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Item 7. Management’s Discussion and Analysis

2022-05-26 compared with 2021-05-28 · 227 added, 260 removed, 305 unchanged (61% of the section changed)

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• Liquidity and Capital Resources

• Off-Balance Sheet Arrangements

• Contractual Obligations

• Critical Accounting Policies and Estimates

• Critical Accounting Estimates

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

A comparison of our results of operations and liquidity and capital resources for fiscal 2021 and fiscal 2020 may be found in “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” on Form 10-K filed with the Securities and Exchange Commission on June 1, 2020.

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations” on Form 10-K filed with the Securities and Exchange Commission on May 28, 2021.

DXC 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.

The world’s largest companies and public sector organizations trust DXC to deploy services across the Enterprise Technology Stack to drive new levels of performance, competitiveness, and customer experience.

We generate revenue by offering a wide range of information technology services and solutions primarily in North America, Europe, Asia, and Australia.

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We market and sell our services directly to customers through our direct sales offices around the world.

Our customers include commercial businesses of many sizes and in many industries and public sector enterprises.

Our customers include commercial businesses of many sizes and in many industries and public sector clients.

Results of Operations

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Revenues $ 16,265 $ 17,729

Income (loss) from continuing operations, before taxes 654 (5,228)

Income before income taxes 1,141 654

Income tax expense 405 800

Net loss $ (146) $ (5,358)

Diluted loss per common share:

Net income (loss) $ 736 $ (146)

Diluted income (loss) per common share:

$ 2.81 $ (0.59)

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• Fiscal 2022 revenues were $16,265 million, a decrease of 8.3% as compared to fiscal 2021.

The decrease was primarily due to project terminations, the disposition of the U.S.

State and Local Health and Human Services business ("HHS") business at the beginning of the third quarter of fiscal 2021, decrease in run-rate project volume, and project completions, offset by contributions from our Luxoft acquisition which was executed during the first quarter of fiscal 2020 and additional services provided to new and existing customers.

Refer to the section below captioned "Revenues."

• Fiscal 2021 net loss and diluted loss per share were $146 million and $0.59, respectively.

Net loss decreased by $5,212 million during fiscal 2021 as compared to the prior fiscal year.

The decrease was primarily due to goodwill impairment offset by a gain on arbitration recognized in the prior year with fiscal 2021 benefiting from a gain on disposition of the HHS business, cost optimization realized in the current year and a reduction in revenue in the current year previously mentioned.

Refer to the section below captioned "Cost and Expenses." Net loss included the cumulative impact of certain items of $773 million during fiscal 2021, reflecting restructuring costs, transaction, separation and integration-related costs, amortization of acquired intangible assets, impairment losses, gains on dispositions, pension and other post-retirement benefit ("OPEB") actuarial and settlement losses, debt extinguishment costs, and tax adjustment.

This compares with net loss and diluted loss per share of $5,358 million and $20.76, respectively, for fiscal 2020.

• Fiscal 2021 income tax expense increased significantly over fiscal 2020 as a result of the gain on disposition of the HHS business, which included the impact of non-tax deductible goodwill.

Fiscal 2020 income tax expense also reflected the impact of non-tax deductible goodwill impairments.

See "Revenues” below for additional information.

• Fiscal 2022 net income and diluted income per share were $736 million and $2.81, respectively, compared to net loss and diluted loss per share of $146 million and $0.59, respectively, for fiscal 2021.

Net income increased by $882 million during fiscal 2022 as compared to the prior fiscal year.

The increase was primarily due to increases in non-service components of net periodic pension income attributable to changes in mark-to-market actuarial assumptions and asset valuations, cost optimization realized in the current period, lower costs after the dispositions of the HPS and HHS businesses, lower transaction, separation and integration-related costs, a reduction in restructuring activities, and decreases in depreciation and amortization, partially offset by a reduction in revenue, an increase in debt extinguishment costs, and the gain on disposition of the HHS business during the third quarter fiscal 2021.

Net income included the cumulative impact of certain items totaling $171 million during fiscal 2022, reflecting restructuring costs, transaction, separation and integration-related costs, amortization of acquired intangible assets, gains on dispositions, impairment losses, debt extinguishment costs, pension and other post-retirement benefit ("OPEB") actuarial and settlement gains, and a tax adjustment.

• Fiscal 2022 income tax expense decreased significantly compared to fiscal 2021 as a result of the gain on disposition of the HHS business, which included the impact of non-tax deductible goodwill in fiscal 2021.

• Our cash and cash equivalents were $2,672 million at March 31, 2022.

• We generated $1,501 million of cash from operations during fiscal 2022, as compared to $124 million during fiscal 2021.

During fiscal 2021 and fiscal 2020, the distribution of our revenues across geographies was as follows:

Fiscal Years Ended

(in millions) March 31, 2021 March 31, 2020 Change Percent Change

During fiscal 2022 and fiscal 2021, the distribution of our revenues across operating segments and geographies were as follows:

Fiscal Years Ended Fiscal Year Ended

(in millions) March 31, 2022 March 31, 2021 Percentage Change Constant Currency March 31, 2022 (1)

Percentage Change in Constant Currency (1)

Geographic Market

United States $ 4,775 $ 5,983 (20.2) % $ 4,775 (20.2) %

2,295 2,413 (4.9) % 2,199 (8.9) %

Other Europe 5,117 5,129 (0.2) % 5,132 0.1 %

Australia 1,549 1,529 1.3 % 1,508 (1.4) %

Other International 2,529 2,675 (5.5) % 2,504 (6.4) %

Total Revenues $ 16,265 $ 17,729 (8.3) % $ 16,118 (9.1) %

Reportable Segments

GBS $ 7,598 $ 8,336 (8.9) % $ 7,561 (9.3) %

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Total Revenues $ 16,265 $ 17,729 (8.3) % $ 16,118 (9.1) %

The decrease in revenues for fiscal 2021 compared with fiscal 2020 reflects project terminations, the disposition of the HHS business at the beginning of the third quarter of fiscal 2021, decrease in run-rate project volume, and project completions offset by contributions from our Luxoft acquisition which was executed during the first quarter of fiscal 2020 and additional services provided to new and existing customers.

Fiscal 2021 revenues included a favorable foreign currency exchange rate impact of 1.7%, primarily driven by the weakening of the U.S.

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

For a discussion of risks associated with our foreign operations, see Part I, Item 1A "Risk Factors" of this Annual Report.

As a global company, over 66% of our fiscal 2021 revenues were earned internationally.

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

dollar, from period to period, is impacted by fluctuations in foreign currency exchange rates.

(1) Constant currency revenues are a non-GAAP measure calculated by translating current period activity into U.S.

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This information is consistent with how management views our revenues and evaluates our operating performance and trends.

The table below summarizes our constant currency revenues:

Fiscal Years Ended

(in millions) Constant Currency March 31, 2021 March 31, 2020 Change Percentage Change

GBS $ 8,188 $ 9,111 $ (923) (10.1)%

GIS 9,224 10,466 (1,242) (11.9)%

Total Revenues $ 17,412 $ 19,577 $ (2,165) (11.1)%

For more information, see "Non-GAAP Financial Measures."

The decrease in revenues for fiscal 2022 compared with fiscal 2021, reflects the disposition of the HPS business during the first quarter of fiscal 2022, in addition to disposition of the HHS business during the third quarter of fiscal 2021.

Project completions, project terminations, and contractual price adjustments also contributed to the decrease in revenues.

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

Fiscal 2022 revenues included a favorable foreign currency exchange rate impact of 0.8%, primarily driven by the weakening of the U.S.

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

For a discussion of risks associated with our foreign operations, see Part I, Item 1A - Risk Factors subsections titled, "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." and “Our international operations are exposed to risks, including fluctuations in exchange rates, which may be beyond our control."

Global Business Services

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GBS revenue in constant currency decreased 9.3% compared to fiscal 2021.

The decrease in GBS revenues was primarily due to the disposition of the HHS business at the beginning of the third quarter of fiscal 2021, project completions, and decrease in run-rate project volume.

