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Item 1A. Risk Factors

2022-05-26 compared with 2021-05-28 · 183 added, 144 removed, 432 unchanged (43% of the section changed)

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Past performance may not be a reliable indicator of future financial performance and historical trends should not be used to anticipate results or trends in future periods.

Future performance and historical trends may be adversely affected by the aforementioned risks, and other variables and risks and uncertainties not currently known or that are currently expected to be immaterial may also materially and adversely affect our business, financial condition, and results of operations or the price of our common stock in the future.

Risk Factor Summary

The following is a summary of the risk factors our business faces.

The list below is not exhaustive, and investors should read this "Risk Factors" section in full.

Some of the risks we face include:

Risks Related to Our Business

• Our business and financial results have been adversely affected and could continue to be materially adversely affected by the COVID-19 crisis.

• We may not succeed in our strategic objectives and our strategic transactions may prove unsuccessful.

• We could be held liable for damages, our reputation could suffer, or we may experience service interruptions, from security breaches, cyber-attacks or disclosure of confidential information or personal data.

• We may not succeed in our strategic objectives.

• We could be vulnerable to security breaches, cyber-attacks or disclosure of confidential or personal information.

• Our ability to continue to develop and expand our service offerings to address emerging business demands and technological trends, including our ability to sell differentiated services up the Enterprise Technology Stack, may impact our future growth.

• Our ability to compete in certain markets we serve is dependent on our ability to continue to expand our capacity in certain offshore locations.

However, as our presence in these locations increases, we are exposed to risks inherent to these locations which may adversely affect our revenue and profitability.

• Our credit rating and ability to manage working capital, refinance and raise additional capital for future needs could adversely affect our liquidity, capital position, borrowing, cost and access to capital markets.

• We have indebtedness, which could have a material adverse effect on our business, financial condition and results of operations.

• Our operations in certain offshore locations may expose us to risks inherent to these locations such as Russia's recent invasion of Ukraine, which may adversely affect our revenue and profitability.

• Failure to maintain our credit rating and ability to manage working capital, refinance and raise additional capital for future needs could adversely affect our liquidity, capital position, borrowing, cost and access to capital markets.

• Our indebtedness could have a material adverse effect on our financial condition and results of operations.

• Our primary markets are highly competitive.

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• Performance under contracts, including those on which we have partnered with third parties, may be adversely affected if we or the third parties fail to deliver on commitments or otherwise breach obligations to our customers.

• Our ability to provide customers with competitive services is dependent on our ability to attract and retain qualified personnel.

• Our international operations are exposed to risks, including fluctuations in exchange rates.

• Our business operations are subject to various and changing federal, state, local and foreign laws and regulations that could result in costs or sanctions that adversely affect our business.

• Natural disasters may affect our worldwide business operations and financial results.

• We may not be able to attract and retain qualified personnel.

• Prolonged periods of inflation where we do not have adequate inflation protections in our customer contracts could increase costs, have an adverse effect on general economic conditions and impact consumer budgeting, which could impact our profitability and have a material adverse effect on our business and results of operations.

• Our international operations are exposed to risks, including fluctuations in exchange rates and Brexit.

• Failure to comply with federal, state, local and foreign laws and regulations that could result in costs or sanctions that adversely affect our business.

Social and environmental responsibility regulations, policies and provisions, as well as customer and investor demands, may adversely affect our relationships with customers and investors.

• We may not achieve some or all of the expected benefits of our restructuring plans and our restructuring may adversely affect our business.

• We may inadvertently infringe on the intellectual property rights of others and our inability to procure third-party licenses may result in decreased revenue or increased costs.

• Disruption of our supply chain could adversely impact our business.

• We may be exposed to negative publicity and other potential risks if we are unable to achieve and maintain effective internal controls over financial reporting.

• We have identified a material weakness in our internal control over financial reporting.

Without effective internal control over financial reporting, we may fail to detect or prevent a material misstatement in our financial statements, which could materially harm our business, our reputation and our stock price.

• We could suffer additional losses due to asset impairment charges.

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• Pending litigations may have a material and adverse impact on our profitability and liquidity.

• We may be adversely affected by disruptions in the credit markets, including disruptions that reduce our customers' access to credit and increase the costs to our customers of obtaining credit, and our hedging program is subject to counterparty default risk.

• Disruptions in the credit markets may reduce our customers' access to credit and increase the costs to our customers of obtaining credit, and our hedging program is subject to counterparty default risk.

• We derive significant revenues and profit from contracts awarded through costly competitive bidding processes, and we may not achieve revenue and profit objectives if we fail to bid on these projects effectively.

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• If we are unable to maintain and grow our customer relationships over time or to comply with customer contracts or government contracting regulations or requirements, our operating results and cash flows will suffer.

• Recent U.S.

tax legislation may materially affect our financial condition, results of operations and cash flows, and changes in our tax rates could affect our future results.

Risks Related to Our Strategic Transactions

• Our strategic transactions may prove unsuccessful.

• Changes in tax legislation and our tax rates may materially affect our financial condition and results of operations.

Risks Related to Our Completed Strategic Transactions

• We could have an indemnification obligation to HPE if the stock distribution in connection with the HPES business separation were determined not to qualify for tax-free treatment.

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The COVID-19 crisis and the actions taken by governments, businesses and individuals to curtail the spread of the disease have negatively impacted, and are expected to continue to negatively impact our business, results of operations, cash flows and financial condition.

The extent of such impact will depend on future developments, including the duration and spread of COVID-19, the speed at which the vaccine is distributed, the number of individuals in general who agree to receive the vaccine along with the number of our employees receiving the vaccine.

In addition, the recent COVID-19 strain mutations may also hamper the vaccine's effectiveness.

The extent of such impact will depend on future developments, including the duration and spread of COVID-19, the speed at which the vaccine is distributed, public acceptance of the vaccine along with the number of our employees receiving the vaccine.

