DXC Technology Co [DXC] Filings

10-Q 1 dxc-20211231.htm 10-Q dxc-20211231

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to ____________

Commission File No.: 001-38033


DXC TECHNOLOGY COMPANY
(Exact name of registrant as specified in its charter)

Nevada

61-1800317

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

20408 Bashan Drive, Suite 231

Ashburn, Virginia 20147

(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (703) 245-9700

1775 Tysons Boulevard

Tysons, Virginia 22102

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value per share

DXC

The New York Stock Exchange

1.750% Senior Notes Due 2026

DXC 26

The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d)

of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes x No

244,477,871 shares of common stock, par value $0.01 per share, were outstanding on January 31, 2022.

TABLE OF CONTENTS


Item		Page
	PART I – FINANCIAL INFORMATION

1.	Financial Statements (unaudited)	1
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	47
3.	Quantitative and Qualitative Disclosures About Market Risk	66
4.	Controls and Procedures	66

	PART II – OTHER INFORMATION

1.	Legal Proceedings	68
1A.	Risk Factors	68
2.	Unregistered Sales of Equity Securities and Use of Proceeds	69
3.	Defaults Upon Senior Securities	69
4.	Mine Safety Disclosures	69
5.	Other Information	69
6.	Exhibits	70

PART I

ITEM 1. FINANCIAL STATEMENTS

Index to Condensed Consolidated Financial Statements



			Page
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended December 31, 2021 and December 31, 2020 (unaudited)			2

Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended December 31, 2021 and December 31, 2020 (unaudited)			3

Condensed Consolidated Balance Sheets as of December 31, 2021 and March 31, 2021 (unaudited)			4

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2021 and December 31, 2020 (unaudited)			5

Condensed Consolidated Statements of Changes in Equity for the Three and Nine Months Ended December 31, 2021 and December 31, 2020 (unaudited)			6

Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1–Summary of Significant Accounting Policies			8
Note 2–Recent Accounting Pronouncements			10
Note 3–Acquisitions			10
Note 4–Divestitures			11
Note 5–Earnings Per Share			14
Note 6–Receivables			15
Note 7–Leases			17
Note 8–Fair Value			19
Note 9–Derivative and Hedging Activities			21
Note 10–Intangible Assets			24
Note 11–Goodwill			25
Note 12–Debt			26
Note 13–Revenue			27
Note 14–Restructuring Costs			29
Note 15–Pension and Other Benefit Plans			31
Note 16–Income Taxes			32
Note 17–Stockholders’ Equity			33
Note 18–Stock Incentive Plans			34
Note 19–Cash Flows			36
Note 20–Segment Information			37
Note 21–Commitments and Contingencies			40

DXC TECHNOLOGY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)


	Three Months Ended				Nine Months Ended
(in millions, except per-share amounts)	December 31, 2021		December 31, 2020		December 31, 2021		December 31, 2020

Revenues	$	4,089	$	4,288	$	12,257	$	13,344

Costs of services (excludes depreciation and amortization and restructuring costs)	3,179		3,333		9,522		10,525
Selling, general and administrative (excludes depreciation and amortization and restructuring costs)	340		517		1,093		1,595
Depreciation and amortization	424		475		1,294		1,492
Restructuring costs	36		104		248		441
Interest expense	38		82		161		284
Interest income	(15)		(28)		(51)		(76)
Debt extinguishment costs	2		—		311		—
(Gain) loss on disposition of businesses	4		(2,046)		(373)		(2,046)
Other income, net	(85)		(127)		(290)		(318)
Total costs and expenses	3,923		2,310		11,915		11,897

Income before income taxes	166		1,978		342		1,447
Income tax expense	64		875		145		789
Net income	102		1,103		197		658
Less: net income attributable to non-controlling interest, net of tax	4		5		9		9
Net income attributable to DXC common stockholders	$	98	$	1,098	$	188	$	649

Income per common share:
Basic	$	0.39	$	4.32	$	0.74	$	2.55
Diluted	$	0.38	$	4.29	$	0.73	$	2.54

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

DXC TECHNOLOGY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)


