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Item 2. Management’s Discussion and Analysis

2021-11-04 compared with 2021-08-05 · 225 added, 122 removed, 208 unchanged (63% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The purpose of the Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is to present information that management believes is relevant to an assessment and understanding of our results of operations and cash flows for the first quarter of fiscal 2022 and our financial condition as of June 30, 2021.

The purpose of the Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is to present information that management believes is relevant to an assessment and understanding of our results of operations and cash flows for the second quarter and first six months of fiscal 2022 and our financial condition as of September 30, 2021.

The MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and accompanying notes.

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• Critical Accounting Policies and Estimates

The following discussion includes a comparison of our results of operations and liquidity and capital resources for the first quarters of fiscal 2022 and fiscal 2021.

The following discussion includes a comparison of our results of operations and liquidity and capital resources for the second quarters and first six months of fiscal 2022 and fiscal 2021.

DXC Technology helps global companies run their mission critical systems and operations while modernizing IT, optimizing data architectures, and ensuring security and scalability across public, private and hybrid clouds.

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Results of Operations

The following table sets forth certain financial data for the first quarters of fiscal 2022 and fiscal 2021:

Three Months Ended

(In millions, except per-share amounts) June 30, 2021 June 30, 2020

The following table sets forth certain financial data for the second quarters and first six months of fiscal 2022 and fiscal 2021:

Three Months Ended Six Months Ended

(In millions, except per-share amounts) September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020

Revenues $ 4,027 $ 4,554 $ 8,168 $ 9,056

Income (loss), before income taxes 424 (225)

Income tax expense (benefit) 142 (26)

Net income (loss) $ 282 $ (199)

Diluted earnings (loss) per share $ 1.07 $ (0.81)

Fiscal 2022 First Quarter Highlights

Financial highlights for the first quarter of fiscal 2022 include the following:

• Revenues for the first quarter of fiscal 2022 were $4.1 billion, a decrease of 8.0% as compared to the first quarter of fiscal 2021.

The decrease was primarily due to the disposition of the HHS business during the third quarter of fiscal 2021 and dispositions of the HPS business and other insignificant businesses during the first quarter of fiscal 2022.

Project completions, project terminations, and decreases in run-rate project volumes also contributed to the decrease in revenues.

The decrease in revenues for the first quarter of fiscal 2022 was partially offset by increased pass-through revenue associated with the resale of hardware and software and additional services provided to new and existing customers.

• Net income and diluted earnings per share for the first quarter of fiscal 2022 were $282 million and $1.07, respectively.

Net income increased by $481 million during the first quarter of fiscal 2022 as compared to the same period of prior fiscal year.

The increase was primarily due to cost optimization realized in the current period, gain on disposition of the HPS business, and lower transaction, separation and integration-related costs partially offset by a reduction in revenue in the current period.

Net income included the cumulative impact of certain items of $60 million, reflecting restructuring costs, transaction, separation and integration-related costs, amortization of acquired intangible assets, gains on dispositions, debt extinguishment costs, and a tax adjustment.

This compares with net loss and diluted loss per share of $199 million and $0.81, respectively, for the first quarter of fiscal 2021.

• Our cash and cash equivalents were $2.5 billion as of June 30, 2021.

• We used $29 million of cash from operations during the first quarter of fiscal 2022, as compared to $119 million of cash generated from operating activities during the first quarter of fiscal 2021.

During the first quarters of fiscal 2022 and fiscal 2021, the distribution of our revenues across geographies was as follows:

(Loss) income, before income taxes (248) (306) 176 (531)

Income tax (benefit) expense (61) (60) 81 (86)

Net (loss) income $ (187) $ (246) $ 95 $ (445)

Diluted (loss) earnings per share $ (0.74) $ (0.96) $ 0.35 $ (1.77)

Fiscal 2022 Second Quarter Highlights

Financial highlights for the second quarter and first six months of fiscal 2022 include the following:

• Revenues for the second quarter and first six months of fiscal 2022 were $4.0 billion and $8.2 billion, respectively, a decrease of 11.6% and 9.8%, respectively, as compared to the second quarter and first six months of fiscal 2021.

The decrease was primarily due to the dispositions of the HPS business and other insignificant businesses during the first quarter of fiscal 2022 and the HHS business during the third quarter of fiscal 2021.

Project completions and project terminations also contributed to the decrease in revenues.

The decrease in revenues was partially offset by increased pass-through revenue associated with the resale of hardware and software and additional services provided to new and existing customers.

• Net loss and diluted loss per share for the second quarter of fiscal 2022 were $(187) million and $(0.74), respectively.

Net loss decreased by $59 million during the second quarter of fiscal 2022 as compared to the same period of prior fiscal year.

The decrease was primarily due to cost optimization realized in the current period, lower costs after the dispositions of the HPS and HHS businesses, and lower transaction, separation and integration-related costs partially offset by a reduction in revenue in the current period and higher debt extinguishment costs.

Net loss included the cumulative impact of certain items of $420 million, reflecting restructuring costs, transaction, separation and integration-related costs, amortization of acquired intangible assets, impairment losses, and debt extinguishment costs.

This compares with net loss and diluted loss per share of $(246) million and $(0.96), respectively, for the second quarter of fiscal 2021.

• Net income and diluted earnings per share for the first six months of fiscal 2022 were $95 million and $0.35, respectively.

Net income increased by $540 million during the first six months of fiscal 2022 as compared to the same period of prior fiscal year.

The increase was primarily due to cost optimization realized in the current period, gain on disposition of the HPS business, lower costs after the dispositions of the HPS and HHS businesses and lower transaction, separation and integration-related costs partially offset by a reduction in revenue in the current period and higher debt extinguishment costs.

Net income included the cumulative impact of certain items of $360 million, reflecting restructuring costs, transaction, separation and integration-related costs, amortization of acquired intangible assets, gains on dispositions, impairment losses, debt extinguishment costs, and a tax adjustment.

This compares with net loss and diluted loss per share of $(445) million and $(1.77), respectively, for the first six months of fiscal 2021.

• Our cash and cash equivalents were $2.7 billion as of September 30, 2021.

