Divestitures

Separation of CSRA

On November 27, 2015, CSC completed the Separation of CSRA through a pro rata distribution of all shares of CSRA common stock to CSC stockholders as of the close of business on the Record Date. CSC stockholders received one share of CSRA common stock for every one share of CSC common stock held on the Record Date. In connection with the Separation, CSC and CSRA each paid concurrent special cash dividends as more fully described in Note 15. As a result of the Separation, CSC no longer owns CSRA common stock. CSRA's assets and business primarily consist of those that the Company previously reported as its North American Public Sector (NPS) segment.

Implementation of the Separation and CSC's post-Separation relationship with CSRA is governed by several agreements, including a master separation and distribution agreement and intellectual property (IP) matters, real estate matters, tax matters, non-U.S. agency and employee matters agreements. CSRA is considered a related party under ASC 850 "Related Party Disclosures" (see Note 22).

Pursuant to the IP matters agreement CSC granted to CSRA perpetual, royalty-free, non-assignable licenses to certain know-how owned by CSC and certain software products, trademarks and workflow and design methodologies. Under the IP matters agreement, CSRA pays CSC an annual net maintenance fee of $30 million per year for each of the five years following the distribution in exchange for maintenance services. In addition, CSRA will pay CSC additional maintenance fees if CSRA's total consolidated revenue or revenue from cloud computing solutions exceeds certain thresholds in any fiscal year during the initial five-year term. During the third quarter of fiscal 2016, CSC received a payment of $30 million from CSRA, of which $10 million is included in revenues in its Consolidated Statements of Operations for the fiscal year ended April 1, 2016, and $20 million is included in deferred revenue and advance contract payments in its Consolidated Balance Sheet at April 1, 2016, which will be amortized to revenues over successive periods.

The real estate matters agreement with CSRA governs the respective rights and responsibilities between CSC and CSRA for real property, including the allocation of space within shared facilities and the allocation of standalone facilities between CSC and CSRA. Pursuant to the real estate matters agreement, CSC transferred to CSRA ownership of certain real property and entered into facility lease agreements with CSRA for space shared in certain facilities. For the fiscal year ended April 1, 2016, CSC recorded lease expense of approximately $1 million under the facility lease agreements, which expire at various dates through 2020.

The tax matters agreement with CSRA governs the respective rights, responsibilities and obligations of CSC and CSRA after the Separation with respect to all tax matters and includes restrictions designed to preserve the tax-free status of the distribution. Generally, as a matter of federal law, CSRA continues to have joint and several liability to the IRS for the full amount of the consolidated U.S. federal income taxes of the consolidated group relating to the taxable periods in which CSRA is part of that group. CSC has indemnified CSRA for such joint and several liability. CSRA will be responsible for income tax liabilities for separately filed income tax returns for CSRA entities for taxable periods ending on, before, or after the Separation. CSC and CSRA will generally be responsible for all taxes for periods after the Separation of their respective businesses and have given cross indemnities to that effect. Additionally, CSC and CSRA are responsible for liabilities for non-income taxes related to their respective businesses before the Separation regardless of whether CSC or a CSRA entity filed the returns. The obligations set forth under the tax matters agreement continue until the longer of final settlement or expiration of applicable statutes of limitations.

Under the Non-U.S. Agency Agreement, CSRA has appointed CSC as their exclusive agent outside the U.S. with regard to certain non-U.S. customers, subject to some exceptions, for a period of five years after the distribution.

The employee matters agreement with CSRA addresses employment, compensation and benefits matters including the allocation and treatment of liabilities and responsibilities relating to employee compensation and benefit plans and programs. Refer to Note 14 for additional information regarding pension and other benefit plans and Note 16 for additional information regarding stock incentive plans.

CSC is also a party to certain commercial agreements with CSRA. CSC recognized $25 million of revenue under such commercial agreements for the fiscal year ended April 1, 2016. CSC and CSRA are also party to computer hardware lease agreements, which originated prior to the Separation, and expire at various dates through fiscal 2021.

