Goodwill and Other Intangible Assets

3 Months Ended

Jul. 01, 2011

Note 13—Goodwill and Other Intangible Assets

The following table summarizes the changes in the carrying amount of goodwill by segment for the quarter ended July 1, 2011:

(Amounts in millions)	NPS		MSS		BSS			Total

Goodwill gross	$	753	$	1,965	$	1,339		$	4,057
Accumulated Impairment Losses		-		-		(19	)		(19	)
Balance as of April 1, 2011, net		753		1,965		1,320			4,038

Additions		1		-		3			4
Foreign currency translation		-		12		8			20
Impairment losses		-		-		-			-

Goodwill gross		754		1,977		1,350			4,081
Accumulated impairment losses		-		-		(19	)		(19	)
Balance as of July 1, 2011, net	$	754	$	1,977	$	1,331		$	4,062

The addition to goodwill of $4 million comprises $3 million which relates to acquisition of an immaterial business during the quarter ended July 1, 2011, within the BSS segment, and $1 million of contingent consideration paid on achievement of agreed revenue targets relating to a fiscal 2009 NPS acquisition. The foreign currency translation amount relates to the impact of currency movements on non-U.S. dollar denominated goodwill balances.

The Company tests goodwill for impairment on an annual basis, as of the first day of the second fiscal quarter, and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. A significant amount of judgment is involved in determining if an indicator of impairment has occurred between annual testing dates. Such indicators may include: a significant decline in expected future cash flows; a significant adverse change in legal factors or in the business climate; unanticipated competition; and the testing for recoverability of a significant asset group within a reporting unit, etc.

During the first quarter of fiscal 2012, the Company experienced a significant decline in its market capitalization which declined below its net book value as of July 1, 2011. The Company believes the decline is primarily due to the uncertainty related to the NHS contract negotiations, the ongoing investigation of the Nordic business, and the impact of U.S. federal government spending uncertainty. The Company has evaluated whether the decrease in its market capitalization is the result of factors which would indicate there is a potential impairment of goodwill as of July 1, 2011. The Company has considered, among other factors, the Company’s fiscal 2012 budget, the outlook for the Company’s businesses and industry in general, the status of the NHS negotiations, and the results of management’s investigation of the Nordic business to determine if an interim goodwill impairment test was required.

Based on that evaluation, the Company determined that there have been no events or circumstances which would more likely than not reduce the fair value for its reporting units below their carrying value, during the quarter ended July 1, 2011, and an interim impairment test was not necessary as of July 1, 2011. However, if the Company’s market capitalization is subject to a sustained decrease or if the Company’s outlook for the Company’s businesses and industry in general is subject to a significant adverse change, the Company may be required to record an impairment to goodwill in the future.

Of the Company’s $4.1 billion goodwill balance at July 1, 2011, $446 million is assigned to the BSS-GBS reporting unit and $211 million is assigned to the BSS-Health reporting unit. The estimated fair values of the BSS-GBS and BSS-Health reporting units have declined since the annual goodwill impairment test performed in the second quarter of fiscal 2011. The BSS-GBS decline is primarily a result of developments on the U.K.’s NHS contract in the fourth quarter of fiscal 2011. The BSS-Health decline is primarily a result of losses in fiscal 2011 and a reduction in anticipated future profits. While the Company considers it more likely than not that the fair values exceed carrying values for these reporting units as of the end of the first quarter of fiscal 2012, adverse changes in future projections or assumptions (for example, discount rates, growth rates, profit margins) could result in fair values falling below carrying values and therefore potential goodwill impairments.

A summary of amortizable intangible assets as of July 1, 2011, and April 1, 2011, is as follows:

	As of July 1, 2011
(Amounts in millions)	Gross Carrying Value		Accumulated Amortization		Net

Outsourcing contract costs	$	2,028	$	1,377	$	651
Software		1,946		1,343		603
Customer and other intangible assets		438		273		165
Total intangible assets	$	4,412	$	2,993	$	1,419

	As of April 1, 2011
(Amounts in millions)	Gross Carrying Value		Accumulated Amortization		Net

Outsourcing contract costs	$	1,971	$	1,324	$	647
Software		1,853		1,291		562
Customer and other intangible assets		436		265		171
Total intangible assets	$	4,260	$	2,880	$	1,380

Amortization related to intangible assets was $107 million and $103 million for the quarters ended July 1, 2011, and July 2, 2010, respectively, including reductions of revenue for outsourcing contract cost premiums amortization of $12 million and $15 million in each of the respective quarters. Estimated amortization expense related to intangible assets as of July 1, 2011, for the remainder of fiscal 2012 is $260 million, and for fiscal 2013 through fiscal 2016, is as follows: $288 million, $233 million, $160 million and $88 million, respectively.

Amortization expense related to capitalized software was $49 million and $42 million for the quarters ended July 1, 2011, and July 2, 2010, respectively.