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Item 2. Management’s Discussion and Analysis

2022-08-04 compared with 2022-02-03 · 161 added, 306 removed, 176 unchanged (73% of the section changed)

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

The purpose of the Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is to present information that management believes is relevant to an assessment and understanding of our results of operations and cash flows for the third quarter and first nine months of fiscal 2022 and our financial condition as of December 31, 2021.

The purpose of the Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is to present information that management believes is relevant to an assessment and understanding of our results of operations and cash flows for the first quarter of fiscal 2023 and our financial condition as of June 30, 2022.

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

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• Liquidity and Capital Resources

• Off-Balance Sheet Arrangements

• Contractual Obligations

• Critical Accounting Policies and Estimates

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

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

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.

• Critical Accounting Estimates

The following discussion includes a comparison of our results of operations and liquidity and capital resources for the first quarters of fiscal 2023 and fiscal 2022.

References are made throughout to the numbered Notes to the Condensed Consolidated Financial Statements (“Notes”) in this Quarterly Report on Form 10-Q.

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 to drive new levels of performance, competitiveness, and customer experience across their IT estates.

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

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

Three Months Ended Nine Months Ended

(In millions, except per-share amounts) December 31, 2021 December 31, 2020 December 31, 2021 December 31, 2020

The following table sets forth certain financial data for the first quarters of fiscal 2023 and fiscal 2022:

Three Months Ended

(In millions, except per-share amounts) June 30, 2022 June 30, 2021

Revenues $ 3,707 $ 4,141

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Diluted earnings per share $ 0.43 $ 1.07

Fiscal 2022 Third Quarter Highlights

Financial highlights for the third quarter and first nine months of fiscal 2022 include the following:

• Revenues for the third quarter and first nine months of fiscal 2022 were $4.1 billion and $12.3 billion, respectively, a decrease of 4.6% and 8.1%, respectively, as compared to the third quarter and first nine months of fiscal 2021.

See "Revenues” caption below for additional information.

• Net income and diluted earnings per share for the third quarter of fiscal 2022 were $102 million and $0.38, respectively.

Net income decreased by $1,001 million during the third quarter of fiscal 2022 as compared to the same period of prior fiscal year.

The decrease was primarily due to the gain on disposition of the HHS business during the third quarter of fiscal 2021 and a reduction in revenue in the current period partially offset by 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.

Net income included the cumulative impact of $137 million, reflecting restructuring costs, transaction, separation and integration-related costs, amortization of acquired intangible assets, gains and losses on dispositions, debt extinguishment costs, pension and other post-retirement benefit ("OPEB") actuarial and settlement losses, and a tax adjustment.

This compares with net income and diluted earnings per share of $1,103 million and $4.29, respectively, for the third quarter of fiscal 2021.

• Net income and diluted earnings per share for the first nine months of fiscal 2022 were $197 million and $0.73, respectively.

Net income decreased by $461 million during the first nine months of fiscal 2022 as compared to the same period of prior fiscal year.

In addition to the previously described activity for the third quarter of fiscal 2022, decreases in net income for the first nine months of fiscal 2022 also reflects higher debt extinguishment costs partially offset by the gain on disposition of the HPS business during the first quarter of fiscal 2022.

Net income included the cumulative impact of $497 million, reflecting restructuring costs, transaction, separation and integration-related costs, amortization of acquired intangible assets, gains on dispositions, impairment losses, debt extinguishment costs, pension and OPEB actuarial and settlement losses, and a tax adjustment.

This compares with net income and diluted earnings per share of $658 million and $2.54, respectively, for the first nine months of fiscal 2021.

• Our cash and cash equivalents were $2.9 billion as of December 31, 2021.

• We generated $1,230 million of cash from operations during the first nine months of fiscal 2022, as compared to $404 million during the first nine months of fiscal 2021.

See “Liquidity and Capital Resources” caption below for additional information.

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

Three Months Ended

(in millions) December 31, 2021 December 31, 2020 Change Percentage Change

$ 1,946 $ 1,921 $ 25 1.3 %

Fiscal 2023 First Quarter Highlights

Financial highlights for the first quarter of fiscal 2023 include the following:

• Revenues for the first quarter of fiscal 2023 were $3.7 billion, a decrease of 10.5% as compared to the first quarter of fiscal 2022.

See "Revenues” below for additional information.

• Net income and diluted earnings per share for the first quarter of fiscal 2023 were $103 million and $0.43, respectively.

Net income decreased by $179 million during the first quarter of fiscal 2023 as compared to the first quarter of fiscal 2022.

Net income for the first quarter of fiscal 2022 included $377 million of gain on disposition of business.

• Our cash and cash equivalents were $2.2 billion as of June 30, 2022.

• We generated $163 million of net cash provided by operating activities during the first quarter of fiscal 2023, a change of $192 million as compared to $29 million of net cash used in operating activities during the first quarter of fiscal 2022.

