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November 9, 2016

"Our strong second quarter results demonstrate the promise of CSRA, as we pivot towards growth and continue to deliver industry leading profitability," said Larry Prior, CSRA president and CEO. "Our investments in business development and our focus on next-generation solutions are paying off, and we are realizing the benefits of rapid integration. Recent new business wins position us well to return to organic growth in fiscal year 2018, and we continue to see significant opportunities to take market share as we deliver innovative and efficient technology solutions to meet our customers' most pressing needs."

  • Revenue of $1.26 billion up 1 percent compared to the first quarter of fiscal year 2017 (sequentially)
  • Diluted EPS of $0.46 (GAAP) and $0.56 (Adjusted) both up sequentially and year-over-year, reflecting continued strong profitability
  • Robust book-to-bill ratios of 1.9x for the quarter and 1.3x for the trailing twelve months build the foundation for future growth

 

FALLS CHURCH, Va., Nov. 9, 2016 /PRNewswire/ -- CSRA Inc. (NYSE:CSRA), a leading provider of next-generation IT solutions and professional services to government organizations, today announced financial results for the second quarter of fiscal year 2017, which ended September 30, 2016.

 

(Dollars in millions, except per share data)

 

Three Months Ended

   

Six Months Ended

 
   

September 30, 2016

 

October 2, 2015

   

September 30, 2016

 

October 2, 2015

 
 

GAAP revenue

$

1,263

 

$

969

   

$

2,517

 

$

1,928

   
 

GAAP net income

$

80

 

$

53

   

$

148

 

$

120

   
 

GAAP diluted EPS

$

0.46

 

$

0.35

   

$

0.86

 

$

0.80

   
                       
 

Pro forma revenue

$

1,263

 

$

1,320

   

$

2,517

 

$

2,637

   
 

Pro forma adjusted EBITDA

$

229

 

$

236

   

$

446

 

$

446

   
 

Pro forma adjusted diluted EPS

$

0.56

 

$

0.53

   

$

1.06

 

$

1.04

   
 

Note: All figures are unaudited; computation methods are shown at the end of the release.

 

GAAP revenue for the second quarter of fiscal year 2017 was $1.26 billion, up 30 percent compared to the second quarter of fiscal year 2016, as a result of the merger with SRA International, Inc. Revenue for the quarter was down 4 percent compared to pro forma revenue in the second quarter of fiscal year 2016, which assumes the SRA merger occurred at the beginning of that period. Revenue for the quarter increased 1 percent compared to the first quarter of fiscal year 2017 as recent new business awards began to ramp and several expansions of existing work occurred earlier than expected.

GAAP net income of $80 million, or $0.46 per share, includes $16 million of amortization of SRA contract backlog and $8 million of other pre-tax merger and integration costs. Adjusted EBITDA for the quarter was $229 million, up 5 percent from the first quarter of 2017 and down 3 percent from pro forma adjusted EBITDA in the second quarter of fiscal year 2016. Adjusted EBITDA margin for the quarter was a record 18.1 percent, driven by cost synergies realized from the SRA merger and strong program performance across the business. Adjusted diluted earnings per share for the quarter were $0.56, up 10 percent from the first quarter of 2017 and up 6 percent from pro forma adjusted diluted earnings per share in the second quarter of fiscal year 2016.

Cash Management and Capital Deployment

Operating cash flow for the quarter was $55 million, which was affected by several one-time payments and timing items. In addition, the company's capital expenditures were higher than usual in the second quarter due to the timing of customer requirements. As a result, free cash flow during the quarter was $8 million.

The company executed on its balanced capital deployment program and deployed $50 million to pay down debt and $24 million to return to shareholders. As of September 30, 2016, the company had $68 million in cash and cash equivalents and $2.6 billion in debt.

The company paid a cash dividend of $0.10 per share on October 4, 2016, for a total payment of $16 million as part of its regular quarterly cash dividend program. The Board of Directors expects to declare the next quarterly dividend at its meeting in December.

During the quarter CSRA repurchased 300,097 shares of common stock through open market purchases at an average price of $26.45 per share for an aggregate consideration of $8 million. The company expended an additional $2 million to settle repurchases made at the end of the second quarter and $3 million to repurchase shares at the beginning of the third quarter, leaving $337 million remaining on its share repurchase authorization with an expiration date of March 31, 2019.

