DXC Technology Co 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction The purpose of the Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is to present information that management believes is relevant to an assessment and understanding of our results of operations and cash flows for the first quarter of fiscal 2025 and our financial condition as of June 30, 2024. The MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and accompanying notes. The MD&A is organized in the following sections: • Background • Results of Operations • Liquidity and Capital Resources • Critical Accounting Estimates The following discussion includes a comparison of our results of operations and liquidity and capital resources for the first quarters of fiscal 2025 and fiscal 2024. References are made throughout to the numbered Notes to the Condensed Consolidated Financial Statements (“Notes”) in this Quarterly Report on Form 10-Q. Background DXC helps global companies run their mission critical systems and operations while modernizing IT, optimizing data architectures, and ensuring security and scalability across public, private and hybrid clouds. Many of the world’s largest companies and public sector organizations trust DXC to deploy services to drive new levels of performance, competitiveness, and customer experience across their IT estates. We generate revenue by offering a wide range of information technology services and solutions primarily in North America, Europe, Asia, and Australia. We operate through two segments: Global Business Services ("GBS") and Global Infrastructure Services ("GIS"). We market and sell our services directly to customers through our direct sales offices around the world. Our customers include commercial businesses of many sizes and in many industries and public sector clients. Key Metrics Key metrics for the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024 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 $3.2 billion, down 6.1% compared to the same period a year ago, and down 4.4% on an organic basis; • Diluted earnings per share of $0.14, compared to $0.17 in the same period a year ago; adjusted diluted earnings per share of $0.74, compared to $0.63 in the same period a year ago; • For the first quarter of fiscal 2025, operating cash flow of $238 million, less capital expenditures of $193 million, resulted in positive free cash flow of $45 million, compared to negative free cash flow of $75 million in the same period a year ago. 29 Results of Operations for the Three Months Ended June 30, 2024 and the Three Months Ended June 30, 2023 Revenues Revenues across operating segments and geographies are provided below: Three Months Ended Three Months Ended (in millions) June 30, 2024 June 30, 2023 Percentage Change Constant Currency June 30, 2024 (1) Percentage Change in Constant Currency (1) Geographic Market United States $ 897 $ 1,002 (10.5) % $ 897 (10.5) % United Kingdom 448 465 (3.7) % 445 (4.3) % Other Europe 1,030 1,064 (3.2) % 1,040 (2.3) % Australia 299 342 (12.6) % 302 (11.7) % Other International 562 573 (1.9) % 601 4.9 % Total Revenues $ 3,236 $ 3,446 (6.1) % $ 3,285 (4.7) % Reportable Segments GBS $ 1,673 $ 1,703 (1.8) % $ 1,703 — % GIS 1,563 1,743 (10.3) % 1,582 (9.3) % Total Revenues $ 3,236 $ 3,446 (6.1) % $ 3,285 (4.7) % (1) Constant currency revenues are a non-GAAP measure calculated by translating current period activity into U.S. dollars using the comparable prior period’s currency conversion rates. This information is consistent with how management views our revenues and evaluates our operating performance and trends. For more information, see "Non-GAAP Financial Measures." For the first quarter of fiscal 2025, our total revenue was $3.2 billion, a decrease of $0.2 billion or 6.1%, compared to the same period a year ago. The 6.1% decrease against the comparative period includes a 1.4% unfavorable foreign currency exchange rate impact, a 0.3% decline in revenue from the disposition of certain businesses, and a 4.4% decline in organic revenue. Organic revenue growth is a non-GAAP measure. For more information, see "Non-GAAP Financial Measures". For the discussion of risks associated with our foreign operations, see Part 1, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended March 31, 2024. Global Business Services For the first quarter of fiscal 2025, GBS revenue was $1.7 billion, a decrease of $30 million or 1.8% compared to the same period a year ago. The 1.8% decrease against the comparative period includes a 1.8% unfavorable foreign currency exchange rate impact and a 0.5% decline in revenue from the disposition of certain businesses, partially offset by 0.5% organic revenue growth from additional services provided to new and existing customers. GBS accounts for 51.7% of total revenue, an increase of 230 basis points against the comparative period. Global Infrastructure Services For the first quarter of fiscal 2025, GIS revenue was $1.6 billion, a decrease of $180 million or 10.3% compared to the same period a year ago. The 10.3% decrease against the comparative period includes a 1.0% unfavorable foreign currency exchange rate impact and a 9.3% decline in organic revenue from project completions, early terminations, and lower resale revenue. 