UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 20182019
OR
o☐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.: 001-38033
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DXC TECHNOLOGY COMPANY
(Exact name of Registrantregistrant as specified in its charter)
Nevada61-1800317
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
  
1775 Tysons Boulevard 
Tysons,Virginia22102
(Address of principal executive offices)(zip code)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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par value per shareDXCNew York Stock Exchange
2.750% Senior Notes Due 2025DXC 25New York Stock Exchange
1.750% Senior Notes Due 2026DXC 26New York Stock Exchange
  
Registrant's telephone number, including area code: (703) 245-9675Securities registered pursuant to Section 12(g) of the Act: None


Indicate by check mark whether the Registrantregistrant (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.xYeso 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 such files). xYeso 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     x                Accelerated Filer o
Large Accelerated FilerxAccelerated Filero
Non-accelerated FileroSmaller reporting company☐
Emerging growth company☐


Non-accelerated Filer o

Smaller reporting company o                Emerging growth company o

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. o


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).o
       ☐ Yes  x   No


268,271,187253,720,624 shares of common stock, par value $0.01 per share, were outstanding on January 31, 2019.2020.



TABLE OF CONTENTS


Item Page Page
 
PART I - FINANCIAL INFORMATION
  
PART I - FINANCIAL INFORMATION
 
  
1. 
Financial Statements (unaudited)
1
 
Financial Statements (unaudited)
1
2. 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
58
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
55
3. 
Quantitative and Qualitative Disclosures About Market Risk
78
 
Quantitative and Qualitative Disclosures About Market Risk
74
4. 
Controls and Procedures
78
 
Controls and Procedures
74
  
 
PART II - OTHER INFORMATION
  
PART II - OTHER INFORMATION
 
  
1. 
Legal Proceedings
79
 
Legal Proceedings
76
1A. 
Risk Factors
79
 
Risk Factors
76
2. 
Unregistered Sales of Equity Securities and Use of Proceeds
81
 
Unregistered Sales of Equity Securities and Use of Proceeds
77
3. 
Defaults Upon Senior Securities
81
 
Defaults Upon Senior Securities
77
4. 
Mine Safety Disclosures
81
 
Mine Safety Disclosure
77
5. 
Other Information
82
 
Other Information
78
6. 
Exhibits
82
 
Exhibits
78






PART I


ITEM 1. FINANCIAL STATEMENTS


Index to Condensed Consolidated Financial Statements
  
 Page
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended December 31, 20182019 and December 31, 20172018 (unaudited)
2
  
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended December 31, 20182019 and December 31, 20172018 (unaudited)
3
  
Condensed Consolidated Balance Sheets as of December 31, 20182019 and March 31, 20182019 (unaudited)
4
  
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 20182019 and December 31, 20172018 (unaudited)
5
  
Condensed Consolidated Statements of Changes in Equity for the Three and Nine Months Ended December 31, 20182019 and December 31, 20172018 (unaudited)
6
  
Notes to Consolidated Financial Statements (unaudited)
 
Note 1–Summary of Significant Accounting Policies
8
Note 2–Recent Accounting Pronouncements
1112
Note 3–Acquisitions
1314
Note 4–Divestitures
1617
Note 5–Earnings Per Share
19
Note 6–Sale of Receivables
20
Note 6–Sale of Receivables
20
Note 7–Fair ValueLeases
22
Note 8–Derivative InstrumentsFair Value
2325
Note 9–Intangible Assets
26
Note 10–GoodwillDerivative and Hedging Activities
27
Note 11–Debt10–Intangible Assets
2830
Note 12–Revenue11–Goodwill
2931
Note 13–Restructuring Costs12–Debt
32
Note 14–Pension and Other Benefit Plans13–Revenue
33
Note 15–Income Taxes14–Restructuring Costs
3534
Note 15–Pension and Other Benefit Plans
37
Note 16–Stockholders' EquityIncome Taxes
38
Note 17–Stock Incentive PlansStockholders' Equity
4039
Note 18–Stock Incentive Plans
41
Note 19–Cash Flows
43
Note 19–20–Segment Information
44
Note 20–21–Commitments and Contingencies
47
Note 21–Reconciliation of Previously Reported Amounts to Recast Financial Statements
52
Note 22–Subsequent Events
56








DXC TECHNOLOGY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)


  Three Months Ended Nine Months Ended
(in millions, except per-share amounts) December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
         
Revenues $5,021
 $5,178
 $14,762
 $15,473
         
Costs of services (excludes depreciation and amortization and restructuring costs) 3,827
 3,725
 11,128
 11,110
Selling, general, and administrative (excludes depreciation and amortization and restructuring costs) 518
 491
 1,514
 1,500
Depreciation and amortization 479
 508
 1,416
 1,463
Goodwill impairment losses 53
 —
 2,940
 —
Restructuring costs 74
 76
 248
 418
Interest expense 93
 81
 288
 249
Interest income (33) (27) (130) (92)
Gain on arbitration award —
 —
 (632) —
Other income, net (117) (145) (344) (336)
Total costs and expenses 4,894
 4,709
 16,428
 14,312
         
Income (loss) from continuing operations before income taxes 127
 469
 (1,666) 1,161
Income tax expense 37
 3
 191
 205
Income (loss) from continuing operations 90
 466
 (1,857) 956
Income from discontinued operations, net of taxes —
 —
 —
 35
Net income (loss) 90
 466
 (1,857) 991
Less: net income attributable to non-controlling interest, net of tax 8
 4
 17
 8
Net income (loss) attributable to DXC common stockholders $82
 $462
 $(1,874) $983
         
Income (loss) per common share:        
Basic:        
Continuing operations $0.32
 $1.68
 $(7.20) $3.38
Discontinued operations —
 —
 —
 0.12
  $0.32
 $1.68
 $(7.20) $3.50
Diluted:        
Continuing operations $0.32
 $1.66
 $(7.20) $3.33
Discontinued operations —
 —
 —
 0.12
  $0.32
 $1.66
 $(7.20) $3.45

  Three Months Ended Nine Months Ended
(in millions, except per-share amounts) December 31, 2018 December 31, 2017 December 31, 2018 December 31, 2017
         
Revenues $5,178
 $5,460
 $15,473
 $16,149
         
Costs of services (excludes depreciation and amortization and restructuring costs) 3,725
 4,051
 11,110
 12,230
Selling, general, and administrative (excludes depreciation and amortization and restructuring costs) 491
 447
 1,500
 1,484
Depreciation and amortization 508
 440
 1,463
 1,264
Restructuring costs 76
 210
 418
 585
Interest expense 81
 73
 249
 220
Interest income (27) (27) (92) (59)
Other income, net (145) (75) (336) (291)
Total costs and expenses 4,709
 5,119
 14,312
 15,433
         
Income from continuing operations before income taxes 469
 341
 1,161
 716
Income tax expense (benefit) 3
 (365) 205
 (303)
Income from continuing operations 466
 706
 956
 1,019
Income from discontinued operations, net of taxes —
 73
 35
 198
Net income 466
 779
 991
 1,217
Less: net income attributable to non-controlling interest, net of tax 4
 3
 8
 26
Net income attributable to DXC common stockholders $462
 $776
 $983
 $1,191
         
Income per common share:        
Basic:        
Continuing operations $1.68
 $2.46
 $3.38
 $3.48
Discontinued operations —
 0.26
 0.12
 0.70
  $1.68
 $2.72
 $3.50
 $4.18
Diluted:        
Continuing operations $1.66
 $2.43
 $3.33
 $3.43
Discontinued operations —
 0.25
 0.12
 0.68
  $1.66
 $2.68
 $3.45
 $4.11
         




The accompanying notes are an integral part of these condensed consolidated financial statements.











DXC TECHNOLOGY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)


    Three Months Ended Nine Months Ended
(in millions) December 31, 2018 December 31, 2017 December 31, 2018 December 31, 2017
           
Net income $466
 $779
 $991
 $1,217
Other comprehensive (loss) income, net of taxes:        
 
Foreign currency translation adjustments, net of tax (1)
 (64) (47) (472) 62
 
Cash flow hedges adjustments, net of tax (2)
 14
 5
 (16) —
 Available-for-sale securities, net of tax —
 —
 (1) —
 Pension and other post-retirement benefit plans, net of tax:        
  
Prior service cost, net of tax (3)
 (23) —
 (23) —
  
Amortization of prior service cost, net of tax (4)
 (4) (3) (10) (10)
 Pension and other post-retirement benefit plans, net of tax (27) (3) (33) (10)
Other comprehensive (loss) income, net of taxes (77) (45) (522) 52
Comprehensive income 389
 734
 469
 1,269
 Less: comprehensive income attributable to non-controlling interest 9
 6
 8
 34
Comprehensive income attributable to DXC common stockholders $380
 $728
 $461
 $1,235
    Three Months Ended Nine Months Ended
(in millions) December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
           
Net income (loss) $90
 $466
 $(1,857) $991
Other comprehensive income (loss), net of taxes:        
 
Foreign currency translation adjustments, net of tax (1)
 293
 (64) 87
 (472)
 
Cash flow hedges adjustments, net of tax (2) 
 (8) 14
 (6) (16)
 
Available-for-sale securities, net of tax (3)
 —
 —
 2
 (1)
 Pension and other post-retirement benefit plans, net of tax:        
  
Prior service cost, net of tax (4)
 —
 (23) —
 (23)
  
Amortization of prior service cost, net of tax (5)
 (2) (4) (6) (10)
 Pension and other post-retirement benefit plans, net of tax (2) (27) (6) (33)
Other comprehensive income (loss), net of taxes 283
 (77) 77
 (522)
Comprehensive income (loss) 373
 389
 (1,780) 469
 Less: comprehensive income attributable to non-controlling interest 39
 9
 26
 8
Comprehensive income (loss) attributable to DXC common stockholders $334
 $380
 $(1,806) $461
        


(1) Tax benefit related to foreign currency translation adjustments was $15 and $2 for the three and nine months ended December 31, 2019, respectively. There was no0 tax expense related to foreign currency translation adjustments during the three and nine months ended December 31, 2018.
(2) Tax (benefit) expense related to foreign currency translationcash flow hedge adjustments was $14$(1) and $77$(1) for the three and nine months ended December 31, 2017, respectively.
(2) Tax expense (benefit) related to cash flow hedge adjustments was2019, respectively, and $5 and $(5) for the three and nine months ended December 31, 2018, respectively.
(3) Tax expense related to cash flow hedge adjustmentsavailable-for-sale securities was $3$0 and $0$1 for the three and nine months ended December 31, 2017,2019, respectively. There was 0 tax expense related to available-for-sale securities during the three and nine months ended December 31, 2018.
(3)(4) There was 0 tax benefit related to prior service costs during the three and nine months ended December 31, 2019. Tax benefit related to prior service costs was $5 and $5 for the three and nine months ended December 31, 2018, respectively.
(4)(5) Tax benefit related to amortization of prior service costs was $0 and $1 for the three and nine months ended December 31, 2018,2019, respectively, and $2$0 and $3$1 for the three and nine months ended December 31, 2017,2018, respectively.





The accompanying notes are an integral part of these condensed consolidated financial statements.






DXC TECHNOLOGY COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
 As of As of
(in millions, except per-share and share amounts) December 31, 2018 March 31, 2018 December 31, 2019 March 31, 2019
ASSETS   
   
Current assets:        
Cash and cash equivalents $2,475
 $2,593
 $2,560
 $2,899
Receivables and contract assets, net of allowance for doubtful accounts of $57 and $40 5,096
 5,481
Receivables and contract assets, net of allowance for doubtful accounts of $76 and $60 4,619
 5,181
Prepaid expenses 626
 496
 660
 627
Other current assets 325
 469
 344
 359
Assets of discontinued operations —
 581
Total current assets 8,522
 9,620
 8,183
 9,066
        
Intangible assets, net of accumulated amortization of $4,050 and $3,369 6,770
 7,179
Intangible assets, net of accumulated amortization of $4,262 and $3,399 6,140
 5,939
Operating right-of-use assets, net 1,484
 —
Goodwill 7,593
 7,619
 6,003
 7,606
Deferred income taxes, net 407
 373
 372
 355
Property and equipment, net of accumulated depreciation of $3,654 and $3,686 3,186
 3,363
Property and equipment, net of accumulated depreciation of $4,317 and $3,958 3,631
 3,179
Other assets 2,393
 2,404
 3,786
 3,429
Assets of discontinued operations - non-current —
 3,363
Total Assets $28,871
 $33,921
 $29,599
 $29,574
        
LIABILITIES and EQUITY        
Current liabilities:        
Short-term debt and current maturities of long-term debt $1,580
 $1,918
 1,581
 1,942
Accounts payable 1,345
 1,513
 1,576
 1,666
Accrued payroll and related costs 705
 744
 678
 652
Current operating lease liabilities 498
 —
Accrued expenses and other current liabilities 3,228
 3,120
 3,139
 3,355
Deferred revenue and advance contract payments 1,542
 1,641
 1,069
 1,630
Income taxes payable 122
 127
 243
 208
Liabilities of discontinued operations —
 789
Total current liabilities 8,522
 9,852
 8,784
 9,453
        
Long-term debt, net of current maturities 5,980
 6,092
 7,315
 5,470
Non-current deferred revenue 273
 795
 747
 256
Non-current operating lease liabilities 1,097
 —
Non-current income tax liabilities and deferred tax liabilities 1,171
 1,166
 1,189
 1,184
Other long-term liabilities 1,569
 1,723
 1,366
 1,486
Liabilities of discontinued operations - long-term —
 456
Total Liabilities 17,515
 20,084
 20,498
 17,849
        
Commitments and contingencies 

 

 


 


        
DXC stockholders’ equity:        
Preferred stock, par value $.01 per share, authorized 1,000,000 shares, none issued as of December 31, 2018 and March 31, 2018 —
 —
Common stock, par value $.01 per share, authorized 750,000,000 shares, issued 271,631,683 as of December 31, 2018 and 286,393,147 as of March 31, 2018 3
 3
Preferred stock, par value $.01 per share, 1,000,000 shares authorized, none issued as of December 31, 2019 and March 31, 2019 —
 —
Common stock, par value $.01 per share, 750,000,000 shares authorized, 255,605,750 issued as of December 31, 2019 and 270,213,891 issued as of March 31, 2019 3
 3
Additional paid-in capital 11,343
 12,210
 10,701
 11,301
Retained earnings 274
 1,301
Accumulated other comprehensive (loss) income (464) 58
Treasury stock, at cost, 1,754,722 and 1,016,947 shares as of December 31, 2018 and March 31, 2018 (134) (85)
(Accumulated deficit) retained earnings (1,628) 478
Accumulated other comprehensive loss (176) (244)
Treasury stock, at cost, 2,132,967 and 1,788,658 shares as of December 31, 2019 and March 31, 2019 (151) (136)
Total DXC stockholders’ equity 11,022
 13,487
 8,749
 11,402
Non-controlling interest in subsidiaries 334
 350
 352
 323
Total Equity 11,356
 13,837
 9,101
 11,725
Total Liabilities and Equity $28,871
 $33,921
 $29,599
 $29,574


The accompanying notes are an integral part of these condensed consolidated financial statements.


DXC TECHNOLOGY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
  Nine Months Ended
(in millions) December 31, 2019 December 31, 2018
Cash flows from operating activities:    
Net (loss) income $(1,857) $991
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 1,429
 1,514
Goodwill impairment losses 2,940
 —
Operating right-of-use expense 506
 —
Share-based compensation 57
 57
Loss (gain) on dispositions 6
 (137)
Unrealized foreign currency exchange loss (gain) 14
 (32)
Other non-cash charges, net 7
 (21)
Changes in assets and liabilities, net of effects of acquisitions and dispositions:    
Decrease (increase) in assets 141
 (1,012)
Decrease in operating lease liability (506) —
Decrease in other liabilities (675) (325)
Net cash provided by operating activities 2,062
 1,035
     
Cash flows from investing activities:    
Purchases of property and equipment (240) (219)
Payments for transition and transformation contract costs (220) (294)
Software purchased and developed (178) (183)
Payments for acquisitions, net of cash acquired (1,997) (332)
Business dispositions —
 (65)
Cash collections related to deferred purchase price receivable 513
 761
Proceeds from sale of assets 55
 283
Short-term investing (75) —
Other investing activities, net 20
 9
Net cash used in investing activities (2,122) (40)
     
Cash flows from financing activities:    
Borrowings of commercial paper 4,010
 1,853
Repayments of commercial paper (3,893) (1,853)
Borrowings on long-term debt, net of discount 2,198
 1,646
Principal payments on long-term debt (1,029) (2,619)
Payments on finance leases and borrowings for asset financing (646) (710)
Borrowings for USPS spin transaction —
 1,114
Proceeds from bond issuance —
 753
Proceeds from stock options and other common stock transactions 11
 40
Taxes paid related to net share settlements of share-based compensation awards (15) (52)
Repurchase of common stock and advance payment for accelerated share repurchase (736) (1,253)
Dividend payments (161) (159)
Other financing activities, net (44) 57
Net cash used in financing activities (305) (1,183)
Effect of exchange rate changes on cash and cash equivalents 26
 (66)
Net decrease in cash and cash equivalents (339) (254)
Cash and cash equivalents at beginning of year 2,899
 2,729
Cash and cash equivalents at end of period $2,560
 $2,475
  Nine Months Ended
(in millions) December 31, 2018 December 31, 2017
Cash flows from operating activities:    
Net income $991
 $1,217
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 1,514
 1,387
Share-based compensation 57
 76
Gain on dispositions (137) —
Unrealized foreign currency exchange (gains) losses (32) 44
Other non-cash charges, net (21) 23
Changes in assets and liabilities, net of effects of acquisitions and dispositions:    
Increase in assets (1,012) (365)
Decrease in liabilities (325) (372)
Net cash provided by operating activities 1,035
 2,010
     
Cash flows from investing activities:    
Purchases of property and equipment (219) (175)
Payments for transition and transformation contract costs (294) (259)
Software purchased and developed (183) (157)
Cash acquired through Merger —
 974
Payments for acquisitions, net of cash acquired (332) (193)
Business dispositions (65) —
Cash collections related to deferred purchase price receivable 
 761
 531
Proceeds from sale of assets 283
 29
Other investing activities, net 9
 20
Net cash (used in) provided by investing activities (40) 770
     
Cash flows from financing activities:    
Borrowings of commercial paper 1,853
 1,822
Repayments of commercial paper (1,853) (1,706)
Repayment of borrowings under lines of credit —
 (335)
Borrowings on long-term debt, net of discount 1,646
 621
Principal payments on long-term debt (2,619) (1,291)
Payments on capital leases and borrowings for asset financing (710) (732)
Borrowings for USPS spin transaction 1,114
 —
Proceeds from bond issuance 753
 647
Proceeds from stock options and other common stock transactions 40
 107
Taxes paid related to net share settlements of share-based compensation awards (52) (75)
Repurchase of common stock (1,253) (66)
Dividend payments (159) (123)
Other financing activities, net 57
 (5)
Net cash used in financing activities (1,183) (1,136)
Effect of exchange rate changes on cash and cash equivalents (66) 44
Net (decrease) increase in cash and cash equivalents (254) 1,688
Cash and cash equivalents at beginning of year 2,729
 1,268
Cash and cash equivalents at end of period $2,475
 $2,956

The accompanying notes are an integral part of these condensed consolidated financial statements.


DXC TECHNOLOGY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (unaudited)

Three Months Ended December 31, 2018Three Months Ended December 31, 2019
(in millions, except shares in thousands)Common Stock
Additional
Paid-in Capital
Retained Earnings
Accumulated
Other
Comprehensive
Loss
Treasury Stock (2)
Total
DXC Equity
Non-
Controlling Interest
Total EquityCommon Stock
Additional
Paid-in Capital
Retained Earnings (Accumulated Deficit)
Accumulated
Other
Comprehensive Loss
Treasury Stock (1)
Total
DXC Equity
Non-
Controlling Interest
Total Equity
Shares AmountShares Amount
Balance at September 30, 2019257,626
 $3
$10,793
$(1,668)$(428)$(150)$8,550
$320
$8,870
Net income   82
 82
8
90
Other comprehensive income   252
 252
31
283
Share-based compensation expense   6
 6
 6
Acquisition of treasury stock   (1)(1) (1)
Share repurchase program(2,354)  (98)12
 (86) (86)
Stock option exercises and other common stock transactions334
  


 —
 —
Dividends declared ($0.21 per share)   (54) (54) (54)
Non-controlling interest distributions and other   

 —
(7)(7)
Balance at December 31, 2019255,606
 $3
$10,701
$(1,628)$(176)$(151)$8,749
$352
$9,101
   
Three Months Ended December 31, 2018
(in millions, except shares in thousands)Common Stock
Additional
Paid-in Capital
Retained Earnings
Accumulated
Other
Comprehensive
Loss
Treasury Stock
Total
DXC Equity
Non-
Controlling Interest
Total Equity
Shares Amount
Balance at September 30, 2018282,519
 $3
$11,848
$136
$(382)$(105)$11,500
$337
$11,837
282,519
 $3
$11,848
$136
$(382)$(105)$11,500
$337
$11,837
Net Income   462
 462
4
466
Net income   462
 462
4
466
Other comprehensive loss   (82) (82)5
(77)   (82) (82)5
(77)
Share-based compensation expense   17
 17
 17
   17
 17
 17
Acquisition of treasury stock   (29)(29) (29)   (29)(29) (29)
Share repurchase program(12,452)  (525)(272) (797) (797)(12,452)  (525)(272) (797) (797)
Stock option exercises and other common stock transactions1,565
  3
 3
 3
1,565
  3
 3
 3
Dividends declared ($0.19 per share)

  (52) (52) (52)   (52) (52) (52)
Non-controlling interest distributions and other  







 —
(12)(12)   

 —
(12)(12)
Balance at December 31, 2018271,632
 $3
$11,343
$274
$(464)$(134)$11,022
$334
$11,356
271,632
 $3
$11,343
$274
$(464)$(134)$11,022
$334
$11,356
   
Three Months Ended December 31, 2017
(in millions, except shares in thousands)Common Stock
Additional
Paid-in Capital
Retained Earnings
Accumulated
Other
Comprehensive
Loss
Treasury Stock
Total
DXC Equity
Non-
Controlling Interest
Total Equity
Shares Amount
Balance at September 30, 2017285,943
 $3
$12,158
$110
$(70)$(61)$12,140
$367
$12,507
Business acquired in purchase, net of issuance costs(1)


 



 —
(6)(6)
Net income   776
 776
3
779
Other comprehensive income   (48) (48)3
(45)
Share-based compensation expense   17
 17
 17
Acquisition of treasury stock   (22)(22) (22)
Stock option exercises and other common stock transactions611
  26
 26
 26
Dividends declared ($0.18 per share)

   (52) (52) (52)
Non-controlling interest distributions and other   —
(2)(2)
Balance at December 31, 2017286,554
 $3
$12,201
$834
$(118)$(83)$12,837
$365
$13,202







DXC TECHNOLOGY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (unaudited)
 Nine Months Ended December 31, 2019
(in millions, except shares in thousands)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
Shares Amount
Balance at March 31, 2019270,214
 $3
$11,301
$478
$(244)$(136)$11,402
$323
$11,725
Net loss    (1,874)  (1,874)17
(1,857)
Other comprehensive income (loss)     68
 68
9
77
Share-based compensation expense   55
   55
 55
Acquisition of treasury stock      (15)(15) (15)
Share repurchase program(15,934) 

(669)(67)  (736) (736)
Stock option exercises and other common stock transactions1,326
 

14
  
14
 14
Dividends declared ($0.63 per share)    (165)  (165) (165)
Non-controlling interest distributions and other    

  —
3
3
Balance at December 31, 2019255,606
 $3
$10,701
$(1,628)$(176)$(151)$8,749
$352
$9,101
           
 Nine Months Ended December 31, 2018
(in millions, except shares in thousands)Common Stock
Additional
Paid-in Capital
Retained Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury Stock
Total
DXC Equity
Non-
Controlling Interest
Total Equity
Shares Amount
Balance at March 31, 2018286,393
 $3
$12,210
$1,301
$58
$(85)$13,487
$350
$13,837
Cumulative effect of adopting the new revenue standard    114
  114
 114
Net income    983
  983
8
991
Other comprehensive loss     (522) (522)


(522)
Share-based compensation expense   57
   57
 57
Acquisition of treasury stock      (49)(49) (49)
Share repurchase program(17,680) 

(776)(472)  (1,248) (1,248)
Stock option exercises and other common stock transactions2,919
 


29
   29
 29
Dividends declared ($0.57 per share)    (161)  (161) (161)
Non-controlling interest distributions and other    

  —
(24)(24)
Divestiture of USPS   (177)(1,491)  (1,668) (1,668)
Balance at December 31, 2018271,632
 $3
$11,343
$274
$(464)$(134)$11,022
$334
$11,356

 Nine Months Ended December 31, 2018
(in millions, except shares in thousands)Common Stock
Additional
Paid-in Capital
Retained Earnings
Accumulated
Other
Comprehensive
Loss
Treasury Stock (2)
Total
DXC Equity
Non-
Controlling Interest
Total Equity
Shares Amount
Balance at March 31, 2018286,393
 $3
$12,210
$1,301
$58
$(85)$13,487
$350
$13,837
Cumulative effect of adopting the new revenue standard

 



114




114


114
Net Income    983
  983
8
991
Other comprehensive loss     (522) (522)

(522)
Share-based compensation expense   57
   57
 57
Acquisition of treasury stock      (49)(49) (49)
Share repurchase program(17,680) 

(776)(472)  (1,248) (1,248)
Stock option exercises and other common stock transactions2,919
 

29
  
29
 29
Dividends declared ($0.57 per share)

    (161)  (161) (161)
Non-controlling interest distributions and other  







 —
(24)(24)
Divestiture of USPS   (177)(1,491)

 (1,668)

(1,668)
Balance at December 31, 2018271,632
 $3
$11,343
$274
$(464)$(134)$11,022
$334
$11,356
           
 Nine Months Ended December 31, 2017
(in millions, except shares in thousands)Common Stock
Additional
Paid-in Capital
(Accumulated Deficit) Retained Earnings
Accumulated
Other
Comprehensive
Loss
Treasury Stock
Total
DXC Equity
Non-
Controlling Interest
Total Equity
Shares Amount
Balance at March 31, 2017141,299
 $1
$2,219
$(170)$(162)$—
$1,888
$278
$2,166
Business acquired in purchase, net of issuance costs(1)
141,741
 2
9,848
   9,850
55
9,905
Net income    1,191
  1,191
26
1,217
Other comprehensive income     44
 44
8
52
Share-based compensation expense   74
   74
 74
Acquisition of treasury stock      (83)(83) (83)
Share repurchase program(842) 

(36)(30)  (66) (66)
Stock option exercises and other common stock transactions4,356
 

96
   96
 96
Dividends declared ($0.54 per share)

    (157)  (157) (157)
Non-controlling interest distributions and other       —
(2)(2)
Balance at December 31, 2017286,554
 $3
$12,201
$834
$(118)$(83)$12,837
$365
$13,202


(1) See Note 3 - "Acquisitions"
(2) 1,754,722 2,132,967 treasury shares as of December 31, 20182019.






The accompanying notes are an integral part of these condensed consolidated financial statements.




DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


Note 1 - Summary of Significant Accounting Policies


Business


DXC Technology Company ("DXC" or the "Company") is a world leading independent, end-to-endhelps global companies run their mission critical systems and operations while modernizing IT, services company, serving nearly 6,000optimizing data architectures, and ensuring security and scalability across public, private and public-sector clients fromhybrid 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 diverse array of industries across 70 countries.global digital strategy and software engineering firm (the "Luxoft Acquisition"). The company's technology independence, global talentacquisition builds on DXC’s unique value proposition as an end-to-end, mainstream IT and extensive partner network deliverdigital services market leader, and strengthens the Company’s ability to design and deploy transformative digital offeringssolutions for clients at scale. See Note 3 - "Acquisitions" for further information.

Separation of USPS

On May 31, 2018, DXC completed the separation of its U.S. Public Sector business ("USPS" or the "Separation"), and solutions that help clients harnesscombination with Vencore Holding Corp. ("Vencore") and KeyPoint Government Solutions ("Keypoint") (the "Mergers") to form Perspecta Inc. ("Perspecta"), an independent public company (collectively, the power"USPS Separation and Mergers"). Under the terms of innovation to thrivethe separation agreements, on change.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 4 - "Divestitures" for more information.

As a result of the Separation, the Condensed Consolidated Statements of Operations, Condensed 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 Condensed Consolidated Statement of Cash Flows for the nine months ended December 31, 2018.


Basis of Presentation


In order to make this report easier to read, DXC refers throughout to (i) the interim unaudited Condensed Consolidated Financial Statements as the “financial statements,” (ii) the Condensed Consolidated Statements of Operations as the “statements of operations,” (iii) the Condensed Consolidated Statement of Comprehensive Income (Loss) as the "statements of comprehensive income," (iv) the Condensed Consolidated Balance Sheets as the “balance sheets,” and (v) the Condensed Consolidated Statements of Cash Flows as the “statements of cash flows.” In addition, references throughout to numbered “Notes” refer to the numbered Notes in these Notes to Condensed Consolidated Financial Statements, unless otherwise noted.


The accompanying financial statements include the accounts of DXC, its consolidated subsidiaries, and those business entities in which DXC maintains a controlling interest. Investments in business entities in which the Company does not have control, but has the ability to exercise significant influence over operating and financial policies, are accounted for by the equity method. Other investments are accounted for by the cost method. Non-controlling interests are presented as a separate component within equity in the balance sheets. Net earnings attributable to the non-controlling interests are presented separately in the statements of operations and comprehensive income 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. During the third quarter, 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.


DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued


The financial statements of the Company have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission for quarterly reports and accounting principles generally accepted in the United States ("GAAP"). Certain disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules. These financial statements should therefore be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 20182019 ("fiscal 2018"2019") included in Exhibit 99.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on August 16, 2018..


Use of Estimates


The preparation of financial statements in conformity with GAAP, requires the Company's management to make estimates and assumptions that affect amounts reported in the financial statements. 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. In the opinion of the Company's management, the accompanying financial statements of DXC contain all adjustments, including normal recurring adjustments, necessary to present fairly the Company's financial statements. The results of operations for the interim periods shown in this report are not necessarily indicative of the results that mayto be expected for the full fiscal year ending March 31,year.

Leases

Effective April 1, 2019, the Company adopted ASU 2016-02, "Leases, Topic ASC 842" using the modified retrospective method. Refer to Note 2 - "Recent Accounting Pronouncements" and Note 7 - "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 ("fiscal 2019"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.
DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued




Separation of USPS

Goodwill Impairment Analysis
On May 31, 2018, DXC completed the separation of its U.S. Public Sector business ("USPS") (the "Separation"), and combination 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 4 - "Divestitures" for more information.

As a result of the Separation, the statements of operations, 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 statements of cash flows for all periods presented. In addition, USPS is no longer a reportable segment. DXC's reportable segments are Global Business Services ("GBS") and Global Infrastructure Services ("GIS").

Revenue Recognition


Effective AprilJuly 1, 2018,2019, the Company adopted ASU 2014-09, “Revenue from Contracts with Customers (ASC 606)2017-04, " Intangibles-Goodwill and Other (Topic 350),” Simplifying the Test for Goodwill Impairment" using the modified retrospectiveprospective method. Refer to Note 2 - “Recent"Recent Accounting Pronouncements”Pronouncements" and Note 1211 - “Revenue”"Goodwill" for further discussion of the impact of adoption and other required disclosures. The Company’s accounting policy relatedCompany 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 new revenue standardreporting units, including macroeconomic conditions; industry and market considerations; overall financial performance; and relevant entity-specific events.

If the Company determines that it is summarized below.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's primary service offeringsCompany 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 information technology outsourcing, other professional services, orrequired. However, if a combination thereof. Revenues are recognized when controlreporting unit’s fair value is less than its carrying value, then an impairment charge is recorded in the amount of the promised goods or services is transferred to DXC's customers, in an amount that reflects the considerationexcess.

When the Company expects to be entitled to in exchangeperforms the quantitative goodwill impairment test for those goods or services.

DXC determines revenue recognition througha reporting unit, it estimates the five-step model as follows:
Identificationfair value of the contract, or contracts, withreporting unit using both the income approach and the market approach. The income approach uses 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 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 using an inputdiscounted cash flow method based on time increments. 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 servicesestimated future cash flows and terminal values for each reporting unit are provided. These activities typically do not qualify as performance obligations,discounted to present value using a discount rate. Cash flow projections are based on management's estimates of economic and the related revenues are allocated to the relevant performance obligationsmarket conditions, which drive key assumptions of revenue growth rates, operating margins, capital expenditures and recognized ratably over time as the performance obligationworking capital requirements. The discount rate 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 pricespecific risk characteristics of each distinct good or servicereporting 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 contract. Other than software sales involving multiple performance obligations,two models. Assumptions are modified as considered appropriate under the primary method usedcircumstances 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 estimate standalone selling price isdetermine 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 marginfair value for that distinct good or service.

each reporting unit. The transaction price of a contract is determined based on fixed and variable consideration. Variable consideration relatedweighting ascribed to the Company’s IT outsourcing offerings often include volume-based pricing that are allocatedmarket 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 distinct days ofcomparable publicly traded companies used in the market approach.

DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued




services to whichIf DXC performs a quantitative goodwill impairment test for all of its reporting units in conjunction with its annual goodwill testing, it also compares the variable consideration pertains. However, in certain cases, estimatessum of variable consideration, including penalties, contingent milestone payments and rebates are necessary. The Company only includes estimatesall of variable consideration in the transaction priceits reporting units’ fair values 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, unitCompany's market capitalization (per-share stock 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 unitnumber 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.

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 when servicesthe remaining lease term, whichever is shorter. The estimated useful lives of DXC’s property and equipment are delivered.as follows:

BuildingsUp to 40 years
Computers and related equipment4 to 7 years
Furniture and other equipment3 to 15 years
Leasehold improvementsShorter of lease term or useful life up to 20 years

Fixed-price contracts. For certain fixed-price contracts, revenue is recognized over time using
In accordance with its policy, the Company reviews the estimated useful lives of its property and equipment on an ongoing basis. As a method that measuresresult, effective April 1, 2019, the extentCompany changed its estimate of progress towards completionthe useful lives of a performance obligation, generally using a cost-input method (referredits computers and related equipment from an average of four to asfive years to an average of four to seven years, which better reflects 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. Profitperiods during which these assets will remain in service. This change resulted in a given period is reported at the estimated profit margin$68 million and $179 million decrease 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 pricesdepreciation expense 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 supportthree and other software services is recognized over time as those services are provided.nine months ended December 31, 2019, respectively.


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,
DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued




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.

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 intangible assets, which are amortized over the respective contract life.

Note 2 - Recent Accounting Pronouncements


Effective April 1, 2018,During the nine months ended December 31, 2019, DXC adopted the following Accounting Standards Updates ("ASU") issued by the Financial Accounting Standards Board:
Date Issued and ASUDate Adopted and MethodDescriptionImpact
May 2014


ASU 2014-09 “Revenue from Contracts with Customers (Topic 606)"


April 1, 2018 Modified-retrospective
The core principle of this update, and the subsequent amendments, is that revenue is recognized when the transfer of goods or services to customers occurs in an amount that reflects the consideration to which DXC expects to be entitled in exchange for those goods or services. The guidance also addresses the timing of recognition of certain costs incurred to obtain or fulfill a customer contract. Further, it requires the disclosure of sufficient information to enable readers of DXC’s financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, and information regarding significant judgments and changes in judgments made. This update provides two methods of adoption: full retrospective and modified retrospective. Under the full retrospective method, the standard would be applied to all periods presented with previously disclosed periods restated under the new guidance. Under the modified retrospective method, prior periods would not be restated but rather a cumulative catch-up adjustment would be recorded on the adoption date.

The Company adopted this standard using the modified retrospective method. The Company has applied the standard to only those contracts that were not completed at the adoption date. The adoption resulted in the following impacts.

The Company recorded a net increase to opening retained earnings, net of income taxes, of approximately $114 million as of April 1, 2018 due to the cumulative impact of adopting Topic 606, with the impact primarily related to the capitalization of certain sales commissions of approximately $158 million offset by a reduction in income tax assets and liabilities of approximately $40 million. In addition, the Company has recorded a reduction in contract liabilities of approximately $381 million and other current assets and other assets of $385 million, primarily related to the net down of certain long-term contract asset and contract liability balances and the change in timing of revenue and costs recognized related to the Company's software contracts.
                                                                    Refer to Note 12 - “Revenue” for further discussion of the impact of adoption and other required disclosures.

DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued


March 2017

ASU 2017-07 “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost"
April 1, 2018 RetrospectiveThis update is intended to improve the presentation of net periodic pension cost and net periodic post-retirement benefit cost in an entity's financial statements by requiring the service cost component be disaggregated from other components of net benefit costs and presented in the same line item or items as other compensation costs for the employees. Additionally, only the service cost component of net benefit cost is eligible for capitalization when applicable. This update must be applied retrospectively.
DXC reclassified non-service cost components of net periodic pension (income) expense from "costs of services" and "selling, general and administrative" to "other income, net" in the statements of operations for the three and nine months ended December 31, 2017. The aggregate service cost component of net periodic pension income remaining in "costs of services" and "selling, general and administrative" is $30 million and $96 million, for the three and nine months ended December 31, 2017, respectively.

August 2016

ASU 2016-15 “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments"
April 1, 2018 RetrospectiveThis update addressed eight cash flow classification issues that have created diversity in practice, providing definitive guidance on classification of certain cash receipts and payments. This update must be adopted retrospectively for all periods presented but may be applied prospectively if retrospective application would be impracticable
ASU 2016-15 requires the company to classify cash receipts 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. The Company adopted ASU 2016-15 effective April 1, 2018, and retrospectively adjusted prior fiscal periods, using each month’s transactional activity as the unit of account in determining the portions of transferred trade receivables as operating activities and investing activities. As disclosed in prior quarters the Company was evaluating the unit of account used in implementing ASU 2016-15. During the third quarter of fiscal 2019, the Company completed its evaluation and determined that it was necessary to change the unit of account from each month's transactional activity to each day's transactional activity. The Company reflected this change on a retrospective basis as further discussed in Note 21 - "Reconciliation of Previously Reported Amounts to Recast Financial Statements. See Note 6 - "Sale of Receivables" for more information about the Receivables Securitization Facility.

November 2016

ASU 2016-18 “Statement of Cash Flows (Topic 230): Restricted Cash (A Consensus of the FASB Emerging Issues Task Force")
April 1, 2018 Retrospective
This update requires that amounts described as restricted cash or restricted cash equivalents must be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This update must be applied retrospectively.

DXC reclassified restricted cash to beginning-of-period and end-of-period cash and cash equivalents on the statement of cash flows.

See Note 21 - "Reconciliation of Previously Reported Amounts to Recast Financial Statements" for the financial statement impact of the adoption of these ASU's.
DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued



The following ASUs were recently issued but have not yet been adopted by DXC:
Date Issued and ASUDXC Effective DateDescriptionImpact
February 2016


ASU 2016-02 "Leases (Topic 842)"

April 1, 2019

Modified retrospective
Fiscal 2020
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. Early adoption of this update is permitted. 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.

DXC is currently evaluatingThe Company adopted this update utilizing the effectsimplified 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 this standard will have on its existingnew lease accounting software, internal controls, business processes, and accounting policies related to both the implementation of, and ongoing compliance with, the financial statementsnew guidance. The adoption resulted in future reporting periods. following impacts.

The Company expects there will be a material increaserecorded increases of $1.7 billion in assets and $1.8 billion in liabilities on its balance sheets at adoptionas of April 1, 2019, due to the recording of right-of-useoperating ROU assets and correspondingoperating lease liabilities for lease obligations that are currentlywere historically classified as operating leases. The Company is inCompany's cumulative adjustment to the processopening balance of implementing changes to its systems, processes and controls, includingretained earnings was not material. Additionally, the implementationupdate did not have a material impact on the statements of a lease accounting software solution to comply with the new standard.operations or statements of cash flows.

DXC expects to adopt certain transition expedientselected the practical expedient package permitted under Topic 842, as follows:


DXC expects to adopt this standard on a modified retrospective basis beginning onwhich among other things, permits the adoption date, with comparative period disclosures following ASC 840 requirements. DXC doesCompany not expect to reassess lease determination,historical conclusions related to contracts that contain leases, lease classification or indirect cost capitalizationand initial direct costs for leases that commenced prior to the adoption date. DXC doesapplied 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 expect to recognize on the balance sheetcapitalize leases that both (i) have a ‘lease term’with an initial term of 12 months or less and (ii)that do not contain a ‘reasonably certain’ purchase option.
 
Refer to Note 7 - "Leases" for additional information.



AugustFebruary 2018

ASU 2018-02 - "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income"

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.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 TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued


January 2017


ASU 2017-12 "Derivatives & Hedging2017-04, "Intangibles - Goodwill and Other (Topic 815)"350): Simplifying the test for Goodwill Impairment
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.
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 a non-cash impairment charge of $2,940 million, consisting of $2,675 million and $265 million in its GBS and GIS reporting units, respectively. See Note 11 - "Goodwill" for additional information.


The following ASUs were recently issued but have not yet been adopted by DXC:
Date Issued and ASUDXC Effective DateDescriptionImpact
June 2016

ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”

Fiscal 2020 with early adoption expected in the fourth quarter of Fiscal 20192021This update is intended to improveprovide 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 hedge relationshipsa broader range of reasonable and supportable information to better portrayinform 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 economic results of an entity's risk management activities ineffective date.
DXC is currently evaluating its trade receivables and financial arrangements for the potential impact this update may have on its financial statements in future reporting periods.


August 2018

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"
Fiscal 2021

This update helps entities evaluate the accounting for fees paid by revising and expanding items eligiblea customer in a cloud computing arrangement (hosting arrangement) by providing guidance for hedge accounting, simplifying hedge effectiveness testing and changingdetermining when the timingarrangement includes a software license. Entities have the option to apply this standard prospectively to all implementation costs incurred after the date of recognition and presentation of certain hedge items. Early adoption is permitted.or retrospectively.DXC does not expectis currently evaluating its cloud computing arrangements for the adoption ofpotential impact this standard toupdate may have a material impact on its financial statements. DXC expects to adopt this standard on a modified retrospective basis.statements in future reporting periods.



Other recently issued ASUs effective after December 31, 20182019 are not expected to have a material effect on DXC's consolidated financial statements.

DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued



Note 3 - 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.

The Company's preliminary estimates of fair values of the assets acquired and the liabilities assumed are based on the information that was available as of the acquisition date, and the Company is continuing to evaluate the underlying inputs and assumptions used in its valuations. Accordingly, these preliminary estimates are subject to change during the measurement period, which is up to one year from the acquisition date. The preliminary estimated purchase price is allocated as follows:
(in millions) Estimated Fair Value
Cash and cash equivalents $113
Accounts receivable 233
Other current assets 15
Total current assets 361
Property and equipment 31
Intangible assets 571
Other assets 96
Total assets acquired 1,059
Accounts payable, accrued payroll, accrued expenses, and other current liabilities (119)
Deferred revenue (8)
Long-term deferred tax liabilities and income tax payable (86)
Other liabilities (68)
Total liabilities assumed (281)
Net identifiable assets acquired 778
Goodwill 1,245
Total estimated consideration transferred $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 Global Business Services ("GBS") and is not deductible for tax purposes. See Note 11 - "Goodwill."

As of December 31, 2019, DXC has not finalized the determination of fair values allocated to various assets and liabilities, including, but not limited to, receivables; other current assets; property and equipment; intangible assets; other assets; deferred income taxes, net and other income tax liabilities; deferred revenue and advanced contract payments; accounts payable and accrued liabilities; other liabilities; loss contracts; non-controlling interest; and goodwill.

DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued


During the three months ended December 31, 2019, the Company made a number of refinements to the June 14, 2019 preliminary purchase price allocation. These refinements were primarily driven by the Company recording valuation adjustments that decreased developed technology by $69 million, decreased trade names by $23 million and, increased customer related intangibles by $32 million and related deferred tax adjustments which resulted in a decrease in net identifiable assets of $60 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 preliminary 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) Amount
Land, buildings, and leasehold improvements $8
Computers and related equipment 12
Furniture and other equipment 11
Total $31


During the quarter ended September 30, 2019, DXC updated the fair value allocation to land, buildings and leasehold improvements 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 preliminary fair value.

Identified intangible assets

The acquired identifiable intangible assets are summarized in the following table:
(in millions) Amount Estimated Useful Lives (Years)
Customer related intangibles $411
 10
Trade names $143
 20
Developed technology $6
 3
Third-party purchased software $11
 3
Total $571
  


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 estimated the preliminary value of customer relationships using the multi-period excess earnings method under the income approach and the preliminary value of 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 preliminary fair value.

Deferred tax liabilities

The Company preliminarily 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.

DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued


Unaudited Results

The Company's condensed consolidated statements of operations includes the following revenues and net income
attributable to Luxoft since the acquisition date:
(in millions) Three Months Ended December 31, 2019 
Nine Months Ended December 31, 2019(1)
Revenues $225
 $483
Net income (loss) $7
 $(1)

(1) Results for the nine months ended December 31, 2019, reflect operations subsequent to the acquisition date of June 14, 2019, not the full nine-month period.

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 total consideration of $232$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.


The Company’s purchase price allocation for the MMS acquisition is preliminary and subject to revision as additional information related towas finalized during the fair valuesecond quarter of assets and liabilities becomes available.fiscal 2020. The preliminary purchase price allocation was based upon the current determination of fair values at the date of acquisition as follows: $93$87 million to current assets,
DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued


$69 $112 million to intangible assets other than goodwill, $11 million to other assets, $45$51 million to current liabilities, $19$18 million to other liabilities and $123$92 million to goodwill. The goodwill is associated with the Company's GBSGlobal Business Services ("GBS") segment and is tax deductible. The amortizable lives associated with the intangible assets acquired includesinclude 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 six7 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 forof the GBS segment. The purchase consideration of $193$232 million included cash of $152 million andincludes contingent consideration with an estimated fair value of $41 million. TheFor acquisitions within the measurement period, the Company's purchase price allocation for these acquisitions is preliminary and subject to revision as additional information related to the fair value of assets and liabilities becomebecomes available.

Fiscal 2018 Acquisitions

HPES Merger

On April 1, 2017, Computer Sciences Corporation ("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 "HPES Merger"). 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 was a reverse merger acquisition, in which DXC was considered the legal acquirer of the business and CSC was 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.

Under the acquisition method of accounting, total consideration exchanged was:
(in millions) Amount
Fair value of purchase consideration received by HPE stockholders(1) 
 $9,782
Fair value of HPES options assumed by CSC(2)
 68
Total consideration transferred $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.

DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued


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) Fair Value
Cash and cash equivalents $938
Accounts receivable(1)
 4,102
Other current assets 530
Total current assets 5,570
Property and equipment 2,581
Intangible assets 6,384
Other assets 1,571
Total assets acquired 16,106
Accounts payable, accrued payroll, accrued expenses, and other current liabilities (4,605)
Deferred revenue (1,315)
Long-term debt, net of current maturities (4,806)
Long-term deferred tax liabilities and income tax payable (1,550)
Other liabilities (1,322)
Total liabilities assumed (13,598)
Net identifiable assets acquired 2,508
Add: Fair value of non-controlling interests (50)
Goodwill 7,392
Total estimated consideration transferred $9,850

(1) Includes aggregate adjustments of $203 million received from HPE in accordance with the provisions of the Separation Agreement.

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 cost-saving opportunities are expected to include improved operating efficiencies and asset optimization. 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. 

Subsequent to the HPES Merger, the Company divested USPS which was acquired in the HPES Merger. See Note 4 - "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 datedates of acquisition as follows: $32$74 million to current assets, $4 million to property and equipment, $62$71 million to intangible assets other than goodwill, $24$9 million to other non-current assets, $63 million to current liabilities and $78$141 million to goodwill. The goodwill is primarily associated with the Company's GBS segment, andsome of which is tax deductible. The amortizable lives associated with the intangible assets acquired includes customer relationships which have a 12-year estimated useful life.
DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued






Note4 - Divestitures


Separation of USPS


On May 31, 2018, DXCDuring 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 nine months ended December 31, 2019 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.


DXC's former Chief Executive Officer, J. Michael Lawrie, servesserved as DXC's Chairman and Chief Executive Officer and Paul N. Saleh serves as DXC's Chief Financial Officer. Effectiveuntil his retirement on December 31, 2019. Mr. Lawrie became Chairman of Perspecta effective as of the Separation Mr. Lawrie also servesand he continues to serve as Chairman of Perspecta and Mr.Perspecta. DXC's Chief Financial Officer, Paul N. Saleh, also servesserved as a Director of Perspecta.Perspecta until his term ended on August 13, 2019. Due to Mr. Lawrie's and Mr. Saleh's leadership positions at DXC and Perspecta, Perspecta is considered a related party under ASC 850 "Related Party Disclosures" for periods subsequent to the Separation. Transactions with Perspecta were immaterial to the Company's financial statements for the three and nine months ended December 31, 20182019 and balances due to and from Perspecta were immaterial to the Company's balance sheet as of December 31, 2018.2019.

DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued




The following is a summary of the assets and liabilities distributed as part of the Separation of USPS on May 31, 2018:

  As of
(in millions) May 31, 2018
Assets:  
Cash and cash equivalents $95
Receivables, net 458
Prepaid expenses 82
Other current assets 35
Total current assets of discontinued operations 670
Intangible assets, net 882
Goodwill 2,029
Property and equipment, net 294
Other assets 157
Total non-current assets of discontinued operations 3,362
Total assets $4,032
   
Liabilities:  
Short-term debt and current maturities of long-term debt $161
Accounts payable 165
Accrued payroll and related costs 17
Accrued expenses and other current liabilities 358
Deferred revenue and advance contract payments 53
Income tax payable 18
Total current liabilities of discontinued operations 772
Long-term debt, net of current maturities 1,320
Non-current deferred revenue 5
Non-current income tax liabilities and deferred tax liabilities 196
Other long-term liabilities 71
Total long-term liabilities of discontinued operations 1,592
Total liabilities $2,364


DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued


The following is a summary of the assets and liabilities of USPS that have been classified as assets and liabilities of discontinued operations:

  As of
(in millions) March 31, 2018
Assets:  
Cash and cash equivalents $68
Receivables, net 432
Prepaid expenses 75
Other current assets 6
Total current assets of discontinued operations 581
Intangible assets, net 912
Goodwill 2,033
Property and equipment, net 283
Other assets 135
Total non-current assets of discontinued operations 3,363
Total assets $3,944
   
Liabilities:  
Short-term debt and current maturities of long-term debt $155
Accounts payable 195
Accrued payroll and related costs 22
Accrued expenses and other current liabilities 346
Deferred revenue and advance contract payments 53
Income tax payable 18
Total current liabilities of discontinued operations 789
Long-term debt, net of current maturities 214
Non-current deferred revenue 7
Non-current income tax liabilities and deferred tax liabilities 163
Other long-term liabilities 72
Total long-term liabilities of discontinued operations 456
Total liabilities $1,245


DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued



The following is a summary of the operating results offor USPS which have been reflected within income from discontinued operations, net of tax:

 Three Months Ended Nine Months Ended
(in millions) December 31, 2017 
December 31, 2018(1)
 December 31, 2017 
Nine Months Ended December 31, 2018(1)
Revenue $726
 $431
 $2,113
 $431
        
Costs of services 544
 311
 1,589
 311
Selling, general and administrative 37
 50
 94
 50
Depreciation and amortization 41
 33
 115
 33
Restructuring costs 3
 1
 10
 1
Interest expense 4
 8
 11
 8
Other income, net —
 (25) —
 (25)
Total costs and expenses 629
 378
 1,819
 378
Total income from discontinued operations, before income taxes 97
 53
 294
 53
Income tax expense 24
 18
 96
 18
Total income from discontinued operations $73
 $35
 $198
 $35
        

(1) Results for the nine months ended December 31, 2018 reflect operations through the Separation date of May 31, 2018, not the full nine-month period as shown for prior periods.period.


There was no0 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) Nine Months Ended December 31, 2018
Depreciation $16
Amortization $17
Capital expenditures $—
Significant operating non-cash items:  
Gain on dispositions $24

  Nine Months Ended
(in millions) 
December 31, 2018(1)
 December 31, 2017
Depreciation $16
 $62
Amortization $17
 $53
Capital expenditures $—
 $(8)
Significant operating non-cash items:    
Gain on dispositions $24
 $—

(1)Results for the nine months ended December 31, 2018 reflect cash flows through the Separation date of May 31, 2018, not the full nine-month period as shown for prior periods.

DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued






Note 5 - Earnings (Loss) per Share


Basic EPS is computed using the weighted average number of shares of common stock outstanding during the period. Diluted EPS reflects the incremental shares issuable upon the assumed exercise of stock options and equity awards. The following table reflects the calculation of basic and diluted EPS:


Three Months Ended Nine Months Ended
(in millions, except per-share amounts)
December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
Net income (loss) attributable to DXC common shareholders:        
From continuing operations $82
 $462
 $(1,874) $948
From discontinued operations $—
 $—
 $—
 $35
         
Common share information:        
Weighted average common shares outstanding for basic EPS 255.09
 275.66
 260.24
 280.47
Dilutive effect of stock options and equity awards 0.96
 3.33
 —
 4.23
Weighted average common shares outstanding for diluted EPS 256.05
 278.99
 260.24
 284.70
         
Earnings (Loss) per share:        
Basic        
Continuing operations $0.32
 $1.68
 $(7.20) $3.38
Discontinued operations $—
 $—
 $—
 $0.12
Total $0.32
 $1.68
 $(7.20) $3.50
         
Diluted        
Continuing operations $0.32
 $1.66
 $(7.20) $3.33
Discontinued operations $—
 $—
 $—
 $0.12
Total $0.32
 $1.66
 $(7.20) $3.45



Three Months Ended Nine Months Ended
(in millions, except per-share amounts)
December 31, 2018 December 31, 2017 December 31, 2018 December 31, 2017
Net income attributable to DXC common shareholders:        
From continuing operations $462
 $703
 $948
 $993
From discontinued operations $—
 $73
 $35
 $198
         
Common share information:        
Weighted average common shares outstanding for basic EPS 275.66
 285.38
 280.47
 284.70
Dilutive effect of stock options and equity awards 3.33
 4.39
 4.23
 4.83
Weighted average common shares outstanding for diluted EPS 278.99
 289.77
 284.70
 289.53
         
Earnings per share:        
Basic        
Continuing operations $1.68
 $2.46
 $3.38
 $3.48
Discontinued operations $—
 $0.26
 $0.12
 $0.70
Total $1.68
 $2.72
 $3.50
 $4.18
         
Diluted        
Continuing operations $1.66
 $2.43
 $3.33
 $3.43
Discontinued operations $—
 $0.25
 $0.12
 $0.68
Total $1.66
 $2.68
 $3.45
 $4.11


For the three months ended December 31, 2019, stock options of 621,028, and restricted stock units (RSUs) of 2,125,734, and for the three months ended December 31, 2018, RSUs of 230,803 were excluded in the computation of diluted EPS, which if included, would have been anti-dilutive.
Certain share based equity awards
For the nine months ended December 31, 2019, stock options of 818,490, performance stock units of 351,410 and RSUs of 2,116,898 were excluded from the computation of dilutivediluted EPS because inclusiondue to the Company's net loss. For the nine months ended December 31, 2018, RSUs of these awards28,585 were excluded in the computation of diluted EPS, which if included, would have had an anti-dilutive effect. The number of awards excluded were as follows:
  Three Months Ended Nine Months Ended
  December 31, 2018 December 31, 2017 December 31, 2018 December 31, 2017
Stock Options —
 —
 —
 24,850
RSUs 230,803
 10,552
 28,585
 21,030
been anti-dilutive.

DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued



Note 6 - Sale of Receivables


Receivables Securitization Facility


The Company has a $600 millionan accounts receivable securitizationsales facility (as amended, restated, supplemented or supplemented to date,otherwise modified as of December 31, 2019, 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 billed and unbilled accounts receivable to DXC Receivables LLC ("DXC Receivables"Receivables SPV"), a wholly ownedwholly-owned bankruptcy-remote entity. DXCentity, in a true sale. Receivables in turnSPV subsequently sells such purchased accounts receivablecertain 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 DXC Receivables SPV occur continuously and are settled on a monthly basis. The proceedsDuring 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 saletermination date to August 19, 2020. Under the terms of these receivables comprise a combination of cash and a
DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued


the amended Receivables Facility, there are no longer deferred purchase price receivableprices ("DPP"). The 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 the CompanyReceivables SPV upon the ultimate collection of the underlying receivables sold to the Purchasers. The adoption of ASU 2016-15 described in Note 2 - "Recent Accounting Pronouncements" requires cashCash receipts on the DPP to bewere classified as cash flows from investing activities insteadactivities. The DPP was $525 million before the Amendment was executed. Upon execution of the Company's former presentationAmendment, the Purchasers extinguished the DPP and returned title to the applicable underlying receivables titles to Receivables SPV. The DPP extinguishment was classified as cash flows from operating activities.a non-cash investing activity, please refer to Note 19 - "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 December 31, 2018,2019, the total availability under the Receivables Facility was approximately $424$639 million and the drawn amount sold to the Purchasers was $438 million. As of December 31, 2018,$650 million, which was derecognized from the Company recorded a $14 million liability within accounts payable because the amount of cash proceeds received by the Company under the Receivables Facility exceeded the maximum funding limit.Company's balance sheet. The Receivables Facility terminatesis scheduled to terminate on August 21, 2019,19, 2020, but provides for one1 or more optional one-year extensions, if agreed to by the Purchasers. The Company uses the proceeds from Receivables SPV's sale of receivables sales under the 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, 0 gain or loss on sale of receivables was recorded.

While the Company has no retained interestsguarantees 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 transferred receivables, other than collection and administrative services and its rightevent of credit-related customer non-payment solely to the DPP. assets of the Receivables SPV.

The DPPfollowing table is includeda reconciliation of the beginning and ending balances of the DPP:
(in millions) As of and for the Three Months Ended As of and for the Nine Months Ended
  December 31, 2018 December 31, 2019 December 31, 2018
Beginning balance $540
 $574
 $233
    Transfers of receivables 1,199
 1,214
 4,175
Collections (1,215) (1,265) (3,115)
Change in funding availability 74
 2
 (236)
Facility amendments —
 (525) (457)
Fair value adjustment —
 —
 (2)
Ending balance $598
 $—
 $598


DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued


German Receivables Facility

On October 1, 2019, DXC executed an accounts receivable securitization facility (as amended, restated, supplemented or otherwise modified as of December 31, 2019, the "DE Receivables Facility") with certain unaffiliated financial institutions (the "DE Purchasers") for the sale of commercial accounts receivable in receivables at fair value on the balance sheets and was $598Germany. The facility has an investment limit of €200 million and $233(approximately $225 million as of December 31, 20182019). Under the DE Receivables Facility, certain DXC subsidiaries located in Germany (the "DE Sellers") sell 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 March 31, 2018, respectively. On August 22, 2018,are settled on a monthly basis. The proceeds from the sale of these receivables comprise a combination of cash and a deferred purchase price receivable ("DPP"). The DPP is realized by the Company amendedupon 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 to include additional Sellersfluctuates over time based on the total amount of eligible receivables generated during the normal course of business after deducting excess concentrations. As of December 31, 2019, the total availability under the DE Receivables Facility was approximately $117 million and increase the facility limit from $250 million to $600drawn amount was $109 million. On September 24, 2018,As of December 31, 2019, the Company amendedrecorded a $8 million receivable within receivables, net because the amount of cash proceeds received by the Company under the DE Receivables Facility withwas less than the Purchasers and pursuanttotal availability. The DE Receivables Facility is scheduled to this amendment,terminate on September 30, 2020, but provides for 1 or more optional one-year extensions, if agreed to by the DE Purchasers. The Company repurchased certainuses the proceeds from DE Receivables SPV's sale of its subsidiaries' receivables.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.


Certain obligations of sellersDE Sellers under the DE Receivables Facility and certain DXC subsidiaries located in Germany, as initial servicer,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 DXC Receivables’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) As of December 31, 2019
Beginning balance $—
Transfers of receivables 534
Collections (427)
Change in funding availability 13
Ending balance $120

  As of and for the Three Months Ended As of and for the Nine Months Ended
(in millions) December 31, 2018 December 31, 2017 December 31, 2018 December 31, 2017
Beginning balance $540
 $272
 $233
 $252
Transfers of receivables 1,199
 539
 4,175
 1,662
Collections (1,215) (593) (3,115) (1,717)
Change in funding availability 74
 23
 (236) 54
Facility amendments —
 —
 (457) —
Fair value adjustment —
 8
 (2) (2)
Ending balance $598
 $249
 $598
 $249


Federal Receivables Sales Facility


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.

DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued





The following table reflects activity of the Federal Receivables Sales Facility, prior to the Separation:
(in millions) 
As of and for the
Nine Months Ended
December 31, 2018(1)
Transfers of receivables $464
Collections $521
Operating cash flow effect $(57)
(in millions) 
For the
Nine Months Ended
December 31, 2018(1)
Transfers of receivables $464
Collections $521
Operating cash flow effect $(57)

        


(1)Results for the nine months ended December 31, 2018 reflect operations through the Separation date of May 31, 2018, not the full nine-month period.



Note 7 - 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.

The components of lease expense were as follows:
(in millions) Three Months Ended December 31, 2019 Nine Months Ended December 31, 2019
Operating lease cost $166
 $506
Short-term lease cost 17
 41
Variable lease cost 9
 35
Sublease income (9) (28)
     Total operating costs $183
 $554
     
Finance lease cost:    
     Amortization of right-of-use assets $90
 $339
     Interest on lease liabilities 16
 50
     Total finance lease cost $106
 $389


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 19 - "Cash Flows."
(in millions) Nine Months Ended December 31, 2019
Cash paid for amounts included in the measurement of:  
     Operating cash flows from operating leases $506
     Operating cash flows from finance leases $50
     Financing cash flows from finance leases $436


DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued


Supplemental Balance Sheet information related to leases was as follows:
    As of
(in millions) Balance Sheet Line Item December 31, 2019
Assets:    
ROU operating lease assets Operating right-of-use assets, net $1,484
ROU finance lease assets Property and Equipment, net 1,277
Total   $2,761
     
Liabilities:    
Current    
Operating lease Current operating lease liabilities $498
Finance lease Short-term debt and current maturities of long-term debt 475
Total   $973
     
Non-current    
Operating lease Non-current operating lease liabilities $1,097
Finance lease Long-term debt, net of current maturities 639
Total   $1,736

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:Years
     Operating leases4.8
     Finance leases2.8
Weighted average remaining discount rate:Rate
     Operating leases3.7%
     Finance leases6.5%


The following maturity analysis presents expected undiscounted cash payments for operating and finance leases on an annual basis as of December 31, 2019:
Fiscal year Operating Leases  
(in millions) Real Estate Equipment Finance Leases
Remainder of 2020 $115
 $31
 $148
2021 398
 84
 449
2022 321
 38
 325
2023 240
 15
 183
2024 182
 9
 69
Thereafter 305
 14
 10
     Total lease payments 1,561
 191
 1,184
Less: imputed interest (147) (10) (70)
     Total payments $1,414
 $181
 $1,114


DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued


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 Operating Leases
(in millions) Real Estate Equipment
2020 $409
 $248
2021 288
 119
2022 203
 27
2023 159
 4
2024 124
 1
Thereafter 274
 —
Minimum fixed rentals 1,457
 399
Less: sublease rental income (149) —
     Total rental payments $1,308
 $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:

Fiscal year  
(in millions) Finance Leases
2020 $509
2021 310
2022 212
2023 128
2024 36
Thereafter —
Total minimum lease payments 1,195
Less: Amount representing interest and executory costs (68)
     Present value of net minimum lease payments $1,127

DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued



Note 8 - Fair Value


Fair Value Measurements on a Recurring Basis


The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis, excluding pension assets and derivative assets and liabilities. See Note 89 - "Derivative Instruments"and Hedging Activities" for information about the fair value of the Company's derivative assets and liabilities. There were no transfers between any of the levels during the periods presented.
  Fair Value Hierarchy
(in millions) December 31, 2019
Assets: Fair Value Level 1 Level 2 Level 3
Money market funds and money market deposit accounts $7
 $7
 $—
 $—
Time deposits(1)
 256
 256
 —
 —
Other debt securities(2)
 54
 —
 51
 3
Deferred purchase price receivable 120
 —
 —
 120
Total assets $437
 $263
 $51
 $123
         
Liabilities:        
Contingent consideration $58
 $—
 $—
 $58
Total liabilities $58
 $—
 $—
 $58

    Fair Value Hierarchy
(in millions) December 31, 2018
Assets: Fair Value Level 1 Level 2 Level 3
Money market funds and money market deposit accounts $75
 $75
 $—
 $—
Time deposits (1)
 124
 124
 —
 —
Other debt securities (2)
 53
 —
 48
 5
Deferred purchase price receivable 598
 —
 —
 598
Total assets $850
 $199
 $48
 $603
         
Liabilities:        
Contingent consideration $41
 $—
 $—
 $41
Total liabilities $41
 $—
 $—
 $41




DXC TECHNOLOGY COMPANY
  March 31, 2019
Assets: Fair Value Level 1 Level 2 Level 3
Money market funds and money market deposit accounts $6
 $6
 $—
 $—
Time deposits(1)
 194
 194
 —
 —
Other debt securities(2)
 53
 —
 49
 4
Deferred purchase price receivable 574
 —
 —
 574
Total assets $827
 $200
 $49
 $578
         
Liabilities:        
Contingent consideration $41
 $—
 $—
 $41
Total liabilities $41
 $—
 $—
 $41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued


  March 31, 2018
Assets: Fair Value Level 1 Level 2 Level 3
Money market funds and money market deposit accounts $84
 $84
 $—
 $—
Time deposits (1)
 114
 114
 —
 —
Other debt securities (2)
 59
 —
 53
 6
Deferred purchase price receivable 233
 —
 —
 233
Total assets $490
 $198
 $53
 $239
         
Liabilities:        
Contingent consideration $5
 $—
 $—
 $5
Total liabilities $5
 $—
 $—
 $5

        


(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 $39$38 million and $42$38 million, and unrealized gains of $9$13 million and $11 million, as of December 31, 20182019 and March 31, 2018,2019, respectively.


The fair value of money market funds, money market deposit accounts, and time deposits, reported asincluded in cash and cash equivalents, are based on quoted market prices or amounts payable on demand at the reporting date.prices. The fair value of other debt securities, included in other long-term assets, is based on actual market prices. Fair value of the DPP, included in receivables, net, 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, presentedincluded in other liabilities, is based on contractually defined targets of financial performance and other considerations.


The increase in the fair value of contingent consideration during the nine months ended December 31, 2018 was due to the acquisitions described in Note 3
DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - "Acquisitions."continued



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.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 capitalizedfinance lease liabilities, was $5.5$7.1 billion and $6.0$5.6 billion as of December 31, 20182019 and March 31, 2018,2019, respectively, as compared with carrying value of $5.6$7.0 billion and $5.9$5.6 billion as of December 31, 20182019 and March 31, 2018,2019, respectively. If measured at fair value, long-term debt, excluding capitalizedfinance 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. ThereOther than the goodwill impairment losses discussed in Note 11 - "Goodwill," there were no significant impairments recorded during the fiscal periods covered by this report.

DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued



Note 89 - Derivative Instrumentsand Hedging Activities


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 and option
DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued


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

During the three months ended June 30, 2018, the Company terminated certain interest rate swap agreements which had aggregate notional values of $375 million and fair values of $5 million and derecognized the relative derivative asset. The hedge gain of $5 million is recognized over the remaining original life of the swap against interest expense in the statements of operations. As of December 31, 2018, the Company had no interest rate swap agreements designated as cash flow hedges.


The Company has designated certain foreign currency forward contracts as cash flow hedges to reduce foreign currency risk related to certain Indian Rupee, denominatedEuro and British Pound-denominated intercompany obligations and forecasted transactions. The notional amountamounts of foreign currency forward contracts designated as cash flow hedges as of December 31, 20182019 and March 31, 2019 was $231$556 million and $277 million, respectively. As of December 31, 2019, the related forecasted transactions extend through February 2020.June 2021.


For the three and nine months ended December 31, 20182019 and December 31, 2017,2018, 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 ongoingon-going basis throughout the hedging period. During the three and nine months ended December 31, 20182019 and December 31, 2017,2018, the Company had no cash flow hedges for which it was probable that the hedged transaction would not occur. As of December 31, 2018, $62019, $5 million of the existing amount of lossesloss related to the cash flow hedge reported in AOCI is expected to be reclassified into earnings within the next 12 months.


The current period pre-tax gain (loss) on derivativesNet investment hedges

During fiscal 2019, the Company designated for hedge accounting recognized in other comprehensive gain (loss) was $15 millioncertain foreign currency forward contracts as net investment hedges. These contracts were de-designated and $(30) million forsettled during the three and nine months ended December 31, 2019, and as of December 31, 2019, there were 0ne outstanding. As of December 31, 2018, respectively. there were no foreign currency forward contracts designated as net investment hedges.

The pre-tax lossgain (loss) on derivatives designated for hedge accounting recognized in income from continuing operations was $4$(1) million and $9$2 million for the three and nine months ended December 31, 2018,2019. The pre-tax loss on derivatives designated for hedge accounting recognized in other comprehensive loss was $10 million and $21 million for the three and nine months ended December 31, 2019, respectively.


Derivatives notNot Designated for Hedge Accounting


The derivative instruments not designated as hedges for purposes of hedge accounting include interest rate swap agreements and 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.

Interest rate swap agreements

During the three months ended September 30, 2018, the Company elected to de-designate its interest rate swap agreements. The Company derecognized the related derivative asset and recognized the amount in earnings. The notional amount of interest rate swap agreements outstanding as of December 31, 2018 was $236 million. Gains on interest rate swap agreements not designated for hedge accounting and the recognition of the derivative asset in earnings were not material for the three and nine months ended December 31, 2018.


Foreign currency forward contracts


The Company manages the exposure to fluctuations in foreign currencies by using short-term foreign currency forward contracts to hedge certain foreign currency denominated assets and liabilities, including intercompany accounts and forecasted transactions. The notional amount of the foreign currency forward contracts outstanding as of December 31, 2018 was $3.8 billion. Losses on foreign currency forward contracts not designated for hedge accounting, recognized within other income, net,2019 and March 31, 2019 were $18 million$2.2 billion and $62 million during the three and nine months ended December 31, 2018, respectively, and $3 million and $117 million during the three and nine months ended December 31, 2017,$2.5 billion, respectively.


DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued




The following table presents the pretax amounts impacting income related to foreign currency forward contracts:
    For the Three Months Ended For the Nine Months Ended
(in millions) Statement of Operations Line Item December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
Foreign currency forward contracts Other expense (income), net $1
 $18
 $(21) $62


Fair Value of Derivative Instruments


All derivativesderivative 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:
 Derivative Assets Derivative Assets
 As of As of
(in millions) Balance Sheet Line Item December 31, 2018 March 31, 2018 Balance Sheet Line Item December 31, 2019 March 31, 2019
    
Derivatives designated for hedge accounting:Derivatives designated for hedge accounting:  Derivatives designated for hedge accounting:  
Interest rate swaps Other assets $—
 $6
Foreign currency forward contracts Other current assets 1
 14
 Other current assets $3
 $38
Total fair value of derivatives designated for hedge accountingTotal fair value of derivatives designated for hedge accounting $1
 $20
Total fair value of derivatives designated for hedge accounting $3
 $38
     
Derivatives not designated for hedge accounting:Derivatives not designated for hedge accounting:  Derivatives not designated for hedge accounting:  
Foreign currency forward contracts Other current assets $7
 $4
 Other current assets $5
 $5
Total fair value of derivatives not designated for hedge accountingTotal fair value of derivatives not designated for hedge accounting $7
 $4
Total fair value of derivatives not designated for hedge accounting $5
 $5


  Derivative Liabilities
    As of
(in millions) Balance Sheet Line Item December 31, 2019 March 31, 2019
       
Derivatives designated for hedge accounting:    
Foreign currency forward contracts Accrued expenses and other current liabilities $8
 $4
Total fair value of derivatives designated for hedge accounting: $8
 $4
      
Derivatives not designated for hedge accounting:    
Foreign currency forward contracts Accrued expenses and other current liabilities $12
 $9
Total fair value of derivatives not designated for hedge accounting $12
 $9

  Derivative Liabilities
    As of
(in millions) Balance Sheet Line Item December 31, 2018 March 31, 2018
Derivatives designated for hedge accounting:    
Foreign currency forward contracts Accrued expenses and other current liabilities $8
 $3
Total fair value of derivatives designated for hedge accounting: $8
 $3
      
Derivatives not designated for hedge accounting:    
Foreign currency forward contracts Accrued expenses and other current liabilities $6
 $6
Total fair value of derivatives not designated for hedge accounting $6
 $6


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. The fair value of interest rate swaps is estimated based on valuation models that use interest rate yield curves which are classified as Level 2 inputs.


DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued


Other risksRisks 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. AsWith respect to its foreign currency derivatives, as of December 31, 2018, the maximum amount2019, there were 0 counterparties with a concentration of loss that the Company could incur was not material. credit risk.

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.

DXC had designated $2.0 billion as of December 31, 2019 and $0 billion as of March 31, 2019 of foreign currency-denominated debt, as hedges of net investments in non-U.S. subsidiaries. The pre-tax impact of gain (loss) on foreign currency-denominated debt designated for hedge accounting recognized in other comprehensive income (loss) were $(57) million and $9 million for the three and nine months ended December 31, 2019, respectively.
DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued






Note 910 - Intangible Assets

Intangible assets consisted of the following:
 As of December 31, 2018 As of December 31, 2019
(in millions) Gross Carrying Value Accumulated Amortization Net Carrying Value Gross Carrying Value Accumulated Amortization Net Carrying Value
Software $3,695
 $2,070
 $1,625
 $4,217
 $2,622
 $1,595
Transition and transformation contract costs 1,721
 941
 780
Customer related intangible assets 5,333
 1,016
 4,317
 5,941
 1,607
 4,334
Other intangible assets 71
 23
 48
 244
 33
 211
Total intangible assets $10,820
 $4,050
 $6,770
 $10,402
 $4,262
 $6,140
  As of March 31, 2019
(in millions) Gross Carrying Value Accumulated Amortization Net Carrying Value
Software $3,864
 $2,235
 $1,629
Customer related intangible assets 5,389
 1,139
 4,250
Other intangible assets 85
 25
 60
Total intangible assets $9,338
 $3,399
 $5,939


The components of amortization expense were as follows:
  As of March 31, 2018
(in millions) Gross Carrying Value Accumulated Amortization Net Carrying Value
Software $3,484
 $1,918
 $1,566
Transition and transformation contract costs 1,569
 766
 803
Customer related intangible assets 5,405
 666
 4,739
Other intangible assets 90
 19
 71
Total intangible assets $10,548
 $3,369
 $7,179
  Three Months Ended Nine Months Ended
(in millions) December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
Intangible asset amortization $272
 $225
 $747
 $665
Transition and transformation contract cost amortization(1)
 71
 59
 197
 188
Total amortization expense $343
 $284
 $944
 $853

Total intangible assets amortization was $288 million and $261 million for three months ended December 31, 2018 and December 31, 2017, respectively, and included amortization of contract cost premiums recorded as reductions of revenue of $4 million and $2 million, respectively.
(1)
Transaction and transformation contract costs are included within other assets on the balance sheet.

Total intangible assets amortization was $871 million and $740 million for the nine months ended December 31, 2018 and December 31, 2017, respectively, and included amortization of contract cost premiums recorded as reductions of revenue of $18 million and $8 million, respectively.


Estimated future amortization related to intangible assets as of December 31, 20182019 is as follows:
Fiscal Year (in millions)
Remainder of 2020 $404
2021 $1,021
2022 $940
2023 $862
2024 $779

Fiscal Year (in millions)
Remainder of 2019 $393
2020 $1,149
2021 $1,017
2022 $857
2023 $762
DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued






Note 1011 - Goodwill


The following table summarizes the changes in the carrying amount of goodwill, by segment, as of December 31, 2018.2019.

(in millions) GBS GIS Total GBS GIS Total
Balance as of March 31, 2018, net $4,531
 $3,088
 $7,619
Goodwill, gross $5,300
 $5,068
 $10,368
Accumulated impairment losses (701) (2,061) (2,762)
Balance as of March 31, 2019, net $4,599
 $3,007
 $7,606

      
Acquisitions 242
 —
 242
 1,271
 65
 1,336
Divestitures (12) —
 (12)
Foreign currency translation (153) (103) (256) 1
 —
 1
Balance as of December 31, 2018, net $4,608
 $2,985
 $7,593
Impairment losses(1)
 (2,675) (265) (2,940)
      
Goodwill, gross 6,572
 5,133
 11,705
Accumulated impairment losses (3,376) (2,326) (5,702)
Balance as of December 31, 2019, net $3,196
 $2,807
 $6,003


(1) While preparing the fiscal 2020 third quarter financial statements, DXC recorded out-of-period corrections for previously unrecognized tax effects on tax deductible goodwill balances impaired during the fiscal 2020 second quarter. As a result, the balance sheet at December 31, 2019 includes reclassifications to reduce goodwill and increase deferred income taxes by $53 million. The income statement for the fiscal 2020 third quarter includes reclassifications that increase goodwill impairment losses and increase income tax benefit by $53 million. Based on an analysis of quantitative and qualitative factors, DXC determined that the Separation of USPS on May 31, 2018, USPS is no longer a reportable segment. out-of-period corrections are immaterial to the prior reporting periods affected.

The additions to goodwill during the nine months ended December 31, 2018 were due to the acquisitions described in Note 3 - Acquisitions."Acquisitions" including goodwill of some insignificant acquisitions. The foreign currency translation amounts reflectamount reflects the impact of currency movements on non-U.S. dollar-denominated goodwill balances.


Goodwill Impairment Analyses


The Company tests goodwill for impairment on an annual basis, as of the first day of the second fiscal quarter, and between annual tests if circumstances change, or if an event occurs that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

The Company'sCompany performed its annual goodwill impairment analysis duringassessment as of July 1, 2019. Subsequent to the three months ended September 30, 2018 did not result in an impairment charge.

At the end of the third quarter of fiscal 2019,measurement date, the Company assessed whether thereexperienced a decline in its stock price and market capitalization that represented an indicator of impairment as the observed declines were events or changes in circumstances that would more likely than not reducesubstantial and sustained. As a result, the fair value ofCompany performed a reporting unit 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 interimquantitative goodwill impairment test asfor all of December 31, 2018.its 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 that the carrying values of its reporting units exceeded their estimated fair values and recognized a non-cash impairment charge of $2,940 million, consisting of $2,675 million and $265 million in its GBS and GIS segments, respectively. Further declines in DXC’s share price or other impairment indicators could result in additional impairment charges in the future. The goodwill impairment charge does not have an impact on the calculation of the Company's financial covenants under the Company's debt arrangements.


DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued






Note 1112 - Debt


The following is a summary of the Company's debt:
(in millions) Interest Rates Fiscal Year Maturities December 31, 2018 March 31, 2018 Interest Rates Fiscal Year Maturities December 31, 2019 March 31, 2019
Short-term debt and current maturities of long-term debt        
Euro-denominated commercial paper(1)
 
(0.1)% - 0.02%(2)
 2019 $800
 $863
Commercial paper(1)
 (0.23)% - 2.76% 2020 $809
 $694
Current maturities of long-term debt Various 2019 - 2020 240
 439
 Various 2020 - 2021 297
 766
Current maturities of capitalized lease liabilities 1.0% - 12.0% 2019 - 2020 540
 616
Current maturities of finance lease liabilities .62% - 17.68% 2020 - 2021 475
 482
Short-term debt and current maturities of long-term debt $1,580
 $1,918
 $1,581
 $1,942
        
Long-term debt, net of current maturities        
AUD term loan 
1.68% - 2.66%(2)
 2022 562
 567
GBP term loan 
1.3% - 1.5%(3)
 2019 $—
 $260
 
1.57 - 1.63%(3)
 2022 595
 583
EUR term loan 
1.75%(4)
 2020 —
 493
 
0.65%(4)
 2022 840
 —
AUD term loan 
2.72%(5)
 2021 563
 —
AUD term loan 
2.9% - 3.3%(6)
 2022 —
 210
GBP term loan 
1.60%(7)
 2022 571
 —
EUR term loan 
0.9%(8)
 2022 —
 187
 
0.80%(5)
 2023 840
 —
USD term loan 
3.1% - 3.3%(9)
 2022 —
 899
 
2.95% - 3.67%(6)
 2025 486
 —
$500 million Senior notes 2.875% 2020 501
 502
 2.88% 2020 —
 502
$500 million Senior notes 
3.0% - 3.3(10)
 2021 497
 646
 3.08% - 3.69% 2021 —
 498
$274 million Senior notes 4.45% 2023 277
 278
 4.45% 2023 276
 277
$171 million Senior notes 4.45% 2023 172
 173
 4.45% 2023 172
 172
$500 million Senior notes 4.25% 2025 507
 507
 4.25% 2025 505
 506
£250 million Senior notes 2.75% 2025 315
 346
 2.75% 2025 328
 322
€650 million Senior notes 1.75% 2026 738
 —
 1.75% 2026 725
 725
$500 million Senior notes 4.75% 2028 509
 509
 4.75% 2028 508
 508
$234 million Senior notes 7.45% 2030 275
 277
 7.45% 2030 272
 273
Lease credit facility 2.8% - 3.5% 2019 - 2023 30
 46
 2.70% - 3.50% 2020 - 2023 15
 25
Capitalized lease liabilities 1.0% - 12.0% 2019 - 2024 1,182
 1,235
Finance lease liabilities .62% - 17.68% 2020 - 2025 1,114
 1,127
Borrowings for assets acquired under long-term financing 2.3% - 4.1% 2019 - 2024 451
 405
 0.38% - 5.78% 2020 - 2026 718
 462
Mandatorily redeemable preferred stock outstanding 6.0% 2023 62
 61
 6.00% 2023 62
 62
Other borrowings 0.5% - 7.4% 2019 - 2022 110
 113
 0.50% - 7.40% 2020 - 2022 69
 109
Long-term debt 6,760
 7,147
 8,087
 6,718
Less: current maturities 780
 1,055
 772
 1,248
Long-term debt, net of current maturities $5,980
 $6,092
 $7,315
 $5,470


(1) 
At DXC's option, DXC can borrow up to a maximum of €1 billion.
(2)
Approximate weighted average interest rate.billion or its equivalent in U.S. dollars.
(3)(2) Three-month LIBOR rate plus 0.65%.
(4) Three-month EURIBOR rate plus 1.75%.
(5) 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.
(6)(3) Variable interest rate equal to the bank bill swap bid rate for a one-, two-, three- or six-month interest period plus 0.95% to 1.45% based on the published credit ratings of DXC.
(7) Three-month LIBOR rate plus 0.80%.
(8)(4) At DXC’sDXC'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 0.75%0.40% and 1.35%0.9%, based on published credit ratings of DXC.
DXC TECHNOLOGY COMPANY(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 between 0.55% and 1.05%, based on published credit ratings of DXC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued


(9)(6) At DXC’sDXC'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 1.75%1.50%, based on published credit ratings of DXC or the Base Rate plus a margin of between 0.00% and 0.75%0.50%, based on published credit ratings of DXC.
(10) Three-month LIBOR plus 0.95%.


DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued


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 the €650 million Senior Notes due 2026 which isare payable annually in arrears, and interest on the $500 million Senior Notes due 2021 which is payable quarterly in arrears. Generally, the Company's notes are redeemable at the Company's discretion at the then-applicable redemption premium plus accrued interest.


Note 1213 - Revenue


Revenue Recognition


The following table presents DXC'sour revenues disaggregated by geography, based on the location of incorporation of the DXC entity providing the related goods or services:
 Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended
(in millions) December 31, 2018 
December 31, 2017 (1)
 December 31, 2018 
December 31, 2017 (1)
 December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
United States $1,917
 $1,980
 $5,667
 $6,046
 $1,843
 $1,917
 $5,500
 $5,667
United Kingdom 749
 861
 2,309
 2,494
 707
 749
 2,100
 2,309
Australia 377
 418
 1,222
 1,255
 380
 377
 1,119
 1,222
Other Europe 1,384
 1,382
 3,994
 3,950
 1,329
 1,384
 3,819
 3,994
Other International 751
 819
 2,281
 2,404
 762
 751
 2,224
 2,281
Total Revenues $5,178
 $5,460
 $15,473
 $16,149
 $5,021
 $5,178
 $14,762
 $15,473


(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 1920 - "Segment 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 December 31, 20182019, approximately $29.025.6 billion of revenue is expected to be recognized from remaining performance obligations. The Company expectsWe expect to recognize revenue on approximately 48% 15%of these remaining performance obligations in Fiscal 2019 and Fiscalfiscal 2020, 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:
DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued


  As of
(in millions) December 31, 2019 March 31, 2019
Trade receivables, net $3,233
 $3,232
Contract assets $463
 $390
Contract liabilities $1,816
 $1,886
  As of
(in millions) December 31, 2018 April 1, 2018
Trade receivables, net $3,351
 $3,937
Contract assets $334
 $444
Contract liabilities $1,815
 $2,053

Change in contract liabilities were as follows:
(in millions) Three months ended December 31, 2018 Nine months ended December 31, 2018
ASC 605 Balance, beginning of period (1)
 $—
 $2,434
Adjustment related to Topic 606 adoption (1)
 —
 (381)
ASC 606 Balance, beginning of period 1,743
 2,053
Deferred revenue 750
 1,922
Recognition of deferred revenue (682) (1,989)
Currency translation adjustment (29) (166)
Other 33
 (5)
Balance, end of period $1,815
 $1,815

(1) ASC 606 was adopted at the beginning of fiscal 2019, as such there was no ASC 605 balance at the beginning of the period or cumulative adjustment related to Topic 606 adoption for the three months ended December 31, 2018.

The following table provides information about the Company’s capitalized costs to obtain and fulfill a contract:
(in millions) As of December 31, 2018
Capitalized sales commission cost (1)
 $198
Transition and transformation contract costs, net (2)
 $780

(1) Capitalized sales commission costs are included within other assets in the accompanying balance sheets. For the three and nine months ended December 31, 2018, amortization expense of $17 million and $51 million, respectively, related to the capitalized sales commission assets is 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 intangible assets in the accompanying balance sheets. For the three and nine months ended December 31, 2018, amortization expense of $59 million and $188 million, respectively, is included within depreciation and amortization in the accompanying statements of operations.
Financial Statement Impact

The impact of adoption of ASC 606 on the selected captions of the Company's statements of operations and balance sheets was as follows:
Statement of Operations (Selected Captions)      
  Three Months Ended December 31, 2018
(in millions) As Reported Amounts Without Adoption of ASC 606 Effect of Change Higher/(Lower)
Revenues $5,178
 $5,171
 $7
Costs of services $3,725
 $3,726
 $(1)
Selling, general and administrative $491
 $506
 $(15)
Interest income $(27) $(30) $(3)
Income tax expense (benefit) $3
 $(5) $8
Net income attributable to DXC common stockholders $462
 $450
 $12


DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued




Change in contract liabilities were as follows:
(in millions) Nine Months Ended December 31, 2019
Balance, beginning of period $1,886
Deferred revenue 2,091
Recognition of deferred revenue (2,137)
Currency translation adjustment 12
Other (36)
Balance, end of period $1,816

Statement of Operations (Selected Captions)      
  Nine Months Ended December 31, 2018
(in millions) As Reported Amounts Without Adoption of ASC 606 Effect of Change Higher/(Lower)
Revenues $15,473
 $15,452
 $21
Costs of services $11,110
 $11,114
 $(4)
Selling, general and administrative $1,500
 $1,542
 $(42)
Interest income $(92) $(102) $(10)
Income tax expense $205
 $189
 $16
Net income attributable to DXC common stockholders $983
 $942
 $41


Balance Sheet (Selected Captions)      
  As of December 31, 2018
(in millions) As Reported Amounts Without Adoption of ASC 606 Effect of Change Higher/(Lower)
Assets:      
Receivables and contract assets, net of allowance for doubtful accounts $5,096
 $5,109
 $(13)
Other current assets $325
 $372
 $(47)
Deferred income taxes, net $407
 $421
 $(14)
Other assets $2,393
 $2,463
 $(70)
       
Liabilities:      
Accrued expenses and other current liabilities $3,228
 $3,230
 $(2)
Deferred revenue and advance contract payments $1,542
 $1,623
 $(81)
Income taxes payable $122
 $102
 $20
Non-current deferred revenue $273
 $520
 $(247)
Non-current income tax liabilities and deferred tax liabilities $1,171
 $1,150
 $21
       
Equity:      
Retained earnings $274
 $122
 $152
Accumulated other comprehensive loss $(464) $(459) $(5)

The adoption of ASC 606 did not materially impact the statement of cash flows.

DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued



Note 1314 - Restructuring Costs


The Company recorded restructuring costs of $76$74 million and $210$76 million, net of reversals, for the three months ended December 31, 20182019 and December 31, 2017,2018, respectively. For the nine months ended December 31, 20182019 and December 31, 2017,2018, the Company recorded $418restructuring costs of $248 million and $585$418 million, net of reversals, respectively. The costs recorded during the three and nine months ended December 31, 20182019 were largely a result of the Fiscal 20192020 Plan (defined below).


The composition of restructuring liabilities by financial statement line item is as follows:
  As of
(in millions) December 31, 2019
Accrued expenses and other current liabilities $204
Other long-term liabilities 38
Total $242

  As of
(in millions) December 31, 2018
Accrued expenses and other current liabilities $356
Other long-term liabilities 118
Total $474


Summary of Restructuring Plans


Fiscal 2020 Plan

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.

Fiscal 2019 Plan


During the nine months ended December 31, 2018,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 HPESthe Enterprise Services business of Hewlett Packard Enterprise Company ("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 $491 million, comprising $348 million in employee severance and $143 million of facilities costs.


DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued


Fiscal 2018 Plan


In June 2017, management approved a post-HPES Merger (as defined below) restructuring plan to optimize the Company's operations in response to a continuing business contraction (the "Fiscal 2018 Plan"). The additional restructuring initiatives are intended to reduce the company's core structure and related operating costs, improve its competitiveness, and facilitate the achievement of acceptable and sustainable profitability. 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 $806$774 million, comprising $614$587 million in workforce reductionsemployee severance and $192$187 million of facilities costs.


Fiscal 2017 PlanOther 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"). Costs incurred to date under the Fiscal 2017 Plan total $216$215 million, comprising $207$206 million in workforce reductionsemployee severance and $9 million of facilities costs.

Other Prior Year Plans

Other prior year plans are comprised of the Fiscal 2016 Plan and Fiscal 2015 Plan. As of December 31, 2018, activities under these plans are substantially complete.


Acquired Restructuring Liabilities


As a result of the merger of Computer Sciences Corporation ("CSC") and HPES Merger,("HPES Merger"), DXC acquired restructuring liabilities under restructuring plans that were initiated for HPES under plans approved by the HPE Board of Directors.


DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued




Restructuring Liability Reconciliations by Plan
 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 December 31, 2019
Fiscal 2020 Plan              
Workforce Reductions $—
 $—
 $252
 $(11) $(139) $1
 $103
Facilities Costs —
 —
 23
 (10) (11) —
 2
Total $—
 $—
 $275
 $(21) $(150) $1
 $105
 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 December 31, 2018              
Fiscal 2019 Plan                          
Workforce Reductions $—
 $307
 $(1) $(139) $(4) $163
 $138
 $—
 $(15) $(3) $(70) $—
 $50
Facilities Costs —
 129
 (5) (50) (3) 71
 68
 (53) (1) (1) (6) 1
 8
Total $—
 $436
 $(6) $(189) $(7) $234
 $206
 $(53) $(16) $(4) $(76) $1
 $58
                          
Fiscal 2018 Plan                          
Workforce Reductions $257
 $(10) $—
 $(124) $(16) $107
Facilities Costs 98
 (10) (3) (36) (6) 43
Total $355
 $(20) $(3) $(160) $(22) $150
            
Fiscal 2017 Plan            
Workforce Reductions $19
 $—
 $—
 $(10) $(1) $8
 $59
 $—
 $(7) $—
 $(28) $1
 $25
Facilities Costs 3
 —
 —
 (3) —
 —
 35
 (36) (1) —
 (2) 4
 —
Total $22
 $—
 $—
 $(13) $(1) $8
 $94
 $(36) $(8) $—
 $(30) $5
 $25
                          
Other Prior Year Plans                          
Workforce Reductions $4
 $(1) $—
 $(1) $—
 $2
 $9
 $—
 $(1) $—
 $(2) $—
 $6
Facilities Costs 2
 —
 —
 (1) —
 1
 1
 (1) —
 —
 —
 —
 —
Total $6
 $(1) $—
 $(2) $—
 $3
 $10
 $(1) $(1) $—
 $(2) $—
 $6
                          
Acquired Liabilities                          
Workforce Reductions $110
 $2
 $—
 $(52) $(3) $57
 $51
 $—
 $3
 $—
 $(14) $(1) $39
Facilities Costs $27
 1
 —
 (6) —
 22
 $18
 —
 (5) —
 (1) (3) 9
Total $137
 $3
 $—
 $(58) $(3) $79
 $69
 $—
 $(2) $—
 $(15) $(4) $48
        


(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 $23$19 million, $2$10 million, and $1$3 million of costs reversed from the Fiscal 20182019 Plan, the Fiscal 20172018 Plan and Other Prior Year Plans, respectively.
(2)(3) Pension benefit augmentations recorded as a pension liability, asset impairments and asset impairments.restructuring costs associated with right-of-use assets.
(3) (4)Foreign currency translation adjustments.

DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued



Note 1415 - Pension and Other Benefit Plans


The Company offers a number of pension and other post-retirement benefit ("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 represent an insignificant portion of the Company's pension and other post-retirement benefits. As a result, the disclosures below include the Company's U.S. and non-U.S. pension plans on a global consolidated basis.


The Company contributed $12$39 million and $52$71 million to the defined benefit pension and other post-retirement benefit
DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued


OPEB plans during the three and nine months ended December 31, 2018,2019, respectively. The Company expects to contribute an additional $30$32 million during the remainder of fiscal 2019,2020, which does not include certain salary deferral programs and future potential termination benefits related to the Company's potential restructuring activities.


During the three and nine months ended December 31, 2019, the Company accrued $0 million and $17 million, respectively, of additional contractual termination benefits for certain employees as part of restructuring plans (see Note 14 - "Restructuring Costs"). These amounts are reflected in the projected benefit obligation and in the net periodic pension cost.

The components of net periodic pension income were:
  Three Months Ended Nine Months Ended
(in millions) December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
Service cost $23
 $21
 $69
 $66
Interest cost 60
 62
 177
 190
Expected return on assets (161) (139) (476) (426)
Amortization of prior service costs (2) (4) (6) (11)
Contractual termination benefit —
 2
 17
 2
Curtailment gain —
 —
 —
 (1)
Net periodic pension income $(80) $(58) $(219) $(180)

  Three Months Ended Nine Months Ended
(in millions) December 31, 2018 December 31, 2017 December 31, 2018 December 31, 2017
Service cost $21
 $30
 $66
 $96
Interest cost 62
 63
 190
 184
Expected return on assets (139) (133) (426) (393)
Amortization of prior service costs (4) (5) (11) (13)
Contractual termination benefit 2
 10
 2
 21
Curtailment gain —
 (40) (1) (40)
Recognition of actuarial loss —
 23
 —
 23
Net periodic pension income $(58) $(52) $(180) $(122)


The service cost component of net periodic pension income 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, except for contractual termination benefit which is included in restructuring, in the Company’s statements of operations. See Note 2 - "Recent Accounting Pronouncements," for further discussion of the updated guidance related to the presentation of net periodic pension cost.


The weighted-average rates used to determine net periodic pension cost for the three and nine months ended December 31, 2019 and December 31, 2018 and December 31, 2017 were:
  December 31, 2019 December 31, 2018
Discount or settlement rates 2.4% 2.3%
Expected long-term rates of return on assets 5.8% 5.3%
Rates of increase in compensation levels 2.0% 2.0%


DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued

  December 31, 2018 December 31, 2017
Discount or settlement rates 2.3% 2.4%
Expected long-term rates of return on assets 5.3% 5.0%
Rates of increase in compensation levels 2.0% 2.7%

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. 


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
DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued


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.


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, which is included in other long-term liabilities in the Company's balance sheets, was $61amounted to $58 million as of December 31, 20182019 and $65$59 million as of March 31, 2018.2019.


Note 1516 - Income Taxes


The Company's incomeeffective tax expense (benefit)rate from continuing operations ("ETR") was $3 million29.1% and $(365) million0.6% for the three months ended December 31, 20182019 and December 31, 2017,2018, respectively, and $205 million(11.5)% and $(303) million17.7% for the nine months ended December 31, 20182019 and December 31, 2017,2018, respectively. For the three months ended December 31, 2019, the primary drivers of the ETR were the impact of previously unrecognized tax effects on the tax deductible goodwill impaired during the fiscal 2020 second quarter, the global mix of income, an increase in prior year U.S. federal research and development income tax credits, and an increase in unrecognized tax benefits primarily related to audit activity. For the nine months ended December 31, 2019, the primary drivers of the ETR were the impact of the non-deductible goodwill impairment charge, the non-taxable gain on the arbitration award, the global mix of income, an increase in unrecognized tax benefits primarily related to audit activity, and an increase in prior year U.S. federal research and development income tax credits, net. For the three months ended December 31, 2018, the primary drivers of the effective tax rate ("ETR") were the global mix of income, the net decrease in valuation allowances on certain foreign deferred tax assets, and the decrease in transition tax liability. For the nine months ended December 31, 2018, the primary drivers of the ETR were the global mix of income, the net decrease in valuation allowances on certain foreign deferred tax assets, the decrease in transition tax liability, the filing of the October 31, 2017 U.S. federal tax return and the impact of U.S. proposed regulations on the ability to claim certain foreign tax credits. For

The tax expense associated with discontinued operations for the three and nine months ended December 31, 2017,2019 was $0 million as compared to $18 million during the primary driverssame period of the ETR wereprior fiscal year. The primary driver of the remeasurement of deferredvariance in the tax assetsexpense for the nine months ended December 31, 2019 and liabilities as aDecember 31, 2018 was the difference in income before tax for the respective periods.

As the result of the Act,issuance of new U.S. Treasury regulations in the remeasurementfirst quarter of a deferred tax liability relatingfiscal 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 outside basis differenceU.S. by approximately $498 million. With the exception of HPES foreign subsidiaries, the accrual of a one-time transition tax on estimated unremitted foreign earnings and India dividend distribution tax (DDT) accrual on historic earnings and taxes.

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. As of March 31, 2018,this change, DXC's net deferred tax assets in certain DXC German entities were primarily the result of net operating loss carryforwards, pension, restructuring and other miscellaneous accruals. A full valuation allowance was recorded against these net deferred tax assets as of that reporting date. For the period ended December 31, 2018, management has determinedprior permanent reinvestment assertion, that the positive evidence, includingCompany will repatriate all current and accumulated earnings for all non-U.S. subsidiaries other than India, continues to apply. DXC does not believe this assertion change will have an adverse effect on the duration of current profitability due to realization of cost synergies relating to the HPES Merger, a legal entity restructuring allowing the future utilization of net operating loss carryforwards and the nonrecurring nature of the factors that primarily drove historical losses, outweighs the negative evidence of a three-year cumulative loss. Therefore,Company as of December 31, 2018, management has had a change in judgment and has concluded that it is now more likely than not that the net deferred tax assets in these DXC German entitiesU.S. cash needs will be fully utilized. As a result, we have recorded a valuation allowance releasesatisfied from other sources of $113 million. This is comprised of $18 million related to current year utilization of net operating loss carryforwards recorded through the annual effective tax rate and $95 million recorded as a discrete income tax benefit in the current period.non-U.S. earnings.

On December 22, 2017, the President of the United States signed into law comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Act"). The Act makes significant changes to the Internal Revenue Code of 1986 with varying effective dates. The Act reduces the maximum corporate income tax rate to 21% effective as of January 1, 2018, requires companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries, broadens the tax base, generally eliminates U.S. federal income taxes on dividends from foreign subsidiaries, creates a new limitation on the deductibility of interest expense, limits the deductibility of certain executive compensation, and allows for immediate capital expensing of certain qualified property. It also requires companies to pay tax on certain foreign earnings of foreign subsidiaries and subjects certain payments from U.S. corporations to foreign related parties to additional taxes. U.S. generally accepted accounting principles require companies to revalue their deferred tax assets and liabilities with resulting income tax effects accounted for in the reporting period of enactment including retroactive effects.

The SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the Act effective in the reporting period of enactment. SAB 118 provides a measurement period that should not extend beyond one year from the Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the
DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued




extent that a company’s accounting for certain income tax effects of the Act was incomplete but it was able to determine a reasonable estimate, it was required to record a provisional estimate in the financial statements. If a company was not able to determine a provisional estimate to include in the financial statements, it was required to continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Act.

While the measurement period under SAB 118 is now closed, DXC may in future periods need to further refine the Company's U.S. federal and state calculations, related to the Act, as the taxing authorities provide additional guidance and clarification. The taxing authorities issued additional guidance after the balance sheet date relating to the Act. DXC believes this guidance constitutes a subsequent event and will be accounted for in the period it was issued. DXC is not able to estimate the financial statement impact as time is needed to interpret the guidance and assess the impact. However, as of December 31, 2018, DXC's accounting for the Act is complete based on the Company's interpretation of the guidance issued as of the balance sheet date. As noted in the Company's fiscal 2018 Annual Report on Form 10-K, the Company was able to record provisional amounts related to certain effects of the Act, as noted below.

For the following items, DXC did not record any additional material measurement period adjustments during the three month period ended December 31, 2018:

Capital expensing: During fiscal 2018 the Company recorded a provisional benefit of $87 million, which was based on its intent to fully expense all qualifying capital expenses for U.S. federal income tax purposes. This resulted in a decrease of approximately $87 million to the Company's current income taxes payable and a corresponding increase in its net deferred tax liabilities. During Q3 FY19, the Company finalized its estimate of the impact of the law change for purposes of SAB 118 and determined the incremental benefit of capital expensing was approximately $61 million. This resulted in a decrease of approximately $61 million to the Company's current income taxes payable and a corresponding increase in its net deferred tax liabilities. The Company filed its October 31, 2017 U.S. federal tax return and several of its state tax returns in the periods ending September 30, 2018 and December 31, 2018, respectively. In the three months ended December 31, 2018 the Company completed all of the computations necessary, including an analysis of expenditures that qualify for immediate expensing, noting no measurement period adjustments recorded.

Executive compensation: As a result of changes made by the Act, starting with compensation paid in fiscal 2019, Section 162(m) will limit compensation deductions, including performance-based compensation, in excess of $1 million paid to anyone who, starting in 2018, serves as the Chief Executive Officer or Chief Financial Officer, or who is among the three most highly compensated executive officers for any fiscal year. The only exception to this rule is for compensation that is paid pursuant to a binding contract in effect on November 2, 2017 that would have otherwise been deductible under the prior Section 162(m) rules. Accordingly, any compensation paid in the future pursuant to new compensation arrangements entered into after November 2, 2017, even if performance-based, will count towards the $1 million fiscal year deduction limit if paid to a covered executive. During fiscal 2018, the Company recorded a provisional income tax expense estimate of $2 million for executive compensation relating to the change in covered individuals. The Company completed an analysis of the binding contract requirement on the various compensation plans and determined the impact of the law change was not material. As part of the fiscal 2019 forecasted ETR, the Company has estimated the IRS Code Section 162(m) adjustment under the new guidance for compensation arrangements entered into after November 2, 2017.

Reduction of US federal corporate income tax rate: As discussed above, the Act reduces the corporate tax rate to 21%, effective January 1, 2018. For certain deferred tax assets and deferred tax liabilities, the Company previously recorded a provisional deferred income tax discrete benefit of $338 million, resulting in a $338 million decrease in net deferred tax liabilities as of March 31, 2018. The Company filed its October 31, 2017 U.S. federal income tax return in the period ending September 30, 2018 which impacted the provisional amount recorded. The adjustment was not material. The Company finalized its analysis of the scheduling of the deferred tax assets and liabilities and determined the impact was not material. No additional measurement period adjustments were recorded during the period ended December 31, 2018.

For the following provisional items, incremental measurement period adjustments were recognized during the three-month period ended December 31, 2018:

Deemed repatriation transition tax: The deemed repatriation one-time transition tax is a tax on previously untaxed accumulated and current earnings and profits ("E&P") of certain of the Company's non-U.S. subsidiaries. To determine the amount of the transition tax, the Company determined, in addition to other factors, the amount of post-1986 E&P of the
DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued


relevant non-U.S. subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings and the impact of various guidance including proposed regulations. The Company was able to calculate the transition tax and recorded a provisional transition tax obligation of $361 million in fiscal 2018. Due to the revised E&P and cash computations that were completed during the reporting periods, DXC recognized an additional measurement-period adjustment to the transition tax obligation of $25 million for the three months ended June 30, 2018. During the three month period ending December 31, 2018, the Company has recorded a corresponding adjustment of $(70) million. The effect of the total measurement-period adjustments of $(45) million for the nine months ended December 31, 2018 on the fiscal 2019 effective tax rate is (3.88)%. The transition tax, which has now been determined to be complete, resulted in recording a total transition tax obligation of $316 million of which $324 million was recorded as income tax liability and $(8) million recorded as an unrecognized tax benefit receivable.

Indefinite reinvestment assertion: Beginning January 1, 2018, the Act provides a 100% deduction for dividends received from 10-percent owned non-U.S. corporations by U.S. corporate shareholders, subject to a one-year holding period. Although such dividend income is now generally exempt from U.S. federal income tax for U.S. corporate shareholders, companies must still account for the tax consequences of outside basis differences and other tax impacts of their investments in non-U.S. subsidiaries. During fiscal 2018 the Company recorded a provisional estimate for those subsidiaries for which DXC were able to make a reasonable estimate of the tax effects of such repatriation for withholding taxes, state taxes, and India dividend distribution tax of $12 million, $7 million and $80 million, respectively. For the three months ended December 30, 2018, the Company recognized an additional measurement-period adjustment of $9 million for state tax purposes recorded to discrete income tax expense. The Company has completed its analysis of the non-U.S. tax rules for certain non-U.S. subsidiaries for U.S. federal and state tax purposes for all material provisional amounts during the measurement-period.

Global intangible low taxed income ("GILTI"): The Company continues to evaluate the impact of the GILTI provisions under the Act, which are complex and subject to continuing regulatory interpretation by the IRS. The Company is required to make an accounting policy election of either (i) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current period expense when incurred (the “period cost method”) or (ii) factoring such amounts into the Company’s measurement of its deferred taxes (the “deferred method”). The Company has determined that it will account for the new GILTI tax rules under the period cost method.

The income tax expense associated with discontinued operations was $0 million and $24 million for the three months ended December 31, 2018 and December 31, 2017, respectively. The tax expense associated with discontinued operations was $18 million and $96 million for the nine months ended December 31, 2018 and December 31, 2017, respectively. The primary driver of the variance in the tax expense for these periods was the difference in income before tax for the respective periods.

The income tax assets and liabilities that were part of the balances classified as assets and liabilities of discontinued operations and that were distributed in the Separation of USPS include $154 million of deferred tax liabilities, $60 million of uncertain tax position liabilities, including interest, and income tax receivables of $162 million. In connection with the Separation of USPS, 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 Separation of USPS. Income tax liabilities transferred to Perspecta primarily relate to pre-HPES Merger periods, for which the Company is indemnified by HPE for these liabilities, pursuant to the tax matters agreement between the Company and HPE. The Company is also 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 with Perspecta, the Company has recorded a tax indemnification receivable from Perspecta of $162$77 million and a tax indemnification payable to Perspecta of $74$64 million related to income tax and other tax liabilities. The Company continues to have indemnification balances to and from HPE for the same amounts asAs a result of the HPES Merger.Merger, the Company continues to have a net receivable of $18 million from HPE, comprised of a $107 million tax indemnification receivable related to tax payables, a $43 million tax indemnification receivable related to uncertain tax positions (net of related deferred tax benefits), and $132 million of tax indemnification payable related to other tax receivables.


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 NovemberJune 30, 2019. In October 2018, the HPES IRS exam related to fiscal years 2008 and 2009 was resolved resulting in a refund received by2020.
DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued


Perspecta that relates to a pre-HPES merger period. The refund received by Perspecta reduced the $162 million indemnification receivable from Perspecta and correspondingly reduced the indemnification payable to HPE by approximately $68 million.

