~~COMPUTER SCIENCES GS BUSINESS~~

~~NOTES TO COMBINED CONDENSED FINANCIAL STATEMENTS (unaudited)~~

~~Dollars~~CSRA repurchased an additional 106,311 shares of common stock subsequent to September 30, 2016 through open market purchases for an aggregate consideration of $2.9 million, at an average price of $26.92 per share. CSRA paid $2.2 million during the third quarter of fiscal 2017 for 81,806 shares repurchased during the second quarter of fiscal year 2017 that had not settled in ~~thousands, except per share data~~cash by September 30, 2016. As of October 12, 2016, CSRA has remaining authorization to repurchase $337.0 million of common stock pursuant to its Share Repurchase Program.

Debt Modification

~~Management Information System (“MMIS”), a database~~In October 2016, the Company began discussions with the administrative agents of ~~Medicaid recipients~~its Term Loan and providers used to manage Medicaid reimbursement claims. The MERP contract is predominately fixed-price. Since the date the MERP contract was awarded, U.S. federal government-mandated Medicaid IT standards have been in considerable flux. The State directed CSC to include additional functionality in the system design to incorporate new federal mandates and guidance promulgated after the base scope of the contract was finalized. Further, however the State has declined to approve contract modifications to compensate CSC for this additional work.

~~As a result of the State’s refusal~~Revolving Credit Facilities to amend the MERP contract and equitably adjust the compensation to be paid to CSC and, in accordance with prescribed State statutes and regulations, CSC filed a certified contract claim in September 2013, which after various procedural developments is now pending before the Maryland Board of Contracts Appeals (the “State Board”).

~~On August 22, 2014, the State unilaterally suspended performance under the contract for 90 days and repeatedly extended the suspension until providing a Notice of Default termination in October 2015.~~

~~As a result~~terms, including an extension of the suspension and other actions and inactions by the State in performance of its obligations under the Contract, in October 2014, CSC filed additional contract claims under various legal theories, such that currently the total amount claimed by CSC is approximately $80 million.

Although between April 2015 and September 2015, CSC and the State were in settlement negotiations to restructure the program and resolve all issues, including CSC’s contract claims, on September 14, 2015, the State orally advised us that the Governor elected to abandon the contract settlement and restructuring discussions and directed the State to terminate the contract. On October 14, 2015, the State provided us with a Notice of Default Termination. When a contract is terminated for default, Maryland procurement regulations allow the State to procure substitute performance, with the contractor being liable for any excess reprocurement costs. Any State claim against us arising from a default termination for reprocurement costs would be appealable by us to the State Board, as is the default termination itself.maturity dates. The ~~State has not asserted a claim for reprocurement costs and, were it to do so, we believe such a claim would be meritless and unsupported by the facts.~~

The Computer Sciences GS Business intends to challenge the legal basis of the State’s termination for default and seek to convert it to a convenience termination through litigation at the State Board. As we proceed with the litigation, we expect to consolidate all of our claims against the State with any State claim arising from the default termination. We will litigate on behalf of CSC and indemnify CSC for the costs of litigation and any other costs or liabilities CSC may incur in the litigation. Recovery by CSC will be credited to us. Management has evaluated the recoverability of assets related to this contract in light of these developments and concluded that no adjustments to our financial statements are required.

~~Note 13—Subsequent events~~

~~Separation and Mergers~~

As discussed in Note 1, on November 27, 2015, CSC completed the Spin-Off of CSRA, including the Computer Sciences GS Business. To effect the separation, CSC distributed all of the shares of CSRA common stock on a pro rata basis to CSC stockholders of record as of November 18, 2015. Following the distribution of shares CSC and CSRA paid the previously announced aggregate special dividend of $10.50 per share. Of that $10.50 per share dividend, $2.25 was paid by CSC and $8.25 was paid by CSRA.

~~The Form 10 was declared effective on November 6, 2015. CSRA common stock began regular-way trading on the New York Stock Exchange on November 30, 2015 under the ticker symbol CSRA.~~

Following the Spin-Off, on November 30, 2015, CSRA also completed its previously announced Mergers, which resulted in SRA merging with and into a wholly-owned subsidiary of CSRA. As a result, SRA International, Inc. became an indirect wholly-owned subsidiary of CSRA. Pursuant to the Merger Agreement, CSRA agreed to pay merger consideration consisting of cash and shares of CSRA. Merger consideration consisted of (1) $390,000 in

~~COMPUTER SCIENCES GS BUSINESS~~

~~NOTES TO COMBINED CONDENSED FINANCIAL STATEMENTS (unaudited)~~

~~Dollars in thousands, except per share data~~

~~cash and (2) shares of CSRA common stock representing in the aggregate approximately 15.32% of the total number of shares of CSRA common stock outstanding immediately after the Mergers were completed.~~

~~The Mergers~~amended facilities are expected to provide ~~clients, investors~~for: (a) a reduction in the margin over indexed interest rates on the Term Loan B Facility, (b) a reduction in the principal of Term Loan B Facility and ~~employees of both companies with significant benefits which include a vastly expanded portfolio of expertise, cost competitiveness and increased financial strength which will position~~an increase in the ~~merged company well for future growth opportunities and ability to further attract industry-leading talent.~~

The Mergers will be reflected in CSRA’s financial statements using the acquisition method of accounting, with CSRA being considered the accounting acquirer of SRA. The final purchase price for purchase accounting purposes was determined at the time of completionprincipal balance of the ~~Mergers, which includes~~Tranche A2 Facility in substantially the ~~fair market value of share consideration issued.~~same amount; and (c) changes to certain existing debt covenants to provide for greater operational and financial flexibility. The ~~fair market value of shares was determined based on a volume-weighted average price of $30.95 per CSRA share on November 30, 2015, the first day of CSRA’s regular-way trading on the NYSE.~~

The preliminary allocation of the purchase consideration to the assets acquired and liabilities assumed based on the assumptions described above and the financial statement information of SRA as of September 30, 2015transaction is ~~as follows:~~

Estimated total purchase consideration $ 2,283,041

Preliminary allocation:
Cash, accounts receivable and other current assets $ 312,227
PPE and other long term assets 27,569
Intangibles - customer relationships, backlog and other intangibles assets 892,600
Accounts payable and other current liabilities (225,186 )
Other long term liabilities (24,100 )
Deferred tax liabilities (261,144 )
Total identified net assets acquired 721,966
Goodwill 1,561,075
Estimated total purchase consideration $ 2,283,041

The following unaudited pro forma financial information presents results as if the Spin-Off, Mergers and the related financing described below occurred on March 29, 2014. The historical consolidated financial information of Computer Sciences GS and SRA has been adjusted in the pro forma information to give effect to the events that are (1) directly attributable to the transactions, (2) factually supportable and (3) expected to ~~have a continuing impact on~~be completed during the ~~combined results. The unaudited pro forma results do not reflect future events that have occurred or may occur after the transactions, including but not limited to, the impact~~third quarter of any actual or anticipated synergies expected to result from the Mergers. Accordingly, the unaudited pro forma financial information is not necessarily indicative of the results of operations as they would have been had the transactions been effected on the assumed date, nor is it necessarily an indication of future operating results.

~~COMPUTER SCIENCES GS BUSINESS~~

~~NOTES TO COMBINED CONDENSED FINANCIAL STATEMENTS (unaudited)~~

~~Dollars in thousands, except per share data~~

Three Months Ended October 2, 2015
(Amounts in thousands, except per share data and number of shares)
Historical Computer Sciences GS Three Months Ended October 2, 2015
Effect of Spin-Off^(a)
Pro-Forma for Spin-Off Only Historical SRA Three Months Ended September 30, 2015
Effect of Mergers^(b)
Pro Forma for Spin-Off and Mergers
Revenue $ 969,053
$ —
$ 969,053
$ 351,006
$ —
$ 1,320,059
Income from continuing operations attributable to Parent $ 47,889
$ 48,951
$ 96,840
$ (3,942 ) $ 10,579
$ 103,477

(a) Income from continuing operations attributable to Parent effected for the Spin-Off excludes $41,508 of non-recurring costs incurred to give effect to the separation of the Computer Sciences GS Business from CSC and the subsequent merger with SRA.

~~(b) Income from continuing operations effected for the Mergers excludes $7,350 of non-recurring costs incurred to give effect to the merger of SRA and the CSRA.~~

Six Months Ended October 2, 2015
(Amounts in thousands, except per share data and number of shares)
Historical Computer Sciences GS Six Months Ended October 2, 2015
Effect of Spin-Off^(a)
Pro Forma for Spin-Off Only Historical SRA Six Months Ended September 30, 2015
Effect of Mergers^(b)
Pro Forma for Spin-Off and Mergers
Revenue $ 1,927,985
$ —
$ 1,927,985
$ 709,879
$ —
$ 2,637,864
Income from continuing operations attributable to Parent $ 110,566
$ 63,394
$ 173,960
$ (3,026 ) $ 20,135
$ 191,069

(a) Income from continuing operations attributable to Parent effected for the Spin-Off excludes $56,285 of non-recurring costs incurred to give effect to the separation of the Computer Sciences GS Business from CSC and the subsequent merger with SRA.

~~(b) Income from continuing operations effected for the Mergers excludes $7,350 of non-recurring costs incurred to give effect to the merger of SRA and the CSRA.~~

Three Months Ended October 3, 2014
(Amounts in thousands, except per share data and number of shares)
Historical Computer Sciences GS Three Months Ended October 3, 2014 Effect of Spin-Off Pro-Forma for Spin-Off Only Historical SRA Three Months Ended December 31, 2014 Effect of Mergers Pro Forma for Spin-Off and Mergers
Revenue $ 1,036,288
$ —
$ 1,036,288
$ 342,018
$ —
$ 1,378,306
Income from continuing operations attributable to Parent $ 73,605
$ 3,915
$ 77,520
$ (6,043 ) $ (1,950 ) $ 69,527

Six Months Ended October 3, 2014
(Amounts in thousands, except per share data and number of shares)
Historical Computer Sciences GS Six Months Ended October 3, 2014 Effect of Spin-Off Pro-Forma for Spin-Off Only Historical SRA Six Months Ended December 31, 2014 Effect of Mergers Pro Forma for Spin-Off and Mergers
Revenue $ 2,069,595
$ —
$ 2,069,595
$ 680,632
$ —
$ 2,750,227
Income from continuing operations attributable to Parent $ 140,323
$ 5,468
$ 145,791
$ (10,201 ) $ (1,456 ) $ 134,134

~~COMPUTER SCIENCES GS BUSINESS~~

~~NOTES TO COMBINED CONDENSED FINANCIAL STATEMENTS (unaudited)~~

~~Dollars in thousands, except per share data~~

~~Material Agreements~~

CSRA has entered into a Registration Rights Agreement, a Master Separation and Distribution Agreement, a Non-U.S. Agency Agreement, and a Nomination Agreement with CSC to give effect to the Spin-Off and Merger. Management does not believe these agreements will have a material effect on the financial statements. Additionally, CSRA has entered into the following agreements, which management expects to have a material impact on the financial statement going forward.

~~Financing Arrangements~~

On November 27, 2015, CSRA entered into a five-year senior secured revolving credit facility (the “Revolving Credit Facility”) with initial borrowing capacity of $700 million, of which, immediately after the consummation of the Mergers on November 30, 2015, $500 million was available and undrawn to provide support for ongoing business activities. CSRA also entered into (1) a three-year senior secured tranche A1 term loan facility in an aggregate principal amount of $600 million, (2) a five-year senior secured tranche A2 term loan facility in an aggregate principal amount of $1.45 billion and (3) a seven-year senior secured term loan B facility in an aggregate principal amount of $750 million.

CSRA also entered into an amended Master Accounts Receivable Purchase Agreement (“MARPA”) between CSRA, as Seller, and BTMU, Scotiabank and Mizuho Bank, Ltd., each as a Purchaser (the “Purchasers”). The MARPA establishes a receivables purchase facility (the “MARPA Facility”) that provides for up to $450 million in funding based on the near continuous sales of eligible receivables on a non-credit recourse basis and the satisfaction of certain conditions. The MARPA Facility is a committed facility that has an initial term of two years, subject to extensions agreed to by us and the Purchasers, unless earlier terminated by CSRA.

~~Intellectual Property Matters Agreement~~

In connection with the Spin-Off, CSRA entered into an Intellectual Property Matters Agreement with CSC that governs the respective rights and responsibilities between CSRA and CSC with respect to intellectual property owned or used by each of the companies. Pursuant to the Master Separation and Distribution Agreement and the Intellectual Property Matters Agreement, CSC retained ownership of all proprietary intellectual property owned by CSC at the time of the Spin-Off and used by CSRA (other than intellectual property licensed from third party vendors for use in CSRA’s business and certain restricted intellectual property developed by CSRA that CSC assigned to CSRA). Pursuant to the Intellectual Property Matters Agreement, CSC granted CSRA a perpetual, royalty-free, non-assignable license to certain know-how owned by CSC that the Computer Sciences GS Business used to run its business prior to the Spin-Off. In addition, CSC granted CSRA a perpetual, royalty-free, non-assignable license to certain software products, trademarks and workflow and design methodologies. The licenses granted to CSRA are restricted to use solely in connection with U.S. federal and certain U.S. state and local government customers. In addition, any improvements CSRA makes to such intellectual property or derivative works of such intellectual property that CSRA develops will be assigned to CSC and licensed back to CSRA subject to the same limitations on use.

In addition, pursuant to the Intellectual Property Matters Agreement CSRA will pay CSC an annual net maintenance fee of $30 million per year for each of the five years following the Distribution in exchange for maintenance services including the right to updates, patches and new versions of certain products that are made generally available to CSC customers during that period that relate to the software products and workflow and design methodologies that are covered by the license. In addition, CSRA will pay CSC additional maintenance fees if CSRA’s total consolidated revenue exceeds $7.0 billion in any fiscal year during the initial five year term or if CSRA’s revenue from cloud computing solutions exceeds $600 million in any fiscal year during the initial five year term. Additional maintenance fees will consist of 0.5% of total consolidated revenues in excess of $7.0 billion in any such fiscal year and 5% of revenues from cloud computing solutions in excess of $600 million in any such fiscal year. CSRA may elect to extend the maintenance term for up to one additional period of five years. Any fees applicable during such extension period will be agreed in advance between CSRA and CSC prior to such time.

~~COMPUTER SCIENCES GS BUSINESS~~

~~NOTES TO COMBINED CONDENSED FINANCIAL STATEMENTS (unaudited)~~

~~Dollars in thousands, except per share data~~

Under U.S. federal government cost accounting rules, it is possible that a portion of the annual maintenance fee CSRA will pay to CSC may not be an allowable and/or allocable cost. Pursuant to the Intellectual Property Matters Agreement, CSRA will grant CSC a non-exclusive, perpetual, royalty-free, fully paid-up, non-assignable license to any intellectual property acquired or developed by CSRA within six months following the Spin-Off, including all intellectual property rights of SRA for CSC’s use, which license shall be limited to use outside CSRA’s field of U.S. federal and certain state and local government customers during the first five years following the Distribution.

~~Tax Matters Agreement~~

In connection with the Spin-Off, CSRA entered into a Tax Matters Agreement with CSC that governs the respective rights, responsibilities and obligations of CSC and us with respect to all tax matters and includes restrictions designed to preserve the tax-free status of the Distribution. As a former subsidiary of CSC, CSRA continues to have several liability to the IRS for the full amount of the consolidated U.S. federal income taxes of the CSC consolidated group relating to the taxable periods in which CSRA is part of that group.

The Tax Matters Agreement also provides special rules for allocating tax liabilities in the event that the Spin-Off is not tax- free. The Tax Matters Agreement provides for certain covenants that may restrict CSRA’s ability to pursue strategic or other transactions that otherwise could maximize the value of CSRA and may discourage or delay a change of control that may be considered favorable.

~~Real Estate Matters Agreement~~

In connection with the Spin-Off, CSRA entered into a Real Estate Matters Agreement with CSC that governs the respective rights and responsibilities between CSRA and CSC following the Spin-Off with respect to real property used by CSRA but not owned or leased directly from a third party, including the allocation of space within shared facilities and the allocation of standalone facilities between CSRA and CSC. Pursuant to the Real Estate Matters Agreement, CSC transferred to CSRA ownership of certain real property in Daleville, Alabama and in Falls Church, Virginia and CSRA entered into lease or sublease agreements with CSC for space in shared facilities in Falls Church, Virginia, El Segundo, California, Sterling, Virginia and Hanover, Maryland and assumed over 90 lease obligations from CSC.

~~PBGC Agreement~~

In connection with the Spin-Off and the Merger, CSRA became the contributing sponsor and administrator of the Computer Sciences Corporation Employee Pension Plan, which was renamed the CSRA Inc. Employee Pension Plan (the “Plan”). Prior to the Spin-Off, the Pension Benefit Guaranty Corporation (the “PBGC”) opened an investigation into the effect of the Spin-Off and Mergers on the Plan under the PBGC’s early warning program. On November 25, 2015, CSC and CSRA entered into an agreement (the “PBGC Agreement”) with the PBGC. A copy of the PBGC Agreement is attached as Exhibit 99.1 to this Current Report on Form 10-Q and the following description of the material terms of the PBGC Agreement is qualified in its entirety by the full text of the PBGC Agreement.

