DXC Technology Co 10-Q

ITEM 1. FINANCIAL STATEMENTS Index to Condensed Consolidated Financial Statements Page Condensed Consolidated Statements of Operations for the Three and Six Months Ended September 30, 2023 and September 30, 2022 (unaudited) 2 Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended September 30, 2023 and September 30, 2022 (unaudited) 3 Condensed Consolidated Balance Sheets as of September 30, 2023 and March 31, 2023 (unaudited) 4 Condensed Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2023 and September 30, 2022 (unaudited) 5 Condensed Consolidated Statements of Changes in Equity for the Three and Six Months Ended September 30, 2023 and September 30, 2022 (unaudited) 6 Notes to Condensed Consolidated Financial Statements (unaudited) Note 1–Summary of Significant Accounting Policies 8 Note 2–Divestitures 10 Note 3–Earnings Per Share 10 Note 4–Receivables 11 Note 5–Leases 11 Note 6–Fair Value 14 Note 7–Derivative Instruments 15 Note 8–Intangible Assets 18 Note 9–Goodwill 19 Note 10–Debt 20 Note 11–Revenue 21 Note 12–Restructuring Costs 22 Note 13–Pension and Other Benefit Plans 23 Note 14–Income Taxes 23 Note 15–Stockholders’ Equity 25 Note 16–Stock Incentive Plans 25 Note 17–Cash Flows 26 Note 18–Segment Information 27 Note 19–Commitments and Contingencies 30 1 DXC TECHNOLOGY COMPANY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three Months Ended Six Months Ended (in millions, except per-share amounts) September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Revenues $ 3,436 $ 3,566 $ 6,882 $ 7,273 Costs of services (excludes depreciation and amortization and restructuring costs) 2,633 2,775 5,352 5,705 Selling, general and administrative (excludes depreciation and amortization and restructuring costs) 328 324 655 673 Depreciation and amortization 361 380 705 769 Restructuring costs 35 53 55 86 Interest expense 78 44 144 81 Interest income ( 53 ) ( 28 ) ( 102 ) ( 48 ) Loss on disposition of businesses 2 32 7 3 Other income, net ( 76 ) ( 68 ) ( 140 ) ( 172 ) Total costs and expenses 3,308 3,512 6,676 7,097 Income before income taxes 128 54 206 176 Income tax expense 29 26 65 45 Net income 99 28 141 131 Less: net income attributable to non-controlling interest, net of tax — 1 6 2 Net income attributable to DXC common stockholders $ 99 $ 27 $ 135 $ 129 Income per common share: Basic $ 0.49 $ 0.12 $ 0.66 $ 0.56 Diluted $ 0.49 $ 0.12 $ 0.65 $ 0.55 The accompanying notes are an integral part of these condensed consolidated financial statements. 2 DXC TECHNOLOGY COMPANY CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited) Three Months Ended Six Months Ended (in millions) September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Net income $ 99 $ 28 $ 141 $ 131 Other comprehensive loss, net of taxes: Foreign currency translation adjustments, net of tax (1) ( 40 ) ( 165 ) ( 6 ) ( 341 ) Cash flow hedges adjustments, net of tax (2) 4 2 7 2 Pension and other post-retirement benefit plans, net of tax: Amortization of prior service cost, net of tax (3) — ( 2 ) ( 2 ) ( 4 ) Pension and other post-retirement benefit plans, net of tax — ( 2 ) ( 2 ) ( 4 ) Other comprehensive loss, net of taxes ( 36 ) ( 165 ) ( 1 ) ( 343 ) Comprehensive income (loss) 63 ( 137 ) 140 ( 212 ) Less: comprehensive (loss) income attributable to non-controlling interest ( 1 ) ( 3 ) 5 ( 2 ) Comprehensive income (loss) attributable to DXC common stockholders $ 64 $ ( 134 ) $ 135 $ ( 210 ) (1) Tax expense related to foreign currency translation adjustments was $ 2 and $ 2 for the three and six months ended September 30, 2023, respectively, and $ 4 and $ 9 for the three and six months ended September 30, 2022, respectively. (2) Tax expense (benefit) related to cash flow hedges adjustments was $ 1 and $ 2 for the three and six months ended September 30, 2023, respectively, and $ 0 and $( 1 ) for the three and six months ended September 30, 2022, respectively. (3) Tax benefit related to amortization of prior service costs was $ 1 and $ 1 for the three and six months ended September 30, 2023, respectively, and $ 0 and $ 4 for the three and six months ended September 30, 2022, respectively. The accompanying notes are an integral part of these condensed consolidated financial statements. 3 DXC TECHNOLOGY COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) As of (in millions, except per-share and share amounts) September 30, 2023 March 31, 2023 ASSETS Current assets: Cash and cash equivalents $ 1,412 $ 1,858 Receivables and contract assets, net of allowance of $ 56 and $ 47 3,146 3,441 Prepaid expenses 559 565 Other current assets 232 255 Assets held for sale — 5 Total current assets 5,349 6,124 Intangible assets, net of accumulated amortization of $ 5,751 and $ 5,670 2,436 2,569 Operating right-of-use assets, net 809 909 Goodwill 530 539 Deferred income taxes, net 542 460 Property and equipment, net of accumulated depreciation of $ 3,874 and $ 4,111 1,810 1,979 Other assets 3,229 3,247 Assets held for sale - non-current 4 18 Total Assets $ 14,709 $ 15,845 LIABILITIES and EQUITY Current liabilities: Short-term debt and current maturities of long-term debt 672 500 Accounts payable 618 782 Accrued payroll and related costs 600 569 Current operating lease liabilities 295 317 Accrued expenses and other current liabilities 1,569 1,836 Deferred revenue and advance contract payments 872 1,054 Income taxes payable 98 120 Liabilities related to assets held for sale — 9 Total current liabilities 4,724 5,187 Long-term debt, net of current maturities 3,791 3,900 Non-current deferred revenue 706 788 Non-current operating lease liabilities 571 648 Non-current income tax liabilities and deferred tax liabilities 581 587 Other long-term liabilities 869 912 Liabilities related to assets held for sale - non-current — 3 Total Liabilities 11,242 12,025 Commitments and contingencies DXC stockholders’ equity: Preferred stock, par value $ 0.01 per share, 1,000,000 shares authorized, none issued as of September 30, 2023 and March 31, 2023 — — Common stock, par value $ 0.01 per share, 750,000,000 shares authorized, 200,789,520 issued as of September 30, 2023 and 218,058,482 issued as of March 31, 2023 2 2 Additional paid-in capital 8,280 9,121 Accumulated deficit ( 4,143 ) ( 4,665 ) Accumulated other comprehensive loss ( 774 ) ( 774 ) Treasury stock, at cost, 4,541,145 and 3,333,592 shares as of September 30, 2023 and March 31, 2023 ( 218 ) ( 187 ) Total DXC stockholders’ equity 3,147 3,497 Non-controlling interest in subsidiaries 320 323 Total Equity 3,467 3,820 Total Liabilities and Equity $ 14,709 $ 15,845 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 DXC TECHNOLOGY COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Six Months Ended (in millions) September 30, 2023 September 30, 2022 Cash flows from operating activities: Net income $ 141 $ 131 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 719 786 Operating right-of-use expense 181 214 Share-based compensation 47 55 Deferred taxes ( 102 ) ( 103 ) Gain on dispositions ( 39 ) ( 32 ) Provision for losses on accounts receivable 2 — Unrealized foreign currency exchange loss 22 69 Impairment losses and contract write-offs 14 21 Other non-cash charges, net — ( 2 ) Changes in assets and liabilities, net of effects of acquisitions and dispositions: Decrease (increase) in assets 223 ( 185 ) Decrease in operating lease liability ( 181 ) ( 214 ) Decrease in other liabilities ( 652 ) ( 365 ) Net cash provided by operating activities 375 375 Cash flows from investing activities: Purchases of property and equipment ( 108 ) ( 146 ) Payments for transition and transformation contract costs ( 110 ) ( 114 ) Software purchased and developed ( 141 ) ( 110 ) Business dispositions — 51 Proceeds from sale of assets 65 109 Other investing activities, net 10 17 Net cash used in investing activities ( 284 ) ( 193 ) Cash flows from financing activities: Borrowings of commercial paper 1,098 710 Repayments of commercial paper ( 841 ) ( 657 ) Principal payments on long-term debt — ( 1 ) Payments on finance leases and borrowings for asset financing ( 231 ) ( 274 ) Proceeds from stock options and other common stock transactions — 1 Taxes paid related to net share settlements of share-based compensation awards ( 34 ) ( 14 ) Repurchase of common stock and advance payment for accelerated share repurchase ( 505 ) ( 272 ) Other financing activities, net ( 8 ) ( 6 ) Net cash used in financing activities ( 521 ) ( 513 ) Effect of exchange rate changes on cash and cash equivalents ( 16 ) ( 91 ) Net decrease in cash and cash equivalents including cash classified within current assets held for sale ( 446 ) ( 422 ) Cash classified within current assets held for sale — 10 Net decrease in cash and cash equivalents ( 446 ) ( 412 ) Cash and cash equivalents at beginning of year 1,858 2,672 Cash and cash equivalents at end of period $ 1,412 $ 2,260 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 DXC TECHNOLOGY COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (unaudited) Three Months Ended September 30, 2023 (in millions, except shares in thousands) Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Loss Treasury Stock (1) Total DXC Equity Non- Controlling Interest Total Equity Shares Amount Balance at June 