In addition, during the first quarter of fiscal 2018,2020, 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’sAgent's Report with proposed adjustments to CSC's fiscal 20112014 through 20132017 federal returns. The Company has filed a protest offor certain of these adjustments towith the IRS Office of Appeals. The Company has agreed to extend the statute of limitations associated with this audit through July 31, 2019. The IRS is also examining CSC'sfor the fiscal 2014 through 2017 federal income tax returns.fiscal 2016 through December 31, 2020. The Company has not received any adjustmentsexpects to reach a resolution for this cycle. The Company continuesall years no earlier than the fourth quarter of fiscal 2021 except agreed issues related to believe that itsfiscal 2008 through 2010 and fiscal 2011 through 2013 federal tax positionsreturns, which are more-likely-than-not sustainable and that the Company will ultimately prevail.expected to be resolved within twelve months.

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 asfor unrecognized tax benefits. In the third quarter of fiscal 2020 the Company’s liability for uncertain tax positions.positions increased by $20 million (excluding interest and penalties and related tax attributes) largely due to additions for U.S. federal research and development credits and certain audits. 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 by payment with the tax authorities for amounts lower than those that have been accrued or extinguish a position through payment. The Company believes the outcomes that are reasonably possible within the next 12 months may result in a reduction in liability for uncertain tax positions of $19$25 million to $28 million, excluding interest, penalties and tax carry-forwards.


Note1617 - Stockholders' Equity


Share Repurchases


On April 3, 2017, DXC announced the establishment of a share repurchase program approved by the Board of Directors with an initial authorization of $2.0 billion for future repurchases of outstanding shares of DXC common stock. On November 8, 2018, DXC announced that its boardDXC's Board of directorsDirectors 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.


DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued


As part of the share repurchase program, during the first quarter of fiscal 2020, DXC entered into an accelerated share repurchase ("ASR") agreement with a third-party financial institution by advancing $200 million including a $100 million prepayment. At inception, the ASR was initially settled by delivery of 1,849,194 shares of common stock to the Company. During the second quarter of fiscal 2020, DXC received an additional 1,805,350 shares of common stock. In total, 3,654,544 shares of common stock were repurchased under the ASR for $200 million, resulting in an average price paid of $54.73 per share.

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 2020 Fiscal 2019
Fiscal Period Number of Shares Repurchased Average Price Per Share Amount (in millions) Number of Shares Repurchased Average Price Per Share Amount (in millions)
1st Quarter            
Open market purchases 5,510,415
 $54.44
 $300
 3,779,194
 $85.86
 $324
ASR 1,849,194
 54.08
 100
 —
 —
 —
1st Quarter Total 7,359,609
 54.35
 400
 3,779,194
 85.86
 324
2nd Quarter            
Open market purchases 4,414,840
 33.96
 150
 1,448,729
 87.16
 127
ASR 1,805,350
 55.39
 100
 —
 —
 —
2nd Quarter Total 6,220,190
 40.18
 250
 1,448,729
 87.16
 127
3rd Quarter            
Open market purchases 2,353,852
 36.68
 86
 12,452,514
 63.96
 797
ASR —
 —
 —
 —
 —
 —
3rd Quarter Total 2,353,852
 36.68
 86
 12,452,514
 63.96
 797
Total 15,933,651
 $46.21
 $736
 17,680,437
 $70.58
 $1,248


Accumulated Other Comprehensive Income (Loss)

The following table shows the changes in accumulated other comprehensive income (loss), net of taxes:
  Fiscal 2019 Fiscal 2018
Fiscal Period Number of Shares Repurchased Average Price Per Share Amount (in millions) Number of Shares Repurchased Average Price Per Share Amount (in millions)
1st Quarter 3,779,194 $85.86
 $324
 250,000
 $77.39
 $19
2nd Quarter 1,448,729
 $87.16
 $127
 591,505
 $78.20
 $47
3rd Quarter 12,452,514
 $63.96
 $797
 —
 $—
 $—
Total 17,680,437
 $70.58
 $1,248
 841,505
 $77.96
 $66
(in millions) Foreign Currency Translation Adjustments Cash Flow Hedges Available-for-sale Securities Pension and Other Post-retirement Benefit Plans Accumulated Other Comprehensive (Loss) Income
Balance at March 31, 2019 $(517) $(3) $9
 $267
 $(244)
Current-period other comprehensive loss 78
 (4) 2
 —
 76
Amounts reclassified from accumulated other comprehensive income (loss) —
 (2) —
 (6) (8)
Balance at December 31, 2019 $(439) $(9) $11
 $261
 $(176)


DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued




Accumulated Other Comprehensive Income (Loss)

The following tables show the changes in accumulated other comprehensive income (loss), net of taxes:


(in millions) Foreign Currency Translation Adjustments Cash Flow Hedges Available-for-sale Securities Pension and Other Post-retirement Benefit Plans Accumulated Other Comprehensive Income (Loss)
Balance at March 31, 2018 $(261) $9
 $9
 $301
 $58
Current-period other comprehensive loss (472) (25) (1) (23) (521)
Amounts reclassified from accumulated other comprehensive loss —
 9
 —
 (10) (1)
Balance at December 31, 2018 $(733) $(7) $8
 $268
 $(464)
  Three Months Ended December 31,2018
(in millions) Foreign Currency Translation Adjustments Cash Flow Hedges Available-for-sale Securities Pension and Other Post-retirement Benefit Plans Accumulated Other Comprehensive Loss
Balance at September 30, 2018 $(669) $(16) $8
 $295
 $(382)
Current-period other comprehensive loss (64) 5
 —
 (23) (82)
Amounts reclassified from accumulated other comprehensive income (loss) —
 4
 —
 (4) —
Balance at December 31, 2018 $(733) $(7) $8
 $268
 $(464)


  Nine Months Ended December 31,2018
(in millions) Foreign Currency Translation Adjustments Cash Flow Hedges Available-for-sale Securities Pension and Other Post-retirement Benefit Plans Accumulated Other Comprehensive Income (Loss)
Balance at March 31, 2018 $(261) $9
 $9
 $301
 $58
Current-period other comprehensive loss (472) (25) (1) (23) (521)
Amounts reclassified from accumulated other comprehensive income (loss) —
 9
 —
 (10) (1)
Balance at December 31, 2018 $(733) $(7) $8
 $268
 $(464)

DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued


  Three Months Ended December 31,2017
(in millions) Foreign Currency Translation Adjustments Cash Flow Hedges Pension and Other Post-retirement Benefit Plans Accumulated Other Comprehensive Loss
Balance at September 30, 2017 $(354) $15
 $269
 $(70)
Current-period other comprehensive loss (47) 5
 —
 (42)
Amounts reclassified from accumulated other comprehensive income (loss) (3) —
 (3) (6)
Balance at December 31, 2017 $(404) $20
 $266
 $(118)


  Nine Months Ended December 31,2017
(in millions) Foreign Currency Translation Adjustments Cash Flow Hedges Pension and Other Post-retirement Benefit Plans Accumulated Other Comprehensive Loss
Balance at March 31, 2017 $(458) $20
 $276
 $(162)
Current-period other comprehensive income 62
 —
 —
 62
Amounts reclassified from accumulated other comprehensive loss (8) —
 (10) (18)
Balance at December 31, 2017 $(404) $20
 $266
 $(118)





Note 1718 - 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.

DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued


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 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.

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 10years 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 (the "Board") 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 earlier terminated 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 one1 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-yearthree-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-yearthree-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 3,5747,939 and 9,06918,420 shares purchased under this plan during the three and nine months ended December 31, 2018.2019.


DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued




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:
  As of December 31, 2019
  Reserved for Issuance Available for Future Grants
DXC Employee Equity Plan 34,200,000
 19,613,146
DXC Director Equity Plan 230,000
 33,451
DXC Share Purchase Plan 250,000
 216,969
Total 34,680,000
 19,863,566

 As of December 31, 2018
 Reserved for issuance Available for future grants
DXC Employee Equity Plan34,200,000
 21,905,425
DXC Director Equity Plan230,000
 104,310
DXC Share Purchase Plan250,000
 239,457
Total34,680,000
 22,249,192


Stock Options
  
Number
of Option Shares
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic
Value
(in millions)
Outstanding as of March 31, 2019 2,318,768
 $30.40
 4.80 $79
Granted —
 $—
    
Exercised (315,655) $31.87
   $8
Canceled/Forfeited (618) $48.60
    
Expired (106,902) $34.46
    
Outstanding as of December 31, 2019 1,895,593
 $29.92
 4.69 $18
Vested and expected to vest in the future as of December 31, 2019 1,895,481
 $29.92
 4.69 $18
Exercisable as of December 31, 2019 1,893,723
 $29.89
 4.69 $18

  
Number
of Option Shares
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic
Value
(in millions)
Outstanding as of March 31, 2018(1)
 2,933,501
 $32.54
 5.24 $185
Granted —
 $—
    
Issued due to Separation modification 400,170
 $31.72
    
Exercised (768,302) $37.33
   $38
Canceled/Forfeited (14,607) $48.33
    
Expired (10,335) $30.62
    
Outstanding as of December 31, 2018 2,540,427
 $30.88
 4.84 $57
Vested and expected to vest in the future as of December 31, 2018 2,539,930
 $30.88
 4.84 $57
Exercisable as of December 31, 2018 2,535,068
 $30.83
 4.84 $57



(1) The amount of the weighted average exercise price per share has been revised to reflect the impact of the Separation.



Restricted Stock Units


  Employee Equity Plan Director Equity Plan
  Number of
Shares		 Weighted
Average
Grant Date
Fair Value		 Number of
Shares		 
Weighted
Average
Grant Date
Fair Value
Outstanding as of March 31, 2019 2,809,775
 $67.27
 75,750
 $46.31
Granted 2,932,783
 $47.45
 68,200
 $35.70
Settled (986,573) $54.57
 (23,335) $60.90
Canceled/Forfeited (571,475) $61.39
 —
 $—
Outstanding as of December 31, 2019 4,184,510
 $57.18
 120,615
 $37.49

 Employee Equity Plan Director Equity Plan
 Number of
Shares		 Weighted
Average
Grant Date
Fair Value		 Number of
Shares		 
Weighted
Average
Grant Date
Fair Value
Outstanding as of March 31, 2018(1)
3,985,616
 $47.25
 66,386
 $37.26
Granted951,118
 $79.48
 19,200
 $87.88
Issued due to Separation modification

649,649
 $51.95
 10,488
 $37.69
Settled(2,163,890) $33.22
 (20,324) $51.59
Canceled/Forfeited(659,475) $60.70
 —
 $—
Outstanding as of December 31, 20182,763,018
 $67.24
 75,750
 $46.31


(1) The amount of the weighted average fair value per share has been revised to reflect the impact of the Separation.

DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued




Share-Based Compensation


  Three Months Ended Nine Months Ended
(in millions) December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
Total share-based compensation cost $9
 $16
 $57
 $57
Related income tax benefit $(3) $5
 $8
 $11
Total intrinsic value of options exercised $1
 $3
 $8
 $38
Tax benefits from exercised stock options and awards $3
 $13
 $13
 $32

  Three Months Ended Nine Months Ended
(in millions) December 31, 2018 December 31, 2017 December 31, 2018 December 31, 2017
Total share-based compensation cost $16
 $19
 $57
 $76
Related income tax benefit $5
 $5
 $11
 $24
Total intrinsic value of options exercised $3
 $30
 $38
 $104
Tax benefits from exercised stock options and awards $13
 $9
 $32
 $62


As of December 31, 2018,2019, total unrecognized compensation expense related to unvested DXC stock options and unvested DXC RSUs, net of expected forfeitures was less than $1 million and $122$140 million, respectively. The unrecognized compensation expense for unvested RSUs is expected to be recognized over a weighted-average period of 1.942.06 years.


Note 1819 - Cash Flows


Cash payments for interest on indebtedness and income taxes and other select non-cash activities are as follows:
  Nine Months Ended
(in millions) December 31, 2019 December 31, 2018
Cash paid for:    
Interest $277
 $250
Taxes on income, net of refunds (1)
 $202
 $120
     
Non-cash activities:    
Operating:    
ROU assets obtained in exchange for lease, net (2)
 $314
 $—
   Prepaid assets acquired under long-term financing $23
 $—
Investing:    
Capital expenditures in accounts payable and accrued expenses $121
 $62
Capital expenditures through finance lease obligations $507
 $548
Assets acquired under long-term financing $282
 $160
(Decrease) / increase in deferred purchase price receivable $58
 $1,194
Contingent consideration $19
 $41
Financing:    
Dividends declared but not yet paid $54
 $52

  Nine Months Ended
(in millions) December 31, 2018 December 31, 2017
Cash paid for:    
Interest $250
 $188
Taxes on income, net of refunds $120
 $235
     
Non-cash activities:    
Investing:    
Capital expenditures in accounts payable and accrued expenses $62
 $4
Capital expenditures through capital lease obligations $548
 $510
Deferred purchase price receivable $1,194
 $527
Assets acquired under long-term financing $160
 $284
Contingent consideration $41
 $—
Financing:    
Dividends declared but not yet paid $52
 $52
Stock issued for the acquisition of HPES $—
 $9,850
(1) Income tax refunds were $36 million and $166 million for the nine months ended December 31, 2019 and December 31, 2018, respectively.
(2) Net of $87 million change in lease classification from operating to finance lease.
DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued






Note 1920 - Segment Information


DXC has a matrix form of organization and is managed in several different and overlapping groupings including services, industry and geographic region. 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 4 - "Divestitures.""Divestitures". DXC now operates in two2 reportable segments as described below:


Global Business Services


GBS provides innovative technology solutions that help its clients address key business challenges and accelerate digital transformations tailored to each client’s industry and specific objectives. GBS offerings include:


•
Enterprise, Cloud Applications and Consulting. GBS provides industry, business process systems integration and technical delivery experience to maximize value from enterprise application portfolios. GBS also helps clients accelerate their digital transformations and business results with industry, business, technology and complex integration services.
•
Application Services. GBS's comprehensive services helps clients modernize, develop, test and manage their applications.
•
Analytics. GBS's portfolio of analytics services and robust partner ecosystem helps clients gain rapid insights and accelerate their digital transformation journeys.
•
Business Process Services. GBS provides seamless digital integration and optimization of front and back office processes, including its Agile Process Automation approach.
•
Industry Software and Solutions. GBS's industry-specific solutions enable businesses to quickly integrate technology, transform their operations and develop new ways of doing business. GBS's vertical-specific IP includes insurance, healthcare and life sciences, travel and transportation, and banking and capital markets solutions.
Enterprise, Cloud Applications and Consulting. GBS provides industry, business process systems integration and technical delivery experience to maximize value from enterprise application portfolios. GBS also helps clients accelerate their digital transformations and business results with industry, business, technology and complex integration services.
Application Services. GBS's comprehensive services helps clients modernize, develop, test and manage their applications.
Analytics. GBS's portfolio of analytics services and robust partner ecosystem helps clients gain rapid insights and accelerate their digital transformation journeys.
Business Process Services. GBS provides seamless digital integration and optimization of front and back office processes, including its Agile Process Automation approach.
Industry Software and Solutions. GBS's industry-specific solutions enable businesses to quickly integrate technology, transform their operations and develop new ways of doing business. GBS's vertical-specific IP includes insurance, healthcare and life sciences, travel and transportation, and banking and capital markets solutions.


Global Infrastructure Services


GIS provides a portfolio of offerings that deliver predictable outcomes and measurable results while reducing business risk and operational costs for clients. GIS offerings include:


•
Cloud and Platform Services. GIS helps clients maximize their private cloud, public cloud and legacy infrastructures, as well as securely manage their hybrid environments.
•
Workplace and Mobility. GIS's workplace, mobility and Internet of Things ("IoT") services provides a consumer-like experience with enterprise security and instant connectivity for its clients.
•
Security. GIS's security solutions help predict attacks, proactively respond to threats, ensure compliance and protect data, applications, infrastructure and endpoints.
Cloud and Platform Services. GIS helps clients maximize their private cloud, public cloud and legacy infrastructures, as well as securely manage their hybrid environments.
Workplace and Mobility. GIS's workplace, mobility and Internet of Things ("IoT") services provides a consumer-like experience with enterprise security and instant connectivity for its clients.
Security. GIS's security solutions help predict attacks, proactively respond to threats, ensure compliance and protect data, applications, infrastructure and endpoints.


DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued




Segment Measures


The following table summarizes operating results regularly provided to the CODM by reportable segment and a reconciliation to the financial statements:
(in millions) GBS GIS Total Reportable Segments All Other Totals
Three Months Ended December 31, 2019          
Revenues $2,359
 $2,662
 $5,021
 $—
 $5,021
Segment profit $353
 $232
 $585
 $(57) $528
Depreciation and amortization(1)
 $61
 $244
 $305
 $28
 $333
           
Three Months Ended December 31, 2018          
Revenues $2,169
 $3,009
 $5,178
 $—
 $5,178
Segment profit $395
 $528
 $923
 $(83) $840
Depreciation and amortization(1)
 $23
 $324
 $347
 $27
 $374

(in millions) GBS GIS Total Reportable Segments All Other Totals GBS GIS Total Reportable Segments All Other Totals
Three Months Ended December 31, 2018          
Nine Months Ended December 31, 2019          
Revenues $2,169
 $3,009
 $5,178
 $—
 $5,178
 $6,803
 $7,959
 $14,762
 $—
 $14,762
Segment profit $395
 $528
 $923
 $(83) $840
 $1,078
 $815
 $1,893
 $(184) $1,709
Depreciation and amortization(1)
 $23
 $324
 $347
 $27
 $374
 $128
 $771
 $899
 $82
 $981
                    
Three Months Ended December 31, 2017          
Nine Months Ended December 31, 2018          
Revenues $2,315
 $3,145
 $5,460
 $—
 $5,460
 $6,493
 $8,980
 $15,473
 $—
 $15,473
Segment profit $423
 $450
 $873
 $(76) $797
 $1,198
 $1,475
 $2,673
 $(231) $2,442
Depreciation and amortization(1)
 $16
 $265
 $281
 $25
 $306
 $59
 $910
 $969
 $93
 $1,062
(1) Depreciation and amortization as presented excludes amortization of acquired intangible assets of $146 million and $134 million for the three months ended December 31, 2019 and 2018, respectively, and $435 million and $401 million for the nine months ended December 31, 2019 and 2018 respectively.

DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued




(in millions) GBS GIS Total Reportable Segments All Other Totals
Nine Months Ended December 31, 2018          
Revenues $6,493
 $8,980
 $15,473
 $—
 $15,473
Segment profit $1,198
 $1,475
 $2,673
 $(231) $2,442
Depreciation and amortization(1)
 $59
 $910
 $969
 $93
 $1,062
           
Nine Months Ended December 31, 2017          
Revenues $6,893
 $9,256
 $16,149
 $—
 $16,149
Segment profit $1,066
 $1,171
 $2,237
 $(130) $2,107
Depreciation and amortization(1)
 $67
 $736
 $803
 $72
 $875
1) Depreciation and amortization as presented excludes amortization of acquired intangible assets of $134 million and $134 million for the three months ended December 31, 2018 and 2017, respectively, and $401 million and $389 million for the nine months ended December 31, 2018 and 2017, respectively.


Reconciliation of Reportable Segment Profit to Consolidated Total


The Company's management uses segment profit as the measure for assessing performance of its segments. Segment profit is defined as segment revenue less costs of services, segment selling, general and administrative, depreciation and amortization, and other income (excluding the movement in foreign currency exchange rates on DXC'sour 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 and amortization of acquired intangible assets.

  Three Months Ended Nine Months Ended
(in millions) December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
Profit        
Total profit for reportable segments $585
 $923
 1,893
 $2,673
All other loss (57) (83) (184) (231)
Interest income 33
 27
 130
 92
Interest expense (93) (81) (288) (249)
Restructuring costs (74) (76) (248) (418)
Transaction, separation and integration-related costs (68) (107) (226) (305)
Amortization of acquired intangible assets (146) (134) (435) (401)
Goodwill impairment losses (53) —
 (2,940) —
Gain on arbitration award —
 —
 632
 —
Income (loss) from continuing operations before income taxes $127
 $469
 $(1,666) $1,161

  Three Months Ended Nine Months Ended
(in millions) December 31, 2018 December 31, 2017 December 31, 2018 December 31, 2017
Profit        
Total profit for reportable segments $923
 $873
 $2,673
 $2,237
All other loss (83) (76) (231) (130)
Interest income 27
 27
 92
 59
Interest expense (81) (73) (249) (220)
Restructuring costs (76) (210) (418) (585)
Transaction, separation and integration-related costs (107) (83) (305) (273)
Amortization of acquired intangible assets (134) (134) (401) (389)
Pension and OPEB actuarial and settlement gains —
 17
 —
 17
Income from continuing operations before income taxes $469
 $341
 $1,161
 $716
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.
DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued






Note 2021 - 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 6 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 December 31, 20182019 were as follows:
Fiscal year 
Minimum Purchase Commitment(1)
(in millions) 
Remainder of 2020 $394
2021 1,951
2022 647
2023 537
2024 261
Thereafter 25
     Total $3,815
Fiscal year 
Minimum Purchase Commitment(1)
(in millions) 
Remainder of 2019 $717
2020 2,296
2021 777
2022 375
2023 333
Thereafter 242
     Total $4,740

        


(1) A significant portion of the minimum purchase commitments infor fiscal 20192020 and 2020fiscal 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 December 31, 2018:2019:
(in millions)  Fiscal 2020 Fiscal 2021 Fiscal 2022 and Thereafter Totals
Surety bonds $20
 $334
 $161
 $515
Letters of credit 104
 68
 411
 583
Stand-by letters of credit 60
 99
 31
 190
Totals $184
 $501
 $603
 $1,288

(in millions)  Fiscal 2019 Fiscal 2020 Fiscal 2021 and Thereafter Totals
Surety bonds $20
 $334
 $101
 $455
Letters of credit 102
 106
 327
 535
Stand-by letters of credit 23
 45
 94
 162
Totals $145
 $485
 $522
 $1,152


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.
DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued






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. This action arose out ofYork, 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"), a federal program that provides services for infants and toddlers with manifest or potential developmental delays, 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 New York Attorney General’s complaint also alleges that New York City and CSC failed to reimburse Medicaid in certain instances where insurance had paid a portion of the claim. The lawsuits seek treble statutory damages, other civil penalties and attorneys’ fees and costs.


On January 26, 2015, CSC and the City of New York moved to dismiss Forcier’s amended qui tam complaint as well as the federal and state complaints-in-intervention. 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 deniedallowed the motions to dismiss with respect to the federal and state claims relating to (i) submission of insurance claims with a code signifying that the patient’s policy ID was unknown, and (ii) submission ofremaining claims to Medicaid after the statutory deadline for payment by private insurance had passed, and state common law claims.proceed. In accordance with the ruling,September 2016, the United States and the State of New York each filed amended complaints-in-intervention, on September 6, 2016. In addition to reasserting theasserting additional claims upheld by the Court, the amended complaints assert new claims alleging that the compensation provisions of CSC’s contract with New York City rendered it ineligible to serve as a billing agent under state law. 


On November 9, 2016, CSC filed motions to dismiss the amended complaintsand in their entirety. On August 10, 2017, the Court granted in part and denied in part the motions to dismiss, allowing the remaining causes of action to proceed. OnCSC's motions. In January 9, 2018, the Company answered the complaints, andCSC asserted a counterclaim against the State of New York on a theory of contribution and indemnification. On January 30, 2018,The court denied the State of New York filed aState's motion to dismiss the Company’s counterclaim. In a ruling dated September 20, 2018, the Court allowed the Company’sCSC's counterclaim for indemnification to proceed with respect to liability for claims not arising under the Federal False Claims Act. The Parties participated in a non-binding mediation onin November 29, 2017, but no2017. No settlement has been reached to date.date, but negotiations are ongoing. Discovery has now commenced. The Company believes that these claims are without merit and intends to continue to defend itself vigorously.


Strauch Fair Labor Standards Act Collective Action: On July 1, 2014, several plaintiffs Joseph Strauch, Timothy Colby, Charles Turner, and Vernon Carre 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 allegealleged similar state-law Rule 23 class claims pursuant to Connecticut and California statutes, including the Connecticut Minimum Wage Act, the California Unfair Competition Law, California Labor Code, California Wage Order No. 4-2001 and the California Private Attorneys General Act.statutes. Plaintiffs claimclaimed double overtime damages, liquidated damages, pre- and post-judgment interest, civil penalties, and other state-specificamounts and remedies.


In 2015 the Court entered an order granting conditional certification under the FLSA of the collective of over 4,000 system administrators, and notice of the right to participate in the FLSA collective action was mailed to the system administrators. Approximately 1,000 system administrators prior to the announced deadline, 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.


OnIn June 30, 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 July 14, 2017,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.

DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued




Company petitioned the Second Circuit Court of Appeals for permission to file an appeal of the Rule 23 decision. That petition was denied on November 21, 2017.

As a result of the Court's findings in its Rule 23 certification order, the parties entered into a stipulation to decertify the senior professional system administrators from the FLSA collective. On August 2, 2017, the Court approved the stipulation, and the FLSA collective action is currently made up of approximately 700 individuals who held the title of associate professional or professional system administrator.

A jury trial commenced on December 11, 2017. On December 20, 2017, the jury returned a verdict in favor of plaintiffs, finding that the Company had misclassified the class of employees as exempt under federal and state laws, and finding that it had done so willfully. In a ruling dated September 21, 2018, the Court denied the Company’s motions for judgment as a matter of law, and for decertification. Further rulings on the scope of damages are pending. The Company disagrees with the verdict and intends to continue to defend itself vigorously, including by appealing the verdict and the final judgment of the Court.

Computer Sciences Corporation v. Eric Pulier, et al.: On May 12, 2015, CSC and its wholly owned subsidiary, ServiceMesh Inc. ("SMI"), filed a civil complaint in the Court of Chancery of the State of Delaware against Eric Pulier, the former CEO of SMI,Service Mesh Inc. ("SMI"), which CSC had been acquired by CSCin November 2013. The complaint asserted claims for fraud, breach of contract and breach of fiduciary duty, based on November 15, 2013. Following the acquisition, Mr. Pulier signed a retention agreement with SMI pursuant to which he received a grant of restricted stock units of CSC and agreed to be bound by CSC’s rules and policies, including CSC’s Code of Business Conduct. Mr. Pulier resigned from SMI on April 22, 2015 amid allegations that heMr. Pulier had engaged in fraudulent transactions with two employees of the Commonwealth Bank of Australia Ltd. (“CBA”). The original complaint against Mr. Pulier asserted claims for fraud, breach of contract and breach of fiduciary duty. In an amended complaint, CSC named TechAdvisors, LLC and Shareholder Representative Services LLC ("SRS") as additional defendants. In ruling on a motion to dismiss filed by Mr. Pulier, 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. With the exceptionlaw, all of the claim for breach of his retention agreement,which the Court dismissed in whole or in part, eachexcept for claims for breach of Mr. Pulier’s counterclaims.retention agreement.


On December 17, 2015, CSC entered into a settlement agreement with the majority of the former equityholders of SMI, as well as with SRS acting in its capacity as the agent and attorney-in-fact for the settling equityholders. Pursuant to the settlement agreement, CSC received $16.5 million, which amount was equal to the settling equityholders’ pro rata share of the funds remaining in escrow from the transaction, which was recorded as an offset to selling, general and administrative costs in CSC’s statements of operations for the fiscal year ended March 31, 2016. On February 20, 2017, CSC, SRS and the former equityholders of SMI who remain named defendants entered into a partial settlement agreement by which CSC received payment of some of the funds remaining in escrow.

