UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
(Amendment No. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) April 3, 2018
GENERAL DYNAMICS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 1-3671 | 13-1673581 | ||
(State or Other Jurisdiction of Incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
2941 Fairview Park Drive, Suite 100, Falls Church, Virginia | 22042-4513 | |
(Address of Principal Executive Offices) | (Zip Code) |
(703) 876-3000
(Registrants Telephone Number, Including Area Code)
Not Applicable
(Former Name or Former Address, If Changed Since Last Report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
On April 3, 2018, General Dynamics Corporation, a Delaware corporation (the Company), filed with the U.S. Securities and Exchange Commission (the Commission) a Current Report on Form 8-K (the Initial 8-K) to disclose that it had completed its previously announced acquisition of CSRA Inc., a Nevada corporation (CSRA). This Form 8-K/A amends the Initial 8-K to provide the historical audited and unaudited financial statements of CSRA and the pro forma financial information required by Items 9.01(a) and 9.01(b) of Form 8-K and should be read in conjunction with the Initial 8-K.
Item 9.01 Financial Statements and Exhibits
(a) | Financial Statements of Businesses Acquired |
The audited consolidated balance sheet of CSRA as of March 31, 2017, the audited consolidated and combined statements of operations, comprehensive income, changes in equity and cash flows of CSRA for the fiscal year ended March 31, 2017, the notes related thereto, the independent auditors report of Deloitte & Touche LLP relating to the financial statements of CSRA and the independent auditors report of Deloitte & Touche LLP relating to the internal control over financial reporting of CSRA are filed as Exhibit 99.1 hereto and are incorporated herein by reference.
The unaudited consolidated and condensed balance sheet of CSRA as of December 29, 2017, the unaudited consolidated and condensed statements of operations, comprehensive income and cash flows of CSRA for the nine months ended December 29, 2017, and the notes related thereto are filed as Exhibit 99.2 hereto and are incorporated herein by reference.
On April 1, 2017, CSRA adopted Accounting Standards Update (ASU) No. 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. ASU 2017-07 requires the service cost component of net benefit cost to be reported separately from the other components of net benefit cost in the income statement, but has no impact to net earnings. As a result, net benefit costs of the CSRA defined benefit plans have been presented as a separate line item on CSRAs statement of operations.
(b) | Pro Forma Financial Information |
The unaudited pro forma condensed combined balance sheet of the Company and CSRA as of December 31, 2017, the unaudited pro forma condensed combined statement of earnings of the Company and CSRA for the year ended December 31, 2017, and the notes related thereto are filed as Exhibit 99.3 hereto and incorporated herein by reference.
(d) | Exhibits |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
GENERAL DYNAMICS CORPORATION | ||||||
by | /s/ Gregory S. Gallopoulos | |||||
Gregory S. Gallopoulos | ||||||
Senior Vice President, General Counsel and Secretary | ||||||
Dated: May 7, 2018 | (Authorized Officer) |
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Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statements No. 333-107901, 333-159038, 333-159045, 333-181124, 333-186575, 333-186578, 333-208667, 333-217656 and 333-224138 on Form S-8 of General Dynamics Corporation, and Registration Statement No. 333-223853 on Form S-3ASR of General Dynamics Corporation of our reports dated May 24, 2017 relating to the financial statements of CSRA Inc. (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the preparation of the consolidated and combined financial statements on and prior to November 27, 2015) and the effectiveness of CSRA Inc.s internal control over financial reporting appearing in the Annual Report on Form 10-K of CSRA Inc. for the year ended March 31, 2017, incorporated by reference in the Current Report on Amended Form 8-K of General Dynamics Corporation filed on May 7, 2018.
/s/ Deloitte & Touche LLP |
McLean, Virginia |
May 7, 2018 |
Exhibit 99.3
Unaudited Pro Forma Condensed Combined Financial Statements
We acquired CSRA Inc. (CSRA) on April 3, 2018, for total cash consideration of approximately $9.7 billion. CSRA is now part of General Dynamics Information Technology (GDIT).
