Recent Accounting Pronouncements

9 Months Ended

Dec. 28, 2012

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

Recent Accounting Pronouncements

New Accounting Standards

On June 16, 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income,” which revises the manner in which entities present comprehensive income in their financial statements. The new guidance removes the presentation options in ASC 220 and requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. The change did not have an effect on the Company's financial condition, results of operations, or cash flows. The Company adopted the amendments in the updates effective at the beginning of fiscal 2013 using the two-statement approach.

On September 15, 2011, the FASB issued ASU 2011-08, “Testing Goodwill for Impairment,” which revises guidance on testing goodwill for impairment. The amendments in this ASU allow an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If an entity determines that it is not more likely than not, then performing the two-step impairment is unnecessary. However, if the entity concludes that fair value is more likely than not less than carrying value, then it is required to perform the first step of the two-step impairment test and calculate the fair value of the reporting unit to compare with the carrying value of the reporting unit as described in ASC 350-20-35-4. The entity may bypass the initial qualitative assessment for any reporting unit in any period and proceed directly to the first step of the two-step impairment test. The entity may resume performing the qualitative assessment in any subsequent period. The Company adopted the amendments in the update effective at the beginning of fiscal 2013 on a prospective basis, and they did not have a material effect on CSC's Consolidated Condensed Financial Statements.

Standards Issued But Not Yet Effective

On December 16, 2011, the FASB issued ASU 2011-11, “Disclosures about Offsetting Assets and Liabilities,” which was subsequently amended on January 31, 2013 when the FASB issued ASU 2013-01, "Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities." Together these Updates provide guidance on disclosure of information pertaining to the offsetting (netting) of assets and liabilities in financial statements. The amendments in these ASUs affect all entities that have financial instruments and derivative instruments that are either (1) offset in accordance with either ASC 210-20-45 or ASC 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement. ASU 2011-11 amends the existing disclosure requirements on offsetting in ASC 210-20-50 by requiring disclosures relating to gross amounts of recognized assets and liabilities, the amounts that are offset, net amounts presented in the balance sheet, and amounts subject to an enforceable master netting arrangement or similar agreement. The amendments in the update become effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The adoption of the amendments of these updates is not expected to have a material effect on CSC's Consolidated Condensed Financial Statements.

On July 27, 2012, the FASB issued ASU 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment,” which will allow an entity to first assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test. The amendments in this ASU are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The adoption of the amendments in this ASU is not expected to have a material effect on CSC's Consolidated Condensed Financial Statements.

te 4 – Investigations and Out of Period Adjustments

Summary of Audit Committee and SEC Investigations Related to the Out of Period Adjustments

Background

As previously disclosed, in fiscal 2011, the Company initiated an investigation into out of period adjustments resulting from certain accounting errors in our MSS segment, primarily involving accounting irregularities in the Nordic region. Initially, the investigation was conducted by Company personnel, but outside Company counsel and forensic accountants retained by such counsel later assisted in this investigation. On January 28, 2011, the Company was notified by the SEC’s Division of Enforcement that it had commenced a formal civil investigation relating to these matters, which investigation has been expanded to other matters subsequently identified by the SEC, including matters specified in subpoenas issued to the Company from time to time by the SEC’s Division of Enforcement as well as matters under investigation by the Audit Committee of the Board of Directors, as further described below. The Company is cooperating in the SEC’s investigation.

On May 2, 2011, the Audit Committee commenced an independent investigation into the matters relating to the MSS segment and the Nordic region, matters identified by subpoenas issued by the SEC’s Division of Enforcement and certain other accounting matters identified by the Audit Committee and retained independent counsel to represent CSC on behalf of, and under the exclusive direction of, the Audit Committee in connection with such independent investigation. Independent counsel retained forensic accountants to assist with their work. Independent counsel also represents CSC on behalf of, and under the exclusive direction of, the Audit Committee in connection with the investigation by the SEC’s Division of Enforcement.

The Audit Committee’s investigation was expanded to encompass (i) the Company’s operations in Australia, (ii) certain aspects of the Company’s accounting practices within its Americas Outsourcing operation and (iii) certain of the Company’s accounting practices that involve the percentage of completion accounting method, including the Company’s contract with the U.K. National Health Service (NHS). In the course of the Audit Committee's expanded investigation, accounting errors and irregularities were identified. As a result, certain personnel have been reprimanded, suspended, terminated and/or have resigned. The Audit Committee determined in August 2012 that its independent investigation was complete. The Audit Committee instructed its independent counsel to cooperate with the SEC's Division of Enforcement by completing production of documents and providing any further information requested by the SEC's Division of Enforcement. The SEC's Division of Enforcement is continuing its investigation involving its concerns with certain of the Company's prior disclosure and accounting determinations with respect to the Company's contract with the NHS and the possible impact of such matters on the Company's financial statements for years prior to the Company's current fiscal year. The Company and the Audit Committee and its independent counsel are investigating these matters and are continuing to cooperate with the SEC's Division of Enforcement in its investigation.