• We generated $534 million of cash from operations during the first six months of fiscal 2022, as compared to $591 million during the first six months of fiscal 2021.

During the second quarter and first six months of fiscal 2022 and fiscal 2021, the distribution of our revenues across geographies was as follows:

Three Months Ended

(in millions)

June 30, 2021 June 30, 2020 Change Percentage Change

(in millions) September 30, 2021 September 30, 2020 Change Percentage Change

$ 1,873 $ 2,242 $ (369) (16.5) %

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$ 4,027 $ 4,554 $ (527) (11.6) %

The decrease in revenues for the first quarter of fiscal 2022, compared with fiscal 2021 of the same period, reflects the disposition of the HHS business during the third quarter fiscal 2021, in addition to dispositions of the HPS business and other insignificant businesses during the first quarter of fiscal 2022.

Project completions, project terminations, and decreases in run-rate project volumes also contributed to the decrease in revenues.

Fiscal 2022 revenues included a favorable foreign currency exchange rate impact of 5.7%, primarily driven by the strengthening of the U.S.

dollar against the British Pound, Euro, and Australian Dollar.

Six Months Ended

(in millions) September 30, 2021 September 30, 2020 Change Percentage Change

$ 3,760 $ 4,416 $ (656) (14.9) %

4,408 4,640 (232) (5.0) %

Total Revenues

$ 8,168 $ 9,056 $ (888) (9.8) %

The decrease in revenues for the second quarter and first six months of fiscal 2022, compared with fiscal 2021 of the same periods, reflects the disposition of the HHS business during the third quarter of fiscal 2021, in addition to dispositions of the HPS business and other insignificant businesses during the first quarter of fiscal 2022.

Project completions and project terminations also contributed to the decrease in revenues.

The decrease in revenues was partially offset by increased pass-through revenue associated with the resale of hardware and software and additional services provided to new and existing customers.

Revenues for the second quarter and first six months of fiscal 2022 included an favorable foreign currency exchange rate impacts of 1.4% and 3.6%, respectively, primarily driven by the weakening of the U.S.

dollar against the British Pound, Canadian Dollar, and Australian Dollar.

For the discussion of risks associated with our foreign operations, see Part 1, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended March 31, 2021.

As a global company, approximately 71% of our revenues for the first quarter of fiscal 2022 were earned internationally.

As a global company, approximately 70% of our revenues for the first six months of fiscal 2022 were earned internationally.

As a result, the comparison of revenues denominated in currencies other than the U.S.

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(in millions) Constant Currency

June 30, 2021 June 30, 2020 Change

Percentage Change

September 30, 2021 September 30, 2020 Change Percentage Change

GBS $ 1,851 $ 2,242 $ (391) (17.4) %

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Total $ 3,961 $ 4,554 $ (593) (13.0) %

Six Months Ended

(in millions) Constant Currency

September 30, 2021 September 30, 2020 Change Percentage Change

GBS $ 3,635 $ 4,416 $ (781) (17.7) %

GIS 4,210 4,640 (430) (9.3) %

Total $ 7,845 $ 9,056 $ (1,211) (13.4) %

Global Business Services

Our GBS revenues were $1.9 billion in the first quarter of fiscal 2022, a decrease of 13.2% compared to fiscal 2021.

GBS revenue in constant currency decreased 17.9% compared to fiscal 2021.

The decrease in GBS revenues was primarily due to the disposition of the HHS business during the third quarter fiscal 2021, the disposition of the HPS business at the beginning of the first quarter of fiscal 2022, and project completions.

The decrease in revenue for the first quarter of fiscal 2022 was partially offset by additional services provided to existing customers.

For the first quarter of fiscal 2022, GBS contract awards were $2.4 billion, as compared to $3.5 billion during the first quarter of fiscal 2021.

Our GBS revenues were $1.9 billion in the second quarter and $3.8 billion in the first six months of fiscal 2022, a decrease of 16.5% and 14.9%, respectively, compared to the same periods in fiscal 2021.

GBS revenue in constant currency decreased by 17.4% and 17.7% in the second quarter and first six months of fiscal 2022, respectively, as compared to the same periods in fiscal 2021.

The decrease in GBS revenues for the second quarter and first six months of fiscal 2022 was primarily due to the disposition of the HHS business during the third quarter of fiscal 2021, the disposition of the HPS business at the beginning of the first quarter of fiscal 2022, and project completions.

The decrease in GBS revenues was partially offset by additional services provided to existing customers.

For the second quarter and first six months of fiscal 2022, GBS contract awards were $1.7 billion and $4.1 billion, respectively, as compared to $2.4 billion and $5.9 billion in the corresponding periods of fiscal 2021.

Global Infrastructure Services

Our GIS revenues were $2.3 billion in the first quarter of fiscal 2022, a decrease of 3.2% compared to fiscal 2021.

GIS revenue in constant currency decreased 9.8% compared to fiscal 2021.

The decrease in GIS revenues reflects project completions, project terminations, a decrease in run-rate project volumes, and decreases due to the dispositions of the HHS business and other insignificant businesses.

The decrease in revenue for the first quarter of fiscal 2022 was partially offset by increased pass-through revenue associated with the resale of hardware and software and additional services provided to new and existing customers.

For the first quarter of fiscal 2022, GIS contract awards were $2.2 billion, as compared to $1.8 billion during the first quarter of fiscal 2021.

Our GIS revenues were $2.2 billion in the second quarter and $4.4 billion in the first six months of fiscal 2022, a decrease of 6.8% and 5.0%, respectively, compared to the same periods in fiscal 2021.

GIS revenue in constant currency decreased by 8.7% and 9.3% in the second quarter and first six months of fiscal 2022, respectively, as compared to the same periods in fiscal 2021.

The decrease in GIS revenues for the second quarter and first six months of fiscal 2022 was primarily due to project completions, project terminations, a decrease in run-rate project volumes, and decreases due to the dispositions of the HHS business and other insignificant businesses.

The decrease in GIS revenues was partially offset by additional services provided to new and existing customers.