			Three Months Ended				Nine Months Ended
(in millions)			December 31, 2021		December 31, 2020		December 31, 2021		December 31, 2020
Net income			$	102	$	1,103	$	197	$	658
Other comprehensive income (loss), net of taxes:
	Foreign currency translation adjustments, net of tax (1)		99		170		(75)		200
	Cash flow hedges adjustments, net of tax (2)		1		—		9		18
	Available-for-sale securities, net of tax (3)		—		(11)		—		(6)
	Pension and other post-retirement benefit plans, net of tax:
		Prior service cost, net of tax (4)	—		(1)		—		(1)
		Amortization of prior service cost, net of tax (5)	(2)		(2)		(6)		(12)
	Pension and other post-retirement benefit plans, net of tax		(2)		(3)		(6)		(13)
Other comprehensive income (loss), net of taxes			98		156		(72)		199
Comprehensive income			200		1,259		125		857
	Less: comprehensive income attributable to non-controlling interest		5		6		20		12
Comprehensive income attributable to DXC common stockholders			$	195	$	1,253	$	105	$	845

(1) Tax benefit related to foreign currency translation adjustments was $3 and $2 for the three and nine months ended December 31, 2021, respectively, and $9 and $31 for the three and nine months ended December 31, 2020, respectively.

(2) Tax expense related to cash flow hedge adjustments was $1 and $3 for the three and nine months ended December 31, 2021, respectively, and $0 and $6 for the three and nine months ended December 31, 2020, respectively.

(3) There was no tax benefit related to available-for-sale securities during the three and nine months ended December 31, 2021. Tax benefit related to available-for-sale securities was $4 for the three and nine months ended December 31, 2020.

(4) There was no tax benefit related to prior service costs during the three and nine months ended December 31, 2021 and December 31, 2020, respectively.

(5) There was no tax benefit related to amortization of prior service costs during the three and nine months ended December 31, 2021. Tax benefit related to amortization of prior service costs was $1 and $3 for the three and nine months ended December 31, 2020.

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

DXC TECHNOLOGY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)


	As of
(in millions, except per-share and share amounts)	December 31, 2021		March 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	2,919	$	2,968
Receivables and contract assets, net of allowance of $78 and $91	3,670		4,156
Prepaid expenses	600		567
Other current assets	314		517
Total current assets	7,503		8,208
Intangible assets, net of accumulated amortization of $4,997 and $4,422	3,575		4,043
Operating right-of-use assets, net	1,122		1,366
Goodwill	629		641
Deferred income taxes, net	259		289
Property and equipment, net of accumulated depreciation of $4,062 and $4,121	2,555		2,946
Other assets	4,310		4,545
Total Assets	$	19,953	$	22,038
LIABILITIES and EQUITY
Current liabilities:
Short-term debt and current maturities of long-term debt	$	706	$	1,167
Accounts payable	759		914
Accrued payroll and related costs	563		698
Current operating lease liabilities	386		418
Accrued expenses and other current liabilities	3,111		3,476
Deferred revenue and advance contract payments	1,001		1,079
Income taxes payable	202		398
Total current liabilities	6,728		8,150
Long-term debt, net of current maturities	4,236		4,345
Non-current deferred revenue	882		622
Non-current operating lease liabilities	805		1,038
Non-current income tax liabilities and deferred tax liabilities	779		854
Other long-term liabilities	1,436		1,721
Total Liabilities	14,866		16,730
Commitments and contingencies
DXC stockholders’ equity:
Preferred stock, par value $0.01 per share, 1,000,000 shares authorized, none issued as of December 31, 2021 and March 31, 2021	—		—
Common stock, par value $0.01 per share, 750,000,000 shares authorized, 248,356,181 issued as of December 31, 2021 and 257,052,533 issued as of March 31, 2021	3		3
Additional paid-in capital	10,383		10,761
Accumulated deficit	(5,058)		(5,331)
Accumulated other comprehensive loss	(385)		(302)
Treasury stock, at cost, 2,807,321 and 2,458,027 shares as of December 31, 2021 and March 31, 2021	(171)		(158)
Total DXC stockholders’ equity	4,772		4,973
Non-controlling interest in subsidiaries	315		335
Total Equity	5,087		5,308
Total Liabilities and Equity	$	19,953	$	22,038