30, 2023 210,584 $ 2 $ 8,677 $ ( 4,445 ) $ ( 739 ) $ ( 217 ) $ 3,278 $ 325 $ 3,603 Net Income 99 99 99 Other comprehensive loss ( 35 ) ( 35 ) ( 1 ) ( 36 ) Share-based compensation expense 23 23 23 Acquisition of treasury stock ( 1 ) ( 1 ) ( 1 ) Share repurchase program (2) ( 9,958 ) ( 420 ) 204 ( 216 ) ( 216 ) Stock option exercises and other common stock transactions 164 — — Non-controlling interest distributions and other ( 1 ) ( 1 ) ( 4 ) ( 5 ) Balance at September 30, 2023 200,790 $ 2 $ 8,280 $ ( 4,143 ) $ ( 774 ) $ ( 218 ) $ 3,147 $ 320 $ 3,467 Three Months Ended September 30, 2022 (in millions, except shares in thousands) Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Loss Treasury Stock Total DXC Equity Non- Controlling Interest Total Equity Shares Amount Balance at June 30, 2022 232,995 $ 2 $ 9,708 $ ( 4,239 ) $ ( 563 ) $ ( 183 ) $ 4,725 $ 324 $ 5,049 Net income 27 27 1 28 Other comprehensive loss ( 161 ) ( 161 ) ( 4 ) ( 165 ) Share-based compensation expense 25 25 25 Acquisition of treasury stock ( 2 ) ( 2 ) ( 2 ) Stock option exercises and other common stock transactions 283 — — Non-controlling interest distributions and other 1 1 1 Balance at September 30, 2022 233,278 $ 2 $ 9,733 $ ( 4,211 ) $ ( 724 ) $ ( 185 ) $ 4,615 $ 321 $ 4,936 6 Six Months Ended September 30, 2023 (in millions, except shares in thousands) Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Loss Treasury Stock (1) Total DXC Equity Non- Controlling Interest Total Equity Shares Amount Balance at March 31, 2023 218,058 $ 2 $ 9,121 $ ( 4,665 ) $ ( 774 ) $ ( 187 ) $ 3,497 $ 323 $ 3,820 Net income 135 135 6 141 Other comprehensive loss — ( 1 ) ( 1 ) Share-based compensation expense 45 45 45 Acquisition of treasury stock ( 31 ) ( 31 ) ( 31 ) Share repurchase program (2) ( 20,934 ) ( 886 ) 388 ( 498 ) ( 498 ) Stock option exercises and other common stock transactions 3,666 — — Non-controlling interest distributions and other ( 1 ) ( 1 ) ( 8 ) ( 9 ) Balance at September 30, 2023 200,790 $ 2 $ 8,280 $ ( 4,143 ) $ ( 774 ) $ ( 218 ) $ 3,147 $ 320 $ 3,467 Six Months Ended September 30, 2022 (in millions, except shares in thousands) Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Loss Treasury Stock Total DXC Equity Non- Controlling Interest Total Equity Shares Amount Balance at March 31, 2022 240,508 $ 3 $ 10,057 $ ( 4,450 ) $ ( 385 ) $ ( 173 ) $ 5,052 $ 323 $ 5,375 Net income 129 129 2 131 Other comprehensive loss ( 339 ) ( 339 ) ( 4 ) ( 343 ) Share-based compensation expense 49 49 49 Acquisition of treasury stock ( 12 ) ( 12 ) ( 12 ) Share repurchase program ( 8,851 ) ( 1 ) ( 374 ) 109 ( 266 ) ( 266 ) Stock option exercises and other common stock transactions 1,621 1 1 1 Non-controlling interest distributions and other 1 1 1 Balance at September 30, 2022 233,278 $ 2 $ 9,733 $ ( 4,211 ) $ ( 724 ) $ ( 185 ) $ 4,615 $ 321 $ 4,936 (1) 4,541,145 treasury shares as of September 30, 2023. (2) On August 16, 2022, the U.S. Government enacted the Inflation Reduction Act (the “IRA”) into law. The IRA imposes a 1% excise tax on share repurchases completed after December 31, 2022. We reflect the excise tax within equity as part of the repurchase of the common stock. The accompanying notes are an integral part of these condensed consolidated financial statements. 7 DXC TECHNOLOGY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 1 – Summary of Significant Accounting Policies Business DXC Technology Company (“DXC,” the “Company,” “we,” “us,” or “our”) helps global companies run their mission critical systems and operations while modernizing IT, optimizing data architectures, and ensuring security and scalability across public, private and hybrid clouds. The world’s largest companies and public sector organizations trust DXC to deploy services to drive new levels of performance, competitiveness and customer experience across their IT estates. Basis of Presentation In order to make this report easier to read, DXC refers throughout to (i) the interim unaudited Condensed Consolidated Financial Statements as the “financial statements,” (ii) the Condensed Consolidated Statements of Operations as the “statements of operations,” (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss) as the “statements of comprehensive income (loss),” (iv) the Condensed Consolidated Balance Sheets as the “balance sheets,” and (v) the Condensed Consolidated Statements of Cash Flows as the “statements of cash flows.” In addition, references are made throughout to the numbered Notes to the Condensed Consolidated Financial Statements (“Notes”) in this Quarterly Report on Form 10-Q. The accompanying financial statements include the accounts of DXC, its consolidated subsidiaries, and those business entities in which DXC maintains a controlling interest. Investments in business entities in which the Company does not have control, but has the ability to exercise significant influence over operating and financial policies, are accounted for by the equity method. Other investments are accounted for by the cost method. Non-controlling interests are presented as a separate component within equity in the balance sheets. Net earnings attributable to the non-controlling interests are presented separately in the statements of operations and comprehensive income (loss) attributable to non-controlling interests are presented separately in the statements of comprehensive income (loss). All intercompany transactions and balances have been eliminated. Certain amounts reported in the previous year have been reclassified to conform to the current year presentation. The financial statements of the Company have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for quarterly reports and accounting principles generally accepted in the United States (“GAAP”). Certain disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules. These financial statements should therefore be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2023 (“fiscal 2023”). 8 DXC TECHNOLOGY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Use of Estimates The preparation of the financial statements, in accordance with GAAP, requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities as well as the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on assumptions regarding historical experience, currently available information, and anticipated developments that it believes are reasonable and appropriate. However, because the use of estimates involves an inherent degree of uncertainty, actual results could differ from those estimates. Estimates are used for, but are not limited to, contracts accounted for using the percentage-of-completion method, cash flows used in the evaluation of impairment of goodwill and other long-lived assets, reserves for uncertain tax positions, valuation allowances on deferred tax assets, loss accruals for litigation, and obligations related to our pension plans. In the opinion of the Company’s management, the accompanying financial statements contain all adjustments necessary, including those of a normal recurring nature, to fairly present the financial statements. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full fiscal year. Recent Accounting Pronouncements Recently issued Accounting Standards Updates (“ASUs”) effective after September 30, 2023 are not expected to have a material effect on DXC’s condensed consolidated financial statements. 9 DXC TECHNOLOGY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 2 – Divestitures During the first six months of fiscal 2024 and fiscal 2023, the Company sold insignificant businesses that resulted in a loss of $ 7 million and $ 3 million, respectively. Note 3 – Earnings per Share Basic earnings per share (“EPS”) is computed using the weighted average number of shares of common stock outstanding during the period. Diluted EPS reflects the incremental shares issuable upon the assumed exercise of stock options and equity awards. The following table reflects the calculation of basic and diluted EPS: Three Months Ended Six Months Ended (in millions, except per-share amounts) September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Net income attributable to DXC common stockholders: $ 99 $ 27 $ 135 $ 129 Common share information: Weighted average common shares outstanding for basic EPS 201.72 229.96 205.90 231.21 Dilutive effect of stock options and equity awards 1.34 3.21 3.00 3.72 Weighted average common shares outstanding for diluted EPS 203.06 233.17 208.90 234.93 Earnings per share: Basic $ 0.49 $ 0.12 $ 0.66 $ 0.56 Diluted $ 0.49 $ 0.12 $ 0.65 $ 0.55 Certain share-based equity awards were excluded from the computation of dilutive EPS because inclusion of these awards would have had an anti-dilutive effect. The number of awards excluded were as follows: Three Months Ended Six Months Ended September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Stock Options 960,455 475,559 924,990 478,128 Restricted Stock Units 1,556,542 2,724,766 1,480,781 2,065,992 Performance Stock Units 1,700,588 1,079,287 35,604 721,803 10 DXC TECHNOLOGY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 4 – Receivables Allowance for Doubtful Accounts The following table presents the change in balance for the allowance for doubtful accounts: As of (in millions) September 