Lesson 6 of 8
When a purchase resets the base
Cisco disclosed what Splunk added to fiscal 2024 and what the combined year would have been. Both numbers are required, and both are easy to miss.
By Javier Sanz
Founder of ValueScreener. Built Ninety Nine, a securities services provider, and sold it to a tier-one global bank; ran operations and internationalization at Alpaca, the brokerage API.
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In one minute
- An acquisition changes what this year is being compared against, so a growth rate spanning it measures two different companies.
- The business combination note is required to disclose what the acquired business contributed since the acquisition date, and what the combined year would have been had it closed at the start.
- In a settled order dated 7 June 2022, the Commission found that one of Synchronoss's restated categories was revenue recognised on licence agreements attached to acquisitions and divestitures.
The cleanest way to change a growth rate is to change what it is a growth rate over. Buy a company halfway through the year and this year contains something last year did not, with no accounting judgement required anywhere.
Cisco revenue, and what the acquisition note discloses about it
| Figure | FY2023 | FY2024 | FY2025 |
|---|---|---|---|
| Total revenue as reported | 56,998 | 53,803 | 56,654 |
| Revenue attributable to Splunk since acquisition | n/a | about 1,400 | not separately disclosed |
| Pro forma combined revenue, as if acquired at the start of fiscal 2024 | n/a | 56,761 | n/a |
| Reported change against the prior reported year | -5.6% | +5.3% |
What the note has to tell you
A business combination carries two disclosures that answer the comparison question directly. The first is what the acquired business contributed to the acquirer's own statements from the acquisition date onwards. The second is unaudited pro forma information: what revenue and earnings would have been had the acquisition completed at the beginning of the earliest period presented.
Cisco completed its acquisition of Splunk on 18 March 2024, part-way through a fiscal year ending 27 July 2024, at 157 dollars a share and approximately 27 billion dollars in consideration. The note states that fiscal 2024 includes revenue of approximately 1.4 billion dollars and a net loss of 557 million dollars attributable to Splunk since the acquisition date, and gives pro forma combined revenue for fiscal 2024 of 56,761 million dollars against 53,803 million reported.
What those two numbers do to the growth rate
Reported revenue fell 5.6 percent in fiscal 2024. Remove the roughly 1.4 billion dollars the note attributes to Splunk and the rest of the business produced about 52,400 million dollars against 56,998 million the year before, a fall of about 8.1 percent.
Fiscal 2025 runs the other way. Reported revenue rose 5.3 percent, from 53,803 to 56,654 million dollars. Against the pro forma combined figure of 56,761 million, which is the comparison that holds the perimeter constant, the year was roughly flat.
Neither of those recalculations is an accusation. Both come from figures the company itself published in the note the standards require, and the arithmetic is subtraction.
Where this becomes an enforcement matter
The Commission's settled order of 7 June 2022 concerning Synchronoss describes a restatement announced in July 2018 covering approximately 190 million dollars of cumulative revenue across four fiscal years. One of the three categories the order names is acquisitions and divestitures in which revenue was recognised on licence agreements rather than the amounts being combined with the purchase or sale price. The company consented to the order without admitting or denying the findings.
That is the shape to hold in mind. A transaction that is legitimately reported still resets the comparison, and the same transaction can also carry an accounting question of its own about what part of the consideration is revenue.
What to do with it
Read the business combination note before the growth rate. Write down the acquisition date, the contribution since that date, and the pro forma figure. Then recompute the growth rate on a perimeter that does not change, and compare it with the one in the discussion above.
Check yourself
Which two disclosures in a business combination note answer the comparison question?
- The purchase price and the goodwill balance
- What the acquired business contributed since the acquisition date, and unaudited pro forma results as if it had been acquired at the start of the earliest period
- The number of employees acquired and the integration cost
Show the answer
Answer: B.
The first isolates this year's contribution; the second gives a comparison on a constant perimeter. Both are required disclosures.Cisco reported revenue of 56,654 million in fiscal 2025 against 53,803 million reported for fiscal 2024. What does the pro forma figure of 56,761 million add?
- It shows the acquisition destroyed revenue
- It gives a constant-perimeter comparison, against which fiscal 2025 was roughly flat rather than up 5.3 percent
- It replaces the reported figure
Show the answer
Answer: B.
The pro forma figure states what fiscal 2024 would have been with the acquisition present all year, which is the like-for-like base for fiscal 2025.Recomputing a growth rate excluding an acquisition is what kind of claim?
- An allegation about the company's reporting
- Arithmetic on figures the company published itself, which the reported rate does not contradict
- A non-GAAP measure requiring reconciliation
Show the answer
Answer: B.
Both the reported rate and the contribution figure come from the filing. Subtracting one from the other is a comparison, not a criticism of the reporting.Sources
- Cisco Systems, Inc., Form 10-K for the fiscal year ended 25 July 2026, filed 2026-09-02, accession 0000858877-26-000132: the acquisition of Splunk Inc. completed 18 March 2024, the revenue and net loss attributable to it in fiscal 2024, and the unaudited pro forma combined figures.
- SEC, In the Matter of Synchronoss Technologies, Inc., Exchange Act Release No. 95049, Accounting and Auditing Enforcement Release No. 4302, 7 June 2022. Settled without admitting or denying the findings.
- ASC 805, Business Combinations, for the acquisition-date disclosures and the pro forma information.
What this leaves out
- Cisco appears here as the source of a set of required disclosures, and nothing in this lesson says or implies anything about its reporting. It is not the subject of any action described in this course.
- The figure of about 52,400 million dollars is this lesson's subtraction of the note's approximate contribution figure from reported revenue. It is an approximation because the note itself gives the contribution as approximate.
- The Synchronoss matter was settled and the respondent consented without admitting or denying the findings, which are not binding on any other person or entity.
- The worked example uses invented round numbers and is labelled illustrative.
- Nothing here is advice about any security.