For the second quarter and first six months of fiscal 2022, GIS contract awards were $2.0 billion and $4.2 billion, respectively, as compared to $2.5 billion and $4.3 billion in the corresponding periods of fiscal 2021.

Costs and Expenses

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Amount Percentage of Revenues Percentage Point Change

(in millions)

June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

(in millions) September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020

Costs of services (excludes depreciation and amortization and restructuring costs)

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Debt extinguishment costs 281 — 7.0 — 7.0

Other income, net (102) (103) (2.5) (2.3) (0.2)

Total Costs and Expenses

$ 4,275 $ 4,860 106.2 % 106.7 % (0.5)

Six Months Ended

Amount Percentage of Revenues Percentage Point Change

(in millions) September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020

Costs of services (excludes depreciation and amortization and restructuring costs)

$ 6,343 $ 7,192 77.5 % 79.5 % (2.0)

Selling, general and administrative (excludes depreciation and amortization and restructuring costs) 753 1,078 9.2 11.9 (2.7)

Depreciation and amortization 870 1,017 10.7 11.2 (0.5)

Restructuring costs 212 337 2.6 3.7 (1.1)

Interest expense 123 202 1.5 2.2 (0.7)

Interest income (36) (48) (0.4) (0.5) 0.1

Debt extinguishment costs 309 — 3.8 — 3.8

Gain on disposition of businesses (377) — (4.6) — (4.6)

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$ 7,992 $ 9,587 97.8 % 105.9 % (8.1)

The 15.2 point decrease in total costs and expenses as a percentage of revenue for the first quarter of fiscal 2022 primarily reflects gains on dispositions in the first quarter of fiscal 2022.

Total costs and expenses as a percentage of revenue decreased by 0.5 and 8.1 percentage points during the second quarter and first six months of fiscal 2022, respectively.

The percentage point decreases primarily reflect operating cost reductions exceeding associated declines in revenue compared to the same period in the prior fiscal year.

Gains on dispositions during the first quarter of fiscal 2022 also contributed to the percentage point decrease during the first six months of fiscal 2022.

The decreases were partially offset by higher debt extinguishment costs incurred during the second quarter and first six months of fiscal 2022.

Costs of Services

Costs of services, excluding depreciation and amortization and restructuring costs (“COS”), was $3.3 billion for the first quarter of fiscal 2022.

COS decreased $374 million during the first quarter of fiscal 2022 as compared to the same period of the prior fiscal year.

The decrease was primarily due to cost optimization savings realized during the first quarter of fiscal 2022 and lower operational costs following the sale of our HPS business and HHS business.

COS as a percentage of revenue decreased 1.9 points primarily driven by cost reductions exceeding the associated decline in revenue compared to the same period in the prior fiscal year.

Costs of services, excluding depreciation and amortization and restructuring costs (“COS”), was $3.1 billion and $6.3 billion for the second quarter and first six months of fiscal 2022, respectively.

COS decreased by $475 million and $849 million during the second quarter and first six months of fiscal 2022, respectively, as compared to the same periods of the prior fiscal year.

The decreases were primarily due to cost optimization savings realized during fiscal 2022 and reduced costs resulting from the dispositions of the HPS business during the first quarter of fiscal 2022 and the HHS business during the third quarter of fiscal 2021.

COS as a percentage of revenue decreased by 1.6 and 2.0 points, respectively, as compared to the same periods of the prior fiscal year.

These point decreases were primarily driven by cost reductions exceeding the associated decline in revenue compared to the same period in the prior fiscal year.

Selling, General and Administrative

Selling, general and administrative expense, excluding depreciation and amortization and restructuring costs (“SG&A”), was $383 million for the first quarter of fiscal 2022, a decrease of $156 million compared to the same period of the prior fiscal year.

The decrease during the first three months of fiscal 2022 was primarily driven by lower transaction, separation and integration-related costs and lower operational costs following the sale of our HPS business and HHS business.

Transaction, separation and integration-related costs of $9 million were included in SG&A for the first quarter of fiscal 2022, as compared to $110 million for the comparable period of the prior fiscal year.

Selling, general and administrative expense, excluding depreciation and amortization and restructuring costs (“SG&A”), was $370 million and $753 million for the second quarter and first six months of fiscal 2022, respectively.

SG&A decreased by $169 million and $325 million during the second quarter and first six months of fiscal 2022, respectively, as compared to the same periods of the prior fiscal year.

The decreases were primarily driven by lower transaction, separation and integration-related costs, cost optimization savings realized during fiscal 2022, and reduced costs resulting from the dispositions of the HPS business during the first quarter of fiscal 2022 and the HHS business during the third quarter of fiscal 2021.

Transaction, separation and integration-related costs of $3 million and $12 million were included in SG&A for the second quarter and first six months of fiscal 2022, as compared to $101 million and $211 million for the comparable periods of the prior fiscal year.

Depreciation and Amortization

Depreciation expense was $158 million for the first quarter of fiscal 2022.

Depreciation expense decreased $20 million during the first quarter of fiscal 2022 as compared to the same period of the prior fiscal year.

The net decrease in depreciation expense for the first quarter of fiscal 2022 was primarily due to impairment of undeployed assets and asset retirements.

Amortization expense was $264 million for the first quarter of fiscal 2022.

Amortization expense decreased $50 million during the first quarter of fiscal 2022 as compared to the same period of the prior fiscal year.

Depreciation expense was $165 million and $323 million for the second quarter and first six months of fiscal 2022, respectively.

Depreciation expense decreased by $35 million and $55 million during the second quarter and first six months of fiscal 2022, respectively, as compared to the same periods of the prior fiscal year.

The net decrease in depreciation expense for the second quarter and first six months of fiscal 2022 was primarily due to asset life adjustments in the prior year and a reduction in assets due to impairment of undeployed assets and asset retirements.

Amortization expense was $283 million and $547 million for the second quarter and first six months of fiscal 2022, respectively.

Amortization expense decreased by $42 million and $92 million during the second quarter and first six months of fiscal 2022, respectively, as compared to the same periods of the prior fiscal year.

The decrease was primarily due to a reduction in customer related intangibles related to the disposition of the HHS business at the beginning of the third quarter of fiscal 2021.