During the first quarters of fiscal 2023 and fiscal 2022, the distribution of our revenues across operating segments and geographies were as follows:

Three Months Ended Three Months Ended

(in millions) June 30, 2022 June 30, 2021 Percentage Change Constant Currency

June 30, 2022 (1)

Percentage Change in Constant Currency (1)

Geographic Market

United States $ 1,131 $ 1,209 (6.5) % $ 1,131 (6.5) %

473 602 (21.4) % 527 (12.5) %

Other Europe 1,138 1,305 (12.8) % 1,262 (3.3) %

Australia 391 401 (2.5) % 422 5.2 %

Other International 574 624 (8.0) % 606 (2.9) %

Total Revenues $ 3,707 $ 4,141 (10.5) % $ 3,948 (4.7) %

$ 4,089 $ 4,288 $ (199) (4.6) %

Nine Months Ended

(in millions) December 31, 2021 December 31, 2020 Change Percentage Change

$ 5,706 $ 6,337 $ (631) (10.0) %

6,551 7,007 (456) (6.5) %

Reportable Segments

GBS $ 1,758 $ 1,887 (6.8) % $ 1,869 (1.0) %

GIS 1,949 2,254 (13.5) % 2,079 (7.8) %

Total Revenues $ 3,707 $ 4,141 (10.5) % $ 3,948 (4.7) %

$ 12,257 $ 13,344 $ (1,087) (8.1) %

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

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

The decrease in revenues for first nine months of fiscal 2022 compared with fiscal 2021 of the same period, also reflects the disposition of the HHS business during the third quarter of fiscal 2021.

Revenues for the third quarter included an unfavorable foreign currency exchange rate impact of 1.0% and a favorable foreign currency exchange rate impact of 2.1% for the first nine months of fiscal 2022.

These impacts were primarily driven by the strengthening of the U.S.

dollar against the Euro and Australian Dollar during the third quarter of fiscal 2022 and an overall weakening of the U.S.

dollar against the British Pound, Canadian Dollar, and Australian Dollar for the first nine months of fiscal 2022.

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

As a global company, approximately 71% of our revenues for the first nine months of fiscal 2022 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:

Three Months Ended

(in millions) Constant Currency

December 31, 2021 December 31, 2020 Change Percentage Change

GBS $ 1,971 $ 1,921 $ 50 2.6 %

GIS 2,163 2,367 (204) (8.6) %

Total $ 4,134 $ 4,288 $ (154) (3.6) %

Nine Months Ended

(in millions) Constant Currency

December 31, 2021 December 31, 2020 Change Percentage Change

GBS $ 5,606 $ 6,337 $ (731) (11.5) %

GIS 6,373 7,007 (634) (9.0) %

Total $ 11,979 $ 13,344 $ (1,365) (10.2) %

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

The decrease in revenues for the first quarter of fiscal 2023, compared with the first quarter of fiscal 2022 included an unfavorable foreign currency exchange rate impact of 5.8%, primarily driven by the strengthening of the U.S.

dollar against the Euro, British Pound and Australian Dollar.

For the discussion of risks associated with our foreign operations, see Part 1, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended March 31, 2022.

Global Business Services

Our GBS revenues were $1.9 billion in the third quarter and $5.7 billion in the first nine months of fiscal 2022, an increase of 1.3% for the third quarter and a decrease of 10.0% for the first nine months of fiscal 2022 as compared to the same periods in fiscal 2021.

GBS revenue in constant currency increased by 2.6% in the third quarter and decreased 11.5% during the first nine months of fiscal 2022 as compared to the same periods in fiscal 2021.

The increase in GBS revenues for the third quarter of fiscal 2022 was primarily due to an increase in run-rate project volumes and additional services provided to new and existing customers, including revenues from software licenses.

The increase in revenue for the third quarter of fiscal 2022 was partially offset by the disposition of the HPS business at the beginning of the first quarter of fiscal 2022 and project completions.

The decrease in GBS revenues for the first nine months of fiscal 2022 also reflects the disposition of the HHS business during the third quarter fiscal 2021.

For the third quarter and first nine months of fiscal 2022, GBS contract awards were $2.5 billion and $6.6 billion, respectively, as compared to $2.7 billion and $8.6 billion in the corresponding periods of fiscal 2021.

Our GBS revenues were $1.8 billion in the first quarter of fiscal 2023, a decrease of 6.8% compared to the same period in fiscal 2022.

GBS revenue in constant currency decreased 1.0% compared to the same period in fiscal 2022.

The decrease in GBS revenues was primarily due to project completions and the disposition of businesses during fiscal 2022 and the first quarter of fiscal 2023.

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

For the first quarter of fiscal 2023, GBS contract awards were $1.7 billion, as compared to $2.4 billion during the first quarter of fiscal 2022.

Global Infrastructure Services

Our GIS revenues were $2.1 billion in the third quarter and $6.6 billion in the first nine months of fiscal 2022, a decrease of 9.5% and 6.5%, respectively, compared to the same periods in fiscal 2021.

GIS revenues in constant currency decreased by 8.6% and 9.0% in the third quarter and first nine months of fiscal 2022, respectively, as compared to the same periods in fiscal 2021.

The decrease in GIS revenues for the third quarter of fiscal 2022 was primarily due to project completions, project terminations, and a decrease in run-rate project volumes.

