Executing on Our
Transformation
Journey
2020 ANNUAL REPORT
“At the heart of our transformation
journey is taking care of our
customers and our people who are
delivering every day for our customers.”
MESSAGE FROM
Mike Salvino
President and CEO
I hope you and your families are staying well.
I want to start by thanking our customers for trusting us with their business and our shareholders for
investing in us. I am proud of the work our DXC Technology teams are doing, and am very pleased with
the results we’ve helped our customers achieve, especially as we all navigate through COVID-19.
The focus of DXC is to execute our transformation journey, take care of our people, deliver the Enterprise
Technology Stack for our customers and unlock value. Our commitment is to maintain a strong financial
position consistent with an investment-grade profile.
Our transformation journey focuses on three things: strengthening our customer relationships
and ensuring we are delivering for our customers; optimizing costs to better serve our customers
by eliminating confusion and complexity; and seizing the market opportunity by cross-selling and
expanding what we do with our customers across the Enterprise Technology Stack.
Customers: We are strengthening customer relationships and delivery. We’re proud and honored to
share some of those stories in this year’s report. I personally check in with our customers regularly,
assuring them of our commitment to their success and reminding them that their feedback is always
welcome. We are especially focused on our top 200 customer accounts. During the last two quarters, we
also have worked hard to turn around our challenged accounts and these customers have now entrusted
us with $2.1 billion TCV of additional business, including renewals and new work. For me, new work is the
best evidence that our strategy is working.
Optimizing Costs: We are optimizing costs to better serve our customers and eliminate confusion and
complexity. We simplified our operating model to enable faster decision making, removed unnecessary
management layers, and increased the speed and quality of delivery execution. We are also taking the
appropriate steps to right-size our cost structure to our revenue as we see the needs and performance
of the business changing. We are enabling our people to serve our customers faster, drive meaningful
revenue growth and deepen customer relationships.
Market: We are seizing market opportunities by cross-selling and expanding what we do with our
customers. We are reminded every day that what we do at DXC is incredibly relevant. The disruptions
caused by COVID-19 have reinforced the importance of the entire IT estate and underscore the expertise
and capabilities we deliver across our Enterprise Technology Stack.
1
We are helping our customers securely modernize their IT by running on-prem technology, migrating
resources to the cloud, developing and adapting innovative applications, and harvesting data with
advanced analytics and engineering.
We are delivering on our customers’ shifting needs. With the rise of COVID-19, we have helped many of our
customers keep their businesses running by enabling their employees to work remotely and securely, with
our workplace and mobility solutions. The feedback we received over the last few months for innovating
and executing in a very demanding environment has been overwhelmingly positive.
A new DXC is being seen by our customers and the market. Here’s one example: for a leading healthtech
company, we anticipated a surge in service desk calls from employees who suddenly found themselves
working from home. We built a chatbot in 30 hours that reduced the call volume by 12 percent on the first
day. The customer was thrilled and thanked us for our proactive response, out-of-the-box thinking, speed
and collaboration. Customers remember when you deliver in tough times, and we’ll share more of their
amazing stories in this report.
Taking Care of Our People: We can’t do this work without the dedication and determination of our
people at DXC. Their health and safety are always a top priority and especially important in the current
environment. We are supporting our people and our customers by acting on the information from our
COVID command center, which monitors the evolving situation around the clock. An industry-leading 99
percent of our 138,000 people are enabled to work virtually and flexibly from home, and they deliver every
day for our customers. I could not be prouder of our team. We also continue to bring in new technology,
account and delivery talent across the world, and make investments that recognize and reward our people,
who are delivering for our customers.
Given the timing of our report, I want to share here what we’ve shared with all our people. At DXC, we’re
clear: we will not condone social injustice, and I am committed to making sure this is not experienced within
our company. We have established a special task force to examine our culture and make sure that it is
one that supports diversity, inclusion and equality. We have also encouraged our people to amplify their
voices through our SpeakUp! campaign, which provides multiple channels for ensuring anything that does
not match our integrity, ethics and compliance standards is brought to light and corrected. Our goal is to
ensure everyone at DXC knows we are listening, understanding and acting at pace so that DXC remains a
place where everyone can grow, thrive and be proud to work.
Unlocking Value: We are committed to running a long-term sustainable business focused on the Enterprise
Technology Stack and unlocking value by pursuing strategic alternatives for businesses that do not fit our
long-term strategy. We will continue to rationalize our portfolio and strengthen our balance sheet while
positioning DXC for growth.
We are making solid progress — and we also know we have much more to do. We are executing our
transformation journey, strengthening customer relationships, optimizing costs, and seizing the market,
while taking care of our people and unlocking value. I am confident this strategy will position DXC for long-
term success and stability.
MIKE SALVINO
President and Chief Executive Officer
2
Whether we’re working
side by side or social
distancing from home,
working in the office
or in the community,
solving new challenges
or sharing new
innovative solutions …
the people of DXC
are the power of DXC.
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EXECUTING ON OUR TRANSFORMATION JOURNEY
Focus on Our Customers
Australia and New Zealand
Southern Europe
Americas
Device Technologies
City of
Brussels Fiscality
Campbell
Soup Company
Putting Patients
at the Center with
a Self-Service
Portal
Reducing
High-Polluting
Vehicles in a
European City
Bringing the Future
of Computing to a
Legacy Household
Brand
Device Technologies is
improving the patient
experience after working with
DXC to implement a customer-
and employee-friendly booking
portal via SAP Commerce
Cloud. Results included 40
percent improved booking
efficiency and a 95 percent
reduction in booking errors.
In partnership with DXC, the
City of Brussels created a
low-emission zone using
advanced analytics to identify
and prevent high-polluting
vehicles from coming into the
city. By 2025, the project is
expected to significantly slash
levels of nitrogen oxide and
black carbon levels.
Campbell Soup Company
entrusted DXC to boost
executional efficiency with 90
percent of its workloads. As a
result, mission-critical systems,
including ERP applications,
are running in the cloud and
operate flawlessly around the
clock, every day of the year.
“Our business is about the
customers, one of our core
values we talk about is that
what we do every day is about
patients, not the paperwork.”
“Based on the work DXC have
implemented we estimate
that ... black carbon emissions
should drop 55 percent by
2020 and 86 percent by 2025.”
“DXC has been a critical
partner in supporting all of our
operations across infrastructure,
applications and cybersecurity.”
Chief Information Officer,
General Manager of Marketing
and Digital, Device Technologies
General Director, Brussels Fiscality
Campbell Soup Company
4
At DXC Technology, we apply the latest innovations in technology to deliver better business outcomes and
higher levels of performance. We help our customers in more than 70 countries across multiple industries
manage their IT estate across the Enterprise Technology Stack.
Asia
North and Central Europe
UK, Ireland, Israel, Middle East and Africa
China National Health and
Family Planning Commission
Cantonal Bank of Berne
Al Mashaaer Metro Project,
MRDA
Transforming an
Established Swiss
Bank into a Digital
Powerhouse
Getting Thousands
of People Through
the Largest Religious
Pilgrimage, Safely
Connecting
7 Million Citizens
and Hundreds
of Healthcare
Providers
In the city of Guiyang,
China, DXC deployed a
platform to connect over
100 primary medical and
healthcare institutions
with 7 million citizens under
their care. The project
also covered over 600,000
special needs patients.
DXC took over the existing
core banking system for
Cantonal Bank of Berne
(BEKB) to modernize the bank’s
mission-critical systems
with digital technologies.
The quality of customer
experiences rose, and costs
dropped by 25 percent.
“I feel that DXC is always
proactive and able to
respond to our requests
and requirements.”
Chief Information Architect,
China National Health and
“This will enable BEKB to react
quickly and flexibly to new
customer needs ... giving us the
freedom and agility that our
customers value.”
Head of Production and Operations,
Family Planning Commission
BEKB
Overcrowding on one of the
world’s most intensively used
metro lines during the Hajj was
reduced after DXC deployed
a “smart” crowd management
platform in just 8 weeks. The
system drives real-time
decisions to do things like move
72,000 passengers through
the metro system every hour
during peak periods.
“We improved safety by
implementing technologies
that allowed for the efficient
movement of 340,000 out of
the 1.8 million pilgrims that
visited for Hajj.”
Chairman of the managing team
at the Al Mashaaer Metro Project,
MRDA
5
EXECUTING ON OUR TRANSFORMATION JOURNEY
DXC’s Enterprise
Technology Stack
DXC Technology runs mission-critical systems with the latest technology innovations to deliver better
business outcomes and new levels of performance for our customers. If COVID-19 taught us anything,
it’s that the performance of the IT estate is top of mind, and the need to work from home is testing the
reliability of these estates daily. This is good news for DXC because this is exactly the work we have
done for years.
This puts DXC in a strong position to help our customers manage their IT estates across the Enterprise
Technology Stack. This is crucial for customers as they manage existing and new enterprise
infrastructure investments. We help our customers run on-prem technology securely, migrate relevant
resources to the cloud, develop and adapt innovative applications and harvest data with advanced
analytics and engineering.
DXC delivers innovative solutions on a global scale with speed and agility. Our technology
independence, combined with a broad ecosystem of partners and leading talent, positions us to deliver
maximum value to our customers.
Whether it’s working from home or anywhere in the world, the performance of the IT estate is now much
more critical for our customers. DXC has shown that we are ready. Our people have worked around the
clock to keep our customers’ core systems and applications up and running. DXC is prepared for the
new normal, and we are delivering — beyond expectations — for the world’s leading enterprises and
government agencies.
The Enterprise Technology Stack
DXC helps customers manage their
IT estates across the Enterprise
Technology Stack. The criticality
of the IT estate is top of mind for
customers. They need to manage
existing investments in enterprise
infrastructures as they also move
portions of their IT estates to the cloud.
GBS: Global Business Services
GIS: Global Infrastructure Services
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Analytics and Engineering
DXC PARTNER NETWORK
DXC helps customers gain data-driven insights,
automate operations, design effective products and
services, and leverage complex software at scale.
We foster a culture of design thinking and agile
development among more than 20,000 data and
analytics, engineering and consulting professionals.
We help our customers develop innovative products
and agile teams to optimize their operations and gain
competitive advantage. We apply these capabilities
to some of the most challenging issues and
opportunities our customers face.
Applications
DXC helps customers achieve business agility,
resilience and operational efficiency — all while
providing improved customer and employee
experiences. Our applications services enable
customers to simplify platforms and modernize
processes while reducing costs. Over 65,000
applications professionals leverage DXC’s own IP
and an ecosystem of partners to get the most out of
business applications.
Cloud and Security
DXC helps customers rapidly modernize their IT
estate by adapting legacy applications for the
cloud, migrating workloads and securely managing
multi-cloud environments. This allows customers to
operate IT with scale, resilience, speed and security
across cloud, hybrid and legacy environments. Our
security solutions predict attacks, respond to threats
and ensure compliance. We lead more than 65,000
workload migrations annually and have more than
600,000 virtual machines under management.
IT Outsourcing
DXC delivers critical, secure and cost-effective
ITO services for our customers. We help customers
with applications, infrastructure and security
management, while also responding to their new
business and workplace demands. As the world’s
largest workplace and mobility services provider,
we serve nearly 60 percent of the Fortune 1000,
managing twice as many virtual desktops as our
closest competitor.
Together with our curated
ecosystem of over 200 industry-
leading companies, we help our
customers harness the power of
the Enterprise Technology Stack to
transform their businesses. The deep
and comprehensive relationships we
hold with our top partners enable us
to deliver innovative, mission-critical
solutions with agility, speed
and scale.
7
EXECUTING ON OUR TRANSFORMATION JOURNEY
Taking Care of
Our People
We are 138,000 strong — a diverse group of people dedicated to doing what is right for each other,
our customers and our communities. We value and respect each other. We are committed to open
communication and an inclusive work environment.
DXC’s SpeakUp! campaign encourages employees to help strengthen our culture of integrity and ethics
by letting leaders know if they experience something that is inconsistent with our values. An employee
task force on equality, inclusion and diversity will help us evaluate our culture so that we can ensure
that we are fostering the best environment for all of our people to thrive.
Employees are also contributing to the discussion on simpler ways to work at DXC. This input will help
guide us moving forward. And, we are checking the pulse of our teams with our regular employee
engagement surveys to improve the employee experience.
Keeping our people safe and well is our number one priority. DXC employees are enabled to work
virtually and flexibly from home today, and continue to deliver great results for our customers. Science
and data will remain the drivers of our approach as we continue to navigate through COVID-19. We will
remain flexible and ready to react quickly if required to deliver for our customers. We recognize that this
is an opportunity for DXC to change the employee experience in an impactful way.
There is a new future evolving, and we are excited about leading the way.
8
138,000 EMPLOYEES
11,400+ DATA AND ANALYTICS
PROFESSIONALS
4,300+ CERTIFIED CLOUD
PROFESSIONALS
65,000+ APPLICATIONS
PROFESSIONALS
10,000+ APPLICATION PARTNER
CERTIFICATIONS
9,000+ CERTIFIED SAP
CONSULTANTS
3,000+ SECURITY
PROFESSIONALS
9
EXECUTING ON OUR TRANSFORMATION JOURNEY
Corporate Responsibility
DXC: One of 100
Best Corporate
Citizens
Greenhouse
Gas Emissions
Cut 20+ Percent
Global Energy
Consumption Reduced
by 25 Percent
DXC was named one of
the 100 Best Corporate
Citizens of 2020 by 3BL
Media, in recognition
of DXC’s outstanding
environmental, social and
governance transparency
and performance.
DXC achieved its 3-year
environmental plan goals
in only 2 years (FY19). We
have already cut greenhouse
gas emissions by more than
20 percent, with similar
reductions planned over the
next 3 years.
DXC bucks the trend for
increased energy usage in
computing, having reduced
our global energy consumption
by 25 percent (FY19). In fact,
we are helping customers use
best practices to reduce their
own energy consumption.
10
99 Percent of
E-Waste
Eliminated
Raising the
Bar on Ethics
and Compliance
Committed to an
Inclusive and Enriching
Environment
DXC has eliminated 99 percent
of our e-waste that goes
into landfills or incineration
facilities. We are also working
with our customers to achieve
similar goals — to date, over 65
percent of the equipment used
by DXC and our customers has
been successfully reused.
Before onboarding new
suppliers, DXC conducts
thorough background checks
to ensure compliance with
standards related to anti-
corruption, human rights and
other international laws.
DXC embraces diversity and
inclusion initiatives as part
of the company’s overall
corporate responsibility efforts.
Through one such program,
DXC is committed to improving
opportunities for individuals
on the autism spectrum,
empowering them with valuable
information technology skills
and offering meaningful
employment opportunities.
11
EXECUTING ON OUR TRANSFORMATION JOURNEY
Performance for
Our Shareholders
The progress being made on our strategic alternatives has positioned DXC to have a stronger balance
sheet, enabling us to execute our transformation. As part of our ongoing strategy, we will continue to
assess the competitive position of our business portfolio and develop plans to unlock future value, either
organically or inorganically. The actions we are taking set up a solid foundation for growth.
• We are rated investment grade by each of the credit rating agencies, Moody’s, Fitch and S&P,
at Baa2/BBB/BBB respectively. It is important to us, and an explicit part of our financial
management policy, to maintain a solid investment-grade credit rating profile.
• We have one of the largest revolving credit facilities in the industry at $4.0 billion, with a 5-year
commitment from a leading syndicate of 29 banks with whom we maintain strong relationships.
• We recently completed a $1 billion investment-grade bond offering to refinance near-term maturities
of other debt.
• We announced an agreement to sell our U.S. State and Local Health and Human Services business in
a $5 billion all-cash transaction now targeted to close at the end of FY21 Q2. The after-tax proceeds
will be used entirely to pay down debt, further improving our balance sheet and financial flexibility.
12
FY 2020 REVENUE
$19.6 billion
FY 2020 FINANCIAL HIGHLIGHTS
Revenue
$19.6 billion
Adjusted EBIT
$2.1 billion*
Cash at Year End
$3.7 billion
Non-GAAP EPS
$5.58**
Adjusted EBIT Margin
10.5 percent*
Total Debt at Year End
$9.9 billion
2020 Fortune 500 List
No. 155
* Please see non-GAAP reconciliation to adjusted EBIT in the Form 10-K. Adjusted EBIT margin is defined as adjusted EBIT as a
percent of revenue.
** Please see non-GAAP reconciliation to diluted EPS from continuing operations in the Form 10-K.
REVENUE BY SERVICES
* Pro-forma including
full year impact of
Luxoft of ~$0.2B
$5.0 billion
IN STRATEGIC ALTERNATIVES
U.S. State and Local HHS
Horizontal BPS
Workplace and Mobility
$1.8 billion*
$5.5 billion
$2.0 billion
$5.5 billion
GBS: Global Business Services
GIS: Global Infrastructure Services
13
INTRODUCING OUR NEW CHAIRMAN
Ian Read
Ian recently retired as Pfizer’s executive chairman, completing
an extraordinary 41-year career with the global pharmaceutical
company. His deep experience in dealing with customers, people
and operational execution during his career at Pfizer will be
invaluable to DXC’s future success.
“In DXC, I see the makings of a true global leader in IT services. I’m looking forward to working
closely with our president and CEO, Mike Salvino, and the other board members as DXC continues
its transformation journey and reaches its full potential, becoming a preferred destination for
customers and talent alike.”
— Ian Read, Chairman
We are proud of what we do at DXC,
and grateful for the trust that
customers place in us.
We are EXECUTING our own
transformation journey, while
remaining focused on taking care
of our people and unlocking value.
14
BOARD OF DIRECTORS
Ian Read
Chairman of DXC Technology,
former Chairman and Chief
Executive Officer of Pfizer and
current member of Kimberly-
Clark Corporation Board
Mike Salvino
President and
Chief Executive Officer
of DXC Technology
Mukesh Aghi
President and Chief Executive
Officer of USISPF (US-India
Strategic Partnership Forum)
Amy Alving
Former Chief Technology
Officer of SAIC
David L. Herzog
Former Chief Financial Officer
of AIG and current member of
MetLife and AMBAC Financial
Group boards
Peter Rutland
Partner and Global Co-head
of Financial Services at CVC
Capital Partners Limited
(CVC)
Mary Louise (ML) Krakauer
Former Executive Vice
President and Chief
Information Officer of Dell
Corporation
Sachin Lawande
Chief Executive Officer of
Visteon Corporation
Julio Portalatin
Vice Chair of Marsh &
McLennan Companies (MMC)
Manoj Singh
Former Chief Operating
Officer for Deloitte Touche
Tohmatsu Ltd. (DTTL)
Robert Woods
Former Senior Vice President
and Chief Financial Officer at
Sungard Data Systems Inc.
15
Executive Leadership
Mike Salvino
President and
Chief Executive Officer
Karl Anzboeck
Vice President and
General Manager,
North and Central Europe
Vinod Bagal
Executive Vice President,
Global Transformation
Pierre Bruno
Vice President and General
Manager, Southern Europe
Carla Christofferson
Executive Vice President
and Chief Risk Officer
Ken Corless
Executive Vice President,
Technology, Offerings &
Partners
Bill Deckelman
Executive Vice President,
General Counsel and
Secretary
Chris Drumgoole
Executive Vice President
and Chief Information Officer
Paul Saleh
Executive Vice President and
Chief Financial Officer
Mary Finch
Executive Vice President and
Chief Human Resources Officer
Kristin Slattery
Vice President of Corporate
Operations
Edward Ho
Executive Vice President and
General Manager, Americas
Jim Smith
Executive Vice President,
Platinum Accounts
Dmitry Loschinin
Executive Vice President, DXC
Technology, and President and
Chief Executive Officer, Luxoft,
a DXC Technology Company
Seelan Nayagam
Vice President and
General Manager,
Australia and New Zealand
Koushik Radhakrishnan
Vice President and
General Manager, Asia
Troy Richardson
Senior Vice President,
Global Sales
David Swift
Vice President and
General Manager, Americas
Steve Turpie
Senior Vice President and
General Manager, UK, Ireland,
Israel, Middle East and Africa
Tim Weir
Vice President,
Global Asset Protection
Shari Wenker
Senior Vice President
and Chief Marketing &
Communications Officer
About DXC Technology
DXC Technology (NYSE: 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. With decades of driving innovation, the world’s largest companies trust
DXC to deploy our Enterprise Technology Stack to deliver new levels of performance, competitiveness
and customer experiences. Learn more about the DXC story and our focus on people, customers and
operational execution at www.dxc.com.
© 2020 DXC Technology Company. All rights reserved.
16
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission File No.: 1-4850
DXC TECHNOLOGY COMPANY
(Exact name of Registrant as specified in its charter)
Nevada
61-1800317
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification
No.)
1775 Tysons Boulevard
Tysons , Virginia
22102
(Address of principal executive offices)
(zip code)
Registrant's telephone number, including area code: (703) 245-9675
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange on
which registered
Common Stock, $0.01 par value
per share
DXC
New York Stock Exchange
2.750% Senior Notes Due 2025
DXC 25
New York Stock Exchange
1.750% Senior Notes Due 2026
DXC 26
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.
Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.
Yes
No
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Yes
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be
submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files).
Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer,"
"accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange
Act.
Large Accelerated Filer
Accelerated Filer
Non-accelerated Filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards provided pursuant to Section
13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment
of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act
(15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).
Yes
No
The aggregate market value of the registrant's common stock held by non-affiliates of the registrant on September
30, 2019, the last business day of the registrant's most recently completed second fiscal quarter, based upon the
closing price of a share of the registrant’s common stock on that date, was $7,501,594,766.
253,751,753 shares of common stock, par value $0.01 per share, were outstanding as of May 26, 2020.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement relating to its 2020 Annual Meeting of Stockholders (the "2020
Proxy Statement"), which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A
within 120 days after the registrant's fiscal year end of March 31, 2020, are incorporated by reference into Part III of
this Annual Report on Form 10-K where indicated.
TABLE OF CONTENTS
Item
PART I
1.
Business
1A.
1B.
2.
3.
4.
5.
6.
7.
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
7A.
Quantitative and Qualitative Disclosures about Market Risk
8.
9.
9A.
9B.
10.
11.
12.
13.
14.
15.
16.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
PART IV
Exhibits, Financial Statement Schedules
Form 10-K Summary
Page
2
9
30
30
31
31
32
34
35
55
57
144
144
149
149
149
149
150
150
150
157
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
All statements and assumptions contained in this Annual Report on Form 10-K and in the documents incorporated by
reference that do not directly and exclusively relate to historical facts constitute “forward-looking statements.” Forward-
looking statements often include words such as “anticipates,” “believes,” “estimates,” “expects,” “forecast,” “goal,”
“intends,” “objective,” “plans,” “projects,” “strategy,” “target” and “will” and words and terms of similar substance in
discussions of future operating or financial performance. These statements represent current expectations and beliefs,
and no assurance can be given that the results described in such statements will be achieved.
Forward-looking statements include, among other things, statements with respect to our financial condition, results of
operations, cash flows, business strategies, operating efficiencies or synergies, divestitures, competitive position, growth
opportunities, share repurchases, dividend payments, plans and objectives of management and other matters. Such
statements are subject to numerous assumptions, risks, uncertainties and other factors that could cause actual results to
differ materially from those described in such statements, many of which are outside of our control. Furthermore, many of
these risks and uncertainties are currently amplified by and may continue to be amplified by or may, in the future, be
amplified by, the recent outbreak of the novel coronavirus (“COVID-19”) pandemic and the impact of varying private and
governmental responses that affect our customers, employees, vendors and the economies and communities where they
operate.
Important factors that could cause actual results to differ materially from those described in forward-looking statements
include, but are not limited to:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the uncertainty of the magnitude, duration, geographic reach, impact on the global economy and current and
potential travel restrictions, stay-at-home orders, economic restrictions implemented to address the COVID-19
outbreak;
the current, and uncertain future, impact of the COVID-19 outbreak, as well as other emerging developments and
disruption to economic activity, and their resulting impact on our clients that may affect our business, growth,
prospects, financial condition, operating results, cash flows and liquidity;
changes in governmental regulations or the adoption of new laws or regulations that may make it more difficult or
expensive to operate our business;
changes in senior management, the loss of key employees or the ability to retain and hire key personnel and
maintain relationships with key business partners;
the risk of liability or damage to our reputation resulting from security breaches or disclosure of sensitive data or
failure to comply with data protection laws and regulations;
business interruptions in connection with our technology systems;
the competitive pressures faced by our business;
the effects of macroeconomic and geopolitical trends and events;
the need to manage third-party suppliers and the effective distribution and delivery of our products and services;
the protection of our intellectual property assets, including intellectual property licensed from third parties;
the risks associated with international operations;
the development and transition of new products and services and the enhancement of existing products and
services to meet customer needs, respond to emerging technological trends and maintain and grow our customer
relationships over time;
the ability to succeed in our strategic objectives, including strategic alternatives material for our business;
the execution and performance of contracts by us and our suppliers, customers, clients and partners;
our credit rating and the ability to manage working capital, refinance and raise additional capital for future needs;
our ability to remediate any material weakness and maintain effective internal control over financial reporting;
the resolution of pending investigations, claims and disputes;
the integration of Computer Sciences Corporation's ("CSC") and Enterprise Services business of Hewlett Packard
Enterprise Company's ("HPES") businesses, operations, and culture and the ability to operate as effectively and
efficiently as expected, and the combined company's ability to successfully manage and integrate acquisitions
generally;
the ability to realize the synergies and benefits expected to result from the HPES Merger within the anticipated
time frame or in the anticipated amounts;
other risks related to the HPES Merger including anticipated tax treatment, unforeseen liabilities and future capital
expenditures;
1
•
•
•
•
the U.S. Public Sector business ("USPS") Separation and Mergers as described in Note 1 - “Summary of
Significant Accounting Policies”, could result in substantial tax liability to DXC and our stockholders;
risks relating to the respective abilities of the parties to our acquisition of Luxoft Holding, Inc. to achieve the
expected results therefrom;
risks relating to the consummation of the HHS Sale (as defined below) and the ability to achieve the expected
results therefrom; and
the other factors described under Item 1A. “Risk Factors.”
No assurance can be given that any goal or plan set forth in any forward-looking statement can or will be achieved, and
readers are cautioned not to place undue reliance on such statements which speak only as of the date they are made.
Any forward-looking statement made by us in this Annual Report on Form 10-K speaks only as of the date on which this
Annual Report on Form 10-K was first filed. We do not undertake any obligation to update or release any revisions to any
forward-looking statement or to report any events or circumstances after the date of this report or to reflect the occurrence
of unanticipated events, except as required by law.
Throughout this report, we refer to DXC Technology Company, together with its consolidated subsidiaries, as “we,” “us,”
“our,” “DXC,” or the “Company.” In order to make this report easier to read, we also refer throughout to (i) our
Consolidated Financial Statements as our “financial statements,” (ii) our Consolidated Statements of Operations as our
“statements of operations,” (iii) our Consolidated Statement of Comprehensive (Loss) Income as the "statements of
comprehensive income,"(iv) our Consolidated Balance Sheets as our “balance sheets” and (v) our Consolidated
Statements of Cash Flows as our “statements of cash flows.” In addition, references throughout to numbered “Notes” refer
to the numbered Notes to our Financial Statements that we include in the Financial Statements section of this report.
PART I
ITEM 1. BUSINESS
Overview
DXC Technology Company helps global companies across the entire enterprise technology stack, running their mission
critical systems and operations while modernizing IT, optimizing data architectures, and ensuring security and scalability
across public, private and hybrid clouds.
The DXC's enterprise technology stack includes:
• Analytics and Engineering
• Applications
• Cloud and Security
•
IT Outsourcing ("ITO")
DXC combines decades of experience running mission-critical systems with the latest digital innovations to deliver better
business outcomes and new levels of performance, competitiveness and experiences for our customers and their
stakeholders. DXC invests in three key drivers of growth: People, Customers and Operational Execution. The Company's
global scale, talent and innovation platforms serve more than 6,000 private and public-sector customers in approximately
70 countries.
History and Development
DXC, a Nevada corporation, was formed on April 1, 2017, by the merger of CSC and HPES (the "HPES Merger").
Acquisitions and Divestitures
During fiscal 2020, DXC completed the acquisition of Luxoft Holding, Inc. (the "Luxoft Acquisition") a global scale digital
service provider whose offerings encompass strategic consulting, custom software development, and digital solution
engineering services. We also completed other acquisitions during fiscal 2020 to complement our offerings and to provide
opportunities for future growth. See Note 2 - "Acquisitions" for further information.
2
On March 9, 2020, DXC entered into a definitive agreement (the "Purchase Agreement") to sell (the “HHS Sale”) our U.S.
State and Local Health and Human Services (“State & Local HHS”) business to Veritas Capital Fund Management, L.L.C.,
for $5.0 billion in cash. The State and Local HHS business is an end-to-end provider of technology enabled, mission
critical solutions that are fundamental to the administration and operations of health programs throughout the United
States. It is accounted for as part of the Global Business Services segment. Known for its reliable delivery of highly
complex systems for public sector clients, the business facilitates performance efficiencies and improved outcomes for a
wide range of stakeholders in the healthcare ecosystem. The transaction is expected to close by September 2020, but no
later than December 2020, subject to the satisfaction of certain closing conditions, including (i) the absence of a material
adverse effect on the HHS Business or the ability of DXC to consummate the HHS Sale and (ii) HHS customer contracts
that generated 87.5% or more of the aggregate revenue for all HHS customer contracts for the nine month period ending
December 31, 2019 are able to be conveyed at the closing of the HHS Sale without receipt of additional customer
consents. The sale is not subject to any financing condition or shareholder approval. The Purchase Agreement contains
certain termination rights, including (i) the right of either party to terminate the Purchase Agreement if the transactions
contemplated thereby is not consummated on or before December 31, 2020, (ii) the right of either party to terminate if a
governmental authority has issued a final and non-appealable order prohibiting or enjoining the transactions contemplated
thereby (subject to certain limitations) and (iii) the right of either party to terminate if the other party breaches its
representations, warranties, covenants or agreements contained in the Purchase Agreement to such an extent that the
conditions to Closing would not be satisfied (subject to certain limitations). In addition, the Purchaser will be obligated to
pay to the Company a termination fee of $250 million in cash upon the termination of the Purchase Agreement under
specified conditions. Following the transaction close, DXC will retain its remaining healthcare practice, servicing
customers across the healthcare continuum, including payers, providers and life sciences firms.
Segments and Services
Our reportable segments are Global Business Services ("GBS") and Global Infrastructure Services ("GIS").
Global Business Services
GBS provides innovative technology solutions that help our customers address key business challenges and accelerate
digital transformations tailored to each customer’s industry and specific objectives. GBS enterprise technology stack
offerings include:
• Analytics and Engineering. Our portfolio of analytics services and extensive partner ecosystem help customers
gain rapid insights, automate operations, and accelerate their digital transformation journeys. We provide software
engineering and solutions that enable businesses to run and manage their mission-critical functions, transform
their operations and develop new ways of doing business.
• Applications. We use advanced technologies and methods to accelerate the creation, modernization, delivery and
maintenance of high-quality, secure applications allowing customers to innovate faster while reducing risk, time to
market, and total cost of ownership, across industries. Our vertical-specific IP includes solutions for insurance;
banking and capital markets; and automotive, among others.
GBS offerings also includes business process services, which include digital integration and optimization of front and back
office processes, and agile process automation. This helps companies to reduce cost, and minimize business disruption,
human error, and operational risk while improving customer experiences.
3
Global Infrastructure Services
GIS provides a portfolio of technology offerings that deliver predictable outcomes and measurable results, while reducing
business risk and operational costs for customers. GIS enterprise stack elements include:
• Cloud and Security. We help customers to rapidly modernize by adapting legacy apps to cloud, migrate the right
workloads, and securely manage their multi-cloud environments. Our security solutions help predict attacks,
proactively respond to threats, ensure compliance and protect data, applications and infrastructure.
IT Outsourcing. Our ITO services support infrastructure, applications, and workplace IT operations, including
hardware, software, physical/virtual end-user devices, collaboration tools, and IT support services. We help
customers securely optimize operations to ensure continuity of their systems and respond to new business and
workplace demands, while achieving cost takeout, all with limited resources, expertise and budget.
•
GIS offerings also include workplace and mobility services to fit our customer’s employee, business and IT needs from
intelligent collaboration, modern device management, digital support services, Internet of Things ("IoT") and mobility
services, providing a consumer-like, digital experience.
See Note 19 - "Segment and Geographic Information" for additional information related to our reportable segments,
including the disclosure of segment revenues, segment profit and financial information by geographic area.
Sales and Marketing
We market and sell our services to customers through our direct sales force, operating out of sales offices around the
world. Our customers include commercial businesses of many sizes and in many industries and public sector enterprises.
No individual customer exceeded 10% of our consolidated revenues for fiscal 2020, 2019 or 2018.
Seasonality
General economic conditions have an impact on our business and financial results. The markets in which we sell our
products, services and solutions occasionally experience weak economic conditions that may negatively affect sales. We
also experience some seasonal trends in the sale of our services. For example, contract awards are often tied to the
timing of our customers' fiscal year-ends, and we also experience seasonality related to our own fiscal year-end selling
activities.
Competition
The IT and professional services markets in which we compete are highly competitive and are not dominated by a single
company or a small number of companies. A substantial number of companies offer services that overlap and are
competitive with those we offer. In addition, the increased importance of offshore labor centers has brought several
foreign-based firms into competition with us.
Our competitors include:
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•
•
large multinational enterprises that offer some or all of the services and solutions that we do;
smaller companies that offer focused services and solutions similar to those that we offer;
offshore service providers in lower-cost locations, particularly in India, that sell directly to end-users;
solution or service providers that compete with us in a specific industry segment or service area; and
in-house functions of corporations that use their own resources, rather than engage an outside IT services
provider.
4
The principal methods of competition in the markets for our solutions and services include:
•
•
•
•
•
•
•
•
•
vision and strategic advisory ability;
digital services capabilities;
performance and reliability;
responsiveness to client needs;
competitive pricing of services;
technical and industry expertise;
reputation and experience;
quality of solutions and services; and
financial stability and strong corporate governance.
Our ability to obtain new business and retain existing business is dependent upon the following:
•
•
•
•
•
•
•
•
technology, industry and systems know-how with an independent perspective on the best client solutions across
software, hardware, and service providers;
ability to offer improved strategic frameworks and technical solutions;
investments in our digital services and solutions;
focus on responsiveness to customer needs, quality of services and competitive prices;
successful management of our relationships with leading strategic and solution partners in hardware, networking,
cloud, applications and software;
project management experience and capabilities;
end-to-end spectrum of IT and professional services we provide; and
financial stability and strong corporate governance.
5
Intellectual Property
We rely on a combination of trade secrets, patents, copyrights, and trademarks, as well as contractual protections, to
protect our business interests. While our technical services and products are not generally dependent upon patent
protection, we do selectively seek patent protection for certain inventions likely to be incorporated into products and
services or where obtaining such proprietary rights will improve our competitive position.
As our patent portfolio has been built over time, the remaining terms of the individual patents across the patent portfolio
vary. We believe that our patents and patent applications are important for maintaining the competitive differentiation of
our solutions and services and enhancing our freedom of action to sell solutions and services in markets in which we
choose to participate. No single patent is in itself essential to our company as a whole or to any business segment.
Additionally, we own or have rights to various trademarks, logos, service marks, and trade names that are used in the
operation of our business. We also own or have the rights to copyrights that protect the content of our products and other
proprietary materials.
In addition to developing our intellectual property portfolio, we license intellectual property rights from third parties as we
deem appropriate. We have also granted and plan to continue to grant licenses to others under our intellectual property
rights when we consider these arrangements to be in our interest. These license arrangements include a number of cross-
licenses with third parties.
Environmental Regulation
Our operations are subject to regulation under various federal, state, local, and foreign laws concerning the environment,
including laws addressing the discharge of pollutants into the air and water, the management and disposal of hazardous
substances and wastes and the clean-up of contaminated sites. Environmental costs and accruals are presently not
material to our operations, cash flows or financial position, and we do not currently anticipate material capital expenditures
for environmental control facilities. However, we could incur substantial costs, including clean-up costs, fines and civil or
criminal sanctions and third-party damage or personal injury claims, if we were to violate or become liable under
environmental laws, or if new environmental legislation is passed which impacts our business.
Employees
As of March 31, 2020, we employed approximately 138,000 employees and had offices and operations in approximately
70 countries.
Available Information
We use our corporate website, www.dxc.technology, as a routine channel for distribution of important information,
including detailed company information, financial news, SEC filings, Annual Reports, historical stock information and links
to a recent earnings call webcast. DXC’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K, all amendments to those reports, and the Proxy Statements for our Annual Meetings of
Stockholders are made available, free of charge, on our corporate website as soon as reasonably practicable after such
reports have been filed with or furnished to the SEC. They are also available through the SEC at www.sec.gov/edgar/
searchedgar/companysearch.html. Our corporate governance guidelines, Board of Directors' committee charters
(including the charters of the Audit Committee, Compensation Committee and Nominating/Corporate Governance
Committee) and code of ethics entitled "Code of Business Conduct" are also available on our website. The information on
our website is not incorporated by reference into, and is not a part of, this report.
6
Information About Our Executive Officers
Name
Age
Year First
Elected as
Officer
Term as
an Officer
Position Held with the Registrant as of the filing date
Family
Relationship
Michael J. Salvino
Paul N. Saleh
William L. Deckelman, Jr.
Mary E. Finch
Edward Ho
James R. Smith
Vinod Bagal
Neil A. Manna
54
63
62
50
57
52
54
57
2019
2017
2017
2019
2018
2017
2019
2017
Indefinite
President and Chief Executive Officer
Indefinite
Executive Vice President and Chief Financial Officer
Indefinite
Executive Vice President, General Counsel and Secretary
Indefinite
Executive Vice President and Chief Human Resources Officer
Indefinite
Executive Vice President and Co-Lead, Americas
Indefinite
Executive Vice President, Digital Transformation and Customer
Advocacy
Indefinite
Executive Vice President, Global Transformation
Indefinite
Senior Vice President, Corporate Controller and
Principal Accounting Officer
None
None
None
None
None
None
None
None
Business Experience of Executive Officers
Michael J. Salvino became the President and Chief Executive Officer of DXC in September 2019 and has been a
member of the Board of Directors of DXC since May 2019. Prior to joining DXC, Mr. Salvino served as Managing Director
of Carrick Capital Partners from 2016 to 2019. Prior to his tenure at Carrick, from 2009 to 2016, Mr. Salvino served as
group chief executive of Accenture Operations, where he led a team of more than 100,000 consulting and outsourcing
professionals focused on providing business process outsourcing, infrastructure, security and cloud services to deliver
business value and drive productivity and digital improvements for clients. Prior to that, he held leadership roles in the HR
outsourcing business at Hewitt Associates Inc. and as President of the Americas Region at Exult Inc. Mr. Salvino is a
board member of the Atrium Health Foundation Board, the largest Healthcare system in the Carolinas, where he serves
on the Investment Oversight Committee for both the hospital and the foundation. Mr. Salvino graduated from Marietta
College with a Bachelor of Science degree in industrial engineering. He serves on the Marietta College Board of Trustees
and is Chair of its Investment Committee. Mr. Salvino is also a member of the Board of Visitors of the Duke University
Pratt School of Engineering.
Paul N. Saleh has served as Executive Vice President and Chief Financial Officer of DXC since the completion of the
HPES Merger. Mr. Saleh previously served as Executive Vice President and Chief Financial Officer of CSC. Mr. Saleh
joined CSC as Vice President and Chief Financial Officer in May 2012. Prior to joining CSC, Mr. Saleh served as the Chief
Financial Officer of Gannett Co. from 2010 to 2012. Prior to his tenure at Gannett Co., from 2008 to 2010, Mr. Saleh was a
Managing Partner at Menza Partners, an operational and financial advisory group focusing on media, telecommunications
and technology industries. Prior to that, he served as Chief Financial Officer of Sprint Nextel Communications from 2001
to 2007 and as Interim Chief Executive Officer of Sprint Nextel until 2008. He served as Senior Vice President and Chief
Financial Officer of Walt Disney International where he also held various other senior positions from 1997 to 2001. Mr.
Saleh served as a Director of Perspecta Inc. ("Perspecta") from its inception in 2018 until 2019.
William L. Deckelman, Jr. has served as Executive Vice President, General Counsel and Secretary of DXC since the
completion of the HPES Merger. Mr. Deckelman previously served as Executive Vice President and General Counsel of
CSC. Mr. Deckelman joined CSC in January 2008 and served as Vice President, General Counsel and Secretary from
2008 to 2012, and as Executive Vice President and General Counsel from 2012 to 2014. Prior to joining CSC, Mr.
Deckelman served as Executive Vice President and General Counsel of Affiliated Computer Services Inc. from 2000 to
2008, and served as a director from 2000 to 2003, holding various executive positions there since 1989.
Mary E. Finch was appointed as Executive Vice President and Chief Human Resources Officer of DXC in December
2019. Ms. Finch previously served as Executive Vice President and CHRO of AECOM from 2015 to 2019. Prior to that,
she served at Accenture as Senior Managing Partner from 2013 to 2015 and as Managing Director Human Resources,
Business Partner Organization from 2001 to 2013, where she drove global delivery of HR services, overseeing operations
supporting approximately 320,000 employees across 56 countries and multiple Accenture businesses. Ms. Finch also
served as VP Human Resources of Abilizer Solutions Inc. from 2000 to 2001.
7
Edward Ho joined DXC in January 2018 and serves as Executive Vice President and Co-Lead, Americas. Mr. Ho
previously served as the President of Global Payment Solutions of D+H Corporation, a publicly traded, leading, global
financial technology company, from April 2015 to November 2017, where he was responsible for leadership of its digital,
global transaction banking business. From January 2013 to April 2015, Mr. Ho served as the President and Chief
Operating Officer of Fundtech Corporation, a private equity owned, leading provider of digital payments banking software
and services, where he was responsible of sales, marketing, product management, development, professional services,
customer support and certain general and administrative functions. Prior to his role at Fundtech, he served for nine years
as Executive Vice President and General Manager of the capital markets division at Misys plc, a provider of banking,
treasury, trading and risk management software solutions. Previously, he had been Chief Executive Officer and President
of IQ Financial Systems, a developer and marketer of commercial lending and risk management software systems. Mr. Ho
also spent 15 years as a banker with Bank of America, Bankers Trust and Deutsche Bank.
James R. Smith serves as Executive Vice President, Digital Transformation and Customer Advocacy of DXC. Mr. Smith
previously served as CSC's Executive Vice President and General Manager for GBS since he joined in August 2013. Prior
to joining CSC, Mr. Smith served as Chief Executive Officer of Motricity, a provider of cloud-based mobile enterprise and
analytics solutions from 2009 to 2012. Under his direction, Motricity had a successful initial public offering on NASDAQ
after completing a business model transformation and global expansion. Mr. Smith held various executive leadership
positions at Avaya from 2001 to 2008, where he helped drive a 10-fold increase in the company’s market capitalization
and reinvented a global software platform. Prior to that, he was an Associate Partner at Accenture.
Vinod Bagal was appointed as Executive Vice President, Global Transformation of DXC in December 2019. Prior to
joining DXC, Mr. Bagal served at Cognizant as Senior Vice President - Global Multi-Service Integration and North America
Delivery and as Senior Vice President - Global Technology Consulting & Multi-Service Integration from 2014 to 2019,
where he led the transformation of Cognizant's client delivery organization to position it for the next wave of professional
services demands. From 1994 to 2014, Mr. Bagal held a series of leadership roles at Accenture.
Neil A. Manna has served as Senior Vice President, Corporate Controller and Principal Accounting Officer of DXC since
the completion of the HPES Merger. Mr. Manna previously served as Principal Accounting Officer, Vice President and
Controller of CSC. Mr. Manna joined CSC in June 2016. Prior to joining CSC, he served as the Chief Accounting Officer
and Senior Vice President of CA, Inc. from December 2008 to June 3, 2016. He served as Principal Accounting Officer
and Vice President of Worldwide Accounting for RealNetworks, Inc. from July 2007 to November 2008. He served as the
Chief Financial Officer of TimePlus Systems, LLC (formerly TimePlus, Inc.) from November 2005 to April 2007. From
February 2000 to October 2005, he served as a Director of Finance for the Payroll Division of Intuit and Controller of
Employee Matters, Inc. From July 1990 to February 2000 he served as the Principal Accounting Officer, Vice President of
Finance, Controller and Treasurer of CHI Energy, Inc. He is a Certified Public Accountant and holds a Bachelor’s degree
in Accounting and a Master’s degree in Business Administration.
8
Item 1A. RISK FACTORS
Any of the following risks could materially and adversely affect our business, financial condition, and results of operations,
and the actual outcome of matters as to which forward-looking statements are made in this Annual Report. In such case,
the trading price for DXC common stock could decline, and you could lose all or part of your investment. The risks
described below are not the only risks that DXC currently faces. Additional risks and uncertainties not currently known or
that are currently expected to be immaterial may also materially and adversely affect our business, financial condition, and
results of operations or the price of our common stock in the future. Past financial performance may not be a reliable
indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods.
Risks Relating to Our Business
We may not succeed in our strategic objectives, which could adversely affect our business, financial
condition, results of operations and cash flows.
We recently announced a number of senior leadership changes as well as updates to our strategic priorities
including an initiative to assist DXC customers across a broader range of their information technology needs,
which we refer to as “the enterprise technology stack.” We may not be able to implement our strategic priorities in
accordance with our expectations for a variety of reasons, including failure to execute on our plans in a timely
fashion, lack of adequate skills, ineffective management, inadequate incentives, customer resistance to new
initiatives, inability to control costs or maintain competitive offerings. We also cannot be certain that executing on
our strategy will generate the benefits we expect. If we fail to execute successfully on our strategic priorities, or if
we pursue strategic priorities that prove to be unsuccessful, our business, financial position, results of operations
and cash flows may be materially and adversely affected.
Strategic alternatives we are considering may not achieve the results we expect, could result in operating
difficulties, harm to one or more of our businesses and negative impacts our financial condition, results
of operations and cash flows.
We recently announced our intention to explore strategic alternatives for our U.S. State and Local Health and
Human Services business, our horizontal BPS business and our workplace & mobility business. Among the
alternatives we may consider for those businesses are potential divestiture transactions. Any such transactions
may involve significant challenges and risks, including:
•
•
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•
•
•
•
•
•
the potential loss of key customers, suppliers, vendors and other key business partners;
declining employee morale and retention issues affecting employees, which may result from changes in
compensation, or changes in management, reporting relationships, future prospects or perceived
expectations;
difficulty making new and strategic hires of new employees;
diversion of management time and a shift of focus from operating the businesses to transaction execution
considerations;
the need to provide transition services, which may result in stranded costs and the diversion of resources
and focus;
the need to separate operations, systems (including accounting, management, information, human
resource and other administrative systems), technologies, products and personnel, which is an inherently
risky and potentially lengthy and costly process;
the inefficiencies and lack of control that may result if such separation is delayed or not implemented
effectively, and unforeseen difficulties and expenditures that may arise as a result including potentially
significant stranded costs;
our desire to maintain an investment grade credit rating may cause us to use cash proceeds, if any, from
any divestitures or other strategic alternatives that we might otherwise have used for other purposes in
order to reduce our financial leverage;
the inability to obtain necessary regulatory approvals or otherwise satisfy conditions required in order
consummate any such transactions; and
our dependence on accounting, financial reporting, operating metrics and similar systems, controls and
processes of divested businesses could lead to challenges in preparing our consolidated financial
statements or maintaining effective financial control over financial reporting.
9
At any given time, we may be engaged in discussions or negotiations with respect to one or more strategic
alternatives, and any of these strategic alternatives could be material to our business, financial condition, results
of operations and cash flows. In addition, we may explore a divestiture or spin-off or other transaction involving
one or more of these businesses and ultimately determine not to proceed with any transaction or other strategic
alternative for commercial, financial, strategic or other reasons. As a result, we may not realize benefits expected
from exploring one or more strategic alternatives or may realize benefits further in the future and those benefits
may ultimately be significantly smaller than anticipated, which could adversely affect our business, financial
condition, operating results and cash flows.
We expect our business and financial results to potentially be negatively impacted by the recent
COVID-19 outbreak as well as other recent developments.
The recent outbreak of COVID-19 and global pandemic along with other recent developments, including
disruptions in global economies, financial and commodities markets and rapid shifts in governmental and public
health policies in response to these and other factors affecting the countries where we operate or our customers
are located or the industries in which we and our customers compete, are expected to potentially have a negative
effect on our business, results of operations, cash flows and financial condition. These effects could include
disruptions or restrictions on our employees’ ability to work effectively, as well as temporary closures of our
facilities or the facilities of our clients or our subcontractors, or the requirements to deliver our services by working
remotely. This could potentially affect our ability to perform under our contracts with customers. Cost increases
may not be recoverable from customers or covered by insurance, which could impact our profitability. If a
business interruption occurs and we are unsuccessful in our continuing efforts to minimize the impact of these
events, our business, results of operations, financial position, and cash flows could be materially adversely
affected. In addition, the outbreak of COVID-19 has resulted in a widespread global pandemic health crisis that is
adversely affecting the economies and financial markets of many countries, which could result in an economic
downturn that may negatively affect demand for our services, including the financial failure of some of our clients.
This economic downturn, depending upon its severity and duration, could also lead to the deterioration of
worldwide credit and financial markets that could limit our customers’ ability or willingness to pay us in a timely
manner and our ability to obtain external financing to fund our operations and capital expenditures, result in
losses on our holdings of cash and investments due to failures of financial institutions and other parties, and result
in a higher rate of losses on our accounts receivables due to credit defaults. Our financial results may be
materially and adversely impacted by a variety of factors that have not yet been determined, including potential
impairments of goodwill and other assets, our evaluation of contingent liabilities, for which actual amounts may
materially exceed management estimates and our calculation of global tax liabilities. Even after the COVID-19
outbreak has subsided, depending upon its duration and frequency of recurrence, and the governmental policies
in response thereto, we may continue to experience materially adverse impacts to our business as a result of its
global economic impact, including any recession that may occur or be continuing as a result. We are evaluating
the extent to which COVID-19 has impacted us and our employees, customers and suppliers and the extent to
which it and other emerging developments are expected to impact us in the future and caution investors that any
of those factors could have material and adverse impacts on our current and future business, results of
operations, cash flows and financial condition.
To the extent the global COVID-19 pandemic and resulting economic disruption adversely affects our business
and financial results, it may also have the effect of heightening many of the other risks described in this “Risk
Factors” section, such as those relating to our level of indebtedness, our ability to generate sufficient cash flows to
service our indebtedness and to comply with the covenants contained in the agreements that govern our
indebtedness and our counterparty credit risk.
10
We could be held liable for damages, our reputation could suffer, or we may experience service
interruptions from security breaches, cyber-attacks or disclosure of confidential information or personal
data, which could cause significant financial loss.
As a provider of IT services to private and public sector customers operating in a number of regulated industries
and countries, we store and process increasingly large amounts of data for our clients, including sensitive and
personally identifiable information. We also manage IT infrastructure of our own and of clients. We possess
valuable proprietary information, including copyrights, trade secrets and other intellectual property and, we collect
and store certain personal and financial information from customers and employees.
At the same time, the continued occurrence of high-profile data breaches and cyber-attacks, including by state
actors, reflects an external environment that is increasingly hostile to information and corporate security.