30, 2023 March 31, 2023 Beginning balance $ 47 $ 55 Provisions for losses on accounts receivable 2 ( 1 ) Other adjustments to allowance and write-offs 7 ( 7 ) Ending balance $ 56 $ 47 Receivables Facility The Company has an accounts receivable sales facility (as amended, restated, supplemented or otherwise modified as of September 30, 2023, the “Receivables Facility”) with certain unaffiliated financial institutions (the “Purchasers”) for the sale of commercial accounts receivable in the United States up to a maximum amount of $ 400 million. The Receivables Facility was amended on July 28, 2023 extending the termination date to July 26, 2024. As of September 30, 2023, the total availability under the Receivables Facility was $ 384 million and the amount sold to the Purchasers was $ 378 million, which was derecognized from the Company’s balance sheet. As of September 30, 2023, the Company recorded an asset of $ 6 million within accounts receivable because the amount of cash proceeds received by the Company under the Receivables Facility was less than the total availability. The fair value of the sold receivables approximated book value due to the short-term nature, and as a result, no gain or loss on sale of receivables was recorded. Note 5 – Leases The Company has operating and finance leases for data centers, corporate offices, and certain equipment. Its leases have remaining lease terms of one to ten years , some of which include options to extend the leases for up to ten years , and some of which include options to terminate the leases within one to three years . Operating Leases The components of operating lease expense were as follows: Three Months Ended Six Months Ended (in millions) September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Operating lease cost $ 91 $ 108 $ 181 $ 214 Short-term lease cost 9 11 16 19 Variable lease cost 16 17 31 39 Sublease income ( 6 ) ( 6 ) ( 10 ) ( 10 ) Total operating costs $ 110 $ 130 $ 218 $ 262 11 DXC TECHNOLOGY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Cash payments made for variable lease costs and short-term leases are not included in the measurement of operating lease liabilities, and as such, are excluded from the supplemental cash flow information stated below. Six Months Ended (in millions) September 30, 2023 September 30, 2022 Cash paid for amounts included in the measurement of operating lease liabilities – operating cash flows $ 181 $ 214 ROU assets obtained in exchange for operating lease liabilities (1) $ 95 $ 117 (1) Net of $ 557 million and $ 521 million in lease modifications and terminations during the first six months of fiscal 2024 and 2023, respectively. See Note 17 – “Cash Flows” for further information on non-cash activities affecting cash flows. The following table presents operating lease balances: As of (in millions) Balance Sheet Line Item September 30, 2023 March 31, 2023 ROU operating lease assets Operating right-of-use assets, net $ 809 $ 909 Operating lease liabilities Current operating lease liabilities $ 295 $ 317 Operating lease liabilities Non-current operating lease liabilities 571 648 Total operating lease liabilities $ 866 $ 965 The weighted-average operating lease term was 4.0 years and 3.9 years as of September 30, 2023 and March 31, 2023, respectively. The weighted-average operating lease discount rate was 4.4 % and 3.9 % as of September 30, 2023 and March 31, 2023, respectively. The following maturity analysis presents expected undiscounted cash payments for operating leases as of September 30, 2023: Fiscal Year (in millions) Remainder of 2024 2025 2026 2027 2028 Thereafter Total Operating lease payments $ 169 $ 285 $ 196 $ 112 $ 89 $ 103 $ 954 Less: imputed interest ( 88 ) Total operating lease liabilities $ 866 12 DXC TECHNOLOGY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Finance Leases The components of finance lease expense were as follows: Three Months Ended Six Months Ended (in millions) September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Amortization of right-of-use assets $ 37 $ 55 $ 79 $ 116 Interest on lease liabilities 3 4 7 9 Total finance lease expense $ 40 $ 59 $ 86 $ 125 The following table provides supplemental cash flow information related to the Company’s finance leases: (in millions) Six Months Ended September 30, 2023 Six Months Ended September 30, 2022 Interest paid for finance lease liabilities – Operating cash flows $ 7 $ 9 Cash paid for amounts included in the measurement of finance lease obligations – financing cash flows 124 168 Total cash paid in the measurement of finance lease obligations $ 131 $ 177 Capital expenditures through finance lease obligations (1) $ 41 $ 44 (1) See Note 17 – ”Cash Flows” for further information on non-cash activities affecting cash flows. The following table presents finance lease balances: As of (in millions) Balance Sheet Line Item September 30, 2023 March 31, 2023 ROU finance lease assets Property and Equipment, net $ 327 $ 424 Finance lease Short-term debt and current maturities of long-term debt $ 196 $ 215 Finance lease Long-term debt, net of current maturities 259 287 Total finance lease liabilities (1) $ 455 $ 502 (1) See Note 10 – “Debt” for further information on finance lease liabilities. The weighted-average finance lease term was 2.9 years as of September 30, 2023 and March 31, 2023, respectively. The weighted-average finance lease discount rate was 3.8 % and 3.4 % as of September 30, 2023 and March 31, 2023, respectively. 13 DXC TECHNOLOGY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The following maturity analysis presents expected undiscounted cash payments for finance leases as of September 30, 2023: Fiscal Year (in millions) Remainder of 2024 2025 2026 2027 2028 Thereafter Total Finance lease payments $ 108 $ 173 $ 110 $ 64 $ 21 $ 4 $ 480 Less: imputed interest ( 25 ) Total finance lease liabilities $ 455 Note 6 – Fair Value Fair Value Measurements on a Recurring Basis The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis, excluding pension assets and derivative assets and liabilities. See Note 7 – “Derivative Instruments” for information about derivative assets and liabilities. Note 10 – “Debt” includes information about the estimated fair value of the Company’s long-term debt. There were no transfers between any of the levels during the periods presented. Fair Value Hierarchy (in millions) September 30, 2023 Assets: Fair Value Level 1 Level 2 Level 3 Money market funds and money market deposit accounts $ 32 $ 32 $ — $ — Time deposits (1) 136 136 — — Other securities (2) 46 — 44 2 Total assets $ 214 $ 168 $ 44 $ 2 March 31, 2023 Assets: Fair Value Level 1 Level 2 Level 3 Money market funds and money market deposit accounts $ 75 $ 75 $ — $ — Time deposits (1) 37 37 — — Other securities (2) 48 — 46 2 Total assets $ 160 $ 112 $ 46 $ 2 Liabilities: Contingent consideration (3) $ 2 $ — $ — $ 2 Total liabilities $ 2 $ — $ — $ 2 (1) Cost basis approximated fair value due to the short period of time to maturity. (2) Other securities include available-for-sale equity security investments with Level 2 inputs that have a cost basis of $ 51 million and $ 52 million as of September 30, 2023 and March 31, 2023, respectively. For the periods presented, gains and losses are insignificant and are included in other income, net in the Company’s statements of operations. (3) During the first six months of fiscal 2024, the Company completed the payment for its contingent consideration obligation. 14 DXC TECHNOLOGY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 7 – Derivative Instruments In the normal course of business, the Company is exposed to interest rate and foreign exchange rate fluctuations. As part of its risk management strategy, the Company uses derivative instruments, primarily foreign currency forward contracts and interest rate swaps, to hedge certain foreign currency and interest rate exposures. The Company’s objective is to reduce earnings volatility by offsetting gains and losses resulting from these exposures with losses and gains on the derivative contracts used to hedge them. The Company does not use derivative instruments for trading or any speculative purposes. Derivatives Designated for Hedge Accounting Cash flow hedges The Company has designated certain foreign currency forward contracts as cash flow hedges to reduce foreign currency risk related to certain Euro and Indian Rupee-denominated obligations and forecasted transactions. The notional amounts of foreign currency forward contracts designated as cash flow hedges as of September 30, 2023 and March 31, 2023 were $ 889 million and $ 842 million, respectively. As of September 30, 2023, the related forecasted transactions extend through September 2025. During the three and six months ended September 30, 2023 and September 30, 2022, respectively, the Company had no cash flow hedges for which it was probable that the hedged transaction would not occur. See Note 15 - “Stockholders’ Equity” for changes in accumulated other comprehensive loss, net of taxes, related to the Company’s derivatives designated for hedge accounting. As of September 30, 2023, $ 1 million of the existing amount of gain related to the cash flow hedge reported in accumulated other comprehensive loss is expected to be reclassified into earnings within the next 12 months. Derivatives Not Designated for Hedge Accounting The derivative instruments not designated as hedges for purposes of hedge accounting include certain short-term foreign currency forward contracts. Derivatives that are not designated as hedging instruments are adjusted to fair value through earnings in the financial statement line item to which the derivative relates. Foreign currency forward contracts The Company manages the exposure to fluctuations in foreign currencies by using short-term foreign currency forward contracts to hedge certain foreign currency denominated assets and liabilities, including intercompany accounts and forecasted transactions. The net notional amounts of the foreign currency forward contracts outstanding as of September 30, 2023 and March 31, 2023 were $ 2.4 billion and $ 2.5 billion, respectively. 