The following unaudited pro forma condensed combined financial statements are based on our historical consolidated financial statements and CSRAs historical consolidated financial statements. Prior to the acquisition, CSRAs fiscal year concluded at the end of March while our fiscal year ends on December 31. In the unaudited pro forma condensed combined statement of earnings, we have combined the fourth quarter of CSRAs fiscal year ended March 31, 2017, with the first nine months of CSRAs fiscal year ended March 30, 2018, to prepare a statement of earnings for CSRA for the year ended December 31, 2017. Some CSRA amounts have been reclassified among financial statement accounts to conform to our presentation.
The unaudited pro forma condensed combined financial statements have been adjusted to give effect to our acquisition of CSRA and the related financing transactions. The unaudited pro forma condensed combined statement of earnings for the year ended December 31, 2017, gives effect to these transactions as if they had occurred on January 1, 2017. The unaudited pro forma condensed combined balance sheet on December 31, 2017, gives effect to these transactions as if they had occurred on December 31, 2017.
The assumptions and estimates underlying the adjustments to the unaudited pro forma condensed combined financial statements are described in the accompanying notes, which should be read together with the unaudited pro forma condensed combined financial statements. The unaudited pro forma condensed combined financial statements do not necessarily reflect what the combined companys financial condition or results of operations would have been had the acquisition occurred on the dates indicated. They also should not be used to predict the future financial condition and results of operations of the combined company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.
The unaudited pro forma condensed combined financial statements have been derived from, and should be read in conjunction with, the following information:
| Our audited consolidated financial statements and accompanying notes as of and for the year ended December 31, 2017, as contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the Commission) February 12, 2018; |
| CSRAs audited consolidated financial statements and accompanying notes as of and for the year ended March 31, 2017, as contained in its Annual Report on Form 10-K filed with the Commission May 25, 2017; and |
| CSRAs unaudited consolidated financial statements and accompanying notes as of and for the nine months ended December 29, 2017, as contained in its Quarterly Report on Form 10-Q filed with the Commission February 7, 2018. |
1
Unaudited Pro Forma Condensed Combined Balance Sheet
December 31, 2017
(Dollars in millions)
General Dynamics (GD) Historical |
CSRA Historical |
Acquisition Financing (B) |
Preliminary Purchase Price Allocation (C) |
Other Pro Forma Adjustments (D) |
Notes to Other Pro Forma Adjustments |
Pro Forma Combined |
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ASSETS |
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Current assets: |
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Cash and equivalents |
$ | 2,983 | $ | 80 | $ | 10,000 | $ | (9,749 | ) | $ | (452 | ) | (a), (b) | $ | 2,862 | |||||||||||||
Accounts receivable |
3,617 | 192 | | | 205 | (a), (c) | 4,014 | |||||||||||||||||||||
Unbilled receivables |
5,240 | 753 | | | 123 | (a), (c) | 6,116 | |||||||||||||||||||||
Inventories |
5,303 | | | | | 5,303 | ||||||||||||||||||||||
Other current assets |
1,185 | 119 | | 17 | 52 | (c) | 1,373 | |||||||||||||||||||||
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Total current assets |
18,328 | 1,144 | 10,000 | (9,732 | ) | (72 | ) | 19,668 | ||||||||||||||||||||
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Noncurrent assets: |
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Property, plant and equipment, net |
3,517 | 694 | | | | 4,211 | ||||||||||||||||||||||
Intangible assets, net |
702 | 854 | | 1,146 | | 2,702 | ||||||||||||||||||||||
Goodwill |
11,914 | 2,522 | | 5,394 | | 19,830 | ||||||||||||||||||||||
Other assets |
585 | 86 | | | | 671 | ||||||||||||||||||||||
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Total noncurrent assets |
16,718 | 4,156 | | 6,540 | | 27,414 | ||||||||||||||||||||||
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Total assets |
$ | 35,046 | $ | 5,300 | $ | 10,000 | $ | (3,192 | ) | $ | (72 | ) | $ | 47,082 | ||||||||||||||
