UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 

FORM 10-Q

(Mark One)

 x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 201629, 2017

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


For the transition period from to

Commission File No.: 001-37494

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

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 telephone number, including area code: (703) 641-2000

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   x Yes  o  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) x Yes  o  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one).
Large accelerated filer ox
Accelerated filero
Non-accelerated filerxo
Smaller reporting companyo
Emerging growth Company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b of the Exchange Act).  o  Yes x No 
163,426,170163,779,945 shares of Common Stock, $0.001 par value, were outstanding on November 4, 2016.2, 2017.
 


EXPLANATORY NOTE

On November 27, 2015, CSRA Inc. (“CSRA”) became an independent, publicly traded company through consummation of a spin-off by Computer Sciences Corporation (“CSC”) of the businesses constituting CSC’s North American Public Sector segment, which we refer to as the “Computer Sciences GS Business”, together with certain other assets and liabilities. We refer to this series of internal transactions as the “Internal Reorganization.” We refer to CSC’s distribution of the shares of CSRA common stock to CSC’s stockholders as the “Distribution” and to the Internal Reorganization and the Distribution collectively as the “Spin-Off.” On November 30, 2015, following two mergers (the “Mergers”) involving SRA Companies, Inc. (“SRA Parent”) and two wholly owned subsidiaries of CSRA, SRA International, Inc. (“SRA”) became an indirect wholly owned subsidiary of CSRA. For a more detailed description of the Spin-Off and Mergers, see CSRA’s Annual Report on Form 10-K for the year ended April 1, 2016.

Because the Spin-Off and the Mergers were not consummated until November 27, 2015 and November 30, 2015, respectively, the unaudited Consolidated and Condensed Financial Statements presented in this Quarterly Report on Form 10-Q (“Form 10-Q”) include only the legacy Computer Sciences GS Business activity for the period from April 4, 2015 to October 2, 2015 and CSRA including SRA from April 2, 2016 to September 30, 2016.

In this Form 10-Q, unless the context otherwise requires, “CSRA,” “Computer Sciences GS,” “we,” “our” and “us” refer to CSRA Inc. and its combined subsidiaries after giving effect to the Spin-Off for periods prior to the consummation of the Mergers; “CSRA,” “we,” “our” and “us” refer to CSRA Inc. and its combined subsidiaries, including the combined business of SRA, after giving effect to the Spin-Off and the Mergers for periods following the consummation of the Mergers.
Trademarks and Copyrights
We own or have rights to various trademarks, logos, service marks and trade names that we use in connection with the operation of our business. We also own or have the rights to copyrights that protect the content of our products. Solely for convenience, the trademarks, service marks, trade names and copyrights referred to in this Form 10-Q are listed without the ™, ® and © symbols, but such references do not constitute a waiver of any rights that might be associated with the respective trademarks, service marks, trade names and copyrights included or referred to in this Form 10-Q.






CSRA INC.



TABLE OF CONTENTS
  PAGE
PART I.FINANCIAL INFORMATION 
Item 1.Financial Statements (unaudited)
1
 Consolidated and Condensed Balance Sheets as of March 31, 2017 and September 30, 2016 and April 1, 201629, 2017
1
 Consolidated and Condensed Statements of Operations for the Three and Six Months Ended September 29, 2017 and September 30, 2016 and October 2, 2015
2
 Consolidated and Condensed Statements of Comprehensive Income for the Three and Six Months Ended September 29, 2017 and September 30, 2016 and October 2, 2015
3
 Consolidated and Condensed Statements of Cash Flows for the Six Months Ended September 29, 2017 and September 30, 2016 and October 2, 2015
4
 Notes to Consolidated and Condensed Financial Statements
5
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
3324
Item 3.Quantitative and Qualitative Disclosures About Market Risk
4839
Item 4.Controls and Procedures
4939
PART II.OTHER INFORMATION
5040
Item 1.Legal Proceedings
5040
Item 1A.Risk Factors
5040
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
5040
Item 3.Default Upon Senior Securities
5141
Item 4.Mine Safety Disclosures
5141
Item 5.Other Information
5141
Item 6.Exhibits
5242




PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
     CSRA INC.
CONSOLIDATED AND CONDENSED BALANCE SHEETS (unaudited)
 As of As of
(Dollars in millions) September 30, 2016 April 1, 2016
(Dollars in millions, shares in thousands) September 29, 2017 March 31, 2017
Current assets        
Cash and cash equivalents$68
$130
 $91
 $126
Receivables, net of allowance for doubtful accounts of $25 and $21, respectively 809
 751
Receivables, net of allowance for doubtful accounts of $26 and $24, respectively 829
 748
Prepaid expenses and other current assets 114
 123
 122
 126
Total current assets 991
 1,004
 1,042
 1,000
        
Intangible and other assets        
Goodwill 2,330
 2,332
 2,397
 2,335
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
Customer-related and other intangible assets, net of accumulated amortization of $269 and $244, respectively 775
 775
Software, net of accumulated amortization of $97 and $89, respectively 73
 81
Other assets 68
 69
 81
 87
Total intangible and other assets 3,254
 3,312
 3,326
 3,278
        
Property and equipment, net of accumulated depreciation of $797 and $773, respectively 524
 530
Property and equipment, net of accumulated depreciation of $706 and $694, respectively 637
 610
Total assets$4,769
$4,846
 $5,005
 $4,888
        
Current liabilities        
Accounts payable$171
$170
 $169
 $187
Accrued payroll and related costs 176
 200
 183
 181
Accrued expenses and other current liabilities 532
 528
 488
 487
Current capital lease liability 53
 42
 47
 44
Current maturities of long-term debt 73
 128
 84
 72
Dividends payable 18
 18
 18
 21
Total current liabilities 1,023
 1,086
 989
 992
        
Long-term debt, net of current maturities 2,568
 2,656
 2,530
 2,511
Noncurrent capital lease liability 95
 109
 203
 172
Deferred income tax liabilities 153
 163
 269
 272
Other long-term liabilities 726
 742
 533
 582
        
Commitments and contingent liabilities (Note 15) 
 
Commitments and contingent liabilities (Note 13) 
 
        
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 —
 —
Common stock, $0.001 par value, 750,000 shares authorized, 164,240 and 163,570 shares issued, and 163,718 and 163,216 shares outstanding, respectively —
 —
Additional paid-in capital 128
 117
 136
 134
Accumulated earnings (deficit) 34
 (74)
Accumulated earnings 284
 165
Accumulated other comprehensive income 14
 21
 26
 31
Total stockholders’ equity 176
 64
 446
 330
Noncontrolling interests 28
 26
 35
 29
Total equity 204
 90
 481
 359
Total liabilities and equity$4,769
$4,846
 $5,005
 $4,888
See accompanying notes to Consolidated and Condensed Financial Statements (unaudited)


1


CSRA INC.
CONSOLIDATED AND CONDENSED STATEMENTS OF OPERATIONS (unaudited)


    
  Three Months Ended Six Months Ended  Three Months Ended  Six Months Ended
(Dollars in millions, except per share amounts) September 30, 2016 October 2, 2015September 30, 2016 October 2, 2015 September 29, 2017 September 30, 2016September 29, 2017 September 30, 2016
Revenue $1,263
$967
$2,517
$1,924
Related-party revenue —
 2
 —
 4
        
Total revenue  1,263
 969
 2,517
 1,928
 $1,272
 $1,263
 $2,501
 $2,517
                
Cost of services 983
 755
 1,974
 1,528
 1,022
 1,007
 2,001
 2,023
Related-party cost of services —
 2
 —
 4
Total cost of services (excludes depreciation and amortization) 983

757

1,974

1,532
Selling, general and administrative expenses 55
 44
 111
 85
 51
 55
 100
 111
Separation and merger costs 8
 42
 13
 56
Acquisition, integration, and other costs 9

8
 14
 13
Depreciation and amortization 63
 35
 128
 68
 56
 63
 116
 128
Operating expenses 1,138
 1,133
 2,231
 2,275
        
Operating income 134
 130
 270
 242
Net benefit of defined benefit plans 20
 25
 41
 49
Interest expense, net 29
 5
 59
 10
 (29) (29) (59) (59)
Other expense (income), net 1
 (2) 2
 (21)
Total costs and expenses 1,139
 881
 2,287
 1,730
        
Other expense, net (2)
(2) (3) (2)
Income before income taxes 124
 88
 230
 198
 123
 124
 249
 230
Income tax expense 44
 35
 82
 78
 45
 44
 91
 82
Net income 80
 53
 148
 120
 78
 80
 158
 148
Less: noncontrolling interests 4
 5
 7
 9
 2
 4
 5
 7
Net income attributable to CSRA common stockholders$76
$48
$141
$111
 $76
 $76
 $153
 $141
                
Earnings per common share:                
Basic$0.46
$0.35
$0.86
$0.80
 $0.46
 $0.46
 $0.94
 $0.86
Diluted$0.46
$0.35
$0.86
$0.80
 $0.46
 $0.46
 $0.93
 $0.86
                
Common share information (weighted averages):        
Common shares outstanding - basic 163,824,108
 139,128,158
 163,550,807
 139,128,158
Common share information (weighted averages, in thousands):        
Common shares outstanding— basic 163,538
 163,824
 163,464
 163,551
Dilutive effect of stock options and equity awards 1,259,895
 —
 1,331,012
 —
 1,713
 1,260
 1,743
 1,331
Common shares outstanding - diluted 165,084,003
 139,128,158
 164,881,819
 139,128,158
Common shares outstanding— diluted 165,251
 165,084
 165,207
 164,882
                
Cash dividend per common share$0.10
$—
$0.20
$—
 $0.10
 $0.10
 0.20
 0.20

See accompanying notes to Consolidated and Condensed Financial Statements (unaudited)


2


CSRA INC.
CONSOLIDATED AND CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)


  Three Months Ended  Six Months Ended  Three Months Ended  Six Months Ended
(Dollars in millions) September 30, 2016 October 2, 2015September 30, 2016 October 2, 2015 September 29, 2017 September 30, 2016September 29, 2017 September 30, 2016
                
Net income$80
$53
$148
$120
 $78
 $80
 $158
 $148
                
Other comprehensive (loss) income, net of taxes, related to:        
Other comprehensive income (loss), net of taxes, related to:        
Amortization of prior service cost (2) (1) (4) (2) (1) (2) (3) (4)
Unrealized gain (loss) on interest rate swaps 3
 —
 (3) —
Unrealized gain on derivatives —
 3
 (2) (3)
Other comprehensive income (loss), net of taxes 1
 (1) (7) (2) (1) 1
 (5) (7)
                
Comprehensive income 81
 52
 141
 118
 77
 81
 153
 141
Less: comprehensive income attributable to noncontrolling interest, net of taxes —
 5
 3
 9
 2
 4
 5
 7
Comprehensive income attributable to CSRA common stockholders$81
$47
$138
$109
 $75
 $77
 $148
 $134

See accompanying notes to Consolidated and Condensed Financial Statements (unaudited)




3


CSRA INC.
CONSOLIDATED AND CONDENSED STATEMENTS OF CASH FLOWS (unaudited)


(Dollars in millions) Six Months Ended Six Months Ended
September 30, 2016 October 2, 2015 September 29, 2017 September 30, 2016
Cash flows from operating activities    
Cash flows from operating activities:    
Net income$148
$120
 $158
 $148
Adjustments to reconcile net income to cash provided by operating activities:        
Depreciation and amortization 131
 72
 116
 131
Stock-based compensation 7
 4
Excess tax benefit from stock compensation (2) —
Net gain on dispositions of businesses and assets —
 (11)
Stock based compensation 8
 7
Excess tax benefit from stock based compensation (2) (2)
Deferred income taxes (1) —
Other non-cash items, net 1
 —
 6
 1
Changes in assets and liabilities, net of acquisitions and dispositions:        
(Increase) decrease in assets (56) 237
 (39) (56)
Decrease in liabilities (21) (56)
(Decrease) increase in defined benefit plan liability (40) (47)
(Decrease) increase in other liabilities (52) 26
Other operating activities, net 3
 —
 5
 3
Cash provided by operating activities 211
 366
 159
 211
        
Cash flows from investing activities    
Cash flows used in investing activities:    
Purchases of property and equipment (68) (38) (49) (68)
Proceeds from business dispositions —
 34
Software purchased and developed (8) (10) (9) (8)
Payments and adjustment for acquisitions, net of cash acquired (101)
—
Proceeds from disposals of assets 7
 10
Other investing activities, net (15) 1
 (7) (25)
Cash used in investing activities (91) (13) (159) (91)
        
Cash flows from financing activities    
Payments of lines of credit (50) —
Cash flows used in financing activities:    
Borrowing on revolving credit facility 55
 —
Repayments of revolving credit facility —
 (50)
Borrowings of long term debt 184
 —
Payments of long-term debt (98) —
 (212) (98)
Proceeds from stock options and other employee stock transactions 7
 —
Debt issuance cost (2) —
Proceeds from stock options and other common stock activity, net 2
 7
Repurchase of common stock (8) —
 (16) (8)
Dividends paid (34) —
 (33) (34)
Payments on lease liability (17) (10) (20) (17)
Net transfers to CSC —
 (338)
Other financing activities 22
 —
Payments to noncontrolling interests (4) —
Payments to noncontrolling interest —
 (4)
Other financing activities, net 7
 22
Cash used in financing activities (182) (348) (35) (182)
        
Net (decrease) increase in cash and cash equivalents (62) 5
 (35) (62)
Cash and cash equivalents at beginning of period 130
 5
 126
 130
Cash and cash equivalents at end of period$68
$10
 $91
 $68
        
Supplemental cash flow information:        
Cash paid for income taxes$47
$78
Cash paid for taxes $67
 $47
Cash paid for interest 54
 10
 49
 54
Non-cash investing activities 9
 11
Capital expenditures in accounts payable and other liabilities 14
 9
Capital expenditures through capital lease obligations 20
 —
 55
 20
Non-cash operating activities (2) —

See accompanying notes to Consolidated and Condensed Financial Statements (unaudited)


4
CSRA INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(unaudited)


Note 1—Description of the Business, Basis of Presentation and Recent Accounting Pronouncements

Description of the Business

CSRA Inc. (“CSRA” or the “Company”) is, a provider of IT and professional services, to U.S. government organizations. CSRA delivers IT, mission, and operations-related services across the U.S. federal government, including to the Department of Defense (“DoD”), Department of Homeland Security (“DHS”), the intelligence community, and homeland security, civil and healthcare agencies, as well asand to certain state and local government agencies through two business segments: (1) Defense and Intelligence, and (2) Civil.

The Spin-Off and the Mergers

On November 27, 2015, Computer Sciences Corporation (“CSC” or “Parent”) completed the spin-off of CSRA, including the Computer Sciences GS Business to CSC shareholders of record (the “Spin-Off”). Following the Spin-Off, on November 30, 2015, CSRA also completed two mergers, which resulted in SRA Companies, Inc. (“SRA Parent”) merging with and into a wholly owned subsidiary of CSRA (the “Mergers”). As a result, SRA International Inc. (“SRA”) became an indirect wholly owned subsidiary of CSRA.

Basis of Presentation
The accompanying unaudited Consolidated and Condensed Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”), and should be read in conjunction with the information contained in the Company’s Annual Report on Form 10-K for the year ended April 1, 2016.March 31, 2017. The interim period unaudited Consolidated and Condensed Financial Statements are presented as described below.
PriorIn May 2017, CSRA executed an agreement for the acquisition of NES Associates, LLC (“NES”), a provider of IT services to the Spin-Off, the Company consistedU.S. government. On July 3, 2017, CSRA completed its acquisition of the business of CSC’s North American Public Sector segment and did not operate asNES, which resulted in NES becoming a separate, stand-alone entity. Consequently, the period prior to the Spin-Off, as of and for the three and six months ended October 2, 2015, consists solely of the accounts and results of the Computer Sciences GS Business. The period subsequent to the Spin-Off and the Mergers, as of and for the three and six months ended September 30, 2016, consists of the consolidated accounts of CSRA and its wholly owned subsidiaries, which include the activity and operating resultssubsidiary of SRA. CSRA. See Note 4—Acquisitions for additional information.
All intercompany transactions and balances have been eliminated.
Certain information and disclosures normally required for annual financial statements have been condensed or omitted pursuant to SEC rules and regulations. In the opinion of management, all adjustments considered necessary for fair presentation of the results of the interim period presented have been included.

The accompanying unaudited financial statements for the period prior to the Spin-Off are prepared on a carved-out and combined basis from the financial statements of CSC. Such carved-out and combined amounts were determined using the historical results of operations and carrying amounts of the assets and liabilities transferred to CSRA. Related-party transactions between CSRA and CSC or the Computer Sciences GS Business and other businesses of CSC are reflected as related-party transactions. For additional information, see Note 2—Related-Party Transactions and Corporate Allocations.
For the period prior to the Spin-Off, the unaudited financial statements include all revenues and costs directly attributable to the Computer Sciences GS Business and an allocation of expenses related to certain CSC corporate functions, including, but not limited to, senior management, legal, human resources, finance, IT and other shared services. These expenses had been allocated to the Computer Sciences GS Business based on direct usage or benefit where identifiable, with the remainder allocated on a pro rata basis of revenues, headcount, square footage, number of transactions or other measures. The Computer Sciences GS Business considered these allocations to be a reasonable reflection of the utilization of services by, or benefit provided to it. However, the allocations may not be indicative of the actual expense that would have been incurred had the Computer Sciences GS Business operated as an independent, stand-alone entity for the period presented.


5
CSRA INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(unaudited)


Prior to the Spin-Off, CSC maintained various benefit and share-based compensation plans at a corporate level and other benefit plans at a subsidiary level. The employees of CSRA participated in those plans and a portion of the cost of those plans for the period prior to the Spin-Off is included in the unaudited Consolidated and Condensed Financial Statements for the period prior to the Spin-Off. However, the unaudited Combined Condensed Balance Sheets do not include any net benefit plan obligations unless the benefit plan covered only the Company’s active, retired and other former employees or any expense related to share­ based compensation plans. See Notes 11—Pension and Other Post-retirement Benefit Plans and Note 12—Share-Based Compensation Plans for further information about our benefit plans and share-based compensation, respectively.
For the period presented prior to the Spin-Off, the unaudited financial statements include current and deferred income tax expense that has been determined for the legacy Computer Sciences GS Business as if it were a separate taxpayer (i.e., following the separate return methodology).
CSRA reports its results based on a fiscal year convention that comprisescomprised of four thirteen-week quarters. Every fifth year includes an additional week in the first quarter to prevent the fiscal year from moving from an approximate end of March date.
Contract accounting requires significant judgment relative to assessing risks, estimating contract revenue and costs, and making assumptions for schedule and technical issues. Due to the size and nature of many of CSRA’s contracts, developing total revenue and costs at completion estimates requires significant judgment. Contract costs include direct labor and billable expenses, allocation of allowable indirect costs, and warranty obligations. CSRA recognizes revenue and billable expenses from these transactions on a gross basis because it is the primary obligor on contracts with customers. The contracts that required estimates-at-completion (“EACs”) using the percentage-of-completion method were approximately 35%, and 37% of CSRA’s revenues for the six months ended September 29, 2017, and September 30, 2016, respectively.
CSRA’s income before income taxes and noncontrolling interest for the three and six months ended September 29, 2017 and September 30, 2016 included the following gross favorable and unfavorable adjustments due to changes in estimated profitability on fixed price contracts accounted for under the percentage-of-completion method, for the three and six months ended September 30, 2016 and October 2, 2015 as follows.method.
 Three Months Ended Six Months Ended Three Months Ended Six Months Ended
 September 30, 2016 October 2, 2015 September 30, 2016 October 2, 2015
(Dollars in millions) September 29, 2017 September 30, 2016 September 29, 2017 September 30, 2016
Gross favorable$16
$20
$27
$44
 $13
 $16
 $31
 $27
Gross unfavorable (8) (2) (16) (5) (5) (8) (11) (16)
Total net adjustments, before taxes and noncontrolling interests$8
$18
$11
$39
 $8
 $8
 $20
 $11
Unbilled recoverable amounts under contracts in progress do not have an allowance for credit losses and, therefore, any adjustments to unbilled recoverablethese amounts under contracts in progress related to credit quality would beare accounted for as a reduction of revenue.


5
CSRA INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(unaudited)


Unbilled recoverable amounts under contracts in progress resulting from sales, primarily to the U.S. and other governments, that are expected to be collected after one year totaled $15.7$16.5 million and $14.4$15.6 million as of September 30, 201629, 2017 and April 1, 2016,March 31, 2017, respectively.

Depreciation expense was $31.0$36.5 million and $29.1$31.0 million for the three months ended September 29, 2017 and September 30, 2016, and October 2, 2015, respectively. Depreciation expense was $63.4$73.6 million and $56.7$63.4 million for the six months ended September 29, 2017 and September 30, 2016, respectively.
Earnings Per Share
The computation of diluted earnings per share excludes stock options, whose effect, if included, would be anti-dilutive. The number of shares related to such stock awards was 226,456 and October 2, 2015,270,123 for the three and six months ended September 29, 2017, respectively.
Use of Estimates

GAAP requires management to make estimates and assumptions that affect certain amounts reported in the unaudited Consolidated and Condensed Financial Statements and accompanying notes. These estimates are based on management’s best knowledge of historical experience, current events, and various other assumptions that management considers reasonable under the circumstances.reasonable. Actual results could differ from those estimates.

