EX-99.1 2 dxcfy18q4pressrelease.htm EXHIBIT 99.1 Exhibit






Exhibit 99.1
 
Moved on Business Wire
 
May 24, 2018


DXC Technology Delivers Fourth Quarter
Growth in Revenue, Earnings per Share, Margins, and Cash Flow

Q4 Earnings per Share was $1.93, including the cumulative impact of certain items of $(0.35) per share, reflecting restructuring costs, transaction, separation and integration-related costs, amortization of acquired intangible assets, pension and OPEB actuarial and settlement gains, and a tax adjustment related to U.S. tax reform
Q4 Non-GAAP Earnings per Share was $2.28
FY18 Earnings per Share was $6.04, including the cumulative impact of certain items of $(1.90)
FY18 Non-GAAP Earnings per Share was $7.94
FY18 Net Cash from Operating Activities was $3,243 million
FY18 Adjusted Free Cash Flow was $2,427 million

TYSONS, Va., May 24, 2018 - DXC Technology (NYSE: DXC) today reported results for the three and twelve months ended March 31, 2018.
 
"In fiscal 2018, DXC successfully executed on our strategic roadmap, including the integration of CSC and HPE Enterprise Services, achievement of our first-year financial objectives, and a strengthened leadership position in digital transformation," said Mike Lawrie, DXC's chairman, president and CEO. “Revenue in the quarter grew year-over-year and sequentially, and we delivered more than $1.1 billion dollars of in-year savings. We continue to invest in our digital capabilities and strategic partnerships, and we achieved strong growth in digital this year. Looking ahead, we expect to complete the Perspecta transaction next week, and we have positioned DXC Technology to deliver EPS and margin expansion in fiscal 2019."

Financial Highlights - Fourth Quarter Fiscal 2018
Diluted earnings per share was $1.93 in the fourth quarter, including $(0.50) per share of restructuring costs, $(0.33) per share of transaction, separation and integration-related costs, $(0.37) per share of amortization of acquired intangible assets, $0.55 per share of pension and OPEB actuarial and settlement gains, and $0.30 per share of tax adjustment related to U.S. tax reform. This compares with $(1.05) in the year ago period.
Non-GAAP diluted earnings per share was $2.28.
Revenue in the fourth quarter was $6,294 million compared with $1,889 million in the year ago period. Revenue grew 4.3% compared with $6,036 million in the prior year on a pro forma combined company basis.
Income before income taxes was $661 million for the fourth quarter, including $(208) million of restructuring costs, $(124) million of transaction, separation and integration-related costs, $(153) million of amortization of acquired intangibles and $203 million of pension and OPEB actuarial and settlement gains. This compares with $(187) million in the year ago period.
Non-GAAP income before income taxes was $943 million compared with $548 million in the year ago period on a pro forma combined company basis.
Net income was $565 million for the fourth quarter, including $(145) million of restructuring costs, $(97) million of transaction, separation and integration-related costs, $(108) million of amortization of acquired intangibles, $161 million of pension and OPEB actuarial and settlement gains, and $88 million of tax adjustment related to U.S. tax reform. This compares with $(138) million in the prior year period.
Non-GAAP net income was $666 million.
Adjusted EBIT was $1,017 million in the fourth quarter compared with $615 million in the prior year on a pro forma combined company basis. Adjusted EBIT margin was 16.2% compared with 10.2% in the year ago quarter which is presented on a pro forma combined company basis.
Net cash provided by operating activities was $701 million in the fourth quarter, compared with $173 million in the year ago period.
Adjusted free cash flow was $557 million in the fourth quarter.









Financial Highlights - Fiscal 2018
Diluted earnings per share was $6.04 in fiscal 2018, including $(2.06) per share of restructuring costs, $(1.00) per share of transaction, separation and integration-related costs, $(1.37) per share of amortization of acquired intangible assets, $0.60 per share of pension and OPEB actuarial and settlement gains and $1.94 per share of tax adjustment related to U.S. tax reform. This compares with $(0.88) in the year ago period.
Non-GAAP diluted earnings per share was $7.94.
Revenue in fiscal 2018 was $24,556 million compared with $7,607 million in the year ago period. Revenue declined (3.3)% compared with $25,394 million in the prior year on a pro forma combined company basis, in line with fiscal 2018 targets.
Income before income taxes was $1,671 million for fiscal 2018, including $(803) million of restructuring costs, $(408) million of transaction, separation and integration-related costs, $(591) million of amortization of acquired intangibles and $220 million of pension and OPEB actuarial and settlement gains. This compares with $(174) million in the year ago period.
Non-GAAP income before income taxes was $3,253 million compared with $2,184 million in the prior year on a pro forma combined company basis.
Net income was $1,782 million for fiscal 2018, including $(597) million of restructuring costs, $(291) million of transaction, separation and integration-related costs, $(398) million of amortization of acquired intangibles, $175 million of pension and OPEB actuarial and settlement gains and $561 million of tax adjustment related to U.S. tax reform. This compares with $(100) million in the prior year period.
Non-GAAP net income was $2,332 million.
Adjusted EBIT was $3,499 million in fiscal 2018 compared with $2,445 million in the prior year on a pro forma combined company basis. Adjusted EBIT margin was 14.2% compared with 9.6% in the prior year which is presented on a pro forma combined company basis.
Net cash provided by operating activities was $3,243 million in fiscal 2018, compared with $978 million in the prior year.
Adjusted free cash flow was $2,427 million in fiscal 2018.

