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Item 7. Management’s Discussion and Analysis

2024-05-17 compared with 2023-05-19 · 163 added, 142 removed, 357 unchanged (46% of the section changed)

MANAGEMENT'S DISCUSSION AND ANALYSIS ("MD&A") OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The purpose of the 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 fiscal year ended March 31, 2023 and our financial condition as of March 31, 2023.

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

The purpose of the Management's Discussion and Analysis ( “ 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 fiscal year ended March 31, 2024 and our financial condition as of March 31, 2024.

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

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

Key metrics for fiscal 2024 compared to fiscal 2023 are included below.

We have presented organic revenue and diluted earnings per share on a non-GAAP basis.

For more information see “Non-GAAP Financial Measures.”

• Revenues of $13.67 billion, down 5.3% compared to prior year period, and down 4.1% on an organic basis;

• Diluted earnings (loss) per share of $0.46, compared to $(2.48) in fiscal 2023;

adjusted diluted earnings per share of $3.13, compared to $3.47 in fiscal 2023, a decrease of 9.8%;

• Operating cash flow of $1,361 million, less capital expenditures of $605 million, resulted in free cash flow of $756 million;

• Returned $883 million to shareholders through share repurchases in fiscal 2024.

Results of Operations

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Revenues $ 13,667 $ 14,430

(Loss) income before income taxes (885) 1,141

Income tax (benefit) expense (319) 405

Net (loss) income $ (566) $ 736

Diluted (loss) income per common share:

Income (loss) before income taxes

Income tax expense (benefit)

Net income (loss)

Diluted income (loss) per common share:

$ 0.46 $ (2.48)

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

Total revenue for fiscal 2023 was $14.4 billion, a decrease of $1,835 million or 11.3%, as compared to the same period a year ago.

The 11.3% decrease against the comparative period includes a 6.0% unfavorable foreign currency exchange rate impact, a 2.6% decline in revenue from the disposition of certain businesses, and a 2.7% decline in organic revenue.

Total revenue for fiscal 2024 was $13.7 billion, a decrease of $763 million or 5.3%, compared to the prior fiscal year.

The 5.3% decrease against the comparative period includes a 0.7% favorable foreign currency exchange rate impact, a 1.9% decline in revenue from the disposition of certain businesses, and a 4.1% decline in organic revenue.

Organic revenue growth is a non-GAAP measure.

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

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

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

The favorable foreign currency exchange rate impact is primarily driven by the weakening of the U.S.

dollar against the British Pound and Euro.

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

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GBS revenues were $6.8 billion for fiscal 2024, a decrease of $140 million or 2.0% compared to fiscal 2023.

The 8.4% decrease against the comparative period includes a 5.9% unfavorable foreign currency exchange rate impact and a 4.9% decline in revenue from the disposition of certain businesses, partially offset by 2.4% organic revenue growth from additional services provided to new and existing customers.

The 2.0% decrease against the comparative period includes a 3.8% decline in revenue from the disposition of certain businesses,

partially offset by 1.4% organic revenue growth from additional services provided to new and existing customers and a 0.4% favorable foreign currency exchange rate impact.

Global Infrastructure Services

GIS revenues were $6.8 billion for fiscal 2024, a decrease of $623 million or 8.3% compared to fiscal 2023.

The 13.8% decrease against the comparative period includes a 6.0% unfavorable foreign currency exchange rate impact, 0.6% decline in revenue from the disposition of certain businesses, and a 7.2% decline in organic revenue from project completions, early terminations, and lower resale revenue.

The 8.3% decrease against the comparative period includes a 1.0% favorable foreign currency exchange rate impact offset by a 9.3% decline in organic revenue from project completions, early terminations, and lower resale revenue.

Costs and Expenses

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Interest income (214) (135) (79) 58.5

Debt extinguishment costs — 311 (311) (100.0)

Gain on disposition of businesses (79) (190) 111 (58.4)

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Costs of services, excluding depreciation and amortization and restructuring costs ("COS"), were $10.6 billion for fiscal 2024, a decrease of $670 million compared to the prior fiscal year.

The $1,437 million decrease in expenses was primarily due to a favorable foreign currency exchange rate impact of $761 million, a decrease in volumes from divestitures and lower revenue levels, and a reduction in professional services and contractor-related expenses from our cost optimization efforts.

Gross margin (Revenues less COS as a percentage of revenue) was 22.1% and 22.0% for fiscal 2023 and 2022, respectively.