Amounts subject to significant judgment and/or estimates include, but are not limited to,to: determining the fair valuevalues of assetassets acquired and liabilities assumed, determining the fair value of derivative instruments and non-financial assets such as internally developed software for internal use; costs to complete fixed-price contracts, cash flows used in the evaluation of impairment of goodwill and other long-lived intangible assets, certain deferred costs, collectability of receivables, reserves for tax benefits, andincluding valuation allowances on deferred tax assets, loss accruals for litigation, and inputs used for computing share-based compensationcompensation.
Reclassifications
Historically, the Company recognized separation and pension related liabilities.


6
CSRA INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(unaudited)


merger costs in connection with our separation from Computer Sciences Corporation (now known as DXC Technology) (“CSC”) and our subsequent merger with SRA International Inc. (“SRA”) as a separate operating expense. Beginning in the three months ended September 29, 2017, we combined these costs with separately identifiable acquisition costs and fees paid to third parties for completed acquisitions as well as integration, transition, and other costs for integrating the businesses. These expenses are presented as acquisition, integration, and other costs on the unaudited Consolidated and Condensed Statements of Operations. Prior periods have been revised to conform to the current period presentation.
Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between marketplace participants. The accounting guidance for fair value measurements establishes a three level fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:
Level 1— Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2— Quoted prices for similar assets or liabilities or quoted market prices for identical or similar assets in markets that are not active.     
Level 3— Valuations derived from valuation techniques in whichwhere one or more significant inputs are observable.unobservable.
Our assetsAssets and liabilities which are valued using the fair value measurement guidance on a recurring basis includeinclude: pension assets and derivative instruments consisting(consisting of interest rate swap contracts, and total return swaps. Our pensionswaps, and foreign currency forward exchange contracts). Pension assets are valued using model based pricing methods that use observable market data; as such these inputsdata and are, therefore, considered Level 2 inputs. The fair value of interest rate swaps is estimated based on valuation models that use observable interest rate yield curves as inputs. Total return swaps are settled on the last day of every fiscal month. Therefore, the value of any total return swaps outstanding as of any balance sheet date is


6
CSRA INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(unaudited)


not material. The inputs used to estimate the fair value of the Company's derivative instruments are classified as Level 2. No significant assets or liabilities are measured at fair value on a recurring basis using significant unobservable (Level 3) inputs.
Certain assetsAssets and liabilities are measured at fair value on a non-recurring basis. These include assets and liabilitiesbasis include: those acquired in a business combination, equity-method investments, and long-lived assets. These assets which would beand liabilities are recognized at fair value if deemed to be impaired or if reclassified as assets held for sale. The fair valuevalues in these instances would beare then determined using Level 3 inputs.
The Company’s financial instruments include cash, trade receivables, vendor payables, derivative financial instruments, and debt. As of September 30, 2016,29, 2017, the carrying value of cash, trade receivables, and vendor payables approximated their fair value. The carrying amounts of the Company’s financial instruments with short-term maturities are deemed to approximate their market values. The carrying amount of the Company’s long-term debt, excluding capital leases, was $2.6 billion and $2.7$2.5 billion at both September 30, 201629, 2017 and April 1, 2016,March 31, 2017, respectively, and approximated its fair value on September 30, 2016,those dates based on recent trading activity. The fair value of long-term debt is estimated based on the current interest rates offered to the Company for instruments with similar terms and remaining maturities, and are classified as Level 2. There were no transfers between levels of the fair value hierarchy during the three and six months ended September 29, 2017 or the three and six months ended September 30, 2016.
Recent Accounting Pronouncements
New Accounting Standards
During the six months ended September 30, 2016,29, 2017, CSRA adopted the following Accounting Standard UpdatesUpdate (“ASUs”ASU”):

In March 2016,2017, the FASB issued ASU No. 2017-07-Compensation- Retirement Benefits (Topic 715) (“ASU 2017-07”), which changes the presentation of net periodic pension and post-retirement costs. The guidance requires that service costs associated with pension and post-retirement plans be presented in the same financial statement line item as the compensation cost for the related employees. All other net benefit costs must be reported separately from income from operations (if presented). The standard is effective for the first interim period within annual periods beginning after December 15, 2017, with early adoption permitted. Since CSRA’s defined benefit pension and post-retirement plans (the “Plans”) are frozen, historical service costs consist of administrative expenses. CSRA chose to early adopt this standard during the first quarter of the fiscal year ending March 30, 2018. As a result, net benefit costs of the Plans have been presented as a separate line item on the Company’s statements of operations. The prior periods have been revised to conform to the current period presentation.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350) Simplifying the Accounting for Goodwill Impairment (“ASU 2017-04”). Its main provisions are: (a) removing step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation; and (b) eliminating the need to determine the fair value of individual assets and liabilities of a reporting unit to measure goodwill impairment. ASU 2017-04 is effective for all public business entities for fiscal years beginning after December 15, 2019, with early adoption permitted on or after January 1, 2017. The Company adopted ASU 2017-04 on July 1, 2017, which coincided with its annual assessment for the impairment of goodwill. The adoption had no impact on CSRA’s financial results for the period.
Standards Issued But Not Yet Effective
The following ASUs were recently issued but have not yet been adopted by CSRA:
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-09,No. 2014-09, Improvements to Employee Share-Based Payment AccountingRevenue from Contracts with Customers (Topic 718)606) (“(“ASU 2016-09”2014-09”), which simplifies several aspects of accountingsupersedes the revenue recognition requirements and some cost guidance included in the Accounting Standards Codification (ASC). Upon adoption, ASU 2014-09 will change the way we recognize revenue and significantly expand the disclosure requirements for share-based payment award transactions related to accounting for income taxes, forfeitures, statutory tax withholding requirements, classification of awards as either equity or liabilities, and classification of employee taxes paid on the statements of cash flows when an employer withholds shares for tax-withholding purposes. The standard is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted in any interim or annual period. Upon the implementation of ASU 2016-09, a company may elect to adopt certain simplifications on a prospective or retrospective basis.revenue arrangements.
CSRA early adopted ASU 2016-09, effective for the three months ended July 1, 2016. Certain of the


7
CSRA INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(unaudited)


simplification provisions were not applicable to CRSA. The primary impact of adoption was our election to no longer estimate forfeitures, but instead account for the forfeitures as they occur.  The change in accounting for forfeitures was applied on a modified retrospective basis; accordingly, a cumulative adjustment of $1.1 million was recognized as a reduction of accumulated earnings (deficit) upon adoption. The Company also adopted the simplification provision requiring recognition of excess tax benefits in the income statement as a discrete event and the provision related to the presentation of excess tax benefits and deficiencies within operating activities in the statement of cash flows on a prospective basis, beginning in the three months ended July 1, 2016. The adoption of this provision was not material to the Company’s financial results for the first half of fiscal year 2017.

Standards Issued But Not Yet Effective

The following ASUs were recently issued but have not yet been adopted by CSRA:

In May 2014, the FASB issued a new standard, ASC Topic 606, Revenue from Contracts with Customers that will change the way we recognize revenue and significantly expand the disclosure requirements for revenue arrangements. On July 9, 2015, the FASB approved a one-year deferral of the effective date, which for CSRA would make the standard effective at the start of fiscal year 2019 (April 1, 2018). The FASB provided an option that would permit us the ability to adopt the standard beginning fiscal year 2018 (April 1, 2017). Early adoption prior to fiscal year 2018 is not permitted. The new standard may be adopted either retrospectively or on a modified retrospective basis whereby the new standard would be applied to new contracts and existing contracts with remaining performance obligations as of the effective date, with a cumulative catch-up adjustment recorded to beginning retained earnings at the effective date for existing contracts with remaining performance obligations.

The new standard requires us to identify contractual performance obligations and determine when revenue should be recognized. This and other requirements could change the method or timing of revenue recognition for our firm-fixed-price and, to a lesser extent, cost-reimbursable-plus-fee contract portfolio. As a result, we are applyingThe Company’s implementation project team is taking an integrated approach to analyzing the standard’s impact on our contract portfolio including a review of accounting policies and practices, evaluating differences from applyingthe effects of the requirements of the new standard toon our contracts and business practices, and assessing the need for system and internal control changes or enhancements. These activities and the Company’s evaluation of the quantitative effect of adoption will extend into future periods.
The Company identified likely effects related to the treatment of option years as discrete contracts and the grouping of promised goods and services into performance obligations for the purpose of recognizing revenue under the new standard. As a result, gross favorable and unfavorable adjustments due to changes in estimated profit will be recognized in the period they are identified, rather than prospectively over the remaining contract term, the impact of revisions of contract estimates may be larger and potentially more variable from periodare anticipated to period.result in smaller revenue adjustments than before adoption of the ASU. Anticipated losses on contracts will continue to be recognized in the period they are identified. While our assessment continues, we have not yet selected a transition date or method nor have we yet determined
In August 2015, the effectFASB issued ASU 2015-14, Deferral of the adoptionEffective Date, resulting in a one-year deferral of thisthe effective date of ASU 2014-9. The new standard may be adopted either retrospectively or on a modified retrospective basis whereby it would be applied to new contracts and existing contracts with remaining performance obligations as of the effective date, with a cumulative catch-up adjustment recorded to the beginning balance of retained earnings at the effective date. The Company plans to adopt the standard on our financial statementsMarch 31, 2018 (the first day of fiscal year 2019); and as a result, our evaluationto implement it using the modified retrospective method, where the cumulative effect is recognized at the date of the effect of adoption will extend into future periods.

adoption.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which supersedes the current guidance related to accounting for leases. The guidance requires lessees to recognize most leases on-balance sheet as a right of use asset and lease liability. ASU 2016-02 will also requirerequires expanded qualitative and quantitative disclosures designed to giveprovide financial statement users with additional information on the amount, timing, and uncertainty of cash flows arising from CSRA leases. The standard is required tomust be adopted using the modified retrospective approach. The standardapproach; and will be effective for the first interim period within annual periods beginning after December 15, 2019, with early adoption permitted. CSRA is currently evaluating the impact of adoption on its policies, procedures, business practices, including internal controls, and financial statements.

In AugustNovember 2016, the FASB issued ASU No. 2016-15,2016-18, Statement of Cash FlowsFlows: Restricted Cash (Topic 230) (“(“ASU 2016-15”2016-18”). This guidance requires the inclusion of restricted cash and restricted cash-equivalent balances in the statement of cash flows. The guidance addressesASU does not define "restricted cash" and "restricted cash equivalents." The Company will be required to include its restricted cash balance (currently classified within Prepaid and other current assets) in the concern from Stakeholders that there is diversity in practice in how certain cash receiptsCash and cash payments areequivalents balance presented and classified in the Statementstatement of Cash Flows. ASU 2016-15 addressescash flows using a retrospective transition method for each period presented. A reconciliation between the following eight specificstatement of financial position and the statement of cash flow issues: Debt prepayment or debt extinguishment costs,flows must be disclosed when the statement of financial position includes more than one line item for cash, payments for debt prepayment or debt extinguishment costs, including third-party costs, premiums paid to repurchase debt in an open-market transaction,cash equivalents, restricted cash, and other fees paid to lenders that are directly related torestricted cash equivalents. An entity with a material balance of amounts generally described as restricted cash and restricted cash equivalents must also discuss the debt prepayment or debt extinguishment, should be classified as cash outflows for financing activities; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest ratenature of the borrowing; contingent consideration payments made after a business combination; proceeds from


8
CSRA INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(unaudited)


the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. ASU 2016-15restrictions. The standard is effective for public business entities for fiscal years beginning after December 15, 2017, andincluding interim periods within those fiscal years, with earlyyears. Early adoption, including during an interim period, is permitted. CSRAThe Company has not yet determined an implementation date for this ASU.
In August 2017, the FASB issued ASU No. 2017-12, Derivativesand Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”), which is currently evaluatingintended to improve the transparency and understandability of information conveyed to financial statements users about an entity’s risk management activities and reduce the complexity and simplify the application of hedge accounting by companies. The impact of adoptionadopting this standard on itsCSRA’s financial statements.position and results of operations is not expected to be material, but the Company will continue to evaluate until implementation. The standard is effective for fiscal years beginning after December 15, 2018 and interim period within those fiscal years for public entities.

Other recently issued ASUs effective after September 30, 201629, 2017 are not expected to have a material effect on CSRA’s financial statements.
Note 2—Related-Party Transactions and Corporate Allocations
Corporate Allocations
The unaudited Consolidated and Condensed Financial Statements include an allocation of general corporate expenses from CSC for the period prior to Spin-Off. The financial information in these unaudited Consolidated and Condensed Financial Statements does not necessarily include all the expenses that would have been incurred by CSRA had it been a separate, stand-alone entity during that time. The management of CSRA considered these allocations to be a reasonable reflection of the utilization of services by, or the benefits provided to, it. The allocation methods include relative headcount, actual services rendered and relative space utilization. Allocations for management costs and corporate support services provided to CSRA totaled $48.0 million and $104.7 million for the three and six months ended October 2, 2015, respectively. These amounts include costs for corporate functions, including, but not limited to, senior management, legal, human resources, finance, IT and other shared services. Following the Spin-Off, CSRA performs all corporate functions that were previously performed by CSC.
Transition Agreements
In connection with the separation and distribution, CSRA entered into certain agreements that govern the respective rights and responsibilities between CSC and CSRA. 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 Intellectual Property Matters Agreement, CSC granted CSRA a perpetual, royalty-free, non-assignable license to certain know-how, certain software products, trademarks and workflow and design methodologies.
CSRA pays CSC an annual net maintenance fee of $30.0 million per year for five years in exchange for maintenance and support of products licensed from CSC. On December 9, 2015, CSRA paid the maintenance fee for year one, which is included in Prepaid expenses and other current assets in the unaudited Consolidated and Condensed Balance Sheets and amortized on a straight line basis over one year. During the three and six months ended September 30, 2016, CSRA amortized $7.5 million and $15.0 million, respectively, which is included in Selling, general and administrative (“SG&A”) in the unaudited Consolidated and Condensed Statements of Operations.
CSRA entered into a Tax Matters Agreement with CSC that governs the respective rights, responsibilities and obligations of CSC and CSRA with respect to all tax matters. CSRA has joint and several liability with CSC to the IRS for the consolidated U.S. Federal income taxes of the CSC consolidated group relating to the taxable periods in which CSRA was part of that group. During the three and six months ended September 30, 2016, CSRA did not incur charges payable to CSC under the Tax Matters Agreement.
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 certain real property used by CSRA. For the three and six months ended September 30, 2016, the rental income from CSC associated with the Real Estate Matters Agreement was not significant.



98
CSRA INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(unaudited)


Note 3—Acquisitions and Divestitures

There were no acquisitions or divestitures of other businesses during the six months ended September 30, 2016. There were no acquisitions of other businesses during the six months ended October 2, 2015.

Fiscal 2016 Divestiture

On April 27, 2015, the Computer Sciences GS Business divested its wholly owned subsidiary, Welkin Associates Limited (“Welkin”), a provider of systems engineering and technical assistance services to the intelligence community and other U.S. Department of Defense clients. The Computer Sciences GS Business received consideration of $34.0 million, and recorded a pre-tax gain on the sale of $18.5 million, which was included in Other expense (income), net in the Consolidated and Condensed Statements of Operations for the six months ended October 2, 2015. Included in the divested net assets of $13.8 million was $10.7 million of goodwill and transaction costs of $1.7 million. The divestiture did not qualify to be presented as discontinued operations as it did not represent a strategic shift that would have a major effect on the Computer Sciences GS Business’s operations and financial results.

Fiscal 2016 Acquisition

As discussed in Note 1—Description of the Business, Basis of Presentation and Recent Accounting Pronouncements, on November 30, 2015, CSRA completed its previously announced Mergers which resulted in SRA Parent merging with and into a wholly owned subsidiary of CSRA. As a result, SRA became an indirect, wholly owned subsidiary of CSRA.
The Mergers are reflected in CSRA’s financial statements using the acquisition method of accounting, with CSRA being considered the accounting acquirer of SRA. The total merger consideration (“Merger Consideration”) transferred was $2.3 billion, which consisted of (1) $390.0 million in cash (gross of cash acquired of $48.3 million), (2) 25,170,564 shares of CSRA common stock representing in the aggregate 15.32% of the total number of shares of CSRA common stock outstanding, (3) $1.1 billion related to SRA debt and (4) $29.9 million of acquiree-related transaction costs. 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.
CSRA recorded, on a preliminary basis, the assets acquired and liabilities assumed at their estimated fair value, with the difference between the fair value of the net assets acquired and the purchase consideration reflected as goodwill. See Note 7—Goodwill and Other Intangible Assets for further discussion of the measurement considerations for acquired intangible assets. The following table reflects the preliminary fair values of assets acquired and liabilities assumed as of November 30, 2015 (including adjustments subsequent to closing):
 Preliminary allocation (in millions):Amount
 Cash, accounts receivable and other current assets $302
 Property, equipment and other long-term assets46
 Intangibles—customer relationships, backlog and other intangibles assets891
 Accounts payable and other current liabilities(193)
 Other long-term liabilities(26)
 Deferred tax liabilities(258)
 Total identified net assets acquired762
 Goodwill1,538
 Estimated total purchase consideration and liabilities paid at closing $2,300

In the fourth quarter of fiscal year 2016, the Company made certain adjustments to provisional amounts previously recognized, which resulted in a $12.3 million reduction of the goodwill, which are reflected in the table above. In the second quarter of fiscal year 2017, the Company made additional adjustments to the provisional amounts related to tax-related items and facility exit charges, which resulted in a net $2.2 million decrease of


10
CSRA INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(unaudited)


goodwill. The goodwill recognized in the acquisition is attributable to the intellectual capital, the acquired assembled work force, and expected cost synergies, none of which qualify for recognition as a separate intangible asset. The goodwill is not deductible for tax purposes. Goodwill arising from the acquisition has been allocated to CSRA’s reporting units based on the relative fair value of assets acquired. The resulting allocation to CSRA’s reportable segments was as follows: $334.4 million allocated to Defense and Intelligence and $1.2 billion allocated to Civil.
The Company’s allocation of goodwill remains preliminary until the resolution of certain unresolved tax matters, which the Company expects to conclude during the third quarter, consequently, the fair values of assets acquired and liabilities assumed are subject to change.
Unaudited Pro Forma Financial Information
The following unaudited pro forma financial information presents results as if the Spin-Off and the Mergers and the related financing had occurred prior to April 3, 2015. The historical consolidated financial information of CSRA 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 the consolidated results. The consolidated financial information of SRA includes merger and integration costs that are not expected to recur and impact the consolidated results over the long term. 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 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 prior to April 3, 2015, nor is it necessarily an indication of future operating results.
 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




11
CSRA INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(unaudited)


 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

Note 4—Earnings Per Share

On November 27, 2015, the date that CSRA’s common stock was distributed to CSC shareholders in the Spin-Off, CSRA had 139,128,158 common shares outstanding. The calculation of both basic and diluted earnings per share for the three and six months ended October 2, 2015 utilized this number of common shares because at that time, CSRA did not operate as a separate, stand-alone entity, and no equity-based awards were outstanding in the period.
The calculation of basic earnings per share for the three and six months ended September 30, 2016 utilized and 163,824,108 and 163,550,807 shares, respectively,based on the weighted-average shares outstanding during the period. The calculation of diluted earnings per share for the three and six months ended September 30, 2016 utilized 165,084,003 and 164,881,819 shares, respectively, reflecting the dilutive impact of 1,259,895 and 1,331,012 shares, respectively, of outstanding stock options, restricted stock units, and performance-based stock units issued or granted. The computation of diluted earnings per share excluded stock options and restricted stock units, whose effect, if included, would have been anti-dilutive. The number of shares related to such stock options was 2,458,000 and 2,203,008 for the three and six months ended September 30, 2016, respectively.

Note 5—2—Sale of Receivables

CSRA is the seller of certain accounts receivable under a Master Accounts Receivable Purchase Agreement (the “Purchase Agreement”) that was entered into on April 21, 2015 with the Royal Bank of Scotland, PLC (“RBS”), as Purchaser, along with Mitsubishi UFJ Financial Group Ltd, and Bank of Nova Scotia, each as a Participant, for the continuous non-recourse sale of CSRA’s eligible trade receivables.
The Purchase Agreement with RBS was subsequently amended, and RBS assigned its rights as a purchaser to The Bank of Tokyo-Mitsubishi UFJ, Ltd., The Bank of Nova Scotia, and Mizuho Bank, Ltd., each as a Purchaser.