30 Costs and Expenses Our total costs and expenses are provided below: Dollar Amount Three Months Ended June 30, Change (in millions) 2024 2023 Dollar Percent Costs of services (excludes depreciation and amortization and restructuring costs) $ 2,526 $ 2,719 $ (193) (7.1) % Selling, general and administrative (excludes depreciation and amortization and restructuring costs) 301 327 (26) (8.0) % Depreciation and amortization 326 344 (18) (5.2) % Restructuring costs 39 20 19 95.0 % Interest expense 72 66 6 9.1 % Interest income (51) (49) (2) 4.1 % Loss on disposition of businesses — 5 (5) (100.0) % Other income, net (45) (64) 19 (29.7) % Total costs and expenses $ 3,168 $ 3,368 $ (200) (5.9) % Costs of Services Costs of services, excluding depreciation and amortization and restructuring costs (“COS”), were $2.5 billion for the first quarter of fiscal 2025, a decrease of $193 million compared to the same period a year ago. The $193 million decrease was primarily due to a decrease in costs from lower revenue levels, a reduction in professional services and contractor-related expenses from our cost optimization efforts, and a favorable foreign currency exchange rate impact. Gross margin (Revenues less COS as a percentage of revenue) was 21.9% and 21.1% for the first quarters of fiscal 2025 and 2024, respectively. Selling, General and Administrative Selling, general and administrative expense, excluding depreciation and amortization and restructuring costs (“SG&A”), was $301 million for the first quarter of fiscal 2025, a decrease of $26 million compared to the same period a year ago. During this quarter, SG&A as a percentage of revenues was 9.3%, a decrease of 20 basis points from the prior year period. The $26 million decrease in SG&A expenses was primarily driven by lower payroll and related expenses, and lower merger-related indemnification expenses, partially offset by higher transaction, separation and integration-related (“TSI”) costs. Depreciation and Amortization Depreciation expense was $94 million for the first quarter of fiscal 2025, a decrease of $19 million compared to the same period a year ago. The decrease in depreciation expense was primarily due to lower average net property and equipment balances. Amortization expense was $232 million for the first quarter of fiscal 2025, consistent with the prior year period. Restructuring Costs During fiscal 2025, management approved global cost savings initiatives designed to better align our workforce, facility and data center requirements. Total restructuring costs recorded, net of reversals, was $39 million for the first quarter of fiscal 2025, an increase of $19 million compared to the same period a year ago. See Note 10 – “Restructuring Costs” for additional information about our restructuring actions. 31 Interest Expense and Interest Income Net interest expense (interest expense less interest income) was $21 million for the first quarter of fiscal 2025, an increase of $4 million as compared to the same period a year ago primarily due to lower net interest income from lower levels of global cash balances. Loss on Disposition of Businesses During the first quarter of fiscal 2024, the Company sold insignificant businesses that resulted in a loss of $5 million. Other Income, Net Other income, net comprises non-service cost components of net periodic pension income, pension and other post-retirement benefit (“OPEB”) actuarial and settlement losses (gains), 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 following table summarizes components of other income, net. The components of other income, net for the first quarters of fiscal 2025 and 2024 were as follows: Three Months Ended (in millions) June 30, 2024 June 30, 2023 Dollar Change Non-service cost components of net periodic pension income $ (40) $ (37) $ (3) Foreign currency loss (gain) 1 (8) 9 (Gain) loss on sales of assets (6) (21) 15 Other loss (gain) — 2 (2) Total $ (45) $ (64) $ 19 Other income, net, was $45 million and $64 million during the first quarters of