Acquisitions

Fiscal 2014 Acquisitions

ServiceMesh Acquisition

On November 15, 2013, CSC acquired ServiceMesh Inc. (SMI), a privately-held cloud services management company, headquartered in Santa Monica, California, with operations in the United States, Australia and the United Kingdom, for total purchase consideration of $282 million. The acquisition enhances CSC's ability to help its clients migrate their applications into cloud computing environments and to automate the deployment and management of enterprise applications and platforms across private, public and hybrid cloud environments.

The purchase consideration included: 1) cash of $163 million paid at closing to and on behalf of the SMI shareholders, including $10 million paid to retire SMI's debt and 2) additional consideration of $119 million contingent on the achievement of contractually agreed revenue targets. The Company incurred transaction costs of $4 million associated with this acquisition, which are included within selling, general and administrative expenses. The acquisition was funded from CSC's existing cash balances.

The amount of contingent consideration was based on a contractually defined multiple of SMI’s revenues during a specified period ending January 31, 2014. The Company determined the fair value of the contingent consideration payable using a probability-weighted approach, which at the end of the third quarter of fiscal 2014 was preliminarily estimated to be $137 million, representing the maximum amount of contingent consideration payable. During the fourth quarter, the Company reduced the fair value of the contingent consideration payable and goodwill by $18 million, based on additional facts and circumstances that existed as of the acquisition date but which were not known until the fourth quarter. These facts, had they been known, would have reduced the Company's original acquisition-date estimate of the fair value of contingent consideration to $119 million.

After the expiration of the contractual period, the final amount of the contingent consideration payable was determined to be $98 million, which was paid during the fourth quarter. The difference of $21 million, between the revised fair value of contingent consideration liability of $119 million and the actual amount paid of $98 million, was primarily due to the deferral of revenues related to certain software license sales to periods beyond the specified earn-out measurement period. This difference of $21 million was recorded as a reduction to selling, general and administrative expenses during the fourth quarter.

The results of SMI are included in the Company's consolidated financial statements from the date of acquisition, within its GIS segment. For the fiscal year ended March 28, 2014, SMI contributed revenues of $18 million, and operating income of $17 million, primarily due to the $21 million adjustment described above, partially offset by $4 million of amortization of the acquired intangibles.

The preliminary allocation of the purchase consideration to the assets acquired and liabilities assumed, including the fourth quarter adjustments to the estimated fair value of contingent consideration, is presented below:



(Amounts in millions)	Estimated Fair Value
Accounts receivable and other current assets	$	3
Deferred tax assets	31
Intangible asset - developed technology	94
Intangible assets - customer relationships and trade names	10
Property and equipment and other non-current assets	2
Deferred revenue and other current liabilities	(4		)
Deferred tax liabilities	(38		)
Total identifiable net assets acquired	98
Goodwill	184
Total purchase consideration	$	282

As of the acquisition date, the fair value of trade receivables approximated book value and are considered fully recoverable. The Company’s purchase price allocation is preliminary, and is subject to the final net working capital adjustment and additional information related to the liabilities that existed as of the acquisition date.

The amortizable lives associated with the intangible assets acquired are as follows:



Description	Estimated Useful Lives (Years)
Developed technology	9
Customer relationships	3
Trade names	4 - 6

The goodwill recognized in the acquisition is attributable to the intellectual capital, the acquired assembled work force, and expected cost synergies, none of which qualify for recognition as a separate intangible asset. The goodwill arising from the acquisition was preliminarily allocated to the Company's reportable segments based on the relative fair value of the expected incremental cash flows that the acquisition is expected to provide to each reporting unit within the Company's reportable segments. Goodwill was allocated as follows: GBS: $28 million, GIS: $120 million, and NPS: $36 million. The goodwill is not expected to be deductible for tax purposes.

In connection with the SMI acquisition, the Company granted to certain SMI employees restricted stock units with a grant-date fair value of $41 million. These awards generally vest over a three-year period, associated with the continuing employment of the SMI employees, beginning from the date of acquisition, and are recorded as compensation expense ratably over the three-year period.