12
CSRA INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(unaudited)


The amended agreement also convertedPurchaser, for the receivables purchase facility (the “Facility”)continuous non-recourse sale of CSRA’s eligible trade receivables. On August 8, 2017, the term of the Purchase Agreement under which the Company sells certain of its accounts receivable was extended for one year, to a committed facility and extended the initial term to a two-year period.August 7, 2018.
Under the Facility,Purchase Agreement, CSRA sells eligible receivables, including billed receivables and certain unbilled receivables arising from “costcost plus fixed fee”fee (“CPFF”) and “timetime and materials”materials (“T&M”) contracts up to $450.0 million outstanding at any one time. CSRA has no retained interests in the transferredsold receivables and only performs collection and administrative functions for the Purchaser for a servicing fee.

Beginning April 2, 2016, SRA discontinued selling receivables under its separate accounts receivable purchase agreement. The SRA accounts receivable agreement was terminated as of June 27, 2016 and, at that time, SRA became an additional seller under the Purchase Agreement.

CSRA accounts for these receivable transfers as sales under ASC 860, Transfers and Servicing, and de-recognizes the sold receivables from its unaudited Consolidated and Condensed Balance Sheets. The fair value of the sold receivables approximated their book value due to their short-term nature. CSRA estimated that its servicing fee was at fair value and, therefore, no servicing asset or liability related to these servicesliability was recognized as ofat either September 30, 2016 and April 1, 2016, respectively.29, 2017 or March 31, 2017.

We have amended the Purchase Agreement periodically to broaden the eligibility of receivables for sale under it. In the period when the receivables become eligible for sale, the proceeds from such sales will increase operating cash flow. The Company had the following accountstable below provides receivable sales activity, under the existing facilityincluding initial sales of newly eligible receivables during the periods presented.
 Three Months Ended Six Months EndedThree Months Ended Six Months Ended
(Dollars in millions) September 30, 2016 October 2, 2015 September 30, 2016 October 2, 2015September 29, 2017 September 30, 2016 September 29, 2017 September 30, 2016
Sales of billed receivables$469
$192
$937
$393
$438
 $469
 $852
 $937
Sales of unbilled receivables 329
 427
 556
 939
312
 329
 610
 556
Total sales of receivables$798
$619
$1,493
$1,332
$750
 $798
 $1,462
 $1,493
Collections of sold receivables 831
 609
 1,402
 1,157
$732
 $831
 $1,447
 $1,402
Operating cash flow effect, net of collections and fees from sales (34) 9
 90
 176
17
 (34) 12
 90
As of September 30, 201629, 2017 and April 1, 2016,March 31, 2017, there was $30.0$44.8 million and $8.0$37.0 million, respectively, of cash collected by CSRA, but not remitted to purchasers.purchasers, which represents restricted cash and is included within Prepaid expenses and other current assets on our unaudited Consolidated and Condensed Balance Sheets. CSRA incurred purchase discount and administrative fees of $1.6$2.7 million and $0.8$1.6 million for the six months ended September 29, 2017 and September 30, 2016, and October 2, 2015, respectively. These fees were recorded within Other expense (income), net in the unaudited Consolidated and Condensed Statements of Operations.
Concentrations of Risk
The primary financial instruments, other than derivatives, that potentially subject the Company to concentrations of credit risk are accounts receivable. The Company’s primary customers are the U.S. government agencies and prime contractors under contracts with the U.S. government. The Company continuously reviews its accounts receivable and records provisions for doubtful accounts as needed.



139
CSRA INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(unaudited)


Note 6—3—Derivative Instruments
Derivatives Designated for Hedge Accounting
Interest-rate swaps
The Company utilizesuses derivative financial instruments to manage interest rate risk related to its Term Loan A Facilities. The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements.movements on Term Loan Facilities that have variable index-based interest rates. To accomplish this objective,these objectives, the Company uses pay-fixed interest rate swaps as part of its interest rate risk management strategy. As of both September 30, 201629, 2017 and April 1, 2016,March 31, 2017, the Company had outstanding pay-fixed interest rate derivatives with a notional value of $1.4 billion, which were designated as a cash flow hedge of interest rate risk. The swap positions consist of a $1.1 billion notional swap agreement maturing in November 2020 and $300 million in aggregate notional swap agreements maturing in March 2018.
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated other comprehensive income (“AOCI”), net of taxes, and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. Amounts reportedThere was no ineffective portion in AOCIany of the three or six month periods ended September 29, 2017 or September 30, 2016.
Foreign Currency Forward Exchange Contracts
The Company transacts business in various foreign currencies, which subjects its cash flows and earnings to exposure related to changes in foreign currency exchange rates. The exposure arises primarily from purchases from or sales to third parties. Foreign currency forward exchange contracts provide for the purchase or sale of foreign currencies at specified future dates at specified exchange rates; and are used to offset changes in the fair value of forecasted cash flows related to transactions denominated in foreign currencies. During fiscal year 2018, the Company began hedging certain of these forecasted cash flows. As of September 29, 2017, the Company had outstanding foreign currency forward exchange contracts with notional amounts totaling $13.8 million. Neither the fair value of these derivatives at September 29, 2017 nor the gain or loss reclassified into earnings from AOCI during the six months ended September 29, 2017 was significant. We do not expect amounts that will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. The Company reclassified $2.6 million and $5.5 million of interest rate expense from AOCI into earnings in the Consolidated and Condensed Statements of Operations for the three and six months ending September 30, 2016, respectively. Duringwithin the next twelve months to be significant. The notional values consist primarily of contracts for the Company estimates that approximately $5.0 million, netMexican peso, Columbian peso, and Canadian dollar, and are stated in U.S. dollar equivalents.
Fair Value of tax, will be reclassified from AOCI into earnings.Derivative Instruments
The fair values of derivative instruments are presented on a gross basis as none of the Company’s derivative contracts are subject to master netting arrangements. The fair value of the Company’s derivative financial instruments was a liabilityan asset of $15.9$15.0 million and $11.1$18.2 million as of September 30, 201629, 2017 and April 1, 2016,March 31, 2017, respectively. These derivative instruments are classified by their short- and long-term components based on the fair value of the anticipated timing of their cash flows. TheFor net asset positions, the current portion is included in the Accrued expensesPrepaid and other current liabilitiesassets and the long-term portion is included in Other long-term liabilitiesassets in the unaudited Consolidated and Condensed Balance Sheets.There was no significant impact to the Company’s earnings related to the ineffective portion of any hedging instruments during either the six months ended September 29, 2017 or September 30, 2016. Cash flows associated with derivative contracts are recorded in operating activities in the unaudited Consolidated and Condensed Statement of Cash Flows.
The Company hasUnder applicable agreements with each of itsrelating to the Company’s interest rate swap counterparties that containswaps, a provision providing thatcounterparty could declare the Company couldto be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on the indebtedness.
Derivatives Not Designated for Hedge Accounting
Total Return Swapsdefault.

The Company utilizes total return swap derivative contracts to manage exposure to market volatility of the notional investments underlying the Company’s deferred compensation obligations. These arrangements are entered into monthly and are settled on the last day of every fiscal month. For accounting purposes, these derivatives are not designated as hedges. As changes in the fair value of the deferred compensation liabilities are recognized in Cost of services and Selling, general and administrative expenses, so too are the changes in the fair value of the total return swaps derivative contracts. Amounts related to the total return swaps recognized in the three and six months ended September 30, 2016 were not significant.

10
CSRA INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(unaudited)


Concentrations of Risk
The Company is subject to counterparty risk in connection with its interest rate swap derivative contracts. Credit risk related to a derivative financial instrument represents the possibility that the counterparty will not fulfill the terms of the contract. The Company mitigates this credit risk by entering into agreements with credit-worthy counterparties. As of both September 30, 201629, 2017 and March 31, 2017, there was one counterparty with greater than a 10% concentration of our total exposure.

Note 4—Acquisitions

Fiscal Year 2018 Acquisition

14
On July 3, 2017, CSRA INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(unaudited)


acquired NES for $104.1 million, which consisted of a base price of $105.0 million, less $0.9 million of working capital adjustments. The consideration given consisted of $100.9 million in cash and $3.2 million to be deposited in escrow on behalf of the seller. CSRA recorded the assets acquired and liabilities assumed at their estimated fair value, reflecting the difference between the fair value of the net assets acquired and the purchase consideration as goodwill. See Note 7—5—Goodwill and Other Intangible Assets for further discussion of the measurement considerations for acquired intangible assets.
The following reflects the estimated fair values of assets acquired and liabilities assumed in our acquisition of NES as of July 3, 2017:
Preliminary allocation (in millions): Amount
 Cash, accounts receivable and other current assets $28
 Property, equipment and other long-term assets 4
 Intangibles—customer relationships, backlog and other intangibles assets 25
 Accounts payable and other current liabilities (15)
 Total identified net assets acquired 42
   
 Goodwill 62
   
 Total purchase consideration and liabilities paid at closing $104
The revenue and operating income of NES included in our unaudited Consolidated and Condensed Statement of Operations for the period was not material.
Note 5—Goodwill and Other Intangible Assets
In connection with acquisitions of other businesses, CSRA recognized goodwill and other intangible assets, which includes customer relationships, backlog, and contract-related intangibles. In addition, the Company records acquired and developed software technology as an intangible asset.
Goodwill
In November 2015, CSRA recorded $1.5 billion of goodwill acquired from the SRA acquisition, which wasGoodwill is allocated to each reportable segment based on the relative fair value of net assets acquired. As discussed in Note 3, duringDuring the second quartersix months ended September 29, 2017, we added goodwill of fiscal year 2017, the Company made further adjustments related$62 million to the acquisition of SRA,Defense and Intelligence segment associated with the NES acquisition. During the six months ended September 30, 2016, we recognized a purchase price adjustment which resulted in a $2.2 million decrease of goodwill. This decrease was allocated asin goodwill associated with the SRA acquisition, $0.9 million of which related to the Defense and Intelligence segment and $1.3 million to the Civil segment. There were no other changes in the balance of goodwill or the allocations to the segments during the six months ended September 30, 2016.
Testing for Goodwill Impairment
CSRAThe Company tests goodwill for impairment annually on an annual basis, as of the first day of the second fiscal quarter,quarter; and between annual tests if an event occurs, or circumstances change, that would more“more likely than notnot” reduce the fair value of a reporting unit below its carrying amount. At the end of each annual and quarterly period, CSRA assesses whether there weredetermines if any such events or changes in circumstancesoccurred that would more likely than not reduce the fair value of any of its reporting units below their carrying amount and require goodwill to be tested for impairment.
For CSRA’s

11
CSRA INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(unaudited)


On July 1, 2017, the Company performed its annual goodwilltest of impairment assessment as of July 2, 2016, CSRA chose to bypass the initial qualitative assessment and proceeded directly to the first step of the impairment test for all reporting units. Based on the results of the first step of the impairment test, CSRA concluded qualitatively that the fair value of each reporting unit significantly exceeded its carrying value, and therefore, the second stepvalue. As of theSeptember 29, 2017, CSRA determined there were no indicators that required management to perform an interim goodwill impairment assessment test was not required.. There were no accumulated impairment losses at either September 29, 2017 or March 31, 2017.
Other Intangible Assets

On November 30, 2015, CSRA acquired $891 million of otherOther intangible assets as described in Note 3—Acquisitions and Divestitures, which consistedconsist primarily of customer relationships, intangibles, backlog, and technology. Acquired intangible assets have been recorded at their preliminary estimated fair value through the use ofusing various discounted cash flow valuation techniques. These valuation techniques that incorporated Level 3 inputs as described under the fair value hierarchy of ASC 820, Fair Value Measurements (“ASC 820”). These unobservable inputs reflect CSRA’s own assumptions about whichthe assumptions market participants would use in pricing an asset on a non-recurring basis.


15
CSRA INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(unaudited)


In connection with the acquisition of NES, the Company identified $24.8 million of intangible assets, representing customer relationships, backlog, and contract intangibles. The fair value measurement of these intangibles were primarily based on significant inputs not observable in the market and represent a Level 3 measurement. The income approach was primarily used to value intangible assets; and indicates value for an asset based on the present value of cash flow projected to be generated by the asset. Projected cash flow is discounted at a required rate of return that reflects the time value of money.
A summary of amortizing intangible assets, is as follows:including preliminary fair values of those recorded in the NES acquisition, are:
 As of As of
September 30, 2016September 29, 2017
(Dollars in millions) Gross Carrying Value Accumulated Amortization Net Carrying Value Gross Carrying Value Accumulated Amortization Net Carrying Value
Acquisition-related intangibles:      
Customer-related intangibles$950

(153)
797
 $973
 $(200) $773
Backlog 65

(55)
10
 65
 (65) —
Other intangible assets 6

(3)
3
 6
 (4) 2
Subtotal-acquisition-related intangibles: 1,044
 (269) 775
Software 150

(104)
46
 170
 (97) 73
Total intangible assets$1,171
$(315)$856
 $1,214
 $(366) $848

 As of As of
April 1, 2016March 31, 2017
(Dollars in millions) Gross Carrying Value Accumulated Amortization Net Carrying Value Gross Carrying Value Accumulated Amortization Net Carrying Value
Acquisition-related intangibles:      
Customer-related intangibles$954
$(133)$821
 $948
 $(175) $773
Backlog 65
 (22) 43
 65
 (65) —
Other intangible assets 52
 (46) 6
 6
 (4) 2
Subtotal-acquisition-related intangibles: 1,019
 (244) 775
Software 136
 (95) 41
 170
 (89) 81
Total intangible assets$1,207
$(296)$911
 $1,189
 $(333) $856
Customer-related intangibles, backlog, and software are amortized to expense. Amortization expense for the three and six months ended September 30, 201629, 2017 was $32.4$19.5 million and $42.8 million, respectively, compared to$32.4 million and $65.0 million, respectively, compared to the three and six months ended October 2, 2015 of $5.6 million and $10.9 million, respectively. Other intangible assets, which consist of contract-related intangibles, are amortized as a reduction to revenues and included in Depreciation and amortization in the Consolidated and Condensed Statements of Cash Flows. Amortization as a reduction to revenues for the three and six months ended September 30, 2016 was $0.2 million and $2.5 million, respectively, compared to the three and six months ended October 2, 2015 of $2.3 million and $4.6 million, respectively.
As of September 30, 2016, estimated amortization related to intangible assets for the remainder of fiscal year 2017 is $43.4 million, and for each of the fiscal years 2018, 2019, 2020 and 2021, is as follows: $66.5 million, $71.9 million, $66.4 million and $59.3 million, respectively.
Purchased and internally developed software (for both external and internal use), net of accumulated amortization, consisted of the following:
  As of
(Dollars in millions) September 30, 2016 April 1, 2016
Purchased software$40
$40
Internally developed software for external use 1
 1
Internally developed software for internal use 5
 —
Total software$46
$41
Amortization expense related to purchased software for the three and six months ended September 30, 2016 was $3.3 million and $6.9 million, respectively, compared to the three and six months ended October 2, 2015 of $3.6 million and $7.1 million, respectively. Amortization expense related to internally developed software for external use for the three and six months ended September 30, 2016 was $0.2 million and $0.4 million, respectively, compared to the three and six months ended October 2, 2015 of $0.4 million and $0.7 million, respectively. Amortization expense related to internally developed software for internal use for the three and six months ended2016.


1612
CSRA INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(unaudited)


As of September 29, 2017, estimated amortization related to acquisition-related intangible assets for the remaining six months of fiscal year 2018 is $43.4 million; and for each of fiscal years 2019, 2020, 2021, and 2022 is $86.2 million, $79.3 million, $70.5 million, and $63.6 million, respectively.
Purchased and internally developed software for external and internal use, net of accumulated amortization, consisted of:
  As of
(Dollars in millions) September 29, 2017 March 31, 2017
Purchased software $69
 $73
Internally developed software 4
 8
Total software $73
 $81
Amortization expense related to purchased software for the three and six months ended September 29, 2017 was $6.1 million, and $11.9 million, respectively, compared to the three and six months ended September 30, 2016 of $3.3 million and $6.9 million, respectively. Amortization expense related to internally developed software for the three and six months ended September 29, 2017 was $0.0 million, and $5.2 million, respectively, compared to the three and six months ended September 30, 2016 of $0.3 million and $0.5 million, respectively, compared to $0.1 million for the six months ended October 2, 2015.respectively.
As of September 30, 2016,29, 2017, estimated amortization related to purchased and internally developed software for the remainderremaining six months of fiscal 2017year 2018 is $9.2 million,$11.3 million; and for each of the fiscal years 2018, 2019, 2020, 2021, and 2021,2022 and thereafter is as follows: $13.3$20.7 million, $9.8$17.9 million, $7.7$12.9 million, and $4.4$10.4 million, respectively.

Note 8—6—Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
 As of As of
(Dollars in millions) September 30, 2016 April 1, 2016 September 29, 2017 March 31, 2017
Accrued contract costs$256
$248
 $217
 $239
Deferred revenue 165
 140
 160
 153
Accrued expenses 103
 132
 93
 81
Other 8
 8
 18
 14
Total$532
$528
 $488
 $487
Note 9—7—Debt

CSRA maintains the following debt facilities: (1) a senior secured revolving credit facility (the “Revolving Credit Facility”) with a committed borrowing capacity of $700 million,million; (2) a senior secured tranche A1 Term loan facility (the “Tranche A1 Facility”),; (3) a senior secured tranche A2 Term loan facility (the “Tranche A2 Facility” and, together with the Tranche A1 Facility, the “Term Loan A Facilities”); and (4) a senior secured term loan B facility (the “Term Loan B Facility” and, together with the Term Loan A Facilities, the “Term Loan Facilities”).
The following is a summary of CSRA’s outstanding debt as of September 30, 2016 and April 1, 2016.
  September 30, 2016 April 1, 2016
Revolving credit facility, due November 2020$—
$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

During the first quarter of fiscal 2017, the Company made a repayment of $50.0 million on the Revolving Credit Facility. Pursuant to the terms of the Term Loan Facilities agreements, CSRA paid $48.0 million related to FY16 excess cash flow during the first quarter of fiscal 2017 on its Term Loan Facilities. In September 2016, the Company made a principal repayment of $50.5 million on the Term Loan Facilities, of which $11.5 million was applied to the Term Loan A Facilities and $39.0 million was applied to the Term Loan B Facility.


1713
CSRA INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(unaudited)


The following is a summary of CSRA’s outstanding debt, as of September 29, 2017 and March 31, 2017.
 September 29, 2017 March 31, 2017

(Dollars in millions)

Interest Rate(1)
Outstanding Balance 
Interest Rate(1)
Outstanding Balance
Revolving credit facility, due November 20212.73% - 3.02%$55
 2.18% - 2.20%$—
Tranche A1 facility, due November 20192.61% - 2.90%389
 2.06% - 2.41%570
Tranche A2 facility, due November 20212.73% - 3.02%1,549
 2.18% - 2.53%1,580
Term Loan B facility, due November 20233.16% - 3.55%649
 3.28% - 3.75%466
Capitalized lease liability2.35% - 11.06%250
 2.35% - 15.09%216
Total debt 2,892
  2,832
     Less: unamortized debt issuance costs (28)  (33)
     Less: current portion of long-term debt and capitalized lease liability (131)  (116)
Total long-term debt, net of current maturities $2,733
  $2,683
(1) Represents the range of the lowest and highest interest rate during the period for each facility. Capitalized lease rates are the lowest and highest rates among all leases outstanding during the period. The September 29, 2017 column represents the range during the six month period then ended and the March 31, 2017 column represents the range during the fiscal year then ended.
On June 15, 2017, the Company entered into a Second Amendment to the Credit Agreement (the “Second Amendment”) with The Bank of Tokyo-Mitsubishi UFJ, Ltd, as pro-rata administrative agent, MUFG Union Bank, N.A., as collateral agent, Royal Bank of Canada, as term loan B administrative agent, and the guarantors and lender parties thereto. Pursuant to the Second Amendment, the credit facilities were amended to provide for, among other things:
(a) a reduction of 0.5% in the interest rate margin applicable to the Term Loan B Facility (as defined under the Second Amendment of the Credit Agreement), to LIBOR plus 2.00% on Eurocurrency Rate Advances;
(b) an increase of $183.7 million in the unpaid principal balance of the Term Loan B Facility to a total of $650.0 million; and
(c) quarterly repayments of $0.5 million commencing September 30, 2017 through December 31, 2022 and quarterly repayments thereafter of $2.4 million (subject to reduction for any mandatory or voluntary prepayments) until the maturity date of the Term Loan B Facility.
The additional borrowings under the Term Loan B Facility were immediately applied to repay $180.6 million of the unpaid principal balance of the Tranche A1 Facility; to pay accrued and unpaid interest on amounts repaid on the Tranche A1 Facility and on the Term Loan B facility; and to pay fees and expenses incurred in connection with the transaction. The Company wrote-off $1.7 million of deferred financing fees related to the portion of the loans deemed extinguished, which are recorded in interest expense; and recorded an additional $1.5 million of deferred financing costs related to fees paid in connection with the Second Amendment.
In addition, during the first quarter of fiscal year 2018, the Company made a mandatory repayment of $10.8 million on its Term Loan Facilities. On June 30, 2017, the Company drew $55.0 million under its Revolving Credit Facility in order to fund in part the settlement of its purchase of NES in July 2017. In September 2017, the Company made a mandatory principal repayment of $20.9 million on the Term Loan Facilities.


