Segment Information

6 Months Ended

Sep. 30, 2013

Segment Reporting [Abstract]

SEGMENT INFORMATION

NOTE P – SEGMENT INFORMATION

The Company’s Mainframe Solutions and Enterprise Solutions operating segments comprise its software business organized by the nature of the Company’s software offerings and the platform on which the products operate. The Services operating segment comprises implementation, consulting, education and training services, including those directly related to the Mainframe Solutions and Enterprise Solutions software that the Company sells to its customers.

Segment expenses do not include share-based compensation expense; amortization of purchased software; amortization of other intangible assets; certain foreign exchange derivative hedging gains and losses; costs associated with our Fiscal 2014 Plan; and other miscellaneous costs. Additionally, starting in the first quarter of fiscal year 2014, the measure of segment expenses and segment profit was revised by the Chief Operating Decision Maker, who is the Company's Chief Executive Officer, to treat all costs of internal software development as segment expense in the period the costs are incurred and as a result, the Company will add back capitalized internal software costs and exclude amortization of internally developed software costs previously capitalized from segment expenses. Prior periods segment expense and profit information has been revised to present segment profit and expense on consistent basis. A measure of segment assets is not currently provided to the Company’s Chief Executive Officer and has therefore not been disclosed.

As part of the Company’s efforts to more fully utilize its intellectual property assets, in the first quarter of fiscal year 2013, the Company closed a transaction that assigned the rights to certain of these assets to a large technology company for approximately $35 million. The entire contract amount is included in the Enterprise Solutions segment for the six months ended September 30, 2012. The Company will continue to have the ability to use these intellectual property assets in current and future product offerings.

The Company’s segment information for the three and six months ended September 30, 2013 and 2012 was as follows:

Three Months Ended September 30, 2013	Mainframe Solutions			Enterprise Solutions			Services			Total
(dollars in millions)
Revenue	$	624		$	419		$	97		$	1,140
Expenses	228			357			88			673
Segment profit	$	396		$	62		$	9		$	467
Segment operating margin	63		%	15		%	9		%	41		%
Depreciation	$	13		$	9		$	—		$	22

Reconciliation of segment profit to income before income taxes for the three months ended September 30, 2013:

(in millions)
Segment profit	$	467
Less:
Purchased software amortization	31
Other intangibles amortization	15
Software development costs capitalized	(8		)
Internally developed software products amortization	42
Share-based compensation expense	21
Other (gains) expenses, net (1)	7
Interest expense, net	13
Income before income taxes	$	346

(1) Other (gains) expenses, net consists of approximately$2 million of costs associated with the Fiscal 2014 Plan, certain foreign exchange derivative hedging gains and losses, and other miscellaneous costs.

Six Months Ended September 30, 2013	Mainframe Solutions			Enterprise Solutions			Services			Total
(dollars in millions)
Revenue	$	1,243		$	830		$	195		$	2,268
Expenses	470			727			178			1,375
Segment profit	$	773		$	103		$	17		$	893
Segment operating margin	62		%	12		%	9		%	39		%
Depreciation	$	26		$	18		$	—		$	44

Reconciliation of segment profit to income before income taxes for the six months ended September 30, 2013:

(in millions)
Segment profit	$	893
Less:
Purchased software amortization	59
Other intangibles amortization	29
Software development costs capitalized	(31		)
Internally developed software products amortization	83
Share-based compensation expense	41
Other (gains) expenses, net (1)	125
Interest expense, net	24
Income before income taxes	$	563

(1) Other (gains) expenses, net consists of approximately$122 million of costs associated with the Fiscal 2014 Plan, certain foreign exchange derivative hedging gains and losses, and other miscellaneous costs.

Three Months Ended September 30, 2012	Mainframe Solutions			Enterprise Solutions			Services			Total
(dollars in millions)
Revenue	$	619		$	438		$	95		$	1,152
Expenses	250			409			89			748
Segment profit	$	369		$	29		$	6		$	404
Segment operating margin	60		%	7		%	6		%	35		%
Depreciation	$	16		$	11		$	—		$	27

Reconciliation of segment profit to income before income taxes for the three months ended September 30, 2012:

(in millions)
Segment profit	$	404
Less:
Purchased software amortization	27
Other intangibles amortization	13
Software development costs capitalized	(42		)
Internally developed software products amortization	40
Share-based compensation expense	21
Other (gains) expenses, net (1)	8
Interest expense, net	10
Income before income taxes	$	327

(1) Other (gains) expenses, net consists of certain foreign exchange derivative hedging gains and losses, and other miscellaneous costs.

Six Months Ended September 30, 2012	Mainframe Solutions			Enterprise Solutions			Services			Total
(dollars in millions)
Revenue	$	1,247		$	864		$	186		$	2,297
Expenses	511			766			176			1,453
Segment profit	$	736		$	98		$	10		$	844
Segment operating margin	59		%	11		%	5		%	37		%
Depreciation	$	32		$	22		$	—		$	54

Reconciliation of segment profit to income before income taxes for the six months ended September 30, 2012:

(in millions)
Segment profit	$	844
Less:
Purchased software amortization	54
Other intangibles amortization	27
Software development costs capitalized	(78		)
Internally developed software products amortization	77
Share-based compensation expense	44
Other (gains) expenses, net (1)	2
Interest expense, net	21
Income before income taxes	$	697

(1) Other (gains) expenses, net consists of certain foreign exchange derivative hedging gains and losses, and other miscellaneous costs.

The table below summarizes the Company’s revenue from the United States and from international (i.e., non-U.S.) locations:

	Three Months Ended September 30,				Six Months Ended September 30,
	2013		2012		2013		2012
	(in millions)
United States	$	687	$	685	$	1,360	$	1,368
Europe	267		266		531		538
Other	186		201		377		391
Total revenue	$	1,140	$	1,152	$	2,268	$	2,297