Note 16 — 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 generally 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, 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 fiscal years 2018, 2017 and 2016 was as follows:



Year Ended March 31, 2018	Mainframe Solutions			Enterprise Solutions			Services			Total
(dollars in millions)	Mainframe Solutions			Enterprise Solutions			Services			Total
Revenue	$	2,176		$	1,748		$	311		$	4,235
Expenses	785			1,597			302			2,684
Segment profit	$	1,391		$	151		$	9		$	1,551
Segment operating margin	64		%	9		%	3		%	37		%
Depreciation	$	37		$	29		$	—		$	66

Reconciliation of segment profit to income from continuing operations before income taxes for fiscal year 2018:



Segment profit	$	1,551
Less:
Purchased software amortization	235
Other intangibles amortization	41
Internally developed software products amortization	36
Share-based compensation expense	120
Interest expense, net	98
Income from continuing operations before income taxes	$	1,021



Year Ended March 31, 2017	Mainframe Solutions			Enterprise Solutions			Services			Total
(dollars in millions)	Mainframe Solutions			Enterprise Solutions			Services			Total
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)	Mainframe Solutions			Enterprise Solutions			Services			Total
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.

The following table presents information about the Company by geographic area for fiscal years 2018, 2017 and 2016:



(in millions)	United States		EMEA ⁽¹⁾		Other		Eliminations			Total
Year Ended March 31, 2018
Revenue:
From unaffiliated customers	$	2,674	$	979	$	582	$	—		$	4,235
Between geographic areas ⁽²⁾	416		—		—		(416		)	—
Total revenue	$	3,090	$	979	$	582	$	(416	)	$	4,235
Property and equipment, net	$	94	$	106	$	37	$	—		$	237
Total assets	$	9,464	$	2,638	$	958	$	—		$	13,060
Total liabilities	$	5,753	$	986	$	426	$	—		$	7,165
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


(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 2018, 2017 or 2016.