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Item 2. Management’s Discussion and Analysis

2023-02-02 compared with 2022-11-04 · 167 added, 132 removed, 276 unchanged (52% 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 second quarter and first six months of fiscal 2023 and our financial condition as of September 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 third quarter and first nine months of fiscal 2023 and our financial condition as of December 31, 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 second quarters and first six months of fiscal 2023 and fiscal 2022.

The following discussion includes a comparison of our results of operations and liquidity and capital resources for the third quarter and first nine 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 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

The following table sets forth certain financial data for the third quarter and first nine months of fiscal 2023 and fiscal 2022:

Three Months Ended Nine Months Ended

(In millions, except per-share amounts) December 31, 2022 December 31, 2021 December 31, 2022 December 31, 2021

Revenues $ 3,566 $ 4,089 $ 10,839 $ 12,257

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:

Income before income taxes 102 166 278 342

Income tax expense 41 64 86 145

Net income $ 61 $ 102 $ 192 $ 197

Diluted earnings per share $ 0.25 $ 0.38 $ 0.80 $ 0.73

Our revenues by geography and operating segment are provided below:

Three Months Ended Three Months Ended

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

September 30, 2022 (1)

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

December 31, 2022 (1)

Percentage Change in Constant Currency (1)

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United States $ 1,054 $ 1,168 (9.8) % $ 1,054 (9.8) %

452 569 (20.6) % 531 (6.7) %

United Kingdom 469 578 (18.9) % 539 (6.7) %

Other Europe 1,119 1,319 (15.2) % 1,227 (7.0) %

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Total Revenues $ 3,566 $ 4,089 (12.8) % $ 3,835 (6.2) %

Six Months Ended Six Months Ended

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

September 30, 2022 (1)

Nine Months Ended Nine Months Ended

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

December 31, 2022 (1)

Percentage Change in Constant Currency (1)

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United States $ 3,278 $ 3,570 (8.2) % $ 3,278 (8.2) %

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

United Kingdom 1,394 1,749 (20.3) % 1,597 (8.7) %

Other Europe 3,321 3,878 (14.4) % 3,698 (4.6) %

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

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.

For the third quarter of fiscal 2023, our total revenue was $3.6 billion, a decrease of $523 million or 12.8%, as compared to the same period a year ago.

The 12.8% decrease against the comparative period includes a 6.6% unfavorable foreign currency exchange rate impact, a 2.4% decline in revenue from the disposition of certain businesses, and a 3.8% 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.

Organic revenue growth is a non-GAAP measure.

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

For the first nine months of fiscal 2023, our total revenue was $10.8 billion, a decrease of $1,418 million or 11.6%, as compared to the same period a year ago.

The 11.6% decrease against the comparative period includes a 6.6% unfavorable foreign currency exchange rate impact, a 2.4% decline in revenue from the disposition of certain businesses, and a 2.6% 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.

dollar against the British Pound, Euro, 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

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.

For the third quarter of fiscal 2023, GBS revenue was $1.7 billion, a decrease of $208 million or 10.7%, as compared to the same period a year ago.

The 10.7% decrease against the comparative period includes a 6.4% unfavorable foreign currency exchange rate impact and a 4.5% decline in revenue from the disposition of certain businesses, partially offset by 0.2% 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.

For the first nine months of fiscal 2023, GBS revenue was $5.2 billion, a decrease of $497 million or 8.7%, as compared to the same period a year ago.

The 8.7% decrease against the comparative period includes a 6.6% unfavorable foreign currency exchange rate impact and a 4.2% decline in revenue from the disposition of certain businesses, partially offset by 2.1% 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.

For the third quarter and first nine months of fiscal 2023, GBS contract awards were $2.1 billion and $5.5 billion, respectively, as compared to $2.5 billion and $6.6 billion, respectively, in the same periods in fiscal 2022.

Global Infrastructure Services

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.

For the third quarter of fiscal 2023, our GIS revenue was $1.8 billion, a decrease of $315 million or 14.7%, as compared to the same period a year ago.

The 14.7% decrease against the comparative period includes a 6.7% unfavorable foreign currency exchange rate impact, 0.6% decline in revenue from the disposition of certain businesses, and a 7.4% 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.

For the first nine months of fiscal 2023, our GIS revenue was $5.6 billion, a decrease of $921 million or 14.1%, as compared to the same period a year ago.

The 14.1% decrease against the comparative period includes a 6.7% unfavorable foreign currency exchange rate impact, 0.6% decline in revenue from the disposition of certain businesses, and a 6.8% 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.

