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Business

DXC Technology Company ("DXC," the "Company," "we," "us," or "our") helps global companies run their mission critical systems and operations while modernizing IT, optimizing data architectures, and ensuring security and scalability across public, private and hybrid clouds. With decades of driving innovation, the world’s largest companies trust DXC to deploy its enterprise technology stack to deliver new levels of performance, competitiveness and customer experiences.

HHS Sale

On March 9, 2020, DXC entered into a definitive agreement to sell (the “HHS Sale”) its U.S. State and Local Health and Human Services business (the “HHS Business”) to Veritas Capital Fund Management, L.L.C. for $5.0 billion in cash. The HHS Business is an end-to-end provider of technology-enabled, mission critical solutions that are fundamental to the administration and operations of health programs throughout the United States. The transaction is expected to close by September 2020, but no later than December 2020, subject to the satisfaction of certain closing conditions. Following the transaction close, DXC will retain its remaining healthcare practice, servicing customers across the healthcare continuum, including payers, providers and life sciences firms.

Luxoft Acquisition

On June 14, 2019, DXC completed its acquisition of Luxoft Holding, Inc. ("Luxoft"), a global digital strategy and software engineering firm (the "Luxoft Acquisition"). The acquisition builds on DXC’s unique value proposition as an end-to-end, mainstream IT and digital services market leader, and strengthens the Company’s ability to design and deploy transformative digital solutions for clients at scale. See Note 3 - "Acquisitions" for further information.

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 Statements of Comprehensive (Loss) Income 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.

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, 2020 ("fiscal 2020").

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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. The severity, magnitude and duration, as well as the economic consequences of the coronavirus disease 2019 ("COVID-19") pandemic, are uncertain, rapidly changing and difficult to predict. Therefore, accounting estimates and assumptions may change over time in response to COVID-19 and may change materially in future periods. 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 are not necessarily indicative of the results to be expected for the full fiscal year.

Allowance for Credit Losses

Effective April 1, 2020, the Company adopted ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” using the modified retrospective method. Refer to Note 2 - "Recent Accounting Pronouncements" and Note 5 - "Receivables" for further discussion of the impact of adoption and other required disclosures. The amendments in this update changed the guidance for credit losses to an expected loss model rather than an incurred loss model. Financial assets subject to impairment under an expected credit loss model include billed and unbilled receivables, other receivables, and contract assets. Certain off-balance sheet arrangements, such as financial guarantees associated with receivables securitization facilities, are also subject to the guidance of ASU 2016-13.

Under an expected credit loss model, the Company immediately recognizes an estimate of credit losses expected to occur over the remaining life of financial assets that are in the scope of ASU 2016-13. DXC considers all available relevant information when estimating expected credit losses, including past events, current market conditions and forecasts and their implications for expected credit losses.

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During the three months ended June 30, 2020, DXC adopted the following Accounting Standards Updates ("ASU") issued by the Financial Accounting Standards Board:

Date Issued and ASU	Date Adopted and Method	Description	Impact
June 2016 ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”	April 1, 2020 Modified Retrospective	This update requires the measurement and recognition of expected credit losses using the current expected credit loss model for financial assets held at amortized cost, which includes the Company’s trade accounts receivable, certain financial instruments and contract assets. It replaces the existing incurred loss impairment model with an expected loss methodology. The recorded credit losses are adjusted each period for changes in expected lifetime credit losses. The standard requires a cumulative effect adjustment to the statement of financial position as of the beginning of the first reporting period in which the guidance is effective.	The Company adopted this standard using the modified retrospective approach and recorded an immaterial cumulative effect adjustment in retained earnings as of April 1, 2020.
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"	April 1, 2020 Prospective	This update helps entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. Entities have the option to apply this standard prospectively to all implementation costs incurred after the date of adoption or retrospectively.	The Company adopted this standard using the prospective method and determined that the adoption of ASU 2018-15 had no material impact to its condensed consolidated financial statements.

The following ASUs were recently issued but have not yet been adopted by DXC:

Date Issued and ASU	DXC Effective Date	Description	Impact
December 2019 ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes"	Fiscal 2022	This update is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. Early adoption of this update is permitted.	The Company is currently evaluating the potential impact this standard may have on its financial statements in future reporting periods.

Other recently issued ASUs effective after June 30, 2020 are not expected to have a material effect on DXC's consolidated financial statements.

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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 "acquisition date.")

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 allocation of the purchase price to the assets acquired and liabilities assumed as of the Luxoft acquisition date is as follows:

(in millions)		Fair Value
Cash and cash equivalents		$	113
Accounts receivable		233
Other current assets		15
Total current assets		361
Property and equipment		31
Intangible assets		577
Other assets		99
Total assets acquired		1,068
Accounts payable, accrued payroll, accrued expenses, and other current liabilities		(121		)
Deferred revenue		(8		)
Long-term deferred tax liabilities and income tax payable		(106		)
Other liabilities		(72		)
Total liabilities assumed		(307		)
Net identifiable assets acquired		761
Goodwill		1,262
Total 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 10 - "Goodwill."

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The Company valued current assets and liabilities using existing carrying values as an estimate of the approximate fair value of those items at the acquisition date except for certain contract receivables for which the Company determined fair value based on a cost plus margin approach. The Company valued acquired property and equipment using predominately the direct capitalization method of the income approach and in certain specific cases, the Company determined that the net book value represents the fair value. The Company valued customer relationships using the multi-period excess earnings method under the income approach and valued trade names and developed technology using a relief from royalty method under the income approach. The Company determined that the net book value of the purchased software represents the fair value.

Below are the estimated useful lives of the acquired intangibles:

		Estimated Useful Lives (Years)
Customer related intangibles		10
Trade names		20
Developed technology		3
Third-party purchased software		3

The Company valued deferred tax liabilities based on statutory tax rates in the jurisdictions of the legal entities where the acquired non-current assets and liabilities are taxed.

Basic earnings (loss) per share ("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
(in millions, except per-share amounts)		June 30, 2020				June 30, 2019
Net (loss) income attributable to DXC common shareholders:		$	(205	)		$	163
Common share information:
Weighted average common shares outstanding for basic EPS		253.63				267.00
Dilutive effect of stock options and equity awards		—				1.97
Weighted average common shares outstanding for diluted EPS		253.63				268.97
(Loss) Earnings per share:
Basic		$	(0.81	)		$	0.61
Diluted		$	(0.81	)		$	0.61

Certain share-based equity awards were excluded from the computation of dilutive EPS because inclusion of these awards would have had an anti-dilutive effect. The number of awards excluded were as follows:

		Three Months Ended
		June 30, 2020(1)			June 30, 2019
Stock Options		1,749,189			4,824
Restricted Stock Units		3,149,436			589,569
Performance Stock Units		233,762			—

        

⁽¹⁾ Due to the Company's net loss for the three months ended June 30, 2020, stock options, restricted stock units and performance stock units were excluded from the computation of dilutive EPS because they would have had an anti-dilutive effect.

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Receivables Facility

The Company has an accounts receivable sales facility (as amended, restated, supplemented or otherwise modified as of June 30, 2020, the "Receivables Facility") with certain unaffiliated financial institutions (the "Purchasers") for the sale of commercial accounts receivable in the United States. Under the Receivables Facility, certain of the Company's subsidiaries (the "Sellers") sell accounts receivable to DXC Receivables LLC ("Receivables SPV"), a wholly owned bankruptcy-remote entity, in a true sale. Receivables SPV subsequently sells certain of the receivables in their entirety to the Purchasers pursuant to a receivables purchase agreement. The financial obligations of Receivables SPV to the Purchasers under the Receivables Facility are limited to the assets it owns and non-recourse to the Company. Sales of receivables by Receivables SPV occur continuously and are settled on a monthly basis. During the first quarter of fiscal 2021, Receivables SPV amended the Receivables Facility (the "Amendment") to decrease the facility limit from $750 million to $600 million and extend the termination date to August 19, 2020. Under the terms of the Receivables Facility, there is no longer any deferred purchase price ("DPP") for receivables as the entire purchase price is paid in cash when the receivables are sold to the Purchasers. Prior to the Amendment, DPPs were realized by Receivables SPV upon the ultimate collection of the underlying receivables sold to the Purchasers. Cash receipts on the DPP were classified as cash flows from investing activities.

The 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 June 30, 2020, the total availability under the Receivables Facility was $324 million, and the amount sold to the Purchasers was $403 million, which was derecognized from the Company's balance sheet. As of June 30, 2020, the Company recorded a $79 million liability within accounts payable because the amount of cash proceeds received by the Company under the Receivables Facility was more than the total availability. The Receivables Facility is scheduled to terminate on August 19, 2020, but provides for one or more optional one-year extensions, if agreed to by the Purchasers. The Company uses the proceeds from the sale of receivables 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, no gain or loss on sale of receivables was recorded.

While the Company guarantees certain non-financial performance obligations of the Sellers, the Purchasers bear customer credit risk associated with the receivables sold under the Receivables Facility and have recourse in the event of credit-related customer non-payment solely to the assets of the Receivables SPV.