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

The decrease in GIS revenues for the first nine months of fiscal 2022 also reflects the dispositions of the HHS business during the third quarter fiscal 2021 and other insignificant businesses.

For the third quarter and first nine months of fiscal 2022, GIS contract awards were $2.5 billion and $6.7 billion, respectively, as compared to $2.2 billion and $6.5 billion in the corresponding periods of fiscal 2021.

Our GIS revenues were $1.9 billion in the first quarter of fiscal 2023, a decrease of 13.5% compared to the same period of fiscal 2022.

GIS revenue in constant currency decreased 7.8% compared to the same period of fiscal 2022.

The decrease in GIS revenues primarily reflects project completions, project terminations, and a decrease in pass-through revenue associated with the resale of hardware and software.

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

For the first quarter of fiscal 2023, GIS contract awards were $1.5 billion, as compared to $2.2 billion during the first quarter of fiscal 2022.

Costs and Expenses

Our total costs and expenses are shown in the tables below:

Our total costs and expenses is shown in the tables below:

Three Months Ended

Amount Percentage of Revenues Percentage Point Change

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

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

$ 3,179 $ 3,333 77.8 % 77.8 % —

Selling, general and administrative (excludes depreciation and amortization and restructuring costs) 340 517 8.3 12.1 (3.8)

Depreciation and amortization 424 475 10.4 11.1 (0.7)

Restructuring costs 36 104 0.9 2.4 (1.5)

Interest expense 38 82 0.9 1.9 (1.0)

Interest income (15) (28) (0.4) (0.7) 0.3

Debt extinguishment costs 2 — — — —

Loss (gain) on disposition of businesses 4 (2,046) 0.1 (47.7) 47.8

Other income, net (85) (127) (2.1) (3.0) 0.9

Total Costs and Expenses

$ 3,923 $ 2,310 95.9 % 53.9 % 42.0

Nine Months Ended

Amount Percentage of Revenues Percentage Point Change

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

(in millions)

June 30, 2022 June 30, 2021 Change Percentage Change

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

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$ 3,585 $ 3,717 $ (132) (3.6) %

The 42.0 and 8.0 percentage point increase in total costs and expenses as a percentage of revenue for the third quarter and first nine months of fiscal 2022 primarily reflects the gain on disposition of businesses resulting from the sale of the Company’s HHS business that occurred during the third quarter of fiscal 2021.

Total costs and expenses as a percentage of revenue increased 690 basis points for the first quarter of fiscal 2023 as compared to the first quarter of fiscal 2022, reflecting a reduction of $348 million in gain on disposition of businesses.

Total costs and expenses for the first quarter of fiscal 2023 included a favorable foreign currency exchange rate impact of $216 million.

Costs of Services

Costs of services, excluding depreciation and amortization and restructuring costs (“COS”), was $3.2 billion and $9.5 billion for the third quarter and first nine months of fiscal 2022, respectively.

COS decreased by $154 million and $1,003 million during the third quarter and first nine months of fiscal 2022, respectively, as compared to the same periods of the prior fiscal year.

The decrease in COS for the third quarter of fiscal 2022, compared with fiscal 2021 of the same period, primarily reflects cost optimization savings realized during fiscal 2022 and reduced costs resulting from the dispositions of the HPS business and other insignificant businesses during the first quarter of fiscal 2022.

The decrease in COS for the first nine months of fiscal 2022 compared with fiscal 2021 of the same period, also reflects the disposition of the HHS business during the third quarter of fiscal 2021.

COS as a percentage of revenues were consistent during the third quarter and decreased 1.2 points during the first nine months of fiscal 2022, as compared to the same period of the prior fiscal year.

This point decrease was primarily driven by cost reductions exceeding the associated decline in revenue compared to the same period in the prior fiscal year.

Costs of services, excluding depreciation and amortization and restructuring costs (“COS”), were $2,930 million for the first quarter of fiscal 2023.

COS decreased $325 million during the first quarter of fiscal 2023 as compared to the same period of the prior fiscal year.

The decrease was primarily due to a favorable foreign currency exchange rate impact of $195 million.

The decrease in COS was also driven by cost optimization savings realized during the first quarter of fiscal 2023, partially offset by increased labor investments.

COS as a percentage of revenue increased 40 basis points primarily driven by a decline in revenue exceeding the associated decline in costs 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 $340 million and $1,093 million for the third quarter and first nine months of fiscal 2022, respectively.

SG&A decreased by $177 million and $502 million during the third quarter and first nine months of fiscal 2022, respectively, as compared to the same periods of the prior fiscal year.

The decrease in SG&A for the third quarter of fiscal 2022, compared with fiscal 2021 of the same period, reflects 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 and other insignificant businesses during the first quarter of fiscal 2022.

The decrease in SG&A for the first nine months of fiscal 2022 compared with fiscal 2021 of the same period, also reflects the disposition of the HHS business during the third quarter of fiscal 2021

Transaction, separation and integration-related costs of $11 million and $23 million were included in SG&A for the third quarter and first nine months of fiscal 2022, as compared to $96 million and $307 million for the comparable periods of the prior fiscal year.

