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Acquisitions
 9 Months Ended
Apr. 27, 2024
Business Combination and Asset Acquisition [Abstract]  
Acquisitions Acquisitions
Acquisition of Splunk Inc.
On March 18, 2024, we completed the acquisition of Splunk Inc. (“Splunk”), a public cybersecurity and observability company. Under the terms of the agreement, we agreed to pay $157 per share in cash, representing approximately $27 billion in merger consideration.
Purchase Consideration
The following table summarizes the purchase consideration for the Splunk acquisition (in millions):
Amount
Cash paid for outstanding Splunk common stock$26,950 
Fair value of converted Splunk equity awards attributable to pre-acquisition services137 
Settlement of pre-existing relationships3 
Total purchase consideration$27,090 
A summary of the preliminary allocation of the total purchase consideration for Splunk is presented as follows (in millions):
Amount
Cash and cash equivalents$2,422 
Investments285 
Accounts receivable, net623 
Goodwill19,301 
Purchased intangible assets10,550 
Deferred tax assets1,308 
Other current and other assets1,176 
Accounts payable(39)
Accrued compensation(337)
Current portion of deferred revenue(1,768)
Splunk convertible notes(3,344)
Deferred tax liabilities(2,572)
Long-term portion of deferred revenue(86)
Other current and other long-term liabilities(429)
Total$27,090 
The purchase price allocation for Splunk is preliminary and subject to revision as additional information about fair value of assets and liabilities becomes available. Additional information that existed as of the acquisition date but is currently unknown to us may become known during the remainder of the measurement period, a period not to exceed 12 months from the acquisition date.
Our Consolidated Statements of Operations for the third quarter and first nine months of fiscal 2024 include revenue of $413 million and a net loss of $212 million attributable to Splunk since the date of acquisition.
We incurred $85 million of transaction costs related to the Splunk acquisition and these costs were expensed as incurred in general and administrative expenses (“G&A”) expenses in the Consolidated Statements of Operations. We incurred $49 million and $84 million of these costs in the third quarter and first nine months of fiscal 2024, respectively.
In connection with the Splunk acquisition, we assumed $3.1 billion aggregate principal amount of notes consisting of Splunk's 1.125% Convertible Senior Notes due 2025, 0.75% Convertible Senior Notes due 2026 and 1.125% Convertible Senior Notes due 2027 (collectively, the “Splunk Convertible Notes”). The Splunk Convertible Notes had an aggregate fair value of $3.3 billion as of the acquisition date. The Splunk Convertible Notes are convertible and may be settled into cash based on a defined conversion ratio for each note. On the date of the acquisition, we notified holders of their right to convert their notes. In addition, we assumed Splunk’s capped call contracts which were intended to reduce potential dilution or offset any cash payments. The capped calls were settled in full in the third quarter of fiscal 2024, which resulted in receipt of aggregate cash proceeds of $202 million, and were included in other current assets in total purchase consideration noted above. As of April 27, 2024, we have settled $3.1 billion of the Splunk Convertible Notes, net of capped calls.
The goodwill generated from Splunk is primarily related to expected synergies. Goodwill is not deductible for income tax purposes.
Purchased Intangible Assets
The following table presents as of the acquisition date details of the purchased intangible assets acquired (in millions, except years):
Weighted-Average Useful Life (in Years)Amount
Technology6.0$3,900 
Customer related9.16,140 
Trade name12.0510 
Total$10,550 
Technology represents the preliminary estimated fair value of Splunk's security and observability technologies. Customer related represents preliminary estimated fair value of the underlying relationships with Splunk's customers. Trade name represents the preliminary estimated fair value of the Splunk trade name.
Compensation Expense Related to Splunk
In connection with the Splunk acquisition, we have agreed to pay certain additional amounts contingent upon the continued employment with Cisco of certain Splunk employees. For the third quarter and first nine months of fiscal 2024, the compensation expense was $165 million. As of April 27, 2024, we estimated that future cash compensation expense of up to $1.5 billion may be required to be recognized pursuant to acquisition-related agreements.
Pro forma Financial Information
The unaudited pro forma financial information in the table below summarizes the combined results of our operations and Splunk's operations, as though the acquisition of Splunk had been completed as of the beginning of fiscal 2023. The pro forma financial information for the third quarter of fiscal 2024 combines our results for this period with that of Splunk's results for the three month period beginning February 1, 2024 through April 27, 2024. The pro forma financial information for the first nine months of fiscal 2024 combines our results for this period with the results of Splunk for the nine month period beginning August 1, 2023 through April 27, 2024. The pro forma financial information for the third quarter and first nine months of fiscal 2023 combines our historical results for those periods, with the historical results of Splunk for the three and nine months ended April 30, 2023.
The following table summarizes the pro forma financial information (in millions):
Three Months EndedNine Months Ended
April 27, 2024April 29, 2023April 27, 2024April 29, 2023
Total revenue$13,107 $15,323 $43,119 $44,727 
Net income$1,490 $2,423 $7,127 $6,776 
The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition and the cost of financing the acquisition had taken place at the beginning of fiscal 2023. The financial information for the periods presented above includes pro forma adjustments for amortization of purchased intangible assets, costs related to financing the acquisition and transaction costs.
The above pro forma financial information includes only the impacts of the Splunk acquisition because the effects of the other acquisitions detailed below, individually and in the aggregate, were not material to our financial results.
Other Acquisitions
We completed several additional acquisitions during the first nine months of fiscal 2024 for an aggregate cash consideration of $1.4 billion. A summary of the allocation of the total purchase consideration of these additional acquisitions completed during the first nine months of fiscal 2024 is presented as follows (in millions):
Purchase ConsiderationNet Tangible Assets Acquired (Liabilities Assumed)Purchased Intangible AssetsGoodwill
Total other acquisitions$1,370 $(82)$500 $952 
The total purchase consideration related to these other acquisitions completed during the first nine months of fiscal 2024 consisted primarily of cash consideration. The total cash and cash equivalents acquired from these acquisitions was approximately $24 million. Total transaction costs related to these acquisition activities were $18 million and $6 million for the first nine months of fiscal 2024 and 2023, respectively. These transaction costs were expensed as incurred in G&A in the Consolidated Statements of Operations.
The purchase price allocation for these acquisitions completed during recent periods is preliminary and subject to revision as additional information about fair value of assets and liabilities becomes available. Additional information that existed as of the acquisition date but is currently unknown to us may become known during the remainder of the measurement period, a period not to exceed 12 months from the acquisition date.
The goodwill generated from these acquisitions completed during the first nine months of fiscal 2024 is primarily related to expected synergies. The goodwill is generally not deductible for income tax purposes.
Compensation Expense Related to Acquisitions including Splunk
In connection with our acquisitions, we have agreed to pay certain additional amounts contingent upon the continued employment with Cisco of certain employees of the acquired entities.
The following table summarizes the compensation expense related to acquisitions (in millions):
Three Months EndedNine Months Ended
April 27, 2024April 29, 2023April 27, 2024April 29, 2023
Compensation expense related to acquisitions$216 $53 $310 $176 
As of April 27, 2024, we estimated that future cash compensation expense of up to $2.0 billion may be required to be recognized pursuant to these applicable acquisition agreements, which includes up to $1.5 billion related to the Splunk acquisition. Total compensation for the third quarter and first nine months of fiscal 2024 includes $165 million related to the Splunk acquisition.