so .

10 :48 :39 3 Q Did you make any assumptions regardin g

10 :48 :42 4 related party transactions in this case and whethe r

10 :48 :45 5 or not that impacted the market ?

10 :48 :47 6 MR . GOLDSTEIN : Objection, compound .

10 :48 :49 7 Answer them one at a time .

10 :48 :51 8 MR . BETMAN : I'll restate it .

10 :48 :51 9 Q (BY MR . BETMAN) Did you make any

10 :48 :53 10 assumptions relating to related-party transaction s

10 :48 :56 11 in this case in forming your opinions ?

10 :48 :59 12 A I don't believe so .

10 :49 :04 13 Q Would you turn to page, I guess we'll go b y

10 :49 :07 14 paragraph references in your report, it may b e

10 :49 :09 15 easier .

10 :49 :10 16 Paragraph 13 of your original report, which

10 :49 :15 17 is Exhibit 4122, we're talking about materiality ,

10 :49 :20 18 correct ?

10 :49 :21 19 A Correct .

10 :49 :21 20 Q And in that first paragraph you, you know ,

10 :49 :25 21 give a definition of "materiality," correct ?

10 :49 :27 22 A Correct .

10 :49 :31 23 Q And you say, "Material information is tha t

10 :49 :34 24 information which a reasonable market participan t

10 :49 :36 25 would want to know in making investment decisions . "

LegaLink San Francisco (800) 869-913 2de57d340-8e92-4145-bfO3-66e7082c7422


Page 26 0


FOR THE NORTHERN DISTRICT OF CALIFORNIA

--000--

In Re :


SECURITIES LITIGATION C-01-20418-JW


ALL ACTIONS .

EXPERT DEPOSITION OF BLAINE F . NYE

VOLUME 2 - PAGES 260 - 384

WEDNESDAY, FEBRUARY 22, 200 6

REPORTED BY : DIANE M . WINTER, CSR NO . 3186 (377367 )

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09 :41 :39 1 A Each of those phrases sounds familiar .

09 :41 :42 2 Q (BY MS . RYAN) Can you think of an y

09 :41 :44 3 material information that could be announced by a

09 :41 :45 4 company that doesn't relate to its financial

09 :41 :49 5 condition, financial prospects or busines s

09 :41 :51 6 operations ?

09 :41 :51 7 MR . GOLDSTEIN : I'm just going to object in

09 :41 :53 8 the same precise exact question was asked yesterday .

09 :41 :55 9 Dr . Nye has come back for a second day not to b e

09 :41 :58 10 asked the same questions . Go ahead .

09 :42 : 00 11 MS . RYAN : Just actually he's not been

09 :42 :02 12 asked that question . He was asked in any cases he

09 :42 :05 13 was involved in .

09 :42 :06 14 Q (BY MS . RYAN) I'm asking you now can yo u

09 :42 :07 15 think of any material information, this is in an y

09 :42 :10 16 hypothetical situation, that could be announced by

09 :42 :13 17 any company that's material information that doesn' t

09 :42 :15 18 relate to its financial condition and financia l

09 :42 :17 19 prospects or business operations ?

09 :42 :19 20 A Material means anything an investor would

09 :42 :21 21 want to know in making investment decisions . And I

09 :42 :27 22 can't think of anything off the top of my head othe r

09 :42 :31 23 than things relevant to his decisions bein g

09 :42 :40 24 material . And by that definition . So that would b e

09 :42 :45 25 the information about the company, its business, it s

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09 :42 :48 1 business prospects, its financial condition . There

09 :42 :53 2 may be things out there, I guess .

09 : 42 :56 3 I just, in other words, I think that

09 :42 :59 4 general basket you said that I had said earlier ,

09 :43 :03 5 business conditions, business prospects, financia l

09 :43 :06 6 conditions, those kinds of things are all clearly

09 :43 :11 7 relevant . And I don't know, I can't think o f

09 :43 :15 8 anything off the top of my head to add to that as I

09 :43 :18 9 sit here .

09 :43 :19 10 So what did you ask me, did I ever testif y

09 :43 :22 11 if it was anything different ?

09 :43 :23 12 Q (BY MS . RYAN) No, I think you answered the

09 :43 :25 13 question . I was asking whether you could think o f

09 :43 :27 14 any material information .

09 :43 :28 15 A Oh, good .

09 :43 :29 16 Q Actually let me refer you to your report ,

09 :43 :32 17 your original report, paragraph 72 .

09 :43 :48 18 A Did you say paragraph 72 ?

09 :43 :49 19 Q Yes, paragraph 72 on page 41 . And you have

09 :44 :08 20 a statement that states, "The closing price of Cisc o

09 :44 :12 21 common stock on February 7th, 2001, was $31 .06 ,

09 :44 :17 22 which represents its true value after informatio n

09 :44 :20 23 related to the deteriorating financial condition an d

09 :44 :22 24 prospects of Cisco was disseminated to the public o n

09 :44 :25 25 February 6th, 2001 .11

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EXHIBIT 129


NORTHERN DISTRICT OF CALIFORNI A

SAN DOSE DIVISION

In re: ) Master File No.

CISCO SYSTEMS, INC. , 3 C--01-20418

SECURITIES LITIGATION ) Jw(PVT)

--------------I------------- )

This Document Relates to : )

AL}I ACTIONS,

A

Vidiaotaped deposition o f

D I S PO?WELL, taken on behalf of

PlaiutifCs, at 100 Pine Street, Suite 2600,,

San Fran<:isco, California, commencing at

12 :20 p .xa ., Tuesday, August 30, 2005, before

Deirdre F . Cram, C .S .R . 933 9

eS eastwood -ste(nDeposition Management

550 west C street, suite 600San Diego , CA 92101

619-235-2400

I appropriate to recognize revenue, under your

2 interpretation, and Cisco could recognize revenue in

3 the absence of a lease proposal in that situation ;

4 correct?