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

DXC TECHNOLOGY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


	Nine Months Ended
(in millions)	December 31, 2021		December 31, 2020
Cash flows from operating activities:
Net income	$	197	$	658
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,309		1,506

Operating right-of-use expense	371		463
Pension & other post-employment benefits, actuarial & settlement losses	7		2
Share-based compensation	77		42
Deferred taxes	17		(319)
Gain on dispositions	(402)		(2,023)
Provision for losses on accounts receivable	1		52
Unrealized foreign currency exchange gain	(20)		(60)
Impairment losses and contract write-offs	21		68
Debt extinguishment costs	311		—


Other non-cash charges, net	1		(2)
Changes in assets and liabilities, net of effects of acquisitions and dispositions:
Decrease in assets	386		88


Decrease in operating lease liability	(371)		(463)
(Decrease) increase in other liabilities	(675)		392



Net cash provided by operating activities	1,230		404

Cash flows from investing activities:
Purchases of property and equipment	(217)		(215)
Payments for transition and transformation contract costs	(152)		(189)
Software purchased and developed	(211)		(209)

Payments for acquisitions, net of cash acquired	—		(10)
Business dispositions	519		4,942
Cash collections related to deferred purchase price receivable	—		159
Proceeds from sale of assets	95		27
Short-term investing	24		—
Other investing activities, net	35		(5)
Net cash provided by investing activities	93		4,500

Cash flows from financing activities:
Borrowings of commercial paper	840		854
Repayments of commercial paper	(821)		(1,327)
Borrowings under lines of credit	—		2,500
Repayment of borrowings under lines of credit	—		(4,000)
Borrowings on long-term debt	19		—
Principal payments on long-term debt	(2,872)		(2,926)
Payments on finance leases and borrowings for asset financing	(855)		(694)

Proceeds from bond issuance	2,918		993

Proceeds from stock options and other common stock transactions	12		1
Taxes paid related to net share settlements of share-based compensation awards	(15)		(5)
Payments for debt extinguishment costs	(344)		—
Repurchase of common stock and advance payment for accelerated share repurchase	(352)		—
Dividend payments	—		(53)

Other financing activities, net	10		(14)
Net cash used in financing activities	(1,460)		(4,671)
Effect of exchange rate changes on cash and cash equivalents	25		20
Net (decrease) increase in cash and cash equivalents including cash classified within current assets held for sale	(112)		253
Cash classified within current assets held for sale	63		(13)
Net (decrease) increase in cash and cash equivalents	(49)		240
Cash and cash equivalents at beginning of year	2,968		3,679
Cash and cash equivalents at end of period	$	2,919	$	3,919

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

DXC TECHNOLOGY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (unaudited)


	Three Months Ended December 31, 2021
(in millions, except shares in thousands)	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Treasury Stock(1)		Total DXC Equity		Non- Controlling Interest		Total Equity
	Shares	Amount
Balance at September 30, 2021	255,003	$	3	$	10,646	$	(5,225)	$	(482)	$	(170)	$	4,772	$	311	$	5,083
Net income						98						98		4		102
Other comprehensive income								97				97		1		98
Share-based compensation expense				23								23				23
Acquisition of treasury stock										(1)		(1)				(1)
Share repurchase program	(6,756)			(286)		73						(213)				(213)
Stock option exercises and other common stock transactions	109											—				—
Non-controlling interest distributions and other						(4)						(4)		(1)		(5)

Balance at December 31, 2021	248,356	$	3	$	10,383	$	(5,058)	$	(385)	$	(171)	$	4,772	$	315	$	5,087


	Three Months Ended December 31, 2020
(in millions, except shares in thousands)	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Treasury Stock		Total DXC Equity		Non- Controlling Interest		Total Equity
	Shares	Amount
Balance at September 30, 2020	256,522	$	3	$	10,746	$	(5,631)	$	(562)	$	(155)	$	4,401	$	350	$	4,751