Under the PBGC Agreement, the PBGC has agreed to close its investigation and CSRA has agreed to contribute to the Plan: (a) $50 million on or before August 31, 2018 (the “First Additional Contingent Payment”), and (b) $50 million on or before the last day of CSRA’s fiscal year 2019 (the “Second Additional Contingent Payment” and collectively with the First Additional Contingent Payment, the “Contingent Payments”), in addition to any other contributions required by law, unless certain conditions are met as described below.

~~CSRA will not be required to contribute the First Additional Contingent Payment if:~~


~~(a)~~	~~prior to or as of the last day of CSRA’s 2018 fiscal year, CSRA’s consolidated total net leverage ratio as defined in the PBGC Agreement is 2.75 to 1 or lower; or~~


~~(b)~~	~~at any time prior to August 31, 2018, CSRA has met any two of the following three requirements:~~


i.	~~a corporate credit rating higher than BB+ from Standards and Poor’s Ratings Services, Inc., or~~

~~COMPUTER SCIENCES GS BUSINESS~~

~~NOTES TO COMBINED CONDENSED FINANCIAL STATEMENTS (unaudited)~~

~~Dollars in thousands, except per share data~~


~~ii.~~	~~a corporate family rating higher than Ba1 from Moody’s Investor Services, Inc. or~~


~~iii.~~	~~a corporate credit rating higher than BB+ from Fitch Ratings, Inc.~~

CSRA will not be required to contribute the Second Additional Contingent Payment if prior to the last day of CSRA’s 2019 fiscal year, CSRA has permanently repaid certain amounts of its indebtedness on the terms set out in the PBGC Agreement.

In the event of certain defaults as set forth in the PBGC Agreement, CSRA’s obligation to make the Contingent Payments becomes fixed and the exceptions described above will no longer apply. CSRA will not be required to contribute any remaining unpaid Contingent Payment if on the last day of calendar years 2017 or 2018, or the last day of CSRA’s 2017, 2018 or 2019 fiscal years, the Plan’s funded status as defined in the PBGC Agreement is equal to or is greater than 80% as calculated by the Plan’s actuary.

~~Other Events~~

~~On November 30, 2015, CSRA announced that its board of directors (the “Board”) had declared a quarterly cash dividend of $0.10~~ ~~per share. The first quarterly dividend will be paid on January 26, 2016 to CSRA stockholders of record at the close of business on January 5, 2016.~~

The Board also authorized a share repurchase program (the “Share Repurchase Program”), pursuant to which CSRA may, from time to time, purchase shares of its common stock for an aggregate purchase price not to exceed $400 million. The share repurchases may be executed through various means, including, without limitation, open market transactions, privately negotiated transactions or otherwise. The Share Repurchase Program does not obligate CSRA to purchase any shares, and expires on March 31, 2019. The authorization for the Share Repurchase Program may be terminated, increased or decreased by the Board in its discretion at any time.2017.

~~* * * * *~~

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF COMPUTER SCIENCES GS~~

~~All statements~~You should read the following management’s discussion and assumptions in this quarterly report on Form 10Q and in the documents attached or incorporated by reference that do not directly and exclusively relate to historical facts constitute "forward-looking statements" within the meaninganalysis of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). These statements represent current expectations and beliefs of CSRA, and no assurance can be given that the results described in such statements will be achieved.

~~Forward-looking information contained in these statements include, among other things, statements with respect to Computer Sciences GS’s~~ financial condition and results of operations ~~cash flows, business strategies, operating efficiencies or synergies, competitive positions, growth opportunities, plans~~(“MD&A”) in conjunction with our Annual Report on Form 10-K, for the period ended April 1, 2016, our Quarterly Report on Form 10-Q for the three months ended July 1, 2016, and ~~objectives of management, management's assessment of estimates related to profitability of its long-term contracts~~our unaudited Consolidated and ~~estimates related to impairment of contract-specific assets,~~Condensed Financial Statements and ~~other matters. Such~~accompanying notes for the three and six months ended September 30, 2016 (“FY17 2nd Quarter Financial Statements”).

This discussion contains forward-looking statements that involve risks and uncertainties. The forward-looking statements are ~~subject~~not historical facts, but rather are based on our current expectations, estimates, assumptions, and projections about our industry, business and future financial results. These statements should be considered in addition to, ~~numerous assumptions, risks, uncertainties and~~but not as a substitute for, other ~~factors, many~~measures of ~~which are outside of Computer Sciences GS's control, which could cause~~our financial performance reported in accordance with GAAP. Our actual results tocould differ materially from the results ~~described~~contemplated by these forward-looking statements due to a number of factors, including those we discuss in ~~such statements. These forward looking statements should be read in conjunction with Computer Sciences GS's audited Combined Financial Statements~~the “Risk Factors” section of this Form 10-Q and our Annual Report on Form 10-K for the ~~year~~period ended April 3, 2015 included in our Form 10 Information Statement filed on November 6, 2015. The reader should also specifically consider the various risks discussed in the Risk Factors section included elsewhere herein.

Forward-looking statements in this quarterly report on Form 10-Q speak only as of the date hereof, and forward-looking statements in documents attached or incorporated by reference speak only as of the date of those documents. Computer Sciences GS does not undertake any obligation to update or release any revisions to any forward-looking statement or to report any events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, except as required by law.1, 2016.

Our ~~Combined~~Consolidated Financial Statements and unaudited ~~Combined~~Consolidated and Condensed Financial Statements, discussed below, reflect our financial condition, results of operations, and cash flows. ~~The financial~~This information ~~discussed below and included in this quarterly report on Form 10-Q, however,~~ may not necessarily reflect what our financial condition, results of operations, or cash flows would have been had we ~~been~~ operated as a separate, independent entity during the ~~periods~~period presented prior to the Spin-Off, or what our financial condition, results of operations, and cash flows may be in the future.

The following MD&A of CSRA covers a period prior to the Spin-Off and the Mergers. For accounting and financial reporting purposes, Computer Sciences GS is considered to be the predecessor to CSRA and as a result, its historical financial statements now constitute the historical financial statements of ~~this Management’s Discussion and Analysis of Financial Condition and Results of Operations~~CSRA. Accordingly, results reported through November 27, 2015 include only the operations of Computer Sciences GS, ~~(“MD&A”), we use~~on a carve-out basis. The results reported after November 27, 2015 include the ~~terms “Computer Sciences GS,” “we,” “us” and “our” to refer to~~operations of CSRA, ~~Inc. and its combined subsidiaries prior to giving effect to~~including the ~~Spin-Off and “CSC” to refer to Computer Sciences Corporation, collectively with its consolidated subsidiaries.~~SRA Merger. These historical financial statements may not be indicative of our future performance.

~~This Management’s Discussion and Analysis of Financial Condition and Results of Operations of Computer Sciences GS~~Our MD&A is organized as follows:

~~Overview~~.Overview: A discussion of our business and overall analysis of financial and other highlights affecting ~~Computer Sciences GS~~CSRA to provide context for the remainder of MD&A. The overview analysis compares the three and six months ended ~~October 2, 2015~~September 30, 2016 to the three and six months ended October ~~3, 2014, respectively.~~

2, 2015;

Results of ~~Operations~~.Operations: An analysis of our financial results comparing ~~(a)~~ the three and six months ended ~~October 2, 2015~~September 30, 2016 to the comparable ~~prior year period and (b) the six months ended October 2, 2015 to the comparable prior year period respectively.~~prior-year periods. A discussion of the results of operations at the ~~combined~~consolidated level is followed by a ~~more detailed~~ discussion of the results of operations by ~~segment.~~

segment;

Liquidity and Capital ~~Resources~~.Resources: An analysis of changes in our cash flows and a discussion of our financial condition and ~~liquidity.~~

liquidity;

Contractual ~~Obligations~~.Obligations: An overview of contractual obligations, retirement benefit plan funding ~~restructuring plans~~ and off balance sheet ~~arrangements.~~

arrangements; and

Critical Accounting Policies and ~~Estimates~~.Estimates: A discussion of accounting policies and estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results.

~~Basis of Presentation~~

The unaudited Combined Condensed Financial Statements included in this quarterly report on Form 10-Q have been derived from the consolidated condensed financial statements and accounting records of CSC as if we operated on a standalone basis during the periods presented and were prepared in accordance with GAAP.

The unaudited Combined Condensed Statements of Operations and Comprehensive Income of Computer Sciences GS reflect allocations of general corporate expenses from the CSC including, but not limited to, senior management, legal, human resources, finance, IT and other shared services. These have been allocated to Computer Sciences GS based on direct usage or benefit where identifiable, with the remainder allocated on a pro rata basis of revenue, headcount, square footage, number of transactions or other measures.

We consider these allocations to be a reasonable reflection of the utilization of services by, or the benefits provided to, us. The allocations may not be indicative of the actual expense that we would have incurred as an independent, standalone company for the periods presented.

The unaudited Combined Condensed Balance Sheets of Computer Sciences GS include CSC assets and liabilities that are specifically identifiable or otherwise attributable to us. CSC's cash has not been assigned to us for any of the periods presented because those cash balances are not directly attributable to us. We reflect transfers of cash to and from CSC's cash management system as a component of net Parent investment on the Combined Balance Sheets and unaudited Combined Condensed Balance Sheets. CSC's long-term debt has not been attributed to us for any of the periods presented because CSC's borrowings are neither directly attributable to us, nor are we the legal obligor of such borrowings.

CSC maintains various benefit and stock-based compensation plans at a corporate level and other benefit plans at a subsidiary level. Our employees participate in those programs and a portion of the cost of those plans is included in our Combined Financial Statements and unaudited Combined Condensed Financial Statements included elsewhere in this quarterly report on Form 10-Q. However, the Combined Balance Sheets and unaudited Combined Condensed Balance Sheets do not include any net benefit plan obligations unless the benefit plan covers only our active, retired and other former employees or any equity related to stock-based compensation plans.

Business Overview

Every day CSRA makes a difference in how the government serves our country and our citizens. We deliver a broad range of innovative, next-generation IT solutions and professional services to help our customers modernize their legacy systems, protect their networks and assets, and improve the effectiveness and efficiency of mission-critical functions for our war fighters and our citizens. Our workforce of over 18,000 employees understands that success is a matter of perseverance, courage, adaptability and experience.

Headquartered in Falls Church, Virginia, we deliver comprehensive offerings from concept through sustainment. We deliver IT, mission- and operations-related services across the U.S. federal government to the DoD, ~~Intelligence Community~~intelligence community and homeland security, civil and healthcare agencies, as well as certain state and local government agencies. We leverage deep domain-based customer intimacy and decades of experience in helping customers execute their mission with a fundamental understanding of their IT environment that has earned us the ability to introduce next-generation technologies. We bring scalable and more cost-effective IT solutions to government agencies that are seeking to improve mission-critical effectiveness and efficiency through innovation.

This approach is designed to yield lower implementation and operational costs as well as a higher standard of ~~delivery excellence.~~delivery. Demand for our U.S. public sector offerings is driven by evolving government priorities such as: (1) ~~migration~~the critical mission priorities of government agencies, (2) the government-wide mandate to improve efficiency and reduce cost and (3) the government’s long-term shift to next-generation ~~IT solutions, such as hybrid cloud infrastructure, application modernization, and as-a-service delivery; (2) big data solutions; (3) health IT and informatics; (4) cyber security; and (5) mobility.~~

technologies.

Headquartered in Falls Church, Virginia, we deliver comprehensive offerings from concept through sustainment. Following consummation of the Mergers, with the inclusion of SRA, we employ approximately 19,000 employees. We manage our business with a matrix model composed of industry verticals that are customer-facing and have deep knowledge of our customers’ missions, and a horizontal delivery organization with depth of technical expertise that they deliver across industries. We operate in two industry verticals, which are also our reportable segments: Defense and Intelligence and Civil.

Our horizontal delivery organization is Delivery and Operations, which provides capabilities and solutions across our customer base. We believe we differentiate ourselves by combining our technical expertise in applications and IT infrastructure solutions with our deep public sector mission knowledge and experience in order to engage our customers at the highest levels with thought leadership that drives change.

~~Our two~~CSRA’s reportable segments are ~~our industry verticals:~~as follows:

Defense and Intelligence—The Defense and Intelligence segment provides services to the DoD, National Security Agency, branches of the Armed Forces and other DoD and Intelligence agencies.

~~Civil—~~Civil Segment—The Civil segment provides services to various federal agencies within the Department of Homeland Security, Department of Health and Human Services and other federal civil agencies, as well as various state and local government agencies.

Financial Overview

The key operating results for the second quarter ~~and first six months~~ of fiscal ~~2016~~year 2017 include:

~~Revenues~~



	Three Months Ended						Six Months Ended
(Dollars in millions)	September 30, 2016			October 2, 2015			September 30, 2016			October 2, 2015
Total Revenue	$	1,263		$	969		$	2,517		$	1,928
Income Before Income Taxes	124			88			230			198
Net Income	80			53			148			120
Net Income Attributable to Common Shareholders	76			48			141			111
Non -GAAP measures:
Total Segment Operating Income (1)	181			147			340			272
Adjusted EBITDA (2)	228			177			439			323
Segment Operating Income Margin	14.3		%	15.2		%	13.5		%	14.1		%

(1) Total segment operating income is a non-GAAP measure that provides useful information to our management for assessment of our performance and results of operations and is one of the ~~second quarter~~financial measures utilized to determine executive compensation. Our definition of ~~fiscal 2016 decreased $67 million, or 6.5%~~such measure may differ from other companies. We define segment operating income as total segment revenue less cost of services (“COS”), segment general and administrative (“G&A”) expense and segment depreciation and amortization expense. Segment operating income excludes actuarial and settlement charges related to $969 million compared to $1,036 million for the second quarter of fiscal 2015. For the first six months of fiscal 2016, revenues decreased $142 million, or 6.8%, to $1,928 million compared to $2,070 million for the first six months of fiscal 2015.

•

~~Operating income~~⁽¹⁾ ~~was $147 million for both the second quarter of fiscal 2016 and fiscal 2015. The operating income margins increased to 15.2% from 14.2% for the comparable period of fiscal 2015. Operating income~~⁽¹⁾ for the first six months of fiscal 2016 decreased to $272 million as compared to $282 million for the first six months of fiscal 2015. The operating income margins increased to 14.1% from 13.6% for the comparable period of fiscal 2015.


•	~~Adjusted EBITDA~~⁽²⁾~~for the second quarter of fiscal 2016 increased to $174 million as compared to $173 million for the second quarter of fiscal 2015. Adjusted EBITDA~~⁽²⁾~~for the first six months of fiscal 2016 decreased to $318 million as compared to $331 million for the first six months of fiscal 2015.~~

Income from continuing operations before taxes was $88 million for the second quarter of fiscal 2016 compared to $126 million for the second quarter of fiscal 2015. Income from continuing operations before taxes was $198 million for the first six months of fiscal 2016 compared to $239 million for the first six months of fiscal 2015.pension and other post-employment benefit plans, corporate G&A,

Income from continuing operations was $53 million for the second quarter of fiscal 2016 compared to $79 million for the second quarter of fiscal 2015. Income from continuing operations was $120 million for the first six months of fiscal 2016 compared to $150 million for the first six months of fiscal 2015.

Net income attributable to Parent was $48 million for the second quarter of fiscal 2016 compared to $74 million for the second quarter of fiscal 2015. Net income attributable to Parent was $111 million for the first six months of fiscal 2016 compared to $139 million for the first six months of fiscal 2015.

~~We completed the following transactions during the first six months of fiscal 2016:~~

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~~CSC has sold eligible Computer Sciences GS receivables, including both receivables that have already been billed under an invoice~~separation and merger costs and SRA integration costs. Management compensates for the limitations of this non-GAAP measure by also ~~certain unbilled receivables arising~~reviewing income before income taxes, which includes costs excluded from ~~contracts where CSC has performed work under a cost-plus-fixed-fee or time-and-materials contract~~the operating income definition such as corporate G&A, interest and other ~~required conditions (Note 4, “Sale~~income (expense). Management believes that presenting non-GAAP segment operating income is useful to investors because it (i) provides investors with meaningful supplemental information regarding financial performance by excluding certain items, (ii) permits investors to view performance using the same tools that management uses to budget, make operating and strategic decisions, and evaluate historical performance, and (iii) otherwise provides supplemental information that may be useful to investors in evaluating our results. A reconciliation of ~~Receivables”~~total segment operating income to ~~the unaudited Combined Condensed Financial Statements).~~

Completed the divestiture of Welkin Associates Limited (“Welkin”), our U.S.-based provider of systems engineering and technical assistance services to the Intelligence Community and other DoD clients. Total consideration receivedincome before income taxes is ~~$34 million, and the after-tax gain on sale is estimated to be approximately $11 million.~~as follows.