15 DXC TECHNOLOGY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The following table presents the foreign currency (gain) loss to Other income, net: For the Three Months Ended For the Six Months Ended (in millions) September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Foreign currency remeasurement (1) $ 25 $ 40 $ 21 $ 76 Undesignated foreign currency forward contracts (2) ( 26 ) ( 41 ) ( 30 ) ( 79 ) Total - Foreign currency gain $ ( 1 ) $ ( 1 ) $ ( 9 ) $ ( 3 ) (1) Movements from exchange rates on the Company’s foreign currency-denominated assets and liabilities. (2) Movements from hedges used to manage the Company’s foreign currency remeasurement exposure, and the associated costs of the hedging program. Fair Value of Derivative Instruments All derivative instruments are recorded at fair value. The Company’s accounting treatment for these derivative instruments is based on its hedge designation. The following tables present the fair values of derivative instruments included in the balance sheets: As of (in millions) Balance Sheet Line Item September 30, 2023 March 31, 2023 Derivatives designated for hedge accounting: Foreign currency forward contracts Other current assets $ 9 $ 6 Accrued expenses and other current liabilities $ 6 $ 13 Derivatives not designated for hedge accounting: Foreign currency forward contracts Other current assets $ 35 $ 15 Accrued expenses and other current liabilities $ 13 $ 16 The fair value of foreign currency forward contracts represents the estimated amount required to settle the contracts using current market exchange rates and is based on the period-end foreign currency exchange rates and forward points that are classified as Level 2 inputs. Other Risks for Derivative Instruments The Company is exposed to the risk of losses in the event of non-performance by the counterparties to its derivative contracts. The amount subject to credit risk related to derivative instruments is generally limited to the amount, if any, by which a counterparty’s obligations exceed the obligations of the Company with that counterparty. To mitigate counterparty credit risk, the Company regularly reviews its credit exposure and the creditworthiness of the counterparties. With respect to its foreign currency derivatives, as of September 30, 2023, there were six counterparties with concentration of credit risk, and based on gross fair value, the maximum amount of loss that the Company could incur is $ 21 million. The Company also enters into enforceable master netting arrangements with some of its counterparties. However, for financial reporting purposes, it is the Company’s policy not to offset derivative assets and liabilities despite the existence of enforceable master netting arrangements. The potential effect of such netting arrangements on the Company’s balance sheets is not material for the periods presented. 16 DXC TECHNOLOGY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Non-Derivative Financial Instruments Designated for Hedge Accounting The Company applies hedge accounting for foreign currency-denominated debt used to manage foreign currency exposures on its net investments in certain non-U.S. operations. To qualify for hedge accounting, the hedging instrument must be highly effective at reducing the risk from the exposure being hedged. Net Investment Hedges DXC seeks to reduce the impact of fluctuations in foreign exchange rates on its net investments in certain non-U.S. operations with foreign currency-denominated debt. For foreign currency-denominated debt designated as a hedge, the effectiveness of the hedge is assessed based on changes in spot rates. For qualifying net investment hedges, all gains or losses on the hedging instruments are included in currency translation. Gains or losses on individual net investments in non-U.S. operations are reclassified to earnings from accumulated other comprehensive income (loss) when such net investments are sold or substantially liquidated. As of September 30, 2023 and March 31, 2023, DXC had $ 265 million and $ 272 million, respectively, of foreign currency-denominated debt designated as hedges of net investments in non-U.S. subsidiaries. For the three and six months ended September 30, 2023, the pre-tax gain on foreign currency-denominated debt designated for hedge accounting recognized in other comprehensive loss was $ 8 million and $ 7 million, respectively. 17 DXC TECHNOLOGY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 8 – Intangible Assets Intangible assets consisted of the following: As of September 30, 2023 As of March 31, 2023 (in millions) Gross Carrying Value Accumulated Amortization Net Carrying Value Gross Carrying Value Accumulated Amortization Net Carrying Value Software $ 3,993 $ 3,205 $ 788 $ 4,009 $ 3,290 $ 719 Customer related intangible assets 3,887 2,409 1,478 3,927 2,260 1,667 Other intangible assets 307 137 170 303 120 183 Total intangible assets $ 8,187 $ 5,751 $ 2,436 $ 8,239 $ 5,670 $ 2,569 The components of amortization expense were as follows: Three Months Ended Six Months Ended (in millions) September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Intangible asset amortization $ 195 $ 198 $ 378 $ 397 Transition and transformation contract cost amortization (1) 54 53 102 105 Total amortization expense $ 249 $ 251 $ 480 $ 502 (1) Transaction and transformation contract costs are included within other assets on the balance sheets. Estimated future amortization related to intangible assets as of September 30, 2023 is as follows: Fiscal Year (in millions) Remainder of 2024 $ 402 2025 656 2026 588 2027 406 2028 170 Thereafter 214 Total $ 2,436 18 DXC TECHNOLOGY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 9 – Goodwill The following table summarizes the changes in the carrying amount of goodwill, by segment, as of September 30, 2023. (in millions) GBS GIS Total Balance as of March 31, 2023, net $ 539 $ — $ 539 Foreign currency translation ( 9 ) — ( 9 ) Balance as of September 30, 2023, net $ 530 $ — $ 530 Goodwill, gross 5,020 5,066 10,086 Accumulated impairment losses ( 4,490 ) ( 5,066 ) ( 9,556 ) Balance as of September 30, 2023, net $ 530 $ — $ 530 The foreign currency translation amount reflects the impact of currency movements on non-U.S. dollar-denominated goodwill balances. Goodwill Impairment Analyses The Company tests goodwill for impairment on an annual basis, as of the first day of the second fiscal quarter, and between annual tests if circumstances change, or if an event occurs that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company concluded that, as a result of its qualitative assessment performed on July 1, 2023, it remained more likely than not that the fair value of the GBS reporting unit exceeds its carrying amount. As of September 30, 2023, the Company assessed whether there were events or changes in circumstances that would more likely than not reduce the fair value of any of its reporting units below its carrying amount and require goodwill to be tested for impairment. The Company determined that there have been no such indicators and therefore, it was unnecessary to perform an interim goodwill impairment test as of September 30, 2023. 19 DXC TECHNOLOGY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 10 – Debt The following is a summary of the Company’s debt: (in millions) Interest Rates Fiscal Year Maturities 9/30/2023 (1) 3/31/2023 (1) Short-term debt and current maturities of long-term debt Commercial paper (2) 4.08 % - 4.33 % 2024 $ 348 $ 109 Current maturities of long-term debt Various 2024 - 2025 128 176 Current maturities of finance lease liabilities 0.00 % - 14.59 % 2024 - 2025 196 215 Short-term debt and current maturities of long-term debt $ 672 $ 500 Long-term debt, net of current maturities € 650 million Senior notes 1.75 % 2026 687 704 $ 700 million Senior notes 1.80 % 2027 696 696 € 750 million Senior notes 0.45 % 2028 790 810 $ 650 million Senior notes 2.375 % 2029 646 645 € 600 million Senior notes 0.95 % 2032 630 646 Finance lease liabilities 0.00 % - 14.59 % 2024 - 2029 455 502 Borrowings for assets acquired under long-term financing 0.00 % - 9.78 % 2024 - 2029 209 285 Other borrowings Various 2024 2 3 Long-term debt 4,115 4,291 Less: current maturities 324 391 Long-term debt, net of current maturities $ 3,791 $ 3,900 (1) The carrying amounts of the senior notes as of September 30, 2023 and March 31, 2023, include the remaining principal outstanding of $ 3,468 million and $ 3,523 million, respectively, net of total unamortized debt discounts and premiums, and deferred debt issuance costs of $ 19 million and $ 22 million, respectively. (2) At DXC’s option, DXC can borrow up to a maximum of € 1 billion or its equivalent in £ and $. Term Loan During the second quarter of fiscal 2023, the Company entered into a $ 500 million term loan credit agreement (as amended, the “USD Term Loan”) with certain unaffiliated financial institutions. The USD Term Loan was required to be drawn down by September 1, 2023. The Company did not draw on the USD Term Loan and the facility has been terminated during the second quarter of fiscal 2024. Fair Value of Debt The estimated fair value of the Company’s long-term debt, excluding finance lease liabilities, was $ 3.1 billion and $ 3.3 billion as of September 30, 2023 and March 31, 2023, respectively, compared with carrying value of $ 3.7 billion and $ 3.8 billion as of September 30, 2023 and March 31, 2023, respectively. 