Segment Information

6 Months Ended

Sep. 30, 2011

Segment Information [Abstract]

SEGMENT INFORMATION

NOTE Q — 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 represented 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.

During the second quarter of fiscal 2012, the Company incurred severance costs associated with the Fiscal 2012 Plan, of which $23 million, $20 million and $1 million were assigned to the Mainframe Solutions, Enterprise Solutions and Services segments, respectively. Refer to Note D, “Severance and Exit Costs,” in the Notes to the Condensed Consolidated Financial Statements for additional information.

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 and six months ended September 30, 2011 and 2010 is as follows:

Three Months Ended September 30, 2011	Mainframe			Enterprise
(in millions)	Solutions			Solutions			Services			Total
Revenue	$	655		$	449		$	96		$	1,200
Expenses		308			422			92			822
Segment profit	$	347		$	27		$	4		$	378
Segment operating margin		53	%		6	%		4	%		32	%
Depreciation and amortization	$	25		$	32		$	—		$	57

Reconciliation of segment profit to income from continuing operations before income taxes for the three months ended September 30, 2011:

Segment profit	$	378
Less:
Amortization of purchased software		26
Amortization of other intangible assets		15
Share-based compensation expense		16
Other unallocated operating (gains) expenses, net(1)		(12	)
Interest expense, net		6
Income from continuing operations before income taxes	$	327

⁽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.

Six Months Ended September 30, 2011	Mainframe			Enterprise
(in millions)	Solutions			Solutions			Services			Total
Revenue	$	1,301		$	876		$	186		$	2,363
Expenses		584			804			180			1,568
Segment profit	$	717		$	72		$	6		$	795
Segment operating margin		55	%		8	%		3	%		34	%
Depreciation and amortization	$	49		$	63		$	—			112

Reconciliation of segment profit to income from continuing operations before income taxes for the six months ended September 30, 2011:

Segment profit	$	795
Less:
Amortization of purchased software		49
Amortization of other intangible assets		34
Share-based compensation expense		41
Other unallocated operating (gains) expenses, net(1)		(4	)
Interest expense, net		15
Income from continuing operations before income taxes	$	660

⁽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 September 30, 2010	Mainframe			Enterprise
(in millions)	Solutions			Solutions			Services			Total
Revenue	$	615		$	394		$	79		$	1,088
Expenses		265			362			77			704
Segment profit	$	350		$	32		$	2		$	384
Segment operating margin		57	%		8	%		3	%		35	%
Depreciation and amortization	$	25		$	28		$	—		$	53

Reconciliation of segment profit to income from continuing operations before income taxes for the three months ended September 30, 2010:

Segment profit	$	384
Less:
Amortization of purchased software		22
Amortization of other intangible assets		17
Share-based compensation expense		21
Other unallocated operating (gains) expenses, net(1)		22
Interest expense, net		12
Income from continuing operations before income taxes	$	290

⁽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.

Six Months Ended September 30, 2010	Mainframe			Enterprise
(in millions)	Solutions			Solutions			Services			Total
Revenue	$	1,230		$	770		$	157		$	2,157
Expenses		545			713			151			1,409
Segment profit	$	685		$	57		$	6		$	748
Segment operating margin		56	%		7	%		4	%		35	%
Depreciation and amortization	$	51		$	53		$	—		$	104

Reconciliation of segment profit to income from continuing operations before income taxes for the six months ended September 30, 2010:

Segment profit	$	748
Less:
Amortization of purchased software		44
Amortization of other intangible assets		33
Share-based compensation expense		40
Other unallocated operating (gains) expense, net(1)		8
Interest expense, net		25
Income from continuing operations before income taxes	$	598

⁽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		Six Months Ended		Three Months Ended		Six Months Ended
(in millions)	September 30, 2011		September 30, 2011		September 30, 2010		September 30, 2010
United States	$	690	$	1,362	$	622	$	1,235
International		510		1,001		466		922
Total revenue	$	1,200	$	2,363	$	1,088	$	2,157