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During fiscal 2022, management approved global cost savings initiatives designed to better align our workforce and facility structures.

During the first quarter of fiscal 2022, restructuring costs, net of reversals, was $67 million.

Restructuring costs decreased $5 million during the first quarter of fiscal 2022 as compared to the same period of the prior fiscal year.

During the second quarter and first six months of fiscal 2022, restructuring costs, net of reversals, were $145 million and $212 million, respectively, as compared to $265 million and $337 million during the same periods of the prior fiscal year.

For an analysis of changes in our restructuring liabilities by restructuring plans, see Note 14 – “Restructuring Costs” to the financial statements.

Interest Expense and Interest Income

Interest expense for the first quarter of fiscal 2022 was $ 62 million.

Interest expense decreased $44 million during the first quarter of fiscal 2022 as compared to the same period of the prior fiscal year.

The decrease was primarily due to a reduction in bonds and term loans, decreased amounts drawn on our revolving credit facility, and decreases to finance leases and asset financing.

Interest income for the first quarter of fiscal 2022 was $ 20 million.

Interest income decreased $3 million during the first quarter of fiscal 2022 as compared to the same period of the prior fiscal year.

The decrease was primarily driven by lower income from our multicurrency cash pools and money market accounts.

Interest expense was $61 million and $123 million for the second quarter and first six months of fiscal 2022, respectively.

Interest expense decreased by $35 million and $79 million during the second quarter and first six months of fiscal 2022, respectively, as compared to the same periods of the prior fiscal year.

These decreases were primarily due to a reduction in bonds and term loans, decreased amounts drawn on our revolving credit facility, and decreases to finance leases and asset financing.

Interest income was $16 million and $36 million for the second quarter and first six months of fiscal 2022, respectively.

Interest income decreased by $9 million and $12 million during the second quarter and first six months of fiscal 2022, respectively, as compared to the same periods of the prior fiscal year.

These decreases were primarily driven by lower income from our multicurrency cash pools and money market accounts.

Debt Extinguishment Costs

During the first quarter of fiscal 2022, we recorded $28 million of debt extinguishment costs within the consolidated statement of operations, which consists primarily of costs related to the full redemption of two series of 4.45% senior notes due fiscal 2023, partial redemption of 4.125% senior notes due fiscal 2026, and extinguishment of debt associated with asset financing.

Debt extinguishment costs were $281 million and $309 million for the second quarter and first six months of fiscal 2022, respectively.

Debt extinguishment costs for the second quarter of fiscal 2022 include costs to fully redeem our Euro-denominated term loan facility, 4.25% senior notes due fiscal 2025, 2.75% senior notes due fiscal 2025, 4.125% senior notes due fiscal 2026, 4.750% senior notes due fiscal 2028, and 7.45% senior notes due fiscal 2030.

Debt extinguishment costs for the first six months of fiscal 2022 also includes activity from the first quarter of fiscal 2022 consisting of full redemption of two series of 4.45% senior notes due fiscal 2023, partial redemption of 4.125% senior notes due fiscal 2026, and extinguishment of debt associated with asset financing.

There were no debt extinguishment costs recorded during the same period in fiscal 2021.

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Other income, net comprises non-service cost components of net periodic pension income, movement in foreign currency exchange rates on our foreign currency denominated assets and liabilities and the related economic hedges, equity earnings of unconsolidated affiliates and other miscellaneous gains and losses.

Other income for the first quarter of fiscal 2022 was $ 103 million.

Other income increased $15 million during the first quarter of fiscal 2022 as compared to the same period of the prior fiscal year.

The increase was primarily due to a year-over-year increase in other gains related to sales of operating assets.

Our effective tax rate (“ETR”) was 33.5% and 11.6% for the three months ended June 30, 2021 and June 30, 2020, respectively.

For the three months ended June 30, 2021, the primary drivers of the ETR were the global mix of income, gain on sale of HPS business and tax rate changes in non-U.S.

Other income was $102 million and $205 million for the second quarter and first six months of fiscal 2022, respectively, as compared to $103 million and $191 million during the same periods of the prior fiscal year.

Other income decreased $(1) million during the second quarter of fiscal 2022 and increased $14 million during the first six months of fiscal 2022 as compared to the same periods of the prior fiscal year.

The increase during the first six months of fiscal 2022 was primarily due to net gains on sales of operating and non-operating assets partially offset by lower non-service components of net periodic pension income.

Our effective tax rate (“ETR”) was 24.6% and 19.6% for the three months ended September 30, 2021 and September 30, 2020, respectively, and 46.0% and 16.2% for the six months ended September 30, 2021 and September 30, 2020, respectively.

For the three months ended September 30, 2021, the primary drivers of the ETR were the global mix of income and a decrease in unrecognized tax benefits due to income tax audit settlements and statute expirations.

For the six months ended September 30, 2021, the primary drivers of the ETR were the global mix of income, gain on sale of HPS business, tax rate changes in non-U.S.

jurisdictions and a decrease in unrecognized tax benefits due to income tax audit settlements and statute expirations.

For the three and six months ended September 30, 2020, the primary drivers of the ETR were the global mix of income, foreign tax credits and adjustment of the prior tax provisions due to the filing of tax returns in the U.S.

and the non-U.S.

jurisdictions.

For the three months ended June 30, 2020, the primary drivers of the ETR were the global mix of income, adjustment of the prior tax provisions due to the filing of tax returns in non-U.S.

jurisdictions and generation of additional foreign tax credits in the U.S.

The United States Congress is currently working to enact a tax reform bill, which would result in significant changes to the U.S.

We expect that if a bill is enacted, it could have a material impact on our Consolidated Financial Statements in future periods.

We continue to monitor developments and assess the impact to DXC.

Earnings (Loss) Per Share

Diluted EPS for the first quarter of fiscal 2022 was $ 1.07 .

Diluted earnings per share increased $1.88 as compared to the same period of the prior fiscal year due to an increase of $481 million in net income.