20 DXC TECHNOLOGY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 11 – Revenue Revenue Recognition The following table presents DXC’s revenues disaggregated by geography, based on the location of incorporation of the DXC entity providing the related goods or services: Three Months Ended Six Months Ended (in millions) September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 United States $ 1,002 $ 1,093 $ 2,004 $ 2,224 United Kingdom 460 452 925 925 Other Europe 1,051 1,064 2,115 2,202 Australia 330 371 672 762 Other International 593 586 1,166 1,160 Total Revenues $ 3,436 $ 3,566 $ 6,882 $ 7,273 The revenue by geography pertains to both of the Company’s reportable segments. Refer to Note 18 – “Segment Information” for the Company’s segment disclosures. Remaining Performance Obligations As of September 30, 2023, approximately $ 18.5 billion of revenue is expected to be recognized from remaining performance obligations. We expect to recognize revenue on approximately 24 % of these remaining performance obligations in fiscal 2024, with the remainder of the balance recognized thereafter. Contract Balances The following table provides information about the balances of the Company’s trade receivables and contract assets and contract liabilities: As of (in millions) September 30, 2023 March 31, 2023 Trade receivables, net $ 2,081 $ 2,269 Contract assets $ 377 $ 366 Contract liabilities $ 1,578 $ 1,842 Change in contract liabilities were as follows: Six Months Ended (in millions) September 30, 2023 September 30, 2022 Balance, beginning of period $ 1,842 $ 1,915 Deferred revenue 873 1,075 Recognition of deferred revenue ( 1,085 ) ( 1,145 ) Currency translation adjustment ( 23 ) ( 168 ) Other ( 29 ) ( 21 ) Balance, end of period $ 1,578 $ 1,656 21 DXC TECHNOLOGY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 12 – Restructuring Costs The composition of restructuring liabilities by financial statement line item is as follows: As of (in millions) September 30, 2023 March 31, 2023 Accrued expenses and other current liabilities $ 60 $ 105 Other long-term liabilities 15 22 Total $ 75 $ 127 Summary of Restructuring Plans Fiscal 2024 Plan During fiscal 2024, management approved global cost savings initiatives designed to better align the Company’s facilities and data centers (the “Fiscal 2024 Plan”). Restructuring Liability Reconciliations by Plan Restructuring Liability as of March 31, 2023 Costs Expensed, Net of Reversals Costs Not Affecting Restructuring Liability (1) Cash Paid Other (2) Restructuring Liability as of September 30, 2023 Fiscal 2024 Plan Workforce Reductions $ — $ — $ — $ — $ — $ — Facilities Costs — 34 ( 27 ) ( 1 ) — 6 — 34 ( 27 ) ( 1 ) — 6 Fiscal 2023 Plan Workforce Reductions $ 79 $ 2 $ — $ ( 43 ) $ — $ 38 Facilities Costs 1 14 ( 4 ) ( 11 ) 1 1 80 16 ( 4 ) ( 54 ) 1 39 Other Prior Year and Acquired Plans Workforce Reductions $ 45 $ ( 1 ) $ — $ ( 14 ) $ ( 1 ) $ 29 Facilities Costs 2 6 ( 1 ) ( 6 ) — 1 47 5 ( 1 ) ( 20 ) ( 1 ) 30 Total $ 127 $ 55 $ ( 32 ) $ ( 75 ) $ — $ 75 (1) Pension benefit augmentations recorded as pension liabilities, asset impairments and restructuring costs associated with right-of-use assets. (2) Foreign currency translation adjustments. Included in restructuring costs for the six months ended September 30, 2023 is $ 14 million related to amortization of the right-of-use asset and interest expense for leased facilities that have been vacated but are being actively marketed for sublease or we are in negotiations with the landlord to potentially terminate or modify those leases. 22 DXC TECHNOLOGY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 13 – Pension and Other Benefit Plans Defined Benefit Plans The components of net periodic pension income were: Three Months Ended Six Months Ended (in millions) September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Service cost $ 15 $ 18 $ 30 $ 37 Interest cost 77 63 156 130 Expected return on assets ( 112 ) ( 122 ) ( 226 ) ( 254 ) Amortization of prior service costs ( 1 ) ( 2 ) ( 3 ) ( 4 ) Recognition of actuarial loss — 1 — 1 Net periodic pension income $ ( 21 ) $ ( 42 ) $ ( 43 ) $ ( 90 ) The service cost component of net periodic pension income is presented in costs of services and selling, general and administrative and the other components of net periodic pension income are presented in other income, net. Note 14 – Income Taxes The Company’s effective tax rate (“ETR”) was 22.7 % and 48.1 % for the three months ended September 30, 2023 and September 30, 2022, respectively, and 31.6 % and 25.6 % for the six months ended September 30, 2023 and September 30, 2022, respectively. For the three and six months ended September 30, 2023, the primary drivers of the ETR were the global mix of income, U.S. tax on foreign income, a decrease in valuation allowances on deferred tax assets, and the foreign tax credit. 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. The majority of our global unremitted foreign earnings have been taxed or would be exempt from U.S. tax upon repatriation. Such earnings and all current foreign earnings are not indefinitely reinvested. The following earnings are considered indefinitely reinvested: approximately $ 471 million that could be subject to U.S. federal tax when repatriated to the U.S. under section 1.245A-5(b) of the final Treasury regulations; and approximately $ 200 million of our accumulated earnings in India. A portion of these indefinitely reinvested earnings may be subject to foreign and U.S. state tax consequences when remitted. The Company will continue to evaluate its position in the future based on its future strategy and cash needs. In connection with the merger of Computer Sciences Corporation (“CSC”) and the Enterprise Services business of Hewlett Packard Enterprise Company (the “HPES Merger”), the Company entered into a tax matters agreement with Hewlett Packard Enterprise Company (“HPE”). HPE generally will be responsible for tax liabilities arising prior to the HPES Merger, and DXC is liable to HPE for income tax receivables it receives related to pre-HPES Merger periods. Pursuant to the tax matters agreement, the Company recorded a $ 16 million tax indemnification receivable related to uncertain tax positions, a $ 52 million tax indemnification receivable related to other tax payables, and a $ 91 million tax indemnification payable related to other tax receivables. 23 DXC TECHNOLOGY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) In connection with the spin-off of the Company’s former U.S. public sector business (the “USPS Separation”), the Company entered into a tax matters agreement with Perspecta Inc. (including its successors and permitted assigns, “Perspecta”). The Company generally will be responsible for tax liabilities arising prior to the USPS Separation, and Perspecta is liable to the Company for income tax receivables related to pre-spin-off periods. Income tax liabilities transferred to Perspecta primarily relate to pre-HPES Merger periods, for which the Company is indemnified by HPE pursuant to the tax matters agreement between the Company and HPE. The Company remains liable to HPE for tax receivables transferred to Perspecta related to pre-HPES Merger periods. Pursuant to the tax matters agreement, the Company recorded a $ 17 million tax indemnification receivable from Perspecta related to other tax receivables and a $ 6 million tax indemnification payable to Perspecta related to income tax and other tax payables. In connection with the sale of its healthcare provider software business (“HPS”), the Company entered into a tax matters agreement with Dedalus. Pursuant to the tax matters agreement, the Company generally will be responsible for tax liabilities arising prior to the sale of the HPS business. The Internal Revenue Service (the “IRS”) has examined, or is examining, the Company’s federal income tax returns for fiscal 2009 through the tax year ended October 31, 2018. With respect to CSC’s fiscal 2009 through 2017 federal tax returns, the Company participated in settlement negotiations with the IRS Office of Appeals. The IRS examined several issues for these tax years