Cybersecurity incidents can result from unintentional events or deliberate attacks by insiders or third parties,
including criminals, competitors, nation-states, and hacktivists. Like other companies, we face an evolving array of
cybersecurity and data security threats that pose risks to us and our clients. We can also be harmed by attacks on
third parties, such as denial-of-service attacks. We see regular unauthorized efforts to access our systems, which
we evaluate for severity and frequency. While incidents experienced thus far have not resulted in significant
disruption to our business, it is possible that we could suffer a severe attack or incident, with potentially material
and adverse effects on our business, reputation, customer relations, results of operations or financial condition.
We must expend capital and other resources to protect against attempted security breaches and cyber-attacks
and to alleviate problems caused by successful breaches or attacks. We consider information security to be a top
priority and are undertaking cybersecurity planning and activities throughout the company. This includes the
acquisition of technology and services, review and refinement of cybersecurity and data security policies and
procedures and employee training, among many other investments. Senior management and the Board of
Directors are appropriately and actively engaged in cybersecurity risk management.
Our security measures are designed to identify and protect against security breaches and cyber-attacks; no threat
incident identified to date has resulted in a material adverse effect on us or our customers. However, there is no
perfect security system, and our failure to detect, prevent or adequately respond to a future threat incident could
subject us to liability and reputational damage, and have a material adverse effect on our business. In addition,
the cost and operational consequences of responding to breaches and cyber-attacks and implementing
remediation measures could be significant.
We rely on internal and external information and technological systems to manage our operations and are
exposed to risk of loss resulting from breaches in the security or other failures of these systems. Security
breaches such as through an advanced persistent threat attack, or the accidental loss, inadvertent disclosure or
unapproved dissemination of proprietary information or sensitive or confidential data about us, our clients or our
customers, could expose us to risk of loss of this information, regulatory scrutiny, actions and penalties, extensive
contractual liability and other litigation, reputational harm, and a loss of customer confidence which could
potentially have an adverse impact on future business with current and potential customers.
Advances in computer capabilities, new discoveries in the field of cryptography or other events or developments
may result in a compromise or breach of the algorithms that we use to protect our data and that of clients,
including sensitive customer transaction data. A party who is able to circumvent our security measures or those of
our contractors, partners or vendors could access our systems and misappropriate proprietary information, the
confidential data of our customers, employees or business partners or cause interruption in our or their
operations.
11
Experienced computer programmers and hackers may be able to penetrate our network security and
misappropriate or compromise our confidential information or that of third parties, create system disruptions or
cause shutdowns. Computer programmers and hackers also may be able to develop and deploy ransomware,
malware and other malicious software programs through phishing and other methods that attack our products or
otherwise exploit any security vulnerabilities of these products. In addition, sophisticated hardware and operating
system software and applications produced or procured from third parties may contain defects in design or
manufacture, including “bugs” and other problems that could unexpectedly interfere with the security and
operation of our systems, or harm those of third parties with whom we may interact. The costs to eliminate or
alleviate cyber or other security problems, including ransomware, malware, bugs, malicious software programs
and other security vulnerabilities, could be significant, and our efforts to address these problems may not be
successful and could result in interruptions, delays, cessation of service and loss of existing or potential
customers, which may impede our sales, distribution or other critical functions.
Increasing cybersecurity, data privacy and information security obligations around the world could also impose
additional regulatory pressures on our customers’ businesses and, indirectly, on our operations, or lead to
inquiries or enforcement actions. In the United States, we are seeing increasing obligations and expectations from
federal and non-federal customers. In response, some of our customers have sought and may continue to seek,
to contractually impose certain strict data privacy and information security obligations on us. Some of our
customer contracts may not limit our liability for the loss of confidential information. If we are unable to adequately
address these concerns, our business and results of operations could suffer.
Compliance with new privacy and security laws, requirements and regulations, such as the European Union
General Data Protection Regulation, which became effective in May 2018, where required or undertaken by us,
may result in cost increases due to expanded compliance obligations, potential systems changes, the
development of additional administrative processes and increased enforcement actions, fines and penalties.
While we strive to comply with all applicable data protection laws and regulations, as well as internal privacy
policies, any failure or perceived failure to comply or any misappropriation, loss or other unauthorized disclosure
of sensitive or confidential information may result in proceedings or actions against us by government or other
entities, private lawsuits against us (including class actions) or the loss of customers, which could potentially have
an adverse effect on our business, reputation and results of operations.
Portions of our infrastructure also may experience interruptions, delays or cessations of service or produce errors
in connection with systems integration or migration work that takes place from time to time. We may not be
successful in implementing new systems and transitioning data, which could cause business disruptions and be
expensive, time-consuming, disruptive and resource intensive. Such disruptions could adversely impact our ability
to fulfill orders and respond to customer requests and interrupt other processes. Delayed sales, lower margins or
lost customers resulting from these disruptions could reduce our revenues, increase our expenses, damage our
reputation, and adversely affect our stock price.
Achieving our growth objectives may prove unsuccessful. We may be unable to identify future attractive
acquisitions and strategic partnerships, which may adversely affect our growth. In addition, if we are
unable to integrate acquisitions and implement strategic partnerships or achieve anticipated revenue
improvements and cost reductions, our profitability may be materially and adversely affected.
We may fail to complete strategic transactions. Closing strategic transactions is subject to uncertainties and risks,
including the risk that we will be unable to satisfy conditions to closing, such as regulatory and financing
conditions and the absence of material adverse changes to our business. In addition, our inability to successfully
integrate the operations we acquire and leverage these operations to generate substantial cost savings, as well
as our inability to avoid revenue erosion and earnings decline, could have a material adverse effect on our results
of operations, cash flows and financial position. In order to achieve successful acquisitions, we will need to:
•
successfully integrate the operations, as well as the accounting, financial controls, management
information, technology, human resources and other administrative systems, of acquired businesses with
existing operations and systems;
• maintain third-party relationships previously established by acquired companies;
•
•
attract and retain senior management and other key personnel at acquired businesses; and
successfully manage new business lines, as well as acquisition-related workload.
12
We may not be successful in meeting these challenges or any others encountered in connection with historical
and future acquisitions. In addition, the anticipated benefits of one or more acquisitions may not be realized and
future acquisitions could require dilutive issuances of equity securities and/or the assumption of contingent
liabilities. The occurrence of any of these events could adversely affect our business, financial condition and
results of operations.
We have also entered into and intend to identify and enter into additional strategic partnerships with other industry
participants that will allow us to expand our business. However, we may be unable to identify attractive strategic
partnership candidates or complete these partnerships on terms favorable to us. In addition, if we are unable to
successfully implement our partnership strategies or our strategic partners do not fulfill their obligations or
otherwise prove disadvantageous to our business, our investments in these partnerships and our anticipated
business expansion could be adversely affected.
Our ability to continue to develop and expand our service offerings to address emerging business
demands and technological trends, including the demand for digital technologies and services, may
impact our future growth. If we are not successful in meeting these business challenges, our results of
operations and cash flows may be materially and adversely affected.
Our ability to implement solutions for our customers, incorporating new developments and improvements in
technology that translate into productivity improvements for our customers, and our ability to develop digital and
other new service offerings that meet current and prospective customers' needs, as well as evolving industry
standards, are critical to our success. The markets we serve are highly competitive and characterized by rapid
technological change which has resulted in deflationary pressure in the price of services which in turn can
adversely impact our margins. Our competitors may develop solutions or services that make our offerings
obsolete or may force us to decrease prices on our services which can result in lower margins. Our ability to
develop and implement up to date solutions utilizing new technologies that meet evolving customer needs in
digital cloud, information technology outsourcing, consulting, industry software and solutions, application services
markets, and in areas such as artificial intelligence, automation, Internet of Things and as-a-service solutions,
in a timely or cost-effective manner, will impact our ability to retain and attract customers and our future revenue
growth and earnings. If we are unable to continue to develop digital and other new service offerings in a highly
competitive and rapidly evolving environment or if we are unable to commercialize such services and solutions,
expand and scale them with sufficient speed and versatility, our growth, productivity objectives and profit margins
could be negatively affected.
Technological developments may materially affect the cost and use of technology by our customers. Some of
these technologies have reduced and replaced some of our traditional services and solutions and may continue to
do so in the future. This has caused, and may in the future cause, customers to delay spending under existing
contracts and engagements and to delay entering into new contracts while they evaluate new technologies. Such
delays can negatively impact our results of operations if the pace and level of spending on new technologies is
not sufficient to make up any shortfall. Our growth strategy focuses on responding to these types of developments
by driving innovation that will enable us to expand our business into new growth areas. If we do not sufficiently
invest in new technology and adapt to industry developments, or evolve and expand our business at sufficient
speed and scale, or if we do not make the right strategic investments to respond to these developments and
successfully drive innovation, our services and solutions, our results of operations, and our ability to develop and
maintain a competitive advantage and to execute on our growth strategy could be negatively affected.
13
Our ability to compete in certain markets we serve is dependent on our ability to continue to expand our
capacity in certain offshore locations. However, as our presence in these locations increases, we are
exposed to risks inherent to these locations which may adversely affect our revenue and profitability.
A significant portion of our application outsourcing and software development activities has been shifted to India
and we plan to continue to expand our presence there and in other lower-cost locations. As a result, we are
exposed to the risks inherent in operating in India or other locations including (1) a highly competitive labor market
for skilled workers which may result in significant increases in labor costs, as well as shortages of qualified
workers in the future and (2) the possibility that the U.S. Federal Government or the European Union may enact
legislation that creates significant disincentives for customers to locate certain of their operations offshore, which
would reduce the demand for the services we provide in such locations and may adversely impact our cost
structure and profitability. In addition, India has experienced, and other countries may experience, political
instability, civil unrest and hostilities with neighboring countries. Negative or uncertain political climates in
countries or locations where we operate, including but not limited to military activity or civil hostilities, criminal
activities and other acts of violence, infrastructure disruption, natural disasters or other conditions could adversely
affect our operations.
We are subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended ("FCPA") and similar anti-bribery
laws in other jurisdictions. We pursue opportunities in certain parts of the world that experience government
corruption and in certain circumstances, compliance with anti-bribery laws may conflict with local customs and
practices. Our internal policies mandate compliance with all applicable anti-bribery laws. We require our
employees, partners, subcontractors, agents, and others to comply with the FCPA and other anti-bribery laws.
There is no assurance that our policies or procedures will protect us against liability under the FCPA or other laws
for actions taken by our employees and intermediaries. If we are found to be liable for FCPA violations (either due
to our own acts or our omissions, or due to the acts or omissions of others), we could suffer from severe criminal
or civil penalties or other sanctions, which could have a material adverse effect on our reputation, business,
results of operations or cash flows. In addition, detecting, investigating and resolving actual or alleged violations
of the FCPA or other anti-bribery violations is expensive and could consume significant time and attention of our
senior management.
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 currently maintain investment grade credit ratings with Moody's Investors Service, Fitch Rating Services, and
Standard & Poor's Ratings Services. Our credit ratings are based upon information furnished by us or obtained by
a rating agency from its own sources and are subject to revision, suspension or withdrawal by one or more rating
agencies at any time. Rating agencies may review the ratings assigned to us due to developments that are
beyond our control, including potential new standards requiring the agencies to reassess rating practices and
methodologies. Ratings agencies may consider changes in credit ratings based on changes in expectations about
future profitability and cash flows even if short-term liquidity expectations are not negatively impacted. If changes
in our credit ratings were to occur, it could result in higher interest costs under certain of our credit facilities. It
would also cause our future borrowing costs to increase and limit our access to capital markets. For example, we
currently fund a portion of our working capital requirements in the U.S. and European commercial paper
markets. Any downgrade below our current rating would, absent changes to current market liquidity, substantially
reduce or eliminate our ability to access that source of funding and could otherwise negatively impact the
perception of our company by lenders and other third parties. In addition, certain of our major contracts provide
customers with a right of termination in certain circumstances in the event of a rating downgrade below
investment grade. There can be no assurance that we will be able to maintain our credit ratings, and any
additional actual or anticipated changes or downgrades in our credit ratings, including any announcement that our
ratings are under review for a downgrade, may have a negative impact on our liquidity, capital position and access
to capital markets.
14
Our liquidity is a function of our ability to successfully generate cash flows from a combination of efficient
operations and continuing operating improvements, access to capital markets and funding from third parties. In
addition, like many multinational regulated enterprises, our operations are subject to a variety of tax, foreign
exchange and regulatory capital requirements in different jurisdictions that have the effect of limiting, delaying or
increasing the cost of moving cash between jurisdictions or using our cash for certain purposes. Our ability to
maintain sufficient liquidity going forward is subject to the general liquidity of and on-going changes in the credit
markets as well as general economic, financial, competitive, legislative, regulatory and other market factors that
are beyond our control. An increase in our borrowing costs, limitations on our ability to access the global capital
and credit markets or a reduction in our liquidity can adversely affect our financial condition and results of
operations.
Information regarding our credit ratings is included in Part II, Item 7 of this Annual Report on Form 10-K under the
caption "Liquidity and Capital Resources."
We have a substantial amount of indebtedness, which could have a material adverse effect on our
business, financial condition and results of operations.
We have a significant amount of indebtedness totaling approximately $9.9 billion as of March 31, 2020 (including
capital lease obligations). We may incur substantial additional indebtedness in the future for many reasons,
including to fund acquisitions. Our existing indebtedness, together with the incurrence of additional indebtedness
and the restrictive covenants contained in, or expected to be contained in the documents evidencing such
indebtedness, could have significant consequences on our future operations, including:
•
•
•
•
•
•
•
events of default if we fail to comply with the financial and other covenants contained in the agreements
governing our debt instruments, which could, if material and not cured, result in all of our debt becoming
immediately due and payable or require us to negotiate an amendment to financial or other covenants
that could cause us to incur additional fees and expenses;
subjecting us to the risk of increased sensitivity to interest rate increases in our outstanding variable-rate
indebtedness that could cause our debt service obligations to increase significantly;
increasing the risk of a future credit ratings downgrade of our debt, which could increase future debt costs
and limit the future availability for debt financing;
debt service may reduce the availability of our cash flow to fund working capital, capital expenditures,
acquisitions and other general corporate purposes, and limiting our ability to obtain additional financing
for these purposes;
placing us at a competitive disadvantage compared to less leveraged competitors;
increasing our vulnerability to the impact of adverse economic and industry conditions; and
causing us to reduce or eliminate our return of cash to our stockholders, including via dividends and
share repurchases.
In addition, we could be unable to refinance our outstanding indebtedness on reasonable terms or at all.
Our ability to meet our payment and other obligations under our debt instruments depends on our ability to
generate significant cash flow in the future. This, to some extent, is subject to general economic, financial,
competitive, legislative and regulatory factors as well as other factors that are beyond our control. There can be
no assurance that our business will generate sufficient cash flow from operations, or that current or future
borrowings will be sufficient to meet our current debt obligations and to fund other liquidity needs.
A substantial portion of our borrowing capacity bears interest at a variable rate based on the London Interbank
Offered Rate ("LIBOR"). In July 2017, the United Kingdom’s Financial Conduct Authority (“FCA”), which regulates
LIBOR, announced that it intends to phase out LIBOR by the end of 2021. The U.S. Federal Reserve, in
conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S.
financial institutions, is considering replacing LIBOR with the Secured Overnight Financing Rate ("SOFR"), a new
index calculated by short-term repurchase agreements, backed by Treasury securities.
15
Certain of our financing agreements include language to determine a replacement rate for LIBOR, if necessary.
However, if LIBOR ceases to exist, we may need to renegotiate some financing agreements extending beyond
2021 that utilize LIBOR as a factor in determining the interest rate. We are evaluating the potential impact of the
eventual replacement of the LIBOR benchmark interest rate, however, we are not able to predict whether LIBOR
will cease to be available after 2021, whether SOFR will become a widely accepted benchmark in place of LIBOR,
or what the impact of such a possible transition to SOFR may be on our business, financial condition, and results
of operations.
Our primary markets are highly competitive. If we are unable to compete in these highly competitive
markets, our results of operations may be materially and adversely affected.
Our competitors include large, technically competent and well capitalized companies, some of which have
emerged as a result of industry consolidation, as well as “pure-play” companies that have a single product focus.
This competition may place downward pressure on operating margins in our industry, particularly for technology
outsourcing contract extensions or renewals. As a result, we may not be able to maintain our current operating
margins, or achieve favorable operating margins, for technology outsourcing contracts extended or renewed in
the future. If we fail to effectively reduce our cost structure during periods with declining margins, our results of
operations may be adversely affected.
We encounter aggressive competition from numerous and varied competitors. Our competitiveness is based on
factors including technology, innovation, performance, price, quality, reliability, brand, reputation, range of
products and services, account relationships, customer training, service and support and security. If we are
unable to compete based on such factors, our results of operations and business prospects could be harmed. We
have a large portfolio of services and we need to allocate financial, personnel and other resources across all
services while competing with companies that have smaller portfolios or specialize in one or more of our service
lines. As a result, we may invest less in certain business areas than our competitors do, and competitors may
have greater financial, technical and marketing resources available to them compared to the resources allocated
to our services. Industry consolidation may also affect competition by creating larger, more homogeneous and
potentially stronger competitors in the markets in which we operate. Additionally, competitors may affect our
business by entering into exclusive arrangements with existing or potential customers or suppliers.
Companies with whom we have alliances in certain areas may be or become competitors in other areas. In
addition, companies with whom we have alliances also may acquire or form alliances with competitors, which
could reduce their business with us. If we are unable to effectively manage these complicated relationships with
alliance partners, our business and results of operations could be adversely affected.
We face aggressive price competition and may have to lower prices to stay competitive, while simultaneously
seeking to maintain or improve revenue and gross margin. In addition, competitors who have a greater presence
in some of the lower-cost markets in which we compete, or who can obtain better pricing, more favorable
contractual terms and conditions, may be able to offer lower prices than we are able to offer. Our cash flows,
results of operations and financial condition may be adversely affected by these and other industry-wide pricing
pressures.
16
If we are unable to accurately estimate the cost of services and the timeline for completion of contracts,
the profitability of our contracts may be materially and adversely affected.
Our commercial contracts are typically awarded on a competitive basis. Our bids are based upon, among other
items, the expected cost to provide the services. We generally provide services under time and materials
contracts, unit price contracts, fixed-price contracts, and multiple-element software sales. We are dependent on
our internal forecasts and predictions about our projects and the marketplace and, to generate an acceptable
return on our investment in these contracts, we must be able to accurately estimate our costs to provide the
services required by the contract and to complete the contracts in a timely manner. We face a number of risks
when pricing our contracts, as many of our projects entail the coordination of operations and workforces in
multiple locations and utilizing workforces with different skill sets and competencies across geographically diverse
service locations. In addition, revenues from some of our contracts are recognized using the percentage-of-
completion method, which requires estimates of total costs at completion, fees earned on the contract, or both.
This estimation process, particularly due to the technical nature of the services being performed and the long-term
nature of certain contracts, is complex and involves significant judgment. Adjustments to original estimates are
often required as work progresses, experience is gained, and additional information becomes known, even
though the scope of the work required under the contract may not change. If we fail to accurately estimate our
costs or the time required to complete a contract, the profitability of our contracts may be materially and adversely
affected.
Some ITO services agreements contain pricing provisions that permit a client to request a benchmark study by a
mutually acceptable third party. The benchmarking process typically compares the contractual price of services
against the price of similar services offered by other specified providers in a peer comparison group, subject to
agreed-upon adjustment, and normalization factors. Generally, if the benchmarking study shows that the pricing
differs from the peer group outside a specified range, and the difference is not due to the unique requirements of
the client, then the parties will negotiate in good faith appropriate adjustments to the pricing. This may result in the
reduction of rates for the benchmarked services performed after the implementation of those pricing adjustments,
which could harm the financial performance of our services business.
Some IT service agreements require significant investment in the early stages that is expected to be recovered
through billings over the life of the agreement. These agreements often involve the construction of new IT
systems and communications networks and the development and deployment of new technologies. Substantial
performance risk exists in each agreement with these characteristics, and some or all elements of service delivery
under these agreements are dependent upon successful completion of the development, construction, and
deployment phases. Failure to perform satisfactorily under these agreements may expose us to legal liability,
result in the loss of customers or harm our reputation, which could harm the financial performance of our IT
services business.
Performance under contracts, including those on which we have partnered with third parties, may be
adversely affected if we or the third parties fail to deliver on commitments or if we incur legal liability in
connection with providing our services and solutions.
Our contracts are complex and, in some instances, may require that we partner with other parties, including
software and hardware vendors, to provide the complex solutions required by our customers. Our ability to deliver
the solutions and provide the services required by our customers is dependent on our and our partners' ability to
meet our customers' delivery schedules. If we or our partners fail to deliver services or products on time, our
ability to complete the contract may be adversely affected. Additionally, our customers may perform audits or
require us to perform audits and provide audit reports with respect to the controls and procedures that we use in
the performance of services for such customers. Our ability to acquire new customers and retain existing
customers may be adversely affected and our reputation could be harmed if we receive a qualified opinion, or if
we cannot obtain an unqualified opinion in a timely manner, with respect to our controls and procedures in
connection with any such audit. We could also incur liability if our controls and procedures, or the controls and
procedures we manage for a customer, were to result in an internal control failure or impair our customer’s ability
to comply with its own internal control requirements. If we or our partners fail to meet our contractual obligations
or otherwise breach obligations to our customers, we could be subject to legal liability, which may have a material
and adverse impact on our revenues and profitability.
17
Our ability to provide customers with competitive services is dependent on our ability to attract and retain
qualified personnel.
Our ability to grow and provide our customers with competitive services is partially dependent on our ability to
attract and retain highly motivated people with the skills necessary to serve our customers. The markets we serve
are highly competitive and competition for skilled employees in the technology outsourcing, consulting, and
systems integration and enterprise services markets is intense for both onshore and offshore locales. The loss of
personnel could impair our ability to perform under certain contracts, which could have a material adverse effect
on our consolidated financial position, results of operations and cash flows.
Additionally, the inability to adequately develop and train personnel and assimilate key new hires or promoted
employees could have a material adverse effect on relationships with third parties, our financial condition and
results of operations and cash flows.
We also must manage leadership development and succession planning throughout our business. Any significant
leadership change and accompanying senior management transition, such as our recent change in Chief
Executive Officer, Chief Human Resources Officer and the hiring of new leaders in key roles, involves inherent
risk and any failure to ensure a smooth transition could hinder our strategic planning, execution and future
performance. While we strive to mitigate the negative impact associated with changes to our senior management
team, such changes may cause uncertainty among investors, employees, customers, creditors and others
concerning our future direction and performance. If we fail to effectively manage our leadership changes,
including ongoing organizational and strategic changes, our business, financial condition, results of operations,
cash flows and reputation, as well as our ability to successfully attract, motivate and retain key employees, could
be harmed.
In addition, uncertainty around future employment opportunities, facility locations, organizational and reporting
structures, and other related concerns may impair our ability to attract and retain qualified personnel. If employee
attrition is high, it may adversely impact our ability to realize the anticipated benefits of our strategic priorities.
If we do not hire, train, motivate, and effectively utilize employees with the right mix of skills and experience in the
right geographic regions and for the right offerings to meet the needs of our clients, our financial performance and
cash flows could suffer. For example, if our employee utilization rate is too low, our profitability, and the level of
engagement of our employees could decrease. If that utilization rate is too high, it could have an adverse effect
on employee engagement and attrition and the quality of the work performed, as well as our ability to staff
projects. If we are unable to hire and retain enough employees with the skills or backgrounds needed to meet
current demand, we may need to redeploy existing personnel, increase our reliance on subcontractors or increase
employee compensation levels, all of which could also negatively affect our profitability. In addition, if we have
more employees than necessary with certain skill sets or in certain geographies, we may incur increased costs as
we work to rebalance our supply of skills and resources with client demand in those geographies.
18
Our international operations are exposed to risks, including fluctuations in exchange rates, which may be
beyond our control.
Our exposure to currencies other than the U.S. dollar may impact our results, as they are expressed in U.S.
dollars. Currency variations also contribute to variations in sales of products and services in affected jurisdictions.
For example, in the event that one or more European countries were to replace the Euro with another currency,
sales in that country or in Europe generally may be adversely affected until stable exchange rates are established.
While historically we have partially mitigated currency risk, including exposure to fluctuations in currency
exchange rates by matching costs with revenues in a given currency, our exposure to fluctuations in other
currencies against the U.S. dollar increases, as revenue in currencies other than the U.S. dollar increases and as
more of the services we provide are shifted to lower cost regions of the world. Approximately 63% of revenues
earned during fiscal 2020 were derived from sales denominated in currencies other than the U.S. dollar and are
expected to continue to represent a significant portion of our revenues. Also, we believe that our ability to match
revenues and expenses in a given currency will decrease as more work is performed at offshore locations.
We may use forward and option contracts to protect against currency exchange rate risks. The effectiveness of
these hedges will depend on our ability to accurately forecast future cash flows, which may be particularly difficult
during periods of uncertain demand and highly volatile exchange rates. We may incur significant losses from our
hedging activities due to factors such as demand volatility and currency variations. In addition, certain or all of our
hedging activities may be ineffective, may expire and not be renewed or may not offset the adverse financial
impact resulting from currency variations. Losses associated with hedging activities may also impact our revenues
and to a lesser extent our cost of sales and financial condition.
Uncertainty surrounding the effect of Brexit, including changes to the legal and regulatory framework that apply to
the United Kingdom and its relationship with the European Union, as well as new and proposed changes relating
to Brexit affecting tax laws and trade policy in the U.S. and elsewhere may adversely impact our operations.
Our future business and financial performance could suffer due to a variety of international factors, including:
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ongoing instability or changes in a country’s or region’s economic or geopolitical and security conditions,
including inflation, recession, interest rate fluctuations, and actual or anticipated military or political
conflict, civil unrest, crime, political instability, human rights concerns, and terrorist activity;
natural or man-made disasters, industrial accidents, public health issues, cybersecurity incidents,
interruptions of service from utilities, transportation or telecommunications providers, or other catastrophic
events;
longer collection cycles and financial instability among customers;
trade regulations and procedures and actions affecting production, pricing and marketing of products,
including policies adopted by countries that may champion or otherwise favor domestic companies and
technologies over foreign competitors;
local labor conditions and regulations;
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• managing our geographically dispersed workforce;
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changes in the international, national or local regulatory and legal environments;
differing technology standards or customer requirements;
difficulties associated with repatriating earnings generated or held abroad in a tax-efficient manner and
changes in tax laws.
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Our business operations are subject to various and changing federal, state, local and foreign laws and
regulations that could result in costs or sanctions that adversely affect our business and results of
operations.
We operate in approximately 70 countries in an increasingly complex regulatory environment. Among other things,
we provide complex industry specific insurance processing in the United Kingdom, which is regulated by
authorities in the United Kingdom. and elsewhere, such as the U.K.’s Financial Conduct Authority and Her
Majesty’s Treasury and the U.S. Department of Treasury, which increases our exposure to compliance risk. For
example, in February 2017, CSC submitted an initial notification of voluntary disclosure to the U.S. Department of
Treasury's Office of Foreign Assets Control (“OFAC”) regarding certain possible violations of U.S. sanctions laws
pertaining to insurance premium data and claims data processed by two partially-owned joint ventures of
Xchanging, which CSC acquired during the first quarter of fiscal 2017. A copy of the disclosure was also provided
to Her Majesty’s Treasury Office of Financial Sanctions Implementation in the United Kingdom. Our related
internal investigation is continuing, and we have undertaken to cooperate with and provide a full report of our
findings to OFAC when completed. Our retail investment account management business in Germany is another
example of a regulated business, which must maintain a banking license, is regulated by the German Federal
Financial Supervisory Authority and the European Central Bank and must comply with German banking laws and
regulations.
In addition, businesses in the countries in which we operate are subject to local, legal and political environments
and regulations including with respect to employment, tax, statutory supervision and reporting and trade
restriction. These regulations and environments are also subject to change.
Adjusting business operations to changing environments and regulations may be costly and could potentially
render the particular business operations uneconomical, which may adversely affect our profitability or lead to a
change in the business operations. Notwithstanding our best efforts, we may not be in compliance with all
regulations in the countries in which we operate at all times and may be subject to sanctions, penalties or fines as
a result. These sanctions, penalties or fines may materially and adversely impact our profitability.
We may not achieve some or all of the expected benefits of our restructuring plans and our restructuring
may adversely affect our business.
Our Board of Directors has approved several restructuring plans to realign our cost structure due to the changing
nature of our business and to achieve operating efficiencies to reduce our costs. We may not be able to obtain the
costs savings and benefits that were initially anticipated in connection with our restructuring plans. Additionally, as
a result of our restructuring, we may experience a loss of continuity, loss of accumulated knowledge and/or
inefficiency during transitional periods. Reorganization and restructuring can require a significant amount of
management and other employees' time and focus, which may divert attention from operating and growing our
business. If we fail to achieve some or all of the expected benefits of restructuring, it could have a material
adverse effect on our competitive position, business, financial condition, results of operations and cash flows. For
more information about our restructuring plans, see Note 21 - "Restructuring Costs".
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In the course of providing services to customers, we may inadvertently infringe on the intellectual
property rights of others and be exposed to claims for damages.
The solutions we provide to our customers may inadvertently infringe on the intellectual property rights of third
parties resulting in claims for damages against us or our customers. Our contracts generally indemnify our clients
from claims for intellectual property infringement for the services and equipment we provide under the applicable
contracts. We also indemnify certain vendors and customers against claims of intellectual property infringement
made by third parties arising from the use by such vendors and customers of software products and services and
certain other matters. Some of the applicable indemnification arrangements may not be subject to maximum loss
clauses. The expense and time of defending against these claims may have a material and adverse impact on our
profitability. If we lose our ability to continue using any such services and solutions because they are found to
infringe the rights of others, we will need to obtain substitute solutions or seek alternative means of obtaining the
technology necessary to continue to provide such services and solutions. Our inability to replace such solutions,
or to replace such solutions in a timely or cost-effective manner, could materially adversely affect our results of
operations. Additionally, the publicity resulting from infringing intellectual property rights may damage our
reputation and adversely impact our ability to develop new business.
We may be exposed to negative publicity and other potential risks if we are unable to achieve and
maintain effective internal controls over financial reporting.
The Sarbanes-Oxley Act of 2002 and the related regulations require our management to report on, and our
independent registered public accounting firm to attest to, the effectiveness of our internal control over financial
reporting. Effective internal controls are necessary for us to provide reliable financial reports and effectively
prevent fraud. However, a control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system are met. There can be no assurance
that all control issues or fraud will be detected. As we continue to grow our business, our internal controls
continue to become more complex and require more resources.
Any failure to maintain effective controls could prevent us from timely and reliably reporting financial results and
may harm our operating results. In addition, if we are unable to conclude that we have effective internal control
over financial reporting or, if our independent registered public accounting firm is unable to provide an unqualified
report as to the effectiveness of our internal control over financial reporting, as of each fiscal year end, we may be
exposed to negative publicity, which could cause investors to lose confidence in our reported financial information.
Any failure to maintain effective internal controls and any such resulting negative publicity may negatively affect
our business and stock price.
Additionally, the existence of any material weaknesses or significant deficiencies would require management to
devote significant time and incur significant expense to remediate any such material weaknesses or significant
deficiencies and management may not be able to remediate any such material weaknesses or significant
deficiencies in a timely manner. The existence of any material weakness in our internal control over financial
reporting could also result in errors in our financial statements that could require us to restate our financial
statements, cause us to fail to meet our reporting obligations and cause stockholders to lose confidence in our
reported financial information, all of which could materially and adversely affect us and the market price of our
common stock.
21
We have identified a material weakness in our internal control over financial reporting. Without effective
internal control over financial reporting, we may fail to detect or prevent a material misstatement in our
financial statements, which could materially harm our business, our reputation and our stock price.
While we have not identified any material misstatements in our previously reported consolidated financial
statements, our management identified a material weakness in our internal control over financial reporting as of
December 31, 2019. See "Item 9A. Controls and Procedures." Without effective internal control over financial
reporting, we may fail to detect or prevent a material misstatement in our financial statements. In that event, we
may be required to restate our financial statements. A restatement or an unremediated material weakness could
result in a loss of confidence in us by our investors, customers, regulators and/or counterparties. In addition, if we
are unable to promptly remediate the material weakness identified above, or if we were to conclude in the future
that we have one or more additional weaknesses, our investors, regulators, customers and/or counterparties may
lose confidence in our reported financial information. Additionally, management may be required to devote
significant time and incur significant expense to remediate the material weakness, and management may not be
able to complete such remediation in a timely manner. Any of the foregoing could materially harm our business,
our reputation and the market price of our common stock.
We could suffer additional losses due to asset impairment charges.
We acquired substantial goodwill and other intangibles as a result of the HPES Merger and the Luxoft Acquisition,
increasing our exposure to this risk. We test our goodwill for impairment during the second quarter of every year
and on an interim date should events or changes in circumstances indicate that it is more likely than not that the
fair value of a reporting unit is below its carrying amount. If the fair value of a reporting unit is revised downward
due to declines in business performance or other factors or if the Company suffers further declines in share price,
an impairment could result and a non-cash charge could be required. We test intangible assets with finite lives for
impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. This assessment of the recoverability of finite-lived intangible assets could result in an impairment
and a non-cash charge could be required. For example, during fiscal 2020, we recorded non-cash goodwill
impairment charges of $6,794 million which is discussed in Note 11 - "Goodwill." We also test certain equipment
and deferred cost balances associated with contracts when the contract is materially underperforming or is
expected to materially underperform in the future, as compared to the original bid model or budget. If the
projected cash flows of a particular contract are not adequate to recover the unamortized cost balance of the
asset group, the balance is adjusted in the tested period based on the contract's fair value. Either of these
impairments could materially affect our reported net earnings.
22
We may not be able to pay dividends or repurchase shares of our common stock in accordance with our
announced intent or at all.
On April 3, 2017, we announced the establishment of a share repurchase plan approved by the Board of Directors
with an initial authorization of up to $2.0 billion for future repurchases of outstanding shares of our common stock.
On November 8, 2018, DXC announced that its Board of Directors approved an incremental $2.0 billion share
repurchase authorization. Starting fiscal 2018, we paid quarterly cash dividends to our stockholders in accordance
with our announced dividend policy. We intend to continue to pay a quarterly cash dividend during fiscal 2021 but
the declaration and payment of future dividends, the amount of any such dividends, and the establishment of
record and payment dates for dividends, if any, are subject to final determination by our Board of Directors after
review of our current strategy and financial performance and position, among other things.
The Board of Directors’ determinations regarding dividends and share repurchases will depend on a variety of
factors, including net income, cash flow generated from operations, amount and location of our cash and
investment balances, overall liquidity position and potential alternative uses of cash, such as acquisitions, as well
as economic conditions and expected future financial results. There can be no guarantee that we will achieve our
financial goals in the amounts or within the expected time frame, or at all. Our ability to declare future dividends
will depend on our future financial performance, which in turn depends on the successful implementation of our
strategy and on financial, competitive, regulatory and other factors, general economic conditions, demand and
prices for our services and other factors specific to our industry or specific projects, many of which are beyond our
control. Therefore, our ability to generate cash flow depends on the performance of our operations and could be
limited by decreases in our profitability or increases in costs, regulatory changes, capital expenditures or debt
servicing requirements.
Any failure to achieve our financial goals could negatively impact our reputation, harm investor confidence in us,
and cause the market price of our common stock to decline.
We are defendants in pending litigation that may have a material and adverse impact on our profitability
and liquidity.
As noted in Note 22 - "Commitments and Contingencies", we are currently party to a number of disputes that
involve or may involve litigation or arbitration, including a securities class action and other lawsuits in which we
and certain of our officers and directors have been named as defendants. The result of these lawsuits and any
other future legal proceedings cannot be predicted with certainty. Regardless of their subject matter or merits,
such legal proceedings may result in significant cost to us, which may not be covered by insurance, may divert
the attention of management or may otherwise have an adverse effect on our business, financial condition and
results of operations. Negative publicity from litigation, whether or not resulting in a substantial cost, could
materially damage our reputation and could have a material adverse effect on our business, financial condition,
results of operations, and the price of our common stock. In addition, such legal proceedings may make it more
difficult to finance our operations.
We may be adversely affected by disruptions in the credit markets, including disruptions that reduce our
customers' access to credit and increase the costs to our customers of obtaining credit.
The credit markets have historically been volatile and therefore it is not possible to predict the ability of our clients
and customers to access short-term financing and other forms of capital. If a disruption in the credit markets were
to occur, it could pose a risk to our business if customers or suppliers are unable to obtain financing to meet
payment or delivery obligations to us. In the event that one or more customers or suppliers' defaults on its
payment or delivery obligations, we could incur significant losses, which may harm our business, reputation,
results of operations, cash flows and financial condition. In addition, customers may decide to downsize, defer or
cancel contracts which could negatively affect our revenues.
Further, as of March 31, 2020, we have $5.2 billion of floating interest rate debt. Accordingly, a spike in interest
rates could adversely affect our results of operations and cash flows.
23
Our hedging program is subject to counterparty default risk.
We enter into foreign currency forward contracts and interest rate swaps with a number of counterparties. As a
result, we are subject to the risk that the counterparty to one or more of these contracts defaults on its
performance under the contract. During an economic downturn, the counterparty's financial condition may
deteriorate rapidly and with little notice and we may be unable to take action to protect our exposure. In the event
of a counterparty default, we could incur significant losses, which may harm our business and financial condition.
In the event that one or more of our counterparties becomes insolvent or files for bankruptcy, our ability to
eventually recover any losses suffered as a result of that counterparty's default may be limited by the liquidity of
the counterparty.
We derive significant revenues and profit from contracts awarded through competitive bidding
processes, which can impose substantial costs on us and we may not achieve revenue and profit
objectives if we fail to bid on these projects effectively.
We derive significant revenues and profit from government contracts that are awarded through competitive
bidding processes. We expect that most of the non-U.S. government business we seek in the foreseeable future
will be awarded through competitive bidding. Competitive bidding is expensive and presents a number of risks,
including:
•
the substantial cost and managerial time and effort that we spend to prepare bids and proposals for
contracts that may or may not be awarded to us;
the need to estimate accurately the resources and costs that will be required to service any contracts we
are awarded, sometimes in advance of the final determination of their full scope and design;
the expense and delay that may arise if our competitors protest or challenge awards made to us pursuant
to competitive bidding;
the requirement to resubmit bids protested by our competitors and in the termination, reduction, or
modification of the awarded contracts; and
the opportunity cost of not bidding on and winning other contracts we might otherwise pursue.
•
•
•
•
If our customers experience financial difficulties, we may not be able to collect our receivables, which
would materially and adversely affect our profitability and cash flows from operations.
Over the course of a contract term, a customer's financial condition may decline and limit its ability to pay its
obligations. This could cause our cash collections to decrease and bad debt expense to increase. While we may
resort to alternative methods to pursue claims or collect receivables, these methods are expensive and time
consuming and successful collection is not guaranteed. Failure to collect our receivables or prevail on claims
would have an adverse effect on our profitability and cash flows.
If we are unable to maintain and grow our customer relationships over time, our operating results and
cash flows will suffer. Failure to comply with customer contracts or government contracting regulations
or requirements could adversely affect our business, results of operations and cash flows.
We devote significant resources to establish relationships with our customers and implement our offerings and
related services, particularly in the case of large enterprises that often request or require specific features or
functions specific to their particular business profile. Accordingly, our operating results depend in substantial part
on our ability to deliver a successful customer experience and persuade customers to maintain and grow our
relationship with us over time. If we are not successful in implementing an offering or delivering a successful
customer experience, including achieving cost and staffing levels that meet our customers’ expectations,
customers could terminate or elect not to renew their agreements with us and our operating results may suffer.
Contracts with customers may include unique and specialized performance requirements. In particular, our
contracts with federal, state, provincial, and local governmental customers are generally subject to various
procurement regulations, contract provisions, and other requirements relating to their formation, administration,
and performance, including the maintenance of necessary security clearances. Contracts with U.S. government
agencies are also subject to audits and investigations, which may include a review of performance on contracts,
pricing practices, cost structure, and compliance with applicable laws and regulations.
24
Any failure on our part to comply with the specific provisions in customer contracts or any violation of government
contracting regulations or other requirements could result in the imposition of various civil and criminal penalties,
which may include termination of contracts, forfeiture of profits, suspension of payments, and, in the case of
government contracts, fines and suspension from future government contracting. Such failures could also cause
reputational damage to our business. In addition, we may be subject to qui tam litigation brought by private
individuals on behalf of the government relating to government contracts, which could include claims for treble
damages. Further, any negative publicity with respect to customer contracts or any related proceedings,
regardless of accuracy, may damage our business by harming our ability to compete for new contracts.
Contracts with the U.S. federal government and related agencies are also subject to issues with respect to federal
budgetary and spending limits or matters. Any changes to the fiscal policies of the U.S. federal government may
decrease overall government funding, result in delays in the procurement of products and services due to lack of
funding, cause the U.S. federal government and government agencies to reduce their purchases under existing
contracts, or cause them to exercise their rights to terminate contracts at- will or to abstain from exercising options
to renew contracts, any of which would have an adverse effect on our business, financial condition, results of
operations and/or cash flows.
If our customer contracts are terminated, if we are suspended or disbarred from government work, or our ability to
compete for new contracts is adversely affected, our financial performance could suffer.
Recent U.S. tax legislation may materially affect our financial condition, results of operations and cash
flows.
Recently enacted U.S. tax legislation has significantly changed the U.S. federal income taxation of U.S.
corporations, including by reducing the U.S. corporate income tax rate, limiting interest deductions, permitting
immediate expensing of certain capital expenditures, adopting elements of a territorial tax system, imposing a
one-time transition tax (or “repatriation tax”) on all undistributed earnings and profits of certain U.S.-owned foreign
corporations, revising the rules governing net operating losses and the rules governing foreign tax credits, and
introducing new anti-base erosion provisions. Many of these changes were effective immediately, without any
transition periods or grandfathering for existing transactions. The legislation is unclear in many respects and could
be subject to potential amendments and technical corrections, as well as interpretations and implementing
regulations by the U.S. Department of the Treasury and Internal Revenue Service ("IRS"), any of which could
lessen or increase certain impacts of the legislation. In addition, state and local jurisdictions continue to issue
guidance on how these U.S. federal income tax changes will affect state and local taxation, which often uses
federal taxable income as a starting point for computing state and local tax liabilities.
While our analysis and interpretation of this legislation is ongoing, based on our current evaluation, we recorded a
provisional reduction of our deferred income tax liabilities resulting in a material non-cash benefit to earnings
during fiscal 2018, the period in which the tax legislation was enacted, which was adjusted in fiscal 2019.
Additionally, the repatriation tax resulted in a material amount of additional U.S. tax liability, the majority of which
was reflected as an income tax expense in fiscal 2018, when the tax legislation was enacted, despite the fact that
the resulting tax may be paid over eight years. Further, there may be other material adverse effects resulting from
future guidance, including technical corrections.
In addition, on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was
enacted in respect to the recent outbreak of COVID-19. The CARES Act, among other things, includes provisions
relating to refundable payroll tax credits, the ability to utilize and carryback certain net operating losses,
alternative minimum tax refunds and modifications to rules regarding the deductibility of net interest expense.
While some of the changes made by recent tax legislation may be beneficial to the Company in one or more
reporting periods and prospectively, other changes may be adverse on a going forward basis. We continue to
work with our tax advisors to determine the full impact that recent tax legislation as a whole will have on us.
25
Changes in our tax rates could affect our future results.
Our future effective tax rates could be affected by changes in the mix of earnings in countries with differing
statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or by changes in tax laws or their
interpretation. We are subject to the continuous examination of our income tax returns by the IRS and other tax
authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to
determine the adequacy of our provision for taxes. There can be no assurance that the outcomes from these
examinations will not have a material adverse effect on our financial condition and operating results.
Risks Related to the HPES Merger
We may not realize the anticipated benefits from the HPES Merger.
There can be no assurance that we will be able to realize the intended benefits of the HPES Merger or that we will
perform as anticipated.
Our success in realizing cost and revenues synergies, growth opportunities, and other financial and operating
benefits as a result of the HPES Merger, and the timing of this realization, depends on the successful integration
of our business operations. Even if we successfully integrate, we cannot predict with certainty if or when these
cost and revenue synergies, growth opportunities and benefits will occur, or the extent to which they actually will
be achieved. In addition, the quantification of previously announced synergies expected to result from the HPES
Merger is based on significant estimates and assumptions that are subjective in nature and inherently uncertain.
Realization of any benefits and synergies could be affected by a number of factors beyond our control, including,
without limitation, general economic conditions, increased operating costs, regulatory developments and other
risks. The amount of synergies actually realized, if any, and the time periods in which any such synergies are
realized, could differ materially from the expected synergies, regardless of whether the two business operations
are combined successfully. If the integration is unsuccessful or if we are unable to realize the anticipated
synergies and other benefits of the HPES Merger, there could be a material adverse effect on our business,
financial condition and results of operations.
The integration following the HPES Merger may continue to present significant challenges.
There is a significant degree of difficulty inherent in the process of integrating HPES and CSC. These difficulties
include:
•
•
•
•
integration activities while carrying on ongoing operations;
the challenge of integrating the business cultures of HPES and CSC;
the challenge and cost of integrating certain IT systems and other systems; and
the potential difficulty in retaining key officers and other personnel.
The ongoing process of integrating operations could cause an interruption of, or loss of momentum in, the
activities of one or more of our businesses. Members of senior management may be required to devote
considerable amounts of time to this integration process, which would decrease the time they have to manage our
business, service existing businesses and develop new services or strategies. In addition, certain existing
contractual restrictions limit the ability to engage in certain integration activities for varying periods after the HPES
Merger. There is no assurance we will be able to continue to manage this integration to the extent or in the time
horizon anticipated, particularly given the larger scale of the HPES business in comparison to CSC's business. If
senior management is not able to timely and effectively manage the integration process, or if any significant
business activities are interrupted as a result of the integration process, our business could suffer. The delay or
inability to achieve anticipated integration goals could have a material adverse effect on our business, financial
condition and results of operations after the HPES Merger.
26
We could have an indemnification obligation to HPE if the stock distribution in connection with the HPES
business separation (the "Distribution") were determined not to qualify for tax-free treatment, which could
materially adversely affect our financial condition.
If, due to any of our representations being untrue or our covenants being breached, the Distribution was
determined not to qualify for tax-free treatment under Section 355 of the Internal Revenue Code (the "Code"),
HPE would generally be subject to tax as if it sold the DXC common stock in a taxable transaction, which could
result in a material tax liability. In addition, each HPE stockholder who received DXC common stock in the
Distribution would generally be treated as receiving a taxable Distribution in an amount equal to the fair market
value of the DXC common stock received by the stockholder in the Distribution.
Under the Tax Matters Agreement, we were required to indemnify HPE against taxes resulting from the
Distribution or certain aspects of the HPES Merger arising as a result of an Everett Tainting Act (as defined in the
Tax Matters Agreement). If we were required to indemnify HPE for taxes resulting from an Everett Tainting Act,
that indemnification obligation would likely be substantial and could materially adversely affect our financial
condition.
If the HPES Merger does not qualify as a reorganization under Section 368(a) of the Code, CSC's former
stockholders may incur significant tax liabilities.
The completion of the HPES Merger was conditioned upon the receipt by HPE and CSC of opinions of counsel to
the effect that, for U.S. federal income tax purposes, the HPES Merger will qualify as a "reorganization" within the
meaning of Section 368(a) of the Code (the "HPES Merger Tax Opinions"). The parties did not seek a ruling from
the IRS regarding such qualification. The HPES Merger Tax Opinions were based on current law and relied upon
various factual representations and assumptions, as well as certain undertakings made by HPE, HPES and CSC.
If any of those representations or assumptions is untrue or incomplete in any material respect or any of those
undertakings is not complied with, or if the facts upon which the HPES Merger Tax Opinions are based are
materially different from the actual facts that existed at the time of the HPES Merger, the conclusions reached in
the HPES Merger Tax Opinions could be adversely affected and the HPES Merger may not qualify for tax-free
treatment. Opinions of counsel are not binding on the IRS or the courts. No assurance can be given that the IRS
will not challenge the conclusions set forth in the HPES Merger Tax Opinions or that a court would not sustain
such a challenge. If the HPES Merger were determined to be taxable, previous holders of CSC common stock
would be considered to have made a taxable disposition of their shares to HPES, and such stockholders would
generally recognize taxable gain or loss on their receipt of HPES common stock in the HPES Merger.
We assumed certain material pension benefit obligations in connection with the HPES Merger. These
liabilities and the related future funding obligations could restrict our cash available for operations,
capital expenditures and other requirements, and may materially adversely affect our financial condition
and liquidity.
Pursuant to the Employee Matters Agreement entered into in connection with the HPES Merger, while HPE
retained all U.S. defined benefit pension plan liabilities, DXC retained all liabilities relating to the International
Retirement Guarantee (“IRG”) programs for all HPES employees. The IRG is a non-qualified retirement plan for
employees who transfer internationally at the request of the HPE Group. The IRG determines the country of
guarantee, which is generally the country in which an employee has spent the longest portion of his or her career
with the HPE Group, and the present value of a full career benefit for the employee under the HPE defined benefit
pension plan and social security or social insurance system in the country of guarantee. The IRG then offsets the
present value of the retirement benefits from plans and social insurance systems in the countries in which the
employee earned retirement benefits for his or her total period of HPE Group employment. The net benefit value
is payable as a single sum as soon as practicable after termination or retirement. This liability could restrict cash
available for our operations, capital expenditures and other requirements, and may materially affect our financial
condition and liquidity.
27
In addition, pursuant to the Employee Matters Agreement, DXC assumed certain other defined benefit pension
liabilities in a number of non-U.S. countries (including the United Kingdom, Germany and Switzerland). Unless
otherwise agreed or required by local law, where a defined benefit pension plan was maintained solely by a
member of the HPES business, DXC assumed all assets and liabilities arising out of those non-U.S. defined
benefit pension plans, and where a defined benefit pension plan was not maintained solely by a member of the
HPES business, DXC assumed all assets and liabilities for those eligible HPES employees in connection with the
HPES Merger. These liabilities and the related future payment obligations could restrict cash available for our
operations, capital expenditures and other requirements, and may materially affect our financial condition and
liquidity.
Risks Related to the Luxoft Acquisition
The Luxoft Acquisition may result in disruptions to relationships with customers and other business
partners.
This transaction could cause disruptions in our business and the Luxoft business, including by disrupting
operations or causing customers to delay or to defer decisions or to end their relationships, or otherwise limiting
the ability to compete for or perform certain contracts or services. If we and Luxoft face difficulties in integrating
our businesses, or the Luxoft business faces difficulties in its business generally, the Luxoft Acquisition may not
achieve the intended results.
Further, it is possible that current or prospective employees of our business and the Luxoft business could
experience uncertainty about their future roles with the combined company, which could harm our ability to attract
and retain key personnel. Any of the foregoing could adversely affect our business, financial condition and results
of operations.
The actions required to implement the Luxoft Acquisition will take management time and attention and
may require us to incur additional costs.
The Luxoft Acquisition will require management's time and resources, which will be in addition to, and may divert
from, management's time and attention to the operation of our existing businesses and the execution of our other
strategic initiatives. Additionally, we may incur additional costs in connection with the Luxoft Acquisition beyond
those that are currently anticipated.
Risks Related to Previous Spin-Offs
The USPS Separation and Mergers and NPS Separation could result in substantial tax liability to DXC and
our stockholders.