Global Business Services (GBS)
GBS revenue was $2,361 million in the quarter compared to $1,043 million for the prior year. GBS revenues grew 3.3% year-over-year on a pro forma combined company basis, reflecting our clients’ continued shift from traditional application services to Enterprise Applications and growth in our Business Process Services businesses. GBS profit margin in the quarter was 19.9%, up from 12.4% in the prior year on a pro forma combined company basis, reflecting ongoing cost actions in the business. New business awards for GBS were $2,038 million in the fourth quarter.

Global Infrastructure Services (GIS)
GIS revenue was $3,223 million in the quarter compared to $846 million for the prior year. GIS revenues grew 3.6% year-over-year on a pro forma combined company basis. The GIS revenue reflects strong growth in our Workplace and Mobility business as well as growth in Cloud and Platform services as clients migrate to hybrid infrastructure environments. GIS profit margin in the quarter was 14.8%, up from 11.4% in the prior year on a pro forma combined company basis, reflecting cost actions and process automation. New business awards for GIS were $2,862 million in the fourth quarter.

United States Public Sector (USPS)
USPS revenue was $710 million in the quarter. USPS revenue grew 11.1% year-over-year on a pro forma combined company basis, reflecting growth in two of our largest contracts. USPS profit margin in the quarter was 17.0%, up from 9.9% in the prior year on a pro forma combined company basis, reflecting ongoing cost actions in the business. New business awards for USPS were $522 million in the fourth quarter.

Returning Capital to Shareholders
During the fourth quarter, DXC Technology returned $123 million to shareholders in the form of common stock dividends and share repurchases.









Earnings Conference Call and Webcast
DXC Technology senior management will host a conference call and webcast today at 5 p.m. EDT. The dial-in number for domestic callers is (800) 289-0438. Callers who reside outside of the United States should dial +1 (323) 794-2423. The passcode for all participants is 6166236. The webcast audio and any presentation slides will be available on DXC Technology’s Investor Relations website.

A replay of the conference call will be available from approximately two hours after the conclusion of the call until May 31, 2018. Replay numbers can be found at the following link. The replay passcode is also 6166236.

Non-GAAP Measures
In an effort to provide investors with supplemental financial information, in addition to the preliminary and unaudited financial information presented on a GAAP and pro forma basis, we have also disclosed in this press release preliminary non-GAAP information including: constant currency, earnings before interest and taxes ("EBIT"), EBIT margin, adjusted EBIT, adjusted EBIT margin, non-GAAP income before income taxes, non-GAAP net income, non-GAAP EPS and adjusted free cash flow. Reconciliations of the preliminary non-GAAP measures to the respective most directly comparable measures calculated on a GAAP or pro forma basis, as well as the rationale for management’s use of non-GAAP measures, are included below.

About DXC Technology
DXC Technology is the world's leading independent, end-to-end IT services company, serving nearly 6,000 private and public-sector clients from a diverse array of industries across 70 countries. The company's technology independence, global talent and extensive partner network deliver transformative digital offerings and solutions that help clients harness the power of innovation to thrive on change. DXC Technology is recognized among the best corporate citizens globally. For more information, visit dxc.technology.

All statements in this press release that do not directly and exclusively relate to historical facts constitute “forward-looking statements.” These statements represent current expectations and beliefs, and no assurance can be given that the results described in such statements will be achieved. Such statements are subject to numerous assumptions, risks, uncertainties and other factors that could cause actual results to differ materially from those described in such statements, many of which are outside of our control. For a written description of these factors, see the section titled “Risk Factors” in DXC's Quarterly Reports on Form 10-Q for the quarters ended June 30, 2017, September 30, 2017, December 31, 2017 and any updating information in subsequent SEC filings, including DXC's upcoming Form 10-K for the fiscal year ended March 31, 2018. No assurance can be given that any goal or plan set forth in any forward-looking statement can or will be achieved, and readers are cautioned not to place undue reliance on such statements which speak only as of the date they are made. We do not undertake any obligation to update or release any revisions to any forward-looking statement or to report any events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events except as required by law.