3 A. well, at this point, if you don-'t have a 15 :33 :10

6 lease proposal, then you really haven't even starte d

7 the discussions about vrhathsr you're going to have a

8 lease transaction. go, at that point, the only

9 document that you have is a purchase order coming i n

10 from the customer, a shipment of product against that 16 :33 :23

3.1 purchase order, and an invoice that's sent out at the

12 time that the product is shied.

13 The terms of that invoice are going to be

11 net 30 days, and of course, at that point, then

is you're going to recognize the revenue . If you don't 16:33 :37

16 even have a lease proposal that mays we're thinking

i7 about entering into a lease transaction, you're goin g

18 to assume -- I mean. the only transaction you have in

19 front of you is a straightforward sales transaction, -

20 and of co=se you would recognize the revenue that 16:33 :48

21 way.

22 Q . So if all you have in front of y ou is a

23 straightforward sales transaction without a leas e

24 proposal --

35 A. You would recognize the revenue . 16 :33 :54

140

EASTWOOD-STEINdeposition services & litigation support (*10) 514-2714

I the typical transaction that you would see for PFI .

2 You would see a signed master lease agreement that

3 would may we basically agree to the terms, and then

4 you would attach schedules behind that that ol d

5 say, basically, here is the, equipment that now 16236138

8 relates to that .

7 So we would recognize revenue under those

e circumstances because it was simply a matter, as we

9 talked about before . They're either going to agree

10 to sign to the lease schedule, or they're going to 16 :36 :5Q

11 pay according to the tarns of the purchase order . In

1.2 either case, the woxst case is going to be that the

13 lease transaction in signed, and that it meets the

14 conditions for a sales-type lease because we have the

I5 master lease agre ment, and therefore, you have 16 :37 :07

16 revenue recognition.

17 Q . Taking back to my example, can you

18 recognize reve=re -- can Cisco recognize revenue with

19 respect to a sales lease where there wan no muster

20 lease agreement, but a purchase order that had the 1607 :20

21. criteria that you discussed?

22 A. I think we could .

23 Q . Did you?

24 A. I don't know. Not to ay recollection, but

25 it would be possible that we could, and I would amens 16 :37 :27143

EASTWOOD-STEINdeposition sere aes & litigation support (800) 514-2714

1 schedule .

a Q. But you ezpect.d, did you not , for them to

3 pay is 30 days; correct?

4 A. No. Aber , the point that T was making

5 is if we don' t aaw to agreement on the lease 16 :53 :58

6 schedules, then they are obligated to pay within

7 30 days, and by this time, the 30 days probably would

8 have passed, and the amount would be iwdiately due

9 and payable. That ' s nor something that we needed to

10 apply, because we were all intent upon getting the 16 : 54 :12

11 lease schedule signed .

12 -MY point is, frcm a legal contractual

13 right, we had a right for them, if we didn 't sign the

14 lease agreement, our fall back that we had a legal

is right to is that they were paying within 30 days . 16 :54 :36

16 Q . Did you consider that 30 days to be a

17 final term of payment?

18 A . What do you lean by Ra final term of

19 payment" ?

20 Q . Final terra, under FAS 13, of payment . 16*54 :35

31 A. It is the payment term that they ar e

22 obligated to do if they don ■t sign the lease

23 agreement .

24 Q . You believed that to be finalized at the

25 time? 16 :54 :52

15 4

EASTWOOD-STEINdepoW i©n services & litigation support (800) 514-2714

I identify what I Just described, and in looking at it ,

2 it has nothing to do with funding, per se.

3 Q . go that name, vpre-funs od, ° has anything

4 to do with the actual transaction related to ?

5 A. I think what it's' saying simply is that 17 :15110

6 Cisco Capital, if you will -- its an internal

7 transaction, so Cisco Capital, if you will, has

8 funded this from Cisco, Inc ., in terms of taking the

9 activity of getting the lease schedules an d

10 developing that into a lease transaction, as opposed 17 :1502

11 to asales transaction .

L2 Q. Okay. With respect to a P?I transaction ,

13 what documents did a lessee nand to complete for

14 Cisco to be able to appropriately recognize tha t

15 revenue? 17 :1600

16 A. Well, as I described earlier, I think that

17 the fact that we had a putchase order, and had the

18 product sent according to that purchase order, i s

19 justification enough for revenue recognition . I

20 think, in general, our practice was that we had 17 :16:17

31 master lease agreements that were signed that not out

22 the general terms and conditions of each transaction ,

23 and the lease schedule was what was left to do, which

24 is getting the records of the customer and Cisco to

25 be in agreement in terms of what they want to have on 17 :16 :60

162

EASTWOOD-STEINdeposition services & litigation support (800) 514 .2714

1 each individual sch*dule and having the mechanics of

2 having those signed off .

3 In those cases, I believe that revenue was +

A appropriately recognized at the tins: of the shipment .

5 Remembering that there was also a reserve for the 17 :16 :57

6 risk that, let's suppose that in score way there was a

7 dispute that could not be resolved, and in somie way ,

$ the custcer tried to push the product back. We set

9 up a reserve for what we thought our exposure was for

10 that event occurring, but in terms of revenue 17 :17 :16

11 recognition, I believe the revenue was appropriatel y

12 recognized when the product was shipped .

13 Q . The principal tome of the transaction,

14 you believed that those were set forth in the

15 purchase order where a signed lease schedule had not 17s17e32

16 yet been completed. and Cisco .recognized revenue on

17 that?

18 A. No, I'a sorry . What I was saying is, on

19 the purchase order, the purchase order was different .

20 The purchase order simply says I agree to order the 17 :17 :47

21 product, and I'm going to pay for the product under

22 whatever the norsa1 termot were of that purchase

23 order, and that would generally be net 30 days that

24 they would be paying for that product .

