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 Chief Operating Decision Maker, who is 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 product implementation, consulting, customer education and customer training, including 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 operating 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 and training 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 operating 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 and non-segment-specific direct 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 of cost of professional services and other direct costs included within selling and marketing and general and administrative expenses. There are no allocated or indirect costs for the Services segment.

Segment expenses do not include share-based compensation expense; amortization of purchased software; amortization of other intangible assets; approved actions by the Company's Board of Directors (i.e., costs associated with the Company's Fiscal 2014 Plan); and other miscellaneous costs. The Company considers all costs of internally developed software 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. 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 fiscal year 2013, the Company closed a transaction that assigned the rights to certain of these assets to a large technology company for approximately $35 million. The entire contract amount is included in the Enterprise Solutions segment for the year ended March 31, 2013.

For fiscal year 2015, the Company incurred severance costs associated with the Fiscal 2015 Severance Actions, of which $17 million, $15 million and $8 million were assigned to the Mainframe Solutions, Enterprise Solutions and Services segments, respectively. 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. See Note 4, “Severance and Exit Costs,” for additional information.

The Company’s segment information for fiscal years 2015, 2014 and 2013 was as follows:



Year Ended March 31, 2015	Mainframe Solutions			Enterprise Solutions			Services			Total
(dollars in millions)	Mainframe Solutions			Enterprise Solutions			Services			Total
Revenue	$	2,392		$	1,519		$	351		$	4,262
Expenses	970			1,353			342			2,665
Segment profit	$	1,422		$	166		$	9		$	1,597
Segment operating margin	59		%	11		%	3		%	37		%
Depreciation	$	43		$	28		$	—		$	71

Reconciliation of segment profit to income from continuing operations before income taxes for fiscal year 2015:



Segment profit	$	1,597
Less:
Purchased software amortization	124
Other intangibles amortization	58
Software development costs capitalized	—
Internally developed software products amortization	149
Share-based compensation expense	87
Other expenses (gains), net ⁽¹⁾	17
Interest expense, net	47
Income from continuing operations before income taxes	$	1,115


(1)	Other expenses (gains), net consists of costs associated with the Fiscal 2014 Plan and other miscellaneous costs.



Year Ended March 31, 2014	Mainframe Solutions			Enterprise Solutions			Services			Total
(dollars in millions)	Mainframe Solutions			Enterprise Solutions			Services			Total
Revenue	$	2,478		$	1,555		$	379		$	4,412
Expenses	996			1,440			357			2,793
Segment profit	$	1,482		$	115		$	22		$	1,619
Segment operating margin	60		%	7		%	6		%	37		%
Depreciation	$	52		$	32		$	—		$	84

Reconciliation of segment profit to income from continuing operations before income taxes for fiscal year 2014:



Segment profit	$	1,619
Less:
Purchased software amortization	116
Other intangibles amortization	60
Software development costs capitalized	(33		)
Internally developed software products amortization	155
Share-based compensation expense	81
Other expenses (gains), net ⁽¹⁾	170
Interest expense, net	54
Income from continuing operations before income taxes	$	1,016


(1)	Other expenses (gains), net consists of approximately $168 million of costs associated with the Fiscal 2014 Plan and other miscellaneous costs.



Year Ended March 31, 2013	Mainframe Solutions			Enterprise Solutions			Services			Total
(dollars in millions)	Mainframe Solutions			Enterprise Solutions			Services			Total
Revenue	$	2,489		$	1,633		$	382		$	4,504
Expenses	1,038			1,520			358			2,916
Segment profit	$	1,451		$	113		$	24		$	1,588
Segment operating margin	58		%	7		%	6		%	35		%
Depreciation	$	63		$	41		$	—		$	104

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



Segment profit	$	1,588
Less:
Purchased software amortization ⁽¹⁾	162
Other intangibles amortization	54
Software development costs capitalized	(152		)
Internally developed software products amortization	143
Share-based compensation expense	77
Other expenses (gains), net	—
Interest expense, net	44
Income from continuing operations before income taxes	$	1,260


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

The following table presents information about the Company by geographic area for fiscal years 2015, 2014 and 2013:



(in millions)	United States		EMEA ⁽¹⁾		Other		Eliminations			Total
Year Ended March 31, 2015
Revenue:
From unaffiliated customers	$	2,615	$	1,008	$	639	$	—		$	4,262
Between geographic areas ⁽²⁾	438		—		—		(438		)	—
Total revenue	$	3,053	$	1,008	$	639	$	(438	)	$	4,262
Property and equipment, net	$	112	$	97	$	43	$	—		$	252
Total assets	$	8,128	$	1,874	$	977	$	—		$	10,979
Total liabilities	$	4,047	$	809	$	498	$	—		$	5,354
Year Ended March 31, 2014
Revenue:
From unaffiliated customers	$	2,645	$	1,093	$	674	$	—		$	4,412
Between geographic areas ⁽²⁾	446		—		—		(446		)	—
Total revenue	$	3,091	$	1,093	$	674	$	(446	)	$	4,412
Property and equipment, net	$	125	$	116	$	54	$	—		$	295
Total assets	$	8,908	$	2,076	$	1,032	$	—		$	12,016
Total liabilities	$	4,919	$	890	$	637	$	—		$	6,446
Year Ended March 31, 2013
Revenue:
From unaffiliated customers	$	2,679	$	1,106	$	719	$	—		$	4,504
Between geographic areas ⁽²⁾	460		—		—		(460		)	—
Total revenue	$	3,139	$	1,106	$	719	$	(460	)	$	4,504
Property and equipment, net	$	138	$	108	$	65	$	—		$	311
Total assets	$	8,897	$	1,911	$	1,007	$	—		$	11,815
Total liabilities	$	4,802	$	939	$	624	$	—		$	6,365


(1)	Consists of Europe, the Middle East and Africa.


(2)	Represents royalties from foreign subsidiaries determined as a percentage of certain amounts invoiced to customer.

Revenue is allocated to a geographic area based on the location of the sale, which is generally the customer’s country of domicile. No single customer accounted for 10% or more of total revenue for fiscal year 2015, 2014 or 2013.