Computer Associates 2016 Annual Report Download - page 46

The Services segment comprises product implementation, consulting, customer education and customer training. These services
include those directly related to our mainframe solutions and enterprise solutions.
We regularly enter 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 we apply to the customer contract for purposes of preparing our
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 share-based compensation expense; amortization of purchased software; amortization of other
intangible assets; charges relating to rebalancing initiatives that are large enough to require approval from the Board (i.e., costs
associated with our Fiscal 2014 Plan); and other miscellaneous costs. We consider all costs of internally developed software as
segment expenses in the period the costs are incurred and as a result, we 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 our Chief Executive Officer and has therefore not been disclosed.
Segment financial information for fiscal 2016, 2015 and 2014 is as follows:
Mainframe Solutions Fiscal 2016(1)
Fiscal
2015(1)
Fiscal
2014(1)
Revenue $ 2,215 $ 2,392 $ 2,478
Expenses 854 970 996
Segment profit $ 1,361 $ 1,422 $ 1,482
Segment operating margin 61% 59% 60%
(1) Information presented excludes the results of our discontinued operations.
For fiscal 2016, Mainframe Solutions revenue decreased compared with the year-ago period primarily due to an unfavorable
foreign exchange effect of $125 million and, to a lesser extent, insufficient revenue from new sales to offset the decline in
revenue contribution from renewals. Mainframe Solutions operating margin for fiscal 2016 increased compared with the year-
ago period primarily due to a decrease in personnel-related costs.
For fiscal 2015, Mainframe Solutions revenue decreased compared with the year-ago period primarily due to insufficient
revenue from prior period new sales to offset the decline in revenue contribution from renewals. There was also an unfavorable
foreign exchange effect of $40 million for fiscal 2015. For fiscal 2015, Mainframe Solutions operating margin decreased slightly
as a result of the decrease in revenue.
Enterprise Solutions Fiscal 2016(1)
Fiscal
2015(1)
Fiscal
2014(1)
Revenue $ 1,484 $ 1,519 $ 1,555
Expenses 1,337 1,353 1,440
Segment profit $ 147 $ 166 $ 115
Segment operating margin 10% 11% 7%
(1) Information presented excludes the results of our discontinued operations.
Enterprise Solutions revenue for fiscal 2016 decreased compared with the year-ago period due to an unfavorable foreign
exchange effect of $71 million. Excluding the unfavorable effect of foreign exchange, Enterprise Solutions revenue increased as
a result of additional revenue associated with our second quarter fiscal 2016 acquisitions. Enterprise Solutions operating margin
36