REVENUE RECOGNITION

6 Months Ended

Sep. 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 September 30, 2023, the aggregate amount of RPO related to customer contracts that are unsatisfied or partially unsatisfied was $34.0 billion. Approximately 58 percent of the amount is expected to be recognized as revenue in the next two years, approximately 35 percent in the subsequent three years, and the balance thereafter.

During the three and six months ended September 30, 2023, revenue was increased by $2 million and $15 million, respectively, and during the three and six months ended September 30, 2022, revenue was increased by $4 million and $3 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:

	September 30,		March 31,
(Dollars in millions)	2023		2023
Accounts receivable (net of allowances for credit losses of $28 at September 30, 2023 and $32 at March 31, 2023) *	$	1,663	$	1,523
Contract assets **		35		30
Deferred income (current)		790		820
Deferred income (noncurrent)		316		362

* Including unbilled receivable balances of $458 million at September 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 and six months ended September 30, 2023 that was included within the deferred income balance at the beginning of the period was $176 million and $360 million, respectively. The amount of revenue recognized during the three and six months ended September 30, 2022 that was included within the deferred income balance at the beginning of the period was $184 million and $367 million, respectively.

The following table provides roll-forwards of the accounts receivable allowance for credit losses for the six months ended September 30, 2023 and 2022.

	Six Months Ended September 30,
(Dollars in millions)	2023		2022
Beginning balance	$	32	$	44
Additions (releases)		—		2
Write-offs		(3)		(5)
Other *		(1)		(7)
Ending balance	$	28	$	33

* Primarily represents currency translation adjustments.

The contract assets allowance for 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 and six months ended September 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 September 30, 2023 or March 31, 2023.

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 September 30, 2023 and March 31, 2023:

	September 30,		March 31,
(Dollars in millions)	2023		2023
Deferred transition costs	$	778	$	856
Prepaid software costs		705		782
Capitalized costs to fulfill contracts		219		285
Capitalized costs to obtain contracts		281		313
Total deferred costs *	$	1,983	$	2,236

* Of the total deferred costs, $952 million was current and $1,031 million was noncurrent at September 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 September 30, 2023 was $449 million, composed of $88 million of amortization of deferred transition costs, $218 million of amortization of prepaid software and $143 million of amortization of capitalized contract costs. The amount of total deferred costs amortized for the six months ended September 30, 2023 was $912 million, composed of $173 million of amortization of deferred transition costs, $459 million of amortization of prepaid software and $281 million of amortization of capitalized contract costs.