25 Q. Does that purchase order sot forth all the 17 :18 :0 3

16 3

EASTWOOD.STEINdeposition services & Hfgsdon support (800) 51442714

I final terms and conditions necessary for recognition

2 under GAAP?

3 A. Y•s .

Q . What terms and conditions does it not

s forth? 17!18:16

6 A . he fact that the customer is obligated t o

7 make payment, and if there are no conditions that ar e

8 set out with respect to acceptance criteria, if the

9 custcner has met their requirements of

10 creditworthiness, then -- and absent any other factor 17x18 :27

11 that would be listed on the purchase order that would

12 suggest that there was a re nue recognition issue ,

13 than revenue would be appropriately recognized .

it Q. Have you evear personally looked at one of

15 the purchase orders to determine whether or not it 17 a 18 r4 3

16 contained all of the principal terse and conditions

17 to allow Cisco to recognize revenue as PPI without a

19 signed lease schedule?

19 A. Have I personally looked at those?

20 Q . Yea . 17 ;18=57

91 A. I have not --

22 Q. Have you looked at them personally - -

23 A. I've looked at --

24 Q . I'm sorry. I didn 't finish the question .

25 Had you ewer looked at a purchase order to 17si9201

164

FAST WOOD-STEINdeposition sa9i¢es & lftifadon support (800) 514-2714

I in our LeaseP4tk •ahedula .

2 It also makes the reconciliation easier i f

3 you have separate accounts for the lease receivable s

4 that are In LeasePak that we can tie directly to a

5 general ledger balance and the pre-funded-inventory 17 :33 :00

6 transactions that are tied to a general ledge r

7 balance.

8 Q. The fact that you didn't tarn it a lease

9 receivable, you still believed that you were require d

10 to recognize revenue compliant with FASE 13, did you 17 :33 :11

11 not?

12 A. Yes .

13 Q . It's your testimony that you based revenue

14 recognition for PFI on PASS 13 ; is that correct?

13 A . Year, it is . 17 :33 :24

16 Q. The --

17 A. I would say, on PASS 13 and the revenue

i8 recognition criteria, as well, under statements such

19 as SOP 97-2 .

20 Q . Did you ever -- did PWC ever express to 17:33 :58

21 you any concerns about the use of PFI4

22 A. not that I can recall .

23 Q . What about anybody internally at Cisco

24 express to you concerns about PFI ?

25 A. I think that there was not a concern that 17 :34 :23

173

EASTWOOD.STEINdeposition eel & litigation support (M0) 514.2714

1 1 recall about, specifically, the accounting for Fri .

2 Clearly, we were all interested in bringing the

3 balance down because it was taking a lot of effort, a

s lot of our staff time, tracking this down. We meted

5 to improve the process so that we could shorten the 17 :34s41

6 time, and we had metrics that we were using to try to

7 bring the balances down so that we could put it int o

8 the lease schedules .

9 Clearly, that's the way we wanted it to

16 be, first of all, so we were getting paid more 17 :34 :55

11 timely. Secondly, it's a lot of manual effort that

12 was happening with the PF1 process . . So we were very

1.3 focused on getting the PFI down to the right level,

14 which is as small an possible, which means that we

15 have a much more efficient process than what we 17 :35 :11

16 currently had at the time . But this was more from an

17 operations perspective, as opposed to the concern s

is about the account ing for PFI .

19 Q . Did you ever express any concerns that PFI

30 posed a potential revenue recognition problem for 17 :35 :26

21 Cisco?

22 A. my concern an FFI was what I just

23 described, and also, I was concerned that the longer

24 that we left Pal go, that there would be more

25 difficulty in getting collections from the customer . 17 :35 :42

3.7 4

EAS7'WOOD-STEINdeposition services & litigation support (800) 514-2714

1 The longer that it was before they started receiving

2 invoices, that more debate we were going to have

3 about the timing on the payments . It created an

4 issue as how such reserve we would need to be settin g

5 up for that . That's one the reasons that,we did not 17 :35x59

6 up a reserve for the PF1 inventory . So, frcm that

7 perspective, that was my level of concern .

$ Q. Ys that seething you expressed to anybody

9 at Cisco?

11) A. It's soa.tblig that we talked about in the 17361l

11 close meetings .

12 Q. okay.

13 A. And by the way, as we went through that

14 and looked at what were the corporate reserves, I wpm

15 confident that we bad set the reserves to take that 17 :36 :31

16 into ccnsiaaration.

17 Q . One of the things you guys do is you track

18 aging for PF"1a correct ?

19 A . Yes .

20 Q. Why? Before we get there, I apologize, 1706z32

21 what do you understand aging of PFI to now ?

22 A. Well, in general, it was simply how long

23 had it been, since the equipment was shipped and not

21 been able to get translated into a lease schedule and

25 onto sePak. 1706 :5317 5

EASTWOOD-STK[Ndeposition service & liliption 8npport (800) 514-2714

1 Q. So under that theory, then, a provision

2 for lease reserves would never be -- strike that .

3 Let's just tare the hypothetical . You

4 have revenue recognized on, let's may, a $1 million

s sales lease . At some point you determine that -- and 12 :17 :42

6 that revenue in recognized, meets all the criteria ,

7 at least according to you. That revenue is

e recognized, and there is a determination made tha t

9 there needs to be 100-percent reserve taken against

10 that revenue for whatever reason . 12 :17 :57

ii It's your testimony that, as it relates t o

12 leases at Cisco Capital, that reserve would then be

13 netted as .part of the sales adjustments, as opposed

3.4 to taken as a provision for losses ?

i5 A. Yes. 11 :18 :11

16 Q. and the basis for taking that as a sales

17 adjustment, as opposed to a provision for losses ,

18 when revenue on that transaction had already been

19 recognized, is what?