The $670 million decrease in expenses against the prior fiscal year was primarily due to a reduction in labor costs from lower revenue levels and a reduction in professional services and contractor-related expenses from our cost optimization efforts, partially offset by a $9 million severance expense in the third quarter of fiscal 2024 related to the departure of the Company’s prior Chief Executive Officer and an unfavorable foreign currency exchange rate impact of $64 million.

Gross margin (Revenues less COS as a percentage of revenue) was 22.6% for fiscal 2024, an increase of 50 basis points against the prior fiscal year.

Selling, General and Administrative

Selling, general and administrative expense, excluding depreciation and amortization and restructuring costs ("SG&A"), was $1.2 billion for fiscal 2024, a decrease of $131 million compared to the prior fiscal year.

In fiscal 2023, SG&A as a percentage of revenues was 9.5%, an increase of 80 basis points against the comparative period.

The $33 million decrease in SG&A expenses was primarily due to a favorable foreign currency exchange rate impact of $68 million, lower real estate costs and other professional and contractor-related expenses, and a $10 million decrease in transaction, separation and integration-related (“TSI”) costs, partially offset by a $46 million charge for merger-related indemnification expenses, $29 million for arbitration losses, and $8 million for the SEC Matter.

The $131 million decrease in expenses against the prior fiscal year was primarily due to a reduction of $30 million in costs related to merger related indemnification expenses, a decrease of $9 million in transaction, separation and integration-related (“TSI”) costs, and lower professional services and other vendor-related expenses in fiscal 2024.

In addition, the prior year included a $29 million expense for arbitration-related losses and an $8 million expense for the SEC Matter.

These decreases in expense were partially offset by a $5 million unfavorable foreign currency exchange rate impact.

SG&A as a percentage of revenue was 9.1% for fiscal 2024, a favorable decrease of 40 basis points against the prior fiscal year.

Depreciation and Amortization

Depreciation expense was $433 million for fiscal 2024, a decrease of $86 million compared to the prior fiscal year.

The decrease in depreciation expense was primarily due to lower average net property and equipment balances and a favorable foreign currency exchange rate impact of $30 million for fiscal 2023.

The decrease in depreciation expense was primarily due to lower average net property and equipment balances.

Amortization expense was $971 million for fiscal 2024, a decrease of $29 million compared to the prior fiscal year.

The decrease in amortization expense was primarily due to a decrease in software amortization, a reduction in transition and transformation contract cost amortization due to contract completions, and a favorable foreign currency exchange rate impact of $43 million for fiscal 2023.

The decrease in amortization expense was primarily due to lower software amortization and customer related intangible amortization, partially offset by an increase in transition and transformation contract cost amortization.

Restructuring Costs

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

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

Total restructuring costs recorded, net of reversals, during fiscal 2023 were $216 million, a decrease of $102 million compared to the prior fiscal year.

During fiscal 2024, management approved global cost savings initiatives designed to better align our workforce, facility and data center requirements.

Total restructuring costs recorded, net of reversals, during fiscal 2024 were $111 million, a decrease of $105 million compared to the prior fiscal year, primarily from a reduction in workforce-related expenses.

See Note 12 - "Restructuring Costs" for additional information about our restructuring actions.

Interest Expense and Interest Income

For fiscal 2023, net interest expense (interest expense less interest income) was $65 million, a decrease of $74 million as compared to the prior fiscal year.

The decrease in net interest expense against the comparative period was primarily due to higher income from notional cash pool deposits due to global interest rate hikes, a reduction in notes payable and term loans resulting from 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.

Debt Extinguishment Costs

There were no debt extinguishment costs recorded for fiscal 2023.

Debt extinguishment costs were $311 million for fiscal 2022, for the partial and full redemption of term loans, senior notes, and extinguishment of debt associated with asset financing.

For fiscal 2024, net interest expense (interest expense less interest income) was $84 million, an increase of $19 million as compared to the prior fiscal year.

The increase in net interest expense against the comparative period was primarily due to higher interest rates globally that increased interest expense from securitization and commercial paper borrowings.

Gain on Disposition of Businesses

During fiscal 2023, DXC sold its FDB business, resulting in a pre-tax gain of $215 million.

During fiscal 2023, DXC also sold certain insignificant businesses that resulted in a net loss of $25 million.

During fiscal 2022, DXC sold its HPS business resulting in a pre-tax gain on sale of $331 million.

During fiscal 2022, DXC also sold certain insignificant businesses that resulted in a gain of $53 million.

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

During fiscal 2024, the Company sold insignificant businesses and a strategic investment, and made adjustments to estimated amounts from prior years' dispositions that resulted in a net gain of $79 million.

