10-Q 1 dxc930201710-q.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________

Commission File No.: 001-38033
downloada02.jpg
DXC TECHNOLOGY COMPANY
 
(Exact name of Registrant as specified in its charter)
 
Nevada
61-1800317
(State of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
1775 Tysons Boulevard
 
Tysons, Virginia
22102
(Address of principal executive offices)
(zip code)
 
 
Registrant's telephone number, including area code: (703) 245-9675

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post 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. (Check one).

Large Accelerated Filer     x                            Accelerated Filer o
Non-accelerated Filer o (do not check if a smaller reporting company)        Smaller reporting company o    
Emerging growth company o

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

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

285,268,745 shares of common stock, par value $0.01 per share, were outstanding as of October 23, 2017.



TABLE OF CONTENTS






PART I

ITEM 1. FINANCIAL STATEMENTS

Index to Condensed Consolidated Financial Statements
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 




1


DXC TECHNOLOGY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

 
 
Three Months Ended
 
Six Months Ended
(in millions, except per-share amounts)
 
September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016
 
 
 
 
 
 
 
 
 
Revenues
 
$
6,163

 
$
1,871

 
$
12,076

 
$
3,801

 
 
 
 
 
 
 
 
 
Costs of services (excludes depreciation and amortization and restructuring costs)
 
4,312

 
1,363

 
9,100

 
2,784

Selling, general, and administrative (excludes depreciation and amortization and restructuring costs)
 
672

 
293

 
1,082

 
598

Depreciation and amortization
 
537

 
167

 
898

 
333

Restructuring costs
 
192

 
25

 
382

 
82

Interest expense
 
78

 
29

 
154

 
54

Interest income
 
(16
)
 
(8
)
 
(32
)
 
(18
)
Other expense (income), net
 
1

 
3

 
(80
)
 
5

Total costs and expenses
 
5,776

 
1,872

 
11,504

 
3,838

 
 
 
 
 
 
 
 
 
Income (loss) before income taxes
 
387

 
(1
)
 
572

 
(37
)
Income tax expense (benefit)
 
122

 
(22
)
 
134

 
(38
)
Net income
 
265

 
21

 
438

 
1

Less: net income attributable to non-controlling interest, net of tax
 
9

 
6

 
23

 
7

Net income (loss) attributable to DXC common stockholders
 
$
256

 
$
15

 
$
415

 
$
(6
)
 
 
 
 
 
 
 
 
 
Income (loss) per common share:
 
 
 
 
 
 
 
 
Basic
 
$
0.90

 
$
0.11

 
$
1.46

 
$
(0.04
)
Diluted
 
$
0.88

 
$
0.10

 
$
1.43

 
$
(0.04
)
 
 
 
 
 
 
 
 
 
Cash dividend per common share
 
$
0.18

 
$
0.14

 
$
0.36

 
$
0.28



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





2



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

 
 
 
 
Three Months Ended
 
Six Months Ended
(in millions)
 
September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016
 
 
 
 
 
 
 
 
 
 
 
Net income
 
$
265

 
$
21

 
$
438

 
$
1

Other comprehensive income, net of taxes:
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments, net of tax (1)
 
(45
)
 
44

 
109

 
(6
)
 
Cash flow hedges adjustments (2)
 
(2
)
 
14

 
(5
)
 
9

 
Pension and other post-retirement benefit plans, net of tax:
 
 
 
 
 
 
 
 
 
 
Amortization of prior service cost, net of tax (3)
 
(3
)
 
(4
)
 
(7
)
 
(7
)
 
Pension and other post-retirement benefit plans, net of tax
 
(3
)
 
(4
)
 
(7
)
 
(7
)
Other comprehensive (loss) income, net of taxes
 
(50
)
 
54

 
97

 
(4
)
Comprehensive income (loss)
 
215

 
75

 
535

 
(3
)
 
 
Less: comprehensive income attributable to non-controlling interest
 
36

 
6

 
28

 
7

Comprehensive income (loss) attributable to DXC common stockholders
 
$
179

 
$
69

 
$
507

 
$
(10
)
        

(1) 
Tax expense related to foreign currency translation adjustments was $5 and $2 respectively, for the three and six months ended September 30, 2017, and $0 and $1 for the three and six months ended September 30, 2016, respectively.
(2) 
Tax benefit related to cash flow hedge adjustments was $3 and $3, respectively, for the three and six months ended September 30, 2017.
(3) 
Tax benefit related to amortization of prior service costs was $2 and $2, respectively, for the three and six months ended September 30, 2017, and $1 and $3 for the three and six months ended September 30, 2016.





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



3


DXC TECHNOLOGY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
 
 
As of
(in millions, except per-share and share amounts)
 
September 30, 2017
 
March 31, 2017 (1)
ASSETS
 
 
 

Current assets:
 
 
 
 
Cash and cash equivalents
 
$
2,671

 
$
1,263

Receivables, net of allowance for doubtful accounts of $27 and $26
 
5,676

 
1,643

Prepaid expenses
 
610

 
223

Other current assets
 
483

 
118

Total current assets
 
9,440

 
3,247

 
 
 
 
 
Intangible assets, net of accumulated amortization of $2,731 and $2,293
 
8,004

 
1,794

Goodwill
 
9,158

 
1,855

Deferred income taxes, net
 
386

 
381

Property and equipment, net of accumulated depreciation of $3,497 and $2,816
 
3,745

 
903

Other assets
 
2,443

 
483

Total Assets
 
$
33,176

 
$
8,663

 
 
 
 
 
LIABILITIES and EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Short-term debt and current maturities of long-term debt
 
2,200

 
738

Accounts payable
 
1,666

 
410

Accrued payroll and related costs
 
825

 
248

Accrued expenses and other current liabilities
 
3,235

 
998

Deferred revenue and advance contract payments
 
1,325

 
518

Income taxes payable
 
186

 
38

Total current liabilities
 
9,437

 
2,950

 
 
 
 
 
Long-term debt, net of current maturities
 
6,325

 
2,225

Non-current deferred revenue
 
806

 
286

Non-current income tax liabilities and deferred tax liabilities
 
2,117

 
423

Other long-term liabilities
 
1,984

 
613

Total Liabilities
 
20,669

 
6,497

 
 
 
 
 
Commitments and contingencies
 


 


 
 
 
 
 
DXC stockholders’ equity:
 
 
 
 
Preferred stock, par value $.01 per share, authorized 1,000,000 shares, none issued as of September 30, 2017 and March 31, 2017
 

 

Common stock, par value $.01 per share, authorized 750,000,000 shares, issued 285,942,540 as of September 30, 2017 and 141,298,797 as of March 31, 2017
 
3

 
1

Additional paid-in capital
 
12,158

 
2,219

Retained earnings (accumulated deficit)
 
110

 
(170
)
Accumulated other comprehensive loss
 
(70
)
 
(162
)
Treasury stock, at cost, 762,677 and 0 shares as of September 30, 2017 and March 31, 2017
 
(61
)
 

Total DXC stockholders’ equity
 
12,140

 
1,888

Non-controlling interest in subsidiaries
 
367

 
278

Total Equity
 
12,507

 
2,166

Total Liabilities and Equity
 
$
33,176

 
$
8,663

         
(1) 
Certain prior year amounts were adjusted to retroactively reflect the legal capital of DXC.