Net income						1,098						1,098		5		1,103
Other comprehensive income								155				155		1		156
Share-based compensation expense				1								1				1
Acquisition of treasury stock										(1)		(1)				(1)
Stock option exercises and other common stock transactions	279			1								1				1
Non-controlling interest distributions and other												—		(16)		(16)
Balance at December 31, 2020	256,801	$	3	$	10,748	$	(4,533)	$	(407)	$	(156)	$	5,655	$	340	$	5,995


	Nine Months Ended December 31, 2021
(in millions, except shares in thousands)	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Treasury Stock(1)		Total DXC Equity		Non- Controlling Interest		Total Equity
	Shares	Amount
Balance at March 31, 2021	257,053	$	3	$	10,761	$	(5,331)	$	(302)	$	(158)	$	4,973	$	335	$	5,308
Net income						188						188		9		197
Other comprehensive loss								(83)				(83)		11		(72)
Share-based compensation expense				63								63				63
Acquisition of treasury stock										(13)		(13)				(13)
Share repurchase program	(10,618)			(449)		86						(363)				(363)
Stock option exercises and other common stock transactions	1,921			11								11				11
Non-controlling interest distributions and other				(3)		(1)						(4)		(40)		(44)

Balance at December 31, 2021	248,356	$	3	$	10,383	$	(5,058)	$	(385)	$	(171)	$	4,772	$	315	$	5,087


	Nine Months Ended December 31, 2020
(in millions, except shares in thousands)	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Treasury Stock		Total DXC Equity		Non- Controlling Interest		Total Equity
	Shares	Amount
Balance at March 31, 2020	255,674	$	3	$	10,714	$	(5,177)	$	(603)	$	(152)	$	4,785	$	344	$	5,129
Cumulative effect of adopting ASU 2016-13						(4)						(4)				(4)
Net income						649						649		9		658
Other comprehensive income								196				196		3		199
Share-based compensation expense				33								33				33
Acquisition of treasury stock										(4)		(4)				(4)
Stock option exercises and other common stock transactions	1,127			1								1				1
Non-controlling interest distributions and other						(1)						(1)		(16)		(17)
Balance at December 31, 2020	256,801	$	3	$	10,748	$	(4,533)	$	(407)	$	(156)	$	5,655	$	340	$	5,995

(1) 2,807,321 treasury shares as of December 31, 2021.

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

DXC TECHNOLOGY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Note 1 – Summary of Significant Accounting Policies

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.

HPS Sale

On April 1, 2021, DXC completed the sale of its healthcare provider software business (“HPS” or the “HPS Business”) to Dedalus Holding S.p.A. (“Dedalus”). The sale was accomplished by the cash purchase of all equity interests and assets attributable to the HPS Business for €468 million (approximately $551 million), subject to certain adjustments. See Note 4 – “Divestitures” for further information.

HHS Sale

On October 1, 2020, DXC completed the sale of its U.S. State and Local Health and Human Services business (“HHS” or the “HHS Business”) to an affiliate of Veritas Capital Fund Management, L.L.C. (“Veritas Capital”) to form Gainwell Technologies. The sale was accomplished by the cash purchase of all equity interests and assets attributable to the HHS Business together with future services to be provided by the Company for a total enterprise value of $5 billion, subject to net working capital adjustments and assumed liabilities. See Note 4 – “Divestitures” for further information.

FDB Sale

During the third quarter of fiscal 2022, a subsidiary of DXC entered into a purchase agreement to sell (the "FDB Sale") its German financial services subsidiary ("FDB" or the "FDB Business") to the FNZ Group ("FNZ") for €300 million (approximately $340 million), subject to certain adjustments. The closing of the transaction is subject to certain conditions, including receipt of certain regulatory consents. At December 31, 2021, FDB held approximately $670 million in cash which primarily related to customer deposit liabilities.

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 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 is presented separately in the statements of comprehensive income. All intercompany transactions and balances have been eliminated. Certain amounts reported in the previous year have been reclassified to conform to the current year presentation.

DXC TECHNOLOGY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

The financial statements of the Company have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) 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, 2021 (“fiscal 2021”).

