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Item 7. Management’s Discussion and Analysis

2025-05-15 compared with 2024-05-17 · 127 added, 144 removed, 376 unchanged (42% of the section changed)

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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.

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.

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.

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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.

We market and sell our services directly to customers through our direct sales force around the world.

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.

Key profitability and cash flow metrics for fiscal 2025 compared to fiscal 2024 are included below.

We have presented organic revenue, adjusted earnings before income taxes, and adjusted diluted earnings per share on a non-GAAP basis.

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

• Revenues of $12.87 billion, down 5.8% compared to prior year period, and down 4.6% 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.

• Income before income taxes was $630 million;

adjusted earnings before income taxes was $1,019 million, an increase of 1.0% on an adjusted basis;

• Diluted earnings per share of $2.10, compared to $0.46 in fiscal 2024;

adjusted diluted earnings per share of $3.43, compared to $3.10 in fiscal 2024, an increase of 10.6%;

• Cash generated from operations was $1,398 million, less capital expenditures of $711 million, resulted in free cash flow of $687 million.

• Book-to-bill ratio (contract awards divided by annual revenue) of 1.03x, compared to 0.91x during fiscal 2024.

Results of Operations

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Revenues $ 12,871 $ 13,667

Income (loss) before income taxes

Income tax expense (benefit)

Net income (loss)

Diluted income (loss) per common share:

Income before income taxes (1)

Income tax expense

Net income (1)

Diluted earnings per common share:

$ 2.10 $ 0.46

(1) Income before income taxes, Net income, and Diluted earnings per common share include Pension and OPEB actuarial and settlement (gains) and losses that were $(232) million and $445 million for the fiscal years ended March 31, 2025 and March 31, 2024, respectively.

Our revenues by geography and operating segments are provided below:

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

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 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."

Total revenue for fiscal 2025 was $12.9 billion, a decline of $796 million or 5.8%, compared to the prior fiscal year, primarily driven by a 4.6% decline in organic revenue and a 1.0% unfavorable foreign currency exchange rate impact.

Organic revenue is a non-GAAP measure, as discussed in our "Non-GAAP Financial Measures." In addition, for a discussion of risks associated with our foreign operations, see Part I, Item 1A - "Risk Factors."

Reportable Segment Results

Global Business Services

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

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.

• Revenue was $6.6 billion, down 2.6% year-over-year (down 1.0% on an organic basis).

• Segment profit was $797 million, down 4.6% year-over-year, with a corresponding margin of 12.0%.

• Book-to-bill ratio of 1.03x, compared to 0.96x during fiscal 2024.

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 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.

• Revenue was $6.2 billion, down 9.1% year-over-year (down 8.2% on an organic basis).

• Segment profit was $451 million, up 4.2% year-over-year, with a corresponding margin of 7.2%.

• Book-to-bill ratio of 1.03x, compared to 0.86x during fiscal 2024.

Costs and Expenses

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Gain on disposition of businesses (7) (79) 72 (91.1)

Other expense (income), net 218 1,084 (866) (79.9)

Other (income) expense, net (376) 218 (594) (272.5)

Total costs and expenses $ 12,241 $ 13,558 $ (1,317) (9.7) %

Costs of Services

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 $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.

Costs of services ("COS") were $9.8 billion for fiscal 2025, a decrease of $806 million compared to the prior fiscal year.

The decrease in expenses against the prior fiscal year was primarily due to a decline in costs from 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 24.1% for fiscal 2025, an increase of 150 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.

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.

Selling, general and administrative expense ("SG&A") was $1.3 billion for fiscal 2025, an increase of $104 million compared to the prior fiscal year.

The increase in expenses against the prior fiscal year was primarily due to an alignment of business development expenses from COS in support of the offering model and an increase in transaction, separation and integration-related (“TSI”) costs, partially offset by lower merger-related indemnification expenses, lower share-based compensation and a gain from a legal settlement in fiscal 2025.

SG&A as a percentage of revenue was 10.5% for fiscal 2025, an increase of 140 basis points against the prior fiscal year.

Depreciation and Amortization

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Amortization expense was $936 million for fiscal 2025, a decrease of $35 million compared to the prior fiscal year.

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.

The decrease in amortization expense was primarily due to lower software amortization.

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, 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.

Total restructuring costs recorded, net of reversals, during fiscal 2025 were $153 million, an increase of $42 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 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.

For fiscal 2025, net interest expense (interest expense less interest income) was $66 million, a decrease of $18 million as compared to the prior fiscal year.