20 A . Is because it's an adjustment to revenue . 12 :18 :23

21 The revenue was recognized, but it's still as

22 adjustment to that revenue, for whatever reason tha t

23 was concluded. it was a timing issue, in terms of

24 when that was recognized, but it's still a revenue

25 adjustment and should acme out of revenue . 12 :18 :40393

EASTWOOD-STEINde on services & limn support (800) 5141714

I The thought is, again, we think that's a

3 more conservative presentation, and it's a more

3 conservative presentation because many caepanies are

4 looking at increasing their revenue at the highes t

5 level . If you're grossing that number up, that is, 12s18 :54

6 showing a higher level of revenue, and then showing

7 an expense below, you're still showing a trend o f

8 revenue that's higher . From our perspective, a more

9 conservative review would be to take it out o f

10 revenue rather than expense . 12 :19 :11

11 Q . So is it your testimony that Cisco records

13 the reserve against revenue after the transaction has

13 already been recorded as a sales lease and revenu e

14 recognized?

15 A. i would say that that doesn't happen a 13x19 :20

16 lot, but if we did have a revenue adjustment for

17 something that bad been recognized before, as we

18 talked about earlier, we do make adjustments for

19 things that we find out after the fact . We not up

20 reserves for those things that may occur, and we 12 :19 :3a

2L probably have already set that up in our general

22 reserves as an adjustment to revenue, but we would b e

23 applying that to a revenue adjustment .

24 Q . When you say you would be applying it to a

25 revenue adjustment,' old you reflect it as a 13 :19 :4 5394

EASTWOOD-STEINdeposition services & litigation support (800) 5142714

1 STATE OF CALIFORNIA }

2' ss

3 COUNTY OF SAN FRANCISCO

4

5 T, DEIRDRE F. CRAM, CSR NO . 9339, a

6 Certified Shorthand Reporter of the State of

7 California, do hereby certify : '

B That the foregoing proceedings were taken-

9 before me at the time and place herein set forth ;

10 that any witnesses in the foregoing proceedings,-

11 prior to testifying, were placed under oath ; that

12 a verbatim record of the proceedings was made by

13 me using machine shorthand which was thereafter

14 transcribed under my direction ; further, that the

15 foregoing is an accurate transcription thereof .

16 I further certify that I am neithe r

17 financially interested in the action nor.a relative

18 or employee of any attorney or any of the parties .

19 -IN WITNESS WHEREOF, I have this dat e

20 subscribed my name .

2 1

22

d my nam

&phUj1k&2 3

24 t •

25 DEIRDRE F. CRAM, CSR NO . 9339

EXHIBIT 130

D . PAUL REGAN February 13, 200 6

Page 1


FOR THE NORTHERN DISTRICT OF CALIFORNI A

--oOo--

In Re :


SECURITIES LITIGATION C-01-20418-JW


ALL ACTIONS .

EXPERT DEPOSITION OF D . PAUL REGAN

VOLUME 1 PAGES 1 - 22 6

MONDAY, FEBRUARY 13, 200 6

REPORTED BY: DIANE M . WINTER, CSR NO . 3186 (377361 )

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01 :57 :06 1 there had not yet been RMA issued .

01 :57 :09 2 Q And you're aware, are you not, that a

01 :57 :12 3 number of Cisco employees testified that futur e

01 :57 :16 4 returns not yet provided for in the RMA account were

01 :57 :20 5 in fact intended to be covered by the genera l

01 :57 :23 6 reserve account that I just mentioned ?

01 :57 :27 7 A I have become aware of that, yes .

01 :57 :29 8 Q And that general reserve account is often

01 :57 :35 9 referred to by Cisco as the 12410 reserve account ,

01 :57 :42 10 correct ?

01 :57 :42 11 A Yes .

01 :57 :44 12 Q And in fact there are no Cisco employees

01 :57 :46 13 who have testified to the contrary . That is there

01 :57 :49 14 are no Cisco employees who have testified in thi s

01 :57 :51 15 case that future reserve -- future returns were not

01 :57 :57 16 included within the 12410 account ?

01 :58 :12 17 A I believe the testimony is consistent wit h

01 :58 :14 18 what you say .

01 :58 :15 19 Q Okay .

01 :58 :16 20 A The documents are not consistent with that

01 :58 :19 21 testimony . But I believe that's what the testimony

01 :58 :22 22 is .

01 :58 :24 23 Q And do you simply believe that thos e

01 :58 :26 24 individuals who testified that future returns no t

01 :58 :29 25 yet covered by an RMA be included within the 1241 0

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01 :58 :34 1 account, is it your view that those people wer e

01 :58 :37 2 lying?

01 :58 :38 3 A No . My view is that the document an d

01 :58 :44 4 analysis that I've done indicate that they -- tha t

01 :58 :48 5 those documents and my analysis indicates that thei r

01 :58 :53 6 testimony is not consistent with what I see in th e

01 :58 :56 7 records .

01 :58 :57 8 Q So do you conclude that they were lying or

01 :59 :00 9 they have a faulty memory, or what do you conclude ?

01 :59 :03 10 A I don't really conclude . They could be

01 :59 :05 11 wrong because they have a misunderstanding o r

01 :59 :09 12 somebody told them something and they are believing

01 :59 :12 13 what somebody told them . But based upon my analysi s

01 :59 :17 14 of the documents, my analysis indicates that what

01 :59 :22 15 they are saying is not the case .

01 :59 :25 16 Q And you, you are also aware that a numbe r

01 :59 :29 17 of PriceWaterhouseCoopers work papers from th e

01 :59 :33 18 relevant audits reached the same conclusion, that i s

01 :59 :37 19 that future returns not yet provided in the RMA

01 :59 :41 20 account are provided for in that general reserv e

01 :59 :45 21 account, correct ?

01 :59 :49 22 A There are comments in the PWC work paper s

01 :59 :56 23 that are consistent with what you say . And ther e

01 :59 :59 24 are comments that are inconsistent with tha t

02 :00 :01 25 statement .

