ACQUISITIONS AND DIVESTITURES, GOODWILL, AND INTANGIBLE ASSETS

CSRA Acquisition

On April 3, 2018, we acquired 100% of the outstanding shares of CSRA Inc. (CSRA) for $41.25 per share in cash. CSRA has been combined with General Dynamics Information Technology (GDIT) to create a premier provider of IT solutions to the defense, intelligence and federal civilian markets. Except where otherwise noted in the Notes to Unaudited Consolidated Financial Statements, changes in balances and activity were generally driven by the CSRA acquisition.

Purchase Price and Fair Value of Net Assets Acquired. The cash purchase price totaled $9.7 billion and consisted of the following:



CSRA shares outstanding (in millions)	165.4
Cash consideration per CSRA share	$	41.25
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
Total purchase price	$	9,749

The following table summarizes the preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed on the acquisition date, with the excess recorded as goodwill:



Cash and equivalents	$	45
Accounts receivable	156
Unbilled receivables	807
Other current assets	190
Property, plant and equipment, net	685
Intangible assets, net	2,069
Goodwill	7,807
Other noncurrent assets	19
Total assets	$	11,778
Account payable	$	(135	)
Customer advances and deposits	(151		)
Current capital lease obligation	(51		)
Other current liabilities	(542		)
Noncurrent capital lease obligation	(207		)
Noncurrent deferred tax liability	(421		)
Other noncurrent liabilities	(522		)
Total liabilities	$	(2,029	)
Net assets acquired	$	9,749

We are in the process of valuing the net tangible and intangible assets acquired and liabilities assumed, and our estimate of these values were still preliminary on July 1, 2018. Therefore, these provisional amounts are subject to change as we complete the valuations throughout the measurement period, which will extend throughout 2018.

The $2.1 billion of estimated acquired intangible assets consists of acquired backlog and probable follow-on work and associated customer relationships (contract and program intangible assets), with a weighted-average life of 17 years. The intangible assets will be amortized using an accelerated method, which approximates the pattern of how the economic benefit is expected to be used. Under this method, approximately 50% of the aggregate value of the intangible assets will be amortized within six years. We expect to record amortization expense associated with these intangible assets over the next five years as follows:



2018 (9 months post-acquisition)	$	188
2019	204
2020	195
2021	154
2022	136

Goodwill represents the purchase price paid in excess of the fair value of net tangible and intangible assets acquired, and is attributable primarily to expected synergies, economies of scale and the assembled workforce of CSRA. Approximately $490 of this goodwill is considered pre-acquisition goodwill and is, therefore, deductible for income tax purposes over its remaining tax life.

CSRA’s operating results have been included with our reported results since the acquisition date. Excluding the amortization of intangible assets and acquisition financing, $1.3 billion of revenue, $134 of operating earnings and $147 of pretax earnings from CSRA were included in our unaudited Consolidated Statement of Earnings for the three- and six-month periods ended July 1, 2018. In connection with the acquisition, we have recognized approximately $75 of one-time, acquisition-related costs, reported in operating costs and expenses and other income (expense) in the unaudited Consolidated Statement of Earnings.

Pro Forma Information. The following pro forma information presents our consolidated revenue and net earnings as if the acquisition of CSRA and the related financing transactions had occurred on January 1, 2017:



	Three Months Ended				Six Months Ended
	July 1, 2018		July 2, 2017		July 1, 2018		July 2, 2017
Revenue	$	9,186	$	8,853	$	18,023	$	17,497
Net earnings	804		756		1,534		1,489
Diluted earnings per share	$	2.68	$	2.48	$	5.10	$	4.86

The pro forma information was prepared by combining our reported historical results with the historical results of CSRA for the pre-acquisition periods. In addition, the reported historical amounts were adjusted for the following items, net of associated tax effects:


•	The impact of acquisition financing.


•	The removal of certain CSRA operations we are required by a government customer to dispose of to address an organizational conflict of interest with respect to services provided to the customer. While the operation is classified as held for sale, it has not yet been sold as of July 1, 2018.


•	The removal of CSRA’s historical pre-acquisition intangible asset amortization expense and debt-related interest expense.


•	The impact of intangible asset amortization expense assuming our current estimate of fair value was applied on January 1, 2017.