The following table is a reconciliation of the beginning and ending balance of the DPP:

(in millions)		As of and for the Three Months Ended
		June 30, 2019
Beginning balance		$	574
Transfers of receivables		1,214
Collections		(1,265		)
Change in funding availability		2
Ending balance		$	525

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Milano Receivables Facility

On June 5, 2020, the Company entered into an accounts receivable securitization facility (the "Milano Facility") with certain unaffiliated financial institutions (the "Milano Purchasers") for the sale of commercial accounts receivable related to Medicaid Management Information Systems ("MMiS") contracts in the United States. The Milano Facility is scheduled to terminate on June 4, 2021, but provides for one or more optional one-year extensions, if agreed to by the Purchasers. The Milano Facility has a facility limit of $275 million. Under the Milano Facility, certain of the Company's subsidiaries (the "Milano Sellers") sell MMiS accounts receivable to Milano Receivables Funding LLC ("Milano Receivables SPV"), a wholly owned bankruptcy-remote entity, in a true sale. Milano Receivables SPV subsequently sells the receivables in their entirety to the Milano Purchasers pursuant to a receivables purchase agreement. The financial obligations of Milano Receivables SPV to the Milano Purchasers under the Milano Facility are limited to the assets it owns and non-recourse to the Company. Sales of MMiS receivables by Milano Receivables SPV occur continuously and are settled on a monthly basis.

The amount available under the Milano 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 June 30, 2020, the total availability under the Milano Facility was approximately $251 million, and the amount sold to the Milano Purchasers was $263 million, which was derecognized from the Company's balance sheet. As of June 30, 2020, the Company recorded a $12 million liability within accounts payable because the amount of cash proceeds received by the Company under the Milano Facility was more than the total availability. The Company uses the proceeds from the sale of receivables under the Milano 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.

While the Company guarantees certain non-financial performance obligations of the Milano Sellers, the Milano Purchasers bear customer credit risk associated with the receivables sold under the Milano Facility and have recourse in the event of credit-related customer non-payment solely to the assets of the Milano Receivables SPV.

German Receivables Facility

On October 1, 2019, the Company executed an accounts receivable securitization facility (as amended, restated, supplemented or otherwise modified as of June 30, 2020, the "DE Receivables Facility") with certain unaffiliated financial institutions (the "DE Purchasers") for the sale of commercial accounts receivable in Germany. The DE Receivables Facility has a facility limit of €200 million (approximately $225 million as of June 30, 2020). Under the DE Receivables Facility, certain subsidiaries of the Company organized in Germany (the "DE Sellers") sell accounts receivable to DXC ARFacility Designated Activity Company ("DE Receivables SPV"), a trust-owned bankruptcy-remote entity, in a true sale. Pursuant to a receivables purchase agreement, DE Receivables SPV subsequently sells the receivables to the DE Purchasers in return for payments of capital. Sales of receivables by DE Receivables SPV occur continuously and are settled on a monthly basis. During the first quarter of fiscal 2021, DE Receivables SPV amended the DE Receivables Facility. Under the terms of the DE Receivables Facility, there is no longer any DPP for receivables as the entire purchase price is paid in cash when the receivables are sold to the DE Purchasers. Prior to the Amendment, DPPs were realized by DE Receivables SPV upon the ultimate collection of the underlying receivables sold to the DE Purchasers. Cash receipts on the DPPs were classified as cash flows from investing activities. The DPP balance was $102 million before the Amendment was executed. Upon execution of the Amendment, the Purchasers extinguished the DPP balance and returned title to the applicable underlying receivables to DE Receivables SPV. The DPP extinguishment was classified as a non-cash investing activity, please refer to Note 18 - "Cash Flows."

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The amount available under the DE Receivables Facility fluctuates over time based on the total amount of eligible receivables generated during the normal course of business after deducting excess concentrations. As of June 30, 2020, the total availability under the DE Receivables Facility was approximately $116 million, and the amount sold to the DE Purchasers was $123 million, which was derecognized from the Company's balance sheet. As of June 30, 2020, the Company recorded a $7 million liability within accounts payable because the amount of cash proceeds received by the Company under the DE Receivables Facility was more than the total availability. The DE Receivables Facility is scheduled to terminate on September 30, 2020, but provides for one or more optional one-year extensions, if agreed to by the DE Purchasers. The Company uses the proceeds from DE Receivables SPV's sale of receivables under the DE Receivables Facility for general corporate purposes.

The fair value of the sold receivables approximated book value due to the short-term nature, and as a result, no gain or loss on sale of receivables was recorded.

Certain obligations of DE Sellers under the DE Receivables Facility and certain DXC subsidiaries located in Germany, as initial servicers, are guaranteed by the Company under a performance guaranty, made in favor of an administrative agent on behalf of the DE Purchasers. However, the performance guaranty does not cover DE Receivables SPV’s obligations to pay yield, fees or invested amounts to the administrative agent or any of the DE Purchasers.

The following table is a reconciliation of the beginning and ending balances of the DPP:

(in millions)		As of June 30, 2020
Beginning balance		$	103
Transfers of receivables		417
Collections		(420		)
Change in funding availability		2
Facility amendments		(102		)
Ending balance		$	—

Allowance for Doubtful Accounts

The Company calculates expected credit losses for trade accounts receivable based on historical credit loss rates for each aging category as adjusted for the current market conditions and forecasts about future economic conditions. The following table presents the activity in the allowance for doubtful accounts for trade accounts receivable:

(in millions)		As of and for the Three Months Ended
		June 30, 2020
Beginning balance		$	74
Impact of adoption of the Credit Loss Standard		4
Provisions for expected credit losses		35
Write-offs charged against the allowance		(9		)
Ending balance		$	104

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The Company has operating and finance leases for data centers, corporate offices, retail stores and certain equipment. Its 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 June 30, 2020				Three Months Ended June 30, 2019
Operating lease cost		$	156			$	176
Short-term lease cost		15				10
Variable lease cost		8				15
Sublease income		(12		)		(9		)
Total operating costs		$	167			$	192
Finance lease cost:
Amortization of right-of-use assets		$	116			$	109
Interest on lease liabilities		14				17
Total finance lease cost		$	130			$	126

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 18 - "Cash Flows."

Supplemental Cash Flow information related to leases was as follows:

(in millions)		Three Months Ended June 30, 2020				Three Months Ended June 30, 2019
Cash paid for amounts included in the measurement of:
Operating cash flows from operating leases		$	156			$	174
Operating cash flows from finance leases		$	14			$	17
Financing cash flows from finance leases		$	138			$	145

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Supplemental Balance Sheet information related to leases was as follows:

				As of
(in millions)		Balance Sheet Line Item		June 30, 2020				March 31, 2020
Assets:
ROU operating lease assets		Operating right-of-use assets, net		$	1,602			$	1,428
ROU finance lease assets		Property and Equipment, net		1,137				1,220
Total				$	2,739			$	2,648
Liabilities:
Current
Operating lease		Current operating lease liabilities		$	488			$	482
Finance lease		Short-term debt and current maturities of long-term debt		432				444
Total				$	920			$	926
Non-current
Operating lease		Non-current operating lease liabilities		$	1,208			$	1,063
Finance lease		Long-term debt, net of current maturities		583				602
Total				$	1,791			$	1,665

The following table provides information on the weighted average remaining lease term and weighted average discount rate for operating and finance leases:

		As of
		June 30, 2020			March 31, 2020
Weighted Average remaining lease term:		Years
Operating leases		4.9			4.8
Finance leases		2.7			2.7
Weighted average remaining discount rate:		Rate
Operating leases		4.1	%		4.0	%
Finance leases		4.2	%		6.4	%

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The following maturity analysis presents expected undiscounted cash payments for operating and finance leases on an annual basis as of June 30, 2020:

Fiscal year		Operating Leases
(in millions)		Real Estate				Equipment				Finance Leases
Remainder of 2021		$	356			$	51			$	345
2022		403				38				370
2023		321				18				223
2024		248				10				99
2025		168				5				23
Thereafter		261				3				1
Total lease payments		1,757				125				1,061
Less: imputed interest		(181		)		(5		)		(46		)
Total payments		$	1,576			$	120			$	1,015

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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 8 - "Derivative 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)		June 30, 2020
Assets:		Fair Value				Level 1				Level 2				Level 3
Money market funds and money market deposit accounts		$	706			$	706			$	—			$	—
U.S. treasury bills(1)		500				500				—				—
Time deposits(1)		305				305				—				—
Other debt securities(2)		56				—				53				3
Total assets		$	1,567			$	1,511			$	53			$	3
Liabilities:
Contingent consideration		$	48			$	—			$	—			$	48
Total liabilities		$	48			$	—			$	—			$	48

		March 31, 2020
Assets:		Fair Value				Level 1				Level 2				Level 3
Money market funds and money market deposit accounts		$	156			$	156			$	—			$	—
Time deposits(1)		595				595				—				—
Other debt securities(2)		51				—				48				3
Deferred purchase price receivable		103				—				—				103
Total assets		$	905			$	751			$	48			$	106
Liabilities:
Contingent consideration		$	46			$	—			$	—			$	46
Total liabilities		$	46			$	—			$	—			$	46

        

⁽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 $38 million and $37 million, and unrealized gains of $15 million and $11 million, as of June 30, 2020 and March 31, 2020, respectively.

The fair value of money market funds, money market deposit accounts, U.S. Treasury bills with less than three months maturity and time deposits, included in cash and cash equivalents, are based on quoted market prices. The fair value of other debt securities, included in other long-term assets, is based on actual market prices. The fair value of the DPPs, 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, included in other liabilities, is based on contractually defined targets of financial performance and other considerations.

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Other Fair Value Disclosures

The carrying amounts of the Company’s financial instruments with short-term maturities, primarily accounts receivable, accounts payable, short-term debt, and financial liabilities included in other accrued liabilities, are deemed to approximate their market values due to their short-term nature. If measured at fair value, these financial instruments would be classified as Level 2 or Level 3 within 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 finance lease liabilities, was $10.2 billion and $8.2 billion as of June 30, 2020 and March 31, 2020, respectively, as compared with carrying value of $10.0 billion and $8.4 billion as of June 30, 2020 and March 31, 2020, respectively. If measured at fair value, long-term debt, excluding finance lease liabilities would be classified as Level 1 or Level 2 within 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 as Level 3 within the fair value hierarchy. There were no significant impairments recorded during the fiscal period covered by this report.