In addition, COVID-19 strain mutations may also hamper the vaccine's effectiveness.

Requirements related to COVID-19 safety precautions, including vaccine mandates of varying scope and applicability, may apply to our operations in the U.S.

or other jurisdictions.

Failure to comply with the applicable requirements may result in governmental penalties and loss of business, including our contracts or subcontracts with U.S.

federal, state or local governments or international government entities, which could have an adverse effect on our business and results of operations.

Our implementation of various vaccination, testing or other requirements related to COVID-19 may result in a reduction in productivity and employee morale, or attrition, which could have an adverse effect on our business and results of operations.

Negative impacts that have occurred, or may occur in the future, include disruptions or restrictions on our employees’ ability to work effectively, as well as temporary closures of our facilities or the facilities of our customers or our subcontractors, or the requirements to deliver our services remotely.

A significant portion of our application outsourcing and software development activities is in India, which is currently experiencing a high rate of COVID-19 infections.

In addition, our employees continue to face challenges in their well-being, given the additional financial, family and health burdens that many employees have experienced and could continue to experience because of the COVID-19 crisis that may negatively impact our people’s mental and physical health, engagement, retention and performance.

Continued public health threat and government responses could materially adversely affect our operations and the delivery of our services.

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If a business interruption occurs and we are unsuccessful in our continuing efforts to minimize the impact of these events, our business, results of operations, financial position, and cash flows could be materially adversely affected.

In addition, the COVID-19 crisis has resulted in a widespread global health crisis that is adversely affecting the economies and financial markets of many countries, which could result in an economic downturn that may negatively affect demand for our services, including the financial failure of some of our customers.

This economic downturn, depending upon its severity and duration, could also lead to the deterioration of worldwide credit and financial markets that could limit our customers’ ability or willingness to pay us in a timely manner and our ability to obtain external financing to fund our operations and capital expenditures, result in losses on our holdings of cash and investments due to failures of financial institutions and other parties, and result in a higher rate of losses on our accounts receivables due to credit defaults.

In addition, the COVID-19 crisis has resulted in a widespread global health crisis that adversely affected the economies and financial markets of many countries.

Any future economic downturn, depending upon its severity and duration, could also lead to a deterioration of worldwide credit and financial markets that could negatively affect the financial health of customers, lower their demand for our services, limit their ability or willingness to pay us in a timely manner and our ability to obtain external financing to fund our operations and capital expenditures, result in losses on our holdings of cash and investments due to failures of financial institutions and other parties, and result in a higher rate of losses on our accounts receivables due to credit defaults.

Our financial results may also be materially and adversely impacted by a variety of factors related to COVID-19 that have not yet been determined, including potential impairments of goodwill and other assets, and changes to our contingent liabilities, for which actual amounts may materially exceed management estimates and our calculation of global tax liabilities.

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As a provider of IT services to private and public sector customers operating in a number of industries and countries, we store and process increasingly large amounts of data for our customers, including sensitive and personally identifiable information.

We also manage IT infrastructure of our own and of customers.

We possess valuable proprietary information, including copyrights, trade secrets and other intellectual property and we collect and store certain personal and financial information from customers and employees.

Our security measures designed to identify and protect against security incidents may fail to detect, prevent or adequately respond to a future threat incident.

We also manage IT infrastructure and systems (collectively, “IT Systems”) of our own and of customers, and we rely on third parties who provide various critical hardware, software and services to support our IT Systems and business operations.

Security incidents can result from unintentional events or deliberate attacks by insiders such as employees, contractors or service providers or third parties, including criminals, competitors, nation-states, and hacktivists.

These incidents can result in significant disruption to our business through an impact on our operations or those of our clients, employees, vendors or other partners;

loss of data (including proprietary, confidential or otherwise sensitive or valuable information) for us, our clients, employees, vendors or partners;

reputational damage, injury to customer relationships, liability (whether contractual or otherwise) for any of the above, including monetary damages;

remediation costs;

regulatory actions from regulators;

any of which, or a combination of which, could have a material impact on our results of operations or financial condition.

The regulatory environment related to information security and data privacy is evolving rapidly and the Company will need to expend time and resources to ensure compliance with these evolving regulations, and failure to understand and comply with these regulations can have an impact on the Company, its results of operations, and financial condition.

The continued occurrence of high-profile data breaches and cyber-attacks, including by nation-state actors, reflects an external environment that is increasingly hostile to information and corporate security.

Like other companies, we face an evolving array of information security and data security threats that pose risks to us and our customers.

We can also be harmed by attacks on third parties, such as denial-of-service attacks.

We see regular unauthorized efforts to access our systems, which we evaluate for severity and frequency.

For example, in July 2020, certain systems of our subsidiary, Xchanging, experienced a ransomware attack.

These incidents can result in significant disruption to our business (for example, due to ransomware or denial-of-service) through an impact on our operations or those of our clients, employees, vendors or other partners;

loss of data (including proprietary, confidential or otherwise sensitive or valuable information) belonging to us, our clients, employees, vendors or partners;

reputational damage, and injury to customer relationships.

We may also incur costs and liability (whether contractual or otherwise) such as monetary damages resulting from litigation, remediation costs, and regulatory actions, fines or penalties.

Any of the foregoing, or a combination of the foregoing, could have a material impact on our results of operations or financial condition.

In addition, the regulatory environment related to information security and data privacy is evolving rapidly and the Company will need to expend time and resources to ensure compliance with these evolving regulations, and failure to understand and comply with these regulations can negatively impact the Company, its results of operations, and financial condition.

We have experienced cyberattacks and security incidents in the past, and we continue to see regular unauthorized efforts to access our IT Systems, which we evaluate for severity and frequency.

While incidents experienced thus far have not resulted in significant disruption to our business, it is possible that we could suffer a severe attack or incident, with potentially material and adverse effects on our business, reputation, customer relations, results of operations or financial condition.