~~(1)~~

Operating income is a non-GAAP measure which provides useful information to our management for assessment of our performance and results of operations, and is one of the financial measures utilized to determine executive compensation. Our definition of such measure may differ from other companies. We define operating income as revenue less COS, segment general and administrative (“G&A”) expense and depreciation and amortization expense. Operating income excludes actuarial and settlement charges related to pension and other post-employment benefit plans, corporate G&A, separation and merger costs and SRA integration costs. Management compensates for the limitations of this non-GAAP measure by also reviewing income from continuing operations before taxes, which includes costs excluded from the operating income definition such as corporate G&A, interest and other income (expense). A reconciliation of operating income to income from continuing operations before taxes is as follows:

Three Months Ended Six Months Ended
(Dollars in millions) October 2, 2015 October 3, 2014 October 2, 2015 October 3, 2014
Operating income^(a)(b)
$ 147
$ 147
$ 272
$ 282
Corporate G&A (14 ) (14 ) (28 ) (30 )
Separation and CSRA Merger Costs^(c)
(42 ) —
(56 ) —
Interest expense, net (5 ) (6 ) (11 ) (11 )
Other income (expense), net 2
(1 ) 21
(2 )
Income from continuing operations before taxes^(a)
$ 88
$ 126
$ 198
$ 239



	Three Months Ended							Six Months Ended
(Dollars in millions)	September 30, 2016				October 2, 2015			September 30, 2016			October 2, 2015
Total segment operating income^(a)	$	181		$	$	147		$	340		$	272
Corporate G&A	(19		)		(14		)	(36		)	(29		)
Separation and merger costs^(b)	(8		)		(42		)	(13		)	(56		)
Interest expense, net	(29		)		(5		)	(59		)	(10		)
Other (expense) income, net	(1		)		2			(2		)	21
Income before income taxes^(a)	$	124			$	88		$	230		$	198

(a) Income ~~from continuing operations~~ before taxes ~~includes $1 million~~ for the three ~~months ended October 2, 2015~~ and ~~October 3, 2014, and $2 million for the~~ six months ended October 2, 2015, ~~and October 3, 2014, of net periodic pension costs.~~

~~(b) Operating income as presented~~ does not include the contribution from net periodic pension income related to ~~the CSC~~CSC’s U.S. defined benefit pension plans that we ~~expect to assume at~~assumed in the Spin-Off; net periodic pension income relating to these plans ~~have~~has not been included in ~~Computer Sciences GS’s~~CSRA’s historical non-GAAP segment operating income nor in the historical ~~Combined~~Consolidated Financial Statements or in the unaudited ~~Combined~~Consolidated and Condensed Financial Statements but ~~will be~~ included in our results of operations beginning in the period after the date of Distribution. The contribution to non-GAAP total segment operating income from net periodic pension income from CSC’s U.S. defined benefit pension plans amounted to approximately $(21) million and ~~$(22)~~($42) million for the three ~~months ended October 2, 2015~~ and ~~October 3, 2014, respectively, $(42) million and $(43) million for the~~ six months ended October 2, 2015, ~~and October 3, 2014,~~ respectively.

~~(c) Includes costs related to the separation of Computer Sciences GSfrom CSC and merger with SRA~~

~~(2)~~

Adjusted EBITDA is a non-GAAP measure that we use to evaluate financial performance and is one of the measures used in assessing management performance. We believe that this non-GAAP financial measure provides useful information to investors regarding our results of operations as it provides another measure of our profitability, our ability to service our planned debt, and is considered an important measure by financial analysts covering Computer Sciences GS and peer companies in our industry. Additionally, Adjusted EBITDA is an important measure associated with the proposed credit facility. This definition of Adjusted EBITDA is based on CSC’s current credit agreement, which we expect to be substantially the same under our planned credit facility. Our definition of such measure may differ from other companies. The following table presents a reconciliation of Income from continuing operations to Adjusted EBITDA:

Three Months Ended Six Months Ended
(Dollars in millions) October 2, 2015 October 3, 2014 October 2, 2015 October 3, 2014
Income from continuing operations^(a)
$ 53
$ 79
$ 120
$ 150

Interest expense, net 5
6
11
11
Tax expense on income 35
48
78
89
Depreciation and amortization 35
36
68
71
Stock-based compensation 5
4
4
9
Restructuring costs 1
—
1
—
Foreign currency loss —
—
—
1
Pension and postretirement actuarial losses (gains), settlement losses, and amortization of other comprehensive income (1 ) —
(2 ) —
Gain on disposition —
—
(18 ) —
Separation and CSRA Merger Costs^(b)
42
—
56
—

Adjusted EBITDA $ 175
$ 173
$ 318
$ 331

(a) Income from continuing operations includes $1 million for the three months ended October 2, 2015 and October 3, 2014, and $2 million for the six months ended October 2, 2015 and October 3, 2014, of net period pension costs.

(b) Includes costs related to the ~~separation~~Spin-Off and the Mergers.

(2) Adjusted earnings before interest, taxes, depreciation, and amortization (“EBITDA”) is a non-GAAP measure provides useful information to investors regarding our results of ~~Computer Sciences GS~~operations as it provides another measure of our profitability, our ability to service our debt, and is considered an important measure by financial analysts covering CSRA and peer companies in our industry. This Adjusted EBITDA is based on CSRA’s credit agreement, and among the adjustments we make is the removal of actuarial gains and losses related to our various defined benefit plans, but does not reflect removal of costs we incur to integrate our operations with those of an acquired business. While such gains and losses are ultimately settled in cash, we make these adjustments as means to more clearly demonstrate to investors our core operating performance. Our definition of such measure may differ from ~~CSC~~other companies.

The following table presents a reconciliation of Net income to Adjusted EBITDA.



	Three Months Ended				Six Months Ended
(Dollars in millions)	September 30, 2016		October 2, 2015		September 30, 2016		October 2, 2015
Net income	$	80	$	53	$	148	$	120
Interest expense, net	29		5		59		10
Tax expense on income	44		35		82		78
Depreciation and amortization	63		35		128		68
Amortization for contract-related intangibles	—		2		2		5
Stock-based compensation	4		5		7		4
Gain on disposition of business	—		—		—		(18		)
Separation and merger costs^(a)	8		42		13		56

Adjusted EBITDA	$	228	$	177	$	439	$	323

(a) Includes costs related to the Spin-Off and ~~merger~~the Mergers.

Business Drivers and Key Performance Indicators

We manage and assess the performance of our business through various means, with ~~SRA~~the primary financial measures including contract wins, revenue, operating income, backlog, and free cash flow. See below as well as the MD&A in our Annual Report on Form 10-K for further discussion of factors that drive our business results and our key performance indicators. The following are some of these key performance indicators for the three and six months ended September 30, 2016, compared to the three and six months ended October 2, 2015.


•	We announced contract awards⁽³⁾ of $2.4 billion and $3.7 billion for the three and six months ended September 30, 2016, respectively, as compared to $1.5 billion and $2.5 billion during the three and six months ended October 2, 2015, ~~respectively, as compared to $1.1 billion and $1.4 billion during the three and six months ended October 3, 2014,~~ respectively.

•

Total backlog⁽⁴⁾ ~~as of October 2, 2015~~ was ~~$12.2~~$15.5 billion asat September 30, 2016, compared to ~~$11.1~~$15.1 billion at ~~the end of fiscal 2015 and $12.1 billion at the end of fiscal 2014.~~April 1, 2016. Of the total ~~$12.2~~$15.5 billion backlog ~~$2.4~~at September 30, 2016, $2.3 billion is expected to be realized as revenue during the remainder of fiscal ~~2016,~~year 2017, and ~~$9.8~~$12.5 billion is not yet funded.

•

Days Sales Outstanding (“DSO”)⁽⁵⁾was 58 days as of September 30, 2016 and 52 days as of April 1, 2016, as compared to 43 days as of October 2, ~~2015, an improvement from 66 days at the end of~~2015. The increase in the second quarter of ~~the prior~~ fiscal ~~year. The improvement~~2017 was due, in part, to a $25 million receivable associated with CSRA’s funding of a settlement for a legacy pension plan of Computer Sciences GS Business. Excluding this receivable, the DSO was ~~primarily due to the sale~~approximately 57 days as of ~~trade receivables, without which, DSO would have been 61 days. DSO was 64 days at April 3, 2015 as compared to 63 days at March 28, 2014.~~September 30, 2016.

Cash provided by operating activities was ~~$366~~$211 million and ~~$255~~$366 million for the six months ended September 30, 2016 and October 2, 2015, ~~and October 3, 2014,~~ respectively.

Cash used in investing activities was ~~$13~~$(91) million and ~~$55~~$(13) million for the six months ended September 30, 2016 and October 2, 2015, ~~and October 3, 2014,~~ respectively.

Cash used in financing activities was ~~$348~~$(182) million and ~~$195~~$(348) million for the six months ended September 30, 2016 and October 2, 2015, ~~and October 3, 2014,~~ respectively.


•	Free cash flow⁽⁶⁾ was $8 million and $75 million for the three and six months ended September 30, 2016, respectively, as compared to $118 million and $170 million for the three and six months ended October 2, 2015, ~~respectively, $149 and $218 for the three and six months ended October 3, 2014.~~respectively.

~~(3)~~

Announced award values for competitive indefinite delivery/indefinite quantity awards represent the expected contract value at the time a task order is awarded under the contract. Announced values for non-competitive indefinite delivery/indefinite quantity awards represent management’s estimate at the award date. Our business awards, for all periods presented, have been recast to exclude the awards relating to businesses that have been sold.

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~~(4)~~

Backlog represents total estimated contract value of predominantly long-term contracts, based on customer commitments that we believe to be firm, less the amount of revenue already recognized on those contracts. Backlog value is based on contract commitments, management’s judgment and assumptions about volume of services, availability of customer funding and other factors. Backlog estimates for government contracts include both the funded and unfunded portions and all of the option periods. Backlog estimates are subject to change and may be affected by factors including modifications of contracts and foreign currency movements. Our backlog, for all periods presented, has been recast to exclude the backlog relating to discontinued operations.


~~(5)~~	DSO is calculated as total receivables at the fiscal period end divided by revenue-per-day. Revenue-per-day equals total revenues divided by the number of days in the fiscal period. Total receivables includes unbilled receivables but excludes tax receivables and long-term receivables.

~~(6)~~

Free cash flow is a non-GAAP measure and our definition of such measure may differ from that used by other companies. We define free cash flow as equal to the sum of (1) operating cash flows, (2) investing cash flows, excluding business acquisitions, dispositions and investments and (3) payments on capital leases and other long-term asset financings. Free cash flow is further adjusted for certain non-recurring cash flow items, such as (i) separation-related payments and (ii) the sale of accounts receivables.

(3) Announced award values for competitive indefinite delivery/indefinite quantity awards represent the expected contract value at the time a task order is awarded under the contract. Announced values for non-competitive indefinite delivery/indefinite quantity awards represent management’s estimate at the award date. Our business awards, for all periods presented, have been revised to exclude the awards relating to discontinued operations.

(4) Backlog represents the total estimated contract value of predominantly long-term contracts, based on customer commitments that we believe to be firm, less the amount of revenue already recognized on those contracts. Backlog value is based on contract commitments, management’s judgment and assumptions about volume of services, availability of customer funding and other factors. Backlog estimates for government contracts include both the funded and unfunded portions and all of the option periods. Backlog estimates are subject to change and may be affected by factors including modifications of contracts and foreign currency movements. Our backlog, for all periods presented, has been revised to exclude the backlog relating to discontinued operations.

(5) DSO is calculated as total receivables at the fiscal period end divided by revenue-per-day. Revenue-per-day equals total revenues divided by the number of days in the fiscal period. Total receivables includes unbilled receivables but excludes tax receivables and long-term receivables.

(6) Free cash flow is a non-GAAP measure and our definition of such measure may differ from that used by other companies. We define free cash flow as equal to the sum of (1) operating cash flows, (2) investing cash flows, excluding business acquisitions, dispositions and investments and (3) payments on capital leases and other long-term asset financings. Free cash flow is further adjusted for certain other items, such as (i) non-recurring separation-related payments and (ii) the relative fiscal quarter impact of net proceeds arising from the initial sale of billed and/or unbilled receivables under the Master Accounts Receivable Purchase Agreement.

Our free cash flow measure does not distinguish operating cash flows from investing cash flows as they are required to be presented in accordance with GAAP and should not be considered a substitute for operating and investing cash flows as determined in accordance with GAAP. Free cash flow is one of the factors our management uses in reviewing the overall performance of the ~~business.~~business and motivating performance through incentive compensation for key business leaders. Management ~~compensates for~~overcomes the limitations of this non-GAAP measure by also reviewing the GAAP measures of operating, investing and financing cash flows.

Strong free cash flow is one of the attributes that attracts potential investors to our industry. Free cash flow provides both management and investors a measurement of cash generated from operations that is available to fund acquisitions, pay dividends, repay debt and repurchase our common stock. A reconciliation of free cash flow to the most directly comparable GAAP financial measure is presented below:

Three Months Ended Six Months Ended
(Dollars in millions) October 2, 2015 October 3, 2014 October 2, 2015 October 3, 2014
Cash provided by operating activities $ 119
174
$ 366
$ 255
Net cash used in investing activities (32 ) (54 ) (13 ) (55 )
Payments for acquisitions, net of cash acquired —
36
—
36
Proceeds from business dispositions —
—
(34 ) (3 )
Payments on capital leases and other long-term assets financing (5 ) (7 ) (10 ) (15 )
Separation-related payments 32
—
37
—
Sale of accounts receivables 4
—
(176 ) —
Free cash flow $ 118
$ 149
$ 170
$ 218



	Three Months Ended						Six Months Ended
(Dollars in millions)	September 30, 2016			October 2, 2015			September 30, 2016			October 2, 2015
Net cash provided by operating activities	$	55		$	119		$	211		$	366
Net cash (used in) provided by investing activities	(48		)	(32		)	(91		)	(13		)
Sale of accounts receivable^(a)	—			4			(46		)	(176		)
Business dispositions	—			—			—			(34		)
Payments on capital leases and other long-term assets financing	(10		)	(5		)	(17		)	(10		)
Separation-related payments	11			32			18			37
Free cash flow	$	8		$	118		$	75		$	170

~~Business Drivers~~

Revenue in both segments is generated by providing services on a variety of contract types which vary in duration from as little as six months to more than ten years. Factors affecting revenue include our ability to successfully:

~~bid on and win new contract awards;~~

~~satisfy existing customers and obtain add-on business and win contract recompetes;~~

~~compete on services offered, delivery models offered, technical ability and innovation, quality, flexibility, experience, and results created; and~~

~~identify and integrate acquisitions and leverage them to generate new revenues.~~

~~Earnings are impacted by~~(a) For the ~~above revenue factors and, in addition, our ability to:~~

~~control costs, particularly labor costs, subcontractor expenses, and overhead costs including healthcare, pension and general and administrative costs;~~

~~anticipate talent needs to avoid staff shortages or excesses;~~

~~accurately estimate various factors incorporated in contract bids and proposals; and~~

~~migrate compatible service offerings to low cost areas.~~

~~Cash flows are affected by the above earnings factors and, in addition, by the following factors:~~

~~timely management of receivables and payables;~~

~~investment opportunities available, particularly related to business acquisitions;~~

~~tax obligations; and~~

~~the ability to efficiently manage capital deployed for software and property and equipment.~~

~~Key Performance Indicators~~

~~We manage and assess the performance of our business through various means, with the primary financial measures including new contract wins, revenue, operating income, and free cash flow.~~

~~New contract wins~~: In addition to being a primary driver of future revenue, new contract wins also provide management an assessment of our ability to compete. The total level of wins tends to fluctuate from year to year depending on the timing of new or recompeted contracts, as well as numerous external factors.

~~Revenue: Revenue is a product of contracts won in prior~~ periods ~~known as backlog, and work secured in the current year. Year-over-year revenues tend to vary less than new contract wins, and reflect performance on both new and existing contracts.~~

~~Operating Income~~:Operating income reflects our performance on contracts and ability to control direct costs related to those contracts. Operating income, which is also a key element of our executive compensation metrics, reflects the impact of revenue growth and mix, investments in technology, cost takeout, and operational efficiencies. See the definition of this non-GAAP measure in (1) above within Overview.

~~Free cash flow: Primary drivers of our~~presented, free cash flow ~~are earnings provided~~is adjusted for the relative impact of net proceeds arising from the initial sale of billed and/or unbilled receivables under the Master Accounts Receivable Purchase Agreement. For the six months ended October 2, 2015, $176 million of net proceeds applies to billed and unbilled receivables principally sold by the Computer Sciences GS Business. For the six months ended September 30, 2016, net proceeds of $46 million relates to SRA unbilled receivables under the Master Accounts Receivable Purchase Agreement to which SRA was added to during the period. Billed receivables historically sold by SRA under a separate accounts receivable purchase agreement continue under the Master Accounts Receivable Purchase Agreement. See Note 5 - Sale of Receivables to our ~~operations~~unaudited Consolidated and ~~the use of capital to generate those earnings. Also contributing to short-term cash flow results are movements~~Condensed Financial Statements in ~~current asset and liability balances. See the definition of~~ this ~~non-GAAP measure in (6) above within Overview.~~Form 10-Q for further information.