As previously disclosed, in fiscal 2012, and in the first quarter of fiscal 2013, the Company had identified but not yet recorded certain additional items related to the NHS contract that could have an effect on the amount and the allocation of the prior period adjustments. During the second quarter of fiscal 2013, based on its analysis of these items, the Company recorded net credits of $9 million in pre-tax out of period adjustments impacting prior fiscal years. These adjustments resulted primarily from accounting errors identified by the Company related to costs incurred under the contract. During the third quarter of fiscal 2013, additional accounting errors were identified related to the Company's use of the percentage of completion accounting method on its NHS contract. Such adjustments, which were self-correcting, had no rollover impact on income (loss) from continuing operations before taxes during the first nine months of fiscal 2013. Based on information provided by the independent counsel, the Company believes that a small portion of such adjustments should be characterized as intentional accounting irregularities.

The following is the cumulative rollover impact on income (loss) from continuing operations before taxes of the out of period adjustments related to the Company's NHS contract:

	Increase/(Decrease)
(Amounts in millions)	Fiscal 2012 Adjustments			First Nine Months Fiscal 2013 Adjustments			Total Adjustments
Fiscal 2013	$	—		$	(9	)	$	(9	)
Fiscal 2012	25			10			35
Fiscal 2011	(7		)	(15		)	(22		)
Fiscal 2010	(4		)	18			14
Prior fiscal years (unaudited)	(14		)	(4		)	(18		)

The Company believes the SEC has expanded its investigation into the foregoing areas as well as into certain related disclosure matters. The SEC's investigative activities are ongoing. In addition, the SEC's Division of Corporation Finance has issued comment letters to the Company requesting, among other things, additional information regarding its previously disclosed adjustments in connection with the above-referenced accounting errors, the Company's conclusions relating to materiality of such adjustments, and the Company's analysis of the effectiveness of its disclosure controls and procedures and its internal control over financial reporting. The SEC's Division of Corporation Finance's comment letter process is ongoing, and the Company is continuing to cooperate with that process.

The investigation being conducted by the SEC's Division of Enforcement and the review of the Company's financial disclosures by the SEC's Division of Corporation Finance are continuing and could identify other accounting errors or irregularities or other areas of review. As a result, CSC has incurred and will continue to incur significant legal and accounting expenditures, and a significant amount of the Company's senior management's time that otherwise would have been focused on the growth of the Company has been focused on these matters. The Company is unable to predict how long the SEC's Division of Enforcement's investigation will continue or whether, at the conclusion of its investigation, the SEC will seek to impose fines or take other actions against the Company. In addition, CSC is unable to predict the timing of the completion of the SEC's Division of Corporation Finance's review of its financial disclosures or the outcome of such review. Publicity surrounding the foregoing or any enforcement action as a result of the SEC's investigation, even if ultimately resolved favorably for the Company, could have an adverse impact on the Company's reputation, business, financial condition, results of operations or cash flows.

Any out of period adjustments identified, including items that self corrected within a fiscal year, by the Company to date are described in this Note 4.

The rollover impact on income (loss) from continuing operations before taxes of the recorded out of period adjustments (including the out of period adjustments related to the NHS contract) in the first nine months of fiscal 2013, fiscal 2012 and fiscal 2011 is attributable to the following prior fiscal years:

	Increase/(Decrease)
(Amounts in millions)	Fiscal 2011 Adjustments			Fiscal 2012 Adjustments			First Nine Months Fiscal 2013 Adjustments			Total Adjustments
Fiscal 2013	$	—		$	—		$	(4	)	$	(4	)
Fiscal 2012	—			79			10			89
Fiscal 2011	52			(29		)	(17		)	6
Fiscal 2010	(48		)	(9		)	15			(42		)
Prior fiscal years (unaudited)	(4		)	(41		)	(4		)	(49		)

Fiscal 2013 Financial Impact Summary

During the third quarter and through the first nine months of fiscal 2013, the Company identified and recorded net pre-tax adjustments decreasing income from continuing operations before taxes by $3 million and increasing income from continuing operations before taxes by $4 million, respectively, that should have been recorded in prior fiscal years ($3 million and $13 million, net of tax and including discrete tax benefits). In addition, during the third quarter of fiscal 2013, the Company recorded $3 million of net pre-tax adjustments increasing income from continuing operations before taxes and $2 million of net pre-tax adjustments decreasing income from continuing operations before taxes that should have been recorded in the second and first quarters of fiscal 2013, respectively.