In the event of a security incident, we could be exposed to regulatory actions, customer attrition due to reputational concerns or otherwise, containment and remediation expenses, and claims brought by our customers or others for breaching contractual confidentiality and security provisions or data protection or privacy laws.

We must expend capital and other resources to protect against security incidents, including attempted security breaches and cyber-attacks and to alleviate problems caused by successful breaches or attacks.

The cost, potential monetary damages, and operational consequences of responding to security incidents and implementing remediation measures could be significant and may be in excess of insurance policy limits or be not covered by our insurance at all.

We rely on internal and external information and technological systems to manage our operations and are exposed to risk of loss resulting from security incidents, including breaches in the security or other failures of these systems.

Security incidents such as through an advanced persistent threat attack, or the accidental loss, inadvertent disclosure or unapproved dissemination of proprietary information or sensitive or confidential data about us, or our customers, could expose us to risk of loss of this information, regulatory scrutiny, actions and penalties, extensive contractual liability and other litigation, reputational harm, and a loss of customer confidence, which could potentially have an adverse impact on future business with current and potential customers.

Moreover, failure to maintain effective internal accounting controls related to data security breaches and cybersecurity in general could impact our ability to produce timely and accurate financial statements and could subject us to regulatory scrutiny.

The continued occurrence globally of high-profile data breaches and cyber-attacks, including by nation-state actors, reflects an external environment that is increasingly hostile to information and corporate security.

Like other companies, we face an evolving array of information security and data security threats that pose risks to us and our customers.

Threat actors are increasingly sophisticated and using tools and techniques designed to circumvent security controls, to evade detection and to remove or obfuscate forensic evidence, which may make it more difficult for us to detect, identify, investigate contain or recover from, future cyberattacks and security incidents.

Advances in computer capabilities, new discoveries in the field of cryptography or other events or developments may result in a compromise or breach of the algorithms that we use to protect our data and that of customers, including sensitive customer transaction data.

A party, whether an insider or third party operating outside the Company, who is able to circumvent our security measures or those of our contractors, partners or vendors could access our systems and misappropriate proprietary information, the confidential data of our customers, employees or business partners or cause interruption in our or their operations.

Experienced computer programmers, hackers or insiders may be able to penetrate our network security and misappropriate or compromise our confidential information or that of third parties, create system disruptions or cause shutdowns.

Computer programmers and hackers have deployed and may continue to develop and deploy ransomware, malware and other malicious software programs through phishing and other methods that attack our products or otherwise exploit any security vulnerabilities of these products.

In addition, sophisticated hardware and operating system software and applications produced or procured from third parties may contain defects in design or manufacture, including “bugs” and other problems that could unexpectedly interfere with the security and operation of our systems, or harm those of third parties with whom we may interact.

In addition, sophisticated hardware and operating system software and applications produced or procured from third parties may contain defects in design or manufacture, including “bugs” and other vulnerabilities that could unexpectedly interfere with the security and operation of our systems, or harm those of third parties with whom we may interact.

A party, whether an insider or third party operating outside the Company, who is able to circumvent our security measures or those of our contractors, partners or vendors could access our IT Systems, or those of a critical third party, and misappropriate proprietary information, the confidential data of our customers, employees or business partners or cause interruption in our or their operations.

The costs to eliminate or alleviate cyber or other security problems, including ransomware, malware, bugs, malicious software programs and other security vulnerabilities, could be significant, and our efforts to address these problems may not be successful and could result in interruptions, delays, cessation of service and loss of existing or potential customers, which may impede our sales, distribution or other critical functions.

Increasing cybersecurity, data privacy and information security obligations around the world could also impose additional regulatory pressures on our customers’ businesses and, indirectly, on our operations, or lead to inquiries or enforcement actions.

In the United States, we are seeing increasing obligations and expectations from federal and non-federal customers.

In the event of a cyberattack or security incident, we could be exposed to regulatory actions, customer attrition due to reputational concerns or otherwise, containment and remediation expenses, and claims brought by our customers or others for breaching contractual confidentiality and security provisions or data protection or privacy laws.

We expect increasing cybersecurity, data privacy and information security obligations around the world to impose additional regulatory pressures on our customers’ businesses and, indirectly, on our operations, or lead to inquiries, investigations or enforcement actions.

In the United States, we are seeing increasing obligations and expectations from government and non-government customers.

In response, some of our customers have sought, and may continue to seek, to contractually impose certain strict data privacy and information security obligations on us.

Some of our customer contracts may not limit our liability for the loss of confidential information.

Some of our customer contracts may not limit our liability for the loss of confidential information or other business impact.

If we are unable to adequately address these concerns, our business and results of operations could suffer.

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For example, the CCPA has encouraged “copycat” laws in other states across the country, such as in Virginia, New Hampshire, Illinois and Nebraska.

This legislation may add additional complexity, variation in requirements, restrictions and potential legal risk, require additional investment in resources to compliance programs, and could impact strategies and availability of previously useful data and could result in increased compliance costs and/or changes in business practices and policies.

In addition, the data protection landscape in the European Union (“EU”) is continually evolving, resulting in possible significant operational costs for internal compliance and risks to our business.

This legislation may add additional complexity, variation in requirements, restrictions and potential legal risk, require additional investment in compliance programs, and could impact strategies and availability of previously useful data and could result in increased compliance costs and/or changes in business practices and policies.

In addition, the data protection landscape in the European Union (“EU”) and further member states of the European Economic Area (“EEA”)is continually evolving, resulting in possible significant operational costs for internal compliance and risks to our business.

The EU adopted the General Data Protection Regulation (“GDPR”), which became effective in May 2018, and contains numerous requirements and changes from previously existing EU laws, including more robust obligations on data processors and heavier documentation requirements for data protection compliance programs by companies.

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The CJEU went on to state that if a competent supervisory authority believes that the standard contractual clauses cannot be complied with in the destination country and that the required level of protection cannot be secured by other means, such supervisory authority is under an obligation to suspend or prohibit that transfer.