Among the closing conditions to completing the USPS Separation and Mergers, we received a legal opinion of tax
counsel substantially to the effect that, for U.S. federal income tax purposes: (i) the USPS Separation qualifies as
a “reorganization” within the meaning of Section 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended
(the “Code”); (ii) each of DXC and Perspecta is a “party to a reorganization” within the meaning of Section 368(b)
of the Code with respect to the USPS Separation; (iii) the Distribution qualifies as (1) a tax-free spin-off, resulting
in nonrecognition under Sections 355(a), 361 and 368(a) of the Code, and (2) a transaction in which the stock
distributed thereby should constitute “qualified property” for purposes of Sections 355(d), 355(e) and 361(c) of the
Code; and (iv) none of the Mergers causes Section 355(e) of the Code to apply to the Distribution. If,
notwithstanding the conclusions expressed in these opinions, the USPS Separation and Mergers were
determined to be taxable, DXC and its stockholders could incur significant tax liabilities.
28
In addition, prior to the HPES Merger, CSC spun off its North American Public Sector business ("NPS") on
November 27, 2015 (the "NPS Separation"). In connection with the NPS Separation, CSC received an opinion of
counsel substantially to the effect that, for U.S. federal income tax purposes, the NPS Separation qualified as a
tax-free transaction to CSC and holders of CSC common stock under Section 355 and related provisions of the
Code. The completion of the HPES Merger was conditioned upon the receipt of CSC of an opinion of counsel to
the effect that the HPES Merger should not cause Section 355(e) of the Code to apply to the NPS Separation or
otherwise affect the qualification of the NPS Separation as a tax-free distribution under Section 355 of the Code.
If, notwithstanding the conclusions expressed in these opinions, the NPS Separation were determined to be
taxable, CSC and CSC stockholders that received CSRA Inc ("CSRA") stock in the NPS Separation could incur
significant tax liabilities.
The opinions of counsel we received were based on, among other things, various factual representations and
assumptions, as well as certain undertakings made by DXC, Perspecta and CSRA. If any of those
representations or assumptions is untrue or incomplete in any material respect or any of those undertakings is not
complied with, the conclusions reached in the opinion could be adversely affected and the USPS Separation or
the NPS Separation may not qualify for tax-free treatment. Furthermore, an opinion of counsel is not binding on
the IRS or the courts. Accordingly, no assurance can be given that the IRS will not challenge the conclusions set
forth in the opinions or that a court would not sustain such a challenge. If, notwithstanding our receipt of the
opinions, the USPS Separation or NPS Separation is determined to be taxable, we would recognize taxable gain
as if we had sold the shares of Perspecta or CSRA in a taxable sale for its fair market value, which could result in
a substantial tax liability. In addition, if the USPS Separation or NPS Separation is determined to be taxable, each
holder of our common stock who received shares of Perspecta or CSRA would generally be treated as receiving a
taxable distribution in an amount equal to the fair market value of the shares received, which could materially
increase such holder’s tax liability.
Additionally, even if the USPS Separation otherwise qualifies as a tax-free transaction, the Distribution could be
taxable to us (but not to our shareholders) in certain circumstances if future significant acquisitions of our stock or
the stock of Perspecta are deemed to be part of a plan or series of related transactions that includes the
Distribution. In this event, the resulting tax liability could be substantial. In connection with the USPS Separation,
we entered into a tax matters agreement with Perspecta, under which it agreed not to undertake any transaction
without our consent that could reasonably be expected to cause the USPS Separation to be taxable to us and to
indemnify us for any tax liabilities resulting from such transactions. These obligations and potential tax liabilities
could be substantial.
Risks Related to the proposed sale of the U.S. State and Local Health and Human Services Business to Veritas
Capital
The HHS Sale is contingent upon the satisfaction of a number of conditions, and the transaction may not
be consummated on the terms or timeline currently contemplated, or at all.
On March 9, 2020, we entered into a Purchase Agreement with Milano Acquisition Corp. (“Milano”), a corporation
affiliated with Veritas Capital Fund Management, L.L.C. We currently expect that the transaction, if completed, will
occur by the December 31, 2020. Pursuant to the Purchase Agreement, Milano will acquire DXC’s U.S. State and
Local Health and Human Services Business for total cash consideration of $5.0 billion (the “HHS Sale”). We
expect to use the after-tax proceeds from the HHS Sale to repay outstanding indebtedness.
29
The consummation of the HHS Sale is subject to certain conditions, including (i) expiration or termination of any
required waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, (ii) the absence of any
injunction or other order from a governmental authority that prevents the closing of the HHS Sale, and (iii) subject
to certain exceptions, the accuracy of the representations and warranties of, and compliance with covenants by,
the other party. In addition, the closing of the HHS Sale is subject to certain conditions for the benefit of Milano,
including (a) the absence of a material adverse effect on the HHS Business or the ability of DXC to consummate
the HHS Sale and (b) HHS customer contracts that generated 87.5% or more of the aggregate revenue for all
HHS customer contracts for the nine month period ending December 31, 2019 are able to be conveyed at the
closing of the HHS Sale without receipt of additional customer consents. For these and other reasons, the HHS
Sale may not be completed by the end of December 31, 2020 or otherwise on the terms or timeline contemplated,
if at all. In the event that the HHS Sale is not completed, we will not be able to use the after-tax sale proceeds to
repay outstanding indebtedness, which would have an adverse effect on our business, financial condition, results
of operations and/or cash flows.
The proposed transaction may result in disruptions to relationships with customers and other business
partners or may not achieve the intended results.
If we complete the proposed HHS Sale, there can be no assurance that we will be able to realize the intended
benefits of the transaction. Specifically, the proposed HHS Sale could cause disruptions in our remaining
businesses, including by disrupting operations or causing customers to delay or to defer decisions or to end their
relationships, or otherwise limiting the ability to compete for or perform certain contracts or services. Any of the
foregoing could adversely affect our remaining businesses, the financial condition of such businesses and their
results of operations and prospects. The HHS business is accounted for as part of the GBS segment.
The actions required to implement the HHS Sale will take significant management time and attention and
will require us to incur significant costs.
The HHS Sale will require significant amounts of management’s time and resources, which will be in addition to
and may divert management’s time and attention from the operation of our remaining businesses and the
execution of our other strategic initiatives. Additionally, we will incur costs in connection with the HHS Sale. These
costs must be paid regardless of whether the HHS Sale is consummated.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our corporate headquarters are located at a leased facility in Tysons, VA. We own or lease numerous general office
facilities, global security operations centers, strategic delivery centers and data centers around the world. We do not
identify properties by segment, as they are interchangeable in nature and used by multiple segments.
During fiscal 2020, fiscal 2019, and fiscal 2018, we initiated facilities rationalization programs to reduce our space
capacity at low utilization and sub-scale locations, increase co-location, align locations by skill type and optimize our data
center footprint. At a number of the locations described below, we are not currently occupying all of the space under our
control. Where commercially reasonable and to the extent it is not needed for future expansion, we seek to sell, lease or
sublease this excess space.
30
The following tables provide a summary of properties we own and lease as of March 31, 2020:
Geographic Area
Number of
Locations
126
United States
India
United Kingdom
France
Germany
Malaysia
Brazil
Spain
Canada
Philippines
China
Australia & other Pacific Rim locations
Other Europe locations
Rest of World
Total
Approximate
Square Footage
(in thousands)
Owned
Leased
Total
4,714
760
1,357
921
170
194
227
—
217
—
5
—
385
213
3,064
3,748
1,756
195
835
640
175
532
255
413
374
1,025
4,086
1,280
7,778
4,508
3,113
1,116
1,005
834
402
532
472
413
379
1,025
4,471
1,493
9,163
18,378
27,541
26
71
31
45
7
8
14
12
5
12
37
130
60
584
We believe that the facilities described above are well-maintained, suitable and adequate to meet our current and
anticipated requirements. See Note 9 - "Property and Equipment", which provides additional information related to our
land, buildings and leasehold improvements, and Note 6 - "Leases" which provides additional information related to our
real estate lease commitments.
ITEM 3. LEGAL PROCEEDINGS
See Note 22 - "Commitments and Contingencies" under the caption “Contingencies” for information regarding legal
proceedings in which we are involved.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
31
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock trades on the New York Stock Exchange under the symbol "DXC".
Number of Holders
As of May 26, 2020, there were 44,356 holders of record of our common stock.
Dividends
Cash dividends declared on DXC common stock for each quarter of fiscal 2020 are included in Selected Quarterly
Financial Data (Unaudited) in Part II, Item 8 of this Annual Report.
The Board of Directors (the “Board”) has suspended the Company’s cash dividend payment beginning in the first quarter
to preserve cash and provide additional flexibility in the current environment as a result of the economic impact of
COVID-19. Furthermore, the Board has suspended future quarterly dividends until the significant uncertainty of the current
public health crisis and global economic climate has passed and the Board determines that resumption of dividend
payments is in the best interest of the Company and its stockholders.
Issuer Purchases of Equity Securities
On April 3, 2017, we announced the establishment of a share repurchase plan approved by the Board of Directors with an
initial authorization of $2.0 billion for future repurchases of outstanding shares of our common stock. On November 8,
2018, our Board of Directors approved an incremental $2.0 billion share repurchase authorization. An expiration date has
not been established for this repurchase plan. Share repurchases may be made from time to time through various means,
including in open market purchases, 10b5-1 plans, privately-negotiated transactions, accelerated stock repurchases,
block trades and other transactions, in compliance with Rule 10b-18 under the Exchange Act as well as, to the extent
applicable, other federal and state securities laws and other legal requirements. The timing, volume, and nature of share
repurchases pursuant to the share repurchase plan are at the discretion of management and may be suspended or
discontinued at any time. See Note 15 - "Stockholders' Equity" for further discussion regarding share repurchases.
There was no share repurchase activity during the three months ended March 31, 2020.
32
Performance Graph
The following graph shows a comparison from April 3, 2017 (the date our common stock commenced trading on the
NYSE) through March 31, 2020 of the cumulative total return for our common stock, the Standard & Poor’s 500 Stock
Index ("S&P 500 Index") and the Standard & Poor’s North American Technology Index ("S&P North American Technology
Index"). The graph assumes that $100 was invested at the market close on April 3, 2017 in our common stock, the S&P
500 Index, and the S&P North American Technology Index and that dividends have been reinvested. The stock price
performance of the following graph is not necessarily indicative of future stock price performance.
Comparison of Cumulative Total Return
The following table provides indexed returns assuming $100 was invested on April 3, 2017, with annual returns using our
fiscal year-end date.
DXC Technology Company
S&P 500 Index
S&P North American Technology Index
Equity Compensation Plans
Indexed Return
Return 2018
Return 2019
Return 2020
48.9%
14.2%
31.4%
(25.0)%
9.5 %
15.7 %
(76.9)%
(7.0)%
3.8 %
See Item 12 contained in Part III of this Annual Report for information regarding our equity compensation plans.
33
ITEM 6. SELECTED FINANCIAL DATA (UNAUDITED)
The following table sets forth our selected consolidated historical financial data as of the dates and for the periods
indicated and should be read in conjunction with the financial statements and notes and “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations” which are included elsewhere in this Annual
Report on Form 10-K.
Our selected consolidated financial data set forth below, as of March 31, 2020 and March 31, 2019, and for the fiscal
years ended March 31, 2020, March 31, 2019, and March 31, 2018, have been derived from the audited consolidated
financial statements included elsewhere herein. Our selected consolidated financial data set forth below, as of March 31,
2018, March 31, 2017, and April 1, 2016 and for the fiscal years ended March 31, 2017, and April 1, 2016, are derived
from our consolidated financial statements not included elsewhere herein.
Selected consolidated financial data as of and for the fiscal years ended March 31, 2020, March 31, 2019 and March 31,
2018 are not directly comparable to prior periods which reflect CSC's financial results before the HPES Merger.
Additionally, as a result of the USPS Separation, the statement of operations, balance sheets, and related financial
information reflect USPS's operations, assets and liabilities as discontinued operations. See Note 1 - "Summary of
Significant Accounting Policies".
Statement of Operations Data:
(in millions, except per-share amounts)
March 31, 2020(1)
March 31, 2019(2)
March 31, 2018(3)
March 31, 2017(4)
April 1, 2016(5)
Fiscal Years Ended
Revenues
(Loss) income from continuing operations
Income from discontinued operations, net of taxes
Net (loss) income attributable to DXC common
stockholders
Diluted EPS
Cash dividend per common share
Balance Sheet Data:
(in millions)
Cash and cash equivalents
Total assets
Debt
Long-term debt, net of current maturities
Short-term debt and current maturities of long-term
debt
Total Debt
Total equity
Net debt-to-total capitalization (6)
$
$
$
$
$
$
$
19,577
$
20,753
$
21,733
$
7,607
$
7,106
(5,358)
—
(5,369)
1,227
35
1,257
1,546
236
1,751
(100)
—
(123)
(20.76) $
4.35
$
5.23
$
(0.88) $
0.84
$
0.76
$
0.72
$
0.56
$
72
191
251
0.50
2.99
March 31, 2020
March 31, 2019
March 31, 2018
March 31, 2017
April 1, 2016
3,679
$
2,899
$
2,593
$
1,268
$
1,181
As of
26,006
29,574
33,921
8,663
7,736
8,672
$
5,470
$
6,092
$
2,225
$
1,276
9,948
5,129
41.6%
$
$
1,942
7,412
11,725
23.6%
$
$
1,918
8,010
13,837
24.8%
$
$
738
2,963
2,166
33.0%
$
$
1,934
710
2,644
2,032
31.3%
(1) Fiscal 2020 included $6,794 million of goodwill impairment losses and $252 million of restructuring costs.
(2) Fiscal 2019 included $465 million of restructuring costs.
(3) Fiscal 2018 net income attributable to DXC common stockholders and earnings per common share were impacted by the Tax Cuts and Jobs Act. Fiscal 2018
included $789 million of restructuring costs.
(4) Fiscal 2017 included $238 million of restructuring costs.
(5) Fiscal 2016 included $95 million of debt extinguishment costs.
(6) Net debt-to-total capitalization is a non-GAAP measure used by management to assess our ability to service our debts using only our cash and cash
equivalents. See Part II, Item 7 of this Annual Report on Form 10-K under the heading "Liquidity and Capital Resources" for additional information.
34
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Introduction
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, 2020, and our financial
condition as of March 31, 2020. The MD&A is provided as a supplement to, and should be read in conjunction with, our
financial statements and notes.
The MD&A is organized in the following sections:
Liquidity and Capital Resources
• Background
• Results of Operations
•
• Off-Balance Sheet Arrangements
• Contractual Obligations
• Critical Accounting Policies and Estimates
The following discussion includes a comparison of our results of operations and liquidity and capital resources for fiscal
2020 and fiscal 2019. A discussion of changes in our results of operations from fiscal 2018 to fiscal 2019 may be found in
“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” on Form 10-K filed with
the Securities and Exchange Commission on June 13, 2019.
Background
DXC Technology 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. With decades
of driving innovation, the world’s largest companies trust DXC to deploy our enterprise technology stack to deliver new
levels of performance, competitiveness and customer experiences.
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: GBS and GIS. We market and sell our services
directly to customers through our direct sales force operating out of sales offices around the world. Our customers include
commercial businesses of many sizes and in many industries and public sector enterprises.
35
Results of Operations
The following table sets forth certain financial data for fiscal 2020 and 2019:
(In millions, except per-share amounts)
March 31, 2020
March 31, 2019
Revenues
$
19,577
$
20,753
Fiscal Years Ended
(Loss) income from continuing operations, before taxes
Income tax expense
(Loss) income from continuing operations
Income from discontinued operations, net of taxes
Net (loss) income
Diluted (loss) earnings per share:
Continuing operations
Discontinued operations
Fiscal 2020 Highlights
Fiscal 2020 financial highlights include the following:
(5,228)
130
(5,358)
—
(5,358) $
(20.76) $
—
(20.76) $
$
$
$
1,515
288
1,227
35
1,262
4.35
0.12
4.47
• Fiscal 2020 revenues were $19,577 million.
• Fiscal 2020 loss from continuing operations and diluted EPS from continuing operations were $5,358 million and
$(20.76), respectively, including the cumulative impact of certain items of $6,820 million, or $26.34 per share,
reflecting restructuring costs, transaction, separation and integration-related costs, amortization of acquired
intangible assets, goodwill impairment losses, gain on arbitration award, pension and other post-retirement benefit
("OPEB") actuarial and settlement gains, and a tax adjustment related to U.S. tax reform.
• Our cash and cash equivalents were $3,679 million at March 31, 2020.
• We generated $2,350 million of cash from operations during fiscal 2020.
• We returned $950 million to shareholders in the form of common stock dividends and share repurchases during
fiscal 2020.
36
Revenues
(in millions)
GBS
GIS
Total Revenues
Fiscal Years Ended
March 31, 2020
March 31, 2019
Change
Percent Change
$
$
9,111
$
8,684
$
10,466
12,069
19,577
$
20,753
$
427
(1,603)
(1,176)
4.9 %
(13.3)%
(5.7)%
The decrease in revenues for fiscal 2020 compared with fiscal 2019 reflects the impact of price-downs, run-off, and
termination of certain accounts offset by increase in revenue in fiscal 2020 due to contributions from the Luxoft
acquisition. Fiscal 2020 revenues included an unfavorable foreign currency exchange rate impact of 2.2%, primarily driven
by the strengthening of the U.S. dollar against the Australian Dollar, Euro, and British Pound.
During fiscal 2020 and fiscal 2019, the distribution of our revenues across geographies was as follows:
For a discussion of risks associated with our foreign operations, see Part I, Item 1A "Risk Factors" of this Annual Report.
37
As a global company, over 63% of our fiscal 2020 revenues were earned internationally. As a result, the comparison of
revenues denominated in currencies other than the U.S. dollar from period to period is impacted, and we expect will
continue to be impacted, by fluctuations in foreign currency exchange rates. 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. The table below summarizes our constant currency revenues:
(in millions)
GBS
GIS
Total Revenues
Global Business Services
Fiscal Years Ended
Constant
Currency
March 31,
2020
March 31,
2019
Change
$
$
9,292
$
8,684
$
10,731
12,069
20,023
$
20,753
$
608
(1,338)
(730)
Percentage
Change
7.0%
(11.1)%
(3.5)%
Our GBS segment revenues were $9.1 billion for fiscal 2020, representing an increase of $0.4 billion, or 4.9%, compared
to fiscal 2019. The revenue increase included an unfavorable foreign currency exchange rate impact of $0.2 billion, or
2.1%. GBS revenues in constant currency were $9.3 billion for fiscal 2020, representing an increase of $0.6 billion, or
7.0%. The increase in GBS revenue in fiscal 2020 is due to contributions from the Luxoft acquisition which closed in June
2019.
Global Infrastructure Services
Our GIS segment revenues were $10.5 billion for fiscal 2020, representing a decrease of $1.6 billion, or 13.3%, compared
to fiscal 2019. The revenue decline included an unfavorable foreign currency exchange rate impact of $0.3 billion, or
2.2%. GIS revenues in constant currency were $10.7 billion for fiscal 2020, representing a decrease of $1.3 billion, or
11.1%. The decrease in GIS revenue in fiscal 2020 reflects the impact of price-downs, run-off, and termination of certain
accounts.
During fiscal 2020, GBS and GIS had contract awards of $9.0 billion and $8.7 billion, respectively, compared with $9.3
billion and $11.4 billion, respectively, during fiscal 2019.
38
Costs and Expenses
Our total costs and expenses were as follows:
(in millions)
March 31, 2020
March 31, 2019
2020
2019
Fiscal Years Ended
Percentage of Revenues
Costs of services (excludes depreciation and amortization and
restructuring costs)
Selling, general and administrative (excludes depreciation and
amortization and restructuring costs)
Depreciation and amortization
Goodwill impairment losses
Restructuring costs
Interest expense
Interest income
Gain on arbitration award
Other income, net
Total costs and expenses
$
14,901
$
14,946
76.0%
72.1%
2,050
1,942
6,794
252
383
(165)
(632)
(720)
1,959
1,968
—
465
334
(128)
—
(306)
10.5
9.9
34.7
1.3
2.0
(0.8)
(3.2)
(3.7)
$
24,805
$
19,238
126.7%
9.4
9.5
—
2.2
1.6
(0.6)
—
(1.5)
92.7%
The 34.0 point increase in costs and expenses as a percentage of revenue for fiscal 2020 primarily reflects our goodwill
impairment losses, which were partially offset by the gain on arbitration award and other income.
Costs of Services
Cost of services, excluding depreciation and amortization and restructuring costs ("COS"), was $14.9 billion for fiscal
2020, including Luxoft, which was flat compared to fiscal 2019. COS as percentage of revenue increased 3.9 points,
compared to fiscal 2019. This increase was driven by the ongoing investments we are making to secure our customers
and higher cost take-out activities in the prior year.
Selling, General and Administrative
Selling, general and administrative expense, excluding depreciation and amortization and restructuring costs ("SG&A"),
was $2.1 billion for fiscal 2020, as compared to $2.0 billion for fiscal 2019. SG&A increased $0.1 billion, and as a
percentage of revenue increased 1.1 points, compared to fiscal 2019. The increase includes SG&A related to the Luxoft
Acquisition, which we acquired during the first quarter of fiscal 2020.
Integration, separation and transaction-related costs, included in SG&A, were $318 million during fiscal 2020, as
compared to $401 million during fiscal 2019.
Depreciation and Amortization
Depreciation and amortization expense ("D&A") was $1.9 billion for fiscal 2020, compared to $2.0 billion for fiscal 2019.
The decrease in D&A was primarily due to a $225 million benefit, respectively, from a change in estimated useful lives of
certain equipment described in Note 1 - "Summary of Significant Accounting Policies", offset by an increase in
depreciation on assets placed into service, as well as increases in software amortization and amortization related to
accelerated transition and transformation contract costs.
Goodwill Impairment Losses
DXC recognized goodwill impairment charges totaling $6,794 million during fiscal 2020. The impairment charges were
primarily the result of a sustained decline in market capitalization during the fiscal 2020. See Note 11, "Goodwill" for
additional information.
39
Restructuring Costs
Restructuring costs represent severance related to workforce optimization programs and expense associated with
facilities and data center rationalization.
During fiscal 2020, management approved global cost savings initiatives designed to reduce operating costs by re-
balancing our workforce and facilities structures. The fiscal 2020 global cost savings initiatives were designed to better
align our organizational structure with our strategic initiatives and continue the integration of HPES and other acquisitions.
Total restructuring costs recorded, net of reversals, during fiscal 2020 and 2019 were $252 million and $465 million,
respectively. The net amounts recorded included $10 million and $2 million of pension benefit augmentations for fiscal
2020 and 2019, respectively, owed to certain employees under legal or contractual obligations. These augmentations will
be paid as part of normal pension distributions over several years.
See Note 21 - "Restructuring Costs" for additional information about our restructuring actions.
Interest Expense and Interest Income
Interest expense for fiscal 2020 was $383 million as compared to $334 million in fiscal 2019. The increase in interest
expense was primarily due to an increase in borrowings and asset financing activities. See the "Capital Resources"
caption below and Note 13 - “Debt” for additional information.
Interest income for fiscal 2020 was $165 million, as compared to $128 million in fiscal 2019. The year-over-year increase
in interest income includes pre-award interest of $34 million and post-award interest of $2 million related to arbitration
discussed below under the caption “Gain on Arbitration Award.”
Gain on Arbitration Award
During the second quarter of fiscal 2020, DXC received final arbitration award proceeds of $666 million related to the HPE
Enterprise Services merger completed in fiscal 2018. The arbitration award included $632 million in damages that were
recorded as a gain. The remaining $34 million of the award related to pre-award interest. Dispute details are subject to
confidentiality obligations.
Other Income, Net
Other income, net includes 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, gain on sale of non-operating assets and other miscellaneous gains and losses.
The components of other income, net for fiscal 2020 and 2019 are as follows:
(in millions)
Non-service cost components of net periodic pension income
Foreign currency (gain) loss
Other gain
Total
Fiscal Years Ended
March 31, 2020
March 31, 2019
$
$
(658) $
(25)
(37)
(720) $
(182)
31
(155)
(306)
The $414 million increase in other income for fiscal 2020, as compared to the prior fiscal year, was due to a year-over-
year increase of $476 million in non-service components of net periodic pension income and a year-over-year favorable
foreign currency impact of $56 million. These increases were offset by a $118 million decrease in other gains related to
sales of non-operating assets.
40
Taxes
Our effective tax rate ("ETR") on income (loss) from continuing operations, before taxes, for fiscal 2020 and 2019 was
2.5% and 19.0% respectively. A reconciliation of the differences between the U.S. federal statutory rate and the ETR, as
well as other information about our income tax provision, is provided in Note 12 - "Income Taxes."
In fiscal 2020, the ETR was primarily impacted by:
• Non-deductible goodwill impairment charge, which increased income tax expense and increased the ETR by
$1,482 million and 28.3%, respectively.
• Non-taxable gain on the arbitration award, which decreased income tax expense and decreased the ETR by $186
million and 3.6%, respectively
• A change in the net valuation allowance on certain deferred tax assets, primarily in Australia, Brazil, China,
Luxembourg, and Singapore, which increased income tax expense and increased the ETR by $631 million and
12.1% respectively.
• An increase in Income Tax and Foreign Tax Credits, primarily relating to research and development credits
•
recognized for prior years, which decreased income tax expense and decreased the ETR by $135 million and
2.6%, respectively.
Local losses on investments in Luxembourg that increased the foreign rate differential and decreased the ETR by
$637 million and 12.2%, respectively, with an offsetting increase in the ETR due to an increase in the valuation
allowance of the same amount.
In fiscal 2019, the ETR was primarily impacted by:
•
Local tax losses on investments in Luxembourg that decreased the foreign tax rate differential and decreased the
ETR by $360 million and 23.7%, respectively, with an offsetting increase in the ETR due to an increase in the
valuation allowance of the same amount.
• A change in the net valuation allowance on certain deferred tax assets, primarily in Luxembourg, Germany, Spain,
UK, and Switzerland, which increased income tax expense and increased the ETR by $256 million and 16.9%,
respectively.
• A decrease in the transition tax liability and a change in tax accounting method for deferred revenue, which
decreased income tax expense and decreased the ETR by $66 million and 4.3%, respectively.
In fiscal 2018, the ETR was primarily impacted by:
• Due to the Company's change in repatriation policy, the reversal of a deferred tax liability relating to the outside
basis difference of foreign subsidiaries which increased the income tax benefit and decreased the ETR by $554
million and 42.5%, respectively.
• The accrual of the one-time transition tax on estimated unremitted foreign earnings, which decreased the income
tax benefit and increased the ETR by $361 million and 27.7%, respectively.
• The remeasurement of deferred tax assets and liabilities, which increased the income tax benefit and decreased
the ETR by $338 million and 25.9%, respectively.
The IRS is examining CSC's federal income tax returns for fiscal 2008 through 2017. With respect to CSC's fiscal 2008
through 2010 federal tax returns, we previously entered into negotiations for a resolution through settlement with the IRS
Office of Appeals. The IRS examined several issues for this audit that resulted in various audit adjustments. We have an
agreement in principle with the IRS Office of Appeals as to some but not all of these adjustments. We have agreed to
extend the statute of limitations associated with this audit through September 30, 2020.
In the first quarter of fiscal 2020, we filed for competent authority relief relating to certain legacy CSC foreign restructuring
expenses deducted for the U. S. federal tax return for tax year March 31, 2013. The Company has agreed to extend the
statute of limitations associated with the fiscal years 2011 through 2013 through December 31, 2020. In the second
quarter of fiscal 2020, the Company received a Revenue Agent's Report with proposed adjustments to CSC's fiscal 2014
through 2017 federal returns. The Company has filed a protest for certain of these adjustments with the IRS Office of
Appeals. The Company has agreed to extend the statute of limitations for the fiscal 2014 through fiscal 2016 through
December 31, 2020 and for the employment tax audit of fiscal years 2015 and 2016 until January 31, 2021. The Company
expects to reach a resolution for all years no earlier than the first quarter of fiscal 2022 except agreed issues related to
fiscal 2008 through 2010 and fiscal 2011 through 2013 federal tax returns, which are expected to be resolved within
twelve months.
41
In addition, we may settle certain other tax examinations, have lapses in statutes of limitations, or voluntarily settle income
tax positions in negotiated settlements for different amounts than we have accrued as uncertain tax positions. We may
need to accrue and ultimately pay additional amounts for tax positions that previously met a more likely than not standard
if such positions are not upheld. Conversely, we could settle positions by payment with the tax authorities for amounts
lower than those that have been accrued or extinguish a position through payment. We believe the outcomes that are
reasonably possible within the next twelve months may result in a reduction in liability for uncertain tax positions of $25
million to $27 million, excluding interest, penalties, and tax carryforwards.
Income from Discontinued Operations
The $35 million of income from discontinued operations for the fiscal year 2019 reflects the net income generated by
USPS during the first quarter of fiscal 2019.
Earnings Per Share
Diluted EPS from continuing operations for fiscal 2020 was $20.76, a decrease of $25.11 per share compared with the
prior fiscal year. The EPS decrease was due to a decrease of $6,585 million in income from continuing operations.
Diluted EPS for fiscal 2020 includes $0.80 per share of restructuring costs, $0.98 per share of transaction, separation and
integration-related costs, $1.73 per share of amortization of acquired intangible assets, $25.78 per share of goodwill
impairment losses, $(2.43) per share of arbitration award gains, $(0.74) per share of pension and OPEB actuarial and
settlement gains, and $0.13 per share of tax adjustment relating to prior restructuring charges.
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 and non-GAAP EPS, constant currency revenues, net debt and net
debt-to-total capitalization.
We present these non-GAAP financial measures to provide investors with meaningful supplemental financial information,
in addition to the financial information presented on a GAAP basis. Non-GAAP financial measures exclude certain items
from GAAP results which DXC management believes are not indicative of core operating performance. DXC management
believes these non-GAAP measures allow investors to better understand the financial performance of DXC exclusive of
the impacts of corporate-wide strategic decisions. DXC management believes that adjusting for these items provides
investors with additional measures to evaluate the financial performance of our core business operations on a comparable
basis from period to period. DXC management believes the non-GAAP measures provided are also considered important
measures by financial analysts covering DXC, as equity research analysts continue to publish estimates and research
notes based on our non-GAAP commentary, including our guidance around non-GAAP EPS targets.
Non-GAAP financial measures exclude certain items from GAAP results which DXC management believes are not
indicative of operating performance such as the amortization of acquired intangible assets and transaction, separation and
integration-related costs.
Incremental amortization of intangible assets acquired through business combinations may result in a significant
difference in period over period amortization expense on a GAAP basis. We exclude amortization of certain acquired
intangibles 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.
42
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.
Non-GAAP financial measures and the respective most directly comparable financial measures calculated and presented
in accordance with GAAP include:
(in millions)
(Loss) income from continuing operations
Non-GAAP income from continuing operations
Net (loss) income
Adjusted EBIT
Reconciliation of Non-GAAP Financial Measures
Our non-GAAP adjustments include:
Fiscal Years Ended
March 31,
2020
March 31,
2019
Change
Percentage
Change
$
$
$
$
(5,228) $
1,843
$
(5,358) $
2,061
$
1,515
3,063
1,262
3,269
$
$
$
$
(6,743)
(1,220)
(6,620)
(1,208)
(445.1)%
(39.8)%
(524.6)%
(37.0)%
• Restructuring - reflects costs, net of reversals, related to workforce optimization and real estate charges.
• Transaction, separation and integration-related costs - reflects costs related to integration planning, financing and
advisory fees associated with the HPES Merger and other acquisitions and costs related to the separation of
USPS and costs to execute on strategic alternatives.
• Amortization of acquired intangible assets - reflects amortization of intangible assets acquired through business
combinations.
• Goodwill impairment losses - reflects impairment losses on goodwill.
• Gain on arbitration award - reflects a gain related to the HPES merger arbitration award.
• Pension and OPEB actuarial and settlement gains and losses - reflects pension and OPEB actuarial and
settlement gains and losses.
• Tax adjustment - Fiscal 2020 includes the impact of an adjustment to the Transition Tax and tax liabilities related
to prior restructuring charges. Fiscal 2019 reflects the estimated non-recurring benefit of the Tax Cuts and Jobs
Act of 2017. Fiscal 2018 reflects the application of an approximate 28% tax rate, which is within the targeted
effective tax rate range for fiscal year 2018. Income tax expense of other non-GAAP adjustments is computed by
applying the jurisdictional tax rate to the pre-tax adjustments on a jurisdictional basis.
43
A reconciliation of reported results to non-GAAP results is as follows:
As
Reported
Restructuring
Costs
Transaction,
Separation and
Integration-
Related Costs
Amortization of
Acquired
Intangible
Assets
Goodwill
Impairment
Losses
Gain on
Arbitration
Award
Pension and
OPEB
Actuarial
and
Settlement
Gains
Tax
Adjustment
Non-GAAP
Results
Fiscal Year Ended March 31, 2020
$
14,901
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
14,901
2,050
(5,228)
130
(5,358)
11
—
252
44
208
—
(318)
318
63
255
—
—
583
133
450
—
—
—
—
—
1,732
6,794
95
6,699
—
(632)
—
(632)
—
(244)
(51)
(193)
—
—
(33)
33
—
1,843
381
1,462
11
$
(5,369)
$
208
$
255
$
450
$
6,699
$
(632)
$
(193)
$
33
$
1,451
(in millions, except per-share amounts)
Costs of services (excludes
depreciation and amortization and
restructuring costs)
Selling, general and administrative
(excludes depreciation and
amortization and restructuring costs)
(Loss) income from continuing
operations, before taxes
Income tax expense (benefit)
Net (loss) income
Less: net income attributable to non-
controlling interest, net of tax
Net (loss) income attributable to DXC
common stockholders
Effective Tax Rate
(2.5)%
20.7%
Basic EPS from continuing operations
Diluted EPS from continuing operations
$
$
(20.76)
(20.76)
$
$
0.80
0.80
$
$
0.99
0.98
$
$
1.74
1.73
$
$
25.91
25.78
$
$
(2.44)
(2.43)
$
$
(0.75)
(0.74)
$
$
0.13
0.13
$
$
5.61
5.58
Weighted average common shares
outstanding for:
Basic EPS
Diluted EPS
258.57
258.57
258.57
259.81
258.57
259.81
258.57
259.81
258.57
259.81
258.57
259.81
258.57
259.81
258.57
259.81
258.57
259.81
44
(in millions, except per-share amounts)
As Reported
Fiscal Year Ended March 31, 2019
Restructuring
Costs
Transaction,
Separation and
Integration-
Related Costs
Amortization of
Acquired
Intangible Assets
Pension and
OPEB Actuarial
and Settlement
Losses
Tax Adjustment
Non-GAAP
Results
Costs of services (excludes depreciation and
amortization and restructuring costs)
Selling, general and administrative (excludes
depreciation and amortization and restructuring
costs)
Income from continuing operations, before taxes
Income tax expense
Income from continuing operations
Income from discontinued operations, net of taxes
Net income
Less: net income attributable to non-controlling
interest, net of tax
Net income attributable to DXC common
stockholders
Effective Tax Rate
Basic EPS from continuing operations
Diluted EPS from continuing operations
Weighted average common shares outstanding
for:
Basic EPS
Diluted EPS
$
14,946
$
—
$
—
$
—
$
—
$
—
$
14,946
1,959
1,515
288
1,227
35
1,262
5
—
465
112
353
—
353
—
(401)
401
102
299
—
299
—
—
539
138
401
—
401
—
—
143
27
116
—
116
—
—
—
44
(44)
—
(44)
—
1,558
3,063
711
2,352
35
2,387
5
1,257
$
353
$
299
$
401
$
116
$
(44)
$
2,382
19.0%
4.40
4.35
$
$
1.27
1.25
$
$
1.08
1.06
$
$
1.44
1.42
$
$
0.42
0.41
$
$
(0.16)
(0.16)
$
$
23.2%
8.46
8.34
$
$
$
277.54
281.43
277.54
281.43
277.54
281.43
277.54
281.43
277.54
281.43
277.54
281.43
277.54
281.43
* The net periodic pension cost within income from continuing operations includes $700 million of actual return on plan assets, whereas the
net periodic pension cost within non-GAAP income from continuing operations includes $570 million of expected long-term return on
pension assets of defined benefit plans subject to interim remeasurement.
Reconciliations of net income to adjusted EBIT are as follows:
(in millions)
Net (loss) income
Income from discontinued operations, net of taxes
Income tax expense
Interest income
Interest expense
EBIT
Restructuring costs
Transaction, separation and integration-related costs
Amortization of acquired intangible assets
Goodwill impairment losses
Gain on arbitration award
Pension and OPEB actuarial and settlement (gains) losses
Fiscal Years Ended
March 31, 2020
March 31, 2019
$
(5,358) $
—
130
(165)
383
(5,010)
252
318
583
6,794
(632)
(244)
1,262
(35)
288
(128)
334
1,721
465
401
539
—
—
143
3,269
Adjusted EBIT
$
2,061
$
45
Liquidity and Capital Resources
Cash and Cash Equivalents and Cash Flows
As of March 31, 2020, our cash and cash equivalents ("cash") were $3.7 billion, of which $1.2 billion was held outside of
the United States. A substantial portion of funds can be returned to the U.S. from funds advanced previously to finance
our foreign acquisition initiatives. As a result of the Tax Cuts and Jobs Act of 2017, and after the mandatory one-time
income inclusion (deemed repatriation) of the historically untaxed earnings of our foreign subsidiaries and current income
inclusions for global intangible low taxed income, we expect a significant portion of the cash held by our foreign
subsidiaries will no longer be subject to U.S. federal income tax consequences upon subsequent repatriation to the U.S.
However, a portion of this cash may still be subject to foreign 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.
Cash was $3.7 billion and $2.9 billion as of March 31, 2020 and March 31, 2019, respectively. The following table
summarizes our cash flow activity:
(in millions)
Net cash provided by operating activities
Net cash (used in) provided by investing activities
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at the end of period
$
$
Fiscal Year Ended
March 31, 2020
March 31, 2019
March 31, 2018
2,350
$
(2,137)
657
(90)
780
2,899
3,679
$
1,783
$
69
(1,663)
(19)
170
2,729
2,899
$
2,567
719
(1,890)
65
1,461
1,268
2,729
Operating cash flow
Net cash provided by operating activities during fiscal 2020 was $2,350 million as compared to $1,783 million during fiscal
2019. The increase of $567 million was due to an increase in net income, net of adjustments of $458 million, which
includes an increase in working capital movements of $109 million. Net income, net of adjustments includes cash received
on arbitration award of $668 million.
Investing cash flow
Net cash (used in) provided by investing activities during fiscal 2020 was $(2,137) million as compared to $69 million
during fiscal 2019. The increase of $2,206 million was primarily due to an increase in cash paid for acquisitions of $1,632
million, a decrease in cash collections related to deferred purchase price receivable of $413 million, a decrease in
proceeds from sale of assets of $284 million, and net short-term investing of $37 million. The increase is partially offset by
a decrease in payments for transition and transformation costs of $113 million and cash paid for business dispositions of
$65 million in fiscal 2019.
Financing cash flow
Net cash provided by (used in) financing activities during fiscal 2020 was $657 million, as compared to $(1,663) million
during fiscal 2019. The $2,320 million increase was primarily due to borrowings under lines of credit in fiscal 2020 of $1.5
billion, additional borrowings on long-term debt of $552 million, a decrease in payments on long-term debt of $1,586
million, and lower repurchases of common stock and advance payment for accelerated share repurchase of $608 million.
This was partially offset by an increase in repayments of commercial paper of $44 million, borrowings for the USPS spin
transaction of $1,114 million in fiscal 2019, and proceeds from bond issuance of $753 million in fiscal 2019.
46
Capital Resources
See Note 22 - "Commitments and Contingencies" for a discussion of the general purpose of guarantees and
commitments. The anticipated sources of funds to fulfill such commitments are listed below and under the subheading
"Liquidity."
The following table summarizes our total debt:
(in millions)
Short-term debt and current maturities of long-term debt
Long-term debt, net of current maturities
Total debt
As of
March 31, 2020
March 31, 2019
$
$
1,276
$
8,672
9,948
$
1,942
5,470
7,412
The $2.5 billion increase in total debt during fiscal 2020 was primarily attributed to the $1.5 billion borrowing from the
credit facility agreement and the new term loan credit agreement in an aggregate principal of $2.2 billion, consisting of
three tranches: (i) $500 million maturing on fiscal 2025; (ii) €750 million maturing on fiscal 2022; and (iii) €750 million
maturing on fiscal 2023. The proceeds from the new term loan credit agreement was used to finance the Luxoft
Acquisition. Additionally, we repaid the $500 million Senior Notes due 2020 and $500 million Senior Notes due 2021
during fiscal 2020. See Note 13 - "Debt" for more information.
We were in compliance with all financial covenants associated with our borrowings as of March 31, 2020 and March 31,
2019.
The debt maturity chart below summarizes the future maturities of long-term debt principal for fiscal years subsequent to
March 31, 2020 and excludes maturities of borrowings for assets acquired under long-term financing and capitalized lease
liabilities. See Note 13 - "Debt" for more information.
47
The following table summarizes our capitalization ratios:
(in millions)
Total debt
Cash and cash equivalents
Net debt(1)
Total debt
Equity
Total capitalization
Debt-to-total capitalization
Net debt-to-total capitalization(1)
As of
March 31, 2020 March 31, 2019
$
$
$
$
9,948
3,679
6,269
9,948
5,129
15,077
$
$
$
$
7,412
2,899
4,513
7,412
11,725
19,137
66.0%
41.6%
38.7%
23.6%
(1) Net debt and Net debt-to-total capitalization are non-GAAP measures used by management to assess our ability to service our debts
using only our cash and cash equivalents. We present these non-GAAP measures to assist investors in analyzing our capital structure in
a more comprehensive way compared to gross debt based ratios alone.
Net debt-to-total capitalization as of March 31, 2020 increased as compared to March 31, 2019, primarily due to the
increase in total debt attributed to the Luxoft Acquisition, borrowing from the credit facility agreement, the decrease in
cash and cash equivalents used to pay down Senior Notes, and the decrease in equity resulting from goodwill impairment
charges reported during fiscal 2020.
As of March 31, 2020, our credit ratings were as follows:
Rating Agency
Long Term Ratings
Short Term Ratings
Outlook
Fitch
Moody's
S&P
BBB+
Baa2
BBB
F-2
P-2
-
Negative
Negative
Negative
For information on the risks of ratings downgrades, see Item 1A - Risk Factors "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."
See Note 22 - "Commitments and Contingencies" for a discussion of the general purpose of guarantees and
commitments. The anticipated sources of funds to fulfill such commitments are listed below.
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 the issuance
of capital market debt instruments such as commercial paper, term loans, and bonds. In addition, we currently utilize, and
will further utilize, 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 which require significant investment of cash
during the initial phases of the contracts. The recovery of these investments is over the life of the contract and is
dependent upon our performance as well as customer acceptance.
48
The following table summarizes our total liquidity:
(in millions)
Cash and cash equivalents
Available borrowings under our revolving credit facility
Total liquidity
As of
March 31, 2020
$
$
3,679
2,500
6,179
During March 2020 as the evolving global COVID-19 pandemic crisis resulted in increasing government actions to shut
down economic activity and enforce stay-at-home orders, global capital markets were disrupted and became tumultuous,
including the near shut down of commercial paper markets for issuers such as the Company as short-term fixed income
investors prepared for potential redemptions. On March 24, 2020, the Company announced the draw-down of $1.5 billion
from its Revolving Credit Facility due 2025 in order to increase cash on hand and eliminate the reliance on commercial
paper markets along with the suspension of the Company’s Euro and USD commercial paper program until the Company
deems such capital markets stabilized and reliable. As a result, the Company’s commercial paper outstanding was
reduced to $542 million as of March 31, 2020, and another $318 million is scheduled to mature during the quarter ending
June 30, 2020, which the Company currently expects to fund such maturing Euro commercial paper from its cash on
hand. While central bank actions have improved liquidity in commercial paper markets overall, there is no assurance that
the Company, at its commercial program ratings of P2/F2, will have reliable access in the future or if accessible, at
reasonable costs.
On April 6, 2020 subsequent to the fiscal period end, the Company drew the entire $2.5 billion remaining availability under
its Revolving Credit Facilities, in order to secure liquidity as additional cash on hand to support the Company’s liquidity
resources during the COVID pandemic crisis and to mitigate the uncertainties caused by volatile capital markets,
changing governmental policies, and evolving impact on world economies.
Subsequent to the end of the fiscal period, the Company issued $1.0 billion in principal amount of Senior Notes in the
form of $500 million principal amount of 4.0% Senior Notes due 2023 and $500 million principal amount of 4.125% Senior
Notes due 2025. All the net proceeds from the Notes offerings were applied towards the early prepayment of the
Company’s term loan facilities, including prepayment of €500 million of Euro Term Loan due fiscal 2022, £150 million of
GBP Term Loan due fiscal 2022, A$300 million of AUD Term Loan due fiscal 2022, and $100 million of USD Term Loan
due fiscal 2025.
On May 15, 2020, the Company agreed with its lenders and modified the definition of Leverage Ratio to be measured on
a “net of cash” basis across all of the Company’s bank credit and term loan facilities, and for such newly defined Leverage
Ratio limitation of Total Consolidated Net Indebtedness to Adjusted Earnings Before Interest, Taxes, Depreciation and
Amortization, as defined in such credit and term loan facilities, currently at 3.0x, to be reduced to 2.25x thereafter
beginning the fiscal year ending March 31, 2022 (with the first quarterly measurement date as of June 30, 2021). The net
effect of such adjustment to the Leverage Ratio definition in the Company’s credit and term loan facilities is to allow the
Company the flexibility to maintain elevated cash balances going forward both during current circumstances and
thereafter, without constraining the Company’s strategy of maintaining strong access to liquidity during the COVID
pandemic crisis. The Company’s credit and term loan facilities that were modified include: $4.0 billion Revolving Credit
Facilities due fiscal year 2025 (including a $70 million sub-tranche due fiscal 2024), €250 million Euro Term Loan due
fiscal year 2022 (a substantial portion was extended to mature in fiscal year 2023 pursuant to the Euro Term Loan
Extension, see below), €750 million Euro Term Loan due fiscal year 2023 (a substantial portion was extended to mature in
fiscal year 2024 pursuant to the Euro Term Loan Extension, see below), £300 million in GBP Term Loan due fiscal year
2022, A$500 million in AUD Term Loan due fiscal year 2022, and approximately $382 million in outstanding USD Term
Loan due fiscal year 2025.
49
On May 15, 2020, the Company initiated elective extension amendments in accordance with the terms of the aggregate
€1.0 billion principal amount of Euro Term Loans outstanding. Accordingly, €216.7 million out of €250 million Euro Term
Loan due fiscal year 2022 agreed to extend maturity 12-months to mature fiscal year 2023, and €700 million out of total
€750 million Euro Term Loan due fiscal year 2023 agreed to extend maturity 12-months to mature fiscal year 2024. Margin
would increase during the 12-month extension terms to Euribor + 125bps and Euribor + 175bps respectively, for the Euro
Term Loans originally due fiscal years 2022 and 2023, which would be an increase from the current applicable margin of
Euribor + 65bps, and Euribor + 80 bps, respectively. There is no change to current margin or terms through the original
maturity term of the Euro Term Loans.
The debt maturity chart below summarizes the future maturities of long-term debt principal taking into effect borrowings
and prepayments as mentioned above, for fiscal years subsequent to May 15, 2020, and excludes maturities of
borrowings for assets acquired under long-term financing and capitalized lease liabilities.
Share Repurchases
During fiscal 2018, our Board of Directors authorized the repurchase of up to $2.0 billion of our common stock and during
fiscal 2019, we announced that our Board of Directors had approved an incremental $2.0 billion share repurchase
authorization. An expiration date has not been established for this repurchase plan. During fiscal 2020, we repurchased
15,933,651 shares of our common stock at an aggregate cost of $736 million. See Note 15 - "Stockholders' Equity" for
more information.
Dividends
During fiscal 2020, our Board of Directors declared aggregate cash dividends to our stockholders of $0.84 per share, or
approximately $219 million. To enhance our financial flexibility under current uncertain market conditions, we have elected
to suspend payment of a quarterly dividend. This decision will be reevaluated by the Board of DXC Technology as market
conditions stabilize.
50
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 balance sheets. See Note 5 - "Receivables" and Note 22 - "Commitments and
Contingencies" for additional information regarding these off-balance sheet arrangements.
Contractual Obligations
Our contractual obligations as of March 31, 2020, were as follows:
(in millions)
Debt(1)
Capitalized lease liabilities
Operating Leases(2)
Purchase Obligations(3)
U.S. Tax Reform - Transition Tax(4)
Interest and preferred dividend payments(5)
Total(6)
Less than
1 year
2-3 years
4-5 years
More than
5 years
Total
$
$
290
444
508
1,911
24
253
3,698
510
645
1,180
46
441
$
$
2,870
92
325
286
102
325
$
1,458
—
221
—
73
159
8,316
1,046
1,699
3,377
245
1,178
$
3,430
$
6,520
$
4,000
$
1,911
$
15,861
(1) Amounts represent scheduled principal payments of long-term debt and mandatory redemption of preferred stock of a consolidated
subsidiary.
(2) Amounts represent present value of operating leases including imputed interests. See Note 6 - "Leases" for more information.
(3) Includes long-term purchase agreements with certain software, hardware, telecommunication and other service providers and exclude
agreements that are cancelable without penalty. If we do not meet the specified service minimums, we may have an obligation to pay the
service provider a portion of or the entire shortfall.
(4) The transition tax resulted in recording a total transition tax obligation of $288 million, of which $290 million was recorded as income tax
liability and $2 million recorded as a reduction in our unrecognized tax benefits, which has been omitted from this table. 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 two payments. See Note 12 - "Income Taxes" for additional information about the transition tax. See Note 12 - "Income Taxes" for
additional information about the estimated liability related to unrecognized tax benefits, which has been omitted from this table.
(5) Amounts represent scheduled interest payments on long-term debt and scheduled dividend payments associated with the mandatorily
redeemable preferred stock of a consolidated subsidiary excluding contingent dividends associated with the participation and variable
appreciation premium features. Also included are scheduled interest payments of $246 million on new borrowings from our credit facility
agreement subsequent to period end. See Note 23 - "Subsequent Events" for more information.
(6) See Note 14 - "Pension and Other Benefit Plans" for the estimated liability related to estimated future benefit payments under our
Pension and OPEB plans that have been omitted from this table.
Critical Accounting Policies and Estimates
The preparation of financial statements, in accordance with 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, business combinations, defined benefit plans and valuation of assets. We have
discussed the selection of our critical accounting policies and the effect of estimates with the audit committee of our board
of directors.
51
Revenue Recognition
Most of our revenues are recognized based on objective criteria and do not require significant estimates that may change
over time. However, some arrangements may require significant estimates, including contracts which include multiple
performance obligations.
Contracts with Multiple performance obligations
Many of our contracts require us to provide a range of services or performance obligations to our customers, which may
include a combination of services, products or both. 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 the timing of
revenue recognition for each. For contracts with multiple performance obligations, we allocate the contract’s transaction
price to each performance obligation based on the relative standalone selling price of each distinct good or service in the
contract. 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. Certain of our
contracts involve the sale of DXC proprietary software, post contract customer support and other software-related
services. The standalone selling price generally is determined for each performance obligation using an adjusted market
assessment approach based on the price charged where each deliverable is sold separately. In certain limited cases
(typically for software licenses) when the historical selling price is highly variable, the residual approach is used. This
approach allocates revenue to the performance obligation equal to the difference between the total transaction price and
the observable standalone selling prices for the other performance obligations. These methods involve significant
judgments and estimates that we assess periodically by considering market and entity-specific factors, such as type of
customer, features of the products or services and market conditions.