For the third quarter and first nine months of fiscal 2023, GIS contract awards were $2.7 billion and $5.5 billion, respectively, as compared to $2.5 billion and $6.7 billion, respectively, in the same periods in fiscal 2022.

Costs and Expenses

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Dollar Amount Dollar Amount

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

Three Months Ended December 31, Change Nine Months Ended December 31, Change

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

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Costs of Services

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.

Costs of services, excluding depreciation and amortization and restructuring costs (“COS”), were $2.8 billion and $8.5 billion for the third quarter and first nine months of fiscal 2023, respectively, a decrease of $380 million and $1,018 million, respectively, as compared to the same periods of the prior fiscal year.

For the third quarter of fiscal 2023, the $380 million decrease in expenses against the comparative period was primarily due to a favorable foreign currency exchange rate impact of $211 million, a decrease in payroll related expenses due to a combination of lower revenues and our cost optimization efforts, and lower spend on professional services and contractor-related expenses.

For the first nine months of fiscal 2023, the $1,018 million decrease in expenses against the comparative period was primarily due to a favorable foreign currency exchange rate impact of $643 million, a decrease in payroll related expenses due to a combination of lower revenues and our cost optimization efforts, and lower spend on professional services and contractor-related expenses.

In fiscal 2023, COS as a percentage of revenue increased against the comparative periods and was primarily driven by a decline in revenue exceeding the associated decline in payroll related expenses .

Selling, General and Administrative

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.

Selling, general and administrative expense, excluding depreciation and amortization and restructuring costs (“SG&A”), was $315 million and $988 million for the third quarter and first nine months of fiscal 2023, respectively, a decrease of $25 million and $105 million, respectively, as compared to the same periods of the prior fiscal year.

For the third quarter of fiscal 2023, the $25 million decrease in expenses against the comparative period was primarily due to a favorable foreign currency exchange rate impact of $17 million and lower payroll related expenses, partially offset by an $11 million charge for merger-related indemnification expenses and $9 million for an arbitration loss.

For the first nine months of fiscal 2023, the $105 million decrease in expenses against the comparative period was primarily due to a favorable foreign currency exchange rate impact of $54 million, lower payroll related expenses, lower real estate costs and other professional and contractor-related expenses, partially offset by a $21 million charge for merger related indemnification expenses, $9 million for an arbitration loss, and $8 million for the SEC Matter.

Depreciation and Amortization

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.

Depreciation expense was $123 million and $390 million for the third quarter and first nine months of fiscal 2023, respectively, a decrease of $33 million and $89 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 $8 million and $25 million for the third quarter and first nine months of fiscal 2023, respectively.

Amortization expense was $252 million and $754 million for the third quarter and first nine months of fiscal 2023, respectively, a decrease of $16 million and $61 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 $12 million and $36 million for the third quarter and first nine 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.

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.

During the third quarter and first nine months of fiscal 2023, restructuring costs, net of reversals, were $49 million and $135 million, respectively.

Restructuring costs increased $13 million during the third quarter of fiscal 2023 and decreased $113 million during the first nine months of fiscal 2023, 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

For the third quarter of fiscal 2023, interest expense was $56 million and interest income was $41 million, an increase of $18 million and $26 million, respectively, as compared to the same period of the prior fiscal year.

The increases in interest expense and interest income against the comparative period were primarily due to the impact of rising global interest rates on our multicurrency cash pools and money market accounts.

For the first nine months of fiscal 2023, interest expense was $137 million and interest income was $89 million, a decrease of $24 million and increase of $38 million, respectively, as compared to the same period of the prior fiscal year.

The decrease in interest expense against the comparative period was primarily due to a reduction in notes payable 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.

Rising global interest rates on our multicurrency cash pools and money market accounts led to higher interest income against the comparative period.

Debt Extinguishment Costs

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.

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

Debt extinguishment costs were $2 million and $311 million for the third quarter and first nine 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.

During the first nine months of fiscal 2023, DXC sold insignificant businesses that resulted in a loss of $12 million.

During the first nine months of fiscal 2022, DXC sold its HPS business for approximately $551 million, resulting in a pre-tax gain on sale of $337 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 Six Months Ended

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

Three Months Ended Nine Months Ended

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

Non-service cost components of net periodic pension income $ (60) $ (87) $ (187) $ (280)

Foreign currency (gain) loss (8) 3 (11) 10

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

Gain on sales of assets (28) (4) (72) (62)

Other (gain) loss (2) 3 — 42

Total $ (98) $ (85) $ (270) $ (290)

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.