Use of Estimates

The preparation of the financial statements, in accordance with GAAP, requires the Company’s management to make estimates and assumptions that affect reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expense during the reporting period. The Company bases its estimates on assumptions regarding historical experience, currently available information, and anticipated developments that it believes are reasonable and appropriate. However, because the use of estimates involves an inherent degree of uncertainty, actual results could differ from those estimates. The severity, magnitude and duration, as well as the economic consequences of the ongoing coronavirus disease 2019 (“COVID-19”) crisis, are uncertain, rapidly changing and difficult to predict. Therefore, accounting estimates and assumptions may change over time in response to the COVID-19 crisis and may change materially in future periods. Estimates are used for, but are not limited to, contracts accounted for using the percentage-of-completion method, cash flows used in the evaluation of impairment of goodwill and other long-lived assets, reserves for uncertain tax positions, valuation allowances on deferred tax assets, loss accruals for litigation, and obligations related to our pension plans. In the opinion of the Company’s management, the accompanying financial statements contain all adjustments necessary, including those of a normal recurring nature, to fairly present the financial statements. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full fiscal year.

DXC TECHNOLOGY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Note 2 – Recent Accounting Pronouncements

During the nine months ended December 31, 2021, DXC adopted the following Accounting Standards Update (“ASU”) issued by the Financial Accounting Standards Board:


Date Issued and ASU	Date Adopted and Method	Description	Impact
December 2019 ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”	April 1, 2021 Multiple Methods	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. The transition method (retrospective, modified retrospective, or prospective basis) related to the amendments depends on the applicable guidance, and all amendments for which there is no transition guidance specified are applied on a prospective basis.	The Company determined that this standard had no material impact to its condensed consolidated financial statements following adoption.
July 2021 ASU 2021-05, “Leases (Topic 842): Lessors–Certain Leases with Variable Lease Payments”	Second quarter of fiscal 2022 Prospective	The amendments in this update modify lease classification requirements for lessors, providing that lease contracts with variable lease payments that do not depend on a reference index or a rate should be classified as operating leases if they would have been classified as a sales-type or direct financing lease and resulted in the recognition of a selling loss at lease commencement.	Upon adoption, on a prospective basis, customer leases with variable payments that would have resulted in an upfront loss when meeting sales type lease classification are classified as operating leases upon commencement or modification. Associated revenues, cost of services, or depreciation are subsequently recognized over their related lease terms or useful life. Before adopting this standard, leases with similar variable payments were classified as sales-type leases. These similar leases resulted in the recognition of upfront losses upon commencement or modification prior to the adoption, even when the overall economics of the lease arrangements were expected to be profitable.

Other recently issued ASUs that have not yet been adopted are not expected to have a material effect on DXC’s consolidated financial statements.

Note 3 – Acquisitions

Fiscal 2021 Acquisitions

AXA Bank Germany Acquisition

On January 1, 2021, DXC completed the acquisition of AXA Bank Germany (“AXA Bank”), a German retail bank, from AXA Group for the total consideration of $101 million. In connection with its acquisition of AXA Bank, DXC received cash of $294 million which included customer deposit liabilities totaling $197 million. DXC recorded goodwill associated with the acquisition of AXA Bank totaling $2 million. The AXA bank has been consolidated within FDB and will be part of the FDB sale previously disclosed.

DXC TECHNOLOGY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Note 4 – Divestitures

Fiscal 2022 Divestitures

HPS Sale

On April 1, 2021, DXC completed the sale of its HPS Business to Dedalus for €468 million (approximately $551 million), which includes €10 million (approximately $12 million) related to future services to be provided by the Company. The sale proceeds were used to repay the remainder of two series of 4.45% senior notes due fiscal 2023 for $154 million and $165 million. The HPS Sale resulted in a pre-tax gain on sale of $337 million, net of closing costs.

