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Item 2. Management’s Discussion and Analysis

2022-11-04 compared with 2022-08-04 · 198 added, 127 removed, 210 unchanged (61% of the section changed)

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

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

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

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

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Results of Operations

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

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

Three Months Ended Six Months Ended

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

Revenues $ 3,566 $ 4,027 $ 7,273 $ 8,168

Income before income taxes 122 424

Income tax expense 19 142

Net income $ 103 $ 282

Diluted earnings per share $ 0.43 $ 1.07

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:

Income (loss) before income taxes 54 (248) 176 176

Income tax expense (benefit) 26 (61) 45 81

Net income (loss) $ 28 $ (187) $ 131 $ 95

Diluted earnings (loss) per share $ 0.12 $ (0.74) $ 0.55 $ 0.35

Our revenue by geography and operating segment are provided below:

Three Months Ended Three Months Ended

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

June 30, 2022 (1)

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

September 30, 2022 (1)

Percentage Change in Constant Currency (1)

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Total Revenues $ 3,566 $ 4,027 (11.4) % $ 3,867 (4.0) %

Reportable Segments

Operating Segments

GBS $ 1,713 $ 1,873 (8.5) % $ 1,852 (1.1) %

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Total Revenues $ 3,566 $ 4,027 (11.4) % $ 3,867 (4.0) %

Six Months Ended Six Months Ended

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

September 30, 2022 (1)

Percentage Change in Constant Currency (1)

Geographic Market

United States $ 2,224 $ 2,402 (7.4) % $ 2,224 (7.4) %

925 1,171 (21.0) % 1,058 (9.6) %

Other Europe 2,202 2,559 (14.0) % 2,471 (3.4) %

Australia 762 796 (4.3) % 821 3.1 %

Other International 1,160 1,240 (6.5) % 1,241 0.1 %

Total Revenues $ 7,273 $ 8,168 (11.0) % $ 7,815 (4.3) %

Operating Segments

GBS $ 3,471 $ 3,760 (7.7) % $ 3,721 (1.0) %

GIS 3,802 4,408 (13.7) % 4,094 (7.1) %

Total Revenues $ 7,273 $ 8,168 (11.0) % $ 7,815 (4.3) %

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

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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.

For the second quarter of fiscal 2023, our total revenue was $3.6 billion, a decrease of $461 million or 11.4%, as compared to the same period a year ago.

The 11.4% decrease against the comparative period includes a 7.4% unfavorable foreign currency exchange rate impact, a 2.5% decline in revenue from the disposition of certain businesses, and a 1.5% decline in organic revenue.

For the first six months of fiscal 2023, our total revenue was $7.3 billion, a decrease of $895 million or 11.0%, as compared to the same period a year ago.

The 11.0% decrease against the comparative period includes a 6.7% unfavorable foreign currency exchange rate impact, a 2.2% decline in revenue from the disposition of certain businesses, and a 2.1% decline in organic revenue.

The unfavorable foreign currency exchange rate impact is primarily driven by the strengthening of the U.S.

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

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Global Business Services

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.

For the second quarter of fiscal 2023, GBS revenue was $1.7 billion, a decrease of $160 million or 8.5%, as compared to the same period a year ago.

The 8.5% decrease against the comparative period includes a 7.4% unfavorable foreign currency exchange rate impact and a 4.5% decline in revenue from the disposition of certain businesses, partially offset by 3.4% organic revenue growth from additional services provided to new and existing customers.

For the first six months of fiscal 2023, GBS revenue was $3.5 billion, a decrease of $289 million or 7.7%, as compared to the same period a year ago.

The 7.7% decrease against the comparative period includes a 6.7% unfavorable foreign currency exchange rate impact and a 4.1% decline in revenue from the disposition of certain businesses, partially offset by 3.1% organic revenue growth from additional services provided to new and existing customers.

For the second quarter and first six months of fiscal 2023, GBS contract awards were $1.7 billion and $3.4 billion, respectively, as compared to $1.7 billion and $4.1 billion, respectively, in the same periods in fiscal 2022.

Global Infrastructure Services

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.

For the second quarter of fiscal 2023, our GIS revenue was $1.9 billion, a decrease of $301 million or 14.0%, as compared to the same period a year ago.

The 14.0% decrease against the comparative period includes a 7.5% unfavorable foreign currency exchange rate impact, 0.7% decline in revenue from the disposition of certain businesses, and a 5.8% decline in organic revenue.