14
CSRA INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(unaudited)


Interest expense consisted of:
   Three Months Ended  Six Months Ended
(Dollars in millions) September 29, 2017 September 30, 2016September 29, 2017 September 30, 2016
Contractual interest -revolving and term loan credit facilities $21
 $19
 $40
 $38
Amortization of debt issuance costs 2
 3
 4
 6
Interest on derivatives and other 6
 7
 13
 15
Loss on debt extinguishment —
 —
 2
 —
Total interest expense $29
 $29
 $59
 $59
CSRA’s costs incurred costs in connection with the issuance of its Term Loan Facilities which are amortized using the effective interest method over the life of the respective loans. Unamortized debt issuance costs related to the Revolving Credit Facility are recorded with the carrying value of the debt and are amortized using the straight-line method. During the six months ended September 30, 2016, $0.7 million and $4.8 million of costs for the Revolving Credit Facility and Term Loan Facilities, respectively, were amortized and reflected in Interest expense, net in the unaudited Consolidated and Condensed Statements of Operations.
Expected maturities of long-term debt, excluding future minimum capital lease payments, for the lastremaining second half of fiscal year 20172018, and fiscal years subsequent to fiscal year 2017,2018, are as follows:
Fiscal Year Amount (in Millions)
Last half of 2017$36
2018 73
(Dollars in millions) Amount
Fiscal year:

  
Second half of fiscal year 2018 $42
2019 662
 83
2020 73
 472
2021 1,142
 84
2022 1,320
2023 4
Thereafter 696
 637
Total$2,682
 $2,642
    

CSRA’s long-term debt facilities contain representations, warranties, and covenants customary for arrangements of these types, as well as customary events of default. CSRA was in compliance with all financial covenants associated with its borrowings as of September 30, 2016.29, 2017.

Note 10—8—Income Taxes

CSRA’s effective tax rate (“ETR”) was 36.6% for both the three and six months ended September 29, 2017, compared to 35.5% and 35.7% for the three and six months ended September 30, 2016, respectively, compared to 39.8% and 39.4% for the three and six months ended October 2, 2015, respectively. The lowerhigher ETR for the three and six months ended September 30, 2016 compared to29, 2017 was primarily a result of a reduction in the three and six months ended October 2, 2015 was due to the additionamount of beneficial stock compensation deductions and the absence of adjustmentstax deductible dividend equivalent payments made related to the carve-out approach used for tax purposes prior to the Spin-Off in the fiscal year 2017 periods.

Our Tax Matters Agreement, entered into with CSC in connection with the Spin-Off, states each company’s rights and responsibilities with respect to payment of taxes, tax return filings and control of tax examinations. Except for historic SRA tax liabilities and certain separate state liabilities, we are generally only responsible for taxes allocable to periods (or portions of periods) beginning after the Spin-Off. Prior periods included uncertain tax positions allocated from CSC to CSRA on a stand-alone basis that are not reflected in the post-Spin-Off period.restricted stock unit (“RSU”) awards.

CSRA is currently under examination in several tax jurisdictions. As a result of the Mergers, the taxTax years that2008 and forward remain subject to examination under both Federal and various state tax jurisdictions. One disputed matter remains unresolved in certain of CSRA’s major tax jurisdictions are as follows:

Jurisdiction:Tax Years that Remain
Subject to Examination
(Fiscal Year Ending):
United States - federal2008 and forward
United States - various states2008 and forward

Theconnection with the Internal Revenue ServiceService’s (“IRS”) is currently examiningexamination of SRA’s federal income tax return for 2011. The IRS has contesteddisputed matter concerns a $136.7 million worthless stock deduction for a disposed subsidiary in that period.subsidiary. CSRA believes


1815
CSRA INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(unaudited)


believes its tax positions are appropriate and is prepared to defend them vigorously. Furthermore, pursuant to the Merger Agreement, SRAappropriate. The Company obtained ana tax insurance policy limiting thein connection with its merger with SRA that limits CSRA’s exposure related to this position.dispute. It is reasonably possible that changes to CSRA’s unrecognized tax benefits could be significant; however, due to the uncertainty regarding the timing of completion of auditsIRS administrative appeals process and possible outcomes, a currenthowever, we estimate ofthat the range of increases or decreases in our unrecognized benefits that may occur within the next 12 months iswill not expected to be material.


Note 11—9—Pension and Other Post-retirement Benefit Plans
Certain employees of CSRA and its subsidiaries may beare participants in employer-sponsored defined benefit and defined contribution plans. CSRA’s defined benefit plans, included bothincluding pension and other post-retirement benefit (“OPEB”) plans. As discussed in Note 1 — Description of the Business, Basis of Presentation and Recent Accounting Pronouncements, on November 27, 2015, CSC completed the Spin-Off of CSRA, including the Computer Sciences GS Business. Prior to the Spin-Off date, the Computer Sciences GS Business recorded the assets, liabilities, and service costs for current employees for the single employer pension and OPEB plans in the unaudited Consolidated and Condensed Financial Statements for the period ended October 2, 2015. For multi-employer plans, the Computer Sciences GS Business recorded the service cost related to their current employees in the unaudited Consolidated and Condensed Financial Statements for the period ended October 2, 2015. Subsequent to the Spin-Off date, all pension and OPEB plan assets, liabilities and services costs related to current employees were fully absorbed by CSRA.
Defined Benefit Pension Plans
The assets and liabilities for the plans as well as service and interestthe costs and benefits related to current employeesthe plans’ participants are reflected in CSRA’s unaudited Consolidated and Condensed Financial Statements.
Defined Benefit Pension Plans
The largest U.S. defined benefit pension plan was frozen in fiscal year 2010 for most participants. All remaining participants have been frozen since 2016.
The net periodic pension benefit for CSRA pension plans includes the following components:
Net periodic pension costs (dollars in millions) Three Months Ended Six Months Ended
September 30, 2016 October 2, 2015 September 30, 2016 October 2, 2015
Service cost$3
 —
$6
 —
(Dollars in millions) Three Months Ended Six Months Ended
September 29, 2017 September 30, 2016 September 29, 2017 September 30, 2016
Service cost (entirely administrative expenses) $4
 $3
 $7
 $6
Interest cost
25
$1
 51
$1

23
 25
 46
 51
Expected return on assets (49) (1) (98) (2) (43) (49) (86) (98)
Net periodic pension benefit$(21)$—
$(41)$(1)
$(16) $(21) $(33) $(41)
The following table provides the pension plans’ projected benefit obligations, assets, and a statement of their fundedfunding status:
 As of As of
(Dollars in millions) September 30, 2016 April 1, 2016 September 29, 2017 March 31, 2017
Net benefit obligation$(3,196)$(3,222) $(2,755) $(2,787)
Net plan assets 2,603
 2,585
 2,332
 2,328
Net unfunded status$(593)$(637)
Net funded (unfunded) status $(423) $(459)

CSRA contributed $4.2$4.1 million to the defined benefit pension plans during the six months ended September 30, 201629, 2017 for the funding of benefit payments made to plan participants. CSRA expects to make $4.2$4.1 million of additional contributions during the remainderremaining six months of fiscal year 20172018 for the funding of participants’ benefit payments.


1916
CSRA INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(unaudited)


During the second and third quarters of fiscal year 2017, the Company offered lump sum settlements to the vested participants of certain of its U.S. defined benefit pension plans, who were no longer with the Company. The lump-sum settlements are expected to be paid in December 2016 and will require interim remeasurement of the plans’ assets and liabilities at the end of the third quarter of fiscal year 2017. As part of the third quarter remeasurement, we expect to incorporate updates to the life expectancy assumptions, which is released annually by the Society of Actuaries.
Other PostretirementPost-retirement Benefit Plans
The assets and liabilities for the OPEB plans as well as service costs related to current employees are reflected in CSRA’s unaudited Consolidated and Condensed Financial Statements. CSRA’s financial statements reflect the service costs related to current employees and certain former employees of CSC and the businessbusinesses constituting CSC’s North American Public Sector segment and the assets and liabilities for the plans. CSRA provides subsidized healthcare, dental, and life insurance benefits for certain U.S. employees and retirees, primarily for individuals employed prior to August 1992.
Net periodic postretirement benefit costs (in millions) Three Months Ended Six Months Ended
September 30, 2016 October 2, 2015 September 30, 2016 October 2, 2015
Service cost
$—
 $—
 $—
 $—
(Dollars in millions) Three Months Ended Six Months Ended
September 29, 2017 September 30, 2016 September 29, 2017 September 30, 2016
Net periodic post-retirement (benefit) costs:        
Interest cost —
 —
 1
 —
 $1
 $1
 $1
 $1
Expected return on assets (2) —
 (3) —
 (2) (2) (3) (3)
Amortization of prior service benefit (3) (1) (6) (2) (3) (3) (6) (6)
Net periodic benefit $(5) $(1) $(8) $(2) $(4) $(4) $(8) $(8)
The following table provides the OPEB plans’ projected benefit obligations, assets, and a statement of their fundedfunding status:
 As of
(Dollars in millions) As of
 September 30, 2016 April 1, 2016 September 29, 2017 March 31, 2017
Net benefit obligation$(91)$(93) $(84) $(86)
Net plan assets 75
 76
 76
 76
Net unfunded status$(16)$(17) $(8) $(10)
CSRA contributed $0.7 million and $0.8 million and $0.5 million to a supplemental executive retirement planthe OPEB plans during the six months ended September 29, 2017 and September 30, 2016, and October 2, 2015, respectively. CSRA expects to make $0.8$0.7 million of additional contributions to this plan during the remainderremaining six months of fiscal year 20172018 for the funding of participants’ benefit payments.


Note 12—10—Share-Based Compensation Plans
Employee Incentives
Prior to the Spin-Off,Company’s separation from CSC maintained various share-based compensation plans at a corporate level and other benefit plans at a subsidiary level. The employees of the Computer Sciences GS Business participated in those programs and a portion of the cost of those plans for the period prior to the Spin-Off is included in the unaudited Consolidated and Condensed Financial Statements.
On November 27, 2015, CSRA became an independent company through CSC’s consummation of the Spin-Off. Historically, CSC had(the “Spin-Off”), there were two stock incentive plans under which CSC issuedemployees were granted stock options, restricted stock units (“RSUs”),RSUs, and performance stock units (“PSUs”). Some of these awards vested upon separation of CSC and CSRA,


20
CSRA INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(unaudited)


the Spin-Off, some continue to vest in accordance with their original terms, and some converted into a different type of equity award at separation. Additionally, CSRA issued stock in relation to restricted stock awards and stock option replacement awards to employees in connection with the SRA Mergers on November 30, 2015. As of September 30, 2016 and April 1, 2016, CSRA hashad a net payable toreceivable from CSC of $7.5$5.9 million at September 29, 2017 and $6.5$1.3 million respectively,as of March 31, 2017, related to the settlement of equity awards grantedawards-granted to employees prior to the Spin-Off.
On May 31, 2016, CSRA granted stock options, RSUs and PSU awardsAugust 9, 2017, the CSRA’s shareholders approved an increase in the number shares available for 1,538,878issuance in the Company’s 2015 Omnibus Incentive Plan of 4,483,000 shares, that vest ratably over 3 years. The closing stock price on the date of the grant used to determine the award fair value was $24.77. During the second quarter of fiscal year 2017, CSRA granted stock options, RSUs and PSU awards to employees for approximately 8,825 shares that vest ratably over 3 years. The weighted average closing stock price on the dates of the grants used to determine the award fair value was $25.52. On August 12, 2016, CSRA also granted RSUs to non-employee directors for approximately 63,500 shares that vest ratably over 1 year. The weighted average closing stock price on the date of the grants used to determine the award fair value was $25.94.
CSRA issues authorized but previously unissued shares upon the exercise of stock options, the granting of restricted stock and the settlement of RSUs and PSUs. As of September 30, 2016, 7,822,031which results in 11,006,523 available shares of CSRA common stock were available for the grant of future stock options, RSUs, PSUs or other share-based incentives to employees of CSRA.
Share-Based Compensation Expense
CSRA as of September 29, 2017. For the three and six months ended September 29, 2017 and September 30, 2016, and October 2, 2015, CSRA recognized share-based compensation expense as follows:
  Three Months Ended Six Months Ended
(Dollars in millions) September 30, 2016 October 2, 2015 September 30, 2016 October 2, 2015
Cost of services$—
$2.1
$—
$0.8
Selling, general and administrative expenses 4.1
 2.8
 7.1
 3.4
Total$4.1
$4.9
$7.1
$4.2
Total, net of tax$2.6
$3.0
$4.5
$2.5
The share-based compensation listed above includedwithin Selling, general and administrative expenses of $8.0 million and $7.1 million, respectively, including CSRA’s corporate and non-employee director grants, and was $2.5which totaled $0.8 million and $3.8$0.8 million, for the three and six months ended September 30, 2016, respectively. The share-based compensation listed above included CSRA’s share of the former Parent’s corporate and non-employee director grants for the three and six months ended October 2, 2015 of $2.4 million and $3.0 million, respectively.
CSRA uses the Black-Scholes-Merton model in determining the fair value of options granted. The risk-free rate is based on the zero-coupon interest rate of U.S. government-issue Treasury securities with periods commensurate with the expected term of the options.

The weighted-average grant date fair values of stock options granted for the six months ended September 30, 2016 was $5.99 per share of CSRA shares. In calculating the compensation expense for its stock incentive plans, the following weighted-average assumptions were used:


2117
CSRA INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(unaudited)



  Six Months Ended
  September 30, 2016 October 2, 2015 
Risk-free interest rate 1.39%1.77%
Expected volatility 30.90%31.72%
Expected term (in years) 4.80 6.04 
Dividend yield 1.61%1.39%
For the six months ended September 30, 2016 and October 2, 2015, CSRA’s tax benefit realized for deductions from exercising stock options was $5.5 million and $1.8 million, respectively. CSRA’s excess tax benefit was $2.0 million for the six months ended September 30, 2016.
Stock Options
Information concerning stock options of CSRA during the six months ended September 30, 201629, 2017, was as follows.
  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
The intrinsic value of options exercised during the six months ended September 30, 2016 and October 2, 2015 totaled $1.3 million and $1.9 million, respectively. The total intrinsic value of stock options is based on the difference between the fair market value of CSRA’s common stock less the applicable exercise price. The grant-date fair value of stock options vested during the six months ended September 30, 2016 totaled $1.5 million. The cash received from stock options exercised during the six months ended September 30, 2016 and October 2, 2015 was $3.1 million in both periods.
  Number of Option Shares Weighted Average Exercise Price per share
Outstanding as of March 31, 2017 1,996,898
 $24.29
Granted —
 —
 Less:    
Exercised 149,051
 23.09
Canceled/Forfeited 42,517
 21.97
Expired 8,041
 28.09
Outstanding as of September 29, 2017 1,797,289
 24.38
     
Expected to vest in the future as of September 29, 2017 819,279
 25.20
Exercisable as of September 29, 2017 978,010
 23.68
As of September 30, 2016,29, 2017, unrecognized compensation expense related to unvested stock options totaled $7.4$3.8 million. This cost is expected to be recognized over a weighted-average period of 2.41.5 years.


22
CSRA INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(unaudited)


Restricted Stock Units    

RSUs and PSUs    
Information concerning RSUs (including PSUs)and PSUs of CSRA during the six months ended September 30, 201629, 2017, was as follows.
 Number of Restricted Stock Units Weighted Average Fair Value Number of Restricted Stock Units Weighted Average Fair Value
Outstanding as of April 1, 2016 376,557
$29.39
Outstanding as of March 31, 2017 857,914
 $26.95
Granted 611,524
 25.69
 672,884
 30.41
Less:    
Vested (145,156) 26.52
 94,492
 29.04
Canceled/Forfeited (21,427) 31.89
 40,594
 28.61
Outstanding as of September 30, 2016 821,498
 27.08
Outstanding as of September 29, 2017 1,395,712
 28.43
As of September 30, 2016,29, 2017, total unrecognized compensation expense related to unvested restricted stock unitsRSUs and PSUs totaled $16.8 million, net of expected forfeitures.$25.6 million. This cost is expected to be recognized over a weighted-average period of 2.2 years. As of September 30, 2016, accrued unpaid dividends related to restricted stock units outstanding as of the date of the Spin-Off totaled $1.0 million.



Note 13—11—Stockholders’ Equity and Accumulated Other Comprehensive Income (Loss)(Loss)

Dividends Declared
During the fourth quarter of fiscal 2016,In May 2017, CSRA announced that its Board of Directors had declared a quarterly cash dividend of $0.10 per share.  The total qualifying shares were 162,952,919163,760,678 shares, with a total dividend payout of $16.3$16.4 million. Payment of the dividend was made on April 29, 2016July 12, 2017 to CSRA stockholders of record at the close of business on April 5, 2016.June 15, 2017.
On May 25, 2016,In August 2017, 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 163,796,116163,604,848 shares, with a total dividend payout of $16.4 million. Payment of the dividend was made on October 4, 20163, 2017 to CSRA stockholders of record at the close of business on August 31, 2016.29, 2017.


18
CSRA INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(unaudited)


Share Repurchase Program

On November 30, 2015, the Board authorized a share repurchase program (the “Share Repurchase Program”), pursuant to which CSRA, from time to time, purchases shares of its common stock for an aggregate purchase price not to exceed $400 million.
During the six months ended September 30, 2016, CSRAthe Company repurchased 300,097 shares of CSRA common stock through open market purchases for an aggregate consideration of $7.9 million, at an average price of $26.45 per share.
During the three months ended June 30, 2017, the Company repurchased 450,000 shares of CSRA common stock for aggregate consideration of $14.3 million, at an average price of $31.71 per share. During the three months ended September 29, 2017, the Company paid $1.6 million for 50,000 shares of CSRA common stock (at an average price of $31.77 per share) that was traded in the first quarter but did not settle prior to June 30, 2017.
As of September 30, 2016,29, 2017, CSRA remained authorized to repurchase $342$305.1 million of common stock pursuant to the Share Repurchase Program with an expiration date of March 31, 2019.



