TYSONS, Va.--(BUSINESS WIRE)--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.
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Condensed Consolidated Statements of Operations |
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(preliminary and unaudited) |
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| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
| (in millions, except per-share amounts) |
December 31, |
December 30, |
December 31, |
December 30, |
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| 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 | ||||||||||||||||||||
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Selected Consolidated Balance Sheet Data |
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(preliminary and unaudited) |
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| 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 | ||||||
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Condensed Consolidated Statements of Cash Flows |
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(preliminary and unaudited) |
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| Nine Months Ended | ||||||||||||
| (in millions) |
December 31, |
December 30, |
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| 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:
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Segment Revenue |
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| GAAP Basis | Pro Forma Combined Company Basis | ||||||||||||||||||||||||||||
| (in millions) |
Three Months |
Historical CSC |
% Change (NC) |
Three Months |
% Change |
% Adjusted |
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| 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 | )% | ||||||||||||||||||
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(1) Adjusted for PPA impact of $6 million in GBS, $26 million in GIS and $2 million in USPS. |
| (NC) Not comparable |
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Segment Revenue |
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| GAAP Basis | Pro Forma Combined Company Basis | ||||||||||||||||||||||||||||
| (in millions) |
Nine Months |
Historical CSC |
% Change (NC) |
Nine Months |
% Change |
% Adjusted |
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| 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 | )% | ||||||||||||||||||
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(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:
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Segment Profit |
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| Three Months Ended | ||||||||||||||||||
| (in millions) | December 31, 2017 |
Historical CSC |
Pro Forma |
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| 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 | % | ||||||||||||
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Segment Profit |
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| Nine Months Ended | ||||||||||||||||||
| (in millions) | December 31, 2017 |
Historical CSC |
Pro Forma |
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| 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.
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EBIT and Adjusted EBIT |
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A reconciliation of net income (loss) to EBIT and adjusted EBIT is as follows: |
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| Three Months ended | Nine Months Ended | |||||||||||||||||||||||
| (in millions) |
December 31, |
Pro Forma |
December 31, |
Pro Forma |
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| 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 | )% | ||||||||||||||||
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Adjusted Free Cash Flow |
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A reconciliation of net cash provided by operating activities to adjusted free cash flow is as follows: |
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| (in millions) |
Three Months Ended |
Nine Months Ended |
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| 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. |
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Non-GAAP Performance Measures |
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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: |
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| Three Months Ended December 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||
| (in millions, except per-share amounts) | As Reported |
Restructuring |
Pension and |
Transaction and |
Amortization of |
Tax adjustment |
Non-GAAP |
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| 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 |
Pension and |
Transaction and |
Amortization of |
Tax adjustment |
Non-GAAP |
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| 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 |
Restructuring |
Transaction |
Amortization |
Certain |
Tax |
Non-GAAP |
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| 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 |
Restructuring |
Transaction |
Amortization |
Pension |
Certain |
Tax |
Pro Forma |
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| 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 | ||||||||||||||||||||||||||||||||||||||||