For the first six months of fiscal 2023, our GIS revenue was $3.8 billion, a decrease of $606 million or 13.7%, as compared to the same period a year ago.

The 13.7% decrease against the comparative period includes a 6.6% unfavorable foreign currency exchange rate impact, 0.6% decline in revenue from the disposition of certain businesses, and a 6.5% decline in organic revenue.

For the second quarter and first six months of fiscal 2023, GIS contract awards were $1.3 billion and $2.8 billion, respectively, as compared to $2.0 billion and $4.2 billion, respectively, in the same periods in fiscal 2022.

Costs and Expenses

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

Three Months Ended

(in millions)

June 30, 2022 June 30, 2021 Change Percentage Change

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

$ 2,930 $ 3,255 $ (325) (10.0) %

Selling, general and administrative (excludes depreciation and amortization and restructuring costs) 349 383 (34) (8.9) %

Our total costs and expenses are provided below:

Dollar Amount Dollar Amount

Three Months Ended September 30, Change Six Months Ended September 30, Change

(in millions) 2022 2021 Dollar Percent 2022 2021 Dollar Percent

Costs of services $ 2,775 $ 3,088 $ (313) (10.1) % $ 5,705 $ 6,343 $ (638) (10.1) %

Selling, general and administrative 324 370 (46) (12.4) 673 753 (80) (10.6)

Depreciation and amortization 380 448 (68) (15.2) 769 870 (101) (11.6)

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Debt extinguishment costs — 281 (281) (100.0) — 309 (309) (100.0)

Gain on disposition of businesses (29) (377) 348 (92.3) %

Loss (gain) on disposition of businesses 32 — 32 100.0 3 (377) 380 (100.8)

Other income, net (68) (102) 34 (33.3) (172) (205) 33 (16.1)

Total Costs and Expenses $ 3,512 $ 4,275 $ (763) (17.8) % $ 7,097 $ 7,992 $ (895) (11.2) %

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

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”), 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.

Costs of services, excluding depreciation and amortization and restructuring costs (“COS”), were $2.8 billion and $5.7 billion for the second quarter and first six months of fiscal 2023, respectively, a decrease of $313 million and $638 million, respectively, as compared to the same periods of the prior fiscal year.

The decreases were primarily due to a favorable foreign currency exchange rate impact of $237 million and $432 million for the second quarter and first six months of fiscal 2023, respectively, and lower spend on professional services and contractor-related expenses.

Selling, General and Administrative

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.

Selling, general and administrative expense, excluding depreciation and amortization and restructuring costs (“SG&A”), was $324 million and $673 million for the second quarter and first six months of fiscal 2023, respectively, a decrease of $46 million and $80 million, respectively, as compared to the same periods of the prior fiscal year.

The decreases were primarily due to a favorable foreign currency exchange rate impact of $24 million and $37 million for the second quarter and first six months of fiscal 2023, respectively, and decreases in real estate costs and lower spend on professional services and contractor-related expenses.

Depreciation and Amortization

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.

Depreciation expense was $129 million and $267 million for the second quarter and first six months of fiscal 2023, respectively, a decrease of $36 million and $56 million, respectively, as compared to the same periods of the prior fiscal year.

The decreases in depreciation expense were primarily due to lower average net property and equipment balances and favorable foreign currency exchange rate impacts of $10 million and $17 million for the second quarter and first six months of fiscal 2023, respectively

Amortization expense was $251 million and $502 million for the second quarter and first six months of fiscal 2023, respectively, a decrease of $32 million and $45 million, respectively, as compared to the same periods of the prior fiscal year.

The decreases in amortization expense were primarily due to decreases in software amortization, a reduction in transition and transformation contract cost amortization due to contract completions, and favorable foreign currency exchange rate impacts of $14 million and $24 million for the second quarter and first six months of fiscal 2023, respectively.

Restructuring Costs

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

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.

During the second quarter and first six months of fiscal 2023, restructuring costs, net of reversals, were $53 million and $86 million, respectively, a decrease of $92 million and $126 million, respectively, as compared to the same periods of the prior fiscal year.

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

Interest Expense and 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

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 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.

There were no debt extinguishment costs recorded for both the second quarter and first six months of fiscal 2023.

Debt extinguishment costs were $281 million and $309 million for the second quarter and first six months of fiscal 2022, respectively, for the partial and full redemption of term loans, senior notes, and extinguishment of debt associated with asset financing.