Economic and Industry Factors

For both the three and six months ended September 30, 2016, we generated approximately 94% of our total revenues from sales to the U.S federal government either as a prime contractor or subcontractor to other contractors. For both the three and six months ended September 30, 2016, we generated approximately 45% of our total revenues from the DoD (including all branches of the U.S. military) and Intelligence Community and approximately 49% of our total revenues from civilian agencies. We expect to continue to derive substantially all of our revenues from work performed under U.S. federal government contracts. As a result, our business performance is affected by the overall level of U.S. government spending and the alignment of our offerings and capabilities with the budget priorities of the U.S. government. While we believe that federal discretionary spending will grow, government budget deficits and the national U.S. debt will constrain spending across many federal agencies. Adverse changes in fiscal and economic conditions, including sequestration, future government shutdowns, and issues related to the nation’s debt ceiling could materially impact our business.

Our market is highly competitive and has characteristics unique to the federal contracting environment. Almost all of our U.S. federal government contracts and subcontracts may be modified, curtailed, or terminated either at the convenience of the government or for default based on factors set forth in the FAR. Upon termination for convenience of a fixed-price type contract, our U.S. federal government contracts normally entitle us to receive the purchase price for delivered items, reimbursement for contractual commitments and allowable costs for work-in-process, and a reasonable allowance for profit, although there can also be financial impact resulting from the negotiated contract settlement. Upon termination for convenience of a U.S. federal government cost reimbursable or

time and material contract, we normally are entitled to reimbursement of allowable costs plus a fee. Allowable costs generally include the cost to terminate agreements with suppliers and subcontractors. The amount of the fee recovered, if any, generally is related to the portion of the work completed prior to termination and is determined by negotiation (see “Risk Factors” section)Federal Acquisition Regulation (“FAR”). If contracts are lost through the competitive bid process, our operating results may differ materially and adversely from those anticipated. Finally, shifting U.S. federal government priorities can also impact the future of projects. Management monitors U.S. federal government priorities and industry factors through numerous industry and government publications and forecasts, legislative activity, budgeting and appropriation processes, and by participating in industry professional associations in order to anticipate these shifting priorities.

Our results of operations and our defined benefit plans are also impacted by economic conditions generally, including macroeconomic conditions, and the impact that ~~has~~they have on the U.S. federal government. We are monitoring current macroeconomic and credit market conditions and levels of business confidence and their potential effect on our customers and on us.

Our results of operations are also affected by the evolving priorities of the U.S. federal government, as well as by the pace of technological change and the type and level of technology spending by our customers. The ability to identify and capitalize on these markets and technological changes early in their cycles is a key driver of our performance.

We see potential for positive developments in the U.S. federal government fiscal year (“GFY”) budget for GFY 2017 (a GFY starts on October 1 and ends on September 30). Budget request figures released by the Office of Management and Budget project IT expenditures for Civil agencies and the DoD to increase by 2% in GFY 2016, from $47.7 billion to $48.6 billion and from $30.4 billion to $30.9 billion, respectively. Budget request figures released by the Office of the Director of National Intelligence project overall expenditures for intelligence agencies to increase by 15% in GFY 2016, from $62.7 billion to $71.8 billion. We are also experiencing an increased number of requests to extend the period of performance for our largest and most complex IT contracts, are observing increased procurement activity across the U.S. federal government and expect to see adjudications increase.

The GFY 2016 budget request, coupled with congressional additions through budget resolutions, will likely continue the trend of the last two years to negotiate sequester relief—first for defense spending and then for non-defense domestic discretionary spending. We expect another threatened government shut down by Congress and the passage of a series of continuing resolutions to keep the U.S. federal government funded, with the possibility that Congress will ultimately pass a full year continuing resolution. In the event Congress passes a full year continuing resolution, we would expect this to support our initiative to extend the period of performance for our largest and most complex IT contracts.

Revenues are driven by our ability to secure new contracts and to deliver solutions and services that add value to our customers. ~~Our ability to add value to customers, and therefore generate revenues, depends in part on our ability to~~To drive revenue growth we must deliver market-leading service offerings and to deploy skilled teams of professionals quickly across all government industries and domains. We believe that our scale, combination of technical expertise in applications and IT infrastructure solutions combined with our deep public sector mission knowledge and experience, firmly established vendor partnerships, and commitment to a culture of frugality will enable us to compete effectively in the current market environment.

Results of Operations

~~Three and Six Months Ended October 2, 2015 Compared to the Three and Six Months Ended October 3, 2014~~

We report our results based on a fiscal year convention that comprises four thirteen-week quarters. Every fifth year includes an additional week in the first quarter of the fiscal year to prevent the fiscal year from moving from an approximate end of March date. ~~As a result, the first quarter~~The second quarters of fiscal ~~2015 had~~2017 and fiscal 2016 were comprised of an ~~extra week.~~equivalent number of weeks.

Despite the variable component of extra-week revenue, our costs during the extra week were largely fixed. At the upper end of the revenue range, we believe that cost ratios and operating margin on the incremental revenue would not be dissimilar to our overall business. However, at lower levels of incremental revenue, cost ratios may have been higher and operating margin lower than our overall business.

3738

Revenues

Revenues for the Defense and Intelligence and Civil segments ~~for~~were as follows.



	Three Months Ended
(Dollars in millions)	September 30, 2016		October 2, 2015		Change		Percent Change
Defense and Intelligence	$	575	$	500	$	75	15.0	%
Civil	688		469		219		46.7
Total Revenue	$	1,263	$	969	$	294	30.3	%



	Six Months Ended
(Dollars in millions)	September 30, 2016		October 2, 2015		Change		Percent Change
Defense and Intelligence	$	1,143	$	1,006	$	137	13.6	%
Civil	1,374		922		452		49.0
Total Revenue	$	2,517	$	1,928	$	589	30.5	%

For the three and six months ended ~~October 2, 2015 and October 3, 2014 were as follows:~~

Three Months Ended
(Dollars in millions) October 2, 2015 October 3, 2014 Change Percent Change
Defense and Intelligence $ 500
$ 529
$ (29 ) (5.5 ) %
Civil 469
508
(39 ) (7.7 )
Total Revenue $ 969
$ 1,037
$ (68 ) (6.6 ) %

Six Months Ended
(Dollars in millions) October 2, 2015 October 3, 2014 Change Percent Change
Defense and Intelligence $ 1,006
$ 1,088
$ (82 ) (7.5 ) %
Civil 922
981
(59 ) (6.0 )
Total Revenue $ 1,928
$ 2,069
$ (141 ) (6.8 ) %

~~The major factors affecting the percent change in revenues are presented as follows:~~

~~For the three months ended October 2, 2015,~~September 30, 2016, our total revenue ~~decreased~~increased by ~~$68~~$294 million, or ~~6.6%~~30.3%, ~~as compared to same period of the prior year. For the six months ended October 2, 2015, our total revenue decreased by $141~~and $589 million, or ~~6.8%~~30.5%, as compared to same period of the prior year. The decrease in the six-month revenue includes revenue from the extra week in fiscal 2015, which did not recur in the first quarter of fiscal 2016. We won contracts with award values of $1.5 billion and $2.5 billion during the three and six months ended October 2, 2015, respectively, ~~as compared to $1.1 billion and $1.4 billion during the three and six months ended October 3, 2014, respectively~~.

~~Defense and Intelligence~~

~~For the three months ended October 2, 2015, Defense and Intelligence segment revenues decreased by $29 million, or 5.5%~~ as compared to the same period of the prior ~~year. The~~year primarily due to the additional revenue attributable to SRA. Excluding revenue of $363 million attributable to SRA, revenue for the three months ended September 30, 2016 amounted to $900 million, a decrease of $69 million from the second quarter of fiscal 2016. Excluding revenue of $712 million attributable to SRA, revenue for the six months ended September 30, 2016 amounted to $1,805 million, a decrease of $123 million from the first half of fiscal 2016. Revenue declined in the three and six month periods due to reductions in the Logistics Modernization Program for the U.S. Army, as well as a lower overall volume of direct material and other direct cost purchases.

Defense and Intelligence Segment

For the three and six months ended September 30, 2016, Defense and Intelligence segment revenues increased by $75 million, or 15.0%, and $137 million, or 13.6%, respectively, as compared to the same period of the prior year, primarily due to additional revenue attributable to SRA. Excluding revenue of $111 million and $225 million attributable to SRA for the three months and six months ended September 30, 2016, respectively, revenue in both periods decreased.

For the three months ended September 30, 2016, the revenue decrease was primarily due to the downsizing of the Logistics Modernization Program and a net reduction in ~~tasking~~task orders on existing contracts with the U.S. Army, U.S. Navy, and ~~Defense Information Systems Agency (“DISA”).~~National Security Agency. In addition, there was reduced revenue of $8$11 million on certain contracts with the Missile Defense Agency and Defense Intelligence Agency ~~(“DIA”)~~ that had either concluded or were winding ~~down, and lower revenue of $7 million as a result of the first quarter fiscal 2016 divestiture.~~down. These revenue reductions were partially offset by ~~$13~~$15 million of revenue on a new classified ~~contract and $6 million from a fiscal 2015 acquisition.~~contract.

For the six months ended ~~October 2, 2015,~~September 30, 2016, the revenue decrease was primarily due to the downsizing of the Logistics Modernization Program and net reductions in tasking on other Army and National Security Agency contracts. In addition, Navy and Missile Defense Agency programs ending reduced revenues $25 million. Partially offsetting these reductions were increases in tasking on Navy programs of $8 million and a new classified contract of $24 million.

Civil Segment

For the three and six months ended September 30, 2016, Civil segment revenues increased by $219 million, or 46.7%, and $452 million, or 49.0%, respectively, as compared to the same period of the prior year, primarily due to the additional revenue attributable to SRA. Excluding revenue of $252 million and $487 million attributable to SRA

for the three and six months ended September 30, 2016, respectively, revenue in both periods decreased.

For the three months ended September 30, 2016, the net change was due in part to reduced revenues of $26 million from non-federal programs, driven primarily by one program transitioning from development to operations and maintenance. In addition, reduced tasking orders on other federal contracts resulted in a $9 million net reduction. For contracts with the Department of Homeland Security (“DHS”), programs ending or winding down were partially offset by increased task orders resulting in a $5 million net reduction. Offsetting the DHS revenue reduction was a $9 million increase for new contract awards with the National Institutes of Health and the Department of Transportation.

For the six months ended September 30, 2016, the decrease in revenue was driven primarily by a $24 million reduction in revenue from non-federal programs, with one program transitioning to an operations and maintenance phase. For contracts with the DHS, revenue declined by $14 million due to contracts that were completed or winding down, partially offset by contracts with increased task orders. Revenue also declined $12 million from net reductions of other federal programs. Offsetting these revenue reductions was $16 million of revenue from new task orders with the Department of Health and Human Services.

Segment Operating Income

Segment operating income for the Defense and Intelligence, and Civil segments were as follows:



		Three Months Ended
(Dollars in millions)		September 30, 2016		October 2, 2015		Change			Percent Change
Defense and Intelligence	$	80	$	70	$	10			14.3	%
Civil		101		77		24			31.2
Total segment operating income	$	181	$	147	$	34			23.1	%

Segment operating income margin:
Defense and Intelligence		13.9	%	14.0	%	(0.1	)	%
Civil		14.7	%	16.4	%	(1.7	)	%



		Six Months Ended
(Dollars in millions)		September 30, 2016		October 2, 2015		Change			Percent Change
Defense and Intelligence	$	134	$	134	$	—			—	%
Civil		206		138		68			49.3
Total segment operating income	$	340	$	272	$	68			25.0	%

Segment operating income margin:
Defense and Intelligence		11.7	%	13.3	%	(1.6	)	%
Civil		15.0	%	15.0	%	—		%

For the three and six months ended September 30, 2016, our segment ~~revenues decreased~~operating income increased by ~~$82~~$34 million, or ~~7.5%~~23.1%, and $68 million, or 25.0%, respectively, as compared to the same period of the prior year. ~~The revenue decrease~~Excluding the segment operating income of $25 million and $22 million attributable to SRA during the three and six months ended September 30, 2016, respectively, the favorable operating income for the fiscal year 2017 periods was due to a net reduction in tasking on existing contracts with the U.S. Army, U.S Navy and DISA. In addition, there was lower revenue of $11 million on certain contracts with the Defense Intelligence Agency and Missile Defense Agency that either had concluded or were winding down, and $14 million of lower revenue as a result of ~~the first quarter fiscal 2016 divestiture. These revenue decreases were partially offset by $25 million of revenue on new contracts with the U.S. Army~~better contract performance and ~~a classified customer and $14 million of revenue from a fiscal 2015 acquisition.~~higher pension income.

3840

~~Civil~~Defense and Intelligence Segment

For the three months ended ~~October 2, 2015, Civil~~September 30, 2016, Defense and Intelligence segment ~~revenues decreased~~operating income increased by ~~$39~~$10 million, or ~~7.7%~~14.3%, as compared to the same period of the prior year. ~~The decrease was caused~~Approximately $6 million of the increase in the segment’s operating income during the three months ended September 30, 2016 is attributable to operating income at SRA. Excluding the impact of SRA, Defense and Intelligence segment operating income increased by $4 million. Excluding the impact of SRA, the segment’s operating income as a ~~net reduction in tasking~~percentage of $33 million on existing contracts with the Department of Homeland Security (DHS), NASA, and the Department of Commerce, and reduced revenue of $13 million on contracts with the Department of Treasury and DHS that had either concluded or were winding down. Contracts with non-federal agenciessales increased ~~$11 million primarily~~ due to ~~increased tasking~~more efficient delivery of services and ~~transaction volumes on multiple state contracts.~~higher pension income.

For the six months ended ~~October 2, 2015,~~September 30, 2016, Defense and Intelligence segment operating income was unchanged compared to the same period of the prior year; however, the first half of fiscal year 2017 includes a loss of approximately $1 million associated with SRA.

Civil Segment

For the three months ended September 30, 2016, Civil segment ~~revenues decreased~~operating income increased by ~~$59~~$24 million, or ~~6.0%~~31.2%, as compared to the same period of the prior year. ~~The decrease was primarily due lower revenue on programs with~~Excluding Civil segment operating income of $18 million attributable to SRA, the ~~Department of Treasury and Department of Homeland Security (DHS) that had either ended or winding down. Revenue from contracts with non-federal agencies increased $7 million primarily due to an~~ increase in ~~tasking on a state contract.~~

~~Operating Income~~

~~Operating~~the segment’s operating income for the ~~Defense~~fiscal year 2017 period was primarily the result of higher pension income, better contract performance and ~~Intelligence,~~other program related efficiencies.

For the six months ended September 30, 2016, Civil segment operating income increased by $68 million, or 49.3%, as compared to the same period of the prior year. Excluding Civil segment operating income of $21 million attributable to SRA, the increase in operating income for the fiscal year 2017 period was primarily the result of higher pension income, better contract performance and ~~Civil segments~~other program related efficiencies.

Costs and Expenses

Our total costs and expenses were as follows:



		Three Months Ended					Six Months Ended
(Dollars in millions)		September 30, 2016		October 2, 2015			September 30, 2016		October 2, 2015
Costs of services^(a)	$	983	$	757		$	1,974	$	1,532
Selling, general and administrative		55		44			111		85
Depreciation and amortization		63		35			128		68
Separation and merger costs		8		42			13		56
Interest expense, net		29		5			59		10
Other (income) expense, net		1		(2	)		2		(21	)
Total	$	1,139	$	881		$	2,287	$	1,730

(a) COS also includes related-party transactions with CSC of $2 million and $4 million for the three and six months ended October 2, 2015, ~~and October 3, 2014 are as follows:~~

Three Months Ended
(Amounts in millions) October 2, 2015 October 3, 2014 Change Percent Change
Defense and Intelligence $                   70
$ 62
$ 8
12.9
%
Civil                   77
85
                (8)
(9.4 )
Total operating income $ 147
$ 147
$ —
—
%

Six Months Ended
(Amounts in millions) October 2, 2015 October 3, 2014 Change Percent Change
Defense and Intelligence $ 134
$ 122
$ 12
9.8
%
Civil 138
160
(22 ) (13.8 )
Total operating income $ 272
$ 282
$ (10 ) (3.5 ) %

~~The major factors affecting the percent change in operating income are presented as follows:~~

~~For the three months ended October 2, 2015, our segment operating income decreased by 0 million, or 0.0%, as compared to same period of the prior year. For the six months ended October 2, 2015, our segment operating income decreased by $10 million, or 3.5%, as compared to same period of the prior year.~~

~~Defense and Intelligence~~

For the three months ended October 2, 2015, Defense and Intelligence segment operating income increased by 8 million, or 12.9% as compared to the same period of the prior year. For the six months ended October 2, 2015, Defense and Intelligence segment operating income increased by $12 million, or 9.8% as compared to the same period of the prior year. The increase in operating income for both periods was primarily the result of better contract performance and other program related efficiencies along with slightly higher quarter over quarter net favorable adjustments on programs accounted for under percentage of completion accounting.