Failure to comply with the GDPR could result in penalties for noncompliance (including possible fines of up to the greater of €20 million and 4% of our global annual turnover for the preceding financial year for the most serious violations, as well as the right to compensation for financial or non-financial damages claimed by individuals under Article 82 of the GDPR).

Failure to comply with the GDPR could result in penalties for noncompliance (including possible fines of up to the greater of €20 million and 4% of our total annual revenue for the preceding financial year for the most serious violations, as well as the right to compensation for financial or non-financial damages claimed by individuals under Article 82 of the GDPR).

Further, in March 2017, the United Kingdom (“U.K.”) formally notified the European Council of its intention to leave the EU pursuant to Article 50 of the Treaty on European Union (“Brexit”).

ceased to be an EU Member State on January 31, 2020, but enacted a Data Protection Act substantially implementing the GDPR, effective in May 2018, which was further amended to align more substantially with the GDPR following Brexit.

ceased to be an EU Member State on January 31, 2020, but enacted a Data Protection Act substantially implementing the GDPR (the “UK GDPR”), effective in May 2018, which was further amended to align more substantially with the GDPR following Brexit.

It is unclear how U.K.

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GDPR, with each regime having the ability to fine up to the greater of €20 million (in the case of the GDPR) or £17 million (in the case of the U.K.

GDPR) and 4% of total annual revenue.

GDPR) and 4% of total annual revenue for the preceding financial year.

While we strive to comply with all applicable data protection laws and regulations, as well as internal privacy policies, any failure or perceived failure to comply or any misappropriation, loss or other unauthorized disclosure of sensitive or confidential information may result in proceedings or actions against us by government or other entities, private lawsuits against us (including class actions) or the loss of customers, which could potentially have an adverse effect on our business, reputation and results of operations.

Portions of our infrastructure also may experience interruptions, delays or cessations of service or produce errors in connection with systems integration or migration work that takes place from time to time.

Portions of our infrastructure and IT Systems also may experience interruptions, delays or cessations of service or produce errors in connection with systems integration or migration work that takes place from time to time.

We may not be successful in implementing new systems and transitioning data, which could cause business disruptions and be expensive, time-consuming, disruptive and resource intensive.

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Delayed sales, lower margins or lost customers resulting from these disruptions could reduce our revenues, increase our expenses, damage our reputation, and adversely affect our stock price.

Our strategic transactions may prove unsuccessful and our profitability may be materially and adversely affected.

At any given time, we may be engaged in discussions or negotiations with respect to one or more transactions, including acquisitions, divestitures or spin-offs, strategic partnerships or other transaction involving one or more of our businesses.

Any of these transactions could be material to our business, financial condition, results of operations and cash flows.

We may ultimately determine not to proceed with any transaction for commercial, financial, strategic or other reasons.

As a result, we may not realize benefits expected from exploring one or more strategic transactions, may realize benefits further in the future or those benefits may ultimately be significantly smaller than anticipated, which could adversely affect our business, financial condition, results of operations and cash flows.

In addition, we may fail to complete transactions.

Closing transactions is subject to uncertainties and risks, including the risk that we may be unable to satisfy conditions to closing, such as regulatory and financing conditions and the absence of material adverse changes to our business.

For acquisitions, our inability to successfully integrate the operations we acquire and leverage these operations to generate substantial cost savings, as well as our inability to avoid revenue erosion and earnings decline, could have a material adverse effect on our results of operations, cash flows and financial position.

In order to achieve successful acquisitions, we will need to:

• integrate the operations and business cultures, as well as the accounting, financial controls, management information, technology, human resources and other administrative systems, of acquired businesses with existing operations and systems;

• maintain third-party relationships previously established by acquired companies;

• attract and retain senior management and key personnel at acquired businesses;

• manage new business lines, as well as acquisition-related workload.

Existing contractual restrictions may limit our ability to engage in certain integration activities for varying periods.

We may not be successful in meeting these or any other challenges encountered in connection with historical and future acquisitions.

Even if we successfully integrate, we cannot predict with certainty if or when these cost and revenue synergies, growth opportunities and benefits will occur, or the extent to which they actually will be achieved.

In addition, the quantification of previously announced synergies expected to result from an acquisition is based on significant estimates and assumptions that are subjective in nature and inherently uncertain.

Realization of any benefits and synergies could be affected by a number of factors beyond our control, including, without limitation, general economic conditions, increased operating costs, regulatory developments and other risks.

In addition, future acquisitions could require dilutive issuances of equity securities and/or the assumption of contingent liabilities.

The occurrence of any of these events could adversely affect our business, financial condition and results of operations.

Divestiture transactions, such as the USPS Separation, the sale of HHS business to Veritas Capital or the sale of the HPS business to Dedalus, also involve significant challenges and risks, including:

• the potential loss of key customers, suppliers, vendors and other key business partners;

• declining employee morale and retention issues affecting employees, which may result from changes in compensation, or changes in management, reporting relationships, future prospects or perceived expectations;

• difficulty making new and strategic hires of new employees;

• diversion of management time and a shift of focus from operating the businesses to transaction execution considerations;

• customers delaying or deferring decisions or ending their relationships;

• the need to provide transition services, which may result in stranded costs and the diversion of resources and focus;

• the need to separate operations, systems (including accounting, management, information, human resource and other administrative systems), technologies, products and personnel, which is an inherently risky and potentially lengthy and costly process;

• the inefficiencies and lack of control that may result if such separation is delayed or not implemented effectively, and unforeseen difficulties and expenditures that may arise as a result including potentially significant stranded costs;

• our desire to maintain an investment grade credit rating may cause us to use cash proceeds, if any, from any divestitures or other strategic transactions that we might otherwise have used for other purposes in order to reduce our financial leverage;

• the inability to obtain necessary regulatory approvals or otherwise satisfy conditions required in order consummate any such transactions;

• our dependence on accounting, financial reporting, operating metrics and similar systems, controls and processes of divested businesses could lead to challenges in preparing our consolidated financial statements or maintaining effective financial control over financial reporting;

• including contractual terms limiting our ability to compete for or perform certain contracts or services.

