Acquisitions and Goodwill
In pursuing our business strategies, we acquire and make investments in certain businesses that meet strategic and financial criteria.
In August 2017, our Forcepoint business acquired RedOwl Analytics Inc. (RedOwl), a security analytics business, for $54 million in cash, net of cash received, and exclusive of retention payments. RedOwl’s user and entity behavior analytics (UEBA) platform helps companies analyze large amounts of data to assess risk. RedOwl has been integrated into our Forcepoint business to expand and enhance Forcepoint’s strategy to deliver cybersecurity systems that help customers understand people’s behaviors and intent as they interact with data and intellectual property wherever it may reside. In connection with this acquisition, we have recorded $42 million of goodwill, primarily related to expected synergies from combining operations and the value of the existing workforce, none of which is expected to be deductible for tax purposes, and $7 million of intangible assets, primarily related to technology and customer relationships, with a weighted-average life of five years.
In February 2017, our Forcepoint business acquired the Skyfence cloud access security broker (CASB) business for $39 million in cash, net of cash received, and exclusive of retention payments. Vista Equity Partners contributed 19.7% of the purchase price, which is reflected in contribution from noncontrolling interest in Forcepoint in our consolidated statements of cash flows. Skyfence solutions help companies to determine which cloud applications are in use by employees, analyze content in real-time to prevent malicious or unauthorized leakage and quickly identify and block cyber attacks. Skyfence was integrated into our Forcepoint business to expand and enhance Forcepoint’s strategy to deliver cybersecurity systems that help customers understand people’s behaviors and intent as they interact with data and intellectual property wherever it may reside. In connection with this acquisition, we recorded $35 million of goodwill, primarily related to expected synergies from combining operations and the value of the existing workforce, all of which is expected to be deductible for tax purposes, and $5 million of intangible assets, primarily related to technology, with a weighted-average life of six years.
In January 2016, our Forcepoint business acquired the Stonesoft next-generation firewall (NGFW) business, including the Sidewinder proxy firewall technology. Vista Equity Partners contributed 19.7% of the purchase price, which is reflected in contribution from noncontrolling interest in Forcepoint in our consolidated statements of cash flows. Stonesoft provides NGFW software and hardware solutions that focus on high-availability, centralized management of large networks and protection from advanced evasion techniques. The Sidewinder product provides proxy-based firewall software and hardware solutions, allowing for clear visibility and control of command filtering, protocol enforcement and application access. Stonesoft expands the cloud and hybrid capabilities of Forcepoint. In connection with this acquisition, we have recorded $51 million of goodwill, primarily related to expected synergies from combining operations and the value of the existing workforce, the majority of which is deductible for tax purposes, and $23 million of intangible assets, primarily related to technology and customer relationships, with a weighted-average life of five years.
In October 2015, we acquired Foreground Security, subsequently renamed Raytheon Foreground Security (RFS), for $62 million in cash, net of cash received, and exclusive of retention payments. RFS has been integrated into our IIS business, within the Cybersecurity and Special Missions (CSM) product area. RFS provides security operations centers (SOCs), managed security service solutions and cybersecurity professional services. RFS accelerates Raytheon’s expansion into managed security services across federal, international and commercial markets. In connection with this transaction we have recorded $58 million of goodwill related to expected synergies from combining operations and the value of the existing workforce, a portion of which is deductible for tax purposes, and $7 million of intangible assets, primarily related to customer relationships and technology with a weighted-average life of seven years.
In May 2015, we acquired Websense, Inc. (Websense) from Vista Equity Partners for approximately $1.9 billion, net of cash received, and exclusive of retention payments. Following the acquisition, we completed a series of transactions to create our Forcepoint joint venture (with Vista Equity Partners). Forcepoint is a leader in advanced threat protection and data theft prevention across web, email, cloud and endpoint infrastructure. For more information on the Forcepoint joint venture, see “Note 12: Forcepoint Joint Venture.” In connection with this acquisition, we incurred transaction and integration-related costs of $33 million in 2015 of which $26 million were recorded at Corporate. We recorded $1.6 billion of goodwill, all of which was allocated to the Forcepoint segment, primarily related to expected synergies from combining operations and the value of the existing workforce, and none of which is expected to be deductible for tax purposes.