Other income, net, increased by $13 million and decreased by $20 million for the third quarter and first nine months of fiscal 2023, respectively, as compared to the same periods of the prior fiscal year.

For the third quarter of fiscal 2023, the $13 million increase against the comparative period was primarily due to $24 million of additional gains from sales of assets, $11 million of favorable foreign currency hedge-related gains, and a $5 million increase in other gains, partially offset by a $27 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.

For the first nine months of fiscal 2023, the $20 million decrease against the comparative period was primarily due to a $93 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, partially offset by a $42 million change in other losses primarily from disposition of businesses in the comparative period, $21 million of favorable foreign currency gains, and $10 million of additional gains from sales of assets.

Our effective tax rate (“ETR”) was 40.2% and 38.6% for the three months ended December 31, 2022 and December 31, 2021, respectively, and 30.9% and 42.4% for the nine months ended December 31, 2022 and December 31, 2021, respectively.

For the three months ended December 31, 2022, the primary drivers of the ETR were the global mix of income, U.S.

tax on foreign income, a decrease in the base erosion and anti-abuse tax, and an increase in unrecognized tax benefits primarily related to foreign tax credits.

For the nine months ended December 31, 2022, the primary drivers of the ETR were the global mix of income, U.S.

tax on foreign income, a decrease in the base erosion and anti-abuse tax, and the tax impact of business divestitures.

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.

jurisdictions.

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

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Earnings Per Share

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.

Diluted EPS for the third quarter and first nine months of fiscal 2023 was $0.25 and $0.80, respectively, a decrease of $0.13 and increase of $0.07, respectively, as compared to the same periods of the prior fiscal year.

For the third quarter of fiscal 2023, the decrease in diluted EPS against the comparative period was primarily due to the $39 million decrease in net income attributable to DXC common stockholders, partially offset by the decrease in the weighted average shares of common stock outstanding.

Diluted EPS for the third quarter of fiscal 2023 includes $0.17 per share of restructuring costs, $0.02 per share of transaction, separation and integration-related costs, $0.34 per share of amortization of acquired intangible assets, $0.07 per share of merger related indemnification and arbitration loss costs, $0.03 per share of impairment losses, and $0.07 per share of net losses on dispositions.

For the first nine months of fiscal 2023, the increase in diluted EPS against the comparative period was primarily due to the decrease in the weighted average shares of common stock outstanding.

Diluted EPS for the first nine months of fiscal 2023 includes $0.46 per share of restructuring costs, $0.04 per share of transaction, separation and integration-related costs, $1.04 per share of amortization of acquired intangible assets, $0.13 per share of merger related indemnification, arbitration loss, and SEC matter costs, $0.03 per share of impairment losses, and $0.05 per share of net gains on dispositions.

Non-GAAP Financial Measures

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

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

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

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

Selected references are made to revenue growth on an “organic basis” so that certain financial results can be viewed without the impact of fluctuations in foreign currency rates and without the impacts of acquisitions and divestitures from “organic basis” financial results, thereby providing comparisons of operating performance from period to period of the business that we have owned during all periods presented.

Organic revenue growth is calculated by dividing the year-over-year change in GAAP revenues attributed to organic growth by the GAAP revenues reported in the prior comparable period.

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

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

dollars and the effects of acquisitions and divestitures in the periods presented.

There are limitations to the use of the non-GAAP financial measures presented in this report.

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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 Second Quarter Highlights.”

Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Revenues.”

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

Dollar Amount Dollar Amount

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

Three Months Ended December 31, Change Nine Months Ended December 31, Change

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

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

Income before income taxes $ 102 $ 166 $ (64) (38.6) % $ 278 $ 342 $ (64) (18.7) %

Non-GAAP income before income taxes $ 294 $ 332 $ (38) (11.4) % $ 789 $ 923 $ (134) (14.5) %

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

Net income $ 61 $ 102 $ (41) (40.2) % $ 192 $ 197 $ (5) (2.5) %

Adjusted EBIT $ 309 $ 355 $ (46) (13.0) % $ 837 $ 1,033 $ (196) (19.0) %

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• 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.

HPE litigation in June 2022;

obligation pursuant to ES-CSC merger.

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

and HPE litigation, and the Company’s final liability to HPE on the Oracle v.

HPE litigation;

both obligations pursuant to HPES 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.

• Arbitration loss - reflects a loss arising from an arbitration decision in the third quarter of fiscal 2023.

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

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(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;

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

The TSI-Related costs for the first nine months of fiscal 2023 include $12 million of costs incurred in connection with activities related to acquisitions and divestitures.