Diluted EPS for the first quarter of fiscal 2022 includes $0.22 per share of restructuring costs, $0.02 per share of transaction, separation and integration-related costs, $0.33 per share of amortization of acquired intangible assets, $(0.98) per share of net gains on dispositions, $0.08 per share of debt extinguishment costs, and $0.11 per share of tax adjustments relating to the net revaluation of deferred taxes resulting from changes in non-US jurisdiction tax rates.

Diluted EPS for the second quarter and first six months of fiscal 2022 was $(0.74) and $0.35, respectively.

Diluted earnings per share increased by $0.22 and $2.12 during the second quarter and first six months of fiscal 2022, respectively, as compared to the same periods of the prior fiscal year.

Increases in diluted EPS were due to net income increases of $59 million and $540 million during the second quarter and first six months of fiscal 2022, respectively, over the same periods in the prior fiscal year.

Diluted EPS for the second quarter of fiscal 2022 includes $0.43 per share of restructuring costs, $0.01 per share of transaction, separation and integration-related costs, $0.33 per share of amortization of acquired intangible assets, $0.03 per share of impairment losses, and $0.84 per share of debt extinguishment costs.

Diluted EPS for the first six months of fiscal 2022 includes $0.65 per share of restructuring costs, $0.03 per share of transaction, separation and integration-related costs, $0.65 per share of amortization of acquired intangible assets, $(0.99) per share of net gains on dispositions, $0.03 per share of impairment losses, $0.91 per share of debt extinguishment costs, and $0.11 per share of tax adjustments relating to the net revaluation of deferred taxes resulting from changes in non-US jurisdiction tax rates.

Non-GAAP Financial Measures

We present non-GAAP financial measures of performance which are derived from the statements of operations of DXC.

These non-GAAP financial measures include earnings before interest and taxes (“EBIT”), adjusted EBIT, non-GAAP income before income taxes, non-GAAP net income and non-GAAP EPS, and constant currency revenues.

We believe EBIT, adjusted EBIT, non-GAAP income before income taxes, non-GAAP net income and non-GAAP EPS provide investors with useful supplemental information about our operating performance after excluding certain categories of expenses.

These non-GAAP financial measures include earnings before interest and taxes (“EBIT”), adjusted EBIT, non-GAAP income before income taxes, non-GAAP net income, non-GAAP net income attributable to DXC common stockholders, and non-GAAP EPS, and constant currency revenues.

We believe EBIT, adjusted EBIT, non-GAAP income before income taxes, non-GAAP net income, non-GAAP net income attributable to DXC common stockholders, and non-GAAP EPS provide investors with useful supplemental information about our operating performance after excluding certain categories of expenses.

We believe constant currency revenues provides investors with useful supplemental information about our revenues after excluding the effect of currency exchange rate fluctuations for currencies other than U.S.

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This approach is used for all results where the functional currency is not the U.S.

Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Fiscal 2022 First Quarter Highlights.”

Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Fiscal 2022 Second Quarter Highlights.”

Certain non-GAAP financial measures and the respective most directly comparable financial measures calculated and presented in accordance with GAAP include:

Three Months Ended

(in millions) June 30, 2021 June 30, 2020 Change Percentage Change

(in millions) September 30, 2021 September 30, 2020 Change Percentage Change

Loss before income taxes $ (248) $ (306) $ 58 (19.0) %

Non-GAAP income before income taxes $ 301 $ 212 $ 89 42.0 %

Net loss $ (187) $ (246) $ 59 (24.0) %

Adjusted EBIT $ 346 $ 283 $ 63 22.3 %

Six Months Ended

(in millions) September 30, 2021 September 30, 2020 Change Percentage Change

Income (loss) before income taxes $ 176 $ (531) $ 707 NM (1)

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• Gains and losses on dispositions – gains and losses related to dispositions of businesses, strategic assets and interests in less than wholly-owned entities.

• Impairment losses – impairment losses on assets classified as long-term on the balance sheet.

• Debt extinguishment costs – costs associated with early retirement, redemption, repayment or repurchase of debt and debt-like items including any breakage, make-whole premium, prepayment penalty or similar costs as well as solicitation and other legal and advisory expenses.

• Pension and OPEB actuarial and settlement gains and losses – pension and OPEB actuarial mark to market adjustments and settlement gains and losses.

• Tax adjustments – adjustments to impair tax assets, merger and divestiture related tax matters, restructuring charges and income tax expense of non-GAAP adjustments.

Income tax expense of other non-GAAP adjustments is computed by applying the jurisdictional tax rate to the pre-tax adjustments on a jurisdictional basis.

• Tax adjustments – discrete tax adjustments to impair or recognize certain deferred tax assets, adjustments for changes in tax legislation and the impact of merger and divestitures.

Income tax expense of all other (non-discrete) non-GAAP adjustments is based on the difference in the GAAP annual effective tax rate (AETR) and overall non-GAAP provision (consistent with the GAAP methodology).

(1) TSI-Related Costs include fees and other internal and external expenses associated with legal, accounting, consulting, due diligence, investment banking advisory, and other services, as well as financing fees, retention incentives, and resolution of transaction related claims in connection with, or resulting from, exploring or executing potential acquisitions, dispositions and strategic investments, whether or not announced or consummated.

The TSI-Related costs for the first quarter of fiscal 2022 include $11 million of costs to execute the strategic alternatives;

$4 million legal costs and ($12 million) credit towards Perspecta Arbitration settlement, $4 million in expenses related to integration projects resulting from the CSC - HPE ES merger (including costs associated with continuing efforts to separate certain IT systems) and $2 million of costs incurred in connection with activities related to other acquisitions and divestitures.

(2) Gains and losses on dispositions for the first quarter of fiscal 2022 include a $341 million gain on sale of the HPS business, gains of $19 million on other dispositions and ($13 million) of adjustments relating to the sale of the HHS business.

(3) Debt extinguishment costs adjustments for fiscal 2022 include $18 million to fully redeem two series of our 4.45% senior notes due fiscal 2023, $3 million to partially redeem our 4.125% senior notes due fiscal 2026, and $7 million of debt associated with asset financing.

(4) Tax adjustment for fiscal 2022 reflects net revaluation of deferred taxes resulting from changes in non-US jurisdiction tax rates.

