REVENUE RECOGNITION

3 Months Ended

Jun. 30, 2023

REVENUE RECOGNITION

REVENUE RECOGNITION

NOTE 3. REVENUE RECOGNITION

Disaggregation of Revenue

The Company views its segment results to be the best view of disaggregated revenue. Refer to Note 4 – Segments.

Remaining Performance Obligations

The remaining performance obligation (“RPO”) represents the aggregate amount of contractual deliverables yet to be recognized as revenue at the end of the reporting period. It is intended to be a statement of overall work under contract that has not yet been performed and does not include contracts for which the customer is not committed. The customer is not considered committed when it is able to terminate for convenience without payment of a substantive penalty. The RPO also includes estimates of variable consideration. RPO estimates are subject to change and are affected by several factors, including terminations, changes in the scope of contracts, periodic revalidations, adjustments for revenue that has not materialized and adjustments for currency.

At June 30, 2023, the aggregate amount of RPO related to customer contracts that are unsatisfied or partially unsatisfied was $36.7 billion. Approximately 60 percent of the amount is expected to be recognized as revenue in the subsequent two years, approximately 34 percent in the subsequent three through five years, and the balance thereafter.

During the three months ended June 30, 2023 and June 30, 2022, revenue was increased by $11 million and $1 million, respectively for performance obligations satisfied (or partially satisfied) in previous periods, mainly due to changes in estimates on contracts with cost-to-cost measures of progress.

Contract Balances

The following table provides information about accounts receivable, contract assets and deferred income balances:

	June 30,		March 31,
(Dollars in millions)	2023		2023
Accounts receivable (net of allowances for expected credit losses of $29 at June 30, 2023 and $32 at March 31, 2023) *	$	1,490	$	1,523
Contract assets **		31		30
Deferred income (current)		785		820
Deferred income (noncurrent)		334		362

* Included unbilled receivable balances of $410 million at June 30, 2023 and $384 million at March 31, 2023.

** Contract assets represent goods or services delivered by the Company which give the Company the right to consideration that is typically subject to milestone completion or client acceptance and are included within prepaid expenses and other current assets in the Consolidated Balance Sheet.

The amount of revenue recognized during the three months ended June 30, 2023 and June 30, 2022 that was included within the deferred income balance at March 31, 2023 and March 31, 2022 was $188 million and $246 million, respectively.

The following table provides roll-forwards of the accounts receivable allowance for expected credit losses for the three months ended June 30, 2023 and 2022:

	Three Months Ended June 30,
(Dollars in millions)	2023		2022
Beginning balance	$	32	$	44
Additions (releases)		(1)		(2)
Write-offs		(3)		(1)
Other *		1		(7)
Ending balance	$	29	$	34

* Primarily represents currency translation adjustments.

The contract assets allowance for expected credit losses was not material in any of the periods presented.

Major Clients

No single client represented more than 10 percent of the Company’s total revenue during the three months ended June 30, 2023 and 2022. Other than receivables due from our former Parent, no single client represented more than 10 percent of the Company’s total accounts receivable balance as of June 30, 2023 and March 31, 2023, respectively.

Deferred Costs

Costs to acquire and fulfill customer contracts are deferred and amortized over the contract period or expected customer relationship life. The expected customer relationship period is determined based on the average customer relationship period, including expected renewals, for each offering type and ranges from three to six years. For contracts with an estimated amortization period of less than one year, we elected the practical expedient to expense incremental costs immediately.

The following table provides amounts of capitalized costs to acquire and fulfill customer contracts at June 30, 2023 and March 31, 2023:

	June 30,		March 31,
(Dollars in millions)	2023		2023
Deferred transition costs	$	828	$	856
Prepaid software costs		828		782
Capitalized costs to fulfill contracts		240		285
Capitalized costs to obtain contracts		301		313
Total deferred costs *	$	2,196	$	2,236

* Of the total deferred costs, $1,075 million was current and $1,122 million was noncurrent at June 30, 2023, and $1,070 million was current and $1,166 million was noncurrent at March 31, 2023.

The amount of total deferred costs amortized for the three months ended June 30, 2023, was $463 million, composed of $241 million of amortization of prepaid software, $85 million of amortization of deferred transition costs and $138 million of amortization of capitalized contract costs.