~~Civil~~

For the three months ended, Civil segment operating income decreased by $8 million, or 9.4% as compared to the same period of the prior year. For the six months ended, Civil segment operating income decreased by $22 million, or 13.8% as compared to the same period of the prior year. The decrease in operating income for both periods was primarily the result of better contract performance in fiscal 2015 which resulted in lower quarter over quarter net favorable adjustments on programs accounted for under percentage of completion accounting and the decrease in revenue discussed above.

~~Costs and Expenses~~

~~Our total costs and expenses for the three and six months ended October 2, 2015 and October 3, 2014 were as follows:~~

Three Months Ended Percentage of Revenue
(Dollars in millions) October 2, 2015 October 3, 2014 October 2, 2015 October 3, 2014
Costs of services (includes $2 and $3 for the three months ended October 2, 2015 and October 3, 2014, respectively, of related party costs of services) $ 757
$ 820
78.1
% 79.2
%
Selling, general and administrative 44
48
4.5
4.6

Depreciation and amortization 35
36
3.6
3.5

Separation and merger costs 42
—
4.3
—

Interest expense, net 5
6
0.5
0.6

Other (income) expense, net (2 ) 1
(0.2 ) 0.1

Total $ 881
$ 911
90.9
% 87.9
%
respectively.

Six Months Ended Percentage of Revenue
(Dollars in millions) October 2, 2015 October 3, 2014 October 2, 2015 October 3, 2014
Costs of services (includes $4 and $5 for the six months ended October 2, 2015 and October 3, 2014, respectively, of related party costs of services) $ 1,532
$ 1,655
79.5
% 80.0
%
Selling, general and administrative 84
92
4.4
4.4

Depreciation and amortization 68
71
3.5
3.4

Separation and merger costs 56
—
2.9
—

Interest expense, net 11
11
0.6
0.5

Other (income) expense, net (21 ) 2
(1.1 ) 0.1

Total $ 1,730
$ 1,831
89.7
% 88.5
%

Costs of Services

~~Cost of services (“COS”), as a percentage of revenue, decreased to 78.1% for the three months ended October 2, 2015 as compared to 79.2% from the same period of the prior year.~~

COS, as a percentage of revenue, decreased to ~~79.5%~~77.8% and 78.4% for the three and six months, respectively, ended ~~October 2, 2015~~September 30, 2016 as compared to ~~80.0%~~78.1% and 79.4% from the same ~~period~~periods of the prior year. The decrease as a percentage of revenue is a result of program delivery efficiencies, indirect cost reductions, and merger synergies.

Selling, General and Administrative

Selling, general, and administrative (“SG&A”), as a percentage of revenue, ~~decreased slightly to 4.5%~~was 4.4% for both the three and six months ended ~~October 2, 2015 as~~September 30, 2016, and was unchanged compared to ~~4.6% from~~ the same ~~period~~periods of the prior year. ~~SG&A expense, as a percentage of revenue, decreased slightly to 4.4% for the six months ended October 2, 2015 as compared to 4.4% from the same period of the prior year.~~

Depreciation and Amortization (D&A)

~~Depreciation and amortization (“~~D~~&A”)~~&A for the Defense and Intelligence, and Civil segments ~~for the three and six months ended October 2, 2015 and October 3, 2014 are~~were as follows:



		Three Months Ended
(Dollars in millions)		September 30, 2016		October 2, 2015		Change	Percent Change
Defense and Intelligence	$	34	$	23	$	11	47.8	%
Civil		29		12		17	141.7
Total depreciation and amortization	$	63	$	35	$	28	80.0	%



		Six Months Ended
(Dollars in millions)		September 30, 2016		October 2, 2015		Change	Percent Change
Defense and Intelligence	$	68	$	46	$	22	47.8	%
Civil		60		22		38	172.7
Total depreciation and amortization	$	128	$	68	$	60	88.2	%

Three Months Ended
(Dollars in millions) October 2, 2015 October 3, 2014 Change Percent Change
Defense and Intelligence $ 23
$ 25
$ (2 ) (8.0 ) %
Civil 12
11
1
9.1

Total depreciation and amortization $ 35
$ 36
$ (1 ) (2.8 ) %

Six Months Ended
(Dollars in millions) October 2, 2015 October 3, 2014 Change Percent Change
Defense and Intelligence $ 46
$ 49
$ (3 ) (6.1 ) %
Civil 22
22
—
—

Total depreciation and amortization $ 68
$ 71
$ (3 ) (4.2 ) %

D&A, as a percentage of revenue, increased ~~slightly~~ to ~~3.6%~~5.0% and 5.1% for the three and six months ended ~~October 2, 2015~~September 30, 2016, respectively, as compared to ~~3.4%~~3.6% and 3.5%, respectively, from the ~~same period~~second quarter and first half of the prior fiscal year. These increases were primarily due to the amortization of intangible assets acquired in the SRA merger. Excluding D&A of $32 million and $63 million and revenue attributable to SRA for the three and six months ended September 30, 2016, respectively, D&A, as a percentage of revenue, ~~increased slightly~~was 3.4% and 3.5%, respectively, compared to 3.6% and 3.5%, respectively, for the ~~six months ended October 2, 2015 as compared to 3.4% from the~~ same ~~period~~periods of the prior year.

Separation and Merger Costs

Separation and merger costs ~~are~~were costs incurred to give effect to Computer Sciences GS’s separation from CSC and subsequent merger with SRA. These costs are primarily comprised of severance and other personnel costs, third-party accounting, legal and other consulting ~~services.~~services, as well as information technology infrastructure and application costs. For the three and six months ended ~~October 2, 2015,~~September 30, 2016, separation and merger costs were ~~$42~~$8 million and ~~$56~~$13 million, respectively. ~~We will continue to incur separation and merger costs during fiscal 2016 up until separation from CSC.~~ Pursuant to the Merger Agreement, all merger costs incurred by Computer Sciences GS ~~will be~~Business were paid by CSRA.

~~Income from Discontinued Operations~~

In the second quarter of 2014, we completed the sale of a portion of our base operations, aviation, and range services business unit, ATD, a component within our business, to a strategic investor for cash consideration of $178 million plus a net working capital adjustment receivable of $6 million. Discontinued operations for this divestiture for the six months ended October 3, 2014 was $1 million. The ATD divestiture resulted in a pre-tax gain of $55 million, representing the excess of the sale price over the carrying value of the net assets of the divested business, less transaction costs of $5 million. In Fiscal 2015, we incurred approximately $2 million in after-tax losses related to this divestiture due to a settlement on ATD-related litigation and related legal expenses.

Interest Expense, Net

Interest expense of $5$29 million and $59 million for the three and six months ended ~~October 2, 2015 decreased~~September 30, 2016, respectively, increased by $1$24 million and $49 million, respectively, compared to $6$5 million and $10 million, respectively, of interest expense for the same ~~period~~periods of the prior year. Interest expense ~~was $11 million~~ for the three and six months ended ~~October 2, 2015~~September 30, 2016 reflect the additional long-term debt incurred in connection with the Spin-Off and ~~October 3, 2014, respectively.~~Merger transactions in November 2015.

Other (Income) Expense, Net

Other (income) expense, net comprises gains and losses from the sale of businesses and non-operating assets, the impact of movement in foreign currency exchange rates on ~~Computer Sciences GS's~~CSRA's foreign currency denominated assets and liabilities and other miscellaneous gains and losses.

Other ~~income~~expenses of $1 million and $2 million for the three and six months ended ~~October 2, 2015~~September 30, 2016, respectively, increased compared to other ~~expenses~~income of $1$(2) million and $(21) million, respectively, for the same ~~period~~periods of the prior year. ~~Other income of $21 million for the~~The six months ended October 2, 2015 ~~increased compared to other expenses~~reflect a $18.5 million pre-tax gain on the disposition of ~~$2 million~~Welkin Associates Limited, which was a wholly owned subsidiary of the legacy Computer Sciences GS Business.

Taxes

Our effective tax rate (“ETR”) was 35.5% and 35.7% for the ~~same period of the prior year. The $23 million increase is primarily due to the pre-tax gain of $18 million from the divestiture of Welkin.~~

~~Taxes~~

~~Our ETR on income from continuing operations was 40.2%~~three and six months ended September 30, 2016 and 39.8% and 39.4% for the three and six months ended October 2, 2015, ~~respectively, and 37.7% and 37.3%~~respectively. The lower ETRs for the three and six months ended ~~October 3, 2014, respectively. The higher ETR for~~September 30, 2016 compared to the three ~~months ended October 2, 2015 was primarily driven by non-deductible one-time separation costs related to the Computer Sciences GS Business. The higher ETR for the~~and six months ended October 2, 2015 ~~was primarily driven by non-deductible goodwill~~were due to the addition of beneficial stock compensation deductions and the absence of adjustments related to the ~~Welkin divestiture and non-deductible one-time separation costs related to Computer Sciences GS.~~

~~There were no material changes to uncertain~~carve-out approach used for tax ~~positions as of the second quarter of fiscal 2016 compared~~purposes prior to the ~~fiscal 2015 year-end. Our tax returns are routinely audited and settlements of issues raised~~Spin-Off in ~~these audits sometimes affect our tax provisions.~~the 2016 periods.

Significant management judgment is required in determining our provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against deferred tax assets. A ~~$1.4 million~~ valuation allowance of $8.7 million has been recorded against deferred tax assets as of ~~October 2, 2015~~September 30, 2016 relating to net operating losses in foreign ~~jurisdictions.~~jurisdictions and state tax carryforwards.

~~CSRA Pro Forma Adjusted EBITDA~~

~~CSRA pro forma Adjusted EBITDA, which gives pro forma effect to~~Share-Based Compensation Expense

In connection with the Spin-Off, ~~and Mergers and related financing as if they occurred on March 29, 2014, is not a measurement~~the equity compensation awards in fiscal 2016 of financial performance under GAAP. CSRA pro forma Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for analyzing our results under GAAP. A reconciliationemployees of CSC who became employees of CSRA ~~pro forma Adjusted EBITDA to pro forma condensed combined net income for~~were converted into equity awards of CSRA having the ~~periods presented is provided below:~~

Three Months Ended October 2, 2015

Historical CSGS
Three Months Ended
October 2, 2015
Effect of Spin-Off Pro-Forma for Spin-Off Only Historical SRA Three Months Ended September 30, 2015 Effect of Mergers Pro Forma for Spin-Off and Mergers
Income (loss) from continuing operations $ 53
$ 48
$ 101
$ (4 ) $ 12
$ 109

Interest expense, net 5
12
17
27
(14 ) 30
Tax expense (benefit) on income 35
—
35
(3 ) 8
40
Depreciation and amortization 35
1
36
13
2
51
Stock based compensation 5
—
5
2
—
7
Restructuring costs 1
—
1
—
—
1
Pension and postretirement benefit plans actuarial (gains) losses, settlement losses, and amortization of other comprehensive income (1 ) (4 ) (5 ) —
—
(5 )
Merger and acquisition costs —
—
—
1
—
1
Providence management fees —
—
—
1
(1 ) —
Separation and CSRA merger Costs 42
(42 ) —
7
(7 ) —

Adjusted EBITDA $ 175
$ 15
$ 190
$ 44
$ —
$ 234
same terms and conditions as their prior CSC awards.

Three Months Ended October 3, 2014

Historical CSGS
Three Months Ended October 3, 2014
Effect of Spin-Off Pro Forma for Spin-Off Only Historical SRA Three Months Ended December 31, 2014 Effect of Mergers Pro Forma for Spin-Off and Merger
Income (loss) from continuing operations $ 79
$ 5
$ 84
$ (6 ) $ (2 ) $ 76

Interest expense, net 6
10
16
27
(13 ) 30
Tax expense on income 48
2
50
—
(1 ) 49
Depreciation and amortization 36
—
36
17
(1 ) 52
Stock based compensation 4
—
4
1
—
5
Restructuring costs —
—
—
(2 ) —
(2 )
Pension and postretirement benefit plans amortization of other comprehensive income —
(1 ) (1 ) —
—
(1 )

Adjusted EBITDA $ 173
$ 16
$ 189
$ 37
$ (17 ) $ 209

Six Months Ended October 2, 2015

Six Months Ended October 2, 2015 Effect of Spin-Off Pro-Forma for Spin-Off Only Historical SRA Six Months ended September 30, 2015 Effect of Mergers Pro Forma for Spin-Off and Mergers
Income (loss) from continuing operations $ 120
$ 62
$ 182
$ (4 ) $ 20
$ 198

Interest expense, net 11
22
33
54
(27 ) 60
Tax expense (benefit) on income 78
7
85
(4 ) 14
95
Depreciation and amortization 68
1
69
30
1
100
Stock based compensation 4
—
4
2
—
6
Restructuring costs 1
—
1
3
—
4
Pension and postretirement benefit plans actuarial (gains) losses, settlement losses, and amortization of other comprehensive income (2 ) (7 ) (9 ) —
—
(9 )
Gain on disposition (18 ) —
(18 ) 1
—
(17 )
Merger and acquisition costs —
—
—
2
—
2
Providence management fees —
—
—
1
(1 ) —
Separation and CSRA merger Costs 56
(56 ) —
7
(7 ) —
Impact of acquisitions —
—
—
1
—
1

Adjusted EBITDA $ 318
$ 29
$ 347
$ 93
$ —
$ 440

Six Months Ended October 3, 2014

Historical Six Months Ended October 3, 2014 Effect of Spin-Off Pro Forma for Spin-Off Only Historical SRA Six Months Ended December 31, 2014 Effect of Mergers Pro Forma for Spin-Off and Merger
Income (loss) from continuing operations $ 150
$ 3
$ 153
$ (10 ) $ (1 ) $ 142

Interest expense, net 11
21
32
54
(28 ) 58
Tax expense (benefit) on income 89
3
92
(2 ) (1 ) 89
Depreciation and amortization 71
—
71
34
(5 ) 100
Loss on sale of receivables —
—
—
—
—
—
Stock based compensation 9
—
9
3
—
12
Foreign currency loss 1
—
1
—
—
1
Pension and postretirement benefit plans amortization of other comprehensive income —
1
1
—
—
1
Merger and acquisition costs —
—
—
—
—
—
Providence management fees —
—
—
1
(1 ) —

Adjusted EBITDA $ 331
$ 28
$ 359
$ 80
$ (36 ) $ 403
For the three and six months ended September 30, 2016, the total expense recognized in CSRA’s results of operations related to equity awards was $4.1 million and $7.1 million, respectively. See Note 12—Share-Based Compensation Plans to our unaudited Consolidated and Condensed Financial Statements in this Form 10-Q for additional information on share-based compensation including unrecognized compensation expense that will impact our earnings in future periods.

Liquidity and Capital Resources

Cash Flows


		Six Months Ended						Six Months Ended
(Dollars in millions)		October 2, 2015			October 3, 2014			September 30, 2016			October 2, 2015
Cash provided by operating activities	$	366		$	255		$	211		$	366
Cash used in investing activities		(13	)		(55	)		(91	)		(13	)
Cash used in financing activities		(348	)		(195	)		(182	)		(348	)
Net increase in cash and cash equivalents		5			5
Net (decrease) increase in cash and cash equivalents								(62	)		5
Cash and cash equivalents at beginning of year		5			4			130			5
Cash and cash equivalents at end of period	$	10		$	9		$	68		$	10

Operating Cash Flow

Net cash provided by operating activities for the six months ended ~~October 2, 2015~~September 30, 2016 was ~~$366~~$211 million, ~~an increase~~a decrease of ~~$111~~$155 million compared to the six months ended October ~~3, 2014. The~~ ~~increase~~ ~~in net~~2, 2015. This decrease was primarily due to the introduction of the receivable sales activities during the six months ended October 2, 2015. Operating cash flow for the six months ended September 30, 2016 benefited from the inclusion of SRA into our receivable sales activities, including the sale of unbilled SRA receivables. Our operating cash flow ~~was primarily attributable~~for the second quarter of fiscal year 2017 also reflects a $25 million payment to ~~the sale of receivables (Note 4, “Sale of Receivables”~~satisfy our commitment to ~~the unaudited Combined Condensed Financial Statements) and an increase in net income.~~fund CSC’s CSR pension settlement obligation.

Investing Cash Flow

Net cash used in investing activities for the six months ended ~~October 2, 2015~~September 30, 2016 was ~~$13~~$(91) million, as compared to ~~cash~~ ~~used in~~ ~~investing activities~~$(13) million for the six months ended October ~~3, 2014~~2, 2015. This decline reflects higher purchases of ~~$55 million. The~~ ~~increase~~ ~~resulted primarily~~property and equipment in the fiscal year 2017 period as well as proceeds from the sale of Welkin ~~for proceeds of $34 million during~~in the six months ended October 2, 2015 as compared with the acquisition of Tenacity for $36 million during the six months ended October 3, 2014. The increase was partially offset by an increase in purchase of property and equipment.fiscal year 2016 period.