The following is a summary of the assets and liabilities distributed as part of the HPS Sale on April 1, 2021:


(in millions)	As of April 1, 2021
Assets:
Cash and cash equivalents	$	34
Accounts receivable, net	62
Prepaid expenses	6

Total current assets	102
Intangible assets, net	101
Operating right-of-use assets, net	3
Goodwill	81
Deferred income taxes, net	62
Property and equipment, net	4
Other assets	15
Total non-current assets	266
Total assets	$	368

Liabilities:
Accounts payable	$	4
Accrued payroll and related costs	7
Current operating lease liabilities	1
Accrued expenses and other current liabilities	14
Deferred revenue and advance contract payments	45
Total current liabilities	71
Non-current deferred revenue	10
Long-term operating lease liabilities	2
Other long-term liabilities	3
Total long-term liabilities	15
Total liabilities	$	86

During the first quarter of fiscal 2022, the Company sold some insignificant businesses that resulted in a gain of $49 million. This was partially offset by $13 million in sales price adjustments related to prior year dispositions, which resulted from changes in estimated net working capital.

DXC TECHNOLOGY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Fiscal 2021 Divestitures

HHS Sale

On October 1, 2020, DXC completed the sale of its HHS Business to Veritas Capital. The sale was accomplished by the cash purchase of all equity interests and assets attributable to the HHS Business for a total enterprise value of $5.0 billion (including $85 million related to future services to be provided by the Company). As part of the sale of the HHS business, $272 million of repurchased receivables, previously sold under the Milano Receivables Facility (“Milano Facility”) (see Note 6 – “Receivables” to the financial statements), $12 million of prepaid maintenance, and $48 million of software licenses were transferred to the HHS Business. DXC made payment for these assets during the third quarter of fiscal 2021. The repurchase of receivables and payment on prepaid maintenance are reported as operating cash outflows, and the payment for software license is considered an investing cash outflow. The HHS Sale resulted in a pre-tax gain on sale of $2,014 million, net of closing costs. The sale price is subject to adjustment based on changes in actual closing net working capital. Final potential working capital adjustments are pending. Approximately $3.5 billion of the sale proceeds were used to prepay debt.

DXC’s post-divestiture relationship with the HHS Business is governed by the Purchase Agreement, which provides for the allocation of assets, employees, liabilities and obligations (including property, employee benefits, litigation, and tax-related assets and liabilities) between DXC and the HHS Business attributable to periods prior to, at and after the divestment. In addition, DXC and the HHS Business have service and commercial contracts that generally extend through fiscal 2023.

The divestment of the HHS Business, reported as part of the GBS segment, did not meet the requirements for presentation as discontinued operations as it did not represent a strategic shift that would have a major effect on DXC’s operations and financial results and was included in income prior to its divestment.

DXC TECHNOLOGY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

The following is a summary of the assets and liabilities distributed as part of the HHS Sale on October 1, 2020:


(in millions)	As of October 1, 2020
Assets:
Cash and cash equivalents	$	8
Accounts receivable, net	295
Prepaid expenses	39
Other current assets	2
Total current assets	344
Intangible assets, net	1,308
Operating right-of-use assets, net	74
Goodwill	1,354
Property and equipment, net	46
Other assets	54
Total non-current assets	2,836
Total assets	$	3,180

Liabilities:
Accounts payable	$	79
Accrued payroll and related costs	13
Current operating lease liabilities	27
Accrued expenses and other current liabilities	36
Deferred revenue and advance contract payments	20
Total current liabilities	175
Non-current deferred revenue	32
Long-term operating lease liabilities	48
Other long-term liabilities	2
Total long-term liabilities	82
Total liabilities	$	257

During fiscal 2021, the Company sold some insignificant businesses that resulted in a net loss of $10 million.

DXC TECHNOLOGY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Note 5 – Earnings Per Share

Basic earnings 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				Nine Months Ended
(in millions, except per-share amounts)	December 31, 2021		December 31, 2020		December 31, 2021		December 31, 2020
Net income attributable to DXC common shareholders:	$	98	$	1,098	$	188	$	649

Common share information:
Weighted average common shares outstanding for basic EPS	250.27		254.32		252.44		254.03
Dilutive effect of stock options and equity awards	4.55		1.43		5.15		1.17
Weighted average common shares outstanding for diluted EPS