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

The Company has designated certain foreign currency forward contracts as cash flow hedges to reduce foreign currency risk related to certain Indian Rupee, British Pounds and Euro denominated intercompany obligations and forecasted transactions. The notional amounts of foreign currency forward contracts designated as cash flow hedges as of June 30, 2019 and March 31, 2019 was $463 million and $277 million, respectively. As of June 30, 2019, the related forecasted transactions extend through June 2020.

For the three months ended June 30, 2019 and June 30, 2018, the Company performed an assessment at the inception of the cash flow hedge transactions and determined all critical terms of the hedging instruments and hedged items matched. The Company performs an assessment of critical terms on an on-going basis throughout the hedging period. During the three months ended June 30, 2019 and June 30, 2018, the Company had no cash flow hedges for which it was probable that the hedged transaction would not occur. As of June 30, 2019, $6 million of the existing amount of gains related to the cash flow hedge reported in AOCI is expected to be reclassified into earnings within the next 12 months.

During fiscal 2019, the Company designated certain foreign currency forward contracts as net investment hedges. These contracts were de-designated and settled during the three months ended June 30, 2019, and as of June 30, 2019, there were none outstanding. As of June 30, 2018, there were no foreign currency forward contracts designated as net investment hedges.

The pre-tax impact of gain (loss) on derivatives designated for hedge accounting recognized in other comprehensive income was $(10) million and in income from continuing operations was $2 million for the three months ended June 30, 2019.

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

The Company manages the exposure to fluctuations in foreign currencies by using short-term foreign currency forward contracts to hedge certain foreign currency denominated assets and liabilities, including intercompany accounts and forecasted transactions. The notional amount of the foreign currency forward contracts outstanding as of June 30, 2019 and March 31, 2019 was $2.5 billion and $2.5 billion, respectively.



		For the Three Months Ended
(in millions)	Statement of Operations Line Item	June 30, 2019		June 30, 2018
Foreign currency forward contracts	Other expense (income), net	$	19	$	32

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



	Derivative Assets
		As of
(in millions)	Balance Sheet Line Item	June 30, 2019		March 31, 2019

Derivatives designated for hedge accounting:
Foreign currency forward contracts	Other current assets	7		38
Total fair value of derivatives designated for hedge accounting		$	7	$	38

Derivatives not designated for hedge accounting:
Foreign currency forward contracts	Other current assets	$	2	$	5
Total fair value of derivatives not designated for hedge accounting		$	2	$	5



	Derivative Liabilities
		As of
(in millions)	Balance Sheet Line Item	June 30, 2019		March 31, 2019

Derivatives designated for hedge accounting:
Foreign currency forward contracts	Accrued expenses and other current liabilities	$	1	$	4
Total fair value of derivatives designated for hedge accounting:		$	1	$	4

Derivatives not designated for hedge accounting:
Foreign currency forward contracts	Accrued expenses and other current liabilities	$	2	$	9
Total fair value of derivatives not designated for hedge accounting		$	2	$	9

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

The Company is exposed to the risk of losses in the event of non-performance by the counterparties to its derivative contracts. The amount subject to credit risk related to derivative instruments is generally limited to the amount, if any, by which a counterparty's obligations exceed the obligations of the Company with that counterparty. To mitigate counterparty credit risk, the Company regularly reviews its credit exposure and the creditworthiness of the counterparties. With respect to its foreign currency derivatives, as of June 30, 2019, there were seven counterparties with concentration of credit risk, and based on gross fair value, the maximum amount of loss that the Company could incur is approximately $6 million.

The Company also enters into enforceable master netting arrangements with some of its counterparties. However, for financial reporting purposes, it is the Company's policy not to offset derivative assets and liabilities despite the existence of enforceable master netting arrangements. The potential effect of such netting arrangements on the Company's balance sheets is not material for the periods presented.

The Company applies hedge accounting for foreign currency-denominated debt used to manage foreign currency exposures on its net investments in certain non-U.S. operations. To qualify for hedge accounting, the hedging instrument must be highly effective at reducing the risk from the exposure being hedged.

DXC seeks to reduce the impact of fluctuations in foreign exchange rates on its net investments in certain non-U.S. operations with foreign currency-denominated debt. For foreign currency denominated debt designated as a hedge, the effectiveness of the hedge is assessed based on changes in spot rates. For qualifying net investment hedges, all gains or losses on the hedging instruments are included in currency translation. Gains or losses on individual net investments in non-U.S. operations are reclassified to earnings from accumulated other comprehensive (loss) income when such net investments are sold or substantially liquidated.