Selling, general and administrative expense, excluding depreciation and amortization and restructuring costs (“SG&A”), was $349 million for the first quarter of fiscal 2023, a decrease of $34 million compared to the same period of the prior fiscal year.

The decrease in SG&A during the first quarter of fiscal 2023 was primarily driven by reductions in payroll and related expenses and real estate costs, and included a favorable foreign currency exchange rate impact of $13 million.

The decrease in SG&A was partially offset by a $10 million charge for merger related indemnification costs.

Transaction, separation and integration-related costs of $2 million were included in SG&A for the first quarter of fiscal 2023, as compared to $9 million for the comparable period of the prior fiscal year.

Depreciation and Amortization

Depreciation expense was $156 million and $479 million for the third quarter and first nine months of fiscal 2022, respectively.

Depreciation expense decreased by $29 million and $84 million during the third quarter and first nine months of fiscal 2022, respectively, as compared to the same periods of the prior fiscal year.

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

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

Amortization expense was $268 million and $815 million for the third quarter and first nine months of fiscal 2022, respectively.

Amortization expense decreased by $22 million and $114 million during the third quarter and first nine months of fiscal 2022, respectively, as compared to the same periods of the prior fiscal year.

The net decrease in amortization expense for the third quarter of fiscal 2022 was primarily due to asset retirements and a decline in amortization related to transition and transformation contract costs.

The net decrease in amortization expense for the first nine months of fiscal 2022 was primarily due to a reduction in customer related intangibles related to the disposition of the HHS business at the beginning of the third quarter of fiscal 2021.

See Note 4 – “Divestitures” for additional information.

Depreciation expense was $138 million for the first quarter of fiscal 2023, as compared to $158 million in the same period of the prior fiscal year, a decrease of $20 million primarily due to lower average net property and equipment balances.

The decrease in depreciation expense included a favorable foreign currency exchange rate impact of $7 million.

Amortization expense was $251 million for the first quarter of fiscal 2023, as compared to $264 million in the same period of the prior fiscal year, a decrease of $13 million primarily due to a favorable change in foreign currency exchange rate impact of $10 million.

Restructuring Costs

Restructuring costs represent severance related to workforce optimization programs and expense associated with facilities and data center rationalization.

During fiscal 2023, management approved global cost savings initiatives designed to better align our workforce and facility structures.

During the third quarter and first nine months of fiscal 2022, restructuring costs, net of reversals, were $36 million and $248 million, respectively, as compared to $104 million and $441 million during the same periods of the prior fiscal year.

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

Total restructuring costs recorded, net of reversals, was $33 million for the first quarter of fiscal 2023, as compared to $67 million in the same period of the prior fiscal year, a decrease of $34 million.

See Note 12 – “Restructuring Costs” for additional information about our restructuring actions.

Interest Expense and Interest Income

Interest expense was $38 million and $161 million for the third quarter and first nine months of fiscal 2022, respectively.

Interest expense decreased by $44 million and $123 million during the third quarter and first nine months of fiscal 2022, respectively, as compared to the same periods of the prior fiscal year.

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

Interest income was $15 million and $51 million for the third quarter and first nine months of fiscal 2022, respectively.

Interest income decreased by $13 million and $25 million during the third quarter and first nine months of fiscal 2022, respectively, as compared to the same periods of the prior fiscal year.

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

Interest expense for the first quarter of fiscal 2023 was $37 million, as compared to $62 million for the first quarter of fiscal 2022, a decrease of 40.3%.

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 subsequent to the first quarter in fiscal 2022 and decreases in interest expense from finance leases and borrowings for asset financing.

Interest income for the first quarter of fiscal 2023 was $20 million, consistent with the same period in the prior fiscal year.

Debt Extinguishment Costs

Debt extinguishment costs were $2 million and $311 million for the third quarter and first nine months of fiscal 2022, respectively.

Debt extinguishment costs for the third quarter of fiscal 2022 include costs related to the decrease in our revolving credit facility limit from $4 billion to $3 billion.

Debt extinguishment costs for the first nine months of fiscal 2022 also includes activity from the first and second quarters of fiscal 2022 consisting of 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, 4.750% senior notes due fiscal 2028, 7.45% senior notes due fiscal 2030, and extinguishment of debt associated with asset financing.

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

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

There were no debt extinguishment costs during the first quarter of fiscal 2023.

Gain on Disposition of Businesses

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 $337 million, net of closing costs for the first nine months of fiscal 2022.

Insignificant businesses were also sold during the first quarter of fiscal 2022 that resulted in a gain of $49 million for the first nine months of fiscal 2022.

This was partially offset by $13 million in sales price adjustments related to prior year dispositions for the first nine months of fiscal 2022, which resulted from changes in projected closing net working capital.

During the third quarter of fiscal 2021, DXC sold its U.S.

State and Local Health and Human Services business for a total enterprise value of $5.0 billion and resulted in an estimated pre-tax gain on sale of $2,041 million, net of closing costs for both the third quarter and first nine months of fiscal 2021.

Insignificant businesses were also sold during the third quarter of fiscal 2021 that resulted in a gain of $5 million.

The gain on sale of the U.S.