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

4


DXC TECHNOLOGY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

 
 
Six Months Ended
(in millions)
 
September 30, 2017
 
September 30, 2016
Cash flows from operating activities:
 
 
 
 
Net income
 
$
438

 
$
1

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
904

 
339

Share-based compensation
 
58

 
35

Unrealized foreign currency exchange losses
 
4

 
90

Other non-cash charges, net
 
15

 

Changes in assets and liabilities, net of effects of acquisitions and dispositions:
 
 
 
 
Decrease in assets
 
78

 
64

Increase (decrease) in liabilities
 
46

 
(287
)
Net cash provided by operating activities
 
1,543

 
242

 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
Purchases of property and equipment
 
(123
)
 
(143
)
Payments for outsourcing contract costs
 
(176
)
 
(49
)
Software purchased and developed
 
(86
)
 
(78
)
Cash acquired through Merger
 
974

 

Payments for acquisitions, net of cash acquired
 
(152
)
 
(434
)
Proceeds from sale of assets
 
20

 
9

Other investing activities, net
 
(20
)
 
(26
)
Net cash provided by (used in) investing activities
 
437

 
(721
)
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
Borrowings of commercial paper
 
1,182

 
1,163

Repayments of commercial paper
 
(1,067
)
 
(1,058
)
Borrowings under lines of credit
 

 
920

Repayment of borrowings under lines of credit
 
(335
)
 
(529
)
Borrowings on long-term debt, net of discount
 
615

 
107

Principal payments on long-term debt
 
(1,552
)
 
(188
)
Proceeds from bond issuance
 
647

 

Proceeds from stock options and other common stock transactions
 
92

 
42

Taxes paid related to net share settlements of share-based compensation awards
 
(66
)
 
(12
)
Repurchase of common stock
 
(66
)
 

Dividend payments
 
(72
)
 
(39
)
Other financing activities, net
 
1

 
(30
)
Net cash (used in) provided by financing activities
 
(621
)
 
376

Effect of exchange rate changes on cash and cash equivalents
 
49

 
(21
)
Net increase (decrease) in cash and cash equivalents
 
1,408

 
(124
)
Cash and cash equivalents at beginning of year
 
1,263

 
1,178

Cash and cash equivalents at end of period
 
$
2,671

 
$
1,054


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

5



DXC TECHNOLOGY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (unaudited)
(in millions, except shares in thousands)
Common Stock
Additional
Paid-in Capital
Retained Earnings (Accumulated Deficit)
Accumulated
Other
Comprehensive (Loss)
Income
Treasury Stock (3)
Total
DXC Equity
Non-
Controlling Interest
Total Equity
Shares
 
Amount
Reported balance at March 31, 2017
151,932

 
$
152

$
2,565

$
(170
)
$
(162
)
$
(497
)
$
1,888

$
278

$
2,166

Recapitalization adjustment(1)
(10,633
)
 
(151
)
(346
)
 
 
497


 

Recast balance at March 31, 2017
141,299

 
$
1

$
2,219

$
(170
)
$
(162
)
$

$
1,888

$
278

$
2,166

Business acquired in purchase, net of issuance costs(2)
141,741

 
2

9,848



 
 
9,850

61

9,911

Net Income
 
 
 
 
415

 
 
415

23

438

Other comprehensive income
 
 
 
 
 
92

 
92

5

97

Share-based compensation expense
 
 
 
57

 
 
 
57

 
57

Acquisition of treasury stock
 
 
 
 
 
 
(61
)
(61
)
 
(61
)
Share repurchase program
(842
)
 


(36
)
(30
)
 
 
(66
)
 
(66
)
Stock option exercises and other common stock transactions
3,745

 


70

 
 

70

 
70

Dividends declared
 
 
 
 
(105
)
 
 
(105
)
 
(105
)
Balance at September 30, 2017
285,943

 
$
3

$
12,158

$
110

$
(70
)
$
(61
)
$
12,140

$
367

$
12,507

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(in millions, except shares in thousands)
Common Stock
Additional
Paid-in Capital
Retained Earnings
(Accumulated Deficit)
Accumulated
Other
Comprehensive
Loss
Treasury Stock
Total
DXC Equity
Non-
Controlling Interest
Total Equity
Shares
 
Amount
Reported balance at April 1, 2016
148,747

 
$
149

$
2,439

$
33

$
(111
)
$
(485
)
$
2,025

$
7

$
2,032

Recapitalization adjustment(1)
 
 
(147
)
147

 
 
 

 

Recast balance at April 1, 2016
148,747

 
$
2

$
2,586

$
33

$
(111
)
$
(485
)
$
2,025

$
7

$
2,032

Net loss
 
 
 
 
(6
)
 
 
(6
)
7

1

Other comprehensive loss
 
 
 
 
 
(4
)
 
(4
)


(4
)
Share-based compensation expense
 
 
 
35

 
 
 
35

 
35

Acquisition of treasury stock
 
 
 
 
 
 
(11
)
(11
)
 
(11
)
Stock option exercises and other common stock transactions
2,627

 


43

 
 
 
43

 
43

Dividends declared
 
 
 
 
(39
)
 
 
(39
)
 
(39
)
Non-controlling interest distributions and other
 
 
 
 
 
 
 

(11
)
(11
)
Non-controlling interest from acquisition
 
 
 
 
 
 
 

281

281

Divestiture of NPS
 
 
 
 
(2
)
 
 
(2
)
 
(2
)
Balance at September 30, 2016
151,374

 
$
2

$
2,664

$
(14
)
$
(115
)
$
(496
)
$
2,041

$
284

$
2,325

        
(1) 
Certain prior year amounts were adjusted to retroactively reflect the legal capital of DXC.
(2) 
See Note 3 - "Acquisitions"
(3) 
762,677 treasury shares as of September 30, 2017



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

6



DXC TECHNOLOGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Note 1 - Summary of Significant Accounting Policies

Business

DXC Technology Company (“DXC” or the "Company") is the world's leading independent, end-to-end IT services company. DXC’s mission is to enable superior returns on its clients' technology investments through best-in-class vertical industry solutions, domain expertise, strategic partnerships with key technology leaders and global scale. The Company helps lead its clients through their digital transformations to meet new business demands and customer expectations in a market of escalating complexity, interconnectivity, mobility, and opportunity. DXC strives to be a trusted IT partner to its clients by addressing their requirements and providing next-generation IT services that include applications modernization, cloud infrastructure, cyber security, and big data solutions.

Basis of Presentation

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

As previously disclosed, effective April 1, 2017, Computer Sciences Corporation ("CSC") completed its previously announced combination with the Enterprise Services business of Hewlett Packard Enterprise Company ("HPES"), which resulted in CSC becoming a wholly owned subsidiary of DXC (the "Merger"). See Note 3 - "Acquisitions" for further information. DXC common stock began regular-way trading under the symbol "DXC" on the New York Stock Exchange on April 3, 2017. Because CSC was deemed the accounting acquirer in this combination for accounting purposes under GAAP (defined below), CSC is considered DXC's predecessor and the historical financial statements of CSC prior to April 1, 2017, are reflected in this Quarterly Report on Form 10-Q as DXC's historical financial statements. Accordingly, the financial results of DXC as of and for any periods ending prior to April 1, 2017 do not include the financial results of HPES, and therefore, are not directly comparable. Additionally, "Prepaid expenses" and "other current assets" previously aggregated within "prepaid expenses and other current assets" have been separately disclosed, and prior year amounts have been reclassified to conform to the current year presentation.

CSC used to report its results based on a fiscal year convention that comprises four thirteen-week quarters. However, effective April 1, 2017, DXC's fiscal year was modified to end on March 31 of each year with each quarter ending on the last calendar day.

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 CSC's Annual Report on Form 10-K for the fiscal year ended March 31, 2017 ("fiscal 2017"), included in DXC's Annual Report on Form ARS for fiscal 2017. In the opinion of 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.

In connection with the preparation of the Company’s condensed consolidated financial statements for the three months ended September 30, 2017, the Company identified a classification error in the June 30, 2017 condensed consolidated statement of operations, which resulted in an understatement of $126 million to selling, general and administrative expense and an overstatement of $126 million to cost of services for the three months ended June 30, 2017. The classification error was corrected during the three months ended September 30, 2017. The Company believes that this

7

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


classification error is immaterial to the condensed consolidated statements of operations for the three months ended June 30, 2017 and September 30, 2017. This classification error had no impact on the condensed consolidated statement of operations for the six months ended September 30, 2017.


Note 2 - Recent Accounting Pronouncements

The following Accounting Standards Updates ("ASU") were recently issued but have not yet been adopted by DXC:

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815).” This amendment was issued to improve the financial reporting of hedge relationships to better portray the economic results of an entity’s risk management activities in its financial statements and to make certain improvements to simplify the application of hedge accounting. ASU 2017-12 will be effective for DXC in fiscal 2020 and early adoption is permitted. The ASU must be adopted by applying the standard to existing hedge instruments at the adoption date. DXC is currently evaluating the effect the adoption of ASU 2017-12 will have on its consolidated financial statements and notes thereto.