that resulted in various audit adjustments. The Company and the IRS Office of Appeals have settled various audit adjustments, and we disagree with the IRS’ disallowance of certain losses and deductions resulting from restructuring costs and tax planning strategies in previous years. As we believe we will ultimately prevail on the technical merits of the disagreed items and are challenging them in the U.S. Tax Court, these matters are not fully reserved and would result in incremental federal and state tax expense and cash tax payments of approximately $ 491 million (including estimated interest and penalties) for the unreserved portion of these items if we do not prevail. We have received notices of deficiency with respect to fiscal 2009, 2010, 2011 and 2013 and have timely filed petitions with the U.S. Tax Court. During the first six months of fiscal 2024, some of these cases were dismissed, but the dismissals were procedural in nature only and do not impact the Company’s potential liability for the aforementioned fiscal years. We do not expect the U.S. Tax Court matters to be resolved in the next 12 months. The Company’s fiscal years 2009, 2010, and 2013 are in the U.S. Tax Court, and consequently these years will remain open until such proceedings have concluded. The statute of limitations on assessments related to a refund claim for fiscal year 2012 is open through February 28, 2025. The Company has agreed to extend the statute of limitations for fiscal and tax return years 2014 through 2020 to September 30, 2024. The Company expects to reach resolution for fiscal and tax return years 2009 through 2020 no earlier than fiscal 2025. The Company may settle certain other tax examinations for different amounts than the Company has accrued as uncertain tax positions. Consequently, the Company may need to accrue and ultimately pay additional amounts or pay lower amounts than previously estimated and accrued when positions are settled in the future. For the three months ended September 30, 2023, the Company’s liability for uncertain tax positions increased by $ 2 million (excluding interest and penalties and related tax attributes) primarily due to the benefit of U.S. research and development income tax credits. The Company believes the outcomes that are reasonably possible within the next 12 months to result in a reduction in its liability for uncertain tax positions, excluding interest, penalties, and tax carryforwards, would be approximately $ 14 million. 24 DXC TECHNOLOGY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 15 – Stockholders’ Equity Share Repurchases The details of shares repurchased during the six months ended September 30, 2023 and September 30, 2022 are shown below: Fiscal 2024 Fiscal 2023 Fiscal Period Number of Shares Repurchased Average Price Per Share Amount (in millions) Number of Shares Repurchased Average Price Per Share Amount (in millions) 1st Quarter 10,975,643 $ 25.53 $ 280 8,850,912 $ 30.09 $ 266 2nd Quarter 9,958,585 $ 21.50 214 — $ — — Total 20,934,228 $ 23.61 $ 494 8,850,912 $ 30.09 $ 266 Accumulated Other Comprehensive Loss The following table shows the changes in accumulated other comprehensive loss, net of taxes: (in millions) Foreign Currency Translation Adjustments Cash Flow Hedges Pension and Other Post-retirement Benefit Plans Accumulated Other Comprehensive Loss Balance at March 31, 2023 $ ( 985 ) $ ( 7 ) $ 218 $ ( 774 ) Other comprehensive income before reclassifications ( 5 ) 5 — — Amounts reclassified from accumulated other comprehensive loss — 2 ( 2 ) — Balance at September 30, 2023 $ ( 990 ) $ — $ 216 $ ( 774 ) (in millions) Foreign Currency Translation Adjustments Cash Flow Hedges Pension and Other Post-retirement Benefit Plans Accumulated Other Comprehensive Loss Balance at March 31, 2022 $ ( 651 ) $ 10 $ 256 $ ( 385 ) Other comprehensive loss before reclassifications ( 337 ) 11 — ( 326 ) Amounts reclassified from accumulated other comprehensive loss — ( 9 ) ( 4 ) ( 13 ) Balance at September 30, 2022 $ ( 988 ) $ 12 $ 252 $ ( 724 ) Note 16 – Stock Incentive Plans Restricted Stock Units and Performance-Based Restricted Stock Units Restricted stock units (“RSUs”) represent the right to receive one share of DXC common stock upon a future settlement date, subject to vesting and other terms and conditions of the award, plus any dividend equivalents accrued during the award period. The Company also grants performance-based restricted stock units (“PSUs”), which generally vest over a three-year period. The number of PSUs that ultimately vest is dependent upon the Company’s achievement of certain specified market- and performance-based criteria over the three-year vesting period. The fair value of RSUs and PSUs is based on the Company’s common stock closing price on the grant date. For PSUs with a market-based condition, DXC uses a Monte Carlo simulation model to value the grants. 25 DXC TECHNOLOGY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Employee Equity Plan Director Equity Plan Number of Shares Weighted Average Grant Date Fair Value Number of Shares Weighted Average Grant Date Fair Value Outstanding as of March 31, 2023 7,449,379 $ 37.11 147,487 $ 35.80 Granted 5,105,366 $ 25.16 124,000 $ 19.35 Settled ( 3,918,850 ) $ 23.48 ( 69,189 ) $ 31.68 Canceled/Forfeited ( 718,992 ) $ 43.13 — $ — Outstanding as of September 30, 2023 7,916,903 $ 35.29 202,298 $ 27.13 Share-Based Compensation Three Months Ended Six Months Ended (in millions) September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Total share-based compensation cost $ 24 $ 27 $ 47 $ 55 Related income tax benefit $ 4 $ 3 $ 7 $ 6 Note 17 – Cash Flows Cash payments for interest on indebtedness and income taxes and other select non-cash activities are as follows: Six Months Ended (in millions) September 30, 2023 September 30, 2022 Cash paid for: Interest $ 135 $ 74 Taxes on income, net of refunds (1) $ 235 $ 230 Non-cash activities: Operating: ROU assets obtained in exchange for lease, net (2) $ 95 $ 117 Assets acquired under long-term financing $ 4 $ 37 Investing: Capital expenditures in accounts payable and accrued expenses $ 96 $ — Capital expenditures through finance lease obligations $ 41 $ 44 Assets acquired under long-term financing $ 27 $ 6 Financing: Shares repurchased but not settled in cash (3) $ 9 $ — (1) Income tax refunds were $ 18 million and $ 30 million for the six months ended September 30, 2023 and September 30, 2022, respectively. (2) Net of $ 557 million and $ 521 million in lease modifications and terminations during the first six months of fiscal 2024 and 2023, respectively. (3) On August 16, 2022, the U.S. government enacted the IRA into law. The IRA imposes a 1% excise tax on share repurchases completed after December 31, 2022. In our cash flow statement we reflect the excise tax as a financing activity relating to the repurchase of common stock. 26 DXC TECHNOLOGY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 18 – Segment Information DXC has a matrix form of organization and is managed in several different and overlapping groupings including services, industries and geographic regions. As a result, and in accordance with accounting standards, operating segments are organized by the type of services provided. DXC's chief operating decision maker ("CODM"), the chief executive officer, obtains, reviews, and manages the Company’s financial performance based on these segments. The CODM uses these results, in part, to evaluate the performance of, and allocate resources to, each of the segments. Global Business Services (“GBS”) GBS provides innovative technology solutions that help our customers address key business challenges and accelerate transformations tailored to each customer’s industry and specific objectives. GBS offerings include: • Analytics and Engineering. Our portfolio of analytics services and extensive partner ecosystem help customers gain rapid insights, automate operations, and accelerate their transformation journeys. We provide software engineering, consulting, and data analytics solutions that enable businesses to run and manage their mission-critical functions, transform their operations, and develop new ways of doing business. • Applications . We help simplify, modernize, and accelerate mission-critical applications that support business agility and growth through our Applications services. We are the engineers that enable our customers to take advantage of the latest digital platforms with both customized and pre-packaged applications, ensure resiliency, launch new products and enter new markets with minimal disruption. We help customers define, execute and manage their enterprise applications strategy. • Insurance Software and Business Process Services. We partner with insurance clients, to modernize and run IT systems, provide proprietary modular insurance software and platforms, and operate the full spectrum of insurance business process services. We also help operate and continuously improve bank cards, payment and lending processes and operations, and customer experience operations. Global Infrastructure Services (“GIS”) GIS provides a portfolio of technology offerings that deliver predictable outcomes and measurable results while reducing business risk and operational