We have also entered into and intend to identify and enter into additional strategic partnerships with other industry participants that will allow us to expand our business.

However, we may be unable to identify attractive strategic partnership candidates or complete these partnerships on terms favorable to us.

In addition, if we are unable to successfully implement our partnership strategies or our strategic partners do not fulfill their obligations or otherwise prove disadvantageous to our business, our investments in these partnerships and our anticipated business expansion could be adversely affected.

Our ability to continue to develop and expand our service offerings to address emerging business demands and technological trends, including our ability to sell differentiated services up the Enterprise Technology Stack, may impact our future growth.

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A significant portion of our application outsourcing and software development activities has been shifted to India and we plan to continue to expand our presence there and in other lower-cost locations.

As a result, we are exposed to the risks inherent in operating in India or other locations, including (1) the current high rate of COVID-19 infections and government responses, including renewed lockdowns,(2) a highly competitive labor market for skilled workers which may result in significant increases in labor costs, as well as shortages of qualified workers in the future and (3) the possibility that the U.S.

As a result, we are exposed to the risks inherent in operating in India or other locations, including (1) public health crisis such as the COVID-19 pandemic and government responses, (2) a highly competitive labor market for skilled workers which may result in significant increases in labor costs, as well as shortages of qualified workers in the future and (3) the possibility that the U.S.

Federal Government or the European Union may enact legislation that creates significant disincentives for customers to locate certain of their operations offshore, which would reduce the demand for the services we provide in such locations and may adversely impact our cost structure and profitability.

In addition, India has experienced, and other countries may experience, political instability, civil unrest and hostilities with neighboring countries.

Negative or uncertain political climates in countries or locations where we operate, such as Ukraine and Russia, including but not limited to, military activity or civil hostilities, criminal activities and other acts of violence, infrastructure disruption, natural disasters or other conditions could adversely affect our operations.

Negative or uncertain political climates in countries or locations where we operate, such as Ukraine and Russia, including but not limited to, military activities or civil hostilities, criminal activities and other acts of violence, infrastructure disruption, natural disasters or other conditions could adversely affect our operations or cause us to exit certain markets.

On February 24, 2022, Russia invaded Ukraine.

Although the length, impact and outcome of the ongoing military conflict in Ukraine is highly unpredictable, this conflict could lead to significant market and other disruptions, including instability in financial markets, supply chain interruptions, political and social instability, currency exchange limitations, export controls, changes in consumer or purchaser preferences as well as increase in cyberattacks and espionage.

As a result of this war, some of our Ukraine team members have been forced to relocate to other countries and within Ukraine.

As of March 31, 2022, we had more than 4,000 employees in Ukraine.

We are closely monitoring the developing situation, are committed to caring for our colleagues in the region, and are adapting to developments as they occur to protect the safety of our people and handle potential impacts to our delivery resources, including relocating some of our employees and reallocating work to other geographies within our global footprint, which may increase our costs.

The ongoing conflict could cause harm to our team members and otherwise impair their ability to work for extended periods of time, as well as disrupt telecommunications systems, banks and other critical infrastructure necessary to conduct business in Ukraine.

In addition, the United States created two new regional embargoes targeting the non-Ukrainian government-controlled areas of the Donetsk and Luhansk oblasts of Ukraine, the so-called Donetsk People’s Republic and Luhansk People’s Republic regions of Ukraine.

If large parts of Ukraine become the target of further U.S.

or other applicable sanctions, we may be legally unable to do business or otherwise continue to operate in Ukraine.

If these contingencies come to pass, our results of operations and cash flows may be adversely affected.

In response to Russian military actions in Ukraine, we have stopped pursuing business in Russia and we are committed to exit the Russian market.

As of March 31, 2022, we had approximately 4,000 employees in Russia and sales into Russia represented approximately 1% of our consolidated revenues for the year ended March 31, 2022.

We also have a back office, and a delivery center in Russia serving our international customers.

In connection with our exit of the Russian market, we also expect to experience increased costs as we shift our operations and resources to other geographies, especially if we are not able to find alternate delivery resources to serve our international customers or achieve the same level of cost efficiencies.

We may also experience increased costs in relation to the replacement of employees, severance payments, and termination of our leases.

Disruption to our services in the region may also arise from the knock-on impact of the decisions of our customers or other companies that form part of our business ecosystem to withdraw or end their services in the region.

In addition, sanctions and trade control measures implemented against Russia or certain Russian customers may have an impact on our ability to operate or to fulfill existing contracts as we wind down our business operations.

Our ability to sell assets located in Russia may also be impacted by sanctions affecting potential purchasers.

Governmental authorities in the U.S., the EU and the UK, among others, launched an expansion of coordinated sanctions and export control measures, including, among others, blocking and other sanctions against some of the largest state-owned and private Russian financial institutions (and their subsequent removal from the Society for Worldwide Interbank Financial Telecommunication (“SWIFT”) payment system) and certain Russian businesses, which may have a material impact on our ability to make and receive payments to/from our Russian business partners and customers.

Any alleged or actual failure to comply with these measures as we extricate our business operations from Russia may subject us to government scrutiny, civil and/or criminal proceedings, sanctions and other liabilities, which may have a material adverse effect on our international operations, financial condition and results of operations.

Actions taken by Russia in response to such sanctions could also have a material adverse effect on our operations.

For example, in response to increased sanctions, Russia or another government could attempt to take control of assets in Russia or Ukraine of Western companies that are suspending or withdrawing their operations from Russia, such as DXC.

Should our assets in the region be seized, there is no guarantee that we would be able to recover those assets in the future.