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)." This amendment is intended to increase transparency and comparability among organizations by recognizing virtually all lease assets and lease liabilities on the balance sheet and disclosing key information about lease arrangements. ASU 2016-02 will be effective for DXC in fiscal 2020 and early adoption is permitted. This ASU must be adopted using a modified retrospective transition and provides for certain practical expedients. DXC is currently evaluating the effect the adoption of ASU 2016-02 will have on its existing accounting policies and the consolidated financial statements in future reporting periods, but expects there will be an increase in assets and liabilities on its balance sheets at adoption due to the recording of right-of-use assets and corresponding lease liabilities, which may be significant. Refer to Note 18 - "Commitments and Contingencies" for information about its operating lease obligations.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which, along with amendments issued in 2015 and 2016, will replace most existing revenue recognition guidance under U.S. GAAP and eliminate industry specific guidance. The core principle of ASU 2014-09 is that revenue is recognized when the transfer of goods or services to customers occurs in an amount that reflects the consideration to which DXC expects to be entitled in exchange for those goods or services. The guidance also addresses the timing of recognition of certain costs incurred to obtain or fulfill a customer contract. Further, it requires the disclosure of sufficient information to enable readers of DXC’s financial statements to understand the nature, amount, timing and uncertainty of revenues, and cash flows arising from customer contracts, and information regarding significant judgments and changes in judgments made.

ASU 2014-09 provides two methods of adoption: full retrospective and modified retrospective. Under the full retrospective method, the standard would be applied to all periods presented with previously disclosed periods restated under the new guidance. Under the modified retrospective method, prior periods would not be restated but rather a cumulative catch-up adjustment would be recorded on the adoption date. The Company will adopt this standard in the first quarter of Fiscal 2019 and expects to adopt using the modified retrospective method.

DXC has performed an initial assessment of the impact of the standard and continues to assess the impact that the guidance will have on accounting policies, processes, systems and internal controls. The Company is currently in the process of implementing the new standard. Based on the implementation efforts to-date, including the assessment of contracts acquired through the combination with HPES, the Company expects the primary accounting impacts to include the following:
The Company’s IT and business process outsourcing arrangements comprise a series of distinct services, for which revenue is expected to be recognized as the services are provided in a manner that is generally consistent with current practices.
The Company has certain arrangements involving the sale of proprietary software and related services for which vendor-specific objective evidence of fair value may not exist, resulting in the deferral of revenues. Under the new standard, estimates of standalone selling price will be necessary for all software performance obligations, which may result in the acceleration of revenues.

8

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


The Company currently does not capitalize commission costs, which will be required in certain cases under the new standard and amortized over the period that services or goods are transferred to the customer. However, the Company is currently assessing the impact of the standard on commission plans of the combined company.
 
As the quantitative impact of adopting the standard may be significantly impacted by arrangements contracted before the adoption date, the Company has not yet reached a conclusion about whether the accounting impact of the new standard will be material to its consolidated financial statements. However, the Company expects continuing significant implementation efforts to accumulate and report additional disclosures required by the standard.

Other recently issued ASUs effective after September 30, 2017 are not expected to have a material effect on DXC's consolidated financial statements.

Note 3 - Acquisitions

Fiscal 2018 Acquisitions

HPES Merger

On April 1, 2017, CSC, Hewlett Packard Enterprise Company (“HPE”), Everett SpinCo, Inc.(“Everett”), and New Everett Merger Sub Inc., a wholly-owned subsidiary of Everett (“Merger Sub”), completed the strategic combination of CSC with the Enterprise Services business of HPE to form DXC. The combination was accomplished through a series of transactions that included the transfer by HPE of its Enterprise Services business, HPES, to Everett, and spin-off by HPE of Everett on March 31, 2017, and the merger of Merger Sub with and into CSC on April 1, 2017 (the “Merger”). At the time of the Merger, Everett was renamed DXC, and as a result of the Merger, CSC became a direct wholly owned subsidiary of DXC. DXC common stock began regular-way trading on the New York Stock Exchange on April 3, 2017. The strategic combination of the two complementary businesses was to create a versatile global technology services business, well positioned to innovate, compete and serve clients in a rapidly changing marketplace.

Effective as of the closing of the Merger, the DXC board of directors consisted of 10 directors comprised of five former CSC board members and five directors designated by HPE, including CSC’s CEO J. Michael Lawrie, who became chairman, president and CEO of DXC and HPE’s president and CEO Margaret C. Whitman, who joined the DXC board of directors. Each director was re-elected at DXC’s 2017 annual meeting of stockholders on August 10, 2017.

The transaction involving HPES and CSC is a reverse merger acquisition, in which DXC is considered the legal acquirer of the business and CSC is considered the accounting acquirer. While purchase consideration transferred in a business combination is typically measured by reference to the fair value of equity issued or other assets transferred by the accounting acquirer, CSC did not issue any consideration in the Merger. CSC stockholders received one share of DXC common stock for every one share of CSC common stock held immediately prior to the Merger. DXC issued a total of 141,298,797 shares of DXC common stock to CSC stockholders, representing approximately 49.9% of the outstanding shares of DXC common stock immediately following the Merger.

All share and per share information has been restated to reflect the effects of the Merger. The reverse merger is deemed a capital transaction and the net assets of CSC (the accounting acquirer) are carried forward to DXC (the legal acquirer and the reporting entity) at their carrying value before the combination. The acquisition process utilizes the capital structure of the Company and the assets and liabilities of CSC which are recorded at historical cost. The equity of the Company is the historical equity of CSC, retroactively restated to reflect the number of shares issued by DXC in the transaction.

In connection with the Merger, the Company entered into a number of agreements with HPE including the following:

Information Technology Services Agreement - The Company and HPE have entered into an Agreement pursuant to which the Company will provide information technology services to HPE. This agreement terminates on the fifth anniversary of its’ effective date, unless earlier terminated by the parties in accordance with its terms.


9

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


Preferred Vendor Agreements - The Company and HPE have entered into Preferred Vendor Agreements, pursuant to which HPE and Micro Focus International, the acquirer of HPE's software business, will: (1) make available to DXC for purchase hardware products sold by HPE and technology services provided by HPE and (2) make available to DXC for purchase and license software products sold or licensed by HPE and Micro Focus, and technology (including SaaS), support, professional and other services provided by HPE and Micro Focus.

Certain other additional agreements were entered into, including an employee matters agreement, a tax matters agreement, a transition services agreement, an intellectual property matters agreement, and certain real estate related agreements.

On September 25, 2017, HPE settled certain obligations as required under the Separation and Distribution Agreement, as amended. In accordance with the provisions of the agreement, a calculation was performed to make certain adjustments required to complete the separation and standup of legacy HPES and achieve accurate cut off for intercompany transactions with its former parent. The adjustment to settle the obligation was $175 million.

In May 2016, CSC, HPE and DXC (f/k/a Everett Spinco, Inc.) entered into an agreement and plan of merger, as amended (the “Merger Agreement”), and HPE and DXC entered into a separation agreement, as amended (the “Separation Agreement”), in each case relating to the combination of HPES and CSC. At the time the Merger Agreement and the Separation Agreement were executed, HPES was a party to several thousand leases with Hewlett-Packard Financial Services that were classified as capital leases. Under the terms of the Separation Agreement, the balance of long-term capital leases for which HPES would be liable at the time of the spin-off was not to exceed $250 million. The Separation Agreement provided HPE an opportunity to modify the terms of the long-term leases to reduce the balance classified as capital leases. Between late May 2016 and the end of March 2017, Hewlett-Packard Financial Services entered into lease amendments that purported to modify most of the leases between HPES and Hewlett-Packard Financial Services in a manner that would cause those leases to be classified as operating leases.

After the closing of the Merger, the Company began assessing the terms of the leases (including the amendments described above). During the Company’s second fiscal quarter, the Company concluded that the long-term capital leases that were amended by Hewlett-Packard Financial Services did not satisfy the requirements for classification as operating leases and as a result should be classified as capital leases as of the closing of the spin-off. Accordingly, during the quarter ended September 30, 2017, as part of the process of determining fair value of these leases as of April 1, 2017, the Company recorded a lease liability of $977 million, fixed assets under capital leases of $594 million and a $383 million increase to goodwill.

The Company reflected the impact of this change in lease classification to its statement of operations during the quarter ended September 30, 2017 by decreasing cost of sales by $209 million, increasing depreciation expense by $88 million and increasing interest expense by $13 million to reflect the leases as capital leases. The net impact of the change in lease classification on pre-tax income in the Company’s first fiscal quarter, which was recorded in the Company’s second fiscal quarter, was an increase of $54 million.

The Company will address this matter with HPE in a manner consistent with the terms of the Separation Agreement and any disagreement that may arise between the parties will be treated in a confidential manner under the Separation Agreement, including dispute resolution through executive escalation, mediation and binding arbitration.