Financing Cash Flow

Net cash used in financing activities for the six months ended ~~October 2, 2015~~September 30, 2016 was ~~$348~~$(182) million, which was ~~an increase~~ ~~of $153~~$166 million ~~from~~less than the $(348) million used in the six months ended October ~~3, 2014. The~~ ~~increase~~ ~~was primarily attributable to transfers~~2, 2015. This change reflects the absence of amounts transferred to CSC ~~as a result~~and $148 million of ~~higher operating cash flows.~~debt repayments in the fiscal year 2017 period.

Discussion of Financial Condition

Cash and Cash equivalents were ~~$10~~$68 million and $5$130 million ~~October 2, 2015~~at September 30, 2016 and April ~~3, 2015,~~1, 2016, respectively.

~~On April 21, 2015, CSC entered into~~After the Spin-Off, CSRA became the primary seller of certain accounts receivable under a Master Accounts Receivable Purchase Agreement ~~(“Purchase~~(the “Purchase Agreement”) ~~between the CSC, as Seller, and~~that was first entered into on April 21, 2015 with The Royal Bank of Scotland, PLC (“RBS”), as Purchaser, along with Mitsubishi UFJ Financial Group ~~Ltd.~~Ltd, and Bank of Nova Scotia, each as a ~~Participant. Subsequent~~Participant, for the continuous non-recourse sale of our eligible trade receivables. In June 2016, SRA was added to ~~the April 21, 2015 agreement, RBS assigned its rights as a purchaser to The Bank of Tokyo-Mitsubishi UFJ, Ltd (“BTMU”), and~~ the Purchase Agreement ~~was amended to add CSC Government Solutions LLC~~ as aan additional seller of accounts receivables. In connection with the addition of the SRA receivables into the facility, the Company evaluated allowances associated with SRA’s government audit activities, receivable aging and ~~BTMU, The Bank~~specific collectability issues and increased the associated allowance by approximately $3 million in the first quarter of Nova Scotia, and Mizuho Bank, Ltd. each as a purchaser. The amended agreement also converted the receivables purchase facility (the Facility) to a committed facility, extended the initial term to a two-year period and added Computer Sciences Government Services, Inc. as a guarantor.fiscal year 2017.

Under the Facility, ~~CSC and the Computer Sciences GS~~CSRA can sell ~~up to $450 million of~~ our eligible receivables, including billed receivables and certain unbilled receivables arising from “cost plus fixed fee” and “time and materials” ~~contracts. CSC~~contracts up to $450 million outstanding at any one time. CSRA has no retained interests in the transferred receivables, and only ~~performs~~perform collection and administrative functions for the Purchaser for a servicing fee.

During the ~~three and~~ six months ended ~~October 2, 2015, CSC~~September 30, 2016, the sellers sold ~~$619 million and $1,333 million, respectively,~~$1.49 billion of our billed and unbilled receivables for cash. Collections ~~corresponding to these~~by the purchaser on the receivables ~~sales~~we sold were ~~$609 million and $1,156 million~~$1.40 billion for the ~~three and~~ six months ended ~~October 2, 2015, respectively.~~September 30, 2016. As of ~~October 2, 2015,~~September 30, 2016, there was also $7$30.0 million of cash collected but not remitted due to timing of settlements, which was recorded as restricted cash. ~~We incurred purchase discount~~Total receivables sold, net of collections and ~~administrative~~ fees related to accounts receivable sales, resulted in an increase in operating cash flow of ~~under $1~~$90 million for the ~~three months ended October 2, 2015 and $1 million for the six~~

~~months ended October 2, 2015. The net impact of the accounts receivable sales was $9 million and $176 million for the three and~~ six months ended ~~October 3, 2015, respectively. We had~~September 30, 2016.

Upon consummation of the Mergers, SRA initially maintained a separate accounts receivable purchase agreement under which SRA sold certain accounts receivable to a third party, or the Factor, without recourse to SRA. There were no ~~debt outstanding for all periods presented.~~sales of receivables under this facility during the six months ended September 30, 2016 and the agreement with the Factor was terminated in June 2016.

Liquidity

~~Our~~As of September 30, 2016, CSRA’s total liquidity was ~~comprised~~$768 million, consisting of ~~operating~~$68 million of cash and cash ~~equivalents.~~equivalents and $700 million available under CSRA’s revolving credit facility. In September 2016, the Company was required to make a one-time payment of $25 million in connection with its obligation to fund the termination of a pension plan covering employees of a company formed as a joint venture between CSC and another government contractor. In October 2016, the Company began discussions with the administrative agents of its Term Loan and Revolving Credit Facilities to amend the terms, including an extension of the maturity dates. We ~~have generated and~~ expect to ~~continue~~complete this amendment during the third quarter of fiscal year 2017. See Note 15—Commitments and Contingencies and Note 16—Subsequent Events to ~~generate positive~~our unaudited Consolidated and Condensed Financial Statements in this Form 10-Q for further information. In the opinion of management, CSRA will be able to meet its liquidity and cash needs for at least the next twelve months through the combination of cash flows from operating activities, available cash ~~flow~~balances, and available borrowings under CSRA’s revolving credit facility. If these resources need to ~~fund our~~be augmented, additional cash requirements ~~for working capital, capital expenditures, commitments and other discretionary investments.~~ would likely be financed by the issuance of debt or equity securities. However, there can be no assurances that CSRA will be able to obtain debt financing on acceptable terms in the future.

Our exposure to operational liquidity is primarily from long-term contracts, some of which require significant investment of cash flows from operating activities during the initial phases of the contracts. The recovery of these investments is over the life of the contract and is dependent upon our performance as well as customer acceptance. Continued uncertainty in global economic conditions may also affect our business as customers and suppliers may decide to downsize, defer or cancel contracts, which could negatively affect operating cash flows.

Our largest use of cash flow was net transfers to CSC, reflected as a component of net Parent investment in our Combined Balance Sheets and unaudited Combined Condensed Balance Sheets. CSC uses a centralized approach for managing cash and financing activities. With certain exceptions, our cash was available for us and was regularly “swept” by the Parent at its discretion. Accordingly, our combined statements of financial position only reflect a minor cash balance.

~~Future Liquidity.~~ ~~Our~~ primary cash needs ~~will~~ continue to be for working capital, capital expenditures, commitments and other discretionary ~~investments; however, our capital structure and sources of liquidity will change from our historical capital structure because we no longer participate in CSC’s centralized cash management program.~~investments. Our ability to fund our operating needs depends, in part, on our ability to continue to generate positive cash flow from operations or, if necessary, raise cash in the capital markets. Longer term, our pension funding obligation represents another potential cash need, depending on asset returns, interest rates and other factors.

~~In light~~At September 30, 2016, CSRA’s ratio of net debt-to-total capitalization was 90.9%, a decrease of 1.8 percentage points from the end of fiscal year 2016. The decrease in the ratio was primarily the result of repayments in the amount of $148 million during the first half of fiscal year 2017.

The following table summarizes CSRA’s capitalization ratios as of the ~~Spin-Off~~end of the second quarter of fiscal year 2017 and ~~the Mergers,~~fiscal year 2016:



	As of
(Dollars in millions)	September 30, 2016			April 1, 2016
Total debt⁽⁷⁾	$	2,789		$	2,935
Less: Cash and cash equivalents		68			130
Net debt⁽⁸⁾	$	2,721		$	2,805

Total debt	$	2,789		$	2,935
Equity		204			90
Total capitalization	$	2,993		$	3,025

Debt-to-total capitalization		93.2	%	97.0		%
Net debt-to-total capitalization		90.9	%	92.7		%


(7)	Total debt is the sum of short and long-term components of GAAP debt and capitalized leases.


(8)	Net debt is a non-GAAP measure and our determination of it may not be comparable with calculations of similar measures by other issuers. We calculate net debt by subtracting cash and cash equivalents

from total debt (including capitalized leases). We believe that net debt assists in providing a more complete understanding of our financial position and we use it to monitor our financial leverage. We believe that net debt is useful to investors because it provides insights into our belief, based upon Computer Sciences GS’s and SRA’s combined history of generating strong cash flows, that CSRA will be able to meet its short-term liquidity needs, and meet known or reasonably likely future cash requirements, through the combination of cash flows from operating activities, available cash balances and available borrowings under our expected credit facilities, as discussed below. If these sources of liquidity need to be augmented, additional cash requirements would likely be financed through the issuance of debt or equity securities; however, there can be no assurances that we will be able to obtain additional debt or equity financing on acceptable terms in the future.financial strength.

~~Under the terms of the Separation Agreements, prior to the Distribution, CSC provided for cash balances of $300 million at Computer Sciences GS at the time of the Distribution.~~Debt Financing

Including capitalized lease liabilities, CSRA had $126 million of current maturities of long-term debt and $2,663 million of long-term debt at September 30, 2016.

We ~~have~~ obtained financing in connection with the Spin-Off and the Mergers under various facilities. See Note 9— Debt to our unaudited Consolidated and Condensed Financial Statements in this Form 10-Q and “Liquidity” in our Annual Report on Form 10-K for information about these facilities, ~~as follows: (1) a five-year senior secured revolving credit facility (the “Revolving Credit Facility”) with an initial borrowing capacity~~including covenants, default provisions, repayment terms, and interest rates of ~~$700 million, of which, immediately after the consummation of the Spin-Off and the Merger, $500 million was available and undrawn, (2) a three-year senior secured tranche A1~~each facility.

Our term loan ~~facility in an aggregate principal amount of $600 million (the “Tranche A1 Facility”), (3) a five-year senior secured tranche A2~~facilities require us to prepay outstanding term loan facility in an aggregate principal amount of $1.45 billion (the “Tranche A2 Facility”; and, together with the Tranche A1 Facility, the “Term Loan A Facilities”) and (4) a seven-year senior secured term loan B facility in an aggregate principal amount of $750 million (the “Term Loan B Facility”; and, together with the Term Loan A Facilities, the “Term Loan Facilities”), all of which are guaranteed by CSRA’s significant domestic subsidiaries (the “Guarantors”) and are secured by substantially all of the assets of CSRA and the Guarantors. The Revolving Credit Facility and the Term Loan Facilities have the following material terms:

~~Interest~~. Borrowings under (1) the Revolving Credit Facility and the Tranche A2 Facility bear interest at an interest rate per annum equal to, at our option, (A) LIBOR plus the applicable margin of 1.250%-2.250% or (B) the base rate plus the applicable margin of 0.250%-1.250%, (2) the Tranche A1 Facility bears interest at an interest rate per annum equal to, at our option, (A) LIBOR plus the applicable margin of 1.125%-2.125% or (B) the base rate plus the applicable margin of 0.125%-1.125% and (3) the Term Loan B

~~Facility bears interest at an interest rate per annum equal to, at our option, (A) LIBOR plus the applicable margin of 2.75%-3.00%,~~loans, subject to ~~a 0.75% LIBOR floor or (B)~~certain exceptions, in the ~~base rate plus~~case of excess annual cash flow and in the ~~applicable margin~~event of ~~1.75%-2.00%, subject to a 1.75% base rate floor. The applicable margins for borrowings under the Revolving Credit Facility~~certain asset sales, casualty events and ~~borrowings under the Term Loan A Facilities vary and~~issuances of debt. Any required excess cash flow payments are determined based on our corporate credit rating or corporate family rating. The applicable margins for borrowings under the Term Loan B Facility vary and are determined based on the ratio of our consolidated total net debt to our consolidated EBITDA.

~~Amortization.~~ Borrowings under the Revolving Credit Facility can be prepaid at any time and can be repeatedly redrawn until its maturity. The Tranche A1 Facility has no scheduled amortization prior to maturity. The Tranche A2 Facility requires quarterly scheduled amortization at a rate equivalent to 5% of the original principal amount per annum until the remaining balance is due ~~at maturity.~~

~~Covenants~~. The Revolving Credit Facility and Term Loan Facilities contain negative covenants customary for financings of this type, including covenants that place limitations on the incurrence of additional indebtedness; the creation of liens; the payment of dividends; sales of assets; fundamental changes, including mergers and acquisitions; loans and investments; negative pledges; transactions with affiliates; restrictions affecting subsidiaries; modification to charter documents in a manner materially adverse to the lenders; changes in fiscal year and limitations on conduct of business. The Revolving Credit Facility and Term Loan Facilities also contain affirmative covenants and representations and warranties customary for financings of this type. In addition, the Revolving Credit Facility and Term Loan A Facilities contain financial maintenance covenants requiring, as at the end of, and for, each fiscal quarter of CSRA ending after November 27, 2015, (a) a ratio of consolidated total net debt to consolidated EBITDA not in excess of 4:00:1:00, stepping down to 3.50:1.00 atwithin 90 days following the end of the fiscal year. During the first ~~full~~quarter of fiscal ~~quarter ending at least 18 months after November 27, 2015; and (b)~~2017, we paid $48 million related to FY16 excess cash flow.

In March 2016, we executed a ~~consolidated EBITDA~~series of hedging transactions to manage the interest rate risk related to $1.4 billion of the Senior Secured Term Loan A facilities. CSRA’s objectives in using cash flow hedges are to add stability to interest expense ~~ratio of not less than 3.00:1.00.~~

~~Events of Default~~. The lenders under the Revolving Credit Facility and the Term Loan Facilities may declare any indebtedness outstanding thereunder due and payable, and cancel any remaining commitments under the Revolving Credit Facility, if an event of default occurs and is continuing, including a failure to pay principal when due or interest or commitment fees within five days of the date when due; a material inaccuracy of a representation or warranty at the time made; a bankruptcy event; a failure to comply with the covenants, subject to a customary grace period; cross-events of default to material indebtedness; certain material Employee Retirement Income Security Act of 1974, as amended (“ERISA”) events; material judgments; actual or asserted invalidity of any guarantee or non-perfection of any material portion of the collateral under the security documents; a change in control; and, with respect to the Revolving Credit Facility and Term Loan A Facilities only, a breach of the financial covenants.

On November 27, 2015, all of the Tranche A1 Facility and a portion of the Tranche A2 Facility were funded in an aggregate amount of $1.56 billion, the proceeds of which were used to fund the Special Dividend (including the portion of the Special Dividend paid by CSC to its stockholders) and to ~~pay transaction costs. On November 30, 2015, $200 million of the Revolving Credit Facility, the remainder of the Tranche A2 Facility~~manage its exposure to interest rate movements (see Note 6—Derivative Instruments to our unaudited Consolidated and ~~all of the Term Loan B Facility were funded~~Condensed Financial Statements in an additional aggregate amount of $1.44 billion, the proceeds of which were used to fund the cash portion of the Merger Consideration to holders of SRA common stock, to repay, refinance and/or redeem substantially all of SRA’s existing indebtedness, to pay for additional transaction costs and for general corporate purposes.this Form 10-Q).

We ~~expect to have a significantly levered capital structure, but we expect to~~ have liquidity available for debt servicing and other discretionary investments from free cash flow and the Revolving Credit Facility, of which ~~immediately after the consummation of the Spin-Off and the Merger, $500~~$700 million remained available but undrawn. Debt service in the first five years ~~following the Spin-Off and Mergers~~ is expected to be funded from available free cash flow, while still maintaining available liquidity for short-term working capital and other cash requirements needs. Our expected liquidity and capital structure may be impacted, however, by discretionary investments and acquisitions that CSRA could decide to pursue. While the timing and financial magnitude of these

possible actions are currently indeterminable, CSRA expects to be able to manage and adjust its capital structure in the future to meet its liquidity needs.

The amount of indebtedness incurred in connection with the Spin-Off and the Mergers was based on various factors including expected operating results, expected free cash flow generation, credit ratings considerations, ensuring strategic and financial flexibility, anticipated business plans, and general economic conditions. We believe our capital structure and financial strength ~~will~~ provide us with financial flexibility in a dynamic industry that we believe affords competitive and strategic advantages to providers that maintain financial flexibility.

Equity Transactions

On November 30, 2015, CSRA’s Board of Directors approved a share repurchase program authorizing up to $400 million in share repurchases of CSRA's outstanding common stock. The timing, volume, and nature of future share repurchases are at the discretion of management and the Audit Committee, and may be suspended or discontinued at any time. CSRA plans to offset equity grants through share repurchases over time, balancing them with debt reduction and other forms of cash deployment.

In September 2016, CSRA repurchased 300,097 shares of common stock through open market purchases for an aggregate consideration of $7.9 million, at an average price of $26.45 per share. As of September 30, 2016, CSRA remained authorized to repurchase $342 million of common stock pursuant to the Share Repurchase Program with an expiration date of March 31, 2019.

On May 25, 2016, CSRA announced that its Board of Directors had declared a quarterly cash dividend of $0.10 per share. The total qualifying shares were 163,427,525 shares, with a total dividend payout of $16.3 million.

Payment of the dividend was made on July 11, 2016 to CSRA stockholders of record at the close of business on June 14, 2016.

On August 10, 2016, CSRA announced that its Board of Directors had declared a quarterly cash dividend of $0.10 per share. The total qualifying shares were 163,796,116 shares, with a total dividend payout of $16.4 million. Payment of the dividend was made on October 4, 2016 to CSRA stockholders of record at the close of business on August 31, 2016.

