Segment Information

9 Months Ended

Dec. 31, 2011

Segment Information [Abstract]

SEGMENT INFORMATION

NOTE Q – SEGMENT INFORMATION

In the first quarter of fiscal year 2012, the Company changed 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. 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.

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 first nine months of fiscal year 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. See Note D, “Severance and Exit Costs,” for additional information.

Segment expenses do not 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 nine months ended December 31, 2011 and 2010 is as follows:

Three Months Ended December 31, 2011 (in millions)	Mainframe Solutions			Enterprise Solutions			Services			Total
Revenue	$	682		$	478		$	103		$	1,263
Expenses		277			419			92			788
Segment profit	$	405		$	59		$	11		$	475
Segment operating margin		59	%		12	%		11	%		38	%
Depreciation and amortization	$	25		$	35		$	—		$	60

Reconciliation of segment profit to income from continuing operations before income taxes for the three months ended December 31, 2011:

Segment profit	$	475
Less:
Purchased software amortization		27
Other intangibles amortization		16
Share-based compensation expense		20
Other unallocated operating gains, net (1)		(1	)
Interest expense, net		9
Income from continuing operations before income taxes	$	404

^{(1) Other unallocated operating gains, net consists of restructuring costs associated with the Company’s Fiscal 2007 Plan, foreign exchange derivative (gains) losses, and other miscellaneous costs.}

Nine Months Ended December 31, 2011 (in millions)	Mainframe Solutions			Enterprise Solutions			Services			Total
Revenue	$	1,983		$	1,354		$	289		$	3,626
Expenses		861			1,223			272			2,356
Segment profit	$	1,122		$	131		$	17		$	1,270
Segment operating margin		57	%		10	%		6	%		35	%
Depreciation and amortization	$	74		$	98		$	—		$	172

Reconciliation of segment profit to income from continuing operations before income taxes for the nine months ended December 31, 2011:

Segment profit	$	1,270
Less:
Purchased software amortization		76
Other intangibles amortization		50
Share-based compensation expense		61
Other unallocated operating gains, net (1)		(5	)
Interest expense, net		24
Income from continuing operations before income taxes	$	1,064

^{(1) Other unallocated operating gains, net consists of restructuring costs associated with the Company’s Fiscal 2007 Plan, foreign exchange derivative (gains) losses, and other miscellaneous costs.}

Three Months Ended December 31, 2010 (in millions)	Mainframe Solutions			Enterprise Solutions			Services			Total
Revenue	$	628		$	428		$	88		$	1,144
Expenses		289			391			79			759
Segment profit	$	339		$	37		$	9		$	385
Segment operating margin		54	%		9	%		10	%		34	%
Depreciation and amortization	$	26		$	32		$	—		$	58

Reconciliation of segment profit to income from continuing operations before income taxes for the three months ended December 31, 2010:

Segment profit	$	385
Less:
Purchased software amortization		23
Other intangibles amortization		18
Share-based compensation expense		21
Other unallocated operating gains, net (1)		(9	)
Interest expense, net		10
Income from continuing operations before income taxes	$	322

^{(1) Other unallocated operating gains, net consists of restructuring costs associated with the Company’s Fiscal 2007 Plan, foreign exchange derivative (gains) losses, and other miscellaneous costs.}

Nine Months Ended December 31, 2010 (in millions)	Mainframe Solutions			Enterprise Solutions			Services			Total
Revenue	$	1,858		$	1,198		$	245		$	3,301
Expenses		834			1,104			230			2,168
Segment profit	$	1,024		$	94		$	15		$	1,133
Segment operating margin		55	%		8	%		6	%		34	%
Depreciation and amortization	$	77		$	85		$	—		$	162

Reconciliation of segment profit to income from continuing operations before income taxes for the nine months ended December 31, 2010:

Segment profit	$	1,133
Less:
Purchased software amortization		67
Other intangibles amortization		51
Share-based compensation expense		61
Other unallocated operating gains, net (1)		(1	)
Interest expense, net		35
Income from continuing operations before income taxes	$	920

^{(1) Other unallocated operating gains, net consists of restructuring costs associated with the Company’s Fiscal 2007 Plan, foreign exchange derivative (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:

(in millions)	Three Months Ended December  31, 2011		Nine Months Ended December 31, 2011		Three Months Ended December 31, 2010		Nine Months Ended December 31, 2010
United States	$	745	$	2,107	$	639	$	1,874
International		518		1,519		505		1,427
Total revenue	$	1,263	$	3,626	$	1,144	$	3,301