10

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


Under the acquisition method of accounting, total consideration exchanged was:
(in millions)
 
Amount
Preliminary fair value of purchase consideration received by HPE stockholders(1) 
 
$
9,782

Preliminary fair value of HPES options assumed by CSC(2)
 
68

Total estimated consideration transferred
 
$
9,850

        

(1) 
Represents the fair value of consideration received by HPE stockholders to give them 50.1% ownership in the combined company. The fair value of the purchase consideration transferred was based on a total of 141,865,656 shares of DXC common stock distributed to HPE stockholders as of the close of business on the record date (141,741,712 after effect of 123,944 cancelled shares) at CSC's closing price of $69.01 per share on March 31, 2017.
(2) 
Represents the fair value of certain stock-based awards of HPES employees that were unexercised on March 31, 2017, which HPE, HPES and CSC agreed would be converted to DXC stock-based awards.

Due to the complexity of the Merger, the Company recorded the assets acquired and liabilities assumed at their preliminary fair values. The Company's preliminary estimates of fair values of the assets acquired and the liabilities assumed, as well as the fair value of non-controlling interest, are based on the information that was available as of the Merger date, and the Company is continuing to evaluate the underlying inputs and assumptions used in its valuations. Accordingly, these preliminary estimates are subject to change during the measurement period, which is up to one year from the Merger date. The cumulative impact of any subsequent changes resulting from the facts and circumstances that existed as of the Merger date will be adjusted in the reporting period in which the adjustment amount is determined. The preliminary estimated purchase price is allocated as follows:

(in millions)
 
Estimated Fair Value
Cash and cash equivalents
 
$
974

Accounts receivable(1)
 
4,059

Other current assets
 
538

Total current assets
 
5,571

Property and equipment
 
2,918

Intangible assets
 
6,194

Other assets
 
1,574

Total assets acquired
 
16,257

Accounts payable, accrued payroll, accrued expenses, and other current liabilities
 
(4,572
)
Deferred revenue
 
(1,105
)
Long-term debt, net of current maturities
 
(4,783
)
Long-term deferred tax liabilities and income tax payable
 
(1,659
)
Other liabilities
 
(1,304
)
Total liabilities assumed
 
(13,423
)
Net identifiable assets acquired
 
2,834

Add: Fair value of non-controlling interests
 
(61
)
Goodwill
 
7,077

Total estimated consideration transferred
 
$
9,850

        

(1) 
Includes adjustment received from HPE on September 25, 2017, in accordance with the provisions of the Separation and Distribution Agreement, as amended, of $175 million.

As of September 30, 2017, DXC has not finalized the determination of fair values allocated to various assets and liabilities, including, but not limited to: receivables; property and equipment; deferred income taxes, net; deferred revenue and advanced contract payments; deferred costs; intangible assets; accounts payable and accrued liabilities; lease obligations; loss contracts; non-controlling interest; and goodwill.


11

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


During the three months ended September 30, 2017, the Company made a number of refinements to the April 1, 2017 preliminary purchase price allocation. These refinements were primarily driven by the Company recording valuation adjustments to certain preliminary estimates of fair values which resulted in a decrease in net assets of $312 million. Total assets increased by $1.3 billion driven by a $94 million increase in accounts receivable primarily due from the recognition of $85 million of indemnification assets related to tax obligations and deferred compensation; a $436 million increase in property and equipment primarily arising from recognition of $594 million of fixed assets under capital lease, offset by a $152 million reduction in the preliminary fair value of assets primarily related to data centers and land; and a $1.1 billion increase in intangible assets primarily driven by a $1.3 billion increase in the preliminary fair value assessment for customer relationships. Liabilities increased by $1.6 billion primarily driven by an increase in capital lease obligations of $977 million, a $226 million adjustment to deferred revenue primarily related to a valuation adjustment for outsourcing and other customer contracts taking into account continuing performance obligation, and an increase in long-term deferred income taxes of $106 million.

In accordance with ASU 2015-16, "Business Combinations (Topic 805)," Simplifying the Accounting for Measurement-period Adjustments, during the three months ended September 30, 2017, the Company continued to refine its fair value assessment of assets acquired and liabilities assumed. As a result, a $48 million increase in income before income taxes related to the three months ended June 30, 2017 was recognized in the condensed consolidated statement of operations for the three months ended September 30, 2017. The change in income before income taxes was primarily attributed to an increase of $54 million as a result of change in lease classification and related fair value adjustment, a net increase of $8 million related to the fair value of deferred revenue and deferred cost, and an increase of $10 million resulting from a decrease in depreciation expense arising from a lower fair value assessment for fixed assets, offset by a decrease of $18 million resulting from an increase in amortization expense arising from a higher fair value assessment of certain intangible assets and a decrease of $10 million related to a refinement in the treatment of the fair value assessment of a vendor contract obligation.

Goodwill represents the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed at the Merger date. The goodwill recognized with the Merger was attributable to the synergies expected to be achieved by combining the businesses of CSC and HPES, expected future contracts and the acquired workforce. The cost-saving opportunities are expected to include improved operating efficiencies and asset optimization. The goodwill arising from the Merger was preliminarily allocated to the Company's reportable segments as $2.9 billion to the Global Business Services ("GBS") segment, $3.5 billion to the Global Infrastructure Services ("GIS") segment and $0.7 billion to the United States Public Sector ("USPS") segment. A portion of the total goodwill is expected to be deductible for tax purposes. See Note 9 - "Goodwill."

Current Assets and Liabilities

For the preliminary fair value estimates reported in the three months ended September 30, 2017, the Company valued current assets and liabilities using existing carrying values as an estimate for the fair value of those items as of the Merger date.

Property and Equipment

The acquired property and equipment are summarized in the following table:
(in millions)
 
Amount
Land, buildings, and leasehold improvements
 
$
1,617

Computers and related equipment
 
1,123

Furniture and other equipment
 
45

Construction in progress
 
133

Total
 
$
2,918


The Company estimated the value of acquired property and equipment using predominately the market method and in certain specific cases, the cost method.

Identified Intangible Assets


12

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


The acquired identifiable intangible assets are summarized in the following table:
(in millions)
 
Amount
 
Estimated Useful Lives (Years)
Customer relationships
 
$
5,200

 
10-13
Developed technology
 
141

 
10
Third-party purchased software
 
499

 
2-7
Deferred contract costs
 
354

 
n/a
Total
 
$
6,194

 
 

The Company estimated the value of customer relationships, and developed technology using the multi-period excess earnings and relief from royalty methods, respectively. Deferred contract costs were fair valued taking into account continuing performance obligation.

Restructuring Liabilities

The Company acquired approximately $333 million of restructuring liabilities incurred under HPES' restructuring plans, expected to be paid out through 2029. Approximately $256 million relates to workforce reductions and $77 million relates mainly to facilities costs.

Long-Term Debt

Assumed indebtedness included senior notes in the principal amount of $1.5 billion issued in 2017 and $0.3 billion issued in 1999 for total principal amount of $1.8 billion; a term loan with three tranches all borrowed on March 31, 2017 in an aggregate principal equivalent of $2.0 billion; as well as capitalized lease liabilities and other debt. During this reporting period, there was a fair value assessment of the senior notes and term loans as of the Merger date, which resulted in a purchase accounting adjustment that increased debt by $94 million, including $12 million to eliminate historical deferred debt issuance costs, premium and discounts. Converted capital leases were recorded on the balance sheet at preliminary fair value as of April 1, 2017 resulting in a total capital lease obligation of $1.6 billion. The Company will continue to assess the fair value of assumed debt, including capital leases, during the measurement period.

Deferred Tax Liabilities

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

Defined Benefit Pension Plans

Certain eligible employees, retirees and other former employees of HPES participated in certain U.S. and international defined benefit pension plans offered by HPE. The plans whose participants were exclusively HPES employees were acquired, while the plans whose participants included both HPES employees and HPE employees were replicated to allow separation of HPES and HPE employees. The resulting separate plans containing only HPES were acquired.