costs for customers. GIS offerings include: • Security. Our Security services help customers assess risk and proactively address all facets of the security environment, from threat intelligence to compliance. We leverage proven methodologies, intelligent automation and industry-leading partners to tailor security solutions to customers’ unique business needs. Our experts weave cyber resilience into IT security, operations and culture. Whether migrating to the cloud, protecting data with a Zero Trust strategy or managing a security operations center, our Security services enable our customers to focus on their business. • Cloud Infrastructure and IT Outsourcing (“ITO”) . We enable customers to do Cloud Right™, making the right investments at the right time and on the right platforms. We orchestrate hybrid cloud and multicloud environments, ensuring private and public clouds, servers and mainframes operate effectively together. We provide companies with tailored plans for cloud migration and optimization to enable successful transformation. We leverage our deep expertise in legacy IT and drive innovation with reliable, secure, mission-critical IT Outsourcing services – from compute and data center, to storage and backup, to network, to mainframe and to business continuity – providing a clear path to modernization. • Modern Workplace. Our Modern Workplace services put the employee experience first, helping them achieve new levels of productivity, engagement and collaboration while working seamlessly and securely on any device. Organizations are empowered to deliver a consumer-like experience, centralize IT management and support services, and improve the total cost of ownership. 27 DXC TECHNOLOGY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Segment Measures The following table summarizes operating results regularly provided to the CODM by reportable segment and a reconciliation to the financial statements: (in millions) GBS GIS Total Reportable Segments All Other Totals Three Months Ended September 30, 2023 Revenues $ 1,709 $ 1,727 $ 3,436 $ — $ 3,436 Segment profit $ 213 $ 101 $ 314 $ ( 63 ) $ 251 Depreciation and amortization (1) $ 49 $ 197 $ 246 $ 26 $ 272 Three Months Ended September 30, 2022 Revenues $ 1,713 $ 1,853 $ 3,566 $ — $ 3,566 Segment profit $ 218 $ 114 $ 332 $ ( 63 ) $ 269 Depreciation and amortization (1) $ 40 $ 216 $ 256 $ 23 $ 279 (in millions) GBS GIS Total Reportable Segments All Other Totals Six Months Ended September 30, 2023 Revenues $ 3,412 $ 3,470 $ 6,882 $ — $ 6,882 Segment profit $ 405 $ 192 $ 597 $ ( 122 ) $ 475 Depreciation and amortization (1) $ 94 $ 381 $ 475 $ 52 $ 527 Six Months Ended September 30, 2022 Revenues $ 3,471 $ 3,802 $ 7,273 $ — $ 7,273 Segment profit $ 428 $ 241 $ 669 $ ( 141 ) $ 528 Depreciation and amortization (1) $ 81 $ 434 $ 515 $ 49 $ 564 (1) Depreciation and amortization as presented excludes amortization of acquired intangible assets of $ 89 million and $ 101 million for the three months ended September 30, 2023 and 2022, respectively, and $ 178 million and $ 205 million for the six months ended September 30, 2023 and 2022, respectively. 28 DXC TECHNOLOGY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Reconciliation of Reportable Segment Profit to Consolidated Total The Company's management uses segment profit as the measure for assessing performance of its segments. Segment profit is defined as segment revenues less cost of services, segment selling, general and administrative, depreciation and amortization, and other income (excluding the movement in foreign currency exchange rates on DXC's foreign currency denominated assets and liabilities and the related economic hedges). The Company does not allocate to its segments certain operating expenses managed at the corporate level. These unallocated costs generally include certain corporate function costs, stock-based compensation expense, pension and other post-retirement benefit (“OPEB”) actuarial and settlement gains and losses, restructuring costs, transaction, separation, and integration-related costs and amortization of acquired intangible assets. Three Months Ended Six Months Ended (in millions) September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Profit Total profit for reportable segments $ 314 $ 332 $ 597 $ 669 All other loss ( 63 ) ( 63 ) ( 122 ) ( 141 ) Subtotal $ 251 $ 269 $ 475 $ 528 Interest income 53 28 102 48 Interest expense ( 78 ) ( 44 ) ( 144 ) ( 81 ) Restructuring costs ( 35 ) ( 53 ) ( 55 ) ( 86 ) Transaction, separation and integration-related costs ( 3 ) ( 4 ) ( 4 ) ( 6 ) Amortization of acquired intangible assets ( 89 ) ( 101 ) ( 178 ) ( 205 ) Merger related indemnification ( 2 ) — ( 13 ) ( 10 ) SEC Matter — ( 8 ) — ( 8 ) Gains (losses) on dispositions 33 ( 32 ) 28 ( 3 ) Impairment losses ( 2 ) — ( 5 ) — Pension and OPEB actuarial and settlement losses — ( 1 ) — ( 1 ) Income before income taxes $ 128 $ 54 $ 206 $ 176 Management does not use total assets by segment to evaluate segment performance or allocate resources. As a result, assets are not tracked by segment and therefore, total assets by segment are not disclosed. 29 DXC TECHNOLOGY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 19 – Commitments and Contingencies Commitments Minimum purchase commitments as of September 30, 2023 were as follows: Fiscal year Minimum Purchase Commitment (in millions) Remainder of 2024 $ 349 2025 616 2026 536 2027 119 2028 75 Thereafter 23 Total $ 1,718 Contingencies Forsyth, et al. v. HP Inc. and Hewlett Packard Enterprise: On August 18, 2016, this purported class and collective action was filed in the U.S. District Court for the Northern District of California, against HP and HPE alleging violations of the Federal Age Discrimination in Employment Act (“ADEA”) and California state law, in connection with workforce reductions that occurred in or after August 2012 in California, and in or after as early as December 2014 in other U.S. locations. Former business units of HPE now owned by the Company, and former business units of the Company now owned by Peraton (formerly Perspecta), may be proportionately liable for any recovery by plaintiffs in this matter. In December 2020, Plaintiffs filed a motion for preliminary certification of the collective action, which Defendants opposed. In April 2021, the court granted Plaintiffs’ motion for preliminary certification and lifted the previously imposed stay of the action. In November 2021, notice was sent to putative members of the ADEA collectives regarding participation in the case. In February 2022, the notice period closed. In September 2023, the parties entered into a settlement agreement to resolve the matter and submitted it to the District Court for approval. In October 2023, the District Court entered an order preliminarily approving the proposed settlement. Securities Litigation: Previously disclosed securities litigation matters have been dismissed, with one case remaining, in the Superior Court of the State of California. On August 20, 2019, a purported class action lawsuit was filed in the Superior Court of the State of California, County of Santa Clara, against the Company, directors of the Company, and a former officer of the Company, among other defendants. The action asserts claims under Sections 11, 12 and 15 of the Securities Act of 1933, as amended, and is premised on allegedly false and/or misleading statements, and alleged non-disclosure of material facts, regarding the Company’s prospects and expected performance. The putative class of plaintiffs includes former shareholders of Computer Sciences Corporation (“CSC”) who exchanged their CSC shares for the Company’s common stock pursuant to the offering documents filed with the Securities and Exchange Commission in connection with the April 2017 transaction that formed DXC. The State of California action had been stayed pending the outcome of the substantially similar federal action filed in the United States District Court for the Northern District of California. The federal action was dismissed with prejudice in December 2021. Thereafter, the state court lifted the stay and entered an order permitting additional briefing by the parties. In March 2022, Plaintiffs filed an amended complaint, which the Company moved to dismiss. In August 2022, the Court granted the Company’s motion to dismiss, but permitted Plaintiffs to amend and refile their complaint. In September 2022, Plaintiffs filed a second amended complaint, which the Company moved to dismiss. In January 2023, the Court issued an order denying the Company’s motion to dismiss the second amended complaint. In March 2023, the Court entered a scheduling order setting a trial date for September 2025. A hearing on Plaintiffs’ motion for class certification is scheduled for January 2024. The case is otherwise in discovery. 