Form 8-K DXC Technology Co For: Feb 08

February 8, 2018 4:25 PM

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _____________________________________________________________________________

FORM 8-K
 _____________________________________________________________________________
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): February 8, 2018
 ______________________________________________________________________________
DXC TECHNOLOGY COMPANY
(Exact name of Registrant as specified in its charter)
 ______________________________________________________________________________
Nevada
 
001-38033
 
61-1800317
(State or Other Jurisdiction
of Incorporation)
 
(Commission
File Number)
 
(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
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
_____________________________________________________________________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐

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





Item 2.02 Results of Operations and Financial Condition.

On February 8, 2018, DXC Technology Company (the “Company”) issued a press release reporting its preliminary financial results for the third quarter ended December 31, 2017. The Company will hold a conference call at 5:00 PM ET, on February 8, 2018, in which the Chief Executive Officer and the Chief Financial Officer will discuss this matter. The press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference and made a part hereof.

This information is “furnished” and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of that section. It may only be incorporated by reference in another filing under the Securities Exchange Act of 1934 or the Securities Act of 1933 only if and to the extent such subsequent filing specifically references the information incorporated by reference herein.

All statements in this report that do not directly and exclusively relate to historical facts constitute “forward-looking statements.” These statements represent the Company’s intentions, plans, expectations and beliefs, and are subject to risks, uncertainties and other factors many of which are outside the Company’s control. These factors could cause actual results to differ materially from such forward-looking statements. For a written description of these factors, see the section titled “Risk Factors” in the Company's Quarterly Reports on Form 10-Q for the quarters ended June 30, 2017 and September 30, 2017 and any updating information in subsequent SEC filings, including the Company’s upcoming Form 10-Q for the quarter ended December 31, 2017. The Company disclaims any intention or obligation to update these forward-looking statements whether as a result of subsequent event or otherwise, except as required by law.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits

Exhibit No.
Description
99.1



        


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

 
 
 
DXC TECHNOLOGY COMPANY

 
 
 
 
Dated:
February 8, 2018
By:
/s/ Paul N. Saleh
 
 
Name:
Paul N. Saleh
 
 
Title:
Executive Vice President and Chief Financial Officer


        


Exhibit Index

Exhibit No.
Description
99.1
Earnings Press Release issued February 8, 2018
















        






Exhibit 99.1
 
Moved on Business Wire
 
February 8, 2018



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

Q3 Earnings per Share was $2.68, including the cumulative impact of certain items of $0.53 per share, reflecting restructuring costs, pension and OPEB actuarial and settlement gains, transaction and integration-related costs, amortization of acquired intangible assets and a tax adjustment related to U.S. tax reform
Q3 Non-GAAP Earnings per Share was $2.15
Q3 Net Income was $779 million, including the cumulative impact of certain items of $154 million, reflecting restructuring costs, pension and OPEB actuarial and settlement gains, transaction and integration-related costs, amortization of acquired intangible assets and tax benefit related to U.S. tax reform
Q3 EBIT of $488 million, adjusted for certain items is $927 million and Adjusted EBIT Margin on a comparable basis is 15.0%, compared with 9.5% in the prior year on a pro forma basis
Q3 Net Cash from Operating Activities was $999 million
Q3 Adjusted Free Cash Flow of $686 million


TYSONS, Va., February 8, 2018 - DXC Technology Company (NYSE:DXC) today reported results for the third quarter of fiscal year 2018, representing the period from October 1 through December 31, 2017.

“DXC continued to execute on our strategic roadmap during the third quarter, during which the company delivered year-over-year and sequential growth in earnings per share, margins and cash flow,” said Mike Lawrie, chairman, president and CEO of DXC Technology. “Revenue was up sequentially, reflecting strong project sales in the quarter. We are also on track to achieve our year-one cost savings targets. The separation of our U.S. Public Sector business and combination with Vencore and KeyPoint Government Solutions continues to progress with the filing of the Form 10 with the U.S. Securities and Exchange Commission.”
 
Financial Highlights - Third Quarter Fiscal 2018
Diluted earnings per share was $2.68 in the third quarter, including $(0.56) per share of restructuring costs, $0.05 per share of pension and OPEB actuarial and settlement gains, $(0.23) per share of transaction and integration-related costs, $(0.36) per share of amortization of acquired intangible assets and $1.63 per share of tax adjustment related to U.S. tax reform. This compares with $0.21 in the year ago period.
Non-GAAP diluted earnings per share was $2.15.
Income before income taxes was $438 million in the third quarter, including $(213) million of restructuring costs, $17 million of pension and OPEB actuarial and settlement gains, $(94) million of transaction and integration-related costs, and $(149) million of amortization of acquired intangibles. This compares with $50 million in the year ago period.
Non-GAAP income before income taxes was $877 million compared with $589 million in the year ago period on a pro forma combined company basis.
Net income was $779 million for the third quarter, including $(161) million of restructuring costs, $14 million of pension and OPEB actuarial and settlement gains, $(68) million of transaction and integration-related costs, $(104) million of amortization of acquired intangibles and $473 million of tax adjustment related to U.S. tax reform. This compares with $37 million in the prior year period.
Adjusted EBIT was $927 million in the third quarter compared with $626 million in the prior year on a pro forma combined company basis. Adjusted EBIT margin was 15.0% compared with 9.5% in the year ago quarter which is presented on a pro forma combined company basis.
Net cash provided by operating activities was $999 million in the third quarter, compared with $563 million in the year ago period.
Adjusted free cash flow was $686 million in the third quarter.









Global Business Services (GBS)
GBS revenue was $2,315 million in the quarter as compared to $1,046 million for the prior year. Excluding the impact of purchase price accounting, GBS revenue decreased 6.6% year-over-year in constant currency on a pro forma combined company basis, reflecting headwinds in traditional application services, partially offset by growth in our Enterprise Applications and Business Process Services businesses. GBS profit margin in the quarter was 18.6%, up from 13.9% in the prior year on a pro forma combined company basis, reflecting ongoing cost actions in the business. New business awards for GBS were $3.3 billion in the third quarter.

Global Infrastructure Services (GIS)
GIS revenue was $3,145 million in the quarter as compared to $871 million for the prior year. Excluding the impact of purchase price accounting, GIS revenue decreased 6.8% year-over-year in constant currency on a pro forma combined company basis. The GIS revenue reflects headwinds in the legacy infrastructure business, partially offset by client transformations leveraging digital offerings in Cloud and Security. GIS profit margin in the quarter was 14.7%, up from 9.5% in the prior year on a pro forma combined company basis, reflecting cost actions and process automation. New business awards for GIS were $2.2 billion in the third quarter.

United States Public Sector (USPS)
USPS revenue was $726 million in the quarter. Excluding the impact of purchase price accounting, USPS revenue decreased 11.9% year-over-year on a pro forma combined company basis, reflecting the benefit of a large one-time contract reset during the third quarter last year. USPS profit margin in the quarter was 15.2%, up from 11.6% in the prior year on a pro forma combined company basis, reflecting ongoing cost actions in the business. New business awards for USPS were $527 million in the third quarter.

Returning Capital to Shareholders
During the third quarter, DXC Technology returned $51 million to shareholders consisting of common stock dividends.

Earnings Conference Call
DXC Technology senior management will host a conference call to discuss these results today at 5 p.m. EST. The dial-in number for domestic callers is 888-394-8218. Callers who reside outside of the United States or Canada should dial +1-323-794-2149. The passcode for all participants is 5950692. The webcast 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 February 15, 2018. Replay numbers can be found at the following link. The replay passcode is also 5950692.

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"), 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, helping clients harness the power of innovation to thrive on change. Created by the merger of CSC and the Enterprise Services business of Hewlett Packard Enterprise, DXC Technology serves nearly 6,000 private and public sector clients across 70 countries. The company’s technology independence, global talent and extensive partner network combine to deliver powerful next-generation IT services and solutions. DXC Technology is recognized among the best corporate citizens globally. For more information, visit DXC Technology's website at www.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 and September 30, 2017 and any updating information in subsequent SEC filings, including DXC's upcoming Form 10-Q for the quarter ended December 31, 2017. 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











Condensed Consolidated Statements of Operations
(preliminary and unaudited)
 
 
Three Months Ended
 
Nine Months Ended
(in millions, except per-share amounts)
 
December 31, 2017
 
December 30, 2016
 
December 31, 2017
 
December 30, 2016
 
 
 
 
 
 
 
 
 
Revenues
 
$
6,186

 
$
1,917

 
$
18,262

 
$
5,718

 
 
 
 
 
 
 
 
 
Costs of services
 
4,521

 
1,347

 
13,621

 
4,131

Selling, general and administrative
 
475

 
333

 
1,557

 
931

Depreciation and amortization
 
481

 
161

 
1,379

 
494

Restructuring costs
 
213

 
3

 
595

 
85

Interest expense
 
77

 
33

 
231

 
87

Interest income
 
(27
)
 
(8
)
 
(59
)
 
(26
)
Other expense (income), net
 
8

 
(2
)
 
(72
)
 
3

Total costs and expenses
 
5,748

 
1,867

 
17,252

 
5,705

 
 
 
 
 
 
 
 
 
Income before income taxes
 
438

 
50

 
1,010

 
13

Income tax (benefit) expense
 
(341
)
 
13

 
(207
)
 
(25
)
Net income
 
779

 
37

 
1,217

 
38

Less: net income attributable to non-controlling interest, net of tax
 
3

 
6

 
26

 
13

Net income attributable to DXC common stockholders
 
$
776

 
$
31

 
$
1,191

 
$
25

 
 
 
 
 
 
 
 
 
Income per common share:
 
 
 
 
 
 
 
 
Basic:
 
$
2.72

 
$
0.22

 
$
4.18

 
$
0.18

Diluted:
 
$
2.68

 
$
0.21

 
$
4.11

 
$
0.17

 
 
 
 
 
 
 
 
 
Cash dividend per common share
 
$
0.18

 
$
0.14

 
$
0.54

 
$
0.42

 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding for:
 
 
 
 
 
 
 
 
   Basic EPS
 
285.38

 
140.88

 
284.70

 
140.13

   Diluted EPS
 
289.77

 
144.81

 
289.53

 
143.80











Selected Consolidated Balance Sheet Data
(preliminary and unaudited)
 
 
As of
(in millions)
 
December 31, 2017
 
March 31, 2017
Assets
 
 
 
 
Cash and cash equivalents
 
$
2,926

 
$
1,263

Receivables, net
 
5,611

 
1,643

Prepaid expenses
 
540

 
223

Other current assets
 
444

 
118

Total current assets
 
9,521

 
3,247

 
 
 
 
 
Intangible assets, net
 
7,927

 
1,794

Goodwill
 
9,320

 
1,855

Deferred income taxes, net
 
458

 
381

Property and equipment, net
 
3,812

 
903

Other assets
 
2,544

 
483

Total Assets
 
$
33,582

 
$
8,663

 
 
 
 
 
Liabilities
 
 
 
 
Short-term debt and current maturities of long-term debt
 
$
2,173

 
$
738

Accounts payable
 
1,510

 
410

Accrued payroll and related costs
 
813

 
248

Accrued expenses and other current liabilities
 
3,403

 
998

Deferred revenue and advance contract payments
 
1,524

 
518

Income taxes payable
 
215

 
38

Total current liabilities
 
9,638

 
2,950

 
 
 
 
 
Long-term debt, net of current maturities
 
6,367

 
2,225

Non-current deferred revenue
 
856

 
286

Non-current income tax liabilities and deferred tax liabilities
 
1,523

 
423

Other long-term liabilities
 
1,996

 
613

Total Liabilities
 
20,380

 
6,497

 
 
 
 
 
Total Equity
 
13,202

 
2,166

 
 
 
 
 
Total Liabilities and Equity
 
$
33,582

 
$
8,663










Condensed Consolidated Statements of Cash Flows
(preliminary and unaudited)
 
 
Nine Months Ended
(in millions)
 
December 31, 2017
 
December 30, 2016
Cash flows from operating activities:
 
 
 
 
Net income
 
$
1,217

 
$
38

Adjustments to reconcile net income to net cash provided by operating activities:
 


 


Depreciation and amortization
 
1,387

 
503

Share-based compensation
 
76

 
56

(Gain) on dispositions
 

 
(1
)
Unrealized foreign currency exchange losses
 
44

 
20

Other non-cash charges, net
 
23

 
16

Changes in assets and liabilities, net of effects of acquisitions and dispositions:
 
 
 
 
Increase in assets
 
167

 
296

Decrease in liabilities
 
(372
)
 
(123
)
Net cash provided by operating activities
 
2,542

 
805

 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
Purchases of property and equipment
 
(175
)
 
(199
)
Payments for outsourcing contract costs
 
(259
)
 
(59
)
Software purchased and developed
 
(157
)
 
(124
)
Cash acquired through Merger
 
974

 

Payments for acquisitions, net of cash acquired
 
(193
)
 
(434
)
Proceeds from sale of assets
 
29

 
26

Other investing activities, net
 
(6
)
 
(35
)
Net cash provided by (used in) investing activities
 
213

 
(825
)
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
Borrowings of commercial paper
 
1,822

 
1,667

Repayments of commercial paper
 
(1,706
)
 
(1,562
)
Borrowings under lines of credit
 

 
920

Repayment of borrowings under lines of credit
 
(335
)
 
(773
)
Borrowings on long-term debt, net of discount
 
621

 
157

Principal payments on long-term debt
 
(2,023
)
 
(282
)
Proceeds from bond issuance
 
647

 

Proceeds from stock options and other common stock transactions
 
107

 
47

Taxes paid related to net share settlements of share-based compensation awards
 
(75
)
 
(12
)
Repurchase of common stock
 
(66
)
 

Dividend payments
 
(123
)
 
(59
)
Other financing activities, net
 
(5
)
 
(31
)
Net cash (used in) provided by financing activities
 
(1,136
)
 
72

Effect of exchange rate changes on cash and cash equivalents
 
44

 
(119
)
Net increase (decrease) in cash and cash equivalents
 
1,663

 
(67
)
Cash and cash equivalents at beginning of year
 
1,263

 
1,178

Cash and cash equivalents at end of period
 
$
2,926

 
$
1,111










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 nine months ended December 31, 2016 ("pro forma combined company" information) as supplemental information herein. The following discussion includes comparisons of our unaudited results of operations for the three and nine months of fiscal 2018 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 merger as if it had been consummated on April 2, 2016.

CSC reported its results based on a fiscal year convention that comprised four thirteen-week quarters, while 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, the pro forma combined company results include the historical unaudited condensed combined statements of operations of CSC for the three and nine months ended December 30, 2016 and of HPES for the three and nine months ended October 31, 2016.

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 and only includes revenue and costs directly attributable to HPES and an allocation of expenses related to certain HPE corporate functions and does not necessarily include all expenses that would have been incurred by HPES had it been a separate, stand-alone entity and therefore, does not necessarily reflect what HPES’ results of operations would have been had HPES operated as a stand-alone company during the period presented. 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.
 
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 preliminary purchase accounting ("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, (ii) factually supportable, and (iii) expected to have a continuing impact on the consolidated results of operations of DXC. The pro forma combined company results do not reflect the costs of integration activities or benefits that may result from realization of synergies. No assurances of the timing or the amount of cost synergies, or the costs necessary to achieve those cost synergies, can be provided.

The adjustments to historical results included 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 merger occurred on April 2, 2016, and should not be taken as being indicative of DXC’s future consolidated financial results. The pro forma combined company results should be read in conjunction with Exhibit 99.2 of the previously filed to Form 8-K/A that was filed on June 14, 2017, including the accompanying notes.

Subsequent to the June 14, 2017 8-K/A filing referenced above, we adjusted the preliminary purchase price allocation and related fair value estimates, which would have decreased pro forma combined net loss and loss per common share by $96 million and $0.34, respectively, for the three months ended December 30, 2016, and $292 million and $1.03, respectively, for the nine months ended December 30, 2016.









Segment Results

The following tables summarize segment revenue for the three and nine months ended December 31, 2017 as compared to the three and nine months ended December 30, 2016:
Segment Revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP Basis
 
Pro Forma Combined Company Basis
(in millions)
 
Three Months Ended December 31, 2017
 
Historical CSC for the Three Months Ended December 30, 2016
 
% Change (NC)
 
Three Months Ended December 30, 2016
 
% Change
 
% Adjusted Change in Constant Currency(1)
GBS
 
$
2,315

 
$
1,046

 
 
$
2,432

 
(4.8)%
 
(6.6)%
GIS
 
3,145

 
871

 
 
3,327

 
(5.5)%
 
(6.8)%
USPS
 
726

 

 
 
826

 
(12.1)%
 
(11.9)%
Total Revenues
 
$
6,186

 
$
1,917

 
 
$
6,585

 
(6.1)%
 
(7.4)%

(1) Adjusted for PPA impact of $6 million in GBS, $26 million in GIS and $2 million in USPS.
(NC) Not comparable

Segment Revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP Basis
 
Pro Forma Combined Company Basis
(in millions)
 
Nine Months Ended December 31, 2017
 
Historical CSC for the Nine Months Ended December 30, 2016
 
% Change (NC)
 
Nine Months Ended December 30, 2016
 
% Change
 
% Adjusted Change in Constant Currency(1)
GBS
 
$
6,893

 
$
3,130

 
 
$
7,245

 
(4.9)%
 
(4.9)%
GIS
 
9,256

 
2,588

 
 
9,906

 
(6.6)%
 
(5.4)%
USPS
 
2,113

 

 
 
2,207

 
(4.3)%
 
(3.9)%
Total Revenues
 
$
18,262

 
$
5,718

 
 
$
19,358

 
(5.7)%
 
(5.0)%

(1) Adjusted for PPA impact of $32 million in GBS, $134 million in GIS and $8 million in USPS.
(NC) Not comparable

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 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)
 
December 31, 2017
 
Historical CSC December 31, 2016
 
Pro Forma Combined Company December 31, 2016
Profit
 

 
 
 

GBS profit
 
$
431

 
$
134

 
$
338

GIS profit
 
463

 
84

 
317

USPS profit
 
110

 

 
96

All other loss
 
(77
)
 
(42
)
 
(144
)
Interest income
 
27

 
8

 
18

Interest expense
 
(77
)
 
(33
)
 
(55
)
Restructuring costs
 
(213
)
 
(3
)
 
(214
)
Pension and OPEB actuarial and settlement gains
 
17

 

 

Amortization of acquired intangible assets
 
(149
)
 
(20
)
 
(119
)
Transaction and integration-related costs
 
(94
)
 
(78
)
 
(126
)
Income before income taxes
 
$
438

 
$
50

 
$
111

 
 
 
 
 
 
 
Segment profit margins
 
 
 
 
 
 
GBS
 
18.6
%
 
12.8
%
 
13.9
%
GIS
 
14.7
%
 
9.6
%
 
9.5
%
USPS
 
15.2
%
 
%
 
11.6
%

Segment Profit
 
 
 
 
 
 
 
 
Nine Months Ended
(in millions)
 
December 31, 2017
 
Historical CSC December 30, 2016
 
Pro Forma Combined Company December 30, 2016
Profit
 
 
 
 
 
 
GBS profit
 
$
1,093

 
$
349

 
$
889

GIS profit
 
1,222

 
201

 
540

USPS profit
 
296

 

 
245

All other loss
 
(129
)
 
(148
)
 
(465
)
Interest income
 
59

 
26

 
59

Interest expense
 
(231
)
 
(87
)
 
(232
)
Restructuring costs
 
(595
)
 
(85
)
 
(646
)
Pension and OPEB actuarial and settlement gains
 
17

 

 
(198
)
Amortization of acquired intangible assets
 
(438
)
 
(56
)
 
(352
)
Transaction and integration-related costs
 
(284
)
 
(187
)
 
(282
)
Income (loss) before income taxes
 
$
1,010

 
$
13

 
$
(442
)
 
 
 
 
 
 
 
Segment profit margins
 
 
 
 
 
 
GBS
 
15.9
%
 
11.2
%
 
12.3
%
GIS
 
13.2
%
 
7.8
%
 
5.5
%
USPS
 
14.0
%
 
%
 
11.1
%










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”), 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 basis. Non-GAAP financial measures exclude certain items from GAAP 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

DXC's non-GAAP adjustments to its performance measures include:

Restructuring costs - reflects restructuring costs, net of reversals, related to workforce optimization and real estate charges.
Transaction and integration-related costs - reflects costs related to integration planning, financing, and advisory fees associated with the merger and other acquisitions.
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

A reconciliation of net income (loss) to EBIT and adjusted EBIT is as follows:
 
 
Three Months ended
 
Nine Months Ended
(in millions)
 
December 31, 2017
 
Pro Forma Combined Company December 30, 2016
 
December 31, 2017
 
Pro Forma Combined Company December 30, 2016
Net income (loss)
 
$
779

 
$
(166
)
 
$
1,217

 
$
(570
)
Income tax (benefit) expense
 
(341
)
 
277

 
(207
)
 
128

Interest income
 
(27
)
 
(18
)
 
(59
)
 
(59
)
Interest expense
 
77

 
55

 
231

 
232

EBIT
 
488

 
148

 
1,182

 
(269
)
Restructuring costs
 
213

 
214

 
595

 
646

Transaction and integration-related costs
 
94

 
126

 
284

 
282

Amortization of acquired intangible assets
 
149

 
119

 
438

 
352

Pension and OPEB actuarial and settlement (gains) losses
 
(17
)
 

 
(17
)
 
198

Certain overhead costs
 

 
19

 

 
107

Adjusted EBIT
 
$
927

 
$
626

 
$
2,482

 
$
1,316

 
 
 
 
 
 
 
 
 
Adjusted EBIT margin
 
15.0
%
 
9.5
%
 
13.6
%
 
6.8
 %
EBIT margin
 
7.9
%
 
2.2
%
 
6.5
%
 
(1.4
)%

Adjusted Free Cash Flow

A reconciliation of net cash provided by operating activities to adjusted free cash flow is as follows:
(in millions)
 
Three Months Ended December 31, 2017
 
Nine Months Ended December 31, 2017
Net cash provided by operating activities
 
$
999

 
$
2,542

Net cash used in investing activities(1)
 
(217
)
 
220

Acquisitions, net of cash acquired
 
41

 
(781
)
Payments on capital leases and other long-term asset financings
 
(289
)
 
(732
)
Payments on transaction and integration-related costs
 
61

 
204

Payments on restructuring costs
 
176

 
569

Sale of accounts receivables, net DPP
 
(24
)
 
(4
)
Sale of USPS accounts receivables
 
(61
)
 
(148
)
Adjusted free cash flow
 
$
686

 
$
1,870



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











Non-GAAP Performance Measures

A reconciliation of non-GAAP performance measures to the respective most directly comparable financial measure calculated and presented in accordance with GAAP or on a pro forma basis is as follows:

 
 
Three Months Ended December 31, 2017
(in millions, except per-share amounts)
 
As Reported
 
Restructuring Costs
 
Pension and OPEB Actuarial and Settlement Gains
 
Transaction and Integration-related Costs
 
Amortization of Acquired Intangible Assets
 
Tax adjustment
 
Non-GAAP Results
Costs of services (excludes depreciation and amortization and restructuring costs)
 
$
4,521

 
$

 
$

 
$

 
$

 
$

 
$
4,521

Selling, general and administrative (excludes depreciation and amortization and restructuring costs)
 
475

 

 
17

 
(94
)
 

 

 
398

Income before income taxes
 
438

 
213

 
(17
)
 
94

 
149

 

 
877

Income tax (benefit) expense
 
(341
)
 
52

 
(3
)
 
26

 
45

 
473

 
252

Net income
 
$
779

 
$
161

 
$
(14
)
 
$
68

 
$
104

 
$
(473
)
 
$
625

Less: net income attributable to noncontrolling interest, net of tax
 
3

 

 

 

 

 

 
3

Net income attributable to DXC common stockholders
 
$
776

 
$
161

 
$
(14
)
 
$
68

 
$
104

 
$
(473
)
 
$
622

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Effective tax rate
 
(77.9
)%
 
 
 
 
 
 
 
 
 
 
 
28.7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic EPS
 
$
2.72

 
$
0.56

 
$
(0.05
)
 
$
0.24

 
$
0.36

 
$
(1.66
)
 
$
2.18

Diluted EPS
 
$
2.68

 
$
0.56

 
$
(0.05
)
 
$
0.23

 
$
0.36

 
$
(1.63
)
 
$
2.15

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding for:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic EPS
 
285.38

 
285.38

 
285.38

 
285.38

 
285.38

 
285.38

 
285.38

Diluted EPS
 
289.77

 
289.77

 
289.77

 
289.77

 
289.77

 
289.77

 
289.77










 
 
Nine Months Ended December 31, 2017
(in millions, except per-share amounts)
 
As Reported
 
Restructuring Costs
 
Pension and OPEB Actuarial and Settlement Gains
 
Transaction and Integration-related Costs
 
Amortization of Acquired Intangible Assets
 
Tax adjustment
 
Non-GAAP Results
Costs of services (excludes depreciation and amortization and restructuring costs)
 
$
13,621

 
$

 
$

 
$

 
$

 
$

 
$
13,621

Selling, general and administrative (excludes depreciation and amortization and restructuring costs)
 
1,557

 

 
17

 
(284
)
 

 

 
1,290

Income before income taxes
 
1,010

 
595

 
(17
)
 
284

 
438

 

 
2,310

Income tax (benefit) expense
 
(207
)
 
143

 
(3
)
 
90

 
148

 
473

 
644

Net income
 
$
1,217

 
$
452

 
$
(14
)
 
$
194

 
$
290

 
$
(473
)
 
$
1,666

Less: net income attributable to noncontrolling interest, net of tax
 
26

 

 

 

 

 

 
26

Net income attributable to DXC common stockholders
 
$
1,191

 
$
452

 
$
(14
)
 
$
194

 
$
290

 
$
(473
)
 
$
1,640

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Effective tax rate
 
(20.5
)%
 
 
 
 
 
 
 
 
 
 
 
27.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic EPS
 
$
4.18

 
$
1.59

 
$
(0.05
)
 
$
0.68

 
$
1.02

 
$
(1.66
)
 
$
5.76

Diluted EPS
 
$
4.11

 
$
1.56

 
$
(0.05
)
 
$
0.67

 
$
1.00

 
$
(1.63
)
 
$
5.66

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding for:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic EPS
 
284.70

 
284.70

 
284.70

 
284.70

 
284.70

 
284.70

 
284.70

Diluted EPS
 
289.53

 
289.53

 
289.53

 
289.53

 
289.53

 
289.53

 
289.53

















 
 
Pro Forma Combined Company Three Months Ended December 30, 2016
(in millions, except per-share amounts)
 
Pro Forma Combined Company
 
Restructuring Costs
 
Transaction and Integration-related Costs
 
Amortization of Acquired Intangibles
 
Certain Overhead Costs
 
Tax Adjustment
 
Non-GAAP Results
Costs of services (excludes depreciation and amortization and restructuring costs)
 
$
5,015

 
$

 
$

 
$

 
$

 
$

 
$
5,015

Selling, general and administrative (excludes depreciation and amortization and restructuring costs)
 
689

 

 
(126
)
 

 
(19
)
 

 
544

Income before income taxes
 
111

 
214

 
126

 
119

 
19

 

 
589

Income tax (benefit) expense
 
277

 

 

 

 

 
(112
)
 
165

Net (loss) income
 
$
(166
)
 
$
214

 
$
126

 
$
119

 
$
19

 
$
112

 
$
424

Less: net income attributable to noncontrolling interest, net of tax
 
8

 

 

 
 
 

 

 
8

Net (loss) income attributable to DXC common stockholders
 
$
(174
)
 
$
214

 
$
126

 
$
119

 
$
19

 
$
112

 
$
416

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Effective Tax Rate
 
249.5
%
 
 
 
 
 
 
 
 
 
 
 
28.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic EPS
 
$
(0.61
)
 
$
0.76

 
$
0.44

 
$
0.42

 
$
0.07

 
$
0.40

 
$
1.47

Diluted EPS
 
$
(0.61
)
 
$
0.75

 
$
0.44

 
$
0.41

 
$
0.07

 
$
0.39

 
$
1.45

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding for:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic EPS
 
283.16

 
283.16

 
283.16

 
283.16

 
283.16

 
283.16

 
283.16

Diluted EPS
 
283.16

 
287.09

 
287.09

 
287.09

 
287.09

 
287.09

 
287.09











 
 
Pro Forma Combined Company Nine Months Ended December 30, 2016
(in millions, except per-share amounts)
 
Pro Forma Combined Company
 
Restructuring Costs
 
Transaction and Integration-related Costs
 
Amortization of Acquired Intangibles
 
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)
 
$
15,293

 
$

 
$

 
$

 
$
(150
)
 
$

 
$

 
$
15,143

Selling, general, and administrative (excludes depreciation and amortization and restructuring costs)
 
2,059

 

 
(282
)
 

 
(48
)
 
(107
)
 

 
$
1,622

(Loss) income, before income taxes
 
(442
)
 
646

 
282

 
352

 
198

 
107

 

 
1,143

Income tax expense
 
128

 

 

 

 

 

 
190

 
318

Net (loss) income
 
(570
)
 
646

 
282

 
352

 
198

 
107

 
(190
)
 
825

Less: net income attributable to non-controlling interest, net of tax
 
17

 

 

 
 
 

 

 

 
17

Net (loss) income attributable to DXC common stockholders
 
$
(587
)
 
$
646

 
$
282

 
$
352

 
$
198

 
$
107

 
$
(190
)
 
$
808

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Effective Tax Rate
 
(29.0
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
27.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic EPS
 
$
(2.07
)
 
$
2.28

 
$
1.00

 
$
1.24

 
$
0.70

 
$
0.38

 
$
(0.67
)
 
$
2.85

Diluted EPS
 
$
(2.07
)
 
$
2.25

 
$
0.98

 
$
1.23

 
$
0.69

 
$
0.37

 
$
(0.66
)
 
$
2.82

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

 
286.83

 
286.83

 
286.83

 
286.83

 
286.83

 
286.83

 
286.83






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