The decrease in revenue for fiscal 2021 was partially offset by contributions from our Luxoft acquisition which was executed during the first quarter of fiscal 2020 and additional services provided to existing customers.

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

The decrease in GBS revenues was partially offset by an increase in run-rate project volumes and additional services provided to new and existing customers.

Global Infrastructure Services

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GIS revenue in constant currency decreased 8.9% compared to fiscal 2021.

The decrease in GIS revenues reflects project completions, terminations, and decrease in run-rate project volume.

The decrease in revenue for fiscal 2021 was partially offset by additional services provided to new and existing customers.

The decrease in GIS revenues reflects project completions, project terminations, a decrease in run-rate project volumes, and contractual price adjustments.

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

During fiscal 2022, GBS and GIS had contract awards of $9.4 billion and $8.7 billion, respectively, compared with $11.0 billion and $8.8 billion, respectively, during fiscal 2021.

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Depreciation and amortization 1,717 1,970 10.6 11.1 (0.5)

Goodwill impairment losses — 6,794 — 34.7 (34.7)

Restructuring costs 318 551 2.0 3.1 (1.1)

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Gain on disposition of businesses (371) (2,004) (2.3) (11.3) 9.0

Gain on arbitration award — (632) — (3.2) 3.2

Other expense (income), net 102 (720) 0.6 (3.7) 4.3

Other (income) expense, net (1,081) 102 (6.6) 0.6 (7.2)

Total costs and expenses $ 15,124 $ 17,075 93.0 % 96.3 % (3.3)

The 30.4 point decrease in total costs and expenses as a percentage of revenue for fiscal 2021 primarily reflects gains net of losses on dispositions in the current year and our fiscal 2020 goodwill impairment losses, partially offset by the gain on arbitration award that didn’t occur in fiscal 2021.

The 330 basis point decrease in total costs and expenses as a percentage of revenue for fiscal 2022 primarily reflects cost optimization realized in the current period, lower costs after the dispositions of the HPS and HHS businesses, lower transaction, separation and integration-related costs, a reduction in restructuring activities, decreases in depreciation and amortization and an increase in other (income) expense attributed to income from non-service components of net periodic pension (income) expense, partially offset by a decrease in gain on disposition of businesses and an increase in debt extinguishment costs.

Costs of Services

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COS decreased $1.4 billion compared to the prior fiscal year.

The decrease was primarily due to cost optimization savings partially offset by $190 million in impairments realized during fiscal 2021.

The majority of impairments were on assets pre-purchased through preferred vendor agreements, which are scheduled to expire in fiscal 2022.

The remainder of impairments primarily relate to software.

COS as a percentage of revenue increased 3.5% as compared to the prior fiscal year.

The increase was driven by a decline in revenue exceeding associated cost reductions that were further impacted by asset impairment during the current fiscal year.

The decrease in COS was 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 1.7% as compared to the prior fiscal year.

The decrease was 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 $2.1 billion for fiscal 2021, consistent with fiscal 2020.

SG&A as a percentage of revenue increased 1.2%, compared to fiscal 2020.

The increase was driven by a reduction in revenue during the current fiscal year.

Selling, general and administrative expense, excluding depreciation and amortization and restructuring costs ("SG&A"), was $1.4 billion for fiscal 2022, as compared to $2.1 billion in fiscal 2021.

SG&A decreased $0.7 billion compared to the prior fiscal year.

The decrease in SG&A was 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, included in SG&A, were $26 million during fiscal 2022, as compared to $358 million during fiscal 2021.

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Depreciation expense was $625 million for fiscal 2022, as compared to $754 million in fiscal 2021.

Depreciation expense increased $111 million due to an increase in newly capitalized assets and assets placed into service.

Depreciation expense decreased $129 million primarily due to a reduction in assets due to impairment of un-deployed assets in the prior year, and asset retirements.

Amortization expense was $1,092 million for fiscal 2022, as compared to $1,216 million in fiscal 2021.

Amortization expense decreased $83 million primarily due to a decrease in customer related intangibles related to the disposition of the HHS business at the beginning of the third quarter of fiscal 2021.

See Note 3 - "Divestitures" for additional information.

Goodwill Impairment Losses

DXC recognized goodwill impairment charges totaling $6,794 million during fiscal 2020.

The impairment charges were primarily the result of a sustained decline in market capitalization during the fiscal 2020.

See Note 12 - "Goodwill" for additional information.

Amortization expense decreased $124 million primarily due to a decrease in customer related intangibles related to the disposition of the HHS business during the third quarter of fiscal 2021 and a reduction in transition and transformation contract cost amortization due to contract completions.

Restructuring Costs

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Total restructuring costs recorded, net of reversals, during fiscal 2022 and 2021 were $318 million and $551 million, respectively.

The net amounts recorded included $13 million and $10 million of pension benefit augmentations for fiscal 2021 and 2020, respectively, owed to certain employees under legal or contractual obligations.

These augmentations will be paid as part of normal pension distributions over several years.

See Note 22 - "Restructuring Costs" for additional information about our restructuring actions.

Interest Expense and Interest Income

Interest expense for fiscal 2021 was $361 million, as compared to $383 million in fiscal 2020.

The decrease in interest expense was primarily due to lower interest rates on finance leases, a reduction in interest charges within our multicurrency cash pools, and retirement of debt instruments.

The decrease in interest expense for fiscal 2021 was partially offset by increased amounts drawn on our revolving credit facility.

Interest expense for fiscal 2022 was $204 million, as compared to $361 million in fiscal 2021, a decrease of 43%.

The decrease in interest expense was primarily due to a reduction in bonds and term loans and the Company's refinancing of its high coupon debt during fiscal 2022, decreased amounts drawn on our revolving credit facility, and decreases to finance leases and asset financing.

Interest income for fiscal 2022 was $65 million, as compared to $98 million in fiscal 2021.

The year-over-year decrease in interest income was primarily driven by interest income in the second quarter of fiscal year 2020 related to arbitration discussed below under the caption “Gain on Arbitration Award" and lower income from our multicurrency cash pools and money market accounts.

The decrease in interest income was primarily driven by lower income from our multicurrency cash pools and money market accounts as well as decreases in lease interest income.

Debt Extinguishment Costs

During fiscal 2021, we recorded $41 million of debt extinguishment costs within the consolidated statement of operations, which consists primarily of costs related to the redemption of 4.00% Senior Notes due fiscal 2024.

There were no debt extinguishment costs recorded in fiscal 2020.

Debt extinguishment costs for fiscal 2022 were $311 million, as compared to $41 million in fiscal 2021.

Debt extinguishment costs for fiscal 2022 include costs related to the full redemption of our Euro-denominated term loan facility, two series of 4.45% senior notes due fiscal 2023, 4.25% senior notes due fiscal 2025, 2.75% senior notes due fiscal 2025, 4.125% senior notes due fiscal 2026, 4.75% senior notes due fiscal 2028, 7.45% senior notes due fiscal 2030, extinguishment of debt associated with asset financing, and costs related to the decrease in our revolving credit facility limit from $4 billion to $3 billion.

Debt extinguishment costs for fiscal 2021 consisted primarily of costs related to the redemption of 4.00% senior notes due fiscal 2024.

Gain on Dispositions

During fiscal 2021, DXC sold its HHS business for $5.0 billion which resulted in an estimated pre-tax gain on sale of $2,014 million, net of closing costs.

During the first quarter of fiscal 2022, DXC sold its HPS business for $551 million which resulted in an estimated pre-tax gain on sale of $331 million, net of closing costs.

Insignificant businesses were also sold during fiscal 2022 that resulted in a gain of $53 million.

This was partially offset by $13 million in sales price adjustments related to prior year dispositions, which resulted from changes in projected closing net working capital.

During the third quarter of fiscal 2021, DXC sold its HHS business for $5.0 billion which resulted in an estimated pre-tax gain on sale of $2,014 million, net of closing costs.