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In the normal course of business, the Company is exposed to interest rate and foreign exchange rate fluctuations. As part of its risk management strategy, the Company uses derivative instruments, primarily foreign currency forward contracts and interest rate swaps, to hedge certain foreign currency and interest rate exposures. The Company’s objective is to reduce earnings volatility by offsetting gains and losses resulting from these exposures with losses and gains on the derivative contracts used to hedge them. The Company does not use derivative instruments for trading or any speculative purposes.

Derivatives Designated for Hedge Accounting

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-denominated intercompany obligations and forecasted transactions. The notional amounts of foreign currency forward contracts designated as cash flow hedges as of June 30, 2020 and March 31, 2020 were $450 million and $455 million, respectively. As of June 30, 2020, the related forecasted transactions extend through September 2022.

For the three months ended June 30, 2020 and June 30, 2019, respectively, the Company performed an assessment at the inception of the cash flow hedge transactions and determined that all critical terms of the hedging instruments and hedged items matched. The Company performs an assessment of critical terms on an on-going basis throughout the hedging period. During the three months ended June 30, 2020 and June 30, 2019, respectively, the Company had no cash flow hedges for which it was probable that the hedged transaction would not occur. As of June 30, 2020, $6 million of the existing amount of loss related to the cash flow hedge reported in accumulated other comprehensive loss is expected to be reclassified into earnings within the next 12 months.

Net investment hedges

During the fiscal year ended March 31, 2019, the Company designated certain foreign currency forward contracts as net investment hedges to protect its investment in certain foreign operations against adverse changes in exchange rates between the Euro and the U.S. dollar. These contracts were de-designated and settled during the fiscal year ended March 31, 2020, and as of June 30, 2020, there were none outstanding.

During the three months ended June 30, 2020, the pre-tax gain (loss) on derivatives designated for hedge accounting recognized in other comprehensive income (loss) was $11 million and in loss from operations was $(4) million.

Derivatives Not Designated for Hedge Accounting

The derivative instruments not designated as hedges for purposes of hedge accounting include certain short-term foreign currency forward contracts. Derivatives that are not designated as hedging instruments are adjusted to fair value through earnings in the financial statement line item to which the derivative relates to.

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 amounts of the foreign currency forward contracts outstanding as of June 30, 2020 and March 31, 2020 were $2.1 billion and $2.2 billion, respectively.

The following table presents the pretax amounts impacting income related to designated and non-designated foreign currency forward contracts:

				For the Three Months Ended
(in millions)		Statement of Operations Line Item		June 30, 2020				June 30, 2019
Foreign currency forward contracts		Other expense (income), net		$	25			$	19

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Fair Value of Derivative Instruments

All derivative instruments are recorded at fair value. The Company’s accounting treatment for these derivative instruments is based on its hedge designation. The following tables present the fair values of derivative instruments included in the balance sheets:

		Derivative Assets
				As of
(in millions)		Balance Sheet Line Item		June 30, 2020				March 31, 2020
Derivatives designated for hedge accounting:
Foreign currency forward contracts		Other current assets		$	2			$	—
Total fair value of derivatives designated for hedge accounting				$	2			$	—
Derivatives not designated for hedge accounting:
Foreign currency forward contracts		Other current assets		$	3			$	16
Total fair value of derivatives not designated for hedge accounting				$	3			$	16

		Derivative Liabilities
				As of
(in millions)		Balance Sheet Line Item		June 30, 2020				March 31, 2020
Derivatives designated for hedge accounting:
Foreign currency forward contracts		Accrued expenses and other current liabilities		$	8			$	20
Total fair value of derivatives designated for hedge accounting:				$	8			$	20
Derivatives not designated for hedge accounting:
Foreign currency forward contracts		Accrued expenses and other current liabilities		$	5			$	12
Total fair value of derivatives not designated for hedge accounting				$	5			$	12

The fair value of foreign currency forward contracts represents the estimated amount required to settle the contracts using current market exchange rates and is based on the period-end foreign currency exchange rates and forward points which are classified as Level 2 inputs.

Other Risks for Derivative Instruments

The Company is exposed to the risk of losses in the event of non-performance by the counterparties to its derivative contracts. The amount subject to credit risk related to derivative instruments is generally limited to the amount, if any, by which a counterparty's obligations exceed the obligations of the Company with that counterparty. To mitigate counterparty credit risk, the Company regularly reviews its credit exposure and the creditworthiness of the counterparties. With respect to its foreign currency derivatives, as of June 30, 2020, there were no counterparties with concentration of 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.

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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 when such net investments are sold or substantially liquidated.

As of June 30, 2020, DXC had $1.4 billion of foreign currency-denominated debt designated as hedges of net investments in non-U.S. subsidiaries. For the three months ended June 30, 2020, the pre-tax impact of loss on foreign currency-denominated debt designated for hedge accounting recognized in other comprehensive loss was $27 million. As of March 31, 2020, DXC had $1.9 billion of foreign currency-denominated debt designated as hedges of net investments in non-U.S. subsidiaries.

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Intangible assets consisted of the following:

		As of June 30, 2020
(in millions)		Gross Carrying Value				Accumulated Amortization				Net Carrying Value
Software		$	4,086			$	2,729			$	1,357
Customer related intangible assets		5,843				1,859				3,984
Other intangible assets		238				39				199
Total intangible assets		$	10,167			$	4,627			$	5,540

		As of March 31, 2020
(in millions)		Gross Carrying Value				Accumulated Amortization				Net Carrying Value
Software		$	4,048			$	2,614			$	1,434
Customer related intangible assets		5,795				1,697				4,098
Other intangible assets		235				36				199
Total intangible assets		$	10,078			$	4,347			$	5,731

The components of amortization expense were as follows:

		Three Months Ended
(in millions)		June 30, 2020				June 30, 2019
Intangible asset amortization		$	253			$	236
Transition and transformation contract cost amortization(1)		61				67
Total amortization expense		$	314			$	303

        

(1)	Transaction and transformation contract costs are included within other assets on the balance sheet.

Estimated future amortization related to intangible assets as of June 30, 2020 is as follows:

Fiscal Year		(in millions)
Remainder of 2021		$	743
2022		$	940
2023		$	860
2024		$	753
2025		$	668

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The following table summarizes the changes in the carrying amount of goodwill, by segment, as of June 30, 2020.

(in millions)		GBS				GIS				Total
Goodwill, gross		$	6,507			$	5,066			$	11,573
Accumulated impairment losses		(4,490		)		(5,066		)		(9,556		)
Balance as of March 31, 2020, net		$	2,017			$	—			$	2,017
Acquisitions		16				—				16
Foreign currency translation		24				—				24
Goodwill, gross		6,547				5,066				11,613
Accumulated impairment losses		(4,490		)		(5,066		)		(9,556		)
Balance as of June 30, 2020, net		$	2,057			$	—			$	2,057

The addition to goodwill was due to an insignificant acquisition. The foreign currency translation amount reflects the impact of currency movements on non-U.S. dollar-denominated goodwill balances.

Goodwill Impairment Analyses

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The following is a summary of the Company's debt:

(in millions)		Interest Rates		Fiscal Year Maturities		June 30, 2020				March 31, 2020
Short-term debt and current maturities of long-term debt
Commercial paper(1)		(0.22)% - 0.44%		2021 - 2022		$	967			$	542
Current maturities of long-term debt		Various		2021 - 2022		283				290
Current maturities of finance lease liabilities		0.62% - 18.47%		2021		432				444
Short-term debt and current maturities of long-term debt						$	1,682			$	1,276
Long-term debt, net of current maturities
AUD term loan		0.94% - 0.96%(2)		2022		344				489
GBP term loan		1.46%(3)		2022		369				556
EUR term loan		0.65%(4)		2022 - 2023		280				822
EUR term loan		0.80%(5)		2023 - 2024		839				821
USD term loan		1.42% - 2.24%(6)		2025		379				480
$274 million Senior notes		4.45%		2023		276				276
$171 million Senior notes		4.45%		2023		172				172
$500 million Senior notes		4.25%		2025		505				505
$500 million Senior notes		4.00%		2024		497				—
$500 million Senior notes		4.13%		2026		496				—
£250 million Senior notes		2.75%		2025		306				307
€650 million Senior notes		1.75%		2026		726				709
$500 million Senior notes		4.75%		2028		507				507
$234 million Senior notes		7.45%		2030		271				271
Revolving credit facility		1.27% - 2.08%		2024 - 2025		3,250				1,500
Lease credit facility		1.17% - 1.99%		2021 - 2023		8				11
Finance lease liabilities		0.62% - 18.47%		2021 - 2027		1,015				1,046
Borrowings for assets acquired under long-term financing		0.48% - 6.39%		2021 - 2028		740				802
Mandatorily redeemable preferred stock outstanding		6.00%		2023		62				62
Other borrowings		Various		2021 - 2022		7				70
Long-term debt						11,049				9,406
Less: current maturities						715				734
Long-term debt, net of current maturities						$	10,334			$	8,672

        

(1)	At DXC's option, DXC can borrow up to a maximum of €1 billion or its equivalent in €, £, and $. Under this existing €1.0 billion commercial paper program, the Company issued £600 million via direct sale to the Bank of England.

⁽²⁾ Variable interest rate equal to the bank bill swap bid rate for a one-, two-, three- or six-month interest period plus 0.60% to 0.95% based on the published credit ratings of DXC.

