Acquisitions

12 Months Ended

Jul. 27, 2024

Business Combination, Asset Acquisition, and Joint Venture Formation [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 services	137
Settlement of pre-existing relationships	3
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
Investments	285
Accounts receivable, net	623
Goodwill	19,301
Purchased intangible assets	10,550
Deferred tax assets	1,308
Other current and noncurrent assets	1,176
Accounts payable	(39)
Accrued compensation	(337)
Current portion of deferred revenue	(1,768)
Splunk convertible notes	(3,344)
Deferred tax liabilities	(2,523)
Noncurrent portion of deferred revenue	(86)
Other current and other noncurrent liabilities	(478)
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 fiscal 2024 includes revenue of approximately $1.4 billion and a net loss of $557 million attributable to Splunk since the date of acquisition.

We incurred $82 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 $79 million of these transaction costs in fiscal 2024.

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 July 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
Customer related	9.1	$	6,140
Technology	6.0	3,900
Trade name	12.0	510
Total		$	10,550

The majority of customer-related intangible assets relates to customer contracts and related relationships. The customer contracts and related relationships intangible asset represents the fair value of future projected revenue that will be derived from sales of products to existing customers of Splunk. The asset was valued using the with-and-without method under the income approach. In the with-and-without method, the fair value was measured by the difference between the present values of the cash flows with and without the existing customers in place over the period of time necessary to reacquire the customers. The present value of projected future cash flows included significant judgment and assumptions regarding projected future revenues, projected expenses, attrition rates, the revenue build up period, and the discount rate.

Technology represents the preliminary estimated fair value of Splunk’s security and observability technologies. The technology intangible asset was valued using the multi-period excess earnings method under the income approach. This method reflects the present value of the projected cash flows that are expected to be generated by the technology asset less charges representing the contribution of other assets to those cash flows. The present value of projected future cash flows included significant judgment and assumptions regarding projected future revenues, projected expenses, the technology obsolescence rate, and the discount rate.

Trade name represents the preliminary estimated fair value of the Splunk trade name. The fair value was determined by applying the relief-from-royalty method under the income approach. This method is based on the application of a royalty rate to forecasted revenue under the 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 fiscal 2024, the compensation expense was $413 million. As of July 27, 2024, we estimated that future cash compensation expense of up to $1.1 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 fiscal 2024 combines our results for this period with the results of Splunk for the period beginning August 1, 2023 through July 27, 2024. The pro forma financial information for fiscal 2023 combines our historical results for that period with the historical results of Splunk for the year ended July 31, 2023.

The following table summarizes the pro forma financial information (in millions):

Years Ended	July 27, 2024		July 29, 2023
Total revenue	$	56,761	$	60,841
Net income	$	9,280	$	10,078

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 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 is presented as follows (in millions):

Fiscal 2024	Purchase Consideration		Net Tangible Assets Acquired (Liabilities Assumed)		Purchased Intangible Assets		Goodwill
Total other acquisitions	$	1,370	$	(47)	$	500	$	917

The total purchase consideration related to these other acquisitions completed during 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 $25 million, $24 million, and $49 million for fiscal 2024, 2023, and 2022, 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 fiscal 2024 is primarily related to expected synergies. The goodwill is generally not deductible for income tax purposes.

Fiscal 2023 Acquisitions

Allocation of the purchase consideration for acquisitions completed in fiscal 2023 is summarized as follows (in millions):

Fiscal 2023	Purchase Consideration		Net Tangible Assets Acquired (Liabilities Assumed)		Purchased Intangible Assets		Goodwill
Total acquisitions	$	315	$	(18)	$	150	$	183

The total purchase consideration related to our acquisitions completed during fiscal 2023 consisted of cash consideration and vested share-based awards assumed. The total cash and cash equivalents acquired from these acquisitions was approximately $7 million.

Fiscal 2022 Acquisitions

In fiscal 2022, we paid total purchase consideration of $364 million for our acquisitions.

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):

	July 27, 2024		July 29, 2023		July 30, 2022
Compensation expense related to acquisitions	$	618	$	222	$	271

Total compensation expense related to acquisitions for fiscal 2024 include $413 million related to the Splunk acquisition.

As of July 27, 2024, we estimated that future cash compensation expense of up to $1.6 billion may be required to be recognized pursuant to these applicable acquisition agreements, which includes up to $1.1 billion related to the Splunk acquisition.