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02 :00 :19 1 Q So even though all of the Cisco employee s

02 :00 :37 2 that have testified on the subject have testifie d

02 :00 :40 3 that future returns were included within the genera l

02 :00 :43 4 reserve, and even though PriceWaterhouse work paper s

02 :00 :47 5 prepared at the time by the auditors doing the audi t

02 :00 :50 6 at Cisco say likewise, you've concluded that all o f

02 :00 :54 7 those sources of information are incorrect ?

02 :00 :58 8 A Yes .

02 :01 :02 9 Q Let's take a look at Exhibit 2 of your

02 :01 :04 10 rebuttal report, Exhibit 4102 -- I'm sorry, 4101 .

02 :02 :07 11 A I've got it .

02 :02 :08 12 Q All right . Let's actually start with

02 : 02 :10 13 Exhibit 1 of your rebuttal report . Now in

02 :02 :16 14 calculating the gross future product returns as part

02 :02 :21 15 of your estimate of the misstatement attributable to

02 :02 :24 16 the accounting for future reserves you use a 5 . 5

02 :02 :30 17 percent estimate of the amount of returns, correct ?

02 :02 :35 18 A Correct .

02 :02 :37 19 Q And if you look at Exhibit 2, as I

02 :02 :43 20 understand it correctly, you calculate that 5 . 5

02 :02 :47 21 percent by adding up the entries in the first 1 2

02 : 02 :53 22 columns of the row -- I'm sorry, the first 1 2

02 :03 :00 23 entries of the column labeled All Data through Apri l

02 : 03 :04 24 fiscal year '01, correct ?

02 :03 :10 25 A Well, I added up all months 2 through 12 - -

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09 :27 :15 1 have seen in other cases was an illusion . I've seen

09 :27 :21 2 some of the facts and circumstances that are stated

09 :27 : 24 3 here .

09 :27 :26 4 Q So the answer to my question is it depends ,

09 :27 : 30 5 that you may or may not ?

09 :27 : 31 6 A You have a hypothetical that if somebody i s

09 :27 :33 7 proven wrong will it affect my opinion, and I have

09 :27 :36 8 to say yes, because you need to know what ' s prove n

09 :27 :40 9 wrong .

09 :27 : 41 10 Q Did you review either Mr . Vander Weide's or

09 :27 :4 7 11 Mr . Williams ' reports in this case before finalizing

09 :27 : 50 12 your rebuttal report on December 15th, 2005 ?

09 :28 : 00 13 A I think I have seen parts of the

09 :28 :11 14 Vander Weide report, although I wasn ' t asked to

09 :28 :i7 15 provide comments on his report . I was asked to

09 :28 : 20 16 provide comment on Mr . Williams ' report . And as a

09 :28 :25 17 result I reviewed his report and some of my rebutta l

09 :28 :30 18 report contains comments about his report .

09 :28 :33 19 Q When you say you reviewed parts o f

09 :28 :37 20 Mr . Vander Weide's report, do you mean you were onl y

09 :28 : 42 21 provided portions of it, or you only had time to

09 :28 : 44 22 look at --

09 :28 : 45 23 A No, I had the report , but I wasn ' t asked t o

09 :28 : 47 24 comment on it, so - -

09 :28 :49 25 Q So today you've only reviewed a portion o f

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11 :01 :17 1 THE WITNESS : Oh, okay .

11 :01 :19 2 Q (BY MR . BETMAN) Let me ask you a

11 :01 :20 3 hypothetical question . Assume Cisco and the

11 :01 :24 4 customer never entered a lease schedule . Assume

11 :01 :28 5 further that there is no provision in any document s

11 :01 :31 6 indicating the customer got to return product if i t

11 :01 :33 7 did not enter a lease schedule . Okay ?

11 :01 :38 8 A Yes .

11 :01 :45 9 Q Let me strike that . Let me go back . Let

11 :01 :48 10 me start again .

11 :01 :49 11 Assume Cisco and the customer never entere d

11 :01 :52 12 a lease schedule and were in the realm of PFI ,

11 :01 :55 13 correct? Make that assumption .

11 :01 :57 14 A Okay .

11 :01 :57 15 Q Would you agree that there is no provision

11 :01 :59 16 in any of the documents indicating the customer go t

11 :02 :01 17 the right to return the product if it did not ente r

11 :02 :04 18 the lease schedule ?

11 :02 :07 19 A That's my recollection .

11 :02 :08 20 Q And there is no provision any of the

11 :02 :10 21 documents indicating the customer was not required

11 :02 :12 22 to pay for the products if it did not enter a leas e

11 :02 :16 23 schedule, correct ?

11 :02 :17 24 A That's my recollection .

11 :02 :19 25 Q If the customer did not enter a leas e

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11 :02 :21 1 schedule the payment terms would be 30 days ,

11 :02 :23 2 correct ?

11 :02 :24 3 A My recollection is that's what the documen t

11 :02 :27 4 says .

11 :02 :27 5 Q Now you claim in this case that Cisco did

11 :02 :30 6 not bill and did not get paid until after the leas e

11 :02 :32 7 schedule was signed, correct ?

11 :02 :36 8 A That's my observation as to many of thes e

11 :02 :40 9 transactions .

11 :02 :41 10 Q Yet SAB 101 does not state that there is no

11 :02 :46 11 persuasive evidence of an arrangement until the

11 :02 :48 12 company bills for the sales transaction, correct ?

11 :02 :50 13 A That's correct .

11 :02 :51 14 Q And there is no provision in GAAP that

11 :02 :53 15 states that there is no persuasive evidence of an

11 :02 :55 16 arrangement until a company bills for the sale s

11 :02 :58 17 transaction, correct ?

11 :02 :59 18 A Correct .