State and Local Health and Human Services business was adjusted during the fourth quarter of fiscal 2021 for $27 million.

During the first quarter of fiscal 2023, DXC sold insignificant businesses that resulted in a gain of $38 million.

This gain was partially offset by a loss of $9 million related to certain insignificant businesses classified as held for sale as of June 30, 2022.

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 $341 million, net of closing costs.

The pre-tax gain on sale was further adjusted during subsequent quarters of fiscal 2022 resulting in a final pre-tax gain on sale of $331 million for fiscal 2022.

Insignificant businesses were also sold during the first quarter of fiscal 2022 that resulted in a gain of $49 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.

Other Income, Net

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

Other income was $85 million and $290 million for the third quarter and first nine months of fiscal 2022, respectively.

Other income decreased by $42 million and $28 million during the third quarter and first nine months of fiscal 2022, respectively, as compared to the same periods of the prior fiscal year.

These decreases were primarily due to lower net gains on sales of operating and non-operating assets and a decrease in non-service components of net periodic pension income.

Our effective tax rate (“ETR”) was 38.6% and 44.2% for the three months ended December 31, 2021 and December 31, 2020, respectively, and 42.4% and 54.5% for the nine months ended December 31, 2021 and December 31, 2020, respectively.

For the three months ended December 31, 2021, the primary drivers of the ETR were the global mix of income, an increase in unrecognized tax benefits primarily related to deductions taken in prior tax returns and tax rate changes in non-U.S.

jurisdictions.

For the nine months ended December 31, 2021, the primary drivers of the ETR were the global mix of income, gain on sale of HPS business, tax rate changes in non-U.S.

jurisdictions and recording a valuation allowance on certain deferred tax assets in non-U.S.

Three Months Ended

(in millions) June 30, 2022 June 30, 2021

Non-service cost components of net periodic pension income $ (67) $ (97)

Foreign currency loss (2) 1

Other gain (35) (7)

Total $ (104) $ (103)

The $1 million increase in other income, net, for the first quarter of fiscal 2023, as compared to the same period of the prior fiscal year, was due to a year-over-year increase of $28 million in other gains from sales of non-operating assets and a year-over-year favorable foreign currency impact of $3 million offset by a year-over-year decrease of $30 million in non-service cost components of net periodic pension income attributable to changes in expected returns on assets and other actuarial assumptions.

Our effective tax rate (“ETR”) was 15.6% and 33.5% for the first quarter of fiscal 2023 and the first quarter of fiscal 2022, respectively.

For the first quarter of fiscal 2023, the primary drivers of the ETR were the global mix of income, U.S.

tax on foreign income and base erosion payments, and a decrease in uncertain tax positions due to statute of limitation expirations.

For the first quarter of fiscal 2022, the primary drivers of the ETR were the global mix of income, gain on sale of the HPS business, and tax rate changes in non-U.S.

jurisdictions.

For the three and nine months ended December 31, 2020, the primary drivers of the ETR were the gain on sale of HHS Business, global mix of income and foreign tax credits.

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

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

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

The IRS recently published final regulations for U.S.

foreign tax credits that will be effective for future periods.

The Company is currently assessing the impact of these regulations.

Earnings Per Share

Diluted EPS for the third quarter and first nine months of fiscal 2022 was $0.38 and $0.73, respectively.

Diluted EPS decreased by $3.91 and $1.81 during the third quarter and first nine months of fiscal 2022, respectively, as compared to the same periods of the prior fiscal year.

Decreases in diluted EPS were due to decreases in net income of $1,001 million and $461 million during the third quarter and first nine months of fiscal 2022, respectively, over the same periods in the prior fiscal year.

Diluted EPS for the third quarter of fiscal 2022 includes $0.13 per share of restructuring costs, $0.04 per share of transaction, separation and integration-related costs, $0.36 per share of amortization of acquired intangible assets, $0.02 per share of net losses on dispositions, $0.01 per share of debt extinguishment costs, $0.02 per share of pension and OPEB actuarial and settlement losses, and $(0.04) per share of tax adjustments relating to the net revaluation of deferred taxes resulting from changes in non-US jurisdiction tax rates.

Diluted EPS for the first nine months of fiscal 2022 includes $0.78 per share of restructuring costs, $0.07 per share of transaction, separation and integration-related costs, $1.02 per share of amortization of acquired intangible assets, $(0.98) per share of net gains on dispositions, $0.03 per share of impairment losses, $0.92 per share of debt extinguishment costs, $0.02 per share of pension and OPEB actuarial and settlement losses, and $0.07 per share of tax adjustments relating to the net revaluation of deferred taxes resulting from changes in non-US jurisdiction tax rates.

Diluted EPS for the first quarter of fiscal 2023 was $0.43, as compared to $1.07 in the first quarter of fiscal 2022, a decrease of $0.64 due to a decrease of $176 million in net income attributable to DXC common stockholders.

Diluted EPS for the first quarter of fiscal 2023 includes $0.11 per share of restructuring costs, $0.01 per share of transaction, separation and integration-related costs, $0.34 per share of amortization of acquired intangible assets, $0.03 per share of merger related indemnification costs, and $(0.16) per share of net gains on dispositions.

