Segment Information

3 Months Ended

Jun. 30, 2013

Segment Reporting [Abstract]

SEGMENT INFORMATION

NOTE P – SEGMENT INFORMATION

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 platform on which the products operate. 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.

Segment expenses do not include share-based compensation expense; amortization of purchased software; amortization of other intangible assets; certain foreign exchange derivative hedging gains and losses; costs associated with our Fiscal 2014 Plan; and other miscellaneous costs. Additionally, starting in the first quarter of fiscal year 2014, the measure of segment expenses and segment profit was revised by the Chief Operating Decision Maker, who is the Company's Chief Executive Officer, to treat all costs of internal software development as segment expense in the period the costs are incurred and as a result, the Company will add back capitalized internal software costs and exclude amortization of internally developed software costs previously capitalized from segment expenses. Prior periods segment expense and profit information has been revised to present segment profit and expense on consistent basis. A measure of segment assets is not currently provided to the Company’s Chief Executive Officer and has therefore not been disclosed.

As part of the Company’s efforts to more fully utilize its intellectual property assets, in the first quarter of fiscal year 2013, the Company closed a transaction that assigned the rights to certain of these assets to a large technology company for $35 million. The entire contract amount is included in the Enterprise Solutions segment for the three months ended June 30, 2012. The Company will continue to have the ability to use these intellectual property assets in current and future product offerings.

The Company’s segment information for the three months ended June 30, 2013 and 2012 was as follows:

Three Months Ended June 30, 2013	Mainframe Solutions			Enterprise Solutions			Services			Total
(dollars in millions)
Revenue	$	619		$	411		$	98		$	1,128
Expenses	242			370			90			702
Segment profit	$	377		$	41		$	8		$	426
Segment operating margin	61		%	10		%	8		%	38		%
Depreciation	$	13		$	9		$	—		$	22

Reconciliation of segment profit to income before income taxes for the three months ended June 30, 2013:

(in millions)
Segment profit	$	426
Less:
Purchased software amortization	28
Other intangibles amortization	14
Software development costs capitalized	(23		)
Internally developed software products amortization	41
Share-based compensation expense	20
Other (gains) expenses, net (1)	118
Interest expense, net	11
Income before income taxes	$	217

(1) Other (gains) expenses, net consists of $120 million of costs associated with the Fiscal 2014 Plan, certain foreign exchange derivative hedging gains and losses, and other miscellaneous costs.

Three Months Ended June 30, 2012	Mainframe Solutions			Enterprise Solutions			Services			Total
(dollars in millions)
Revenue	$	628		$	426		$	91		$	1,145
Expenses	261			357			87			705
Segment profit	$	367		$	69		$	4		$	440
Segment operating margin	58		%	16		%	4		%	38		%
Depreciation	$	16		$	11		$	—		$	27

Reconciliation of segment profit to income before income taxes for the three months ended June 30, 2012:

(in millions)
Segment profit	$	440
Less:
Purchased software amortization	27
Other intangibles amortization	14
Software development costs capitalized	(36		)
Internally developed software products amortization	37
Share-based compensation expense	23
Other (gains) expenses, net (1)	(6		)
Interest expense, net	11
Income before income taxes	$	370

(1) Other (gains) expenses, net consists of certain foreign exchange derivative hedging gains and 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 June 30, 2013		Three Months Ended June 30, 2012
	(in millions)
United States	$	673	$	683
Europe	264		273
Other	191		189
Total revenue	$	1,128	$	1,145