Business Development

Bookings totaled $2.4 billion in the second quarter, representing a book-to-bill ratio of 1.9x. The second quarter marked the seventh consecutive quarter with a pro forma book-to-bill ratio of 1.0x or higher. Pro forma bookings for the trailing twelve-month period totaled $6.7 billion, representing a pro forma book-to-bill ratio of 1.3x.

Included in the quarterly bookings were several particularly important single-award prime contracts:

  • Office of Personnel Management (OPM) Background Check Investigations. OPM awarded CSRA a contract to support the new National Background Investigations Bureau (NBIB) in conducting Federal background investigations. The Blanket Purchase Agreement has a performance period of five years and an estimated value of $503 million.
  • U.S. Department of State Consular Affairs' Global Support Strategy (GSS) Program. CSRA received two task orders totaling in excess of $200 million to continue capturing biometric data for U.S. visitors from Mexico, Tel Aviv and Jerusalem. The $2.8 billion indefinite-delivery, indefinite-quantity GSS contract spans a period of 10 years with 19 additional task orders expected to be awarded during that timeframe.
  • Defense Intelligence Agency (DIA) Enterprise Service Operations Center (ESOC).  DIA awarded CSRA a task order valued at $167 million over five and a half years to manage the ESOC, which consists of self-help knowledge portals, remote service desk resolution support and in-field customer engagement support for the Department of Defense Intelligence Information Systems global customers. The work will be performed at various CSRA and government locations worldwide, including the company's new Integrated Technology Center (ITC) in Bossier City, Louisiana.
  • Littoral Combat Ship (LCS) and Professional Engineering Services Support. CSRA will provide a variety of mission critical services in support of the acquisition process for the LCS program. CSRA's support on the five-year, $131 million task order initially focuses on procuring 22 ships for the LCS Block Buy contract and will evolve to stabilizing serial, full-rate production of the LCS ships and an increasing role in assisting with the lifecycle management of the delivered ships, including post-delivery transition to the fleet and lifecycle engineering.
  • Office of Justice Programs (OJP) Enterprise Application Development Support Services (EADSS) contract. Under a five-year, $116 million contract, CSRA will streamline, maintain and upgrade the IT systems of seven offices and bureaus operating under the Department of Justice's OJP. Key tasks include cloud migration, agile application development, and mobile application development to enable OJP to leverage shared services, e-Gov initiatives and data consolidation activities.
  • Department of Defense Joint Service Provider (JSP) Program. CSRA was awarded a $114 million task order over four and a half years to develop and deploy an in-depth network security strategy that will deter and neutralize malicious activities for various offices within the Pentagon. CSRA will also work with U.S. Cyber Command and other government agencies to provide situational awareness about incidents and potential network threats.
  • U.S. Department of Veterans Affairs (VA) Enterprise Cloud Services (ECS). Under a four-year, $73 million contract, CSRA will manage a portfolio of cloud computing services across the VA enterprise, which will significantly improve the agency's delivery of enhancements to veteran health benefits and service delivery programs while driving down IT sustainment costs. The company will also provide network supportability, design and an application hosting configuration to ensure alignment with modernized service delivery.

The company's backlog of signed business orders at the end of second quarter of fiscal year 2017 was $15.5 billion, of which $3.0 billion was funded. Total backlog increased 2 percent compared to the pro forma backlog at the end of the second quarter of fiscal year 2016.

In addition, the company won a new five-year $744 million task order to deliver mission-essential logistics for the U.S. Army. The award is currently under protest, which should be resolved before the end of the calendar year. As such, the contract is not included in the company's second quarter bookings or backlog figures. Including programs awarded in the quarter but subsequently protested would result in a book-to-bill ratio of 2.5x.

Forward Guidance

The company is maintaining its previously announced guidance ranges for revenue, adjusted EBITDA, adjusted diluted earnings per share, and free cash flow for fiscal year 2017 as specified in the table below. The company elects to provide ranges for certain metrics not in accordance with GAAP because it cannot make reliable estimates of key elements, including pension mark-to-market adjustments and integration expenses.

Metric

Fiscal Year 2017

Revenue (millions)

$5,000 - $5,200

Adjusted EBITDA (millions)

$870 - $905

Adjusted Diluted Earnings per Share

$1.91 - $2.04

Free Cash Flow (millions)

$300 - $350

The fiscal year 2017 adjusted EBITDA and diluted EPS guidance assumes pension income of $96 million, consistent with the amounts recorded in the first half of fiscal year 2017.