The $3 million pre-tax out of period adjustments recorded in the third quarter of fiscal 2013 resulted primarily from correcting the useful lives of property and equipment that were inconsistent with established CSC accounting conventions. This error occurred in connection with a BSS contract in France.

As noted above, during the third quarter of fiscal 2013, the Company identified additional prior period errors related to the use of the percentage of completion accounting method on its NHS contract. Such errors, which were self-correcting, have no impact on income from continuing operations before taxes for fiscal 2013. Had such adjustments been recorded in fiscal 2012, income from continuing operations before taxes would have increased by $22 million. For fiscal 2011, income from continuing operations before taxes would have decreased by $3 million. For fiscal 2010, there would have been no impact on income from continuing operations before taxes. For fiscal 2009 and prior periods, income from continuing operations before taxes would have decreased by $19 million.

As previously reported, during the second quarter and through the first six months of fiscal 2013, the Company identified and recorded net pre-tax adjustments increasing income from continuing operations before taxes by $8 million and $7 million, respectively, that should have been recorded in prior fiscal years ($10 million and $13 million, net of tax). In addition, during the second quarter of fiscal 2013, the Company recorded $2 million of net pre-tax adjustments increasing income from continuing operations before taxes that should have been recorded in the first quarter of fiscal 2013 and had no impact on prior fiscal years.

The $8 million pre-tax out of period adjustments recorded in the second quarter of fiscal 2013 consisted primarily of $9 million of net adjustments increasing income from continuing operations before taxes related to the Company's investigation of the use of percentage of completion accounting on the NHS contract. Such adjustments result primarily from accounting errors identified by the Company related to costs incurred under the NHS contract.

As previously reported, based on information then known by the Company, the out of period adjustments recorded in the first quarter of fiscal 2013 were comprised of $6 million of net adjustments reducing income from continuing operations before taxes identified by the Company late in the fiscal 2012 closing process, and due to the immaterial amounts involved, were not included in the Company's consolidated fiscal 2012 financial statements. Also in the first quarter of fiscal 2013, the Company identified and recorded $5 million of net pre-tax adjustments increasing income from continuing operations that should have been recorded in prior fiscal years. The $5 million of net pre-tax adjustments consisted primarily of charges related to a $2 million software revenue recognition correction and a $2 million adjustment to prepaid expenses offset by credits primarily related to corrections of $10 million to reduce accrued expenses related to the restructuring costs recorded by the Company in fiscal 2012.

The Company also recorded a $2 million tax benefit in the first quarter of fiscal 2013 related to prior periods. The $2 million tax benefit was attributable to the adjustment of the deferred tax liability related to intellectual property assets.

The select line items of the Consolidated Statement of Operations for the quarter and nine months ended December 28, 2012 impacted by the consolidated out of period adjustments under the rollover method are shown below.

	Quarter Ended December 28, 2012
(Amounts in millions, except per-share amounts)	As Reported		Adjustments Increase/ (Decrease)			Amount Adjusted for Removal of Errors
Revenue	$	3,781	$	1		$	3,782
Costs of services (excludes depreciation and amortization and restructuring costs)	2,995		2			2,997
Selling, general and administrative	278		1			279
Depreciation and amortization	270		(4		)	266
Restructuring costs	26		2			28
Interest expense	57		(1		)	56
Other (income) expense	4		(1		)	3
Income from continuing operations before taxes	155		2			157
Taxes on income	32		3			35
Income from continuing operations	123		(1		)	122
Income from discontinued operations, net of taxes	390		—			390
Income attributable to CSC common shareholders	510		(1		)	509
EPS – Diluted
Continuing operations	$	0.77	$	(0.01	)	$	0.76
Discontinued operations	2.50		—			2.50
Total	$	3.27	$	(0.01	)	$	3.26