fiscal 2025 and fiscal 2024, respectively, a change of $19 million compared to the same period a year ago that was primarily due to: • a $3 million increase in net periodic pension income, primarily due to changes in expected returns on assets and other actuarial assumptions; • a $9 million increase in foreign currency losses, 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; and • a $15 million decrease in gains from sales of assets, partially offset by a $2 million reduction in other losses. Taxes Our effective tax rate (“ETR”) was 63.2% and 46.2% for the first quarter of fiscal 2025 and the first quarter of fiscal 2024, respectively. For the first quarter of fiscal 2025, the primary drivers of the ETR were the global mix of income, U.S. tax on foreign income, a reduction in a deferred tax asset for stock based compensation, and a decrease in a deferred tax liability for estimated taxes associated with the repatriation of foreign earnings. For the first quarter of fiscal 2024, the primary drivers of the ETR were the global mix of income, U.S. tax on foreign income, and a decrease in uncertain tax positions due to an income tax audit settlement. Earnings Per Share Diluted EPS for the first quarter of fiscal 2025 was $0.14, compared to $0.17 in the first quarter of fiscal 2024. The decrease in earnings per share was primarily due to a decrease of $10 million in net income attributable to DXC common stockholders, partially offset by a lower weighted average common shares outstanding. 32 Diluted EPS for the first quarter of fiscal 2025 includes $0.17 per share of restructuring costs, $0.03 per share of transaction, separation and integration-related costs, and $0.39 per share of amortization of acquired intangible assets. Diluted EPS for the first quarter of fiscal 2024 includes $0.07 per share of restructuring costs, $0.32 per share of amortization of acquired intangible assets, $0.02 per share of net losses on dispositions, $0.03 per share of impairment losses, and $0.01 per share of tax adjustments. 33 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, constant currency revenues, and free cash flow. 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. We believe constant currency revenues provides investors with useful supplemental information about our revenues after excluding the effect of currency exchange rate fluctuations for currencies other than U.S. dollars in the periods presented. 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. 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. Although DXC management excludes amortization of acquired intangible assets, primarily customer-related intangible assets, from its non-GAAP expenses, we believe that it is important for investors to understand that such intangible assets were recorded as part of purchase accounting and support revenue generation. Any future transactions may result in a change to the acquired intangible asset balances and associated amortization expense. Another category of expenses excluded from adjusted EBIT, non-GAAP income before income tax, non-GAAP net income, non-GAAP net income attributable to DXC common stockholders, and non-GAAP EPS is impairment losses, which, if included, may result in a significant difference in period-over-period expense on a GAAP basis. We exclude impairment losses as these non-cash amounts reflect generally an acceleration of what would be multiple periods of expense and are not expected to occur frequently. Further, assets such as goodwill may be significantly impacted by market conditions outside of management’s control. Selected references are made to revenue growth on an “organic basis” so that certain financial results can be viewed without the impact of fluctuations in foreign currency rates and without the impacts of acquisitions and divestitures, thereby providing comparisons of operating performance from period to period of the business that we have owned during both periods presented. Organic revenue growth is calculated by dividing the year-over-year change in GAAP revenues attributed to organic growth by the GAAP revenues reported in the prior comparable period. 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. dollar. We believe organic revenue growth provides investors with useful supplemental information about our revenues after excluding the effect of currency exchange rate fluctuations for currencies other than U.S. dollars and the effects of acquisitions and divestitures in 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. 