23
CSRA INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(unaudited)


Accumulated Other Comprehensive Income (Loss)

The following tables show the activity in the components of other comprehensive income (loss), including the respective tax effects, and reclassification adjustments for the three and six months ended September 29, 2017 and September 30, 2016, and October 2, 2015, respectively.
  For the Three Months Ended September 29, 2017 For the Three Months Ended September 30, 2016
(Dollars in millions) Before Tax Amount Tax Impact Net of Tax Amount Before Tax Amount Tax Impact Net of Tax Amount
Unrealized gain on derivatives $—
 $—
 $—
 $5
 $(2) $3
Amortization of prior service credit (3) 2
 (1) (3) 1
 (2)
Total other comprehensive income (loss) $(3) $2
 $(1) $2
 $(1) $1

  For the Three Months Ended September 30, 2016
(Dollars in millions) Before Tax AmountTax 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$2
(1)1
  For the Three Months Ended October 2, 2015
(Dollars in millions) Before Tax AmountTax Impact Increase (Decrease)Net of Tax Amount
Amortization of prior service credit$(1)—
(1)
Total other comprehensive income$(1)—
(1)
  For the Six Months Ended September 30, 2016
(Dollars in millions) Before Tax AmountTax Impact Increase (Decrease)Net of Tax Amount
Foreign currency translation adjustments$1
(1)—
Unrealized loss on interest rate swap (5)2
(3)
Amortization of prior service credit (7)3
(4)
Total other comprehensive income$(11)4
(7)
  For the Six Months Ended October 2, 2015
(Dollars in millions) Before Tax AmountTax Impact Increase (Decrease)Net of Tax Amount
Amortization of prior service credit$(2)—
(2)
Total other comprehensive income$(2)—
(2)

  For the Six Months Ended September 29, 2017 For the Six Months Ended September 30, 2016
(Dollars in millions) Before Tax Amount Tax Impact Net of Tax Amount Before Tax Amount Tax Impact Net of Tax Amount
Foreign currency translation adjustments $—
 $—
 $—
 $1
 $(1) $—
Unrealized gain (loss) on derivatives (3) 1
 (2) (5) 2
 (3)
Amortization of prior service credit (6) 3
 (3) (7) 3
 (4)
Total other comprehensive income (loss) $(9) $4
 $(5) $(11) $4
 $(7)


2419
CSRA INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(unaudited)


The following tables show the changes in Accumulated other comprehensive (loss) income for the six months ended September 29, 2017 and September 30, 2016, and October 2, 2015, respectively.
(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

(Dollars in millions) Foreign Currency Translation Adjustments Pension and Other Postretirement Benefit Plans Accumulated Other Comprehensive (Loss) Income
Balance as of April 3, 2015$(2)$2
$—
Other comprehensive income, net of taxes —
 —
 —
Amounts reclassified from accumulated other comprehensive income, net of taxes and noncontrolling interests —
 (2) (2)
Balance as of October 2, 2015$(2)$—
$(2)
  Six month ended September 29, 2017 Six months ended September 30, 2016
             
(Dollars in millions) Cash Flow Hedge Pension and Other Post-retirement Benefit Plans Accumulated Other Comprehensive (Loss) Income Cash Flow Hedge Pension and Other Post-retirement Benefit Plans Accumulated Other Comprehensive (Loss) Income
Balance, beginning of period $11
 $20
 $31
 $(7) $28
 $21
Other comprehensive income (loss), net of taxes (2) —
 (2) (3) —
 (3)
Amounts reclassified from accumulated other comprehensive income, net of taxes and noncontrolling interests —
 (3) (3) —
 (4) (4)
Balance, end of period $9
 $17
 $26
 $(10) $24
 $14


Note 14—12—Segment Information
CSRA’s reportable segments are 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—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.
Beginning in fiscal year 2018, we revised Segment Operating Income to exclude the Net benefit of defined benefit plans coincident with our adoption of ASU 2017-07. The prior period has been revised to conform to the current period presentation.
The following table summarizes operating results and total assets by reportable segment.
(Dollars in millions) Defense and Intelligence Civil Subtotal 
Corporate(1)
 Total
As of September 29, 2017          
Total assets $2,084
 $2,658
 $4,742
 $263
 $5,005
           
Three Months Ended September 29, 2017          
Revenues $557
 $715
 $1,272
 $—
 $1,272
Segment operating income(2)
 75
 98
 173
 (39) 134
Depreciation and amortization expense 39
 17
 56
 —
 56
           
Six Months Ended September 29, 2017          
Revenues $1,082
 $1,419
 $2,501
 $—
 $2,501
Segment operating income(2)
 133
 195
 328
 (58) 270


2520
CSRA INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(unaudited)


The following table summarizes operating results and total assets by reportable segments.
(Dollars in millions) Defense and Intelligence Civil Subtotal 
Corporate(1)
 Total
As of September 30, 2016          
Total assets$1,939
$2,619
$4,558
$211
$4,769
           
Three Months Ended September 30, 2016          
Revenues$575
$688
$1,263
$—
$1,263
Segment operating income 80
 101
 181
 —
 181
Depreciation and amortization expense 34
 29
 63
 —
 63
           
Six Months Ended September 30, 2016          
Revenues$1,143
$1,374
$2,517
$—
$2,517
Segment operating income 134
 206
 340
 —
 340
Depreciation and amortization expense 68
 60
 128
 —
 128
           
As of October 2, 2015          
Total assets$1,160
$753
$1,913
$—
$1,913
           
Three Months Ended October 2, 2015          
Revenues$500
$469
$969
$—
$969
Segment operating income 70
 77
 147
 —
 147
Depreciation and amortization expense 23
 12
 35
 —
 35
           
Six Months Ended October 2, 2015          
Revenues$1,006
$922
$1,928
$—
$1,928
Segment operating income 134
 138
 272
 —
 272
Depreciation and amortization expense 46
 22
 68
 —
 68
(1) Total assets allocated to the Corporate Segment at September 30, 2016 consist of the following: (1) $51 million of cash, (2) $43 million of accounts receivable, (3) $82 million of property, plant, and equipment, net, and (4) $35 million of other current assets.


26
CSRA INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(unaudited)


Depreciation and amortization expense 80
 36
 116
 —
 116
           
As of September 30, 2016          
Total assets $1,939
 $2,619
 $4,558
 $211
 $4,769
           
Three Months Ended September 30, 2016          
Revenues $575
 $688
 $1,263
 $—
 $1,263
Segment operating income(2)
 69
 88
 157
 (27) 130
Depreciation and amortization expense 34
 29
 63
 —
 63
           
Six Months Ended September 30, 2016          
Revenues $1,143
 $1,374
 $2,517
 $—
 $2,517
Segment operating income(2)
 112
 179
 291
 (49) 242
Depreciation and amortization expense 68
 60
 128
 —
 128
(1) Total assets allocated to the Corporate Segment at September 29, 2017 consist of the following: (a) $56 million of cash, (b) $63 million of accounts receivable, (c) $82 million of property, plant, and equipment, net, (d) $49 million of other current assets; and (e) $13 million of other long-term assets.
(2) Segment operating income (loss) for the corporate segment includes corporate general and administrative expenses as well as Separation and merger costs.
Segment operating income provides useful information to CSRA’s management for assessment of CSRA’s performance and results of operations and is one of the financial measures utilized to determine executive compensation.
A reconciliation of consolidated segment operating income to income before income taxes is as follows:
  Three Months Ended Six Months Ended
(Dollars in millions) September 30, 2016 October 2, 2015 September 30, 2016 October 2, 2015
Segment operating income$181
$147
$340
$272
Corporate G&A (19) (14) (36) (29)
Separation and merger costs (8) (42) (13) (56)
Interest expense, net (29) (5) (59) (10)
Other (expense) income, net (1) 2
 (2) 21
Income before income taxes$124
$88
$230
$198

Note 15—13—Commitments and Contingencies
Commitments
Letters of Credit and Surety Bonds
In the normal course of business, CSRA may provide certain customers, principally governmental entities, with financial performance guarantees, which are generally backed by stand-by letters of credit or surety bonds. In general, CSRA would only be liable for the amounts of these guarantees in the event that nonperformance by CSRA permits termination of the related contract by the customer. As of September 30, 2016,29, 2017 and March 31, 2017, CSRA had $45$22.2 million and $20.2 million respectively, of outstanding letters of credit, and $12$12.5 million and $12.0 million, respectively of surety bonds related to these performance guarantees. CSRA believes it is in compliance in all material respects with its performance obligations under all service contracts for which there is a financial performance guarantee and the ultimate liability, if any, incurred in connection with these guarantees will not have a material adverse effect on its unaudited Consolidated and Condensed Financial Statements.
The following table summarizes the expiration of CSRA’s financial guarantees and stand-by letters of credit outstanding as of September 30, 2016:
(Dollars in millions) Last Half of Fiscal 2017 Fiscal 2018 Fiscal 2019 and Thereafter Total
Stand-by letters of credit$32
$13
$—
$45
Surety bonds —
 12
 —
 12
Total$32
$25
$—
$57
Indemnifications
CSRA generally indemnifies licensees of its proprietary software products against claims brought by third parties alleging infringement of intellectual property rights (including rights in patents, copyrights, trademarks, and trade secrets). CSRA’s indemnification of its licensees relates to costs arising from court awards, negotiated settlements and the related legal and internal costs of those licensees. CSRA maintains the right, at its own costs, to modify or replace software in order to eliminate any infringement. Historically, CSRA has not incurred any significant costs related to licensee software indemnifications.


21
CSRA INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(unaudited)


Contingencies
CSRA accrues a liability when management believes that it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated under applicable accounting guidance. CSRA believes it has appropriately recognized liabilities for any such matters. In addition to the matters noted below, CSRA is currently party to a number of disputes that involve or may involve litigation. CSRA assessed reasonably possible losses for all other such pending legal or other proceedings in the aggregate and concluded that the range of potential loss is not material.
U.S. Government Agency Reviews
CSRA is routinely subject to investigations and reviews relating to compliance with various laws and regulations with respectrelating to its role as a contractor to federal, state, and local government customers and in connection with performing services in countries outside of the U.S. Adverse findings in these investigations or reviews can lead to criminal, civil, or administrative proceedings, and CSRA could face penalties, fines, compensatory damages,


27
CSRA INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(unaudited)


and suspension or debarment from doing business with governmental agencies. In addition, CSRA could suffer serious reputational harm if allegations of impropriety were made against CSRA. Adverse findings could also have a material adverse effect on CSRA’s business and its unaudited Consolidated and Condensed Financial Statements due to itsCSRA’s reliance on government contracts.
U.S. federal government agencies, including the Defense Contract Audit Agency (“DCAA”), Defense Contract Management Agency (“DCMA”), and others, routinely audit and review a contractor’s performance on government contracts, indirect rates, and pricing practices, and compliance with applicable contracting and procurement laws, regulations, and standards. These agencies also review the adequacy of the contractor’s compliance with government standards for its business systems including: a contractor’s accounting system, earned value management system, estimating system, materials management and accounting system, property management system, and purchasing system. Both contractors and the U.S. federal government agencies conducting these audits and reviews have come under increased scrutiny, including such subjects as billing practices, labor charging and accounting for unallowable costs.
CSRA’s indirect cost audits by the DCAA (including audits of both CSRA LLC and SRA) remain open for fiscal 2004 and subsequentseveral fiscal years. Although the Computer Sciences GS Business hasCompany recorded contract revenues subsequent to and including fiscal 2004 based upon an estimateestimates of costs that the Computer Sciences GS BusinessCompany’s management believes will be approved upon final audit or review, the Computer Sciences GS Businessmanagement does not know the outcome of any ongoing or future audits or reviews and adjustments, and if future adjustments exceed the Computer Sciences GS Business’sthese estimates, itsCSRA’s profitability would be adversely affected.
The DCAA has not completed audits of SRA’s incurred cost submissions for fiscal 2009 and subsequent fiscal years. SRA has recorded financial results subsequent to fiscal 2008 based upon costs that SRA believes will be approved upon final audit or review. If incurred cost audits result in adverse findings that exceed SRA’s estimates, it may have an adverse effect on our financial position, results of operations or cash flows.
As of September 30, 2016,29, 2017 and March 31, 2017, CSRA has recorded a liability of $16.8$16.7 million and $16.5 million, respectively, for its current best estimate of net amounts to be refunded to customers for potential adjustments from such audits or reviews of contract costs. This amount includes potential adjustments related to both pre-separation and post-separation audits or reviews.
In connection with the sale of ATD in fiscal 2014, CSC transferred its joint venture interests in Computer Sciences Raytheon (“CSR”) as part of the ATD sale transaction. CSR is a joint venture formed between CSC and Raytheon Technical Services Company, and its sole business is performance of a single contract for a DoD customer. CSR is the plan sponsor of the CSR pension plan, which was terminated in connection with the termination of the CSR contract with the customer. CSC agreed with the purchaser of ATD that CSC would fund the purchaser’s share of the CSR pension settlement obligation upon plan termination. In addition, the agreement with the purchaser provides that the eventual expected recovery by CSR of such plan termination settlement costs from the customer as provided for under federal Cost Accounting Standards (“CAS”) Section 413, whereby contractors may recover such costs from the government plus interest, will be reimbursed to the business. The CSR pension plan termination process commenced in September 2015. The share of the funding obligation that was attributable to the purchaser and, therefore, to be advanced by CSC, was initially estimated at $26.0 million. The ultimate plan termination settlement funding obligation is based on economic factors, including long-term interest rates that impact the cost of annuities offered by insurers at the time of the actual plan termination settlement. The fair value of CSC’s funding advance obligation net of subsequent expected recoveries was recorded by CSRA prior to CSRA’s separation from CSC. As part of the separation, CSC and CSRA agreed that CSC would transfer all rights, title and interest of the agreement to fund the CSR pension settlement obligation that would otherwise be the responsibility of CSC to CSRA. Consequently, in September 2016, the Company made a payment to escrow of $24.7 million to fund CSC’s CSR pension settlement obligation.

Unless otherwise noted, CSRA is unable to develop a reasonable estimate of a possible loss or range of losses associated with the following contingent matters at this time.


2822
CSRA INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(unaudited)


Maryland Medicaid Enterprise Restructuring ProjectLegal Proceedings
After competitive biddingThe Company is involved in various lawsuits, claims, and administrative proceedings arising in the normal course of business, including many that arose before the Company’s separation from CSC. See Note 21—Commitments and Contingencies in CSRA’s Consolidated and Combined Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended March 1, 2012, CSC was awarded31, 2017 for additional information. During the six months ended September 29, 2017, the following significant developments arose with respect to these matters:
State of Maryland, Medicaid Enterprise Restructuring Project (“MERP”) contract by
On September 15, 2017, the Maryland Department of Health (the “State”) issued a procurement officer's decision and Departmental Final Action (the “Final Action”) denying CSC’s remaining undecided claims against the State of Maryland (the “State”) to modernize the Medicaid Management Information System (“MMIS”), a database of Medicaid recipients and providers used to manage Medicaid reimbursement claims. The MERP contract was predominately fixed-price. Since the date the MERP 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 design to incorporate new federal mandates and guidance promulgated aftertotal amount of $83 million. In the base scope of the Contract was finalized. Further,Final Action, the State declinedalso purports to approve contract modifications to compensate CSC for the additional work.

As a result of the State’s refusal to amend the MERP contract and equitably adjust the compensation to be paid to CSC and, in accordance with prescribed State statutes and regulations,award itself approximately $521 million on its counterclaim. CSC timely filed a certified contract claim in September 2013, which after various procedural developments is now pending beforenotice of appeal with the Maryland State Board of ContractsContract Appeals (the “State Board”)., which will consider CSC’s claims and the State’s counterclaim anew.
On August 22, 2014,The Final Action offers little support for the State unilaterally suspended performance underaward to the Contract for 90 daysState; the State's original counterclaim (filed in July 2016) alleged only $30 million plus unspecified additional damages. The Final Action includes numerous misstatements and repeatedly extendedomissions, and, notably, mischaracterizes the suspension until providing a Noticeelements of Default termination in October 2015. As the result of the suspension and other actions and inactionsCSC’s claims. The damages sought by the State in performance of its obligations under the Contract, in October 2014, CSC filed additional claims under various legal theories, such that currently the total amount claimed by CSC is approximately $80.0 million.

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. However,are premised on September 14, 2015, the State orally advised CSC that the State elected to abandon the contract settlement and restructuring discussions. On October 14, 2015, the State provided CSC 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 CSC arising from a default termination for reprocurement costs would be appealable by CSC; CSC to the State Board, as is the default termination itself. The State has not asserted a claim for reprocurement costs and, werevehemently denies that it do so,defaulted.  Moreover, even if CSC believes such a claim to be meritless and unsupported by the facts.

CSRA challenged the legal basis ofhad defaulted, the State’s termination for default in a Claim for $83.0 million filed with the State on December 14, 2015. The Claim subsumes the quantum of the prior claims and seeks to convert the termination to a convenience termination. The State has not rendered a decision on the latest claim; however, if it is denied, CSRA will appeal through litigation at the State Board.claimed damages are overstated.

On December 22, 2015, the State filed a Motion to Dismiss CSC’s Claim with the State Board. CSC responded to the State’s Motion to Dismiss on January 19, 2016. As set forth in CSC’s extensive brief, the four arguments made in the State’s Motion are based on an incomplete and flawed discussion of the Contract and the factual record. On May 6, 2016, the State Board held a hearing on the Department’s motion and decided to take the motion under advisement. The Board requested that the Department move expeditiously to arrive at a final decision on CSC’s other claims and indicated that it would then consolidate the claims going forward and, at that time, might issue a decision on the Department’s motion. When all of the material parts of the Contract and record are considered, CSRA believes that CSC is entitled to prevail on all of the issues raised by the Department’s motion.
On July 14, 2016, CSRA received a copy of a claim for breach of contract against CSC filed by the DHMH Contract Monitor with the DHMH Procurement Officer (the “State Claim”). The claim was filed in accordance with Maryland State procedure for claims against State contractors. If the DHMH Procurement Officer takes final action on the claim — which is likely to be an approval thereof — CSC and/or CSRA will be able to appeal to the State Board.
The State Claim seeks damages in excess of $30.0 million. Categories of damages include: the full amount paid to CSC, $30.0 million; costs to be incurred by the State in procuring substitute performance; amounts paid by the


29
CSRA INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(unaudited)


State to its project management consultant; lost federal reimbursement from CMS; and additional costs incurred by the State, including wages, attributable to CSC’s alleged breach.
The State Claim is based solely on issues raised in the State’s February 14, 2014, and March 14, 2014, cure notices which were fully addressed by CSC in the relevant timeframe. No new facts are contained in the State Claim. Subsequent to the cure notices, the State unilaterally suspended contract performance for over one year.
The parties have resumed exploring potential settlement options but have not concluded any settlement. If those are not successful, litigation will proceed and CSC expects to consolidate, on behalf of CSC, all of itsCSC’s claims against the State with any claims arising from the default termination. CSRA 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 CSRA.State’s new affirmative claim. Management has evaluated the recoverability of its assets related to the MERP contract in light of these developments and concluded that no adjustments to its financial statements are required. Further, we have assessed the legal risk associated with the State Claim under ASC 450State’s counterclaim and have concluded at this time that no reserve is required.
As previously reported, on June 21, 2017 the Circuit Court for Anne Arundel County, Maryland granted the motion of the Maryland Office of the Attorney General (“OAG”) to dismiss CSCs complaint seeking a declaratory judgment that the Maryland False Health Claims Act of 2010 does not apply to the MERP contract and does not by itself authorize the OAG to undertake discovery related thereto. CSC timely filed its Notice of Appeal. The Court’s decision has no effect on the litigation of CSC’s contract claims against the State and the State’s counterclaim discussed above.
Strauch et al. Fair Labor Standards Act Class Action
On July 1, 2014, plaintiffs filed Strauch and Colby v. Computer Sciences Corporation inJune 30, 2017 the U.S. District Court for the District of Connecticut a putative nationwidegranted class action allegingcertification for former employees classified as Associate Professionals or as Professionals working in the states of California and Connecticut who worked more than 40 hours per week. The Court denied class certification for all class members in North Carolina on the basis that CSC violated provisions ofNorth Carolina law is preempted by the Fair Labor Standards Act (“FLSA”) with respect to system administrators who worked for CSC at any time from June 1, 2011 to the present. Plaintiffs claim that CSC improperly classified its system administrators as exempt from the FLSA and that CSC, therefore, owes them overtime wages and associated relief available under the FLSA and various statutes, including the Connecticut Minimum Wage Act, the California Unfair Competition Law, California Labor Code, California Wage Order No. 4-2001, and the California Private Attorneys General Act. CSC’s Motion to Transfer VenueIn addition, class certification was denied in February 2015. In September 2015, plaintiffs filed an amended complaint, which added claims under Missouri and North Carolina wage and hour laws. The relief sought by Plaintiffs includes unpaid overtime compensation, liquidated damages, pre- and post-judgment interest, damages in the amount of twice the unpaid overtime wages due, and civil penalties. If a liability is ultimately incurred as a result of these claims, CSRA would pay a portion to CSC pursuant to an indemnity obligation. CSC and CSRA both maintain the position that system administrators have the job duties, responsibilities, and salaries of exemptformer employees and are properly classified as exempt from overtime compensation requirements.

On June 9, 2015,Senior Professionals in California and Connecticut.  The Company filed a petition for review of the Court entered an order granting the plaintiffs’ motion for conditionalpartial certification of the class with the Second Circuit on July 14, 2017.
Southwest Asia Employment Contract Litigation
On June 28, 2017, the Fourth Circuit ruled against CSC on its appeal of system administrators.the District Court’s award of attorneys’ fees to the Rishell plaintiff. The conditionally certified FLSAunderlying judgment and putative classes include approximately 1,285 system administrators,attorney fees have been paid and this matter is now closed. No additional accrual for indemnification of whom 407 are employed by CSRAfees was necessary.
In the separate case pending before the U.S. District Court for the Eastern District of Louisiana, on July 15, 2017, claims of 58 plaintiffs were dismissed, and the remainder employed by CSC. Courts typically undertake a two-stage review in determining whether a suit may proceed as a class action under the FLSA. In its order, the Court noted that, as a first step, the Court examines pleadings and affidavits, and if it finds that proposed class members are similarly situated, the class is conditionally certified. Potential class members are then notified and given an opportunity to opt-in to the action. The second step of the class certification analysis occurs upon completion of discovery. At that point, the Court will examine all evidence then in the record to determine whether there is a sufficient basis to conclude that the proposed class members are similarly situated. If it is determined that they are, the case will proceed to trial; if it is determined they are not, the class is decertified and only the individual claims of the purported class representatives proceed. CSRA’s and CSC’s position in this litigation continuesremaining 37 plaintiffs were limited, on the basis that these claims were untimely under Louisiana law. The Company has determined the range of the possible losses for which it would be required to be that the employees identified as belongingindemnify CSC to the conditional class were paid in accordance with the FLSA and applicable state laws.

Plaintiffs filed their motion for class certification on June 3, 2016. CSC filed its opposition on July 15, 2016. Plaintiffs filed their reply brief on August 12, 2016 and the matter is currently under advisement with the Court.
The parties have explored potential settlement scenarios but have not concluded any settlement. Accordingly, the litigation is ongoing and briefing on plaintiffs’ motion for class certification, the next step in the litigation, is in progress.$0.6 million to $2.6 million.