# # #

Contact:
Richard Adamonis, Corporate Media Relations, +1-862-228-3481, radamonis@dxc.com
Jonathan Ford, Investor Relations, +1-703-245-9700, jonathan.ford@dxc.com









Consolidated Statements of Operations
(preliminary and unaudited)
 
 
Three Months Ended
 
Twelve Months Ended
(in millions, except per-share amounts)
 
March 31, 2018
 
March 31, 2017
 
March 31, 2018
 
March 31, 2017
 
 
 
 
 
 
 
 
 
Revenues
 
$
6,294

 
$
1,889

 
$
24,556

 
$
7,607

 
 
 
 
 
 
 
 
 
Costs of services
 
4,323

 
1,414

 
17,944

 
5,545

Selling, general and administrative
 
453

 
348

 
2,010

 
1,279

Depreciation and amortization
 
585

 
153

 
1,964

 
647

Restructuring costs
 
208

 
153

 
803

 
238

Interest expense
 
104

 
30

 
335

 
117

Interest income
 
(30
)
 
(9
)
 
(89
)
 
(35
)
Other income, net
 
(10
)
 
(13
)
 
(82
)
 
(10
)
Total costs and expenses
 
5,633

 
2,076

 
22,885

 
7,781

 
 
 
 
 
 
 
 
 
Income (loss), before income taxes
 
661

 
(187
)
 
1,671

 
(174
)
Income tax expense (benefit)
 
96

 
(49
)
 
(111
)
 
(74
)
Net income (loss)
 
565

 
(138
)
 
1,782

 
(100
)
Less: net income attributable to non-controlling interest, net of tax
 
5

 
10

 
31

 
23

Net income (loss) attributable to DXC common stockholders
 
$
560

 
$
(148
)
 
$
1,751

 
$
(123
)
 
 
 
 
 
 
 
 
 
Income (loss) per common share:
 
 
 
 
 
 
 
 
Basic
 
$
1.96

 
$
(1.05
)
 
$
6.15

 
$
(0.88
)
Diluted
 
$
1.93

 
$
(1.05
)
 
$
6.04

 
$
(0.88
)
 
 
 
 
 
 
 
 
 
Cash dividend per common share
 
$
0.18

 
$
0.14

 
$
0.72

 
$
0.56

 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding for:
 
 
 
 
 
 
 
 
   Basic EPS
 
285.64

 
141.16

 
284.93

 
140.39

   Diluted EPS
 
290.20

 
141.16

 
289.77

 
140.39










Selected Consolidated Balance Sheet Data
(preliminary and unaudited)
 
 
As of
(in millions)
 
March 31, 2018
 
March 31, 2017
Assets
 
 
 
 
Cash and cash equivalents
 
$
2,648

 
$
1,263

Receivables, net
 
5,913

 
1,643

Prepaid expenses
 
571

 
223

Other current assets
 
485

 
118

Total current assets
 
9,617

 
3,247

 
 
 
 
 
Intangible assets, net
 
8,091

 
1,794

Goodwill
 
9,652

 
1,855

Deferred income taxes, net
 
373

 
381

Property and equipment, net
 
3,646

 
903

Other assets
 
2,542

 
483

Total Assets
 
$
33,921

 
$
8,663

 
 
 
 
 
Liabilities
 
 
 
 
Short-term debt and current maturities of long-term debt
 
$
2,073

 
$
738

Accounts payable
 
1,708

 
410

Accrued payroll and related costs
 
766

 
248

Accrued expenses and other current liabilities
 
3,466

 
998

Deferred revenue and advance contract payments
 
1,694

 
518

Income taxes payable
 
145

 
38

Total current liabilities
 
9,852

 
2,950

 
 
 
 
 
Long-term debt, net of current maturities
 
6,306

 
2,225

Non-current deferred revenue
 
802

 
286

Non-current pension obligations
 
879

 
342

Non-current income tax liabilities and deferred tax liabilities
 
1,329

 
423

Other long-term liabilities
 
916

 
271

Total Liabilities
 
20,084

 
6,497

 
 
 
 
 
Total Equity
 
13,837

 
2,166

 
 
 
 
 
Total Liabilities and Equity
 
$
33,921

 
$
8,663










Consolidated Statements of Cash Flows
(preliminary and unaudited)
 
 
Twelve Months Ended
(in millions)
 
March 31, 2018
 
March 31, 2017
Cash flows from operating activities:
 
 
 
 
Net income (loss)
 
$
1,782

 
$
(100
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 


 


Depreciation and amortization
 
2,014

 
658

Pension & other post-employment benefits, actuarial & settlement (gains) losses
 
(220
)
 
87

Share-based compensation
 
93

 
75

Deferred tax benefit
 
(842
)
 
(92
)
Loss on dispositions
 
4

 
6

Provision for losses on accounts receivable
 
45

 
4

Unrealized foreign currency exchange losses
 
22

 
24

Impairment losses and contract write-offs
 
41

 
8

Amortization of debt issuance costs and discount (premium)
 