Insignificant businesses were also sold during fiscal 2021 that resulted in a loss of $10 million.

Gain on Arbitration Award

During the second quarter of fiscal 2020, DXC received final arbitration award proceeds of $666 million related to the HPE Enterprise Services merger completed in fiscal 2018.

The arbitration award included $632 million in damages that were recorded as a gain.

The remaining $34 million of the award related to pre-award interest.

Dispute details are subject to confidentiality obligations.

Other Expense (Income), Net

Other expense (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.

The components of other expense (income), net for fiscal 2021 and 2020 are as follows:

Other (Income) Expense, Net

Other (income) expense, net comprises non-service cost components of net periodic pension (income) expense, 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.

The components of other (income) expense, net for fiscal 2022 and 2021 are as follows:

Fiscal Years Ended

(in millions) March 31, 2022 March 31, 2021

Non-service cost components of net periodic pension expense (income) $ 110 $ (658)

Foreign currency loss (gain) 14 (25)

Non-service cost components of net periodic pension (income) expense $ (1,066) $ 110

Foreign currency loss 13 14

Other gain (28) (22)

Total $ (1,081) $ 102

The $822 million decrease in other income for fiscal 2021, as compared to the prior fiscal year, was due to a year-over-year decrease of $768 million in non-service components of net periodic pension income attributable to changes in mark-to-market actuarial assumptions and asset valuations, a year-over-year unfavorable foreign currency impact of $39 million, and a $15 million decrease in other gains related to sales of non-operating assets.

The $1,183 million increase in other income, net, for fiscal 2022, as compared to the prior fiscal year, was due to a year-over-year increase of $1,176 million in non-service components of net periodic pension income attributable to changes in mark-to-market actuarial assumptions and asset valuations, a $6 million increase in other gains from sales of non-operating assets, and a year-over-year favorable foreign currency impact of $1 million.

Our effective tax rate ("ETR") on income (loss) from continuing operations, before taxes, for fiscal 2022 and 2021 was 35.5% and 122.3%, respectively.

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In fiscal 2022, the ETR was primarily impacted by:

• Income Tax and Foreign Tax Credits, which decreased income tax expense and decreased the ETR by $174 million and 15.2%, respectively.

• Changes in Luxembourg losses that increased the ETR by $1,609 million and 141.0%, respectively, with an offsetting decrease in the ETR due to a decrease in the valuation allowance of the same amount.

• Adjustments to uncertain tax positions that increased the overall income tax expense and the ETR by $78 million and 6.8%, respectively.

In fiscal 2021, the ETR was primarily impacted by:

• Impact of the HHS and other business divestitures, which increased tax expense and increased the ETR $344 million and 52.6%, respectively.

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• The Company recognized adjustments to uncertain tax positions that increased the overall income tax expense and the ETR by $112 million and 17.2%, respectively.

In fiscal 2020, the ETR was primarily impacted by:

• Non-deductible goodwill impairment charge, which increased income tax expense and increased the ETR by $1,482 million and 28.3%, respectively.

• Non-taxable gain on the arbitration award, which decreased income tax expense and decreased the ETR by $186 million and 3.6%, respectively

• A change in the net valuation allowance on certain deferred tax assets, primarily in Australia, Brazil, China, Luxembourg, and Singapore, which increased income tax expense and increased the ETR by $631 million and 12.1% respectively.

• An increase in Income Tax and Foreign Tax Credits, primarily relating to research and development credits recognized for prior years, which decreased income tax expense and decreased the ETR by $135 million and 2.6%, respectively.

• Local losses on investments in Luxembourg that increased the foreign rate differential and decreased the ETR by $637 million and 12.2%, respectively, with an offsetting increase in the ETR due to an increase in the valuation allowance of the same amount.

In fiscal 2019, the ETR was primarily impacted by:

• Local tax losses on investments in Luxembourg that decreased the foreign tax rate differential and decreased the ETR by $360 million and 23.7%, respectively, with an offsetting increase in the ETR due to an increase in the valuation allowance of the same amount.

• A change in the net valuation allowance on certain deferred tax assets, primarily in Luxembourg, Germany, Spain, U.K., and Switzerland, which increased income tax expense and increased the ETR by $256 million and 16.9%, respectively.

• A decrease in the transition tax liability and a change in tax accounting method for deferred revenue, which decreased income tax expense and decreased the ETR by $66 million and 4.3%, respectively.

The IRS is examining the Company's federal income tax returns for fiscal 2008 through the tax year ended October 31, 2018.

With respect to CSC's fiscal 2008 through 2017 federal tax returns, the Company has entered into negotiations for a resolution on the years under audit through settlement with the IRS Office of Appeals.

The IRS examined several issues for these years that resulted in various audit adjustments.

The Company and the IRS Office of Appeals have an agreement in principle as to some of these adjustments, and we disagree with the IRS’ disallowance of certain losses and deductions resulting from restructuring costs and tax planning strategies in previous years.

As we believe we will ultimately prevail on the technical merits of the disagreed items and intend to challenge them in the IRS Office of Appeals or Tax Court, these matters are not fully reserved and would result in a federal and state tax expense of $405 million (including estimated interest and penalties) and related cash cost for the unreserved portion of the these items if we do not prevail in Tax Court.

We do not expect these matters that proceed to tax court to be resolved in the next 12 months.

We have received a notice of deficiency with respect to fiscal 2011 and 2013, and have filed a petition in Tax Court with respect to fiscal 2013 and expect to file in Tax Court with respect to fiscal 2011 in the first quarter of fiscal 2022.

We also expect fiscal 2010 to proceed to Tax Court.

The Company has agreed to extend the statute of limitations for fiscal years 2008 through 2012 through August 31, 2021 to provide for IRS completion of their review.

The Company has agreed to extend the statute of limitations for fiscal years 2014 through fiscal 2017 through October 31, 2021 to provide for IRS completion of their review.

The Company expects to reach a resolution for all years no earlier than the first quarter of fiscal 2023 except for agreed issues related to fiscal 2008 through 2010 and fiscal 2011 through 2017 federal tax returns, which are expected to be resolved within twelve months.

In addition, the Company may settle certain other tax examinations, have lapses in statutes of limitations, or voluntarily settle income tax positions in negotiated settlements for different amounts than we have accrued as uncertain tax positions.

The Company may need to accrue and ultimately pay additional amounts for tax positions that previously met a more likely than not standard if such positions are not upheld.

Conversely, the Company could settle positions by payment with the tax authorities for amounts lower than those that have been accrued or extinguish a position through less payment than previously estimated.

We believe the outcomes that are reasonably possible within the next twelve months may result in a reduction in liability for uncertain tax positions of $52 million, excluding interest, penalties, and tax carryforwards.

Loss Per Share

Diluted loss per share for fiscal 2021 was $0.59, as compared to $20.76 in fiscal 2020.

The loss per share decrease was due to a decrease of $5,212 million in net loss.

The Internal Revenue Service (the “IRS”) has examined, or is examining, the Company’s federal income tax returns for fiscal 2008 through the tax year ended October 31, 2018.

With respect to CSC’s fiscal 2008 through 2017 federal tax returns, the Company participated in settlement negotiations with the IRS Office of Appeals.

The IRS examined several issues for these tax years that resulted in various audit adjustments.

The Company and the IRS Office of Appeals have an agreement in principle as to various audit adjustments, and we disagree with the IRS’ disallowance of certain losses and deductions resulting from restructuring costs and tax planning strategies in previous years.

As we believe we will ultimately prevail on the technical merits of the disagreed items and are challenging them in the IRS Office of Appeals or the U.S.

Tax Court, these matters are not fully reserved and would result in a federal and state tax expense of approximately $458 million (including estimated interest and penalties) for the unreserved portion of these items and related cash cost if we do not prevail.

We have received notices of deficiency with respect to fiscal 2009, 2010, 2011 and 2013 and have timely filed petitions with the U.S.

We do not expect the U.S.

Tax Court matters to be resolved in the next 12 months.