The TSI-Related costs for the second quarter of fiscal 2022 include $2 million of costs to execute the strategic alternatives;

($2 million) credit to legal costs for Peraton Arbitration;

and $3 million of costs incurred in connection with activities related to other acquisitions and divestitures.

The TSI-Related costs for the first six months of fiscal 2022 include $13 million of costs to execute the strategic alternatives;

$4 million legal costs and ($14 million) credit towards Peraton Arbitration settlement, $4 million in expenses related to integration projects resulting from the HPES merger (including costs associated with continuing efforts to separate certain IT systems) and $5 million of costs incurred in connection with activities related to other acquisitions and divestitures.

(2) Gains and losses on dispositions for the first six months of fiscal 2022 include a $341 million gain on sale of the HPS business, gains of $19 million on other dispositions and ($13 million) of adjustments relating to the sale of the HHS business.

(3) Impairment losses on dispositions for the second quarter and first six months of fiscal 2022 includes a $10 million impairment charge of capitalized transition and transformation costs.

(4) Debt extinguishment costs adjustments for the second quarter of fiscal 2022 include $1 million to fully redeem our Euro-denominated term loan facility, $41 million to fully redeem our 4.25% senior notes due fiscal 2025, $26 million to fully redeem our 2.75% senior notes due fiscal 2025, $55 million to fully redeem our 4.125% senior notes due fiscal 2026, $87 million to fully redeem our 4.750% senior notes due fiscal 2028, and $71 million to fully redeem our 7.45% senior notes due fiscal 2030.

In addition to the above, debt extinguishment costs adjustments for the first six months of fiscal 2022 reflects activity from the first quarter of fiscal 2022, including $18 million to fully redeem two series of our 4.45% senior notes due fiscal 2023, $3 million to partially redeem our 4.125% senior notes due fiscal 2026, and $7 million of debt associated with asset financing.

(5) Tax adjustment for the first six months of fiscal 2022 reflects net revaluation of deferred taxes resulting from changes in non-US jurisdiction tax rates.

A reconciliation of reported results to non-GAAP results is as follows:

Three Months Ended June 30, 2021

(in millions, except per-share amounts) As Reported Restructuring Costs Transaction, Separation and Integration-Related Costs Amortization of Acquired Intangible Assets Gains and Losses on Dispositions Debt Extinguishment Costs Tax Adjustment Non-GAAP Results

Three Months Ended September 30, 2021

(in millions, except per-share amounts) As Reported Restructuring Costs Transaction, Separation and Integration-Related Costs Amortization of Acquired Intangible Assets Impairment Losses Debt Extinguishment Costs Non-GAAP Results

(Loss) income before income taxes $ (248) $ 145 $ 3 $ 110 $ 10 $ 281 $ 301

Income tax (benefit) expense (61) 34 1 26 2 66 68

Net (loss) income (187) 111 2 84 8 215 233

net income attributable to non-controlling interest, net of tax 1 — — — — — 1

Net (loss) income attributable to DXC common stockholders $ (188) $ 111 $ 2 $ 84 $ 8 $ 215 $ 232

Effective Tax Rate 24.6 % 22.6 %

Basic EPS $ (0.74) $ 0.44 $ 0.01 $ 0.33 $ 0.03 $ 0.85 $ 0.92

Diluted EPS $ (0.74) $ 0.43 $ 0.01 $ 0.33 $ 0.03 $ 0.84 $ 0.90

Weighted average common shares outstanding for:

Basic EPS 252.40 252.40 252.40 252.40 252.40 252.40 252.40

Diluted EPS 252.40 257.20 257.20 257.20 257.20 257.20 257.20

Six Months Ended September 30, 2021

(in millions, except per-share amounts) As Reported Restructuring Costs Transaction, Separation and Integration-Related Costs Amortization of Acquired Intangible Assets Gains and Losses on Dispositions Impairment Losses Debt Extinguishment Costs Tax Adjustment Non-GAAP Results

Income before income taxes $ 176 $ 212 $ 12 $ 219 $ (347) $ 10 $ 309 $ — $ 591

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Diluted EPS 258.90 258.90 258.90 258.90 258.90 258.90 258.90 258.90 258.90

Three Months Ended June 30, 2020

(in millions, except per-share amounts) As Reported Restructuring Costs Transaction, Separation and Integration-Related Costs Amortization of Acquired Intangible Assets Pension and OPEB Actuarial and Settlement Gains and Losses Non-GAAP Results

Three Months Ended September 30, 2020

(Loss) income before income taxes $ (306) $ 265 $ 101 $ 152 — $ 212

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Net (loss) income (246) 213 75 117 2 161

net (loss) attributable to non-controlling interest, net of tax (2) — — — — (2)

Net (loss) income attributable to DXC common stockholders $ (244) $ 213 $ 75 $ 117 $ 2 $ 163

Effective Tax Rate 19.6 % 24.1 %

Basic EPS $ (0.96) $ 0.84 $ 0.30 $ 0.46 $ 0.01 $ 0.64

Diluted EPS $ (0.96) $ 0.83 $ 0.29 $ 0.46 $ 0.01 $ 0.64

Weighted average common shares outstanding for:

Basic EPS 254.13 254.13 254.13 254.13 254.13 254.13

Diluted EPS 254.13 255.18 255.18 255.18 255.18 255.18

Six Months Ended September 30, 2020

(in millions, except per-share amounts) As Reported Restructuring Costs Transaction, Separation and Integration-Related Costs Amortization of Acquired Intangible Assets Pension and OPEB Actuarial and Settlement Losses Tax Adjustment Non-GAAP Results

(Loss) income before income taxes $ (531) $ 337 $ 211 $ 300 $ 2 — $ 319

Income tax (benefit) expense (86) 64 54 69 — (2) 99

Net (loss) income (445) 273 157 231 2 2 220

net income attributable to non-controlling interest, net of tax 4 — — — — — 4

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Reconciliations of net income to adjusted EBIT are as follows:

Three Months Ended

(in millions) June 30, 2021 June 30, 2020

Net income (loss) $ 282 $ (199)

Income tax expense (benefit) 142 (26)

Three Months Ended Six Months Ended

(in millions) September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020

Net (loss) income $ (187) $ (246) $ 95 $ (445)

Income tax (benefit) expense (61) (60) 81 (86)

Interest income (16) (25) (36) (48)

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(Gains) and losses on dispositions — — (347) —

Impairment losses 10 — 10 —

Debt extinguishment costs 281 — 309 —

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Cash and Cash Equivalents and Cash Flows

As of June 30, 2021, our cash and cash equivalents (“cash”) were $2.5 billion, of which $0.9 billion was held outside of the U.S.

