Kyndryl Holdings, Inc. 10-K

Table of Contents ​ ​ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ​ FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________________ to _______________________ 001-40853 (Commission file number) ​ Kyndryl Holdings, Inc . (Exact name of registrant as specified in its charter) ​ ​ ​ Delaware 86-1185492 (State or other jurisdiction of incorporation or organization) ​ (IRS employer identification number) ​ ​ ​ One Vanderbilt Avenue, 15th Floor ​ ​ New York , New York ​ 10017 (Address of principal executive offices) ​ (Zip Code) ​ 212 - 896-2098 (Registrant’s telephone number, including area code) ​ Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading symbol(s) Name of each exchange on which registered Common stock, par value $0.01 per share ​ KD ​ New York Stock Exchange ​ Securities registered pursuant to section 12(g) of the Act: None. Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. ​ ​ Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☐ ​ Emerging growth company ☐ ​ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act). ☐ Indicate by check mark whether the registrant has fi led a report on and attestation to its management ’ s assessment of the effectiveness of its internal control over fi nancial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting fi rm that prepared or issued its audit report ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ As of March 4,2022, the aggregate market value of the registrant ’ s voting and non-voting common equity held by non-affiliates was $ 0 . The number of shares of the registrant ’ s Common Stock, par value $0.01 per share, outstanding at March 4, 2022 was 224,543,776 . DOCUMENTS INCORPORATED BY REFERENCE: None. ​ ​ Table of Contents Index ​ ​ ​ Page PART I ​ ​ ​ Item 1. Business 3 Item 1A. Risk Factors 14 Item 1B. Unresolved Staff Comments 26 Item 2. Properties 26 Item 3. Legal Proceedings 26 Item 4. Mine Safety Disclosures 26 ​ ​ PART II ​ ​ ​ Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 26 Item 6. (Reserved) 27 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 28 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 42 Item 8. Financial Statements and Supplementary Data 44 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 95 Item 9A. Controls and Procedures 95 Item 9B. Other Information 95 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 95 ​ ​ PART III ​ Item 10. Directors, Executive Officers and Corporate Governance 96 Item 11. Executive Compensation 101 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 142 Item 13. Certain Relationships and Related Transactions, and Director Independence 145 Item 14. Principal Accountant Fees and Services 152 ​ ​ PART IV ​ Item 15. Exhibits, Financial Statement Schedules 153 Item 16. Form 10-K Summary 156 ​ ​ SIGNATURES 157 ​ ​ ​ ​ ​ ​ ​ 2 Table of Contents PART I Item 1. Business: Our Company Kyndryl Holdings, Inc. (“we,” “Kyndryl” or the “Company”) is a leading technology services company and the largest IT infrastructure services provider in the world, serving as a partner to more than 4,000 customers and with operations in over 60 countries. We have a long track record of helping enterprises navigate major technological changes, particularly by enabling our customers to focus on the core aspects of their businesses during these shifts while trusting us with their most critical systems. Our purpose is to design, build and manage secure and responsive private, public and multicloud environments to accelerate our customers’ digital transformations. We provide engineering talent, operating paradigms and insights derived from our data around IT patterns. This enables us to deliver advisory, implementation and managed services at scale across technology infrastructures that allow our customers to de-risk and realize the full value of their digital transformations. We do this while embracing new technologies and solutions and continually expanding our skills and capabilities, as we help advance the vital systems that power progress for our customers. We deliver transformation and secure cloud services capabilities, insights and depth of expertise to modernize and manage IT environments based on our customers’ unique patterns of transformation at scale. We offer services across domains such as cloud services, core enterprise and zCloud services, applications, data and artificial intelligence services, digital workplace services, security and resiliency services and network and edge services as we continue to support our customers through technological change. Our services enable us to modernize and manage cloud and on-premise environments as “one” for our customers, enabling them to scale seamlessly. To deliver these services, we rely on our team of skilled practitioners, consisting of approximately 90,000 professionals. Given that our large and diversified customer base operates in multiple industries and geographies, we utilize a flexible labor and delivery model with a balanced mix of global and local talent as needed to meet customer-specific needs, regulatory requirements and data protection and labor laws. Our employees leverage their deep engineering expertise and extensive experience operating complex and heterogeneous technology environments to drive service quality, intellectual property development and our long-term trusted customer relationships. As described in “— Our Customers,” we have many customer relationships that are decades long, as we provide high-quality, mission-critical services that are core to operations with customers that represent the backbones of their respective industries. These customers entrust us to deliver the services they need and to manage