11 :03 :00 19 Q And SAB 101 does not state that there is n o

11 :03 :04 20 persuasive evidence of an arrangement until after a

11 :03 :06 21 company gets paid for the sales transaction ,

11 :03 :08 22 correct?

11 :03 :09 23 A Correct .

11 :03 :09 24 Q And there is also no provision in GAAP tha t

11 :03 :11 25 states there is no persuasive evidence of an

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11 :30 :33 1 THE WITNESS : Can I hear that again? I' m

11 :30 :35 2 sorry .

11 :30 :40 3 (Record read )

11 :30 :45 4 THE WITNESS : I don't know the answer to

11 :30 :46 5 that, because if the 30-day net covered equipmen t

11 :30 :51 6 that hadn't been delivered yet, or where the

11 :30 :58 7 customer had made a determination that it was goin g

11 :31 :00 8 to be swapped for different equipment, I think tha t

11 :31 :04 9 Cisco would have difficulty collecting .

1 .1 :31 :07 10 Q (BY MR. BETMAN) But let's assume those two

11 :31 :09 11 situations do not arise, so that the equipment wa s

11 :31 :14 12 delivered and accepted by the customer . In tha t

11 :31 :17 -13 situation Cisco couldn enforce the net 30-da y

11 :31 :21 14 payment term on the purchase order, correct ?

11 :31 :23 15 MR . BURKHOLZ : Objection to form .

11 :31 :25 16 THE WITNESS : Don't know . I think

11 :31 :28 17 that's -- that might -- that's a legal question .

11 :31 :29 18 Because I think in that instance what I see is tha t

11 :31 :33 19 the customer may have a right to lease the product ,

11 :31 :40 20 not have to purchase it within that time frame . And

11 :31 :46 21 I think that's a legal question .

11 :31 :47 22 Q (BY MR . BETMAN) So you don't have an

11 :31 :49 23 opinion on that in that case as the whether or not

11 :31 :52 24 Cisco could enforce the net 30-day payment term on

11 :31 :54 25 the purchase orders ?

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11 :31 :56 1 A That's correct . I think that's a lega l

11 :31 :58 2 question and you'd need to look at the facts and

11 :32 : 00 3 circumstances that bear on the customer's lease

11 :32 :02 4 rights .

11 :3203 5 Q You claim in this case that Cisco did no t

11 :32 : 06 6 attempt to collect on the sales transaction unti l

11 :3208 7 after the lease schedule was signed, correct ?

11 :32 10 8 A That's my understanding, yes .

11 :32 :13 9 Q And SAB 101 does not state collectibility

11 :32 :16 10 is not reasonably assured until the company bill s

11 :32 :19 11 for the sales transactions, true ?

11 : 32 :22 12 A True, it does not say that .

11 :32 :24 13 Q And there is no provision in GAAP that you

11 :32 :26 14 are aware of that states collectibility is not

11 :32 :29 15 reasonably assured until after a company bills fo r

11 :32 :31 16 the sales transaction ?

11 :32 :32 17 A That's correct .

11 :32 :32 18 Q SAB 101 does not state a company must star t

11 :32 :37 19 attempting to collect before collectibility i s

11 :32 :39 20 reasonably assured, true ?

11 :32 :40 21 A True .

11 :32 :41 22 Q And there is no provision of GAAP tha t

11 :32 :43 23 states a company must start attempting to collec t

11 :32 :45 .24 before collectibility is reasonably assured ,

11 :32 :48 25 correct ?

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02 :10 :53 1 the maximum, the material plan having amounts

02 :11 :01 2 calling for the levels of acquisition at the rate

02 :11 :07 3 that they were included in the material plan, it

02 :11 :12 4 would have exaggerated the problem .

02 :11 :15 5 Q So it wasn't a maximum ?

02 :11 :16 6 A I wouldn't think it was a maximum .

02 :11 :24 7 Q Cisco didn't estimate the build plan over

02 :11 :26 8 four quarters, did it ?

02 :11 :33 9 A I don't think they did it for fou r

02 :11 :35 10 quarters .

02 :11 :36 11 Q They did it for one or two quarters

02 :11 :39 12 generally ; isn't that true ?

02 :11 :40 13 A Yes . What I see here, generally two .

02 :11 :47 14 Q And no witness from Cisco testified th e

02 :11 :49 15 build plan was a reasonable estimate of future

02 :11 :51 16 demand, true ?

02 :12 :18 17 A What I've seen it characterized as, and

02 :12 :21 18 it's my understanding that it represents what Cisc o

02 :12 :24 19 knew it could build and ship, but it didn' t

02 :12 :29 20 necessarily represent what was going to be the

02 :12 :33 21 demand of the clients, customers .

02 :13 :01 22 Q And certainly based on your last answer it

02 :13 : 04 23 wouldn't be over a 12-month period, right, becaus e

02 :13 :07 24 the build plans didn't go out that far, correct ?

02 :13 :10 25 A Correct .

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EXHIBIT 131

CONFIDENTIA L



--- 000---

In re :

CISCO SYSTEMS, INC . ,

SECURITIES LITIGATION, )

l

)

)

This document relates to )

ACTIONS. )

CO NFl0ENIW.

No . C-01-20418-JW (PVT)

VOLUME I

C O N F I DENT I A L

VIDEOTAPE DEPOSITION OF ROMAN WEI L

THURSDAY, FEBRUARY 23, 2006

.~15 j-StC1IZ

77N550 West C Strut, Suite 600

San Diego, CA 92101619-235-2400

CONFIDENTIAL

1 asked me was it a debit to a revenue contra to an

2 expense and I don't recall . I remestber there 's sass

3 discussion of some items debited to revenue that might

4 have been expense or vice-versa; I don't know whether

5 it's these ones . 10 :58 ;54

6 Q. All right . Let's see . Can you try and find

7 that in your report? It's ny understanding the

8 discussion here is probably on page 27 of your report .