HPES' pension obligations depend on various assumptions. The Company's actuaries remeasured all of the acquired HPES plan obligations as of March 31, 2017. The following table summarizes the balance sheet impact of the pension plans assumed from HPES as a result of the Merger.
(in millions)
 
Amount
Other assets
 
$
558

Accrued expenses and other current liabilities
 
(13
)
Other long-term liabilities
 
(547
)
Net amount recorded
 
$
(2
)


13

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


The following table summarizes the projected benefit obligation, fair value of the plan assets and the funded status assumed from HPES as a result of the Merger.
(in millions)
 
Amount
Projected benefit obligation
 
$
(7,413
)
Fair value of plan assets
 
7,411

Funded status
 
$
(2
)

The following table summarizes the plan asset allocations by asset category for HPES pension plans assumed by the Company as a result of the Merger.
Equity securities
 
22
%
Debt securities(1)
 
72
%
Alternatives
 
5
%
Cash and other
 
1
%
Total
 
100
%
        

(1) Includes liability-driven investments

14

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



The following table summarizes the estimated future benefit payments due to the pension and benefit plans assumed from HPES as a result of the Merger.
(in millions)
 
Amount
Employer contributions:
 
 
2018
 
$
39

 
 
 
Benefit payments:
 
 
2018
 
$
225

2019
 
$
151

2020
 
$
163

2021
 
$
224

2022
 
$
180

2023 through 2027
 
$
1,132


Unaudited and Pro Forma Results of Operations

The Company's condensed consolidated statements of operations includes the following revenues and net income attributable to HPES since the Merger date:
(in millions)
 
Three Months Ended September 30, 2017
 
Six Months Ended September 30, 2017
Revenues
 
$
4,380

 
$
8,708

Net income
 
$
455

 
$
645


The following table provides unaudited pro forma results of operations for the Company for the three and six months ended September 30, 2016, as if the Merger had been consummated on April 2, 2016, the first day of DXC's fiscal year ended March 31, 2017. These unaudited pro forma results do not reflect any cost saving synergies from operating efficiencies. In addition, the unaudited pro forma adjustments are preliminary and are subject to change as additional information becomes available and as additional analyses are performed during the measurement period. Accordingly, the Company presents these unaudited pro forma results for informational purposes only, and they are not necessarily indicative of what the actual results of operations of DXC would have been if the Merger had occurred at the beginning of the period presented, nor are they indicative of future results of operations.

CSC reported its results based on a fiscal year convention that comprised four thirteen-week quarters. HPES reported its results on a fiscal year basis ended October 31. As a consequence of CSC and HPES having different fiscal year-end dates, all references to the unaudited pro forma statement of operations include the results of operations of CSC for the three and six months ended September 30, 2016 and of HPES for the three and six months ended July 31, 2016.

15

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


(in millions, except per-share amounts)
 
Three Months Ended September 30, 2016(1)
 
Six Months Ended September 30, 2016(1)
Revenues
 
$
6,355

 
$
12,773

Net loss
 
(123
)
 
(404
)
Loss attributable to the Company
 
(130
)
 
(413
)
 
 
 
 
 
Loss per common share:
 
 
 
 
Basic
 
$
(0.46
)
 
$
(1.46
)
Diluted
 
$
(0.46
)
 
$
(1.46
)
        

(1) 
The unaudited pro forma information is based on legacy CSC results for the three and six months ended September 30, 2016 and legacy HPES results for the three and six months ended July 31, 2016.

The unaudited pro forma information above is based on events that are (i) directly attributable to the Merger, (ii) factually supportable, and (iii) with respect to the unaudited pro forma statement of operations, expected to have a continuing impact on the consolidated results of operations of the combined company. The unaudited pro forma financial information for the three and six months ended September 30, 2016 does not include $1 million and $26 million, respectively, of nonrecurring transaction costs associated with the Merger, which were incurred during the three and six months ended September 30, 2017.

Tribridge Acquisition

On July 1, 2017, DXC acquired all of the outstanding capital stock of Tribridge Holdings LLC, an independent integrator of Microsoft Dynamics 365, for total consideration of $152 million. The acquisition includes the Tribridge affiliate company, Concerto Cloud Services LLC. The combination of Tribridge with DXC expands DXC’s Microsoft Dynamics 365 global systems integration business.

The Company’s purchase price allocation for the Tribridge acquisition is preliminary and subject to revision as additional information related to the fair value of assets and liabilities becomes available. The preliminary purchase price was allocated to assets acquired and liabilities assumed based upon current determination of fair values at the date of acquisition as follows: $32 million to current assets, $4 million to property and equipment, $62 million to intangible assets other than goodwill, $24 million to current liabilities and $78 million to goodwill. The goodwill is primarily associated with the Company's GBS segment and is tax deductible. The amortizable lives associated with the intangible assets acquired includes customer relationships which have a 12-year estimated useful life.

Fiscal 2017 Acquisitions

Xchanging Acquisition

On May 5, 2016, DXC acquired Xchanging plc ("Xchanging"), a provider of technology-enabled business solutions to organizations in global insurance and financial services, healthcare, manufacturing, real estate, and the public sector in a step acquisition. Xchanging was listed on the London Stock Exchange under the symbol “XCH.” Total cash consideration paid to and on behalf of the Xchanging shareholders of $693 million (or $492 million net of cash acquired) was funded from existing cash balances and borrowings under DXC's credit facility. Transaction costs associated with the acquisition of $17 million were included within Selling, general, and administrative expenses. The acquisition expanded CSC's market coverage in the global insurance industry and enabled the Company to offer access to a broader, partner-enriched portfolio of services including property and casualty insurance and wealth management business processing services.

The Xchanging purchase price was allocated to assets acquired and liabilities assumed based upon the determination of fair value at date of acquisition as follows: $396 million to current assets, $99 million to non-current assets, $582 million to intangible assets other than goodwill, $267 million to current liabilities, $516 million to long-term liabilities, $680 million to goodwill, and $281 million to non-controlling interest. The amortizable lives associated with the intangible assets acquired includes developed technology, customer relationships and trade names, which have

16

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


estimated useful lives of 7 to 8 years, 15 years and 3 to 5 years, respectively. The goodwill arising from the acquisition was allocated to the GBS and GIS segments and is not deductible for tax purposes.

Note 4 - Earnings per Share

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


Three Months Ended
 
Six Months Ended
(in millions, except per-share amounts)

September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to DXC common shareholders:
 
$
256

 
$
15

 
$
415

 
$
(6
)
 
 
 
 
 
 
 
 
 
Common share information:
 
 
 
 
 
 
 
 
Weighted average common shares outstanding for basic EPS
 
284.87

 
140.53

 
284.35

 
139.76

Dilutive effect of stock options and equity awards
 
4.42

 
3.25

 
5.03

 

Weighted average common shares outstanding for diluted EPS
 
289.29

 
143.78

 
289.38

 
139.76

 
 
 
 
 
 
 
 
 
Earnings (loss) per share:
 
 
 
 
 
 
 
 
     Basic
 
$
0.90

 
$
0.11

 
$
1.46

 
$
(0.04
)
     Diluted
 
$
0.88

 
$
0.10

 
$
1.43

 
$
(0.04
)

Certain stock options and RSUs were excluded from the computation of dilutive EPS because inclusion of these amounts would have had an anti-dilutive effect. Due to the Company's net loss during the six months ended September 30, 2016, PSUs were also excluded from the calculation because they would have had an anti-dilutive effect. The number of options and shares excluded were as follows:
 
 
Three Months Ended
 
Six Months Ended
 
 
September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016
Stock Options
 
32,060

 
2,038,486

 
41,327

 
2,858,277

RSUs
 
20,718

 
13,690

 
36,387

 
979,647

PSUs
 
2,844

 

 
1,430

 
1,165,411


Note 5 - Sale of Receivables

Receivables Securitization Facility

On December 21, 2016, CSC established a $250 million accounts receivable securitization facility (the "Receivables Facility") with certain unaffiliated financial institutions (the "Purchasers") for the sale of commercial account receivables in the United States. Under the Receivables Facility, CSC and certain of its subsidiaries (collectively, the "Sellers") sell billed and unbilled accounts receivable to CSC Receivables, LLC ("CSC Receivables"), a wholly owned bankruptcy-remote entity. CSC Receivables in turn sells such purchased accounts receivable in their entirety to the Purchasers pursuant to a receivables purchase agreement. Sales of receivables by CSC Receivables occur continuously and are settled on a monthly basis. The proceeds from the sale of these receivables comprise a combination of cash and a deferred purchase price receivable ("DPP"). The DPP is realized by the Company upon the ultimate collection of the underlying receivables sold to the Purchasers. 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 September 30, 2017, the total availability under the Receivables Facility was approximately $199 million. On September 15, 2017, the Receivables Facility was amended to extend the termination date to September 14, 2018. The Receivables Facility provides for one or more optional extensions, if agreed to by the Purchasers, for an additional one-year duration. The Company uses the proceeds from receivables sales under the Receivables Facility for general corporate purposes.


