Note 14-Goodwill and Other Intangible Assets

Goodwill

The following table summarizes the changes in the carrying amount of goodwill by segment for the nine months ended December 30, 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		15		149			291			455
Foreign currency translation		-		(5	)		(25	)		(30	)
Other reclassifications		-		96			(96	)		-
Impairment losses		-		(2,074	)		(671	)		(2,745	)

Goodwill gross		768		2,205			1,509			4,482
Accumulated impairment losses		-		(2,074	)		(690	)		(2,764	)
Balance as of December 30, 2011, net	$	768	$	131		$	819		$	1,718

The addition to goodwill of $455 million is comprised of $454 million, which relates to business acquisitions during fiscal 2012 (see Note 3), 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 other reclassification relates to goodwill associated with the relative value attributable to MSS of its portion of the NHS contract cash flows. The impairment losses are discussed further below and include goodwill write-downs in three of the Company's eight reporting units (the level at which goodwill is tested), two of which are in the BSS segment and the third is the MSS segment.

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.

The goodwill impairment test involves a two-step process. The first step is a comparison of each reporting unit's fair value to its carrying value. If the reporting unit's fair value exceeds its carrying value, no further procedures are required. However, if a reporting unit's fair value is less than its carrying value, an impairment of goodwill may exist, requiring a second step to measure the amount of impairment loss. In this step, the reporting unit's fair value is allocated to all of the assets and liabilities of the reporting unit, including any unrecognized intangible assets, in a hypothetical analysis to calculate the implied fair value of goodwill in the same manner as if the reporting unit was being acquired in a business acquisition. If the implied fair value of goodwill is less than the recorded goodwill, an impairment charge is recorded for the difference.

The Company estimates the fair value of each reporting unit using a combination of the income approach and the market approach. The income approach incorporates the use of a discounted cash flow method in which the estimated future cash flows and terminal values for each reporting unit are discounted to a present value using a discount rate. Cash flow projections are based on management's estimates of economic and market conditions which drive key assumptions of revenue growth rates, operating margins, capital expenditures and working capital requirements. The discount rate in turn is based on the specific risk characteristics of each reporting unit, the weighted average cost of capital and its underlying forecast. The market approach estimates fair value by applying performance metric multiples to the reporting unit's prior and expected operating performance. The multiples are derived from comparable publicly traded companies with similar operating and investment characteristics as the reporting unit. If the fair value of the reporting unit derived using the income approach is significantly different from the fair value estimate using the market approach, the Company reevaluates its assumptions used in the two models. The fair values determined by the market approach and income approach, as described above, are weighted to determine the fair value for each reporting unit. The weighted values assigned to each reporting unit are primarily driven by two factors: 1) the number of comparable publicly traded companies used in the market approach, and 2) the similarity of the operating and investment characteristics of the reporting units to the comparable publicly traded companies used in the market approach.

In order to assess the reasonableness of the calculated reporting unit fair values, the Company also compares the sum of the reporting units' fair values to its market capitalization (per share stock price times shares outstanding) and calculates an implied control premium (the excess of the sum of the reporting units' fair values over the market capitalization). The Company evaluates the control premium by comparing it to control premiums of recent comparable transactions. If the implied control premium is not reasonable in light of these recent transactions, the Company will reevaluate its fair value estimates of the reporting units by adjusting the discount rates and/or other assumptions. As a result, when CSC's stock price is low, this reevaluation can result in lower estimated fair values of the reporting units.

The Company initiated its annual goodwill analysis in the second quarter of fiscal 2012 and concluded that fair value was below carrying value for three reporting units: Managed Services Sector (MSS), Global Business Solutions (BSS-GBS) and the Healthcare Group (BSS-Health). Management believed that the decline in the estimated fair values of these reporting units during the second quarter was a result of a number of factors, including: the significant decline in the Company's overall stock price over the first six months of fiscal 2011; an overall decline in the broader stock market which resulted in reduced performance metric multiples at comparable public companies; uncertainty caused by concerns about the ongoing SEC investigation into reported errors and irregularities; uncertainty over concerns about the Company's growth prospects in light of operational issues at its MSS reporting unit; uncertainty over the continuation of the Company's NHS contract in light of comments made by government officials in the U.K.; and government budget pressures at customers worldwide. Lower than forecasted operating performance also impacted the reporting units' fair value calculations. Prior to the second quarter of fiscal 2012, stock price declines were considered temporary. In addition, an evaluation of historical and forecasted operating results did not indicate it was more likely than not that the fair value of any reporting unit had fallen below carrying value, and therefore no interim goodwill impairment test was warranted prior to the second quarter.

At the end of the second quarter and subsequent to the date of the annual goodwill impairment test, the Company determined sufficient indicators existed to require performance of an additional, interim goodwill impairment analysis as of September 30, 2011. These indicators included: a further significant and sustained decline in CSC's stock price which resulted in market capitalization, adjusted for control premium, going below book value and remaining there for some time; further decreases in the performance metric multiples of comparable public companies, driving the market approach valuations lower; and additional evidence of certain reporting units' performance short of forecasts used in the annual market and income based tests. In this interim goodwill impairment test, the BSS-GBS reporting unit again failed step one.