Once the total revenues have been allocated to the various performance obligations, revenues for each are recognized
based on the relevant revenue recognition method for each. Estimates of total revenues at contract inception often differ
materially from actual revenues due to volume differences, changes in technology or other factors which may not be
foreseen at inception.
Costs to obtain contracts with customers
Accounting for the costs to obtain contracts with customers requires significant judgments and estimates with regards to
the determination of sales commission payments that qualify for deferral of costs and the related amortization period.
Most of our sales commission plans are quota-based and payments are made by achieving targets related to a large
number of new and renewed contracts. Certain sales commissions earned by our sales force are considered incremental
and recoverable costs of obtaining a contract with a customer. We defer and amortize these costs on a straight-line basis
over an average period of benefit of five years, which is determined and regularly assessed by considering the length of
our customer contracts, our technology and other factors. Significant changes in these estimates or impairment may result
if material contracts terminate earlier than the expected benefit period, or if there are material changes in the average
contract period.
Income Taxes
We are subject to income taxes in the United States (federal and state) and numerous foreign jurisdictions. Significant
judgment is required in determining our provision for income taxes, analyzing our income tax reserves, the determination
of the likelihood of recoverability of deferred tax assets and any corresponding adjustment of valuation allowances. In
addition, our tax returns are routinely audited, and settlements of issues raised in these audits sometimes affect our tax
provisions.
As a global enterprise, our ETR is affected by many factors, including our global mix of earnings among countries with
differing statutory tax rates, the extent to which our non-U.S. earnings are indefinitely reinvested outside the U.S.,
changes in the valuation allowance for deferred tax assets, changes in tax regulations, acquisitions, dispositions and the
tax characteristics of our income. We cannot predict what our ETR will be in the future because there is uncertainty
regarding these factors.
52
The majority of unremitted earnings has been taxed in the U.S. through the transition tax and global intangible low tax
income tax in connection with 2017 U.S. tax reform. The Company was not permanently reinvested in all jurisdictions with
the exception of India as of March 31, 2019. As a result of the issuance of new U.S. Treasury regulations in the first
quarter of fiscal 2020, the Company changed its permanent reinvestment assertion in the first quarter of fiscal 2020 with
respect to certain foreign corporations, reducing the amount that will ultimately be repatriated to the U.S. by approximately
$492 million. However, as of March 31, 2020, the Company anticipates that future earnings in India will not be indefinitely
reinvested. This change resulted from the Company's determination that it is now efficient to repatriate earnings in India
as a result of the enactment of India Finance Act, 2020 on March 27, 2020 and change in cash needs resulting from the
economic consequences of the COVID-19 pandemic. We expect a significant portion of the cash held by our foreign
subsidiaries will no longer be subject to U.S. federal income tax upon repatriation to the U.S., however, a portion of this
cash may still be subject to foreign and U.S. state tax consequences when remitted.
Considerations impacting the recoverability of deferred tax assets include the period of expiration of the tax asset,
planned use of the tax asset and historical and projected taxable income as well as tax liabilities for the tax jurisdiction to
which the tax asset relates. In determining whether the deferred tax assets are realizable, we consider all available
positive and negative evidence, including future reversals of existing taxable temporary differences, taxable income in
prior carryback years, projected future taxable income, tax planning strategies and recent financial operations. We
recorded a valuation allowance against deferred tax assets of approximately $2.2 billion as of March 31, 2020 due to
uncertainties related to the ability to utilize these assets. However, valuation allowances are subject to change in future
reporting periods due to changes in various factors.
Recent enactment of the CARES Act or changes in tax laws resulting from the Organization for Economic Co-operation
and Development’s multi-jurisdictional plan of action to address “base erosion and profit shifting” could impact our
effective tax rate. The calculation of our tax liabilities involves uncertainties in the application of complex changing tax
regulations. The Company is currently evaluating the impact of the CARES Act. The CARES Act makes a technical
correction to the 2017 U.S. tax reform to provide a 15-year recovery period for qualified improvement property ("QIP").
This correction makes QIP eligible for bonus depreciation and is effective as if enacted as part of the 2017 U.S. tax
reform. Accordingly, the Company has applied bonus depreciation on certain QIP. CARES also includes provisions
relating to refundable payroll tax credits, the ability to utilize and carryback certain net operating losses, alternative
minimum tax refunds, and modifications to rules regarding the deductibility of net interest expense.
Business Combinations
We account for the acquisition of a business using the acquisition method of accounting, which requires us to estimate the
fair values of the assets acquired and liabilities assumed. This includes acquired intangible assets such as customer-
related intangibles, the liabilities assumed and contingent consideration, if any. Liabilities assumed may include litigation
and other contingency reserves existing at the time of acquisition and require judgment in ascertaining the related fair
values. Independent appraisals may be used to assist in the determination of the fair value of certain assets and liabilities.
Such appraisals are based on significant estimates provided by us, such as forecasted revenues or profits utilized in
determining the fair value of contract-related acquired intangible assets or liabilities. Significant changes in assumptions
and estimates subsequent to completing the allocation of the purchase price to the assets and liabilities acquired, as well
as differences in actual and estimated results, could result in material impacts to our financial results. Adjustments to the
fair value of contingent consideration are recorded in earnings. Additional information related to the acquisition date fair
value of acquired assets and liabilities obtained during the allocation period, not to exceed one year, may result in
changes to the recorded values of acquired assets and liabilities, resulting in an offsetting adjustment to the goodwill
associated with the business acquired.
53
Defined Benefit Plans
The computation of our pension and other post-retirement benefit costs and obligations is dependent on various
assumptions. Inherent in the application of the actuarial methods are key assumptions, including discount rates, expected
long-term rates of return on plan assets, mortality rates, rates of compensation increases and medical cost trend rates.
Our management evaluates these assumptions annually and updates assumptions as necessary. The fair value of assets
is determined based on observable inputs for similar assets or on significant unobservable inputs if not available. Two of
the most significant assumptions are the expected long-term rate of return on plan assets and the discount rate.
Our weighted average rates used were:
Discount rates
Expected long-term rates of return on assets
March 31, 2020
March 31, 2019
March 31, 2018
2.4%
5.8%
2.5%
5.3%
2.5%
4.9%
The assumption for the expected long-term rate of return on plan assets is impacted by the expected asset mix of the
plan; judgments regarding the correlation between historical excess returns and future excess returns and expected
investment expenses. 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 2020:
(in millions)
Expected long-term return on plan assets
Expected long-term return on plan assets
Discount rate
Discount rate
Valuation of Assets
Approximate
Change in Net
Periodic Pension
Expense
Approximate
Change in
Settlement,
Contractual
Termination, and
Mark-to-Market
Charges
$
$
$
$
(55) $
55
$
25
$
(29) $
54
(54)
(793)
994
Change
0.5%
(0.5)%
0.5%
(0.5)%
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. The valuation of long-lived and intangible assets involves
management estimates about future values and remaining useful lives of assets, particularly purchased intangible assets.
These estimates are subjective and can be affected by a variety of factors, including external factors such as industry and
economic trends, and internal factors such as changes in our business strategy and forecasts.
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.
54
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a multinational company, we are exposed to certain market risks such as changes in foreign currency exchange rates
and interest rates. Changes in foreign currency exchange rates can impact our foreign currency denominated monetary
assets and liabilities and forecasted transactions in foreign currency, whereas changes in benchmark interest rates can
impact interest expense associated with our floating interest rate debt and the fair value of our fixed interest rate debt. A
variety of practices are employed to manage these risks, including operating and financing activities and the use of
derivative instruments. We do not use derivatives for trading or speculative purposes.
Presented below is a description of our risks together with a sensitivity analysis of each of these risks based on selected
changes in market rates. The foreign currency model incorporates the impact of diversification from holding multiple
currencies and the correlation of revenues, costs and any related short-term contract financing in the same currency. In
order to determine the impact of changes in interest rates on our future results of operations and cash flows, we
calculated the increase or decrease in the index underlying these rates. We estimate the fair value of our long-term debt
primarily using an expected present value technique using interest rates offered to us for instruments with similar terms
and remaining maturities. These analyses reflect management's view of changes that are reasonably possible to occur
over a one-year period.
Foreign Currency Risk
We are exposed to both favorable and unfavorable movements in foreign currency exchange rates. In the ordinary course
of business, we enter into contracts denominated in foreign currencies. Exposure to fluctuations in foreign currency
exchange rates arising from these contracts is analyzed during the contract bidding process. We generally manage these
contracts by incurring costs in the same currency in which revenues are received and any related short-term contract
financing requirements are met by borrowing in the same currency. Thus, by generally matching revenues, costs and
borrowings to the same currency, we are able to mitigate a portion of the foreign currency risk to earnings. However, due
to our increased use of offshore labor centers, we have become more exposed to fluctuations in foreign currency
exchange rates. We experienced significant foreign currency fluctuations during fiscal 2020 due primarily to the volatility of
the Australian dollar, British pound and Euro in relation to the U.S. dollar. Significant foreign currency fluctuations during
fiscal 2019 was due primarily to the volatility of British pound and Euro in relation to the U.S. dollar.
We have policies and procedures to manage exposure to fluctuations in foreign currency by using short-term foreign
currency forward contracts to economically hedge certain foreign currency denominated assets and liabilities, including
intercompany accounts and loans. For accounting purposes, these foreign currency forward contracts are not designated
as hedges and changes in their fair value are reported in current period earnings within other (income) expense, net in the
statements of operations. We also use foreign currency forward contracts to reduce foreign currency exchange rate risk
related to certain Indian rupee denominated intercompany obligations and forecasted transactions. For accounting
purposes these foreign currency forward contracts are designated as cash flow hedges with critical terms that match the
hedged items. Therefore, the changes in fair value of these forward contracts are recorded in accumulated other
comprehensive income, net of taxes in the statements of comprehensive income and subsequently classified into net
income in the period during which the hedged transactions are recognized in net income.
55
We have foreign currency risks related to our revenue and operating expenses denominated in currencies other than U.S.
dollar, see Note 19 - "Segment and Geographic Information". During fiscal 2020, approximately 63% of our revenues were
generated outside of the United States. For the year ended March 31, 2020, a hypothetical 10% change in the value of
the U.S. dollar against all currencies would have changed revenues by approximately 6.3%, or $1.2 billion. The majority of
this fluctuation would be offset by expenses incurred in local currency; and as a result, there would not be a material
change to our income from continuing operations before taxes. As such, in the view of management, the resulting impact
would not be material to our results of operations or cash flows.
Interest Rate Risk
As of March 31, 2020, we had outstanding debt with varying maturities for an aggregate carrying amount of $9.9 billion, of
which $5.2 billion was floating interest rate debt. Most of our floating interest rate debt is based upon varying terms of
adjusted LIBOR rates; consequently, changes in LIBOR result in the most volatility to our interest expense. As of
March 31, 2020, an assumed 10% unfavorable change in interest rates would not be material to our consolidated results
of operations or cash flows. A change in interest rates related to our long-term debt would not have a material impact on
our financial statements as we do not record our debt at fair value.
56
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of March 31, 2020 and March 31, 2019
Consolidated Statements of Operations for the Fiscal Years Ended March 31, 2020, March 31, 2019 and March 31,
2018
Consolidated Statements of Comprehensive (Loss) Income for the Fiscal Years Ended March 31, 2020, March 31,
2019 and March 31, 2018
Consolidated Statements of Cash Flows for the Fiscal Years Ended March 31, 2020, March 31, 2019 and March 31,
2018
Consolidated Statements of Changes in Equity for the Fiscal Years Ended March 31, 2020, March 31, 2019 and
March 31, 2018
Notes to Consolidated Financial Statements
Note 1–Summary of Significant Accounting Policies
Note 2–Acquisitions
Note 3–Divestitures
Note 4–Earnings (Loss) Per Share
Note 5–Receivables
Note 6-Leases
Note 7–Fair Value
Note 8–Derivative Instruments
Note 9–Property and Equipment
Note 10–Intangible Assets
Note 11–Goodwill
Note 12–Income Taxes
Note 13–Debt
Note 14–Pension and Other Benefit Plans
Note 15–Stockholders' Equity
Note 16–Stock Incentive Plans
Note 17–Cash Flows
Note 18–Other Income
Note 19–Segment and Geographic Information
Note 20–Revenue
Note 21–Restructuring Costs
Note 22–Commitments and Contingencies
Note 23–Subsequent Events
Supplementary Data
57
Page
58
61
62
63
64
66
68
80
85
88
89
91
94
95
98
99
100
101
109
111
118
120
126
126
127
130
131
135
141
142
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
DXC Technology Company
Tysons, Virginia
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of DXC Technology Company and subsidiaries (the
"Company") as of March 31, 2020 and 2019, the related consolidated statements of operations, comprehensive (loss)
income, cash flows, and changes in equity for each of the three years in the period ended March 31, 2020, and the related
notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all
material respects, the financial position of the Company as of March 31, 2020 and 2019, and the results of its operations
and its cash flows for each of the three years in the period ended March 31, 2020, in conformity with accounting principles
generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company's internal control over financial reporting as of March 31, 2020, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated June 1, 2020, expressed an adverse opinion on the Company's internal
control over financial reporting because of a material weakness.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements
that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or
disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex
judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements,
taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the
critical audit matter or on the accounts or disclosures to which it relates.
58
Goodwill - GBS and GIS reporting units - Refer to Note 1 and Note 11 to the financial statements
Critical Audit Matter description
The Company’s evaluation of goodwill for impairment involves the determination of reporting units and comparison of the
fair value of each reporting unit to its carrying value. The Company identified two reporting units, Global Business
Services ("GBS") and Global Infrastructure Services ("GIS"). 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, the Company considers whether or not it is reasonable to aggregate any of the
identified components that have similar economic characteristics. The Company estimates the fair value of its reporting
units using a combination of an income approach, utilizing a discounted cash flow analysis, and a market approach, using
market multiples. The estimation of the fair value using the discounted cash flow model requires management to make
significant estimates and assumptions related to forecasts of future revenue growth rates, operating margins, and
discount rates. GBS and GIS’s revenue growth rates and operating margins are sensitive to changes in customer
demand. The determination of the fair value using the market approach requires management to make significant
judgments related to performance-metric market multiples applied to the reporting unit’s prior and expected operating
performance.
The Company performed their annual impairment test as of July 1, 2019, and, due to a subsequent sustained decline in
the Company’s stock price and market capitalization, updated impairment tests were completed during the second and
fourth quarters of fiscal 2020. The Company concluded that the carrying values of GBS and GIS reporting units exceeded
their fair values and, therefore, an impairment was recognized in the amount of $3,789 million and $3,005 million,
respectively, during fiscal 2020. As of March 31, 2020, after recording the impairments, goodwill for the GBS and GIS
reporting units was $2,017 million and $0, respectively.
We identified the Company’s determination of reporting units and evaluation of goodwill impairment for the GBS and GIS
reporting units as a critical audit matter because of the significant judgments made by management to identify and
aggregate reporting units and estimate the fair value of each reporting unit. A high degree of auditor judgment and an
increased extent of effort, including the need to involve our fair value specialists, was required when performing audit
procedures to evaluate the reasonableness of management’s estimates and assumptions related to the identification of
reporting units; revenue growth rates and operating margins; the selection of reporting unit performance-metric market
multiples and discount rates; and the reconciliation of the reporting units estimated fair value to the Company’s market
capitalization.
How the Critical Accounting Matter Was Addressed in the Audit
Our audit procedures related to the determination of reporting units, revenue growth rates, selection of reporting unit
performance-metric market multiples and discount rates, and reconciliation of market capitalization for the GBS and GIS
reporting units included the following, among others:
• We tested the effectiveness of controls over management’s determination of reporting units and goodwill
impairment evaluation, including those over the determination of the fair value of GBS and GIS, such as controls
related to management’s revenue forecasts, selection of the discount rates, selection of performance-metric
market multiples, and market capitalization reconciliation.
• We evaluated management’s identification of reporting units, including consideration of components of its
operating segments, the availability of discrete financial information for each that is regularly reviewed by
management, and the suitability of aggregation of components.
• We evaluated the reasonableness of management’s forecasts by comparing the forecasts to (1) historical results,
including management’s forecasting accuracy, (2) internal communications to management and the Board of
Directors, (3) forecasted information included in Company press releases as well as in analyst and industry
reports of the Company and companies in its peer group, and (4) analyzing and comparing forecasts to the
Company’s revenue backlog and sales pipeline.
• We evaluated the impact of changes in management’s forecasts on each of the impairment test dates during the
fiscal year ended March 31, 2020.
59
• With the assistance of our fair value specialists, we evaluated the reasonableness of:
– Discount rates, including testing the underlying source information and the mathematical accuracy of the
calculations, and developing a range of independent estimates and comparing those to the discount rates
selected by management.
– Performance-metric multiples, including testing the underlying source information and mathematical
accuracy of the calculations, and comparing the multiples selected by management to its peer group.
– Reconciliation and comparison of the fair value of the GBS and GIS reporting units to the Company’s
market capitalization.
/s/ DELOITTE & TOUCHE LLP
McLean, Virginia
June 1, 2020
We have served as the Company's auditor since at least 1965; however, an earlier year could not be reliably determined.
60
DXC TECHNOLOGY COMPANY
CONSOLIDATED BALANCE SHEETS
(in millions, except per share and share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Receivables and contract assets, net of allowance for doubtful accounts of $74 and $60
Prepaid expenses
Other current assets
Total current assets
Intangible assets, net of accumulated amortization of $4,347 and $3,399
Operating right-of-use assets, net
Goodwill
Deferred income taxes, net
Property and equipment, net of accumulated depreciation of $3,818 and $3,958
Other assets
Total Assets
LIABILITIES and EQUITY
Current liabilities:
Short-term debt and current maturities of long-term debt
Accounts payable
Accrued payroll and related costs
Current operating lease liabilities
Accrued expenses and other current liabilities
Deferred revenue and advance contract payments
Income taxes payable
Total current liabilities
Long-term debt, net of current maturities
Non-current deferred revenue
Non-current operating lease liabilities
Non-current pension obligations
Non-current income tax liabilities and deferred tax liabilities
Other long-term liabilities
Total Liabilities
Commitments and contingencies
DXC stockholders’ equity:
Preferred stock, par value $0.01 per share; authorized 1,000,000 shares; none issued as of March 31,
2020 and March 31, 2019
Common stock, par value $0.01 per share; authorized 750,000,000 shares; issued 255,674,040 as of
March 31, 2020 and 270,213,891 as of March 31, 2019
Additional paid-in capital
(Accumulated deficit) retained earnings
Accumulated other comprehensive loss
Treasury stock, at cost, 2,148,708 and 1,788,658 shares as of March 31, 2020 and March 31, 2019
Total DXC stockholders’ equity
Non-controlling interest in subsidiaries
Total Equity
Total Liabilities and Equity
As of
March 31, 2020
March 31, 2019
$
3,679
$
4,392
646
270
8,987
5,731
1,428
2,017
265
3,547
4,031
2,899
5,181
627
359
9,066
5,939
—
7,606
355
3,179
3,429
26,006
$
29,574
$
$
1,276
$
1,598
630
482
2,801
1,021
87
7,895
8,672
735
1,063
761
1,157
594
20,877
—
3
10,714
(5,177)
(603)
(152)
4,785
344
5,129
1,942
1,666
652
—
3,355
1,630
208
9,453
5,470
256
—
790
1,184
696
17,849
—
3
11,301
478
(244)
(136)
11,402
323
11,725
29,574
The accompanying notes are an integral part of these consolidated financial statements.
61
$
26,006
$
DXC TECHNOLOGY COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per-share amounts)
March 31, 2020 March 31, 2019 March 31, 2018
Fiscal Years Ended
Revenues
$
19,577
$
20,753
$
21,733
Costs of services (excludes depreciation and amortization and restructuring costs)
14,901
14,946
16,317
Selling, general and administrative (excludes depreciation and amortization and restructuring
costs)
Depreciation and amortization
Goodwill impairment losses
Restructuring costs
Interest expense
Interest income
Gain on arbitration award
Other income, net
Total costs and expenses
(Loss) income from continuing operations, before taxes
Income tax expense (benefit)
(Loss) income from continuing operations
Income from discontinued operations, net of taxes
Net (loss) income
Less: net income attributable to non-controlling interest, net of tax
Net (loss) income attributable to DXC common stockholders
(Loss) Income per common share
Basic:
Continuing operations
Discontinued operations
Diluted:
Continuing operations
Discontinued operations
2,050
1,942
6,794
252
383
(165)
(632)
(720)
1,959
1,968
—
465
334
(128)
—
(306)
1,890
1,795
—
789
320
(89)
—
(593)
24,805
19,238
20,429
(5,228)
130
(5,358)
—
(5,358)
11
1,515
288
1,227
35
1,262
5
(5,369) $
1,257
$
(20.76) $
4.40
$
—
0.13
(20.76) $
4.53
$
(20.76) $
4.35
$
—
0.12
(20.76) $
4.47
$
$
$
$
$
$
1,304
(242)
1,546
236
1,782
31
1,751
5.32
0.83
6.15
5.23
0.81
6.04
The accompanying notes are an integral part of these consolidated financial statements.
62
DXC TECHNOLOGY COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in millions)
Net (loss) income
Other comprehensive (loss) income, net of taxes:
Foreign currency translation adjustments, net of tax (1)
Cash flow hedges adjustments, net of tax (2)
Available-for-sale securities, net of tax (3)
Pension and other post-retirement benefit plans, net of tax:
Prior service cost, net of tax (4)
Amortization of transition obligation, net of tax (5)
Amortization of prior service cost, net of tax (6)
Pension and other post-retirement benefit plans, net of tax
Other comprehensive (loss) income, net of taxes
Comprehensive (loss) income
Less: comprehensive income attributable to non-controlling interest
Fiscal Years Ended
March 31, 2020 March 31, 2019 March 31, 2018
$
(5,358) $
1,262
$
1,782
(323)
(17)
—
—
—
(8)
(8)
(348)
(5,706)
22
(259)
(12)
—
(21)
—
(13)
(34)
(305)
957
2
197
(11)
9
38
1
(14)
25
220
2,002
31
1,971
Comprehensive (loss) income attributable to DXC common stockholders
$
(5,728) $
955
$
(1) Tax (benefit) expense related to foreign currency translation adjustments was $(2), $(1), and $75 for the fiscal years ended March 31, 2020,
March 31, 2019, March 31, 2018, respectively.
(2) Tax benefit related to cash flow hedge adjustments was $5, $3, and $3 for the fiscal years ended March 31, 2020, March 31, 2019, March 31,
2018, respectively.
(3) Tax expense related to available-for-sale securities was $0, $0, and $2 for the fiscal years ended March 31, 2020, March 31, 2019, March 31,
2018, respectively.
(4) Tax (benefit) expense related to prior service costs was $0, $(5), and $8 for the fiscal years ended March 31, 2020, March 31, 2019, March 31,
2018, respectively.
(5)There was no tax benefit related to transition obligation.
(6) Tax benefit related to amortization of prior service costs was $1, $2, and $4 for the fiscal years ended March 31, 2020, March 31, 2019, March 31,
2018, respectively.
The accompanying notes are an integral part of these consolidated financial statements.
63
DXC TECHNOLOGY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Cash flows from operating activities:
Net (loss) income
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization
Goodwill impairment losses
Operating right-of-use expense
Pension & other post-employment benefits, actuarial & settlement (gains)
losses
Share-based compensation
Deferred taxes
Loss (gain) on dispositions
Provision for losses on accounts receivable
Unrealized foreign currency exchange losses
Impairment losses and contract write-offs
Amortization of debt issuance costs and (premium) discount
Cash surrender value in excess of premiums paid
Other non-cash charges, net
Changes in assets and liabilities, net of effects of acquisitions and
dispositions:
Decrease (increase) in receivables
Increase in prepaid expenses and other current assets
Decrease in accounts payable and accruals
(Decrease) increase in income taxes payable and income tax liability
Decrease in operating lease liability
(Decrease) increase in advance contract payments and deferred revenue
Other operating activities, net
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment
Payments for transition and transformation contract costs
Software purchased and developed
Cash acquired through HPES Merger
Payments for acquisitions, net of cash acquired
Business dispositions
Cash collections related to deferred purchase price receivable
Proceeds from sale of assets
Short-term investing
Proceeds from short-term investing
Other investing activities, net
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Borrowings of commercial paper
Repayments of commercial paper
Borrowings under lines of credit
Repayment of borrowings under lines of credit
64
Fiscal Years Ended
March 31, 2020
March 31, 2019
March 31, 2018 (1)
$
(5,358) $
1,262
$
1,782
1,960
6,794
698
(244)
68
(56)
1
3
24
30
(4)
(12)
—
269
(229)
(565)
(197)
(698)
(146)
12
2,350
(350)
(281)
(235)
—
(1,997)
—
671
73
(75)
38
19
(2,137)
4,939
(5,076)
1,500
—
2,023
—
—
143
74
97
(163)
(10)
30
—
(10)
(11)
11
(947)
(632)
(52)
(107)
—
(74)
149
1,783
(297)
(394)
(261)
—
(365)
(65)
1,084
357
—
—
10
69
2,747
(2,840)
—
—
2,014
—
—
(220)
93
(842)
4
45
22
41
(4)
(11)
4
(464)
(196)
(96)
303
—
130
(38)
2,567
(224)
(328)
(211)
938
(203)
—
685
58
—
—
4
719
2,413
(2,297)
—
(737)
Borrowings on long-term debt, net of discount
Principal payments on long-term debt
Payments on finance leases and borrowings for asset financing
Borrowings for USPS spin transaction
Proceeds from bond issuance
Proceeds from stock options and other common stock transactions
Taxes paid related to net share settlements of share-based compensation
awards
Repurchase of common stock and advance payment for accelerated share
repurchase
Dividend payments
Other financing activities, net
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
2,198
(1,039)
(865)
—
—
11
(16)
(736)
(214)
(45)
657
(90)
780
$
2,899
3,679
$
1,646
(2,625)
(944)
1,114
753
47
(54)
(1,344)
(210)
47
(1,663)
(19)
170
2,729
2,899
$
621
(1,547)
(1,060)
—
989
138
(76)
(132)
(174)
(28)
(1,890)
65
1,461
1,268
2,729
(1) As a result of the USPS Separation, the Consolidated Statements of Operations, Consolidated Balance Sheets, and related financial information
reflect USPS's operations and assets and liabilities as discontinued operations for all periods presented. The cash flows of USPS have not been
segregated and are included in the Consolidated Statement of Cash flows for the fiscal year ended March 31, 2018 and through the separation
date of May 31, 2018 in the Consolidated Statement of Cash Flows for the fiscal year ended March 31, 2019.
The accompanying notes are an integral part of these consolidated financial statements.
65
DXC TECHNOLOGY COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in millions, except shares in thousands)
Shares
Amount
Common Stock
Additional
Paid-in
Capital
(Accumulated
Deficit)
Retained
Earnings
Accumulated
Other
Comprehensive
(Loss) Income
Treasury
Stock
Total
DXC
Equity
Non-
Controlling
Interest
Total
Equity
Balance at March 31, 2017
Recapitalization adjustment(1)
Recast balance at March 31, 2017
151,932
$
152 $
2,565 $
(170) $
(162) $
(497) $
1,888 $
278 $
2,166
(10,633)
(151)
(346)
497
—
—
—
141,299
$
1 $
2,219 $
(170) $
(162) $
— $
1,888 $
278 $
2,166
Business acquired in purchase, net of issuance costs(2)
141,741
2
9,848
Net income
Other comprehensive income
Share-based compensation expense
Acquisition of treasury stock
Share repurchase program
Stock option exercises and other common stock transactions
Dividends declared ($0.72 per share)
Non-controlling interest distributions and other
Balance at March 31, 2018
1,751
(71)
(209)
92
(66)
117
220
(85)
(1,538)
4,891
9,850
1,751
220
92
(85)
(137)
117
(209)
—
50
31
9,900
1,782
220
92
(85)
(137)
117
(209)
(9)
(9)
286,393
$
3 $
12,210 $
1,301 $
58 $
(85) $
13,487 $
350 $
13,837
(1) Certain prior year amounts were adjusted to retroactively reflect the legal capital of DXC.
(2) See Note 2 - "Acquisitions"
(in millions, except shares in thousands)
Shares
Amount
Common Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock(1)
Total
DXC
Equity
Non-
Controlling
Interest
Total
Equity
Balance at March 31, 2018
Cumulative effect of adopting the new revenue standard
Net income
Other comprehensive loss
Share-based compensation expense
Acquisition of treasury stock
Share repurchase program
Stock option exercises and other common stock transactions
Dividends declared ($0.76 per share)
Non-controlling interest distributions and other
Divestiture of USPS
Balance at March 31, 2019
(1)
1,788,658 treasury shares as of March 31, 2019
286,393
$
3 $
12,210 $
1,301 $
58 $
(85) $
13,487 $
350 $
13,837
74
(845)
37
(19,343)
3,164
114
1,257
(494)
(209)
(302)
(51)
114
1,257
(302)
74
(51)
(1,339)
37
(209)
—
114
1,262
(305)
74
(51)
(1,339)
37
(209)
(29)
5
(3)
(29)
(175)
(1,491)
(1,666)
(1,666)
270,214
$
3 $
11,301 $
478 $
(244) $
(136) $
11,402 $
323 $
11,725
The accompanying notes are an integral part of these consolidated financial statements.
66
(in millions, except shares in thousands)
Shares
Amount
Common Stock
Additional
Paid-in
Capital
Retained
Earnings
(Accumulated
Deficit)
Accumulated
Other
Comprehensive
Loss
Treasury
Stock (1)
Total
DXC
Equity
Non-
Controlling
Interest
Total
Equity
Balance at March 31, 2019
Net loss
Other comprehensive loss
Share-based compensation expense
Acquisition of treasury stock
Share repurchase program
Stock option exercises and other common stock transactions
Dividends declared ($0.84 per share)
Non-controlling interest distributions and other
Balance at March 31, 2020
(1)
2,148,708 treasury shares as of March 31, 2020
270,214
$
3 $
11,301 $
478 $
(244) $
(136) $
11,402 $
323 $
11,725
(5,369)
(67)
(219)
70
(669)
12
(359)
(16)
(5,369)
(359)
70
(16)
(736)
12
(219)
—
11
11
(1)
(5,358)
(348)
70
(16)
(736)
12
(219)
(1)
(15,934)
1,394
255,674
$
3 $
10,714 $
(5,177) $
(603) $
(152) $
4,785 $
344 $
5,129
The accompanying notes are an integral part of these consolidated financial statements.
67
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Business
DXC Technology Company ("DXC" or the "Company") 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. With decades of driving innovation, the world’s largest companies trust DXC to deploy its enterprise
technology stack to deliver new levels of performance, competitiveness and customer experiences.
Luxoft Acquisition
On June 14, 2019, DXC completed its acquisition of Luxoft Holding, Inc. ("Luxoft"), a global digital strategy and software
engineering firm (the "Luxoft Acquisition"). The acquisition builds on DXC’s unique value proposition as an end-to-end,
mainstream IT and digital services market leader, and strengthens the Company’s ability to design and deploy
transformative digital solutions for clients at scale. See Note 2 - "Acquisitions" for further information.
Separation of USPS
On May 31, 2018, DXC completed the separation of its U.S. Public Sector business ("USPS") (the "Separation"), and
combination of USPS with Vencore Holding Corp. ("Vencore") and KeyPoint Government Solutions ("Keypoint") (the
"Mergers") to form Perspecta Inc. ("Perspecta"), an independent public company (collectively, the "USPS Separation and
Mergers"). Under the terms of the separation agreements, on May 31, 2018, stockholders who held DXC common stock
at the close of business on May 25, 2018 (the “Record Date”), received a distribution of one share of Perspecta common
stock for every two shares of DXC common stock held as of the Record Date (the "Distribution"). See Note 3 -
"Divestitures" for more information.
As a result of the Separation, the Consolidated Statements of Operations, Consolidated Balance Sheets, and related
financial information reflect USPS's operations, assets and liabilities as discontinued operations for all periods presented.
The cash flows of USPS have not been segregated and are included in the Consolidated Statement of Cash flows for the
fiscal year ended March 31, 2018 and through the separation date of May 31, 2018 in the Consolidated Statement of
Cash Flows for the fiscal year ended March 31, 2019. In addition, USPS is no longer a reportable segment. DXC's
reportable segments are Global Business Services ("GBS") and Global Infrastructure Services ("GIS").
Basis of Presentation
In order to make this report easier to read, DXC refers throughout to (i) the Consolidated Financial Statements as the
“financial statements,” (ii) the Consolidated Statements of Operations as the “statements of operations,” (iii) the
Consolidated Statement of Comprehensive (Loss) Income as the "statements of comprehensive income," (iv) the
Consolidated Balance Sheets as the “balance sheets,” and (v) the Consolidated Statements of Cash Flows as the
“statements of cash flows.” In addition, references throughout to numbered “Notes” refer to the numbered Notes in these
Notes to Consolidated Financial Statements, unless otherwise noted.
The accompanying financial statements have been prepared in accordance with the rules and regulations of the U.S.
Securities and Exchange Commission for annual reports and accounting principles generally accepted in the United
States ("GAAP"). The financial statements include the accounts of DXC, its consolidated subsidiaries, and those business
entities in which DXC maintains a controlling interest. Investments in business entities in which the Company does not
have control, but has the ability to exercise significant influence over operating and financial policies, are accounted for by
the equity method. Other investments are accounted for by the cost method. Non-controlling interests are presented as a
separate component within equity in the balance sheets. Net earnings attributable to the non-controlling interests are
presented separately in the statements of operations, and comprehensive income attributable to non-controlling interests
are presented separately in the statements of comprehensive income. All intercompany transactions and balances have
been eliminated. Certain amounts reported in the previous year have been reclassified to conform to the current year
presentation. DXC corrected an immaterial classification error related to the presentation of deferred revenue and
advance contract payments and non-current deferred revenue that first occurred during fiscal 2018.
68
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Use of Estimates
The preparation of the financial statements, in accordance with GAAP, requires the Company's management to make
estimates and assumptions that affect reported amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on
assumptions regarding historical experience, currently available information and anticipated developments that it believes
are reasonable and appropriate. However, because the use of estimates involves an inherent degree of uncertainty, actual
results could differ from those estimates. The severity, magnitude and duration, as well as the economic consequences of
the COVID-19 pandemic, are uncertain, rapidly changing and difficult to predict. Therefore, accounting estimates and
assumptions may change over time in response to COVID-19 and may change materially in future periods. Estimates are
used for, but not limited to, contracts accounted for using the percentage-of-completion method, cash flows used in the
evaluation of impairment of goodwill and other long-lived assets, reserves for uncertain tax positions, valuation allowances
on deferred tax assets, loss accruals for litigation and obligations related to our pension plans. In the opinion of the
Company's management, the accompanying financial statements contain all adjustments necessary, including those of a
normal recurring nature, to fairly present the financial statements.
Leases
Effective April 1, 2019, the Company adopted ASU 2016-02, "Leases, Topic ASC 842" using the modified retrospective
method. Refer to the Recently Adopted Accounting Pronouncements section of this Note and Note 6 - "Leases" for further
discussion of the impact of adoption and other required disclosures. The Company determines if an arrangement is a
lease at inception by evaluating whether the arrangement conveys the right to use an identified asset and whether DXC
obtains substantially all economic benefits from and has the ability to direct the use of the asset. Operating leases are
included in operating right-of-use ("ROU") assets, net, current operating lease liabilities and non-current operating lease
liabilities in DXC's balance sheets. Finance leases are included in property and equipment, net, short-term debt and
current maturities of long-term debt and long-term debt, net of current maturities in DXC's balance sheets.
ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent its
obligation to make lease payments arising from the lease. Operating ROU assets and operating lease liabilities are
recognized at commencement based on the present value of lease payments over the lease term.
As most of the Company's leases do not provide an implicit rate, DXC uses its incremental borrowing rate based on the
information available at commencement to determine the present value of lease payments. The incremental borrowing
rate is the rate of interest that DXC would have to pay to borrow, on a collateralized basis, an amount equal to the lease
payments, in a similar economic environment and over a similar term. The rate is dependent on several factors, including
the lease term, currency of the lease payments and the Company's credit ratings.
Operating ROU assets also includes any lease payments made and excludes lease incentives. The Company's lease
terms may include options to extend or terminate the lease. Operating ROU assets and lease liabilities include these
options when it is reasonably certain that they will be exercised. Lease arrangements generally do not contain any
residual value guarantees or material restrictive covenants.
Lease expense for lease payments is recognized on a straight-line basis over the lease term. Variable lease expense is
related to the Company's leased real estate for offices and primarily includes labor and operational costs. DXC subleases
certain leased office space to third parties when it determines there is excess leased capacity. Sublease income was not
material for all periods presented. The Company combines lease and non-lease components under its lease agreements.
Revenue Recognition
Effective April 1, 2018, the Company adopted ASU 2014-09, “Revenue from Contracts with Customers (ASC 606),” using
the modified retrospective method. Refer to New Accounting Standards below and Note 20 - “Revenue” for further
discussion of the impact of adoption and other required disclosures. The Company’s accounting policy related to the new
revenue standard is summarized below.
69
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's primary service offerings are information technology outsourcing, other professional services, or a
combination thereof. Revenues are recognized when control of the promised goods or services is transferred to DXC's
customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods
or services.
DXC determines revenue recognition through the five-step model as follows:
Identification of the contract, or contracts, with a customer
Identification of the performance obligations in the contract
•
•
• Determination of the transaction price
• Allocation of the transaction price to the performance obligations in the contract
• Recognition of revenue when, or as, the Company satisfies a performance obligation
DXC's IT outsourcing ("ITO") arrangements typically reflect a single performance obligation that comprises a series of
distinct services which are substantially the same and provided over a period of time using the same measure of
progress. Revenue derived from these arrangements is recognized over time based upon the level of services delivered in
the distinct periods in which they are provided based on time increments. When other parties are involved in providing
goods or services as part of our customer arrangements, DXC recognizes revenue on a gross basis as a principal when it
controls goods or services before they are transferred to the customer. DXC's contracts often include upfront fees billed
for activities to familiarize DXC with the client's operations, take control over their administration and operation, and adapt
them to DXC's solutions. Upfront fees are generally recognized ratably over the contract period, which approximates the
manner in which the services are provided. These activities typically do not qualify as performance obligations, and the
related revenues are allocated to the relevant performance obligations and recognized ratably over time as the
performance obligation is satisfied during the period in which DXC provides the related service, which is typically the life of
the contract. Software transactions that include multiple performance obligations are described below.
For contracts with multiple performance obligations, DXC allocates the contract’s transaction price to each performance
obligation based on the relative standalone selling price of each distinct good or service in the contract. 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 the Company forecasts its expected costs of satisfying a
performance obligation and then adds an appropriate margin for that distinct good or service.
DXC's ITO arrangements may also contain embedded leases for equipment used to fulfill services. A contract with a
customer includes an embedded lease when DXC grants the customer a right to control the use of an identified asset for
a period of time in exchange for consideration. Embedded leases with customers are typically recognized either as a
sales type lease in which Revenue and Cost of Sales is recognized upon lease commencement; or they may be
recognized as operating leases in which revenue is recognized over the usage period.
The transaction price of a contract is determined based on fixed and variable consideration. Variable consideration related
to the Company’s ITO offerings often include volume-based pricing that are allocated to the distinct days of the services to
which the variable consideration pertains. However, in certain cases, estimates of variable consideration, including
penalties, contingent milestone payments and rebates are necessary. The Company only includes estimates of variable
consideration in the transaction price to the extent it is probable that a significant reversal of cumulative revenue
recognized will not occur. These judgments involve consideration of historical and expected experience with the customer
and other similar customers, and the facts and circumstances specific to the arrangement.
The Company generally provides its services under time and materials contracts, unit price contracts, fixed-price
contracts, and software contracts for which revenue is recognized in the following manner:
Time and materials contracts. Revenue is recognized over time at agreed-upon billing rates when services are provided.
Unit-price contracts. Revenue is recognized over time based on unit metrics multiplied by the agreed upon contract unit
price or when services are delivered.
70
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fixed-price contracts. For certain fixed-price contracts, revenue is recognized over time using a method that measures the
extent of progress towards completion of a performance obligation, generally using a cost-input method (referred to as the
percentage-of-completion cost-to-cost method). Under the percentage-of-completion cost-to-cost method, revenue is
recognized based on the proportion of total cost incurred to estimated total costs at completion. A performance obligation's
estimate at completion includes all direct costs such as materials, labor, subcontractor costs, overhead, and a ratable
portion of general and administrative costs. If output or input measures are not available or cannot be reasonably
estimated, revenue is deferred until progress can be measured and costs are not deferred unless they meet the criteria for
capitalization. Under the percentage-of-completion cost-to-cost method, progress towards completion is measured based
on either achievement of specified contract milestones, costs incurred as a proportion of estimated total costs, or other
measures of progress when appropriate. Profit in a given period is reported at the estimated profit margin to be achieved
on the overall contract.
Software contracts. Certain of DXC's arrangements involve the sale of DXC proprietary software, post contract customer
support, and other software-related services. The standalone selling price generally is determined for each performance
obligation using an adjusted market assessment approach based on the price charged where each deliverable is sold
separately. In certain limited cases (typically for software licenses) when the historical selling price is highly variable, the
residual approach is used. This approach allocates revenue to the performance obligation equal to the difference between
the total transaction price and the observable standalone selling prices for the other performance obligations. Revenue
from distinct software licenses is recognized at a point in time when the customer can first use the software license. If
significant customization is required, software revenue is recognized as the related software customization services are
performed in accordance with the percentage-of-completion method described above. Revenue for post contract
customer support and other software services is recognized over time as those services are provided.
Practical Expedients and Exemptions
DXC does not adjust the promised amount of consideration for the effects of a significant financing component when the
period between when DXC transfers a promised good or service to a customer and when the customer pays for that good
or service will be one year or less. In addition, the Company reports revenue net of any revenue-based taxes assessed by
a governmental authority that are imposed on and concurrent with specific revenue-producing transactions, such as sales
taxes and value-added taxes.
Contract Balances
The timing of revenue recognition, billings and cash collections results in accounts receivable (billed receivables, unbilled
receivables and contract assets) and deferred revenue and advance contract payments (contract liabilities) on the
Company's balance sheets. In arrangements that contain an element of customized software solutions, amounts are
generally billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals (e.g.
monthly) or upon achievement of certain contractual milestones. Generally, billing occurs subsequent to revenue
recognition, sometimes resulting in contract assets if the related billing is conditional upon more than just the passage of
time. However, the Company sometimes receives advances or deposits from customers, before revenue is recognized,
which results in the generation of contract liabilities. Payment terms vary by type of product or service being provided as
well as by customer, although the term between invoicing and when payment is due is generally an insignificant period of
time.
Costs to Obtain a Contract
Certain sales commissions earned by the Company's sales force are considered incremental and recoverable costs of
obtaining a contract with a customer. The majority of sales commissions are paid based on the achievement of quota-
based targets. These costs are deferred and amortized on a straight-line basis over an average period of benefit
determined to be five years. The Company determined the period of benefit considering the length of its customer
contracts, its technology and other factors. The period of benefit approximates the average stated contract terms,
excluding expected future renewals, because sales commissions are paid upon contract renewal in a manner
commensurate with the initial commissions. Some commission payments are not capitalized because they are expensed
during the fiscal year as the related revenue is recognized. Capitalized sales commissions costs are classified within other
assets and amortized in selling, general and administrative expenses.
71
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Costs to Fulfill a Contract
Certain contract setup costs incurred upon initiation or renewal of an outsourcing contract that generate or enhance
resources to be used in satisfying future performance obligations are capitalized when they are deemed recoverable.
Judgment is applied to assess whether contract setup costs are capitalizable. Costs that generate or enhance resources
often pertain to activities that enhance the capabilities of the services, improve customer experience and establish a more
effective and efficient IT environment. The Company recognizes these transition and transformation contract costs as
other assets, which are amortized over the respective contract life.
Pension and Other Benefit Plans
The Company accounts for its pension, other post-retirement benefit ("OPEB"), defined contribution and deferred
compensation plans using the guidance of ASC 710 "Compensation - General" and ASC 715 "Compensation - Retirement
Benefits". The Company recognizes actuarial gains and losses and changes in fair value of plan assets in earnings at the
time of plan remeasurement as a component of net periodic benefit expense. Typically plan remeasurement occurs
annually during the fourth quarter of each fiscal year. The remaining components of pension and OPEB expense, primarily
current period service and interest costs and expected return on plan assets, are recorded on a quarterly basis.
Inherent in the application of the actuarial methods are key assumptions, including, but not limited to, discount rates,
expected long-term rates of return on plan assets, mortality rates, rates of compensation increases, and medical cost
trend rates. Company management evaluates these assumptions annually and updates assumptions as necessary. The
fair value of assets is determined based on the prevailing market prices or estimated fair value of investments when
quoted prices are not available.
Software Development Costs
After establishing technological feasibility, and until such time as the software products are available for general release to
customers, the Company capitalizes costs incurred to develop commercial software products to be sold, leased or
otherwise marketed. Costs incurred to establish technological feasibility are charged to expense as incurred.
Enhancements to software products are capitalized where such enhancements extend the life or significantly expand the
marketability of the products. Amortization of capitalized software development costs is determined separately for each
software product. Annual amortization expense is calculated based on the greater of the ratio of current gross revenues
for each product to the total of current and anticipated future gross revenues for the product or the straight-line
amortization method over the estimated useful life of the product.
Unamortized capitalized software costs associated with commercial software products are periodically evaluated for
impairment on a product-by-product basis by comparing the unamortized balance to the product’s net realizable value.
The net realizable value is the estimated future gross revenues from that product reduced by the related estimated future
costs. When the unamortized balance exceeds the net realizable value, the unamortized balance is written down to the
net realizable value and an impairment charge is recorded.
The Company capitalizes costs incurred to develop internal-use computer software during the application development
stage. Costs related to preliminary project activities and post-implementation activities are expensed as incurred. Internal
and external costs incurred in connection with development of upgrades or enhancements that result in additional
functionality are also capitalized. Capitalized costs associated with internal-use software are amortized on a straight-line
basis over the estimated useful life of the software. Purchased software is capitalized and amortized over the estimated
useful life of the software. Internal-use software assets are evaluated for impairment whenever events or changes in
circumstances occur that could impact the recoverability of these assets.
72
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Share-Based Compensation
Share-based awards are accounted for under the fair value method. The Company provides different forms of share-
based compensation to its employees and non-employee directors. This includes stock options and restricted stock units
("RSUs"), including performance-based restricted stock units ("PSUs"). The fair value of the awards is determined on the
grant date, based on the Company's closing stock price. For awards settled in shares, the Company recognizes
compensation expense based on the grant-date fair value net of estimated forfeitures over the vesting period. For awards
settled in cash, the Company recognizes compensation expense based on the fair value at each reporting date net of
estimated forfeitures.
The Company uses the Black-Scholes-Merton model to compute the estimated fair value of options granted. This model
includes assumptions regarding expected term, risk-free interest rates, expected volatility and dividend yields which are
periodically evaluated. The expected term is calculated based on the Company’s historical experience with respect to its
stock plan activity and an estimate of when vested and unexercised option shares will be exercised. The expected term of
options is based on job tier classifications, which have different historical exercise behavior. The risk-free interest rate is
based on the zero-coupon interest rate of U.S. government issued treasury STRIPS with a period commensurate with the
expected term of the options.
Expected volatility is based on a blended approach, which uses a two-thirds weighting for historical volatility and one-third
weighting for implied volatility. The Company’s historical volatility calculation is based on employee class and historical
closing prices of the Company's peer group, in order to better align this factor with the expected terms of the stock
options. DXC’s implied stock price volatility is derived from the price of exchange traded options on DXC’s stock with the
longest remaining contractual term. Implied volatility is a prospective, forward looking measure representing market
participants’ expectations of DXC's future stock price volatility. The dividend yield assumption is based on the respective
fiscal year dividend payouts. Forfeitures are estimated based on historical experience.
Business Combinations
Companies acquired during each reporting period are reflected in the results of the Company effective from their
respective dates of acquisition through the end of the reporting period. The Company allocates the fair value of purchase
consideration to the assets acquired and liabilities assumed based on their fair values at the acquisition date. The excess
of the fair value of purchase consideration over the fair value of the assets acquired and liabilities assumed in the
acquired entity is recorded as goodwill. If the Company obtains new information about facts and circumstances that
existed as of the acquisition date during the measurement period, which may be up to one year from the acquisition date,
the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to
goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or
liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company's statements of
operations. For contingent consideration recorded as a liability, the Company initially measures the amount at fair value as
of the acquisition date and adjusts the liability, if needed, to fair value each reporting period. Changes in the fair value of
contingent consideration, other than measurement period adjustments, are recognized as income or expense. Acquisition-
related expenses and post-acquisition integration costs are recognized separately from the business combination and are
expensed as incurred.
Goodwill Impairment Analysis
Effective July 1, 2019, the Company adopted ASU 2017-04, "Intangibles-Goodwill and Other (Topic 350), Simplifying the
Test for Goodwill Impairment" using the prospective method. Refer to the Recently Adopted Accounting Pronouncements
section of this Note and Note 11 - "Goodwill" for further discussion of impact of adoption and other required disclosures.
73
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company tests goodwill for impairment on an annual basis, as of the first day of the second fiscal quarter, and
between annual tests if circumstances change, or if an event occurs that would more likely than not reduce the fair value
of a reporting unit below its carrying amount. The Company has defined its reporting units as its reportable segments. A
significant amount of judgment is involved in determining whether an event indicating impairment has occurred between
annual testing dates. Such indicators include: a significant decline in the Company's stock price, a significant decline in
expected future cash flows, a significant adverse change in legal factors or in the business climate, unanticipated
competition, the disposal of a significant component of a reporting unit and the testing for recoverability of a significant
asset group within a reporting unit.
The Company initially assesses qualitative factors to determine whether it is more likely than not that the fair value of a
reporting unit is less than its carrying amount. This qualitative assessment considers all relevant factors specific to the
reporting units, including macroeconomic conditions; industry and market considerations; overall financial performance
and relevant entity-specific events.
If the Company determines that it is not more likely that the carrying amount for a reporting unit is less than its fair value,
then subsequent quantitative goodwill impairment testing is not required. If the Company determines that it is more likely
than not that the carrying amount for a reporting unit is greater than its fair value, then it proceeds with a subsequent
quantitative goodwill impairment test.
The Company has the option to bypass the initial qualitative assessment stage and proceed directly to the quantitative
goodwill impairment test. The quantitative goodwill impairment test compares each reporting unit’s fair value to its carrying
value. If the reporting unit’s fair value exceeds its carrying value, no further procedures are required. However, if a
reporting unit’s fair value is less than its carrying value, then an impairment charge is recorded in the amount of the
excess.