⁽³⁾ Three-month LIBOR rate plus 0.80%.

⁽⁴⁾ At DXC's option, the EUR term loan bears interest at the Eurocurrency Rate for a one-, two-, three-, or six-month interest period, plus a margin between 0.40% and 0.9%, based on published credit ratings of DXC.

⁽⁵⁾ At DXC's option, the EUR term loan bears interest at the Eurocurrency Rate for a one-, two-, three-, or six-month interest period, plus a margin between 0.55% and 1.05%, based on published credit ratings of DXC.

⁽⁶⁾ At DXC's option, the USD term loan bears interest at the Eurocurrency Rate for a one-, two-, three-, or six-month interest period, plus a margin between 1.00% and 1.50%, based on published credit ratings of DXC or the Base Rate plus a margin between 0.00% and 0.50%, based on published credit ratings of DXC.

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Senior Notes and Term Loans

During the first quarter of fiscal 2021, the Company issued two senior notes with an aggregate principal of $1.0 billion, consisting of (i) $500 million of 4.00% Senior Notes due fiscal 2024, and (ii) $500 million of 4.13% Senior Notes due fiscal 2026. The proceeds from these notes were applied towards the early prepayment of our term loan facilities, including prepayment of €500 million of Euro Term Loan due fiscal 2023, £150 million of GBP Term Loan due fiscal 2022, A$300 million of AUD Term Loan due fiscal 2022, and $100 million of USD Term Loan due fiscal 2025.

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. The 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 are payable annually in arrears. Generally, the Company's notes are redeemable at the Company's discretion at the then-applicable redemption premium plus accrued interest.

Revolving Credit Facility

During the first quarter of fiscal 2021, the Company borrowed the remaining $2.5 billion under the $4.0 billion credit facility agreement ("Credit Agreement") as a precautionary measure to increase its cash position and increase financial flexibility in light of continuing uncertainty in the global economy and financial capital markets resulting from the COVID-19 pandemic. During the quarter, the Company repaid $750 million, which became available under the revolving credit facility for redraw at the request of the Company.

The Company expects to use the proceeds from the borrowings under the Credit Agreement for working capital, general corporate purposes or other purposes permitted under the Credit Agreement. Borrowings under the Credit Agreement will bear interest at a variable rate based on LIBOR or on a base rate, plus an individual margin based on DXC’s long-term debt rating.

Revenue Recognition

The following table presents DXC's revenues disaggregated by geography, based on the location of incorporation of the DXC entity providing the related goods or services:

		Three Months Ended
(in millions)		June 30, 2020				June 30, 2019
United States		$	1,709			$	1,851
United Kingdom		573				715
Australia		361				373
Other Europe		1,205				1,230
Other International		654				721
Total Revenues		$	4,502			$	4,890

The revenue by geography pertains to both of the Company’s reportable segments. Refer to Note 19 - "Segment Information" for the Company’s segment disclosures.

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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 June 30, 2020, approximately $23 billion of revenue is expected to be recognized from remaining performance obligations. We expect to recognize revenue on approximately 35% of these remaining performance obligations in fiscal 2021, with the remainder of the balance recognized thereafter.

Contract Balances

The following table provides information about the balances of the Company's trade receivables and contract assets and contract liabilities:

		As of
(in millions)		June 30, 2020				March 31, 2020
Trade receivables, net		$	2,986			$	3,059
Contract assets		$	442			$	454
Contract liabilities		$	1,763			$	1,756

Change in contract liabilities were as follows:

		Three Months Ended
(in millions)		June 30, 2020				June 30, 2019
Balance, beginning of period		$	1,756			$	1,886
Deferred revenue		698				770
Recognition of deferred revenue		(719		)		(717		)
Currency translation adjustment		30				(5		)
Other		(2		)		(16		)
Balance, end of period		$	1,763			$	1,918

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The Company recorded restructuring costs of $72 million and $142 million, net of reversals, for the three months ended June 30, 2020 and June 30, 2019, respectively. The costs recorded during the three months ended June 30, 2020 were largely a result of the Fiscal 2021 Plan (defined below).

The composition of restructuring liabilities by financial statement line item is as follows:

		As of
(in millions)		June 30, 2020
Accrued expenses and other current liabilities		$	165
Other long-term liabilities		33
Total		$	198

Summary of Restructuring Plans

Fiscal 2021 Plan

During fiscal 2021, management approved global cost savings initiatives designed to better align the Company's workforce and facility structures (the "Fiscal 2021 Plan").

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. Costs incurred to date under the Fiscal 2020 Plan total $287 million, comprising $270 million in employee severance and $17 million of facilities costs.

Fiscal 2019 Plan

During fiscal 2019, management approved global cost savings initiatives designed to better align the Company's organizational structure with its strategic initiatives and continue the integration of the 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 $477 million, comprising $336 million in employee severance and $141 million of facilities costs.

Other Prior Year Plans

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 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 $985 million, comprising $789 million in employee severance and $196 million of facilities costs.

Acquired Restructuring Liabilities

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

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Restructuring Liability Reconciliations by Plan

		Restructuring Liability as of March 31, 2020				Costs Expensed, Net of Reversals(1)				Costs Not Affecting Restructuring Liability(2)				Cash Paid				Other(3)				Restructuring Liability as of June 30, 2020
Fiscal 2021 Plan
Workforce Reductions		$	—			$	78			$	(2	)		$	(20	)		$	—			$	56
Facilities Costs		—				5				(1		)		(2		)		—				2
Total		$	—			$	83			$	(3	)		$	(22	)		$	—			$	58
Fiscal 2020 Plan
Workforce Reductions		$	74			$	(1	)		$	1			$	(25	)		$	—			$	49
Facilities Costs		2				(4		)		4				(1		)		—				1
Total		$	76			$	(5	)		$	5			$	(26	)		$	—			$	50
Fiscal 2019 Plan
Workforce Reductions		$	25			$	(2	)		$	(1	)		$	(4	)		$	1			$	19
Facilities Costs		5				(3		)		2				—				—				4
Total		$	30			$	(5	)		$	1			$	(4	)		$	1			$	23
Other Prior Year Plans
Workforce Reductions		$	24			$	(1	)		$	2			$	(8	)		$	1			$	18
Facilities Costs		—				—				—				—				—				—
Total		$	24			$	(1	)		$	2			$	(8	)		$	1			$	18
Acquired Liabilities
Workforce Reductions		$	39			$	—			$	—			$	(1	)		$	—			$	38
Facilities Costs		$	11			—				—				—				—				11
Total		$	50			$	—			$	—			$	(1	)		$	—			$	49

        

⁽¹⁾ Costs expensed, net of reversals include $6 million, $7 million, and $3 million of costs reversed from the Fiscal 2020 Plan, Fiscal 2019 Plan and Other Prior Year Plans, respectively.

⁽²⁾ Pension benefit augmentations recorded as a pension liability, asset impairments and restructuring costs associated with right-of-use assets.

⁽³⁾Foreign currency translation adjustments.

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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.

During the three months ended June 30, 2020, the Company remeasured plan assets and liabilities as of June 1, 2020 under certain U.K. pension plans due to the end of a public sector contract. The remeasurement resulted in a net loss of $2 million, comprising a curtailment gain of $9 million and an actuarial loss of $11 million. The net loss was recognized within other income.

The components of net periodic pension income were:

		Three Months Ended
(in millions)		June 30, 2020				June 30, 2019
Service cost		$	22			$	23
Interest cost		58				60
Expected return on assets		(153		)		(161		)
Amortization of prior service costs		(2		)		(2		)
Contractual termination benefit		—				11
Curtailment gain		(9		)		—
Recognition of actuarial loss		11				—
Net periodic pension income		$	(73	)		$	(69	)

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.

Deferred Compensation Plans

Effective as of the HPES Merger, DXC assumed sponsorship of the Computer Sciences Corporation Deferred Compensation Plan, which was renamed the “DXC Technology Company Deferred Compensation Plan” (the “DXC DCP”) and adopted the Enterprise Services Executive Deferred Compensation Plan (the “ES DCP”). Both plans are non-qualified deferred compensation plans maintained for a select group of management, highly compensated employees and non-employee directors.

The DXC DCP covers eligible employees who participated in CSC’s Deferred Compensation Plan prior to the HPES Merger. The ES DCP covers eligible employees who participated in the HPE Executive Deferred Compensation Plan prior to the HPES Merger. Both plans allow participating employees to defer the receipt of current compensation to a future distribution date or event above the amounts that may be deferred under DXC’s tax-qualified 401(k) plan, the DXC Technology Matched Asset Plan. Neither plan provides for employer contributions. As of April 3, 2017, the ES DCP does not admit new participants.

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.

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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, amounted to $49 million as of June 30, 2020 and $48 million as of March 31, 2020.

The Company's effective tax rate ("ETR") was 11.6% and 18.4% for the three months ended June 30, 2020 and June 30, 2019, respectively. For the three months ended June 30, 2020, the primary drivers of the ETR were the global mix of income, adjustment of the prior tax provisions due to the filing of tax returns in non-U.S. jurisdictions and generation of additional foreign tax credits in the U.S. For the three months ended June 30, 2019, the primary drivers of the ETR were the global mix of income and the reduction of our estimated fiscal 2019 base erosion anti-avoidance tax ("BEAT") for the October 31, 2019 tax year due to electing out of additional first year bonus depreciation.

The majority of unremitted foreign earnings have been taxed in the U.S. We expect a significant portion of the unremitted earnings of our foreign subsidiaries will no longer be subject to U.S. federal income tax upon repatriation to the U.S. However, a portion of these earnings may still be subject to foreign and U.S. state tax consequences when remitted. Earnings in India are indefinitely reinvested. Other foreign earnings are not indefinitely reinvested except for approximately $501 million that could be taxable when repatriated to the U.S. under Treasury regulations that were issued during the first quarter of fiscal 2020.