CSRA chief financial officer Dave Keffer commented, "I am happy to report excellent overall performance in the quarter. Our strong business development results have greatly improved our visibility into the second half of fiscal year 2017 and the first half of fiscal year 2018. This quarter marked the first true results of CSRA's integrated bid and proposal organization, and our high volume of new wins and strong win rates on new work gives us confidence in our ability to drive growth. We expect free cash flow to be strong in the second half of FY17, which will enable us to continue paying down debt and returning capital to shareholders."

Conference Call

CSRA executive management will hold a conference call on November 9, 2016, at 5 p.m. Eastern to discuss the financial results and outlook and answer questions. Analysts and institutional investors may participate on the conference call by dialing 877-883-0383 (domestic) or 412-902-6506 (international) and entering pass code 8256434. The conference call will be webcast simultaneously to the public through a link on the Investor Relations section of the CSRA website. A replay of the conference call will be available on the CSRA website approximately two hours after the conclusion of the call.

About CSRA Inc.

Every day CSRA (NYSE: CSRA) makes a difference in how the government serves our country and our citizens. We deliver a broad range of innovative, cloud-enabled, next-generation IT solutions and professional services to help our customers modernize their legacy systems, protect their applications, infrastructure, and assets and improve the effectiveness and efficiency of mission-critical functions for our warfighters and our citizens. Our 18,000 employees understand that success is a matter of perseverance, courage, adaptability and experience. CSRA is headquartered in Falls Church, Virginia. To learn more about CSRA, visit www.csra.com.

Forward-looking Statements

All statements in this press release and in all future press releases that do not directly and exclusively relate to historical facts constitute "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements represent CSRA's intentions, plans, expectations and beliefs, including statements about network and asset protection and improving mission-critical functions. The forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside the control of CSRA. These factors could cause actual results to differ materially from forward-looking statements. For a written description of these factors, see the sections titled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in CSRA's most recent Annual Report on Form 10-K and any updating information in subsequent SEC filings. CSRA disclaims any intention or obligation to update these forward-looking statements whether as a result of subsequent event or otherwise, except as required by law.

CSRA INC.

CONSOLIDATED AND CONDENSED BALANCE SHEETS (unaudited)

     
   

As of

(Dollars in millions)

 

September 30, 2016

 

April 1, 2016

Current assets

       

Cash and cash equivalents

$

68

 

$

130

 

Receivables, net of allowance for doubtful accounts of $25 and $21, respectively

 

809

   

751

 

Prepaid expenses and other current assets

 

114

   

123

 

Total current assets

 

991

   

1,004

 
         

Intangible and other assets

       

Goodwill

 

2,330

   

2,332

 

Customer-related and other intangible assets, net of accumulated amortization of $211 and $201, respectively

 

810

   

870

 

Software, net of accumulated amortization of $104 and $95, respectively

 

46

   

41

 

Other assets

 

68

   

69

 

Total intangible and other assets

 

3,254

   

3,312

 
         

Property and equipment, net of accumulated depreciation of $797 and $773, respectively

 

524

   

530

 

Total assets

$

4,769

 

$

4,846

 
         

Current liabilities

       

Accounts payable

$

171

 

$

170

 

Accrued payroll and related costs

 

176

   

200

 

Accrued expenses and other current liabilities

 

532

   

528

 

Current capital lease liability

 

53

   

42

 

Current maturities of long-term debt

 

73

   

128

 

Dividends payable

 

18

   

18

 

Total current liabilities

 

1,023

   

1,086

 
         

Long-term debt, net of current maturities

 

2,568

   

2,656

 

Noncurrent capital lease liability

 

95

   

109

 

Deferred income tax liabilities

 

153

   

163

 

Other long-term liabilities

 

726

   

742

 
         

Commitments and contingent liabilities (Note 15)

       
         

Equity

       

Stockholders' Equity:

       

Common stock, $0.001 par value, 750,000,000 shares authorized, 163,744,743 and 162,925,821 shares issued, and 163,588,001 and 162,925,821 shares outstanding, respectively

 

   

 

Additional paid-in capital

 

128

   

117

 

Accumulated earnings (deficit)

 

34

   

(74)

 

Accumulated other comprehensive income

 

14

   

21

 

Total stockholders' equity

 

176

   

64

 

Noncontrolling interests

 

28

   

26

 

Total equity

 

204

   

90

 

Total liabilities and equity

$

4,769

 

$

4,846

 

 

CSRA INC.