During the process of conducting the second step of the annual goodwill impairment tests, the Company identified significant unrecognized intangible assets, primarily customer relationship and technology assets. The unrecognized intangible assets, estimated at approximately $1.3 billion, were predominantly attributable to unrecognized customer relationship assets in the MSS reporting unit and were driven by the Company's high customer retention rates in this business. The combination of these hypothetical unrecognized intangible assets and other hypothetical unrecognized fair value changes to the carrying values of other assets and liabilities, together with the lower reporting unit fair values calculated in step one, resulted in an implied fair value of goodwill substantially below the carrying value of goodwill for the MSS, BSS-GBS and BSS-Health reporting units. As a result, the Company recorded its best estimate of the goodwill impairment charge of $2,685 million, of which $2,074 million related to the MSS reporting unit, $453 million related to the BSS-GBS reporting unit, and $158 million related to the BSS-Health reporting unit. As of September 30, 2011, MSS had $143 million of remaining goodwill, which was all attributable to the fiscal 2012 second quarter acquisition of AppLabs (see Note 3). The BSS-GBS reporting unit had no remaining goodwill, and the BSS-Health reporting unit had $60 million of remaining goodwill.

The September 30, 2011 interim goodwill testing indicated that the fair values of two additional reporting units-BSS-Health and BSS-iSOFT-passed step one (after the impairment charges discussed above) but were not considered to be substantially in excess of carrying values. BSS-Health fair value was estimated to be approximately 6% in excess of carrying value, and as noted above had a remaining goodwill balance, after impairments recorded in the second quarter, of $60 million at September 30, 2011, including $18 million that was allocated from the iSOFT acquisition. (In accordance with accounting standards, goodwill from acquisitions is allocated to the benefiting reporting units.) iSOFT, which was acquired during the second quarter (see Note 3), is a new reporting unit, and its fair value approximated its carrying value due to the proximity of its acquisition to the date of the interim goodwill impairment test. Goodwill allocated to the iSOFT reporting unit was $240 million as of September 30, 2011. This balance was lower than the acquisition goodwill balance described in Note 3 due to the allocation of $18 million of goodwill to BSS-Health as well as foreign currency translation adjustments to the balance subsequent to the acquisition date.

During the third quarter, the Company completed all analyses related to its annual and second quarter interim goodwill impairment tests and reduced the impairment loss by recorded in the second quarter $3 million. The entire adjustment was in the BSS-Health reporting unit, and resulted from finalizing tax estimates and customer/technology asset fair values. Thus, the total second quarter goodwill impairment loss was $2,682 million, with $(3) million of it recorded in the third quarter.

At the end of the third quarter, the Company assessed whether there were any events or circumstances that would more likely than not reduce the fair value of a reporting unit below its carrying value. The Company concluded that such indicators were present for two of its reporting units, BSS-Health and BSS-iSOFT. With respect to BSS-Health, the loss of a significant customer, the failure to win some major bids for new business, and reduction in forecasted earnings was considered a triggering event for an interim goodwill impairment test. For BSS-iSOFT, the recent developments on the NHS contract were considered a triggering event (see Note 15). There were no triggering events for the remaining reporting units with goodwill.

In conducting the first step of the goodwill impairment test for the BSS-Health reporting unit in the third quarter, the factors stated above resulted in a reassessment of forecasted cash flow assumptions under an income approach, as well as a revised valuation using a market multiples fair value approach, which led the weighted average fair value of the reporting unit to be less than its carrying value, thus triggering the need to proceed to step two as noted below. For the BSS-iSOFT reporting unit, the weighted average fair value was estimated to be greater than its carrying value due to better than forecast performance on the core iSOFT business (not related to the NHS contract), and the second step of the impairment assessment was not necessary.

During the process of conducting the second step of the interim goodwill impairment test for BSS-Health, the Company estimated the hypothetical fair value of its tangible assets and the hypothetical unrecognized intangible assets, primarily customer relationship and technology assets, and recorded an impairment charge of $63 million. As a result, as of December 30, 2011, the BSS-Health reporting unit had no remaining goodwill.

Any further significant declines in CSC's stock price or any further significant adverse changes in the business climate or operating results could result in the need to perform additional impairment analysis of goodwill in future periods prior to the next annual test, which may result in further impairment charges.

The Company reviews long-lived assets, including intangible assets subject to amortization, consisting primarily of outsourcing contract costs, software and customer relationships, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The recoverability of long-lived assets is measured by comparing the carrying values of the asset group to the future undiscounted net cash flows expected to be generated by those assets. If such assets are considered to be impaired, an impairment is recorded for the amount by which the carrying amounts of the assets exceed the fair value of the assets. As a result of the impairment indicators described above, during the second and third quarters of fiscal 2012, the Company also tested its long-lived assets for impairment and concluded that these assets were not impaired.

Other Intangible Assets

A summary of amortizable intangible assets is as follows:

	As of December 30, 2011
(Amounts in millions)	Gross Carrying Value		Accumulated Amortization		Net

Outsourcing contract costs	$	1,966	$	1,364	$	602
Software		2,041		1,375		666
Customer and other intangible assets		556		294		262
Total intangible assets	$	4,563	$	3,033	$	1,530

	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

The increase in Customer and Other Intangible Assets is primarily a result of the four acquisitions in fiscal 2012 (see Note 3) and as a result of the contract settlement with the Federal Government (see Note 17).

Amortization related to intangible assets was $112 million and $111 million for the quarters ended December 30, 2011, and December 31, 2010, respectively, including reductions of revenue for outsourcing contract cost premiums amortization of $12 million and $17 million in each of the respective quarters. Amortization expense related to capitalized software was $42 million and $42 million for the quarters ended December 30, 2011, and December 31, 2010, respectively.

Amortization related to intangible assets was $334 million and $326 million for the nine months ended December 30, 2011, and December 31, 2010, respectively, including reductions of revenue for outsourcing contract cost premiums amortization of $37 million and $51 million in each of the respective nine month periods. Amortization expense related to capitalized software was $149 million and $130 million for the nine months ended December 30, 2011, and December 31, 2010, respectively.

Estimated amortization expense related to intangible assets as of December 30, 2011, for the remainder of fiscal 2012 is $114 million, and for fiscal 2013 through fiscal 2016, is as follows: $380 million, $302 million, $246 million and $161 million, respectively.