34 There are limitations to the use of the non-GAAP financial measures presented in this report. One of the limitations is that they do not reflect complete financial results. We compensate for this limitation by providing a reconciliation between our non-GAAP financial measures and the respective most directly comparable financial measure calculated and presented in accordance with GAAP. Additionally, other companies, including companies in our industry, may calculate non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes between companies. Selected references are made on a “constant currency basis” so that certain financial results can be viewed without the impact of fluctuations in foreign currency rates, thereby providing comparisons of operating performance from period to period. Financial results on a “constant currency basis” are non-GAAP measures calculated by translating current period activity into U.S. Dollars using the comparable prior period’s currency conversion rates. This approach is used for all results where the functional currency is not the U.S. Dollar. Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Revenues.” Certain non-GAAP financial measures and the respective most directly comparable financial measures calculated and presented in accordance with GAAP include: Dollar Amount Three Months Ended June 30, Change (in millions) 2024 2023 Dollar Percent Income before income taxes $ 68 $ 78 $ (10) (12.8) % Non-GAAP income before income taxes $ 201 $ 207 $ (6) (2.9) % Net income $ 25 $ 42 $ (17) (40.5) % Adjusted EBIT $ 222 $ 224 $ (2) (0.9) % Reconciliation of Non-GAAP Financial Measures Our non-GAAP adjustments include: • 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 third party 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. • Merger related indemnification - in fiscal 2024, represents the Company’s then current estimate of potential liability to HPE for a tax related indemnification. • Gains and losses on dispositions – gains and losses related to dispositions of businesses, strategic assets and interests in less than wholly-owned entities. • Impairment losses – 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 the impact of merger and divestitures. Income tax expense of all other (non-discrete) non-GAAP adjustments is based on the difference in the GAAP annual effective tax rate (AETR) and overall non-GAAP provision (consistent with the GAAP methodology). 35 A reconciliation of reported results to non-GAAP results is as follows: Three Months Ended June 30, 2024 (in millions, except per-share amounts) As Reported Restructuring Costs Transaction, Separation and Integration-Related Costs Amortization of Acquired Intangible Assets Non-GAAP Results Income before income taxes $ 68 $ 39 $ 7 $ 87 $ 201 Income tax expense 43 7 1 15 66 Net income 25 32 6 72 135 Less: net loss attributable to non-controlling interest, net of tax (1) — — — (1) Net income attributable to DXC common stockholders $ 26 $ 32 $ 6 $ 72 $ 136 Effective Tax Rate 63.2 % 32.8 % Basic EPS $ 0.14 $ 0.18 $ 0.03 $ 0.40 $ 0.76 Diluted EPS $ 0.14 $ 0.17 $ 0.03 $ 0.39 $ 0.74 Weighted average common shares outstanding for: Basic EPS 179.66 179.66 179.66 179.66 179.66 Diluted EPS 182.93 182.93 182.93 182.93 182.93 Three Months Ended June 30, 2023 (in millions, except per-share amounts) As Reported Restructuring Costs Transaction, Separation and Integration-Related Costs Amortization of Acquired Intangible Assets Merger Related Indemnification Gains and Losses on Dispositions Impairment Losses Tax Adjustments Non-GAAP Results Income before income taxes $ 78 $ 20 $ 1 $ 89 $ 11 $ 5 $ 3 $ — $ 207 Income tax expense 36 5 — 21 11 — 1 (3) 71 Net income 42 15 1 68 — 5 2 3 136 Less: net income attributable to non-controlling interest, net of tax 6 — — — — — (4) — 2 Net income attributable to DXC common stockholders $ 36 $ 15 $ 1 $ 68 $ — $ 5 $ 6 $ 3 $ 134 Effective Tax Rate 46.2 % 34.3 % Basic EPS $ 0.17 $ 0.07 $ 0.00 $ 0.32 $ 0.00 $ 0.02 $ 0.03 $ 0.01 $ 0.64 Diluted EPS $ 0.17 $ 0.07 $ 0.00 $ 0.32 $ 0.00 $ 0.02 $ 0.03 $ 0.01 $ 0.63 Weighted average common shares outstanding for: Basic EPS 210.11 210.11 210.11 210.11 210.11 210.11 210.11 210.11 210.11 Diluted EPS 213.75 213.75 213.75 213.75 213.75 213.75 213.75 213.75 213.75 36 Reconciliations of revenue growth to organic revenue growth are as follows: Three Months Ended June 30, 2024 June 30, 2023 Total revenue growth (6.1) % (7.0) % Foreign currency 1.4 % 0.7 % Acquisition and divestitures 0.3 % 2.7 % Organic revenue growth (4.4) % (3.6) % GBS revenue growth (1.8) % (3.1) % Foreign currency 1.8 % 0.8 % Acquisition and divestitures 0.5 % 5.6 % GBS organic revenue growth 0.5 % 3.3 % GIS revenue growth (10.3) % (10.6) % Foreign currency 1.0 % 0.7 % Acquisition