The decrease in net interest expense against the comparative period was primarily due to decreased interest expense from lower levels of asset financing and commercial paper, and higher net interest income from cash deposits.

Gain on Disposition of Businesses

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, 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:

During fiscal 2025 and fiscal 2024, the Company sold insignificant businesses and made adjustments to estimated amounts from prior years’ dispositions that resulted in a gain of $7 million and $79 million, respectively.

Other (Income) Expense, Net

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

The components of other (income) expense, net were as follows:

Fiscal Years Ended

(in millions) March 31, 2025 March 31, 2024 Dollar Change

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 (gain) loss (35) 9 (44)

Non-service cost components of net periodic pension income $ (160) $ (145) $ (15)

Pension and OPEB actuarial and settlement (gains) losses (232) 445 (677)

Foreign currency gains (4) (7) 3

Loss (gain) on real estate and facility sales 23 (7) 30

Other miscellaneous (gains) and losses (3) (68) 65

Total $ (376) $ 218 $ (594)

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

Other (income) expense, net, was $(376) million in fiscal 2025, a change of $594 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;

• net periodic pension income increased by $15 million primarily due to changes in expected returns on assets and other actuarial assumptions;

• pension and OPEB actuarial and settlement (gains) losses were $(232) million and $445 million, respectively, a change of $677 million, from mark-to-market adjustments and other settlement (gains) losses;

• foreign currency gains decreased $3 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.

• losses (gains) on real estate and facility were $23 million and $(7) million, respectively, a change of $30 million;

• a decrease in other miscellaneous (gains) and losses of $65 million, primarily from impairment losses in fiscal 2025 and the gain on the sale of a strategic investment in fiscal 2024.

Our effective tax rate ("ETR") on income (loss) from continuing operations, before taxes, for fiscal 2025 and 2024 was 37.1% and 21.1%, respectively.

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In fiscal 2025, the ETR was primarily impacted by:

• The global mix of income and changes in foreign statutory tax rates, which increased the foreign tax rate differential and the ETR by $145 million and 23.0%, respectively.

• Income tax and foreign tax credits, which decreased income tax expense and the ETR by $84 million and 13.3%, respectively, offset by tax expense on U.S.

international tax inclusions, which increased tax expense and the ETR by $59 million and 9.4%, respectively.

• The tax benefit of changes in uncertain tax positions related to the expiration of the statute of limitations and capitalized research and experimental expenditures, offset by the impact of increases in other uncertain tax positions and accrued interest, which decreased income tax expense and the ETR by $52 million and 8.3%, respectively.

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.

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• 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.

• Income tax and foreign tax credits, which increased income tax benefit and decreased the ETR by $71 million and 8.0%, respectively, offset by tax expense on U.S.

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

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 Internal Revenue Service (the “IRS”) has examined, or is examining, the Company’s federal income tax returns for fiscal years 2009 through the tax year ended October 31, 2018.

With respect to CSC’s fiscal years 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, foreign exchange losses, and a third-party financing transaction in previous years.

We have received notices of deficiency and a final partnership administrative adjustment with respect to fiscal years 2009, 2010, 2011 and 2013 and have timely filed petitions with the U.S.

Tax Court cases generally involve three primary issues.

The first issue pertains to a capital loss the Company claimed in fiscal year 2013 in the amount of $651 million, which the IRS subsequently disallowed, and for which it proposed a substantial understatement penalty.

The total cash tax payment the IRS is seeking is approximately $469 million, inclusive of penalties and interest, which continues to accrue.

The matter is currently scheduled for trial in August 2025.

The second issue pertains to the Company’s deduction for restructuring expenses in fiscal year 2013 in the amount of $146 million, which the IRS has disputed.

The total cash tax payment the IRS is seeking is approximately $101 million, inclusive of penalties and interest, which continues to accrue.

In January 2025, the Court denied the IRS’s motion for summary judgment.

A trial date is pending.

The third issue primarily pertains to foreign currency losses from 2009 that the Company claimed in fiscal years 2010 and 2011 in the amount of $165 million, resulting from the depreciation of the U.S.

dollar against the Euro over an eight-year period (from 2001 to 2009) upon termination of a partnership interest involving two entities with different functional currencies.

The total cash tax payment the IRS is seeking is approximately $124 million, inclusive of penalties and interest, which continues to accrue.

This matter is currently pending a summary judgment motion from the IRS.

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 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.

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.