Concurrent with the Separation, CSRA entered into definitive agreements providing for approximately $3.5 billion of secured indebtedness, of which approximately $1.5 billion was drawn prior to the Separation to fund the Special Dividend, transaction costs and repayment of indebtedness.

Prior to the Separation, CSRA issued a note payable to the Company in the amount of $350 million that was repaid by CSRA in connection with the Separation. The majority of the proceeds of the note payable were used to pay a portion of the Special Dividend and the remaining amount of $37 million was used to retire a portion of CSC's 6.5% term notes due March 2018 (see Note 13).

During the fiscal year ended April 1, 2016 the Company incurred $122 million of costs in connection with the Separation, primarily related to professional fees associated with preparation of regulatory filings and Separation activities within finance, tax, legal and information system functions. Income from discontinued operations, net of taxes includes $103 million of these costs, and the remaining amount of $19 million was included within Loss from continuing operations.

The following is a summary of the assets and liabilities distributed as part of the Separation of CSRA on November 27, 2015:



(Amounts in millions)
Assets:
Cash and cash equivalents	$	1,440
Receivables, net	470
Prepaid expenses and other current assets	83
Property and equipment, net	472
Software, net	39
Goodwill, net	826
Other assets	185
Total assets	$	3,515

Liabilities:
Short-term debt and current maturities of long-term debt	$	71
Accounts payable	45
Accrued payroll and related costs	109
Accrued expenses and other current liabilities	300
Deferred revenue and advance contract payments	137
Long-term debt, net of current maturities	1,631
Other long-term liabilities	555
Total liabilities	$	2,848
Net assets distributed	$	667

Additionally, approximately $31 million of accumulated other comprehensive loss, net of tax and $30 million of noncontrolling interest in subsidiaries were distributed to CSRA. In the fourth quarter of fiscal 2016, the Company recorded additional adjustments to retained earnings of $13 million.

The following is a summary of the assets and liabilities of CSRA that have been classified as assets and liabilities of discontinued operations as of April 3, 2015:



(Amounts in millions)	April 3, 2015
Cash and cash equivalents	$	22
Receivables, net	691
Prepaid expenses and other current assets	93
Property and equipment, net	473
Software, net	33
Goodwill, net	833
Other assets	140
Total assets of the disposal group	$	2,285



(Amounts in millions)	April 3, 2015
Short-term debt and current maturities of long-term debt	$	21
Accounts payable	128
Accrued payroll and related costs	90
Accrued expenses and other current liabilities	291
Deferred revenue and advance contract payments	161
Long-term debt, net of current maturities	130
Other long-term liabilities	624
Total liabilities of the disposal group	$	1,445

The following is a summary of the operating results of CSRA which have been reflected within income from discontinued operations, net of tax:



	Twelve Months Ended
(Amounts in millions)	April 1, 2016⁽¹⁾			April 3, 2015			March 28, 2014
Revenues	$	2,504		$	4,056		$	4,099

Costs of services	1,935			3,375			3,240
Selling, general and administrative	52			120			121
Depreciation and amortization	90			137			148
Restructuring costs	1			5			2
Separation and merger costs	103			—			—
Interest expense	15			22			19
Other (income) expense, net	(21		)	2			—
Income from discontinued operations before income taxes	329			395			569
Income tax expense	(138		)	(142		)	(209		)
Income from discontinued operations, net of tax	$	191		$	253		$	360

⁽¹⁾Results for the twelve months ended April 1, 2016 only reflect operating results through the Separation date of November 27, 2015, not the full twelve-month period as shown for prior periods.

The financial results reflected above may not represent CSRA's stand-alone operating results, as the results reported within Income from discontinued operations, net of tax only include certain costs that are directly attributable to CSRA and exclude certain CSRA overhead costs that were previously allocated to CSRA for each period. Such overhead costs were excluded in accordance with guidance under ASC Subtopic 205-20 "Presentation of Financial Statements - Discontinued Operations."