30 DXC TECHNOLOGY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The Company believes that the final remaining lawsuit described above is also without merit, and intends to vigorously defend it. Tax Examinations: The Company is under IRS examination in the U.S. on its federal income tax returns for certain fiscal years and is in disagreement with the IRS on certain tax positions, which are currently being contested in the U.S. Tax Court. For more detail, see Note 14 – “Income Taxes” for further information. OFAC Matter : In August 2022, the Company submitted an initial notification of voluntary self-disclosure to the U.S. Department of the Treasury, Office of Foreign Assets Control (“OFAC”) regarding potential violations of U.S. sanctions on Russia. The self-disclosure pertains to the Company’s sale of Luxoft’s Russia business to IBS Holding LLC in April 2022, as part of the Company’s exit from the Russian market following Russia’s invasion of Ukraine. The Company has also submitted an initial notification of voluntary self-disclosure to the U.S. Department of Commerce, Bureau of Industry and Security (“BIS”) regarding potential export control violations in connection with its exit from the Russian market. The Company’s review of potential sanctions violations is ongoing, and the Company may make further disclosures to relevant agencies as its review continues. In addition to the matters noted above, the Company is currently subject in the normal course of business to various claims and contingencies arising from, among other things, disputes with customers, vendors, employees, contract counterparties and other parties, as well as securities matters, environmental matters, matters concerning the licensing and use of intellectual property, and inquiries and investigations by regulatory authorities and government agencies. Some of these disputes involve or may involve litigation. The financial statements reflect the treatment of claims and contingencies based on management’s view of the expected outcome. DXC consults with outside legal counsel on issues related to litigation and regulatory compliance and seeks input from other experts and advisors with respect to matters in the ordinary course of business. Although the outcome of these and other matters cannot be predicted with certainty, and the impact of the final resolution of these and other matters on the Company’s results of operations in a particular subsequent reporting period could be material and adverse, management does not believe based on information currently available to the Company, that the resolution of any of the matters currently pending against the Company will have a material adverse effect on the financial position of the Company or the ability of the Company to meet its financial obligations as they become due. Unless otherwise noted, the Company is unable to determine at this time a reasonable estimate of a possible loss or range of losses associated with the foregoing disclosed contingent matters. 31 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS All statements and assumptions contained in this Quarterly Report on Form 10-Q and in the documents incorporated by reference that do not directly and exclusively relate to historical facts constitute “forward-looking statements.” Forward-looking statements often include words such as “anticipates,” “believes,” “estimates,” “expects,” “forecast,” “goal,” “intends,” “objective,” “plans,” “projects,” “strategy,” “target,” and “will” and words and terms of similar substance in discussions of future operating or financial performance. These statements represent current expectations and beliefs, and no assurance can be given that the results described in such statements will be achieved. Forward-looking statements include, among other things, statements with respect to our future financial condition, results of operations, cash flows, business strategies, operating efficiencies or synergies, divestitures, competitive position, growth opportunities, share repurchases, dividend payments, plans and objectives of management and other matters. Such statements are subject to numerous assumptions, risks, uncertainties and other factors that could cause actual results to differ materially from those described in such statements, many of which are outside of our control. Important factors that could cause actual results to differ materially from those described in forward-looking statements include, but are not limited to: • our inability to succeed in our strategic objectives; • the risk of liability or damage to our reputation resulting from security incidents, including breaches, and cyber-attacks to our systems and networks and those of our business partners, insider threats, disclosure of sensitive data or failure to comply with data protection laws and regulations in a rapidly evolving regulatory environment; in each case, whether deliberate or accidental; • our inability to develop and expand our service offerings to address emerging business demands and technological trends, including our inability to sell differentiated services amongst our offerings; • our inability to compete in certain markets and expand our capacity in certain offshore locations and risks associated with such offshore locations, such as the on-going conflict between Russia and Ukraine and the conflict between Israel and Hamas; • failure to maintain our credit rating and ability to manage working capital, refinance and raise additional capital for future needs; • public health crises such as the COVID-19 pandemic; • our indebtedness; • the competitive pressures faced by our business; • our inability to accurately estimate the cost of services, and the completion timeline of contracts; • execution risks by us and our suppliers, customers, and partners; • the risks associated with climate change and natural disasters; • increased scrutiny of, and evolving expectations for, sustainability and environmental, social and governance (“ESG”) initiatives; • our inability to retain and hire key personnel and maintain relationships with key partners; • the risks associated with prolonged periods of inflation or current macroeconomic conditions, including the current decline in economic growth rates in the United States and in other countries, the possibility of reduced spending by customers in the areas we serve, the success of our cost-takeout efforts, continuing unfavorable foreign exchange rate movements, and our ability to close new deals in the event of an economic slowdown; • the risks associated with our international operations, such as risks related to currency exchange rates; • our inability to comply with existing and new laws and regulations, including social and environmental responsibility regulations, policies and provisions, as well as customer and investor demands; • our inability to achieve the expected benefits of our restructuring plans; • inadvertent infringement of third-party intellectual property rights or our inability to protect our own intellectual property assets; • our inability to procure third-party licenses required for the operation of our products and service offerings; • risks associated with disruption of our supply chain; • our inability to maintain effective disclosure controls and internal control over financial reporting; • potential losses due to asset impairment charges; • our inability to pay dividends or repurchase shares of our common stock; • pending investigations, claims and disputes and any adverse impact on our profitability and liquidity; 32 • disruptions in the credit markets, including disruptions that reduce our customers’ access to credit and increase the costs to our customers of obtaining credit; • counterparty default risk in our hedging program; • our failure to bid on projects effectively; • financial difficulties of our customers and our inability to collect receivables; • our inability to maintain and grow our customer relationships over time and to comply with customer contracts or government contracting regulations or requirements; • our inability to succeed in our strategic transactions; • changes in tax rates, tax laws, and the timing and outcome of tax examinations; • risks following the merger of Computer Sciences Corporation (“CSC”) and Enterprise Services business of Hewlett Packard Enterprise Company’s (“HPES”) businesses, including anticipated tax treatment, unforeseen liabilities, and future capital expenditures; • risks following the spin-off of our former U.S. Public Sector business (the “USPS”) and its related mergers with Vencore Holding Corp. and KeyPoint Government Solutions in June 2018 to form Perspecta Inc. (including its successors and permitted assigns, “Perspecta”), which was acquired by Peraton in May 2021; and • the other factors described in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended March 31, 2023 and subsequent SEC filings, including Part II, Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q. No assurance can be given that any goal or plan set forth in any forward-looking statement can or will be achieved, and readers are cautioned not to place undue reliance on such statements, which speak only as of the date they are made. Any forward-looking statement made by us in this Quarterly Report on Form 10-Q speaks only as of the date on which this Quarterly Report on Form 10-Q was first filed. We do not undertake any obligation to update or release any revisions to any forward-looking statement or to report any events or circumstances after the date of this report or to reflect the occurrence of unanticipated events, except as required by law. 33