When the Company performs the quantitative goodwill impairment test for a reporting unit, it estimates the fair value of the
reporting unit using both the income approach and the market approach. The income approach uses a discounted cash
flow method in which the estimated future cash flows and terminal values for each reporting unit are discounted to present
value using a discount rate. Cash flow projections are based on management's estimates of economic and market
conditions, which drive key assumptions of revenue growth rates, operating margins, capital expenditures and working
capital requirements. The discount rate is based on the specific risk characteristics of each reporting unit, the weighted-
average cost of capital and its underlying forecasts. The market approach estimates fair value by applying performance-
metric multiples to the reporting unit's prior and expected operating performance. The multiples are derived from
comparable publicly traded companies that have operating and investment characteristics similar to those of the reporting
unit. If the fair value of the reporting unit derived using one approach is significantly different from the fair value estimate
using the other approach, the Company reevaluates its assumptions used in the two models. Assumptions are modified
as considered appropriate under the circumstances until the two models yield similar and reasonable results. The fair
values determined by the market approach and income approach, as described above, are weighted to determine the fair
value for each reporting unit. The weighting ascribed to the market approach fair value assigned to each reporting unit is
influenced by two primary factors: 1) the number of comparable publicly traded companies used in the market approach,
and 2) the similarity of the operating and investment characteristics of the reporting units to the comparable publicly
traded companies used in the market approach.
If DXC performs a quantitative goodwill impairment test for all of its reporting units in conjunction with its annual goodwill
testing, it also compares the sum of all of its reporting units’ fair values to the Company's market capitalization (per-share
stock price multiplied by the number of shares outstanding) and calculates an implied control premium representing the
excess of the sum of the reporting units’ fair values over the market capitalization. The Company evaluates the
reasonableness of the control premium by comparing it to control premiums derived from recent comparable business
combinations. If the implied control premium is not supported by market data, the Company reconciles its fair value
estimates of the reporting units to a market capitalization supported by relevant market data. As a result, when DXC’s
stock price and thus market capitalization is low relative to the sum of the estimated fair value of its reporting units, this
reconciliation can result in reductions to the estimated fair values for the reporting units.
74
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value
The Company applies fair value accounting for its financial assets and liabilities and non-financial assets and liabilities
that are recognized or disclosed at fair value in the financial statements on a recurring basis. The objective of a fair
value measurement is to estimate the price to sell an asset or transfer a liability in an orderly transaction between
market participants at the measurement date under current market conditions. Such transactions to sell an asset or
transfer a liability are assumed to occur in the principal market for that asset or liability, or in the absence of the
principal market, the most advantageous market.
Assets and liabilities subject to fair value measurement disclosures are required to be classified according to a three-
level fair value hierarchy with respect to the inputs used to determine fair value. The level in which an asset or liability
is disclosed within the fair value hierarchy is based on the lowest level input that is significant to the related fair value
measurement in its entirety. The levels of input are defined as follows:
Level 1: Quoted prices unadjusted for identical assets or liabilities in an active market.
Level 2: Quoted prices for similar assets or liabilities in an active market, quoted prices for identical similar assets
or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-
corroborated inputs which are derived principally from or corroborated by observable market data.
Level 3: Unobservable inputs that reflect the entity's own assumptions which market participants would use in
pricing the asset or liability.
Receivables
The Company records receivables at their face amounts less an allowance for doubtful accounts. Receivables consist of
amounts billed and currently due from customers, amounts earned but unbilled (including contracts measured under the
percentage-of-completion cost-to-cost method of accounting), amounts retained by the customer until the completion of a
specified contract, negotiation of contract modification and claims. Unbilled recoverable amounts under contracts in
progress generally become billable upon achievement of project milestones or upon acceptance by the customer.
Allowances for uncollectible billed trade receivables are estimated based on a combination of write-off history, aging
analysis and any known collectability issues. Unbilled amounts under contracts in progress that are recoverable do not
have an allowance for credit losses. Adjustments to unbilled amounts under contracts in progress related to credit quality,
should they occur, would be recorded as a reduction of revenues.
DXC uses receivables securitization facilities or receivables sales facilities in the normal course of business as part of
managing its cash flows. The Company accounts for receivables sold under these facilities as a sale of financial assets
pursuant to ASC 860 “Transfers and Servicing” and derecognizes these receivables, as well as the related allowances,
from its balance sheets. Generally, the fair value of the sold receivables approximates the book value due to the short-
term nature and, as a result, no gain or loss on sale of receivables is recorded. Under the receivables securitization
facility, the deferred purchase price receivable is recorded at fair value, which is determined by calculating the expected
amount of cash to be received based on unobservable inputs consisting of the face amount of the receivables adjusted for
anticipated credit losses.
The Company reflects cash flows related to its beneficial interests in securitization transactions, which is the deferred
purchase price (the “DPP”) recorded in connection with the Company's Receivables Securitization Facility, within investing
activities in its statements of cash flows.
Property and Equipment
Property and equipment, which includes assets under capital leases, are stated at cost less accumulated depreciation.
Depreciation is computed predominantly on a straight-line basis over the estimated useful lives of the assets or the
remaining lease term, whichever is shorter. The estimated useful lives of DXC's property and equipment are as follows:
Buildings
Computers and related equipment
Furniture and other equipment
Leasehold improvements
Up to 40 years
4 to 7 years
3 to 15 years
Shorter of lease term or useful life up to 20 years
75
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with its policy, the Company reviews the estimated useful lives of its property and equipment on an ongoing
basis. As a result, effective fiscal year 2020, the Company changed its estimate of the useful lives of its computers and
related equipment from an average of four to five years to an average of four to seven years , which better reflects the
estimated periods during which these assets will remain in service. This change resulted in a $225 million decrease to
depreciation expense for the fiscal year ended March 31, 2020.
Intangible Assets
The Company's estimated useful lives for finite-lived intangibles are shown in the table below:
Software
Customer related intangibles
2 to 10 years
Expected customer service life
Acquired contract related intangibles
Contract life and first contract renewal, where applicable
Software is amortized using predominately the straight-line method. Acquired contract related and customer related
intangible assets are amortized in proportion to the estimated undiscounted cash flows projected over the estimated life of
the asset or on a straight-line basis if such cash flows cannot be reliably estimated.
Impairment of Long-Lived Assets and Finite-Lived Intangible Assets
Long-lived assets such as property and equipment and finite-lived intangible assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be
recoverable. Recoverability of long-lived assets or groups of assets is assessed based on a comparison of the carrying
amount of such assets to the estimated future net cash flows. If estimated future net cash flows are less than the carrying
amount of such assets, an expense is recorded in the amount required to reduce the carrying amount of such assets to
fair value. Fair value is determined based on a discounted cash flow approach or, when available and appropriate,
comparable market values. Long-lived assets to be disposed of are reported at the lower of their carrying amount or their
fair value less costs to sell.
Income Taxes
The Company uses the liability method in accounting for income taxes. Deferred tax assets and liabilities are recorded for
the expected future tax consequences of temporary differences between financial statement carrying amounts of assets
and liabilities and their respective tax bases, using statutory tax rates in effect for the year in which the differences are
expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the results of
operations in the period that includes the related enactment date.
A valuation allowance is established when it is more likely than not that all or a portion of a deferred tax asset will not be
realized. Changes in valuation allowances from period to period are included in the Company’s tax provision during the
period in which the change occurred. In determining whether a valuation allowance is warranted, the Company considers
all available positive and negative evidence, including future reversals of existing taxable temporary differences, taxable
income in prior carryback years, projected future taxable income, tax planning strategies and recent financial operations.
The Company recognizes uncertain tax positions when it is more likely than not that the tax position will be sustained
upon examination. Uncertain tax positions are measured based on the probabilities that the uncertain tax position will be
realized upon final settlement.
All tax-related cash flows resulting from excess tax benefits related to the settlement of share-based awards are classified
as cash flows from operating activities and cash paid by directly withholding shares for tax withholding purposes is
classified as a financing activity in the statements of cash flows.
Cash and Cash Equivalents
The Company considers investments with an original maturity of three months or less to be cash equivalents. The
Company’s cash equivalents consist of time deposits, money market funds and money market deposit accounts with a
76
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
number of institutions that have high credit ratings.
Foreign Currency
The local currency of the Company's foreign affiliates is generally their functional currency. Accordingly, the assets and
liabilities of the foreign affiliates are translated from their respective functional currency to U.S. dollars using fiscal year-
end exchange rates, income and expense accounts are translated at the average rates in effect during the fiscal year and
equity accounts are translated at historical rates. The resulting translation adjustment is reported in the statements of
comprehensive income and recorded as part of accumulated other comprehensive income ("AOCI").
Derivative Instruments
The Company designates certain derivative instruments as hedges for purposes of hedge accounting, as defined under
ASC 815 “Derivatives and Hedging.” For such derivative instruments, the Company documents its risk management
objectives and strategy for undertaking hedging transactions, as well as all relationships between hedging and hedged
risks. The Company's derivative instruments designated for hedge accounting include interest rate swaps and foreign
currency forward and option contracts. Changes in the fair value measurements of these derivative instruments are
reflected as adjustments to other comprehensive income and subsequently reclassified into earnings in the period during
which the hedged transactions occurred. Any ineffectiveness or excluded portion of a designated hedge is recognized in
earnings.
The Company also has entered into certain net investment hedges. Changes in the fair value of net investment hedges
are recorded in the currency translation adjustment section of other comprehensive income and subsequently reclassified
into earnings in the period the hedged item affects earnings. The Company excludes forward points from the effectiveness
assessment of its net investment hedges. Changes in fair value of the excluded component are recognized in earnings.
The derivative instruments not designated as hedges for purposes of hedge accounting include total return swaps and
certain short-term foreign currency forward contracts. These instruments are recorded at their respective fair values and
the change in their value is reported in current period earnings. The Company does not use derivative instruments for
trading or speculative purpose. The Company reports the effective portion of its cash flow hedges in the same financial
statement line item as changes in the fair value of the hedged item. All cash flows associated with the Company's
derivative instruments are classified as operating activities in the statements of cash flows.
77
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recently Adopted Accounting Pronouncements
During fiscal 2020, DXC adopted the following Accounting Standards Updates ("ASU") issued by the Financial Accounting
Standards Board:
78
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Description
Impact
Date Issued and
ASU
Date Adopted
and Method
February 2016
ASU 2016-02
"Leases (Topic
842)"
April 1, 2019
Modified
retrospective
This update is intended to increase transparency
and comparability among organizations by
recognizing virtually all lease assets and lease
liabilities on the balance sheet and disclosing key
information about lease arrangements. This
update must be adopted using a modified
retrospective transition at the beginning of the
earliest period presented or at the adoption date
recognizing a cumulative adjustment to the
opening balance of retained earnings in the
period of adoption and provides for certain
practical expedients.
The Company adopted this update utilizing the simplified
transition method allowing the Company to not restate
comparative periods and apply Topic 842 beginning on
April 1, 2019. During adoption, the Company implemented
changes in its systems, including the implementation of
new lease accounting software, internal controls, business
processes, and accounting policies related to both the
implementation of, and ongoing compliance with, the new
guidance. The adoption resulted in following impacts.
The Company recorded increases of $1.7 billion in assets
and $1.8 billion in liabilities as of April 1, 2019, due to the
recording of operating ROU assets and operating lease
liabilities for lease obligations that were historically
classified as operating leases. The Company's cumulative
adjustment to the opening balance of retained earnings
was not material. Additionally, the update did not have a
material impact on the statements of operations or
statements of cash flows.
DXC elected the practical expedient package permitted
under Topic 842, which among other things, permits the
Company not to reassess historical conclusions related to
contracts that contain leases, lease classification and initial
direct costs for leases that commenced prior to the
adoption date. DXC applied the lessee component
election, allowing the Company to account for lease and
non-lease components as a single lease component. In
addition, DXC made an accounting policy election to not
capitalize leases with an initial term of 12 months or less
that do not contain a ‘reasonably certain’ purchase option.
Refer to Note 6 - "Leases" for additional information.
The Company adopted this update and opted to not elect
to reclassify any stranded tax effects within AOCI to
retained earnings, and as such, the adoption of ASU
2018-02 did not have an effect on its condensed
consolidated financial statements. In accordance with its
accounting policy, the Company uses the portfolio
approach and will release income tax effects from AOCI
once the reason the tax effects were established cease to
exist (e.g., when available-for-sale debt securities are sold
or if a pension plan is liquidated).
DXC early adopted this guidance on a prospective basis
as of July 1, 2019. As a result of adopting this ASU, the
Company no longer performs Step 2 while completing its
goodwill impairment testing, beginning with its annual
goodwill impairment testing performed during the second
quarter of fiscal 2020.
DXC's impairment testing resulted in non-cash impairment
charges of $6,794 million, consisting of $3,789 million and
$3,005 million in its GBS and GIS reporting units,
respectively. See Note 11 - "Goodwill" for additional
information.
February 2018
ASU 2018-02 -
"Income Statement
- Reporting
Comprehensive
Income (Topic
220):
Reclassification of
Certain Tax Effects
from Accumulated
Other
Comprehensive
Income"
January 2017
ASU 2017-04,
"Intangibles -
Goodwill and Other
(Topic 350):
Simplifying the test
for Goodwill
Impairment"
April 1, 2019
Retrospective
This update provides an option to reclassify
stranded tax effects within accumulated other
comprehensive income ("AOCI") to retained
earnings in each period in which the effect (or
portion thereof) of the change in the U.S. federal
corporate income tax rate in the Tax Cuts and
Jobs Act is recorded.
July 1, 2019
Prospective
This update is intended to simplify goodwill
impairment testing by eliminating Step 2 from the
goodwill impairment test. Under the new
guidance, if a reporting unit’s carrying amount
exceeds its fair value, the entity will record an
impairment loss based on that difference. The
impairment loss will be limited to the amount of
goodwill allocated to that reporting unit.
Previously, if the fair value of a reporting unit was
lower than its carrying amount (Step 1), an entity
was required to calculate any impairment loss by
comparing the implied fair value of goodwill with
its carrying amount (Step 2). Additionally, under
the new standard, companies that have reporting
units with zero or negative carrying amounts will
no longer be required to perform the qualitative
assessment to determine whether to perform
Step 2 of the goodwill impairment test. As a
result, reporting units with zero or negative
carrying amounts will generally be expected to
pass the simplified impairment test; however,
additional disclosure will be required of those
companies.
79
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
New Accounting Pronouncements:
The following ASUs were recently issued but have not yet been adopted by DXC:
Date Issued and ASU
DXC Effective Date
Description
Impact
June 2016
Fiscal 2021
ASU 2016-13,
“Financial Instruments -
Credit Losses (Topic
326): Measurement of
Credit Losses on
Financial Instruments”
August 2018
Fiscal 2021
ASU 2018-15,
"Intangibles - Goodwill
and Other - Internal-Use
Software (Subtopic
350-40): Customer’s
Accounting for
Implementation Costs
Incurred in a Cloud
Computing Arrangement
That Is a Service
Contract"
This update is intended to provide financial statement
users with more decision-useful information about the
expected credit losses on financial instruments and
other commitments to extend credit held by a
reporting entity at each reporting date. To achieve this
objective, the amendments in this update replace the
existing incurred loss impairment methodology with a
methodology that reflects expected credit losses and
requires consideration of a broader range of
reasonable and supportable information to inform
credit loss estimates. This update must be adopted
using a prospective transition approach for debt
securities for which an other-than-temporary
impairment has been recognized before the effective
date.
This update helps entities evaluate the accounting for
fees paid by a customer in a cloud computing
arrangement (hosting arrangement) by providing
guidance for determining when the arrangement
includes a software license. Entities have the option to
apply this standard prospectively to all implementation
costs incurred after the date of adoption or
retrospectively.
DXC has evaluated its trade receivables
and financial arrangements and
determined that the adoption of ASU
2016-13 will be immaterial to the
consolidated financial statements.
DXC has evaluated the impact of adopting
ASU 2018-15 and determined that the
adoption will be immaterial to the
consolidated financial statements.
August 2018
Fiscal 2021
ASU 2018-13 – "Fair
Value Measurement
(Topic 820): Disclosure
Framework – Changes
to the Disclosure
Requirements for Fair
Value Measurement"
This update is to improve the effectiveness of fair
value measurement disclosures. The amendments in
this ASU modify the disclosure requirements on fair
value measurements based on the concepts in FASB
Concepts Statement, Conceptual Framework for
Financial Reporting-Chapter 8: Notes to Financial
Statements, including the consideration of costs and
benefits.
DXC is currently evaluating to determine
what updates may be required and
disclosed.
Other recently issued ASUs effective after March 31, 2020 are not expected to have a material effect on DXC's
consolidated financial statements.
Note 2 - Acquisitions
Fiscal 2020 Acquisitions
Luxoft Acquisition
On June 14, 2019, DXC completed the acquisition of Luxoft, a digital service provider whose offerings encompass
strategic consulting, custom software development services, and digital solution engineering for total consideration of $2.0
billion. The acquisition will combine Luxoft’s digital engineering capabilities with DXC’s expertise in IT modernization and
integration. The purchase agreement (“Merger Agreement”) was entered into by DXC and Luxoft on January 6, 2019 and
the transaction was closed on June 14, 2019.
The transaction between DXC and Luxoft is an acquisition, with DXC as the acquirer and Luxoft as the acquiree, based
on the fact that DXC acquired 100% of the equity interests and voting rights in Luxoft, and that DXC is the entity that
transferred the cash consideration.
80
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The purchase price allocation was finalized during the fourth quarter of fiscal 2020. The Company's allocation of the
purchase price to the assets acquired and liabilities assumed as of the Luxoft acquisition date is as follows:
(in millions)
Cash and cash equivalents
Accounts receivable
Other current assets
Total current assets
Property and equipment
Intangible assets
Other assets
Total assets acquired
Accounts payable, accrued payroll, accrued expenses, and other current liabilities
Deferred revenue
Long-term deferred tax liabilities and income tax payable
Other liabilities
Total liabilities assumed
Net identifiable assets acquired
Goodwill
Total consideration transferred
Fair Value
113
233
15
361
31
577
99
1,068
(121)
(8)
(106)
(72)
(307)
761
1,262
2,023
$
$
Goodwill represents the excess of the purchase price over the fair value of identifiable assets acquired and liabilities
assumed at the acquisition date. The goodwill recognized with the acquisition was attributable to the synergies expected
to be achieved by combining the businesses of DXC and Luxoft, expected future contracts and the acquired workforce.
The cost-saving opportunities are expected to include improved operating efficiencies and asset optimization. The total
goodwill arising from the acquisition was allocated to GBS and is not deductible for tax purposes. See Note 11 -
"Goodwill."
As of the period March 31, 2020, the Company made a number of refinements to the June 14, 2019 purchase price
allocation. These refinements were primarily driven by the Company recording valuation adjustments that increased
customer related intangibles by $6 million and historical deferred tax adjustments including $22 million uncertain tax
positions which resulted in a decrease in net identifiable assets of $17 million.
Current assets and liabilities
The Company valued current assets and liabilities using existing carrying values as an estimate of the approximate fair
value of those items at the acquisition date except for certain contract receivables for which the Company determined fair
value based on a cost plus margin approach.
Property and equipment
The acquired property and equipment are summarized in the following table:
(in millions)
Land, buildings, and leasehold improvements
Computers and related equipment
Furniture and other equipment
Total
81
Amount
8
12
11
31
$
$
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The company valued acquired property and equipment using the direct capitalization method of the income approach and
the cost approach. For all other categories of property and equipment, based on the nature of the assets, the Company
determined that the net book value represents the fair value.
Identified intangible assets
The acquired identifiable intangible assets are summarized in the following table:
(in millions)
Customer related intangibles
Trade names
Developed technology
Third-party purchased software
Total
Estimated
Useful Lives
(Years)
10
20
3
3
Amount
417
143
6
11
577
$
$
Developed technology and third-party purchased software are included in the software category and trade names are
included in the other intangible assets category in Note 10 -"Intangible Assets".
The Company valued customer relationships using the multi-period excess earnings method under the income approach
and valued trade names and developed technology using a relief from royalty method under the income approach. The
Company determined that the net book value of the purchased software represents the fair value.
Deferred tax liabilities
The Company valued deferred tax liabilities based on statutory tax rates in the jurisdictions of the legal entities where the
acquired non-current assets and liabilities are taxed.
Results of Operations
The Company's statement of operations includes the following revenues and net income
attributable to Luxoft since the acquisition date:
(in millions)
Revenues
Net income (loss)
Twelve Months Ended
March 31, 2020(1)
$
$
695
(25)
(1) Results for the fiscal year ended March 31, 2020 reflect operations subsequent to the acquisition date of June 14, 2019, not the full twelve
months of fiscal 2020.
Fiscal 2019 Acquisitions
Molina Medicaid Solutions Acquisition
On October 1, 2018, DXC completed its acquisition of Molina Medicaid Solutions ("MMS"), a Medicaid Management
Information Systems business, from Molina Healthcare, Inc. for the total consideration of $233 million. The combination of
MMS with DXC expands DXC’s ability to provide services to state agencies in the administration of Medicaid programs,
including business processing, information technology development and administrative services.
82
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The purchase price for the MMS was allocated to assets acquired and liabilities assumed based upon the current
determination of fair values at the date of acquisition as follows: $87 million to current assets, $112 million to intangible
assets other than goodwill, $11 million to other assets, $51 million to current liabilities, $18 million to other liabilities
and $92 million to goodwill. The goodwill is associated with the Company's GBS segment and is tax deductible. The
intangible assets acquired include customer relationships and developed technology which have a 13-year weighted
average estimated useful life.
Other Acquisitions
In addition to the MMS acquisition, DXC completed seven acquisitions to complement the Company's Microsoft Dynamics
and ServiceNow offerings and to provide opportunities for future growth. The acquired businesses are included in the
results for the GBS segment. The purchase consideration of $228 million included cash of $187 million and contingent
consideration with an estimated fair value of $41 million. The purchase price was allocated to assets acquired and
liabilities assumed based upon determination of fair values at the dates of acquisition as follows: $73 million to current
assets, $71 million to intangible assets other than goodwill, $10 million to other non-current assets, $63 million to current
liabilities and $137 million to goodwill. The goodwill is associated with the Company's GBS segment some of which is tax
deductible.
Fiscal 2018 Acquisitions
HPES Merger
On April 1, 2017, CSC, Hewlett Packard Enterprise Company (“HPE”), Everett SpinCo, Inc. (“Everett”), and New Everett
Merger Sub Inc., a wholly-owned subsidiary of Everett (“Merger Sub”), completed the strategic combination of CSC with
the Enterprise Services business of HPE to form DXC. The combination was accomplished through a series of
transactions that included the transfer by HPE of its Enterprise Services business, HPES, to Everett, and spin-off by HPE
of Everett on March 31, 2017, and the merger of Merger Sub with and into CSC on April 1, 2017. At the time of the HPES
Merger, Everett was renamed DXC, and as a result of the HPES Merger, CSC became a direct wholly owned subsidiary
of DXC. DXC common stock began regular-way trading on the New York Stock Exchange on April 3, 2017. The strategic
combination of the two complementary businesses was to create a versatile global technology services business, well
positioned to innovate, compete and serve clients in a rapidly changing marketplace.
The transaction involving HPES and CSC is a reverse merger acquisition, in which DXC is considered the legal acquirer
of the business and CSC is considered the accounting acquirer. While purchase consideration transferred in a business
combination is typically measured by reference to the fair value of equity issued or other assets transferred by the
accounting acquirer, CSC did not issue any consideration in the HPES Merger. CSC stockholders received one share of
DXC common stock for every one share of CSC common stock held immediately prior to the HPES Merger. DXC issued a
total of 141,298,797 shares of DXC common stock to CSC stockholders, representing approximately 49.9% of the
outstanding shares of DXC common stock immediately following the HPES Merger.
The reverse merger is deemed a capital transaction and the net assets of CSC (the accounting acquirer) are carried
forward to DXC (the legal acquirer and the reporting entity) at their carrying value before the combination. The acquisition
process utilizes the capital structure of the Company and the assets and liabilities of CSC, which are recorded at historical
cost. The equity of the Company is the historical equity of CSC, retroactively restated to reflect the number of shares
issued by DXC in the transaction.
83
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under the acquisition method of accounting, total consideration exchanged was:
(in millions)
Fair value of purchase consideration received by HPE stockholders(1)
Fair value of HPES options assumed by CSC(2)
Total consideration transferred
Amount
9,782
68
9,850
$
$
(1) Represents the fair value of consideration received by HPE stockholders to give them 50.1% ownership in the combined company. The fair value
of the purchase consideration transferred was based on a total of 141,865,656 shares of DXC common stock distributed to HPE stockholders as
of the close of business on the record date (141,741,712 after the effect of 123,944 cancelled shares) at CSC's closing price of $69.01 per share
on March 31, 2017.
(2) Represents the fair value of certain stock-based awards of HPES employees that were unexercised on March 31, 2017, which were converted to
DXC stock-based awards.
The purchase price allocation for the HPES Merger was finalized during the fourth quarter of fiscal 2018. The Company's
allocation of the purchase price to the assets acquired and liabilities assumed as of the HPES Merger date is as follows:
(in millions)
Cash and cash equivalents
Accounts receivable(1)
Other current assets
Total current assets
Property and equipment
Intangible assets(2)
Other assets(2)
Total assets acquired
Accounts payable, accrued payroll, accrued expenses, and other current liabilities
Deferred revenue
Long-term debt, net of current maturities
Long-term deferred tax liabilities and income tax payable
Other liabilities
Total liabilities assumed
Net identifiable assets acquired
Add: Fair value of non-controlling interests
Goodwill
Total consideration transferred
Fair Value
938
4,102
530
5,570
2,581
6,016
1,939
16,106
(4,605)
(1,315)
(4,806)
(1,550)
(1,322)
(13,598)
2,508
(50)
7,392
9,850
$
$
(1) Includes aggregate adjustments of $203 million received from HPE in accordance with the provisions of the Separation Agreement.
(2) Previously reported amounts were adjusted to reflect the reclassification of transition and transformation contract costs from intangible
assets to other assets to conform to the current year presentation.
Goodwill represents the excess of the purchase price over the fair value of identifiable assets acquired and liabilities
assumed at the HPES Merger date. The goodwill recognized with the HPES Merger was attributable to the synergies
expected to be achieved by combining the businesses of CSC and HPES, expected future contracts and the acquired
workforce. The goodwill arising from the HPES Merger was allocated to the Company's reportable segments as $2.8
billion to the GBS segment, $2.6 billion to the GIS segment and $2.0 billion to the USPS segment. The goodwill is not
deductible for tax purposes. See Note 11 - "Goodwill."
84
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company valued current assets and liabilities, with the exception of the current portion of deferred revenue and
capital leases, using existing carrying values as the fair value of those items as of the HPES Merger date. The Company
valued acquired property and equipment using predominately the market method, and in certain specific cases, the cost
method. The Company valued deferred tax assets and liabilities based on statutory tax rates in the jurisdictions of the
legal entities where the acquired non-current assets and liabilities are taxed. The Company valued intangible assets
predominately using the multi-period excess earnings method. Intangible assets include customer relationships which
have useful lives of 10-13 years and third-party purchased software which have useful lives of 2-7 years.
Subsequent to the HPES Merger, the Company divested USPS which was acquired in the HPES Merger. See Note 3 -
"Divestitures" for additional information about the divestiture of USPS.
Tribridge Acquisition
On July 1, 2017, DXC acquired all of the outstanding capital stock of Tribridge Holdings LLC, an independent integrator of
Microsoft Dynamics 365, for total consideration of $152 million. The acquisition includes the Tribridge affiliate company,
Concerto Cloud Services LLC. The combination of Tribridge with DXC expands DXC’s Microsoft Dynamics 365 global
systems integration business.
The purchase price is allocated to assets acquired and liabilities assumed based upon determination of fair values at the
date of acquisition as follows: $32 million to current assets, $4 million to property and equipment, $62 million to intangible
assets other than goodwill, $24 million to current liabilities and $78 million to goodwill. The goodwill is primarily associated
with the Company's GBS segment and is tax deductible. The intangible assets acquired include customer relationships
which have a 12-year estimated useful life.
Note 3 - Divestitures
Fiscal 2019 Separation of USPS
During fiscal 2019, the Company completed the USPS Separation and Mergers to form Perspecta, an independent public
company.
Implementation of the Separation and DXC's post-Separation relationship with Perspecta is governed by several
agreements, including the following:
•
•
•
•
•
•
•
•
a Separation and Distribution Agreement;
an Employee Matters Agreement;
a Tax Matters Agreement;
an Intellectual Property Matters Agreement;
a Transition Services Agreement;
a Real Estate Matters Agreement;
an IT Services Agreement and,
a Non-US Agency Agreement.
These agreements provide for the allocation of assets, employees, liabilities and obligations (including property, employee
benefits, litigation, and tax-related assets and liabilities) between DXC and Perspecta attributable to periods prior to, at
and after the Separation. In addition, DXC and Perspecta have service and commercial contracts that generally extend
through fiscal 2023. Results for the twelve months ended March 31, 2020 include $39 million of revenue and income from
continuing operations before taxes associated with the IT services agreement.
Pursuant to the Separation and Distribution Agreement, immediately prior to the Separation, Perspecta made a net cash
payment of $984 million to DXC, which reflects transaction consideration of $1,050 million less $66 million in principal
amount of debt that was outstanding at a subsidiary of Perspecta. Perspecta financed the payment through borrowings
under a new senior secured term loan facility.
85
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DXC's Chief Financial Officer, Paul N. Saleh, served as a Director of Perspecta until his term ended on August 13, 2019.
Due to Mr. Saleh's leadership position at DXC and former leadership position at Perspecta, Perspecta is considered a
related party under ASC 850 "Related Party Disclosures" for fiscal 2020. Transactions with Perspecta were immaterial to
the Company's financial statements for the fiscal year ended March 31, 2020 and balances due to and from Perspecta
were immaterial to the Company's balance sheet as of March 31, 2020.
The following is a summary of the assets and liabilities distributed as part of the Separation of USPS on May 31, 2018:
(in millions)
Assets:
Cash and cash equivalents
Receivables, net
Prepaid expenses
Other current assets
Total current assets of discontinued operations
Intangible assets, net(1)
Goodwill
Property and equipment, net
Other assets(1)
Total non-current assets of discontinued operations
Total assets
Liabilities:
Short-term debt and current maturities of long-term debt
Accounts payable
Accrued payroll and related costs
Accrued expenses and other current liabilities
Deferred revenue and advance contract payments
Income tax payable
Total current liabilities of discontinued operations
Long-term debt, net of current maturities
Non-current deferred revenue
Non-current income tax liabilities and deferred tax liabilities
Other long-term liabilities
Total long-term liabilities of discontinued operations
Total liabilities
As of
May 31, 2018
95
458
82
35
670
870
2,029
294
169
3,362
4,032
161
165
17
358
53
18
772
1,320
5
196
71
1,592
2,364
$
$
$
$
(1) Previously reported amounts were adjusted to reflect the reclassification of transition and transformation contract costs from intangible
assets to other assets to conform to the current year presentation.
86
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of the operating results of USPS which have been reflected within income from discontinued
operations, net of tax:
(in millions)
Revenue
Costs of services
Selling, general and administrative
Depreciation and amortization
Restructuring costs
Interest expense
Other (income) expense, net
Total costs and expenses
Fiscal Year Ended
March 31, 2019 (1)
431
$
Fiscal Year Ended
March 31, 2018
$
2,823
311
50
33
1
8
(25)
378
53
18
35
$
2,104
152
169
14
15
2
2,456
367
131
236
Total income from discontinued operations, before income taxes
Income tax expense
Total income from discontinued operations
$
(1) Results for the fiscal year ended March 31, 2019 reflect operations through the Separation date of May 31, 2018, not the full twelve-month period
as shown for the prior period.
There was no gain or loss on disposition recognized as a result of the Separation.
The following selected financial information of USPS is included in the statements of cash flows:
(in millions)
Depreciation
Amortization
Capital expenditures
Significant operating non-cash items:
Gain on dispositions
Fiscal Year Ended
March 31, 2019 (1)
16
$
Fiscal Year Ended
March 31, 2018
$
$
17
— $
24
$
70
99
(18)
—
$
$
$
(1) Results for the fiscal year ended March 31, 2019 reflect operations through the Separation date of May 31, 2018, not the full twelve-month period
as shown for the prior period.
87
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Earnings (Loss) Per Share
Basic EPS are computed using the weighted average number of common shares outstanding during the period. Diluted
EPS reflect the incremental shares issuable upon the assumed exercise of stock options and equity awards. The following
table reflects the calculation of basic and diluted EPS:
(in millions, except per-share amounts)
March 31, 2020 March 31, 2019 March 31, 2018
Fiscal Years Ended
Net (loss) income attributable to DXC common shareholders:
From continuing operations
From discontinued operations
Common share information:
Weighted average common shares outstanding for basic EPS
Dilutive effect of stock options and equity awards
Weighted average common shares outstanding for diluted EPS
EPS:
Basic
Continuing operations
Discontinued operations
Total
Diluted
Continuing operations
Discontinued operations
Total
$
$
$
$
$
$
(5,369) $
1,222
$
—
35
(5,369) $
1,257
$
258.57
—
258.57
277.54
3.89
281.43
(20.76) $
—
(20.76) $
(20.76) $
—
(20.76) $
4.40
$
0.13
4.53
$
4.35
$
0.12
4.47
$
1,515
236
1,751
284.93
4.84
289.77
5.32
0.83
6.15
5.23
0.81
6.04
Certain share based equity awards were excluded from the computation of dilutive EPS because inclusion of these
awards would have had an anti-dilutive effect. The following table reflects awards excluded:
Stock Options
RSUs
PSUs
Fiscal Years Ended
March 31, 2020(1)
1,075,901
2,029,567
289,972
March 31, 2019 March 31, 2018
—
46,051
25,086
—
54,637
96,029
(1) Due to the Company's net loss during fiscal 2020, stock options, RSUs and PSUs were excluded from the computation of dilutive EPS because
they would have had an anti-dilutive effect.
88
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Receivables
Receivables, net of allowance for doubtful accounts consist of the following:
(in millions)
Billed trade receivables
Unbilled receivables
Other receivables
Total
The following table summarizes activity for the allowance for doubtful accounts:
As of
March 31, 2020 March 31, 2019
$
$
2,094
$
1,419
879
4,392
$
2,508
1,114
1,559
5,181
(in millions)
Beginning balance
Additions charged to costs and expenses
Deductions(1)
Other(2)
Ending balance
(1) Represents write-offs and recoveries of prior year charges.
(2) Includes changes in foreign currency exchange rates.
Receivables Facility
As of and for Fiscal Years Ended
March 31, 2020 March 31, 2019 March 31, 2018
$
$
$
60
23
(4)
(5)
$
40
19
(4)
5
74
$
60
$
26
45
(37)
6
40
The Company has an accounts receivable sales facility (as amended, restated, supplemented or otherwise modified as of
March 31, 2020, the "Receivables Facility") with certain unaffiliated financial institutions (the "Purchasers") for the sale of
commercial accounts receivable in the United States. Under the Receivables Facility, the Company and certain of its
subsidiaries (the "Sellers") sell accounts receivable to DXC Receivables LLC ("Receivables SPV"), a wholly-owned
bankruptcy-remote entity, in a true sale. Receivables SPV subsequently sells certain of the receivables in their entirety to
the Purchasers pursuant to a receivables purchase agreement. The financial obligations of Receivables SPV to the
Purchasers under the Receivables Facility are limited to the assets it owns and non-recourse to the Company. Sales of
receivables by Receivables SPV occur continuously and are settled on a monthly basis. During the second quarter of
fiscal 2020, Receivables SPV amended the Receivables Facility (the "Amendment") to increase the investment limit from
$600 million to $750 million and extend the termination date to August 19, 2020. Under the terms of the amended
Receivables Facility, there are no longer deferred purchase prices ("DPP") for receivables as the entire purchase price is
paid in cash when the receivables are sold to the Purchasers. Prior to the Amendment, DPP's were realized by
Receivables SPV upon the ultimate collection of the underlying receivables sold to the Purchasers. Cash receipts on the
DPP were classified as cash flows from investing activities. The DPP was $525 million before the Amendment was
executed. Upon execution of the Amendment, the Purchasers extinguished the DPP and returned title to the applicable
underlying receivables titles to Receivables SPV. The DPP extinguishment was classified as a non-cash investing activity,
please refer to Note 17 - "Cash Flows."
The amount available under the Receivables Facility fluctuates over time based on the total amount of eligible receivables
generated during the normal course of business after deducting excess concentrations. As of March 31, 2020, the total
availability under the Receivables Facility was $750 million and the amount sold to the Purchasers was $750 million,
which was derecognized from the Company's balance sheet. The Receivables Facility is scheduled to terminate on
August 19, 2020, but provides for one or more optional one-year extensions, if agreed to by the Purchasers. The
Company uses the proceeds from Receivables SPV's sale of receivables under the Receivables Facility for general
corporate purposes.
89
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of the sold receivables approximated book value due to the short-term nature, and as a result, no gain or
loss on sale of receivables was recorded.
While the Company guarantees certain non-financial performance obligations of the Sellers, the Purchasers bear
customer credit risk associated with the receivables sold under the Receivables Facility and have recourse in the event of
credit-related customer non-payment solely to the assets of the Receivables SPV.
The following table is a reconciliation of the beginning and ending balances of the DPP:
(in millions)
Beginning balance
Transfers of receivables
Collections
Change in funding availability
Facility amendments
Fair value adjustment
Ending balance
German Receivables Facility
As of and for the Fiscal Year
Ended
March 31, 2020 March 31, 2019
$
574
$
1,214
(1,265)
2
(525)
—
$
— $
233
5,435
(4,393)
(246)
(457)
2
574
On October 1, 2019, DXC executed an accounts receivable securitization facility (as amended, restated, supplemented or
otherwise modified as of March 31, 2020, the "DE Receivables Facility") with certain unaffiliated financial institutions (the
"DE Purchasers") for the sale of commercial accounts receivable in Germany. The facility has an investment limit of €200
million (approximately $225 million as of March 31, 2020). Under the DE Receivables Facility, certain DXC subsidiaries
located in Germany (the "DE Sellers") sell billed and unbilled accounts receivable to DXC ARFacility Designated Activity
Company ("DE Receivables"), a trust owned bankruptcy-remote entity, in a true sale. Pursuant to a receivables purchase
agreement, DE Receivables subsequently sells the receivables to the DE Purchasers in return for payments of capital.
Sales of receivables by DE Receivables SPV occur continuously and are settled on a monthly basis. The proceeds from
the sale of these receivables comprise a combination of cash and DPP. The DPP is realized by the Company upon the
ultimate collection of the underlying receivables sold to the DE Purchasers. Cash receipts on the DPP are classified as
cash flows from investing activities.
The amount available under the DE Receivables Facility fluctuates over time based on the total amount of eligible
receivables generated during the normal course of business after deducting excess concentrations. As of March 31, 2020,
the total availability under the DE Receivables Facility was approximately $116 million and the drawn amount was $105
million. As of March 31, 2020, the Company recorded a $11 million receivable within receivables, net because the amount
of cash proceeds received by the Company under the DE Receivables Facility was less than the total availability. The DE
Receivables Facility is scheduled to terminate on September 30, 2020, but provides for one or more optional one-year
extensions, if agreed to by the DE Purchasers. The Company uses the proceeds from DE Receivables SPV's sale of
receivables under the DE Receivables Facility for general corporate purposes.
The fair value of the sold receivables approximated book value due to the short-term nature, and as a result, no gain or
loss on sale of receivables was recorded.
The Company’s risk of loss following the transfer of accounts receivable under the DE Receivables Facility is limited to the
DPP outstanding and any short-falls in collections for specified non-credit related reasons after sale. Payment of the DPP
is not subject to significant risks other than delinquencies and credit losses on accounts receivable sold under the DE
Receivables Facility.
90
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Certain obligations of DE Sellers under the DE Receivables Facility and certain DXC subsidiaries located in Germany, as
initial servicers, are guaranteed by the Company under a performance guaranty, made in favor of an administrative agent
on behalf of the DE Purchasers. However, the performance guaranty does not cover DE Receivables SPV’s obligations to
pay yield, fees or invested amounts to the administrative agent or any of the DE Purchasers.
The following table is a reconciliation of the beginning and ending balances of the DPP:
(in millions)
Beginning balance
Transfers of receivables
Collections
Change in funding availability
Ending balance
Federal Receivables Sales Facility
As of March 31, 2020
—
996
(879)
(14)
103
$
$
Since July 14, 2017, the Company has given a parent guaranty in connection with a federal receivables sales facility with
certain financial institutions, under which certain subsidiaries of the Company previously sold eligible federal government
obligor receivables, including billed and certain unbilled receivables. In connection with the Separation, the sellers and
servicers of the receivables sold under the Federal Receivables Sales Facility were divested and, effective May 31, 2018,
the parent guaranty was terminated.
The following table reflects activity of the Federal Receivables Sales Facility, prior to the Separation:
(in millions)
Transfers of receivables
Collections
Operating cash flow effect
As of the
Fiscal Year Ended
March 31, 2019(1)
$
$
$
464
521
(57)
(1) Results for the fiscal year ended March 31, 2019 reflect operations through the Separation date of May 31, 2018, not the full twelve month period.
Note 6 - Leases
The Company has operating and finance leases for data centers, corporate offices, retail stores and certain equipment. Our
leases have remaining lease terms of 1 to 13 years, some of which include options to extend the leases for up to 10 years,
and some of which include options to terminate the leases within 1 to 3 years.
91
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of lease expense were as follows:
(in millions)
Operating lease cost
Short-term lease cost
Variable lease cost
Sublease income
Total operating costs
Finance lease cost:
Amortization of right-of-use assets
Interest on lease liabilities
Total finance lease cost
Fiscal Years Ended March
31, 2020
$
$
$
$
698
49
46
(45)
748
405
65
470
Cash payments made from variable lease costs and short-term leases are not included in the measurement of operating
and finance lease liabilities, and as such, are excluded from the supplemental cash flow information stated below. In
addition, for the supplemental non-cash information on operating and finance leases, please refer to Note 17 - "Cash
Flows."
(in millions)
Cash paid for amounts included in the measurement of:
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
Supplemental Balance Sheet information related to leases was as follows:
(in millions)
Assets:
Balance Sheet Line Item
ROU operating lease assets
Operating right-of-use assets, net
ROU finance lease assets
Property and Equipment, net
Total
Liabilities:
Current
Operating lease
Finance lease
Total
Non-current
Operating lease
Finance lease
Total
Current operating lease liabilities
Short-term debt and current maturities of long-term debt
Non-current operating lease liabilities
Long-term debt, net of current maturities
92
Fiscal Years Ended
March 31, 2020
698
65
576
As of
March 31, 2020
1,428
1,220
2,648
482
444
926
1,063
602
1,665
$
$
$
$
$
$
$
$
$
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table provides information on the weighted average remaining lease term and weighted average discount
rate for operating and finance leases:
Weighted average remaining lease term:
Operating leases
Finance leases
Weighted average remaining discount rate:
Operating leases
Finance leases
Years
Rate
4.8
2.7
4.0%
6.4%
The following maturity analysis presents expected undiscounted cash payments for operating and finance leases on an
annual basis as of March 31, 2020:
Fiscal year
(in millions)
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less: imputed interest
Total payments
Operating Leases
Real Estate
Equipment
Finance Leases
$
$
429
330
255
189
121
211
1,535
145
$
79
41
19
11
4
10
164
9
$
1,390
$
155
$
464
339
195
81
16
—
1,095
49
1,046
Prior to fiscal 2020, required disclosure under ASC 840 for minimum fixed rentals under operating leases that have initial
or remaining terms in excess of one year at March 31, 2019, was as follows:
Fiscal year
(in millions)
2020
2021
2022
2023
2024
Thereafter
Minimum fixed rentals
Less: sublease rental income
Total rental payments
Operating Leases
Real Estate
Equipment
$
$
$
409
288
203
159
124
274
1,457
(149)
1,308
$
248
119
27
4
1
—
399
—
399
Prior to fiscal 2020, required disclosure under ASC 840 for future minimum lease payments to be made under finance
leases as of March 31, 2019, was as follows:
93
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal year
(in millions)
2020
2021
2022
2023
2024
Thereafter
Total minimum lease payments
Less: interest and executory costs
Present value of net minimum lease payments
Note 7 - Fair Value
Fair Value Measurements on a Recurring Basis
Finance Leases
509
310
212
128
36
—
1,195
(68)
1,127
$
$
The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis,
excluding pension assets and derivative assets and liabilities. See Note 14 - "Pension and Other Benefit Plans" and Note
8 - "Derivative Instruments" for information about the fair value of our pension assets and derivative assets and liabilities,
respectively. There were no transfers between any of the levels during the periods presented.
(in millions)
Assets:
Money market funds and money market deposit accounts
Time deposits(1)
Other debt securities(2)
Deferred purchase price receivable
Total assets
Liabilities:
Contingent consideration
Total liabilities
Assets:
Money market funds and money market deposit accounts
Time deposits(1)
Other debt securities(2)
Deferred purchase price receivable
Total assets
Liabilities:
Contingent consideration
Total Liabilities
$
$
$
$
$
$
$
$
94
Fair Value Hierarchy
As of March 31, 2020
Fair Value
Level 1
Level 2
Level 3
$
— $
156
595
51
103
905
46
46
$
$
$
$
156
595
—
—
751
$
— $
— $
—
48
—
48
$
— $
— $
—
—
3
103
106
46
46
As of March 31, 2019
Fair Value
Level 1
Level 2
Level 3
6
$
6
$
— $
194
53
574
827
41
41
$
$
$
194
—
—
200
$
— $
— $
—
49
—
49
$
— $
— $
—
—
4
574
578
41
41
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Cost basis approximated fair value due to the short period of time to maturity.
(2) Other debt securities include available-for-sale investments with Level 2 inputs that have a cost basis of $37 million and $38 million, and
unrealized gains of $11 million and $11 million, as of March 31, 2020 and March 31, 2019, respectively.
The fair value of money market funds and money market deposit accounts, and time deposits, included in cash and cash
equivalents, are based on quoted market prices. The fair value of other debt securities, included in other long-term assets,
is based on actual market prices. The fair value of the DPP, included in receivables, net of allowance for doubtful
accounts, is determined by calculating the expected amount of cash to be received and is principally based on
unobservable inputs consisting primarily of the face amount of the receivables adjusted for anticipated credit losses. The
fair value of contingent consideration, included in other liabilities, is based on contractually defined targets of financial
performance and other considerations.
Other Fair Value Disclosures
The carrying amounts of the Company’s financial instruments with short-term maturities, primarily accounts receivable,
accounts payable, short-term debt, and financial liabilities included in other accrued liabilities, are deemed to approximate
their market values due to their short-term nature. If measured at fair value, these financial instruments would be
classified in Level 2 or Level 3 of the fair value hierarchy.
The Company estimates the fair value of its long-term debt, primarily by using quoted prices obtained from third party
providers such as Bloomberg, and by using an expected present value technique that is based on observable market
inputs for instruments with similar terms currently available to the Company. The estimated fair value of the Company's
long-term debt, excluding capitalized lease liabilities, was $8.2 billion and $5.6 billion as of March 31, 2020 and March 31,
2019, respectively, as compared with carrying value of $8.4 billion and $5.6 billion as of March 31, 2020 and March 31,
2019, respectively. If measured at fair value, long-term debt, excluding capitalized lease liabilities would be classified in
Level 1 or Level 2 of the fair value hierarchy.
Non-financial assets such as goodwill, tangible assets, intangible assets and other contract related long-lived assets are
recorded at fair value in the period they are initially recognized, and such fair value may be adjusted in subsequent
periods if an event occurs or circumstances change that indicate that the asset may be impaired. The fair value
measurements, in such instances, would be classified in Level 3 of the fair value hierarchy. Other than the goodwill
impairment losses discussed in Note 11 - "Goodwill," there were no significant impairments recorded during the fiscal
periods covered by this report.
Note 8 - Derivative Instruments
In the normal course of business, the Company is exposed to interest rate and foreign exchange rate fluctuations. As part
of its risk management strategy, the Company uses derivative instruments, primarily foreign currency forward contracts
and interest rate swaps, to hedge certain foreign currency and interest rate exposures. The Company’s objective is to
reduce earnings volatility by offsetting gains and losses resulting from these exposures with losses and gains on the
derivative contracts used to hedge them. The Company does not use derivative instruments for trading or any speculative
purpose.
Derivatives Designated for Hedge Accounting
Cash flow hedges
95
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has designated certain foreign currency forward contracts as cash flow hedges to reduce foreign currency
risk related to certain Indian Rupee, Euro and British Pound-denominated intercompany obligations and forecasted
transactions. The notional amounts of foreign currency forward contracts designated as cash flow hedges as of March 31,
2020 and March 31, 2019 was $455 million and $277 million, respectively. As of March 31, 2020, the related forecasted
transactions extend through September 2021.
For the fiscal years ended March 31, 2020 and March 31, 2019, the Company performed an assessment at the inception
of the cash flow hedge transactions and determined all critical terms of the hedging instruments and hedged items
matched. The Company performs an assessment of critical terms on an on-going basis throughout the hedging period.
During the fiscal years ended March 31, 2020 and March 31, 2019, the Company had no cash flow hedges for which it
was probable that the hedged transaction would not occur. As of March 31, 2020, $17 million of the existing gain related to
the cash flow hedge reported in AOCI is expected to be reclassified into earnings within the next 12 months.
Net investment hedges
The Company has designated certain foreign currency forward contracts as net investment hedges to protect its
investment in certain foreign operations against adverse changes in exchange rates between the EUR and USD. These
contracts were de-designated and settled during the fiscal year ended March 31, 2020, and as of March 31, 2020, there
were none outstanding. As of March 31, 2019, the notional amount of foreign currency forward contracts designated as
net investment hedges was $1.7 billion.
The pre-tax gain (loss) on derivatives designated for hedge accounting recognized in other comprehensive loss was $(18)
million and in loss from continuing operations was $2 million during the fiscal year ended March 31, 2020.
Derivatives Not Designated For Hedge Accounting
The derivative instruments not designated as hedges for purposes of hedge accounting include certain short-term foreign
currency forward contracts. Derivatives that are not designated as hedging instruments are adjusted to fair value through
earnings in the financial statement line item to which the derivative relates.
Foreign currency forward contracts
The Company manages the exposure to fluctuations in foreign currencies by using foreign currency forward contracts to
hedge certain foreign currency denominated assets and liabilities, including intercompany accounts and forecasted
transactions. The notional amount of the foreign currency forward contracts outstanding as of March 31, 2020 and
March 31, 2019 was $2.2 billion and $2.5 billion, respectively.
The following table presents the pretax amounts impacting income related to designated and non-designated foreign
currency forward contracts:
(in millions)
Statement of Operations Line Item March 31, 2020 March 31, 2019 March 31, 2018
Foreign currency forward contracts Other expense (income), net
$
(37) $
16
$
118
Fiscal Years Ended
96
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value of Derivative Instruments
All derivative instruments are recorded at fair value. The Company’s accounting treatment for these derivative instruments
is based on its hedge designation. The following tables present the fair values of derivative instruments included in the
balance sheets:
(in millions)
Balance Sheet Line Item
March 31, 2020
March 31, 2019
Derivative Assets
As of
Derivatives designated for hedge accounting:
Foreign currency forward contracts (1)
Other current assets
Total fair value of derivatives designated for hedge accounting
Derivatives not designated for hedge accounting:
Foreign currency forward contracts
Other current assets
Total fair value of derivatives not designated for hedge accounting
$
$
$
Derivative Liabilities
—
— $
16
16
$
$
As of
38
38
5
5
(in millions)
Balance Sheet Line Item
March 31, 2020
March 31, 2019
Derivatives designated for hedge accounting:
Foreign currency forward contracts(1)
Accrued expenses and other current
liabilities
Total fair value of derivatives designated for hedge accounting:
Derivatives not designated for hedge accounting:
Foreign currency forward contracts
Accrued expenses and other current
liabilities
Total fair value of derivatives not designated for hedge accounting
$
$
$
$
20
20
12
12
$
$
$
$
4
4
9
9
(1) Foreign currency forward contracts designated for hedge accounting includes designated cash flow hedges and net investment hedges.