	Nine Months Ended December 28, 2012
(Amounts in millions, except per-share amounts)	As Reported			Adjustments Increase/ (Decrease)			Amount Adjusted for Removal of Errors
Revenue	$	11,434		$	10		$	11,444
Costs of services (excludes depreciation and amortization and restructuring costs)	9,141			12			9,153
Selling, general and administrative	864			(1		)	863
Depreciation and amortization	806			(2		)	804
Restructuring costs	111			5			116
Interest expense	147			—			147
Other (income) expense	(1		)	—			(1		)
Income from continuing operations before taxes	380			(4		)	376
Taxes on income	106			9			115
Income from continuing operations	274			(13		)	261
Income from discontinued operations, net of taxes	419			—			419
Income attributable to CSC common shareholders	680			(13		)	667
EPS – Diluted
Continuing operations	$	1.67		$	(0.08	)	$	1.59
Discontinued operations	2.69			—			2.69
Total	$	4.36		$	(0.08	)	$	4.28

The out of period adjustments impacting income from continuing operations before taxes recorded by the Company in the nine months ended December 28, 2012 are related to the following consolidated balance sheet line items:

• Accounts receivable ($1 milliondecrease);

• Prepaid expenses ($8 millionincrease);

• Property and equipment ($4 milliondecrease);

• Deferred revenue ($9 millionincrease); and

• Accrued expenses and other current liabilities ($10 milliondecrease).

The Company has determined that the impact of the consolidated out of period adjustments recorded in fiscal 2013 is immaterial to the consolidated results, financial position and cash flows for the third quarter of fiscal 2013, first nine months of fiscal 2013 and prior years. Consequently, the cumulative effect of these adjustments was recorded during fiscal 2013.

Effect of Adjustments on Prior Year Financial Statements

As previously disclosed, during fiscal 2012, the Company recorded various pre-tax adjustments that should have been recorded in prior fiscal years. The aggregate fiscal 2012 adjustments reduced income from continuing operations before taxes by $79 million ($63 million net of tax) and were comprised of $13 million of charges relating to operations in the Nordic region, $23 million of charges relating to the Company's operations in Australia, and $25 million of charges originating from the NHS contract in the Company's BSS segment. Additionally, $16 million and $2 million of charges were recorded in the NPS segment and other operations of the Company, respectively. The fiscal 2012 out of period adjustments primarily related to the Company’s MSS and BSS segments, with $37 million and $26 million of adjustments within MSS and BSS, respectively.

During the third quarter and through the first nine months of fiscal 2012, based on information then known by the Company, the Company recorded, primarily in the Nordic Region and Australia, net pre-tax adjustments reducing income from continuing operations before taxes by $3 million and $31 million ($1 million and $23 million, net of tax), respectively, that should have been recorded in prior fiscal years.

Nordic Region Adjustments

The Nordic pre-tax adjustments recorded in the third quarter and first nine months of fiscal 2012, based on information then known by the Company, totaled $2 million and $10 million, respectively, and were primarily attributable to an understatement of amortization expense resulting from the use of incorrect useful lives for purchased software licenses. The Company attributes these Nordic adjustments to miscellaneous errors and not to any accounting irregularities or intentional misconduct (other than a $1 million operating lease adjustment, which was a refinement of an error previously corrected and reported in fiscal 2011).

Australia

In the course of the Australia investigation initiated in fiscal 2012, accounting errors and irregularities were identified. Based on the information then known by the Company, the Company recorded $1 million and $20 million of pre-tax adjustments reducing income from continuing operations during the third quarter and the nine months ended December 30, 2011, respectively. Such adjustments have been categorized as either intentional accounting irregularities (“intentional irregularities”) or other accounting errors (“Other Errors”). Other Errors include both unintentional errors and errors for which the categorization is unclear. The categorizations were provided to the Company through the independent investigation.

The impact of the Australia adjustments recorded during the first nine months of fiscal 2012 on income (loss) from continuing operations before taxes is attributable to the following prior fiscal years:

	Increase/(Decrease)
(Amounts in millions)	FY08 & Prior (unaudited)			FY09 (unaudited)			FY10			FY11			Total
Intentional irregularities	$	10		$	(7	)	$	(4	)	$	—		$	(1	)
Other Errors	(5		)	(16		)	5			(3		)	(19		)
	$	5		$	(23	)	$	1		$	(3	)	$	(20	)

The principal intentional irregularities relate to excess reserves of $8 million established in fiscal 2008 to manage earnings, which reserves were reversed in fiscal 2009, while the unintentional errors include an incorrect accounting conclusion on a sale leaseback transaction in fiscal 2009 that triggered an impairment of $9 million and the inappropriate capitalization of transition costs of $3 million in fiscal 2011. In addition, included in the adjustments discussed above, the Company identified and recorded a $1 million pre-tax adjustment reducing income from continuing operations related to its review of the accounting treatment with respect to revenue recognition for one of its Australia customer contracts.