their complex environments so that they can achieve their business objectives. We partner with a broader ecosystem, including a wide range of hyperscale cloud providers, system integrators, independent software vendors and technology vendors from startups to market leaders. This enables us to serve our customers with the contemporary technology capabilities that best fit their needs and open new avenues for growth. This is all underpinned by our ability to integrate and operate mission-critical technology at scale using deep engineering expertise and intellectual property. Our approach has enabled us to reach significant scale, with $18.7 billion in revenue for the year ended December 31, 2021. We are focused on driving revenue growth with sustainable margins by extending our leadership in the markets in which we operate while investing in our capabilities and expanding our high-value, next-generation services consistent with customer needs. Kyndryl’s Spin-off In October 2021, the Board of Directors of International Business Machines Corporation (“IBM” or “Parent”) approved the spin-off (the “Separation” or the “Spin-off”) of the infrastructure services unit (the “Kyndryl Businesses”) of its Global Technology Services (“GTS”) segment through the distribution of shares of Kyndryl’s common stock to IBM stockholders (the “Distribution”). In conjunction with the Distribution, Kyndryl underwent an internal reorganization following which it became the holder, directly or through its subsidiaries, of the Kyndryl Businesses. On November 3, 2021, the Separation was achieved through the Parent’s pro rata distribution of 80.1% of the shares of 3 Table of Contents common stock of Kyndryl to holders of the Parent’s common stock as of the close of business on the record date of October 25, 2021. The Parent retained 19.9% of the shares of the Company’s common stock. The Parent’s stockholders of record received one share of the Company’s common stock for every five shares of the Parent’s common stock. Our Industry and Market Opportunity We participate in an industry that provides services for customers’ technology environments that power their businesses. These services span areas such as management of mission-critical systems across dedicated data centers and multiple clouds. As customers advance their digital transformations, they are looking for partners that understand their business objectives and unique digital journeys and have the skills to instrument and engineer the IT environments to enable their transformations. Our long-standing position as an informed and trusted partner, with decades-long relationships and leading capabilities, provides us with the knowledge and expertise to help existing and new customers realize their future. The market for these services is large and dynamic. We estimate that these markets, which are a subset of the total IT services market, collectively represent a $415 billion opportunity in 2021, which we expect will grow on average 7% annually to $510 billion in 2024. Growth in this market is driven by services that are aligned to customers’ transformations, including public cloud managed services (expected compound annual growth of 11% from 2021 to 2024), data services (expected compound annual growth of 18% from 2021 to 2024), security services (expected compound annual growth of 12% from 2021 to 2024) intelligent automation services (expected compound annual growth of 27% from 2021 to 2024) and managed services for edge environments representing a smaller portion of the market (expected compound annual growth above 100% from 2021 to 2024). Several trends underpin the growth of our market, including: ● Greater demand for digital transformation services . Companies continue to digitally transform to deliver better customer experiences and compete more effectively, which drives the need for services to support modernization of IT within the enterprise. The COVID-19 global pandemic has accelerated this already pervasive trend, as organizations look to further their digital capabilities. International Data Corporation (“IDC”) estimates that approximately 65% of GDP will be digitized by 2022. While customers seek to transform, skills availability often represents a challenge, with lack of skills ranked as one of the top three impediments to transformation of the IT environment according to Technology Business Research, Inc. ● Ongoing migration to the cloud . Companies continue to migrate workloads to the cloud, adopting new capabilities for flexibility, workload portability and management. Public cloud is an increasingly critical component of enterprise IT strategy. These transitions are often complex, with companies frequently seeking assistance from service providers. Gartner forecasts that by 2026, 90% of large organizations will have engaged external service providers to migrate applications to the cloud, an increase from 53% in 2020. The extension of public cloud services to multiple environments in different locations has given rise to distributed cloud and migration of workload to these infrastructures that have a greater fit for purpose. ● Rapid data growth. As economies have evolved digitally, significantly increasing data volume, management of this data has become much more complex. IDC estimates that in 2021, enterprises created, captured and replicated 45.9 zettabytes of data. The challenge for many organizations is how to collect, harness and govern this data for insights that yield business results and realize data as a differentiator. In order to leverage advanced capabilities such as artificial intelligence and machine learning to enable their business use cases, enterprises need to address data