•	The payment of acquisition-related costs assuming they were incurred on January 1, 2017.

The pro forma information is based on the preliminary amounts allocated to the estimated fair value of net assets acquired and may be revised as the provisional amounts change. The pro forma information does not reflect the realization of expected cost savings or synergies from the acquisition, and does not reflect what our combined results of operations would have been had the acquisition occurred on January 1, 2017.

Other Acquisitions and Divestitures

In addition to the acquisition of CSRA, we acquired two businesses in the first six months of 2018 for an aggregate of $335: Hawker Pacific, a leading provider of integrated aviation solutions across Asia Pacific and the Middle East, in our Aerospace segment, and a provider of specialized transmitters and receivers in our Mission Systems segment. In 2017, we acquired four businesses for an aggregate of $399: a fixed-base operation (FBO) in our Aerospace segment; a provider of mission-critical support services in our Information Technology segment; and a manufacturer of electronics and communications products and a manufacturer of signal distribution products in our Mission Systems segment.

The operating results of these acquisitions have been included with our reported results since the respective closing dates. The purchase prices of the acquisitions have been allocated to the estimated fair value of net tangible and intangible assets acquired, with any excess purchase price recorded as goodwill.

In the first six months of 2018, we completed the sale of a commercial health products business in our Information Technology segment. The proceeds from the sale are included in other investing activities, net, in the unaudited Consolidated Statement of Cash Flows.

Goodwill

The changes in the carrying amount of goodwill by reporting unit were as follows:



	Aerospace			Combat Systems			Information Systems and Technology			Information Technology		Mission Systems			Marine Systems		Total Goodwill
December 31, 2017 (a)	$	2,638		$	2,677		$	6,302		$	—	$	—		$	297	$	11,914
Acquisitions/ divestitures (b)	—			—			16			—		—			—		16
Other (c)	40			(14		)	(1		)	—		—			—		25
April 1, 2018 (a)	2,678			2,663			6,317			—		—			297		11,955
Change in reporting unit composition (d)	—			—			(6,317		)	2,076		4,241			—		—
Acquisitions/ divestitures (b)	149			—			—			7,752		1			—		7,902
Other (c)	(71		)	(36		)	—			—		(12		)	—		(119		)
July 1, 2018 (e)	$	2,756		$	2,627		$	—		$	9,828	$	4,230		$	297	$	19,738

(a)Goodwill in the Information Systems and Technology reporting unit is net of $1.9 billion of accumulated impairment losses.

(b)Includes adjustments during the purchase price allocation period. Activity in the first quarter of 2018 also includes an allocation of goodwill associated with the sale of the commercial health products business discussed above.

(c)Consists primarily of adjustments for foreign currency translation.

(d)Concurrent with the acquisition of CSRA, we reorganized our Information Systems and Technology operating segment into the Information Technology and Mission Systems segments. See Note A for further discussion of the segment reorganization. This reorganization similarly changed the composition of our reporting units. Accordingly, goodwill of the Information Systems and Technology reporting unit was reassigned to the Information Technology and Mission Systems reporting units using a relative fair value allocation approach as of the date of the reorganization.

(e)Goodwill in the Information Technology and Mission Systems reporting units is net of $632 and $1.3 billion of accumulated impairment losses, respectively.

Intangible Assets

Intangible assets consisted of the following:



	Gross Carrying Amount (a)		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount (a)		Accumulated Amortization			Net Carrying Amount
	July 1, 2018							December 31, 2017
Contract and program intangible assets (b)	$	3,793	$	(1,394	)	$	2,399	$	1,684	$	(1,320	)	$	364
Trade names and trademarks	458		(166		)	292		465		(160		)	305
Technology and software	158		(112		)	46		137		(105		)	32
Other intangible assets	155		(154		)	1		155		(154		)	1
Total intangible assets	$	4,564	$	(1,826	)	$	2,738	$	2,441	$	(1,739	)	$	702


(a)	Change in gross carrying amounts consists primarily of adjustments for acquired intangible assets and foreign currency translation.


(b)	Consists of acquired backlog and probable follow-on work and associated customer relationships.

Amortization expense was $84 and $104 for the three- and six-month periods ended July 1, 2018, and $19 and $38 for the three- and six-month periods ended July 2, 2017.