NHS Adjustments

As noted above, during fiscal 2012 and through the first nine months of fiscal 2013, the Company has identified certain accounting errors related to the Company's use of the percentage of completion accounting method on its NHS contract. The impact of such errors would be to increase income from continuing operations before taxes by $47 million and $43 million for the third quarter and first nine months of fiscal 2012, respectively.

Other Adjustments

Based on information then known by the Company, the Company identified certain out of period adjustments related to MSS operations outside of the Nordics and Australia regions, which decreased income from continuing operations by $2 million and $1 million for the third quarter and for the first nine months, respectively, of fiscal 2012. The Company attributes these adjustments to miscellaneous errors and not to any accounting irregularities or intentional misconduct.

The following table summarizes the cumulative effect on net loss attributable to CSC common shareholders of the consolidated out of period adjustments recorded during fiscal 2011, fiscal 2012 and the nine months ended December 28, 2012. Certain adjustments reflected below only impacted quarters (unaudited) within the annual period.

	Increase/(Decrease)
(Amounts in millions)	Quarter Ended December 30, 2011			Nine Months Ended December 30, 2011
Nordic adjustments	$	2		$	12
Australia adjustments	2			22
NHS adjustments	47			43
Other adjustments	—			(3		)
Effect on loss from continuing operations before taxes	51			74
Taxes on income	(12		)	(2		)
Effect on net loss attributable to CSC common shareholders	$	39		$	72

The select line items of the Consolidated Condensed Statements of Operations for the quarter and nine months ended December 30, 2011 impacted by the out of period adjustments, including those recorded in the first nine months of fiscal 2013, under the rollover method are shown below.

	Quarter Ended December 30, 2011
(Amounts in millions, except per-share amounts)	As Reported			Adjustments Increase/ (Decrease)			Amount Adjusted for Removal of Errors
Revenue	$	3,687		$	45		$	3,732
Costs of services (excludes depreciation and amortization)	3,186			(20		)	3,166
Selling, general and administrative	272			4			276
Depreciation and amortization	301			7			308
Interest expense	42			—			42
Other (income) expense	12			3			15
Income from continuing operations before taxes	(1,459		)	51			(1,408		)
Taxes on income	(38		)	12			(26		)
Income from continuing operations	(1,421		)	39			(1,382		)
Loss from discontinued operations, net of taxes	30			—			30
Net income attributable to CSC common shareholders	(1,390		)	39			(1,351		)
EPS – Diluted
Continuing operations	$	(9.15	)	$	0.25		$	(8.90	)
Discontinued operations	0.19			—			0.19
Total	$	(8.96	)	$	0.25		$	(8.71	)

	Nine Months Ended December 30, 2011
(Amounts in millions, except per-share amounts)	As Reported			Adjustments Increase/ (Decrease)			Amount Adjusted for Removal of Errors
Revenue	$	11,527		$	40		$	11,567
Costs of services (excludes depreciation and amortization)	9,730			(32		)	9,698
Selling, general and administrative	838			2			840
Depreciation and amortization	868			(2		)	866
Interest expense	129			(3		)	126
Other (income) expense	1			1			2
Income from continuing operations before taxes	(4,260		)	74			(4,186		)
Taxes on income	(78		)	2			(76		)
Income from continuing operations	(4,182		)	72			(4,110		)
Loss from discontinued operations, net of taxes	110			—			110
Net income attributable to CSC common shareholders	(4,084		)	72			(4,012		)
EPS – Diluted
Continuing operations	$	(27.06	)	$	0.46		$	(26.60	)
Discontinued operations	0.71			—			0.71
Total	$	(26.35	)	$	0.46		$	(25.89	)

The out of period adjustments impacting income from continuing operations before taxes recorded by the Company through the nine months ended December 30, 2011 are related to the following consolidated balance sheet line items:

• Accounts receivable ($48 milliondecrease);

• Prepaid expenses and other current assets ($40 millionincrease);

• Property and equipment ($26 milliondecrease);

• Accrued expense ($42 millionincrease); and

• Deferred revenue ($2 milliondecrease).

The Company determined that the impact of the consolidated out of period adjustments recorded in the third quarter of fiscal 2012 was immaterial to the consolidated results, financial position and cash flows for the third quarter of fiscal 2012 and prior periods. Consequently, the cumulative effect of these adjustments was recorded during the third quarter of fiscal 2012.