The final purchase price allocation, net of cash received, for the Websense acquisition was as follows:
|
| | | |
(In millions) | Purchase price allocation |
|
Accounts receivable (at contractually stated amounts) | $ | 38 |
|
Other current assets | 21 |
|
Property, plant and equipment | 19 |
|
Goodwill | 1,624 |
|
Intangible assets | 501 |
|
Other noncurrent assets | 16 |
|
Deferred revenue | (225 | ) |
Current liabilities | (51 | ) |
Long-term liabilities | (52 | ) |
Fair value of net assets acquired | $ | 1,891 |
|
The following were the identifiable intangible assets acquired and the respective estimated periods over which such assets will be amortized:
|
| | | | | |
(In millions, except years) | Gross carrying amount |
| | Weighted-average useful life (in years) |
Completed technology | $ | 439 |
| | 7 |
Customer relationships | 43 |
| | 13 |
Trademarks and other | 19 |
| | 10 |
Fair value of intangible assets acquired | $ | 501 |
| | |
Pro forma financial information and revenue from the date of acquisition has not been provided for these acquisitions as they are not material either individually or in the aggregate.
We funded each of the above acquisitions using cash on hand. The operating results of these businesses have been included in our consolidated results as of the respective closing dates of the acquisitions. The purchase price of these businesses has been allocated to the estimated fair value of net tangible and intangible assets acquired, with any excess purchase price recorded as goodwill. The total amount of goodwill that is expected to be deductible for tax purposes related to these acquisitions was $87 million at December 31, 2017.
A rollforward of goodwill by segment was as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
(In millions) | Integrated Defense Systems(1) |
| | Intelligence, Information and Services(1) |
| | Missile Systems |
| | Space and Airborne Systems |
| | Forcepoint(3) |
| | Total |
|
| $ | 1,704 |
| | $ | 2,958 |
| | $ | 4,154 |
| | $ | 4,106 |
| | $ | 1,809 |
| | $ | 14,731 |
|
Acquisitions(2) | — |
| | 8 |
| | — |
| | — |
| | 51 |
| | 59 |
|
Effect of foreign exchange rates and other | (2 | ) | | — |
| | — |
| | — |
| | — |
| | (2 | ) |
| 1,702 |
| | 2,966 |
| | 4,154 |
| | 4,106 |
| | 1,860 |
| | 14,788 |
|
Acquisitions | — |
| | — |
| | — |
| | — |
| | 77 |
| | 77 |
|
Effect of foreign exchange rates and other | 4 |
| | 1 |
| | — |
| | — |
| | 1 |
| | 6 |
|
| $ | 1,706 |
| | $ | 2,967 |
| | $ | 4,154 |
| | $ | 4,106 |
| | $ | 1,938 |
| | $ | 14,871 |
|
| |
(1) | In connection with the January 1, 2016 reorganization of Integrated Defense Systems (IDS) and IIS, goodwill of $90 million was allocated to the IIS segment on a relative fair value basis and is reflected in the revised balances at December 31, 2015. |
| |
(2) | In addition to the acquisition of the Stonesoft NGFW business during the first quarter of 2016, we finalized the purchase price allocation for Foreground Security at IIS, which resulted in an adjustment to goodwill of $8 million. |
| |
(3) | At December 31, 2017, Forcepoint’s fair value is estimated to exceed its net book value by approximately $1.3 billion. As discussed in “Note 12: Forcepoint Joint Venture,” we are required to determine Forcepoint’s fair value on a quarterly basis due to the accounting related to the redeemable noncontrolling interest. |
For information on our intangible assets, see “Note 9: Other Assets, Net.”