Loss (gain) on Disposition of Businesses

During the first six months of fiscal 2023, DXC sold insignificant businesses that resulted in a loss of $3 million.

In response to the ongoing sanctions against certain industry sectors and parties in Russia due to the impact of the “Russia-Ukraine Conflict”, DXC completed the sale of its primary Russian entity in the first quarter of fiscal 2023.

During the second quarter of fiscal 2023, DXC revised its estimate of proceeds from this divestiture based on the evolving conditions in the region.

During the first six months of fiscal 2022, DXC sold its HPS business for approximately $551 million, resulting in an estimated pre-tax gain on sale of $341 million, net of closing costs.

DXC also sold certain insignificant businesses 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 estimated net working capital.

Interest Expense and Interest Income

Interest expense was $44 million and $81 million for the second quarter and first six months of fiscal 2023, respectively.

Interest expense decreased by $17 million and $42 million during the second quarter and first six months of fiscal 2023, 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, the Company's refinancing of its high coupon debt in fiscal 2022 and decreases in interest expense from finance leases and borrowings for asset financing.

Interest income was $28 million and $48 million for the second quarter and first six months of fiscal 2023, respectively.

Interest income increased $12 million during both the second quarter and first six months of fiscal 2023, as compared to the same periods of the prior fiscal year.

The increases were primarily driven by higher income from our multicurrency cash pools and money market accounts.

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.

Three Months Ended

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

Three Months Ended Six Months Ended

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

Non-service cost components of net periodic pension income $ (60) $ (96) $ (127) $ (193)

Foreign currency loss (2) 1

Foreign currency (gain) loss (1) 6 (3) 7

Other gain (7) (12) (42) (19)

Total $ (68) $ (102) $ (172) $ (205)

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.

Other income, net, decreased by $34 million and $33 million for the second quarter and first six months of fiscal 2023, respectively, as compared to the same periods of the prior fiscal year.

For the second quarter of fiscal 2023, the $34 million decrease against the comparative period was primarily due to a $36 million decrease in the non-service cost components of net periodic pension income attributable to changes in expected returns on assets and other actuarial assumptions, a $7 million favorable foreign currency gain, and a $5 million decrease in other gains from sales of non-operating assets.

For the first six months of fiscal 2023, the $33 million decrease against the comparative period was primarily due to a $66 million decrease in the non-service cost components of net periodic pension income attributable to changes in expected returns on assets and other actuarial assumptions, a $10 million favorable foreign currency gain, and a $23 million increase in other gains from sales of non-operating assets.

Our effective tax rate (“ETR”) was 48.1% and 24.6% for the three months ended September 30, 2022 and September 30, 2021, respectively, and 25.6% and 46.0% for the six months ended September 30, 2022 and September 30, 2021, respectively.

For the three months ended September 30, 2022, the primary drivers of the ETR were the global mix of income, U.S.

tax on foreign income, and the tax impact of business divestitures.

For the six months ended September 30, 2022, the primary drivers of the ETR were the global mix of income, tax impact of business divestitures, U.S.

tax on foreign income, and a decrease in unrecognized tax benefits due to income tax audit settlements and statute of limitation expirations.

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

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

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

In the U.S., the Inflation Reduction Act (“Act”) was signed into law on August 16, 2022.

We do not currently expect the Act to have a material impact on our Consolidated Financial Statements.

Earnings Per Share

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.

Diluted EPS for the second quarter and first six months of fiscal 2023 was $0.12 and $0.55, respectively, an increase of $0.86 and $0.20, respectively, as compared to the same periods of the prior fiscal year.

The increases in diluted EPS were primarily due to increases in net income attributable to DXC common stockholders of $215 million and $39 million for the second quarter and first six months of fiscal 2023, respectively.

Diluted EPS for the second quarter of fiscal 2023 includes $0.18 per share of restructuring costs, $0.01 per share of transaction, separation and integration-related costs, $0.36 per share of amortization of acquired intangible assets, $0.03 per share of SEC matter charges, and $0.04 per share of net losses on dispositions.

Diluted EPS for the first six months of fiscal 2023 includes $0.29 per share of restructuring costs, $0.02 per share of transaction, separation and integration-related costs, $0.69 per share of amortization of acquired intangible assets, $0.03 per share of merger related indemnification costs, $0.03 per share of SEC matter charges, and $(0.12) per share of net losses on dispositions.