OnIn July 20, 2017, the Court granted a motion by the United States for a 90-day stay of discovery pending the completion of a criminal investigation. On September 27, 2017, a grand jury empaneledinvestigation by the United States District CourtU.S. Attorney’s Office for the Central District of CaliforniaCalifornia. 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(United States v. Eric Pulier, CR 17-599-AB). The Government sought an extension of the stay which the Delaware Chancery Court granted on November 3, 2017.granted.


OnIn December 18, 2018, the Government filed an application to dismiss the indictment against Mr. Pulier, and on December 20, 2018, the United States District Court for the Central District of Californiawhich was granted, the application and dismissed the indictment was dismissed with prejudice.

On December 21, 2018, CSC filed a motion to lift In March 2019, the stay in its civil lawsuit against Mr. Pulier in Delaware Chancery Court lifted the stay and adenied CSC’s motion for a temporary restraining order and preliminary injunction preventingwith respect to certain of Mr. Pulier’s assets.

In August 2019, the Company entered into an agreement with Mr. Pulier, from dissipating approximately $4.9 millionresolving all claims and counterclaimsin the Delaware litigation through the division of amounts previously seized by the Governmentheld in connection with its criminal investigation.escrow for post-closing disputes.


In addition, law enforcement officials in Australia have brought bribery-related chargesThe Securities and Exchange Commission (“SEC”) has filed a complaint against the two former CBA employees. One of these has since pled guilty, and in 2016 received a sentence of imprisonment. In 2016, the United States Attorney’s OfficeMr. Pulier alleging various claims, including for the Central District of California announced similar criminal charges against this same CBA employee for securities fraud and wire fraud. These criminal charges were dismissed onfalsifying 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 20, 2018. 1, 2020.

In April
DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued


2018 the other former CBA employee was committed to stand trial in the Australian criminal courts. The Company is cooperating with and assisting the Australian authorities in their investigation.

On February 17, 2016, Mr. Pulier filed a complaint in Delaware Chancery Court against CSC and its subsidiary - CSC Agility Platform, Inc., formerly known as SMI - seeking advancement of his legal fees and costs. On May 12, 2016,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 underlying civil action. Mr. Pulier also filed a complaint for advancement of the legal fees and costs incurred in connectioncriminal actions. Pursuant to agreements with his defense of criminal investigations by the U.S. Government and other entities. On August 7, 2017, the Court ruled substantially in Mr. Pulier's favor. On January 30, 2018, the Court reduced the Company’s advancement obligation to only 80% of the criminal defense fees and costs sought by Mr. Pulier. In undertakings previously provided to SMI, Mr. Pulier agreedis 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 measured in part by the amount of the fees paid under the contract, as well as pre-judgment interest, and in the alternative claimed rescission of the Agreement.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. Oral argument took place on August 28, 2017. OnIn October 2, 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 on October 10, 2017, in federal district court in Texas to confirm the award. On November 16, 2017, the arbitrator issued a Final Award which reiterated his findings of fact and law, calculated the amount of prejudgment interest, and awarded Kemper its costs of arbitration including reasonable attorneys’ fees and expenses. On December 6, 2017, the Company filed a motion to vacate the award in federal district court in New York. A week later,Texas.

CSC moved to vacate the New York court stayed the actionaward, and in deference to the Texas court’s decision as to which venue was more appropriate to address the vacatur arguments. On January 12, 2018, the Company appeared in the Texas action seeking a stay of the confirmation proceedings or a transfer of venue to New York. On March 2, 2018, the Texas court denied the venue transfer motion. The pending vacatur motion was accordingly transferred to the Texas court, and a new memorandum of law in support of the motion was filed in that jurisdiction on March 30, 2018. On August 27, 2018, the Magistrate Judge issued its Report and Recommendation denying theCSC's vacatur motion. OnIn September 10, 2018, the Company filed its objections to this report to the United States District Judge who reviews the decision de novo.On September 18, 2018, the District Court summarily accepted the Report and Recommendation without further briefing and entered a Final Judgment in the case. On September 27, 2018, theThe 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. The Company has also paidfiled a Petition for Rehearing, seeking review by the portion of the judgment that is uncontested on appeal, and Kemper recorded this partial satisfaction of the judgment on September 26, 2018. On January 16, 2019, the Company filed its opening brief with the Fifth Circuitentire en banc Court of Appeals. Kemper is expected to fileThe Company expects a decision on its brief on March 1, 2019, and the Company will file its reply brief on March 29, 2019. No further dates have been set at this time.Petition in February 2020.


DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued


The Company disagrees with the decision of the arbitrator and intends to continue to defend itself vigorously. The Company is alsohas 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. If the Company’s Petition for Rehearing is denied, the Company will pay the balance of the judgment not paid by its insurance carriers. This balance is estimated to be between $25 and $60 million. The Company believes it has coverage for these amounts and continues to discuss recovery with its insurance carriers. If necessary, the Company intends to vigorously pursue recovery from its insurance carriers.


Forsyth, et al. v. HP Inc. and Hewlett Packard Enterprise:  This  On August 18, 2016, this purported class and collective action was filed on August 18, 2016 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 willmay be proportionately liable for any recovery by plaintiffs in this matter. Plaintiffs filed an amended complaint on December 19, 2016. 

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 on or
DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued


after December 9, 2014 (deferral states) and April 8, 2015 (non-deferral states), 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. On

In January 30, 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 releasesrelease agreements as part of their WFR packages. OnIn September 20, 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. Accordingly, theThe Court has stayed the entire action pending arbitration for these individuals, and administratively closed the case. Plaintiffs filed a motion for reconsideration as well as a notice of appeal to the Ninth Circuit (which has been denied as premature). The reconsideration motion was denied without oral argument. In that same decision, the Court held that a joint arbitration was permissible. The Company subsequently sought and obtained leave of Court to file a motion for reconsideration arguing that joint arbitration is not permitted under the relevant employee agreements. The Court denied the motion on April 17, 2018, ruling that interpretation of the employee agreements is an issue delegated to the arbitrator. The American Arbitration Association, which was designated to manage the arbitration process, has selected a single arbitrator to conduct the proceedings. An initial case management conference before the arbitrator was held on June 29, 2018. Pursuant to the release agreements, however, mediation is a precondition to arbitration.

A mediation was held onin October 4-5, 2018 and a settlement was reached with allthe 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 arbitrate. Sevenarbitration pursuant to their release agreements. In December 2019, a settlement was reached with 142 of the opt-in plaintiffs, 35 of whom were aligned toemployed by former business units of HPE that are now owned by the Company.Company, and for which the Company is liable.
A settlement agreement has been signed. The case will continue to proceed in Court, however, with respect to other putative class members.
Former business units of the Company now owned by Perspecta willmay 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 court’s orderparties have submitted their initial briefs in the appellate case, and briefing is subjectexpected to appeal.conclude in November 2019. The parties have submitted their briefs in the appellate case and are awaiting the scheduling of oral argument.


City of Warren Police and Fire Retirement System v.
DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued


In re DXC Technology Company et al.: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, 3 related shareholder derivative lawsuits were filed in the District Court of the State of Nevada, in and for Clark County, against 2 of the Company’s current officers and the 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 and officers and directors 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 and officers and directors 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 and officers and directors 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 intends to file motions to stay the consolidated state court case in favor of the federal action and, ultimately, to dismiss all claims asserted in these actions.

On October 2, 2019, a shareholder derivative lawsuit was filed in the 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. The Company will seek to stay the matter pursuant to prior court orders staying related derivative lawsuits pending before the court.

The Company believes that the claimslawsuits described above are without merit, and it intends to vigorously defend all claims asserted.them.


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 two2 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 has substantially completedis finalizing its internal investigation and has requested a meeting withprovided supplemental information to OFAC to report its findings.on January 31, 2020.



DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued




Perspecta Arbitration: In October 2019, Perspecta Inc. (“Perspecta”) submitted a demand for arbitration claiming that in June 2018 DXC breached certain obligations under the Separation and Distribution Agreement between Perspecta and DXC, and seeking at least $120 million in alleged damages. In December 2019, Perspecta increased its claim to $500 million, without specifying the basis for its damages. 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.

Note 21 - Reconciliation of Previously Reported Amounts to Recast Financial Statements

As described in Note 2 - "Recent Accounting Pronouncements," during the first quarter of fiscal 2019, the Company adopted ASU's 2017-07, 2016-18 and 2016-15. The adoption of these standards requires the Company to recast each prior period presented consistent with the new guidance. As described in Note 4 - "Divestitures," on May 31, 2018, the Company completed the Separation of USPS. As a result, the results of operations and financial position of USPS are reflected in the accompanying statements of operations and balance sheets as discontinued operations and each prior period presented has been recast to present USPS as a discontinued operation.

A reconciliation of the amounts previously reported for the three and nine months ended December 31, 2017 in DXC's Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2017 to those as adjusted within the accompanying financial statements is shown in the tables below for selected financial amounts:
Condensed Consolidated Statement of Operations Three Months Ended December 31, 2017
(in millions) As Previously Reported Reclassification of Discontinued Operations Retrospective Adoption of ASU 2017-07 As Adjusted
Costs of services (excludes depreciation and amortization and restructuring costs) $4,521
 $(544) $74
 $4,051
Selling, general, and administrative (excludes depreciation and amortization and restructuring costs) $475
 $(37) $9
 $447
Other expense (income), net $8
 $—
 $(83) $(75)

Condensed Consolidated Statement of Operations Nine Months Ended December 31, 2017
(in millions) As Previously Reported Reclassification of Discontinued Operations Retrospective Adoption of ASU 2017-07 As Adjusted
Costs of services (excludes depreciation and amortization and restructuring costs) $13,621
 $(1,589) $198
 $12,230
Selling, general, and administrative (excludes depreciation and amortization and restructuring costs) $1,557
 $(94) $21
 $1,484
Other income, net $(72) $—
 $(219) $(291)


DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued


Condensed Consolidated Statement of Cash Flows Nine Months Ended December 31, 2017
(in millions) As Previously Reported Retrospective Adoption of ASU 2016-15 Retrospective Adoption of ASU 2016-18 As Adjusted
Decrease (increase) in assets $167
 $(531) $(1) $(365)
Net cash provided by operating activities $2,542
 $(531) $(1) $2,010
Deferred purchase price receivable $—
 $531
 $—
 $531
Other investing activities, net $(6) $—
 $26
 $20
Net cash provided by investing activities $213
 $531
 $26
 $770
Cash and cash equivalents at beginning of year $1,263
 $—
 $5
 $1,268
Cash and cash equivalents at end of period $2,926
 $—
 $30
 $2,956

DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued


During the third quarter of fiscal 2019, pursuant to its adoption of ASU 2016-15, the Company determined that it was necessary to change the unit of account used in determining the portions of transferred trade receivables pertaining to operating activities and investing activities from each month's transactional activity to each day’s transactional activity. A reconciliation of amounts previously reported to amounts adjusted for this change are shown in the following tables. See Note 2 - "Recent Accounting Pronouncements" for additional information.

Previously reported amounts in the tables below refer to the Company's Quarterly Reports on Form 10-Q for the three months ended June 30, 2018 filed with the SEC on August 8, 2018 and the six months ended September 30, 2018 filed with the SEC on November 8, 2018.
Condensed Consolidated Statement of Cash Flows Three Months Ended June 30, 2018
(in millions) As Previously Reported Retrospective Adoption of ASU 2016-15 As Adjusted
Increase in assets $(196) $(104) $(300)
Net cash provided by operating activities $473
 $(104) $369
Deferred purchase price receivable $33
 $104
 $137
Net cash used in investing activities $(284) $104
 $(180)
Condensed Consolidated Statement of Cash Flows Six Months Ended September 30, 2018
(in millions) As Previously Reported Retrospective Adoption of ASU 2016-15 As Adjusted
Increase in assets $(447) $(36) $(483)
Net cash provided by operating activities $885
 $(36) $849
Deferred purchase price receivable $409
 $36
 $445
Net cash used in investing activities $(84) $36
 $(48)

Previously reported amounts in the tables below refer to the Company's Quarterly Reports on Form 10-Q for the three months ended June 30, 2017 filed with the SEC on August 9, 2017 and the six months ended September 30, 2017 filed with the SEC on November 8, 2017.
Condensed Consolidated Statement of Cash Flows Three Months Ended June 30, 2017
(in millions) As Previously Reported Retrospective Adoption of ASU 2016-15 As Adjusted
Increase in assets $(27) $(155) $(182)
Net cash provided by operating activities $534
 $(155) $379
Deferred purchase price receivable $—
 $155
 $155
Net cash provided by investing activities $859
 $155
 $1,014
DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued


Condensed Consolidated Statement of Cash Flows Six Months Ended September 30, 2017
(in millions) As Previously Reported Retrospective Adoption of ASU 2016-15 Retrospective Adoption of ASU 2016-18 As Adjusted
Decrease (increase) in assets $78
 $(339) $—
 $(261)
Net cash provided by operating activities $1,543
 $(339) $—
 $1,204
Deferred purchase price receivable $—
 $339
 $—
 $339
Other investing activities, net $(20) $—
 $26
 $6
Net cash provided by investing activities $437
 $339
 $26
 $802
Cash and cash equivalents at beginning of year $1,263
 $—
 $5
 $1,268
Cash and cash equivalents at end of period $2,671
 $—
 $31
 $2,702
         

Previously reported amounts in the tables below refer to Exhibit 99.1 of the Company's Current Report on Form 8-K filed with the SEC on August 16, 2018.
Unaudited Consolidated Statement of Cash Flows Fiscal Year Ended March 31, 2018
(in millions) As Previously Reported Retrospective Adoption of ASU 2016-15 As Adjusted
Decrease (increase) in receivables $74
 $(538) $(464)
Net cash provided by operating activities $3,105
 $(538) $2,567
Deferred purchase price receivable $147
 $538
 $685
Net cash provided by investing activities $181
 $538
 $719
Unaudited Consolidated Statement of Cash Flows Fiscal Year Ended March 31, 2017
(in millions) As Previously Reported Retrospective Adoption of ASU 2016-15 As Adjusted
Decrease (increase) in receivables $193
 $(218) $(25)
Net cash provided by operating activities $837
 $(218) $619
Deferred purchase price receivable $141
 $218
 $359
Net cash used in investing activities $(783) $218
 $(565)

The adoption of ASU 2016-15 did not impact the Company's statement of cash flows for the fiscal year ended April 1, 2016.
DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued



Note 22 - Subsequent Events

On January 7, 2019 DXC and Luxoft Holding, Inc ("Luxoft") announced a definitive agreement for DXC to acquire Luxoft, a global-scale digital innovator providing digital strategy consulting and engineering services for companies across North America, Europe and the Asia Pacific region. Pursuant to the agreement between DXC and Luxoft, all of the issued and outstanding Luxoft Class A and Class B ordinary shares will receive $59.00 per share in cash, representing a total equity value of approximately $2 billion. Closing of the transaction is anticipated by June 2019, subject to regulatory and other approvals.





CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS


All statements and assumptions contained in this Quarterly Report on Form 10-Q and in the documents incorporated by reference that do not directly and exclusively relate to historical facts constitute “forward-looking statements.” Forward-looking statements often include words such as “anticipates,” “believes,” “estimates,” “expects,” “forecast,” “goal,” “intends,” “objective,” “plans,” “projects,” “strategy,” “target,” and “will” and words and terms of similar substance in discussions of future operating or financial performance. These statements represent current expectations and beliefs, and no assurance can be given that the results described in such statements will be achieved.


Forward-looking statements include, among other things, statements with respect to our financial condition, results of operations, cash flows, business strategies, operating efficiencies or synergies, divestitures, competitive position, growth opportunities, share repurchases, dividend payments, plans and objectives of management and other matters. Such statements are subject to numerous assumptions, risks, uncertainties and other factors that could cause actual results to differ materially from those described in such statements, many of which are outside of our control. Important factors that could cause actual results to differ materially from those described in forward-looking statements include, but are not limited to:


the integration of CSC'sComputer Sciences Corporation's ("CSC") and HPES'sEnterprise 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;
risks relating to the USPSLuxoft Acquisition and the ability to achieve the expected results therefrom;
the U.S. Public Sector business ("USPS") Separation and Mergers may resultas described in disruptions to relationships with customers and other business partners or may not achieve the intended results;
the USPS Separation and MergersNote 1 - “Summary of Significant Accounting Policies”, could result in substantial tax liability to DXC and our stockholders;
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, and respond to emerging technological trends;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;
risks relating to the respective abilities of the parties to the Luxoft Acquisition to satisfy the conditions to, and to otherwise consummate, the Luxoft Acquisition and to achieve the expected results therefrom; and
the other factors described in Part I Item 1A "Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended March 31, 20182019 and in Part II, Item 1A of our Quarterly ReportsReport on Form 10-Q for the quarterly periods ended June 30, 2019 and September 30, 2018.2019 and of this Quarterly Report on Form 10-Q.


No assurance can be given that any goal or plan set forth in any forward-looking statement can or will be achieved, and readers are cautioned not to place undue reliance on such statements which speak only as of the date they are made. 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 Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events, except as required by law.




ITEM 2. 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 DXC'sour results of operations and cash flows for the threethird quarter and the first nine months endedof fiscal 2020 and our financial condition as of December 31, 2018.2019. The MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and accompanying notes. The use of "we," "our" and "us" refers to DXC and its consolidated subsidiaries.


The MD&A is organized intoin the following sections:
Background
Segments and Services
Results of Operations
Liquidity and Capital Resources
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 the third quarters and the first nine months of fiscal 2020 and fiscal 2019.

Background


DXC is a world leading independent, end-to-endTechnology helps global companies run their mission critical systems and operations while modernizing IT, services company, serving nearly 6,000optimizing data architectures, and ensuring security and scalability across public, private and public sector clients from a diverse arrayhybrid clouds. With decades of industries across 70 countries. Ourdriving innovation, the world’s largest companies trust DXC to deploy our enterprise technology independence, global talentstack to deliver new levels of performance, competitiveness and extensive partner network deliver transformative digital offerings and solutions that help clients harness the power of innovation to thrive on change.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 clients through our direct sales force operating out of sales offices around the world. Our clients include commercial businesses of many sizes and in many industries and public sector enterprises.

Separation of USPS

On May 31, 2018, we completed the Separation of USPS, and combination with Vencore Holding Corp. and KeyPoint Government Solutions to form Perspecta, an independent public company. As a result of the Separation, the statements of operations, balances 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 statements of cash flows for all periods presented.


Segments and Services

Our reportable segments are GBS and GIS. Segment information is included in Note 19 - "Segment Information" to our financial statements. For a discussion of risks associated with our foreign operations, see Part I, Item 1A "Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended March 31, 2018.

Global Business Services

GBS provides innovative technology solutions that help our clients address key business challenges and accelerate digital transformations tailored to each client’s industry and specific objectives. GBS offerings include:

Enterprise, Cloud Applications and Consulting. We provide industry, business process systems integration and technical delivery experience to maximize value from enterprise application portfolios. We also help clients accelerate their digital transformations and business results with industry, business, technology and complex integration services.
Application Services. Our comprehensive services help clients modernize, develop, test and manage their applications.
Analytics. Our portfolio of analytics services and robust partner ecosystem helps clients gain rapid insights and accelerate their digital transformation journeys.
Business Process Services. We provide seamless digital integration and optimization of front and back office processes, including our Agile Process Automation approach.
Industry Software and Solutions. Our industry-specific solutions enable businesses to quickly integrate technology, transform their operations and develop new ways of doing business. Our vertical-specific IP includes insurance, healthcare and life sciences, travel and transportation, and banking and capital markets solutions.

Global Infrastructure Services

GIS provides a portfolio of offerings that deliver predictable outcomes and measurable results, while reducing business risk and operational costs for clients. GIS offerings include:

Cloud and Platform Services. We help clients maximize their private cloud, public cloud and legacy infrastructures, as well as securely manage their hybrid environments.
Workplace and Mobility. Our workplace, mobility and Internet of Things ("IoT") services provide a consumer-like experience with enterprise security and instant connectivity for our clients.
Security. Our security solutions help predict attacks, proactively respond to threats, ensure compliance and protect data, applications, infrastructure and endpoints.




Results of Operations


The following table calculatessets forth certain financial data for the period-over-period changes in the statementsthird quarters and first nine months of operations:fiscal 2020 and fiscal 2019:
  Three Months Ended
(In millions, except per-share amounts) December 31, 2018 December 31, 2017 Change Percentage Change
Revenues $5,178
 $5,460
 $(282) (5.2)%
Total costs and expenses 4,709
 5,119
 (410) (8.0)%
Income from continuing operations before income taxes 469
 341
 128
 37.5 %
Income tax expense (benefit) 3
 (365) 368
 (100.8)%
Income from continuing operations 466
 706
 (240) (34.0)%
Income from discontinued operations, net of taxes —
 73
 (73) (100.0)%
Net income $466
 $779
 $(313) (40.2)%
         
Diluted earnings per share from continuing operations $1.66
 $2.43
 $(0.77) (31.7)%

  Nine Months Ended
(In millions, except per-share amounts) December 31, 2018 December 31, 2017 Change Percentage Change
Revenues $15,473
 $16,149
 $(676) (4.2)%
Total costs and expenses 14,312
 15,433
 (1,121) (7.3)%
Income from continuing operations before income taxes 1,161
 716
 445
 62.2 %
Income tax expense (benefit) 205
 (303) 508
 (167.7)%
Income from continuing operations 956
 1,019
 (63) (6.2)%
Income from discontinued operations, net of taxes 35
 198
 (163) (82.3)%
Net income $991
 $1,217
 $(226) (18.6)%
         
Diluted earnings per share from continuing operations $3.33
 $3.43
 $(0.10) (2.9)%


  Three Months Ended Nine Months Ended
(In millions, except per-share amounts) December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
         
Revenues $5,021
 $5,178
 $14,762
 $15,473
         
Income (loss) from continuing operations, before taxes 127
 469
 (1,666) 1,161
Income tax expense 37
 3
 191
 205
Income (loss) from continuing operations 90
 466
 (1,857) 956
Income from discontinued operations, net of taxes —
 —
 —
 35
Net income (loss) $90
 $466
 $(1,857) $991
         
Diluted earnings (loss) per share:        
Continuing operations $0.32
 $1.66
 $(7.20) $3.33
Discontinued operations $—
 $—
 $—
 $0.12

Fiscal 20192020 Highlights


Financial highlights for the third quarter and first nine months of fiscal 20192020 include the following:


Revenues for the third quarter and first nine months of fiscal 20192020 were $5.2$5.0 billion and $15.5$14.8 billion, respectively, a decrease of 5.2%3% and 4.2%5%, respectively, as compared to the same periods of the prior fiscal year.
Income from continuing operations and diluted EPS from continuing operations for the third quarter of fiscal 20192020 were $466$90 million and $1.66,$0.32, respectively, including the cumulative impact of certain items of $160$(238) million, reflecting restructuring costs, transaction, separation and integration-related costs, amortization of acquired intangible assets and a tax adjustment related to U.S. tax reform. This compares with income from continuing operations and diluted EPS from continuing operations of $706$466 million and $2.43,$1.66, respectively, for the same period of the prior fiscal year.
IncomeLoss from continuing operations and diluted EPS from continuing operations for the first nine months of fiscal 20192020 were $956$1,857 million and $3.33,$7.20, respectively, including the cumulative impact of certain items of $807$(3,019) million, reflecting restructuring costs, transaction, separation and integration-related costs, amortization of acquired intangible assets, goodwill impairment losses, gain on arbitration award and a tax adjustment related to U.S. tax reform. This compares with income from continuing operations and diluted EPS from continuing operations of $1,019$956 million and $3.43,$3.33, respectively, for the same period of the prior fiscal year.
Our cash and cash equivalents decreased to $2.5were $2.6 billion as of December 31, 20182019.
We generated $2,062 million of cash from $2.6 billionoperations during the first nine months of fiscal 2020, as of March 31, 2018.

Netcompared to cash provided by operating activities wasgenerated of $1,035 million during the first nine months of fiscal 2019, as compared to $2,010 million during the first nine months of fiscal 2018.2019.
We returned $1,407$897 million to shareholders in the form of common stock dividends and share repurchases during the first nine months of fiscal 2019,2020, as compared to $189$1,407 million during the first nine months of fiscal 2018.2019.




Revenues

Our
  Three Months Ended    
(in millions) December 31, 2019 December 31, 2018 Change Percentage Change
GBS $2,359
 $2,169
 $190
 8.8 %
GIS 2,662
 3,009
 (347) (11.5)%
Total Revenues $5,021
 $5,178
 $(157) (3.0)%
  Nine Months Ended    
(in millions) December 31, 2019 December 31, 2018 Change Percentage Change
GBS $6,803
 $6,493
 $310
 4.8 %
GIS 7,959
 8,980
 (1,021) (11.4)%
Total Revenues $14,762
 $15,473
 $(711) (4.6)%

The decrease in revenues for the third quarter and first nine months of fiscal 2020, compared with fiscal 2019 of the same period, reflects an ongoing decline in our traditional application maintenance business and fiscal 2018 were as follows:legacy infrastructure services. 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 Euro and British Pound.
  Three Months Ended    
(in millions) December 31, 2018 December 31, 2017 Change Percentage Change
GBS $2,169
 $2,315
 $(146) (6.3)%
GIS 3,009
 3,145
 (136) (4.3)%
Total Revenues $5,178
 $5,460
 $(282) (5.2)%

  Nine Months Ended    
(in millions) December 31, 2018 December 31, 2017 Change Percentage Change
GBS $6,493
 $6,893
 $(400) (5.8)%
GIS 8,980
 9,256
 (276) (3.0)%
Total Revenues $15,473
 $16,149
 $(676) (4.2)%


During the third quarter and first nine months of fiscal 20192020 and fiscal 2018,2019, the distribution of our revenues across geographies was as follows:

chart-e39e49eb9df156c794f.jpg
chart-aa3c43bfdb4f5601ae1a06.jpg

chart-ddb3f0beba6a5eec9a9.jpg

For the discussion of risks associated with our foreign operations, see Part 1, Item 1A "Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended March 31, 2019.
chart-688e9387087f5ef3b2ea06.jpg

As a global company, approximately 63% of our revenues for the first nine months of fiscal 20192020 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:
 Three Months Ended     Three Months Ended    
(in millions) Constant Currency December 31, 2018 December 31, 2017 Change Percentage Change Constant Currency December 31, 2019 December 31, 2018 Change Percentage Change
GBS $2,222
 $2,315
 $(93) (4.0)% $2,384
 $2,169
 $215
 9.9 %
GIS 3,098
 3,145
 (47) (1.5)% 2,691
 3,009
 (318) (10.6)%
Total $5,320
 $5,460
 $(140) (2.6)% $5,075
 $5,178
 $(103) (2.0)%


 Nine Months Ended     Nine Months Ended    
(in millions) Constant Currency December 31, 2018 December 31, 2017 Change Percentage Change Constant Currency December 31, 2019 December 31, 2018 Change Percentage Change
GBS $6,536
 $6,893
 $(357) (5.2)% $6,942
 $6,493
 $449
 6.9 %
GIS 9,038
 9,256
 (218) (2.4)% 8,165
 8,980
 (815) (9.1)%
Total $15,574
 $16,149
 $(575) (3.6)% $15,107
 $15,473
 $(366) (2.4)%


Our revenues were $5,178
Global Business Services

GBS revenue was $2,359 million in the third quarter of fiscal 2019, a decrease of 5.2% compared to the third quarter of fiscal 2018. Revenues for the third quarter of fiscal 2019 included an unfavorable foreign currency exchange rate impact of 2.6%, primarily driven by the strengthening of the U.S. dollar in the majority of our international markets.