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

Non-GAAP Financial Measures

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

One category of expenses excluded from adjusted EBIT, non-GAAP income 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 before tax, non-GAAP net income and non-GAAP EPS is impairment losses, which 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 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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This approach is used for all results where the functional currency is not the U.S.

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

Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Fiscal 2023 First Quarter Highlights.”

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

Three Months Ended

(in millions) December 31, 2021 December 31, 2020 Change Percentage Change

Income before income taxes $ 166 $ 1,978 $ (1,812) (91.6) %

Non-GAAP income before income taxes $ 332 $ 246 $ 86 35.0 %

Net income $ 102 $ 1,103 $ (1,001) (90.8) %

Adjusted EBIT $ 355 $ 300 $ 55 18.3 %

Nine Months Ended

(in millions) December 31, 2021 December 31, 2020 Change Percentage Change

(in millions) June 30, 2022 June 30, 2021 Change Percentage Change

Income before income taxes $ 122 $ 424 $ (302) (71.2) %

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• Amortization of acquired intangible assets – includes amortization of intangible assets acquired through business combinations.

• Merger related indemnification - represents the Company’s current estimate of potential liability to HPE for indemnification following the outcome of the Oracle v.

HPE litigation in June 2022;

obligation pursuant to ES-CSC merger.

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

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

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

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

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

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

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

The TSI-Related costs for the third quarter of fiscal 2022 include $10 million of costs incurred in connection with activities related to acquisitions and divestitures;

and $1 million of expenses related to integration projects from the HPES merger.

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

$4 million legal costs and ($14 million) credit towards Peraton Arbitration settlement, $5 million in expenses related to integration projects resulting from the HPES merger (including costs associated with continuing efforts to separate certain IT systems) and $15 million of costs incurred in connection with activities related to other acquisitions and divestitures.

(2) Gains and losses on dispositions for the first nine months of fiscal 2022 include a $337 million gain on sale of the HPS business, gains of $19 million on other dispositions and ($13 million) of adjustments relating to the sale of the HHS business.

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

(4) Debt extinguishment costs adjustments for the third quarter of fiscal 2022 include $2 million related to the decrease in our revolving credit facility limit.

Debt extinguishment costs adjustments for the first nine months of fiscal 2022 reflects $2 million related to the decrease in our revolving credit facility limit, $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, and $71 million to fully redeem our 7.45% senior notes due fiscal 2030.

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

(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 the first quarter of fiscal 2023 include $2 million of costs incurred in connection with activities related to acquisitions and divestitures.

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

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

(2) See Note 19 – “Commitments and Contingencies,” Oracle America, Inc., et al.

Hewlett Packard Enterprise Company .

(3) Gains and losses on dispositions for the first quarter of fiscal 2023 include a net gain of $38 million on dispositions and a loss of $9 million related to certain insignificant businesses classified as held for sale as of June 30, 2022.

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

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

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

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

Three Months Ended December 31, 2021

Three Months Ended June 30, 2022

(in millions, except per-share amounts) As

Reported Restructuring

Costs Transaction, Separation

and Integration-Related

Costs Amortization

Intangible Assets Gains and

Dispositions Debt

Extinguishment

Costs Pension and

Actuarial and

Settlement Losses Tax

Adjustment Non-GAAP

Costs Transaction,

Separation and

Integration-Related Costs Amortization

Assets Merger Related

Indemnification Gains and

Dispositions Non-GAAP

Income before income taxes $ 122 $ 33 $ 2 $ 104 $ 10 $ (29) $ 242

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Diluted EPS 237.38 237.38 237.38 237.38 237.38 237.38 237.38

Nine Months Ended December 31, 2021

Three Months Ended June 30, 2021

(in millions, except per-share amounts) As

Reported Restructuring

Costs Transaction, Separation

and Integration-Related

Costs Amortization

Intangible Assets Gains and

Dispositions Impairment

Costs Transaction,

Separation and

Integration-Related Costs Amortization

Assets Gains and

Dispositions Debt

Extinguishment

Costs Pension and

Actuarial and

Settlement Losses Tax

Adjustment Non-GAAP

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Diluted EPS 260.32 260.32 260.32 260.32 260.32 260.32 260.32 260.32

Three Months Ended December 31, 2020

(in millions, except per-share amounts) As

Reported Restructuring

Costs Transaction, Separation

and Integration-Related

Costs Amortization

Intangible Assets Gain on

of Businesses Non-GAAP

Income before income taxes $ 1,978 $ 104 $ 96 $ 114 (2,046) $ 246

Income tax expense 875 11 16 26 (903) 25

Net income 1,103 93 80 88 (1,143) 221

net income attributable to non-controlling interest, net of tax 5 — — — — 5

Net income attributable to DXC common stockholders $ 1,098 $ 93 $ 80 $ 88 $ (1,143) $ 216

Effective Tax Rate 44.2 % 10.2 %

Basic EPS $ 4.32 $ 0.37 $ 0.31 $ 0.35 $ (4.49) $ 0.85

Diluted EPS $ 4.29 $ 0.36 $ 0.31 $ 0.34 $ (4.47) $ 0.84

Weighted average common shares outstanding for:

Basic EPS 254.32 254.32 254.32 254.32 254.32 254.32

Diluted EPS 255.75 255.75 255.75 255.75 255.75 255.75

Nine Months Ended December 31, 2020

(in millions, except per-share amounts) As

Reported Restructuring

Costs Transaction, Separation

and Integration-Related

Costs Amortization

Intangible Assets Gain on

of Businesses Pension and

Actuarial and

Settlement Losses Tax

Adjustment Non-GAAP

Income before income taxes $ 1,447 $ 441 $ 307 $ 414 $ (2,046) $ 2 — $ 565

Income tax expense 789 75 70 95 (903) — (2) 124

Net income 658 366 237 319 (1,143) 2 2 441

net income attributable to non-controlling interest, net of tax 9 — — — — — — 9

Net income attributable to DXC common stockholders $ 649 $ 366 $ 237 $ 319 $ (1,143) $ 2 $ 2 $ 432

Effective Tax Rate 54.5 % 21.9 %

Basic EPS $ 2.55 $ 1.44 $ 0.93 $ 1.26 $ (4.50) $ 0.01 $ 0.01 $ 1.70

Diluted EPS $ 2.54 $ 1.43 $ 0.93 $ 1.25 $ (4.48) $ 0.01 $ 0.01 $ 1.69

Weighted average common shares outstanding for:

Basic EPS 254.03 254.03 254.03 254.03 254.03 254.03 254.03 254.03

Diluted EPS 255.20 255.20 255.20 255.20 255.20 255.20 255.20 255.20

Reconciliations of net income to EBIT and adjusted EBIT are as follows:

Three Months Ended Nine Months Ended

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

Reconciliations of net income to adjusted EBIT are as follows:

Three Months Ended

(in millions) June 30, 2022 June 30, 2021

Net income $ 103 $ 282

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Interest expense 37 62

EBIT 189 2,032 452 1,655

Restructuring costs 33 67

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Amortization of acquired intangible assets 104 109

(Gains) and losses on dispositions 4 (2,046) (343) (2,046)

Impairment losses — — 10 —

Merger related indemnification 10 —

Gains on dispositions (29) (347)

Debt extinguishment costs — 28

Pension and OPEB actuarial and settlement losses 7 — 7 2

Adjusted EBIT $ 259 $ 332

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Cash and Cash Equivalents and Cash Flows

As of December 31, 2021, our cash and cash equivalents (“cash”) were $2.9 billion, of which $1.5 billion was held outside of the U.S.

As of June 30, 2022, our cash and cash equivalents (“cash”) were $2.2 billion, of which $1.0 billion was held outside of the U.S.

As of March 31, 2022, our cash was $2.7 billion, of which $1.3 billion was held outside of the U.S.

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

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

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

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

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

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

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.

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The following table summarizes our cash flow activity:

Nine Months Ended

(in millions) December 31, 2021 December 31, 2020 Change

Net cash provided by operating activities $ 1,230 $ 404 $ 826

Net cash provided by investing activities 93 4,500 (4,407)

Net cash used in financing activities (1,460) (4,671) 3,211

Three Months Ended

(in millions) June 30, 2022 June 30, 2021 Change

Net cash provided by (used in):

Operating activities $ 163 $ (29) $ 192

Investing activities (192) 311 (503)

Financing activities (394) (866) 472

Effect of exchange rate changes on cash and cash equivalents (50) 13 (63)

Cash classified within current assets held for sale 10 63 (53)

Net (decrease) increase in cash and cash equivalents (49) 240 $ (289)

Net decrease in cash and cash equivalents $ (463) $ (508) $ 45

Cash and cash equivalents at beginning of year 2,672 2,968

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Operating cash flow

Net cash provided by operating activities during the first nine months of fiscal 2022 was $1,230 million as compared to $404 million during the comparable period of the prior fiscal year.

The increase of $826 million was primarily due to an increase in net income, net of adjustments of $1,503 million, partially offset by a $677 million unfavorable change in working capital due to higher working capital outflows during the first nine months of fiscal 2022.

Net cash provided by (used in) operating activities during the first quarter of fiscal 2023 was $163 million as compared to $(29) million during the comparable period of the prior fiscal year.

The change of $192 million was primarily due to a increase in net income, net of adjustments of $141 million, and a $51 million favorable change in working capital due to lower working capital outflows during the first quarter of fiscal 2023.

The following table contains certain key working capital metrics:

Nine Months Ended

December 31, 2021 December 31, 2020

June 30, 2022 June 30, 2021

Days of sales outstanding in accounts receivable 70 70

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Investing cash flow

Net cash provided by investing activities during the first nine months of fiscal 2022 was $93 million as compared to $4,500 million during the comparable period of the prior fiscal year.

The decrease in net cash provided of $4,407 million was primarily due to a decrease in business dispositions of $4,423 million and a decrease in cash collections related to deferred purchase price receivables of $159 million.

This was partially offset by an increase in proceeds from sale of assets of $68 million, a decrease in capital expenditures of $33 million, and proceeds from short-term investing of $24 million.