In the opinion of management, CSRA has sufficient liquidity and expects to continue paying quarterly cash dividends although such payments are subject to continued approval by CSRA’s Board of Directors.

Off Balance Sheet Arrangements

As of ~~October 2, 2015,~~September 30, 2016, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues, or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Contractual Obligations

~~Computer Sciences GS~~CSRA has contractual obligations for long-term debt, capital lease liabilities ~~operating lease obligations, minimum purchase obligations, unrecognized tax positions~~ and other obligations, ~~as summarized~~including our performance guarantees and expiration of the stand-by letters of credit. See Note 9—Debt and Note 15—Commitments and Contingencies to our unaudited Consolidated and Condensed Financial Statements in ~~the Contractual Obligations section of our~~this Form ~~10 Information Statement filed on November 6, 2015. There have been no material changes since April 3, 2015.~~10-Q for further information about these obligations.

Critical Accounting Estimates

Recent accounting pronouncements and the anticipated impact to ~~Computer Sciences GS~~CSRA are described in Note 1— Description of the ~~notes~~Business, Basis of Presentation and Recent Accounting Pronouncements to our unaudited Consolidated and Condensed Financial Statements in this Form 10-Q.

Our unaudited Consolidated and Condensed Financial Statements have been prepared in accordance with GAAP. The preparation of unaudited Consolidated and Condensed Financial Statements in accordance with GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, as well as the disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience and other factors believed to be reasonable under the circumstances. Many of the estimates made are for contract-specific issues. Changes to estimates or assumptions on a specific contract could result in a material adjustment to the unaudited Combined Condensed Financial Statements included in this Form 10-Q as well as in the Computers Sciences GS's audited Combined Financial Statements included in our Form 10 Information Statement filed November 6, 2015.

We have identified several critical accounting estimates. An accounting estimate is considered critical if both: (a) the nature of the estimates or assumptions is material due to the levels of subjectivityConsolidated and ~~judgment involved; and (b) the impact of changes in the estimates and assumptions would have a material effect on the Combined Financial Statements and unaudited Combined~~ Condensed Financial Statements. ~~Our critical accounting estimates relate to: revenue recognition, cost estimation and recoverability~~See “Critical Accounting Policies” in our Annual Report on long-term, fixed-price contracts; revenue recognition on software license sales that require significant customization; software development costs; estimates used to determine deferred income taxes; assumptions related to purchase accounting and goodwill; assumptions to determine retirement benefits costs and liabilities; and assumptions and estimates used to analyze contingencies and litigation.Form 10-K for additional information about these estimates. For all of these estimates, we caution that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment.

Revenue recognition

Substantially all of our revenue is derived from contracts with departments and agencies of the U.S. federal government, as well as other state and local government agencies. We generate our revenue from the following types of contractual arrangements: time and materials contracts, firm-fixed-price contracts and ~~cost-reimbursable-plus-fee contracts.~~cost-plus-fee contracts, which comprised approximately 21%, 44%, and 36%, respectively, of our revenue in the six months ended September 30, 2016. We also ~~provide~~provided services to other businesses of CSC, which are included ~~in revenues.~~

~~Due to the long-term nature of our contracts, the amounts we record in our financial statements using contract accounting methods are material and require us to make reasonably dependable estimates~~as related-party revenues for the ~~design~~second quarter and ~~delivery~~first half of ~~our services. Some contract sales may include estimated amounts not contractually agreed to by~~fiscal year 2016. In the customer, including cost or performance incentives (such as award and incentive fees), unpriced change orders, claims and requests for equitable adjustment. Amounts pertaining to cost and/or performance incentivessecond quarter of fiscal year 2017, these services are included in ~~estimated contract sales when they are reasonably estimable.~~

revenues.

~~Percentage-of-completion method~~

~~Contracts with the U.S. federal government and certain~~Many of our contracts ~~with customers other than the U.S. federal government~~ require the use of estimates-at-completion (“~~EACs”~~EAC”) in the application of the percentage-of-completion accounting ~~method, whereby the determination of revenues and costs on a contract through its completion can~~method. Contracts that require ~~significant judgment and estimation. Under this method, and subject to the effects of changes in~~ estimates ~~we recognize revenue using an estimated margin~~ at completion as contract milestones or other input or output-based measures are achieved. This can result in costs being deferred as work in process until contractual billing milestones are achieved. Alternatively, this can result in revenue recognized in advanceusing the percentage-of-completion method accounted for approximately 37% of ~~billing milestones if output-based or input-based measures are achieved.~~our revenues for the six months ended September 30, 2016.

We regularly review project profitability and underlying estimates and closely monitor compliance with, and the consistent application of, our critical accounting policies related to contract accounting including the preparation of EACs for our contracts. Our cost estimation process is based on the professional knowledge of our program managers and finance professionals, and draws on their significant experience and judgment. Also, regular and recurring evaluations of contract cost, scheduling and technical matters are performed by management personnel who are independent from the business operations personnel performing work under the contract.

We generally review and reassess our sales, cost and profit estimates for each significant contract at least annually or more frequently as determined by the occurrence of events, changes in circumstances and evaluations of contract performance to reflect the latest reliable information available. 47

When changes in estimates of contract sales or costs occur, we make revisions to EACs and reflect changes in the results of operations as a change in accounting estimate in the period in which the facts that give rise to the revision become known by management. ~~Since contract costs are typically incurred over a period of several years, estimation of these costs requires the use of judgment. Factors considered in estimating the cost~~See Note 1— Description of the ~~work~~Business, Basis of Presentation and Recent Accounting Pronouncements to ~~be completed include the availability, productivity~~our unaudited Consolidated and ~~cost of labor, the nature and complexity of work to be performed, the effect of change orders, availability and cost of materials, the effect of any delays~~Condensed Financial Statements in ~~performance and the level of indirect cost allocations. Provisions~~this Form 10-Q for estimated losses at completion, if any, are recognized in the period in which the loss becomes evident. The provision includes estimated costs in excess of estimated revenue and any profit margin previously recognized. There were no significant adjustments to income before taxes related to changes in the provision for estimated losses in the six months ended October 2, 2015 and October 3, 2014.

Amounts billed and collected but not yet earned as revenues under certain types of contracts are deferred. Contract costs incurred for U.S. federal government contracts, including indirect costs, are subject to audit and adjustment through negotiations between government representatives and us. Further, as contracts are performed, change orders can be a regular occurrence and may be un-priced until negotiated with the customer. Un-priced change orders are included in estimated contract sales when they are probable of recovery in an amount at least equal to the cost. Amounts representing claims (including change orders unapproved as to both scope and price) and requests for equitable adjustment are included in estimated contract revenues when they are reliably estimable and realization is probable.additional information.

Our U.S. federal government contracts generally contain FAR provisions that enable the customer to terminate a contract for default or for the convenience of the government. If a contract is terminated for default, we may not be entitled to recover any of our costs on partially completed work and may be liable to the government for re-procurement costs of acquiring similar products or services from another contractor, and for certain other damages. Termination of a contract for the convenience of the government may occur when the government concludes it is in the best interests of the government that the contract be terminated. Under a termination for convenience, the contractor is typically entitled to be paid in accordance with the contract’s terms for costs incurred prior to the effective date of termination, plus a reasonable profit and settlement expenses. At ~~October 2, 2015~~September 30, 2016, we did not have any federal contract terminations in process that would have a material effect on our consolidated financial position, ~~annual~~ results of operations ~~and/~~or cash flows.

~~Software sales~~

We enter into development of highly-customized software and may include post-contract customer support and other software-related services. These arrangements are accounted for under contract accounting, and vendor-specific objective evidence (“VSOE”) of fair value is required to allocate and recognize revenue for each element. VSOE of fair value is determined based on the price charged where each deliverable is sold separately. In situations where VSOE of fair value exists for all undelivered elements, but not a delivered element (typically the software), the residual method is used to allocate revenue to the undelivered elements equal to their VSOE value with the remainder allocated to the delivered element. When VSOE is available for the undelivered elements, software revenue is recognized as the related software customization services are performed in accordance with the percentage-of-completion method described above. In those arrangements where VSOE of fair value does not exist for the undelivered elements, revenue is deferred until only one undelivered element remains and then is recognized ratably as the final element is delivered, beginning with substantial completion and delivery of the highly-customized software.

~~Capitalization of software development costs~~

We capitalize certain costs incurred to develop commercial software products to be sold, leased or otherwise marketed after establishing technological feasibility and we capitalize costs to develop or purchase internal-use software. Significant estimates and assumptions include: determining the appropriate period over which to amortize the capitalized costs based on estimated useful lives, estimating the marketability of the commercial software products and related future revenues, and assessing the unamortized cost balances for impairment.

For commercial software products, determining the appropriate amortization period is based on estimates of future revenues from sales of the products. We consider various factors to project marketability and future revenues, including an assessment of alternative solutions or products, current and historical demand for the product and anticipated changes in technology that may make the product obsolete.

For internal-use software, the appropriate amortization period is based on estimates of our ability to utilize the software on an ongoing basis. To assess the recoverability of capitalized software costs, we consider estimates of future revenue, costs and cash flows. Such estimates require assumptions about future cash inflows and outflows, and are based on the experience and knowledge of professional staff. A significant change in an estimate related to one or more software products could result in a material change to our results of operations.

~~Estimates used to determine income tax expense~~

We make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities, which principally arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes. We also must analyze income tax reserves, as well as determine the likelihood of recoverability of deferred tax assets, and adjust any valuation allowances accordingly. Considerations with respect to the recoverability of deferred tax assets include the period of expiration of the tax asset, planned use of the tax asset, and historical and projected taxable income as well as tax liabilities for the tax jurisdiction to which the tax asset relates. The calculation of our tax liabilities also involves dealing with uncertainties in the application of complex tax regulations. We recognize unrecognized tax benefits in the Combined Financial Statements and unaudited Combined Condensed Financial Statements when it is more likely than not the tax position will be sustained under examination.

Assumptions related to purchase accounting and goodwill

When we acquire a controlling financial interest through a business combination, we use the acquisition method of accounting to allocate the purchase consideration to the assets acquired and liabilities assumed, which are recorded at fair value. Any excess of purchase consideration over the fair value of the assets acquired and liabilities assumed is recognized as goodwill.

For contingent consideration recorded as a liability, we initially measure the amount at fair value as of the acquisition date and adjust the liability, if needed, to fair value each reporting period. Changes in the fair value of

~~contingent consideration, other than measurement period adjustments, are recognized as operating income or expense.~~

Acquisition-related costs are recognized separately from the business combination and are expensed as incurred. The results of operations of acquired businesses are included in ~~the Combined Financial Statements~~our financial statements from the acquisition date.

We test goodwill for impairment on an annual basis, as of the first day of the second fiscal quarter, at each of our reporting units, and between annual tests if circumstances change, or if an event occurs that would more likely than not reduce the fair value of a reporting unit below its carrying amount. A significant amount of judgment is involved in determining whether an event indicating impairment has occurred between annual testing dates. Such indicators include, among other things: a significant decline in expected future cash flows; a significant adverse change in legal factors or in the business climate; unanticipated competition; the disposal of a significant component of a reporting unit; and the testing for recoverability of a significant asset group within a reporting unit. The results of our annual goodwill impairment test for fiscal years 2016 and 2015 indicated that the estimated fair value of each reporting unit exceeded its respective carrying value by greater than 10%, which we deem to be a sufficient excess.

~~Assumptions to determine retirement benefits costs and liabilities~~

Our employees are participants in various pension and postretirement benefit plans. For purposes of our standalone financial statements, the largest defined benefit plan is a CSC sponsored single employer plan which is classified as a multi-employer plan for us. Most other plans are classified as Computer Sciences GS sponsored single employer plans.

Multi-employer plans are sponsored by CSC. CSC manages these pension and postretirement benefit plans on an aggregated basis; claims data and liability information related to us are included with those related to other CSC businesses. Accordingly, the related assets and liabilities of these plans are not recorded in our Combined Financial Statements. We recognize service cost only as the net periodic pension cost for these multi-employer plans.

Single employer plans are those plans that benefit only our employees, thus the related assets and liabilities of the plans are recorded in our Combined Financial Statements. For these single employer plans, we recognize net actuarial gains and losses and the changes in fair value of plan assets in earnings at the time of plan remeasurement, annually during the fourth quarter of each year, or if there is an interim remeasurement event, as a component of net periodic benefit or cost.

We utilize actuarial methods to measure the benefit obligations and net periodic pension cost or income for our pension and other postretirement benefit plans. Inherent in the application of these actuarial methods are key assumptions, including, but not limited to, discount rates, expected long-term rates of return on plan assets, mortality rates, rates of compensation increases, and medical cost trend rates. We evaluate these assumptions annually and update assumptions as necessary. The fair value of assets is determined based on the prevailing market prices or estimated fair value of investments when quoted prices are not available.

~~Assumptions and estimates used to analyze contingencies and litigation~~

We are subject to various claims and contingencies associated with lawsuits, insurance, tax and other issues arising in the normal course of business. The Combined Financial Statements reflect the treatment of claims and contingencies based on management’s view of the expected outcome. We consult with legal counsel on issues related to litigation and seek input from other experts and advisors with respect to matters in the ordinary course of business. If the likelihood of an adverse outcome is probable and the amount is estimable, we accrue a liability in accordance with ASC 450 “Contingencies.” Significant changes in the estimates or assumptions used in assessing the likelihood of an adverse outcome could have a material effect on the consolidated financial results.

~~New Accounting Standards~~

See Note ~~1, “Basis of presentation~~7— Goodwill and ~~recent accounting pronouncements”~~Other Intangible Assets to our ~~accompanying~~ unaudited ~~Combined~~Consolidated and Condensed Financial Statements in this Form 10-Q for ~~information related to our adoption of new accounting standards in the first six months of fiscal 2016.~~further information.



Nevada		47-4310550
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

3170 Fairview Park Drive
Falls Church, Virginia		22042
(Address of principal executive offices)		(zip code)

~~Registrant's~~Registrant’s telephone number, including area code: (703) ~~642-2000~~641-2000



Large accelerated filer o	Accelerated filer o	Non-accelerated filer x	Smaller reporting company o



TABLE OF CONTENTS
		PAGE
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	1
	~~Combined~~Consolidated and Condensed Balance Sheets as of ~~October 2, 2015~~September 30, 2016 and April ~~3, 2015~~1, 2016	1
	~~Combined~~Consolidated and Condensed Statements of Operations for the Three and Six Months Ended September 30, 2016 and October 2, 2015 ~~and October 3, 2014~~	2
	~~Combined~~Consolidated and Condensed Statements of Comprehensive Income for the Three and Six Months Ended September 30, 2016 and October 2, 2015 ~~and October 3, 2014~~	3
	~~Combined Condensed Statements of Changes in Parent Equity for the Six Months Ended October 2, 2015~~Consolidated and ~~October 3, 2014~~	4
	~~Combined~~ Condensed Statements of Cash Flows for the Six Months Ended September 30, 2016 and October 2, 2015 ~~and October 3, 2014~~	54
	Notes to ~~Combined~~Consolidated and Condensed Financial Statements	65
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3033
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5248
Item 4.	Controls and Procedures	5249
PART II.	OTHER INFORMATION	5250
Item 1.	Legal Proceedings	5250
Item 1A.	Risk Factors	5250
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7450
Item 3.	~~Defaults~~Default Upon Senior Securities	7451
Item 4.	Mine Safety Disclosures	7451
Item 5.	Other Information	7451
Item 6.	Exhibits	7452


		As of						As of
(Dollars in thousands)		October 2, 2015			April 3, 2015
(Dollars in millions)								September 30, 2016		April 1, 2016
Current assets
Cash and cash equivalents	$	9,750		$	4,979		$	68	$	130
Receivables, net of allowance for doubtful accounts of $14,337 (fiscal 2016) and $14,733 (fiscal 2015)		471,986			696,727
Receivables, net of allowance for doubtful accounts of $25 and $21, respectively								809		751
Prepaid expenses and other current assets		77,358			92,665			114		123
Total current assets		559,094			794,371			991		1,004

Intangible and other assets
Goodwill		791,779			802,582			2,330		2,332
Customer-related and other intangible assets, net of accumulated amortization of $157,835 (fiscal 2016) and $150,295 (fiscal 2015)		25,865			33,405
Software, net of accumulated amortization of $79,160 (fiscal 2016) and $75,544 (fiscal 2015)		41,484			35,261
Customer-related and other intangible assets, net of accumulated amortization of $211 and $201, respectively								810		870
Software, net of accumulated amortization of $104 and $95, respectively								46		41
Other assets		57,325			58,931			68		69
Total intangible and other assets		916,453			930,179			3,254		3,312

Property and equipment, net of accumulated depreciation of $723,659 (fiscal 2016) and $696,796 (fiscal 2015)		437,909			436,732
Property and equipment, net of accumulated depreciation of $797 and $773, respectively								524		530
Total assets	$	1,913,456		$	2,161,282		$	4,769	$	4,846