Our revenues were $15,473and $6,803 million in the first nine months of fiscal 2019, a decrease2020, an increase of 4.2% compared to the first nine months of fiscal 2018. Revenues for the first nine months of fiscal 2019 included an unfavorable foreign currency exchange rate impact of 0.6%, primarily driven by the strengthening of the U.S. dollar against the Euro8.8% and British Pound.

Global Business Services

GBS revenue was $2,169 million in the third quarter and $6,493 million in the first nine months of fiscal 2019, a decrease of 6.3% and 5.8%4.8%, respectively, compared to the corresponding periods in fiscal 2018.2019. GBS revenue in constant currency decreased 4.0%increased 9.9% and 5.2%6.9% in the third quarter and first nine months of fiscal 2019,2020, respectively, as compared to the corresponding periods in fiscal 2018.2019. The decreaseincrease in GBS revenue in fiscal 20192020 periods reflects a declinethe contributions from our Luxoft and other acquisitions further discussed in the traditional application maintenance and management business. This was partially offset by growth in our enterprise and cloud applications business.Note 3 - "Acquisitions".


For the third quarter and first nine months of fiscal 2019,2020, GBS contract awards were $2.5 billion and $6.8 billion, respectively, as compared to $2.3 billion and $6.5 billion, respectively, compared to $3.3 billion and $8.1 billion in the corresponding periods of fiscal 2018.2019.


Global Infrastructure Services


GIS revenue was $3,009$2,662 million in the third quarter and $8,980$7,959 million in the first nine months of fiscal 2019,2020, a decrease of 4.3%11.5% and 3.0%11.4%, respectively, compared to the corresponding periods in fiscal 2018.2019. GIS revenue in constant currency decreased 1.5%10.6% and 2.4%9.1% in the third quarter and first nine months of fiscal 2019,2020, respectively, as compared to the corresponding periods in fiscal 2018.2019. The decrease in GIS revenuerevenues in fiscal 20192020 periods reflects the completion of several large transformation projects and the ongoing declinedeclines in legacyour traditional infrastructure services.businesses.


For the third quarter and first nine months of fiscal 2019,2020, GIS contract awards were $2.8 billion and $6.5 billion, respectively, as compared to $3.4 billion and $8.5 billion, respectively, compared to $2.2 billion and $8.8 billion in the corresponding periods of fiscal 2018.2019.




Costs and Expenses


Our total costs and expenses are shown in the tables below:
 Three Months Ended   Three Months Ended  
 AmountPercentage of Revenues Percentage of Revenue Change AmountPercentage of Revenues Percentage Point Change
(in millions) December 31, 2018 December 31, 2017 December 31, 2018 December 31, 2017  December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018 
Costs of services (excludes depreciation and amortization and restructuring costs) $3,725
 $4,051
 71.8 % 74.3 % (2.5)% $3,827
 $3,725
 76.1 % 71.8 % 4.3
Selling, general, and administrative (excludes depreciation and amortization and restructuring costs) 491
 447
 9.5
 8.2
 1.3
 518
 491
 10.3
 9.5
 0.8
Depreciation and amortization 508
 440
 9.8
 8.1
 1.7
 479
 508
 9.5
 9.8
 (0.3)
Goodwill impairment losses 53
 —
 1.1
 —
 1.1
Restructuring costs 76
 210
 1.5
 3.8
 (2.3) 74
 76
 1.5
 1.5
 —
Interest expense 81
 73
 1.6
 1.3
 0.3
 93
 81
 1.9
 1.6
 0.3
Interest income (27) (27) (0.5) (0.5) —
 (33) (27) (0.7) (0.5) (0.2)
Other income, net (145) (75) (2.8) (1.4) (1.4) (117) (145) (2.3) (2.8) 0.5
Total costs and expenses $4,709
 $5,119
 90.9 % 93.8 % (2.9)% $4,894
 $4,709
 97.5 % 90.9 % 6.6


 Nine Months Ended   Nine Months Ended  
 AmountPercentage of Revenues Percentage of Revenue Change AmountPercentage of Revenues Percentage Point Change
(in millions) December 31, 2018 December 31, 2017 December 31, 2018 December 31, 2017  December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018 
Costs of services (excludes depreciation and amortization and restructuring costs) $11,110
 $12,230
 71.8 % 75.8 % (4.0)% $11,128
 $11,110
 75.3 % 71.8 % 3.5
Selling, general, and administrative (excludes depreciation and amortization and restructuring costs) 1,500
 1,484
 9.7
 9.2
 0.5
 1,514
 1,500
 10.3
 9.7
 0.6
Depreciation and amortization 1,463
 1,264
 9.5
 7.8
 1.7
 1,416
 1,463
 9.6
 9.5
 0.1
Goodwill impairment losses 2,940
 —
 19.9
 —
 19.9
Restructuring costs 418
 585
 2.7
 3.6
 (0.9) 248
 418
 1.7
 2.7
 (1.0)
Interest expense 249
 220
 1.6
 1.4
 0.2
 288
 249
 2.0
 1.6
 0.4
Interest income (92) (59) (0.6) (0.4) (0.2) (130) (92) (0.9) (0.6) (0.3)
Gain on arbitration award (632) —
 (4.3) —
 (4.3)
Other income, net (336) (291) (2.2) (1.8) (0.4) (344) (336) (2.3) (2.2) (0.1)
Total costs and expenses $14,312
 $15,433
 92.5 % 95.6 % (3.1)% $16,428
 $14,312
 111.3 % 92.5 % 18.8


The 2.9% and 3.1% improvement6.6 point increase in costs and expenses as a percentage of revenue for the third quarter primarily reflects the cumulative impact of increases in selling, general and administrative costs and amortization costs. In addition, the third quarter includes an adjustment that increased costs related to goodwill impairment losses. The 18.8 point increase in costs and expenses as a percentage of revenue for the first nine months of fiscal 2019, respectively,2020 primarily reflects continued execution of our major synergy initiatives, including workforce optimization, supply chain efficiencies and rationalization of our real estate footprint.

goodwill impairment losses, which were partially offset by the gain on arbitration award.


Costs of Services


Cost of services, excluding depreciation and amortization and restructuring costs ("COS"), was $3.7$3.8 billion and $11.1 billion for the third quarter and first nine months of fiscal 2019,2020, respectively. COS decreased $0.3 billion and $1.1 billion, or 2.5% and 4.0% as a percentage of revenue,increased $102 million during the third quarter of fiscal 2020 and increased $18 million during the first nine months of fiscal 2019, respectively,2020, as compared to the same periods of the prior fiscal year. These decreases were driven by headcount reduction and procurement efficiencies. Employee labor costs,

COS as a percentage of revenue decreasedincreased 4.3 points and 3.5 points for the third quarter and first nine months of fiscal 2020, respectively. These increases were driven by the decline in both segments and acrossrevenue exceeding associated cost reductions in our geographic regions, year-over-year.traditional infrastructure businesses.



Selling, General, and Administrative


Selling, general, and administrative expense, excluding depreciation and amortization and restructuring costs ("SG&A"), was $491$518 million and $1,500$1,514 million for the third quarter and first nine months of fiscal 2019,2020, respectively. The $44SG&A increased $27 million increase in SG&A inand $14 million during the third quarter reflects the increase in transaction, separation and integration-related costs and the impact of our fiscal 2019 acquisitions. SG&A expense as a percentage of revenue for the first nine months of fiscal 2019 was consistent on a year-over-year basis.2020, respectively, as compared to the same periods of the prior fiscal year. These increases included SG&A related to the Luxoft Acquisition, which we acquired during the first quarter of fiscal 2020.


Transaction, separation and integration-related costs of $107$68 million and $305$226 million were included in SG&A for the third quarter and first nine months of fiscal 2019,2020, respectively, as compared to $83$107 million and $273$305 million for the comparable periods of the prior fiscal year.


Depreciation and Amortization


Depreciation expense increased $43decreased $88 million and amortization expense increased $25$59 million for the third quarter of fiscalthree months ended December 31, 2019, compared to the third quarter fiscalthree months ended December 31, 2018. For the first nine months of fiscal 2019,2020, depreciation expense increased $78decreased $138 million and amortization expense increased $121$91 million compared to the first nine months of fiscal 2018.2019.


The increasenet decrease in depreciation expense for the third quarter and first nine months of fiscal 20192020 was primarily due to a $68 million and $179 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 depreciabledepreciation on assets placed into service, as well as dissipation of December 31, 2018 as comparedthe benefit from the conversion of assets from operating to the same period in the prior fiscal year.finance leases.


The increaseincreases in amortization expense for the third quarter and first nine months of fiscal 2019 was2020 were primarily due to the acceleration ofincreases in software amortization and amortization related to accelerated transition and transformation contract costs and an increase in software as compared to the first nine months of fiscal 2019.costs.


Restructuring CostsGoodwill Impairment Losses


During fiscal 2019, management approved global cost savings initiatives designed to better align our organizational structure with our strategic initiativesDXC recognized goodwill impairment charges totaling $53 million and continue the integration of HPES and other acquisitions. During$2,940 million for the third quarter and the first nine months of fiscal 2019,2020. The impairment charge was primarily as a result of a decline in market capitalization during the fiscal 2020 second quarter. The impairment charge was adjusted during the third quarter of fiscal 2020 due to an out-of-period correction that also affected income tax benefit. See Note 11, "Goodwill" for additional information.

Restructuring Costs

During fiscal 2020, management approved global cost savings initiatives designed to reduce operating costs by re-balancing our workforce and facilities structures. During the third quarter and first nine months of fiscal 2020, restructuring costs, net of reversals, were $76$74 million and $418$248 million, respectively, as compared to $210$76 million and $585$418 million during the same periods of the prior fiscal year. Restructuring costs for the first nine months of fiscal 2020 included $23 million of reversals under the Fiscal 2020 Plan.


For an analysis of changes in our restructuring liabilities by restructuring plan, see Note 1314 - "Restructuring Costs."Costs" to the financial statements.




Interest Expense and Interest Income


Interest expense infor the third quarter and first nine months of fiscal 20192020 increased $8$12 million and $29$39 million, respectively, over the same periods in the prior fiscal year. The increase in interest expense was primarily due to our cross currency cash pool arrangements and is offset by interest income resulting from those arrangements.

Interest income in the third quarter and first nine months of fiscal 2020, versus the same periods in fiscal 2019, was primarily due to an increase in borrowings and asset financing activities. See the "Capital Resources" caption below and Note 12 - “Debt” for additional information.

Interest income for the third quarter and first nine months of fiscal 2020 increased $0$6 million and $33$38 million, respectively over the same periods in the prior fiscal year. The year-over-year increase in interest income during the third quarter of fiscal 2020 was due to an increase in income from cash balancespool arrangements and deposits. The increase in countries with higher interest rates.income in the first nine months of fiscal 2020, versus the same periods in fiscal 2019, 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 which includescomprises 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 increased $70losses.

The $28 million year-over-yeardecrease in other income, net for the third quarter of fiscal 2019. The increase2020, as compared to the same period of the prior fiscal year, was driven primarilydue to a year-over-year decrease of $62 million in other gains related to sales of non-operating assets. This decrease was offset by a gain on sale$19 million increase in non-service components of non-operating assets.net periodic pension income and a year-over-year favorable foreign currency impact of $15 million.


The $45$8 million increase in other income, net for the first nine months of fiscal 2019,2020, as compared to the same period of the prior fiscal 2018,year, was due primarily to a gain on saleyear-over-year increase of non-operating assets. This gain was partially offset by$61 million in non-service components of net periodic pension income and a year-over-year unfavorablefavorable foreign currency impact of $101$57 million. These increases were offset by a $110 million resulting primarily from the changedecrease in the functional currencyother gains related to sales of a European holding company during the first nine months of fiscal 2018, which was not present in the current fiscal year.non-operating assets.



Taxes


Our income tax expense (benefit)ETR from continuing operations was $3 million29.1% and $(365) million0.6% for the three months ended December 31, 20182019 and December 31, 2017,2018, respectively, and $205 million(11.5)% and $(303) million17.7% for the nine months ended December 31, 20182019 and December 31, 2017,2018, respectively. For the three months ended December 31, 2018,2019, the primary drivers of the ETR were the impact of previously unrecognized tax effects on the tax deductible goodwill impaired during the fiscal 2020 second quarter, the global mix of income, the net decreasean increase in valuation allowances on certain foreign deferredprior year U.S. federal research and development income tax assets,credits, and the decreasean increase in transitionunrecognized tax liability.benefits primarily related to audit activity. For the nine months ended December 31, 2019, the primary drivers of the ETR were the impact of the non-deductible goodwill impairment charge, the non-taxable gain on the arbitration award, the global mix of income, an increase in unrecognized tax benefits primarily related to audit activity, and an increase in prior year U.S. federal research and development income tax credits, net. For the three and nine months ended December 31, 2018, the primary drivers of the ETR were the global mix of income, the net decrease in valuation allowances on certain foreign deferred tax assets, the decrease in transition tax liability, the filing of the October 31, 2017 U.S. federal tax return and the impact of U.S. proposed regulations on the ability to claim certain foreign tax credits. Forcredits, the three and nine months ended Decemberfiling of the October 31, 2017 U.S. federal tax return, the primary drivers ofdecrease to the effectiveprovisional transition tax rate ("ETR") were the remeasurement ofand a decrease in valuation allowances on certain foreign subsidiary deferred tax assets and liabilities as a result of the Act, the remeasurement of a deferred tax liability relating to the outside basis difference of HPES foreign subsidiaries, the accrual of a one-time transition tax on estimated unremitted foreign earnings and India dividend distribution tax (DDT) accrual on historic earnings and taxes.assets.
 
Income tax expense associated with discontinued operations was $0 million and $24 million for the three months ended December 31, 2018 and December 31, 2017, respectively. Income tax expense associated with discontinued operations was $18 million and $96 million for the nine months ended December 31, 2018 and December 31, 2017, respectively. The primary driver of the variance in the tax expense for these periods was the difference in income before tax for the respective periods.


Income from Discontinued Operations


IncomeThe $35 million of income from discontinued operations for the first nine months of fiscal 2019 reflects the net income generated by USPS. As the Separation occurred on May 31, 2018, there are only two months of USPS results included induring the first nine monthsquarter of fiscal 2019.


Earnings per(Loss) Per Share


Diluted EPS from continuing operations for the third quarter and first nine months of fiscal 20192020 decreased $0.77$1.34 and $0.10,$10.53, respectively, from the same periods in the prior fiscal year. This decrease reflects a decrease of $240$376 million and $63$2,813 million in income from continuing operations for the third quarter and first nine months of fiscal 2019,2020, respectively, over the same periods in the prior fiscal year.


Diluted EPS from continuing operations for the third quarter of fiscal 20192020 includes $0.21$0.25 per share of restructuring costs, $0.29$0.20 per share of transaction, separation and integration-related costs, $0.35$0.44 per share of amortization of acquired intangible assets, and $(0.28)$0.04 per share of tax adjustment related to U.S. tax reform.prior restructuring charges.


Diluted EPS from continuing operations for the first nine months of fiscal 20192020 includes $1.12$0.79 per share of restructuring costs, $0.82$0.70 per share of transaction, separation and integration-related costs, $1.05$1.28 per share of amortization of acquired intangible assets, $11.03 per share of goodwill impairment losses, $(2.42) per share of arbitration award gains, and $(0.15)$0.15 per share of tax adjustment relatedrelating to U.S. tax reform.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.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.

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:
 Three Months Ended     Three Months Ended    
(in millions) December 31, 2018 December 31, 2017 Change Percentage Change December 31, 2019 December 31, 2018 Change Percentage Change
Income from continuing operations before income taxes $469
 $341
 $128
 37.5 % $127
 $469
 $(342) (72.9)%
Non-GAAP income from continuing operations before income taxes $786
 $751
 $35
 4.7 % $468
 $786
 $(318) (40.5)%
Net income

 $466
 $779
 $(313) (40.2)% $90
 $466
 $(376) (80.7)%
Adjusted EBIT $840
 $797
 $43
 5.4 % $528
 $840
 $(312) (37.1)%
 Nine Months Ended     Nine Months Ended    
(in millions) December 31, 2018 December 31, 2017 Change Percentage Change December 31, 2019 December 31, 2018 Change Percentage Change
Income from continuing operations before income taxes $1,161
 $716
 $445
 62.2 %
(Loss) income from continuing operations before income taxes $(1,666) $1,161
 $(2,827) (243.5)%
Non-GAAP income from continuing operations before income taxes $2,285
 $1,946
 $339
 17.4 % $1,551
 $2,285
 $(734) (32.1)%
Net income

 $991
 $1,217
 $(226) (18.6)%
Net (loss) income

 $(1,857) $991
 $(2,848) (287.4)%
Adjusted EBIT $2,442
 $2,107
 $335
 15.9 % $1,709
 $2,442
 $(733) (30.0)%




Reconciliation of Non-GAAP Financial Measures


Our non-GAAP adjustments include:
Restructuring costs - 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.

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.
Tax adjustment - reflectsfor fiscal 2020 periods include the impact of Transition Tax (affecting the three and nine months ended December 31, 2019) and tax entries related to prior restructuring charges (affecting the nine months ended December 31, 2019). Fiscal 2019 periods reflect the estimated non-recurring benefit of the Tax Cuts and Jobs Act of 2017 for fiscal 2019,
and2017. Income tax expense of other non-GAAP adjustments is computed by applying the application of an approximate 28%jurisdictional tax rate for fiscal 2018, which is withinto the targeted effective tax rate range for the prior year.pre-tax adjustments on a jurisdictional basis.





A reconciliation of reported results to non-GAAP results is as follows:
 Three Months Ended December 31, 2018 Three Months Ended December 31, 2019
(in millions, except per-share amounts) As Reported Restructuring Costs Transaction, Separation and Integration-Related Costs Amortization of Acquired Intangible Assets Tax Adjustment Non-GAAP Results As Reported Restructuring Costs Transaction, Separation and Integration-Related Costs Amortization of Acquired Intangible Assets Goodwill Impairment Losses Tax Adjustment Non-GAAP Results
Costs of services (excludes depreciation and amortization and restructuring costs) $3,725
 $—
 $—
 $—
 $—
 $3,725
 $3,827
 $—
 $—
 $—
 $—
 $—
 $3,827
Selling, general, and administrative (excludes depreciation and amortization and restructuring costs) 491
 —
 (107) —
 —
 384
 518
 —
 (68) —
 —
 —
 450
Income from continuing operations before income taxes 469
 76
 107
 134
 —
 786
 127
 74
 68
 146
 53
 —
 468
Income tax expense 3
 18
 26
 36
 77
 160
 37
 10
 16
 34
 53
 (10) 140
Income from continuing operations 466
 58
 81
 98
 (77) 626
Income from discontinued operations, net of tax —
 —
 —
 —
 —
 —
Net income 466
 58
 81
 98
 (77) 626
 90
 64
 52
 112
 —
 10
 328
Less: net income attributable to non-controlling interest, net of tax 4
 —
 —
 —
 —
 4
 8
 —
 —
 —
 —
 —
 8
Net income attributable to DXC common stockholders $462
 $58
 $81
 $98
 $(77) $622
 $82
 $64
 $52
 $112
 $—
 $10
 $320
                          
Effective Tax Rate 0.6%         20.4% 29.1%           29.9%
                          
Basic EPS from continuing operations $1.68
 $0.21
 $0.29
 $0.36
 $(0.28) $2.26
 $0.32
 $0.25
 $0.20
 $0.44
 $—
 $0.04
 $1.25
Diluted EPS from continuing operations $1.66
 $0.21
 $0.29
 $0.35
 $(0.28) $2.23
 $0.32
 $0.25
 $0.20
 $0.44
 $—
 $0.04
 $1.25
                          
Weighted average common shares outstanding for:                          
Basic EPS 275.66
 275.66
 275.66
 275.66
 275.66
 275.66
 255.09
 255.09
 255.09
 255.09
 255.09
 255.09
 255.09
Diluted EPS 278.99
 278.99
 278.99
 278.99
 278.99
 278.99
 256.05
 256.05
 256.05
 256.05
 256.05
 256.05
 256.05




  Nine Months Ended December 31, 2019
(in millions, except per-share amounts) As Reported Restructuring Costs Transaction, Separation and Integration-Related Costs Amortization of Acquired Intangible Assets Goodwill Impairment Losses Gain on Arbitration Award Tax Adjustment Non-GAAP Results
Costs of services (excludes depreciation and amortization and restructuring costs) $11,128
 $—
 $—
 $—
 $—
 $—
 $—
 $11,128
Selling, general, and administrative (excludes depreciation and amortization and restructuring costs) 1,514
 —
 (226) —
 —
 —
 —
 1,288
(Loss) income from continuing operations before income taxes (1,666) 248
 226
 435
 2,940
 (632) —
 1,551
Income tax expense 191
 42
 43
 99
 53
 —
 (39) 389
Net (loss) income (1,857) 206
 183
 336
 2,887
 (632) 39
 1,162
Less: net income attributable to non-controlling interest, net of tax 17
 —
 —
 —
 —
 —
 —
 17
Net (loss) income attributable to DXC common stockholders $(1,874) $206
 $183
 $336
 $2,887
 $(632) $39
 $1,145
                 
Effective Tax Rate (11.5)%             25.1%
                 
Basic EPS from continuing operations $(7.20) $0.79
 $0.70
 $1.29
 $11.09
 $(2.43) $0.15
 $4.40
Diluted EPS from continuing operations $(7.20) $0.79
 $0.70
 $1.28
 $11.03
 $(2.42) $0.15
 $4.38
                 
Weighted average common shares outstanding for:                
Basic EPS 260.24
 260.24
 260.24
 260.24
 260.24
 260.24
 260.24
 260.24
Diluted EPS 260.24
 261.69
 261.69
 261.69
 261.69
 261.69
 261.69
 261.69





  Three Months Ended December 31, 2018
(in millions, except per-share amounts) As Reported Restructuring Costs Transaction, Separation and Integration-Related Costs Amortization of Acquired Intangible Assets Tax Adjustment Non-GAAP Results
Costs of services (excludes depreciation and amortization and restructuring costs) $3,725
 $—
 $—
 $—
 $—
 $3,725
Selling, general, and administrative (excludes depreciation and amortization and restructuring costs) 491
 —
 (107) —
 —
 $384
Income from continuing operations before income taxes 469
 76
 107
 134
 —
 786
Income tax expense 3
 18
 26
 36
 77
 160
Income from continuing operations 466
 58
 81
 98
 (77) 626
Income from discontinued operations, net of tax —
 —
 —
 —
 —
 —
Net income 466
 58
 81
 98
 (77) 626
Less: net income attributable to non-controlling interest, net of tax 4
 —
 —
 —
 —
 4
Net income attributable to DXC common stockholders $462
 $58
 $81
 $98
 $(77) $622
             
Effective Tax Rate 0.6%         20.4%
             
Basic EPS from continuing operations $1.68
 $0.21
 $0.29
 $0.36
 $(0.28) $2.26
Diluted EPS from continuing operations $1.66
 $0.21
 $0.29
 $0.35
 $(0.28) $2.23
             
Weighted average common shares outstanding for:            
Basic EPS 275.66
 275.66
 275.66
 275.66
 275.66
 275.66
Diluted EPS 278.99
 278.99
 278.99
 278.99
 278.99
 278.99


  Nine Months Ended December 31, 2018
(in millions, except per-share amounts) As Reported Restructuring Costs Transaction, Separation and Integration-Related Costs Amortization of Acquired Intangible Assets Tax Adjustment Non-GAAP Results
Costs of services (excludes depreciation and amortization and restructuring costs) $11,110
 $—
 $—
 $—
 $—
 $11,110
Selling, general, and administrative (excludes depreciation and amortization and restructuring costs) 1,500
 —
 (305) —
 —
 $1,195
Income from continuing operations before income taxes 1,161
 418
 305
 401
 —
 2,285
Income tax expense 205
 100
 72
 101
 44
 522
Income from continuing operations 956
 318
 233
 300
 (44) 1,763
Income from discontinued operations, net of tax 35
 —
 —
 —
 —
 35
Net income 991
 318
 233
 300
 (44) 1,798
Less: net income attributable to non-controlling interest, net of tax 8
 —
 —
 —
 —
 8
Net income attributable to DXC common stockholders $983
 $318
 $233
 $300
 $(44) $1,790
             
Effective Tax Rate 17.7%         22.8%
             
Basic EPS from continuing operations $3.38
 $1.13
 $0.83
 $1.07
 $(0.16) $6.26
Diluted EPS from continuing operations $3.33
 $1.12
 $0.82
 $1.05
 $(0.15) $6.16
             
Weighted average common shares outstanding for:            
Basic EPS 280.47
 280.47
 280.47
 280.47
 280.47
 280.47
Diluted EPS 284.70
 284.70
 284.70
 284.70
 284.70
 284.70



  Three Months Ended December 31, 2017
(in millions, except per-share amounts) As Reported Restructuring Costs Transaction, Separation and Integration-Related Costs Amortization of Acquired Intangible Assets Pension and OPEB Actuarial and Settlement Gains Tax Adjustment Non-GAAP Results
Costs of services (excludes depreciation and amortization and restructuring costs) $4,051
 $—
 $—
 $—
 $—
 $—
 $4,051
Selling, general, and administrative (excludes depreciation and amortization and restructuring costs) 447
 —
 (83) —
 —
 —
 $364
Income from continuing operations before income taxes 341
 210
 83
 134
 (17) —
 751
Income tax (benefit) expense (365) —
 —
 —
 —
 575
 210
Income from continuing operations 706
 210
 83
 134
 (17) (575) 541
Income from discontinued operations, net of tax 73
 —
 —
 —
 —
 —
 73
Net income 779
 210
 83
 134
 (17) (575) 614
Less: net income attributable to non-controlling interest, net of tax 3
     —
 —
 —
 3
Net income attributable to DXC common stockholders $776
 $210
 $83
 $134
 $(17) $(575) $611
               
Effective Tax Rate (107.0)%           28.0%
               
Basic EPS from continuing operations $2.46
 $0.74
 $0.29
 $0.47
 $(0.06) $(2.01) $1.89
Diluted EPS from continuing operations $2.43
 $0.72
 $0.29
 $0.46
 $(0.06) $(1.98) $1.86
               
Weighted average common shares outstanding for:              
Basic EPS 285.38
 285.38
 285.38
 285.38
 285.38
 285.38
 285.38
Diluted EPS 289.77
 289.77
 289.77
 289.77
 289.77
 289.77
 289.77


  Nine Months Ended December 31, 2017
(in millions, except per-share amounts) As Reported Restructuring Costs Transaction, Separation and Integration-Related Costs Amortization of Acquired Intangible Assets Pension and OPEB Actuarial and Settlement Gains Tax Adjustment Non-GAAP Results
Costs of services (excludes depreciation and amortization and restructuring costs) $12,230
 $—
 $—
 $—
 $—
 $—
 $12,230
Selling, general, and administrative (excludes depreciation and amortization and restructuring costs) 1,484
 —
 (273) —
 —
 —
 1,211
Income from continuing operations before income taxes 716
 585
 273
 389
 (17) —
 1,946
Income tax (benefit) expense (303) —
 —
 —
 —
 847
 544
Income from continuing operations 1,019
 585
 273
 389
 (17) (847) 1,402
Income from discontinued operations, net of tax 198
 —
 —
 —
 —
 —
 198
Net income 1,217
 585
 273
 389
 (17) (847) 1,600
Less: net income attributable to non-controlling interest, net of tax 26
 —
 —
 —
 —
 —
 26
Net income attributable to DXC common stockholders $1,191
 $585
 $273
 $389
 $(17) $(847) $1,574
               
