Index to Financial Statements

Delaware	DXC TECHNOLOGY COMPANY		61-1800317
	(State or other jurisdictionExact name of incorporation or organization) Registrant as specified in its charter)

Index

⁽²⁾ Three-month LIBOR rate plus 0.65%

⁽³⁾ At DXC's option, the USD term loan bears interest at a variable rate equal to the Eurocurrency Rate for a one-, two-, three-, or six-month interest period, plus a margin of between 0.875% and 1.625% based on published credit ratings of DXC, or the greatest of the BTMU prime rate, the federal funds rate plus 0.5%, and the Eurocurrency Rate for a one-month interest period plus 1% ("Base Rate"), in each case plus a margin of between 0% and 0.625%, based on published credit ratings of DXC

⁽⁴⁾ At DXC's option, the USD term loan bears interest at a variable rate equal to the adjusted LIBOR for a one-, two-, three-, or six-month interest period, plus a margin between 0.75% and 1.50% based on a pricing grid consistent with the Company's outstanding revolving credit facility or the greater of the prime rate, the federal funds rate plus 0.50%, or the adjusted LIBOR for a one-month interest period plus 1.00%, in each case plus a margin of up to 0.50%, based on a pricing grid consistent with the revolving credit facility.

⁽⁵⁾ Variable interest rate equal to the bank bill swap bid rate for a one-, two-, three- or six-month interest period plus 0.95% to 1.45% based on the published credit ratings of DXC.

⁽⁶⁾ At DXC’s option, the EUR term loan bears interest at the Eurocurrency Rate for a one-, two-, three-, or six-month interest period, plus a margin of between 0.75% and 1.35%, based on published credit ratings of DXC.

⁽⁷⁾ At DXC’s option, the USD term loan bears interest at the Eurocurrency Rate for a one-, two-, three-, or six-month interest period, plus a margin of between 1.00% and 1.75%, based on published credit ratings of DXC or the Base Rate plus a margin of between 0% and 0.75%, based on published credit ratings of DXC.

⁽⁸⁾ The Company's revolving credit facility is available, subject to certain conditions, to repay short-term borrowings under the ECP.

⁽⁹⁾ Classified as short-term if the Company intends to repay within 12 months and as long-term otherwise.

DXC TECHNOLOGY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued

Senior Notes and Terms Loans

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

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

Revolving Credit Facility

In connection with the Merger, the Company entered into several amendments to its revolving credit facility agreement pursuant to which DXC replaced CSC as the principal borrower and as the guarantor of borrowings by subsidiary borrowers. During the three months ended June 30, 2017, DXC increased commitments to $3.7 billion. Of the total commitments, $70 million will mature during January 2021 and $3.6 billion will mature during January 2022.

Note 11 - Restructuring Costs

The Company recorded restructuring costs of $190 million and $57 million, net of reversals, for the three months ended June 30, 2017 and July 1, 2016, respectively. The costs recorded during the three months ended June 30, 2017 were largely a result of the Fiscal 2018 Plan (defined below).

The composition of restructuring liabilities by financial statement line items is as follows:

		As of
(in millions)		June 30, 2017
Accrued expenses and other current liabilities		$	310
Other long-term liabilities		154
Total		$	464

Summary of Restructuring Plans

Fiscal 2018 Plan

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

DXC TECHNOLOGY COMPANY

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Fiscal 2017 Plan

In May 2016, the Company initiated a restructuring plan to realign the Company's cost structure and resources to take advantage of operational efficiencies following recent acquisitions. During the fourth quarter of Fiscal 2017, the Company expanded the plan to strengthen the Company's competitiveness and to optimize the workforce by increasing work performed in low-cost locations (the "Fiscal 2017 Plan"). Total costs incurred to date under the Fiscal 2017 Plan total $238 million, comprising $233 million in employee severance and $5 million of facilities costs.

Fiscal 2016 Plan

In September 2015, the Company initiated a restructuring plan to optimize utilization of facilities and right-size overhead organizations as a result of CSC's separation of its former NPS segment (the "Fiscal 2016 Plan"). No additional costs are expected to be expensed under this plan. Total costs incurred to date as of June 30, 2017 under the Fiscal 2016 Plan total $59 million, comprising $26 million in employee severance and $33 million of facilities costs.

Fiscal 2015 Plan

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

Acquired Restructuring Liabilities

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

DXC TECHNOLOGY COMPANY

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Restructuring Liability Reconciliations by Plan

		Restructuring Liability as of March 31, 2017				Acquired Balance as of April 1, 2017				Costs Expensed, net of reversals(1)				Costs Not Affecting Restructuring Liability (2)				Cash Paid				Other(3)				Restructuring Liability as of June 30, 2017
Fiscal 2018 Plan
Workforce Reductions		$	—			n/a				$	135			$	(2	)		$	(49	)		$	3			$	87
Facilities Costs		—				n/a				69				(5		)		(22		)		(2		)		40
Total		$	—			n/a				$	204			$	(7	)		$	(71	)		$	1			$	127
Fiscal 2017 Plan
Workforce Reductions		$	155			n/a				$	(6	)		$	—			$	(47	)		$	(4	)		$	98
Facilities Costs		6				n/a				(4		)		—				(2		)		2				2
Total		$	161			n/a				$	(10	)		$	—			$	(49	)		$	(2	)		$	100
Fiscal 2016 Plan
Workforce Reductions		$	8			n/a				$	(1	)		$	—			$	(1	)		$	—			$	6
Facilities Costs		5				n/a				—				—				(3		)		—				2
Total		$	13			n/a				$	(1	)		$	—			$	(4	)		$	—			$	8
Fiscal 2015 Plan
Workforce Reductions		$	3			n/a				$	—			$	—			$	(1	)		$	—			$	2
Facilities Costs		—				n/a				—				—				—				—				—
Total		$	3			n/a				$	—			$	—			$	(1	)		$	—			$	2
Acquired Liabilities
Workforce Reductions		n/a				$	256			$	1			$	(1	)		$	(91	)		$	4			$	169
Facilities Costs		n/a				77				(4		)		—				(15		)		—				58
Total		n/a				$	333			$	(3	)		$	(1	)		$	(106	)		$	4			$	227

⁽¹⁾ Costs expensed, net of reversals include $10 million, $1 million and $4 million of costs reversed from the Fiscal 2017 Plan, Fiscal 2016 Plan and Acquired liabilities, respectively.

⁽²⁾Pension benefit augmentations recorded as a pension liability and asset impairment.

⁽³⁾Foreign currency translation adjustments and asset impairment.

Restructuring Expense by Segment

		Three Months Ended
(in millions)		June 30, 2017				July 1, 2016
GBS		$	77			$	20
GIS		106				37
USPS		7				—
Total expense, net of reversals		$	190			$	57

DXC TECHNOLOGY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued

Note 12 - Pension and Other Benefit Plans

The Company offers a number of pension and other post-retirement benefit ("OPEB") plans, life insurance benefits, deferred compensation and defined contribution plans. Most of the Company's pension plans are not admitting new participants; therefore, changes to pension liabilities are primarily due to market fluctuations of investments for existing participants and changes in interest rates.

Defined Benefit Plans

The Company sponsors a number of defined benefit and post-retirement medical benefit plans for the benefit of eligible employees. The benefit obligations of the Company's U.S. pension, U.S. OPEB, and non-U.S. OPEB represent an insignificant portion of the Company's pension and other post-retirement benefits. As a result, the disclosures below include the Company's U.S. and non-U.S. pension plans on a global consolidated basis.

The Company contributed $15 million to the defined benefit pension and other post-retirement benefit plans during the three months ended June 30, 2017. The Company expects to contribute an additional $41 million during the remainder of fiscal 2018, which does not include certain salary deferral programs and future potential termination benefits related to the Company's potential restructuring activities.

The components of net periodic pension expense were:

		Three Months Ended
(in millions)		June 30, 2017				July 1, 2016
Service cost		$	32			$	6
Interest cost		60				21
Expected return on assets		(128		)		(43		)
Amortization of prior service costs		(4		)		(5		)
Contractual termination benefit		9				—
Net periodic pension expense (income)		$	(31	)		$	(21	)

The weighted-average rates used to determine net periodic pension cost were:

		Three Months Ended
		June 30, 2017			July 1, 2016
Discount or settlement rates		2.5	%		3.1	%
Expected long-term rates of return on assets		4.9	%		6.3	%
Rates of increase in compensation levels		2.7	%		2.6	%

Deferred Compensation Plans

Effective as of the Merger, DXC assumed sponsorship of the Computer Sciences Corporation Deferred Compensation Plan, which was renamed the “DXC Technology Company Deferred Compensation Plan” (the “DXC DCP”) and adopted the Enterprise Services Executive Deferred Compensation Plan (the “ES DCP”). Both plans are non-qualified deferred compensation plans maintained for a select group of management, highly compensated employees and non-employee directors.

The DXC DCP covers eligible employees who participated in CSC’s Deferred Compensation Plan prior to the Merger. The ES DCP covers eligible employees who participated in the HPE Executive Deferred Compensation Plan prior to the Merger. Both plans allow participating employees to defer the receipt of current compensation to a future distribution date or event above the amounts that may be deferred under DXC’s tax-qualified 401(k) plan, the DXC Technology Matched

DXC TECHNOLOGY COMPANY

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Asset Plan. Neither plan provides for employer contributions. As of April 3, 2017, the ES DCP does not admit new participants.

Certain management and highly compensated employees are eligible to defer all, or a portion of, their regular salary that exceeds the limitation set forth in Internal Revenue Section 401(a)(17) and all or a portion of their incentive compensation. Non-employee directors are eligible to defer up to 100% of their cash compensation. The liability, which is included in Other long-term liabilities in the Company's condensed consolidated balance sheets, amounted to $76 million as of June 30, 2017 and $67 million as of March 31, 2017.

Note 13 - Income Taxes

The Company's effective tax rate ("ETR") was 6.5% and 44.4% for the three months ended June 30, 2017 and July 1, 2016, respectively. For the three months ended June 30, 2017, the primary drivers of the ETR were the increase in pre-tax book income from HPES, the global mix of income, excess tax benefits related to employee share-based payment awards and releases of valuation allowances for deferred tax assets of CSC, reduced by foreign inclusions and non-deductible employee compensation. The primary drivers of the ETR for the three months ended July 1, 2016 were the global mix of income and excess tax benefits related to employee share-based payment awards, reduced by non-deductible transaction related costs.

As a result of the Merger with HPES and changes in U.S. cash requirements, a deferred tax liability of $570 million was recorded for U.S. income taxes based on the estimated historical earnings of non-U.S. HPES subsidiaries. In addition, we recorded an estimated liability of $67 million for India dividend distribution tax based on estimated historical earnings of the HPES India subsidiary. These liabilities were recorded as part of acquisition accounting. Other than these amounts, the Company considers the current and accumulated earnings for substantially all non-U.S. subsidiaries to be indefinitely reinvested outside of the U.S. Generally, such amounts would become subject to U.S. taxation upon the remittance of dividends to the U.S. and under certain other circumstances. The Company cannot practically estimate the amount of additional taxes that might be payable on such unremitted earnings.

In connection with the Merger, the Company entered into a tax matters agreement with HPE. HPE generally will be responsible for pre-Merger tax liabilities including adjustments made by tax authorities to HPES U.S. and non-U.S. income tax returns. Likewise, DXC is liable to HPE for income tax receivables and refunds which it receives related to pre-Merger periods. The Company recorded a net payable of $2 million, including $111 million of tax indemnification receivable related to uncertain tax positions, net of related deferred tax benefits, and $113 million of tax indemnification payable related to other tax receivables and payables.

As part of acquisition accounting for the Merger with HPES, DXC recorded uncertain tax liabilities including interest and penalties of $114 million for prior year income taxes, which are indemnified by HPE. There were no other material changes to uncertain tax positions during the three months ended June 30, 2017.

The IRS is examining CSC's federal income tax returns for fiscal 2008 through 2016. With respect to CSC's fiscal 2008 through 2010 federal tax returns, the Company previously entered into negotiations for a resolution through settlement with the IRS Office of Appeals. The IRS examined several issues for this audit that resulted in various audit adjustments. The Company and the IRS Office of Appeals have an agreement in principle as to some but not all of these adjustments. The Company has agreed to extend the statute of limitations associated with this audit through April 30, 2018. In addition, during the first quarter of fiscal 2018, we received a Revenue Agent’s Report with proposed adjustments to CSC's fiscal 2011 through 2013 federal returns. The Company has filed a protest of certain of these adjustments to the IRS Office of Appeals. The IRS is also examining the Company's fiscal 2014 through 2016 federal income tax returns. The Company has not received any adjustments for this cycle. We continue to believe that our tax positions are more-likely-than-not sustainable and that the Company will ultimately prevail.

In addition, the Company may settle certain other tax examinations, have lapses in statutes of limitations, or voluntarily settle income tax positions in negotiated settlements for different amounts than the Company has accrued as uncertain tax positions. The Company may need to accrue and ultimately pay additional amounts for tax positions that previously met a more-likely-than-not standard if such positions are not upheld. Conversely, the Company could settle positions by payment with the tax authorities for amounts lower than those that have been accrued or extinguish a position through

DXC TECHNOLOGY COMPANY

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payment. The Company believes the outcomes which are reasonably possible within the next 12 months may result in a reduction in liability for uncertain tax positions of $20 million to $48 million, excluding interest, penalties, and tax carry-forwards.

Note14 - Stockholders' Equity

Description of Capital Stock

The Company has authorized share capital consisting of 750,000,000 shares of common stock, par value $.01 per share, and 1,000,000 shares of preferred stock, par value $0.01 per share.

Each share of common stock is equal in all respects to every other share of common stock of the Company. Each share of common stock is entitled to one vote per share at each annual or special meeting of stockholders for the election of directors and upon any other matter coming before such meeting. Subject to all the rights of the preferred stock, dividends may be paid to holders of common stock as and when declared by the Board of Directors.

The Company's charter requires that preferred stock must be all of one class but may be issued from time to time in one or more series, each of such series to have such full or limited voting powers, if any, and such designations, preferences and relative, participating, optional or other special rights or qualifications, limitations or restrictions as provided in a resolution adopted by the Board of Directors. Each share of preferred stock will rank on a parity with each other share of preferred stock, regardless of series, with respect to the payment of dividends at the respectively designated rates and with respect to the distribution of capital assets according to the amounts to which the shares of the respective series are entitled.

Share repurchases

On April 3, 2017, DXC announced the establishment of a share repurchase program approved by the Board of Directors with an initial authorization of $2.0 billion for future repurchases of outstanding shares of DXC common stock. An expiration date has not been established for this repurchase plan.

During the three months ended June 30, 2017, 250,000 shares of common stock were repurchased for aggregate consideration of $19 million (of which $6 million was accrued as of June 30, 2017) at a weighted average price of $77.39 per share. The shares repurchased are retired immediately and included in the category of authorized but unissued shares. The excess of purchase price over par value of the common shares is allocated between additional paid-in capital and retained earnings.

DXC TECHNOLOGY COMPANY

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Accumulated other comprehensive income (loss)

The following table shows the changes in accumulated other comprehensive income (loss), net of taxes:

(in millions)		Foreign Currency Translation Adjustments				Cash Flow Hedges				Pension and Other Post-retirement Benefit Plans				Accumulated Other Comprehensive Income (Loss)
Balance at March 31, 2017		$	(458	)		$	20			$	276			$	(162	)
Current-period other comprehensive income (loss)		154				(3		)		—				151
Amounts reclassified from accumulated other comprehensive income		22				—				(4		)		18
Balance at June 30, 2017		$	(282	)		$	17			$	272			$	7

(in millions)		Foreign Currency Translation Adjustments				Cash Flow Hedges				Pension and Other Post-retirement Benefit Plans				Accumulated Other Comprehensive Loss
Balance at April 1, 2016		$	(399	)		$	(1	)		$	289			$	(111	)
Current-period other comprehensive loss		(50		)		(5		)		—				(55		)
Amounts reclassified from accumulated other comprehensive loss		—				—				(3		)		(3		)
Balance at July 1, 2016		$	(449	)		$	(6	)		$	286			$	(169	)

Note 15 - Stock Incentive Plans

Equity Plans

As a result of the Merger, all outstanding CSC awards of stock options, stock appreciation rights, restricted stock units ("CSC RSUs"), including performance-based restricted stock units, relating to CSC common stock granted under the 2011 Omnibus Incentive Plan, the 2007 Employee Incentive Plan and the 2010 Non-Employee Director Incentive Plan (the “CSC Equity Incentive Plans”) held by CSC employees and non-employee directors were converted into an adjusted award relating to DXC common shares subject to the same terms and conditions after the Merger as the terms and conditions applicable to such awards prior to the Merger.

Under the terms of the CSC Equity Incentive Plans and the individual award agreements, all unvested equity incentive awards, including all stock options and CSC RSUs held by all participants under the plans, including its named executive officers and directors, are subject to accelerated vesting in whole or in part upon the occurrence of a change in control or upon the participant’s termination of employment on or after the occurrence of a change in control under certain circumstances ("CIC events"). As a result of CIC events triggered by the Merger, approximately $3.6 million unvested awards became vested on April 1, 2017 and $26 million of incremental stock compensation expense was recognized during the three months ended June 30, 2017. CSC options granted in fiscal 2017 vested 33% upon the Merger; the remaining 67% were converted into DXC RSUs based on the accounting value of the options. These RSUs will vest on the second and third anniversaries of the original option grant date. For equity incentive awards granted by HPE under HPE equity incentive plans to HPES prior to the Merger, outstanding options (vested and unvested) and unvested RSU

DXC TECHNOLOGY COMPANY

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awards were converted upon the Merger into economically equivalent DXC option and RSU awards, with terms and conditions substantially the same as the terms of such awards prior to the Merger.

In March 2017, prior to the Merger, the board of directors and shareholders of HPES approved DXC’s 2017 Omnibus Incentive Plan (the “DXC Employee Equity Plan”), DXC’s 2017 Non-Employee Director Incentive Plan (the “DXC Director Equity Plan”) and DXC’s 2017 Share Purchase Plan (“DXC Share Purchase Plan”). The terms of the DXC Employee Equity Plan and DXC Director Equity Plans are substantially similar to the terms of the CSC Equity Incentive Plans. The former allows DXC to grant stock options (including incentive stock options), stock appreciation rights (“SARs”), restricted stock, RSUs (including PSUs), and cash awards intended to qualify for the performance-based compensation exemption to the $1 million deduction limit under Section 162(m) of the Internal Revenue Code (collectively the "Awards"). Awards are typically subject to vesting over the 3-year period following the grant date. Vested stock options are generally exercisable for a term of 10years from the grant date. All of DXC’s employees are eligible for awards under the plan. The Company issues authorized but previously unissued shares upon the granting of stock options and the settlement of RSUs and PSUs.

The Compensation Committee of the Board of Directors (the "Board") has broad authority to grant awards and otherwise administer the DXC Employee Equity Plan. The plan became effective March 30, 2017 and will continue in effect for a period of 10 years thereafter, unless earlier terminated by the Board. The Board has the authority to amend the plan in such respects as it deems desirable, subject to approval of DXC’s stockholders for material modifications.

RSUs represent the right to receive one share of DXC common stock upon a future settlement date, subject to vesting and other terms and conditions of the award, plus any dividend equivalents accrued during the award period. In general, if the employee’s status as a full-time employee is terminated prior to the vesting of the RSU grant in full, then the RSU grant is automatically canceled on the termination date and any unvested shares and dividend equivalents are forfeited. Certain executives were awarded service-based "career share" RSUs for which the shares are settled over the 10 anniversaries following the executive's separation from service as a full-time employee, provided the executive complies with certain non-competition covenants during that period.

The Company also grants PSUs, which generally vest over a period of 3 years. The number of PSUs that ultimately vest is dependent upon the Company’s achievement of certain specified financial performance criteria over a three-year period. If the specified performance criteria are met, awards are settled for shares of DXC common stock and dividend equivalents upon the filing with the SEC of the Annual Report on Form 10-K for the last fiscal year of the performance period. PSU awards include the potential for up to 25% of the shares granted to be earned after the first and second fiscal years if certain of the Company's performance targets are met early, subject to vesting based on the participant's continued employment through the end of the three-year performance period.

The terms of the DXC Director Equity Plan allow DXC to grant RSU awards to non-employee directors of DXC. Such RSU awards vest in full at the earlier of (i) the first anniversary of the grant date or (ii) the next annual meeting date, and are automatically redeemed for DXC common stock and dividend equivalents either at that time or, if an RSU deferral election form is submitted, upon the date or event elected by the director. Distributions made upon a director’s separation from the Board may occur in either a lump sum or in annual installments over periods of 5, 10, or 15 years, per the director’s election. In addition, RSUs vest in full upon a change in control of DXC.

The DXC Share Purchase Plan allows DXC’s employees located in the United Kingdom to purchase shares of DXC’s common stock at the fair market value of such shares on the applicable purchase date. There were no shares purchased under this plan during the three months ended June 30, 2017.

DXC TECHNOLOGY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued

The Board has reserved for issuance shares of DXC common stock, par value $0.01 per share, under each of the plans as detailed below:

	As of June 30, 2017
	Reserved for issuance			Available for future grants
DXC Employee Equity Plan	34,200,000			22,581,808
DXC Director Equity Plan	230,000			139,734
DXC Share Purchase Plan	250,000			250,000
Total	34,680,000			22,971,542

Stock Options

		Number of Option Shares			Weighted Average Exercise Price				Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value (in millions)
Outstanding as of March 31, 2017		4,767,396			$	38.70			8.01		$	145
Granted		1,067			$	77.00
HPE options converted to DXC options at Merger		2,654,872			$	46.56
CSC Options converted to RSUs due to Merger		(1,521,519	)		$	51.00
Exercised		(711,432	)		$	35.93					$	29
Canceled/Forfeited		(925	)		$	54.20
Expired		(12,492	)		$	27.59
Outstanding as of June 30, 2017		5,176,967			$	39.53			5.99		$	193
Vested and expected to vest in the future as of June 30, 2017		5,166,000			$	39.47			5.98		$	193
Exercisable as of June 30, 2017		5,119,465			$	39.27			5.97		$	192

Restricted Stock Units

	Employee Equity Plan							Director Equity Plan
	Number of Shares			Weighted Average Grant Date Fair Value				Number of Shares			Weighted Average Grant Date Fair Value
Outstanding as of March 31, 2017	3,710,985			$	34.86			85,766			$	34.19
Granted	1,231,656			$	77.12			4,500			$	80.53
HPE RSUs converted to DXC RSUs due to Merger	95,302			$	69.30			—			$	—
Options converted to RSUs due to Merger	609,416			$	32.58			—			$	—
Settled	(1,795,025	)		$	34.91			(19,500	)		$	44.57
Canceled/Forfeited	(55,860	)		$	38.36			—			$	—
Outstanding as of June 30, 2017	3,796,474			$	48.99			70,766			$	34.28

DXC TECHNOLOGY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued

Share-Based Compensation

		Three Months Ended
(in millions)		June 30, 2017				July 1, 2016
Total share-based compensation cost		$	40			$	14
Related income tax benefit		$	13			$	5
Total intrinsic value of options exercised		$	29			$	44
Tax benefits from exercised stock options and awards		$	35			$	19

Weighted-average Assumptions Used in Black-Scholes-Merton Model for Stock Options

	Three months ended
	June 30, 2017			July 1, 2016
Risk-free interest rate	1.87	%		1.56	%
Expected volatility	25	%		29	%
Expected term (in years)	5.50			6.19
Dividend yield	0.98	%		1.67	%

As of June 30, 2017, total unrecognized compensation expense related to unvested DXC stock options and unvested DXC RSUs, net of expected forfeitures was $1 million and $139 million, respectively. The unrecognized compensation expense for unvested RSUs is expected to be recognized over a weighted-average period of 2.28 years.

Note 16 - Cash Flows

Cash payments for interest on indebtedness and income taxes and other select non-cash activities are as follows:

		Three Months Ended
(in millions)		June 30, 2017				July 1, 2016
Cash paid for:
Interest		$	47			$	22
Taxes on income, net of refunds		$	25			$	16
Non-cash activities:
Investing:
Capital expenditures in accounts payable and accrued expenses		$	1			$	45
Capital expenditures through capital lease obligations		$	12			$	26
Assets acquired under long-term financing		$	—			$	55
Financing:
Dividends declared but not yet paid		$	51			$	20
Stock issued for the acquisition of HPES		$	9,850			$	—

Note 17 - Segment Information

DXC has a matrix form of organization and is managed in several different and overlapping groupings including services, industry and geographic region. As a result and in accordance with accounting standards, operating segments are organized by the type of services provided. DXC's chief operating decision maker ("CODM"), the chief executive officer, obtains, reviews, and manages the Company’s financial performance based on these segments. The CODM uses these results, in part, to evaluate the performance of, and allocate resources to, each of the segments.

As a result of the Merger, the HPES legacy reportable segments were combined with GBS and GIS, and the HPES public sector business, USPS, is now a separate operating segment. DXC's operating segments are the same as its reportable segments: GBS, GIS, and USPS. In addition, DXC management changed its primary segment performance measure to segment profit from the previously used consolidated segment operating income. Prior periods presented have been restated to reflect this change. The accounting policies of the reportable segments are the same as those described in Note 1 - “Summary of Significant Accounting Policies.” DXC does not allocate to its segments certain operating expenses managed at the corporate level. These unallocated costs include certain corporate function costs, stock-based compensation expense, mark to market pension, restructuring, transaction and integration-related costs and related intangible amortization.

Global Business Services

GBS provides innovative technology solutions including Enterprise and Cloud Applications, Consulting Application Services, and Analytics. GBS also includes our Industry-aligned IP and Business Process Services. These offerings address key business challenges and accelerate digital transformations tailored to each customer’s industry and specific objectives. GBS strives to help clients understand and take advantage of IT modernization and virtualization across the IT portfolio (hardware, software, networking, storage, and computing assets).

Enterprise and Cloud Applications provide industry, business process, systems integration, technical delivery experience, and innovation to deliver value across our clients' enterprise application portfolios. The Company's Consulting professionals act as a trusted source for its clients in creating bold digital strategies, designing innovative digital experiences, managing complex digital integration, and delivering safe and secure digital operations that helps the Company's clients disrupt their industry, without disrupting their business operations. DXC's Application Services offerings utilize the Company's IP and world-class partner ecosystem to modernize and transform its client’s applications landscape, develop and manage their portfolio and roadmap, and execute with precision. In Analytics, DXC offers a complete portfolio of services to rapidly provide insights and drive impactful business outcomes. DXC's Partner Network allows client to leverage investment while building the analytic solutions of tomorrow. DXC’s industry-aligned IP is centered on the insurance, banking, healthcare, and travel and transportation industries.

Activities are primarily related to vertical alignment of software solutions and process-based IP that power mission-critical transaction engines. DXC's Business Process Services combine business process expertise and intellectual property with the resources of a global Tier I IT services company, leveraging intelligent automation and innovative solutions to reduce manual effort and the associated cost.

Key competitive differentiators for GBS include global scale, solution objectivity, depth of industry expertise, strong partnerships, vendor and product independence and end-to-end solutions and capabilities. Evolving business demands such as globalization, fast-developing economies, government regulation and growing concerns around risk, security, and compliance drive demand for these offerings.

Global Infrastructure Services

GIS provides Cloud, Platforms and Infrastructure Technology Outsourcing, Workplace and Mobility and Security solutions to commercial clients globally. This includes DXC’s next-generation cloud offerings, including Infrastructure as a Service ("IaaS"), private cloud solutions, and Storage as a Service. GIS provides a portfolio of standard offerings that have predictable outcomes and measurable results while reducing business risk and operational costs for clients. Further, DXC's industry-leading security solutions help clients predict attacks, proactively respond to threats, ensure compliance, and protect data, applications, infrastructure and endpoints. To provide clients with differentiated offerings, GIS maintains

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a Partner Network to make investments in developing unique offerings and go-to-market strategies. This collaboration helps the Company independently determine the best technology, develop road maps, and enhance opportunities to differentiate solutions, expand market reach, augment capabilities, and jointly deliver impactful solutions that best address client needs.

United States Public Sector

USPS delivers standardized technology services and business solutions to all levels of government in the United States. USPS helps clients to address their key objectives of: (1) transforming and modernizing through innovation, (2) enhancing security and privacy, (3) improving efficiency and effectiveness, (4) reducing and optimizing costs, and (5) becoming more agile, flexible, and resilient. USPS aims to be a transformation partner that can maximize technology’s potential to create the solutions that matter most to its government clients. USPS supports hundreds of accounts at the federal, state, and local government levels. Commensurate with DXC's strategy of leading the next generation of IT services, USPS is leveraging the Company’s commercial best practices and next-generation offerings to help civilian government agencies address their business issues and provide better and more secure access to citizen services while reducing costs for community & social service, environmental management, education, transportation, and general government & revenue collection.

Segment Measures

The following table summarizes operating results regularly provided to the CODM by reportable segment and a reconciliation to the financial statements:

(in millions)		GBS				GIS				USPS				Total Reportable Segments				All Other				Totals
Three Months Ended June 30, 2017
Revenues		$	2,267			$	2,969			$	677			$	5,913			$	—			$	5,913
Segment profit		$	282			$	290			$	77			$	649			$	30			$	679
Depreciation and amortization		$	99			$	222			$	15			$	336			$	25			$	361
Three Months Ended July 1, 2016
Revenues		$	1,049			$	881			$	—			$	1,930			$	—			$	1,930
Segment profit		$	110			$	51			$	—			$	161			$	(55	)		$	106
Depreciation and amortization		$	36			$	114			$	—			$	150			$	16			$	166

Reconciliation of Reportable Segment Profit to Consolidated Total

The Company's management uses segment profit as the measure for assessing performance of its segments. Segment profit is defined as segment revenues less cost of services, segment selling, general and administrative, and depreciation and amortization (excluding amortization of acquired intangible assets). The Company does not allocate to its 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.

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		Three Months Ended
(in millions)		June 30, 2017				July 1, 2016
Profit
Total profit for reportable segments		$	649			$	161
All other profit/loss		30				(55		)
Interest Income		16				10
Interest expense		(76		)		(25		)
Restructuring costs		(190		)		(57		)
Amortization of acquired intangible assets		(120		)		(14		)
Transaction and integration-related costs		(124		)		(56		)
Income (loss) before income taxes		$	185			$	(36	)

Management does not use total assets by segment to evaluate segment performance or allocate resources. As a result, assets are not tracked by segment and therefore, total assets by segment is not disclosed.

Note 18 - Commitments and Contingencies

Commitments

The Company has operating leases for the use of certain real estate and equipment. Substantially all operating leases are non-cancelable or cancelable only through payment of penalties. Lease payments are typically based upon the period of the lease but may include payments for insurance, maintenance, and property taxes. There are no purchase options on operating leases at favorable terms. Most real estate leases have one or more renewal options. Certain leases on real estate are subject to annual escalations for increases in utilities and property taxes.

Minimum fixed rentals required for the next five years and thereafter under operating leases in effect at June 30, 2017, were as follows:

Fiscal year
(in millions)		Real Estate				Equipment
Remainder of 2018		$	269			$	576
2019		303				635
2020		240				330
2021		186				63
2022		136				5
Thereafter		469				—
Minimum fixed rentals		1,603				1,609
Less: Sublease rental income		(93		)		—
Totals		$	1,510			$	1,609

The Company signed long-term purchase agreements with certain software, hardware, telecommunication, and other service providers to obtain favorable pricing and terms for services, and products that are necessary for the operations of business activities. Under the terms of these agreements, the Company is contractually committed to purchase specified minimums over periods ranging from 1 to 6 years. If the Company does not meet the specified minimums, the

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Company would have an obligation to pay the service provider all, or a portion, of the shortfall. Minimum purchase commitments as of June 30, 2017 were as follows:

Fiscal year		Minimum Purchase Commitment
(in millions)
Remainder of 2018		$	1,754
2019		1,996
2020		1,903
Thereafter		868
Total		$	6,521

¹A significant portion of the minimum purchase commitments in fiscal 2018, 2019 and 2020 relate to the amounts committed under the HPE preferred vendor agreements.

In the normal course of business, the Company may provide certain clients with financial performance guarantees, which are at times backed by stand-by letters of credit or surety bonds. In general, the Company would only be liable for the amounts of these guarantees in the event that non-performance by the Company permits termination of the related contract by the Company’s client. The Company believes it is in compliance with its performance obligations under all service contracts for which there is a financial performance guarantee, and the ultimate liability, if any, incurred in connection with these guarantees will not have a material adverse effect on its condensed consolidated results of operations or financial position.

The Company also uses stand-by letters of credit, in lieu of cash, to support various risk management insurance policies. These letters of credit represent a contingent liability and the Company would only be liable if it defaults on its payment obligations on these policies. The following table summarizes the expiration of the Company’s financial guarantees and stand-by letters of credit outstanding as of June 30, 2017:

(in millions)		Fiscal 2018				Fiscal 2019				Fiscal 2020 and Thereafter				Totals
Surety bonds		$	51			$	157			$	36			$	244
Letters of credit		293				50				283				626
Stand-by letters of credit		27				10				24				61
Totals		$	371			$	217			$	343			$	931

The Company generally indemnifies licensees of its proprietary software products against claims brought by third parties alleging infringement of their intellectual property rights, including rights in patents (with or without geographic limitations), copyrights, trademarks, and trade secrets. DXC’s indemnification of its licensees relates to costs arising from court awards, negotiated settlements, and the related legal and internal costs of those licensees. The Company maintains the right, at its own cost, to modify or replace software in order to eliminate any infringement. The Company has not incurred any significant costs related to licensee software indemnification.

Contingencies

Vincent Forcier v. Computer Sciences Corporation and The City of New York: On October 27, 2014, the United States Attorney’s Office for the Southern District of New York and the Attorney General for the State of New York filed complaints-in-intervention on behalf of the United States and the State of New York, respectively, against CSC and The City of New York. This action arose out of a qui tam complaint originally filed under seal in 2012 by Vincent Forcier, a former employee of CSC. The complaints allege that from 2008 to 2012 New York City and CSC, in its role as fiscal agent for New York City’s Early Intervention Program ("EIP"), a federal program that provides services for infants and toddlers with manifest or potential developmental delays, violated the federal and state False Claims Acts and various common law standards by allegedly orchestrating a billing fraud against Medicaid through the misapplication of default billing codes and the failure to exhaust private insurance coverage before submitting claims to Medicaid. The New York Attorney General’s complaint

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also alleges that New York City and CSC failed to reimburse Medicaid in certain instances where insurance had paid a portion of the claim. The lawsuits seek treble statutory damages, other civil penalties and attorneys’ fees and costs.

On January 26, 2015, CSC and the City of New York moved to dismiss Forcier’s amended qui tam complaint as well as the federal and state complaints-in-intervention. In June 2016, the Court dismissed Forcier’s amended complaint in its entirety. With regard to the complaints-in-intervention, the Court dismissed the federal claims alleging misuse of default diagnosis codes when the provider had entered an invalid code, and the state claims alleging failure to reimburse Medicaid when claims were subsequently paid by private insurance. The Court denied the motions to dismiss with respect to the federal and state claims relating to (i) submission of insurance claims with a code signifying that the patient’s policy ID was unknown, and (ii) submission of claims to Medicaid after the statutory deadline for payment by private insurance had passed, and state common law claims. In accordance with the ruling, the United States and the State of New York each filed amended complaints-in-intervention on September 6, 2016. In addition to reasserting the claims upheld by the Court, the amended complaints assert new claims alleging that the compensation provisions of CSC’s contract with New York City rendered it ineligible to serve as a billing agent under state law.

On November 9, 2016, CSC filed motions to dismiss the amended complaints in their entirety. These motions are now fully briefed and under consideration by the Court. The Company believes that these claims are without merit and intends to continue to vigorously defend itself.

Washington, DC Navy Yard Litigation: In December 2013, the United States Department of the Navy brought a wrongful death action in U.S. District Court for the Middle District of Florida against HP Enterprise Services, LLC, now known as Enterprise Services, LLC (“ES”) and others in connection with the September 2013 Washington, DC Navy Yard shooting that resulted in the deaths of 12 individuals. The perpetrator was an employee of The Experts, ES’s now terminated subcontractor on ES’s IT services contract with the U.S. Navy. A total of 15 lawsuits arising out of the shooting have been filed. All have been consolidated in the U.S. District Court for the District of Columbia. ES filed motions to dismiss on December 11, 2015, and in an opinion dated September 15, 2016, the Court granted the motions in part and denied them in part with regard to the nine cases filed prior to September 2016. On November 21, 2016, ES moved to dismiss the six most recently filed complaints. A decision on that motion is pending.

Strauch Fair Labor Standards Act Collective Action: On July 1, 2014, plaintiffs Joseph Strauch, Timothy Colby, Charles Turner, and Vernon Carre filed an action in the U.S. District Court for the District of Connecticut on behalf of themselves and a putative nationwide collective of CSC system administrators, alleging CSC’s failure to properly classify these employees as non-exempt under the federal Fair Labor Standards Act ("FLSA"). Plaintiffs allege similar state-law Rule 23 class claims pursuant to Connecticut and California statutes, including the Connecticut Minimum Wage Act, the California Unfair Competition Law, California Labor Code, California Wage Order No. 4-2001 and the California Private Attorneys General Act. Plaintiffs claim double overtime damages, liquidated damages, pre- and post-judgment interest, civil penalties, and other state-specific remedies.

In 2015 the Court entered an order granting conditional certification under the FLSA of the collective of over 4,000 system administrators, and notice of the right to participate in the FLSA collective action was mailed to the system administrators. Approximately 1,000 system administrators, prior to the announced deadline, filed consents with the Court to participate in the FLSA collective.

On June 30, 2017, the Court granted Rule 23 certification of a Connecticut state-law class and a California state-law class consisting of professional system administrators and associate professional system administrators. Senior professional system administrators were found not to qualify for Rule 23 certification under the state-law claims. On July 14, 2017, the Company petitioned the Second Circuit Court of Appeals for permission to file an appeal of the Rule 23 decision. A ruling on that petition is pending.

As a result of the Court's findings in its Rule 23 certification order, the parties entered into a stipulation to decertify the senior professional system administrators from the FLSA collective. On August 2, 2017, the Court approved the stipulation, and the FLSA collective action is currently made up of approximately 700 individuals who held the title of associate professional or professional system administrator.

Discovery is scheduled to be completed on August 22, 2017, and a trial is expected in December 2017.

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Computer Sciences Corporation v. Eric Pulier, et al.: On May 12, 2015, CSC and its wholly owned subsidiary, ServiceMesh Inc. ("SMI"), filed a civil complaint in the Court of Chancery of the State of Delaware against Eric Pulier, the former CEO of SMI, which had been acquired by CSC on November 15, 2013. Following the acquisition, Mr. Pulier signed a retention agreement with SMI pursuant to which he received a grant of restricted stock units of CSC and agreed to be bound by CSC’s rules and policies, including CSC’s Code of Business Conduct. Mr. Pulier resigned from SMI on April 22, 2015 amid allegations that he had engaged in fraudulent transactions with two employees of the Commonwealth Bank of Australia Ltd. (“CBA”). The original complaint against Mr. Pulier asserted claims for fraud, breach of contract and breach of fiduciary duty. In an amended complaint, CSC named TechAdvisors, LLC and Shareholder Representative Services LLC ("SRS") as additional defendants. In ruling on a motion to dismiss filed by Mr. Pulier, the Court dismissed CSC’s claim for breach of the implied covenant of good faith, but allowed substantially all of the remaining claims to proceed. Mr. Pulier asserted counter-claims for breach of contract, fraud, negligent representation, rescission, and violations of the California Blue Sky securities law. With the exception of the claim for breach of his retention agreement, the Court dismissed in whole or in part each of Mr. Pulier’s counterclaims.

On December 17, 2015, CSC entered into a settlement agreement with the majority of the former equityholders of SMI, as well as with SRS acting in its capacity as the agent and attorney-in-fact for the settling equityholders. Pursuant to the settlement agreement, CSC received $16.5 million, which amount was equal to the settling equityholders’ pro rata share of the funds remaining in escrow from the transaction, which was recorded as an offset to selling, general and administrative costs in CSC’s Consolidated Statements of Operations for the fiscal year ended March 31, 2016. On February 20, 2017, CSC, SRS and the former equityholders of SMI who remain named defendants entered into a partial settlement agreement by which CSC received payment of some of the funds remaining in escrow.

Discovery was proceeding when on July 20, 2017, the Court granted a motion by the United States Attorney’s Office for the District of Delaware for a 90-day stay of discovery pending the completion of a criminal investigation.

Law enforcement officials in Australia have brought bribery-related charges against the two former CBA employees.  One of these has since pled guilty, and in 2016 received a sentence of imprisonment. In 2016, the United States Attorney’s Office for the Central District of California announced similar criminal charges against this same CBA employee for securities fraud and wire fraud. CSC is cooperating with and assisting the Australian and U.S. authorities in their investigations.

On February 17, 2016, Mr. Pulier filed a complaint in Delaware Chancery Court against CSC and its subsidiary - CSC Agility Platform, Inc., formerly known as SMI - seeking advancement of his legal fees and costs. On May 12, 2016, the Court ruled that CSC Agility Platform - as the successor to SMI - is liable for advancing 80% of Mr. Pulier’s fees and costs in the underlying civil action. Mr. Pulier has also filed a complaint for advancement of the legal fees and costs incurred in connection with his defense of criminal investigations by the U.S. Government and other entities. On March 30, 2017, Mr. Pulier filed a motion for judgment on the pleadings in this fee advancement matter. Mr. Pulier's motion for judgment on the pleadings and other advancement-related issues were argued before the Court on August 2, 2017, and, on August 7, 2017, the Court ruled substantially in Mr. Pulier's favor. In undertakings previously provided to SMI, Mr. Pulier agreed to repay all amounts advanced to him if it should ultimately be determined that he is not entitled to indemnification.

Cisco Systems Inc. and Cisco Systems Capital Corporation v. Hewlett-Packard Co.: On August 21, 2015, Cisco Systems, Inc. (“Cisco”) and Cisco Systems Capital Corporation (“Cisco Capital”) filed an action against Hewlett Packard Co., now known as HP Inc. ("HP") in California Superior Court, Santa Clara County, for declaratory judgment and breach of contract in connection with a contract to utilize Cisco products and services, and to finance the services through Cisco Capital. HP terminated the contract, and the parties dispute the calculation of the proper cancellation credit. On December 18, 2015, Cisco filed an amended complaint that abandoned the claim for breach of contract set forth in the original complaint, and asserted a single cause of action for declaratory relief concerning the proper calculation of the cancellation credit. On January 19, 2016, HP answered the complaint and filed a counterclaim for breach of contract. Discovery is completed, and a trial is scheduled to begin on November 6, 2017. A court-ordered mediation is scheduled to take place on August 30, 2017. DXC is now the party in interest in this matter pursuant to the Separation and Distribution Agreement between the then Hewlett-Packard Co. and HPE and the subsequent Separation and Distribution Agreement between HPE and DXC.

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Kemper Corporate Services, Inc. v. Computer Sciences Corporation: In October 2015, Kemper Corporate Services, Inc. (“Kemper”) filed a demand for arbitration against CSC with the American Arbitration Association (“AAA”), alleging that CSC breached the terms of a 2009 Master Software License and Services Agreement and related Work Orders (the “Agreement”) by failing to complete a software translation and implementation plan by certain contractual deadlines. Kemper seeks rescission of the Agreement and approximately $100 million in damages, which includes refund of the fees paid under the contract as well as pre-judgment interest. CSC answered the demand for arbitration denying Kemper’s claims and asserting a counterclaim for unpaid invoices for services rendered by CSC.

A single arbitrator conducted an evidentiary hearing on the merits of the claims and counterclaims in Dallas, Texas in April 2017. Post-trial briefs have been submitted, and oral argument is scheduled for August 28, 2017. An interim award is scheduled to be issued by October 9, 2017. Depending on the terms of the interim award, the arbitrator may then consider requests for attorneys’ fees and expenses.

The Company believes that Kemper’s claims are without merit and intends to continue to vigorously defend itself.

Forsyth, et al. v. HP Inc. and Hewlett Packard Enterprise:  This purported class and collective action was filed on August 18, 2016 in the U.S. District Court for the Northern District of California, against HP and HPE alleging violations of the Federal Age Discrimination in Employment Act (“ADEA”), the California Fair Employment and Housing Act, California public policy and the California Business and Professions Code. Former business units of HPE now owned by the Company will be proportionately liable for any recovery by plaintiffs in this matter. Plaintiffs filed an amended complaint on December 19, 2016. Plaintiffs seek to certify a nationwide class action under the ADEA comprised of all U.S. residents employed by defendants who had their employment terminated pursuant to a work force reduction (“WFR”) plan on or after December 9, 2014 (deferral states) and April 8, 2015 (non-deferral states), and who were 40 years of age or older at the time of termination. Plaintiffs also seek to represent a Rule 23 class under California law comprised of all persons 40 years or older employed by defendants in the state of California and terminated pursuant to a WFR plan on or after August 18, 2012. On January 30, 2017, defendants filed a partial motion to dismiss and a motion to compel arbitration of claims by opt-in plaintiffs who signed releases as part of their WFR packages. A decision is pending.

Voluntary Disclosure of Certain Possible Sanctions Law Violations: On February 2, 2017, CSC submitted an initial notification of voluntary disclosure to the U.S. Department of Treasury, Office of Foreign Assets Control ("OFAC") regarding certain possible violations of U.S. sanctions laws pertaining to insurance premium data and claims data processed by two partially-owned joint ventures of Xchanging, which CSC acquired during the first quarter of fiscal 2017. A copy of the disclosure was also provided to Her Majesty’s Treasury Office of Financial Statements