Segment and Geographic Information

12 Months Ended

Mar. 31, 2012

Segment and Geographic Information [Abstract]

Segment and Geographic Information

Note 18 — Segment and Geographic 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 as 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, enterprise solutions 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 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.

For fiscal year 2012, the Company incurred severance costs associated with the Fiscal 2012 Plan, of which $22 million, $19 million and $1 million were assigned to the Mainframe Solutions, Enterprise Solutions and Services segments, respectively. For fiscal year 2010, the Company incurred severance costs associated with the Fiscal 2010 Plan, of which $23 million, $23 million and $2 million were assigned to the Mainframe Solutions, Enterprise Solutions and Services segments, respectively. See Note 4, “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.

The carrying amount of goodwill by operating segment at March 31, 2012 was approximately $4,179 million, $1,596 million and $81 million for Mainframe Solutions, Enterprise Solutions and Services, respectively.

The Company’s segment information for fiscal years 2012, 2011 and 2010 is as follows:

Year Ended March 31, 2012

(dollars in millions)	MAINFRAME SOLUTIONS			ENTERPRISE SOLUTIONS			SERVICES			TOTAL
Revenue	$	2,612		$	1,820		$	382		$	4,814
Expenses		1,140			1,668			359			3,167
Segment profit	$	1,472		$	152		$	23		$	1,647
Segment operating margin		56	%		8	%		6	%		34	%
Depreciation and amortization	$	99		$	134		$	—		$	233

Reconciliation of segment profit to income from continuing operations before income taxes for fiscal year 2012:

Segment profit	$	1,647
Less:
Purchased software amortization		103
Other intangibles amortization		65
Share-based compensation expense		89
Other unallocated operating gains, net(1)		1
Interest expense, net		35
Income from continuing operations before income taxes	$	1,354

(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.

Year Ended March 31, 2011

(dollars in millions)	MAINFRAME SOLUTIONS			ENTERPRISE SOLUTIONS			SERVICES			TOTAL
Revenue	$	2,479		$	1,623		$	327		$	4,429
Expenses		1,129			1,501			310			2,940
Segment profit	$	1,350		$	122		$	17		$	1,489
Segment operating margin		54	%		8	%		5	%		34	%
Depreciation and amortization	$	102		$	116		$	—		$	218

Reconciliation of segment profit to income from continuing operations before income taxes for fiscal year 2011:

Segment profit	$	1,489
Less:
Purchased software amortization		88
Other intangibles amortization		73
Share-based compensation expense		80
Other unallocated operating gains, net(1)		(6	)
Interest expense, net		45
Income from continuing operations before income taxes	$	1,209

(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.

Year Ended March 31, 2010

(dollars in millions)	MAINFRAME SOLUTIONS			ENTERPRISE SOLUTIONS			SERVICES			TOTAL
Revenue	$	2,515		$	1,424		$	288		$	4,227
Expenses		1,162			1,350			280			2,792
Segment profit	$	1,353		$	74		$	8		$	1,435
Segment operating margin		54	%		5	%		3	%		34	%
Depreciation and amortization	$	93		$	96		$	—		$	189

Reconciliation of segment profit to income from continuing operations before income taxes for fiscal year 2010:

Segment profit	$	1,435
Less:
Purchased software amortization		49
Other intangibles amortization		54
Share-based compensation expense		102
Other unallocated operating gains, net(1)		2
Interest expense, net		76
Income from continuing operations before income taxes	$	1,152

(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 Company operates through branches and wholly-owned subsidiaries in 47 foreign countries located in North America (4), Europe (21), Asia/Pacific (14), South America (7), and Africa (1). Revenue is allocated to a geographic area based on the location of the sale, which is generally the customer’s country of domicile. The following table presents information about the Company by geographic area for fiscal years 2012, 2011 and 2010:

(in millions)	UNITED STATES		EUROPE		OTHER		ELIMINATIONS			TOTAL
Year Ended March 31, 2012
Revenue
To unaffiliated customers	$	2,812	$	1,182	$	820	$	—		$	4,814
Between geographic areas (1)		472		—		—		(472	)		—
Total revenue	$	3,284	$	1,182	$	820	$	(472	)	$	4,814
Property and equipment, net	$	181	$	121	$	84	$	—		$	386
Total assets	$	9,078	$	1,904	$	1,015	$	—		$	11,997
Total liabilities	$	4,911	$	1,009	$	680	$	—		$	6,600
Year Ended March 31, 2011
Revenue
To unaffiliated customers	$	2,519	$	1,139	$	771	$	—		$	4,429
Between geographic areas (1)		453		—		—		(453	)		—
Total revenue	$	2,972	$	1,139	$	771	$	(453	)	$	4,429
Property and equipment, net	$	211	$	132	$	94	$	—		$	437
Total assets	$	9,641	$	1,789	$	981	$	—		$	12,411
Total liabilities	$	4,996	$	1,163	$	632	$	—		$	6,791
Year Ended March 31, 2010
Revenue
To unaffiliated customers	$	2,337	$	1,177	$	713	$	—		$	4,227
Between geographic areas (1)		528		—		—		(528	)		—
Total revenue	$	2,865	$	1,177	$	713	$	(528	)	$	4,227
Property and equipment, net	$	239	$	127	$	86	$	—		$	452
Total assets	$	9,159	$	1,831	$	898	$	—		$	11,888
Total liabilities	$	5,195	$	1,092	$	614	$	—		$	6,901

(1) Represents royalties from foreign subsidiaries determined as a percentage of certain amounts invoiced to customer.

No single customer accounted for 10% or more of total revenue for fiscal year 2012, 2011 or 2010.