During fiscal 2023, the Company had a net gain of $190 million from the disposition of certain businesses, including a pre-tax gain of $215 million from the sale of its FDB business, partially offset by a loss of $25 million from the sale of certain insignificant businesses.

Other Expense (Income), Net

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

Other expense (income), net comprises non-service cost components of net periodic pension income, pension and OPEB actuarial and settlement losses, movement in foreign currency exchange rates on our foreign currency denominated assets and liabilities and the related economic hedges, gains on sales of assets, and other miscellaneous gains and losses.

The components of other expense (income), net for fiscal 2024 and 2023 were as follows:

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(in millions) March 31, 2024 March 31, 2023 Dollar Change

Non-service cost components of net periodic pension expense (income) $ 1,180 $ (1,066) $ 2,246

Non-service cost components of net periodic pension (income) expense $ (145) $ (251) $ 106

Pension and OPEB actuarial and settlement losses (gains) 445 1,431 (986)

Foreign currency (gain) loss (7) (15) 8

Gain on sale of assets (40) (90) 50

Other loss 9 60 (51)

Other (gain) loss (35) 9 (44)

Total $ 218 $ 1,084 $ (866)

Other expense (income), net, was $1,084 million and $(1,081) million in fiscal 2023 and fiscal 2022, respectively, a change of $2,165 million compared to the prior fiscal year that was primarily due to:

• net periodic pension expense increased by $2,246 million primarily due to a $1,070 million mark-to-market pension loss in fiscal 2023 versus a $664 million gain in fiscal 2022, a $361 million settlement loss in fiscal 2023 related to the buy-out of a defined benefit pension plan in the U.K., and $131 million less pension income in fiscal 2023 due to changes in expected returns on assets and other actuarial assumptions.

See Note 14 - "Pension and Other Benefit Plans" for additional information.

• a foreign currency gain of $15 million in fiscal 2023 versus a $13 million loss in fiscal 2022 primarily due to movements of exchange rates on our foreign currency-denominated assets and liabilities, related hedges including forward contracts to manage our exposure to economic risk, and the cost of our hedging program.

• a $2 million of increase in gains from sales of assets.

• a $51 million decrease in other losses, primarily due to a greater amount of impairment losses in the comparative period.

Other expense (income), net, was $218 million in fiscal 2024, a decrease of $866 million against the prior fiscal year.

The change against the prior fiscal year was primarily due to:

• net periodic pension income decreased by $106 million primarily due to changes in expected returns on assets and other actuarial assumptions;

• pension and OPEB actuarial and settlement losses decreased by $986 million from mark-to-market adjustments and other settlement gains and losses;

• foreign currency gains decreased $8 million primarily due to movements of exchange rates on our foreign currency-denominated assets and liabilities, related hedges including forward contracts to manage our exposure to economic risk, and the cost of our hedging program;

• a decrease in gains from sales of assets of $50 million;

• an increase in other gains of $44 million, primarily from the sale of a strategic investment in fiscal 2024 and an impairment loss recorded in fiscal 2023.

Our effective tax rate ("ETR") on income (loss) from continuing operations, before taxes, for fiscal 2024 and 2023 was 21.1% and (36.0)%, respectively.

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In fiscal 2024, the ETR was primarily impacted by:

• Changes in foreign jurisdictional losses that decreased the ETR by $160 million and 146.8%, respectively, with an offsetting increase in the ETR due to an increase in the valuation allowance of the same amount.

• Income tax and foreign tax credits, which decreased income tax expense and decreased the ETR by $101 million and 92.7%, respectively, offset by tax expense on U.S.

international tax inclusions, which increased tax expense and increased the ETR by $39 million and 35.8%, respectively.

• Foreign withholding taxes, which increased income tax expense and increased the ETR by $64 million and 58.7%, respectively.

In fiscal 2023, the ETR was primarily impacted by:

• A reduction in base erosion and transition taxes, which increased income tax benefit and decreased the ETR by $81 million and 9.1%, respectively.

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international tax inclusions which decreased tax benefit and increased the ETR by $51 million and 5.8%, respectively.

• Non-taxable gains and losses from business divestitures, which increased income tax benefit and decreased the ETR by $67 million and 7.6%, respectively.

In fiscal 2022, the ETR was primarily impacted by:

• Income tax and foreign tax credits, which decreased income tax expense and decreased the ETR by $174 million and 15.2%, respectively.

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

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

• Non-taxable gains and losses on business divestitures, which increased income tax benefit and decreased the ETR by $67 million and 7.6%, respectively.

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.

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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 $477 million (including estimated interest and penalties) for the unreserved portion of these items if we do not prevail.