CONSOLIDATED AND CONDENSED STATEMENTS OF OPERATIONS (unaudited)

         
   

 Three Months Ended

 

Six Months Ended

(Dollars in millions, except per share amounts)

 

September 30, 2016

 

October 2, 2015

September 30, 2016

 

October 2, 2015

Revenue

$

1,263

 

$

967

 

$

2,517

 

$

1,924

 

Related-party revenue

 

   

2

   

   

4

 

Total revenue

 

1,263

   

969

   

2,517

   

1,928

 
                 

Cost of services

 

983

   

755

   

1,974

   

1,528

 

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

 

Separation and merger costs

 

8

   

42

   

13

   

56

 

Depreciation and amortization

 

63

   

35

   

128

   

68

 

Interest expense, net

 

29

   

5

   

59

   

10

 

Other expense (income), net

 

1

   

(2)

   

2

   

(21)

 

Total costs and expenses

 

1,139

   

881

   

2,287

   

1,730

 
                 

Income before income taxes

 

124

   

88

   

230

   

198

 

Income tax expense

 

44

   

35

   

82

   

78

 

Net income

 

80

   

53

   

148

   

120

 

Less: noncontrolling interests

 

4

   

5

   

7

   

9

 

Net income attributable to CSRA common stockholders

$

76

 

$

48

 

$

141

 

$

111

 
                 

Earnings per common share:

               

Basic

$

0.46

 

$

0.35

 

$

0.86

 

$

0.80

 

Diluted

$

0.46

 

$

0.35

 

$

0.86

 

$

0.80

 
                 

Common share information (weighted averages):

               

Common shares outstanding - basic

 

163.8

   

139.1

   

163.6

   

139.1

 

Dilutive effect of stock options and equity awards

 

1.3

   

   

1.3

   

 

Common shares outstanding - diluted

 

165.1

   

139.1

   

164.9

   

139.1

 
                 

Cash dividend per common share

$

0.10

 

$

 

$

0.20

 

$

 

 

CSRA INC.

CONSOLIDATED AND CONDENSED STATEMENTS OF CASH FLOWS (unaudited)
 

         

(Dollars in millions)

 

Three Months Ended

 

Six months Ended

 

September 30, 2016

 

October 2, 2015

 

September 30, 2016

 

October 2, 2015

Cash flows from operating activities

               

Net income

$

80

 

$

53

 

$

148

 

$

120

 

Adjustments to reconcile net income to cash provided by operating activities:

               

Depreciation and amortization

 

64

   

37

   

131

   

72

 

Stock-based compensation

 

4

   

5

   

7

   

4

 

Excess tax benefit from stock compensation

 

(1)

   

   

(2)

   

 

Net gain on dispositions of businesses and assets

 

(2)

   

6

   

   

(11)

 

Other non-cash items, net

 

1

   

   

1

   

 

Changes in assets and liabilities, net of acquisitions and dispositions:

               

(Increase) decrease in assets

 

(69)

   

34

   

(56)

   

237

 

Decrease in liabilities

 

(19)

   

(16)

   

(21)

   

(56)

 

Other operating activities, net

 

(3)

   

   

3

   

 

Cash provided by operating activities

 

55

   

119

   

211

   

366

 
                 

Cash flows from investing activities

               

Purchases of property and equipment

 

(34)

   

(23)

   

(68)

   

(38)

 

Proceeds from business dispositions

 

   

   

   

34

 

Software purchased and developed

 

(8)

   

(10)

   

(8)

   

(10)

 

Other investing activities, net

 

(6)

   

1

   

(15)

   

1

 

Cash used in investing activities

 

(48)

   

(32)

   

(91)

   

(13)

 
                 

Cash flows from financing activities

               

Payments of lines of credit

 

(2)

   

   

(50)

   

 

Payments of long-term debt

 

(48)

   

   

(98)

   

 

Proceeds from stock options and other employee stock transactions

 

(1)

   

   

7

   

 

Repurchase of common stock

 

(8)

   

   

(8)

   

 

Dividends paid

 

(16)

   

   

(34)

   

 

Payments on lease liability

 

(10)

   

(5)

   

(17)

   

(10)

 

Net transfers to CSC

 

   

(79)

   

   

(338)

 

Other financing activities

 

17

   

   

22

   

 

 Payments to noncontrolling interests

 

(4)