and divestitures — % — % GIS organic revenue growth (9.3) % (9.9) % Reconciliations of net income to adjusted EBIT are as follows: Three Months Ended (in millions) June 30, 2024 June 30, 2023 Net income $ 25 $ 42 Income tax expense 43 36 Interest income (51) (49) Interest expense 72 66 EBIT 89 95 Restructuring costs 39 20 Transaction, separation and integration-related costs 7 1 Amortization of acquired intangible assets 87 89 Merger related indemnification — 11 Loss on disposition of businesses — 5 Impairment losses — 3 Adjusted EBIT $ 222 $ 224 37 Liquidity and Capital Resources Cash and Cash Equivalents and Cash Flows As of June 30, 2024, our cash and cash equivalents (“cash”) were $1.3 billion, of which $0.7 billion was held outside of the U.S. As of March 31, 2024, our cash was $1.2 billion, of which $0.6 billion was held outside of the U.S. We maintain various multi-currency, multi-entity, cross-border, physical and notional cash and pool arrangements with various counterparties to manage liquidity efficiently that enable participating subsidiaries to draw on the Company’s pooled resources to meet liquidity needs. A significant portion of the cash held by our foreign subsidiaries is not expected to be impacted by U.S. federal income tax upon repatriation. However, a portion of this cash may still be subject to foreign and U.S. state income tax consequences upon future remittance. Therefore, if additional funds held outside the U.S. are needed for our operations in the U.S., we plan to repatriate these funds not designated as indefinitely reinvested. We have $0.1 billion in cash held by foreign subsidiaries used for local operations that is subject to country-specific limitations, which may restrict or result in increased costs in the repatriation of these funds. In addition, other practical considerations may limit our use of consolidated cash. This includes cash of $0.1 billion held by majority-owned consolidated subsidiaries where third-parties or public shareholders hold minority interests. The following table summarizes our cash flow activity: Three Months Ended (in millions) June 30, 2024 June 30, 2023 Change Net cash provided by (used in): Operating activities $ 238 $ 127 $ 111 Investing activities (188) (199) 11 Financing activities 41 (210) 251 Effect of exchange rate changes on cash and cash equivalents 2 — 2 Net increase (decrease) in cash and cash equivalents $ 93 $ (282) $ 375 Cash and cash equivalents at beginning of year 1,224 1,858 Cash and cash equivalents at the end of period $ 1,317 $ 1,576 Operating cash flow Net cash provided by operating activities was $238 million and $127 million, respectively, during the first quarters of fiscal 2025 and fiscal 2024, reflecting a year-over-year increase of $111 million. The increase was primarily due to: • a $162 million favorable change in working capital during the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024 primarily from improvements in our cash conversion cycle, partially offset by • a decrease in net income, net of adjustments of $51 million. The following table contains certain key working capital metrics: Three Months Ended June 30, 2024 June 30, 2023 Days of sales outstanding in accounts receivable 68 68 Days of purchases outstanding in accounts payable (54) (48) Cash conversion cycle 14 20 38 Investing cash flow Net cash used in investing activities was $188 million and $199 million, respectively, during the first quarters of fiscal 2025 and fiscal 2024, reflecting a year-over-year change of $11 million. The change was primarily due to: • a $9 million decrease in capital expenditures, and • a $7 million decrease in cash outflows from business dispositions, partially offset by • a $5 million decrease in cash inflows from other net investing activities. Financing cash flow Net cash provided by (used in) financing activities was $41 million and $(210) million, respectively, during the first quarters of fiscal 2025 and fiscal 2024, reflecting a year-over-year change of $251 million. The change was primarily due to: • a $299 million decrease in cash outflows from no share repurchase activity during the first quarter of fiscal 2025 and a decrease in related taxes paid on net share settlements, and • a $40 million decrease in payments on capital leases and borrowings for asset financings, as the Company continues reducing the volume of these financing arrangements, partially offset by • a $90 million decrease in cash inflows from commercial paper borrowings, net of repayments. Debt Financing The following table summarizes our total debt: As of (in millions) June 30, 2024 March 31, 2024 Change Short-term