9 All right . I might be able to short-circuit

10 this and just ask you whether or not if Cisco wrote off 11 :00:14

11 the exposure to these leases against revenue, whether o r

12 not you think that would have been appropriate .

13 i_ 9Pffi;LXmG: Objection;; farm.

14 's wx isSS : m► textbook teaches that we

15 prefer debits to a revenue contra rather than to expense 11100142

16 fox uncollectible .

17 BY MR. OICL RYt

is Q. And why is that?

19 A . Revenues are supposed to reflect the present

20 value of expected cash collections . And if you do not 11 :00 :58

21 expect to collect an item, then it .should not be part of

22 expected cash collections . In contrast, expense is a

23 gone asset . If you`re not going to collect frn

24 somebody, it was never an asset in the first place .

25 Now, we are in a minority in our textbooks in 11 :01 :24

59

EASTWOOD-STEINDeposition Management (800) 514-2714

CONFIDENTIA L

I this. And,-. in fact, other professors have told me we

2 will not use your textbook if you continue with this

3 theoretical position. I believe that revenue contra is

4 a preferred treatment and a debit to a revenue

5 account -- I mean a revenue contra . 1101431

6 Q. And does it matter if the revenue wa s

7 recognized in a transaction in one period and the

8 charges taken in a Subsequent period?

9 MR. SPERLIN: CbJectiont fora.

10 THE mss : Do you have a copy of Circa's 11 :02 :03

11 income statement I could look at before I respond to

12 this question. Cisco's consolidated income statement ?

13 BY Eft . DIONTGOOCRYs

14 Q . Not handy, no .

15 A. What I want to think about is the detail of the 11 :02 :14

16 components of the revenue lines that are presented in

17 the expense lines . I think at the aggregate level

1s that -- I don't want to speculate .

19 Q . All right . Actually. I do have -- now that I

20 think about it, it's in the next exhibit . I'd like to 11 :02 :31

21 ask the court reporter to mark what will be

22 Exhibit 4206 .

23 (Exhibit 4206 was marked

24 for identification . )

25 By MR . 'Q YI

60

IRASTWOO sTEI vDepasldon Management (bbd) 514-2714

CONFIDENTIA L

1 following question, did Mr . Regan say in his deposition

2 things about leases that he didn't may in his report

3 that I might want to analyse . So to the extent he said

4 scmetb rg in his deposition beyond what he said in hi s

5 report, I might speak to that, but 2 don't know the" 11:30 :58

6 are such things .

7 Q. I'M going to turn to prefunded inventory now

8 which is page 33 of your report, a s tch shorter issue

9 than leases .

10 Generally speaking, are you familiar with the 11 :31:41

IL texm ■prefunded inventory" as it was used by Cisco

12 during the class period?

13 A . Yes .

14 Q. All right . we cam also call it PPZ1 is that

15 all right with you? 11 :32 :25

16 A. Yes _

17 +Q . Generally speaking, what is PF3:1 can you define

1$ it for me?

19 A . PP! refers generally to goods that Cisco has

20 shipped to customers under normal credit terms, pay 11232 :59

31 within 30 days, for which the customer has some options

22 to convert the acquisition of this from an outright

23 purchase into a lease .

24 Q . I'd like to direct you to page 33 of your

25 report. In the bottom of that page there's one, two and 11 :33 :2 3

7 1

EASTWOOD.STEINDeposition Management (800) 514-2714

I have to include the price that 's agreed between the

2 parties?

3 A. For revenue recognition there needs to be an

4 understanding about the price . I think that may be a

5 separate piece of the GAAP listing . But I would not 11 :51 :14

6 expect to be able to recognize revenue unlesa there' .

7 some agreement on the price . I ► ould expect that to be

$ in the dint, that is the purchase order .

9 Q. In your opinion, does an arrangement also

10 include the term of payment, so when the seller's going 11 :51 :32

11 to get paid?

12 a. For these particular transactions I do have th e

13 understanding that purchase orders say net 30 days or

14 that the backup docent preceding it -- and 3 can' t

15 think what it's called . There are three documents at 11 :51 :56

15 issue, and you can help no, there's the master lease

17 agreoanent, there's the thing that, like a loan proposal

18 ors loan -- something like loan proposal, then there' s

19 a purchase order . It's the name of the one in the

20 middle I'm having trouble with . 11252 :10

21 Q . There's a master lease agreement, a leas e

22 schedule, a lease proposal .

23 A. That's it. lease proposal . So the lease

24 proposal that the customer signs says T agree to pay net

25 30 days even if the purchase order didn't have that net 11 :52 :21

8 1

EASTWOOD-STEINDeposition Management (800) 514-1714

CONFIDENTL&L

I. to your understanding, for capital

2 lease PFI transactions that

3 Cisco's going to get paid within

4 30 days?

5 THE WITMSS: Those words are just too

6 fuzzy-MUazy■ O'going to get paid." Cisco and the

7 customer contract that the customer will pay within 30

8 days, that's what I can say about these documents .

9 BY MR. CRY:

10 Q. And is that what you would characterize as the

11 arrangesumt between the parties ?

12 A. That is the arrangos eat within the parties .

13 It's part of the arrrangu out within the parties because

2.4 the arrana t within the parties under this la

35 proposal gives the customer as option not to pay within

16 30 days but to convert this to a lease, which may

1.7 actually be specified in the purchase order, and has

18 been, in some I've seen, but would be in the leas e

19 proposals and subject to the master lease agreement .

20 Q. Can you read that back the question and the

21 answer?