   

   

(4)

   

 

Cash used in financing activities

 

(72)

   

(84)

   

(182)

   

(348)

 
                 

Net (decrease) increase in cash and cash equivalents

 

(65)

   

3

   

(62)

   

5

 

Cash and cash equivalents at beginning of period

 

133

   

7

   

130

   

5

 

Cash and cash equivalents at end of period

$

68

 

$

10

 

$

68

 

$

10

 
                 

Supplemental cash flow information:

               

  Cash paid for income taxes

 

45

   

36

   

47

   

78

 

  Cash paid for interest

 

26

   

5

   

54

   

10

 

  Non-cash investing activities

 

(4)

   

2

   

9

   

11

 

  Capital expenditures through capital lease obligations

 

20

   

   

20

   

 

  Non-cash operating activities

 

(6)

   

   

(2)

   

 

 

Segment Operating Results

CSRA delivers IT, mission, and operations-related services across the U.S. federal government through two reportable segments–Defense and Intelligence, which supports customers in the Department of Defense (DoD) and Intelligence Community, and Civil, which supports customers in homeland security, law enforcement, healthcare, and other civil agencies as well as certain state and local government agencies. The following table summarizes revenue by reportable segment:

   

Three Months Ended

 

Six Months Ended

 
 

(Dollars in millions; unaudited)

September 30, 2016

 

October 2, 2015

 

September 30, 2016

 

October 2, 2015

 
 

Pro forma revenue

               
   

Defense and Intelligence

575

   

613

   

1,143

   

1,227

   
   

Civil

688

   

707

   

1,374

   

1,410

   
     

Total pro forma revenue

$

1,263

   

$

1,320

   

$

2,517

   

$

2,638

   
   

SRA revenue prior to November 30, 2015

   

351

   

   

710

   
     

Total revenue

$

1,263

   

$

969

   

$

2,517

   

$

1,928

   
                       
 

Pro forma segment operating income

               
   

Defense and Intelligence

80

   

85

   

134

   

152

   
   

Civil

101

   

83

   

206

   

167

   
     

Total pro forma segment operating income

$

181

   

$

168

   

$

340

   

$

319

   
   

SRA segment operating income prior to November 30, 2015

   

21

   

   

47

   
     

Total segment operating income

$

181

   

$

147

   

340

   

272

   

For the three months ended September 30, 2016, Defense and Intelligence segment revenues decreased by $37 million, or 6 percent compared to pro forma revenues from the same period of the prior year. The largest source of that reduction was the U.S. Army Logistics Modernization Program, which continues to decline after a successful deployment phase. Second quarter Civil segment revenues decreased by $20 million, or 3 percent compared to pro forma revenues from the same period of the prior year.  The New York Health Insurance Exchange program was the primary source of the decline as a result of the achievement of a major software development milestone in the prior period.

Segment operating income increased across the company, driven by profitability enhancements in the Civil segment. For the three months ended September 30, 2016, total segment operating margin was 14.4 percent, up 170 basis points compared pro forma segment operating income from the second quarter of fiscal year 2016.

Non-GAAP Financial Measures

The following tables illustrate the items and means to reconcile non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP. CSRA management believes that these non-GAAP financial measures provide useful additional information to investors regarding the company's financial condition and results of operations as they provide another measure of the company's profitability and ability to service its debt and are considered important measures by financial analysts covering CSRA. When analyzing CSRA's performance, investors and securities analysts should evaluate each adjustment in our reconciliation and use pro forma adjusted measures in addition to, and not as an alternative to, GAAP measures.

Pro forma adjusted results include a full period of SRA results; assess the impact of interest, non-backlog-related intangibles amortization, recurring elements of pension income, and other costs as if the separation and merger had occurred at the beginning of the period; and exclude costs directly associated with the separation and merger transactions and the ongoing integration process. The table below summarizes the major adjustments to GAAP to derive pro forma adjusted metrics for each reporting period.

Metric

Q1 and Q2 2017

Q1 and Q2 2016

Pro Forma

Revenue

None (GAAP)

Include:  SRA revenue

Exclude: Intercompany revenue

Pro Forma

Adjusted

 EBITDA

Exclude: Integration costs

               Spin/merger costs

Include:  SRA EBITDA

               Pension income

               CSC IP expense

Exclude: Intercompany EBITDA

Pro Forma

Adjusted

Diluted EPS

Exclude: Integration costs

               Spin/merger costs

               SRA backlog amortization

Include:  SRA income

               Pension income

               CSC IP expense

Exclude: Intercompany income

Apply:    Normalized interest expense

               Long-term tax rate

               Share count at spin

Pro Forma Adjusted Revenue

CSRA INC.