debt and current maturities of long-term debt $ 381 $ 271 $ 110 Long-term debt, net of current maturities 3,766 3,818 (52) Total debt $ 4,147 $ 4,089 $ 58 The $58 million increase in total debt during the first quarter of fiscal 2025 was primarily attributable to the increase in borrowings of commercial paper, partially offset by decreases in finance leases and borrowings for asset financing attributable to payments exceeding additions and a favorable foreign currency exchange rate of U.S. dollar against the Euro. We were in compliance with all financial covenants associated with our borrowings as of June 30, 2024 and June 30, 2023. Our credit ratings are as follows: Rating Agency Long Term Ratings Short Term Ratings Outlook Fitch BBB F-2 Stable Moody’s Baa2 P-2 Negative S&P BBB- - Stable For information on the risks of ratings downgrades, see Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended March 31, 2024. 39 Liquidity 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 to continue using cash generated by operations as a primary source of liquidity; however, should we require funds greater than that generated from our operations to fund discretionary investment activities, such as business acquisitions, we have the ability to raise capital through debt financing, including the issuance of capital market debt instruments such as commercial paper, and bonds. In addition, we currently utilize, and will further utilize accounts receivables, sales facilities, and our cross currency cash pool for liquidity needs. However, there is no guarantee that we will be able to obtain debt financing, if required, on terms and conditions acceptable to us, if at all, in the future. Our exposure to operational liquidity risk is primarily from long-term contracts that require significant investment of cash during the initial phases of the contracts. The recovery of these investments is over the life of the contracts and is dependent upon our performance as well as customer acceptance. Our total liquidity of $4.5 billion as of June 30, 2024, includes $1.3 billion of cash and cash equivalents and $3.2 billion of available borrowings under our revolving credit facility. Share Repurchases See Note 13 – “Stockholders’ Equity.” Dividends To maintain our financial flexibility, we continue to suspend payment of quarterly dividends for fiscal 2025. Off-Balance Sheet Arrangements In the normal course of business, we are a party to arrangements that include guarantees, the receivables securitization facility and certain other financial instruments with off-balance sheet risk, such as letters of credit and surety bonds. We also use performance letters of credit to support various risk management insurance policies. No liabilities related to these arrangements are reflected in our condensed consolidated balance sheets. There have been no material changes to our off-balance-sheet arrangements reported under Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended March 31, 2024, other than as disclosed in Note 3 – “Receivables” and Note 17 – “Commitments and Contingencies”. Cash Commitments There have been no material changes, outside the ordinary course of business, to our cash commitments since March 31, 2024. For further information see “Cash Commitments” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended March 31, 2024 For our minimum purchase cash commitments in connection with our long-term purchase agreements with certain software, hardware, telecommunication, and other service providers, see Note 17 – “Commitments and Contingencies.” 40 Critical Accounting Estimates The preparation of consolidated financial statements in accordance with U.S. GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities. These estimates may change in the future if underlying assumptions or factors change. Accordingly, actual results could differ materially from our estimates under different assumptions, judgments or conditions. We consider the following policies to be critical because of their complexity and the high degree of judgment involved in implementing them: revenue recognition, income taxes, defined benefit plans, valuation of assets, and loss accruals for litigation. We have discussed the selection of our critical accounting policies and the effect of estimates with the Audit Committee of our Board of Directors. During the three months ended June 30, 2024, there were no changes to our critical accounting policies and estimates from those described in our Annual Report on Form 10-K for the fiscal year ended March 31, 2024 except as mentioned in Note 1 – “Summary of Significant Accounting Policies.”