Tax Court, these matters are not fully reserved and would result in incremental federal and state tax expense of approximately $507 million (including estimated interest and penalties) for the unreserved portion of these items and cash tax payments of approximately $582 million, if we do not prevail.

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

We do not expect the U.S.

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

During 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 expect court proceedings to progress during calendar year 2024 that may result in resolution of some or all of the litigation matters by the end of fiscal year 2025.

During the third quarter of fiscal 2024, the Company determined there were inadvertent omissions on previously filed tax returns related to gain recognition agreements and certain related tax forms and disclosures.

The Company notified the IRS in December of 2023 and filed for relief under Treas.

1.367(a)-8(p) in January 2024 to correct the issue.

The Company’s fiscal years 2009, 2010, and 2013 are in the U.S.

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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 has agreed to extend the statute of limitations for fiscal and tax return years 2014 through 2021 to December 31, 2025.

The Company expects to reach resolution for fiscal and tax return years 2009 through 2021 no earlier than the end of fiscal year 2026, except fiscal year 2012 for which the statute closes in fiscal year 2025, and potentially the years subject to litigation which may be resolved in fiscal year 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.

The Company believes the outcomes that are reasonably possible within the next 12 months to result in a reduction in its liability for uncertain tax positions, excluding interest, penalties, and tax carry-forwards, would be approximately $16 million.

Earnings Per Share (EPS)

Diluted (loss) earnings per share for fiscal 2023 was $(2.48), as compared to $2.81 in fiscal 2022.

The decrease in earnings per share was due to a decrease of $1,286 million in net income attributable to DXC common stockholders.

Diluted EPS for fiscal 2023 includes $0.74 per share of restructuring costs, $0.06 per share of transaction, separation and integration-related costs, $1.38 per share of amortization of acquired intangible assets, $0.22 per share of merger-related indemnification, arbitration loss, and SEC Matter costs, $0.06 per share of impairment losses, $4.89 per share of pension and OPEB actuarial and settlement losses, $(0.92) per share of net gains on dispositions, and $(0.52) per share of tax adjustments primarily relating to tax adjustments to impair or recognize certain deferred tax assets and adjustments for changes in tax legislation.

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

Diluted EPS for fiscal 2024 was $0.46, an increase of $2.94 compared to the prior fiscal year.

The increase in diluted EPS against the prior fiscal year was primarily due to an increase in net income attributable to DXC common stockholders and a lower weighted average share count from the Company’s share repurchases.

Diluted EPS for fiscal 2024 includes $0.44 per share of restructuring costs, $0.03 per share of transaction, separation and integration-related costs, $1.40 per share of amortization of acquired intangible assets, $0.01 per share of merger-related indemnification, $0.04 per share of impairment losses, $1.68 per share of pension and OPEB actuarial and settlement losses, $(0.45) per share of net gains on dispositions, and $(0.49) per share of tax adjustments primarily relating to tax adjustments to impair or recognize certain deferred tax assets and adjustments for changes in tax legislation.

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, non-GAAP EPS, organic revenue growth, 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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See below for a description of the methodology we use to present constant currency revenues.

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

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

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

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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.

Organic revenue is calculated as constant currency revenue excluding the impact of mergers, acquisitions or similar transactions until the one-year anniversary of the transaction and excluding revenues of divestitures during the reporting period.

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

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

Free cash flow represents cash flow from operations, less capital expenditures.

Free cash flow is utilized by our management, investors, and analysts to evaluate cash available to pay debt, repurchase shares, and provide further investment in the business.

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

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Fiscal Years Ended Change

(in millions) March 31, 2023 March 31, 2022 Dollar Percent

(Loss) income before income taxes $ (885) $ 1,141 $ (2,026) (177.6) %

(in millions) March 31, 2024 March 31, 2023 Dollar (1)

Income (loss) before income taxes

$ 109 $ (885) $ 994 112.3 %

Non-GAAP income before income taxes $ 932 $ 1,092 $ (160) (14.7) %

Net (loss) income $ (566) $ 736 $ (1,302) (176.9) %

Net income (loss)

$ 86 $ (566) $ 652 115.2 %

Adjusted EBIT $ 1,016 $ 1,157 $ (141) (12.2) %

(1) The dollar and percent change for the Income (loss) before income taxes and Net income (loss) includes the Pension and OPEB actuarial and settlement gains and losses that were $445 million and $1,431 million for the fiscal years ended March 31, 2024 and March 31, 2023, respectively.