The Company has agreed to extend the statute of limitations for fiscal years 2008 through 2010 to April 30, 2022, for fiscal years 2014 through fiscal 2017 to February 28, 2023, and for the tax years ended October 31, 2017, and October 31, 2018, to September 30, 2023.

The statute of limitations on assessments for fiscal years 2011 through 2013 has expired, with the exception of a $6 million refund claim for 2012 for which the statute remains open.

However, as previously noted, fiscal years 2011 and 2013 are in the U.S.

Tax Court and consequently these years will remain open until the U.S.

Tax Court proceedings have concluded.

The Company expects to reach resolution with regard to disagreed items for fiscal years 2009 through 2013 no earlier than fiscal 2025, and to reach resolution for fiscal years 2014 through 2017, within 12 months.

The Company may settle certain other tax examinations for different amounts than the Company has accrued as uncertain tax positions.

Consequently, the Company may need to accrue and ultimately pay additional amounts or pay lower amounts than previously estimated and accrued when positions are settled in the future.

The Company believes the outcomes that are reasonably possible within the next 12 months to result in a reduction in its liability for uncertain tax positions, excluding interest, penalties, and tax carry-forwards, would be approximately $44 million.

Earnings (Loss) Per Share

Diluted earnings (loss) per share for fiscal 2022 was $2.81, as compared to $(0.59) in fiscal 2021.

The earnings per share increase was due to an increase of $882 million in net income.

Diluted earnings per share for fiscal 2022 includes $0.99 per share of restructuring costs, $0.07 per share of transaction, separation and integration-related costs, $1.35 per share of amortization of acquired intangible assets, $0.09 per share of impairment losses, $(0.93) per share of net gains on dispositions, $(1.99) per share of pension and OPEB actuarial and settlement gains, $0.93 per share of debt extinguishment costs, and $0.17 per share of tax adjustments primarily relating to tax adjustments to impair or recognize certain deferred tax assets and adjustments for changes in tax legislation.

Diluted loss per share for fiscal 2021 includes $1.79 per share of restructuring costs, $1.06 per share of transaction, separation and integration-related costs, $1.59 per share of amortization of acquired intangible assets, $0.55 per share of impairment losses, $(4.22) per share of net gains on dispositions, $1.57 per share of pension and OPEB actuarial and settlement losses, $0.12 per share of debt extinguishment costs, and $0.55 per share of tax adjustment relating to a valuation allowance on deferred tax assets offset by changes in outside basis related to held for sale classification of the HPS business.

Ukraine / Russia Update

Subsequent to the end of the quarter, DXC exited its domestic Russian business.

This action achieves a significant portion of our commitment to exit Russia.

The sale of this business has provided continuing employment opportunities for many former DXC employees who have chosen to stay in Russia.

The exit of this market will reduce revenues by approximately $140 million annually.

The company is transitioning global business previously serviced by our DXC Russian colleagues to international teams and expects to complete this process by the end of the second quarter.

DXC's Ukraine business supported approximately $250 million of revenue, predominantly serving international customers.

Despite the ongoing conflict, these revenues have only seen a minor impact stemming from the conflict.

Our global teams have worked to augment their Ukrainian colleagues, and to continue to deliver for our customers through the conflict.

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 from continuing operations before income taxes, non-GAAP net income and non-GAAP EPS, constant currency revenues, net debt and net debt-to-total capitalization.

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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See below for a description of the methodology we use to present constant currency revenues.

We believe net debt and net debt-to-total capitalization provide investors with useful supplemental information about DXC’s net leverage and capitalization.

One category of expenses excluded from adjusted EBIT, non-GAAP income from continuing operations before tax, non-GAAP net income and non-GAAP EPS, incremental amortization of intangible assets acquired through business combinations, may result in a significant difference in period over period amortization expense on a GAAP basis.

One category of expenses excluded from adjusted EBIT, non-GAAP income before income tax, non-GAAP net income, non-GAAP net income attributable to DXC common stockholders, and non-GAAP EPS, incremental amortization of intangible assets acquired through business combinations, if included, may result in a significant difference in period over period amortization expense on a GAAP basis.

We exclude amortization of certain acquired intangible assets as these non-cash amounts are inconsistent in amount and frequency and are significantly impacted by the timing and/or size of acquisitions.

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Any future transactions may result in a change to the acquired intangible asset balances and associated amortization expense.

Another category of expenses excluded from adjusted EBIT, non-GAAP income from continuing operations before tax, non-GAAP net income and non-GAAP EPS, impairment losses, may result in a significant difference in period over period expense on a GAAP basis.

We exclude impairment losses as these non-cash amounts, generally an acceleration of what would be multiple periods of expense and do not expect to occur frequently.

Another category of expenses excluded from adjusted EBIT, non-GAAP income before income tax, non-GAAP net income, non-GAAP net income attributable to DXC common stockholders, and non-GAAP EPS is impairment losses, which, if included, may result in a significant difference in period over period expense on a GAAP basis.

We exclude impairment losses as these non-cash amounts reflect generally an acceleration of what would be multiple periods of expense and are not expected to occur frequently.

Further assets such as goodwill may be significantly impacted by market conditions outside of management’s control.

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(in millions) March 31, 2022 March 31, 2021 Change Percentage Change

Income (loss) from continuing operations $ 654 $ (5,228) $ 5,882 112.5 %

Non-GAAP income from continuing operations $ 839 $ 1,843 $ (1,004) (54.5) %

Income before income taxes $ 1,141 $ 654 $ 487 74.5 %

Non-GAAP income before income taxes $ 1,236 $ 839 $ 397 47.3 %

Net income (loss) $ 736 $ (146) $ 882 604.1 %

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

• Gain on arbitration award – reflects a gain related to the HPES merger arbitration award.

• 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.

(1) TSI-Related Costs for all periods presented 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.

• Tax adjustments – reflects discrete tax adjustments to impair or recognize certain deferred tax assets and adjustments for changes in tax legislation.

Income tax expense of merger and divestitures is separately computed based on the underlying transaction.

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

(1) TSI-Related Costs for both periods presented 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 fiscal 2022 include $14 million of costs to execute dispositions (including $2 million for the sale of HHS which closed in October 2020 and $12 million for the sale of HPS which closed on April 1, 2021);

$2 million legal costs and a $(12) million credit towards Perspecta Arbitration settlement;

$5 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 $17 million of costs incurred in connection with activities related to other acquisitions and divestitures.

The TSI-Related costs for fiscal 2021 include $250 million of costs to execute dispositions (including $142 million for the sale of HHS which closed in October 2020 and $61 million for the sale of the healthcare software business which closed on April 1, 2021);

$42 million in expenses related to integration projects resulting from the CSC – HPES merger (including costs associated with continuing efforts to separate certain IT systems) and $66 million of costs incurred in connection with activities related to other acquisitions and divestitures.

(2) Gains and losses on dispositions for fiscal 2022 include a $331 million gain on sale of the HPS business, gains of $23 million on other dispositions and loss of $13 million on adjustments relating to the sale of the HHS business.

Gains and losses on dispositions for fiscal 2021 includes a $2,014 million gain on sale of the HHS business, a gain of $5 million on sales of other insignificant businesses, and a $15 million loss on equity securities without readily determinable fair value, which were adjusted to fair value following receipt of a bona fide offer to purchase.

We expect to close the sale of the equity securities during fiscal 2022.

(3) Debt extinguishment costs adjustments for all periods presented includes $34 million to fully redeem our 4.00% senior notes due fiscal 2024 and $7 million to partially redeem two series of our 4.45% senior notes due fiscal 2023 via tender offer.

(4) Impairment losses for the fourth quarter of fiscal 2021 of $190 million relate to the impairment of undeployable assets, software, and capitalized transition and transformation costs.

In fiscal 2020 goodwill was impaired following a sustained decline in market capitalization.

Impairment losses for the fourth quarter of fiscal 2021 were $190 million.

This includes $165 million impairment for assets pre-purchased through preferred vendor agreements and determined undeployable, $12 million partial impairment of acquired software, $7 million partial impairment of internally developed software intended for internal use and external sale, and $6 million of capitalized transition and transformation contract costs.