The following selected financial information of CSRA is included in CSC's Consolidated Statements of Cash Flows:



	Twelve Months Ended
(Amounts in millions)	April 1, 2016⁽¹⁾			April 3, 2015			March 28, 2014
Depreciation	$	75		$	114		$	121
Amortization	15			23			27
Capital expenditures	(75		)	(75		)	(107		)
Significant operating non-cash items:
Net gain on disposition of business	22			(3		)	64
Significant investing non-cash items:
Capital expenditures through capital lease obligations	—			(10		)	(43		)
Capital expenditures in accounts payable	(7		)	(14		)	(6		)
Disposition of assets	(8		)	1			—

⁽¹⁾Selected financial information for the twelve-month period ended April 1, 2016 reflect cash flows through the Separation date of November 27, 2015, not the full twelve-month period as shown for prior periods.

During fiscal 2016, 2015, and 2014, the Company divested certain non-core businesses as a part of its service portfolio optimization initiative to focus on next-generation technology services. The historical results of the following divestitures have been presented within Income from discontinued operations, net of tax in the Company's Consolidated Statements of Operations:

Fiscal 2016 Divestiture

On April 27, 2015, the Company completed the sale of its wholly-owned subsidiary, Welkin Associates Limited (Welkin), to a strategic investor. CSC received consideration of $34 million and recorded a pre-tax gain on sale of $22 million, which is included in Income from discontinued operations, net of taxes on the Consolidated Statements of Operations. Included in the divested net assets of $10 million was $7 million of goodwill, and transaction costs of approximately $2 million. The Welkin business was part of the previously reported NPS segment. At the time of disposition, the divestiture did not qualify to be presented as discontinued operations since it did not represent a strategic shift that would have a major effect on CSC's operations or financial results. Subsequent to the disposition of Welkin, CSC completed the Separation from CSRA, which included the operating results of Welkin as discontinued operations.

Fiscal 2015 Divestiture

On July 31, 2014, CSC completed the sale of a German software business to a strategic investor for cash consideration of $3 million. This divestiture, which had been included in the GBS segment's healthcare group, resulted in a pre-tax loss of $22 million. The divested assets and liabilities included: current assets of $54 million (including $21 million of cash), noncurrent assets of $25 million, current liabilities of $33 million and noncurrent liabilities of $23 million.

Fiscal 2014 Divestitures

On July 19, 2013, CSC completed the sale of its base operations, aviation and ranges services business unit, the Applied Technology Division (ATD) within its former NPS Segment, to a strategic investor for cash consideration of $178 million, plus a net working capital adjustment receivable of $6 million, of which $3 million was collected in fiscal 2015 and $3 million was collected in fiscal 2016. The ATD divestiture resulted in a pre-tax gain of $77 million. During the first quarter of fiscal 2015, NPS recorded a $1 million final net working capital adjustment, which reduced the total gain on sale.

On May 21, 2013, CSC completed the divestiture of its flood insurance-related business process outsourcing practice, within the GBS segment, to a financial investor for cash consideration of $43 million plus a net working capital adjustment receivable of $4 million. The divestiture resulted in a pre-tax gain of $25 million. During the fourth quarter of fiscal 2014, the Company received cash of $3 million, representing the final net working capital adjustment, and reduced the gain on disposal by $1 million. During the first quarter of fiscal 2015, CSC received an additional $2 million as a purchase price adjustment, which was recorded as an additional gain on the sale of this divestiture.

Following is the summary of the results of the discontinued operations:



	Twelve Months Ended
(Amounts in millions)	April 1, 2016		April 3, 2015			March 28, 2014
Operations
Revenues	$	2,504	$	4,066		$	4,334

Income from discontinued operations, before tax	329		384			578
Income tax expense	138		142			216
Net income from discontinued operations, net of tax	191		242			362

Disposal
(Loss) gain on disposition	$	—	$	(21	)	$	101
Income tax (benefit) expense	—		(3		)	15
(Loss) gain on disposition, net of taxes	—		(18		)	86

Income from discontinued operations, net of tax	$	191	$	224		$	448