The fair value of foreign currency forward contracts represents the estimated amount required to settle the contracts using
current market exchange rates and is based on the period-end foreign currency exchange rates and forward points which
are classified as Level 2 inputs.
Other Risks for Derivative Instruments
The Company is exposed to the risk of losses in the event of non-performance by the counterparties to its derivative
contracts. The amount subject to credit risk related to derivative instruments is generally limited to the amount, if any, by
which a counterparty's obligations exceed the obligations of the Company with that counterparty. To mitigate counterparty
credit risk, the Company regularly reviews its credit exposure and the creditworthiness of the counterparties. With respect
to its foreign currency derivatives, as of March 31, 2020, there were no counterparties with concentration of credit risk.
97
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company also enters into enforceable master netting arrangements with some of its counterparties. However, for
financial reporting purposes, it is the Company's policy not to offset derivative assets and liabilities despite the existence
of enforceable master netting arrangements. The potential effect of such netting arrangements on the Company's balance
sheets is not material for the periods presented.
Non-Derivative Financial Instruments Designated for Hedge Accounting
The Company applies hedge accounting for foreign currency-denominated debt used to manage foreign currency
exposures on its net investments in certain non-U.S. operations. To qualify for hedge accounting, the hedging instrument
must be highly effective at reducing the risk from the exposure being hedged.
Net Investment Hedges
DXC seeks to reduce the impact of fluctuations in foreign exchange rates on its net investments in certain non-U.S.
operations with foreign currency-denominated debt. For foreign currency denominated debt designated as a hedge, the
effectiveness of the hedge is assessed based on changes in spot rates. For qualifying net investment hedges, all gains or
losses on the hedging instruments are included in currency translation. Gains or losses on individual net investments in
non-U.S. operations are reclassified to earnings from accumulated other comprehensive (loss) income when such net
investments are sold or substantially liquidated.
As of March 31, 2020, DXC had $1.9 billion of foreign currency-denominated debt designated as hedges of net
investments in non-U.S. subsidiaries. For the fiscal year ended March 31, 2020, the pre-tax impact of gain (loss) on
foreign currency-denominated debt designated for hedge accounting recognized in other comprehensive (loss) income
was $53 million. As of March 31, 2019, DXC did not have any foreign currency-denominated debt designated as hedges
of net investments in non-U.S. subsidiaries.
Note 9 - Property and Equipment
Property and equipment consisted of the following:
(in millions)
Property and equipment — gross:
As of
March 31, 2020 March 31, 2019
Land, buildings and leasehold improvements
$
2,233
$
Computers and related equipment
Furniture and other equipment
Construction in progress
Less: accumulated depreciation
Property and equipment, net
4,876
226
30
7,365
3,818
$
3,547
$
2,180
4,719
224
14
7,137
3,958
3,179
Depreciation expense for fiscal 2020, 2019 and 2018 was $643 million, $820 million and $709 million, respectively.
98
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Intangible Assets
Intangible assets consisted of the following:
(in millions)
Software
Customer related intangible assets
Other intangible assets
Total intangible assets
(in millions)
Software
Customer related intangible assets
Other intangible assets
Total intangible assets
As of March 31, 2020
Gross Carrying
Value
Accumulated
Amortization
Net Carrying
Value
$
$
4,048
$
2,614
$
5,795
235
1,697
36
10,078
$
4,347
$
1,434
4,098
199
5,731
As of March 31, 2019
Gross Carrying
Value
Accumulated
Amortization
Net Carrying
Value
$
$
3,864
$
2,235
$
5,389
85
1,139
25
9,338
$
3,399
$
1,629
4,250
60
5,939
The components of amortization expense were as follows:
(in millions)
Intangible asset amortization
Transition and transformation contract cost amortization(1)
Total amortization expense
Fiscal Years Ended
March 31, 2020
March 31, 2019
March 31, 2018
$
$
1,019
$
280
$
890
258
1,299
$
1,148
$
860
226
1,086
(1) Transition and transformation contract costs are included within other assets on the balance sheet.
Estimated future amortization as of March 31, 2020 is as follows:
Fiscal Year
2021
2022
2023
2024
2025
(in millions)
1,004
915
835
750
662
$
$
$
$
$
99
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 - Goodwill
The following tables summarize the changes in the carrying amounts of goodwill, by segment, for the fiscal years ended
March 31, 2020 and March 31, 2019, respectively:
(in millions)
Balance as of March 31, 2019, net
Acquisitions
Impairment Losses
Foreign currency translation
Goodwill, gross
Accumulated impairment losses
Balance as of March 31, 2020, net
(in millions)
Balance as of March 31, 2018, net
Acquisitions
Divestitures
Foreign currency translation
Goodwill, gross
Accumulated impairment losses
Balance as of March 31, 2019, net
GBS
GIS
Total
4,599
3,007
7,606
1,288
(3,789)
(81)
6,507
(4,490)
70
(3,005)
(72)
5,066
(5,066)
$
2,017
$
— $
1,358
(6,794)
(153)
11,573
(9,556)
2,017
GBS
GIS
Total
4,531
3,088
7,619
228
(12)
(148)
5,300
(701)
—
—
(81)
5,068
(2,061)
$
4,599
$
3,007
$
228
(12)
(229)
10,368
(2,762)
7,606
As a result of the USPS Separation on May 31, 2018, as more fully described in Note 3 - "Divestitures", USPS is no
longer a reportable segment. The fiscal 2020 and 2019 additions to goodwill were due to the acquisitions described in
Note 2 - "Acquisitions", including goodwill of some insignificant acquisitions. The foreign currency translation amount
reflects the impact of currency movements on non-U.S. dollar-denominated goodwill balances.
Goodwill Impairment Analyses
Fiscal 2020
The Company performed its annual goodwill impairment assessment as of July 1, 2019. Subsequent to the measurement
date, the Company experienced a decline in its stock price and market capitalization that represented an indicator of
impairment as the observed declines were substantial and sustained. As a result, the Company performed quantitative
goodwill impairment tests during the second and fourth quarters of fiscal 2020. Both quantitative goodwill impairment tests
were performed for all of DXC's reporting units, consistent with its policy described in Note 1 - "Summary of Significant
Accounting Policies.” As part of the reconciliation to the Company’s market capitalization, the Company concluded on both
instances that the carrying values of its reporting units exceeded their estimated fair values and recognized total non-cash
impairment charges of $6,794 million, consisting of $3,789 million and $3,005 million in its GBS and GIS segments,
respectively. The goodwill impairment charges do not have an impact on the calculation of the Company's financial
covenants under the Company's debt arrangements.
100
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal 2019
The Company’s annual goodwill impairment analysis, which was performed as of July 1, 2018, did not result in an
impairment charge. At the end of fiscal 2019, the Company assessed whether there were events or changes in
circumstances that would more likely than not reduce the fair value of any of its reporting units below its carrying amount
and require goodwill to be tested for impairment. The Company determined that there have been no such indicators and
therefore, it was unnecessary to perform an interim goodwill impairment test as of March 31, 2019.
Fiscal 2018
The Company’s annual goodwill impairment analysis, which was performed qualitatively as of July 1, 2017, did not result
in an impairment charge. At the end of the fiscal 2018, the Company assessed whether there were events or changes in
circumstances that would more likely than not reduce the fair value of any of its reporting units below its carrying amount
and require goodwill to be tested for impairment. The Company determined that there have been no such indicators, and,
therefore, it was unnecessary to perform an interim goodwill impairment test as of March 31, 2018.
Note 12 - Income Taxes
The sources of income (loss) from continuing operations, before income taxes, classified between domestic entities and
those entities domiciled outside of the United States, are as follows:
(in millions)
Domestic entities
Entities outside the United States
Total
Fiscal Years Ended
March 31, 2020 March 31, 2019 March 31, 2018
$
$
(2,928) $
(2,300)
(5,228) $
511
$
1,004
1,515
$
454
850
1,304
The income tax expense (benefit) on income (loss) from continuing operations is comprised of:
(in millions)
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
Fiscal Years Ended
March 31, 2020 March 31, 2019 March 31, 2018
$
3
$
(50) $
16
167
186
(125)
17
52
(56)
42
218
210
95
23
(40)
78
392
16
247
655
(899)
(59)
61
(897)
(242)
Total income tax expense (benefit)
$
130
$
288
$
The current federal (benefit) and tax expense for fiscal years 2020, 2019 and 2018 includes a $(31) million transition tax
benefit, $(44) million transition tax benefit and $332 million transition tax expense, respectively. The current expense
(benefit) for fiscal 2020, 2019 and 2018, includes interest and penalties of $2 million, $1 million and $2 million,
respectively, for uncertain tax positions.
101
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with the HPES Merger, the Company entered into a tax matters agreement with HPE. HPE generally will be
responsible for pre-HPES Merger tax liabilities including adjustments made by tax authorities to HPES U.S. and non-U.S.
income tax returns. Likewise, DXC is liable to HPE for income tax receivables and refunds which it receives related to pre-
HPES Merger periods. Pursuant to the tax matters agreement, the Company recorded a net receivable of $8 million due
to $44 million of tax indemnification receivable related to uncertain tax positions net of related deferred tax benefits, $87
million of tax indemnification receivable related to other tax payables and $123 million of tax indemnification payable
related to other tax receivables.
In connection with the USPS Separation, the Company entered into a tax matters agreement with Perspecta. Pursuant to
the tax matters agreement, the Company generally will be responsible for tax liabilities arising prior to the USPS
Separation. Income tax liabilities transferred to Perspecta primarily relate to pre-HPES Merger periods, for which the
Company is indemnified by HPE pursuant to the tax matters agreement between the Company and HPE. The Company
remains liable to HPE for tax receivables and refunds which it receives from Perspecta related to pre-HPES Merger
periods that were transferred to Perspecta. Pursuant to the tax matters agreement, the Company has recorded a tax
indemnification receivable from Perspecta of $72 million and a tax indemnification payable to Perspecta of $45 million
related to income tax and other tax liabilities.
The major elements contributing to the difference between the U.S. federal statutory tax rate and the effective tax rate
("ETR") for continuing operations is below. Due to the Company's fiscal year, the U.S. federal weighted statutory tax rate
for the fiscal years ended March 31, 2020, March 31, 2019, and March 31, 2018 were of 21.0%, 21.0% and 31.5%,
respectively.
Statutory rate
State income tax, net of federal tax
Foreign tax rate differential
Goodwill impairment
Change in valuation allowances
Income Tax and Foreign Tax Credits
Arbitration Award
Change in uncertain tax positions
Withholding Taxes
U.S. Tax on Foreign Income
Excess tax benefits for stock compensation
Capitalized transaction costs
United States Tax Reform
Change in Indefinite Reinvestment Assertion
Loss of attributes due to merger
Prepaid tax asset amortization
Other items, net
Effective tax rate
Fiscal Years Ended
March 31, 2020 March 31, 2019 March 31, 2018
(21.0)%
(1.4)
(11.9)
28.3
12.1
(2.6)
(3.6)
1.1
0.9
0.4
0.1
0.1
(0.7)
—
—
—
0.7
2.5 %
21.0%
3.2
(18.4)
—
16.9
(0.6)
—
(1.5)
3.5
2.4
(1.1)
0.1
(3.4)
(3.1)
—
—
—
19.0%
31.5 %
2.0
(5.7)
—
(7.7)
(7.6)
—
(0.2)
2.3
2.1
(3.0)
1.0
(40.6)
3.3
5.1
0.3
(1.4)
(18.6)%
102
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In fiscal 2020, the ETR was primarily impacted by:
• Non-deductible goodwill impairment charge, which increased tax expense and increased the ETR by $1,482
million and 28.3%, respectively.
• Non-taxable gain on the arbitration award, which decreased income tax expense and decreased the ETR by $186
million and 3.6%, respectively.
• A change in the net valuation allowance on certain deferred tax assets, primarily in Australia, Brazil, China,
Luxembourg, and Singapore, which increased income tax expense and increased the ETR by $631 million and
12.1%, respectively.
• An increase in Income Tax and Foreign Tax Credits, primarily relating to research and development credits
•
recognized for prior years, which decreased income tax expense and decreased the ETR by $135 million and
2.6%, respectively.
Local losses on investments in Luxembourg that increased the foreign rate differential and decreased the ETR by
$637 million and 12.2%, respectively, with an offsetting increase in the ETR due to an increase in the valuation
allowance of the same amount.
In fiscal 2019, the ETR was primarily impacted by:
•
Local tax losses on investments in Luxembourg that decreased the foreign tax rate differential and decreased the
ETR by $360 million and 23.7%, respectively, with an offsetting increase in the ETR due to an increase in the
valuation allowance of the same amount.
• A change in the net valuation allowance on certain deferred tax assets, primarily in Luxembourg, Germany, Spain,
UK, and Switzerland, which increased income tax expense and increased the ETR by $256 million and 16.9%,
respectively.
• A decrease in the transition tax liability and a change in tax accounting method for deferred revenue, which
decreased income tax expense and decreased the ETR by $66 million and 4.3%, respectively.
In fiscal 2018, the ETR was primarily impacted by:
• Due to the Company's change in repatriation policy, the reversal of a deferred tax liability relating to the outside
basis difference of foreign subsidiaries which increased the income tax benefit and decreased the ETR by $554
million and 42.5%, respectively.
• The accrual of the one-time transition tax imposed by the Act on estimated unremitted foreign earnings, which
decreased the income tax benefit and increased the ETR by $361 million and 27.7%, respectively.
• The remeasurement of deferred tax assets and liabilities as a result of the Act, which increased the income tax
benefit and decreased the ETR by $338 million and 25.9%, respectively.
103
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The deferred tax assets (liabilities) were as follows:
(in millions)
Deferred tax assets
Employee benefits
Tax loss/credit carryforwards
Accrued interest
Operating lease liabilities
Contract accounting
Other assets
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities
Depreciation and amortization
Operating right-of-use asset
Investment basis differences
Employee benefits
Other liabilities
Total deferred tax liabilities
As of
March 31, 2020 March 31, 2019
$
— $
2,516
12
370
126
144
3,168
(2,162)
1,006
(850)
(343)
(68)
(48)
(150)
79
1,917
16
—
130
139
2,281
(1,575)
706
(994)
—
(61)
—
(63)
(1,459)
(1,118)
Total net deferred tax assets (liabilities)
$
(453) $
(412)
Income tax related assets are included in the accompanying balance sheets as follows:
(in millions)
Current:
Income tax receivables and prepaid taxes
Non-current:
Income taxes receivable and prepaid taxes
Deferred tax assets
Total
As of
March 31, 2020 March 31, 2019
$
$
$
$
$
58
58
180
265
445
$
$
$
$
503
$
113
113
137
355
492
605
104
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income tax related liabilities are included in the accompanying balance sheet as follows:
(in millions)
Current:
Liability for uncertain tax positions
Income taxes payable
Non-current:
Deferred taxes
Income taxes payable
Liability for uncertain tax positions
Total
As of
March 31, 2020 March 31, 2019
$
$
$
$
(12) $
(75)
(87) $
(718)
(168)
(271)
—
(208)
(208)
(767)
(201)
(216)
(1,157) $
(1,184)
(1,244) $
(1,392)
Significant management judgment is required in determining the Company's provision for income taxes, deferred tax
assets and liabilities and any valuation allowance recorded against deferred tax assets. As of each reporting date,
management weighs new evidence, both positive and negative, that could affect its view of the future realization of its net
deferred tax assets. Objective verifiable evidence, which is historical in nature, carries more weight than subjective
evidence, which is forward looking in nature.
A valuation allowance has been recorded against deferred tax assets of approximately $2.2 billion as of March 31, 2020
due to uncertainties related to the ability to utilize these assets. In assessing whether its deferred tax assets are
realizable, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will
not be realized and adjusts the valuation allowance accordingly. The Company considers all available positive and
negative evidence including future reversals of existing taxable temporary differences, taxable income in prior carryback
years, projected future taxable income, tax planning strategies and recent financial operations.
As of March 31, 2018, the Company's net deferred tax assets in Singapore were primarily the result of $80 million
indefinitely lived net operating loss carryforwards. A partial valuation allowance was recorded against the net operating
losses as of the reporting date based upon the negative evidence of a three-year cumulative loss, uncertainty of predicting
loss of contracts and an estimated forty-year net operating loss utilization period. For the period ended March 31, 2020,
management has determined that the positive evidence of a three-year cumulative profit, ten consecutive quarters of
profitability, and expansion of customer contract base outweighs the negative evidence of an estimated seventeen-year
net operating loss utilization period. Therefore, as of March 31, 2020 management has had a change in judgment that it is
now more likely than not that the net operating loss carryforwards in Singapore will be fully utilized. As a result, we
recorded a valuation allowance release of $47.7 million to the income statement as deferred tax benefit in the current
period.
The net increase in the valuation allowance of $587 million in fiscal 2020, is primarily due to the local losses in
Luxembourg for the write-down on foreign investment carrying value of $637 million, valuation allowance releases of $(6)
million, and an adjustment for currency translation of $(44) million.
105
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table provides information on the Company's various tax carryforwards:
As of March 31, 2020
As of March 31, 2019
With No
Expiration
With
Expiration
Expiration
Dates
Through
Total
With No
Expiration
With
Expiration
Expiration
Dates
Through
(in millions)
Total
Net operating loss
carryforwards
Federal
State
Foreign
Tax credit
carryforwards
Federal
State
Foreign
Capital loss
carryforwards
Federal
State
Foreign
$
$
$
$
$
$
$
$
$
15
673
10,512
9
16
16
$
$
$
$
$
$
— $
— $
59
$
3
6
6,471
$
$
$
12
667
4,041
— $
7
$
— $
— $
— $
40
$
9
9
16
—
—
19
2033
2040
2040
2040
2039
2020
N/A
N/A
2023
$
$
$
$
$
$
$
$
$
25
845
7,595
$
$
$
— $
9
7,292
$
$
— $
23
18
$
$
— $
7
$
— $
— $
— $
— $
— $
236
$
211
$
25
836
303
—
16
18
—
—
25
2037
2039
2039
N/A
2039
2020
N/A
N/A
2023
The Company was a beneficiary of tax holiday incentives in India in fiscal 2019 and 2018 and was a beneficiary of
Malaysian tax holiday incentives in fiscal 2018. As a result of these tax holiday incentives, the Company recorded an
income tax benefit of approximately, $0 million, $2 million and $5 million, during fiscal 2020, 2019 and 2018, respectively.
The per share effects were $0.0, $0.01 and $0.02, for fiscal, 2020, 2019 and 2018, respectively.
The majority of unremitted earnings has been taxed in the U.S. through the transition tax and global intangible low tax
income tax in connection with 2017 U.S. tax reform. The Company was not permanently reinvested in all jurisdictions with
the exception of India as of March 31, 2019. As a result of the issuance of new U.S. Treasury regulations in the first
quarter of fiscal 2020, the Company changed its permanent reinvestment assertions with respect to certain foreign
corporations, reducing the amount that will ultimately be repatriated to the U.S. by approximately $492 million. However,
as of March 31, 2020, the Company anticipates that future earnings in India will not be indefinitely reinvested. This change
resulted from the Company's determination that it is now efficient to repatriate earnings in India as a result of the
enactment of India Finance Act, 2020 on March 27, 2020 and the change in cash needs resulting from economic
consequences of the COVID-19 pandemic. We expect a significant portion of the cash held by our foreign subsidiaries will
no longer be subject to U.S. federal income tax upon repatriation to the U.S., however, a portion of this cash may still be
subject to foreign and U.S. state tax consequences when remitted.
The Company accounts for income tax uncertainties in accordance with ASC 740 Income Taxes, which prescribes a
recognition threshold and measurement criteria for the financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements
only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing
authority that would have full knowledge of all relevant information. A tax position that meets the more likely than not
recognition threshold is measured at the largest amount of benefit that is greater than fifty percent likely of being realized
upon ultimate settlement. Tax positions that previously failed to meet the more likely than not recognition threshold should
be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax
positions that no longer meet the more likely than not recognition threshold should be derecognized in the first subsequent
financial reporting period in which that threshold is no longer met. ASC 740 also provides guidance on the accounting for
and disclosure of liabilities for uncertain tax positions, interest and penalties.
106
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with ASC 740, the Company’s liability for uncertain tax positions was as follows:
(in millions)
Tax
Interest
Penalties
Offset to receivable
Net of tax attributes
Total
Fiscal Years Ended
March 31, 2020 March 31, 2019
$
$
253
$
45
21
(24)
(12)
283
$
165
41
25
—
(15)
216
The following table summarizes the activity related to the Company’s uncertain tax positions (excluding interest and
penalties and related tax attributes):
(in millions)
Fiscal Years Ended
March 31, 2020 March 31, 2019 March 31, 2018
Balance at beginning of fiscal year
$
165
$
219
$
Gross increases related to prior year tax positions
Gross decreases related to prior year tax positions
Gross increases related to current year tax positions
Settlements and statute of limitation expirations
Acquisitions
Foreign exchange and others
Balance at end of fiscal year
74
(9)
15
(7)
18
(3)
4
(27)
—
(23)
—
(8)
$
253
$
165
$
192
10
(12)
7
(19)
39
2
219
The Company’s liability for uncertain tax positions at March 31, 2020, March 31, 2019 and March 31, 2018, includes $210
million, $138 million and $170 million, respectively, related to amounts that, if recognized, would affect the effective tax
rate (excluding related interest and penalties). The increase relating to the prior year tax positions primarily relate to the
Company's increase in research and development credits and reserves relating to certain legacy CSC foreign
restructuring expenses deducted on the U.S. tax return for the year ending March 31, 2013.
107
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company recognizes interest accrued related to uncertain tax positions and penalties as a component of income tax
expense. During the year ended March 31, 2020, the Company had a net increase in interest expense of $5 million ($3
million net of tax) and a net decrease in accrued expense for penalties of $3 million and, as of March 31, 2020,
recognized a liability for interest of $45 million ($40 million net of tax) and penalties of $21 million. During the year ended
March 31, 2019, the Company had a net increase in interest expense of $2 million ($1 million net of tax) and a net
decrease in accrued expense for penalties of $1 million and, as of March 31, 2019, recognized a liability for interest of $41
million ($36 million net of tax) and penalties of $25 million. The following table presents the change in interest and
penalties from the previous reported period, as well as the liability at the end of each period presented:
(in millions)
Interest
Interest, net of tax
Accrued penalties
Liability for interest
Liability for interest, net of tax
Liability for penalties
As of and for the Fiscal Years Ended
March 31, 2020 March 31, 2019 March 31, 2018
Increase (Decrease)
$
$
$
$
$
$
5
3
$
$
(3) $
45
40
21
$
$
$
2
1
$
$
(1) $
41
36
25
$
$
$
2
2
—
40
36
25
The Company is currently under examination in several tax jurisdictions. A summary of the tax years that remain subject
to examination in certain of the Company’s major tax jurisdictions are:
Jurisdiction:
United States – Federal
United States – Various States
Australia
Canada
France
Germany
India
United Kingdom
Tax Years that Remain Subject to Examination
(Fiscal Year Ending):
2008 and forward
2008 and forward
2012 and forward
2006 and forward
2015 and forward
2010 and forward
1999 and forward
2011 and forward
The IRS is examining CSC's federal income tax returns for fiscal 2008 through 2017. With respect to CSC's fiscal 2008
through 2010 federal tax returns, the Company previously entered into negotiations for a resolution through settlement
with the IRS Office of Appeals. The IRS examined several issues for this audit that resulted in various audit adjustments.
The Company and the IRS Office of Appeals have an agreement in principle as to some but not all of these adjustments.
The Company has agreed to extend the statute of limitations associated with this audit through September 30, 2020.
In the first quarter of fiscal 2020, we filed for competent authority relief relating to certain legacy CSC foreign restructuring
expenses deducted for the U.S. federal tax return for tax year March 31, 2013. The Company has agreed to extend the
statute of limitations associated with the fiscal years 2011 through 2013 through December 31, 2020. In the second
quarter of fiscal 2020, the Company received a Revenue Agent's Report with proposed adjustments to CSC's fiscal 2014
through 2017 federal returns. The Company has filed a protest for certain of these adjustments with the IRS Office of
Appeals. The Company has agreed to extend the statute of limitations for the fiscal 2014 through fiscal 2016 through
December 31, 2020 and for the employment tax audit of fiscal years 2015 and 2016 until January 31, 2021. The Company
expects to reach a resolution for all years no earlier than the first quarter of fiscal 2022 except agreed issues related to
fiscal 2008 through 2010 and fiscal 2011 through 2013 federal tax returns, which are expected to be resolved within
twelve months.
108
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition, the Company may settle certain other tax examinations, have lapses in statutes of limitations, or voluntarily
settle income tax positions in negotiated settlements for different amounts than the Company has accrued as uncertain
tax positions. The Company may need to accrue and ultimately pay additional amounts for tax positions that previously
met a more likely than not standard if such positions are not upheld. Conversely, the Company could settle positions with
the tax authorities for amounts lower than those that have been accrued or extinguish a position though payment. The
Company believes the outcomes which are reasonably possible within the next twelve months may result in a reduction in
liability for uncertain tax positions of $25 million to $27 million, excluding interest, penalties, and tax carryforwards.
Interest Rates
Fiscal Year
Maturities
March 31, 2020 March 31, 2019
As of
$
$
$
542
290
444
694
766
482
1,276
$
1,942
Note 13 - Debt
The following is a summary of the Company's debt:
(in millions)
Short-term debt and current maturities of long-
term debt
Commercial paper(1)
Current maturities of long-term debt
Current maturities of capitalized lease liabilities
Short-term debt and current maturities of long-term
debt
Long-term debt, net of current maturities
AUD term loan
GBP term loan
EUR term loan
EUR term loan
USD term loan
$500 million Senior notes
$500 million Senior notes
$274 million Senior notes
$171 million Senior notes
$500 million Senior notes
£250 million Senior notes
€650 million Senior notes
$500 million Senior notes
$234 million Senior notes
Revolving credit facility
Lease credit facility
Finance lease liabilities
Borrowings for assets acquired under long-term
financing
(0.23) - 2.76%
Various
0.62% - 17.68%
1.65% - 2.66%(2)
1.50 - 1.63%(3)
0.65%(4)
0.80%(5)
2.85% - 3.67%(6)
2.88%
3.08% - 3.69%
4.45%
4.45%
4.25%
2.75%
1.75%
4.75%
7.45%
2.06%
2021
2021
2021
2022
2022
2022
2023
2025
2020
2021
2023
2023
2025
2025
2026
2028
2030
2024 - 2025
1.70% - 3.50%
2021 - 2023
0.62% - 17.68%
2021 - 2025
0.48% - 5.78%
2021 - 2028
489
556
822
821
480
—
—
276
172
505
307
709
507
271
1,500
11
1,046
802
62
70
9,406
734
567
583
—
—
—
502
498
277
172
506
322
725
508
273
—
25
1,127
462
62
109
6,718
1,248
5,470
Mandatorily redeemable preferred stock outstanding
Other borrowings(7)
6.00%
Various
2023
2021 - 2022
Long-term debt
Less: current maturities
Long-term debt, net of current maturities
$
8,672
$
109
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) At DXC's option, DXC can borrow up to a maximum of €1 billion or its equivalent in U.S. dollars.
(2) Variable interest rate equal to the bank bill swap bid rate for a one-, two-, three- or six-month interest period plus 0.60% to 0.95%
based on the published credit ratings of DXC.
(3) Three-month LIBOR rate plus 0.80%.
(4) At DXC’s option, the EUR term loan bears interest at the Eurocurrency Rate for a one-, two-, three-, or six-month interest period, plus a
margin of between 0.40% and 0.90%, based on published credit ratings of DXC.
(5) At DXC’s option, the EUR term loan bears interest at the Eurocurrency Rate for a one-, two-, three-, or six-month interest period, plus a
margin of between 0.55% and 1.05%, based on published credit ratings of DXC.
(6) At DXC’s option, the USD term loan bears interest at the Eurocurrency Rate for a one-, two-, three-, or six-month interest period, plus a
margin of between 1.00% and 1.50%, based on published credit ratings of DXC or the Base Rate plus a margin of between 0.00% and
0.50%, based on published credit ratings of DXC.
(7) Other borrowings consist mostly of 7.4% USD Senior Note.
Senior Notes and Term Loans
Interest on the Company's term loans is payable monthly or quarterly in arrears at the election of the borrowers. The
Company fully and unconditionally guarantees term loans issued by its 100% owned subsidiaries. Interest on the
Company's senior notes is payable semi-annually in arrears, except for interest on the £250 million Senior notes due 2025
and €650 million Senior Notes due 2026 which is payable annually in arrears. Generally, the Company's notes are
redeemable at the Company's discretion at the then-applicable redemption premium plus accrued interest.
Revolving Credit Facility
During fiscal 2020, the Company borrowed $1.5 billion from its credit facility agreement ("Credit Agreement") in order to
eliminate the Company's reliance on commercial paper markets. The Company may repay amounts any time without
penalty.
Subsequent Borrowings
See Note 23 - "Subsequent Events" for details.
Future Maturities of Long-term Debt
Expected maturities of long-term debt, including borrowings for asset financing but excluding minimum capital lease
payments, for fiscal years subsequent to March 31, 2020, are as follows:
Fiscal Year
2021
2022
2023
2024
2025
Thereafter
Total
(in millions)
290
2,199
1,514
182
2,698
1,477
8,360
$
$
110
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14 - Pension and Other Benefit Plans
The Company offers a number of pension and OPEB plans, life insurance benefits, deferred compensation and defined
contribution plans. Most of the Company's pension plans are not admitting new participants; therefore, changes to
pension liabilities are primarily due to market fluctuations of investments for existing participants and changes in interest
rates.
Defined Benefit Plans
The Company sponsors a number of defined benefit and post-retirement medical benefit plans for the benefit of eligible
employees. The benefit obligations of the Company's U.S. pension, U.S. OPEB, and non-U.S. OPEB plans represent an
insignificant portion of the Company's pension and other post-retirement benefit plans. As a result, the disclosures below
include the Company's U.S. and non-U.S. pension plans on a global consolidated basis.
Eligible employees are enrolled in defined benefit pension plans in their country of domicile. The Contributory defined
benefit pension plan in the United Kingdom represents the largest plan. In addition, healthcare, dental and life insurance
benefits are also provided to certain non-U.S. employees. A significant number of employees outside the United States
are covered by government sponsored programs at no direct cost to the Company other than related payroll taxes.
The Company accrued $10 million, $3 million and $13 million, for fiscal 2020, 2019 and 2018, respectively, as additional
contractual termination benefits for certain employees are part of the Company's restructuring plans. These amounts are
reflected in the projected benefit obligation and in the net periodic pension cost.
Projected Benefit Obligations
(in millions)
Projected benefit obligation at beginning of year
Service cost
Interest cost
Plan participants’ contributions
Amendments
Business/contract acquisitions/divestitures
Contractual termination benefits
Settlement/curtailment
Actuarial loss (gain)
Benefits paid
Foreign currency exchange rate changes
Other
Projected benefit obligation at end of year
As of
March 31, 2020 March 31, 2019
$
11,016
$
11,384
92
237
30
—
12
10
(60)
(362)
(359)
(457)
(9)
88
253
13
27
—
3
(49)
286
(344)
(818)
173
$
10,150
$
11,016
The following table summarizes the weighted average rates used in the determination of the Company’s benefit
obligations:
Discount rate
Rates of increase in compensation levels
Fiscal Years Ended
March 31, 2020 March 31, 2019
2.4%
1.6%
2.4%
2.0%
111
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value of Plan Assets and Funded Status
(in millions)
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contribution
Plan participants’ contributions
Benefits paid
Business/contract acquisitions/divestitures
Contractual termination benefits
Plan settlement
Foreign currency exchange rate changes
Other
Fair value of plan assets at end of year
Funded status at end of year
Selected Information
(in millions)
Other assets
Accrued expenses and other current liabilities
Non-current pension obligations
Other long-term liabilities - OPEB
Net amount recorded
Accumulated benefit obligation
(in millions)
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
As of
March 31, 2020 March 31, 2019
$
11,343
$
11,574
526
108
30
(359)
7
15
(63)
(507)
(10)
700
78
13
(344)
—
17
(38)
(837)
180
$
$
11,090
940
$
$
11,343
327
As of
March 31, 2020
March 31, 2019
$
$
$
1,735
$
(16)
(761)
(18)
940
$
1,157
(20)
(790)
(20)
327
10,072
$
10,893
Benefit Plans with Projected
Benefit Obligation in Excess of
Plan Assets
Benefit Plans with Accumulated
Benefit Obligation in Excess of
Plan Assets
March 31, 2020 March 31, 2019 March 31, 2020 March 31, 2019
$
$
$
2,191
2,131
1,397
$
$
$
2,329
2,230
1,494
$
$
$
2,159
2,108
1,369
$
$
$
2,070
2,004
1,255
112
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net Periodic Pension Cost
(in millions)
Service cost
Interest cost
Expected return on assets
Amortization of transition obligation
Amortization of prior service costs
Contractual termination benefit
Settlement/curtailment gain
Recognition of actuarial (gain) loss
Net periodic pension (income) expense
Fiscal Years Ended
March 31, 2020
March 31, 2019 March 31, 2018
$
92
$
88
$
237
(651)
—
(9)
10
7
$
(252)
(566) $
253
(570)
—
(15)
3
(10)
153
(98) $
121
249
(534)
1
(18)
13
(42)
(178)
(388)
The service cost component of net periodic pension (income) expense is presented in cost of services and selling, general
and administrative and the other components of net periodic pension income are presented in other income, net in the
Company’s statements of operations. See Note 1 - "Summary of Significant Accounting Policies," for further discussion of
the Company's adoption of ASU 2017-07 and its impact on the presentation of net periodic pension costs.
Estimated prior service credit of $8 million will be amortized from AOCI into net periodic pension cost over the next fiscal
year. The weighted-average rates used to determine net periodic pension cost were:
Discount or settlement rates
Expected long-term rates of return on assets
Rates of increase in compensation levels
The following is a summary of amounts in AOCI, before tax effects:
(in millions)
Prior service cost
Fiscal Years Ended
March 31, 2020 March 31, 2019 March 31, 2018
2.4%
5.8%
2.0%
2.5%
5.3%
2.1%
2.5%
4.9%
2.7%
Fiscal Years Ended
March 31, 2020
March 31, 2019
$
(247) $
(195)
113
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Estimated Future Contributions and Benefits Payments
(in millions)
Employer contributions:
2021
Benefit Payments:
2021
2022
2023
2024
2025
2025 and thereafter
Total
Fair Value of Plan Assets
$
$
$
74
393
447
392
394
404
2,112
4,142
The tables below set forth the fair value of plan assets by asset category within the fair value hierarchy:
(in millions)
Equity:
Fixed Income:
Alternatives:
Other Assets
Insurance contracts
Cash and cash equivalents
Totals
US Domestic Stocks
Global Stocks
Global/International Equity
commingled funds
Global equity mutual funds
U.S./North American Equity
commingled funds
Non-U.S. Government funds
Fixed income commingled funds
Fixed income mutual funds
Corporate bonds
Other Alternatives (1)
Hedge Funds(2)
Level 1
As of March 31, 2020
Level 3
Level 2
Total
$
— $
—
$
3
3
— $
—
315
8
1
136
55
3
1
—
2
87
—
61
1,763
—
4
—
71
—
4,807
2,038
7
229
136
2
—
—
—
—
—
—
—
1,297
2
59
—
—
3
3
2,078
8
5
136
126
3
4,808
3,335
11
375
136
63
$
669
$
9,063
$
1,358
$
11,090
114
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions)
Equity:
Fixed Income:
Alternatives:
Other Assets
Insurance contracts
Cash and cash equivalents
Totals
$
US Domestic Stocks
Global Stocks
Global/International Equity
commingled funds
Global equity mutual funds
U.S./North American Equity
commingled funds
Non-U.S. Government funds
Fixed income commingled funds
Fixed income mutual funds
Corporate bonds
Other Alternatives (1)
Hedge Funds(2)
As of March 31, 2019
Level 1
Level 2
Level 3
Total
1
10
399
49
1
215
6
2
—
6
—
—
—
99
$
— $
13
2,156
325
10
29
4,807
1
2
1,880
8
—
108
184
— $
—
—
—
—
—
—
—
—
982
—
36
14
—
1
23
2,555
374
11
244
4,813
3
2
2,868
8
36
122
283
$
788
$
9,523
$
1,032
$
11,343
(1) Represents real estate and other commingled funds consisting mainly of equities, bonds, or commodities.
(2) Represents investments in diversified fund of hedge funds.
Changes in fair value measurements of level 3 investments for the defined benefit plans were as follows:
(in millions)
Balance as of April 1, 2018
Actual return on plan assets held at the reporting date
Purchases, sales and settlements
Transfers in and / or out of Level 3
Changes due to exchange rates
Balance as of March 31, 2019
Actual return on plan assets held at the reporting date
Purchases, sales and settlements
Transfers in and / or out of Level 3
Changes due to exchange rates
Balance as of March 31, 2020
$
887
(13)
217
5
(64)
1,032
83
282
8
(47)
$
1,358
Domestic and global equity accounts are categorized as Level 1 if the securities trade on national or international
exchanges and are valued at their last reported closing price. Equity assets in commingled funds reporting a net asset
value are categorized as Level 2 and valued using broker dealer bids or quotes of securities with similar characteristics.
115
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fixed income accounts are categorized as Level 1 if traded on a publicly quoted exchange or as level 2 if investments in
corporate bonds are primarily investment grade bonds, generally priced using model-based pricing methods that use
observable market data as inputs. Broker dealer bids or quotes of securities with similar characteristics may also be used.
Alternative investment fund securities are categorized as Level 1 if held in a mutual fund or in a separate account
structure and actively traded through a recognized exchange, or as Level 2 if they are held in commingled or collective
account structures and are actively traded. Alternative investment fund securities are classified as Level 3 if they are held
in Limited Company or Limited Partnership structures or cannot otherwise be classified as Level 1 or Level 2.
Other assets represent property holdings by certain pension plans. As above, the property holdings represent a master
lease arrangement entered into by DXC in the United Kingdom and certain U.K. pension plans as a financing transaction.
Insurance contracts purchased to cover benefits payable to retirees are valued using the assumptions used to value the
projected benefit obligation.
Cash equivalents that have quoted prices in active markets are classified as Level 1. Short-term money market
commingled funds are categorized as Level 2 and valued at cost plus accrued interest which approximates fair value.
Plan Asset Allocations
Asset Category
Equity securities
Debt securities
Alternatives
Cash and other
Total
As of
March 31, 2020 March 31, 2019
19%
46%
31%
4%
100%
26%
45%
25%
4%
100%
Plan assets are held in a trust that includes commingled funds subject to country specific regulations and invested
primarily in commingled funds. For the U.K. pension plans, the Company's largest pension plans by assets and projected
liabilities, a target allocation by asset class was developed to achieve their long-term objectives. Asset allocations are
monitored closely and investment reviews regarding asset strategy are conducted regularly with internal and external
advisors.
The Company’s investment goals and risk management strategy for plan assets evaluates a number of factors, including
the time horizon of the plans’ obligations. Plan assets are invested in various asset classes that are expected to produce a
sufficient level of diversification in order to reduce risk, yet produces a reasonable amount of return on investment over
the long term. Sufficient liquidity is maintained to meet benefit obligations as they become due. Third party investment
managers are employed to invest assets in both passively-indexed and actively-managed strategies. Equities are
primarily invested broadly in domestic and foreign companies across market capitalizations and industries. Fixed income
securities are invested broadly, primarily in government treasury, corporate credit, mortgage backed and asset backed
investments. Alternative investment allocations are included in selected plans to achieve greater portfolio diversity
intended to reduce the overall volatility risk of the plans.
Plan asset risks include longevity, inflation, and other changes in market conditions that could reduce the value of plan
assets. Also, a decline in the yield of high quality corporate bonds may adversely affect discount rates resulting in an
increase in DXC's pension and other post-retirement obligations. These risks, among others, could cause the plans’
funded status to deteriorate, resulting in an increased reliance on Company contributions. Derivatives are permitted
although their current use is limited within traditional funds and broadly allowed within alternative funds. Derivatives are
used for inflation risk management and within the liability driven investing strategy. The Company also has investments in
insurance contracts to pay plan benefits in certain countries.
116
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Return on Assets
The Company consults with internal and external advisors regarding the expected long-term rate of return on assets. The
Company uses various sources in its approach to compute the expected long-term rate of return of the major asset
classes expected in each of the plans. DXC utilizes long-term, asset class return assumptions of typically 30 years, which
are provided by external advisors. Consideration is also given to the extent active management is employed in each asset
class and also to management expenses. A single expected long-term rate of return is calculated for each plan by
assessing the plan's expected asset allocation strategy, the benefits of diversification therefrom, historical excess returns
from actively managed traditional investments, expected long-term returns for alternative investments and expected
investment expenses. The resulting composite rate of return is reviewed by internal and external parties for
reasonableness.
Retirement Plan Discount Rate
The U.K. discount rate is based on the yield curve approach using the U.K. Aon Hewitt GBP Single Agency AA
Corporates-Only Curve.
U.K. Pension Equalization Ruling
On October 26, 2018 the High Court of Justice in the United Kingdom (the "High Court") issued a ruling related to the
equalization of benefits payable to men and women for the effect of guaranteed minimum pensions under U.K. defined
benefit pension plans. As a result of this ruling, the Company estimated the impact of retroactively increasing benefits in
its U.K. plans in accordance with the High Court ruling. The Company treated the additional benefits as a prior service
cost which resulted in an increase to its projected benefit obligation and accumulated other comprehensive loss of $28
million. The Company will amortize this cost over the average remaining life expectancy of the U.K. participants. Given the
immaterial effect on the U.K. plan's projected benefit, an interim remeasurement was not performed.
Defined Contribution Plans
The Company sponsors defined contribution plans for substantially all U.S. employees and certain foreign employees.
The plans allow employees to contribute a portion of their earnings in accordance with specified guidelines. Matching
contributions are made annually in January to participants employed on December 31 of the prior year and vest in one
year. However, if a participant retires from the Company or dies prior to December 31, the participant will be eligible to
receive matching contributions approximately 30 days following separation from service. During fiscal 2020, 2019 and
2018, the Company contributed $192 million, $219 million and $245 million, respectively, to its defined contribution plans.
As of March 31, 2020, plan assets included 3,393,616 shares of the Company’s common stock.
Deferred Compensation Plans
Effective as of the HPES Merger, DXC assumed sponsorship of the Computer Sciences Corporation Deferred
Compensation Plan, which was renamed the “DXC Technology Company Deferred Compensation Plan” (the “DXC DCP”),
and adopted the Enterprise Services Executive Deferred Compensation Plan (the “ES DCP”). Both plans are non-qualified
deferred compensation plans maintained for a select group of management, highly compensated employees and non-
employee directors.
The DXC DCP covers eligible employees who participated in CSC’s Deferred Compensation Plan prior to the HPES
Merger. The ES DCP covers eligible employees who participated in the HPE Executive Deferred Compensation Plan prior
to the HPES Merger. Both plans allow participating employees to defer the receipt of current compensation to a future
distribution date or event above the amounts that may be deferred under DXC’s tax-qualified 401(k) plan, the DXC
Technology Matched Asset Plan. Neither plan provides for employer contributions. As of April 3, 2017, the ES DCP does
not admit new participants.
117
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Certain management and highly compensated employees are eligible to defer all, or a portion of, their regular salary that
exceeds the limitation set forth in Internal Revenue Section 401(a)(17) and all or a portion of their incentive compensation.
Non-employee directors are eligible to defer up to 100% of their cash compensation. The liability under the plan, which is
included in other long-term liabilities in the Company's balance sheets, amounted to $48 million as of March 31, 2020 and
$59 million as of March 31, 2019. The Company's expense under the Plan totaled $0 million, $2 million and $4 million, for
fiscal 2020, 2019 and 2018, respectively.
Note 15 - Stockholders' Equity
Description of Capital Stock
The Company has authorized share capital consisting of 750,000,000 shares of common stock, par value $0.01 per
share, and 1,000,000 shares of preferred stock, par value $0.01 per share.
Each share of common stock is equal in all respects to every other share of common stock of the Company. Each share
of common stock is entitled to one vote per share at each annual or special meeting of stockholders for the election of
directors and upon any other matter coming before such meeting. Subject to all the rights of the preferred stock, dividends
may be paid to holders of common stock as and when declared by the Board of Directors (the "Board").
The Company's charter requires that preferred stock must be all of one class but may be issued from time to time in one
or more series, each of such series to have such full or limited voting powers, if any, and such designations, preferences
and relative, participating, optional or other special rights or qualifications, limitations or restrictions as provided in a
resolution adopted by the Board of Directors. Each share of preferred stock will rank on a parity with each other share of
preferred stock, regardless of series, with respect to the payment of dividends at the respectively designated rates and
with respect to the distribution of capital assets according to the amounts to which the shares of the respective series are
entitled.
Share Repurchase Program
On April 3, 2017, DXC announced the establishment of a share repurchase program approved by the Board of Directors
with an initial authorization of up to $2.0 billion for future repurchases of outstanding shares of DXC common stock. On
November 8, 2018, DXC announced that its board of directors approved an incremental $2.0 billion share repurchase
authorization. An expiration date has not been established for this repurchase plan. Share repurchases may be made
from time to time through various means, including in open market purchases, 10b5-1 plans, privately-negotiated
transactions, accelerated stock repurchases, block trades and other transactions, in compliance with Rule 10b-18 under
the Exchange Act as well as, to the extent applicable, other federal and state securities laws and other legal requirements.
The timing, volume, and nature of share repurchases pursuant to the share repurchase plan are at the discretion of
management and may be suspended or discontinued at any time.
As part of the share repurchase program, during fiscal 2020, DXC entered into an accelerated share repurchase ("ASR")
agreement with a third-party financial institution and repurchased 3,654,544 shares of common stock for $200 million,
resulting in an average price paid of $54.73 per share.
118
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The shares repurchased are retired immediately and included in the category of authorized but unissued shares. The
excess of purchase price over par value of the common shares is allocated between additional paid-in capital and
retained earnings. The details of shares repurchased are shown below:
Fiscal Year
2020
Open market purchases
ASR
2019
Open market purchases
2018
Open market purchases
Treasury Stock Transactions
Number of
shares
repurchased
Average Price
Per Share
Amount
(In millions)
12,279,107
3,654,544
15,933,651
19,342,586
19,342,586
1,537,782
1,537,782
2020 Total
2019 Total
2018 Total
$43.67
$54.73
$46.21
$69.20
$69.20
$89.41
$89.41
$
$
$
$
$
$
$
536
200
736
1,339
1,339
137
137
In fiscal 2020, 2019 and 2018 the Company accepted 38,902, 42,008 and 332,558 shares of its common stock,
respectively, in lieu of cash in connection with the exercise of stock options. In fiscal 2020, 2019 and 2018, the Company
accepted 321,148, 729,703 and 684,389 shares of its common stock, respectively, in lieu of cash in connection with the
tax withholdings associated with the release of common stock upon vesting of restricted stock and RSUs. As a result, the
Company holds 2,148,708 treasury shares as of March 31, 2020.
Dividends
(in millions, except per share amounts)
Fiscal 2020
Fiscal 2019
Fiscal 2018
Dividends Declared
Per Common
Share
Total
Unpaid at
Fiscal Year End
$
$
$
0.84
0.76
0.72
$
$
$
219
209
209
$
$
$
55
53
51
119
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accumulated Other Comprehensive (Loss) Income
The following table shows the changes in accumulated other comprehensive (loss) income, net of taxes:
Foreign
Currency
Translation
Adjustments
Cash Flow
Hedges
Available-
for-sale
Securities
Pension and
Other Post-
retirement
Benefit
Plans
Accumulated
Other
Comprehensive
(Loss) Income
$
$
$
$
(458) $
20
$
— $
276
$
197
—
(261) $
(256)
—
(517) $
(334)
—
(11)
—
9
(22)
$
10
(3) $
(15)
(2)
(851) $
(20) $
9
—
9
—
—
9
—
—
9
$
$
$
—
25
301
$
(21)
(13)
267
$
—
(8)
259
$
(162)
195
25
58
(299)
(3)
(244)
(349)
(10)
(603)
(in millions)
Balance at March 31, 2017
Current-period other comprehensive (loss) income
Amounts reclassified from accumulated other
comprehensive (loss) income, net of taxes
Balance at March 31, 2018
Current-period other comprehensive loss
Amounts reclassified from accumulated other
comprehensive (loss) income, net of taxes
Balance at March 31, 2019
Current-period other comprehensive loss
Amounts reclassified from accumulated other
comprehensive (loss) income, net of taxes
Balance at March 31, 2020
Note 16 - Stock Incentive Plans
Equity Plans
As a result of the Separation of USPS, shared-based awards issued by the Company were modified. The number of stock
options and exercise price were adjusted to generally preserve the intrinsic value immediately prior to the Separation.
There was no incremental share-based compensation expense recognized as a result of the modification of the awards.
As a result of the HPES Merger, all outstanding CSC awards of stock options, stock appreciation rights, restricted stock
units ("CSC RSUs"), including performance-based restricted stock units, relating to CSC common stock granted
under the 2011 Omnibus Incentive Plan, the 2007 Employee Incentive Plan and the 2010 Non-Employee Director
Incentive Plan (the “CSC Equity Incentive Plans”) held by CSC employees and non-employee directors were converted
into an adjusted award relating to DXC common shares subject to the same terms and conditions after the HPES Merger
as the terms and conditions applicable to such awards prior to the HPES Merger.
Under the terms of the CSC Equity Incentive Plans and the individual award agreements, all unvested equity incentive
awards, including all stock options and CSC RSUs held by all participants under the plans, including its named executive
officers and directors, are subject to accelerated vesting in whole or in part upon the occurrence of a change in control or
upon the participant’s termination of employment on or after the occurrence of a change in control under certain
circumstances ("CIC events"). As a result of CIC events triggered by the HPES Merger, approximately 3.6 million
unvested awards became vested on April 1, 2017 and $26 million of incremental stock compensation expense was
recognized. CSC options granted in fiscal 2017 vested 33% upon the HPES Merger; the remaining 67% were converted
into DXC RSUs based on the accounting value of the options. These RSUs will vest on the second and third anniversaries
of the original option grant date. For equity incentive awards granted by HPE under HPE equity incentive plans to HPES
employees prior to the HPES Merger, outstanding options (vested and unvested) and unvested RSU awards were
converted upon the HPES Merger into economically equivalent DXC option and RSU awards, with terms and conditions
substantially the same as the terms of such awards prior to the HPES Merger.
120
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In March 2017, prior to the HPES Merger, the board of directors and shareholders of HPES approved DXC’s 2017
Omnibus Incentive Plan (the “DXC Employee Equity Plan”), DXC’s 2017 Non-Employee Director Incentive Plan (the “DXC
Director Equity Plan”) and DXC’s 2017 Share Purchase Plan (“DXC Share Purchase Plan”). The terms of the DXC
Employee Equity Plan and DXC Director Equity Plans are substantially similar to the terms of the CSC Equity Incentive
Plans. The former allows DXC to grant stock options (including incentive stock options), stock appreciation rights
("SARs"), restricted stock, RSUs (including PSUs), and cash awards intended to qualify for the performance-based
compensation exemption to the $1 million deduction limit under Section 162(m) of the Internal Revenue Code (collectively
the "Awards"). Awards are typically subject to vesting over the 3-year period following the grant date. Vested stock options
are generally exercisable for a term of 10 years from the grant date. All of DXC’s employees are eligible for awards under
the plan. The Company issues authorized but previously unissued shares upon the granting of stock options and the
settlement of RSUs and PSUs.