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Current liabilities: |
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Short-term debt and current portion of long-term debt |
$ | 2 | $ | 86 | $ | 10,000 | $ | (86 | ) | $ | | $ | 10,002 | |||||||||||||||
Current capital lease liability |
| 50 | | | | 50 | ||||||||||||||||||||||
Accounts payable |
3,207 | 120 | | | (12 | ) | (c) | 3,315 | ||||||||||||||||||||
Customer advances and deposits |
6,992 | 160 | | | | 7,152 | ||||||||||||||||||||||
Other current liabilities |
2,898 | 680 | | 68 | | 3,646 | ||||||||||||||||||||||
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Total current liabilities |
13,099 | 1,096 | 10,000 | (18 | ) | (12 | ) | 24,165 | ||||||||||||||||||||
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Noncurrent liabilities: |
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Long-term debt |
3,980 | 2,651 | | (2,651 | ) | | 3,980 | |||||||||||||||||||||
Noncurrent capital lease liability |
| 210 | | | | 210 | ||||||||||||||||||||||
Other liabilities |
6,532 | 692 | | 128 | | 7,352 | ||||||||||||||||||||||
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Total noncurrent liabilities |
10,512 | 3,553 | | (2,523 | ) | | 11,542 | |||||||||||||||||||||
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Total shareholders equity |
11,435 | 651 | | (651 | ) | (60 | ) | (b) | 11,375 | |||||||||||||||||||
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Total liabilities and shareholders equity |
$ | 35,046 | $ | 5,300 | $ | 10,000 | $ | (3,192 | ) | $ | (72 | ) | $ | 47,082 | ||||||||||||||
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The accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements are an integral part of these financial statements.
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Unaudited Pro Forma Condensed Combined Statement of Earnings
Year Ended December 31, 2017
(Dollars and shares in millions, except per-share amounts)
GD Historical |
CSRA Historical |
Acquisition Financing (B) |
Preliminary Purchase Price Allocation (C) |
Other Pro Forma Adjustments (D) |
Notes to Other Pro Forma Adjustments |
Pro Forma Combined |
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Revenue |
$ | 30,973 | $ | 5,063 | $ | | $ | | $ | (208 | ) | (c) | $ | 35,828 | ||||||||||||||
Operating costs and expenses: |
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Depreciation and amortization |
441 | 227 | | 198 | | 866 | ||||||||||||||||||||||
General and administrative (G&A) |
2,010 | 206 | | | (2 | ) | (d) | 2,214 | ||||||||||||||||||||
Acquisition, integration and other costs (E) |
| 89 | | | | 89 | ||||||||||||||||||||||
Other operating costs and expenses |
24,345 | 4,053 | | | (229 | ) | (c), (d), (e) | 28,169 | ||||||||||||||||||||
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26,796 | 4,575 | | 198 | (231 | ) | 31,338 | ||||||||||||||||||||||
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Operating earnings |
4,177 | 488 | | (198 | ) | 23 | 4,490 | |||||||||||||||||||||
Interest, net |
(103 | ) | (117 | ) | (244 | ) | 92 | | (372 | ) | ||||||||||||||||||
Other, net |
3 | 56 | | | (55 | ) | (a), (d) | 4 | ||||||||||||||||||||
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Earnings from continuing operations before income tax |
4,077 | 427 | (244 | ) | (106 | ) | (32 | ) | 4,122 | |||||||||||||||||||
Provision for income tax, net (F) |
1,165 | 37 | (85 | ) | (37 | ) | (30 | ) | (e) | 1,050 | ||||||||||||||||||
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Earnings from continuing operations |
2,912 | 390 | (159 | ) | (69 | ) | (2 | ) | 3,072 | |||||||||||||||||||
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Noncontrolling interests |
| (12 | ) | | | | (12 | ) | ||||||||||||||||||||
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Net earnings attributable to GD shareholders |
$ | 2,912 | $ | 378 | $ | (159 | ) | $ | (69 | ) | $ | (2 | ) | $ | 3,060 | |||||||||||||
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Earnings per share |
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Basic |
$ | 9.73 | $ | 10.23 | ||||||||||||||||||||||||
Diluted |
$ | 9.56 | $ | 10.04 | ||||||||||||||||||||||||
Basic weighted average shares outstanding |
299.2 | 299.2 | ||||||||||||||||||||||||||
Diluted weighted average shares outstanding |
304.6 | 304.6 |
The accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements are an integral part of these financial statements.