Infochimps Acquisition

On August 5, 2013, CSC acquired Infochimps, Inc. (Infochimps), a privately-held company, in an all-cash transaction for $27 million. The acquisition complements CSC’s existing Big Data business by providing a flexible, scalable, platform-as-a-service offering. The purchase price has been allocated to assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition: $2 million to current and other long-term assets, $2 million to current and long-term liabilities, and $27 million to goodwill. As of the acquisition date, the fair value of trade receivables approximated book value and was considered fully recoverable. The goodwill is associated with the Company's GBS segment and is not tax-deductible.

Pro forma financial information for the fiscal 2014 acquisitions was not presented as the effects of the acquisitions were neither individually nor in the aggregate material to CSC's consolidated results.

Fiscal 2013 Acquisition

In the second quarter of fiscal 2013, CSC acquired a privately-held entity for $35 million in an all-cash transaction. The entity was acquired to enhance CSC's capabilities in Big Data processing and analytics. The purchase price was allocated to assets acquired and liabilities assumed based on their estimated fair values at the acquisition date: $4 million to current assets, $8 million to acquired intangible assets, $2 million to liabilities, and $25 million to goodwill. As of the acquisition date, the fair value of trade receivables approximated book value and was considered fully recoverable. The goodwill is associated with the NPS segment and is expected to be tax deductible. The pro forma financial information for this acquisition is not presented because the effects of this acquisition were not material to CSC’s consolidated results.

Fiscal 2012 Acquisitions

iSOFT Acquisition

On July 29, 2011, CSC completed the acquisition of iSOFT Group Limited (iSOFT), an Australian public company. iSOFT was a global healthcare IT company providing advanced application solutions principally to secondary care providers across both the public and private sectors. The acquisition complemented and strengthened CSC’s software products, healthcare integration and services portfolio, and its healthcare research and development capabilities.

CSC acquired all of the outstanding shares in iSOFT for cash consideration of $200 million and the assumed debt of $315 million, of which $298 million was repaid immediately after the acquisition. The acquisition was funded through CSC’s existing cash balances.

Prior to the acquisition, the Company and iSOFT had a subcontracting agreement related to the development and delivery of software and IT services under the Company’s NHS contract. The agreement was effectively settled upon the completion of the acquisition. The Company determined that the subcontract was at market and no settlement gain or loss was recognized on the pre-existing relationship.

The results of iSOFT were included in the Company’s consolidated financial statements from the date of acquisition within its GBS segment. For the twelve months ended March 30, 2012, iSOFT contributed revenues of $123 million and an operating loss of $79 million, including the effect of purchase accounting adjustments, primarily relating to the amortization of intangibles. The operating loss was offset by currency gains of $18 million, resulting in an effective loss of $61 million before interest and taxes. The currency gains, which resulted from unhedged inter-company loans, are included in other income. The following unaudited pro forma summary presents consolidated information of the Company as if the acquisition of iSOFT had occurred on April 3, 2010 for all periods presented:



	Twelve Months Ended March 30, 2012
(Amounts in millions, except per-share data)	As Restated and Adjusted			Pro Forma
Revenue	$	14,673		$	14,751
Net loss attributable to CSC common shareholders	(616		)	(718		)

Basic EPS	$	(3.97	)	$	(4.63	)
Diluted EPS	(3.97		)	(4.63		)

The pro forma financial information above is not indicative of the results that would have actually been obtained if the acquisition had occurred on April 3, 2010, or that may be obtained in the future. No effect has been given to cost reductions or operating synergies relating to the integration of iSOFT in the Company’s operations. The information for the twelve months ended March 30, 2012 has been adjusted to exclude $37 million of goodwill impairment recorded by iSOFT in June 2011, prior to its acquisition by CSC. Additionally, the twelve months ended March 30, 2012 information has been adjusted to exclude the transaction costs of $11 million.