PRO FORMA REVENUE (unaudited)

                     
     

Three Months Ended

   

Six Months Ended

(Dollars in millions)

 

September 30, 2016

 

October 2, 2015

   

September 30, 2016

 

October 2, 2015

Revenue(a)

$

1,263

 

$

969

   

$

2,517

 

$

1,928

 

Historical SRA revenue(b)

 

   

351

     

   

710

 

Separation and merger effect(c)

 

   

     

   

(1)

 

Pro forma adjusted revenue

$

1,263

 

$

1,320

   

$

2,517

 

$

2,637

 
                     

Notes:

         

(a)

For the three and six months ended October 2, 2015, GAAP results reflect the operations of CSRA LLC.

(b)

Revenue prior to the November 30, 2015 merger from the most closely corresponding reporting period, which is July 1, 2015 to September 30, 2015, in the case of the three months ended October 2, 2015 and April 1, 2015 to September 30, 2015, in the case of the six months ended October 2, 2015.

(c)

Adjustment for inter-company revenue prior to the November 30, 2015 merger.

 

Pro Forma Adjusted Diluted Earnings Per Share

CSRA INC.

PRO FORMA ADJUSTED DILUTED EARNINGS PER SHARE (unaudited)

     

Three Months Ended

   

Six Months Ended

(Dollars in millions except per share amounts)

 

September 30, 2016

 

October 2, 2015

   

September 30, 2016

 

October 2, 2015

Income before income taxes(a)

$

124

 

$

88

   

$

230

 

$

198

 

Historical SRA loss from continuing operations before taxes(b)

 

   

(7)

     

   

(7)

 

Separation and merger costs(c)

 

8

   

69

     

13

   

104

 

One-time integration costs

 

   

     

7

   

 

Amortization of funded backlog associated with SRA acquisition(d)

 

16

   

     

33

   

 

Pro forma adjusted income before income taxes

 

149

   

150

     

283

   

295

 
                   

Pro forma adjusted income tax expense(e)

 

53

   

59

     

101

   

115

 

Pro forma adjusted net income

 

96

   

92

     

182

   

180

 

Less: Noncontrolling interest

 

4

   

5

     

7

   

9

 

Pro forma adjusted net income attributable to CSRA common stockholders

$

92

 

$

87

   

$

175

 

$

171

 
                   

Pro forma adjusted diluted earnings per common share(f)

$

0.56

 

$

0.53

   

$

1.06

 

$

1.04

 
                     

Notes: Pro forma adjusted net income attributable to CSRA common stockholders may not equal the sum of the component figures due to rounding.

(a)

For the three and six months ended October 2, 2015, GAAP results reflect the operations of CSRA LLC. The six-month GAAP results include a pre-tax gain of $17 million on the sale of Welkin, which increased pro forma adjusted net income to shareholders by $10 million and pro forma adjusted diluted EPS by $0.06.

(b)

Income prior to the November 30, 2015 merger from the most closely corresponding reporting period, which is July 1, 2015 to September 30, 2015, in the case of the three months ended October 2, 2015 and April 1, 2015 to September 30, 2015, in the case of the six months ended October 2, 2015.

(c)

Inter-company income prior to the November 30, 2015 merger plus costs directly associated with the separation and merger transactions, before tax effect.

(d)

Total value of $65 million amortized over one year is included in GAAP Income before income taxes.

(e)

For the three and six months ended September 30, 2016, the GAAP effective tax rate is applied; for the prior period, the long-term effective tax rate of 39 percent is applied.

(f)

Diluted share count set at share count as of November 30, 2015 for the three and six months ended October 2, 2015.

Pro Forma Adjusted EBITDA

CSRA defines pro forma adjusted EBITDA as revenue less cost of services and selling, general, and administrative (SG&A) costs. In addition, pro forma adjusted EBITDA excludes periodic mark-to-market adjustments to the pension plan as well as certain non-cash items such as stock-based compensation expense.

CSRA INC.

