Segment Information

9 Months Ended

Dec. 31, 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 period 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 nine months ended December 31, 2012. The Company will continue to have the ability to use these intellectual property assets in current and future product offerings.

During the third quarter of fiscal year 2013, the Company incurred severance costs of which $5 million, $11 million and $2 million were assigned to the Mainframe Solutions, Enterprise Solutions and Services segments, respectively. Refer to Note C, “Severance and Exit Costs.”

The Company’s segment information for the three and nine months ended December 31, 2013 and 2012 was as follows:

Three Months Ended December 31, 2013	Mainframe Solutions			Enterprise Solutions			Services			Total
(dollars in millions)
Revenue	$	622		$	447		$	94		$	1,163
Expenses	239			378			90			707
Segment profit	$	383		$	69		$	4		$	456
Segment operating margin	62		%	15		%	4		%	39		%
Depreciation	$	13		$	8		$	—		$	21

Reconciliation of segment profit to income before income taxes for the three months ended December 31, 2013:

(in millions)
Segment profit	$	456
Less:
Purchased software amortization	29
Other intangibles amortization	19
Software development costs capitalized	(1		)
Internally developed software products amortization	43
Share-based compensation expense	23
Other (gains) expenses, net (1)	9
Interest expense, net	15
Income before income taxes	$	319

(1) Other (gains) expenses, net consists of approximately $12 million of costs associated with the Fiscal 2014 Plan, certain foreign exchange derivative hedging gains and losses, and other miscellaneous costs.

Nine Months Ended December 31, 2013	Mainframe Solutions			Enterprise Solutions			Services			Total
(dollars in millions)
Revenue	$	1,865		$	1,277		$	289		$	3,431
Expenses	709			1,105			268			2,082
Segment profit	$	1,156		$	172		$	21		$	1,349
Segment operating margin	62		%	13		%	7		%	39		%
Depreciation	$	39		$	26		$	—		$	65

Reconciliation of segment profit to income before income taxes for the nine months ended December 31, 2013:

(in millions)
Segment profit	$	1,349
Less:
Purchased software amortization	88
Other intangibles amortization	48
Software development costs capitalized	(32		)
Internally developed software products amortization	126
Share-based compensation expense	64
Other (gains) expenses, net (1)	134
Interest expense, net	39
Income before income taxes	$	882

(1) Other (gains) expenses, net consists of approximately $134 million of costs associated with the Fiscal 2014 Plan, certain foreign exchange derivative hedging gains and losses, and other miscellaneous costs.

Three Months Ended December 31, 2012	Mainframe Solutions			Enterprise Solutions			Services			Total
(dollars in millions)
Revenue	$	622		$	476		$	97		$	1,195
Expenses	253			425			93			771
Segment profit	$	369		$	51		$	4		$	424
Segment operating margin	59		%	11		%	4		%	35		%
Depreciation	$	14		$	11		$	—		$	25

Reconciliation of segment profit to income before income taxes for the three months ended December 31, 2012:

(in millions)
Segment profit	$	424
Less:
Purchased software amortization	26
Other intangibles amortization	14
Software development costs capitalized	(44		)
Internally developed software products amortization	40
Share-based compensation expense	18
Other (gains) expenses, net (1)	—
Interest expense, net	12
Income before income taxes	$	358

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

Nine Months Ended December 31, 2012	Mainframe Solutions			Enterprise Solutions			Services			Total
(dollars in millions)
Revenue	$	1,869		$	1,340		$	283		$	3,492
Expenses	764			1,191			269			2,224
Segment profit	$	1,105		$	149		$	14		$	1,268
Segment operating margin	59		%	11		%	5		%	36		%
Depreciation	$	46		$	33		$	—		$	79

Reconciliation of segment profit to income before income taxes for the nine months ended December 31, 2012:

(in millions)
Segment profit	$	1,268
Less:
Purchased software amortization	80
Other intangibles amortization	41
Software development costs capitalized	(122		)
Internally developed software products amortization	117
Share-based compensation expense	62
Other (gains) expenses, net (1)	2
Interest expense, net	33
Income before income taxes	$	1,055

(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 December 31,				Nine Months Ended December 31,
	2013		2012		2013		2012
	(in millions)
United States	$	684	$	701	$	2,044	$	2,068
Europe	288		291		819		830
Other	191		203		568		594
Total revenue	$	1,163	$	1,195	$	3,431	$	3,492