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CSRA INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(unaudited)


CECOM Rapid Response Demand LetterNote 14—Subsequent Events

On July 12, 2013,In November 2017, CSRA executed and closed a sale-leaseback transaction of the U.S. Army’s Communications-Electronics Command (“CECOM”) issuedCompany’s corporate headquarters property in Falls Church, Virginia. A sale-leaseback transaction involves CSRA selling and subsequently leasing back an asset. A lease that qualifies for sale-leaseback accounting is evaluated and accounted for as either an operating lease or capital lease. A transaction that does not qualify as a demand letter based upon DCAA audit reportssale as a result of a prohibited form of continuing involvement is accounted for as a financing. The gross sale price was $33.1 million and Form 1, for reimbursement in the amount of $235.2 million in costs that CSC allegedly overcharged under its Rapid Response (“R2”) contract (Contract No. DAAB07-03-D-B007) by placing CSC, interdivisional, teammate, and vendor employees in R2 labor categories for which they were not qualified. CSC’s position has been that, in most instances, the individuals in question met the contract requirements for their labor categories, and that, in all instances, DCAA and CECOM have ignored the value the government received for CSC’s work. CSC and CECOM have engaged in discussions in an attempt to resolve this issue but, at this point in time, there can be no assurance that the parties will be able to resolve their differences, in which case CSRACompany expects to litigate this matter.

DynCorp

In connection with CSC’s acquisitionrecognize a loss of DynCorp in 2003 and its divestiture of substantially all of that business in two separate transactions (in 2005 to The Veritas Capital Fund II L.P. and DI Acquisition Corp. and in 2013 to Pacific Architects and Engineers, Incorporated (collectively,approximately $10 million on the “DynCorp Divestitures”)), CSC assumed and Computer Sciences GS Business will retain various environmental indemnities of DynCorp and its former subsidiaries arising from environmental representations and warranties under which DynCorp agreed to indemnify the purchasers of its subsidiaries DynAir Tech and DynAir Services by Sabreliner Corporation and ALPHA Airports Group PLC, respectively. As partsale of the DynCorp Divestitures, CSC also assumed and Computer Sciences GS Business will also retain indemnities for insured litigation associated with dormant suits by former employees of DynCorp subsidiaries alleging exposure to asbestos and other substances; other indemnities related to a 2001 case arising from counter-narcotics sprayingproperty in Colombia under a U.S. Department of State contract and an environmental remediation case involving HRI, a former wholly owned subsidiary of DynCorp, in Lawrenceville, New Jersey. CSRA does not anticipate any material adverse effect on its financial position, results of operations and cash flows from these indemnities. Litigation involving DynCorp’s aviation insurance underwriters was recently resolved and had no significant effect on our results for fiscal year 2017.

Southwest Asia Employment Contract Litigation

Rishell v. CSC, a single plaintiff lawsuit, was filed in February 2013 in Florida.  In April 2013, a second lawsuit, Rhodes v. CSC, with five plaintiffs was filed in Mississippi.  Both cases were consolidated before the United States District Court for the Eastern District of Virginia in 2014.  Summary judgment was granted in each case on December 10, 2014, with the Rishell case decided under Florida law and the Rhodes case under Virginia law.
On May 2, 2016, the U.S. Court of Appeals for the Fourth Circuit ruled against CSC in an appeal of these two consolidated cases, the liability for which the Company is contractually obligated to indemnify CSC pursuant to the terms of the Master Separation and Distribution Agreement between CSRA and CSC. These cases involved six former CSC employees with each of whom CSC had entered into two contracts upon employment: a general “Offer Letter” specifying an “hourly rate” to be paid biweekly, and a more specific “Foreign Travel Letter” specifying certain aspects of the employees’ employment while working overseas in Southwest Asia as civilian government contractors. Employees had sued CSC, claiming entitlement to be paid on an hourly rate, as specified in the Offer Letter, as opposed to being paid on a salary basis, which is how CSC compensated them. The District Court had held as a matter of contract interpretation that the two contracts, read together, required CSC to pay the employees by the hour. The Fourth Circuit in its May 2 unpublished opinion agreed with the trial court. A reserve for the amount of damages awarded by the trial court and for which the Company will be required to indemnify CSC has been included in the Company’s Consolidated and Condensed Financial Statements.

In addition to the two consolidated cases that were the subject of the Fourth Circuit’s opinion, there are currently an additional six similar cases, involving approximately 100 individuals, pending before federal and state courts in California, Louisiana, and Virginia that have yet to be adjudicated. Plaintiffs in these cases present similar claims, that they worked in excess of 40 hours per week, they were compensated with a salary based on a 40-hour work week, and this violated the terms of their Offer Letters that quoted an hourly wage. It is reasonably possible


31
CSRA INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(unaudited)


that the trial courts considering these cases will interpret the Offer Letter and Foreign Travel Letter at issue in these other cases similarly to the Fourth Circuit and may enter judgments against CSC awarding damages. However, there remain differences among the pending cases, including statutes of limitations, which may lengthen or shorten the period of time for when damages may be recovered, and differences between plaintiffs’ legal entitlement to other damages or awards, such as punitive damages or attorneys’ fees. These are issues of state contract or statutory law and depend upon which states’ laws apply to the individual plaintiffs. These issues have not been resolved. The range of possible losses for which the Company would be required to indemnify CSC associated with these pending matters is between $0.0 million and $14.0 million.

CSRA accrues a liability when management believes that it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated under ASC 450. CSRA believes it has appropriately recognized liabilities for any such matters. In addition to the matters noted above, CSRA is currently party to a number of disputes which involve or may involve litigation. Regarding other matters that may involve actual or threatened disputes or litigation, CSRA, in accordance with the applicable reporting requirements, provides disclosure of such matters for which the likelihood of material loss is reasonably possible. CSRA assessed reasonably possible losses for all other such pending legal or other proceedings in the aggregate and concluded that the range of potential loss is not material.

CSRA also considered the requirements regarding estimates used in the disclosure of contingencies under ASC Subtopic 275-10, Risks and Uncertainties. Based on that guidance, CSRA determined that supplemental accrual and disclosure was not required for a change in estimate that involves contingencies because CSRA determined that it was not reasonably possible that a change in estimate will occur in the near term. CSRA reviews contingencies during each interim period and adjusts its accruals to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular matter.

Note 16—Subsequent Events

Stock Repurchase Program

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 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
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. The amended facilities are expected to provide 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 an increase in the principal balance of the Tranche A2 Facility in substantially the same amount; and (c) changes to certain existing debt covenants to provide for greater operational and financial flexibility. The transaction is expected to be completed during the third quarter of fiscal year 2017.2018. Concurrently with this transaction, the Company entered into a lease for more than half of the property (not including CSRA’s short-term occupancy of temporary space and subject to CSRA’s rights to expand the premises as set forth in the lease) under a 12 year lease requiring annual base rent payments, subject to certain annual escalations, plus a proportionate share of operating expenses for the property until the lease ends in 2029 (subject to CSRA’s options to renew the lease). The landlord is obligated to provide substantial tenant improvements to the facility and to perform certain renovations and improvements to the property.

On October 16, 2017, CSRA executed an agreement to acquire Praxis Engineering Technologies Inc. (“Praxis”) for approximately $235 million in cash, subject to closing adjustments. Praxis is a consulting and solutions firm dedicated to the practical application of software and systems engineering technologies to the U.S. government. The transaction is expected to close in the third quarter of fiscal year 2018, subject to regulatory approvals and the conditions and terms of the agreement.



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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following management’smanagement discussion and analysis of financial condition and results of operations (“MD&A”) in conjunction with our Annual Report on Form 10-K for the periodfiscal year ended April 1, 2016, our Quarterly Report on Form 10-Q for the three months ended July 1, 2016,March 31, 2017 and our unaudited Consolidated and Condensed Financial Statements and accompanying notes for the three and six months ended September 30, 2016 (“FY17 2nd Quarter Financial Statements”).29, 2017 included herein.
This discussion contains forward-lookingUnless the context otherwise requires, “CSRA,” “we,” “our” and “us” refer to CSRA Inc. and its consolidated and combined subsidiaries. We refer to the federal government of the United States of America, including its branches, departments, agencies, armed forces, elected and unelected officials, and employees (acting in their capacity as such), as the “U.S. government.”
Cautionary Note on Forward-looking Statements
All statements that involve risks and uncertainties. The forward-looking statements are 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 consideredcontained in addition to, but not as a substitute for, other measures of our financial performance reported in accordance with GAAP. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those we discuss in the “Risk Factors” section of this Form 10-Q and in the documents attached or incorporated by reference herein that do not directly and exclusively relate to historical or current facts constitute “forward-looking statements.” Forward-looking statements often include words such as “aims,” “anticipates,” “estimates,” “expects,” “projects,” “intends,” “plans,” “believes” and words and terms of similar substance in connection with discussions of future operating or financial performance. These statements represent our Annual Report on Form 10-K forcurrent expectations and beliefs, and we can give no assurance that the period ended April 1, 2016.
Our Consolidated Financial Statements and unaudited Consolidated and Condensed Financial Statements, discussed below, reflectresults described will be achieved. Forward-looking information contained in these statements may include, among other things, statements related to our financial condition, results of operations, cash flows, business strategies, operating efficiencies or synergies, competitive position, growth opportunities, plans and cash flows. This information mayobjectives of management and other matters. Such statements are subject to numerous assumptions, risks, uncertainties and other factors, many of which are outside of our control, which could cause actual results to differ materially from the results described in such statements. These factors include without limitation those set forth in Item 1A, Risk Factors in our Annual Report on Form 10-K.
Factors or risks that could cause our actual results to differ materially from the results we anticipate include, but are not necessarily reflect whatlimited to: reduced spending levels and changing budget priorities of our financial condition,largest customer, the U.S. government; failure to maintain strong relationships with the U.S. government and other contractors and subcontractors; possible delays or overturning of our U.S. government contract awards due to bid protests, which can result in loss of contract revenue, diminished opportunities, or failure to perform by other companies on which we depend to deliver products and services; failure of our customers to fund contracts or exercise their options to


24

extend contracts, or our inability to execute awarded contracts successfully; failure to win recompetes of contracts we currently have; pricing pressure on new work, reduced profitability, or loss of market share due to intense competition and commoditization of services we offer; our failure to comply with complex laws and regulations, including, but not limited to, the False Claims Act, the Federal Acquisition Regulation, the Defense Federal Acquisition Regulation Supplement and the U.S. Government Cost Accounting Standards; adverse results of operations,audits and investigations conducted by the Defense Contract Audit Agency or cash flows would have been hadany of the Inspectors General for various agencies with which we operated as a separate, independent entity duringcontract; failure to comply with complex network security, data privacy or legal and contractual obligations, or the period presented priorfailure to the Spin-Off,protect sensitive information; challenges attracting and retaining key personnel or what our financial condition, results of operations,high-quality employees, particularly those with security clearances; changes in estimates used in recognizing revenue; failure to manage acquisitions or divestitures successfully, including identifying, evaluating, and cash flows may be in the future. The following MD&A of CSRA covers a period prior to the Spin-Offvaluing acquisition targets, integrating acquired companies, businesses or assets, losses associated with divestitures and the Mergers. For accountinginability to effect divestitures at attractive prices or on a desired timeline; and financial reporting purposes, Computer Sciences GS is considered to be the predecessor to CSRA andlimitations as a result its historical financial statements now constitute the historical financial statements of CSRA. Accordingly, results reported through November 27, 2015 include only the operations of Computer Sciences GS, on a carve-out basis. The results reported after November 27, 2015 include the operations of CSRA, including the SRA Merger. These historical financial statements may not be indicative of our future performance.substantial indebtedness, which could adversely affect our financial health, operational flexibility and strategic plans.

Forward-looking statements in this Form 10-Q speak only as of the date of this Form 10-Q, and forward-looking statements in documents attached or incorporated by reference speak only as of the date of those documents. We do 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 of this Form 10-Q or to reflect the occurrence of unanticipated events.
Trademarks and Copyrights
CSRA owns or has rights to various trademarks, logos, service marks, and trade names used in connection with the operation of our business. We also own or have the rights to copyrights that protect the content of our products. Solely for convenience, the trademarks, service marks, trade names, and copyrights referred to in this Form 10-Q are listed without the ™, ®, and © symbols; the omission of these symbols, however, does not constitute a waiver of any rights associated with the respective trademarks, service marks, trade names, and copyrights included or referred to in this Form 10-Q.
Introduction
Our MD&A is organized as follows:

Overview: A discussion of our business and overall analysis of financial and other highlights affecting CSRA, which we present to provide context for the remainder of our MD&A. The overview analysis compares the three and six months ended September 30, 201629, 2017 to the three and six months ended October 2, 2015;

September 30, 2016;
Results of Operations: An analysis of our financial results comparing the three and six months ended September 30, 201629, 2017 to the comparable prior-year periods. A discussion of the results of operations at the consolidated level is followed by a discussion of the results of operations by segment;

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

Contractual Obligations: An overview of contractual obligations retirement benefit plan funding and off balance sheet arrangements; and

Critical Accounting Policies and 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.


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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


25

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 and mission- and operations-related services across the U.S. federal government, including to the DoD,Department of Defense (“DoD”), intelligence community and homeland security communities, and civil and healthcare agencies, as well as to certain state and local government agencies. We leverage deep domain-based customer intimacy and decades of experience in helping customers execute their missionmissions with a fundamental understanding of their IT environment thatenvironments, which 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. Demand for our U.S. public sector offerings is driven by evolving government priorities such as: (1) the critical mission priorities of government agencies,agencies; (2) the government-wide mandate to improve efficiency and reduce costcost; and (3) the government’s long-term shift to next-generation technologies.
CSRA’s reportable segments are as follows:are:
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 Segment—The Civil segment provides—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
In fiscal year 2018, we completed the following significant transactions:
•In June 2017, we completed an amendment of our debt facilities to reduce our interest rate on certain borrowings, and reallocate unpaid principal balances among portions of the facility.
•We used our positive cash flow to repurchase 500,000 shares of CSRA common stock for approximately $15.9 million, in aggregate, at an average price of $31.72 per share, and paid $33.3 million in dividends.
•On July 3, 2017, we completed the acquisition of NES Associates, LLC (“NES”), which is a provider of IT services to the U.S. government. On June 30, 2017, the Company drew $55 million on its revolving credit facility in order to fund in part the settlement of its purchase of NES. NES became a wholly-owned subsidiary of CSRA at the beginning of the second quarter of fiscal year 2018.
•On October 16, 2017, the Company executed an agreement for the acquisition of Praxis Engineering Technologies Inc. (“Praxis”) for approximately $235 million in cash, subject to closing adjustments. Praxis is a consulting and solutions firm dedicated to the practical application of software and systems engineering technologies to the U.S. government. The keytransaction is expected to close in the third quarter of fiscal year 2018, subject to regulatory approvals and the conditions and terms of the agreement.
•In November 2017, we executed and closed a sale-leaseback transaction of our corporate headquarters property in Falls Church, Virginia. Pursuant to the sale transaction, the gross sales price was $33.1 million and we expect to recognize a loss of approximately $10 million on the sale of the property in the third quarter.


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Key operating results for the second quarter and first half of fiscal yearyears 2018 and 2017 include:
  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%
  Three Months Ended Six Months Ended
(Dollars in millions) September 29, 2017
September 30, 2016 September 29, 2017 September 30, 2016
Total revenue $1,272
 $1,263
 $2,501
 $2,517
Operating income 134
 130
 270
 242
Net income 78
 80
 158
 148
Net income attributable to common shareholders 76
 76
 153
 141
Non-GAAP measures:        
Free cash flow(1)
 14
 8
 90
 75
Adjusted EBITDA(2)
 198
 203
 403
 398
(1) Total segment operating incomeFree cash flow is a non-GAAP measure that provides useful information toand 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 measurefree cash flow may differ from that used by other companies. We define segmentfree cash flow as equal to the sum of: (a) operating income as total segment revenue less cost of services (“COS”), segment generalcash flows; (b) investing cash flows, excluding business acquisitions, dispositions, and administrative (“G&A”) expenseinvestments; and segment depreciation and amortization expense. Segment operating income excludes actuarial and settlement charges related to pension(c) payments on capital leases and other post-employment benefit plans, corporate G&A,


34

long-term asset financings. For comparability between periods, free cash flow is further adjusted for: (i) non-recurring separation and merger costsmerger-related payments; (ii) the amount of net proceeds received from the initial sale of billed and/or unbilled receivables at the time that we initially implemented the Master Accounts Receivable Purchase Agreement (the “Purchase Agreement”); and SRA integration costs.(iii) the incremental net proceeds received from the initial sale of receivables when they first become eligible for sale under the Purchase Agreement. Free cash flow is not a substitute for operating and investing cash flows as determined in accordance with GAAP. Our management uses free cash flow in reviewing the overall performance of the business and motivating performance through incentive compensation for key business leaders. We believe that strong free cash flow is important to investors in our industry. Free cash flow provides both management and investors a measure of cash generated from operations that is available to fund acquisitions, repay debt, pay dividends, and repurchase our common stock. Management compensates forovercomes the limitations of this non-GAAP measure by also reviewing income before income taxes, which includes costs excluded from the GAAP measures of operating, income definition such as corporate G&A, interestinvesting, and other 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. financing cash flows.
A reconciliation of total segment operating incomefree cash flow to income before income taxesthe most directly comparable GAAP financial measure is as follows.presented below:
  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

  Three Months Ended Six Months Ended
(Dollars in millions) September 29, 2017
September 30, 2016 September 29, 2017 September 30, 2016
Net cash provided by operating activities $72
 $55
 $159
 $211
Net cash used in investing activities (153) (48) (159) (91)
Initial sales of qualifying accounts receivables(a)
 —
 —
 —
 (46)
Payments for acquisitions, net of cash acquired 101
 —
 101
 —
Payments on capital lease liabilities (10) (10) (20) (17)
Separation and merger-related payments 4
 11
 9
 18
Free cash flow $14
 $8
 $90
 $75
(a) Income before taxes forFor the three and six months ended October 2, 2015, does not includeSeptember 30, 2016, the contribution from net periodic pension income relatedamount relates to CSC’s U.S. defined benefit pension plans that we assumed inSRA International Inc. (“SRA”) unbilled receivables under the Spin-Off; net periodic pension income relatingPurchase Agreement to these plans has not been included in CSRA’s historical non-GAAP segment operating income nor inwhich SRA was added to during the historical Consolidated Financial Statements or inperiod. Billed receivables historically sold by SRA under a separate accounts receivable purchase agreement continue under the unaudited Consolidated and Condensed Financial Statements but 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 ($42) million for the three and six months ended October 2, 2015, respectively.

(b) Includes costs related to the Spin-Off and the Mergers.Purchase Agreement.
(2) Adjusted earnings before interest, taxes, depreciation, and amortization (“EBITDA”) is a non-GAAP measure. Our calculation of Adjusted EBITDA is based on our credit agreement, and may differ from other companies. We changed our Adjusted EBITDA measure in fiscal year 2017 to fully remove the costs and benefits associated with our legacy defined benefits plans. We exclude the costs and benefits of legacy defined benefit plans because participation in these plans has been frozen for several years and these costs are not included in the compensation of our employees. We believe Adjusted EBITDA provides useful information to investors regarding our results of


27

operations as it provides another measure of our profitability and 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 other companies.


35

The following table presents a reconciliation of Net income to Adjusted EBITDA.EBITDA:
 Three Months Ended Six Months Ended Three Months Ended Six Months Ended
(Dollars in millions) September 30, 2016 October 2, 2015 September 30, 2016 October 2, 2015 September 29, 2017 September 30, 2016 September 29, 2017 September 30, 2016
Net income $80
 $53
 $148
 $120
 $78
 $80
 $158
 $148
Interest expense, net 29
 5
 59
 10
 29
 29
 59
 59
Tax expense on income 44
 35
 82
 78
 45
 44
 91
 82
Depreciation and amortization 63
 35
 128
 68
 56
 63
 116
 128
Amortization for contract-related intangibles —
 2
 2
 5
 —
 —
 —
 2
Stock-based compensation 4
 5
 7
 4
 4
 4
 8
 7
Gain on disposition of business —
 —
 —
 (18)
Separation and merger costs(a)
 8
 42
 13
 56
        
Net benefits of pension and OPEB plans (20) (25) (41) (49)
Other separation-related items (within SG&A and cost of services) (3) —
 (2) 8
Acquisition, integration, and other costs 9
 8
 14
 13
Adjusted EBITDA $228
 $177
 $439
 $323
 $198
 $203
 $403
 $398

(a) Includes costs related to the Spin-Off and the Mergers.
Business Drivers and Key Performance Indicators
We manage and assess the performance of our business through various means, with the primary financial measures, including contract wins,awards, revenue, operating income, backlog, days sales outstanding, and free cash flow. See the discussion 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 someCertain of theseour key performance indicators for the three and six months ended September 30, 2016, compared to the three and six months ended October 2, 2015.29, 2017, were as follows:
•
We announced contract awards(3) of $2.4$4.2 billion and $3.7$5.8 billion for the three and six months ended September 30, 2016,29, 2017, respectively, as compared to $1.5$2.4 billion and $2.5$3.7 billion during the three and six months ended October 2, 2015,September 30, 2016, respectively.
Revenue recognized in the second quarter of fiscal year 2018 was$1.27 billion, compared to $1.26 billion in the second quarter of fiscal year 2017. Revenue was $2.5 billion in both the first half of fiscal years 2018 and 2017.
•
Total backlog(4) was $15.5$17.7 billion at September 30, 2016,29, 2017, compared to $15.1$15.2 billion at April 1, 2016.March 31, 2017. Of the total $15.5 billion backlog at September 30, 2016, $2.329, 2017, $2.2 billion is expected to be realized as revenue during the remainderlast half of fiscal year 2017,2018, and$12.5 $2.7 billion is not yet funded.
•
Days Sales Outstanding (“DSO”)(5) was 5854 days as of September 30, 201629, 2017 compared to 56 days and 5249 days as of April 1, 2016, as compared to 43 days as of October 2, 2015.June 30, 2017 and March 31, 2017, respectively. The increasedecline in DSO in the second quarter is due to higher collections in the period due to the end of the U.S. government’s fiscal 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 approximately 57 days as of September 30, 2016.year.
Cash provided by operating activitiesFree cash flow was $211$14 million and $366$90 million for the three and six months ended September 29, 2017, respectively, compared to $8 million and $75 million for the three and six months ended September 30, 2016, and October 2, 2015, respectively.
Cash used in investing activities was $(91) million and $(13) million for the six months ended September 30, 2016 and October 2, 2015, respectively.
Cash used in financing activities was $(182) million and $(348) million for the six months ended September 30, 2016 and October 2, 2015, 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.


