Segment and Geographic Information

12 Months Ended

Mar. 31, 2017

Segment Reporting [Abstract]

Segment and Geographic Information

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 are comprised of its software business organized by the nature of the Company’s software offerings and the platforms on which the products operate. The Services segment is comprised of product implementation, consulting, customer education and customer training services, 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 assigned to the Mainframe Solutions and Enterprise Solutions segments is 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 and general and administrative costs. 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 amortization of purchased software, amortization of other intangible assets, amortization of internally developed software products, share-based compensation expense, approved severance and facility actions by the Board 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.

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. Refer to Note 4, “Severance and Exit Costs,” for additional information.

The Company’s segment information for fiscal years 2017, 2016 and 2015 was as follows:

Year Ended March 31, 2017	Mainframe Solutions			Enterprise Solutions			Services			Total
(dollars in millions)
Revenue	$	2,182		$	1,553		$	301		$	4,036
Expenses	851			1,378			302			2,531
Segment profit (loss)	$	1,331		$	175		$	(1	)	$	1,505
Segment operating margin	61		%	11		%	—		%	37		%
Depreciation	$	34		$	24		$	—		$	58

Reconciliation of segment profit to income from continuing operations before income taxes for fiscal year 2017:

Segment profit	$	1,505
Less:
Purchased software amortization	164
Other intangibles amortization	19
Internally developed software products amortization	79
Share-based compensation expense	108
Interest expense, net	62
Income from continuing operations before income taxes	$	1,073

Year Ended March 31, 2016	Mainframe Solutions			Enterprise Solutions			Services			Total
(dollars in millions)
Revenue	$	2,215		$	1,484		$	326		$	4,025
Expenses	854			1,337			303			2,494
Segment profit	$	1,361		$	147		$	23		$	1,531
Segment operating margin	61		%	10		%	7		%	38		%
Depreciation	$	36		$	26		$	—		$	62

Reconciliation of segment profit to income from continuing operations before income taxes for fiscal year 2016:

Segment profit	$	1,531
Less:
Purchased software amortization	146
Other intangibles amortization	44
Internally developed software products amortization	110
Share-based compensation expense	97
Other gains, net (1)	(1		)
Interest expense, net	51
Income from continuing operations before income taxes	$	1,084

(1) Other gains, net consists of miscellaneous items.

Year Ended March 31, 2015	Mainframe Solutions			Enterprise Solutions			Services			Total
(dollars in millions)
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
Internally developed software products amortization	149
Share-based compensation expense	87
Other expenses, net (1)	17
Interest expense, net	47
Income from continuing operations before income taxes	$	1,115

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

The following table presents information about the Company by geographic area for fiscal years 2017, 2016 and 2015:

(in millions)	United States		EMEA (1)		Other		Eliminations			Total
Year Ended March 31, 2017
Revenue:
From unaffiliated customers	$	2,586	$	887	$	563	$	—		$	4,036
Between geographic areas (2)	419		—		—		(419		)	—
Total revenue	$	3,005	$	887	$	563	$	(419	)	$	4,036
Property and equipment, net	$	105	$	93	$	39	$	—		$	237
Total assets	$	9,018	$	2,736	$	856	$	—		$	12,610
Total liabilities	$	5,502	$	934	$	485	$	—		$	6,921
Year Ended March 31, 2016
Revenue:
From unaffiliated customers	$	2,585	$	903	$	537	$	—		$	4,025
Between geographic areas (2)	400		—		—		(400		)	—
Total revenue	$	2,985	$	903	$	537	$	(400	)	$	4,025
Property and equipment, net	$	109	$	96	$	37	$	—		$	242
Total assets	$	8,185	$	2,170	$	849	$	—		$	11,204
Total liabilities	$	4,646	$	728	$	452	$	—		$	5,826
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	$	8,122	$	1,874	$	977	$	—		$	10,973
Total liabilities	$	4,041	$	809	$	498	$	—		$	5,348

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

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

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 2017, 2016 or 2015.