3
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
(Dollars and shares in millions, except per-share amounts or unless otherwise noted)
A. | Basis of Preparation |
The historical consolidated financial statements have been adjusted in the unaudited pro forma condensed combined financial statements to give effect to pro forma events that are 1) directly attributable to the business combination, 2) factually supportable and 3) with respect to the unaudited pro forma condensed combined statement of earnings, expected to have a continuing impact on the combined results following the business combination.
The business combination has been accounted for under the acquisition method of accounting in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 805, Business Combinations. As the acquirer for accounting purposes, we have preliminarily estimated the fair value of CSRAs assets acquired and liabilities assumed and conformed the accounting policies of CSRA to our accounting policies.
The unaudited pro forma condensed combined financial statements do not reflect the realization of any expected cost savings or other synergies from the CSRA acquisition as the result of restructuring activities and other planned cost savings initiatives following the completion of the business combination. These adjustments are excluded because they reflect actions we intend to undertake after the business combination.
B. | Acquisition Financing |
We financed the acquisition by issuing $2.5 billion of commercial paper and borrowing $7.5 billion under a 364-day committed bank credit facility that expires in March 2019. The outstanding debt has a dollar-weighted average interest rate of 2.44%. A 1/8% increase or decrease in interest rates would result in a change in annual interest expense of approximately $13. We intend to issue debt securities in the future to repay in whole or in part the borrowings under the 364-day credit facility. The interest rate associated with the long-term financing that will replace the borrowings will be higher than the interest rate on the current outstanding short-term debt. Therefore, our actual interest expense will be higher than the amount included in the accompanying unaudited pro forma condensed combined statement of earnings. Our current estimate of the dollar-weighted average interest rate following the debt financing is approximately 3%.
C. | Purchase Price and Preliminary Purchase Price Allocation |
We acquired CSRA for approximately $9.7 billion in cash. The following table summarizes the components of the purchase price on the acquisition date of April 3, 2018:
4
CSRA shares outstanding |
165.4 | |||
Cash consideration per CSRA share |
$ | 41.25 | ||
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Cash paid to purchase outstanding CSRA shares |
$ | 6,825 | ||
Cash paid to extinguish CSRA debt |
2,846 | |||
Cash settlement of outstanding CSRA stock options and restricted stock units |
78 | |||
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Total consideration paid |
$ | 9,749 | ||
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In the pro forma balance sheet, we eliminated CSRAs historical shareholders equity of $651 and reflected the following preliminary purchase price allocation:
Assets acquired* |
$ | 1,941 | ||
Identifiable intangible assets |
2,000 | |||
Goodwill |
7,916 | |||
Liabilities assumed* |
(2,108 | ) | ||
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Total purchase price |
$ | 9,749 | ||
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* | Assets acquired and liabilities assumed have been condensed for this summary allocation. Liabilities assumed include $68 of accrued CSRA transaction costs incurred in 2018 in connection with the acquisition, but exclude CSRAs short- and long-term debt of $86 and $2,651, respectively, which were extinguished at acquisition. Assets acquired include $17 of taxes receivable related to the deductible transaction costs. |
For purposes of this preliminary purchase price allocation, we have assumed that the reported values of the assets acquired and the liabilities assumed as of December 31, 2017, approximate their fair value, except for the intangible assets. We expect primarily to identify contract and program intangible assets, which consist of acquired backlog and probable follow-on work and associated customer relationships. The fair value of CSRAs intangible assets is expected to be determined primarily using the income approach, which requires a forecast of all of the expected future cash flows. Since the information required to perform a detailed valuation analysis of CSRAs intangible assets was not obtained as of the date of this filing, for purposes of these unaudited pro forma condensed combined financial statements, we utilized assumptions consistent with publicly available data for the industry.