36


(3) Announced award values for competitive indefinite delivery/indefinite quantity (“IDIQ”) 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.



28

(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 includes potential orders under IDIQ contracts where CSRA is the sole awardee. 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 from customer contracts 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. TotalWe revised our calculation of DSO in the first quarter of fiscal year 2018 to reflect only customer receivables includes unbilled receivables but excludes tax receivables(billed and long-term receivables.

(6) Free cash flow is a non-GAAP measureunbilled) and our definition of such measure may differ from that used byexclude other companies. We define free cash flow as equalreceivable balances. Prior period data has been revised to conform 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 and motivating performance through incentive compensation for key business leaders. Management 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) 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

(a) For the periods presented, free cash flow 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 unaudited Consolidated and Condensed Financial Statements in this Form 10-Q for further information.


37

current presentation.
Economic and Industry Factors
For both the three and six months ended September 29, 2017 and September 30, 2016, we generated approximately 95% and 94%, respectively, of our total revenues from sales to the U.S federal government either as a prime contractor or subcontractor to other prime contractors. For both the three and six months ended September 30, 2016,29, 2017, we generated approximately 45%44% and 43%, respectively, of our total revenues from the DoD (including all branches of the U.S. military) and Intelligence Community and approximately 49%56% and 57%, respectively, of our total revenues from civilian agencies.health and civil contracts. 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. The U.S. government is operating under a continuing resolution bill passed in September 2017 that extends the operations of the government to December 8, 2017. Negotiations continue in Congress to extend funding for the U.S. Government for the remainder of its fiscal year ending September 30, 2018.
Our market is highly competitivecompetitive. Our revenues are driven by our ability to secure new contracts and hasto deliver solutions and services that add value to our customers. To drive revenue growth we believe that we must deliver market-leading service offerings and deploy skilled teams of professionals quickly across all government industries and domains. We believe that our scale, and our 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.
Our revenues are derived principally from contracts that have 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 Federal Acquisition Regulation (“FAR”).
Our results of operations and our defined benefit plans are also impacted by economic conditions generally, including macroeconomic conditions, and the impact that they have on the U.S. federal government. We are monitoring currentmonitor 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 marketstechnological changes and technological changescustomer technology spending early in their cycles is a key driver of our performance.
Revenues are driven by our ability to secure new contracts and to deliver solutions and services that add value to our customers. To drive revenue growth we must deliver market-leading service offerings and 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.


29

Results of Operations
We report our financial results based onusing a fiscal year convention that comprises four thirteen-week quarters. Every fifth fiscal 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. The first half and second quarters of fiscal 2017years 2018 and fiscal 20162017 were comprised of an equivalent number of weeks.


38

Revenues
RevenuesRevenue for the three and six months ended September 29, 2017 and September 30, 2016 were:
  Three Months Ended 
(Dollars in millions) September 29, 2017 September 30, 2016 Change Percent Change 
Defense and Intelligence $557
 $575
 $(18) (3.1)%
Civil 715
 688
 27
 3.9
 
Total revenue $1,272
 $1,263
 $9
 0.7
%
  Six Months Ended 
(Dollars in millions) September 29, 2017 September 30, 2016 Change Percent Change 
Defense and Intelligence $1,082
 $1,143
 $(61) (5.3)%
Civil 1,419
 1,374
 45
 3.3
 
Total revenue $2,501
 $2,517
 $(16) (0.6)%
For the three months ended September 29, 2017, our total revenue increased by $9 million, or 0.7%, and for the six months ended September 29, 2017, our total revenue decreased by $16 million, or 0.6%, as compared to the same fiscal period of the prior year. Both the three month and six month periods in fiscal year 2018 include the revenue associated with NES since July 3, 2017, which is immaterial in these comparisons.
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 $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
%

Segment
For the three and six months ended September 30, 2016, our total revenue increased29, 2017, Defense and Intelligence segment revenues decreased by $294$18 million, or 30.3%3.1%, and $589$61 million, or 30.5%5.3%, respectively, as compared to the same periodfiscal periods of the prior year primarily due to the additional revenue attributable to SRA. Excluding revenue of $363 million attributable to SRA, revenue foryear.
For the three months ended September 30, 2016 amounted29, 2017, the revenue decrease was primarily due to $900a $18 million a decrease of $69 million fromdecline associated with the second quarter of fiscal 2016. Excluding revenue of $712 million attributable to SRA, revenue forLogistics Modernization Program (“LMP”) contract partially offset by new contract awards and net increases on existing task orders (including the NES programs) across multiple U.S. government programs.

For the six months ended September 30, 2016 amounted to $1,805 million, a29, 2017, the revenue decrease of $123 million from the first half of fiscal 2016. Revenue declined in the three and six month periodswas primarily due to reductions ina $43 million decline associated with the Logistics Modernization Program for the U.S. Army, as well as a lower overall volume of direct materialLMP contract and other direct cost purchases.program completions, which was partially offset by new awards and net increases in existing task orders (including the NES programs) across multiple U.S. government programs.
Defense and IntelligenceCivil Segment

For the three and six months ended September 30, 2016, Defense and Intelligence29, 2017, Civil segment revenues increased by $75$27 million, or 15.0%3.9%, and $137$45 million, or 13.6%3.3%, respectively, as compared to the same periodfiscal periods 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.

year.
For the three months ended September 30, 2016,29, 2017, the revenue decreaseincrease was primarily due to the downsizing of the Logistics Modernization Program and a net reduction in task orders on existing contracts with the U.S. Army, U.S. Navy, and National Security Agency. In addition, there was reduced revenue of $11 million on certain contracts with the Missile Defense Agency and Defense Intelligence Agency that had either concluded or were winding down. These revenue reductions were partially offset by $15$31 million of revenue from new programs across multiple federal agencies slightly offset by program completions and net reductions on a new classified contract.existing task orders.


30

For the six months ended September 30, 2016,29, 2017, the revenue decreaseincrease was primarily due to $62 million of revenue from new programs across multiple federal agencies, mainly the downsizingOffice of Personnel Management and the Logistics Modernization Program andEnvironmental Protection Agency, partially offset by net reductions in tasking on other Armyexisting task orders 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 $8program completions.

Operating Income
Operating income increased approximately 3.1% to $134 million and a new classified contract of $24 million.

Civil Segment

Forapproximately 11.6% to $270 million 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%,29, 2017, respectively, as compared to the same period of the prior year, primarily due to the additional revenue attributable to SRA. Excluding revenue of $252from $130 million and $487$242 million attributable to SRA


39

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

respectively.
For the three months ended September 30, 2016,29, 2017, the net changeincrease in operating income was primarily due to the increase in partrevenue and lower total operating costs, resulting from lower Selling, General & Administrative (“SG&A”) as a percentage of revenue. Additionally, depreciation, and amortization costs declined due to reduced revenuesthe absence of $26 million from non-federal programs, driven primarilyamortization of contract backlog assets acquired in the SRA merger, which were fully amortized 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 Departmentend 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.

fiscal year 2017.
For the six months ended September 30, 2016,29, 2017, the decreaseincrease in revenueoperating income 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 thatthe program delivery efficiencies and indirect cost reductions, which lowered total operating costs, resulting from lower Cost of services (“COS”) and Selling, general & administrative (“SG&A”) costs, as a percentage of revenue. Additionally, depreciation and amortization costs declined due to the absence of amortization of contract backlog assets acquired in the SRA merger, which were completed or winding down, partially offsetfully amortized by contracts with increased task orders. Revenue also declined $12 million from net reductionsthe end 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.fiscal year 2017.
Segment Operating Income
Segment operating income presented below excludes corporate segment costs as well as Acquisition, integration, and other costs. This information is used to assess each segment’s financial performance, and is one of the financial measures used to determine executive compensation. Beginning in fiscal year 2018, we revised Segment operating income to exclude the net benefit of defined benefit plans coincident with our adoption of a recent change in accounting guidance for the presentation of retirement benefits. The prior period has been revised to conform to the current period presentation. For additional information about Segment operating income, see Note 12—Segment Information in our unaudited Consolidated and Condensed Financial Statements.
Segment operating income for the Defense and Intelligence, and Civil segments were as follows:were:
 Three Months Ended  Three Months Ended 
(Dollars in millions) September 30, 2016 October 2, 2015 Change Percent Change  September 29, 2017 September 30, 2016 Change Percent Change 
Defense and Intelligence$80
$70
$10
 14.3
% $75
 $69
 $6
 8.7
%
Civil 101
 77
 24
 31.2
  98
 88
 10
 11.4
 
Total segment operating income$181
 $147
 $34
 23.1
%
         
Segment operating income margin:                  
Defense and Intelligence 13.9
%14.0
%(0.1)%   13.5
%12.0
%1.5
%  
Civil 14.7
%16.4
%(1.7)%   13.7
%12.8
%0.9
%  
  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 operating income increased by $34 million, or 23.1%, and $68 million, or 25.0%, respectively, as compared to the same period of the prior year. 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 a result of better contract performance and higher pension income.
  Six Months Ended 
(Dollars in millions) September 29, 2017 September 30, 2016 Change Percent Change 
Defense and Intelligence $133
 $112
 $21
 18.8
%
Civil 195
 179
 16
 8.9
 
Segment operating income margin:         
Defense and Intelligence 12.3
%9.8
%2.5
%  
Civil 13.7
%13.0
%0.7
%  


4031

Defense and Intelligence Segment

For the three months ended September 30, 2016,29, 2017, Defense and Intelligence segment operating income increased by $10$6 million, or 14.3%approximately 8.7%, as compared to the same fiscal period of the prior year. Approximately $6 millionThe increase is primarily due to lower indirect costs allocated to the segment, mostly related to depreciation and amortization. These changes were partially offset by reduced income related to the decline in revenue of the increase insegment.
For the segment’s operating income during the threesix months ended September 30, 2016 is attributable to operating income at SRA. Excluding the impact of SRA,29, 2017, Defense and Intelligence segment operating income increased by $4 million. Excluding$21 million, or 18.8%, as compared to the impactsame fiscal period of SRA,the prior year. The increase is primarily due to lower indirect costs allocated to the segment, mostly related to depreciation and amortization. These changes were partially offset by reduced income related to the decline in revenue of the segment.
Civil Segment
For the three months ended September 29, 2017, the Civil segment’s operating income increased by $10 million, or 11.4%, as compared to the same fiscal period of the prior year. The increase is primarily due to lower indirect costs allocated to the segment, mostly related to depreciation and amortization. In addition, the segment’s operating income as a percentage of sales increased duein the period benefited from an increase in revenue compared to more efficient delivery of services and higher pension income.

the prior period.
For the six months ended September 30, 2016, Defense and Intelligence segment operating income was unchanged compared to29, 2017, 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 segmentsegment’s operating income increased by $24$16 million, or 31.2%8.9%, as compared to the same fiscal period of the prior year. Excluding CivilThe increase is primarily due to lower indirect costs allocated to the segment, operating income of $18 million attributablemostly related to SRA, the increase indepreciation and amortization. In addition, the segment’s operating income forin the fiscal year 2017 period was primarily the result of higher pension income, better contract performance and other program related efficiencies.

For the six months ended September 30, 2016, Civil segment operating income increased by $68 million, or 49.3%, asbenefited from an increase in revenue 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 other program related efficiencies.period.
Costs and Expenses
Our total costs and expenses were as follows:were:
 Three Months Ended Six Months Ended Three Months Ended 
(Dollars in millions) September 30, 2016 October 2, 2015 September 30, 2016 October 2, 2015 September 29, 2017% of Revenue September 30, 2016% of Revenue 
Costs of services(a)
$983
$757
$1,974
$1,532
 $1,022
80.3
% $1,007
79.7
%
Selling, general and administrative 55
 44
 111
 85
 51
4.0
 55
4.4
 
Acquisition, integration, and other costs 9
0.7
 8
0.6
 
Depreciation and amortization 63
 35
 128
 68
 56
4.4
 63
5.0
 
Separation and merger costs 8
 42
 13
 56
Total operating expenses 1,138
89.4
 1,133
89.7
 
Net benefit of defined benefit plans (20)(1.6) (25)(2.0) 
Interest expense, net 29
 5
 59
 10
 29
2.3
 29
2.3
 
Other (income) expense, net 1
 (2) 2
 (21)
Total$1,139
$881
$2,287
$1,730
Other expense, net 2
0.2
 2
0.2
 
Total costs and expenses $1,149
90.3
% $1,139
90.2
%
(a) COS also includes related-party transactions with CSC

32

  Six Months Ended 
(Dollars in millions) September 29, 2017% of Revenue  September 30, 2016% of Revenue 
Costs of services $2,001
80.0
% $2,023
80.4
%
Selling, general and administrative 100
4.0
  111
4.4
 
Acquisition, integration, and other costs 14
0.6
  13
0.5
 
Depreciation and amortization 116
4.6
  128
5.1
 
Total operating expenses 2,231
89.2
  2,275
90.4
 
Net benefit of defined benefit plans (41)(1.6)  (49)(1.9) 
Interest expense, net 59
2.4
  59
2.3
 
Other expense, net 3
0.1
  2
0.1
 
Total costs and expenses $2,252
90.1
% $2,287
90.9
%
Costs of $2 million and $4 million forServices
For the three and six months ended October 2, 2015, respectively.

Costs of Services

September 29, 2017, COS as a percentage of revenue decreased to 77.8%was 80.3% and 78.4% for the three and six months,80.0%, respectively, ended September 30, 2016 as compared to 78.1%79.7% and 79.4% from80.4% for the same periods of the prior year. The decreaseincrease from the second quarter of fiscal year 2017 is primarily a result of higher costs on the increased revenue from new awards and slightly higher indirect costs.
Selling, General and Administrative
For both the three and six months ended September 29, 2017, SG&A as a percentage of revenue is a result of program delivery efficiencies, indirect cost reductions, and merger synergies.



41

Selling, General and Administrative

Selling, general, and administrative (“SG&A”), as a percentage of revenue, wasdecreased to 4.0% compared to 4.4% for both the three and six months ended September 30, 2016,2016. The declines are primarily a result of increased revenues for the three month period, and lower bid and proposal expenses and other indirect cost reductions for the three and six month periods.
For the three and six months ended September 29, 2017, expense related to equity awards included within SG&A expenses in our results of operations was unchanged$4.2 million and $8.0 million, respectively, compared to $4.1 million and $7.1 million for the same periods of the prior year. See Note 10—Share-Based Compensation Plans in 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.


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Depreciation and Amortization (D&A)(“D&A”)
D&A for the Defense and Intelligence, and Civil segments were as follows:were:
  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) September 29, 2017 September 30, 2016 Change Percent Change 
Defense and Intelligence $39
 $34
 $5
 14.7
%
Civil 17
 29
 (12) (41.4) 
Total depreciation and amortization $56
 $63
 $(7) (11.1)%
D&A, as a percentage of revenue, increased to 5.0% and 5.1% for
  Six Months Ended 
(Dollars in millions) September 29, 2017 September 30, 2016 Change Percent Change 
Defense and Intelligence $80
 $68
 $12
 17.6
%
Civil 36
 60
 (24) (40.0) 
Total depreciation and amortization $116
 $128
 $(12) (9.4)%
For the three and six months ended September 30, 2016, respectively, as compared to 3.6% and 3.5%, respectively, from the 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,29, 2017, D&A as a percentage of revenue was 3.4%decreased to 4.4% and 3.5%4.6%, respectively, compared to 3.6%5.0% and 3.5%, respectively,5.1% for the same periods of the prior year. This decrease is primarily due to the absence of amortization of contract backlog assets acquired in the SRA merger, which were fully amortized by the end of fiscal year 2017. Partially offsetting this decrease, we curtailed use of certain software during the first quarter of fiscal year 2018, and recognized approximately $4.9 million of accelerated amortization expense during the period.
SeparationAcquisition, Integration, and MergerOther Costs

SeparationAcquisition, integration, and other costs consist of separately identifiable acquisition costs and fees paid to third parties for completed acquisitions as well as integration, transition, and other costs for integrating the businesses. In prior periods, we also incurred separation and merger costs were costs incurred to give effect toin connection with our separation from Computer Sciences GS’s separation from CSCCorporation (now known as DXC Technology) (“CSC”) and our subsequent merger with SRA. These costs arewere primarily comprised of severance and other personnel costs, third-party accounting, legal, and other consulting services, as well as information technology infrastructure and application costs. For the three and six months ended September 30, 2016, separation29, 2017, acquisition, integration, and mergerother costs were $8$9 million and $13$14 million, respectively. Pursuantrespectively, and were slightly higher compared to the Merger Agreement,same periods in fiscal year 2017 due to the acquisition of NES and continued SRA integration costs.
Net Benefit of Defined Benefit Plans
Our defined benefit plans (the “Plans”) relate to certain legacy operations that we absorbed in the separation from CSC and are frozen for all merger costs incurred by Computer Sciences GS Business were paid by CSRA.participants. Thus, the net benefits of the Plans for the first quarters of fiscal years 2018 and 2017 primarily represent the amount that the expected return on plan assets exceeded the interest cost of our benefit obligation. The decrease in net benefits of the Plans was primarily due to a lower expected long-term rate of return on plan assets combined with a lower base of net pension assets in the Plans, which resulted from settlements with certain participants in the third quarter of fiscal year 2017. For additional information about our estimates of the expected return on plan assets and discount rates associated with our Plans, see Note 16—Pension and Other Postretirement Benefit Plans in our Consolidated and Combined Financial Statements within our Form 10-K for the fiscal year ended March 31, 2017.
Interest Expense, Net

Interest expense ofwas $29 million and $59 million forin both the three and six months ended September 30, 2016, respectively, increased by $24 million29, 2017, and $49 million, respectively, compared to $5 million and $10 million, respectively, of interest expense for the same periods of the prior year. Interest expense for the three and six months ended September 30, 2016, reflect the additional long-term debt incurred in connection with the Spin-Off and Merger transactions in November 2015.respectively. See Note 7—Debt for further information about interest expense, net.


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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 CSRA's unhedged foreign currency denominated assets and liabilitiesactivity, and other miscellaneous gains and losses.



42

Other expenses of $1expense, net was $2 million and $2$3 million for the three and six months ended September 30, 2016,29, 2017, respectively, increased compared to other income of $(2)$2 million and $(21) million, respectively, for both the same periods of the prior year. Thethree and six months ended October 2, 2015 reflect a $18.5 million pre-tax gain on the disposition of Welkin Associates Limited, which was a wholly owned subsidiary of the legacy Computer Sciences GS Business.September 30, 2016.
Taxes

Our effective tax rate (“ETR”) was 36.6% for both the three and six months ended September 29, 2017, compared to 35.5% and 35.7% for the 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. The lower ETRshigher ETR for the three and six months ended September 30, 2016 compared to29, 2017 is primarily a result of a reduction in the three and six months ended October 2, 2015 were due to the additionamount of beneficial stock compensation deductions and the absence of adjustmentstax deductible dividend equivalent payments related to the carve-out approach used for tax purposes prior to the Spin-Off in the 2016 periods.RSU awards.
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. AWe continued to carry a valuation allowance of $8.7 million has been recorded against deferred tax assets as of both September 30, 201629, 2017 and March 31, 2017, relating to net operating losses in foreign jurisdictions and state tax carryforwards.

Share-Based Compensation Expense

In connection with the Spin-Off, the equity compensation awards in fiscal 2016 of employees of CSC who became employees of CSRA were converted into equity awards of CSRA having the same terms and conditions as their prior CSC awards.