In connection with the HPES Merger, the Company entered into a tax matters agreement with HPE. HPE generally will be responsible for pre-HPES Merger tax liabilities including adjustments made by tax authorities to HPES U.S. and non-U.S. income tax returns. Likewise, DXC is liable to HPE for income tax receivables and refunds which it receives related to pre-HPES Merger periods. Pursuant to the tax matters agreement, the Company recorded a net receivable of $16 million due to $44 million of tax indemnification receivable related to uncertain tax positions net of related deferred tax benefits, $86 million of tax indemnification receivable related to other tax payables and $114 million of tax indemnification payable related to other tax receivables.

In connection with the USPS Separation, the Company entered into a tax matters agreement with Perspecta. Pursuant to the tax matters agreement, the Company generally will be responsible for tax liabilities arising prior to the USPS Separation. Income tax liabilities transferred to Perspecta primarily relate to pre-HPES Merger periods, for which the Company is indemnified by HPE pursuant to the tax matters agreement between the Company and HPE. The Company remains liable to HPE for tax receivables and refunds which it receives from Perspecta related to pre-HPES Merger periods that were transferred to Perspecta. Pursuant to the tax matters agreement, the Company has recorded a tax indemnification receivable from Perspecta of $66 million and a tax indemnification payable to Perspecta of $45 million related to income tax and other tax liabilities.

The IRS is examining the Company's federal income tax returns for fiscal 2008 through tax year ended October 31, 2019. 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 March 31, 2021.

The Company has agreed to extend the statute of limitations associated with the fiscal years 2011 through 2013 through December 31, 2020. The Company has agreed to extend the statute of limitations for fiscal years 2014 through fiscal 2016 through December 31, 2020 and for the employment tax audit of fiscal years 2015 and 2016 until January 31, 2021. The Company expects to reach a resolution for all years no earlier than the second quarter of fiscal 2022 except agreed issues related to fiscal 2008 through 2010 and fiscal 2011 through 2013 federal tax returns, which are expected to be resolved within twelve months.

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In addition, the Company may settle certain other tax examinations, have lapses in statutes of limitations, or voluntarily settle income tax positions in negotiated settlements for different amounts than the Company has accrued as uncertain tax positions. The Company may need to accrue and ultimately pay additional amounts for tax positions that previously met a more-likely-than-not standard if such positions are not upheld. Conversely, the Company could settle positions by payment with the tax authorities for amounts lower than those that have been accrued or extinguish a position through payment. The Company believes that the outcomes that are reasonably possible within the next 12 months may result in a reduction in liability for uncertain tax positions of $23 million to $28 million, excluding interest, penalties and tax carry-forwards.

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's Board of Directors approved an incremental $2.0 billion share repurchase authorization. An expiration date has not been established for this repurchase plan. Share repurchases may be made from time to time through various means, including in open market purchases, 10b5-1 plans, privately-negotiated transactions, accelerated stock repurchases, block trades and other transactions, in compliance with Rule 10b-18 under the Exchange Act as well as, to the extent applicable, other federal and state securities laws and other legal requirements. The timing, volume, and nature of share repurchases pursuant to the share repurchase plan are at the discretion of management and may be suspended or discontinued at any time.

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. There was no share repurchase activity during the three months ended June 30, 2020. The details of shares repurchased during the three months ended June 30, 2019 are shown below:

		Fiscal 2020
Fiscal Period		Number of Shares Repurchased			Average Price Per Share				Amount (in millions)
1st Quarter
Open market purchases		5,510,415			$	54.44			$	300
Accelerated stock repurchases		1,849,194			54.08				100
1st Quarter Total		7,359,609			$	54.35			$	400

Accumulated Other Comprehensive Loss

The following table shows 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 Loss
Balance at March 31, 2020		$	(851	)		$	(20	)		$	9			$	259			$	(603	)
Current-period other comprehensive income		(2		)		7				4				—				9
Amounts reclassified from accumulated other comprehensive loss		—				4				—				(9		)		(5		)
Balance at June 30, 2020		$	(853	)		$	(9	)		$	13			$	250			$	(599	)

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(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 March 31, 2019		$	(517	)		$	(3	)		$	9			$	267			$	(244	)
Current-period other comprehensive loss		(111		)		6				1								(104		)
Amounts reclassified from accumulated other comprehensive loss						(2		)						(1		)		(3		)
Balance at June 30, 2019		$	(628	)		$	1			$	10			$	266			$	(351	)

Equity Plans

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 one share of DXC common stock upon a future settlement date, subject to vesting and other terms and conditions of the award, plus any dividend equivalents accrued during the award period. In general, if the employee’s status as a full-time employee is terminated prior to the vesting of the RSU grant in full, then the RSU grant is automatically canceled on the termination date and any unvested shares and dividend equivalents are forfeited. Certain executives were awarded service-based "career share" RSUs for which the shares are settled over the 10 anniversaries following the executive's separation from service as a full-time employee, provided the executive complies with certain non-competition covenants during that period. The Company also grants PSUs, which generally vest over a period of 3 years. The number of PSUs that ultimately vest is dependent upon the Company’s achievement of certain specified financial performance criteria over a three-year period. If the specified performance criteria are met, awards are settled for shares of DXC common stock and dividend equivalents upon the filing with the SEC of the Annual Report on Form 10-K for the last fiscal year of the performance period. PSU awards include the potential for 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 three-year performance period.

In fiscal 2021, DXC issued awards that are considered to have a market condition. A Monte Carlo simulation model was used for the valuation of the grants. Settlement of shares for the fiscal 2021 PSU awards will be made at the end of the third fiscal year subject to certain compounded annual growth rates of the stock price and continued employment through the last day of the third fiscal year.

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 14,882 shares purchased under this plan during the three months ended June 30, 2020.

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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 June 30, 2020
		Reserved for Issuance			Available for Future Grants
DXC Employee Equity Plan		34,200,000			14,648,697
DXC Director Equity Plan		230,000			26,551
DXC Share Purchase Plan		250,000			191,728
Total		34,680,000			14,866,976

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, 2020		1,869,815			$	29.92			4.27		$	—
Granted		—			$	—
Exercised		(1,203	)		$	11.77					$	—
Canceled/Forfeited		—			$	—
Expired		(48,980	)		$	25.46
Outstanding as of June 30, 2020		1,819,632			$	30.05			4.10		$	1
Vested and exercisable as of June 30, 2020		1,819,632			$	30.05			4.10		$	1

Restricted Stock

		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, 2020		4,174,476			$	55.45			114,615			$	37.69
Granted		7,135,966			$	16.23			12,900			$	14.36
Settled		(713,578	)		$	59.26			—			$	—
Canceled/Forfeited		(392,495	)		$	62.92			—			$	—
Outstanding as of June 30, 2020		10,204,369			$	27.47			127,515			$	35.33

     

Share-Based Compensation

		Three Months Ended
(in millions)		June 30, 2020				June 30, 2019
Total share-based compensation cost		$	16			$	18
Related income tax benefit		$	1			$	4
Total intrinsic value of options exercised		$	—			$	6
Tax benefits from exercised stock options and awards		$	3			$	9

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As of June 30, 2020, total unrecognized compensation expense related to unvested DXC stock options and unvested DXC RSUs, net of expected forfeitures was $0 million and $194 million, respectively. The unrecognized compensation expense for unvested RSUs is expected to be recognized over a weighted-average period of 2.33 years.

Cash payments for interest on indebtedness and income taxes and other select non-cash activities are as follows:

		Three Months Ended
(in millions)		June 30, 2020				June 30, 2019
Cash paid for:
Interest		$	103			$	91
Taxes on income, net of refunds (1)		$	31			$	43
Non-cash activities:
Operating:
ROU assets obtained in exchange for lease, net (2)		$	275			$	(22	)
Prepaid assets acquired under long-term financing		$	2			$	30
Investing:
Capital expenditures in accounts payable and accrued expenses		$	11			$	13
Capital expenditures through finance lease obligations		$	88			$	253
Assets acquired under long-term financing		$	2			$	235
(Decrease) increase in deferred purchase price receivable		$	(52	)		$	321
Contingent consideration		$	3			$	—
Financing:
Dividends declared but not yet paid		$	1			$	57

        

     

⁽¹⁾ Income tax refunds were $18 million and $13 million for the three months ended June 30, 2020 and June 30, 2019, respectively.

⁽²⁾ Net of $87 million change in lease classification from operating to finance lease in fiscal 2020.

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DXC has a matrix form of organization and is managed in several different and overlapping groupings including services, industries and geographic regions. As a result, and in accordance with accounting standards, operating segments are organized by the type of services provided. DXC's chief operating decision maker ("CODM"), the chief executive officer, obtains, reviews, and manages the Company’s financial performance based on these segments. The CODM uses these results, in part, to evaluate the performance of, and allocate resources to, each of the segments.

Global Business Services ("GBS")

GBS provides innovative technology solutions that help its customers address key business challenges and accelerate digital transformations tailored to each customers industry and specific objectives. GBS enterprise technology stack offerings include:

•	Analytics and Engineering. GBS's portfolio of analytics services and extensive partner ecosystem help customers gain rapid insights, automate operations, and accelerate their digital transformation journeys. GBS provides software engineering and solutions that enable businesses to run and manage their mission-critical functions, transform their operations and develop new ways of doing business.