The following table summarizes the estimated fair values of CSRAs expected identifiable intangible assets, their estimated useful lives and amortization expense using a straight-line method of amortization:
Intangible asset |
Estimated Fair Value |
Estimated Useful Life (in years) |
Annual Amortization Expense |
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Contract and program intangible assets |
$ | 2,000 | 7 | $ | 286 | |||||||
Less: CSRA historical intangible assets, net |
(854 | ) | (88 | ) | ||||||||
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Pro forma adjustments |
$ | 1,146 | * | $ | 198 | |||||||
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* | The net increase in intangible assets results in a $128 increase in deferred tax liabilities, stemming from non-deductible intangible assets, which are reported in other liabilities on the unaudited pro forma condensed combined balance sheet. |
5
These preliminary estimates of fair value and amortization expense will likely differ from the final amounts we will calculate after completing a detailed valuation analysis, and the difference could have a material impact on the future financial condition and results of operations of the combined company. A 10% change in the valuation of intangible assets would cause a corresponding increase or decrease in the balance of goodwill of approximately $200 and annual amortization expense of approximately $29. Amortization expense could be further impacted by the estimated useful life and the method of amortization based on the assessment of the pattern of how the economic benefit is used (i.e., an accelerated basis vs. a straight-line basis).
Goodwill represents the purchase price paid in excess of the fair value of net tangible and intangible assets acquired. The difference between our preliminary purchase price allocation of $7,916 and CSRAs reported amount of $2,522 resulted in a $5,394 pro forma adjustment to goodwill.
With the extinguishment of CSRAs debt upon acquisition, the corresponding interest expense of $92 has been eliminated in the unaudited pro forma condensed combined statement of earnings.
The final purchase price allocation will be determined when we have completed the detailed valuations and necessary calculations. The final allocation could differ materially from the preliminary allocation used in the pro forma adjustments.
D. | Other Pro Forma Adjustments |
The pro forma adjustments are based on our preliminary estimates and assumptions, which are subject to change. The following adjustments (a to e below) have been reflected in the unaudited pro forma condensed combined financial statements in the column titled Other Pro Forma Adjustments. The adjustments are described on a pre-tax basis. See Note F for a discussion of how the tax effect of these transactions was determined.
a. | The satisfaction of obligations under CSRAs accounts receivable purchase agreement, which resulted in an increase in accounts receivable and unbilled receivables of $222 and $150, respectively, representing amounts to be collected in the future in accordance with agreed-upon contractual terms, and a corresponding decrease of $372 to cash and equivalents. The cost of this agreement of $6 in 2017 was also removed from other income, net, in the unaudited pro forma condensed combined statement of earnings. |
b. | The payment of transaction costs of $80 is reflected as an adjustment to equity on the unaudited pro forma condensed combined balance sheet. We incurred these amounts in 2018 in connection with the acquisition. |
c. | The disposal of certain CSRA operations as required by a government customer to address an Organizational Conflict of Interest with respect to services provided to the customer. The disposal resulted in the removal of $17 of accounts receivable, $27 of unbilled receivables and $12 of accounts payable from the unaudited pro forma condensed combined balance sheet. As we expect to dispose of the operation within one year of the acquisition date, the net assets of the operation of $32 were classified as held for sale and reported in other current assets on the unaudited pro forma condensed combined balance sheet. Revenue and other operating costs and expenses of $208 and $199, respectively, were also removed from the unaudited pro forma condensed combined statement of earnings. |
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We completed a preliminary review of CSRAs accounting policies to determine if pro forma adjustments were necessary to conform to our accounting policies and identified the following differences:
| Accounting for revenue recognition. We account for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, which we adopted on January 1, 2017, but was not adopted by CSRA until March 31, 2018. |