Current liabilities
Accounts payable	$	139,751		$	130,551		$	171	$	170
Accrued payroll and related costs		88,986			109,539			176		200
Accrued expenses and other current liabilities		398,071			440,606			532		528
Current capital lease liability		19,212			21,351			53		42
Deferred income tax liabilities		60,817			89,608
Current maturities of long-term debt								73		128
Dividends payable								18		18
Total current liabilities		706,837			791,655			1,023		1,086

Long-term debt, net of current maturities								2,568		2,656
Noncurrent capital lease liability		132,195			129,933			95		109
Noncurrent deferred income tax liabilities		92,481			63,689
Deferred income tax liabilities								153		163
Other long-term liabilities		93,929			80,957			726		742
Parent equity
Net Parent investment		862,328			1,067,492
Accumulated other comprehensive loss		(2,409	)		(405	)

Commitments and contingent liabilities (Note 15)

Equity
Stockholders’ Equity:
Common stock, $0.001 par value, 750,000,000 shares authorized, 163,744,743 and 162,925,821 shares issued, and 163,588,001 and 162,925,821 shares outstanding, respectively								—		—
Additional paid-in capital								128		117
Accumulated earnings (deficit)								34		(74	)
Accumulated other comprehensive income								14		21
Total stockholders’ equity								176		64
Noncontrolling interests		28,095			27,961			28		26
Total Parent equity		888,014			1,095,048
Total liabilities and Parent equity	$	1,913,456		$	2,161,282
Total equity								204		90
Total liabilities and equity							$	4,769	$	4,846


		Three Months Ended					Six Months Ended						Three Months Ended					Six Months Ended
(Dollars in thousands)		October 2, 2015			October 3, 2014		October 2, 2015			October 3, 2014

(Dollars in millions, except per share amounts)													September 30, 2016		October 2, 2015				September 30, 2016			October 2, 2015
Revenue	$	967,146		$	1,033,776	$	1,923,950		$	2,064,377		$	1,263	$	967		2,517			$	1,924
Related party revenue		1,907			2,512		4,035			5,218
Related-party revenue													—		2			—			4
Total revenue		969,053			1,036,288		1,927,985			2,069,595			1,263		969			2,517			1,928

Cost of services		754,956			817,312		1,527,886			1,649,639			983		755			1,974			1,528
Related party cost of services		1,907			2,512		4,035			5,218
Related-party cost of services													—		2			—			4
Total cost of services (excludes depreciation and amortization)		756,863			819,824		1,531,921			1,654,857			983		757			1,974			1,532
Selling, general and administrative expenses		44,122			48,356		84,752			91,741			55		44			111			85
Separation and merger costs													8		42			13			56
Depreciation and amortization		34,714			35,649		67,666			71,047			63		35			128			68
Separation and merger costs		41,508			—		56,285			—
Interest expense, net		5,472			5,509		10,953			11,209			29		5			59			10
Other (income) expense, net		(1,758	)		906		(21,085	)		2,365
Other expense (income), net													1		(2	)		2			(21	)
Total costs and expenses		880,921			910,244		1,730,492			1,831,219			1,139		881			2,287			1,730

Income from continuing operations before taxes		88,132			126,044		197,493			238,376
Income before income taxes													124		88			230			198
Income tax expense		35,407			47,531		77,798			88,796			44		35			82			78
Income from continuing operations		52,725			78,513		119,695			149,580
Loss from discontinued operations, net of taxes		—			—		—			(1,423	)
Net income		52,725			78,513		119,695			148,157			80		53			148			120
Less: noncontrolling interests		4,836			4,908		9,129			9,257			4		5			7			9
Net income attributable to Parent	$	47,889		$	73,605	$	110,566		$	138,900
Net income attributable to CSRA common stockholders												$	76	$	48		$	141		$	111

Earnings per common share:
Basic												$	0.46	$	0.35		$	0.86		$	0.80
Diluted												$	0.46	$	0.35		$	0.86		$	0.80

Common share information (weighted averages):
Common shares outstanding - basic													163,824,108		139,128,158			163,550,807			139,128,158
Dilutive effect of stock options and equity awards													1,259,895		—			1,331,012			—
Common shares outstanding - diluted													165,084,003		139,128,158			164,881,819			139,128,158

Cash dividend per common share												$	0.10	$	—		$	0.20		$	—



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	CSRA INC.
	(Exact name of Registrant as specified in its charter)



Preliminary allocation (in millions):		Amount
Cash, accounts receivable and other current assets	$	302
Property, equipment and other long-term assets		46
Intangibles—customer relationships, backlog and other intangibles assets		891
Accounts payable and other current liabilities		(193	)
Other long-term liabilities		(26	)
Deferred tax liabilities		(258	)
Total identified net assets acquired		762

Goodwill		1,538

Estimated total purchase consideration and liabilities paid at closing	$	2,300



	Three Months Ended September 30, 2016
(Dollars in millions, except per share amounts)		CSRA Consolidated		Effects of Spin-Off (a)		Effects of Mergers (b)		Pro Forma for Spin-Off and Merger
Revenue	$	1,263	$	—	$	—	$	1,263
Income attributable to CSRA Shareholders		76		1		4		81

Income per common share:
Basic	$	0.46					$	0.49
^(a)Income from continuing operations attributable to CSRA Shareholders effected for the Spin-Off excludes $1 million, net of tax, of non-recurring costs incurred to give effect to the merger of SRA and CSRA. ^(b)Income from continuing operations effected for the Merger excludes $4 million, net of tax, of non-recurring costs incurred to give effect to the merger of SRA and CSRA.



	Three Months Ended October 2, 2015
(Dollars in millions, except per share amounts)		Historical Computer Sciences GS		Historical SRA			Effects of Spin-Off		Effects of Merger		Pro Forma for Spin-Off and Merger
Revenue	$	969	$	351		$	—	$	—	$	1,320
Income (loss) attributable to Parent		48		(4	)		49		11		104

Income per common share:
Basic	$	0.35								$	0.63



	Six Months Ended September 30, 2016
(Dollars in millions, except per share amounts)		CSRA Consolidated		Effects of Spin-Off (a)		Effects of Mergers (b)		Pro Forma for Spin-Off and Merger
Revenue	$	2,517	$	—	$	—	$	2,517
Income attributable to CSRA Shareholders		141		1		7		149

Income per common share:
Basic	$	0.86					$	0.91
^(a)Income from continuing operations attributable to CSRA Shareholders effected for the Spin-Off excludes $1 million, net of tax, of non-recurring costs incurred to give effect to the merger of SRA and CSRA. ^(b)Income from continuing operations effected for the Merger excludes $7 million, net of tax, of non-recurring costs incurred to give effect to the merger of SRA and CSRA.



	Six Months Ended October 2, 2015
(Dollars in millions, except per share amounts)		Historical Computer Sciences GS		Historical SRA			Effects of Spin-Off		Effects of Merger			Pro Forma for Spin-Off and Merger
Revenue	$	1,928	$	710		$	—	$	(1	)		2,637
Income (loss) attributable to Parent		111		(3	)		62		21			191

Income (loss) per common share:
Basic	$	0.80									$	1.16



		As of
		April 3, 2015
		Gross Carrying Value		Accumulated Amortization			Net Carrying Value
Customer-related intangibles	$	130,150	$	(110,449	)	$	19,701
Other intangible assets		53,550		(39,846	)		13,704
Software		110,805		(75,544	)		35,261
Total intangible assets	$	294,505	$	(225,839	)	$	68,666



		September 30, 2016			April 1, 2016
Revolving credit facility, due November 2020	$	—		$	50
Tranche A1 facility, due November 2018		590			600
Tranche A2 facility, due November 2020		1,396			1,432
Term Loan B facility, due November 2022		696			748
Capitalized lease liability		148			151
Total debt		2,830			2,981

Less: unamortized debt issuance costs		(41	)		(46	)
Less: current portion of long-term debt and capitalized lease liability		(126	)		(170	)

Total long-term debt, net of current maturities	$	2,663		$	2,765



Jurisdiction:		Tax Years that Remain Subject to Examination (Fiscal Year Ending):
~~U.S.~~United States - federal		2008 and forward
~~U.S.~~United States - various states		2008 and forward



Fiscal Year		Amount (in Millions)
Last half of 2017	$	36
2018		73
2019		662
2020		73
2021		1,142
Thereafter		696
Total	$	2,682



Net periodic pension costs		Three Months Ended						Six Months Ended
Net periodic pension costs		October 2, 2015			October 3, 2014			October 2, 2015			October 3, 2014
Interest cost	$	637		$	659		$	1,273		$	1,317
Expected return on assets		(1,064	)		(1,059	)		(2,129	)		(2,118	)
Net periodic pension benefit	$	(427	)	$	(400	)	$	(856	)	$	(801	)



Net periodic pension costs (dollars in millions)		Three Months Ended						Six Months Ended
Net periodic pension costs (dollars in millions)		September 30, 2016			October 2, 2015			September 30, 2016			October 2, 2015
Service cost	$	3			—		$	6			—
Interest cost		25		$	1			51		$	1
Expected return on assets		(49	)		(1	)		(98	)		(2	)
Net periodic pension benefit	$	(21	)	$	—		$	(41	)	$	(1	)



Net periodic postretirement benefit costs		Three Months Ended					Six Months Ended
Net periodic postretirement benefit costs		October 2, 2015			October 3, 2014		October 2, 2015			October 3, 2014
Service cost	$	3		$	3	$	7		$	6
Interest cost		121			224		242			448
Amortization of prior service (benefit) cost		(770	)		8		(1,543	)		17
Net periodic (benefit) cost	$	(646	)	$	235	$	(1,294	)	$	471



For the Three Months Ended October 2, 2015
Foreign currency translation adjustments	$	(535	)
Amortization of prior service credit		(770	)
Total other comprehensive loss	$	(1,305	)



For the Three Months Ended October 3, 2014
Foreign currency translation adjustments	$	(737	)
Amortization of prior service cost		8
Total other comprehensive loss	$	(729	)



For the Six Months Ended October 2, 2015
Foreign currency translation adjustments	$	(456	)
Amortization of prior service credit		(1,543	)
Total other comprehensive loss	$	(1,999	)



For the Six Months Ended October 3, 2014
Foreign currency translation adjustments	$	(309	)
Amortization of prior service cost		17
Total other comprehensive loss	$	(292	)



		Foreign Currency Translation Adjustments			Pension and Other Postretirement Benefit Plans			Accumulated Other Comprehensive Loss
Balance as of April 3, 2015	$	(2,277	)	$	1,872		$	(405	)
Current-period other comprehensive income		(456	)		—			(456	)
Amounts reclassified from accumulated other comprehensive income, net of noncontrolling interests		—			(1,548	)		(1,548	)
Balance as of October 2, 2015	$	(2,733	)	$	324		$	(2,409	)



	Number of Option Shares			Weighted Average Exercise Price	Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at April 3, 2015	806,761		$	47.18	6.13	$	14,682
Granted	175,680			68.43
Net transfers*	(10,412	)		49.64
Exercised	(75,126	)		41.19
Canceled/Forfeited	(17,063	)		60.63
Expired	(2,827	)		53.62
Outstanding as of October 2, 2015	877,013			51.63	6.42		10,477
Vested and expected to vest in the future as of October 2, 2015	845,288			51.15	6.55		10,414
Exercisable as of October 2, 2015	521,259			45.19	5.12		8,974
*Represents option activity associated with employees who transferred between CSC and the Computer Sciences GS Business.



	Number of Option Shares			Weighted Average Exercise Price per share	Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in millions)
Outstanding as of April 1, 2016	1,502,547		$	23.06	7.0	$	7.6
Granted	1,002,151			24.77
Exercised	(186,340	)		18.66
Canceled/Forfeited	(64,406	)		24.92
Expired	(54,752	)		27.76
Outstanding as of September 30, 2016	2,199,200			24.04	8.2		7.6
Vested and expected to vest in the future as of September 30, 2016	1,449,556			25.12	9.4		3.5
Exercisable as of September 30, 2016	749,644			21.96	5.7		4.2



	Number of Restricted Stock Units			Weighted Average Fair Value
Outstanding as of April 1, 2016	376,557		$	29.39
Granted	611,524			25.69
Vested	(145,156	)		26.52
Canceled/Forfeited	(21,427	)		31.89
Outstanding as of September 30, 2016	821,498			27.08



		For the Three Months Ended September 30, 2016
(Dollars in millions)		Before Tax Amount		Tax Impact Increase (Decrease)		Net of Tax Amount
Unrealized loss on interest rate swap	$	5		(2	)	3
Amortization of prior service credit		(3	)	1		(2	)
Total other comprehensive income	$	2		(1	)	1



	Number of Option Shares			Weighted Average Fair Value
Outstanding as of April 3, 2015	289,508		$	46.99
Granted	84,150			67.48
Net transfers*	(191	)		52.24
Released/Issued	(39,974	)		39.72
Canceled/Forfeited	(22,350	)		47.06
Outstanding as of October 2, 2015	311,143			53.53
*Represents award activity associated with employees who transferred between CSC and the Computer Sciences GS Business.



(Dollars in millions)		Foreign Currency Translation Adjustments		Cash Flow Hedge			Pension and Other Post-retirement Benefit Plans			Accumulated Other Comprehensive (Loss) Income
Balance as of April 1, 2016	$	—	$	(7	)	$	28		$	21
Other comprehensive income (loss), net of taxes		—		(3	)		—			(3	)
Amounts reclassified from accumulated other comprehensive income (loss), net of taxes and noncontrolling interests		—		—			(4	)		(4	)
Balance as of September 30, 2016	$	—	$	(10	)	$	24		$	14



		Defense and Intelligence		Civil		Total Segment		Corporate			Total
As of October 2, 2015
Total Assets	$	1,160,640	$	752,569	$	1,913,209	$	247		$	1,913,456

Three Months Ended October 2, 2015
Revenues	$	499,558	$	469,495	$	969,053	$	—		$	969,053
Operating Income (loss)		70,490		76,760		147,250		(66	)		147,184
Depreciation and Amortization Expense		23,028		11,686		34,714		—			34,714

Six Months Ended October 2, 2015
Revenues	$	1,006,149	$	921,836	$	1,927,985	$	—		$	1,927,985
Operating Income (loss)		134,427		138,041		272,468		(58	)		272,410
Depreciation and Amortization Expense		45,335		22,331		67,666		—			67,666

As of April 3, 2015
Total Assets	$	1,330,761	$	830,413	$	2,161,174	$	108		$	2,161,282

Three Months Ended October 3, 2014
Revenues	$	528,670	$	507,618	$	1,036,288	$	—		$	1,036,288
Operating Income (loss)		62,109		84,941		147,050		(37	)		147,013
Depreciation and Amortization Expense		25,012		10,637		35,649		—			35,649

Six Months Ended October 3, 2014
Revenues	$	1,088,113	$	981,482	$	2,069,595	$	—		$	2,069,595
Operating Income (loss)		122,480		159,914		282,394		(120	)		282,274
Depreciation and Amortization Expense		49,421		21,626		71,047		—			71,047


		Fiscal 2016		Fiscal 2017		Fiscal 2018 and Thereafter		Total
(Dollars in millions)										Last Half of Fiscal 2017		Fiscal 2018		Fiscal 2019 and Thereafter		Total
Stand-by letters of credit	$	76	$	37,000	$	—	$	37,076	$	32	$	13	$	—	$	45
Surety bonds		13,652		—		—		13,652		—		12		—		12
Total	$	13,728	$	37,000	$	—	$	50,728	$	32	$	25	$	—	$	57



Estimated total purchase consideration	$	2,283,041

Preliminary allocation:
Cash, accounts receivable and other current assets	$	312,227
PPE and other long term assets		27,569
Intangibles - customer relationships, backlog and other intangibles assets		892,600
Accounts payable and other current liabilities		(225,186	)
Other long term liabilities		(24,100	)
Deferred tax liabilities		(261,144	)
Total identified net assets acquired		721,966
Goodwill		1,561,075
Estimated total purchase consideration	$	2,283,041



	Three Months Ended October 2, 2015
	(Amounts in thousands, except per share data and number of shares)
		Historical Computer Sciences GS Three Months Ended October 2, 2015		Effect of Spin-Off^(a)		Pro-Forma for Spin-Off Only		Historical SRA Three Months Ended September 30, 2015			Effect of Mergers^(b)		Pro Forma for Spin-Off and Mergers
Revenue	$	969,053	$	—	$	969,053	$	351,006		$	—	$	1,320,059
Income from continuing operations attributable to Parent	$	47,889	$	48,951	$	96,840	$	(3,942	)	$	10,579	$	103,477



	Six Months Ended October 2, 2015
	(Amounts in thousands, except per share data and number of shares)
		Historical Computer Sciences GS Six Months Ended October 2, 2015		Effect of Spin-Off^(a)		Pro Forma for Spin-Off Only		Historical SRA Six Months Ended September 30, 2015			Effect of Mergers^(b)		Pro Forma for Spin-Off and Mergers
Revenue	$	1,927,985	$	—	$	1,927,985	$	709,879		$	—	$	2,637,864
Income from continuing operations attributable to Parent	$	110,566	$	63,394	$	173,960	$	(3,026	)	$	20,135	$	191,069