•

Applications. GBS uses advanced technologies and methods to accelerate the creation, modernization, delivery and maintenance of high-quality, secure applications allowing customers to innovate faster while reducing risk, time to market, and total cost of ownership, across industries. GBS's vertical-specific IP includes solutions for insurance; banking and capital markets; and automotive, among others.

GBS offerings also includes business process services, which include digital integration and optimization of front and back office processes, and agile process automation. This helps companies to reduce cost, and minimize business disruption, human error, and operational risk while improving customer experiences.

Global Infrastructure Services ("GIS")

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

•	Cloud and Security. GIS helps customers to rapidly modernize by adapting legacy apps to cloud, migrate the right workloads, and securely manage their multi-cloud environments. GIS's security solutions help predict attacks, proactively respond to threats, ensure compliance and protect data, applications and infrastructure.

•

IT Outsourcing ("ITO"). GIS's ITO services support infrastructure, applications, and workplace IT operations, including hardware, software, physical/virtual end-user devices, collaboration tools, and IT support services. GIS helps customers securely optimize operations to ensure continuity of their systems and respond to new business and workplace demands, while achieving cost takeout, all with limited resources, expertise and budget.

GIS offerings also include workplace and mobility services to fit its customer's employee, business and IT needs from intelligent collaboration, modern device management, digital support services Internet of Things ("IoT") and mobility services, providing a consumer-like, digital experience.

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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 June 30, 2020
Revenues		$	2,174			$	2,328			$	4,502			$	—			$	4,502
Segment profit		$	215			$	23			$	238			$	(48	)		$	190
Depreciation and amortization(1)		$	50			$	267			$	317			$	27			$	344
Three Months Ended June 30, 2019
Revenues		$	2,159			$	2,731			$	4,890			$	—			$	4,890
Segment profit		$	366			$	340			$	706			$	(54	)		$	652
Depreciation and amortization(1)		$	29			$	275			$	304			$	28			$	332

        

     

⁽¹⁾ Depreciation and amortization as presented excludes amortization of acquired intangible assets of $148 million and $138 million for the three months ended June 30, 2020 and 2019, 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 cost of services, segment selling, general and administrative, depreciation and amortization, and other income (excluding the movement in foreign currency exchange rates on DXC's foreign currency denominated assets and liabilities and the related economic hedges). The Company does not allocate to its segments certain operating expenses managed at the corporate level. These unallocated costs include certain corporate function costs, stock-based compensation expense, pension and OPEB actuarial and settlement gains and losses, restructuring costs, transaction, separation and integration-related costs and amortization of acquired intangible assets.

		Three Months Ended
(in millions)		June 30, 2020				June 30, 2019
Profit
Total profit for reportable segments		$	238			$	706
All other loss		(48		)		(54		)
Interest income		23				30
Interest expense		(106		)		(91		)
Restructuring costs		(72		)		(142		)
Transaction, separation and integration-related costs		(110		)		(105		)
Amortization of acquired intangible assets		(148		)		(138		)
Pension and OPEB actuarial and settlement losses		(2		)		—
(Loss) income before income taxes		$	(225	)		$	206

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Commitments

The Company signed long-term purchase agreements with certain software, hardware, telecommunication, and other service providers to obtain favorable pricing and terms for services, and products that are necessary for the operations of business activities. Under the terms of these agreements, the Company is contractually committed to purchase specified minimums over periods ranging from 1 to 5 years. If the Company does not meet the specified minimums, the

Company would have an obligation to pay the service provider all, or a portion, of the shortfall. Minimum purchase commitments as of June 30, 2020 were as follows:

Fiscal year		Minimum Purchase Commitment(1)
(in millions)
Remainder of 2021		$	1,525
2022		624
2023		537
2024		261
2025		25
Total		$	2,972

        

⁽¹⁾ A significant portion of the minimum purchase commitments for fiscal 2021 relate to the amounts committed under the HPE preferred vendor agreements.

In the normal course of business, the Company may provide certain clients with financial performance guarantees, and at times performance letters of credit or surety bonds. In general, the Company would only be liable for the amounts of these guarantees in the event that non-performance by the Company permits termination of the related contract by the Company’s client. The Company believes it is in compliance with its performance obligations under all service contracts for which there is a financial performance guarantee, and the ultimate liability, if any, incurred in connection with these guarantees will not have a material adverse effect on its consolidated results of operations or financial position.

The Company also uses stand-by letters of credit, in lieu of cash, to support various risk management insurance policies. These letters of credit represent a contingent liability and the Company would only be liable if it defaults on its payment obligations on these policies. The following table summarizes the expiration of the Company’s financial guarantees and stand-by letters of credit outstanding as of June 30, 2020:

(in millions)		Remainder of Fiscal 2021				Fiscal 2022				Fiscal 2023 and Thereafter				Totals
Surety bonds		$	105			$	195			$	86			$	386
Letters of credit		99				109				400				608
Stand-by letters of credit		64				11				26				101
Totals		$	268			$	315			$	512			$	1,095

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.

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Contingencies

Vincent Forcier v. Computer Sciences Corporation and The City of New York: On October 27, 2014, the United States Attorney’s Office for the Southern District of New York and the Attorney General for the State of New York filed complaints-in-intervention on behalf of the United States and the State of New York, respectively, against CSC and The City of New York, based on a qui tam complaint originally filed under seal in 2012 by Vincent Forcier, a former employee of CSC. The complaints allege that from 2008 to 2012 New York City and CSC, in its role as fiscal agent for New York City’s Early Intervention Program ("EIP"), violated the federal and state False Claims Acts and various common law standards by allegedly orchestrating a billing fraud against Medicaid through the misapplication of default billing codes and the failure to exhaust private insurance coverage before submitting claims to Medicaid. The lawsuits seek treble statutory damages, other civil penalties and attorneys’ fees and costs.

In June 2016, the Court dismissed Forcier’s amended complaint in its entirety. With regard to the complaints-in-intervention, the Court dismissed the federal claims alleging misuse of default diagnosis codes when the provider had entered an invalid code, and the state claims alleging failure to reimburse Medicaid when claims were subsequently paid by private insurance. The Court allowed the remaining claims to proceed. In September 2016, the United States and the State of New York each filed amended complaints-in-intervention, asserting additional claims that the compensation provisions of CSC’s contract with New York City rendered it ineligible to serve as a billing agent under state law. 

CSC filed motions to dismiss and in August 2017, the Court granted in part and denied in part CSC's motions. In January 2018, CSC asserted a counterclaim against the State of New York on a theory of contribution and indemnification. The court denied the State's motion to dismiss CSC's counterclaim with respect to liability for claims not arising under the Federal False Claims Act.

In June 2020, the Parties executed a stipulation resolving the matter and dismissing the action. The Company agreed to pay a total of $1.85 million, to be split between the United States and the State of New York. In July 2020, the stipulation was approved by the Court and the case was dismissed.

Strauch Fair Labor Standards Act Collective Action: On July 1, 2014, several plaintiffs filed an action in the U.S. District Court for the District of Connecticut on behalf of themselves and a putative nationwide collective of CSC system administrators, alleging CSC’s failure to properly classify these employees as non-exempt under the federal Fair Labor Standards Act ("FLSA"). Plaintiffs alleged similar state-law Rule 23 class claims pursuant to Connecticut and California statutes. Plaintiffs claimed double overtime damages, liquidated damages, and other amounts and remedies.

In 2015 the Court entered an order granting conditional certification under the FLSA of the collective of over 4,000 system administrators. Approximately 1,000 system administrators filed consents with the Court to participate in the FLSA collective. The class/collective action is currently made up of approximately 800 individuals who held the title of associate professional or professional system administrator.

In June 2017, the Court granted Rule 23 certification of a Connecticut state-law class and a California state-law class consisting of professional system administrators and associate professional system administrators. Senior professional system administrators were found not to qualify for Rule 23 certification under the state-law claims. CSC sought permission to appeal the Rule 23 decision to the Second Circuit Court of Appeals, which was denied.

In December 2017, a jury trial was held and a verdict was returned in favor of plaintiffs. On August 6, 2019, the Court issued an order awarding plaintiffs $18.75 million in damages. In September 2019, Plaintiffs filed a motion seeking $14.1 million in attorneys’ fees and costs. In July 2020, the Court issued an order awarding Plaintiffs $8.1 million in attorneys’ fees and costs. The Company disagrees with the jury verdict, the damages award, and the fee award, and is appealing the judgment of the Court.

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Computer Sciences Corporation v. Eric Pulier, et al.: On May 12, 2015, CSC filed a civil complaint in the Court of Chancery of the State of Delaware against Eric Pulier, the former CEO of Service Mesh Inc. ("SMI"), which CSC had acquired in November 2013. The complaint asserted claims for fraud, breach of contract and breach of fiduciary duty, based on allegations that Mr. Pulier had engaged in fraudulent transactions with two employees of the Commonwealth Bank of Australia Ltd. (“CBA”). The Court dismissed CSC’s claim for breach of the implied covenant of good faith, but allowed substantially all of the remaining claims to proceed. Mr. Pulier asserted counter-claims for breach of contract, fraud, negligent representation, rescission, and violations of the California Blue Sky securities law, all of which the Court dismissed in whole or in part, except for claims for breach of Mr. Pulier’s retention agreement.

In July 2017, the Court granted a motion by the United States for a 90-day stay of discovery pending the completion of a criminal investigation by the U.S. Attorney’s Office for the Central District of California. In September 2017, a federal grand jury returned an indictment against Mr. Pulier, charging him with conspiracy, securities and wire fraud, obstruction of justice, and other violations of federal law (United States v. Eric Pulier, CR 17-599-AB). The Government sought an extension of the stay which the Delaware Chancery Court granted.