Reconciliation of Non-GAAP Financial Measures

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• Restructuring costs – includes costs, net of reversals, related to workforce and real estate optimization and other similar charges.

• Transaction, separation and integration-related (“TSI”) costs – includes costs related to integration, planning, financing and advisory fees and other similar charges associated with mergers, acquisitions, strategic investments, joint ventures, and dispositions and other similar transactions.

• Transaction, separation and integration-related (“TSI”) costs – includes costs related to integration, separation, planning, financing and advisory fees and other similar charges associated with mergers, acquisitions, strategic investments, joint ventures, and dispositions and other similar transactions incurred within one year of such transactions closing, except for costs associated with related disputes, which may arise more than one year after closing.

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

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

• Merger related indemnification – represents the Company’s current estimate of potential liability to HPE for a tax related indemnification;

• Merger related indemnification – in fiscal 2024, primarily represents the Company’s current estimate of potential liability to HPE for tax related indemnifications;

and in fiscal 2023, represents the Company’s then current estimate of potential liability to HPE for tax related indemnifications;

indemnification on the Forsyth v.

and HPE litigation;

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

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

HPE litigation.

These obligations are pursuant to HPES merger.

These obligations are related to the HPES merger.

• SEC Matter - represents the Company’s 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.

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• Arbitration loss - reflects losses arising from arbitration decisions in the third and fourth quarters of fiscal 2023.

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

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

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

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

• Impairment losses – non-cash charges associated with the permanent reduction in the value of the Company’s assets (e.g., impairment of goodwill and other long-term assets including fixed assets and impairments to deferred tax assets for discrete changes in valuation allowances).

Future discrete reversals of valuation allowances are likewise excluded.

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

Income tax expense (benefit) from the impact of merger and divestitures is separately computed based on the underlying transaction.

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

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

The TSI-Related costs for fiscal 2023 include $16 million of costs incurred in connection with activities related to acquisitions and divestitures.

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

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

$5 million in expenses related to integration projects resulting from the HPES merger (including costs associated with continuing efforts to separate certain IT systems) and $17 million of costs incurred in connection with activities related to other acquisitions and divestitures.

(2) See Note 21 – “Commitments and Contingencies,” Forsyth, et al.

and Hewlett Packard Enterprise.

(3) See Note 21 – “Commitments and Contingencies,” SEC Matter.

(4) Gains and losses on dispositions for fiscal 2023 include a $215 million gain on sale of the FDB business and a net loss of $25 million on dispositions related to certain insignificant businesses.

Gains and losses on dispositions for fiscal 2022 include a $331 million gain on sale of the HPS business, gains of $23 million on dispositions related to certain insignificant businesses, and a loss of $13 million on adjustments relating to the sale of the HHS business.

(1) During fiscal 2024, the Company sold insignificant businesses and a strategic investment and made adjustments to estimated amounts from prior years’ dispositions that resulted in a net gain of $115 million.

During fiscal 2023, the Company had a net gain of $190 million from the disposition of certain businesses, including a pre-tax gain of $215 million from the sale of its FDB business partially offset by a loss of $25 million from the sale of certain insignificant businesses.

(2) Impairment losses on dispositions for fiscal 2024 include $5 million of charges associated with certain strategic investments accounted for within Other income, net.

Impairment losses on dispositions for fiscal 2024 included $4 million of Net income attributable to non-controlling interest, net of tax.

Impairment losses for fiscal 2023 include an $8 million impairment charge for customer related intangible assets and an $11 million impairment charge associated with a strategic investment.

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

(6) Debt extinguishment costs for fiscal 2022 were $311 million for the partial and full redemption of term loans, senior notes, and extinguishment of debt associated with asset financing.

(7) Tax adjustment for fiscal 2023 includes $(87) million net revaluation of deferred taxes resulting from changes in non-US jurisdiction tax rates, $(28) million of adjustments to transition tax, and $(5) million for changes in valuation allowances on deferred tax assets.

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

(3) Tax adjustments for fiscal 2024 include $(92) million of changes in valuation allowances on deferred tax assets, $(7) million of adjustments to transition tax, and $2 million of revaluation of deferred taxes resulting from changes in non-U.S.

jurisdiction tax rates.

Tax adjustments for fiscal 2023 include $(5) million changes in valuation allowances on deferred tax assets, $(28) million of adjustments to transition tax, and $(87) million of revaluation of deferred taxes resulting from changes in non-U.S.

jurisdiction tax rates.