17

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


The Company has no retained interests in the transferred receivables, other than collection and administrative services and its right to the DPP. The DPP is included in receivables at fair value on the condensed consolidated balance sheets. The fair value of the sold receivables approximated their book value due to their short-term nature, and as a result no gain or loss on sale of receivables was recorded. In exchange for the sale of accounts receivable during the six months ended September 30, 2017, the Company received cash of $207 million and recorded a DPP. The DPP, which fluctuates over time based on the total amount of eligible receivables generated during the normal course of business, was $272 million as of September 30, 2017. Additionally, as of September 30, 2017, the Company recorded an $8 million liability within accounts payable because the amount of cash proceeds received by the Company under the Receivables Facility exceeded the maximum funding limit.

The Company's risk of loss following the transfer of accounts receivable under the Receivables Facility is limited to the DPP outstanding and any short-falls in collections for specified non-credit related reasons after sale. Payment of the DPP is not subject to significant risks other than delinquencies and credit losses on accounts receivable sold under the Receivables Facility.

Certain obligations of Sellers under the Receivables Facility and CSC, as initial servicer, are guaranteed by the Company under a performance guaranty, made in favor of an administrative agent on behalf of the Purchasers. However, the performance guaranty does not cover CSC Receivables’ obligations to pay yield, fees or invested amounts to the administrative agent or any of the Purchasers.

The following table is a reconciliation of the beginning and ending balances of the DPP:
 
 
As of and for the
(in millions)
 
Three Months Ended September 30, 2017
 
Six Months Ended
September 30, 2017
Beginning balance
 
$
242

 
$
252

    Transfers of receivables
 
606

 
1,154

Collections
 
(579
)
 
(1,124
)
Fair value adjustment
 
3

 
(10
)
Ending balance
 
$
272

 
$
272


Receivables Sales Facility

On July 14, 2017, Enterprise Services LLC, a wholly-owned subsidiary of the Company ("Enterprise"), entered into a Master Accounts Receivable Purchase Agreement (the “Purchase Agreement”) with certain financial institutions (the "Financial Institutions"). The Purchase Agreement established a federal government obligor receivables purchase facility (the “Facility”) that provides for up to $200 million (the “Facility Limit”) in outstanding funding based on the availability of eligible receivables and the satisfaction of certain conditions. The Facility Limit may be increased from time to time pursuant to the terms of the Purchase Agreement. Concurrently, the Company entered into a guaranty made in favor of the Financial Institutions, that guarantees the obligations of the sellers and servicers of receivables under the Purchase Agreement. However, the guaranty does not cover any credit losses under the receivables.

Under the Facility, the Company sells eligible federal government obligor receivables, including both billed and certain unbilled receivables. The Company has no retained interests in the transferred receivables other than collection and administrative functions for the Financial Institutions for a servicing fee. The Facility has a one-year term but may be extended. The Company uses the proceeds from receivables sales under the Facility for general corporate purposes.

The Company accounts for these receivable transfers as sales and derecognizes the sold receivables from its condensed consolidated balance sheets. The fair value of the sold receivables approximated their book value due to their short-term nature. The Company estimated that its servicing fee was at fair value and therefore, no servicing asset or liability related to these services was recognized as of September 30, 2017.

During the three and six months ended September 30, 2017, the Company sold $486 million of billed and unbilled receivables. Collections corresponding to these receivables sales were $371 million. As of September 30, 2017, there

18

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


was $26 million of cash collected by the Company, but not remitted to the Financial Institutions, which represents restricted cash and is included within other current assets on the condensed consolidated balance sheets. The operating cash flow effect, net of collections and fees from sales was $114 million.


Note 6 - Fair Value

Fair Value Measurements on a Recurring Basis

The following table presents the Company’s assets and liabilities, excluding pension assets, see Note 12 - "Pension and Other Benefit Plans" and derivative assets and liabilities, see Note 7 - "Derivative Instruments", that are measured at fair value on a recurring basis. There were no transfers between any of the levels during the periods presented.
 
 
 
 
Fair Value Hierarchy
(in millions)
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Assets:
 
September 30, 2017
Money market funds and money market deposit accounts(1)
 
$
232

 
$
232

 
$

 
$

Time deposits(1)
 
292

 
292

 

 

Foreign bonds
 
51

 

 
51

 

Other debt securities
 
6

 

 

 
6

Deferred purchase price receivable
 
272

 

 

 
272

Total assets
 
$
853

 
$
524

 
$
51

 
$
278

 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
Contingent consideration
 
$
7

 
$

 
$

 
$
7

Total liabilities
 
$
7

 
$

 
$

 
$
7

        

(1) Cost basis approximated fair value due to the short period of time to maturity.

 
 
March 31, 2017
Assets:
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Money market funds and money market deposit accounts
 
$
406

 
$
406

 
$

 
$

Deferred purchase price receivable
 
252

 

 

 
252

Total assets
 
$
658

 
$
406

 
$

 
$
252

 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
Contingent consideration
 
$
7

 
$

 
$

 
$
7

Total liabilities
 
$
7

 
$

 
$

 
$
7


The fair value of money market funds, money market deposit accounts, and time deposits, reported as cash and cash equivalents, are based on quoted market prices. The fair value of foreign government bonds is based on actual market prices and included in Other long-term assets. Fair value of the DPP, included in Receivables, net, is determined by calculating the expected amount of cash to be received and is principally based on unobservable inputs consisting primarily of the face amount of the receivables adjusted for anticipated credit losses. The fair value of contingent consideration, presented in Other liabilities, is based on contractually defined targets of financial performance and other considerations.


19

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


Other Fair Value Disclosures

The carrying amounts of the Company’s other 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. If measured at fair value, these financial instruments would be classified in Level 2 or Level 3 of the fair value hierarchy.

The Company estimates the fair value of its long-term debt primarily using an expected present value technique, which is based on observable market inputs, using interest rates currently available to the Company for instruments with similar terms and remaining maturities. The estimated fair value of the Company's long-term debt, excluding capital leases, was $6.0 billion as of September 30, 2017, as compared with carrying value of $5.8 billion. If measured at fair value, long-term debt, excluding capital lease would be classified in Level 2 of the fair value hierarchy.

Non-financial assets such as goodwill, tangible assets, intangible assets and other contract related long-lived assets are recorded at fair value in the period an impairment charge is recognized. The fair value measurements, in such instances, would be classified in Level 3. There were no significant impairments recorded during the three and six months ended September 30, 2017 and September 30, 2016.

The Company is subject to counterparty risk in connection with its derivative instruments, see Note 7 - "Derivative Instruments". With respect to its foreign currency derivatives, as of September 30, 2017 there were eight counterparties with concentration of credit risk. Based on gross fair value of these foreign currency derivative instruments, the maximum amount of loss that the Company could incur is approximately $30 million.

Note 7 - Derivative Instruments

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

Derivatives Designated for Hedge Accounting

Cash flow hedges

The Company uses interest rate swap agreements designated as cash flow hedges to mitigate its exposure to interest rate risk associated with the variability of cash outflows for interest payments on certain floating interest rate debt, which effectively converted the debt into fixed interest rate debt. As of September 30, 2017, the Company had interest rate swap agreements with a total notional amount of $623 million.

As of September 30, 2017, the Company performed both retrospective and prospective hedge effectiveness analyses for the interest rate swaps designated as cash flow hedges. The Company applied the long-haul method outlined in ASC 815 “Derivatives and Hedging", to assess retrospective and prospective effectiveness of the interest rate swaps. A quantitative effectiveness analysis assessment of the hedging relationship was performed using regression analysis. As of September 30, 2017, the Company has determined that the hedging relationship was highly effective.

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 amount of foreign currency forward contracts designated as cash flow hedges as of September 30, 2017 was $467 million, and the related forecasted transactions extend through March 2020.

For the three and six months ended September 30, 2017 and September 30, 2016, the Company performed an assessment at the inception of the cash flow hedge transactions and determined all critical terms of the hedging instruments and hedged items matched; therefore, there is no ineffectiveness to be recorded and all changes in the hedging instruments’ fair value are recorded in accumulated other comprehensive income (loss) ("AOCI") and

20

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


subsequently reclassified into earnings in the period during which the hedged transactions are recognized in earnings. The Company performs an assessment of critical terms on an on-going basis throughout the hedging period. During the three and six months ended September 30, 2017 and September 30, 2016, the Company had no cash flow hedges for which it was probable that the hedged transaction would not occur. As of September 30, 2017, $19 million of the existing amount of gain related to the cash flow hedge reported in AOCI is expected to be reclassified into earnings within the next 12 months.