In December 2018, the Government filed an application to dismiss the indictment against Mr. Pulier, which was granted, and the indictment was dismissed with prejudice. In March 2019, the Delaware Chancery Court lifted the stay and denied CSC’s motion for a temporary restraining order and preliminary injunction with respect to certain of Mr. Pulier’s assets.

In August 2019, the Company entered into an agreement with Mr. Pulier, resolving all claims and counterclaims in the Delaware litigation through the division of amounts previously held in escrow for post-closing disputes.

The Securities and Exchange Commission (“SEC”) has filed a complaint against Mr. Pulier alleging various claims, including for fraud and falsifying books and records (Securities and Exchange Commission v. Eric Pulier, Case No. 2:17-cv-07124). The Court has set a trial date of December 1, 2020.

In February 2016, Mr. Pulier filed a complaint in Delaware Chancery Court seeking advancement of his legal fees and costs in the civil and criminal actions, pursuant to the terms of his agreements with SMI. The Court ruled that CSC Agility Platform - as the successor to SMI - is liable for advancing 80% of Mr. Pulier’s fees and costs in the civil and criminal actions. Pursuant to agreements with SMI, Mr. Pulier is obligated to repay all amounts advanced to him if it should ultimately be determined that he is not entitled to indemnification.

The Company remains obligated to advance amounts for Mr. Pulier’s legal fees and costs to defend the SEC action against him.

Kemper Corporate Services, Inc. v. Computer Sciences Corporation: In October 2015, Kemper Corporate Services, Inc. (“Kemper”) filed a demand for arbitration against CSC with the American Arbitration Association (“AAA”), alleging that CSC breached the terms of a 2009 Master Software License and Services Agreement and related Work Orders (the “Agreement”) by failing to complete a software translation and implementation plan by certain contractual deadlines. Kemper claimed breach of contract, seeking approximately $100 million in damages. CSC answered the demand for arbitration denying Kemper’s claims and asserting a counterclaim for unpaid invoices for services rendered by CSC.

A single arbitrator conducted an evidentiary hearing on the merits of the claims and counterclaims in April 2017. In October 2017, the arbitrator issued a partial final award, finding for Kemper on its breach of contract theory, awarding Kemper $84.2 million in compensatory damages plus prejudgment interest, denying Kemper’s claim for rescission as moot, and denying CSC’s counterclaim. Kemper moved to confirm the award in federal district court in Texas.

CSC moved to vacate the award, and in August 2018, the Magistrate Judge issued its Report and Recommendation denying CSC's vacatur motion. In September 2018, the District Court summarily accepted the Report and Recommendation without further briefing and entered a Final Judgment in the case. The Company promptly filed a notice of appeal to the Fifth Circuit Court of Appeals. Following the submission of briefs, oral argument was held on September 5, 2019. On January 10, 2020, the Court of Appeals issued a decision denying the Company’s appeal. On January 24, 2020, the Company filed a Petition for Rehearing, seeking review by the entire en banc Court of Appeals. On February 14, 2020, the Court of Appeals denied the Company's Petition.

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The Company has been pursuing coverage for the full scope of the award, interest, and legal fees and expenses, under the Company's applicable insurance policies. Certain carriers have accepted coverage while others have denied coverage. On February 21, 2020, the Company paid the balance of the judgment, which net of insurance recovery totalled $60 million. The Company has since recovered an additional $12.5 million from its insurance carriers. The Company continues to pursue recovery with its insurance carriers.

Forsyth, et al. v. HP Inc. and Hewlett Packard Enterprise:  On August 18, 2016, this purported class and collective action was filed in the U.S. District Court for the Northern District of California, against HP and HPE alleging violations of the Federal Age Discrimination in Employment Act (“ADEA”), the California Fair Employment and Housing Act, California public policy and the California Business and Professions Code. Former business units of HPE now owned by the Company may be proportionately liable for any recovery by plaintiffs in this matter.

Plaintiffs seek to certify a nationwide class action under the ADEA comprised of all U.S. residents employed by defendants who had their employment terminated pursuant to a work force reduction (“WFR”) plan and who were 40 years of age or older at the time of termination. The class seeks to cover those impacted by WFRs on or after December 2014. Plaintiffs also seek to represent a Rule 23 class under California law comprised of all persons 40 years of age or older employed by defendants in the state of California and terminated pursuant to a WFR plan on or after August 18, 2012.

In January 2017, defendants filed a partial motion to dismiss and a motion to compel arbitration of claims by certain named and opt-in plaintiffs who had signed release agreements as part of their WFR packages. In September 2017, the Court denied the partial motion to dismiss without prejudice, but granted defendants’ motions to compel arbitration for those named and opt-in plaintiffs. The Court has stayed the entire action pending arbitration for these individuals, and administratively closed the case.

A mediation was held in October 2018 with the 16 named and opt-in plaintiffs who were involved in the case at that time. A settlement was reached, which included seven plaintiffs who were employed by former business units of HPE that are now owned by the Company. In June 2019, a second mediation was held with 145 additional opt-in plaintiffs who were compelled to arbitration pursuant to their release agreements. In December 2019, a settlement was reached with 142 of the opt-in plaintiffs, 35 of whom were employed by former business units of HPE that are now owned by the Company, and for which the Company is liable.

Former business units of the Company now owned by Perspecta may be proportionately liable for any recovery by plaintiffs in this matter.

Oracle America, Inc., et al. v. Hewlett Packard Enterprise Company: On March 22, 2016, Oracle filed a complaint against HPE in the Northern District of California, alleging copyright infringement, interference with contract, intentional interference with prospective economic relations, and unfair competition. The litigation relates in part to former business units of HPE that are now owned by the Company. The Company may be required to indemnify HPE for a portion of any recovery by Oracle in the litigation related to these business units.

Oracle’s claims arise primarily out of HPE’s prior relationship with a third-party maintenance provider named Terix Computer Company, Inc. (“Terix”). Oracle claims that Terix infringed its copyrights while acting as HPE’s subcontractor for certain customers of HPE’s multivendor support business. Oracle claims that HPE is liable for vicarious and contributory infringement arising from the alleged actions of Terix and for direct infringement arising from its own alleged conduct.

On June 14, 2018, the court heard oral argument on the parties’ cross-motions for summary judgment. On January 29, 2019, the court granted HPE’s motion for summary judgment and denied Oracle’s motion for summary judgment, resolving the matter in HPE’s favor. Oracle has appealed the judgment to the U.S. Court of Appeals for the Ninth Circuit. The parties have submitted their briefs in the appellate case, and oral argument was held on June 8, 2020. The case has been submitted and a decision is now pending.

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In re DXC Technology Company Securities Litigation: On December 27, 2018, a purported class action lawsuit was filed in the United States District Court for the Eastern District of Virginia against the Company and two of its current officers. The lawsuit asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and is premised on allegedly false and/or misleading statements, and alleged non-disclosure of material facts, regarding the Company’s business, operations, prospects and performance during the proposed class period of February 8, 2018 to November 6, 2018. The Company moved to dismiss the claims in their entirety, and on June 2, 2020, the court granted the Company’s motion, dismissing all claims and entering judgment in the Company’s favor. On July 1, 2020, the plaintiffs filed a notice of appeal to the U.S. Court of Appeals for the Fourth Circuit. The appeal remains pending.

In March 2019, three related shareholder derivative lawsuits were filed in the Eighth Judicial District Court of the State of Nevada, in and for Clark County, against one of the Company’s current officers and a former officer as well as members of the Company’s board of directors, asserting claims for breach of fiduciary duty, waste of corporate assets, and unjust enrichment. By agreement of the parties and order of the court, those lawsuits were consolidated on July 18, 2019, and are presently stayed pending the outcome of the appeal of the Eastern District of Virginia matter.

On August 20, 2019, a purported class action lawsuit was filed in the Superior Court of the State of California, County of Santa Clara, against the Company, directors of the Company, and a former officer of the Company, among other defendants. On September 16, 2019, a substantially similar purported class action lawsuit was filed in the United States District Court for the Northern District of California against the Company, directors of the Company, and a former officer of the Company, among other defendants. On November 8, 2019, a third purported class action lawsuit was filed in the Superior Court of the State of California, County of San Mateo, against the Company, directors of the Company, and a former officer of the Company, among other defendants. The third lawsuit was voluntarily dismissed by the plaintiff and re-filed in the Superior Court of the State of California, County of Santa Clara on November 26, 2019, and thereafter was consolidated with the earlier-filed action in the same court on December 10, 2019. The California lawsuits assert claims under Sections 11, 12 and 15 of the Securities Act of 1933, as amended, and are premised on allegedly false and/or misleading statements, and alleged non-disclosure of material facts, regarding the Company’s prospects and expected performance. Plaintiff in the federal action filed an amended complaint on January 8, 2020. The putative class of plaintiffs in these cases includes all persons who acquired shares of the Company’s common stock pursuant to the offering documents filed with the Securities and Exchange Commission in connection with the April 2017 transaction that formed DXC. On July 15, 2020, the Superior Court of California, County of Santa Clara, denied the Company’s motion to stay the state court case but extended the Company’s deadline to seek dismissal of the state action, until after a decision on the Company’s motion to dismiss the federal action. On July 27, 2020, the United States District Court for the Northern District of California granted the Company’s motion to dismiss the federal action. The Court’s order permits plaintiffs to amend and refile their complaint within 60 days.