PRO FORMA ADJUSTED EBITDA (unaudited)(a)

     

Three Months Ended

   

Six Months Ended

(Dollars in millions)

 

September 30, 2016

 

October 2, 2015

   

September 30, 2016

 

October 2, 2015

Net income (b)

$

80

 

$

53

   

$

148

 

$

120

 

Historical SRA loss from continuing operations before taxes(c)

 

   

(4)

     

   

(3)

 

Separation, merger and integration costs(d)

 

25

   

61

     

53

   

85

 

Interest expense, net

 

29

   

30

     

59

   

60

 

Tax expense on income

 

44

   

40

     

82

   

95

 

Depreciation and amortization

 

47

   

51

     

95

   

99

 

Amortization of contract-related intangibles

 

   

2

     

2

   

5

 

Stock-based compensation

 

4

   

7

     

7

   

6

 

Restructuring costs

 

   

1

     

   

4

 

Pension and post-retirement actuarial losses (gains), settlement losses, and amortization of other comprehensive income

 

   

(5)

     

   

(9)

 

Gain on disposition of business(e)

 

   

     

   

(17)

 

Impact of acquisitions(f)

 

   

     

   

1

 

Pro Forma Adjusted EBITDA

$

229

 

$

236

   

$

446

 

$

446

 
                     

Notes:

         

(a)

The reconciliation to Pro Forma Adjusted EBITDA differs across periods. For example, Net income for the three and six months ended October 2, 2015, incorporate amounts furnished in the Form 8-K dated December 24, 2015, derived on the basis described therein; Net income for the three and six months ended September 30, 2016, is derived from the same basis of accounting used to prepare GAAP financial information for that period.

(b)

For the three and six months ended October 2, 2015, GAAP results reflect the operations of CSRA LLC.

(c)

SRA income prior to November 30, 2015 merger from the most closely corresponding reporting period, which is July 1, 2015 to September 30, 2015, in the case of the three months ended October 2, 2015 and April 1, 2015 to September 30, 2015, in the case of the six months ended October 2, 2015.

(d)

Inter-company income prior to the November 30, 2015 merger, costs directly associated with the separation and merger transactions incurred by CSGov and SRA before the merger and CSRA after the merger, intangibles amortization expense associated with SRA's funded contract backlog, and one-time integration costs.

(e)

Pre-tax gain on the sale of Welkin in April 2015.

(f)

Pre-tax income from the assets acquired by SRA in April 2015 earned before the acquisition.

Free Cash Flow

CSRA defines free cash flow as equal to the sum of (1) operating cash flows, (2) investing cash flows, excluding business acquisitions, dispositions and investments and (3) payments on capital leases and other long-term asset financings. Free cash flow is further adjusted for certain cash flow items, such as (i) non-recurring separation-related payments and (ii) the change in the balance of accounts receivables we have sold.

CSRA INC.

FREE CASH FLOW (unaudited)
 

     

Three Months Ended

 

Six Months Ended

(Amounts 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

 

Notes:

(a)

Impact of net proceeds arising from the initial sale of billed and/or unbilled receivables under the Master Accounts Receivable Purchase Agreement.

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CONTACT: Investors: M. Stuart Davis, 703.641.2267, stuart.davis@csra.com

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About CSRA Inc.

CSRA (NYSE: CSRA) solves our nation’s hardest mission problems as a bridge from mission and enterprise IT to Next Gen, from government to technology partners, and from agency to agency.  CSRA is tomorrow’s thinking, today. For our customers, our partners, and ultimately, all the people our mission touches, CSRA is realizing the promise of technology to change the world through next-generation thinking and meaningful results. CSRA is driving towards achieving sustainable, industry-leading organic growth across federal and state/local markets through customer intimacy, rapid innovation and outcome-based experience. CSRA has over 18,000 employees and is headquartered in Falls Church, Virginia. To learn more about CSRA, visit www.csra.com. Think Next. Now.

Forward-looking Statements

All statements in this press release and in all future press releases that do not directly and exclusively relate to historical facts constitute "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements represent CSRA's intentions, plans, expectations and beliefs, including statements about the effects of the program on our business and our ability to enhance mission capabilities of our customers. The forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside the control of CSRA. These factors could cause actual results to differ materially from forward-looking statements. For a written description of these factors, see the sections titled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in CSRA's most recent Annual Report on Form 10-K and any updating information in subsequent SEC filings. CSRA disclaims any intention or obligation to update these forward-looking statements whether as a result of subsequent event or otherwise.

Contact

Tom Doheny
Communications
thomas.doheny@csra.com
571.353.4454