22 (Record read by the reporter

23 as follows) :

24 'QUESTION: And is that what

25 you would characterize as the

EASTWOOD-STIINDeposition Managewwt (800) 514-2714

11 :55 :2 8

11 :55 :44

11 :56 :16

11 :55 :44

84

CKI ~ 94 ;

I arrangement between the partLes? "

2 "MISWRA: That is the arrangement

3 within the parties . It's part

4 of the arrangement within the

5 parties because the a rra yae~nsnt 11 :55 :56

B within the parties under this

7 lease proposal gives the

8 customer an option not to pay

9 within 30 days but to convert

10 this to a leers! , which may 11 :56 :03

11 actually be specified in the

12 purchase order, and has been

13 in acne Y've seen, but would

1& be in the lease proposals and

15 subject to the master lease 11:56 :12

16 agrsmment . R

17 BY MR. MOMMORY.-

18 Q . Is it your understanding with regard to capital

19 lease PFI transactions that the arrangement between

20 Cisco and its customers was that with regard to this term 11 :57 :10

21 of payment that Cisco would be paid net 30 ?

33 A. I don't know why we need to paraphrase what th e

23 agreement says. The agreement says terns not 30 . That

24 gives Cisco some contractual rights . Idon't know that

25 it says anything about srpectationa any more than 11 :57 :32

8 5

EASMOOD-`I' JNDeposition Management ($00) 514-2714

CONFIDENTIAL

1 agreed upon transaction, unquote .

2 You see that?

3 A. Yes..

4 Q. And is that definition consistent with the way

5 you `ve been using • arra*_+Qc~eaent '~ in our discussion of

6 PFI?

7 A. You .

$ Q. Okay . Was it Cisco ' s understanding at the time

9 they recognized revenue frog capital lease PFI

10 transactions t1et the tax= Of payment on the

11 transactions was 30 days?

12 A. Yes .

13 Q. Would you look at page 33 of your report?

it under item two that what we looked at before, it says

15 that at the time Cisco recognized revmue it estimated

is that those capital lease PF1 transactions were going to

17 be leases ; is that correct?

18 A. Yon .

19 Q. And the terms of those leases were generally

20 over three years ; is that right ?

11 A. Yes .

22 Q. So wasn't it the understanding of Cisco at the

23 tine they recognized revenue that they were going to be

24 paid over three years, not 30 days ?

25 A. The agreement that they have in hand says

12 :59 :17

12 :39 :29

12 :59 :59

13 :00 :08

13 :00 :19

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EASl'WOOD. STEINDeposidon Mzaagenwst (500 ) S14-2714

CONFMENTLAL

I payment' s due within 30 days. The customer has the

2 option to ask for a lease and Cisco has an option to

3 grant it or not, but at the time it recognized revenue

4 it's got a 30-day pay abipssent .

5 Q. And is that Cisco'sunderstanding that they're

6 going to be paid in 30 days?

7 A. "LTaderatandin' is a word that is not a

$ technical word in accounting and I believe in the lay

9 sense Cisco understands that most often the custassir is

10 going to convert to a lease, but its agreement of

12. understanding is it would be paid within 30 days .

12 Q. 19bat' s an amt of understanding?

13 A. The purchase order, pay net 30 days, and the

14 loans atop*gal .

15 Q. But at the time Cisco recognized r*veuae on

16 capital lease PFI, it expected to be paid over a

17 three-year period whenever the lease schedule was

i8 signed; is that correct?

19 MR. SPE L = : Objection; form.

20 THU WITNESS : Cisco believes it has the

21 contractual right to collect within 30 days . I think it

22 believes it's not going to enforce that right . Yes, i

23 think that's correct .

24 BY MR. MORPROMERY z

23 Q. And at the time Cisco recogni zed revenue on

13 :4U :35

13a01z0 8

13 : n1 :21

13 :02 :12

13 :02 :22

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EASTWOOD-STEINDeposition Management (M) 514-2714

DrN ;

1 capital lease PFI transactions, could it identify the

2 date at which it could reason ly expect to be paid?

3 A. I think it knows its rights . I think it does

not have an expectation of when the payment will come .

S but it expects that it -- it knows that it can enforce

6 the right to be paid within 30 days .

7 Q. But, generally speaking, it did not do so ; is

8 that correct?

9 A. Yes .

14 Q. We're going to turn to returns now which in

11 page 71 of your report . In the course of your work on

12 this case, hays you familiarized yourself with Ci co's

13 accounting policies and procedures with regard t o

14 returns?

15 A. Yes .

15 Q. And are you familiar with the distinction

17 between two-tier and non-two-tie returns? Let me be

z8 snore specific . Is it your understanding that two-tier

19 returns as a term of art refers to returns that Cisco

20 received from its distributors?

21 A. I understand that a two-tier sale means a sale

23 to a distributor as opposed direct to a customer,, but

23 I'a not sure I've ever heard the phrase two-tier return

24 but I would analogise that and understand that's what

25 that means.

13jO3 :Q1

13 :03 :11

13 :03 :54

13 ;04 :1$

13 :04 :40

9 6

EASTWOOD-STEINDcpo&ition Maas mer t (SOD) 5142714

1 STATE OF CALIFORNIA }

2 s s

3 COUNTY OF SAN FRANCISCO )

4

5 It THOMAS J . FRASIK, RPR, CSR NO . 6961, a

6 Certified Shorthand Reporter of the State o f

7 California . do hereby certify :

8 That the foregoing proceedings were taken

9 before me at the time and place herein set forth ;

10 that any witnesses in the foregoing proceedings,

11 prior to testifying, were placed under oath ; that

12 a verbatim record of the proceedings was made by

13 me using machine shorthand which was thereafter

14 transcribed under my direction ; further, that the

15 foregoing is an accurate transcription thereof .

16 1 further certify that'I am neither

17 financially interested in the action nor a relative

18 or employee of any attorney or any of the parties .

19 IN WITNESS WHEREOF, I have this dat e

20 subscribed my name .

21

22 Dated : m ( Z, 2b

23

24

25 THOMAS J. F.ASIK, RPR, CSR NO, 6961

cisco systems, inc. securities litigation 01-cv-20418-supplemental evidentiary appendix in

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