(4
)
 
17

Cash surrender value in excess of premiums paid
 
(11
)
 
(7
)
Other non-cash charges, net
 
4

 

Changes in assets and liabilities, net of effects of acquisitions and dispositions:
 
 
 
 
Decrease in receivables
 
202

 
586

Decrease (increase) in deferred purchase price receivable
 
19

 
(252
)
Increase in prepaid expenses and other current assets
 
(205
)
 
(29
)
(Decrease) increase in accounts payable and accruals
 
(96
)
 
54

Increase (decrease) in income taxes payable and income tax liability
 
303

 
(32
)
Increase (decrease) in advance contract payments and deferred revenue
 
130

 
(67
)
Other operating activities, net
 
(38
)
 
38

Net cash provided by operating activities
 
3,243

 
978

 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
Purchases of property and equipment
 
(224
)
 
(246
)
Payments for outsourcing contract costs
 
(328
)
 
(101
)
Software purchased and developed
 
(211
)
 
(140
)
Cash acquired through HPES Merger
 
938

 

Payments for acquisitions, net of cash acquired
 
(203
)
 
(434
)
Business dispositions
 

 
3

Proceeds from sale of assets
 
58

 
57

Restricted Cash
 
(67
)
 
(1
)
Other investing activities, net
 
4

 
(64
)
Net cash used in investing activities
 
(33
)
 
(926
)
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
Borrowings of commercial paper
 
2,413

 
2,191

Repayments of commercial paper
 
(2,297
)
 
(2,086
)
Borrowings under lines of credit
 

 
920

Repayment of borrowings under lines of credit
 
(737
)
 
(789
)
Borrowings on long-term debt, net of discount
 
621

 
159

Principal payments on long-term debt
 
(1,547
)
 
(168
)
Payments on capital leases and borrowings for asset financing
 
(1,060
)
 
(145
)
Proceeds from bond issuance
 
989

 

Proceeds from structured sale of facility
 

 
85

Proceeds from stock options and other common stock transactions
 
138

 
54

Taxes paid related to net share settlements of share-based compensation awards
 
(76
)
 
(13
)
Repurchase of common stock and advance payment for accelerated share repurchase
 
(132
)
 

Dividend payments
 
(174
)
 
(78
)
Other financing activities, net
 
(28
)
 
(37
)
Net cash (used in) provided by financing activities
 
(1,890
)
 
93

Effect of exchange rate changes on cash and cash equivalents
 
65

 
(60
)
Net increase in cash and cash equivalents
 
1,385

 
85

Cash and cash equivalents at beginning of year
 
1,263

 
1,178

Cash and cash equivalents at end of year
 
$
2,648

 
$
1,263











Unaudited Pro Forma Combined Company Financial Information

In an effort to provide investors with additional information, we are disclosing certain unaudited pro forma combined company financial information of DXC for the three and twelve months ended March 31, 2017 (the "pro forma combined company" information) as supplemental information herein. The following discussion includes comparisons of our unaudited results of operations for the three and twelve months ended March 31, 2017, to our pro forma combined company results. The pro forma combined company results are based on the historical quarterly statements of operations of each of CSC and the Enterprise Services Business of Hewlett Packard Enterprise Company (“HPES"), giving effect to the HPES Merger (defined below) as if it had been consummated on April 2, 2016. The unaudited pro forma statement of operations, which was previously filed with the SEC on June 14, 2017 as Exhibit 99.2 of Form 8-K/A has been revised to reflect purchase price accounting ("PPA") adjustments recorded subsequent to the Merger.

CSC reported its results based on a fiscal year convention that comprised four thirteen-week quarters. Every fifth year included an additional week in the first quarter to prevent the fiscal year moving from an approximate end of March date. 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 pro forma combined company information include the results of operations of CSC for the fiscal year ended March 31, 2017 and of HPES for the fiscal year ended January 31, 2017.

The historical financial information of HPES was “carved-out” from the combined statement of operations of HPE and reflects assumptions and allocations made by HPE. The combined statement of operations of HPES included all revenues and costs directly attributable to HPES and an allocation of expenses related to certain HPE corporate functions. The results of operations in the HPES historical combined statement of operations does not necessarily include all expenses that would have been incurred by HPES had it been a separate, stand-alone entity. Actual costs that may have been incurred if HPES had been a stand-alone company would depend on a number of factors, including the chosen organizational structure, functions outsourced or performed by employees and strategic decisions made in areas such as information technology and infrastructure. Consequently, HPES’ historical financial information does not necessarily reflect what HPES’ results of operations would have been had HPES operated as a stand-alone company during the periods presented.