On October 2, 2019, a shareholder derivative lawsuit was filed in the Eighth Judicial District Court of the State of Nevada, in and for Clark County, asserting various claims, including for breach of fiduciary duty and unjust enrichment, and challenging certain sales of securities by officers under Rule 10b5-1 plans. The shareholder filed this action after making a demand on the board of directors, alleging breaches of fiduciary duty, corporate waste and disclosure violations, and demanding that the Board take certain actions to evaluate the allegations and respond. The Company’s board of directors analyzed the demand, and has determined to defer its decision on the demand pending developments in the securities and derivative lawsuits described above. The Company moved to dismiss the complaint on the basis that the Board’s decision to defer action was not a refusal of the demand and was within its discretion. The Company’s motion to dismiss was denied on January 22, 2020. By agreement of the parties and order of the court, the case is presently stayed, pending the outcome of the appeal of the Eastern District of Virginia matter.

 

On March 31, 2020, a group of individual shareholders filed a complaint in the United States District Court for the Northern District of California, asserting non-class claims based on allegations substantially similar to those at issue in the earlier-filed putative class action complaints pending in the Northern District of California and Eastern District of Virginia. The plaintiffs assert claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and under Sections 11 and 15 of the Securities Act of 1933, as amended. On April 29, 2020, the court granted an administrative motion to relate the case with the earlier-filed putative class action pending in the Northern District of California. And on May 13, 2020, the parties filed a stipulation requesting to stay the case subject to resolution of the motions to dismiss in the Northern District of California and Eastern District of Virginia class actions.

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The Company believes that the lawsuits described above are without merit, and it intends to vigorously defend 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 two partially-owned joint ventures of Xchanging, which CSC acquired during the first quarter of fiscal 2017. A copy of the disclosure was also provided to Her Majesty’s Treasury Office of Financial Sanctions Implementation in the United Kingdom. The Company provided supplemental information to OFAC on January 31, 2020.

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 ("SDA") between Perspecta and DXC and seeking at least $120 million in alleged damages. During the course of discovery, Perspecta increased the amount of its alleged damages, first to $500 million and then to over $800 million. Perspecta has since increased its damages calculations to include interest, bringing its total claim to $990 million. The Company believes there is no valid basis for Perspecta's claims for these amounts. In its arbitration demand, Perspecta also challenges $39 million in invoices issued by DXC in June 2019 under its IT Services Agreement with Perspecta. DXC believes the invoices were properly issued and the amounts are owed by Perspecta. DXC believes that Perspecta's claims are without merit and intends to vigorously defend itself.

In addition to the matters noted above, the Company is currently subject in the normal course of business to various claims and contingencies arising from, among other things, disputes with customers, vendors, employees, contract counterparties and other parties, as well as securities matters, environmental matters, matters concerning the licensing and use of intellectual property, and inquiries and investigations by regulatory authorities and government agencies. Some of these disputes involve or may involve litigation. The financial statements reflect the treatment of claims and contingencies based on management's view of the expected outcome. DXC consults with outside legal counsel on issues related to litigation and regulatory compliance and seeks input from other experts and advisors with respect to matters in the ordinary course of business. Although the outcome of these and other matters cannot be predicted with certainty, and the impact of the final resolution of these and other matters on the Company’s results of operations in a particular subsequent reporting period could be material and adverse, management does not believe based on information currently available to the Company, that the resolution of any of the matters currently pending against the Company will have a material adverse effect on the financial position of the Company or the ability of the Company to meet its financial obligations as they become due. Unless otherwise noted, the Company is unable to determine at this time a reasonable estimate of a possible loss or range of losses associated with the foregoing disclosed contingent matters.

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Ransomware Attack

On July 5, 2020, the Company announced the ransomware attack of its subsidiary, Xchanging. DXC has confirmed containment of the incident in the immediate days following identification with minimal impact on Xchanging customers; no loss of DXC or Xchanging customer data; no impact on the wider Xchanging or DXC IT estates; and full restoration of Xchanging customer operations.

Proposed Sale of Healthcare Provider Software Business

On July 17, 2020, the Company entered into a purchase agreement with Dedalus Holding S.p.A. ("Dedalus"), a company organized under the laws of Italy, pursuant to which Dedalus will acquire DXC’s healthcare provider software business for a purchase price of €459 million (approximately $525 million), subject to certain adjustments. The closing of the transaction is subject to certain conditions for the benefit of DXC and Dedalus, including (i) receipt of certain regulatory consents, (ii) the absence of any injunction or other order from a governmental authority that prevents the closing, and (iii) subject to certain exceptions, the accuracy of the representations and warranties of, and compliance with covenants by, the other party. In addition, the closing is subject to certain conditions for the benefit of Dedalus, including (i) the absence of a material adverse effect on the business or the ability of DXC to consummate the transaction and (ii) receipt of certain customer consents.

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•	the uncertainty of the magnitude, duration, geographic reach, impact on the global economy and current and potential travel restrictions, stay-at-home orders, economic restrictions implemented to address the COVID-19 pandemic;

•	the current, and uncertain future, impact of the COVID-19 pandemic, as well as other emerging developments and disruption to economic activity, and their resulting impact on our clients that may affect our business, growth, prospects, financial condition, operating results, cash flows and liquidity;

•	changes in governmental regulations or the adoption of new laws or regulations that may make it more difficult or expensive to operate our business;

•	changes in senior management, the loss of key employees or the ability to retain and hire key personnel and maintain relationships with key business partners;

•	the risk of liability or damage to our reputation resulting from security breaches, cyber-attacks or disclosure of sensitive data or failure to comply with data protection laws and regulations, including the ransomware attack recently experienced by our subsidiary, Xchanging;

•	business interruptions in connection with our technology systems;

•	the competitive pressures faced by our business;

•	the effects of macroeconomic and geopolitical trends and events;

•	the need to manage third-party suppliers and the effective distribution and delivery of our products and services;

•	the protection of our intellectual property assets, including intellectual property licensed from third parties;

•	the risks associated with international operations;

•	the development and transition of new products and services and the enhancement of existing products and services to meet customer needs, respond to emerging technological trends and maintain and grow our customer relationships over time;

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•	the ability to succeed in our strategic objectives, including strategic alternatives material for our business;

•	the ability to achieve the expected benefits of our restructuring plans;

•	the ability to maintain and grow our customer relationships over time and to comply with customer contracts or government contracting regulations or requirements;

•	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 substantial amount of indebtedness;

•	our ability to remediate any material weakness and maintain effective internal control over financial reporting;

•	the resolution of pending investigations, claims and disputes;

•	the integration of Computer Sciences Corporation's ("CSC") and Enterprise Services business of Hewlett Packard Enterprise Company's ("HPES") businesses, operations, and culture and the ability to operate as effectively and efficiently as expected, and the combined company's ability to successfully manage and integrate acquisitions generally;

•	the ability to realize the synergies and benefits expected to result from the merger of CSC and HPES (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;

•	the spin-off of our former U.S. public sector business and its related mergers with Vencore Holding Corp. and KeyPoint Government Solutions to form Perspecta Inc. (the "USPS") Separation and Mergers could result in substantial tax liability to DXC and our stockholders;

•	risks relating to the respective abilities of the parties to our acquisition of Luxoft Holding, Inc. to achieve the expected results therefrom;

•	risks relating to the consummation of the HHS Sale and the sale of our healthcare provider software business to Dedalus, and the ability 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, 2020 and Part II Item 1A "Risk Factors" of this Quarterly Report on Form 10-Q.

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•	Background

•	Results of Operations

•	Liquidity and Capital Resources

•	Off-Balance Sheet Arrangements

•	Contractual Obligations

•	Critical Accounting Policies and Estimates

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•	Revenues for the first quarter of fiscal 2021 were $4.5 billion, a decrease of 7.9% as compared to the first quarter of fiscal 2020.

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Net loss and diluted loss per share for the first quarter of fiscal 2021 were $199 million and $0.81, respectively, including the cumulative impact of certain items of $258 million, reflecting restructuring costs, transaction, separation and integration-related costs, amortization of acquired intangible assets, and pension and other post-retirement benefit ("OPEB") actuarial and settlement losses. This compares with net income and diluted earnings per share of $168 million and $0.61, respectively, for the first quarter of fiscal 2020.

•	Our cash and cash equivalents were $5.5 billion as of June 30, 2020.

•	We generated $119 million of cash from operations during the first quarter of fiscal 2021, as compared to cash used of $66 million during the first quarter of fiscal 2020.

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•	Restructuring costs - reflects costs, net of reversals, related to workforce optimization and real estate charges.

•	Transaction, separation and integration-related costs - reflects costs to execute on strategic alternatives, 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.

•	Pension and OPEB actuarial and settlement gains and losses - reflects pension and OPEB actuarial and settlement gains and losses.

•	Income tax expense of non-GAAP adjustments is computed by applying the jurisdictional tax rate to the pre-tax adjustments on a jurisdictional basis.

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•	Management did not reassess in a timely manner the control activities related to goodwill impairment upon adoption of ASU 2017-04 which resulted in an immaterial out of period adjustment between quarters within fiscal 2020 related to the tax effect of the impairment recognized.

•	Management did not reassess the control and procedures related to the balance sheet classification of deferred revenue following a large and complex acquisition which resulted in an immaterial out of period adjustment to the balance sheets during the third quarter ended December 31, 2019.

•	Appointment of a new advisor reporting directly to our Chief Financial Officer with the appropriate level of knowledge and experience to help develop and execute the remediation plan.

•	Enhance periodic reviews by management and review existing documentation to determine if policies, procedures, and related control activities have continued relevance or need updating due to changes within the organization with a specific focus on the areas identified by the root cause analysis.

•	Align the Sarbanes-Oxley Act (“SOX") compliance function under the newly appointed Chief Risk Officer.

•	Establish periodic reporting of the remediation plan progress to the Audit Committee.

•	Expand SOX training and implementation of succession planning for SOX control owners.

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