Non-GAAP Financial Measures

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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 2023 First Quarter Highlights.”

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

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

Three Months Ended

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

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

Dollar Amount Dollar Amount

Three Months Ended September 30, Change Six Months Ended September 30, Change

(in millions) 2022 2021 Dollar Percent 2022 2021 Dollar Percent

Income (loss) before income taxes $ 54 $ (248) $ 302 (121.8) % $ 176 $ 176 $ — — %

Non-GAAP income before income taxes $ 253 $ 301 $ (48) (15.9) % $ 495 $ 591 $ (96) (16.2) %

Net income $ 103 $ 282 $ (179) (63.5) %

Net income (loss) $ 28 $ (187) $ 215 (115.0) % $ 131 $ 95 $ 36 37.9 %

Adjusted EBIT $ 269 $ 346 $ (77) (22.3) % $ 528 $ 678 $ (150) (22.1) %

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

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

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

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obligation pursuant to ES-CSC merger.

• SEC Matter - represents the Company’s current estimate of potential liability related to a previously disclosed investigation into its historical determination and disclosure of certain “transaction, separation, and integration-related costs” as part of the Company’s non-GAAP adjustments.

• 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.

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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 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.

(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 second quarter of fiscal 2023 include $4 million of costs incurred in connection with activities related to acquisitions and divestitures.

The TSI-Related costs for the first six months of fiscal 2023 include $6 million of costs incurred in connection with activities related to acquisitions and divestitures.

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

a $2 million credit to legal costs for Peraton Arbitration;

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

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

$4 million of legal costs;

a $14 million credit towards the Peraton Arbitration settlement;

$4 million in expenses related to integration projects resulting from the HPES merger (including costs associated with continuing efforts to separate certain IT systems);

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

(2) 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.

(3) See Note 19 – “Commitments and Contingencies,” SEC Matter .

(4) Gains and losses on dispositions for the first six months of fiscal 2023 include a net loss of $3 million on dispositions related to certain insignificant businesses.

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

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

(6) Debt extinguishment costs were $281 million and $309 million for the second quarter and first six months of fiscal 2022, respectively, for the partial and full redemption of term loans, senior notes, and extinguishment of debt associated with asset financing.

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

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

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

(in millions, except per-share amounts) As

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Integration-Related Costs Amortization

Assets SEC Matter Gains and Losses on Dispositions Pension and OPEB Actuarial and Settlement Gains and Losses Non-GAAP

Income before income taxes $ 54 $ 53 $ 4 $ 101 $ 8 $ 32 $ 1 $ 253

Income tax expense 26 10 1 18 1 22 — 78

Net income 28 43 3 83 7 10 1 175

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

Net income attributable to DXC common stockholders $ 27 $ 43 $ 3 $ 83 $ 7 $ 10 $ 1 $ 174

Effective Tax Rate 48.1 % 30.8 %

Basic EPS $ 0.12 $ 0.19 $ 0.01 $ 0.36 $ 0.03 $ 0.04 $ 0.00 $ 0.76

Diluted EPS $ 0.12 $ 0.18 $ 0.01 $ 0.36 $ 0.03 $ 0.04 $ 0.00 $ 0.75

Weighted average common shares outstanding for:

Basic EPS 229.96 229.96 229.96 229.96 229.96 229.96 229.96 229.96

Diluted EPS 233.17 233.17 233.17 233.17 233.17 233.17 233.17 233.17

Six Months Ended September 30, 2022

(in millions, except per-share amounts) As

Reported Restructuring

Costs Transaction,

Separation and

Integration-Related Costs Amortization

Assets Merger Related

Indemnification Gains and

Dispositions Non-GAAP

Indemnification SEC Matter Gains and

Dispositions Pension and OPEB Actuarial and Settlement Gains and Losses Non-GAAP

Income before income taxes $ 176 $ 86 $ 6 $ 205 $ 10 $ 8 $ 3 $ 1 $ 495

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Diluted EPS 234.93 234.93 234.93 234.93 234.93 234.93 234.93 234.93 234.93

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

(in millions, except per-share amounts) As

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Integration-Related Costs Amortization

Assets Impairment

Extinguishment

Costs Non-GAAP

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

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

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

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

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

Effective Tax Rate 24.6 % 22.6 %

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

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

Weighted average common shares outstanding for:

Basic EPS 252.40 252.40 252.40 252.40 252.40 252.40 252.40

Diluted EPS 252.40 257.20 257.20 257.20 257.20 257.20 257.20

Six Months Ended September 30, 2021

(in millions, except per-share amounts) As

Reported Restructuring

Costs Transaction,

Separation and

Integration-Related Costs Amortization

Assets Gains and

Dispositions Debt

Dispositions Impairment

Extinguishment

Adjustment Non-GAAP

Costs Tax Adjustment Non-GAAP

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

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Diluted EPS 258.90 258.90 258.90 258.90 258.90 258.90 258.90 258.90 258.90

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

Income tax expense 19 142

Reconciliations of net income (loss) to adjusted EBIT are as follows:

Three Months Ended Six Months Ended

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

Net income (loss) $ 28 $ (187) $ 131 $ 95

Income tax expense (benefit) 26 (61) 45 81

Interest income (28) (16) (48) (36)

Interest expense 44 61 81 123

EBIT 70 (203) 209 263

Restructuring costs 53 145 86 212

2 unchanged sentences

Merger related indemnification — — 10 —

Gains on dispositions (29) (347)

SEC Matter 8 — 8 —

Losses (gains) on dispositions 32 — 3 (347)

Impairment losses — 10 — 10

Debt extinguishment costs — 281 — 309

Pension and OPEB actuarial and settlement losses 1 — 1 —

Adjusted EBIT $ 269 $ 346 $ 528 $ 678

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Cash and Cash Equivalents and Cash Flows

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 September 30, 2022, our cash and cash equivalents (“cash”) were $2.3 billion, of which $1.1 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 and pool arrangements with various counterparties to manage liquidity efficiently that enable participating subsidiaries to draw on the Company’s pooled resources to meet liquidity needs.

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

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

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The following table summarizes our cash flow activity:

Three Months Ended

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

Six Months Ended

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

Net cash provided by (used in):

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Operating cash flow

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.

Net cash provided by operating activities during the first six months of fiscal 2023 was $375 million as compared to $534 million during the comparable period of the prior fiscal year.

The decrease of $159 million was primarily due to a $167 million unfavorable change in working capital due to higher working capital outflows during the first six months of fiscal 2023, partially offset by an increase in net income, net of adjustments of $8 million.

The following table contains certain key working capital metrics:

June 30, 2022 June 30, 2021

Three Months Ended

September 30, 2022 September 30, 2021

Days of sales outstanding in accounts receivable 70 69

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Investing cash flow

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.

Net cash (used in) provided by investing activities during the first six months of fiscal 2023 was $(193) million as compared to $199 million during the comparable period of the prior fiscal year.

The change of $392 million was primarily due to a decrease in cash from business dispositions of $462 million and proceeds from short-term investing of $24 million incurred only in the comparable period of fiscal 2022.

This was partially offset by a decrease in capital expenditures of $64 million and an increase in proceeds from sale of assets of $22 million,

Financing cash flow

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.

Net cash used in financing activities during the first six months of fiscal 2023 was $513 million as compared to $1,063 million during the comparable period of the prior fiscal year.

The $550 million decrease was primarily due to a decrease in payments on capital leases and borrowings for asset financing of $397 million, payments for debt extinguishment cost of $344 million incurred only in the comparable period of fiscal 2022, and an increase in commercial paper borrowings, net of repayments of $29 million.

This was partially offset by an increase in share repurchases of $122 million and borrowings on long term debt, net of repayments of $66 million incurred only in the comparable period of fiscal 2022.

Capital Resources

2 unchanged sentences

The following table summarizes our total debt:

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

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

Short-term debt and current maturities of long-term debt $ 834 $ 900

1 unchanged sentence

Total debt $ 4,529 $ 4,965

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.

The $0.4 billion decrease in total debt during the first six months of fiscal 2023 was primarily attributed 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.

During the second quarter of fiscal 2023, we entered into a term loan credit agreement maturing on September 1, 2024, in an aggregate principal amount of $500 million.

See Note 10 - “Debt” for additional information.

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

Our credit ratings are as follows:

11 unchanged sentences

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

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.

Our total liquidity of $5.8 billion as of September 30, 2022, includes $2.3 billion of cash and cash equivalents, $3.0 billion of available borrowings under our revolving credit facility, and $500 million of available borrowings under our term loan credit agreement.

Share Repurchases

8 unchanged sentences

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.”

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, 2022.

For our minimum purchase commitments as of September 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

6 unchanged sentences

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

During the three months ended June 30, 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.”

During the three months ended September 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