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

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Integration-Related Costs Amortization

Assets Merger Related Indemnification,

Arbitration Loss, and SEC Matter Gains and

Assets Merger Related Indemnification Gains and

Dispositions Impairment

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and Settlement

Losses Tax Adjustment Non-GAAP

(Loss) income before income taxes (885) 216 16 402 83 (190) 19 1,431 — 1,092

Income tax (benefit) expense (319) 44 3 81 31 25 4 291 120 280

Net (loss) income (566) 172 13 321 52 (215) 15 1,140 (120) 812

net income attributable to non-controlling interest, net of tax 2 — — — — — — 2 — 4

Net (loss) income attributable to DXC common stockholders $ (568) $ 172 $ 13 $ 321 $ 52 $ (215) $ 15 $ 1,138 (120) $ 808

Losses Tax Adjustment Non-GAAP Results

Income before income taxes

109 111 7 354 16 (115) 5 445 — 932

Income tax expense

23 23 1 75 14 (26) 1 109 97 317

86 88 6 279 2 (89) 4 336 (97) 615

net loss attributable to non-controlling interest, net of tax

(5) — — — — — (4) 2 — (7)

Net income attributable to DXC common stockholders

$ 91 $ 88 $ 6 $ 279 $ 2 $ (89) $ 8 $ 334 (97) $ 622

Effective Tax Rate 21.1 % 34.0 %

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Related Costs Amortization

Intangible Assets Impairment

Losses Gains and

Dispositions Pension and

Intangible Assets Merger Related Indemnification,

Arbitration Loss, and SEC Matter Gains and

Dispositions Impairment Losses Pension and

OPEB Actuarial

and Settlement

Extinguishment

Adjustment Non-GAAP

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

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

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

(Loss) income before income taxes

(885) 216 16 402 83 (190) 19 1,431 — 1,092

Income tax (benefit) expense

(319) 44 3 81 31 25 4 291 120 280

Net (loss) income

(566) 172 13 321 52 (215) 15 1,140 (120) 812

net income attributable to non-controlling interest, net of tax 2 — — — — — — 2 — 4

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

Net (loss) income attributable to DXC common stockholders

$ (568) $ 172 $ 13 $ 321 $ 52 $ (215) $ 15 $ 1,138 $ (120) $ 808

Effective Tax Rate 36.0 % 25.6 %

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GIS organic revenue growth (9.3) % (7.2) %

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

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

Fiscal Years Ended

(in millions) March 31, 2024 March 31, 2023

Net (loss) income $ (566) $ 736

Income tax (benefit) expense (319) 405

Net income (loss)

Income tax expense (benefit)

Interest income (214) (135)

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Impairment losses 5 19

Pension and OPEB actuarial and settlement losses (gains) 1,431 (684)

Debt extinguishment costs — 311

Pension and OPEB actuarial and settlement losses

Adjusted EBIT $ 1,016 $ 1,157

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Operating cash flow

Net cash provided by operating activities was $1,415 million and $1,501 million, respectively, in fiscal 2023 and fiscal 2022, a decrease of $86 million compared to the prior fiscal year.

Net cash provided by operating activities was $1,361 million and $1,415 million, respectively, in fiscal 2024 and fiscal 2023, reflecting a year-over-year decrease of $54 million.

The decrease was primarily due to:

• a decrease in net income, net of adjustments of $214 million;

• a $369 million favorable change in working capital during fiscal 2023 compared to fiscal 2022 primarily from improvements in our cash collections and payables cycles.

These improvements were partially offset by a decrease in advance contract payments and deferred revenue due to timing of certain large customer cash receipts in fiscal 2022 .

partially offset by

• a $160 million favorable change in working capital primarily from improvements in our cash conversion cycle.

The following table contains certain key working capital metrics:

Three months ended

March 31, 2024 March 31, 2023 March 31, 2022

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Investing cash flow

Net cash used in investing activities was $635 million and $60 million, respectively, in fiscal 2023 and fiscal 2022, a change of $575 million compared to the prior fiscal year.

Net cash used in investing activities was $491 million and $635 million, respectively, in fiscal 2024 and fiscal 2023, reflecting a year-over-year change of $144 million.

The change was primarily due to:

• cash outflows from business dispositions of $147 million in fiscal 2023 caused by net cash deposit outflows from the sale of the FDB Business, compared with a cash inflow of $533 million in fiscal 2022 resulting from various business divestitures in fiscal 2022.

• an $80 million year-over-year decrease in cash outflows from capital expenditures primarily from software purchased and developed.

• $71 million of incremental proceeds from sales of assets, partially offset by a $46 million decrease in proceeds from short-term and other investing activities.