The fair values of the assets acquired and liabilities assumed at acquisition date, including adjustments to the valuation of net assets acquired based on additional information that subsequently became available during fiscal 2012, are summarized as follows:



(Amounts in millions)	Estimated Fair Value
Cash and cash equivalents	$	26
Trade and other receivables	114
Other current assets	14
Intangible assets	198
Property and equipment	21
Other non-current assets	3
Trade payables and accrued expenses	(62		)
Deferred revenue	(54		)
Debt	(315		)
Deferred taxes, uncertain tax positions, and other long-term liabilities	(61		)
Total identifiable net assets acquired	(116		)
Goodwill	316
Total cash purchase price	$	200

As of the acquisition date, the fair value of receivables approximated book value, which included billed and unbilled receivables and the historical allowance for uncollectible amounts of $10 million.

The components of the definite-lived intangible assets acquired and their respective estimated useful lives were as follows:



(Amounts in millions)	Estimated Fair Value		Estimated Useful Lives (Years)
Customer relationships	$	92	10-13
Software	102		2-7
Trade names	4		1
Total intangible assets	$	198

The entire amount of goodwill is associated with the Company’s GBS segment, and is attributable to expected increases in the Company’s market capabilities, synergies from combining operations, and the value of the acquired workforce. Of the estimated total goodwill, $71 million was estimated to be tax deductible.

AppLabs Acquisition

On September 13, 2011, CSC acquired AppLabs Technologies Private Limited (AppLabs), a Company headquartered in India, which significantly enhances CSC’s capabilities in application testing services as well as shortening time-to-market. The AppLabs acquisition was to complement CSC’s expertise in financial services, healthcare, manufacturing, chemical, energy and natural resources and technology and consumer verticals.

CSC acquired all outstanding shares of AppLabs for cash consideration of $171 million, which was funded through CSC’s existing cash balances.

The results of AppLabs were included in the Company’s consolidated financial statements from the date of acquisition. For the twelve months ended March 30, 2012, AppLabs contributed revenues of $60 million and net income of $2 million, including the effect of purchase accounting adjustments, primarily relating to amortization of intangibles. The pro forma financial information for this acquisition was not presented as the effects of this acquisition were not material to CSC’s consolidated results.

The fair values of the assets acquired and liabilities assumed at the acquisition date, including adjustments to the valuation of net assets acquired based on additional information that subsequently became available during fiscal 2012, are summarized as follows:



(Amounts in millions)	Estimated Fair Value
Cash and cash equivalents	$	4
Trade receivables	20
Other current assets	8
Intangible assets	26
Property and equipment	4
Trade payables and accrued expenses	(26		)
Deferred taxes and uncertain tax positions	(20		)
Other liabilities	(2		)
Total identifiable net assets acquired	14
Goodwill	157
Total purchase price	$	171

As of the acquisition date, the fair value of trade receivables approximated book value and was considered fully recoverable.

The components of the definite-lived intangible assets acquired and their respective estimated useful lives are as follows:

The entire amount of goodwill is associated with the Company’s GBS segment and was attributable to expected increases in the Company’s market capabilities and the value of the acquired workforce. None of the goodwill was tax deductible.

Other Acquisitions

During fiscal 2012, CSC also acquired two other small privately-held entities for $28 million in all-cash transactions plus additional consideration of up to $2 million contingent on achievement of agreed revenue targets for future periods through the end of May 2014. The acquisitions enhanced CSC’s offerings in the healthcare IT and financial services industries.

The results of the acquired businesses were included in the Company’s consolidated financial statements from their respective acquisition dates. The pro forma financial information for these acquisitions is not presented as these acquisitions, both individually and in the aggregate, were not material to CSC’s consolidated results.

The purchase prices were allocated to assets acquired and liabilities assumed based on their estimated fair values at the respective acquisition dates: $8 million to current assets, $2 million to property and equipment, $7 million to intangible assets, $6 million to liabilities and $17 million to goodwill. Identified intangible assets consist primarily of customer related intangibles with useful lives of 4-10 years. Of the $17 million goodwill, $14 million is associated with the NPS segment and $3 million with the GBS segment. The $14 million goodwill associated with the NPS segment is expected to be tax deductible.

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Estimated Useful Lives
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Total intangible assets