The pro forma combined company results have been prepared using the acquisition method of accounting with CSC considered the accounting acquirer of HPES. These pro forma combined company results include historical results, reflecting PPA adjustments and aligning our accounting policies for consolidated results and reportable segments. These adjustments give effect to pro forma events that were (i) directly attributable to the merger of CSC and HPES (the "HPES Merger"), (ii) factually supportable, and (iii) expected to have a continuing impact on the consolidated results of operations of DXC. The pro forma results do not reflect the costs of integration activities or benefits that may result from realization of first-year synergies.

The adjustments to historical results were based upon currently available information and assumptions that management of DXC believes to be reasonable. The pro forma combined company results are provided for illustrative and informational purposes only and are not intended to represent or be indicative of what DXC's results of operations would have been had the HPES Merger occurred on April 2, 2016, and should not be taken as being indicative of DXC’s future consolidated financial results.










Segment Results

The following tables summarize segment revenue for the three and twelve months ended March 31, 2018 as compared to the three and twelve months ended March 31, 2017:

Segment Revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP Basis
 
Pro Forma Combined Company
(in millions)
 
Three Months Ended March 31, 2018
 
Historical CSC for the Three Months Ended March 31, 2017
 
% Change (NM)
 
Three Months Ended March 31, 2017
 
% Change
 
% Adjusted Change in Constant Currency(1)
GBS
 
$
2,361

 
$
1,043

 

 
$
2,285

 
3.3
%
 
(2.5
)%
GIS
 
3,223

 
846

 

 
3,112

 
3.6
%
 
(4.3
)%
USPS
 
710

 

 

 
639

 
11.1
%
 
11.1
 %
Total Revenues
 
$
6,294

 
$
1,889

 

 
$
6,036

 
4.3
%
 
(2.0
)%

(1) Adjusted for PPA impact of $(8) million in GBS, $(36) million in GIS and $0 million in USPS.
(NM) Not meaningful

Segment Revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP Basis
 
Pro Forma Combined Company
(in millions)
 
Twelve Months Ended March 31, 2018
 
Historical CSC for the Twelve Months Ended March 31, 2017
 
% Change (NM)
 
Twelve Months Ended March 31, 2017
 
% Change
 
% Adjusted Change in Constant Currency(1)
GBS
 
$
9,254

 
$
4,173

 

 
$
9,530

 
(2.9
)%
 
(4.3
)%
GIS
 
12,479

 
3,434

 

 
13,018

 
(4.1
)%
 
(5.2
)%
USPS
 
2,823

 

 

 
2,846

 
(0.8
)%
 
(0.5
)%
Total Revenues
 
$
24,556

 
$
7,607

 

 
$
25,394

 
(3.3
)%
 
(4.3
)%

(1) Adjusted for PPA impact of $24 million in GBS, $98 million in GIS and $8 million in USPS.
(NM) Not meaningful

We define segment profit as segment revenues less segment cost of services, selling, general and administrative, and depreciation and amortization (excluding amortization of acquired intangible assets). We do not allocate to our segments certain operating expenses managed at the corporate level. These unallocated costs include certain corporate function costs, stock-based compensation expense, pension and OPEB actuarial and settlement gains and losses, restructuring costs, transaction, separation and integration-related costs and amortization of acquired intangible assets. The following table presents our segment profit and segment profit margins:









Segment Profit
 
 
 
 
 
 
 
 
Three Months Ended
(in millions)
 
March 31, 2018
 
Historical CSC March 31, 2017
 
Pro Forma Combined Company March 31, 2017
GBS profit
 
$
470

 
$
143

 
$
284

GIS profit
 
477

 
105

 
355

USPS profit
 
121

 

 
63

All other loss
 
(51
)
 
(32
)
 
(95
)
Interest income
 
30

 
9

 
22

Interest expense
 
(104
)
 
(30
)
 
(89
)
Restructuring costs
 
(208
)
 
(153
)
 
(214
)
Transaction, separation and integration-related costs
 
(124
)
 
(122
)
 
(116
)
Amortization of acquired intangibles
 
(153
)
 
(21
)
 
(148
)
Pension and OPEB actuarial and settlement gains (losses)
 
203

 
(86
)
 
173

Income (loss) from continuing operations before taxes
 
$
661

 
$
(187
)
 
$
235

 
 
 
 
 
 
 
Segment profit margins
 
 
 
 
 
 
GBS
 
19.9
%
 
13.7
%
 
12.4
%
GIS
 
14.8
%
 
12.4
%
 
11.4
%
USPS
 
17.0
%
 
%
 
9.9
%


Segment Profit
 
 
 
 
 
 
 
 
Twelve Months Ended
(in millions)
 
March 31, 2018
 
Historical CSC March 31, 2017
 
Pro Forma Combined Company March 31, 2017
GBS profit
 
$
1,563

 
$
492

 
$
1,156

GIS profit
 
1,699

 
306

 
1,325

USPS profit
 
417

 

 
310

All other loss
 
(180
)
 
(180
)
 
(461
)
Interest income
 
89

 
35

 
81

Interest expense
 
(335
)
 
(117
)
 
(342
)
Restructuring costs
 
(803
)
 
(238
)
 
(860
)
Transaction, separation and integration-related costs
 
(408
)
 
(308
)
 
(398
)
Amortization of acquired intangibles
 
(591
)
 
(77
)
 
(576
)
Pension and OPEB actuarial and settlement gains (losses)
 
220

 
(87
)
 
(25
)
Income (loss) from continuing operations before taxes
 
$
1,671

 
$
(174
)
 
$
210

 
 
 
 
 
 
 
Segment profit margins
 
 
 
 
 
 
GBS
 
16.9
%
 
11.8
%
 
12.1
%
GIS
 
13.6
%
 
8.9
%
 
10.2
%
USPS
 
14.8
%
 

 
10.9
%










Non-GAAP Financial Measures

We present non-GAAP financial measures of performance which are derived from the unaudited condensed consolidated statements of operations and unaudited pro forma combined company statement of operations of DXC. These non-GAAP financial measures include earnings before interest and taxes (“EBIT”), EBIT margin, adjusted EBIT, adjusted EBIT margin, non-GAAP income before income taxes, non-GAAP net income, non-GAAP EPS and adjusted free cash flow.

We present these non-GAAP financial measures to provide investors with meaningful supplemental financial information, in addition to the financial information presented on a GAAP or pro forma combined company basis. Non-GAAP financial measures exclude certain items from GAAP and pro forma combined company results which DXC management believes are not indicative of core operating performance. DXC management believes these non-GAAP measures provide investors supplemental information about the financial performance of DXC exclusive of the impacts of corporate wide strategic decisions. DXC management believes that adjusting for these items provides investors with additional measures to evaluate the financial performance of our core business operations on a comparable basis from period to period. DXC management believes the non-GAAP measures provided are also considered important measures by financial analysts covering DXC as equity research analysts continue to publish estimates and research notes based on our non-GAAP commentary, including our guidance around non-GAAP EPS.

There are limitations to the use of the non-GAAP financial measures presented in this report. One of the limitations is that they do not reflect complete financial results. We compensate for this limitation by providing a reconciliation between our non-GAAP financial measures and the respective most directly comparable financial measure calculated and presented in accordance with GAAP or on a pro forma combined company basis. Additionally, other companies, including companies in our industry, may calculate non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes between companies.

Reconciliation of Non-GAAP Financial Measures

Non-GAAP adjustments to our performance measures include:

Restructuring costs - reflects restructuring costs, net of reversals, related to workforce optimization and real estate charges.
Transaction, separation and integration-related costs - reflects costs related to integration planning, financing, and advisory fees associated with the merger and other acquisitions and costs related to the separation of USPS.
Amortization of acquired intangible assets - reflects amortization of intangible assets acquired through business combinations.
Pension and OPEB actuarial and settlement gains and losses - reflects pension and OPEB actuarial and settlement gains and losses.
Certain overhead costs - reflects certain fiscal 2017 HPE costs allocated to HPES that are expected to be largely eliminated on a prospective basis.
Tax adjustment - reflects the estimated special benefit of the Tax Cuts and Jobs Act of 2017 for fiscal 2018 periods and the application of an approximate 27.5% pro forma tax rate for fiscal 2017 periods, which is the midpoint of prospective targeted effective tax rate range of 25% to 30% and effectively excludes the impact of discrete tax adjustments for those periods.









EBIT and Adjusted EBIT

Reconciliations of net income (loss) and pro forma net income (loss) to adjusted EBIT and pro forma adjusted EBIT are as follows:
 
 
Three Months Ended
 
Twelve Months Ended
(in millions)
 
March 31, 2018
 
Pro Forma Combined Company March 31, 2017
 
March 31, 2018
 
Pro Forma Combined Company March 31, 2017
Net income (loss)
 
$
565

 
$
255

 
$
1,782

 
$
(23
)
Income tax expense (benefit)
 
96

 
(20
)
 
(111
)
 
233

Interest income
 
(30
)
 
(22
)
 
(89
)
 
(81
)
Interest expense
 
104

 
89

 
335

 
342

EBIT
 
735

 
302

 
1,917

 
471

Restructuring costs
 
208

 
214

 
803

 
860

Transaction, separation and integration-related costs
 
124

 
116

 
408

 
398

Amortization of acquired intangible assets
 
153

 
148

 
591

 
576

Pension and OPEB actuarial and settlement (gains) losses
 
(203
)
 
(173
)
 
(220
)
 
25

Certain overhead costs
 

 
8

 

 
115

Adjusted EBIT
 
$
1,017

 
$
615

 
$
3,499

 
$
2,445

 
 
 
 
 
 
 
 
 
Adjusted EBIT margin
 
16.2
%
 
10.2
%
 
14.2
%
 
9.6
%
EBIT margin
 
11.7
%
 
5.0
%
 
7.8
%
 
1.9
%


Adjusted Free Cash Flow

A reconciliation of net cash provided by operating activities to adjusted free cash flow is as follows:
 