Our Board has overall responsibility for oversight of risk at the Company and has been engaged and provided oversight for the Company's response to Russia's invasion of Ukraine, including the planned exit of Russia, our continuing compliance with sanctions, the relocation and support of our people in the affected countries and the other risks described above.

We are subject to the U.S.

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In addition, detecting, investigating and resolving actual or alleged violations of the FCPA or other anti-bribery violations is expensive and could consume significant time and attention of our senior management.

Our credit rating and ability to manage working capital, refinance and raise additional capital for future needs, could adversely affect our liquidity, capital position, borrowing, cost, and access to capital markets.

Failure to maintain our credit rating and ability to manage working capital, refinance and raise additional capital for future needs, could adversely affect our liquidity, capital position, borrowing cost, and access to capital markets.

We currently maintain investment grade credit ratings with Moody's Investors Service, Fitch Rating Services, and Standard & Poor's Ratings Services.

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There can be no assurance that our business will generate sufficient cash flow from operations, or that current or future borrowings will be sufficient to meet our current debt obligations and to fund other liquidity needs.

In July 2017, the U.K.’s Financial Conduct Authority (“FCA”), which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021.

Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S.

financial institutions, is considering replacing LIBOR with the Secured Overnight Financing Rate ("SOFR"), a new index calculated by short-term repurchase agreements, backed by Treasury securities.

Certain of our financing agreements include language to determine a replacement rate for LIBOR, if necessary.

However, if LIBOR ceases to exist, we may need to renegotiate some financing agreements extending beyond 2021 that utilize LIBOR as a factor in determining the interest rate.

We are evaluating the potential impact of the eventual replacement of the LIBOR benchmark interest rate;

however, we are not able to predict whether LIBOR will cease to be available after 2021, whether SOFR will become a widely accepted benchmark in place of LIBOR, or what the impact of such a possible transition to SOFR may be on our business, financial condition, and results of operations.

In March 2021, the United Kingdom Financial Conduct Authority and the administrator of LIBOR announced that U.S.

dollar LIBOR settings will cease to be provided or cease to be representative after June 30, 2023.

The publication of all other LIBOR settings ceased to be provided or ceased to be representative as of December 31, 2021.

In November 2020, U.S.

banking agencies issued guidance encouraging banks to stop entering new contracts that use U.S.

dollar LIBOR as a reference rate as soon as practicable but no later than December 31, 2021.

As such, we have amended the Revolving Credit Agreement and certain of our other financing agreements to allow us to reference the Secured Overnight Financing Rate (“SOFR”) as the primary benchmark rate.

Because SOFR is fundamentally different from LIBOR, it is unknown whether SOFR will attain market acceptance as a replacement for LIBOR and there is no assurance as to how SOFR may perform or that it is a comparable substitute for LIBOR.

As a result, we cannot reasonably predict the potential effect of the establishment of SOFR or other alternative reference rates on our business, financial condition or results of operations.

Our primary markets are highly competitive.

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Some ITO services agreements contain pricing provisions that permit a customer to request a benchmark study by a mutually acceptable third party.

The benchmarking process typically compares the contractual price of services against the price of similar services offered by other specified providers in a peer comparison group, subject to agreedupon adjustment, and normalization factors.

Generally, if the benchmarking study shows that the pricing differs from the peer group outside a specified range, and the difference is not due to the unique requirements of the customer, then the parties will negotiate in good faith appropriate adjustments to the pricing.

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Our contracts are complex and, in some instances, may require that we partner with other parties, including software and hardware vendors, to provide the complex solutions required by our customers.

Our ability to deliver the solutions and provide the services required by our customers is dependent on our and our partners' ability to meet our customers' delivery schedules.

Our ability to deliver the solutions and provide the services required by our customers is dependent on our and our partners' ability to meet our customers' delivery schedules, which is affected by a multitude of factors, including climate change.

If we or our partners fail to deliver services or products on time, our ability to complete the contract may be adversely affected.

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If we or our partners fail to meet our contractual obligations or otherwise breach obligations to our customers, we could be subject to legal liability, which may have a material and adverse impact on our revenues and profitability.

Natural disasters may affect our worldwide business operations and financial results.

Climate change increases both the frequency and severity of natural disasters that may affect our worldwide business operations.

We have facilities around the world and our facilities, our employees’ ability to work or our supply chain may be impacted by climate change-related weather events or effects, including natural disasters like hurricanes and storms, as well as sea level rise, drought, flooding, wildfires, temperature changes and more intense weather events.

Increasing temperatures resulting from global warming could lead to increasing energy costs and unfavorable operating cost impacts, as well as extreme weather events that could cause loss of power to data centers and service disruptions, resulting in contractual fines or loss of business.

Additionally, our customers’ facilities may be impacted by climate change-related weather events or effects, which may impact our ability to serve our customers.

Any of the foregoing could have a material adverse effect on our financial condition and results of operations.

Our ability to provide customers with competitive services is dependent on our ability to attract and retain qualified personnel.

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The markets we serve are highly competitive and competition for skilled employees in the technology outsourcing, consulting, and systems integration and enterprise services markets is intense for both onshore and offshore locales.

Immigration laws in the countries in which we operate are subject to legislative changes, as well as to variations in the standards of application and enforcement due to political forces and economic conditions.

Changes in immigration laws or varying applications of immigration laws to limit the availability of certain work visas in the U.S.

may impact our ability to hire talent that we need to enhance our products and services and for our operations.

It is also difficult to predict the political and economic events that could affect immigration laws, or the restrictive impact they could have on obtaining or renewing work visas for our international personnel.

The loss of personnel could impair our ability to perform under certain contracts, which could have a material adverse effect on our consolidated financial position, results of operations and cash flows.

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In addition, if we have more employees than necessary with certain skill sets or in certain geographies, we may incur increased costs as we work to rebalance our supply of skills and resources with customer demand in those geographies.