The Compensation Committee of the Board of Directors has broad authority to grant awards and otherwise administer the
DXC Employee Equity Plan. The plan became effective March 30, 2017 and will continue in effect for a period of 10 years
thereafter, unless terminated earlier by the Board. The Board has the authority to amend the plan in such respects as it
deems desirable, subject to approval of DXC’s stockholders for material modifications.
RSUs represent the right to receive one share of DXC common stock upon a future settlement date, subject to vesting
and other terms and conditions of the award, plus any dividend equivalents accrued during the award period. In general, if
the employee’s status as a full-time employee is terminated prior to the vesting of the RSU grant in full, then the RSU
grant is automatically canceled on the termination date and any unvested shares and dividend equivalents are forfeited.
Certain executives were awarded service-based "career share" RSUs for which the shares are settled over the 10
anniversaries following the executive's separation from service as a full-time employee, provided the executive complies
with certain non-competition covenants during that period.
The Company also grants PSUs, which generally vest over a period of 3 years. The number of PSUs that ultimately vest
is dependent upon the Company’s achievement of certain specified financial performance criteria over a 3-year period. If
the specified performance criteria are met, awards are settled for shares of DXC common stock and dividend equivalents
upon the filing with the SEC of the Annual Report on Form 10-K for the last fiscal year of the performance period. PSU
awards include the potential for up to 25% of the shares granted to be earned after the first and second fiscal years if
certain of the Company's performance targets are met early, subject to vesting based on the participant's continued
employment through the end of the 3-year performance period.
The terms of the DXC Director Equity Plan allow DXC to grant RSU awards to non-employee directors of DXC. Such RSU
awards vest in full at the earlier of (i) the first anniversary of the grant date or (ii) the next annual meeting date, and are
automatically redeemed for DXC common stock and dividend equivalents either at that time or, if an RSU deferral election
form is submitted, upon the date or event elected by the director. Distributions made upon a director’s separation from the
Board may occur in either a lump sum or in annual installments over periods of 5, 10, or 15 years, per the director’s
election. In addition, RSUs vest in full upon a change in control of DXC.
The DXC Share Purchase Plan allows DXC’s employees located in the United Kingdom to purchase shares of DXC’s
common stock at the fair market value of such shares on the applicable purchase date. There were 28,779 shares
purchased under this plan during fiscal 2020.
121
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Board has reserved for issuance shares of DXC common stock, par value $0.01 per share, under each of the plans
as detailed below:
DXC Employee Equity Plan
DXC Director Equity Plan
DXC Share Purchase Plan
Total
As of March 31, 2020
Reserved for
issuance
Available for future
grants
34,200,000
19,571,067
230,000
250,000
39,451
206,610
34,680,000
19,817,128
The Company recognized share-based compensation expense for fiscal 2020, 2019 and 2018 as follows:
(in millions)
Total share-based compensation cost
Related income tax benefit
Total intrinsic value of options exercised
Tax benefits from exercised stock options and awards
Fiscal Years Ended
March 31, 2020 March 31, 2019 March 31, 2018
$
$
$
$
68
12
8
14
$
$
$
$
74
15
44
39
$
$
$
$
93
21
136
84
As of March 31, 2020, total unrecognized compensation expense related to unvested DXC RSUs, net of expected
forfeitures was $123 million, respectively. The unrecognized compensation expense for unvested RSUs is expected to be
recognized over a weighted-average period of 1.86 years.
122
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Options
The Company’s stock options vest one-third annually on each of the first three anniversaries of the grant date. Stock
options are generally granted for a term of ten years. Information concerning stock options granted under stock incentive
plans was as follows:
Outstanding as of March 31, 2017
Granted
HPE options converted to DXC options at Merger
CSC Options converted to RSUs due to Merger
Exercised
Canceled/Forfeited
Expired
Outstanding as of March 31, 2018 (1)
Granted
Issued due to Separation modification
Exercised
Canceled/Forfeited
Expired
Outstanding as of March 31, 2019
Granted
Exercised
Canceled/Forfeited
Expired
Outstanding as of March 31, 2020
Vested and expected to vest in the future as of March 31, 2020
Exercisable as of March 31, 2020
Number
of Option
Shares
Weighted
Average
Exercise
Price
4,767,396
$
— $
2,654,970
$
(1,521,519) $
(2,916,045) $
(14,890) $
(36,411) $
2,933,501
$
— $
400,170
$
(969,103) $
(14,607) $
(31,193) $
2,318,768
$
— $
(331,172) $
(2,213) $
(115,568) $
1,869,815
1,869,815
1,869,815
$
$
$
38.70
—
46.56
51.00
40.39
69.52
36.69
32.54
—
31.72
37.33
48.33
25.03
30.40
—
31.36
55.95
34.97
29.92
29.92
29.92
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
(in millions)
8.01
$
145
$
136
5.24
$
185
$
4.80
$
$
$
$
$
4.27
4.27
4.27
44
79
8
—
—
—
(1) The amount of the weighted average exercise price per share has been revised to reflect the impact of the Separation.
Range of Option Exercise Price
$8.96 - $24.47
$25.14 - $41.92
$42.05 - $58.80
As of March 31, 2020
Options Outstanding
Options Exercisable
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
19.03
28.08
45.13
2.85
4.62
5.24
Weighted
Average
Exercise
Price
19.03
28.08
45.13
Number
Exercisable
545,394
833,679
490,742
$
$
$
1,869,815
Number
Outstanding
545,394
833,679
490,742
$
$
$
1,869,815
123
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The total fair value of stock options vested during fiscal 2020, 2019 and 2018 was $0 million, $0 million and $22 million,
respectively. The cash received from stock options exercised during fiscal 2020, 2019 and 2018 was $9 million, $34
million and $98 million, respectively.
Restricted Stock Units
RSUs represent the right to receive one share of DXC common stock upon a future settlement date, subject to vesting
and other terms and conditions of the award, plus any dividend equivalents accrued during the award period. In general, if
the employee’s status as a full-time employee is terminated prior to the vesting of the RSU grant in full, then the RSU
grant is automatically canceled on the termination date and any unvested shares and dividend equivalents are forfeited.
Certain executives were awarded service-based "career share" RSUs for which the shares are settled over the 10
anniversaries following the executive's separation from service as a full-time employee, provided the executive complies
with certain non-competition covenants during that period.
Performance Stock Units
The Company also grants PSUs, which generally vest over a period of 3 years. The number of PSUs that ultimately vest
is dependent upon the Company’s achievement of certain specified financial performance criteria over a three-year
period. If the specified performance criteria are met, awards are settled for shares of DXC common stock and dividend
equivalents upon the filing with the SEC of the Annual Report on Form 10-K for the last fiscal year of the performance
period. PSU awards include the potential for accelerated vesting of 25% of the shares granted after each of the first and
second fiscal years if certain of the Company's performance targets are met early, and are subject to final vesting based
on the participant's continued employment through the end of the three-year performance period. Compensation expense
during the performance period is estimated at each reporting date using management's expectation of the probable
achievement of the specified performance criteria and is adjusted to the extent the expected achievement changes. In the
table below, such awards are reflected at the number of shares originally granted.
Information concerning RSUs and PSUs granted under the stock incentive plans was as follows:
Outstanding as of March 31, 2017
Granted
HPE RSUs converted to DXC RSUs due to Merger
Options converted to RSUs due to Merger
Released/Issued
Canceled/Forfeited
Outstanding as of March 31, 2018 (1)
Granted
Issued due to Separation modification
Released/Issued
Canceled/Forfeited
Outstanding as of March 31, 2019
Granted
Released/Issued
Canceled/Forfeited
Outstanding as of March 31, 2020
Number of
Shares
Weighted
Average
Grant Date
Fair Value
3,710,985
1,828,667
95,816
609,416
(1,934,446)
(324,822)
3,985,616
1,136,002
649,649
(2,207,467)
(754,025)
2,809,775
3,166,405
(1,039,346)
(762,358)
4,174,476
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
34.86
82.34
69.34
32.58
35.93
59.34
47.25
77.10
51.98
33.05
62.01
67.27
45.58
54.39
59.46
55.45
(1) The amount of the weighted average fair value per share has been revised to reflect the impact of the USPS Separation.
124
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Non-employee Director Incentives
The Company has one stock incentive plan which authorizes the issuance of stock options, restricted stock and other
share-based incentives to non-employee directors upon terms approved by the Company’s Board of Directors. As of
March 31, 2020, 39,451 shares of DXC common stock remained available for the grant of future RSUs or other share-
based incentives to nonemployee directors.
RSU awards to non-employee directors are granted at a price of $0. For RSU awards granted in fiscal 2014 and
thereafter, RSUs vest and settle at the earlier of (i) the one-year anniversary of the grant date, or (ii) the date of the
Company's first Annual Meeting of the Stockholders held after the grant date. Alternatively, settlement of the RSU may be
deferred per election of the non-employee director. For awards granted in fiscal 2013 and prior, vested RSUs were
automatically settled for shares of DXC common stock and dividend equivalents when the non-employee director ceases
to be a director of the Company. At the holder’s election, the RSUs may be settled (i) in their entirety, upon the day the
holder ceases to be a director, or (ii) in substantially equal amounts upon the first five, ten or fifteen anniversaries of such
termination of service.
Information concerning RSUs granted to non-employee directors was as follows:
Outstanding as of March 31, 2017
Granted
Released/Issued
Canceled/Forfeited
Outstanding as of March 31, 2018 (1)
Granted
Issued due to Separation modification
Released/Issued
Canceled/Forfeited
Outstanding as of March 31, 2019
Granted
Released/Issued
Canceled/Forfeited
Outstanding as of March 31, 2020
Number of
Shares
Weighted
Average
Grant Date
Fair Value
85,766
22,900
$
$
(39,980) $
(2,300) $
66,386
19,200
10,488
$
$
$
(20,324) $
— $
75,750
62,200
$
$
(23,335) $
— $
114,615
$
34.19
84.40
45.25
85.35
37.26
87.88
37.69
51.59
—
46.31
35.90
60.90
—
37.69
(1) The amount of the weighted average fair value per share has been revised to reflect the impact of the USPS Separation.
125
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 17 - Cash Flows
Cash payments for interest on indebtedness and income taxes and other select non-cash activities are as follows:
(in millions)
Cash paid for:
Interest
Taxes on income, net of refunds (1)
Non-cash activities:
Operating:
ROU assets obtained in exchange for lease, net (2)
Prepaid assets acquired under long-term financing
Investing:
Capital expenditures in accounts payable and accrued expenses
Capital expenditures through finance lease obligations
Assets acquired under long-term financing
(Decrease) increase in deferred purchase price receivable
Contingent consideration
Financing:
Dividends declared but not yet paid
Stock issued for the acquisition of HPES
Fiscal Years Ended
March 31, 2020 March 31, 2019 March 31, 2018
371
247
$
$
308
197
$
$
288
376
—
209
46
664
238
665
—
— $
48
$
45
668
200
1,489
41
$
$
$
$
$
411
99
66
605
376
$
$
$
$
$
(205) $
18
$
55
$
— $
53
$
— $
51
9,850
$
$
$
$
$
$
$
$
$
$
$
(1) Income tax refunds were $42 million, $174 million, and $38 million for fiscal 2020, 2019, and 2018, respectively.
(2) Net of $87 million change in lease classification from operating to finance lease and $216 million in modifications and terminations.
Note 18 - Other Income
The following table summarizes components of other income, net:
(in millions)
Non-service cost components of net periodic pension income
Foreign currency (gain) loss
Other gain
Totals
Fiscal Years Ended
March 31, 2020 March 31, 2019 March 31, 2018
$
$
(658) $
(182) $
(25)
(37)
31
(155)
(720) $
(306) $
(509)
(71)
(13)
(593)
Non-service cost components of net periodic pension income resulted from higher expected return on assets and actuarial
gain, offset by interest cost. See Note 14 - Pension and Other Benefit Plans. Foreign currency loss (gain) resulted from
the movement of foreign currency exchange rates on the Company’s foreign currency denominated assets and liabilities,
related hedges including options to manage its exposure to economic risk and the cost of the Company’s hedging
program.
126
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 19 - Segment and Geographic Information
DXC has a matrix form of organization and is managed in several different and overlapping groupings including services,
industries and geographic regions. As a result, and in accordance with accounting standards, operating segments are
organized by the type of services provided. DXC's chief operating decision maker ("CODM"), the chief executive officer,
obtains, reviews, and manages the Company’s financial performance based on these segments. The CODM uses these
results, in part, to evaluate the performance of, and allocate resources to, each of the segments.
As a result of the Separation, USPS is no longer included as a reportable segment and its results have been reclassified
to discontinued operations, net of taxes, for all periods presented. See Note 3 - "Divestitures." DXC now operates in two
reportable segments as described below:
Global Business Services
GBS provides innovative technology solutions that help our customers address key business challenges and accelerate
digital transformations tailored to each customer’s industry and specific objectives. GBS enterprise technology stack
offerings include:
• Analytics and Engineering. Our portfolio of analytics services and extensive partner ecosystem help customers
gain rapid insights, automate operations, and accelerate their digital transformation journeys. We provide software
engineering and solutions that enable businesses to run and manage their mission-critical functions, transform
their operations and develop new ways of doing business.
• Applications. We use advanced technologies and methods to accelerate the creation, modernization, delivery and
maintenance of high-quality, secure applications allowing customers to innovate faster while reducing risk, time to
market, and total cost of ownership, across industries. Our vertical-specific IP includes solutions for insurance;
banking and capital markets; and automotive, among others.
GBS offerings also includes business process services, which include digital integration and optimization of front and back
office processes, and agile process automation. This helps companies to reduce cost, and minimize business disruption,
human error, and operational risk while improving customer experiences.
Global Infrastructure Services
GIS provides a portfolio of technology offerings that deliver predictable outcomes and measurable results, while reducing
business risk and operational costs for customers. GIS enterprise stack elements include:
• Cloud and Security. We help customers to rapidly modernize by adapting legacy apps to cloud, migrate the right
workloads, and securely manage their multi-cloud environments. Our security solutions help predict attacks,
proactively respond to threats, ensure compliance and protect data, applications and infrastructure.
IT Outsourcing. Our ITO services support infrastructure, applications, and workplace IT operations, including
hardware, software, physical/virtual end-user devices, collaboration tools, and IT support services. We help
customers securely optimize operations to ensure continuity of their systems and respond to new business and
workplace demands, while achieving cost takeout, all with limited resources, expertise and budget.
•
GIS offerings also include workplace and mobility services to fit our customer’s employee, business and IT needs from
intelligent collaboration, modern device management, digital support services Internet of Things ("IoT") and mobility
services, providing a consumer-like, digital experience.
127
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Segment Measures
The following table summarizes operating results regularly provided to the CODM by reportable segment and a
reconciliation to the financial statements:
(in millions)
Fiscal Year Ended March 31, 2020
Revenues
Segment Profit
Depreciation and amortization (1)
Fiscal Year Ended March 31, 2019
Revenues
Segment Profit
Depreciation and amortization (1)
Fiscal Year Ended March 31, 2018
Revenues
Segment Profit
Depreciation and amortization (1)
GBS
GIS
Total Reportable
Segments
All Other
Totals
$
$
$
$
$
$
$
$
$
9,111
1,301
199
8,684
1,645
90
9,254
1,525
99
$
$
$
$
$
$
$
$
$
10,466
1,007
1,051
12,069
1,911
1,212
12,479
1,643
1,078
$
$
$
$
$
$
$
$
$
19,577
2,308
1,250
20,753
3,556
1,302
21,733
3,168
1,177
$
$
$
$
$
$
$
$
$
— $
19,577
(247) $
109
$
2,061
1,359
— $
20,753
(287) $
127
$
3,269
1,429
— $
21,733
(179) $
92
$
2,989
1,269
(1) Depreciation and amortization as presented excludes amortization of acquired intangible assets of $583 million, $539 million, and $526 million for
fiscal 2020, 2019, and 2018, respectively.
128
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reconciliation of Reportable Segment Profit to Consolidation
The Company's management uses segment profit as the measure for assessing performance of its segments. Segment
profit is defined as segment revenues less cost of services, segment selling, general and administrative, depreciation and
amortization, and other income (excluding the movement in foreign currency exchange rates on DXC's foreign currency
denominated assets and liabilities and the related economic hedges). The Company does not allocate to its segments
certain operating expenses managed at the corporate level. These unallocated costs include certain corporate function
costs, stock-based compensation expense, pension and OPEB actuarial and settlement gains and losses, restructuring
costs, transaction, separation, and integration-related costs, amortization of acquired intangible assets.
(in millions)
Profit
Fiscal Years Ended
March 31, 2020 March 31, 2019 March 31, 2018
Total profit for reportable segments
$
2,308
$
3,556
$
All other gain (loss)
Interest income
Interest expense
Restructuring costs
Transaction, separation, and integration-related costs
Amortization of acquired intangible assets
Goodwill impairment losses
Gain on arbitration award
Pension and OPEB actuarial and settlement gains (losses)
(247)
165
(383)
(252)
(318)
(583)
(6,794)
632
244
(287)
128
(334)
(465)
(401)
(539)
—
—
(143)
(Loss) income from continuing operations, before taxes
$
(5,228) $
1,515
$
3,168
(179)
89
(320)
(789)
(359)
(526)
—
—
220
1,304
Management does not use total assets by segment to evaluate segment performance or allocate resources. As a
result, assets are not tracked by segment and therefore, total assets by segment is not disclosed.
Geographic Information
See Note 20 - "Revenue" for the Company's revenue by geography. Property and equipment, net, which is based on the
physical location of the assets, was as follows:
(in millions)
United States
United Kingdom
Australia
Other Europe
Other International
Total Property and Equipment, net
As of
March 31, 2020
March 31, 2019
March 31, 2018
1,621
$
1,352
$
1,270
493
134
757
542
512
144
553
618
535
191
465
902
3,547
$
3,179
$
3,363
$
$
No single customer exceeded 10% of the Company’s revenues during fiscal 2020, fiscal 2019 or fiscal 2018.
129
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 20 - Revenue
Revenue Recognition
The following table presents DXC's revenues disaggregated by geography, based on the location of incorporation of the
DXC entity providing the related goods or services:
(in millions)
United States
United Kingdom
Australia
Other Europe
Other International
Total Revenues
Twelve Months Ended
March 31, 2020
March 31, 2019
March 31, 2018 (1)
$
$
7,225
$
7,677
$
2,776
1,487
5,121
2,968
3,175
1,582
5,294
3,025
8,015
3,392
1,694
5,409
3,223
19,577
$
20,753
$
21,733
(1) Prior period amounts have not been recast under the modified retrospective transition method.
The revenue by geography pertains to both of the Company’s reportable segments. Refer to Note 19 - "Segment and
Geographic Information" for the Company’s segment disclosures.
Remaining Performance Obligations
Remaining performance obligations represent the aggregate amount of the transaction price in contracts allocated to
performance obligations not delivered, or partially undelivered, as of the end of the reporting period. Remaining
performance obligation estimates are subject to change and are affected by several factors, including terminations,
changes in the scope of contracts, periodic revalidations, adjustments for revenue that has not materialized and
adjustments for currency. As of March 31, 2020, approximately $24.0 billion of revenue is expected to be recognized from
remaining performance obligations. The Company expects to recognize revenue on approximately 42% of these
remaining performance obligations in Fiscal 2021, with the remainder of the balance recognized thereafter.
Contract Balances
The following table provides information about the balances of the Company's trade receivables and contract assets and
contract liabilities:
(in millions)
Trade receivables, net
Contract assets
Contract liabilities
As of
March 31, 2020
March 31, 2019
$
$
$
3,059
454
1,756
$
$
$
3,232
390
1,886
130
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Change in contract liabilities were as follows:
(in millions)
ASC 605 Balance, beginning of period
Adjustment related to Topic 606 adoption
ASC 606 Balance, beginning of period
Deferred revenue
Recognition of deferred revenue
Currency translation adjustment
Other
Balance, end of period
Twelve Months Ended
March 31, 2020
Twelve Months Ended
March 31, 2019
$
$
— $
—
1,886
2,910
(2,925)
(48)
(67)
1,756
$
2,434
(381)
2,053
2,681
(2,664)
(167)
(17)
1,886
The following tables provides information about the Company’s capitalized costs to obtain and fulfill a contract:
(in millions)
Capitalized sales commission cost (1)
Transition and transformation contract costs, net (2)
As of
March 31, 2020
March 31, 2019
$
$
262
874
$
$
228
966
(1) Capitalized sales commission costs are included within other assets in the accompanying balance sheets. Amortization expense
of $72 million and $62 million for the twelve months ended March 31, 2020 and March 31, 2019, respectively, related to the capitalized
sales commission assets are included in selling, general, and administrative expenses in the accompanying statements of operations.
(2) Transition and transformation contract costs, net reflect the Company’s setup costs incurred upon initiation of an outsourcing contract
that are classified as other assets in the accompanying balance sheets. Amortization expense of $280 million and $258 million for the
twelve months ended March 31, 2020 and March 31, 2019, respectively, are included within depreciation and amortization in the
accompanying statements of operations.
Note 21 - Restructuring Costs
The Company recorded restructuring costs, net of reversals, of $252 million, $465 million and $789 million for fiscal 2020,
2019 and 2018, respectively. The costs recorded during fiscal 2020 were largely the result of implementing the Fiscal
2020 Plan, as described below.
The composition of restructuring liabilities by financial statement line items is as follows:
(in millions)
Accrued expenses and other current liabilities
Other long-term liabilities
Total
Summary of Restructuring Plans
Fiscal 2020 Plan
As of
March 31, 2020 March 31, 2019
$
$
145
$
35
180
$
273
106
379
During fiscal 2020, management approved cost savings initiatives designed to reduce operating costs by re-balancing its
workforce and facilities structures (the "Fiscal 2020 Plan"). The Fiscal 2020 Plan includes workforce optimization
programs and facilities and data center rationalization.
131
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal 2019 Plan
During fiscal 2019, management approved global cost savings initiatives designed to better align the Company's
organizational structure with its strategic initiatives and continue the integration of HPES and other acquisitions (the
"Fiscal 2019 Plan"). The Fiscal 2019 Plan includes workforce optimization and rationalization of facilities and data center
assets. Costs incurred to date under the Fiscal 2019 Plan total $482 million, comprising $338 million in employee
severance and $144 million of facilities costs.
Fiscal 2018 Plan
In June 2017, management approved a post-HPES Merger restructuring plan to optimize the Company's operations in
response to a continuing business contraction (the "Fiscal 2018 Plan"). The Fiscal 2018 Plan focuses mainly on optimizing
specific aspects of global workforce, increasing the proportion of work performed in low cost offshore locations and re-
balancing the pyramid structure. Additionally, this plan included global facility restructuring, including a global data center
restructuring program. Costs incurred to date under the Fiscal 2018 Plan total $771 million, comprising $584 million in
employee severance and $187 million of facilities costs.
Other Prior Year Plans
In May 2016, the Company initiated a restructuring plan to realign the Company's cost structure and resources to take
advantage of operational efficiencies following recent acquisitions. During the fourth quarter of Fiscal 2017, the Company
expanded the plan to strengthen the Company's competitiveness and to optimize the workforce by increasing work
performed in low-cost locations (the "Fiscal 2017 Plan"). Total costs incurred to date under the Fiscal 2017 Plan total $215
million, comprising $206 million in employee severance and $9 million of facilities costs.
Acquired Restructuring Liabilities
As a result of the merger of Computer Sciences Corporation ("CSC") and HPES ("HPES Merger"), DXC acquired
restructuring liabilities under restructuring plans that were initiated for HPES under plans approved by the HPE Board of
Directors.
132
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restructuring activities, summarized by plan year, were as follows:
Restructuring
Liability as of
March 31, 2019
Adoption of
ASC 842(1)
Costs
Expensed,
Net of
Reversals(2)
Costs Not
Affecting
Restructuring
Liability(3)
Cash Paid
Other(4)
Restructuring
Liability as of
March 31, 2020
Fiscal 2020 Plan
Workforce Reductions
$
Facilities Costs
Total
$
Fiscal 2019 Plan
— $
—
— $
— $
—
— $
271
$
(11) $
(177) $
21
(3)
(16)
292
$
(14) $
(193) $
Workforce Reductions
$
138
$
— $
Facilities Costs
68
(53)
Total
$
206
$
(53) $
Fiscal 2018 Plan
Workforce Reductions
$
Facilities Costs
Total
$
Other Prior Year Plans
Workforce Reductions
$
Facilities Costs
$
$
$
59
35
94
9
1
Total
$
10
$
Acquired Liabilities
Workforce Reductions
$
Facilities Costs
Total
$
51
18
69
$
$
— $
(36)
(36) $
— $
(1)
(1) $
— $
—
— $
(25) $
—
(25) $
(10) $
(1)
(11) $
(1) $
—
(1) $
1
$
(4)
(3) $
— $
(1)
(1) $
— $
—
— $
— $
—
— $
— $
—
— $
(9) $
—
(9) $
(5) $
(2)
(7) $
(83) $
(7)
(90) $
(29) $
— $
(2)
(31) $
4
4
$
(3) $
—
(3) $
(16) $
(1)
(17) $
(1) $
—
(1) $
3
$
(2)
1
$
74
2
76
25
5
30
20
—
20
4
—
4
39
11
50
(1) Represents restructuring liability recorded as an offset to right-of-use assets upon the adoption of ASC 842.
(2) Costs expensed, net of reversals include $30 million, $11 million, and $3 million of costs reversed from the Fiscal 2019 Plan, Fiscal 2018
Plan and Other Prior Year Plans, respectively.
(3) Pension benefit augmentations recorded as a pension liability and asset impairment.
(4) Foreign currency translation adjustments.
133
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal 2019 Plan
Workforce Reductions
Facilities Costs
Total
Fiscal 2018 Plan
Workforce Reductions
Facilities Costs
Total
Fiscal 2017 Plan
Workforce Reductions
Facilities Costs
Total
Other Prior Year Plans
Workforce Reductions
Facilities Costs
Total
Acquired Liabilities
Workforce Reductions
Facilities Costs
Total
Restructuring
Liability as of
March 31,
2018
Costs
Expensed,
Net of
Reversals(1)
Costs Not
Affecting
Restructuring
Liability(2)
Cash Paid
Other(3)
Restructuring
Liability as of
March 31,
2019
$
$
$
$
$
$
$
$
$
$
— $
—
— $
257
$
98
355
$
19
$
3
22
$
4
2
6
$
$
110
$
27
137
$
363
$
144
507
$
(30) $
(14)
(44) $
— $
—
— $
— $
—
— $
2
$
—
2
$
(2) $
(6)
(8) $
— $
(3)
(3) $
— $
—
— $
— $
—
— $
— $
—
— $
(218) $
(68)
(286) $
(151) $
(40)
(191) $
(12) $
(3)
(15) $
(2) $
(1)
(3) $
(58) $
(9)
(67) $
(5) $
(2)
(7) $
(17) $
(6)
(23) $
— $
—
— $
— $
—
— $
(3) $
—
(3) $
138
68
206
59
35
94
7
—
7
2
1
3
51
18
69
(1) Costs expensed, net of reversals include $48 million, $3 million, and $1 million of costs reversed from the Fiscal 2018 Plan, Fiscal 2017 Plan and
Other Prior Year Plans, respectively.
(2) Pension benefit augmentations recorded as a pension liability and asset impairment.
(3) Foreign currency translation adjustments.
134
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 22 - Commitments and Contingencies
Commitments
The Company signed long-term purchase agreements with certain software, hardware, telecommunication and other
service providers to obtain favorable pricing and terms for services and products that are necessary for the operations of
business activities. Under the terms of these agreements, the Company is contractually committed to purchase specified
minimums over periods ranging from 1 to 5 years. If the Company does not meet the specified minimums, the Company
would have an obligation to pay the service provider all, or a portion, of the shortfall. Minimum purchase commitments as
of March 31, 2020 were as follows:
Fiscal year
(in millions)
2021
2022
2023
2024
2025
Thereafter
Total
Minimum
Purchase
Commitment (1)
1,911
$
645
535
261
25
—
$
3,377
(1) A significant portion of the minimum purchase commitments in fiscal 2021 relate to the amounts committed under the HPE preferred vendor
agreements.
In the normal course of business, the Company may provide certain clients with financial performance guarantees, and at
times performance letters of credit or surety bonds. In general, the Company would only be liable for the amounts of these
guarantees in the event that non-performance by the Company permits termination of the related contract by the
Company’s client. The Company believes it is in compliance with its performance obligations under all service contracts
for which there is a financial performance guarantee, and the ultimate liability, if any, incurred in connection with these
guarantees will not have a material adverse effect on its consolidated results of operations or financial position.
The Company also uses stand-by letters of credit, in lieu of cash, to support various risk management insurance policies.
These letters of credit represent a contingent liability and the Company would only be liable if it defaults on its payment
obligations on these policies.
The following table summarizes the expiration of the Company’s financial guarantees and stand-by letters of credit
outstanding as of March 31, 2020:
(in millions)
Surety bonds
Letters of credit
Stand-by letters of credit
Totals
Fiscal 2021
Fiscal 2022
$
374
102
75
83
96
78
Fiscal 2023 and
Thereafter
$
85
$
Totals
397
25
542
595
178
551
$
257
$
507
$
1,315
$
$
The Company generally indemnifies licensees of its proprietary software products against claims brought by third parties
alleging infringement of their intellectual property rights, including rights in patents (with or without geographic limitations),
copyrights, trademarks and trade secrets. DXC’s indemnification of its licensees relates to costs arising from court
awards, negotiated settlements, and the related legal and internal costs of those licensees. The Company maintains the
right, at its own cost, to modify or replace software in order to eliminate any infringement. The Company has not incurred
any significant costs related to licensee software indemnification.
135
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Contingencies
Vincent Forcier v. Computer Sciences Corporation and The City of New York: On October 27, 2014, the United States
Attorney’s Office for the Southern District of New York and the Attorney General for the State of New York filed complaints-
in-intervention on behalf of the United States and the State of New York, respectively, against CSC and The City of New
York, based on a qui tam complaint originally filed under seal in 2012 by Vincent Forcier, a former employee of CSC. The
complaints allege that from 2008 to 2012 New York City and CSC, in its role as fiscal agent for New York City’s Early
Intervention Program ("EIP"), violated the federal and state False Claims Acts and various common law standards by
allegedly orchestrating a billing fraud against Medicaid through the misapplication of default billing codes and the failure to
exhaust private insurance coverage before submitting claims to Medicaid. The lawsuits seek treble statutory damages,
other civil penalties and attorneys’ fees and costs.
In June 2016, the Court dismissed Forcier’s amended complaint in its entirety. With regard to the complaints-in-
intervention, the Court dismissed the federal claims alleging misuse of default diagnosis codes when the provider had
entered an invalid code, and the state claims alleging failure to reimburse Medicaid when claims were subsequently paid
by private insurance. The Court allowed the remaining claims to proceed. In September 2016, the United States and the
State of New York each filed amended complaints-in-intervention, asserting additional claims that the compensation
provisions of CSC’s contract with New York City rendered it ineligible to serve as a billing agent under state law.
CSC filed motions to dismiss and in August 2017, the Court granted in part and denied in part CSC's motions. In January
2018, CSC asserted a counterclaim against the State of New York on a theory of contribution and indemnification. The
court denied the State's motion to dismiss CSC's counterclaim with respect to liability for claims not arising under the
Federal False Claims Act.
The Parties have reached an agreement in principle to resolve the matter. The Company expects to enter into a
stipulation dismissing the action in June 2020.
Strauch Fair Labor Standards Act Collective Action: On July 1, 2014, several plaintiffs filed an action in the U.S. District
Court for the District of Connecticut on behalf of themselves and a putative nationwide collective of CSC system
administrators, alleging CSC’s failure to properly classify these employees as non-exempt under the federal Fair Labor
Standards Act ("FLSA"). Plaintiffs alleged similar state-law Rule 23 class claims pursuant to Connecticut and California
statutes. Plaintiffs claimed double overtime damages, liquidated damages, and other amounts and remedies.
In 2015 the Court entered an order granting conditional certification under the FLSA of the collective of over 4,000 system
administrators. Approximately 1,000 system administrators filed consents with the Court to participate in the FLSA
collective. The class/collective action is currently made up of approximately 800 individuals who held the title of associate
professional or professional system administrator.
In June 2017, the Court granted Rule 23 certification of a Connecticut state-law class and a California state-law class
consisting of professional system administrators and associate professional system administrators. Senior professional
system administrators were found not to qualify for Rule 23 certification under the state-law claims. CSC sought
permission to appeal the Rule 23 decision to the Second Circuit Court of Appeals, which was denied.
In December 2017, a jury trial was held and a verdict was returned in favor of plaintiffs. On August 6, 2019, the Court
issued an order awarding plaintiffs $18.75 million in damages. In September 2019, Plaintiffs filed a motion seeking $14.1
million in attorneys’ fees and costs. The Court has yet to rule on this motion. The Company disagrees with the jury verdict
and the damages award and is appealing the judgment of the Court.
136
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Computer Sciences Corporation v. Eric Pulier, et al.: On May 12, 2015, CSC filed a civil complaint in the Court of
Chancery of the State of Delaware against Eric Pulier, the former CEO of Service Mesh, Inc. ("SMI"), which CSC had
acquired in November 2013. The complaint asserted claims for fraud, breach of contract and breach of fiduciary duty,
based on allegations that Mr. Pulier had engaged in fraudulent transactions with two employees of the Commonwealth
Bank of Australia Ltd. (“CBA”). The Court dismissed CSC’s claim for breach of the implied covenant of good faith but
allowed substantially all of the remaining claims to proceed. Mr. Pulier asserted counter-claims for breach of contract,
fraud, negligent representation, rescission, and violations of the California Blue Sky securities law, all of which the Court
dismissed in whole or in part, except for claims for breach of Mr. Pulier’s retention agreement.
In July 2017, the Court granted a motion by the United States for a 90-day stay of discovery pending the completion of a
criminal investigation by the U.S. Attorney's Office for the Central District of California. In September 2017, a federal grand
jury returned an indictment against Mr. Pulier, charging him with conspiracy, securities and wire fraud, obstruction of
justice, and other violations of federal law (United States v. Eric Pulier, CR 17-599-AB). The Government sought an
extension of the stay which the Delaware Chancery Court granted.
In December 2018, the Government filed an application to dismiss the indictment against Mr. Pulier, which was granted,
and the indictment was dismissed with prejudice. In March 2019, the Delaware Chancery Court lifted the stay and denied
CSC's motion for a temporary restraining order and preliminary injunction with respect to certain of Mr. Pulier's assets.
In August 2019, the Company entered into an agreement with Mr. Pulier, resolving all claims and counterclaims in the
Delaware litigation through the division of amounts previously held in escrow for post-closing disputes.
The Securities and Exchange Commission (“SEC”) has filed a complaint against Mr. Pulier alleging various claims,
including for fraud and falsifying books and records (Securities and Exchange Commission v. Eric Pulier, Case No. 2:17-
cv-07124). The Court has set a trial date of December 1, 2020.
In February 2016, Mr. Pulier filed a complaint in Delaware Chancery Court seeking advancement of his legal fees and
costs in the civil and criminal actions, pursuant to the terms of his agreements with SMI. The Court ruled that CSC Agility
Platform - as the successor to SMI - is liable for advancing 80% of Mr. Pulier’s fees and costs in the civil and criminal
actions. Pursuant to agreements with SMI, Mr. Pulier is obligated to repay all amounts advanced to him if it should
ultimately be determined that he is not entitled to indemnification.
The Company remains obligated to advance amounts for Mr. Pulier’s legal fees and costs to defend the SEC action
against him.
Kemper Corporate Services, Inc. v. Computer Sciences Corporation: In October 2015, Kemper Corporate Services, Inc.
(“Kemper”) filed a demand for arbitration against CSC with the American Arbitration Association (“AAA”), alleging that CSC
breached the terms of a 2009 Master Software License and Services Agreement and related Work Orders (the
“Agreement”) by failing to complete a software translation and implementation plan by certain contractual deadlines.
Kemper claimed breach of contract, seeking approximately $100 million in damages. CSC answered the demand for
arbitration denying Kemper’s claims and asserting a counterclaim for unpaid invoices for services rendered by CSC.
A single arbitrator conducted an evidentiary hearing on the merits of the claims and counterclaims in April 2017. In
October 2017, the arbitrator issued a partial final award, finding for Kemper on its breach of contract theory, awarding
Kemper $84.2 million in compensatory damages plus prejudgment interest, denying Kemper’s claim for rescission as
moot, and denying CSC’s counterclaim. Kemper moved to confirm the award in federal district court in Texas.
CSC moved to vacate the award, and in August 2018, the Magistrate Judge issued its Report and Recommendation
denying CSC's vacatur motion. In September 2018, the District Court summarily accepted the Report and
Recommendation without further briefing and entered a Final Judgment in the case. The Company promptly filed a notice
of appeal to the Fifth Circuit Court of Appeals. Following the submission of briefs, oral argument was held on September
5, 2019. On January 10, 2020, the Court of Appeals issued a decision denying the Company’s appeal. On January 24,
2020, the Company filed a Petition for Rehearing, seeking review by the entire en banc Court of Appeals. On February 14,
2020, the Court of Appeals denied the Company’s Petition.
137
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has been pursuing coverage for the full scope of the award, interest, and legal fees and expenses, under
the Company's applicable insurance policies. Certain carriers have accepted coverage while others have denied
coverage. On February 21, 2020, the Company paid the balance of the judgment, which net of insurance recovery, total
$60 million. The Company continues to pursue recovery with its insurance carriers.
Forsyth, et al. v. HP Inc. and Hewlett Packard Enterprise: On August 18, 2016, this purported class and collective action
was filed in the U.S. District Court for the Northern District of California, against HP and HPE alleging violations of the
Federal Age Discrimination in Employment Act (“ADEA”), the California Fair Employment and Housing Act, California
public policy and the California Business and Professions Code. Former business units of HPE now owned by the
Company may be proportionately liable for any recovery by plaintiffs in this matter.
Plaintiffs seek to certify a nationwide class action under the ADEA comprised of all U.S. residents employed by
defendants who had their employment terminated pursuant to a work force reduction (“WFR”) plan and who were 40
years of age or older at the time of termination. The class seeks to cover those impacted by WFRs on or after December
2014. Plaintiffs also seek to represent a Rule 23 class under California law comprised of all persons 40 years of age or
older employed by defendants in the state of California and terminated pursuant to a WFR plan on or after August 18,
2012.
In January 2017, defendants filed a partial motion to dismiss and a motion to compel arbitration of claims by certain
named and opt-in plaintiffs who had signed release agreements as part of their WFR packages. In September 2017, the
Court denied the partial motion to dismiss without prejudice, but granted defendants’ motions to compel arbitration for
those named and opt-in plaintiffs. The Court has stayed the entire action pending arbitration for these individuals, and
administratively closed the case.
A mediation was held in October 2018 with the 16 named and opt-in plaintiffs who were involved in the case at that time. A
settlement was reached, which included seven plaintiffs who were employed by former business units of HPE that are
now owned by the Company. In June 2019, a second mediation was held with 145 additional opt-in plaintiffs who were
compelled to arbitration pursuant to their release agreements. In December 2019, a settlement was reached with 142 of
the opt-in plaintiffs, 35 of whom were employed by former business units of HPE that are now owned by the Company,
and for which the Company is liable.
Former business units of the Company now owned by Perspecta may be proportionately liable for any recovery by
plaintiffs in this matter.
Oracle America, Inc., et al. v. Hewlett Packard Enterprise Company: On March 22, 2016, Oracle filed a complaint against
HPE in the Northern District of California, alleging copyright infringement, interference with contract, intentional
interference with prospective economic relations, and unfair competition. The litigation relates in part to former business
units of HPE that are now owned by the Company. The Company may be required to indemnify HPE for a portion of any
recovery by Oracle in the litigation related to these business units.
Oracle’s claims arise primarily out of HPE’s prior relationship with a third-party maintenance provider named Terix
Computer Company, Inc. (“Terix”). Oracle claims that Terix infringed its copyrights while acting as HPE’s subcontractor for
certain customers of HPE’s multivendor support business. Oracle claims that HPE is liable for vicarious and contributory
infringement arising from the alleged actions of Terix and for direct infringement arising from its own alleged conduct.
On June 14, 2018, the court heard oral argument on the parties’ cross-motions for summary judgment. On January 29,
2019, the court granted HPE’s motion for summary judgment and denied Oracle’s motion for summary judgment,
resolving the matter in HPE’s favor. Oracle has appealed the judgment to the U.S. Court of Appeals for the Ninth Circuit.
The parties have submitted their briefs in the appellate case, and oral argument has been scheduled for June 8, 2020.
138
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In re DXC Technology Company Securities Litigation: On December 27, 2018, a purported class action lawsuit was filed in
the United States District Court for the Eastern District of Virginia against the Company and two of its current officers. The
lawsuit asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and is
premised on allegedly false and/or misleading statements, and alleged non-disclosure of material facts, regarding the
Company’s business, operations, prospects and performance during the proposed class period of February 8, 2018 to
November 6, 2018. The Company has moved to dismiss the claims in their entirety. On July 26, 2019, the court heard oral
argument on the Company’s motion to dismiss, and a decision is now pending.
In March 2019, three related shareholder derivative lawsuits were filed in the Eighth Judicial District Court of the State of
Nevada, in and for Clark County, against one of the Company’s current officers and a former officer as well as members of
the Company’s board of directors, asserting claims for breach of fiduciary duty, waste of corporate assets, and unjust
enrichment. By agreement of the parties and order of the court, those lawsuits were consolidated on July 18, 2019, and
are presently stayed pending resolution of the Company’s motion to dismiss in the federal putative class action filed in the
Eastern District of Virginia.
On August 20, 2019, a purported class action lawsuit was filed in the Superior Court of the State of California, County of
Santa Clara, against the Company, directors of the Company, and a former officer of the Company, among other
defendants. On September 16, 2019, a substantially similar purported class action lawsuit was filed in the United States
District Court for the Northern District of California against the Company, directors of the Company, and a former officer of
the Company, among other defendants. On November 8, 2019, a third purported class action lawsuit was filed in the
Superior Court of the State of California, County of San Mateo, against the Company, directors of the Company, and a
former officer of the Company, among other defendants. The third lawsuit was voluntarily dismissed by the plaintiff and re-
filed in the Superior Court of the State of California, County of Santa Clara on November 26, 2019, and thereafter was
consolidated with the earlier-filed action in the same court on December 10, 2019. The California lawsuits assert claims
under Sections 11, 12 and 15 of the Securities Act of 1933, as amended, and are premised on allegedly false and/or
misleading statements, and alleged non-disclosure of material facts, regarding the Company’s prospects and expected
performance. Plaintiff in the federal action filed an amended complaint on January 8, 2020. The putative class of plaintiffs
in these cases includes all persons who acquired shares of the Company’s common stock pursuant to the offering
documents filed with the Securities and Exchange Commission in connection with the April 2017 transaction that formed
DXC. The Company has filed a motion to stay the consolidated state court case in favor of the federal action and a motion
to dismiss the federal action.
On October 2, 2019, a shareholder derivative lawsuit was filed in the Eighth Judicial District Court of the State of Nevada,
in and for Clark County, asserting various claims, including for breach of fiduciary duty and unjust enrichment, and
challenging certain sales of securities by officers under Rule 10b5-1 plans. The shareholder filed this action after making a
demand on the board of directors, alleging breaches of fiduciary duty, corporate waste and disclosure violations, and
demanding that the board take certain actions to evaluate the allegations and respond. The Company’s board of directors
analyzed the demand, and has determined to defer its decision on the demand pending developments in the securities
and derivative lawsuits described above. The Company moved to dismiss the complaint on the basis that the Board’s
decision to defer action was not a refusal of the demand and was within its discretion. The Company’s motion to dismiss
was denied on January 22, 2020. On March 11, 2020, the Court granted a request by the Company to temporarily stay the
case, in light of the proceedings in the Eastern District of Virginia.
On March 31, 2020, a group of individual shareholders filed a complaint in the United States District Court for the Northern
District of California, asserting non-class claims based on allegations substantially similar to those at issue in the earlier-
filed putative class action complaints pending in the Northern District of California and Eastern District of Virginia. The
plaintiffs assert claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and under
Sections 11 and 15 of the Securities Act of 1933, as amended. On April 29, 2020, the court granted an administrative
motion to relate the case with the earlier-filed putative class action pending in the Northern District of California. And on
May 13, 2020, the parties filed a stipulation requesting to stay the case subject to resolution of the motions to dismiss
pending in the Northern District of California and Eastern District of Virginia class actions.
The Company believes that the lawsuits described above are without merit, and it intends to vigorously defend them.
139
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Voluntary Disclosure of Certain Possible Sanctions Law Violations: On February 2, 2017, CSC submitted an initial
notification of voluntary disclosure to the U.S. Department of Treasury, Office of Foreign Assets Control ("OFAC")
regarding certain possible violations of U.S. sanctions laws pertaining to insurance premium data and claims data
processed by two partially-owned joint ventures of Xchanging, which CSC acquired during the first quarter of fiscal 2017.
A copy of the disclosure was also provided to Her Majesty’s Treasury Office of Financial Sanctions Implementation in the
United Kingdom. The Company is finalizing its internal investigation and provided supplemental information to OFAC on
January 31, 2020.
Perspecta Arbitration: In October 2019, Perspecta submitted a demand for arbitration claiming that in June 2018 DXC
breached certain obligations under the Separation and Distribution Agreement ("SDA") between Perspecta and DXC, and
seeking at least $120 million in alleged damages. During the course of discovery, Perspecta has increased the amount of
its alleged damages, first to $500 million and then to over $800 million. The Company believes there is no valid basis for
Perspecta’s claims for these amounts. In its arbitration demand, Perspecta also challenges $39 million in invoices issued
by DXC in June 2019 under its IT Services Agreement with Perspecta. DXC believes the invoices were properly issued
and the amounts are owed by Perspecta. DXC believes that Perspecta's claims are without merit and intends to
vigorously defend itself.
In addition to the matters noted above, the Company is currently subject in the normal course of business to various
claims and contingencies arising from, among other things, disputes with customers, vendors, employees, contract
counterparties and other parties, as well as securities matters, environmental matters, matters concerning the licensing
and use of intellectual property, and inquiries and investigations by regulatory authorities and government agencies. Some
of these disputes involve or may involve litigation. The financial statements reflect the treatment of claims and
contingencies based on management's view of the expected outcome. DXC consults with outside legal counsel on issues
related to litigation and regulatory compliance and seeks input from other experts and advisors with respect to matters in
the ordinary course of business. Although the outcome of these and other matters cannot be predicted with certainty, and
the impact of the final resolution of these and other matters on the Company’s results of operations in a particular
subsequent reporting period could be material and adverse, management does not believe based on information currently
available to the Company, that the resolution of any of the matters currently pending against the Company will have a
material adverse effect on the financial position of the Company or the ability of the Company to meet its financial
obligations as they become due. Unless otherwise noted, the Company is unable to determine at this time a reasonable
estimate of a possible loss or range of losses associated with the foregoing disclosed contingent matters.
140
DXC TECHNOLOGY COMPANY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 23 - Subsequent Events
Credit Agreement Draw
On April 6, 2020, the Company borrowed the remaining $2.5 billion available under the Credit Agreement as a
precautionary measure to increase its cash position and increase financial flexibility in light of continuing uncertainty in the
global economy and financial capital markets resulting from the COVID-19 outbreak.
The Company expects to use the proceeds from the borrowings under the Credit Agreement for working capital, general
corporate purposes or other purposes permitted under the Credit Agreement. Borrowings under the Credit Agreement will
bear interest at a variable rate based on LIBOR or on a base rate, plus an individual margin based on DXC’s long-term
debt rating.
Senior Notes
On April 21, 2020, DXC completed its previously announced offering of $500 million aggregate principal amount of its
4.000% Senior Notes due 2023 and $500 million aggregate principal amount of its 4.125% Senior Notes due 2025
(collectively, the “Notes”). The Company received $993 million net proceeds from the offering of the Notes, after deducting
the underwriters’ discounts and the estimated expenses of the offering. The Company used the net proceeds from the
offering of the Notes to prepay (i) €500 million of the €750 million term loan due fiscal 2022; (ii) £150 million of the £500
million term loan due fiscal 2022; (iii) A$300 million of the A$500 term loan due fiscal 2022; and (iv) $100 million of the
$500 million term loan due fiscal 2025.
Amended Financial Covenants
On May 15, 2020, the company also amended the financial covenants in its revolver and terms loans to convert the debt
to EBITDA covenant from gross debt to net debt to account for the cash amount on its balance sheet. At the same time,
the company extended the tenor of its Euro term loans by one year.
Dividend
The Board of Directors has suspended the Company’s cash dividend payment beginning in the first quarter to preserve
cash and provide additional flexibility in the current environment as a result of the economic impact of
COVID-19. Furthermore, the Board has suspended future quarterly dividends until the significant uncertainty of the current
public health crisis and global economic climate has passed and the Board determines that resumption of dividend
payments is in the best interest of the Company and its stockholders.
No events, other than those described in these notes, have occurred that would require recognition or disclosure in the
consolidated financial statements.
141
DXC TECHNOLOGY COMPANY
ITEM 8. Supplementary Data
All financial statement schedules have been omitted since they are either not required, not applicable, or the required
information is shown in the financial statements or related notes. As a result of the USPS Separation, the statement of
operations, balance sheets, and related financial information reflect USPS's operations, assets and liabilities as
discontinued operations. See Note 3 - "Divestitures".
(in millions, except per-share amounts)
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Selected Quarterly Financial Data (Unaudited)
Fiscal 2020
Revenues
Costs of services (excludes depreciation and amortization and
restructuring costs)
Gross profit
Restructuring costs
Income (loss) from continuing operations before taxes
Income (loss) from continuing operations, net of taxes
Net income (loss) attributable to DXC common shareholders
Earnings (loss) per common share(1)
Basic:
Continuing operations
Diluted:
Continuing operations
Cash dividend per common share
4,890
$
4,851
$
5,021
$
4,815
3,622
1,268
142
206
168
163
$
$
$
$
$
3,679
1,172
32
$
$
(1,999) $
(2,115) $
(2,119) $
3,827
1,194
74
127
90
82
$
$
$
$
$
3,773
1,042
4
(3,562)
(3,501)
(3,495)
0.61
$
(8.19) $
0.32
$
(13.79)
0.61
$
(8.19) $
0.32
$
(13.79)
0.21
$
0.21
$
0.21
$
0.21
$
$
$
$
$
$
$
$
$
142
DXC TECHNOLOGY COMPANY
Selected Quarterly Financial Data (Unaudited)
Fiscal 2019
(in millions, except per-share amounts)
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Revenues
Costs of services (excludes depreciation and amortization and
restructuring costs)
Gross profit
Restructuring costs
Income from continuing operations before taxes
Income from continuing operations, net of taxes
Income from discontinued operations, net of taxes
Net income attributable to DXC common shareholders
Earnings per common share(1)
Basic:
Continuing operations
Discontinued operations
Diluted:
Continuing operations
Discontinued operations
Cash dividend per common share
$
$
$
$
$
$
$
$
$
$
$
$
5,282
$
5,013
$
5,178
$
3,867
1,415
185
360
231
35
259
0.79
0.12
0.78
0.12
0.19
$
$
$
$
$
$
$
$
$
$
$
3,518
1,495
157
332
259
$
$
$
$
— $
262
$
0.93
$
— $
0.92
$
— $
3,725
1,453
76
469
466
$
$
$
$
— $
462
$
1.68
$
— $
1.66
$
— $
0.19
$
0.19
$
5,280
3,836
1,444
47
354
271
—
274
1.02
—
1.01
—
0.19
(1) Quarterly EPS amounts may not total to the full-year EPS. EPS is calculated based on weighted average shares outstanding for the
period. Quarterly weighted average shares may not equal the full-year weighted average shares for the fiscal year.