Net cash (used in) provided by investing activities during the first quarter of fiscal 2023 was $(192) million as compared to $311 million during the comparable period of the prior fiscal year.

The change of $503 million was primarily due to decreases in cash from business dispositions of $549 million and in proceeds from sale of assets of $53 million.

These decreases were partially offset by a decrease in capital expenditures of $100 million.

Financing cash flow

Net cash used in financing activities during the first nine months of fiscal 2022 was $1,460 million as compared to $4,671 million during the comparable period of the prior fiscal year.

The $3,211 million decrease in cash used was primarily due to increased net borrowings on long-term debt of $1,998 million, and net draws on commercial paper of $492 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 $352 million, payments for debt extinguishment costs of $344 million, and an increase in payments on capital leases and borrowings for asset financing of $161 million.

Net cash used in financing activities during the first quarter of fiscal 2023 was $394 million as compared to $866 million during the comparable period of the prior fiscal year.

The $472 million decrease was primarily due to a decrease in payments on capital leases and borrowings for asset financing of $335 million, an increase in commercial paper borrowings, net of repayments of $31 million, payments for debt extinguishment costs of $28 million and net repayments on long term debt of $333 million in the first quarter of fiscal 2022.

This was partially offset by an increase in share repurchases of $224 million.

Capital Resources

See Note 21 – “Commitments and Contingencies” for a discussion of the general purpose of guarantees and commitments.

See Note 19 – “Commitments and Contingencies” for disclosure of certain commitments.

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

The following table summarizes our total debt:

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

(in millions) June 30, 2022 March 31, 2022

Short-term debt and current maturities of long-term debt $ 904 $ 900

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Total debt $ 4,778 $ 4,965

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

Approximately $500 million of net finance lease liabilities and borrowings for assets acquired under long-term financing were also repaid during the first nine months of fiscal 2022 using the proceeds from the divestitures of other businesses and existing cash on hand.

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

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

Euro Senior Notes Issuance

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

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

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

Dollar Senior Notes Issuance

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

The proceeds from the USD Notes were used for the repayment of our remaining 4.125% senior notes due fiscal 2026, our 4.75% 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 December 31, 2021 and March 31, 2021.

The $187 million decrease in total debt during the first quarter of fiscal 2023 was primarily attributable to the favorable foreign currency exchange rate of U.S.

dollar against the Euro.

The decrease in total debt also included decreases in finance leases and borrowings for asset financing attributable to payments exceeding additions, partially offset by an increase in commercial paper borrowings.

We were in compliance with all financial covenants associated with our borrowings as of June 30, 2022 and June 30, 2021.

Our credit ratings are as follows:

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S&P BBB- - Stable

For information on the risks of ratings downgrades, see Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended March 31, 2022.

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

The following table summarizes our total liquidity:

(in millions) December 31, 2021

Cash and cash equivalents $ 2,919

Available borrowings under our revolving credit facility 3,000

Total liquidity

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

Our total liquidity of $5.2 billion as of June 30, 2022, includes $2.2 billion of cash and cash equivalents and $3.0 billion of available borrowings under our revolving credit facility.

Share Repurchases

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

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

During the nine months ended December 31, 2021, we repurchased 10,617,767 shares of our common stock at an aggregate cost of $363 million.

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

See Note 15 – “Stockholders’ Equity”.

To maintain our financial flexibility we continue to suspend payment of quarterly dividends for fiscal 2023.

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

There have been no material changes to our off-balance-sheet arrangements reported under Part II, Item 7 of our Annual Report on Form 10-K other than as disclosed below and in Note 6 – “Receivables” and Note 21 – “Commitments and Contingencies” to the financial statements in this Quarterly Report on Form 10-Q.

There have been no material changes to our off-balance-sheet arrangements reported under Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended March 31, 2022, other than as disclosed in Note 4 – “Receivables” and Note 19 – “Commitments and Contingencies”.

Contractual Obligations

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

Debt retirements and repayments:

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

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

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

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

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

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

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

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

Debt issuances:

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

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

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

For our minimum purchase commitments as of December 31, 2021, in connection with our long-term purchase agreements with certain software, hardware, telecommunication, and other service providers, see Note 21 – “Commitments and Contingencies.”

Critical Accounting Policies and Estimates

There have been no material changes, outside the ordinary course of business, to our contractual obligations since March 31, 2022.

For further information see “Contractual Obligations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended March 31, 2022

For our minimum purchase commitments as of June 30, 2022, in connection with our long-term purchase agreements with certain software, hardware, telecommunication, and other service providers, see Note 19 – “Commitments and Contingencies.”

Critical Accounting Estimates

The preparation of consolidated financial statements in accordance with U.S.

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

During the three months ended December 31, 2021, there were no changes to our critical accounting policies and estimates from those described in our fiscal 2021 Annual Report on Form 10-K except as mentioned in Note 1 – “Summary of Significant Accounting Policies.”

During the three months ended June 30, 2022, there were no changes to our critical accounting policies and estimates from those described in our fiscal 2022 Annual Report on Form 10-K except as mentioned in Note 1 – “Summary of Significant Accounting Policies.”

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis