DXC TECHNOLOGY COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On May 31, 2018, DXC Technology Company (“DXC” or the “Company”) completed the previously announced separation of its U.S. Public Sector business, Perspecta, Inc. (“Perspecta”) (the “Separation”). The Separation was accomplished through a two-for-one pro rata distribution of 100% of the outstanding common stock of Perspecta to DXC’s shareholders (the “Distribution”). Perspecta is now an independent public company trading under the symbol “PRSP” on the New York Stock Exchange.
The unaudited pro forma condensed consolidated statement of operations of DXC for the fiscal year ended March 31, 2018 assumes the Distribution had occurred on April 1, 2017. The unaudited pro forma condensed consolidated balance sheet of DXC as of March 31, 2018 assumes the Distribution had occurred on March 31, 2018. Beginning in the first quarter of fiscal 2019, Perspecta’s historical financial results for periods prior to the Distribution will be reflected in DXC’s condensed consolidated financial statements as discontinued operations.
The unaudited pro forma condensed consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in DXC’s Form 10-K for the fiscal year ended March 31, 2018.
The information presented in the “Historical DXC” column in the unaudited pro forma condensed consolidated financial statements reflects DXC’s historical financial statements for the periods presented and do not reflect any adjustments related to the Distribution and related events.
The information presented in the “Perspecta Separation” column was derived from DXC’s audited consolidated financial statements and the related accounting records as of and for the fiscal year ended March 31, 2018.
The “Pro Forma Adjustments” column reflects adjustments to give effect to the Distribution.
The pro forma adjustments represent the Company's current best estimates and may differ from those that will be calculated to report Perspecta as discontinued operations in DXC’s future filings. The unaudited pro forma condensed consolidated financial statements are provided for illustrative and informational purposes only and are not intended to represent or be indicative of what DXC’s results of operations or financial position would have been had the Separation occurred on the dates indicated. The unaudited pro forma condensed consolidated financial statements also should not be considered representative of DXC’s future results of operations or financial position.
See notes to the unaudited pro forma condensed consolidated financial statements for a more detailed discussion of these transactions.
DXC TECHNOLOGY COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Fiscal Year Ended March 31, 2018
|
| | | | | | | | | | | | | | | | | | |
| (in millions, except per-share amounts) | | Historical DXC | | Perspecta Separation | | Pro Forma Adjustments | | Notes | | Pro Forma* DXC Continuing Operations |
| | | | | | | | | | | |
| Revenues | | $ | 24,556 |
| | $ | (2,819 | ) | | $ | — |
| | | | $ | 21,737 |
|
| | | | | | | | | | | |
| Costs of services (excludes depreciation and amortization and restructuring costs) | | 17,944 |
| | (2,098 | ) | | — |
| | | | 15,846 |
|
| Selling, general and administrative (excludes restructuring costs) | | 2,010 |
| | (157 | ) | | — |
| | | | 1,853 |
|
| Depreciation and amortization | | 1,964 |
| | (170 | ) | | — |
| | | | 1,794 |
|
| Restructuring costs | | 803 |
| | (14 | ) | | — |
| | | | 789 |
|
| Interest expense | | 335 |
| | (11 | ) | | (4 | ) | | (A) | | 320 |
|
| Interest income | | (89 | ) | | — |
| | — |
| | | | (89 | ) |
| Other income, net | | (82 | ) | | — |
| | — |
| | | | (82 | ) |
| Total costs and expenses | | 22,885 |
| | (2,450 | ) | | (4 | ) | | | | 20,431 |
|
| | | | | | | | | | | |
| Income before income taxes | | 1,671 |
| | (369 | ) | | 4 |
| | | | 1,306 |
|
| Income tax benefit | | (111 | ) | | (132 | ) | | 1 |
| | (B) | | (242 | ) |
| Net income | | 1,782 |
| | (237 | ) | | 3 |
| | | | 1,548 |
|
| Less: net income attributable to non-controlling interest, net of tax | | 31 |
| | — |
| | — |
| | | | 31 |
|
| Net income attributable to DXC common stockholders | | $ | 1,751 |
| | $ | (237 | ) | | $ | 3 |
| | | | $ | 1,517 |
|
| | | | | | | | | | | |
| | | | | | | | | | | |
| Income per common share: | | | | | | | | | | |
| Basic | | $ | 6.15 |
| | | | | | | | $ | 5.32 |
|
| Diluted | | $ | 6.04 |
| | | | | | | | $ | 5.24 |
|
| | | | | | | | | | | |
| Weighted average common shares outstanding for: | | | | | | | | | | |
| Basic EPS | | 284.93 |
| | | | | | | | 284.93 |
|
| Diluted EPS | | 289.77 |
| | | | | | | | 289.77 |
|
*Pro forma as defined under Article 11 of SEC Regulation S-X
See accompanying notes.
DXC TECHNOLOGY COMPANY
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
As of March 31, 2018 |
| | | | | | | | | | | | | | | | | | |
| (in millions) | | Historical DXC | | Perspecta Separation | | Pro Forma Adjustments | | Notes | | Pro Forma* DXC Continuing Operations |
| | | | | | | | | | | |
| ASSETS | | | | | | | | | | |
| Current assets: | | | | | | | | | | |
| Cash and cash equivalents | | $ | 2,648 |
| | $ | — |
| | $ | 984 |
| | (C) | | $ | 3,632 |
|
| Receivables, net | | 5,913 |
| | (459 | ) | | — |
| | | | 5,454 |
|
| Prepaid expenses | | 571 |
| | (75 | ) | | — |
| | | | 496 |
|
| Other current assets | | 485 |
| | (74 | ) | | — |
| | | | 411 |
|
| Total current assets | | 9,617 |
| | (608 | ) | | 984 |
| | | | 9,993 |
|
| | | | | | | | | | | |
| Intangible assets, net | | 8,091 |
| | (912 | ) | | — |
| | | | 7,179 |
|
| Goodwill | | 9,652 |
| | (2,031 | ) | | — |
| | | | 7,621 |
|
| Deferred income taxes, net | | 373 |
| | — |
| | — |
| | | | 373 |
|
| Property and equipment, net | | 3,646 |
| | (275 | ) | | — |
| | | | 3,371 |
|
| Other assets | | 2,542 |
| | (139 | ) | | — |
| | | | 2,403 |
|
| Total Assets | | $ | 33,921 |
| | $ | (3,965 | ) | | $ | 984 |
| | | | $ | 30,940 |
|
| | | | | | | | | | | |
| LIABILITIES and EQUITY | | | | | | | | | | |
| Current liabilities: | | | | | | | | | | |
| Short-term debt and current maturities of long-term debt | | $ | 2,073 |
| | $ | (155 | ) | | $ | — |
| | | | $ | 1,918 |
|
| Accounts payable | | 1,708 |
| | (195 | ) | | — |
| | | | 1,513 |
|
| Accrued payroll and related costs | | 766 |
| | (22 | ) | | — |
| | | | 744 |
|
| Accrued expenses and other current liabilities | | 3,466 |
| | (339 | ) | | — |
| | | | 3,127 |
|
| Deferred revenue and advance contract payments | | 1,694 |
| | (53 | ) | | — |
| | | | 1,641 |
|
| Income taxes payable | | 145 |
| | (18 | ) | | — |
| | | | 127 |
|
| Total current liabilities | | 9,852 |
| | (782 | ) | | — |
| | | | 9,070 |
|
| | | | | | | | | | | |
| Long-term debt, net of current maturities | | 6,306 |
| | (135 | ) | | (79 | ) | | (A) | | 6,092 |
|
| Non-current deferred revenue | | 802 |
| | (7 | ) | | — |
| | | | 795 |
|
| Non-current pension obligations | | 879 |
| | — |
| | — |
| | | | 879 |
|
| Non-current income tax liabilities and deferred tax liabilities | | 1,329 |
| | (198 | ) | |
|
| | | | 1,131 |
|
| Other long-term liabilities | | 916 |
| | (72 | ) | |
|
| | | | 844 |
|
| Total Liabilities | | 20,084 |
| | (1,194 | ) | | (79 | ) | | | | 18,811 |
|
| | | | | | | | | | | |
| Commitments and contingencies | | | | | | | | | | |
| | | | | | | | | | | |
| DXC stockholders' equity | | | | | | | | | | |
| Preferred stock | | — |
| | — |
| | — |
| | | | — |
|
| Common stock | | 3 |
| | — |
| | — |
| | | | 3 |
|
| Additional paid-in capital | | 12,210 |
| | — |
| | — |
| | | | 12,210 |
|
| Retained earnings/ Net Parent Investment | | 1,301 |
| | (2,771 | ) | | 1,063 |
| | (D) | | (407 | ) |
| Accumulated other comprehensive income | | 58 |
| | — |
| | — |
| | | | 58 |
|
| Treasury stock | | (85 | ) | | — |
| | — |
| | | | (85 | ) |
| Total DXC stockholders' equity | | 13,487 |
| | (2,771 | ) | | 1,063 |
| | | | 11,779 |
|
| Non-controlling interest in subsidiaries | | 350 |
| |
|
| |
|
| | | | 350 |
|
| Total Equity | | 13,837 |
| | (2,771 | ) | | 1,063 |
| | | | 12,129 |
|
| Total Liabilities and Equity | | $ | 33,921 |
| | $ | (3,965 | ) | | $ | 984 |
| | | | $ | 30,940 |
|
*Pro forma as defined under Article 11 of SEC Regulation S-X
See accompanying notes.
DXC TECHNOLOGY COMPANY
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated statement of operations for the fiscal year ended March 31, 2018 and the unaudited pro forma condensed consolidated balance sheet as of March 31, 2018 include the following pro forma adjustments:
| |
| (A) | Reflects the 7.45% senior notes due 2029 ("EDS Notes") retained by Perspecta that were not exchanged for DXC notes pursuant to DXC’s offer to exchange any and all of the outstanding EDS Notes for newly issued DXC notes, which was made pursuant to the terms and conditions set forth in DXC’s prospectus, dated as of January 8, 2018. |
| |
| (B) | Represents the tax impact of pro forma adjustments. |
| |
| (C) | Adjusted for cash dividend payment from Perspecta to DXC. |
| |
| (D) | Retained earnings was adjusted as a result of pro forma adjustments. |