Prolonged periods of inflation where we do not have adequate inflation protections in our customer contracts could increase costs, have an adverse effect on general economic conditions and impact consumer budgeting, which could impact our profitability and have a material adverse effect on our business and results of operations.

We generally provide services under time and materials contracts, unit price contracts, fixed-price contracts, and multiple-element software sales.

In many of our contracts, we bear the risk of cost overruns, completion delays, resource requirements, wage inflation and adverse movements in exchange rates in connection with these contracts.

Certain, but not all, of these contracts provide for price adjustments for inflation or abnormal escalation.

However, if one or more raw materials or components for our products (e.g., semiconductors) were to experience an isolated price increase without inflationary impacts on the broader economy, we may not be entitled to inflation protection under those contracts.

Additionally, inflation has risen worldwide and the United States has recently experienced historically high levels of inflation.

If the inflation rate continues to increase, it can also push up the costs of labor and our employee compensation expenses.

Moreover, the United States is experiencing a workforce shortage, which in turn, has created a hyper-competitive wage environment that may increase our operating costs.

There is no assurance that our revenues will increase at the same rate to maintain the same level of profitability.

Inflation and government efforts to combat inflation, such as raising benchmark interest rate, could increase market volatility and have an adverse effect on the financial market and general economic conditions.

In a time of uncertainty, our customers may have difficulty in budgeting for external IT services, delay procurement of products and services from us or delay their payment for products and services we have already provided, all of which could adversely affect our profitability, results of operations and cash flow.

Our international operations are exposed to risks, including fluctuations in exchange rates, which may be beyond our control.

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Our business operations are subject to various and changing federal, state, local and foreign laws and regulations that could result in costs or sanctions that adversely affect our business and results of operations.

Social and environmental responsibility regulations, policies and provisions, as well as customer and investor demands, may adversely affect our relationships with customers and investors.

We operate in approximately 70 countries in an increasingly complex regulatory environment.

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Department of Treasury, which increases our exposure to compliance risk.

For example, in February 2017, CSC submitted an initial notification of voluntary disclosure to the U.S.

Department of Treasury's Office of Foreign Assets Control (“OFAC”) regarding certain possible violations of U.S.

sanctions laws pertaining to insurance premium data and claims data processed by two partially-owned joint ventures of Xchanging, which CSC acquired during the first quarter of fiscal 2017.

A copy of the disclosure was also provided to Her Majesty’s Treasury Office of Financial Sanctions Implementation in the U.K.

Our related internal investigation is substantially complete, and we provided supplemental information to OFAC on January 31, 2020 and continue to work with OFAC on these issues.

Our retail investment account management business in Germany is another example of a regulated business, which must maintain a banking license, is regulated by the German Federal Financial Supervisory Authority and the European Central Bank and must comply with German banking laws and regulations.

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Our business could also be affected if new environmental legislation is passed which impacts our current operations and business.

For example, if we are unable to comply with fast-moving regulatory requirements, we could be disqualified from RFP processes, leading to a loss of sales.

In addition, as climate change laws, regulations, treaties and national and global initiatives are adopted and implemented regionally or throughout the world, we may be required to comply or potentially face market access limitations, fines or reputational injury.

Such laws, regulations, treaties or initiatives in response to climate change could result in increased operational costs associated with air pollution requirements and increased compliance and energy costs, which could harm our business and results of operations by increasing our expenses or requiring us to alter our business operations.

Such laws, regulations, treaties or initiatives in response to climate change, including, but not limited to, the introduction of a carbon tax, could result in increased operational costs associated with air pollution requirements and increased compliance and energy costs, which could harm our business and results of operations by increasing our expenses or requiring us to alter our business operations.

Moreover, we may experience loss of market share if we are unable to provide competitive products and services that incorporate climate-change mitigations, and if we are unable to achieve and sustain a carbon-neutral business model in a meaningful time frame, we could lose stockholder confidence, resulting in loss of business and loss of access to the financial markets.

We are also subject to risks associated with environmental, social and governance (“ESG”) regulations.

Governmental bodies, investors, clients and businesses are increasingly focused on prioritizing ESG practices, which has resulted and may in the future continue to result in the adoption of new laws and regulations.

Our inability to keep pace with any ESG regulations, trends and developments or failure to meet the expectations or interests of our clients and investors could adversely affect our business and reputation.

Governmental bodies, investors, clients and businesses are increasingly focused on prioritizing ESG practices, which has resulted in and may in the future continue to result in the adoption of new laws and regulations.

Our inability to keep pace with any ESG regulations, trends and developments or failure to meet the expectations, including, but not limited to, any expectations resulting from goals we have established, or interests of our clients and investors could adversely affect our business and reputation and could result in undesirable investor actions or customer or talent retention and attraction issues.

We may not achieve some or all of the expected benefits of our restructuring plans and our restructuring may adversely affect our business.

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Certain of our licenses are concentrated in one or more third-party licensors where multiple licenses are up for renewal at the same time, which could decrease our ability to negotiate reasonable license fees and could result in our loss of rights under such licenses.

Disruption of our supply chain could adversely impact our business.

We are experiencing, and may continue to experience, delays and shortages of certain necessary components to the services and solutions we offer our clients resulting from issues with the global supply chain, the COVID-19 pandemic, the conflict between Russia and Ukraine, and any disruptions at our suppliers.

This shortage may increase component delivery lead times and costs to source available components and delay the delivery of our hardware products and services, which may adversely affect our ability to comply with our contracts and our ability to support our existing customers and our growth through sales to new customers.

In the event of a component shortage or interruptions at a supplier, we may not be able to develop alternate sources quickly, cost effectively, or at all.

Supply chain interruptions could harm our relationships with our customers, prevent us from acquiring new customers, and materially and adversely affect our business.

We may be exposed to negative publicity and other potential risks if we are unable to achieve and maintain effective internal controls over financial reporting.