As of September 30, 2021, our cash and cash equivalents (“cash”) were $2.7 billion, of which $1.2 billion was held outside of the U.S.

As of March 31, 2021, our cash was $3.0 billion, of which $1.3 billion was held outside of the U.S.

We maintain various multi-currency, multi-entity, cross-border, physical and notional cash and pool arrangements with various counterparties to manage liquidity efficiently that enable participating subsidiaries to draw on the Company’s pooled resources to meet liquidity needs.

We maintain various multi-currency, multi-entity, cross-border, physical and notional cash pool arrangements with various counterparties to manage liquidity efficiently that enable participating subsidiaries to draw on the Company’s pooled resources to meet liquidity needs.

A significant portion of the cash held by our foreign subsidiaries is not expected to be impacted by U.S.

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Therefore, if additional funds held outside the U.S.

are needed for our operations in the U.S., we plan to repatriate these funds not designated as indefinitely reinvested.

are needed for our operations in the U.S., we plan to repatriate the funds not designated as indefinitely reinvested.

We have $0.1 billion in cash held by foreign subsidiaries used for local operations that is subject to country-specific limitations which may restrict or result in increased costs in the repatriation of these funds.

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The following table summarizes our cash flow activity:

Three Months Ended

(in millions) June 30, 2021 June 30, 2020 Change

Net cash (used in) provided by operating activities $ (29) $ 119 $ (148)

Six Months Ended

(in millions) September 30, 2021 September 30, 2020 Change

Net cash provided by operating activities $ 534 $ 591 $ (57)

Net cash provided by (used in) investing activities 199 (234) 433

Net cash (used in) provided by financing activities (866) 1,786 (2,652)

Net cash used in financing activities (1,063) (963) (100)

Effect of exchange rate changes on cash and cash equivalents (2) 9 (11)

Cash classified within current assets held for sale 63 (3) 66

Net (decrease) increase in cash and cash equivalents $ (508) $ 1,830 $ (2,338)

Net decrease in cash and cash equivalents $ (269) $ (600) $ 331

Cash and cash equivalents at beginning of year 2,968 3,679

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Operating cash flow

Net cash used in operating activities during the first quarter of fiscal 2022 was $(29) million as compared to cash provided by operating activities of $119 million during the comparable period of the prior fiscal year.

The decrease of $148 million was primarily due to a $87 million unfavorable change in working capital due to higher working capital outflows during the first quarter of fiscal 2022.

Net cash provided by operating activities during the first six months of fiscal 2022 was $534 million as compared to $591 million during the comparable period of the prior fiscal year.

The decrease of $57 million was primarily due to a $210 million unfavorable change in working capital due to higher working capital outflows during the first six months of fiscal 2022 partially offset by an increase in net income, net of adjustments of $153 million.

The following table contains certain key working capital metrics:

June 30, 2021 June 30, 2020

Six Months Ended

September 30, 2021 September 30, 2020

Days of sales outstanding in accounts receivable 67 67

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Investing cash flow

Net cash provided by (used in) investing activities during the first quarter of fiscal 2022 was $311 million as compared to $(61) million during the comparable period of the prior fiscal year.

The increase of $372 million was primarily due to business dispositions of $513 million, an increase in proceeds from sale of assets of $61 million, and cash paid for acquisitions of $10 million in fiscal 2021.

Net cash provided by (used in) investing activities during the first six months of fiscal 2022 was $199 million as compared to $(234) million during the comparable period of the prior fiscal year.

The increase in net cash provided by investing activities of $433 million was primarily due to business dispositions of $513 million, an increase in proceeds from sale of assets of $79 million, and proceeds from short-term investing of $24 million.

This was partially offset by a decrease in cash collections related to deferred purchase price receivables of $159 million and an increase in capital expenditures of $40 million.

Financing cash flow

Net cash (used in) provided by financing activities during the first quarter of fiscal 2022 was $(866) million as compared to $1,786 million during the comparable period of the prior fiscal year.

The $2,652 million increase in cash used was primarily due to borrowings under lines of credit, net of repayments of $1,750 million in fiscal 2021, a decrease in commercial paper borrowings, net of repayments of $409 million, an increase in payments on capital leases and borrowings for asset financing of $249 million, an increase in repayments on long term debt, net of borrowings of $242 million, share repurchases of $48 million, and payments for debt extinguishment costs of $28 million.

This was partially offset by dividend payments of $53 million in fiscal 2021.

Net cash used in financing activities during the first six months of fiscal 2022 was $1,063 million as compared to $963 million during the comparable period of the prior fiscal year.

The $100 million increase in cash used was primarily due to a decrease in commercial paper borrowings, net of repayments of $298 million, an increase in payments on capital leases and borrowings for asset financing of $184 million, share repurchases of $150 million, and payments for debt extinguishment costs of $344 million.

This was partially offset by an increase in borrowings on long term debt, net of repayments of $549 million and the lines of credit repayments, net of borrowings of $250 million and dividend payments of $53 million incurred only in the comparable period of fiscal 2021.

Capital Resources

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The following table summarizes our total debt:

(in millions) June 30, 2021 March 31, 2021

(in millions) September 30, 2021 March 31, 2021

Short-term debt and current maturities of long-term debt $ 745 $ 1,167

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Total debt $ 5,108 $ 5,512

The $0.6 billion decrease in total debt during the first quarter of fiscal 2022 was primarily attributed to the retirement of all the remaining $319 million of the two series of 4.45% Senior notes due fiscal 2023 using the proceeds from the sale of our HPS Business, and the repurchase of the $33 million of the 4.125% Senior notes due fiscal 2026.

