Segment Information

9 Months Ended

Dec. 31, 2017

Segment Reporting [Abstract]

Segment Information

NOTE M – SEGMENT INFORMATION

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.

Segment expenses do not include amortization of purchased software, amortization of other intangible assets, amortization of internally developed software products, share-based compensation expense, certain foreign exchange derivative hedging gains and losses, severance and facility actions approved 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.

The Company’s segment information for the three and nine months ended December 31, 2017 and 2016 was as follows:

Three Months Ended December 31, 2017	Mainframe Solutions			Enterprise Solutions			Services			Total
(dollars in millions)
Revenue	$	552		$	461		$	80		$	1,093
Expenses	197			408			78			683
Segment profit	$	355		$	53		$	2		$	410
Segment operating margin	64		%	11		%	3		%	38		%
Depreciation	$	8		$	7		$	—		$	15

Reconciliation of segment profit to income before income taxes for the three months ended December 31, 2017:

(in millions)
Segment profit	$	410
Less:
Purchased software amortization	60
Other intangibles amortization	11
Internally developed software products amortization	8
Share-based compensation expense	28
Other gains, net (1)	(4		)
Interest expense, net	25
Income before income taxes	$	282

(1) Other gains, net consists of costs associated with certain foreign exchange derivative hedging gains and losses, and other miscellaneous costs.

Nine Months Ended December 31, 2017	Mainframe Solutions			Enterprise Solutions			Services			Total
(dollars in millions)
Revenue	$	1,627		$	1,295		$	230		$	3,152
Expenses	572			1,169			226			1,967
Segment profit	$	1,055		$	126		$	4		$	1,185
Segment operating margin	65		%	10		%	2		%	38		%
Depreciation	$	27		$	21		$	—		$	48

Reconciliation of segment profit to income before income taxes for the nine months ended December 31, 2017:

(in millions)
Segment profit	$	1,185
Less:
Purchased software amortization	176
Other intangibles amortization	31
Internally developed software products amortization	29
Share-based compensation expense	89
Other expenses, net (1)	8
Interest expense, net	74
Income before income taxes	$	778

(1) Other expenses, net consists of costs associated with certain foreign exchange derivative hedging gains and losses, and other miscellaneous costs.

Three Months Ended December 31, 2016	Mainframe Solutions			Enterprise Solutions			Services			Total
(dollars in millions)
Revenue	$	546		$	389		$	72		$	1,007
Expenses	215			333			75			623
Segment profit (loss)	$	331		$	56		$	(3	)	$	384
Segment operating margin	61		%	14		%	(4		)%	38		%
Depreciation	$	8		$	6		$	—		$	14

Reconciliation of segment profit to income before income taxes for the three months ended December 31, 2016:

(in millions)
Segment profit	$	384
Less:
Purchased software amortization	39
Other intangibles amortization	4
Internally developed software products amortization	18
Share-based compensation expense	26
Other gains, net (1)	(11		)
Interest expense, net	16
Income before income taxes	$	292

(1) Other gains, net consists of costs associated with certain foreign exchange derivative hedging gains and losses, and other miscellaneous costs.

Nine Months Ended December 31, 2016	Mainframe Solutions			Enterprise Solutions			Services			Total
(dollars in millions)
Revenue	$	1,647		$	1,153		$	224		$	3,024
Expenses	634			981			223			1,838
Segment profit	$	1,013		$	172		$	1		$	1,186
Segment operating margin	62		%	15		%	—		%	39		%
Depreciation	$	25		$	18		$	—		$	43

Reconciliation of segment profit to income before income taxes for the nine months ended December 31, 2016:

(in millions)
Segment profit	$	1,186
Less:
Purchased software amortization	120
Other intangibles amortization	13
Internally developed software products amortization	62
Share-based compensation expense	80
Other gains, net (1)	(9		)
Interest expense, net	45
Income before income taxes	$	875

(1) Other gains, net consists of costs associated with certain foreign exchange derivative hedging gains and losses, and other miscellaneous costs.

The table below summarizes the Company’s revenue from the United States and from international (i.e., non-U.S.) locations:

	Three Months Ended December 31,				Nine Months Ended December 31,
	2017		2016		2017		2016
	(in millions)
United States	$	682	$	642	$	1,997	$	1,936
EMEA (1)	256		223		720		667
Other	155		142		435		421
Total revenue	$	1,093	$	1,007	$	3,152	$	3,024

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