Effective Tax Rate (42.3)%           28.0%
               
Basic EPS from continuing operations $3.48
 $2.05
 $0.96
 $1.37
 $(0.06) $(2.98) $4.83
Diluted EPS from continuing operations $3.43
 $2.02
 $0.94
 $1.34
 $(0.06) $(2.93) $4.75
               
Weighted average common shares outstanding for:              
Basic EPS 284.70
 284.70
 284.70
 284.70
 284.70
 284.70
 284.70
Diluted EPS 289.53
 289.53
 289.53
 289.53
 289.53
 289.53
 289.53




A reconciliation of net income to adjusted EBIT is as follows:
 Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended
(in millions) December 31, 2018 December 31, 2017 December 31, 2018 December 31, 2017 December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
Net income $466
 $779
 $991
 $1,217
Net income (loss) $90
 $466
 $(1,857) $991
Income from discontinued operations, net of taxes —
 (73) (35) (198) —
 —
 —
 (35)
Income tax expense (benefit) 3
 (365) 205
 (303)
Income tax expense 37
 3
 191
 205
Interest income (27) (27) (92) (59) (33) (27) (130) (92)
Interest expense 81
 73
 249
 220
 93
 81
 288
 249
EBIT 523
 387
 1,318
 877
 187
 523
 (1,508) 1,318
Restructuring costs 76
 210
 418
 585
 74
 76
 248
 418
Transaction, separation and integration-related costs 107
 83
 305
 273
 68
 107
 226
 305
Amortization of acquired intangible assets 134
 134
 401
 389
 146
 134
 435
 401
Pension and OPEB actuarial and settlement gains —
 (17) —
 (17)
Goodwill impairment losses 53
 —
 2,940
 —
Gain on arbitration award —
 —
 (632) —
Adjusted EBIT $840
 $797
 $2,442
 $2,107
 $528
 $840
 $1,709
 $2,442




Liquidity and Capital Resources


Cash and Cash Equivalents and Cash Flows


As of December 31, 2018,2019, our cash and cash equivalents were $2.5$2.6 billion, of which $1.0$1.5 billion was held outside of the U.S. 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, we expect a significant portion of the cash and cash equivalents held by our foreign subsidiaries will no longer be subject to U.S. federal income tax consequences upon subsequent repatriation to the United States. 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 and cash equivalents ("cash")decreased to $2.5were $2.9 billion as ofand $2.6 billion for March 31, 2019 and December 31, 2018 from $2.6 billion as of March 31, 2018. The cash flows of USPS have not been segregated and are included in the statements of cash flows for all periods presented.2019, respectively. The following table summarizes our cash flow activity:
 Nine Months Ended   Nine Months Ended  
(in millions) December 31, 2018 December 31, 2017 Change December 31, 2019 December 31, 2018 Change
Net cash provided by operating activities $1,035
 $2,010
 $(975) $2,062
 $1,035
 $1,027
Net cash (used in) provided by investing activities (40) 770
 (810)
Net cash used in investing activities (2,122) (40) (2,082)
Net cash used in financing activities (1,183) (1,136) (47) (305) (1,183) 878
Effect of exchange rate changes on cash and cash equivalents (66) 44
 (110) 26
 (66) 92
Net (decrease) increase in cash and cash equivalents $(254) $1,688
 $(1,942)
Net decrease in cash and cash equivalents $(339) $(254) $(85)
Cash and cash equivalents at beginning-of-year 2,729
 1,268
   2,899
 2,729
  
Cash and cash equivalents at the end-of-period $2,475
 $2,956
   $2,560
 $2,475
  




Net cash provided by operating activities during the first nine months of fiscal 20192020 was $1,035$2,062 million as compared to $2,010$1,035 million during the comparable period of the prior fiscal year. The year-over-year decreaseincrease of $975$1,027 million was due to an increase in net income, net of adjustments of $730 million, which includes cash received on arbitration award of $668 million and a decrease in working capital movementscash outflows of $600 million, an increase of $137 million in gain on dispositions, a decrease in other non-cash items of $63 million and the increase in unrealized foreign currency gain of $76 million over the prior fiscal year. These decreases were partially offset by an increase in net income of $226 million and an increase in depreciation and amortization expense of $127$297 million.


Net cash used in investing activities during the first nine months of fiscal 20192020 was $40$2,122 million as compared to net cash provided by investing activities of $77040 million during the comparable period of the prior fiscal year. The decreaseincrease of $8102,082 million was primarilypredominately due to a reduction in cash received from the HPES Merger of $974 million, offset by a reductionan increase in cash paid for acquisitions of $139$1,665 million, a reductiondecrease in capital expenditurescash collections related to deferred purchase price receivable of $105$248 million, a decrease in proceeds from sale of assets of $228 million, and short-term investing of $75 million. The increase is partially offset by a netdecrease in payments for transition and transformation contract costs of $74 million and cash outflow frompaid for business dispositions of $65 million over the priorin fiscal year. These decreases were partially offset by an increase in proceeds on sale of property and equipment of $254 million and an increase in cash collections of $230 million associated with the deferred purchase price receivable generated from the sale of our trade receivables and presented within investing activities pursuant to ASU 2016-15 as discussed in Note 2 - "Recent Accounting Pronouncements."2019.


Net cash used in financing activities during the first nine months of fiscal 20192020 was $1,183$305 million as compared to $1,136$1,183 million during the comparable period of the prior fiscal year. The $47878 million increase in cash used in financing activities decrease was primarily due to an increaseadditional borrowings on long-term debt of $552 million, a decrease in payments on long-term debt obligations of $1,328$1,590 million, an increase in payments on capitalized lease obligations and borrowings for asset financing of $22 million, an increase inlower repurchases of common stock and advance payment for accelerated share repurchase of $1,187 million and an increase in dividend payments of $36$517 million. These cash outflows wereThis was partially offset by borrowings related tofor the Separation of USPS spin transaction of $1,114 million and a reductionproceeds from bond issuance of payments on borrowings under lines of credit of $335 million.$753 million in the prior fiscal year.





Capital Resources


See Note 21 - "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:
 As of As of
(in millions) December 31, 2018 March 31, 2018 December 31, 2019 March 31, 2019
Short-term debt and current maturities of long-term debt $1,580
 $1,918
 $1,581
 $1,942
Long-term debt, net of current maturities 5,980
 6,092
 7,315
 5,470
Total debt $7,560
 $8,010
 $8,896
 $7,412


The $0.5$1.5 billion decreaseincrease in total debt during the first nine months of fiscal 20192020 was primarily attributed to the repayment of $899 million principal amount of the USDnew term loan due 2022. This debt repayment was financed from the cash payment received from Perspecta in connection with the Separation. During the second quarter of fiscal 2019, we completed a senior notes offeringcredit agreement in an aggregate principal of €650$2.2 billion, consisting of three tranches: (i) $500 million due 2026,maturing on fiscal 2025; (ii) €750 million maturing on fiscal 2022; and (iii) €750 million maturing on fiscal 2023. The proceeds from the proceeds of which werenew borrowing was used to repayfinance the outstanding EUR term facilities andLuxoft Acquisition. Additionally, we repaid the outstanding USD term facility.

During$500 million Senior Notes due 2020 during the thirdfirst quarter of fiscal 2019, we entered into a term loan credit agreement maturing on January 15, 2022, in an aggregate principal amount of £4502020 and $500 million the proceeds of which were used to repay the £185 million term loan due January 15, 2019 and $150 million of the Senior Notes due 2021. Also,2021 during the third quarter of fiscal 2019, we entered into a senior unsecured AUD 800 million term loan agreement maturing in fiscal 2021, the proceeds of which were used to repay an existing AUD term loan due 2022. Finally, we amended our commercial paper program to issue short-term commercial paper notes up to a maximum aggregate amount outstanding at any time of €1 billion or its equivalent in US currency.

2020. We were in compliance with all financial covenants associated with our borrowings as of December 31, 20182019 and December 31, 2017.2018.


The maturity chart below as of December 31, 2018, summarizes the future maturities of long-term debt principal for the remainder of fiscal 2019 and subsequent fiscal years subsequent to December 31, 2019 and excludes maturities of borrowings for assets acquired under long-term financing and capitalizedfinance lease liabilities. For more information on our debt, see Note 1112 - "Debt" to the financial statements.



chart-516070e633215e0394f.jpg
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The following table summarizes our capitalization ratios:
 As of As of
(in millions) December 31, 2018 March 31, 2018 December 31, 2019 March 31, 2019
Total debt $7,560
 $8,010
 $8,896
 $7,412
Cash and cash equivalents 2,475
 2,593
 2,560
 2,899
Net debt(1)
 $5,085
 $5,417
 $6,336
 $4,513
        
Total debt $7,560
 $8,010
 $8,896
 $7,412
Equity 11,356
 13,837
 9,101
 11,725
Total capitalization $18,916
 $21,847
 $17,997
 $19,137
        
Debt-to-total capitalization 40.0% 36.7% 49.4% 38.7%
Net debt-to-total capitalization(1)
 26.9% 24.8% 35.2% 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. See "Non-GAAP Financial Measures" for more information.


The increase in debt-to-total capitalization and netNet debt-to-total capitalization as of December 31, 20182019 increased as compared to March 31, 2018 is2019, primarily due to the decreaseincrease in total capitalization as a result ofdebt attributed to the Luxoft Acquisition, the decrease in equity.cash and cash equivalents used to pay down Senior Notes, and the decrease in equity resulting from goodwill impairment charges reported during the second quarter of fiscal 2020.



As of December 31, 2018 ,2019, our credit ratings were as follows:
Rating Agency Rating Outlook Short Term Ratings
Fitch BBB+ StableNegative F-2
Moody's Baa2 Stable P-2
S&P BBB StableNegative -


SubsequentFollowing our announcement in November to the January 7, 2019, announcement by DXC and Luxoft Holding, Inc ("Luxoft")explore strategic alternatives for certain of a definitive agreement for DXC to acquire Luxoft, Moody'sour businesses, Fitch and S&P each affirmed DXC’s credit ratings and revised their ratings outlook to negative from stable.  Moody’s identified the strategic alternatives as credit negative and indicated its DXC’s ratings and outlook for DXC on January 8, 2019, and Fitch affirmed its ratings and outlook for DXC on January 9, 2019,were unaffected by the announcement.


See Note 2021 - "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 to use 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 draw on our multi-currency revolving credit facility or raise capital through the issuance of capital market debt instruments such as commercial paper, term loans, and bonds. In addition, we also currently utilize and will further utilize our cross currency cash pool for liquidity needs. However, potential future ratings agency actions may impair our ability to access certain segments of the capital markets and 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.


The following table summarizes our total liquidity:
 As of As of
(in millions) December 31, 2018 December 31, 2019
Cash and cash equivalents $2,475
 $2,560
Available borrowings under our revolving credit facility 4,000
 4,000
Total liquidity
 $6,475
 $6,560


Share Repurchases


During the first quarter of fiscal 2018, our Board of Directors authorized the repurchase of up to $2.0 billion of our common stock. On November 8, 2018, DXC announced that its boardstock and during the third quarter of directorsfiscal 2019, our Board of Directors approved an incremental $2.0 billion share repurchase authorization. An expirationrepurchase. This program became effective on April 3, 2017 with no end date has not been established for this repurchase plan.established. During the nine months ended December 31, 2018,2019, we repurchased 17,680,43715,933,651 shares of our common stock at an aggregate cost of $1.2 billion.$736 million. The repurchase included 3,654,544 shares under the accelerated share repurchase ("ASR") agreement at an average price of $54.73 per share. See Note 17 - "Stockholders' Equity" to the financial statements.


Dividends


During the nine months ended December 31, 2018,2019, our Board of Directors declared aggregate cash dividends to our stockholders of $0.57$0.63 per share, or approximately $161$165 million. Future dividends are subject to customary board review and approval prior to declaration.


Off-Balance Sheet Arrangements



In the normal course of business, we are party to arrangements that include guarantees, the receivables securitization facility and certain other financial instruments with off-balance sheet risk, such as letters of credit and surety bonds. We also use performance letters of credit to support various risk management insurance policies. No liabilities related to these arrangements are reflected in our condensed consolidated balance sheets. There have been no material changes to our off-balance-sheet arrangements reported under Part II, Item 7 included in Exhibit 99.1 toof our CurrentAnnual Report on Form 8-K filed with the Securities and Exchange Commission on August 16, 2018,10-K other than as disclosed below and in Note 6 - "Sale of Receivables" and Note 2021 - "Commitments and Contingencies" to the financial statements in this Quarterly Report on Form 10-Q.




Contractual Obligations


With the exception of the changesnew term loan credit agreement in an aggregate principal of $2.2 billion, consisting of three tranches: (i) $500 million maturing during fiscal 2025; (ii) €750 million maturing during fiscal 2022; and (iii) €750 million maturing during fiscal 2023, and repayment of the $500 million Senior Notes due 2020 and $500 million Senior Notes due 2021 as discussed above under the subheading "Capital Resources," there have been no material changes, outside the ordinary course of business, to our contractual obligations since March 31, 2018.2019. For further information see "Contractual Obligations" in Item 7 included in Exhibit 99.1 toof Part II of our CurrentAnnual Report on Form 8-K filed with10-K for the Securities and Exchange Commission on August 16, 2018.fiscal year ended March 31, 2019.


Critical Accounting Policies and Estimates


The preparation of consolidated financial statements in accordance with U.S. GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities. These estimates may change in the future if underlying assumptions or factors change. Accordingly, actual results could differ materially from our estimates under different assumptions, judgments or conditions. We consider the following policies to be critical because of their complexity and the high degree of judgment involved in implementing them: revenue recognition, income taxes, 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. During the third quarterthree months and first nine months of fiscalended December 31, 2019, there were no changes to our accounting estimates from those described in our fiscal 20182019 Annual Report on Form 10-K except as mentioned below.in Note 1 - "Summary of Significant Accounting Policies".


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-element deliverables.

Multiple-element arrangements

Many of our contracts require us to provide a range of services or elements 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 a multiple-element arrangement 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 performance obligation. 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 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. 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 contract elements, revenues for each element are recognized based on the relevant revenue recognition method for the services performed or elements delivered if the revenue recognition criteria have been met. 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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


For quantitative and qualitative disclosures about market risk affecting DXC, see "Quantitative and Qualitative Disclosures About Market Risk" in Item 7A of Part II of our Annual Report on Form 10-K for the fiscal year ended March 31, 2018.2019. Our exposure to market risk has not changed materially since March 31, 2018.2019.



ITEM 4. CONTROLS AND PROCEDURES


Evaluation of Disclosure Controls and Procedures


Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934)1934, as amended (the “Exchange Act”)). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2018.2019 because of the material weakness in our internal control over financial reporting described below.


Control Activities

We 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 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.

As a result, we have concluded that there is a reasonable possibility that a material misstatement to our Condensed Consolidated 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 December 31, 2019.

Notwithstanding the identified material weakness, management believes that the Condensed Consolidated Financial Statements and related financial information included in this 10-Q fairly present, in all material respects, our balance sheets, statements of operations, comprehensive (loss) income and cash flows as of and for the periods presented.

Remediation Plan

Our remediation efforts are ongoing. Management plans to implement remediation actions to address the control deficiencies that led to a material weakness. The following activities are designed as part of this remediation plan:

Appointment of a new senior executive reporting directly to our Chief Financial Officer to lead remediation activities.
Enhance periodic reviews by management to determine if policies, procedures, and related control activities have continued relevance or need updating with a specific focus on complex transactions and processes.
Align the SOX compliance function under the newly appointed Chief Risk Officer.
Periodic reporting of the remediation plan progress to the Audit Committee.

While we believe the plan will 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 may not be in a position to complete our remediation plan and conclude that our internal control over financial reporting is operating effectively until after the end of our current fiscal year.

Changes in Internal Control Overover Financial Reporting


During the first quarter of fiscal 2020, we adopted ASC 842 effective April 1, 2019, as described in Note 2 - “Recent Accounting Pronouncements” and Note 7 - “Leases” to the financial statements. We implemented a new lease accounting system and redesigned certain processes and controls pertaining to our lease portfolio.

There were no changes in our internal control over financial reporting during the three months ended December 31, 20182019 that have materially affected, or are reasonably likely to materiallymaterial affect, our internal control over financial reporting.





PART II




ITEM 1. LEGAL PROCEEDINGS


See Note 2021 - "Commitments and Contingencies" to the financial statements under the caption “Contingencies” for information regarding legal proceedings in which we are involved.


Item 1A.RISK FACTORS
Item 1A.RISK FACTORS


Our operations and financial results are subject to various risks and uncertainties, which may 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 Quarterly Report on Form 10-Q. In such case, the trading price for DXC common stock could decline, and you could lose all or part of your investment. Past performance may not be a reliable indicator of future financial performance and historical trends should not be used to anticipate results or trends in future periods. Future performance and historical trends may be adversely affected by the aforementioned risks, and other variables and 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. Other than as describedApart from the risk factors disclosed below, there have been no material changes in the three months ended December 31, 20182019 to the risk factors described in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended March 31, 20182019 and in Part II, Item 1A of our Quarterly ReportsReport on Form 10-Q for the quarterly periods ended June 30, 2019 and September 30, 2018.2019.


Risks RelatedWe 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 4. 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 promptly to remediate the Proposed Luxoft Acquisition

The proposed Luxoft Acquisition is contingent uponmaterial weakness identified above, or if we were to conclude in the satisfaction of a number of conditions,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 Luxoft Acquisitionmaterial weakness, and management may not be consummated on the terms or timeline currently contemplated.

On January 7, 2019, we announced that we had entered into a definitive agreementable to acquire Luxoft Holding, Inc. (“Luxoft” andcomplete such acquisition, the “Luxoft Acquisition”). We currently expect that the Luxoft Acquisition, if completed, will occur by June 2019.

The terms and conditions of the Luxoft Acquisition are as set forthremediation in a Merger Agreement dated as of January 6, 2019 by and among DXC, Luxoft and Luna Equities, Inc. (the “Luxoft Merger Agreement”). Luxoft and DXC have made customary representations and warranties and agreed to customary covenants in the Luxoft Merger Agreement. The parties to the Luxoft Merger Agreement have also agreed to use their respective reasonable best efforts to obtain any approvals from governmental authorities for the Luxoft Acquisition, including antitrust approvals, subject to certain exceptions. Luxoft may not engage in any discussions regarding a potential acquisition of Luxoft with any party other than DXC or its affiliates or otherwise enter into any agreement with respect to, or solicit, initiate, propose or knowingly encourage any proposal regarding, an alternative transaction. The Luxoft Merger Agreement contains certain customary termination rights for both Luxoft and DXC.

The consummation of the Luxoft Acquisition is subject to certain conditions, including (i) the receipt of antitrust clearances, (ii) the absence of any law, order or other governmental action preventing or restraining the consummation of the Luxoft Acquisition, (iii) the accuracy of the representations and warranties of each party in the Luxoft Merger Agreement, (iv) compliance in all material respects by each party with its covenants under the Luxoft Merger Agreement, and (v) the absence of a material adverse effect on Luxoft. For these and other reasons, the Luxoft Acquisition may not be completed by the end of June 2019 or otherwise on the terms or timeline contemplated, if at all.

The proposed Luxoft Acquisition may result in disruptions to relationships with customers and other business partners.

If we complete the proposed Luxoft Acquisition, the proposed 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, if completed, 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.timely manner.  Any of the foregoing could adversely affectmaterially harm our business, financial conditionour reputation and results of operations and prospects.

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 management's time and attention from the operationmarket price of our remaining 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. Some of these costs must be paid regardless of whether the Luxoft Acquisition is consummated.common stock.











ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


Unregistered Sales of Equity Securities
    
None during the period covered by this report.


Use of Proceeds


Not applicable.


Issuer Purchases of Equity Securities


The following table provides information on a monthly basis for the quarter ended December 31, 2018,2019, with respect to the Company’s purchase of equity securities:

Period 
Total Number
of Shares
Purchased
 
Average Price
Paid Per Share
 
Total Number
of Shares
Purchased as
Part of Publicly
Announced Plans or Programs
 
Approximate
Dollar Value
of Shares that
May Yet be Purchased
Under the Plans or Programs
October 1, 2018 to October 31, 2018 1,204,590
 $89.34 1,204,590 $3,304,130,695
November 1, 2018 to November 30, 2018 8,913,551
 $61.29 8,913,551 $2,757,775,497
December 1, 2018 to December 31, 2018 2,334,373
 $61.03 2,334,373 $2,615,303,972
Total: 12,452,514
 $63.96 12,452,514  

Period 
Total Number
of Shares
Purchased
 
Average Price
Paid Per Share
 
Total Number
of Shares
Purchased as
Part of Publicly
Announced Plans or Programs
 
Approximate
Dollar Value
of Shares that
May Yet be Purchased
Under the Plans or Programs
October 1, 2019 to October 31, 2019 —
 $— —
 $1,874,024,787
November 1, 2019 to November 30, 2019 848,953
 $36.72 848,953
 $1,842,853,650
December 1, 2019 to December 31, 2019 1,504,899
 $36.68 1,504,899
 $1,787,691,389
    
On April 3, 2017, DXC 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 DXC common stock. On November 8, 2018, DXC's Board of Directors approved an incremental $2.0 billion share repurchase authorization.repurchase. An expiration date has not been established for this repurchase plan.

On June 13, 2019, DXC entered into an ASR agreement with a third-party financial institution by advancing $200 million including a $100 million prepayment. At inception, the ASR was initially settled by delivery of 1,849,194 shares of common stock to the Company. During the second quarter of fiscal 2020, DXC received an additional 1,805,350 shares of common stock. In total, 3,654,544 shares of common stock were repurchased under the ASR for $200 million.

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.




ITEM 3. DEFAULT UPON SENIOR SECURITIES


None.




ITEM 4. MINE SAFETY DISCLOSURES


Not applicable.





ITEM 5. OTHER INFORMATION


None.


ITEM 6. EXHIBITS


The following exhibits are filed with this report.
Exhibit

Number		Description of Exhibit
2.1
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))
2.2
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))
2.3
Second Amendment to the 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 (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))
2.4
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))
2.5
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))
2.6
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(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))
2.7
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))
2.8
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))
2.9
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))
2.10
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))
2.11
Intellectual Property Matters Agreement, dated as of March 31, 2017, by and betweenamong 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))
2.12
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))
2.13
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))
2.14
Agreement and Plan of Merger, dated as of October 11, 2017, by and among DXC Technology Company, Ultra SC Inc.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))


2.15
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))
2.16
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))
2.17
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))
2.18
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))
2.19
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))
2.20
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))
2.21
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))
2.22
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))
3.1
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))
3.2
Amended and restatedRestated 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))
4.1
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 Current Report on Form 8-K (filed March 27, 2017) (file no. 001-38033))
4.2
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 Current Report on Form 8-K (filed August 9, 2017) (file no. 001-38033))
4.3
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 Current Report on Form 8-K (filed August 17, 2017) (file no. 001-38033))
4.4
Fourth Supplemental Indenture, dated as of August 17, 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 Current Report on Form 8-K (filed August 17, 2017) (file no. 001-38033))
4.5
Fifth Supplemental Indenture, dated as of 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 quarterly period ended December 31, 2017 (filed February 9, 2018) (file no. 001-38033))
4.6
Sixth Supplemental Indenture, dated March 15, 2018, between 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 March 15, 2018) (file no. 001-38033))
4.7
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))
4.8
Form of DXC Technology Company's 2.875% Senior Notes due 2020 (included in Exhibit 4.3) (incorporated by reference to Exhibit 4.2 to DXC Technology Company's Current Report on Form 8-K (filed August 9, 2017) (file no. 001-38033))
4.9
Form of DXC Technology Company's 4.45% Senior Notes due 2022 (included in Exhibit 4.2) (incorporated by reference to Exhibit 4.1 to DXC Technology Company's Current Report on Form 8-K (filed August 9, 2017) (file no. 001-38033))
4.10
Form of DXC Technology Company's 4.250% Senior Notes due 2024 (included in Exhibit 4.3) (incorporated by reference to Exhibit 4.2 to DXC Technology Company's Current Report on Form 8-K (filed August 9, 2017) (file no. 001-38033))
4.11
Form of DXC Technology Company's 4.750% Senior Notes due 2027 (included in Exhibit 4.3) (incorporated by reference to Exhibit 4.2 to DXC Technology Company's Current Report on Form 8-K (filed August 9, 2017) (file no. 001-38033))

4.12
Form of DXC Technology Company's Senior Floating Rate Notes due 2021 (included in Exhibit 4.4) (incorporated by reference to Exhibit 4.2 to DXC Technology Company's Current Report on Form 8-K (filed August 17, 2017) (file no. 001-38033))
4.13
Form of DXC Technology Company's 7.45% Senior Notes due 2029 (included in Exhibit 4.5) (incorporated by reference to Exhibit 4.5 to DXC Technology Company's Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2017 (filed February 9, 2018) (file no. 001-38033))
4.14
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 Company's Current Report on Form 8-K (filed March 15, 2018) (file no. 001-38033))
4.15
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))

4.16
Ninth Supplemental Indenture, dated January 22, 2018, between Enterprise Services LLC and The Bank of New York Mellon Trust Company, N.A., as trustee, (incorporated by reference to Exhibit 4.1 to DXC Technology Company's Current Report on Form 8-K (filed January 23, 2018) (file no. 001-38033))
10.1
Fourth Amendment No. 4to the Purchase and Sale Agreement dated as of October 11, 2018 to the Amended and Restated Credit Agreement dated October 11, 2013,November 22, 2019, among DXC Technology Company, the financial institutions listed therein,as Servicer; DXC Technology Services LLC, Alliance-One Services, Inc., Computer Sciences Corporation, CSC Consulting, Inc., CSC Cybertek Corporation, Mynd Corporation, and Citibank, N.A.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 Agent (incorporated by reference to Exhibit 10.9 to DXC Technology Company's Quarterly Report on Form 8-K (filed November 8, 2018) (file no. 001-38033))Buyer




10.2
CreditSeventh Amendment to the Receivables Purchase Agreement dated as of October 12, 2018,November 22, 2019, among DXC Receivables LLC (f/k/a CSC Computer Sciences International Operations Limited,Receivables LLC), as borrower,Seller, DXC Technology Company, as guarantor,Servicer, PNC Bank, National Association, as Administrative Agent, and the lenderspersons from time to time party thereto as Lenders,Purchasers 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))Group Agents

10.3
Syndicated Facility Agreement,Third Amended and Restated Performance Guaranty dated as of November 27, 2018,22, 2019, made 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,Performance Guarantor, in favor of PNC Bank, National Association, as Administrative Agent, for the other guarantors from time to time party thereto,benefit of 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))
10.4
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 agentPurchasers

10.5
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
31.1
Section 302 Certification of the Chief Executive Officer
31.2
Section 302 Certification of the Chief Financial Officer
32.1
Section 906 Certification of Chief Executive Officer
32.2
Section 906 Certification of Chief Financial Officer
101.INS101XBRL InstanceInteractive Data Files
101.SCHXBRL Taxonomy Extension Schema
101.CALXBRL Taxonomy Extension Calculation
101.LABXBRL Taxonomy Extension Labels
101.PREXBRL Taxonomy Extension Presentation
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

    




SIGNATURES


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.


   DXC TECHNOLOGY COMPANY
    
Dated:February 8, 20197, 2020By:/s/ Neil A. Manna
  Name:Neil A. Manna
  Title:Senior Vice President, Corporate Controller Principal Accounting Officer
 




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