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There can be no assurance that all control issues or fraud will be detected.

As we continue to grow our business, our internal controls continue to become more complex and require more resources.

Any failure to maintain effective controls could prevent us from timely and reliably reporting financial results and may harm our operating results.

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The existence of any material weakness in our internal control over financial reporting could also result in errors in our financial statements that could require us to restate our financial statements, cause us to fail to meet our reporting obligations, subject us to litigation or regulatory scrutiny and cause stockholders to lose confidence in our reported financial information, all of which could materially and adversely affect us and the market price of our common stock.

We have identified a material weakness in our internal control over financial reporting.

During the third quarter of fiscal 2020, our management identified a material weakness in our internal control over financial reporting as of December 31, 2019 related to reassessing policies and procedures to determine their continued relevance, as impacted by complex transactions and processes.

See "Item 9A.

Controls and Procedures." Without effective internal control over financial reporting, we may fail to detect or prevent a material misstatement in our financial statements.

In that event, we may be required to restate our financial statements.

A restatement or an unremediated material weakness could result in a loss of confidence in us by our investors, customers, regulators and/or counterparties.

In addition, our remediation efforts are still ongoing and if we are unable to promptly remediate the material weakness identified above, or if we were to conclude in the future that we have one or more additional weaknesses, our investors, regulators, customers and/or counterparties may lose confidence in our reported financial information.

Additionally, management may be required to devote significant time and incur significant expense to remediate the material weakness, and management may not be able to complete such remediation in a timely manner.

Any of the foregoing could materially harm our business, our reputation and the market price of our common stock.

Although this material weakness was remediated during the fourth quarter of fiscal 2022, we cannot assure you that we will not identify another material weakness in the future.

We could suffer additional losses due to asset impairment charges.

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On November 8, 2018, DXC announced that its Board of Directors approved an incremental $2.0 billion share repurchase authorization.

On February 2, 2022, we announced our intention to repurchase incrementally up to $1.0 billion of our outstanding shares of common stock in the open market, in accordance with all applicable securities laws and regulations, including Rule 10b-18 of the Securities Exchange Act of 1934, as amended.

However, we are not obligated to make any purchases of our shares, and our decision to repurchase our shares, as well as the timing of such repurchases, will depend on a variety of factors as determined by our management and Board of Directors.

In addition, while we paid quarterly cash dividends to our stockholders starting fiscal 2018 in accordance with our announced dividend policy, we suspended the payment of quarterly dividends starting in fiscal 2021 to enhance our financial flexibility.

We intend to continue to suspend quarterly cash dividends for fiscal 2022.

At this time, we do not intend to reinstate our quarterly cash dividends.

The declaration and payment of future dividends, the amount of any such dividends, and the establishment of record and payment dates for dividends, if any, are subject to final determination by our Board of Directors after review of our current strategy and financial performance and position, among other things.

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There can be no guarantee that we will achieve our financial goals in the amounts or within the expected time frame, or at all.

Our ability to declare future dividends will depend on our future financial performance, which in turn depends on the successful implementation of our strategy and on financial, competitive, regulatory and other factors, general economic conditions, demand and prices for our services and other factors specific to our industry or specific projects, many of which are beyond our control.

Our ability to declare future dividends or repurchase shares will depend on our future financial performance, which in turn depends on the successful implementation of our strategy and on financial, competitive, regulatory and other factors, general economic conditions, demand and prices for our services and other factors specific to our industry or specific projects, many of which are beyond our control.

Therefore, our ability to generate cash flow depends on the performance of our operations and could be limited by decreases in our profitability or increases in costs, regulatory changes, capital expenditures or debt servicing requirements.

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We are defendants in pending litigation that may have a material and adverse impact on our profitability and liquidity.

As noted in Note 23 - "Commitments and Contingencies," we are currently party to a number of disputes that involve or may involve litigation or arbitration, including putative securities class actions pending in both state and federal courts and other lawsuits in which we and certain of our officers and directors have been named as defendants.

The result of these lawsuits and any other future legal proceedings cannot be predicted with certainty.

As noted in Note 23 - "Commitments and Contingencies," we are currently party to a number of disputes that involve or may involve litigation or arbitration, including securities litigation in which we and certain of our current or former officers and directors have been named as defendants.

The result of these and any other future legal proceedings cannot be predicted with certainty.

Regardless of their subject matter or merits, such legal proceedings may result in significant cost to us, including in the form of legal fees and/or damages, which may not be covered by insurance, may divert the attention of management or may otherwise have an adverse effect on our business, financial condition and results of operations.

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Adverse developments in an audit, examination or litigation related to previously filed tax returns, or in the relevant jurisdiction’s tax laws, regulations, administrative practices, principles and interpretations could have a material effect on our results of operations and cash flows in the period or periods for which that development occurs, as well as for prior and subsequent periods.

For more detail, see Note 13 – “Income Taxes.”

For more details, including on current tax examinations of our income tax returns by tax authorities, see Note 13 – “Income Taxes.”

We may be adversely affected by disruptions in the credit markets, including disruptions that reduce our customers' access to credit and increase the costs to our customers of obtaining credit.

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We devote significant resources to establish relationships with our customers and implement our offerings and related services, particularly in the case of large enterprises that often request or require specific features or functions specific to their particular business profile.

Accordingly, our operating results depend in substantial part on our ability to deliver a successful customer experience and persuade customers to maintain and grow their relationship with us over time.

Accordingly, our results of operations depend in substantial part on our ability to deliver a successful customer experience and persuade customers to maintain and grow their relationship with us over time.

If we are not successful in implementing an offering or delivering a successful customer experience, including achieving cost and staffing levels that meet our customers’ expectations, customers could terminate or elect not to renew their agreements with us and our operating results may suffer.

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If our customer contracts are terminated, if we are suspended or disbarred from government work, or our ability to compete for new contracts is adversely affected, our financial performance could suffer.