Approximately $300 million of finance lease liabilities and borrowings for assets acquired under long-term financing were also repaid during the first quarter of fiscal 2022 using the proceeds from the divestitures of other businesses and existing cash on hand.

We were in compliance with all financial covenants associated with our borrowings as of June 30, 2021 and June 30, 2020.

The $0.4 billion decrease in total debt during the first six months of fiscal 2022 was primarily attributed to the retirement of all the remaining $319 million of the 4.45% senior notes due fiscal 2023 using the proceeds from the sale of our HPS Business, and the repurchase of the $33 million of the 4.125% senior notes due fiscal 2026 during the first quarter of fiscal 2022.

Approximately $300 million of finance lease liabilities and borrowings for assets acquired under long-term financing were also repaid during the second quarter of fiscal 2022 using the proceeds from the divestitures of other businesses and existing cash on hand.

The decrease was partially offset by the issuance of Euro and U.S.

Dollar Senior Notes of which proceeds were used to repay term loans and senior notes as discussed below.

Euro Senior Notes Issuance

During the second quarter of fiscal 2022, we issued (i) €750 million aggregate principal amount of our 0.450% senior notes due fiscal 2028 and (ii) €600 million aggregate principal amount of our 0.950% senior notes due fiscal 2032 (collectively, the “Euro Notes”).

The proceeds from the Euro Notes were applied principally to the repayment in full of the €400 million aggregate principal amount of outstanding borrowings under our Euro-denominated term loan facility, the repayment of our U.S.

dollar-denominated 4.25% senior notes due fiscal 2025 and the repayment of our Sterling-denominated 2.75% senior notes due fiscal 2025.

Dollar Senior Notes Issuance

During the second quarter of fiscal 2022, we issued (i) $700 million aggregate principal amount of our 1.80% senior notes due fiscal 2027, and (ii) $650 million aggregate principal amount of our 2.375% senior notes due fiscal 2029 (collectively, the “USD Notes”).

The proceeds from the USD Notes were used for the repayment of our remaining 4.125% senior notes due fiscal 2026, our 4.750% senior notes due fiscal 2028 and our 7.45% senior notes due fiscal 2030.

We were in compliance with all financial covenants associated with our borrowings as of September 30, 2021 and September 30, 2020.

Our credit ratings are as follows:

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Our exposure to operational liquidity risk is primarily from long-term contracts which require significant investment of cash during the initial phases of the contracts.

The recovery of these investments are over the life of the contracts and are dependent upon our performance as well as customer acceptance.

The recovery of these investments is over the life of the contracts and is dependent upon our performance as well as customer acceptance.

The following table summarizes our total liquidity:

(in millions) June 30, 2021

(in millions) September 30, 2021

Cash and cash equivalents $ 2,699

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Total liquidity

In November 2021, subsequent to the end of the second quarter of fiscal 2022, we amended our revolving credit facility to among other things, decrease available borrowings from $4.0 billion to $3.0 billion.

Share Repurchases

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This program became effective on April 3, 2017 with no end date established.

During the first quarter ended June 30, 2021, we repurchased 1,750,000 shares of our common stock at an aggregate cost of $67 million.

During the six months ended September 30, 2021, we repurchased 3,862,212 shares of our common stock at an aggregate cost of $150 million.

See Note 17 – “Stockholders’ Equity” to the financial statements.

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Contractual Obligations

With the exception of the retirement of the remaining $319 million of the two series of 4.45% senior notes due fiscal 2023, the repurchase of $33 million of its 4.125% senior notes due fiscal 2026, and the retirement and prepayment of certain capital leases and equipment related financing which resulted in the net decrease in borrowings of about $260 million, there have been no material changes, outside the ordinary course of business, to our contractual obligations since March 31, 2021.

The transactions below represent material changes to our contractual obligations since March 31, 2021.

Debt retirements and repayments:

• Retirement of the remaining $319 million in two series of 4.45% senior notes due fiscal 2023

• Repayment of the remaining aggregate principal amount of the Euro-denominated €400 million in term loan facility due fiscal 2023-2024

• Repayment of the remaining aggregate principal amount of $500 million in 4.25% senior notes due fiscal 2025

• Repayment of the remaining aggregate principal amount of the Sterling-denominated £250 million in 2.75% senior notes due fiscal 2025

• Repayment of the remaining aggregate principal amount of $500 million in 4.125% senior notes due fiscal 2026

• Repayment of the remaining aggregate principal amount of $500 million in 4.75% senior notes due fiscal 2028

• Repayment of the remaining aggregate principal amount of $234 million in 7.45% senior notes due fiscal 2030

• Retirement and prepayment of certain capital leases and equipment related financing

Debt issuances:

• Issuance of (i) $700 million in aggregate principal amount of 1.80% senior notes due fiscal 2027 and (ii) $650 million in aggregate principal amount of 2.375% senior notes due fiscal 2029

• Issuance of (i) Euro-denominated €750 million in aggregate principal amount of 0.45% senior notes due fiscal 2028 and Euro-denominated €600 million in aggregate principal amount of 0.95% senior notes due fiscal 2032

For further information see “Contractual Obligations” in Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended March 31, 2021.

For our minimum purchase commitments as of June 30, 2021, in connection with our long-term purchase agreements with certain software, hardware, telecommunication, and other service providers, see Note 21 – “Commitments and Contingencies.”

For our minimum purchase commitments as of September 30, 2021, in connection with our long-term purchase agreements with certain software, hardware, telecommunication, and other service providers, see Note 21 – “Commitments and Contingencies.”

Critical Accounting Policies and Estimates

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We have discussed the selection of our critical accounting policies and the effect of estimates with the audit committee of our board of directors.

During the three months ended June 30, 2021, there were no changes to our critical accounting policies and estimates from those described in our fiscal 2021 Annual Report on Form 10-K except as mentioned in Note 1 – “Summary of Significant Accounting Policies.”

During the three months ended September 30, 2021, there were no changes to our critical accounting policies and estimates from those described in our fiscal 2021 Annual Report on Form 10-K except as mentioned in Note 1 – “Summary of Significant Accounting Policies.”

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis