Business Combinations
On July 30, 2012, the Company completed its acquisition of NDS Group Limited (“NDS”), a provider of video software and content security solutions that enable service providers and media companies to securely deliver and monetize new video entertainment experiences. The acquisition of NDS will be combined with the delivery of Cisco Videoscape, the Company’s comprehensive content delivery platform that enables service providers and media companies to deliver next-generation entertainment experiences. The Company has included revenue from the NDS acquisition, subsequent to the acquisition date, in its Service Provider Video product category.
Under the terms of the acquisition agreement, the Company paid total cash consideration of approximately $5.0 billion, which included the repayment of $993 million of pre-existing NDS debt to third party creditors at the closing of the acquisition. The following table summarizes the purchase consideration for the NDS acquisition (in millions):
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| | | | |
| | Fair Value |
Cash consideration to seller | | $ | 4,012 |
|
Repayment of NDS debt to third party creditors | | 993 |
|
Total purchase consideration | | $ | 5,005 |
|
The payment of the total purchase consideration of approximately $5.0 billion shown above, net of cash and cash equivalents acquired, is classified as a use of cash under investing activities in the Consolidated Statements of Cash Flows.
The total purchase allocation for NDS is summarized as follows (in millions):
|
| | | | |
| | Fair Value |
Cash and cash equivalents | | $ | 98 |
|
Accounts receivable, net | | 199 |
|
Other tangible assets | | 268 |
|
Goodwill | | 3,444 |
|
Purchased intangible assets | | 1,746 |
|
Deferred tax liabilities, net | | (378 | ) |
Liabilities assumed | | (372 | ) |
Total purchase consideration | | $ | 5,005 |
|
The Company completed 12 additional business combinations during fiscal 2013. A summary of the allocation of the total purchase consideration is presented as follows (in millions): |
| | | | | | | | | | | | | | | |
Fiscal 2013 | Purchase Consideration | | Net Liabilities Assumed | | Purchased Intangible Assets | | Goodwill |
Meraki, Inc. | $ | 974 |
| | $ | (59 | ) | | $ | 289 |
| | $ | 744 |
|
Intucell, Ltd. | 360 |
| | (23 | ) | | 106 |
| | 277 |
|
Ubiquisys Limited | 280 |
| | (30 | ) | | 123 |
| | 187 |
|
All others (nine in total) | 363 |
| | (25 | ) | | 127 |
| | 261 |
|
Total other acquisitions | $ | 1,977 |
| | $ | (137 | ) | | $ | 645 |
| | $ | 1,469 |
|
The Company acquired privately held Meraki, Inc. (“Meraki”) in the second quarter of fiscal 2013. Meraki offers mid-market customers on-premise networking solutions centrally managed from the cloud. With its acquisition of Meraki, the Company intends to address the shift to cloud networking as a key part of the Company’s overall strategy to accelerate the adoption of software-based business models that provide new consumption options for customers and revenue opportunities for partners. The Company has included revenue from the Meraki acquisition, subsequent to the acquisition date, in its Wireless product category.
The Company acquired privately held Intucell, Ltd. (“Intucell”) in the third quarter of fiscal 2013. Intucell provides advanced self-optimizing network software for mobile carriers. With its acquisition of Intucell, the Company intends to enhance its commitment to global service providers by adding a critical network intelligence layer to manage and optimize spectrum, coverage and capacity, and ultimately the quality of the mobile experience. The Company has included revenue from the Intucell acquisition, subsequent to the acquisition date, in its NGN Routing product category.
The Company acquired privately held Ubiquisys Limited (“Ubiquisys”) in the fourth quarter of fiscal 2013. Ubiquisys offers service providers intelligent 3G and long-term evolution (LTE) small-cell technologies for seamless connectivity across mobile networks. With its acquisition of Ubiquisys, the Company intends to strengthen its commitment to global service providers by enabling a comprehensive small-cell solution that supports the transition to next-generation radio access networks. The Company has included revenue from the Ubiquisys acquisition, subsequent to the acquisition date, in its NGN Routing product category.