(3) Debt extinguishment costs adjustments for fiscal 2022 includes $18 million to fully redeem two series of our 4.45% senior notes due fiscal 2023, $7 million associated with asset financing, $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, $58 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, $71 million to fully redeem our 7.45% senior notes due fiscal 2030, and $2 million related to the decrease in our revolving credit facility limit.

Debt extinguishment costs adjustments for fiscal 2021 includes $34 million to fully redeem our 4.00% senior notes due fiscal 2024 and $7 million to partially redeem two series of our 4.45% senior notes due fiscal 2023 via tender offer.

(4) Impairment losses for fiscal 2022 includes a $10 million impairment charge of capitalized TSI related property and equipment and a $21 million impairment charge of loan receivable and stock warrants associated with a strategic investment.

Impairment losses for fiscal 2021 were $190 million.

This includes $165 million impairment for assets pre-purchased through preferred vendor agreements and determined un-deployable, $12 million partial impairment of acquired software, $7 million partial impairment of internally developed software intended for internal use and external sale, and $6 million of capitalized transition and transformation contract costs.

(5) Tax adjustment for fiscal 2022 includes a $50 million net revaluation of deferred taxes resulting from changes in non-US jurisdiction tax rates, and $(7) million of adjustment to the transition tax.

Tax adjustment for fiscal 2021 includes $175 million for the impairment of the German deferred tax asset via a valuation allowance, $9 million for tax expense relating to the USPS spin-off, offset by $35 million tax benefit related to the held for sale classification of the Healthcare Provider Software business, and $7 million tax benefit related to prior restructuring charges.

The German tax asset was created from multiple periods of losses in Germany that, if not for certain non-GAAP adjustments of restructurings, pension mark to market loss, and impairments, would not have required the asset to be impaired and a valuation allowance established.

Tax adjustments for fiscal 2020 includes tax expense related to prior restructuring charges.

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

Fiscal Year Ended March 31, 2022

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

Costs of services (excludes depreciation and amortization and restructuring costs) $ 14,086 $ — $ (2) $ — $ (190) $ — $ — $ — $ — $ 13,894

Selling, general and administrative (excludes depreciation and amortization and restructuring costs) 2,066 — (363) — — — — — — 1,703

Income from continuing operations, before taxes 654 551 358 530 190 (2,004) 519 41 — 839

Income tax expense (benefit) 800 92 87 121 49 (920) 115 10 (142) 212

Net (loss) income (146) 459 271 409 141 (1,084) 404 31 142 627

net income attributable to non-controlling interest, net of tax 3 — — — — — — — — 3

Net (loss) income attributable to DXC common stockholders $ (149) $ 459 $ 271 $ 409 $ 141 $ (1,084) $ 404 $ 31 $ 142 $ 624

(in millions, except per-share amounts) As

Reported Restructuring

Costs Transaction,

Separation and

Integration-Related Costs Amortization

Assets Impairment

Losses Gains and

Dispositions Pension and

OPEB Actuarial

and Settlement

Extinguishment

Adjustment Non-GAAP

Income before income taxes 1,141 318 26 434 31 (341) (684) 311 — 1,236

Income tax expense 405 65 7 90 7 (104) (171) 73 (43) 329

Net income 736 253 19 344 24 (237) (513) 238 43 907

net loss attributable to non-controlling interest, net of tax 18 — — — — — (5) — — 13

Net income attributable to DXC common stockholders $ 718 $ 253 $ 19 $ 344 $ 24 $ (237) $ (508) $ 238 $ 43 $ 894

Effective Tax Rate 35.5 % 26.6 %

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Diluted EPS 255.21 255.21 255.21 255.21 255.21 255.21 255.21 255.21 255.21 255.21

* The net periodic pension cost within net loss includes $1,401 million of actual return on plan assets, whereas the net periodic pension cost within non-GAAP net income includes $659 million of expected long-term return on pension assets of defined benefit plans subject to interim remeasurement.

* The net periodic pension cost within net income includes $441 million of actual return on plan assets, whereas the net periodic pension cost within non-GAAP net income includes $581 million of expected long-term return on pension assets of defined benefit plans subject to interim remeasurement.

Fiscal Year Ended March 31, 2021

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

Costs of services (excludes depreciation and amortization and restructuring costs) $ 14,901 $ — $ — $ — $ — $ — $ — $ — $ 14,901

Selling, general and administrative (excludes depreciation and amortization and restructuring costs) 2,050 — (318) — — — — — 1,732

(Loss) income from continuing operations, before taxes (5,228) 252 318 583 6,794 (632) (244) — 1,843

Income tax expense (benefit) 130 44 63 133 95 — (51) (33) 381

(in millions, except per-share amounts) As

Reported Restructuring

Costs Transaction,

Separation and

Related Costs Amortization

Intangible Assets Impairment

Losses Gains and

Dispositions Pension and

OPEB Actuarial

and Settlement

Extinguishment

Adjustment Non-GAAP

Income before income taxes 654 551 358 530 190 (2,004) 519 41 — 839

Income tax expense 800 92 87 121 49 (920) 115 10 (142) 212

Net (loss) income (146) 459 271 409 141 (1,084) 404 31 142 627

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(in millions) March 31, 2022 March 31, 2021

Net loss $ (146) $ (5,358)

Net income (loss) $ 736 $ (146)

Income tax expense 405 800

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Amortization of acquired intangible assets 434 530

(Gains) and losses on dispositions (2,004) —

Pension and OPEB actuarial and settlement losses (gains) 519 (244)

Gains on dispositions (341) (2,004)

Pension and OPEB actuarial and settlement (gains) and losses (684) 519

Debt extinguishment costs 311 41

Impairment losses 31 190

Gain on arbitration award — (632)

Adjusted EBIT $ 1,375 $ 1,102

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We have $0.2 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.

In addition, other practical considerations may limit our use of consolidated cash.

This includes cash of $0.6 billion held in a German financial services subsidiary subject to regulatory requirements, and $0.1 billion held by majority owned consolidated subsidiaries where third-parties or public shareholders hold minority interests.

Cash was $3.0 billion and $3.7 billion as of March 31, 2021 and March 31, 2020, respectively.

In addition, other practical considerations may limit our use of consolidated cash, including cash of $0.6 billion held in a German financial services subsidiary subject to regulatory requirements, and $0.2 billion held by majority owned consolidated subsidiaries where third-parties or public shareholders hold minority interests.

During the third quarter of fiscal 2022, we entered into an agreement to sell our German financial services subsidiary.

The following table summarizes our cash flow activity:

Fiscal Year Ended

(in millions) March 31, 2021 March 31, 2020 March 31, 2019

Net cash provided by operating activities $ 124 $ 2,350 $ 1,783

Net cash provided by (used in) investing activities 4,665 (2,137) 69

Net cash (used in) provided by financing activities (5,476) 657 (1,663)

(in millions) March 31, 2022 March 31, 2021

Net cash provided by (used in):

Operating activities $ 1,501 $ 124

Investing activities (60) 4,665

Financing activities (1,818) (5,476)

Effect of exchange rate changes on cash and cash equivalents 29 39

Cash classified within current assets held for sale 52 (63)

Net (decrease) increase in cash and cash equivalents (711) 780 170

Net decrease in cash and cash equivalents (296) (711)

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

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Net cash provided by operating activities during fiscal 2022 was $1,501 million as compared to $124 million during fiscal 2021.

The decrease of $2,226 million was due to a decrease in net income, net of adjustments of $2,923 million.

The net decrease in cash provided by operating activities was partially offset by a $697 million favorable change in working capital due to lower working capital outflows during fiscal 2021 as compared to fiscal 2020.

The increase of $1,377 million was primarily due to an increase in net income, net of adjustments of $1,578 million, partially offset by a $201 million unfavorable change in working capital due to higher working capital outflows during fiscal 2022 .