| Accounting for retirement plans. We defer changes in plan assets and liabilities due to differences between actuarial assumptions and the actual results of the plan in other comprehensive income on the balance sheet, while CSRA recognizes these adjustments immediately in the statement of earnings. Additionally, CSRA adopted Accounting Standards Update (ASU) 2017-07, Compensation Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, in 2017, but we did not adopt the ASU until January 1, 2018. |
| Accounting for state and local income taxes. We include state and local income taxes allocable to U.S. government contracts in operating costs and expenses in the statement of earnings, while CSRA includes these amounts in the provision for income taxes. Further, we do not establish deferred tax assets (liabilities) for the state tax effects of temporary differences between reported earnings and taxable income, while CSRA establishes deferred taxes on these temporary differences. |
We have concluded that these differences in accounting policies are not material and, therefore, the pro forma financial statements have not been adjusted. The adjustments below conform the presentation of certain items in the unaudited pro forma condensed combined statement of earnings, but do not result in an impact to net earnings.
d. | The impact of conforming CSRAs presentation of pension and other post-retirement benefit cost in the income statement to remove the impacts of ASU 2017-07 in 2017. The adjustment resulted in a reclassification of $61 of net pension income from other income, net, to G&A ($2) and other operating costs and expenses ($59) in the unaudited pro forma condensed combined statement of earnings. |
e. | The impact of conforming CSRAs presentation of the provision for state and local income taxes. The adjustment resulted in a reclassification of $29 in state and local income taxes to other operating costs and expenses in the unaudited pro forma condensed combined statement of earnings. |
E. | CSRA Acquisition, Integration and Other Costs |
CSRAs 2017 historical statement of earnings includes $89 of acquisition, integration and other costs, representing costs incurred in connection with CSRAs separation from Computer Sciences Corporation (now known as DXC Technology); CSRAs subsequent merger with SRA International Inc.; and acquisition costs and fees and integration, transition, and other costs for acquisitions completed by CSRA. The effects of these unusual items have not been removed from CSRAs historical statement of earnings as they are not directly related to our acquisition of CSRA.
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F. | Income Taxes |
The Tax Cuts and Jobs Act (tax reform) was enacted on December 22, 2017. Among its provisions, the U.S. corporate statutory tax rate was reduced from 35% to 21% effective January 1, 2018. For financial reporting purposes, companies were required to record the effect of the change in tax law in the period of enactment. This required the remeasurement of U.S. federal deferred tax assets and liabilities at the tax rate expected to apply when the temporary differences are realized/settled. As a result of the change in tax law, we recorded an additional tax provision of $119, while CSRA recorded a tax benefit of $101. The effects of these unusual items have not been removed from the historical statements of earnings as they are not directly related to our acquisition of CSRA.
For purposes of the unaudited pro forma condensed combined statement of earnings, a pro forma remeasurement adjustment for tax reform was not made for any pro forma deferred taxes established as of January 1, 2017, related to the acquisition due to the non-recurring nature. The income tax effects of the pro forma adjustments reflected in the unaudited pro forma condensed combined statement of earnings are calculated based on the statutory tax rate in effect in 2017 (35%). We have not reflected any amounts associated with the state provision for income taxes as this amount would be allocable to U.S. government contracts in operating costs and expenses and would result in a corresponding amount in revenue, with an immaterial impact on operating earnings. For purposes of the unaudited pro forma condensed combined balance sheet, the income tax effects of the pro forma adjustments are calculated based on either the 35% statutory tax rate in effect in 2017 (taxes receivable) or the 21% tax rate expected to apply when the temporary differences are realized/settled (deferred taxes), and are included in other current assets, other liabilities and shareholders equity on the unaudited pro forma condensed combined balance sheet.
8
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