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 of legal costs;

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Hewlett Packard Enterprise Company;

and Forsyth, et al.

and Hewlett Packard Enterprise .

(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.

(4) Gains and losses on dispositions for the first nine months of fiscal 2023 include a net loss of $12 million on dispositions related to certain insignificant businesses.

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 partially offset by $13 million of adjustments relating to the sale of the HHS business.

(5) Impairment losses on dispositions for the first nine months of fiscal 2023 include an $8 million impairment charge for customer related intangible assets.

Impairment losses on dispositions for the first nine months of fiscal 2022 include a $10 million impairment charge of undeployed assets related to TSI-related capitalized costs.

(6) Debt extinguishment costs were $2 million and $311 million for the third quarter and first nine 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 nine 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 September 30, 2022

Three Months Ended December 31, 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

Assets Merger Related Indemnification and Arbitration Loss Gains and Losses on Dispositions Impairment Losses Non-GAAP

Income before income taxes $ 102 $ 49 $ 6 $ 100 $ 20 $ 9 $ 8 $ 294

Income tax expense 26 10 1 18 1 22 — 78

Income tax expense (benefit) 41 10 1 20 4 (7) 1 70

Net income 61 39 5 80 16 16 7 224

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Diluted EPS 233.00 233.00 233.00 233.00 233.00 233.00 233.00 233.00

Six Months Ended September 30, 2022

Nine Months Ended December 31, 2022

(in millions, except per-share amounts) As

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Integration-Related Costs Amortization

Assets Merger Related

Indemnification SEC Matter Gains and

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

Assets Merger Related Indemnification, Arbitration Loss, and SEC Matter Gains and

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

Income before income taxes $ 278 $ 135 $ 12 $ 305 $ 38 $ 12 $ 8 $ 1 $ 789

Income tax expense 86 28 2 62 7 24 1 — 210

Net income 131 68 5 163 8 7 (28) 1 355

Net income (loss) 192 107 10 243 31 (12) 7 1 579

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

Net income attributable to DXC common stockholders $ 129 $ 68 $ 5 $ 163 $ 8 $ 7 $ (28) $ 1 $ 353

Net income (loss) attributable to DXC common stockholders $ 188 $ 107 $ 10 $ 243 $ 31 $ (12) $ 7 $ 1 $ 575

Effective Tax Rate 30.9 % 26.6 %

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Diluted EPS 234.38 234.38 234.38 234.38 234.38 234.38 234.38 234.38 234.38

Three Months Ended September 30, 2021

Three Months Ended December 31, 2021

(in millions, except per-share amounts) As

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Integration-Related Costs Amortization

Assets Impairment

Assets Gains and Losses on Dispositions Debt

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

Costs Pension and OPEB Actuarial and Settlement Losses Tax Adjustment Non-GAAP

Income before income taxes $ 166 $ 36 $ 11 $ 106 $ 4 2 7 $ 332

Income tax expense 64 4 1 13 — — 1 10 93

Net income 102 32 10 93 4 2 6 (10) 239

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

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

Net income attributable to DXC common stockholders $ 98 $ 32 $ 10 $ 93 $ 4 $ 2 $ 6 $ (10) $ 235

Effective Tax Rate 38.6 % 28.0 %

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Diluted EPS 254.82 254.82 254.82 254.82 254.82 254.82 254.82 254.82 254.82

Six Months Ended September 30, 2021

Nine Months Ended December 31, 2021

(in millions, except per-share amounts) As

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Assets Gains and

Dispositions Impairment

Dispositions Impairment Losses Debt

Extinguishment

Costs Tax Adjustment Non-GAAP

Costs Pension and OPEB Actuarial and Settlement Losses Tax Adjustment Non-GAAP

Income before income taxes $ 342 $ 248 $ 23 $ 325 $ (343) $ 10 $ 311 $ 7 — $ 923

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Diluted EPS 257.59 257.59 257.59 257.59 257.59 257.59 257.59 257.59 257.59 257.59

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

Reconciliations of revenue growth to organic revenue growth are as follows:

Three Months Ended Nine Months Ended

December 31, 2022 December 31, 2021 December 31, 2022 December 31, 2021

Total revenue growth (12.8) % (4.6) % (11.6) % (8.1) %

Foreign currency 6.6 % 1.0 % 6.6 % (2.1) %

Acquisitions and divestitures 2.4 % 2.2 % 2.4 % 7.6 %

Organic revenue growth (3.8) % (1.4) % (2.6) % (2.6) %

GBS revenue growth (10.7) % 1.3 % (8.7) % (10.0) %

Foreign currency 6.4 % 1.3 % 6.6 % (1.5) %

Acquisitions and divestitures 4.5 % 4.4 % 4.2 % 15.5 %

GBS organic revenue growth 0.2 % 7.0 % 2.1 % 4.0 %

GIS revenue growth (14.7) % (9.5) % (14.1) % (6.5) %

Foreign currency 6.7 % 0.9 % 6.7 % (2.5) %

Acquisitions and divestitures 0.6 % 0.3 % 0.6 % 0.5 %

GIS organic revenue growth (7.4) % (8.3) % (6.8) % (8.5) %

Reconciliations of net income to adjusted EBIT are as follows:

Three Months Ended Nine Months Ended

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

Net income $ 61 $ 102 $ 192 $ 197

Income tax expense 41 64 86 145

Interest income (41) (15) (89) (51)

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Losses (gains) on dispositions 9 4 12 (343)

Arbitration loss 9 — 9 —

Impairment losses 8 — 8 10

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Cash and Cash Equivalents and Cash Flows

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 December 31, 2022, our cash and cash equivalents (“cash”) were $2.1 billion, of which $0.6 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.

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

This includes cash of $0.5 billion held in a German financial services subsidiary subject to regulatory requirements, and $0.1 billion held by majority owned consolidated subsidiaries where third-parties or public shareholders hold minority interests.

This includes cash of $0.2 billion held by majority owned consolidated subsidiaries where third-parties or public shareholders hold minority interests.

The following table summarizes our cash flow activity:

Six Months Ended

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

Nine Months Ended

(in millions) December 31, 2022 December 31, 2021 Change

Net cash provided by (used in):

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Operating cash flow

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.

Net cash provided by operating activities during the first nine months of fiscal 2023 was $1,000 million as compared to $1,230 million during the comparable period of the prior fiscal year.

The decrease of $230 million was primarily due to a decrease in net income, net of adjustments of $242 million, partially offset by a $12 million favorable change in working capital due to lower working capital outflows during the first nine months of fiscal 2023.

The following table contains certain key working capital metrics:

Three Months Ended

September 30, 2022 September 30, 2021

December 31, 2022 December 31, 2021

Days of sales outstanding in accounts receivable 69 65

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Investing cash flow

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.

Net cash (used in) provided by investing activities during the first nine months of fiscal 2023 was $(299) million as compared to $93 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 $467 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,

This was partially offset by an increase in proceeds from sale of assets of $70 million and a decrease in capital expenditures of $48 million.

Financing cash flow

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.

Net cash used in financing activities during the first nine months of fiscal 2023 was $693 million as compared to $1,460 million during the comparable period of the prior fiscal year.

The $767 million decrease was primarily due to a decrease in payments on capital leases and borrowings for asset financing of $456 million, payments for debt extinguishment cost of $344 million incurred only in the comparable period of fiscal 2022, an increase in commercial paper borrowings, net of repayments of $32 million, and a decrease in share repurchases of $27 million.

This was partially offset by borrowings on long term debt, net of repayments of $65 million incurred only in the comparable period of fiscal 2022.

Cash classified within current assets held for sale

As of December 31, 2022, $0.5 billion of cash related to the FDB Business was reclassified as assets held for sale.

The FDB Business was subsequently sold on January 3, 2023.

See Note 2 – “Divestitures” for more information.

Capital Resources

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The following table summarizes our total debt:

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

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

Short-term debt and current maturities of long-term debt $ 873 $ 900

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Total debt $ 4,723 $ 4,965

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.

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.

For the first nine months of fiscal 2023, approximately 60% of our total debt balance was denominated in foreign currencies.

In fiscal 2023, the $0.2 billion decrease in total debt was primarily due to a favorable foreign currency exchange rate impact and decreases in finance lease liabilities and borrowings for asset financing, partially offset by an increase in commercial paper borrowings.

We were in compliance with all financial covenants associated with our borrowings as of December 31, 2022 and December 31, 2021.

Our credit ratings are as follows:

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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.

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.

Our total liquidity of $5.6 billion as of December 31, 2022, includes $2.1 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

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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.”

For our minimum purchase commitments as of December 31, 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

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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 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.”

During the three months ended December 31, 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.”

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For quantitative and qualitative disclosures about market risk affecting DXC, see “Quantitative and Qualitative Disclosures About Market Risk” in Item 7A of Part II of our Annual Report on Form 10-K for the fiscal year ended March 31, 2022.

Our exposure to market risk has not changed materially since March 31, 2022.

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