The following table contains certain key working capital metrics:

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Investing cash flow

Net cash provided by (used in) investing activities during fiscal 2021 was $4,665 million as compared to $(2,137) million during fiscal 2020.

The increase of $6,802 million was primarily due to cash proceeds received from business divestitures of $4,947 million in fiscal 2021, a decrease in cash paid for acquisitions of $2,181 million, an increase in proceeds from sale of assets of $91 million, a decrease in purchases of property and equipment of $89 million, and the absence of short-term investing, net of proceeds, of $37 million in fiscal 2020.

This was partially offset by a decrease in cash collections related to deferred purchase price receivable of $512 million and a $48 million increase in payments for software licenses related to the divestitures of the HHS business.

Net cash (used in) provided by investing activities was $(60) million during fiscal 2022 as compared to $4,665 million during fiscal 2021.

The decrease of $4,725 million was primarily due to a decrease in business dispositions of $4,414 million, the absence of proceeds from acquisitions and cash collections related to deferred purchase price receivables of $184 million and $159 million in fiscal 2021, and a decrease in proceeds from sale of assets of $64 million.

This was partially offset by proceeds from short-term investing of $24 million in fiscal 2022.

Financing cash flow

Net cash (used in) provided by financing activities during fiscal 2021 was $(5,476) million, as compared to $657 million during fiscal 2020.

The $6,133 million increase in cash used was primarily due to an increase in repayments, net of borrowings, of $3,718 million on term loans and other long-term debt, $3,000 million on lines of credit, and $229 million on commercial paper.

In total, we used $3.5 billion of the net proceeds from the sale of the HHS business to repay debt during the fiscal year.

We also had an increase in payments on finance leases and borrowings for asset financing of $65 million and payments of debt extinguishment costs of $41 million in fiscal 2021.

This was partially offset by elimination of stock repurchases during fiscal 2021 while common stock repurchases totaled $736 million in fiscal 2020 and a decrease in dividend payments of $161 million from fiscal 2020.

Capital Resources

See Note 23 - "Commitments and Contingencies" for a discussion of the general purpose of guarantees and commitments.

The anticipated sources of funds to fulfill such commitments are listed below and under the subheading "Liquidity."

Net cash used in financing activities during fiscal 2022 was $(1,818) million as compared to $(5,476) million during fiscal 2021.

The $3,658 million decrease in cash used was primarily due to decreased net repayments on long-term debt of $2,624 million and net draws on commercial paper of $529 million.

In addition, net repayments totaling $1,500 million were made during fiscal 2021 on lines of credit that were not drawn against during fiscal 2022 and dividends of $53 million were paid in fiscal 2021, but not paid during fiscal 2022.

This was partially offset by share repurchases of $628 million in fiscal 2022, an increase in payments for debt extinguishment costs of $303 million, an increase in payments on capital leases and borrowings for asset financing of $60 million, and an increase in payments for other financing activities, net, of $58 million, primarily due to an $85 million repayment of liability resulting from a financing transaction entered in fiscal 2017.

Debt Financing

The following table summarizes our total debt:

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Total debt $ 4,965 $ 5,512

The $4.4 billion decrease in total debt during fiscal 2021 was primarily attributed to the prepayment of $1.5 billion of Revolver Credit Facility outstanding at fiscal year-end March 31, 2020, €312 million of Euro commercial paper, and the following term loan facilities:

€750 million of Euro Term Loan due fiscal 2022 and 2023, A$800 million of AUD Term Loan due fiscal 2022, £450 million of GBP Term Loan due fiscal 2022, $481 million of USD Term Loan due fiscal 2025, €350 million of Euro Term Loan due fiscal 2024 and the retirement of $127 million principal amount of 4.45% Senior Notes due fiscal 2023 via tender offer.

(See Note 14 - "Debt — Tender Offers.") In addition, we issued irrevocable redemption notice to retire all the remaining two series of 4.45% Senior Notes (approximately $319 million) due fiscal 2023.

These were partially offset by the issuance of $500 million of 4.13% Senior Notes due fiscal 2026.

During the first quarter of fiscal 2021, we applied for and were confirmed eligible to participate in the Bank of England’s (“BOE”) COVID Corporate Funding Facility, a BOE program that provides term liquidity funding to investment grade corporate issuers with significant operations in the U.K., in order to stabilize and facilitate continued access to sterling commercial paper markets.

At our option, we can borrow up to a maximum of €1.0 billion or its equivalent in Euro, British Pound and U.S.

On June 15, 2020, DXC Capital Funding DAC (previously named DXC Capital Funding Limited), an indirect subsidiary of the Company, issued £600 million in commercial paper maturing May 2021 under its existing €1.0 billion commercial paper program via direct sale to the BOE.

The issued £600 million in commercial paper was subsequently prepaid as discussed below.

In October 2020, we sold the HHS business and used approximately $3.5 billion of the proceeds to prepay $1,250 million of Revolver Credit Facility, £600 million of GBP commercial paper (approximately $772 million), €350 million of Euro Term Loan due fiscal 2024 (approximately $410 million), $381 million of USD Term loan due fiscal 2025, A$500 million of AUD Term Loan due fiscal 2022 (approximately $358 million), and €250 million of Euro Term Loan due fiscal 2022 and 2023 (approximately $292 million).

During fiscal 2021, we borrowed the remaining $2.5 billion under the $4.0 billion credit facility agreement and repaid the full $4.0 billion on the same.

The purpose of the borrowing was to mitigate our reliance on volatile short-term commercial paper markets and to strengthen our cash and liquidity position given the uncertainties related to the COVID-19 crisis and its potential impact on our customers and our business.

The credit facility repayment resulted from the availability of other liquidity resources.

The entire $4.0 billion credit facility is available for redraw at our request.

In March 2021, we used cash on hand and redeemed the entire issue of $500 million of 4.00% Senior Notes due fiscal 2024 in anticipation of divestiture proceeds from the sale of our HPS business that was completed on April 1, 2021.

We also commenced in March 2021 a concurrent tender offer and issued irrevocable redemption notice that resulted in the retirement of $127 million principal amount 4.45% Notes due fiscal 2023.

Subsequent to the fiscal year, we used the proceeds from the sale of our HPS business to complete the retirement of all remaining $319 million of the two series of 4.45% Senior Notes due fiscal 2023.

We also repurchased $33 million of the 4.125% Senior Notes due fiscal 2026 and took measures to retire and prepay certain capital leases and equipment related financing whose balance was about $300 million as of fiscal 2021 using the proceeds from the divestitures of other businesses and existing cash on hand.

The $0.5 billion decrease in total debt during 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.

More than $550 million of net finance lease liabilities and borrowings for assets acquired under long-term financing were also repaid 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 4.75% 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 March 31, 2022 and March 31, 2021.

The debt maturity chart below summarizes the future maturities of long-term debt principal for fiscal years subsequent to March 31, 2021 and excludes maturities of borrowings for assets acquired under long-term financing and finance lease liabilities.

The chart does not reflect the redemption of the remaining $319 million in Notes due fiscal 2023 that were initiated via redemption notice in March 2021, which was completely retired in April 2021.

See Note 14 - "Debt" for more information.

The following table summarizes our capitalization ratios:

(in millions) March 31, 2021 March 31, 2020

Total debt $ 5,512 $ 9,948

Cash and cash equivalents (1)

$ 2,544 $ 6,269

Total debt $ 5,512 $ 9,948

Equity 5,308 5,129

Total capitalization $ 10,820 $ 15,077

Debt-to-total capitalization 50.9 % 66.0 %

Net debt-to-total capitalization (2)

23.5 % 41.6 %

(1) Cash and cash equivalents includes previously described cash held outside of the U.S., at a German financial services subsidiary and at majority owned consolidated subsidiaries.

(2) Net debt and Net debt-to-total capitalization are non-GAAP measures used by management to assess our ability to service our debts using our cash and cash equivalents, including cash subject to limitations, as previously described in Cash and Cash Equivalents and Cash Flows.

We present these non-GAAP measures to assist investors in analyzing our capital structure in a more comprehensive way compared to gross debt based ratios alone.