For derivative instruments that are designated and qualify as cash flow hedges, the Company initially records changes in fair value for the effective portion of the derivative instrument in AOCI in the condensed consolidated balance sheets and subsequently reclassifies these amounts into earnings in the period during which the hedged transaction is recognized in the condensed statements of operations. The Company reports the effective portion of its cash flow hedges in the same financial statement line item as changes in the fair value of the hedged item.

The pre-tax impact of gain (loss) on derivatives designated for hedge accounting recognized in other comprehensive income and net income was not material for three and six months ended September 30, 2017 and September 30, 2016.

Derivatives not Designated for Hedge Accounting

The derivative instruments not designated as hedges for purposes of hedge accounting include total return swaps and certain short-term foreign currency forward and option 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.

Total return swaps

The Company manages the exposure to market volatility of the notional investments underlying its deferred compensation obligations by using total return swaps derivative contracts ("TRS"). The TRS are reset monthly and are marked-to-market on the last day of each fiscal month. Gain (loss) on TRS was not material for the three and six months ended September 30, 2017 and September 30, 2016.

Foreign currency forward contracts

The Company manages the exposure to fluctuations in foreign currencies by using short-term foreign currency forward contracts to economically hedge certain foreign currency denominated assets and liabilities, including intercompany accounts and loans. The notional amount of the foreign currency forward contracts outstanding as of September 30, 2017 was $2.3 billion. Losses on foreign currency forward contracts not designated for hedge accounting, recognized within other (income) expense, net, were $77 million and $114 million during the three and six months ended September 30, 2017, respectively, and $3 million and $5 million during the three and six months ended September 30, 2016, respectively.

21

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



Fair Value of Derivative Instruments

All derivatives are recorded at fair value. The Company’s accounting treatment for these derivative instruments is based on its hedge designation. The following tables show the Company’s derivative instruments at gross fair value:
 
 
Derivative Assets
 
 
 
 
As of
(in millions)
 
Balance Sheet Line Item
 
September 30, 2017
 
March 31, 2017
 
 
 
 
 
 
 
Derivatives designated for hedge accounting:
 
 
Interest rate swaps
 
Other assets
 
$
4

 
$
5

Foreign currency forward contracts
 
Other current assets
 
21

 
27

Total fair value of derivatives designated for hedge accounting
 
$
25

 
$
32

 
 
 
Derivatives not designated for hedge accounting:
 
 
Foreign currency forward contracts
 
Other current assets
 
$
21

 
$
15

Total fair value of derivatives not designated for hedge accounting
 
$
21

 
$
15


 
 
Derivative Liabilities
 
 
 
 
As of
(in millions)
 
Balance Sheet Line Item
 
September 30, 2017
 
March 31, 2017
 
 
 
 
 
 
 
Derivatives designated for hedge accounting:
 
 
 
 
Interest rate swaps
 
Other long-term liabilities
 
$

 
$
1

Foreign currency forward contracts
 
Accrued expenses and other current liabilities
 
1

 

Total fair value of derivatives designated for hedge accounting:
 
$
1

 
$
1

 
 
 
 
 
 
Derivatives not designated for hedge accounting:
 
 
 
 
Foreign currency forward contracts
 
Accrued expenses and other current liabilities
 
$
12

 
$
12

Total fair value of derivatives not designated for hedge accounting
 
$
12

 
$
12


Derivative instruments include foreign currency forward contracts and interest rate swap contracts. 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 as Level 2 inputs. The fair value of interest rate swaps is estimated based on valuation models that use interest rate yield curves as Level 2 inputs.

Other risks

The Company is exposed to the risk of losses in the event of non-performance by counterparties to its derivative contracts. To mitigate counterparty credit risk, the Company regularly reviews its credit exposure and the creditworthiness of counterparties. The Company also enters into enforceable master netting arrangements with some of its counterparties. However, for financial reporting purposes, it is Company policy not to offset derivative assets and liabilities despite the existence of enforceable master netting arrangements with some of its counterparties.


22

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


Note 8 - Intangible Assets
 
 
As of September 30, 2017
(in millions)
 
Gross Carrying Value
 
Accumulated Amortization
 
Net Carrying Value
Software
 
$
3,180

 
$
1,707

 
$
1,473

Outsourcing contract costs
 
1,323

 
559

 
764

Customer related intangible assets
 
6,127

 
447

 
5,680

Other intangible assets
 
105

 
18

 
87

Total intangible assets
 
$
10,735

 
$
2,731

 
$
8,004

 
 
As of March 31, 2017
(in millions)
 
Gross Carrying Value
 
Accumulated Amortization
 
Net Carrying Value
Software
 
$
2,347

 
$
1,554

 
$
793

Outsourcing contract costs
 
793

 
475

 
318

Customer related intangible assets
 
851

 
248

 
603

Other intangible assets
 
96

 
16

 
80

Total intangible assets
 
$
4,087

 
$
2,293

 
$
1,794


Total intangible assets amortization was $310 million and $82 million for the three months ended September 30, 2017 and September 30, 2016, respectively, and included reductions of revenue for amortization of outsourcing contract cost premiums of $3 million and $3 million, respectively.

Total intangible assets amortization was $514 million and $162 million for the six months ended September 30, 2017 and September 30, 2016, respectively, and included reductions of revenue for amortization of outsourcing contract cost premiums of $6 million and $6 million, respectively.

The increase in net and gross carrying value for the six months ended September 30, 2017 were primarily due to the Merger (see Note 3 - "Acquisitions").

Estimated future amortization related to intangible assets as of September 30, 2017 is as follows:
Fiscal Year
 
(in millions)

Remainder of 2018
 
$
559

2019
 
$
1,079

2020
 
$
1,008

2021
 
$
918

2022
 
$
778


23

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



Note 9 - Goodwill

The following table summarizes the changes in the carrying amount of Goodwill, by segment, as of September 30, 2017.
(in millions)
 
GBS
 
GIS
 
USPS
 
Total
Balance as of March 31, 2017, net
 
$
1,470

 
$
385

 
$

 
$
1,855

Additions
 
2,996

 
3,423

 
736

 
7,155

Foreign currency translation
 
93

 
55

 

 
148

Balance as of September 30, 2017, net
 
$
4,559

 
$
3,863

 
$
736

 
$
9,158


The additions to goodwill during the six months ended September 30, 2017 were primarily due to the Merger described in Note 3 - "Acquisitions." As a result of the Merger, the Company began to report the United States Public Sector ("USPS") segment, formerly a component of the HPES business, see Note 17 - "Segment Information" for additional information. The foreign currency translation amounts reflect the impact of currency movements on non-U.S. dollar-denominated goodwill balances.

Goodwill Impairment Analyses

The Company tests goodwill for impairment on an annual basis, as of the first day of the second fiscal quarter, and between annual tests if circumstances change, or if an event occurs that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company’s annual goodwill impairment analysis, which was performed qualitatively during the three months ended September 30, 2017, did not result in an impairment charge. This qualitative analysis, which is commonly referred to as step zero under ASC Topic 350, Goodwill and Other Intangible Assets, considered all relevant factors specific to the reporting units, including macroeconomic conditions; industry and market considerations; overall financial performance and relevant entity-specific events.

