Segment Reporting

9 Months Ended

Dec. 31, 2012

Segment Reporting

(9) Segment Reporting

We are organized into two primary business units, Enterprise Service Management (ESM) and Mainframe Service Management (MSM). ESM derives its revenue from our performance management, automation, IT service management, and Atrium solution suites (collectively, ESM-Solutions), along with professional services revenue derived from consulting, implementation, integration and educational services related principally to the delivery of our ESM solutions (ESM-Services). MSM derives its revenue from solution suites for mainframe data and performance management and enterprise workload automation. Beginning in the first quarter of fiscal 2013, we expanded our ESM segment reporting to include separate financial information for both ESM-Solutions and ESM-Services, consistent with the manner in which business segment performance is being assessed internally for evaluating performance and making resource allocation decisions.

Segment performance is measured based on internal segment operating income. Segment operating income for ESM-Solutions and MSM reflects segment revenue less direct and allocated indirect segment operating expenses. Direct segment operating expenses primarily include cost of revenue, selling and marketing, research and development and general and administrative expenses that can be specifically identified to a particular segment and are directly controllable by segment management, while allocated indirect segment operating expenses primarily include indirect costs within these operating expense categories that are not specifically identified to a particular segment or controllable by segment management. Indirect operating expenses are allocated to ESM-Solutions and MSM based on budgeted bookings, revenue and other allocation methods that management believes to be reasonable. Segment operating income for ESM-Services reflects professional services revenue less direct segment operating expenses consisting primarily of cost of professional services revenue and direct selling and marketing costs. The Company has reclassified all periods presented to conform to the current period presentation.

Our measure of segment operating income does not include the effect of share-based compensation expenses, amortization of acquired technology and other intangible assets, the costs associated with severance, exit costs and related charges or proxy contest costs, which are collectively included in unallocated operating expenses below. Assets and liabilities are reviewed by management at the consolidated level only.

The following tables summarize segment performance for the quarters and nine months ended December 31, 2012 and 2011:

	Enterprise Service Management							Mainframe Service Management		Consolidated
Quarter Ended December 31, 2012	Solutions		Services			Total
						(In millions)
Revenue:
License	$	131.3	$	—		$	131.3	$	101.0	$	232.3
Maintenance		164.3		—			164.3		124.4		288.7
Professional services		—		59.2			59.2		—		59.2
Total revenue		295.6		59.2			354.8		225.4		580.2
Direct and allocated indirect segment operating expenses:		224.1		60.1			284.2		85.8		370.0
Segment operating income (loss)		71.5		(0.9	)		70.6		139.6		210.2
Unallocated operating expenses											(62.6	)
Other loss, net											(10.6	)
Earnings before income taxes										$	137.0

	Enterprise Service Management							Mainframe Service Management		Consolidated
Quarter Ended December 31, 2011	Solutions		Services			Total
						(In millions)
Revenue:
License	$	133.7	$	—		$	133.7	$	91.3	$	225.0
Maintenance		147.7		—			147.7		124.6		272.3
Professional services		—		50.9			50.9		—		50.9
Total revenue		281.4		50.9			332.3		215.9		548.2
Direct and allocated indirect segment operating expenses:		199.1		57.0			256.1		79.4		335.5
Segment operating income (loss)		82.3		(6.1	)		76.2		136.5		212.7
Unallocated operating expenses											(50.9	)
Other loss, net											(3.5	)
Earnings before income taxes										$	158.3

	Enterprise Service Management							Mainframe Service Management		Consolidated
Nine Months Ended December 31, 2012	Solutions		Services			Total
						(In millions)
Revenue:
License	$	357.4	$	—		$	357.4	$	255.7	$	613.1
Maintenance		482.8		—			482.8		370.2		853.0
Professional services		—		166.7			166.7		—		166.7
Total revenue		840.2		166.7			1,006.9		625.9		1,632.8
Direct and allocated indirect segment operating expenses:		652.3		180.5			832.8		243.4		1,076.2
Segment operating income (loss)		187.9		(13.8	)		174.1		382.5		556.6
Unallocated operating expenses											(197.0	)
Other loss, net											(25.4	)
Earnings before income taxes										$	334.2

	Enterprise Service Management							Mainframe Service Management		Consolidated
Nine Months Ended December 31, 2011	Solutions		Services			Total
						(In millions)
Revenue:
License	$	398.2	$	—		$	398.2	$	246.0	$	644.2
Maintenance		434.5		—			434.5		372.9		807.4
Professional services		—		155.7			155.7		—		155.7
Total revenue		832.7		155.7			988.4		618.9		1,607.3
Direct and allocated indirect segment operating expenses:		597.9		165.9			763.8		243.9		1,007.7
Segment operating income (loss)		234.8		(10.2	)		224.6		375.0		599.6
Unallocated operating expenses											(161.7	)
Other loss, net											(9.9	)
Earnings before income taxes										$	428.0