Net debt-to-total capitalization as of March 31, 2021 decreased as compared to March 31, 2020, primarily due to the decrease in total debt attributed to the prepayment of the credit facility agreement and various term loans, bonds and commercial papers during the fiscal year as mentioned above, and by the increase in equity primarily attributed to the gain on disposition of businesses during fiscal 2021.

As of March 31, 2022, our credit ratings were as follows:

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Fitch BBB F-2 Stable

Moody's Baa2 P-2 Negative

Moody's Baa2 P-2 Stable

S&P BBB- - Stable

For information on the risk s of ratings downgrades, see Item 1A - Risk Factors subsection titled, "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."

See Note 23 - "Commitments and Contingencies" for a discussion of the general purpose of guarantees and commitments.

The anticipated sources of funds to fulfill such commitments are listed below.

For information on the risk s of ratings downgrades, see Part I, Item 1A - Risk Factors subsection titled, "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 expect our existing cash and cash equivalents, together with cash generated from operations, will be sufficient to meet our normal operating requirements for the next 12 months.

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however, should we require funds greater than that generated from our operations to fund discretionary investment activities, such as business acquisitions, we have the ability to raise capital through debt financing, including the issuance of capital market debt instruments such as commercial paper and bonds.

In addition, we currently utilize and will further utilize our cross-currency cash pool for liquidity needs.

However, there is no guarantee that we will be able to obtain debt financing, if required, on terms and conditions acceptable to us, if at all, in the future.

In addition, we currently utilize and will further utilize accounts receivable sales facilities, and our cross-currency cash pool for liquidity needs.

There is no guarantee that we will be able to obtain debt financing, if required, on terms and conditions acceptable to us, if at all, in the future.

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.

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Total liquidity

During March 2020 as the evolving global COVID-19 crisis resulted in increasing government actions to shut down economic activity and enforce stay-at-home orders, global capital markets were disrupted and became tumultuous, including the near shut down of commercial paper markets for issuers such as the Company as short-term fixed income investors prepared for potential redemptions.

On March 24, 2020, the Company announced the draw-down of $1.5 billion from its Revolving Credit F acility due 2025 in order to increase cash on hand and eliminate the reliance on commercial paper markets along with the suspension of the Company’s Euro and USD commercial paper program until the Company deems such capital markets stabilized and reliable.

As a result, the Company’s commercial paper outstanding was reduced from $863 million to $542 million as of March 31, 2020, and further reduced to $213 million as of March 31, 2021.

During fiscal 2021, capital markets have stabilized and central bank actions have improved liquidity in commercial paper markets and our access to such commercial paper markets have normalized.

On April 6, 2020, the Company drew the entire $2.5 billion remaining availability under its Revolving Credit Facilities, in order to secure liquidity as additional cash on hand to support the Company’s liquidity resources during the COVID-19 crisis and to mitigate the uncertainties caused by volatile capital markets, changing governmental policies, and evolving impact on world economies.

In May 2020, the Company issued $1.0 billion in principal amount of Senior Notes in the form of $500 million principal amount of 4.00% Senior Notes due fiscal 2024 and $500 million principal amount of 4.13% Senior Notes due fiscal 2026.

All the net proceeds from the Notes offerings were applied towards the early prepayment of the Company’s term loan facilities, including prepayment of €500 million of Euro Term Loan due fiscal 2022, £150 million of GBP Term Loan due fiscal 2022, A$300 million of AUD Term Loan due fiscal 2022, and $100 million of USD Term Loan due fiscal 2025.

In March 2021, the Company retired $500 million principal amount of 4.0% Senior Notes due fiscal 2024.

The Company retired via tender offer $127 million principal amount of its 4.45% Senior Notes due fiscal 2023 across two series in March 2021 and issued irrevocable redemption notice for the remaining amounts outstanding.

In April 2021, the Company retired the remaining $319 million principal amount across two series through redemption.

There is no amount outstanding under either series of the 4.45% Notes due fiscal 2023 after the completion of these two actions.

On May 15, 2020, the Company agreed with its lenders and modified the definition of Leverage Ratio to be measured on a “net of cash” basis across all of the Company’s bank credit and term loan facilities, and for such newly defined Leverage Ratio limitation of Total Consolidated Net Indebtedness to Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization, as defined in such credit and term loan facilities, currently at 3.0x, to be reduced to 2.25x thereafter beginning the fiscal year ending March 31, 2022 (with the first quarterly measurement date as of June 30, 2021).

The net effect of such adjustment to the Leverage Ratio definition in the Company’s credit and term loan facilities is to allow the Company the flexibility to maintain elevated cash balances going forward both during current circumstances and thereafter, without constraining the Company’s strategy of maintaining strong access to liquidity during the COVID crisis.

The Company’s credit and term loan facilities that were modified include:

$4.0 billion Revolving Credit Facilities due fiscal year 2025, €250 million Euro Term Loan due fiscal year 2022 (a substantial portion was extended to mature in fiscal year 2023 pursuant to the Euro Term Loan Extension, see below), €750 million Euro Term Loan due fiscal year 2023 (a substantial portion was extended to mature in fiscal year 2024 pursuant to the Euro Term Loan Extension, see below), £300 million in GBP Term Loan due fiscal year 2022, A$500 million in AUD Term Loan due fiscal year 2022, and approximately $382 million in outstanding USD Term Loan due fiscal year 2025.

As of fiscal 2021, only $4.0 billion Revolving Credit Facilities due fiscal year 2026 (including a $390 million sub-tranche due fiscal 2025) and €400 million Euro Term Loan due fiscal year 2024 (including a small €27 million sub-tranche due fiscal 2023) remain outstanding and are subject to such amended Leverage Ratio limitations in the Company’s credit and term loan facilities.

On May 15, 2020, the Company initiated elective extension amendments in accordance with the terms of the aggregate €1.0 billion principal amount of Euro Term Loans outstanding.

Accordingly, €216.7 million out of €250 million Euro Term Loan due fiscal year 2022 agreed to extend maturity 12-months to mature fiscal year 2023, and €700 million out of total €750 million Euro Term Loan due fiscal year 2023 agreed to extend maturity 12-months to mature fiscal year 2024.

Margin would increase during the 12-month extension terms to Euribor + 125bps and Euribor + 175bps respectively, for the Euro Term Loans originally due fiscal years 2022 and 2023, which would be an increase from the current applicable margin of Euribor + 65bps, and Euribor + 80 bps, respectively.

There is no change to current margin or terms through the original maturity term of the Euro Term Loans.

During November 2021 we amended our revolving credit facility to, among other things, decrease available borrowings from $4.0 billion to $3.0 billion.

Share Repurchases

During fiscal 2018, our Board of Dire ctors authorized the repurchase of up to $2.0 billion of our common stock and during fiscal 2019, our Board of Directors had approved an incremental $2.0 billion share repurchase.

During fiscal 2018, our Board of Dire ctors authorized the repurchase of up to $2.0 billion of our common stock and during fiscal 2019, our Board of Directors approved an incremental $2.0 billion share repurchase.

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.

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

There were no share repurchases during fiscal 2021.

See Note 16 - "Stockholders' Equity" for more information.

To maintain our financial flexibility we continue to suspend payment of quarterly dividends for fiscal 2022.

During fiscal 2022, we repurchased 18,818,934 shares of our common stock at an aggregate cost of $634 million.

S ee Note 16 - "Stockholders' Equity" for more information.

To maintain our financial flexibility we continued to suspend payment of quarterly dividends for fiscal 2022.

Off-Balance Sheet Arrangements

In the normal course of business, we are a party to arrangements that include guarantees, the receivables securitization facility and certain other financial instruments with off-balance sheet risk, such as letters of credit and surety bonds.

In the normal course of business, we are a party to arrangements that include guarantees, the receivables sales facility and certain other financial instruments with off-balance sheet risk, such as letters of credit and surety bonds.

We also use performance letters of credit to support various risk management insurance policies.

No liabilities related to these arrangements are reflected in balance sheets.