 
Three Months Ended
 
Twelve Months Ended
(in millions)
 
March 31, 2018
 
March 31, 2017
 
March 31, 2018
 
March 31, 2017
Net cash provided by operating activities
 
$
701

 
$
173

 
$
3,243

 
$
978

Net cash used in investing activities(1)
 
(246
)
 
(84
)
 
(26
)
 
(840
)
Acquisitions, net of cash acquired
 
46

 

 
(735
)
 
434

Business dispositions
 

 
(3
)
 

 
(3
)
Payments on capital leases and other long-term asset financings
 
(328
)
 
(26
)
 
(1,060
)
 
(145
)
Payments on transaction, separation and integration-related costs
 
80

 
70

 
284

 
268

Payments on restructuring costs
 
223

 
56

 
792

 
141

Sale of accounts receivables, net DPP
 
(15
)
 
18

 
(19
)
 
(223
)
Sale of USPS accounts receivable
 
96

 

 
(52
)
 

Adjusted free cash flow
 
$
557

 
$
204

 
$
2,427

 
$
610


(1) Excludes capital expenditures financed through our lease credit facility.











Non-GAAP Results

A reconciliation of reported results to non-GAAP results is as follows:
 
 
Three Months Ended March 31, 2018
(in millions, except per-share amounts)
 
As Reported
 
Restructuring Costs
 
Transaction, Separation and Integration-Related Costs
 
Amortization of Acquired Intangible Assets
 
Pension and OPEB Actuarial and Settlement Gains
 
Tax Adjustment
 
Non-GAAP Results
Costs of services (excludes depreciation and amortization and restructuring costs)
 
$
4,323

 
$

 
$

 
$

 
$
192

 
$

 
$
4,515

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative (excludes depreciation and amortization and restructuring costs)
 
453

 

 
(124
)
 

 
11

 

 
340

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income before taxes
 
$
661

 
$
208

 
$
124

 
$
153

 
$
(203
)
 
$

 
$
943

Income tax expense
 
96

 
63

 
27

 
45

 
(42
)
 
88

 
277

Net income
 
$
565

 
$
145

 
$
97

 
$
108

 
$
(161
)
 
$
(88
)
 
$
666

Less: net income attributable to noncontrolling interest, net of tax
 
5

 

 

 

 

 

 
5

Net income attributable to DXC common stockholders
 
$
560

 
$
145

 
$
97

 
$
108

 
$
(161
)
 
$
(88
)
 
$
661

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Effective tax rate
 
14.5
%
 
 
 
 
 
 
 
 
 
 
 
29.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic EPS
 
$
1.96

 
$
0.51

 
$
0.34

 
$
0.38

 
$
(0.56
)
 
$
(0.31
)
 
$
2.31

Diluted EPS
 
$
1.93

 
$
0.50

 
$
0.33

 
$
0.37

 
$
(0.55
)
 
$
(0.30
)
 
$
2.28

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding for:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic EPS
 
285.64

 
285.64

 
285.64

 
285.64

 
285.64

 
285.64

 
285.64

Diluted EPS
 
290.20

 
290.20

 
290.20

 
290.20

 
290.20

 
290.20

 
290.20






















 
 
Twelve Months Ended March 31, 2018
(in millions, except per-share amounts)
 
As Reported
 
Restructuring Costs
 
Transaction, Separation and Integration-Related Costs
 
Amortization of Acquired Intangible Assets
 
Pension and OPEB Actuarial and Settlement Gains
 
Tax Adjustment
 
Non-GAAP Results
Costs of services (excludes depreciation and amortization and restructuring costs)
 
$
17,944

 
$

 
$

 
$

 
$
192

 
$

 
$
18,136

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative (excludes depreciation and amortization and restructuring costs)
 
2,010

 

 
(408
)
 

 
28

 

 
1,630

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income before taxes
 
$
1,671

 
$
803

 
$
408

 
$
591

 
$
(220
)
 
$

 
$
3,253

Income tax expense
 
(111
)
 
206

 
117

 
193

 
(45
)
 
561

 
921

Net income
 
$
1,782

 
$
597

 
$
291

 
$
398

 
$
(175
)
 
$
(561
)
 
$
2,332

Less: net income attributable to noncontrolling interest, net of tax
 
31

 

 

 

 

 

 
31

Net income attributable to DXC common stockholders
 
$
1,751

 
$
597

 
$
291

 
$
398

 
$
(175
)
 
$
(561
)
 
$
2,301

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Effective tax rate
 
(6.6
)%
 
 
 
 
 
 
 
 
 
 
 
28.3
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic EPS
 
$
6.15

 
$
2.10

 
$
1.02

 
$
1.40

 
$
(0.61
)
 
$
(1.97
)
 
$
8.08

Diluted EPS
 
$
6.04

 
$
2.06

 
$
1.00

 
$
1.37

 
$
(0.60
)
 
$
(1.94
)
 
$
7.94

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding for:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic EPS
 
284.93

 
284.93

 
284.93

 
284.93

 
284.93

 
284.93

 
284.93

Diluted EPS
 
289.77

 
289.77

 
289.77

 
289.77

 
289.77

 
289.77

 
289.77











A reconciliation of pro forma combined results to pro forma non-GAAP results is as follows:
 
 
Three Months Ended March 31, 2017
(in millions, except per-share amounts)
 
Pro Forma Combined Company
 
Restructuring Costs
 
Transaction, Separation and Integration-Related Costs
 
Amortization of Acquired Intangible Assets
 
Pension and OPEB Actuarial and Settlement Gains
 
Certain Overhead Costs
 
Tax Adjustment
 
Pro Forma Non-GAAP Results
Costs of services (excludes depreciation and amortization and restructuring costs)
 
$
4,344

 
$

 
$

 
$

 
$
126

 
$

 
$

 
$
4,470

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative (excludes depreciation and amortization and restructuring costs)
 
591

 

 
(116
)
 

 
47

 
(8
)
 

 
514

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income before taxes
 
$
235

 
$
214

 
$
116

 
$
148

 
$
(173
)
 
$
8

 
$

 
$
548

Income tax (benefit) expense
 
(20
)
 

 

 

 

 

 
170

 
150

Net income
 
$
255

 
$
214

 
$
116

 
$
148

 
$
(173
)
 
$
8

 
$
(170
)
 
$
398

Less: net income attributable to noncontrolling interest, net of tax
 
11

 

 

 

 

 

 

 
11

Net income (loss) attributable to DXC common stockholders
 
$
244

 
$
214

 
$
116

 
$
148

 
$
(173
)
 
$
8

 
$
(170
)
 
$
387

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Effective tax rate
 
(8.5
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
27.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic EPS
 
$
0.86

 
$
0.76

 
$
0.41

 
$
0.52

 
$
(0.61
)
 
$
0.03

 
$
(0.60
)
 
$
1.37

Diluted EPS
 
$
0.85

 
$
0.74

 
$
0.40

 
$
0.51

 
$
(0.60
)
 
$
0.03

 
$
(0.59
)
 
$
1.35

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding for:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic EPS
 
283.16

 
283.16

 
283.16

 
283.16

 
283.16

 
283.16

 
283.16

 
283.16

Diluted EPS
 
287.68

 
287.68

 
287.68

 
287.68

 
287.68

 
287.68

 
287.68

 
287.68











 
 
Twelve Months Ended March 31, 2017
(in millions, except per-share amounts)
 
Pro Forma Combined Company
 
Restructuring Costs
 
Transaction, Separation and Integration-Related Costs
 
Amortization of Acquired Intangible Assets
 
Pension and OPEB Actuarial and Settlement Losses
 
Certain Overhead Costs
 
Tax Adjustment
 
Pro Forma Non-GAAP Results
Costs of services (excludes depreciation and amortization and restructuring costs)
 
$
18,999

 
$

 
$

 
$

 
$
(24
)
 
$

 
$

 
$
18,975

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative (excludes depreciation and amortization and restructuring costs)
 
2,638

 

 
(398
)
 

 
(1
)
 
(115
)
 

 
2,124

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income before taxes
 
$
210

 
$
860

 
$
398

 
$
576

 
$
25

 
$
115

 
$

 
$
2,184

Income tax expense
 
233

 

 

 

 

 

 
367

 
600

Net (loss) income
 
$
(23
)
 
$
860

 
$
398

 
$
576

 
$
25

 
$
115

 
$
(367
)
 
$
1,584

Less: net income attributable to noncontrolling interest, net of tax
 
28

 

 

 

 

 

 

 
28

Net (loss) income attributable to DXC common stockholders
 
$
(51
)
 
$
860

 
$
398

 
$
576

 
$
25

 
$
115

 
$
(367
)
 
$
1,556

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Effective Tax Rate
 
111.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
27.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic EPS
 
$
(0.18
)
 
$
3.04

 
$
1.41

 
$
2.03

 
$
0.09

 
$
0.41

 
$
(1.30
)
 
$
5.50

Diluted EPS
 
$
(0.18
)
 
$
3.00

 
$
1.39

 
$
2.01

 
$
0.09

 
$
0.40

 
$
(1.28
)
 
$
5.42

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding for:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic EPS
 
283.16

 
283.16

 
283.16

 
283.16

 
283.16

 
283.16

 
283.16

 
283.16

Diluted EPS
 
283.16

 
287.08

 
287.08

 
287.08

 
287.08

 
287.08

 
287.08

 
287.08