Note 17 — Segment and Geographic Information

In accordance with FASB ASC Topic 280, “Segment Reporting,” the Company disaggregates its operations into Mainframe Solutions, Enterprise Solutions and Services segments, which is utilized by the Company's Chief Executive Officer for evaluating segment performance and allocating resources.

The Company’s Mainframe Solutions and Enterprise Solutions 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 segment comprises implementation, consulting, education, training and support services. These services include 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, training and support 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.

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 year ended March 31, 2013. The Company will continue to have the ability to use these intellectual property assets in current and future product offerings.

For fiscal year 2013, the Company incurred severance costs of which $3 million, $10 million and $2 million were assigned to the Mainframe Solutions, Enterprise Solutions and Services segments, respectively. 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. 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 other miscellaneous costs.

A measure of segment assets is not currently provided to the Company’s Chief Executive Officer and has therefore not been disclosed.

The Company’s segment information for fiscal years 2013, 2012 and 2011 is as follows:



Year Ended March 31, 2013	Mainframe Solutions			Enterprise Solutions			Services			Total
(dollars in millions)	Mainframe Solutions			Enterprise Solutions			Services			Total
Revenue	$	2,489		$	1,772		$	382		$	4,643
Expenses	1,016			1,612			358			2,986
Segment profit	$	1,473		$	160		$	24		$	1,657
Segment operating margin	59		%	9		%	6		%	36		%
Depreciation and amortization	$	103		$	157		$	—		$	260

Reconciliation of segment profit to income from continuing operations before income taxes for fiscal year 2013:



Segment profit	$	1,657
Less:
Purchased software amortization ⁽¹⁾	163
Other intangibles amortization	54
Share-based compensation expense	78
Other (gains) expenses, net ⁽²⁾	—
Interest expense, net	44
Income from continuing operations before income taxes	$	1,318


(1)	Amount includes impairment recorded in the fourth quarter of fiscal year 2013 of $55 million relating to purchased software (see Note 6, “Long Lived Assets,” in the Notes to the Consolidated Financial Statements for additional information).


(2)	Other (gains) expenses, net consists of other unallocated costs including foreign exchange derivative (gains) losses, and other miscellaneous costs.



Year Ended March 31, 2012	Mainframe Solutions			Enterprise Solutions			Services			Total
(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 (gains) expenses, net ⁽¹⁾	1
Interest expense, net	35
Income from continuing operations before income taxes	$	1,354


(1)	Other (gains) expenses, net consists of other unallocated costs including foreign exchange derivative (gains) losses, and other miscellaneous costs.



Year Ended March 31, 2011	Mainframe Solutions			Enterprise Solutions			Services			Total
(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 (gains) expenses, net ⁽¹⁾	(6		)
Interest expense, net	45
Income from continuing operations before income taxes	$	1,209


(1)	Other (gains) expenses, net consists of other unallocated costs including foreign exchange derivative (gains) losses, and other miscellaneous costs.

Changes in the carrying value of goodwill by segment for fiscal year 2013 are as follows:



(in millions)	Mainframe Solutions			Enterprise Solutions			Services
Balance at beginning of year	$	4,179		$	1,596		$	81
Acquisitions	—			17			—
Foreign currency translation adjustment	(1		)	(1		)	—
Balance at end of year	$	4,178		$	1,612		$	81

The allocation of goodwill among the segments was not disclosed prior to fiscal year 2012 due to the change in the Company's internal reporting structure from a business based on a single operating segment to three operating segments.

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 2013, 2012 and 2011:



(in millions)	United States		Europe		Other		Eliminations			Total
Year Ended March 31, 2013
Revenue
To unaffiliated customers	$	2,747	$	1,104	$	792	$	—		$	4,643
Between geographic areas⁽¹⁾	460		—		—		(460		)	—
Total revenue	$	3,207	$	1,104	$	792	$	(460	)	$	4,643
Property and equipment, net	$	138	$	108	$	65	$	—		$	311
Total assets	$	8,887	$	1,917	$	1,007	$	—		$	11,811
Total liabilities	$	4,793	$	944	$	624	$	—		$	6,361
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


(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 2013, 2012 or 2011.