No liabilities related to these arrangements are reflected in the Company's balance sheets.

See Note 6 - "Receivables" and Note 23 - "Commitments and Contingencies" for additional information regarding these off-balance sheet arrangements.

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Finance lease liabilities (2)

300 303 69 — 672

Operating Leases (2)

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23 99 71 — 193

FICA payroll tax deferral 33 33 — — 66

VAT deferral 66 — — — 66

Interest and preferred dividend payments (5)

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(1) Amounts represent scheduled principal payments of long-term debt and mandatory redemption of preferred stock of a consolidated subsidiary.

(2) Amounts represent present value of operating leases including imputed interests.

(2) Amounts represent expected undiscounted cash payments.

See Note 7 - "Leases" for more information.

(3) Includes long-term purchase agreements with certain software, hardware, telecommunication and other service providers and exclude agreements that are cancellable without penalty.

(3) Includes long-term purchase agreements with certain software, hardware, telecommunication and other service providers and excludes agreements that are cancellable without penalty.

If we do not meet the specified service minimums, we may have an obligation to pay the service provider a portion of or the entire shortfall.

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8% of net tax liability in each of years 1-5, 15% in year 6, 20% in year 7, and 25% in year 8.

We have made our first three payments.

We have made our first four payments.

See Note 13 - "Income Taxes" for additional information about the transition tax and the estimated liability related to unrecognized tax benefits

(5) Amounts represent scheduled interest payments on long-term debt and scheduled dividend payments associated with the mandatorily redeemable preferred stock of a consolidated subsidiary excluding contingent dividends associated with the participation and variable appreciation premium features.

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See Note 15 - "Pension and Other Benefit Plans" for the estimated liability related to estimated future benefit payments under our Pension and OPEB plans that have been omitted from this table.

Critical Accounting Policies and Estimates

Critical Accounting Estimates

The preparation of financial statements, in accordance with GAAP, requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities.

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earnings are indefinitely reinvested outside the U.S., changes in the valuation allowance for deferred tax assets, changes in tax regulations, acquisitions, dispositions and the tax characteristics of our income.

We cannot predict what our ETR will be in the future because there is uncertainty regarding these factors.

With the following exceptions, the majority of our global unremitted foreign earnings have been taxed or would be exempt from tax upon repatriation, except for the following earnings which are considered indefinitely reinvested:

approximately $522 million that could be taxable when repatriated to the U.S.

under section 1.245A-5(b) of the final Treasury regulations issued during fiscal 2021;

and our accumulated earnings in India.

We cannot predict with certainty what our ETR will be in the future because there is uncertainty regarding these factors.

Future events, such as changes in tax laws, tax regulations, or interpretations of such laws or regulations, could have an impact on the provision for income tax and the effective tax rate.

Any such changes could significantly affect the amounts reported in the consolidated financial statements in the year these changes occur.

The majority of our global unremitted foreign earnings have been taxed in the U.S.

or would be exempt from U.S.

tax upon repatriation.

Such earnings and all current foreign earnings are not indefinitely reinvested.

The following foreign earnings are considered indefinitely reinvested:

approximately $495 million that could be subject to U.S.

federal tax when repatriated to the U.S.

under section 1.245A-5(b) of the final Treasury regulations;

and our accumulated earnings in India as of March 31, 2021.

A portion of these indefinitely reinvested earnings may be subject to foreign and U.S.

state tax consequences when remitted.

The Company will continue to evaluate its position in the future based on its future strategy and cash needs.

The Company will continue to evaluate its position based on its strategic objectives and future cash needs.

Considerations impacting the recoverability of deferred tax assets include the period of expiration of the tax asset, planned use of the tax asset and historical and projected taxable income as well as tax liabilities for the tax jurisdiction to which the tax asset relates.

In determining whether the deferred tax assets are realizable, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, taxable income in prior carryback years, projected future taxable income, tax planning strategies and recent financial operations.

We recorded a valuation allowance against deferred tax assets of approximately $2.1 billion as of March 31, 2022 due to uncertainties related to the ability to utilize these assets.

However, valuation allowances are subject to change in future reporting periods due to changes in various factors.

However, valuation allowances are subject to change in future reporting periods due to changes in various factors such as when inputs or estimates used in determining valuation allowances significantly change or upon the receipt of new information.

We determine whether it is more likely than not a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit is recorded in our financial statements.

A tax position is measured as the portion of the tax benefit that is greater than 50% likely to be realized upon settlement with a taxing authority (that has full knowledge of all relevant information).

We may be required to change our provision for income taxes when the ultimate treatment of certain items is challenged or agreed to by taxing authorities, when estimates used in determining valuation allowances on deferred tax assets significantly change, or when receipt of new information indicates the need for adjustment in valuation allowances.

Future events, such as changes in tax laws, tax regulations, or interpretations of such laws or regulations, could have an impact on the provision for income tax and the effective tax rate.

Any such changes could significantly affect the amounts reported in the consolidated financial statements in the year these changes occur.

Recent enactment of the tax laws or changes in tax laws resulting from the Organization for Economic Co-operation and Development’s multi-jurisdictional plan of action to address “base erosion and profit shifting” could impact our effective tax rate.

The calculation of our tax liabilities involves uncertainties in the application of complex changing tax regulations.

The India Finance Bill 2021 was enacted on March 28, 2021 after receiving approval of both houses of Parliament and assent of the President of India.

The key provision of this bill disallows depreciation on goodwill in case of merger/demerger/slump sale, but permits a deduction for the amount paid for acquired goodwill at time of sale.

The disallowance of tax depreciation on goodwill has been factored in the calculation of our tax liabilities.

Finance Bill 2021 (“Finance Bill”), which will become Finance Act 2021 after Royal Assent was published in March 2021.

The Finance Bill included increases in the corporation tax and diverted profits tax rates from April 1, 2023, the new temporary 130% super deduction first year capital allowances and the temporary extension to the carry-back of trading losses.

As the detail of the legislation has yet to be finalized or enacted, it is difficult at this stage to determine the impact of the Finance Bill on our future financial results in the U.K.

We may be required to change our provision for income taxes when the ultimate treatment of certain items is challenged or agreed to by taxing authorities.

The Finance Act 2021 in the U.K.

took effect after Royal Assent was received in June 2021.

The Finance Act 2021 included increases in the corporation tax and diverted profits tax rates beginning on April 1, 2023, establishes a new temporary 130% super deduction for first year capital allowances and temporarily extends the carry-back of trading losses.

The increase in the U.K.

corporate tax rate and super deduction have been factored into the calculation of our income tax provision.

Business Combinations

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Our management evaluates these assumptions annually and updates assumptions as necessary.

The fair value of assets is determined based on observable inputs for similar assets or on significant unobservable inputs if not available.

The fair value of assets is determined based on observable inputs for similar assets or on significant unobservable inputs if observable inputs are not available.

Two of the most significant assumptions are the expected long-term rate of return on plan assets and the discount rate.

Our weighted average rates used were:

March 31, 2021 March 31, 2020 March 31, 2019

March 31, 2022 March 31, 2021

Discount rates 2.0 % 2.4 %

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Valuation of Assets

We review long-lived ("assets, intangible assets, and goodwill") for impairment in accordance with our accounting policy disclosed in Note 1 - Summary of Significant Accounting Policies.

Assessing the fair value of assets involves significant estimates and assumptions including estimation of future cash flows, the timing of such cash flows, and discount rates reflecting the risk inherent in projecting future cash flows.

We review long-lived assets, intangible assets, and goodwill for impairment in accordance with our accounting policy disclosed in Note 1 - "Summary of Significant Accounting Policies." Assessing the fair value of assets involves significant estimates and assumptions including estimation of future cash flows, the timing of such cash flows, and discount rates reflecting the risk inherent in projecting future cash flows.

The valuation of long-lived and intangible assets involves management estimates about future values and remaining useful lives of assets, particularly purchased intangible assets.

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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-K

Item 7. Management’s Discussion and Analysis