24

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


Note 10 - Debt

The following is a summary of the Company's debt:
(in millions)
 
Interest Rates
 
Fiscal Year Maturities
 
September 30, 2017
 
March 31, 2017
Short-term debt and current maturities of long-term debt
 
 
 
 
 
 
 
 
Euro-denominated commercial paper
 
(0.1) - 0.02%(1)
 
2018
 
$
828

 
$
646

EUR term loan
 
2.04%(2)
 
2019
 
473

 

Current maturities of long-term debt
 
Various
 
2019
 
207

 
55

Current maturities of capitalized lease liabilities
 
1.1% - 6.7%
 
2019
 
692

 
37

Short-term debt and current maturities of long-term debt
 
 
 
 
 
$
2,200

 
$
738

 
 
 
 
 
 
 
 
 
Long-term debt, net of current maturities
 
 
 
 
 
 
 
 
GBP term loan
 
1.0 - 1.2%(3)
 
2019
 
$
248

 
$
233

USD term loan
 
1.2% - 2.3%(4)
 
2021
 

 
571

AUD term loan
 
2.9% - 3.0%(5)
 
2022
 
216

 
76

EUR term loan
 
0.9%(6)
 
2022
 
338

 

USD term loan
 
2.2% - 2.3%(7)
 
2022
 
1,165

 

$500 million Senior notes
 
2.875%
 
2020
 
504

 

$650 million Senior notes
 
2.2% - 2.3%(8)
 
2021
 
647

 

$274 million Senior notes
 
4.45%
 
2023
 
274

 

$170 million Senior notes
 
4.45%
 
2023
 
178

 
453

$500 million Senior notes
 
4.25%
 
2025
 
508

 

$500 million Senior notes
 
4.75%
 
2028
 
509

 

$300 million Senior notes
 
7.45%
 
2030
 
358

 

Revolving credit facility
 
1.3% - 1.4%
 
2021 - 2023
 
385

 
678

Lease credit facility
 
2.0% - 2.2%
 
2020 - 2022
 
50

 
60

Capitalized lease liabilities
 
1.1% - 6.7%
 
2018 - 2022
 
1,379

 
104

Borrowings for assets acquired under long-term financing
 
1.7% -4.8%
 
2018 - 2023
 
310

 
77

Mandatorily redeemable preferred stock outstanding
 
3.5%
 
2023
 
61

 
61

Other borrowings
 
0.5% - 14.0%
 
2018 - 2036
 
94

 
4

Long-term debt
 
 
 
 
 
7,224

 
2,317

Less: current maturities
 
 
 
 
 
899

 
92

Long-term debt, net of current maturities
 
 
 
 
 
$
6,325

 
$
2,225

        

(1) 
Approximate weighted average interest rate
(2) Three-month EURIBOR rate plus 1.75%
(3) Three-month LIBOR rate plus 0.65%
(4) At DXC's option, the USD term loan bears interest at a variable rate equal to the adjusted LIBOR for a one-, two-, three-, or six-month interest period, plus a margin between 0.75% and 1.50% based on a pricing grid consistent with the Company's outstanding revolving credit facility or the greater of the prime rate, the federal funds rate plus 0.50%, or the adjusted LIBOR for a one-month interest period plus 1.00%, in each case plus a margin of up to 0.50%, based on a pricing grid consistent with the revolving credit facility.
(5) Variable interest rate equal to the bank bill swap bid rate for a one-, two-, three- or six-month interest period plus 0.95% to 1.45% based on the published credit ratings of DXC.
(6) At DXC’s option, the EUR term loan bears interest at the Eurocurrency Rate for a one-, two-, three-, or six-month interest period, plus a margin of between 0.75% and 1.35%, based on published credit ratings of DXC.
(7) At DXC’s option, the USD term loan bears interest at the Eurocurrency Rate for a one-, two-, three-, or six-month interest period, plus a margin of between 1.00% and 1.75%, based on published credit ratings of DXC or the Base Rate plus a margin of between 0% and 0.75%, based on published credit ratings of DXC.
 (8) Three-month LIBOR plus 0.95%


25

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



Senior Notes and Terms Loans

On April 3, 2017, as a result of the Merger, financial covenants were amended and CSC was replaced with DXC as the borrower and guarantor to certain outstanding debt including short-term Euro-denominated commercial paper, senior notes and term loans.

In connection with the Merger, DXC entered into an unsecured term loan agreement consisting of a $375 million U.S. dollar term loan maturing in 2020, a $1.3 billion U.S. dollar term loan maturing in 2022 and a Euro-equivalent of $315 million EUR term loan maturing in 2022. Interest on the Company's term loans is payable monthly or quarterly in arrears. DXC also completed an offering of senior notes in an aggregate principal amount of $1.5 billion consisting of 2.875% senior notes due 2020, 4.25% senior notes due 2025 and 4.75% senior notes due 2027. DXC assumed pre-existing indebtedness incurred by HPES including 7.45% senior notes due 2030 which were issued at a principal amount of $300 million. Interest on the Company's senior notes is payable semi-annually in arrears. Generally, the Company's notes are redeemable at the Company's discretion at the then-applicable redemption prices plus accrued interest. The Company fully and unconditionally guaranteed term loans issued by its 100% owned subsidiaries.

Revolving Credit Facility

In connection with the Merger, the Company entered into several amendments to its revolving credit facility agreement pursuant to which DXC replaced CSC as the principal borrower and as the guarantor of borrowings by subsidiary borrowers. During the six months ended September 30, 2017, DXC exercised its option to extend the maturity date and also increased commitments to $3.81 billion, $70 million of which matures in January 2021 and $3.74 billion matures in January 2023.


Note 11 - Restructuring Costs

The Company recorded restructuring costs of $192 million and $25 million, net of reversals, for the three months ended September 30, 2017 and September 30, 2016, respectively. For the six months ended September 30, 2017 and September 30, 2016, the Company recorded $382 million and $82 million, respectively. The costs recorded during the three and six months ended September 30, 2017 were largely a result of the Fiscal 2018 Plan (defined below).

The composition of restructuring liabilities by financial statement line items is as follows:
 
 
As of
(in millions)
 
September 30, 2017
Accrued expenses and other current liabilities
 
$
338

Other long-term liabilities
 
160

Total
 
$
498


Summary of Restructuring Plans

Fiscal 2018 Plan

On June 30, 2017, management approved a post-Merger restructuring plan to optimize the Company's operations in response to a continuing business contraction (the "Fiscal 2018 Plan"). The additional restructuring initiatives are intended to reduce the company's core structure and related operating costs, improve its competitiveness, and facilitate the achievement of acceptable and sustainable profitability. The Fiscal 2018 Plan focuses mainly on optimizing specific aspects of global workforce, increasing the proportion of work performed in low cost offshore locations and re-balancing the pyramid structure. Additionally, this plan included global facility restructuring, including a global datacenter restructuring program.


26

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


Fiscal 2017 Plan

In May 2016, the Company initiated a restructuring plan to realign the Company's cost structure and resources to take advantage of operational efficiencies following recent acquisitions. During the fourth quarter of Fiscal 2017, the Company expanded the plan to strengthen the Company's competitiveness and to optimize the workforce by increasing work performed in low-cost locations (the "Fiscal 2017 Plan"). Total costs incurred to date under the Fiscal 2017 Plan total $229 million, comprising $222 million in employee severance and $7 million of facilities costs.

Fiscal 2016 Plan

In September 2015, the Company initiated a restructuring plan to optimize utilization of facilities and right-size overhead organizations as a result of CSC's separation of its former NPS segment (the "Fiscal 2016 Plan"). No additional costs are expected to be expensed under this plan. Total costs incurred to date as of September 30, 2017 under the Fiscal 2016 Plan total $58 million, comprising $25 million in employee severance and $33 million of facilities costs.

Fiscal 2015 Plan

In June 2014, the Company initiated a restructuring plan to optimize the workforce in high cost markets, particularly in Europe, address the Company's labor pyramid and right shore its labor mix (the "Fiscal 2015 Plan"). No additional costs are expected to be expensed under this plan. Total costs incurred to date under the Fiscal 2015 Plan total $228 million, comprising $220 million in employee severance and $8 million of facilities costs.

Acquired Restructuring Liabilities

As a result of the Merger, DXC acquired restructuring liabilities under restructuring plans that were initiated for HPES under plans approved by the HPE Board of Directors.


27

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


Restructuring Liability Reconciliations by Plan
 
 
Restructuring Liability as of March 31, 2017
 
Acquired Balance as of April 1, 2017
 
Costs Expensed, net of reversals(1)
 
Costs Not Affecting Restructuring Liability (2)
 
Cash Paid
 
Other(3)
 
Restructuring Liability as of September 30, 2017
Fiscal 2018 Plan
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Workforce Reductions
 
$

 
n/a

 
$
282

 
$

 
$
(153
)
 
$
1

 
$
130

Facilities Costs
 

 
n/a

 
124

 
(11
)
 
(42
)
 
3

 
74

Total
 
$

 
n/a

 
$
406

 
$
(11
)
 
$
(195
)
 
$
4

 
$
204

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fiscal 2017 Plan
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Workforce Reductions
 
$
155

 
n/a

 
$
(17
)
 
$

 
$
(74
)
 
$

 
$
64

Facilities Costs
 
6

 
n/a

 
(2