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) September 30, 2016 October 2, 2015 September 29, 2017 September 30, 2016
Cash provided by operating activities$211
$366
 $159
 $211
Cash used in investing activities (91) (13) (159) (91)
Cash used in financing activities (182) (348) (35) (182)
Net (decrease) increase in cash and cash equivalents (62) 5
Net decrease in cash and cash equivalents (35) (62)
Cash and cash equivalents at beginning of year 130
 5
 126
 130
Cash and cash equivalents at end of period$68
$10
 $91
 $68

Operating Cash Flow

Net cash provided by operating activities for the six months ended September 30, 201629, 2017 was $211$159 million, a decrease of $155$52 million compared to the six months ended October 2, 2015. This decrease was primarily due to the introduction of the receivable sales activities during the six months ended October 2, 2015.September 30, 2016. Operating cash flow forin the six months ended September 30, 2016 benefited fromfirst half of fiscal year 2018 was negatively affected by declines in accrued contract costs and long-term purchase commitments. This compares to the inclusion of SRA into our receivable sales activities, including the sale of unbilled SRA receivables. Our operating cash flow for the second quarterfirst half of fiscal year 2017 also reflects a $25 million payment to satisfywhen our commitment to fund CSC’s CSR pension settlement obligation.


43

operating cash flow was positively affected by increases in: (a) accrued contract costs; (b) deferred revenue; and (c) other long-term liabilities.
Investing Cash Flow

Net cash used in investing activities for the six months ended September 30, 201629, 2017 was $(91)$159 million, as compared to $(13)$91 million for the six months ended October 2, 2015. This decline reflects higherSeptember 30, 2016. The increase in the fiscal year 2018 period compared to the fiscal year 2017 period is primarily due to our purchase of NES that was partially offset by lower purchases of property and equipment in the first half of fiscal year 2017 period as well as proceeds from the sale of Welkin in the fiscal year 2016 period.2018.


35

Financing Cash Flow

Net cash used in financing activities for the six months ended September 30, 201629, 2017 was $(182)$35 million, which was $166down from $182 million less than the $(348) million used in financing activities in the six months ended October 2, 2015. This changeSeptember 30, 2016. The lower use of cash in financing in fiscal year 2018 primarily reflects our receipt of proceeds from borrowings (net of repayments) whereas the absencefirst half of amounts transferred to CSC and $148 million of debt repayments in the fiscal year 2017 reflects our repayment of $148 million on long-term debt in that period. Cash used in financing for fiscal year 2018 was primarily to repurchase of our common stock and the payment of quarterly cash dividends to common stockholders. As discussed in “Debt Financing” below, we refinanced our debt facilities in both the third quarter of fiscal year 2017 and the first quarter of fiscal year 2018, which extended the maturities of our debt facilities and resulted in lower margins over base index interest rates on our outstanding debt.
Discussion of Financial Condition
Cash and Cash equivalents were $68$91 million and $130$126 million at September 30, 201629, 2017 and April 1, 2016,March 31, 2017, respectively.
After the Spin-Off, CSRA became the primary seller of certainmaintains an accounts receivable sales facility under a Master Accounts Receivableour Purchase Agreement (the “Purchase Agreement”) that was first entered into on April 21, 2015 with The Royal Bank of Scotland, PLC (“RBS”)Tokyo-Mitsubishi UFJ, Ltd., as Purchaser, along with Mitsubishi UFJ Financial Group Ltd, andThe Bank of Nova Scotia, and Mizuho Bank, Ltd., each as a Participant,Purchaser, for the continuous non-recourse sale of ourCSRA’s eligible trade receivables. In June 2016, SRA was added toUnder the Purchase Agreement, as an 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 specific collectability issues and increased the associated allowance by approximately $3 million in the first quarter of fiscal year 2017.

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

On August 8, 2017, we extended the term of this facility for one year.
During the six months ended September 29, 2017 and September 30, 2016, the sellerswe sold $1.46 billion and $1.49 billion, respectively, of our billed and unbilled receivables for cash. Collections by the purchaser on the receivables we sold were $1.40approximately $1.4 billion forin both the six months ended September 29, 2017 and September 30, 2016. As of September 30, 2016,29, 2017, there was also $30.0$44.8 million of cash collected but not remitted due to timing of settlements, which was recorded as restricted cash. Total receivables sold, net of collections and fees related to accounts receivable sales, resulted in an increase in operating cash flow of $12 million and $90 million for the six months ended 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 sales of receivables under this facility during the six months ended29, 2017, and September 30, 2016, and the agreement with the Factor was terminated in June 2016.


44

respectively.
Liquidity

As of September 30, 2016,29, 2017, CSRA’s total liquidity was $768$736 million, consisting of $68$91 million of cash and cash equivalents and $700$645 million available under CSRA’s revolving credit facility. In SeptemberNovember 2016, the Company was required to make a one-time paymentwe completed an amendment 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 amendour debt facilities which extended the terms including an extension of the maturity dates.facilities by one year, reallocated unpaid principal balances among portions of the facilities, reduced our interest rate on certain borrowings, and changed certain terms in order to provide greater financial flexibility to the Company. We expectfurther amended our debt facilities in June 2017 to complete this amendment duringreduce our interest rate on certain borrowings, and reallocated unpaid principal balances among portions of the third quarter of fiscal year 2017.facilities. See Note 15—Commitments and Contingencies and Note 16—Subsequent Events7—Debt to our unaudited Consolidated and Condensed Financial Statements in this Form 10-Q for further information.

Our cash from operations is primarily derived from long-term contracts, some of which require significant investment of cash flows from operating activities during the initial phases of the contracts. We recover these investments over the life of the contract; this recovery 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 primary cash needs continue to be for working capital, capital expenditures, commitments, and other discretionary 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. Our pension funding obligation represents another potential cash need, depending on asset returns, interest rates and other factors.
In October 2017, we announced a $235 million acquisition for Praxis, which we have the capacity to fund with available debt facilities. In November, we executed and closed a sale-leaseback transaction of our corporate


36

headquarters property in Falls Church, Virginia. Pursuant to the transaction the gross sales price was $33.1 million and we expect to recognize a loss of approximately $10 million on sale of the property during the third quarter.
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 balances, and available borrowings under CSRA’s revolving credit facility. If these resources need to be augmented, additional cash requirements would likely be financed by the issuance of debt or equity securities. However, there can be no assurances that CSRA willwould be able to obtain debtsuch financing on acceptable terms (or at all) 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 primary cash needs continue to be for working capital, capital expenditures, commitments and other discretionary 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.

Capitalization
At September 30, 2016,29, 2017, CSRA’s ratio of net debt-to-total capitalization was 90.9%82.9%, a decrease of 1.81.7 percentage points from the end of fiscal year 2016.2017. The decrease in the ratio was primarily the result of debt principal repayments of $21 million and an increase in the amount of $148 millionequity capital from net income recognized during the first half of fiscal year 2017.

2018. We believe our capital structure and financial strength provide us with financial flexibility in a dynamic industry that we believe affords competitive and strategic advantages to providers that maintain financial flexibility.
The following table summarizes CSRA’s capitalization ratios as of the end of the second quarter of fiscal yearSeptember 29, 2017 and fiscal year 2016:March 31, 2017.
 As of  As of
(Dollars in millions)(Dollars in millions) September 30, 2016 April 1, 2016(Dollars in millions) September 29, 2017 March 31, 2017
Total debt(7)
Total debt(7)
 $2,789
  $2,935
 
Total debt(7)
  $2,864
   $2,799
 
Less: Cash and cash equivalentsLess: Cash and cash equivalents  68
   130
 Less: Cash and cash equivalents  91
   126
 
Net debt(8)
Net debt(8)
 $2,721
  $2,805
 
Net debt(8)
  $2,773
   $2,673
 
          
Total debtTotal debt $2,789
  $2,935
 Total debt  $2,864
   $2,799
 
EquityEquity  204
   90
 Equity  481
   359
 
Total capitalizationTotal capitalization $2,993
  $3,025
 Total capitalization  $3,345
   $3,158
 
         
Debt-to-total capitalizationDebt-to-total capitalization  93.2
% 97.0 %Debt-to-total capitalization  85.6% 88.6% 
Net debt-to-total capitalizationNet debt-to-total capitalization  90.9
% 92.7 %Net debt-to-total capitalization  82.9% 84.6% 

(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 withdiffer from 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 understanding 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 financial strength.


45

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 financial strength.

Debt Financing

Including capitalized lease liabilities, CSRA had $126$131 million of current maturities of long-term debt and $2,663 million$2.73 billion of long-term debt at September 30, 2016.

We obtained financing in connection with the Spin-Off and the Mergers under various facilities. See Note 929, 2017. — 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, including covenants, default provisions, repayment terms, and interest rates of each facility.

Our term loan facilities require us to prepay outstanding term loans, subject to certain exceptions, in the case of excess annual cash flow and in the event of certain asset sales, casualty events and issuances of debt. Any required excess cash flow payments are due within 90 days following the end of the fiscal year. During the first quarter of fiscal 2017, we paid $48 million related to FY16 excess cash flow.

In March 2016, we executed a 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 and to manage its exposure to interest rate movements (see Note 6—3—Derivative Instruments to our unaudited Consolidated and Condensed Financial Statements in this Form 10-Q).


37

In June 2017, we completed an amendment of our debt facilities to reduce our interest rate on, and reallocate unpaid principal balances among portions of, the facilities. See Note 7—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 amended, including covenants, default provisions, repayment terms, and interest rates of each facility.
Our term loan facilities require us to prepay outstanding term loans, subject to certain exceptions, in the case of excess annual cash flow and in the event of certain asset sales, casualty events, and issuances of debt. During the first half of fiscal year 2018, we paid $31.7 million on our Term Loan Facilities (excluding the payment of $180.6 million of the Tranche A1 Facility with the proceeds of additional borrowings under the Term Loan B facility).
We have liquidity available forexpect to meet our debt servicing obligations and othermake discretionary investments principally from free cash flow and the Revolving Credit Facility,our revolving credit facility, of which $700$645 million remained available but undrawn. Debtundrawn as of September 29, 2017. We do not expect that our debt service in the first five years is expected to be funded from available free cash flow, while still maintainingpayments will adversely affect our available liquidity for short-term working capital and other cash requirements needs.requirements. Our expected liquidity and capital structure may be impacted, however, by discretionary investments and acquisitions that CSRA could decidewe may pursue. We are currently evaluating plans to pursue.refinance certain portions of our existing long-term debt facilities, including amounts that we may draw down on our revolving credit facility to fund the Praxis acquisition. While the timing and financial magnitude of these possible actions are currently indeterminable, CSRA expectswe expect to be able to manage and adjust itsour capital structure in the future to meet its liquiditythe Company’s 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 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 under our compensation plans through share repurchases over time, balancing them with debt reduction and other forms of cash deployment.

In September 2016,During the first half of fiscal 2018, CSRA repurchased 300,097500,000 shares of common stock through open market purchases for an aggregate consideration of $7.9$15.9 million, at an average price of $26.45$31.72 per share. As of September 30, 2016,29, 2017, CSRA remained authorized to repurchase $342$305.1 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 hadhas declared a quarterly cash dividend of $0.10 per share. The total qualifying shares were 163,427,525 shares, with a total dividend payoutshare every quarter since the third quarter of $16.3 million.


46

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.
fiscal year 2017. 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’sour Board of Directors.
Off Balance Sheet Arrangements
As of September 30, 2016,29, 2017, we did not have any significant 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
CSRA has contractual obligations for long-term debt, capital lease liabilities and other obligations, including our performance guarantees and expiration of the stand-by letters of credit. See Note 9—7—Debt and Note 15—13—Commitments and Contingencies to our unaudited Consolidated and Condensed Financial Statements in this Form 10-Q for further information about these obligations.
Critical Accounting Estimates
Recent accounting pronouncements and the anticipated impact to CSRA are described in Note 1—1—Description of the Business, Basis of Presentation and Recent Accounting Pronouncements to our unaudited Consolidated and Condensed Financial Statements in this Form 10-Q.


38

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 madewe make are for contract-specific issues. Changes to estimates or assumptions on a specific contract could result in a material adjustment to the unaudited Consolidated and Condensed Financial Statements. See “Critical Accounting Policies” in our Annual Report on 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-plus-fee contracts, which comprised approximately 21%, 44%, and 36%35%, respectively, of our revenue in both the six months ended September 29, 2017 and September 30, 2016. We also provided services to other businesses of CSC, which are included as related-party revenues for the second quarter and first half of fiscal year 2016. In the second quarter of fiscal year 2017, these services are included in revenues.
Many of our contracts require the use of estimates-at-completion (“EAC”) in the application of the percentage-of-completion accounting method. Contracts that require estimates at completion using the percentage-of-completion method accounted for approximately 35% and 37% of our revenues for the six months ended September 29, 2017 and September 30, 2016.


47

2016, respectively. 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. See Note 1—1—Description of the Business, Basis of Presentation and Recent Accounting Pronouncements to our unaudited Consolidated and Condensed Financial Statements in this Form 10-Q for 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. At September 30, 2016,29, 2017, we did not have any federal contract terminations in process that would have a material effect on our consolidated financial position, results of operations or cash flows.
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.
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 our financial statements from the acquisition date. See Note 7—4—Acquisitions and Note 5—Goodwill and Other Intangible Assets to our unaudited Consolidated and Condensed Financial Statements in this Form 10-Q for further information.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market risk is the potential loss arising from adverse changes in market rates and market prices such as interest rates or foreign currency exchange rates. We actively monitor these exposures and manage such risks through our regular operating and financing activities or the use of derivative financial instruments.
Our exposure to market risk for changes in interest rates relates primarily to our outstanding debt and cash equivalents, which consist primarily of funds invested in U.S. government insured money-market accounts and prime money-market funds.equivalents. As of September 30, 201629, 2017 and April 1, 2016,March 31, 2017, we had $68$91 million and $130$126 million, respectively, in cash and cash equivalents. The interest expense associated with our term loans and any loans under our revolving credit facility will vary with market rates.
Our exposure to financial risk from changes in interest rates related to our outstanding debt will impact our senior secured loan facilities. Pursuant to our interest rate risk management strategies, we use interest rate cash flow hedges to add stability to our incurrence of interest expense and to manage itsour exposure to related to interest rate movements (See Note 6 - 3—Derivative Instruments to our unaudited Consolidated and Condensed Financial Statements in this Form 10-Q for further discussion). ANet of the benefit from our interest-rate derivatives, a hypothetical 1% increase in interest rates would have increased the interest expense incurred under our senior secured loan facilities by approximately $12$15 million asfor the first half of September 30, 2016,fiscal year 2018, and likewise decreased our net income and cash flows.
The return on our cash and cash equivalents balance as of September 30, 201629, 2017 and April 1, 2016March 31, 2017 was less than 1%; thus, although investment interest rates may continue to decline in the future, the corresponding impact to our interest income, and likewise to our income and cash flow, would not be material.
Our reporting currency is the U.S. dollar (“USD”); however, our foreign business operations, which predominantly provide business processing support services to our U.S. federal government customers, incur expenses denominated in foreign, local currencies. The expenses associated with providing our business processing services are invoiced either in USD based upon the current USD to local currency exchange rates, or in the foreign, local currency. Such expenses expose us to exchange rate fluctuations between USD and the local currency. Historically, we mitigated the volatility relating to these exposures, in part, through the identification of potential foreign currency exposures through the contract bidding and forecasting process that would expand or modify our services. We have also been able to mitigate a portion of foreign currency risk through earnings by matching revenue earned in the same local currency as the expense incurred. In the first quarter of fiscal year 2018, we also began to hedge certain of these exposures using forward currency contracts. However, as fluctuations (including possible devaluations) in currency exchange rates may occur or there may be the


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imposition of limitations on the conversion of foreign currencies into our reporting currency, wcurrency. We estimate that ae may enter into forward contracts to manage exchange rate volatility. A 1% increase in exchange rates would have increased our cost of services denominated in foreign currencies by $0.5$0.4 million in the six months ended September 30, 2016.29, 2017.
We have not entered into any hedging transactions for speculative or trading purposes.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

CSRA’s management, with the participation of CSRA’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of CSRA’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of September 30, 2016.29, 2017. Based on that evaluation, CSRA’s Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2016,29, 2017, CSRA’s disclosure controls and procedures were effective to ensure that information required to be disclosed in reports that CSRA files or submit under the Exchange Act isis: (i) recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms,forms; and (ii) accumulated and communicated to management to allow their timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

Prior to the Spin-Off, we relied on certain financial information and resources of Parent to manage certain aspects of our business and report our results, including investor relations and corporate communications, accounting, tax, legal, human resources and benefit plan administration and reporting, general management, real estate, treasury, including insurance and risk management, and oversight functions such as Board of Directors and internal audit, including compliance with the Sarbanes-Oxley Act of 2002.

We have evaluated the changes in our internal control over financial reporting that occurred during the six months ended September 30, 201629, 2017 and concluded that there have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the last fiscal quarterperiod that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The information required by this Item is set forth in Note 15 - 13—Commitments and Contingencies to ourthe unaudited Consolidated and Condensed Financial Statements in this Form 10-Q, and under the captionCaption “Contingencies,” contained in Part I Item 1 of this Formform 10-Q. Such information is incorporated herein by reference and made a part hereof.

Item 1A.Risk Factors

Except for the additional risk factor discussed below, weWe are not aware of any material changes to the risk factors discussed in Part 1, Item 1A of the Annual Report on Form 10-K for the fiscal year ended April 1, 2016.

Sales of concentrated positions of our common stock into the market in the future could cause the market price of our common stock to decline, even if our business is performing well.

Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares of common stock intend to sell shares, could reduce the market price of our common stock. As of October 17, 2016, our directors, executive officers and our 3 largest stockholders beneficially own, collectively, approximately 27% of our outstanding common stock. If one or more of them were to sell a substantial portion of the shares they hold, it could cause our stock price to decline. The sales also could make it more difficult for us to sell equity or equity-related securities at a time and price that we deem appropriate.March 31, 2017.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On November 30, 2015, the Board authorized the Share Repurchase Program, pursuant to which CSRA, from time to time, purchases 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, and privately negotiated transactions, or otherwiseother means, and are in compliance with SEC rules market conditions and applicable federal and state legal requirements. The timing, volume, and nature of share repurchases are at the discretion of management and may be suspended or discontinued at any time. See Notes 13Note 11—Stockholders’ Equity and 16Accumulated Other Comprehensive Income (Loss) to our unaudited Consolidated and Condensed Financial Statements in this Form 10-Q for further information about the Share Repurchase Program.



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The following table presents repurchases of our common stock during the six months ended September 30, 2016.29, 2017.
Period
(a)
Total Number of Shares (or Units) Purchased
 
(b)
Average Price Paid per Share (or Unit)
 
(c)
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Repurchase Plans or Programs (1)
 
(d)
Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
(in millions)
April 2, 2016 - July 1, 2016—
 $—
 —
 $—
July 2, 2016 - July 29, 2016—
 —
 —
 —
July 30, 2016 - August 26, 2016—
 —
 —
 —
August 27, 2016 - September 30, 2016300,097
 26.45
 300,097
 342
Total300,097
 26.45
 300,097
 $342

Period
(a)
Total Number of Shares (or Units) Purchased
 
(b)
Average Price Paid per Share (or Unit) in Period
 
(c)
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Repurchase Plans or Programs (1)
 
(d)
Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
(in millions)
April 1, 2017 - April 28, 2017—
 $—
 —
 $—
April 29, 2017 - May 26, 2017—
 —
 —
 —
May 27, 2017 - June 30, 2017450,000
 31.71
 450,000
 306.7
July 1, 2017 - July 28, 201750,000
 31.77
 500,000
 305.1
July 29, 2017 - August 25, 2017—
 —
 —
 —
August 26, 2017 - September 29, 2017—
 —
 —
 —
Total500,000
 $31.72
 500,000
 $305.1

(1) The Share Repurchase Program, which was authorized by the Board on November 30, 2015, does not obligate CSRA to purchase any shares, and expires on March 31, 2019. As of September 30, 2016,29, 2017, CSRA had repurchased 2,068,2263,257,448 shares of common stock (at an average price of $29.13 per share) through open market purchases for an aggregate consideration of approximately $58$94.9 million, and remained authorized to repurchase $342$305.1 million of common stock under the program.





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Item 3. Default Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.




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Item 6. Exhibits
EXHIBIT INDEX
Exhibit Number Exhibit Description
31.1
10.1
 
CSRA Inc. Amended and Restated 2015 Omnibus Incentive Plan, included as Annex B to the Definitive Proxy Statement on Schedule 14A, filed on June 27, 2017.



31.1
*Section 302 Certification of Chief Executive Officer
31.2

*Section 302 Certification of Chief Financial Officer
32.1

*Section 906 Certification of Chief Executive Officer
32.2

*Section 906 Certification of Chief Financial Officer
101.INS
*XBRL Instance
101.SCH
*XBRL Taxonomy Extension Schema
101.CAL
*XBRL Taxonomy Extension Calculation
101.DEF
*XBRL Taxonomy Extension Definition Linkbase
101.LAB
*XBRL Taxonomy Extension Labels
101.PRE
*XBRL Taxonomy Extension Presentation Linkbase Document
   
*Filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
   
   CSRA INC.
    
Dated:November 9, 20167, 2017By:/S/s/ William Luebke
  Name:William Luebke
  Title:Controller
   (Principal Accounting Officer)


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