143
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the direction and with the participation of our Chief Executive Officer and Chief Financial Officer, we have evaluated
the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report
to ensure that information required to be disclosed by us in the SEC reports (i) is recorded, processed, summarized and
reported, within the time periods specified in the SEC's rules and forms and (ii) is accumulated and communicated to our
management, including the principal executive and principal financial officers, or persons performing similar functions, as
appropriate, to allow timely decisions regarding required disclosure.
Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that DXC's disclosure
controls and procedures were not effective as of March 31, 2020 because of the material weakness in our internal control
over financial reporting as described below (and previously disclosed in our December 31, 2019 Form 10-Q), in
Management's Report on Internal Control over Financial Reporting. Notwithstanding this material weakness described
below, management has concluded that the Company's consolidated financial statements for the periods covered by and
included in this Annual Report on Form 10-K are fairly stated in all material respects in accordance with GAAP for each of
the periods presented herein.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting.
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external reporting purposes in accordance with
accounting principles generally accepted in the United States of America.
Our internal control over financial reporting includes policies and procedures that (i) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; (ii) provide reasonable
assurance that transactions are recorded as necessary for preparation of our financial statements and receipts and
expenditures are being made only in accordance with authorization of management and the directors of DXC; and (iii)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of
our assets that could have a material effect on our financial statements. All internal control, no matter how well designed,
have inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk controls may become inadequate
because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
During the year DXC acquired Luxoft and excluded it from management's assessment of internal control over financial
reporting. The consolidated financial statements of the Luxoft acquisition whose total assets and total revenues excluded
from management’s assessment collectively represent 4% of total assets and revenues, respectively, as of and for the
year ended March 31, 2020.
Management assessed the effectiveness of our internal control over financial reporting based on the criteria and
framework established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control
over financial reporting was not effective as of March 31, 2020 because of the material weakness in our internal control
over financial reporting described below.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that
a reasonable possibility exists that a material misstatement of our annual or interim financial statement would not be
prevented or detected on a timely basis.
144
Control Activities
As previously disclosed in Item 4 “Controls and Procedures” of our Form 10-Q for the period ended December 31, 2019,
Management concluded there was a material weakness in internal controls over financial reporting related to the design
and implementation of effective control activities based on the criteria established in the COSO framework. These control
deficiencies constituted a material weakness in the aggregate related to reassessing policies and procedures, to
determine their continued relevance, as impacted by complex transactions and processes.
Deficiencies that contributed to the aggregation included:
• Management did not reassess in a timely manner the control activities related to goodwill impairment upon adoption
of ASU 2017-04 which resulted in an immaterial out of period adjustment between quarters within fiscal 2020 related
to the tax effect of the impairment recognized.
• Management did not reassess the control and procedures related to the balance sheet classification of deferred
revenue following a large and complex acquisition which resulted in an immaterial out of period adjustment to the
balance sheets in the quarter ended December 31, 2019.
As a result, we have concluded that there is a reasonable possibility that a material misstatement to our financial statements
would not be prevented or detected on a timely basis and therefore we concluded that the aggregation of these deficiencies
represents a material weakness in our internal control over financial reporting as of March 31, 2020.
Remediation Plan
Our remediation efforts are ongoing. Management continues to implement remediation actions to address the specific
control deficiencies that, in the aggregate, led to a material weakness. Additionally, Management has completed a detailed
root cause analysis which was designed to identify areas of focus where enhancements can be made to the internal
control environment to support the continued timely reassessment of policies and procedures and reduce the occurrence
of future deficiencies caused by complex transactions and processes. Management has remediated certain of the
identified control deficiencies that lead to the material weakness.
The following activities are designed as part of this remediation plan:
• Appointment of a new advisor reporting directly to our Chief Financial Officer with the appropriate level of
knowledge and experience to help develop and execute the remediation plan.
• Enhance periodic reviews by management and review existing documentation to determine if policies,
procedures, and related control activities have continued relevance or need updating due to changes within the
organization with a specific focus on the areas identified by the root cause analysis.
• Align the SOX compliance function under the newly appointed Chief Risk Officer.
• Establish periodic reporting of the remediation plan progress to the Audit Committee.
• Expand SOX training and implementation of succession planning for SOX control owners.
Management continues to be actively engaged to take steps to remediate the material weakness noted above, including
(1) appointment of an external advisor to lead the remediation activities (2) hiring a new Global SOX Director reporting to
the Chief Risk Officer and (3) establishment of progress reporting to the Audit Committee. While we have made significant
progress, there has not been sufficient time to resolve the material weakness in internal control over financial reporting.
As we continue to improve the effectiveness of our internal control over financial reporting, we may supplement our
remediation activities as our work progresses where appropriate. Our goal is to have enhanced control policies,
procedures, processes in place as promptly as practicable. However, due to the nature of the work and subsequent
testing required to conclude that a material weakness no longer exists, we are not in a position to complete our
remediation plan and concluded that our internal control over financial reporting is not designed or operating effectively as
of March 31, 2020.
The effectiveness of DXC's internal control over financial reporting as of March 31, 2020 has been audited by Deloitte &
Touche LLP, an independent registered public accounting firm, as stated in their report appearing on page 147 of this
Annual Report.
145
Changes in Internal Controls Over Financial Reporting
Our management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, changes
in our internal controls over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the fourth quarter
of 2020. As a result of the global COVID-19 pandemic, in March certain employees of the Company began working
remotely. As a result of these changes to the working environment the Company has not identified any material changes
in the Company’s internal control over financial reporting. The Company is continually monitoring and assessing the
COVID-19 situation to determine any potential impacts on the design and operating effectiveness of our internal controls
over financial reporting. Other than the remediation efforts described above, which were ongoing during the last fiscal
quarter ended March 31, 2020, there were no other changes in the Company’s internal control over financial reporting
identified in management’s evaluation pursuant to Rules 13a-15(f) and 15d-15(f) of the Exchange Act that materially
affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
146
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
DXC Technology Company
Tysons, Virginia
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of DXC Technology Company and subsidiaries (the
“Company”) as of March 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, because
of the effect of the material weakness identified below on the achievement of the objectives of the control criteria, the
Company has not maintained effective internal control over financial reporting as of March 31, 2020, based on criteria
established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated financial statements as of and for the year ended March 31, 2020, of the Company
and our report dated June 1, 2020, expressed an unqualified opinion on those financial statements.
As described in Management’s Report on Internal Control over Financial Reporting, management excluded from its
assessment the internal control over financial reporting at Luxoft Holding, Inc. (“Luxoft”), which was acquired on June
14, 2019, and whose financial statements constitute 4% of total assets and revenues of the consolidated financial
statement amounts as of and for the year ended March 31, 2020. Accordingly, our audit did not include the internal
control over financial reporting at Luxoft.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on
the financial statements.
147
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Material Weakness
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial
statements will not be prevented or detected on a timely basis. The following material weakness has been identified
and included in management's assessment:
The Company did not design and implement effective control activities based on the criteria established in the COSO
framework. These control deficiencies constitute a material weakness in the aggregate related to reassessing policies
and procedures, to determine their continued relevance, as impacted by complex transactions and processes.
Deficiencies that contributed to the aggregation included:
• Management did not reassess in a timely manner the control activities related to goodwill impairment upon
adoption of ASU 2017-04 which resulted in an immaterial out of period adjustment between quarters within
fiscal 2020 related to the tax effect of the impairment recognized.
• Management did not reassess the control and procedures related to the balance sheet classification of
deferred revenue following a large and complex acquisition which resulted in an immaterial out of period
adjustment to the balance sheets in the quarter ended December 31, 2019.
This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit
of the consolidated financial statements as of and for the year ended March 31, 2020, of the Company, and this report
does not affect our report on such financial statements.
/s/ DELOITTE & TOUCHE LLP
McLean, Virginia
June 1, 2020
148
ITEM 9B. OTHER INFORMATION
None.
PART III
Certain information required by Part III is omitted from this Annual Report on Form 10-K and is incorporated herein by
reference to the definitive proxy statement with respect to our 2020 Annual Meeting of Stockholders (the "2020 Proxy
Statement"), which we will file with the Securities and exchange Commission no later than 120 days after the end of the
fiscal year covered by this Annual Report.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information relating to our executive officers appears in Part I, Item I of this Annual Report on Form 10-K under the
heading "Information About Our Executive Officers."
Other information required by this item will appear under the headings "Proposal 1-Election of Directors”, "Delinquent
Section 16(a) Reports" (if applicable), “Corporate Governance”, and “Additional Information-Business for 2020 Annual
Meeting" in our 2020 Proxy Statement, which will be filed with the SEC pursuant to Regulation 14A not later than 120 days
after March 31, 2020, and such information is incorporated herein by reference.
We have a written Code of Business Conduct that applies to our Chief Executive Officer, Chief Financial Officer and our
Principal Accounting Officer and every other officer and employee of DXC. Our Code of Business Conduct is available on
our website, www.dxc.technology, under the heading Leadership and Governance. If any amendment to, or a waiver from,
a provision of the Code Business Conduct is made, we intend to disclose such information on our website within four
business days.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item will appear in our 2020 Proxy Statement under the headings "Executive Compensation"
and "Corporate Governance" and are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The following table gives information about our common stock that may be issued under our equity compensation plans
as of March 31, 2020. See Note 16 - "Stock Incentive Plans" of the consolidated financial statements included herein for
information regarding the material features of these plans.
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
Weighted-average exercise
price of outstanding options,
warrants and rights
Number of securities
remaining available for
future issuance under equity
compensation plans
excluding securities
reflected in column (a)
Plan Category
(a)
(b)
(c)
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders
Total
6,158,906
—
6,158,906
9.08
—
9.08
19,610,518
—
19,610,518
Other information required by this Item will appear in the 2020 Proxy Statement under the heading "Security Ownership,"
which section is incorporated by reference.
149
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information required by this item will appear in our 2020 Proxy Statement under the headings "Corporate Governance"
and "Certain Relationships and Related Transactions" and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information required by this item will appear in our 2020 Proxy Statement under the heading "Proposal 2-Ratification of
the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending
March 31, 2021-Fees" and is incorporated herein by reference.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(1) Consolidated Financial Statements
The financial statements are included under Item 8 of this Annual Report. See the index on page 57.
(2) Exhibits
The following exhibits are filed herewith unless otherwise indicated.
Exhibit
Number
1.1
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
Description of Exhibit
Underwriting Agreement, dated April 14, 2020, between DXC Technology Company and BofA Securities, Inc., Citigroup
Global Markets Inc. and MUFG Securities Americas Inc., as representatives of the underwriters named therein
(incorporated by reference to Exhibit 1.1 to DXC Technology Company’s Current Report on Form 8-K (filed April 21, 2020)
(file no. 001-38033))
Purchase Agreement, dated March 9, 2020, by and between Milano Acquisition Corp and DXC Technology Company
(incorporated by reference to Exhibit 2.1 to DXC Technology Company's Current Report on Form 8-K (filed March 12,
2020) (file no. 001-38033))
Agreement and Plan of Merger, dated as of May 24, 2016, by and among Computer Sciences Corporation, Hewlett
Packard Enterprise Company, Everett SpinCo, Inc. (now known as DXC Technology Company) and Everett Merger Sub,
Inc. (incorporated by reference to Exhibit 2.1 to Hewlett Packard Enterprise Company's Current Report on Form 8-K (filed
May 26, 2016) (file no. 001-37483))
First Amendment to Agreement and Plan of Merger, dated as of November 2, 2016, by and among Computer Sciences
Corporation, Hewlett Packard Enterprise Company, Everett SpinCo, Inc. (now known as DXC Technology Company), New
Everett Merger Sub Inc. and Everett Merger Sub Inc. (incorporated by reference to Exhibit 2.1 to Hewlett Packard
Enterprise Company's Current Report on Form 8-K (filed November 2, 2016) (file no. 001-37483))
Second Amendment to Agreement and Plan of Merger, dated as of December 6, 2016, by and among Hewlett Packard
Enterprise Company, Computer Sciences Corporation, Everett SpinCo, Inc. (now known as DXC Technology Company),
Everett Merger Sub Inc. and New Everett Merger Sub Inc. (incorporated by reference to Exhibit 2.3 to Amendment No. 1 to
Form 10 of Everett SpinCo, Inc. (filed December 7, 2016) (file no. 000-55712))
Separation and Distribution Agreement, dated May 24, 2016, between Hewlett Packard Enterprise Company and Everett
SpinCo, Inc. (now known as DXC Technology Company) (incorporated by reference to Exhibit 2.2 to Hewlett Packard
Enterprise Company's Current Report on Form 8-K (filed May 26, 2016) (file no. 001-37483))
First Amendment to the Separation and Distribution Agreement, dated November 2, 2016, by and between Hewlett
Packard Enterprise Company and Everett SpinCo, Inc. (now known as DXC Technology Company) (incorporated by
reference to Exhibit 2.2 to Hewlett Packard Enterprise Company's Current Report on Form 8-K (filed November 2, 2016)
(file no. 001-37483))
Second Amendment to the Separation and Distribution Agreement, dated December 6, 2016, by and between Hewlett
Packard Enterprise Company and Everett SpinCo, Inc. (now known as DXC Technology Company)(incorporated by
reference to Exhibit 2.6 to Everett SpinCo, Inc.'s Amendment No. 1 to Form 10 (filed December 7, 2016) (file no.
000-55712))
Third Amendment to the Separation and Distribution Agreement, dated January 27, 2017, by and between Hewlett
Packard Enterprise Company and Everett SpinCo, Inc. (now known as DXC Technology Company) (incorporated by
reference to Exhibit 2.7 to Everett SpinCo Inc.'s Form 10 (filed February 14, 2017) (file no. 000-55712))
150
2.9
2.10
2.11
2.12
2.13
2.14
2.15
2.16
2.17
2.18
2.19
2.20
2.21
2.22
2.23
3.1
3.2
4.1
4.2
4.3
Fourth Amendment to the Separation and Distribution Agreement, dated March 31, 2017, by and between Hewlett Packard
Enterprise Company and Everett SpinCo, Inc. (now known as DXC Technology Company) (incorporated by reference to
Exhibit 2.6 to DXC Technology Company's Current Report on Form 8-K (filed April 6, 2017) (file no. 001-38033))
Employee Matters Agreement, dated as of March 31, 2017, by and among the Computer Sciences Corporation, Hewlett
Packard Enterprise Company and Everett SpinCo, Inc. (now known as DXC Technology Company) (incorporated by
reference to Exhibit 2.1 to DXC Technology Company's Current Report on Form 8-K (filed April 6, 2017) (file no.
001-38033))
Tax Matters Agreement, dated as of March 31, 2017, by and among the Computer Sciences Corporation, Hewlett Packard
Enterprise Company and Everett SpinCo, Inc. (now known as DXC Technology Company) (incorporated by reference to
Exhibit 2.2 to DXC Technology Company's Current Report on Form 8-K (filed April 6, 2017) (file no. 001-38033))
Intellectual Property Matters Agreement, dated as of March 31, 2017, by and among Hewlett Packard Enterprise
Company, Hewlett Packard Enterprise Development LP and Everett SpinCo, Inc. (now known as DXC Technology
Company) (incorporated by reference to Exhibit 2.3 to DXC Technology Company's Current Report on Form 8-K (filed April
6, 2017) (file no. 001-38033))
Transition Services Agreement, dated as of March 31, 2017, by and between Hewlett Packard Enterprise Company and
Everett SpinCo, Inc. (now known as DXC Technology Company) (incorporated by reference to Exhibit 2.4 to DXC
Technology Company's Current Report on Form 8-K (filed April 6, 2017) (file no. 001-38033))
Real Estate Matters Agreement, dated as of March 31, 2017, by and between Hewlett Packard Enterprise Company and
Everett SpinCo, Inc. (now known as DXC Technology Company) (incorporated by reference to Exhibit 2.5 to DXC
Technology Company's Current Report on Form 8-K (filed April 6, 2017) (file no. 001-38033))
Agreement and Plan of Merger, dated as of October 11, 2017 by and among DXC Technology Company, Ultra SCInc.,
Ultra First VMS Inc., Ultra Second VMS LLC, Ultra KMS Inc., Vencore Holding Corp., KGS Holding Corp.,The SI
Organization Holdings LLC and KGS Holding LLC (incorporated by reference to Exhibit 2.1 to DXC Technology Company's
Current Report on Form 8-K (filed October 13, 2017) (file no. 001-38033))
Separation and Distribution Agreement dated as of May 31, 2018, by and between DXC Technology Company and
Perspecta Inc. (incorporated by reference to Exhibit 2.1 to DXC Technology Company's Current Report on Form 8-K (filed
June 6, 2018) (file no. 001-38033))
Employee Matters Agreement dated as of May 31, 2018, by and between DXC Technology Company and Perspecta Inc.
(incorporated by reference to Exhibit 2.2 to DXC Technology Company's Current Report on Form 8-K (filed June 6, 2018)
(file no. 001-38033))
Tax Matters Agreement dated as of May 31, 2018, by and between DXC Technology Company and Perspecta Inc.
(incorporated by reference to Exhibit 2.3 to DXC Technology Company's Current Report on Form 8-K (filed June 6, 2018)
(file no. 001-38033))
Intellectual Property Matters Agreement dated as of May 31, 2018, by and between DXC Technology Company and
Perspecta Inc. (incorporated by reference to Exhibit 2.4 to DXC Technology Company's Current Report on Form 8-K (filed
June 6, 2018) (file no. 001-38033))
Transition Services Agreement dated as of May 31, 2018, by and between DXC Technology Company and Perspecta Inc.
(incorporated by reference to Exhibit 2.5 to DXC Technology Company's Current Report on Form 8-K (filed June 6, 2018)
(file no. 001-38033))
Real Estate Matters Agreement dated as of May 31, 2018, by and between DXC Technology Company and Perspecta Inc.
(incorporated by reference to Exhibit 2.6 to DXC Technology Company's Current Report on Form 8-K (filed June 6, 2018)
(file no. 001-38033))
Non-U.S. Agency Agreement dated as of May 31, 2018, by and between DXC Technology Company and Perspecta Inc.
(incorporated by reference to Exhibit 2.7 to DXC Technology Company's Current Report on Form 8-K (filed June 6, 2018)
(file no. 001-38033))
Merger Agreement, dated January 6, 2019, by and among DXC Technology Company, Luna Equities, Inc. and Luxoft
Holding, Inc (incorporated by reference to Exhibit 99.1 to Luxoft Holding, Inc's Report of Foreign Private Issuer on Form 6-
K (filed January 7, 2019) (file no. 001-35976))
Articles of Incorporation of DXC Technology Company, as filed with the Secretary of State of the State of Nevada on March
31, 2017 (incorporated by reference to Exhibit 3.3 to DXC Technology Company's Current Report on Form 8-K (filed April
6, 2017) (file no. 001-38033))
Amended and Restated Bylaws of DXC Technology Company, effective March 15, 2018 (incorporated by reference to
Exhibit 3.1 to DXC Technology Company's Current Report on Form 8-K (filed March 15, 2018) (file no. 001-38033))
Base Indenture, dated as of March 27, 2017, between Everett SpinCo, Inc. (now known as DXC Technology Company)
and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to DXC Technology Company's
Form 8-K (filed March 27, 2017) (file no. 001-38033))
First Supplemental Indenture, dated as of March 27, 2017, between Everett SpinCo, Inc. (now known as DXC Technology
Company) and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to DXC Technology
Company’s Form 8-K (filed March 27, 2017) (file no. 001-38033))
Second Supplemental Indenture, dated as of August 9, 2017, between DXC Technology Company and U.S. Bank National
Association, as trustee (incorporated by reference to Exhibit 4.1 to DXC Technology Company's Form 8-K (filed August 9,
2017) (file no. 001-38033))
151
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
4.19
4.20
4.21
4.22
10.1
10.2
10.3
Third Supplemental Indenture, dated as of August 9, 2017, between DXC Technology Company and U.S. Bank National
Association, as trustee (incorporated by reference to Exhibit 4.2 to DXC Technology Company's Form 8-K (filed August 9,
2017) (file no. 001-38033))
Fifth Supplemental Indenture, dated February 7, 2018, between DXC technology Company and U.S. Bank National
Association, as trustee (incorporated by reference to Exhibit 4.5 to DXC Technology Company’s Quarterly Report on Form
10-Q for the quarter ended December 31, 2017 (filed February 9, 2018) (file no. 001-38033))
Sixth Supplemental Indenture, dated March 15, 2018, among DXC Technology Company, U.S. Bank National Association,
as trustee, and Elavon Financial Services DAC, UK Branch, as paying agent (incorporated by reference to Exhibit 4.1 to
DXC Technology Company's Form 8-K (filed March 15, 2018) (file no. 001-38033))
Seventh Supplemental Indenture, dated September 26, 2018, among DXC Technology Company, U.S. Bank National
Association, as trustee, and Elavon Financial Services DAC, UK Branch, as paying agent (incorporated by reference to
Exhibit 4.1 to DXC Technology Company’s Current Report on Form 8-K (filed September 26, 2018) (file no. 001-38033))
Eighth Supplemental Indenture, dated April 21, 2020, between DXC Technology Company and U.S. Bank National
Association, as trustee (incorporated by reference to Exhibit 4.1 to DXC Technology Company’s Current Report on Form 8-
K (filed April 21, 2020) (file no. 001-38033))
Form of DXC Technology Company's 4.750% Senior Notes due 2027 (included in Exhibit 4.2) (incorporated by reference
to Exhibit 4.2 to DXC Technology Company's Form 8-K (filed March 27, 2017) (file no. 001-38033))
Form of DXC Technology Company's 2.875% Senior Notes due 2020 (included in Exhibit 4.4) (incorporated by reference
to Exhibit 4.2 to DXC Technology Company's Form 8-K (filed August 9, 2017) (file no. 001-38033))
Form of DXC Technology Company's 4.45% Senior Notes due 2022 (included in Exhibit 4.3) (incorporated by reference to
Exhibit 4.1 to DXC Technology Company's Form 8-K (filed August 9, 2017) (file no. 001-38033))
Form of DXC Technology Company's 4.250% Senior Notes due 2024 (included in Exhibit 4.4) (incorporated by reference
to Exhibit 4.2 to DXC Technology Company's Form 8-K (filed August 9, 2017) (file no. 001-38033))
Form of DXC Technology Company's 4.750% Senior Notes due 2027 (included in Exhibit 4.4) (incorporated by reference
to Exhibit 4.2 to DXC Technology Company's Form 8-K (filed August 9, 2017) (file no. 001-38033))
Form of DXC Technology Company's 7.45% Senior Notes due 2029 (included in Exhibit 4.5) (incorporate by reference to
Exhibit 4.5 to DXC Technology Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2017 (filed
February 9, 2018) (file no. 001-38033))
Form of DXC Technology Company's 2.750% Senior Notes due 2025 (included in Exhibit 4.6) (incorporated by reference
to Exhibit 4.1 to DXC Technology's Form 8-K filed March 15, 2018) (file no. 001-38033))
Form of DXC Technology Company’s 1.750% Senior Notes due 2026 (included in Exhibit 4.7) (incorporated by reference
to Exhibit 4.1 to DXC Technology Company’s Current Report on Form 8-K (filed September 26, 2018) (file no. 001-38033))
Form of DXC Technology Company’s 4.000% Senior Notes due 2023 (included in Exhibit 4.8) (included in Exhibit 4.8)
(incorporated by reference to Exhibit 4.1 to DXC Technology Company’s Current Report on Form 8-K (filed April 21, 2020)
(file no. 001-38033))
Form of DXC Technology Company’s 4.125% Senior Notes due 2025 (included in Exhibit 4.8) (included in Exhibit 4.8)
(incorporated by reference to Exhibit 4.1 to DXC Technology Company’s Current Report on Form 8-K (filed April 21, 2020)
(file no. 001-38033))
Indenture dated as of September 18, 2012, between Computer Sciences Corporation and The Bank of New York Mellon
Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to Computer Sciences Corporation's Current
Report on Form 8-K (filed September 19, 2012) (file no. 001-04850))
First Supplemental Indenture dated as of September 18, 2012, between Computer Sciences Corporation and The Bank of
New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.2 to Computer Sciences
Corporation's Current Report on Form 8-K (filed September 19, 2012) (file no. 001-04850))
Form of Computer Sciences Corporation’s 4.450% Senior Notes due 2022 (included in Exhibit 4.20) (incorporated by
reference to Exhibit 4.2 to Computer Sciences Corporation's Current Report on Form 8-K (filed September 19, 2012) (file
no. 001-04850))
Description of Securities (incorporated by reference to Exhibit 4.21 to DXC Technology Company's Annual Report on Form
10-K (filed June 13, 2019) (file no. 001-38033))
Credit Agreement, dated as of October 11, 2013, among Computer Sciences Corporation, the financial institutions listed
therein and Citibank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1 to Computer Sciences
Corporation's Current Report on Form 8-K (filed October 17, 2013) (file number 001-04850))
Amendment No. 1 dated as of April 21, 2016 to the Credit Agreement dated October 11, 2013, among Computer Sciences
Corporation, the financial institutions listed therein and Citibank, N.A. as administrative agent (incorporated by reference to
Exhibit 10.1 to Computer Sciences Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 1, 2016
(filed August 9, 2016) (file no. 001-04850))
Amendment No. 2 dated as of June 21, 2016 to the Credit Agreement dated October 11, 2013, among Computer Sciences
Corporation, the financial institutions listed therein and Citibank, N.A., as administrative agent (incorporated by reference
to Exhibit 10.1 to Computer Sciences Corporation’s Current Report on Form 8-K (filed June 21, 2016) (file no. 001-04850))
152
10.4 Waiver and Amendment No. 3 dated as of February 17, 2017 to the Amended and Restated Credit Agreement dated
October 11, 2013, among the Company, the financial institutions listed therein, and Citibank, N.A., as Agent (incorporated
by reference to Exhibit 10.54 to Computer Sciences Corporation’s Annual Report on Form 10-K for the year ended March
31, 2017 (filed May 26, 2017) (file no. 001-04850))
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
Amendment No. 4 dated as of October 11, 2018 to the Amended and Restated Credit Agreement dated October 11, 2013,
among DXC Technology Company, the financial institutions listed therein, and Citibank, N.A., as Agent (incorporated by
reference to Exhibit 10.9 to DXC Technology Company's Quarterly Report on Form 10-Q (filed November 8, 2018) (file no.
001-38033))
Amendment No. 5 and Extension Agreement dated October 11, 2019 to the Amended and Restated Credit Agreement
dated October 11, 2013, among DXC Technology Company, the financial institutions listed therein, and Citibank, N.A., as
Agent (filed herewith)
Amendment No. 6 dated May 15, 2020 to the Amended and Restated Credit Agreement dated October 11, 2013, among
DXC Technology Company, the financial institutions listed therein, and Citibank, N.A., as Agent (filed herewith)
Incremental Assumption Agreement, dated as of June 15, 2016, by and among Computer Sciences Corporation, the
incremental lenders party thereto and Citibank, N.A. as administrative agent (incorporated by reference to Exhibit 10.3 to
Computer Sciences Corporation's Quarterly Report on Form 10-Q for the fiscal quarter ended July 1, 2016 (filed August 9,
2016) (file no. 001-04850))
Second Incremental Assumption Agreement, dated as of July 25, 2016, by and among Computer Sciences Corporation,
the incremental lenders party thereto and Citibank, N.A. as Administrative Agent (incorporated by reference to Exhibit 10.5
to DXC Technology Company's Annual Report on Form 10-K (filed May 29, 2018) (file no. 001-38033))
Third Incremental Assumption Agreement, dated as of December 30, 2016, by and among Computer Sciences
Corporation, the incremental lenders party thereto and Citibank, N.A. as Administrative Agent (incorporated by reference to
Exhibit 10.6 to DXC Technology Company's Annual Report on Form 10-K (filed May 29, 2018) (file no. 001-38033))
Fourth Incremental Assumption Agreement, dated as of April 3, 2017, by and among DXC Technology Company, the
incremental lenders party thereto and Citibank, N.A. as administrative agent (incorporated by reference to Exhibit 10.8 to
DXC Technology Company's Annual Report on Form 10-K (filed May 29, 2018) (file no. 001-38033))
Fifth Incremental Assumption Agreement, dated as of September 27, 2017, by and among DXC Technology Company, the
incremental lenders party thereto and Citibank, N.A. as administrative agent (incorporated by reference to Exhibit 10.6 to
DXC Technology Company's Annual Report on Form 10-K (filed May 29, 2018) (file no. 001-38033))
Sixth Incremental Assumption Agreement dated September 26, 2018, by and among the DXC Technology Company and
the incremental lenders party thereto and consented to, with respect to the New Lender (as defined therein) only, by the
Swing Line Banks (as defined in the Revolving Credit Agreement) party thereto and consented to, with respect to the New
Lender only, and accepted by Citibank, as administrative agent (incorporated by reference to Exhibit 10.4 to DXC
Technology Company’s Current Report on Form 8-K (filed September 27, 2018) (file no. 001-38033))
Term Loan Credit Agreement dated as of March 15, 2019 among DXC Technology Company, as borrower, the lenders from
time to time party thereto, as Lenders, and Bank of America, N.A., as the administrative agent (incorporated by reference
to Exhibit 10.1 to DXC Technology Company's Current Report on Form 8-K (filed March 20, 2019) (file no. 001-38033))
Amendment No. 1 and Extension Agreement dates May 15, 2020 to the Term Loan Credit Agreement dated as of March
15, 2019 among DXC Technology Company, as borrower, the lenders from time to time party thereto, as Lenders, and
Bank of America, N.A., as the administrative agent (filed herewith)
Credit Agreement dated as of October 12, 2018, among CSC Computer Sciences International Operations Limited (now
known as DXC UK International Operations Limited), as borrower, DXC Technology Company, as guarantor, the lenders
from time to time party thereto, as Lenders, and Lloyds Bank PLC, as the administrative agent (incorporated by reference
to Exhibit 10.1 to DXC Technology Company's Current Report on Form 8-K (filed October 16, 2018) (file no. 001-38033))
Amendment No. 1 dated May 15, 2020 to the Credit Agreement dated as of October 12, 2018, among DXC UK
International Operations Limited (formerly known as CSC Computer Sciences International Operations Limited), as
borrower, DXC Technology Company, as guarantor, the lenders from time to time party thereto, as Lenders, and Lloyds
Bank PLC, as the administrative agent (filed herewith).
Syndicated Facility Agreement, dated as of November 27, 2018, by and among DXC Technology Australia Pty Limited, as
initial borrower, the other borrowers from time to time party thereto, DXC Technology Company, as guarantor, the other
guarantors from time to time party thereto, the lenders from time to time party thereto and Mizuho Bank, Ltd., as
administrative agent (incorporated by reference to Exhibit 10.1 to DXC Technology Company's Current Report on Form 8-
K (filed November 30, 2018) (file no. 001-38033))
Amendment Deed No. 1 dated as of December 5, 2018 to the Syndicated Facility Agreement dated November 27, 2018,
by and among DXC Technology Australia Pty Limited, as borrower, DXC Technology Company, as guarantor, the lenders
from time to time party thereto and Mizuho Bank, Ltd., as administrative agent (incorporated by reference to Exhibit 10.4 to
DXC Technology Company's Quarterly Report on Form 10-Q (filed February 8, 2019) (file no. 001-38033))
Amendment Deed No. 2 dated as of January 8, 2019 to the Syndicated Facility Agreement dated November 27, 2018, by
and among DXC Technology Australia Pty Limited, as borrower, DXC Technology Company, as guarantor, the lenders from
time to time party thereto and Mizuho Bank, Ltd., as administrative agent (incorporated by reference to Exhibit 10.5 to DXC
Technology Company's Quarterly Report on Form 10-Q (filed February 8, 2019) (file no. 001-38033))
153
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
Amendment Deed No. 3 dated as of May 18, 2020 to the Syndicated Facility Agreement dated November 27, 2018, by and
among DXC Technology Australia Pty Limited, as borrower, DXC Technology Company, as guarantor, the lenders from
time to time party thereto and Mizuho Bank, Ltd., as administrative agent (filed herewith)
Dealer Agreement, dated July 24, 2015, by and between CSC Capital Funding Limited, as issuer, Computer Sciences
Corporation, as guarantor, Citibank International Limited, as arranger, and the financial institutions listed therein, as
dealers (incorporated by reference to Exhibit 99.1 to Computer Sciences Corporation’s Current Report on Form 8-K (filed
July 28, 2015) (file no.001-04850))
Amendment No. 1 dated April 3, 2017, to the Dealer Agreement, dated July 24, 2015, by and between DXC Capital
Funding Limited, as Issuer, DXC Technology Company, as Guarantor, Citibank Europe PLC, UK Branch, as Arranger, and
the financial institutions listed therein, as Dealers (incorporated by reference to Exhibit 10.23 to DXC Technology
Company's Annual Report on Form 10-K (filed May 29, 2018) (file no. 001-38033))
Purchase and Sale Agreement dated as of December 21, 2016, among Computer Sciences Corporation, as Contributing
Originator and Servicer, Alliance-One Services, Inc., CSC Agility Platform, Inc., CSC Consulting, Inc., CSC Cybertek
Corporation, Mynd Corporation and PDA Software Services LLC, as Originators, and CSC Receivables LLC, as Buyer
(incorporated by reference to Exhibit 10.1 to Computer Sciences Corporation 's Current Report on Form 8-K (filed
December 23, 2016) (file no. 001-04850))
First Amendment to the Purchase and Sale Agreement dated as of August 22, 2018, among Computer Sciences
Corporation, as Contributing Originator and Servicer, Alliance-One Services, Inc., CSC Agility Platform, Inc., CSC
Consulting, Inc., CSC Cybertek Corporation, Mynd Corporation, DXC Technology Services LLC and PDA Software
Services LLC, as Originators, and CSC Receivables LLC, as Buyer (incorporated by reference to Exhibit 10.1 to DXC
Technology Company’s Current Report on Form 8-K (filed August 27, 2018) (file no. 001-38033))
Second Amendment to the Purchase and Sale Agreement dated as of September 24, 2018, among Computer Sciences
Corporation, as Exiting Originator and Exiting Servicer, Alliance-One Services, Inc., CSC Agility Platform, Inc., CSC
Consulting, Inc., CSC Cybertek Corporation, Mynd Corporation and PDA Software Services LLC, as Exiting Originators,
DXC Technology Services LLC, as Originator, DXC Technology Company, as Servicer, and DXC Receivables LLC (f/k/a
CSC Receivables LLC), as Buyer (incorporated by reference to Exhibit 10.1 to DXC Technology Company’s Current
Report on Form 8-K (filed September 27, 2018) (file no. 001-38033))
Third Amendment to the Purchase and Sale Agreement dated as of August 21, 2019, among DXC Technology Company,
as Servicer, DXC Technology Services LLC, as Existing Originator, Alliance-One Services, Inc., Computer Sciences
Corporation, CSC Consulting, Inc., CSC Cybertek Corporation, Mynd Corporation, and PDA Software Services LLC, as
New Originators, and DXC Receivables LLC (f/k/a CSC Receivables LLC), as Buyer (incorporated by reference to Exhibit
10.1 to DXC Technology Company’s Quarterly Report on Form 10-Q (filed November 12, 2019) (file no. 001-38033))
Fourth Amendment to the Purchase and Sale Agreement dated as of November 22, 2019, among DXC Technology
Company, as Servicer, DXC Technology Services LLC, Alliance-One Services, Inc., Computer Sciences Corporation, CSC
Consulting, Inc., CSC Cybertek Corporation, Mynd Corporation, and PDA Software Services LLC, as Existing Originators;
CSC Puerto Rico LLC, CSC Covansys Corporation and Tribridge Holdings, LLC, as New Originators; and DXC
Receivables LLC (f/k/a CSC Receivables LLC), as Buyer (incorporated by reference to Exhibit 10.1 to DXC Technology
Company’s Quarterly Report on Form 10-Q (filed February 7, 2020) (file no. 001-38033))
Receivables Purchase Agreement dated as of December 21, 2016, among Computer Sciences Corporation, as Servicer,
CSC Receivables LLC, as Seller, the persons from time to time party thereto as Purchasers and group agents, PNC Bank,
National Association, as Administrative Agent and PNC Capital Markets LLC, as Structuring Agent (incorporated by
reference to Exhibit 10.2 to Computer Sciences Corporation’s Current Report on Form 8-K (filed December 23, 2016) (file
no. 001-04850))
Third Amendment to the Receivables Purchase Agreement dated as of August 22, 2018, among Computer Sciences
Corporation, as Servicer, CSC Receivables LLC, as seller, the persons from time to time party thereto as Purchasers and
group agents, and PNC Bank, National Association, as Administrative Agent. (incorporated by reference to Exhibit 10.2 to
DXC Technology Company’s Current Report on Form 8-K (filed August 27, 2018) (file no. 001-38033))
Fourth Amendment to the Receivables Purchase Agreement dated as of September 24, 2018, among Computer Sciences
Corporation, as Exiting Servicer, DXC Receivables LLC (f/k/a CSC Receivables LLC), as seller, DXC Technology
Company, as Servicer, the persons from time to time party thereto as Purchasers and group agents, and PNC Bank,
National Association, as Administrative Agent (incorporated by reference to Exhibit 10.2 to DXC Technology Company’s
Current Report on Form 8-K (filed September 27, 2018) (file no. 001-38033))
Sixth Amendment to the Receivables Purchase Agreement dated as of August 21, 2019, among DXC Receivables LLC (f/
k/a CSC Receivables LLC), as Seller, DXC Technology Company, as Servicer, PNC Bank, National Association, as
Administrative Agent, and the persons from time to time party thereto as Purchasers and Group Agents (incorporated by
reference to Exhibit 10.1 to DXC Technology Company’s Quarterly Report on Form 10-Q (filed November 12, 2019) (file
no. 001-38033))
Seventh Amendment to the Receivables Purchase Agreement dated as of November 22, 2019, among DXC Receivables
LLC (f/k/a CSC Receivables LLC), as Seller, DXC Technology Company, as Servicer, PNC Bank, National Association, as
Administrative Agent, and the persons from time to time party thereto as Purchasers and Group Agents (incorporated by
reference to Exhibit 10.1 to DXC Technology Company’s Quarterly Report on Form 10-Q (filed February 7, 2020) (file no.
001-38033))
10.34
Eighth Amendment to the Receivables Purchase Agreement dated as of February 18, 2020, among DXC Receivables LLC
(f/k/a CSC Receivables LLC), as Seller, DXC Technology Company, as Servicer, PNC Bank, National Association, as
Administrative Agent, and the persons from time to time party thereto as Purchasers and Group Agents (filed herewith)
154
10.35
10.36
10.37
10.38
Amended and Restated Performance Guaranty dated as of September 24, 2018, made by DXC Technology Company as
Performance Guarantor in favor of PNC Bank, National Association, as Administrative Agent, for the benefit of the Secured
Parties (incorporated by reference to Exhibit 10.3 to DXC Technology Company’s Current Report on Form 8-K (filed
September 27, 2018) (file no. 001-38033))
Second Amended and Restated Performance Guaranty dated as of August 21, 2019, made by DXC Technology Company,
as Performance Guarantor, in favor of PNC Bank, National Association, as Administrative Agent, for the benefit of the
Purchasers (incorporated by reference to Exhibit 10.1 to DXC Technology Company’s Quarterly Report on Form 10-Q
(filed November 12, 2019) (file no. 001-38033))
Third Amended and Restated Performance Guaranty dated as of November 22, 2019, made by DXC Technology
Company, as Performance Guarantor, in favor of PNC Bank, National Association, as Administrative Agent, for the benefit
of the Purchasers (incorporated by reference to Exhibit 10.1 to DXC Technology Company’s Quarterly Report on Form 10-
Q (filed February 7, 2020) (file no. 001-38033))
Fourth Amended and Restated Performance Guaranty dated as of February 18, 2020, made by DXC Technology
Company, as Performance Guarantor, in favor of PNC Bank, National Association, as Administrative Agent, for the benefit
of the Purchasers (filed herewith)
10.39* DXC Technology Company 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-8 (filed March 31, 2017) (file no.333-217053))
10.40* DXC Technology Company 2017 Non-Employee Director Compensation Plan (incorporated by reference to Exhibit 4.4 to
the Company’s Registration Statement on Form S-8 (filed March 31, 2017) (file no. 333-217053))
10.41* DXC Technology Company 2017 Share Purchase Plan (incorporated by reference to Exhibit 4.6 to the Company’s
Registration Statement on Form S-8 (filed March 31, 2017) (file no. 333-217053))
10.42* DXC Technology Company Deferred Compensation Plan (incorporated by reference to Exhibit 4.4 to the Company’s
Registration Statement on Form S-8 (filed March 31, 2017) (file no. 333-217054))
10.43* Amendment to DXC Technology Company Deferred Compensation Plan (incorporated by reference to Exhibit 10.4 to the
Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2017 (filed November 8, 2017) (file no.
001-38033))
10.44*
10.45*
10.46*
10.47*
Form of Stock Option Award under the DXC Technology Company 2017 Omnibus Incentive Plan (incorporated by
reference to Exhibit 10.4 to the Company’s Periodic Report on Form 8-K (filed April 6, 2017) (file no. 001-38033))
Form of Performance Based Restricted Stock Unit Award under the DXC Technology Company 2017 Omnibus Incentive
Plan (incorporated by reference to Exhibit 10.5 to the Company’s Periodic Report on Form 8-K (filed April 6, 2017) (file no.
001-38033))
Form of Service Based Restricted Stock Unit Award under the DXC Technology Company 2017 Omnibus Incentive Plan
(incorporated by reference to Exhibit 10.6 to the Company’s Periodic Report on Form 8-K (filed April 6, 2017) (file no.
001-38033))
Form of Restricted Stock Unit Agreement under the DXC Technology Company 2017 Non-Employee Director Incentive
Plan (incorporated by reference to Exhibit 10.7 to the Company’s Periodic Report on Form 8-K (filed April 6, 2017) (file no.
001-38033))
10.48* DXC Technology Company Severance Plan for Senior Management and Key Employees (incorporated by reference to
Exhibit 10.11 to the Company’s Periodic Report on Form 8-K (filed April 6, 2017) (file no. 001-38033))
10.49* Amendment to the DXC Technology Corporation Severance Plan for Senior Management and Key Employees
10.50*
10.51*
(incorporated by reference to Exhibit 10.2 to DXC Technology Company's Quarterly Report on Form 10-Q (filed November
8, 2018) (file no. 001-38033))
Form of Director Indemnification Agreement (incorporated by reference to Exhibit 10.16 to the Company’s Periodic Report
on Form 8-K (filed April 6, 2017) (file no. 001-38033))
Form of Career Share Restricted Stock Unit Award under the DXC Technology Company 2017 Omnibus Incentive Plan
(incorporated by reference to Exhibit 10.45 to DXC Technology Company's Annual Report on Form 10-K (filed May 29,
2018) (file no. 001-38033))
10.52* Employment Agreement with Michael J. Salvino (incorporated by reference to Exhibit 10.1 to DXC Technology Company’s
Current Report on Form 8-K (filed September 12, 2019) (file no. 001-38033))
10.53* Retention Agreement with Paul N. Saleh (incorporated by reference to Exhibit 10.6 to DXC Technology Company’s
Quarterly Report on Form 10-Q (filed November 12, 2019) (file no. 001-38033))
10.54* Employment Agreement with J. Michael Lawrie dated February 7, 2012 (incorporated by reference to Exhibit 10.1 to
Computer Sciences Corporation's Form 8-K (filed February 8, 2012) (file no. 001-4850))
10.55* Amendment to Employment Agreement, effective as of March 27, 2017 (incorporated by reference to Exhibit 10.1 to
Computer Sciences Corporation's Form 8-K (filed March 28, 2017) (file no. 001-4850))
10.56* Amendment to Employment Agreement with J. Michael Lawrie dated April 3, 2017 (incorporated by reference to Exhibit
10.12 to the Company’s Periodic Report on Form 8-K (filed April 6, 2017) (file no. 001-38033))
10.57* Amendment to the CEO Employment Agreement dated August 15, 2018, between J. Michael Lawrie and the Company
(incorporated by reference to Exhibit 10.1 to DXC Technology Company’s Current Report on Form 8-K (filed August 20,
2018) (file no. 001-38033))
155
10.58* Addendum to Employment Agreement with J. Michael Lawrie (incorporated by reference to Exhibit 10.2 to DXC
Technology Company’s Current Report on Form 8-K (filed September 12, 2019) (file no. 001-38033))
21
23
31.1
31.2
32.1
32.2
Significant Active Subsidiaries and Affiliates of the Registrant (filed herewith)
Consent of Independent Registered Public Accounting Firm
Section 302 Certification of the Chief Executive Officer
Section 302 Certification of the Chief Financial Officer
Section 906 Certification of Chief Executive Officer
Section 906 Certification of Chief Financial Officer
101.INS XBRL Instance
101.SCH XBRL Taxonomy Extension Schema
101.CAL XBRL Taxonomy Extension Calculation
101.LAB XBRL Taxonomy Extension Labels
101.PRE XBRL Taxonomy Extension Presentation
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*Management contract or compensatory plan or agreement
156
ITEM 16. FORM 10-K SUMMARY
None.
157
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
DXC TECHNOLOGY COMPANY
Dated: June 1, 2020
By:
/s/ Paul N. Saleh
Name: Paul N. Saleh
Title:
Executive Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed by the following persons
on behalf of the Registrant and in the capacities and on the dates indicated:
Signature
Title
Date
/s/ Michael J. Salvino
Michael J. Salvino
President and Chief Executive Officer
June 1, 2020
(Principal Executive Officer)
/s/ Paul N. Saleh
Paul N. Saleh
/s/ Neil A. Manna
Neil A. Manna
/s/ Ian C. Read
Ian C. Read
/s/ Mukesh Aghi
Mukesh Aghi
/s/ Amy E. Alving
Amy E. Alving
/s/ David L. Herzog
David L. Herzog
/s/ Mary Louise Krakauer
Mary Louise Krakauer
Executive Vice President and Chief Financial Officer
June 1, 2020
(Principal Financial Officer)
Senior Vice President and Corporate Controller
June 1, 2020
(Principal Accounting Officer)
Chairman
June 1, 2020
Director
Director
Director
Director
158
June 1, 2020
June 1, 2020
June 1, 2020
June 1, 2020
/s/ Sachin Lawande
Sachin Lawande
/s/ Julio A. Portalatin
Julio A. Portalatin
/s/ Peter Rutland
Peter Rutland
/s/ Manoj P. Singh
Manoj P. Singh
/s/ Robert F. Woods
Robert F. Woods
Director
Director
Director
Director
Director
June 1, 2020
June 1, 2020
June 1, 2020
June 1, 2020
June 1, 2020
159
DXC Shareholder Information
STOCK INFORMATION
DXC WEBSITE
Common stock symbol: DXC, listed and traded on the
Additional DXC information is available at www.dxc.com,
New York Stock Exchange. As of June 15, 2020, there
including all of the documents DXC files with or furnishes to
were 254,072,906 shares of common stock outstanding
the SEC, which are available free of charge.
and 44,302 stockholders of record.
TRANSFER AGENT AND REGISTRAR
ANNUAL MEETING
The Annual Meeting of Stockholders will be held on
All inquiries concerning registered shareholder accounts
and stock transfer matters, including address changes
August 13, 2020, at 10:30 a.m. Eastern Time and will be
a virtual meeting conducted via live webcast. Attend the
and consolidation of multiple accounts, should be
meeting online and submit your questions during the meeting
directed to EQ Shareowner Services, DXC’s transfer
by visiting www.virtualshareholdermeeting.com/DXC2020.
agent and registrar.
Shareholder correspondence should be mailed to:
16-digit control number included on your notice of Internet
To participate in the Annual Meeting, you will need the
Regular mail:
EQ Shareowner Services
P.O. Box 64874
St. Paul, MN 55164-0874
First Class, registered and certified mail:
EQ Shareowner Services
1110 Centre Pointe Curve, Suite 101
Mendota Heights, MN 55120-4100
www.shareowneronline.com
By phone:
1.800.468.9716 (U.S. Domestic)
1.651.450.4064 (International)
FINANCIAL COMMUNITY INFORMATION
Institutional and individual investors, financial analysts
and portfolio managers can submit written requests,
including requests for DXC filings with the U.S. Securities
and Exchange Commission (SEC), to:
DXC Investor Relations
1775 Tysons Boulevard
Tysons, VA 22102
1.703.245.9700
investor.relations@dxc.com
To enroll in electronic delivery of DXC’s Proxy
Statement, Annual Report and other materials,
log on to www.proxyvote.com.
availability of the proxy materials, on your proxy card or on
the instructions that accompany your proxy materials.
INDEPENDENT AUDITORS
Deloitte & Touche LLP
7900 Tysons One Place, Suite 800
McLean, VA 22102
FORWARD-LOOKING STATEMENTS
All statements in this Annual Report that do not directly and
exclusively relate to historical facts constitute “forward-
looking statements.” These statements represent current
expectations and beliefs, and no assurance can be given that
the results described in such statements will be achieved.
Such statements are subject to numerous assumptions,
risks, uncertainties and other factors that could cause
actual results to differ materially from those described in
such statements, many of which are outside of our control.
For a written description of these factors, see the section
titled “Risk Factors” in DXC’s Annual Report on Form 10-K
for the fiscal year ended March 31, 2020, and any updating
information in subsequent SEC filings. No assurance can be
given that any goal or plan set forth in any forward-looking
statement can or will be achieved, and readers are cautioned
not to place undue reliance on such statements, which
speak only as of the date they are made. DXC disclaims
any intention or obligation to update these forward-looking
statements whether as a result of subsequent event or
otherwise, except as required by law.
GLOBAL LOCATIONS
Americas
1775 Tysons Boulevard
Tysons, VA 22102
USA
Asia
1 Depot Close, #03-01
Singapore 109841
The Republic of Singapore
+65.68099.000
Australia and New Zealand
26 Talavera Road
Macquarie Park, NSW 2113
Australia
+61.2.9034.3000
North and Central Europe
Schickardstrasse 32
71034 Böblingen
Germany
Southern Europe
Tour Carpe Diem, 31 Place Des Corolles
CS 40075
92098 Paris La Défense Cedex
France
+33.1.57.98.00.11
UK, Ireland, Israel,
Middle East and Africa
United Kingdom:
3rd floor, 1 St Pancras Square
One Pancras Road, Kings Cross
London, England
N1C 4AG
+44.0.203.882.4422
Ireland:
Liffey Park Technology Campus
Leixlip, County Kildare
W23 Y972
Ireland
Israel:
Entserv Israel Ltd.
Dafna 9, Ra’anana
Israel
+972.9.7420430