The total purchase consideration related to the Company’s business combinations completed during fiscal 2013 consisted of cash consideration, repayment of debt, and vested share-based awards assumed. The total in cash and cash equivalents acquired from these business combinations was approximately $156 million.
Fiscal 2012 and 2011
Allocation of the purchase consideration for business combinations completed in fiscal 2012 is summarized as follows (in millions):
|
| | | | | | | | | | | | | | | |
Fiscal 2012 | Purchase Consideration | | Net Liabilities Assumed | | Purchased Intangible Assets | | Goodwill |
Lightwire, Inc. | $ | 239 |
| | $ | (15 | ) | | $ | 97 |
| | $ | 157 |
|
All others (six in total) | 159 |
| | (24 | ) | | 103 |
| | 80 |
|
Total acquisitions | $ | 398 |
| | $ | (39 | ) | | $ | 200 |
| | $ | 237 |
|
The Company acquired Lightwire, Inc. (“Lightwire”) in the third quarter of fiscal 2012. With its acquisition of Lightwire, a developer of advanced optical interconnect technology for high-speed networking applications, the Company aimed to develop and deliver cost-effective, high-speed networks with the next generation of optical connectivity. The Company included revenue from the Lightwire acquisition, subsequent to the acquisition date, in its Switching product category.
The total purchase consideration related to the Company’s business combinations completed during fiscal 2012 consisted of either cash consideration or cash consideration along with vested share-based awards assumed. The total cash and cash equivalents acquired from these business combinations was immaterial.
Allocation of the purchase consideration for business combinations completed in fiscal 2011 is summarized as follows (in millions):
|
| | | | | | | | | | | | | | | |
Fiscal 2011 | Purchase Consideration | | Net Liabilities Assumed | | Purchased Intangible Assets | | Goodwill |
Total acquisitions (six in total) | $ | 288 |
| | $ | (10 | ) | | $ | 114 |
| | $ | 184 |
|
| |
(b) | Other Acquisition/Divestiture Information |
Total transaction costs related to the Company’s business combination activities during fiscal 2013, 2012, and 2011 were $40 million, $15 million, and $10 million, respectively. These transaction costs were expensed as incurred as general and administrative (“G&A”) expenses in the Consolidated Statements of Operations.
The Company’s purchase price allocation for business combinations completed during recent periods is preliminary and subject to revision as additional information about fair value of assets and liabilities becomes available. Additional information, which existed as of the acquisition date but at that time was unknown to the Company, may become known to the Company during the remainder of the measurement period, a period not to exceed 12 months from the acquisition date. Adjustments in the purchase price allocation may require a recasting of the amounts allocated to goodwill retroactive to the period in which the acquisition occurred.
The goodwill generated from the Company’s business combinations completed during fiscal 2013 is primarily related to expected synergies. The goodwill is generally not deductible for U.S. federal income tax purposes.
The Consolidated Financial Statements include the operating results of each business combination from the date of acquisition. Pro forma results of operations for the acquisitions completed during the fiscal years presented have not been presented because the effects of the acquisitions, individually and in the aggregate, were not material to the Company’s financial results.
During the third quarter of fiscal 2013, the Company completed the sale of its Linksys product line to a third party. The financial statement impact of the Company’s Linksys product line and its resulting sale were not material for any of the fiscal years presented.
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(c) | Pending Acquisition of Sourcefire, Inc. |
In the fourth quarter of fiscal 2013, the Company announced that it had entered into a definitive agreement to acquire Sourcefire, Inc. (“Sourcefire”), a leader in intelligent cybersecurity solutions. Sourcefire delivers innovative, highly automated security through continuous awareness, threat detection and protection across its portfolio, including next-generation intrusion prevention systems, next-generation firewalls, and advanced malware protection. With the Sourcefire acquisition the Company aims to accelerate its security strategy of defending, discovering, and remediating advanced threats to provide continuous security solutions to the Company’s customers in more places across the network.
Under the agreement, the Company has agreed to pay approximately $2.7 billion in cash and retention-based incentives to acquire Sourcefire. The acquisition is expected to close in the second half of calendar 2013 and is subject to customary closing conditions, including a regulatory review. Upon close of the acquisition, revenue from Sourcefire will be included in the Company’s Security product category.