Tax Court, the above matters are not fully reserved and would result in incremental federal and state tax expense of approximately $544 million (including estimated interest and penalties) for the unreserved portion of these items and cash tax payments of approximately $623 million if we do not prevail.

These amounts are net of an expected $71 million interest deduction tax benefit.

During 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 promptly and filed for relief under Treas.

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

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 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 expects to reach resolution for fiscal and tax return years 2009 through 2011 no earlier than fiscal year 2026.

The Company expects to reach resolution for fiscal and tax return years 2012 and 2013 no earlier than fiscal year 2028.

The Company expects to reach resolution for fiscal and tax return years 2014 through 2021 no earlier than fiscal year 2026.

The Company may settle certain other tax examinations for different amounts than the Company has accrued as uncertain tax positions.

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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.

Diluted EPS for fiscal 2025 includes $0.65 per share of restructuring costs, $0.11 per share of transaction, separation and integration-related costs, $1.47 per share of amortization of acquired intangible assets, $(0.02) per share of merger-related indemnification, $0.09 per share of impairment losses, $(0.05) per share of net gains on dispositions, $0.08 per share of net losses on real estate and facility sales, $(0.89) per share of pension and OPEB actuarial and settlement gains, and $(0.09) 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

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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.

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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 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.

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.

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(in millions) March 31, 2025 March 31, 2024 Dollar (1)

Income (loss) before income taxes

$ 109 $ (885) $ 994 112.3 %

Income before income taxes

$ 630 $ 109 $ 521 NM (2)

Non-GAAP income before income taxes $ 953 $ 925 $ 28 3.0 %

Net income (loss)

$ 86 $ (566) $ 652 115.2 %

$ 396 $ 86 $ 310 NM (2)

Adjusted EBIT $ 1,019 $ 1,009 $ 10 1.0 %

(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.

(1) The dollar and percent change for Income before income taxes and Net income include Pension and OPEB actuarial and settlement (gains) and losses that were $(232) million and $445 million for the fiscal years ended March 31, 2025 and March 31, 2024, respectively.

(2) Calculation is not meaningful ("NM") due to inclusion of Pension and OPEB actuarial and settlement gains and losses.

Reconciliation of Non-GAAP Financial Measures

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

• Merger related indemnification – 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 the Company’s final liability to HPE on the Oracle v.

HPE litigation.

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.

• Merger related indemnification – in fiscal 2025 and fiscal 2024, represents the Company’s estimate of potential net liability to HPE for tax related indemnifications.

• Gains and losses on dispositions – gains and losses related to dispositions of businesses, strategic assets and interests in less than wholly-owned entities.

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

• Gains and losses on real estate and facility sales – gains and losses related to dispositions of real property.

• 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).

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• 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 (benefit) from the impact of mergers 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) 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.

(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.

(1) Starting in the fiscal quarter ended September 30, 2024, the Company’s reported non-GAAP financial results reflect an adjustment for gains and losses on real estate and facilities dispositions, which the Company’s current management believes are not reflective of the core operating performance of our business.

For comparability purposes, historical non-GAAP financial measures set forth herein have been recast to reflect this change, which included gains on dispositions of real property of approximately $7 million for the fiscal year ended March 31, 2024.

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

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Integration-Related Costs Amortization

Assets Merger Related Indemnification Gains and

Dispositions Impairment

Losses Pension and

Assets Merger Related Indemnification Impairment

Losses Gains and

Dispositions Gains and Losses on Real Estate and Facility Sales Pension and

OPEB Actuarial

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396 120 20 271 (4) 16 (10) 14 (166) (17) 640

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

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

7 — — — — — — — (1) — 6

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Related Costs Amortization

Intangible Assets Merger Related Indemnification,

Arbitration Loss, and SEC Matter Gains and

Dispositions Impairment Losses Pension and

Intangible Assets Merger Related Indemnification Impairment Losses Gains and

Dispositions Gains and Losses on Real Estate and Facility Sales Pension and

OPEB Actuarial

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Adjustment Non-GAAP

(Loss) income before income taxes

Income before income taxes

109 111 7 354 16 5 (115) (7) 445 — 925

Income tax (benefit) expense

Income tax expense

23 23 1 75 14 1 (26) (2) 109 97 315

Net (loss) income

86 88 6 279 2 4 (89) (5) 336 (97) 610

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

Net (loss) income attributable to DXC common stockholders

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 $ 8 $ (89) $ (5) $ 334 $ (97) $ 617

