Segment Information

3 Months Ended

Jun. 30, 2011

Segment Information [Abstract]

SEGMENT INFORMATION

NOTE P — SEGMENT INFORMATION

In the first quarter of fiscal year 2012, the Company completed its implementation of changing the internal reporting used by its Chief Executive Officer for evaluating segment performance and allocating resources. The new reporting disaggregates the Company’s operations into Mainframe Solutions, Enterprise Solutions and Services segments, and represents a change in the Company’s operating segments under ASC 280, “Segment Reporting”. Prior to fiscal year 2012, the Company reported and managed its business based on a single operating segment under ASC 280.

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 product hierarchy in which the platform operates on. The Services operating segment comprises implementation, consulting, education and training services, including those directly related to the mainframe and distributed software that the Company sells to its customers.

The Company regularly enters into a single arrangement with a customer that includes Mainframe Solutions segment software products, Enterprise Solutions segment software products and Services. The amount of contract revenue assigned to segments is generally based on the manner in which the proposal is made to the customer. The software product revenue is assigned to the Mainframe Solutions and Enterprise Solutions segments based on either: (1) a list price allocation method (which allocates a discount in the total contract price to the individual products in proportion to the list price of the products); (2) allocations included within internal contract approval documents; or (3) the value for individual software products as stated in the customer contract. The price for the implementation, consulting, education and training services is separately stated in the contract and these amounts of contract revenue are assigned to the Services segment. The contract value assigned to each segment is then recognized in a manner consistent with the revenue recognition policies the Company applies to the customer contract for purposes of preparing the Condensed Consolidated Financial Statements.

Segment expenses include costs that are controllable by segment managers (i.e., direct costs) and, in the case of the Mainframe Solutions and Enterprise Solutions segments, an allocation of shared and indirect costs (i.e., allocated costs). Segment-specific direct costs include a portion of selling and marketing costs, licensing and maintenance costs, product development costs, general and administrative costs and amortization of the cost of internally developed software. Allocated segment costs primarily include indirect selling and marketing costs and general and administrative costs that are not directly attributable to a specific segment. The basis for allocating shared and indirect costs between the Mainframe Solutions and Enterprise Solutions segments is dependent on the nature of the cost being allocated and is either in proportion to segment revenues or in proportion to the related direct cost category. Expenses for the Services segment consist only of direct costs and there are no allocated or indirect costs for the Services segment.

Unallocated segment expenses include the following: share-based compensation expense; amortization of purchased software; amortization of other intangible assets; derivative hedging gains and losses; and severance, exit costs and related charges associated with the Company’s Fiscal 2007 Plan.

A measure of segment assets is not currently provided to the Company’s Chief Executive Officer and has therefore not been disclosed. Also, goodwill by segment has not been disclosed because the Company has not yet completed its allocation of goodwill among the segments.

The Company’s segment information for the three months ended June 30, 2011 and 2010 is as follows:

Three months ended June 30, 2011	Mainframe			Enterprise
(in millions)	Solutions			Solutions			Services			Total
Revenue	$	646		$	427		$	90		$	1,163
Expenses		276			382			88			746
Segment profit	$	370		$	45		$	2		$	417
Segment operating margin		57	%		11	%		2	%		36	%
Depreciation and amortization	$	24		$	31		$	—		$	55

Reconciliation of segment profit to income from continuing operations before income taxes for the three months ended June 30, 2011:
Segment profit	$	417
Less:
Amortization of purchased software		23
Amortization of other intangible assets		19
Share-based compensation expense		25
Other unallocated operating expenses, net(1)		8
Interest expense, net		9
Income from continuing operations before income taxes	$	333

⁽¹⁾ Other unallocated operating expenses, net consists of restructuring costs associated with the Company’s Fiscal 2007 Plan, hedging (gains) losses, and other miscellaneous costs.

Three months ended June 30, 2010	Mainframe			Enterprise
(in millions)	Solutions			Solutions			Services			Total
Revenue	$	615		$	376		$	78		$	1,069
Expenses		280			351			74			705
Segment profit	$	335		$	25		$	4		$	364
Segment operating margin		54	%		7	%		5	%		34	%
Depreciation and amortization	$	26		$	25		$	—		$	51

Reconciliation of segment profit to income from continuing operations before income taxes for the three months ended June 30, 2010:
Segment profit	$	364
Less:
Amortization of purchased software		22
Amortization of other intangible assets		16
Share-based compensation expense		19
Other unallocated operating gains, net(1)		(14	)
Interest expense, net		13
Income from continuing operations before income taxes	$	308

⁽¹⁾ Other unallocated operating gains, net consists of restructuring costs associated with the Company’s Fiscal 2007 Plan, hedging (gains) 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		Three months ended
(in millions)	June 30, 2011		June 30, 2010
United States	$	672	$	613
International		491		456
Total revenue	$	1,163	$	1,069