• cash inflows of $26 million in fiscal 2024 resulting from various business divestitures, compared with cash outflows from business dispositions of $147 million in fiscal 2023 caused by net cash deposit outflows from the sale of the FDB Business;

• a $73 million year-over-year decrease in cash outflows from capital expenditures;

partially offset by

• a decrease in proceeds from sale of assets and other investing activities of $96 million and $6 million, respectively.

Financing cash flow

Net cash used in financing activities was $1,507 million and $1,818 million, respectively, in fiscal 2023 and fiscal 2022, a change of $311 million compared to the prior fiscal year.

The lower net cash used in financing activities was primarily due to:

• a $479 million decrease in payments on capital leases and borrowings for asset financings, as the Company continues reducing the volume of these financing arrangements.

• a $216 million decrease in cash outflows from net borrowings on long term debt, including the payment of debt extinguishment costs in fiscal 2022.

• a $73 million increase in cash inflows from other financing activities, primarily due to a fiscal 2022 $85 million repayment of a liability resulting from a financing transaction entered in fiscal 2017.

• a $406 million increase in cash outflows from net repayments on commercial paper borrowings, as the Company reduced its activity in the European commercial paper market due to lower operating cash requirements.

• $51 million of higher cash outflows from increased share repurchase activity and related taxes paid on net share settlements.

Net cash used in financing activities was $1,487 million and $1,507 million, respectively, in fiscal 2024 and fiscal 2023, reflecting a year-over-year change of $20 million.

The change was primarily due to:

• a $140 million decrease in cash outflows from commercial paper payments, net of borrowings;

• an $81 million decrease in payments on capital leases and borrowings for asset financings, as the Company continues reducing the volume of these financing arrangements;

• $63 million in payments on long term debt in fiscal 2023 that did not occur in fiscal 2024;

partially offset by

• a $249 million increase in cash used for share repurchase activity and related taxes paid on net share settlements;

• a $15 million increase in cash outflows from other financing activities.

Debt Financing

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Total debt $ 4,089 $ 4,400

The $0.6 billion decrease in total debt during fiscal 2023 was primarily due to net decreases in commercial paper borrowings, finance lease liabilities and borrowings for asset financing.

The redemption of the mandatorily redeemable preferred stock outstanding and a favorable foreign currency exchange rate impact also contributed to the decrease in total debt during fiscal 2023.

The $0.3 billion decrease in total debt during fiscal 2024 was primarily due to net decreases in finance lease liabilities, borrowings for asset financing, and commercial paper borrowings.

We were in compliance with all financial covenants associated with our borrowings as of March 31, 2024 and March 31, 2023.

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For information on the risk s of ratings downgrades, see Part I, Item 1A - "Risk Factors" subsection titled " Failure to maintain our credit rating and ability to manage working capital, refinance and raise additional capital for future needs could adversely affect our liquidity, capital position, borrowing cost, and access to capital markets .

We expect our existing cash and cash equivalents, together with cash generated from operations, will be sufficient to meet our normal operating requirements for the next 12 months.

We expect our existing cash and cash equivalents, together with cash generated from operations, will be sufficient to meet our normal operating requirements for the next 12 months and beyond.

We expect to continue using cash generated by operations as a primary source of liquidity;

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

Our liquidity of $5.4 billion as of March 31, 2023, includes $1.9 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 liquidity of $4.4 billion as of March 31, 2024, includes $1.2 billion of cash and cash equivalents and $3.2 billion of available borrowings under our revolving credit facility.

Share Repurchases

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Total $ 114 $ 47 $ 39 $ 18 $ 218

(1) The transition tax resulted in recording a total transition tax obligation of $198 million, of which $223 million was recorded as income tax liability and $25 million was recorded as an unrecognized tax benefit receivable, which has been omitted from this table.

(1) The transition tax is payable over eight years.

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

We have made our first five payments.

See Note 15 - "Income Taxes" for additional information about the transition tax, and the estimated liability related to unrecognized tax benefits.

We have remitted the first six installment payments.

Our remaining liability from the originally computed transition tax in 2018 is $128 million.

We are in the process of amending our tax return for historical transactions and other adjustments which are expected to reduce our overall transition tax obligation by approximately $109 million, resulting in a net refund due in the final installment period.

(2) Amounts represent scheduled interest payments on long-term debt.

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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.

However, because the use of estimates involves an inherent degree of uncertainty, actual results could differ materially from those estimates.

We consider the following policies to be critical because of their complexity and the high degree of judgment involved in implementing them:

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Contracts with multiple performance obligations

Many of our contracts re quire us to provide a range of services or performance obligations to our customers, which may include a combination of services, products or both and may also contain leases embedded in those arrangements.