Effective Tax Rate 21.1 % 34.1 %

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GIS organic revenue growth (8.2) % (9.3) %

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

Reconciliations of net income to adjusted EBIT are as follows:

Fiscal Years Ended

(in millions) March 31, 2025 March 31, 2024

Net income (loss)

Income tax expense (benefit)

Income tax expense

Interest income (199) (214)

Interest expense 265 298

EBIT 193 (820)

Restructuring costs 153 111

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Merger-related indemnification 2 16

SEC Matter — 8

Gains on dispositions (13) (115)

Arbitration loss — 29

Losses (gains) on real estate and facility sales 23 (7)

Impairment losses 17 5

Pension and OPEB actuarial and settlement losses

Pension and OPEB actuarial and settlement (gains) losses

Adjusted EBIT $ 1,019 $ 1,009

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Effect of exchange rate changes on cash and cash equivalents 3 (17) 20

Cash classified within current assets held for sale — 10 (10)

Net decrease in cash and cash equivalents $ (634) $ (814) $ 180

Net increase (decrease) in cash and cash equivalents

$ 572 $ (634) $ 1,206

Cash and cash equivalents at beginning of year 1,224 1,858

1 unchanged sentence

Operating cash flow

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;

Net cash provided by operating activities was $1,398 million and $1,361 million, respectively, in fiscal 2025 and fiscal 2024, reflecting a year-over-year increase of $37 million.

Operating cash flow against the comparative period included:

• an increase in net income, net of adjustments of $48 million;

partially offset by

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

• a $11 million unfavorable change in working capital due to higher working capital outflows during fiscal 2025.

The following table contains certain key working capital metrics:

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The change was primarily due to:

• 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;

• a $106 million year-over-year increase in cash outflows from capital expenditures primarily from software purchased and developed;

partially offset by

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

• an increase in proceeds from sale of assets of $86 million.

Financing cash flow

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The change was primarily due to:

• an $899 million decrease in cash used for share repurchase activity and related taxes paid on net share settlements;

• a $132 million decrease in payments on capital leases and borrowings for asset financings, as the Company continues reducing the volume of these financing arrangements;

• a $101 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.

• a $38 million increase in cash inflows from other financing activities.

Debt Financing

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Total debt $ 3,876 $ 4,089

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.

The $213 million decrease in total debt during fiscal 2025 was primarily due to the net decreases in finance lease liabilities and borrowings for asset financing.

The $609 million increase in short-term debt and current maturities of long-term debt reflects the fiscal year 2026 maturity of the €650 million senior note.

We were in compliance with all financial covenants associated with our borrowings as of March 31, 2025 and March 31, 2024.

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Rating Agency Long Term Ratings Short Term Ratings Outlook

Fitch BBB F-2 Stable

Moody's Baa2 P-2 Stable

Fitch BBB F-2 Negative

Moody's Baa2 P-2 Negative

S&P BBB- - Stable

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Our liquidity of $5.0 billion as of March 31, 2025, includes $1.8 billion of cash and cash equivalents and $3.2 billion of available borrowings under our revolving credit facility.

On November 1, 2024, the Company extended the term of our revolving credit facility to November 1, 2029.

Share Repurchases

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

We have remitted the first six installment payments.

We have remitted the first seven installment payments.

Our remaining liability from the originally computed transition tax in 2018 is $71 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.

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 $108 million, resulting in a net refund due of $37 million.

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

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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.

and Germany, have enacted legislation implementing Pillar Two Rules recently 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.

tax upon repatriation.

Such earnings and all current foreign earnings are not indefinitely reinvested.

The following earnings are considered indefinitely reinvested:

approximately $480 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 based on its future strategy and cash needs.

As of March 31, 2025, the Company had undistributed earnings from foreign subsidiaries that were not indefinitely reinvested and had a deferred tax liability of $32 million for the estimated taxes associated with the repatriation of these earnings.

The Company also had undistributed earnings of approximately $1.4 billion and other outside basis differences in foreign subsidiaries that were indefinitely reinvested in foreign operations.

No taxes have been provided on the undistributed foreign earnings and outside basis differences that are indefinitely reinvested.

If future events, including material changes in estimates of cash, working capital and long-term investment requirements, necessitate that these earnings be distributed, an additional provision for taxes may apply, which could materially affect our future effective tax rate.

Considerations impacting the recoverability of deferred tax assets include the period of expiration of the tax asset, planned use of the tax asset, historical and projected taxable income as well as deferred tax liabilities for the tax jurisdiction to which the tax asset relates.

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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