As a result, significant judgment may be required to determine the appropriate accounting, including whether the elements specified in contracts with multiple performance obligations should be treated as separate performance obligations for revenue recognition purposes, and, when considered appropriate, how the total transaction price should be allocated among the performance obligations and any lease components and the timing of revenue recognition for each.

For contracts with multiple performance obligations and lease components, we allocate the contract’s transaction price to each performance obligation and lease component based on the relative standalone selling price of each distinct good or service in the contract.

Many of our contracts re quire us to provide a range of services or performance obligations to our customers, which may include a combination of services and products and may also contain leases embedded in those arrangements.

Significant judgment may be required to determine the appropriate accounting, including whether the elements specified in contracts with multiple performance obligations should be treated as separate performance obligations for revenue recognition purposes, and, when considered appropriate, how the total transaction price should be allocated among the performance obligations and any lease components and the timing of revenue recognition for each.

Other than software sales involving multiple performance obligations, the primary method used to estimate standalone selling price is the expected cost plus a margin approach, under which we forecast our expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct good or service.

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

The Organization for Economic Co-operation and Development (“OECD”), along with members of its inclusive framework, have, through the Base Erosion and Profit Shifting project, proposed changes to numerous long-standing tax principles (“Pillar Two Rules”), which imposes a global minimum corporate tax rate of 15%.

Although the U.S.

has not yet enacted legislation implementing Pillar Two Rules, other countries where the Company does business, including the U.K.

and Germany, have enacted legislation implementing Pillar Two Rules, which are effective from January 1, 2024, and several other countries are also considering changes to their tax laws to implement it.

When and how these rules are adopted or enacted by the various countries in which we do business could increase tax complexity and uncertainty and may adversely affect our provision for income taxes in the U.S.

jurisdictions.

The majority of our global unremitted foreign earnings have been taxed or would be exempt from U.S.

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The discount rate assumption is based on current market rates for high-quality, fixed income debt instruments with maturities similar to the expected duration of the benefit payment period.

The following table provides the impact changes in the weighted-average assumptions would have had on our net periodic pension benefits and settlement and contractual termination charges for fiscal 2023:

The following table provides the impact that changes in the weighted-average assumptions would have had on our net periodic pension benefits and settlement and contractual termination charges for fiscal 2024:

(in millions) Change Approximate Change in Net Periodic Pension Expense Approximate Change in Settlement, Contractual Termination, and Mark-to-Market Charges

Expected long-term return on plan assets 0.5% $ (49) $ 49

Expected long-term return on plan assets (0.5)% $ 49 $ (49)

Discount rate 0.5% $ 18 $ (416)

Discount rate (0.5)% $ (23) $ 462

Expected long-term return on plan assets 50 basis points $ (38) $ 38

Expected long-term return on plan assets (50) basis points $ 38 $ (38)

Discount rate 50 basis points $ 10 $ (441)

Discount rate (50) basis points $ (13) $ 497

Valuation of Assets

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

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

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

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Evaluation of goodwill for impairment requires judgment, including the identification of reporting units, assignment of assets, liabilities, and goodwill to reporting units and determination of the fair value of each reporting unit.

The identification of reporting units involves consideration of components of the operating segments and whether or not there is discrete financial information available that is regularly reviewed by management.

Additionally, we consider whether or not it is reasonable to aggregate any of the identified components that have similar economic characteristics.

The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results, market conditions, and other factors.

Changes in these estimates and assumptions include a significant change in the business climate, established business plans, operating performance indicators or competition which could materially affect the determination of fair value for each reporting unit.

The identification of reporting units requires consideration of components of the operating segments and whether or not there is discrete financial information available that is regularly reviewed by management.

Additionally, we consider whether or not it is reasonable to aggregate components that have similar economic characteristics.

The assumptions used to estimate the fair value of a reporting unit change from year to year based on operating results, market conditions, and other factors.

Changes in these assumptions may be impacted by a significant change in the business climate, established business plans, operating performance indicators or competition which could materially affect the estimates of fair value for each reporting unit.

We estimate the fair value of our reporting units using a combination of an income approach, utilizing a discounted cash flow analysis, and a market approach, using performance-metric market multiples.

The discount rate used in an income approach is based on our weighted-average cost of capital and may be adjusted for the relevant risks associated with business-specific characteristics and any uncertainty related to a reporting unit's ability to execute on the projected future cash flows.

Assumptions and Estimates Used to Analyze Contingencies and Litigation

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

What changed 10-K

Item 7. Management’s Discussion and Analysis