privacy, compliance, security, multicloud data management and data governance across physical and virtual layers of the IT estate. ● Increasing need for secure systems. As technology environments become increasingly complex and online, remote and distributed work environments persist, cybersecurity will remain of paramount importance as threats proliferate. Breaches in security can have severe, lasting financial and reputational consequences on businesses. In response, businesses continue to build out their cybersecurity efforts, using service providers to augment their capabilities. According to PwC’s 2021 CEO Survey, one-third of U.S. CEOs plan to increase investments in cybersecurity by double digits, with 47% of CEOs citing cyber threats as sources of extreme 4 Table of Contents concern to growth prospects. Enterprises seek service providers that can deploy the expertise and resources needed to manage their growing cybersecurity needs with an efficient and comprehensive approach. Gartner estimates approximately 80% of organizations currently have 16 or more tools from different vendors in their cybersecurity portfolio, recognize vendor consolidation as an avenue for reduced costs and better security that addresses the complexity in their IT environments and are, therefore, interested in vendor consolidation strategies. ● Accelerating pace of technological advancement. As companies adopt new technologies for improved business performance and innovation, they face a challenge in complexity to integrate these new technologies with their existing IT estates. As a result, the required skills, integration burden and cost in end-to-end operational management often increases. This drives adoption of new capabilities, such as automation, artificial intelligence and machine learning to ensure that the IT environment is well designed and orchestrated to effectively realize business objectives. Our Services We provide advisory, implementation and managed services in and across a range of technology domains to help our customers manage and modernize enterprise IT environments in support of their business and transformation objectives. Our services are differentiated based on our expertise and intellectual property and data around IT patterns across customers in the following domains: ● Cloud Services: We design, build and provide managed services for our customers’ multicloud environments. We apply a mix of skilled practitioners, intelligent automation and modern service management principles of Site Reliability Engineering, AIOps, Infrastructure as Code and DevOps. We help enterprises optimize their use of hyperscale cloud providers in a unified environment, seamlessly integrating services delivered by independent software vendors (“ISVs”), large public cloud providers, internal platforms and other technologies (e.g., internet of things (“IoT”)). ● Core Enterprise & zCloud Services: We establish and operate modern, dedicated technology infrastructure on behalf of enterprise customers to enable their current and future growth and profitability objectives. We support a range of enterprise infrastructure, including private clouds, mainframe environments, distributed computing, enterprise networks and storage environments. ● Application, Data and Artificial Intelligence Services: We provide end-to-end enterprise data services, including data transformation, data architecture and management, data governance and compliance and data migration. We support chief digital officers and chief information officers (“CIOs”) in governing the vast quantities of enterprise data across internal and external sources to drive their digital strategies, transactions and business objectives, while maintaining security, ethical standards and compliance with country-specific data protection regulations (e.g., GDPR, HIPAA and PCI). We provide services to design, build, manage and automate the IT environments for enterprise applications as they migrate to the cloud. Our services help CIOs and chief technology officers unlock the full value of leading third-party enterprise resource planning systems (e.g., Oracle, SAP) and packaged applications through the use of AI and software-defined technologies. ● Digital Workplace Services: Our digital workplace services provide the technology infrastructure, mobility, security and access solutions to support a global workforce that is constantly evolving. Our services include enterprise mobility solutions that provide users with the ability to work seamlessly across environments and locations. ● Security & Resiliency Services: We provide comprehensive enterprise cybersecurity services for chief information security officers and chief risk officers, including insights, protection, detection, response and recovery to support the security of our client's hybrid IT estate, data and operations. Concurrently, we provide resiliency services that include a mix of business continuity planning and cloud-based disaster recovery capabilities (composed of experts, digital tools and automation and failover environments). These services allow our customers to operate without issue or disruption in response to attacks, outages, natural disasters and geopolitical events. 5 Table of Contents ● Network Services & Edge: We provide network and edge services to help customers meet their technological and commercial requirements for connectivity and compute across their digital environments. Our strategy and assessment services help evaluate customers’ network needs for their multicloud environments, while our network transformation and managed services allow customers to realize benefits of the latest software-defined network technologies. We deliver these services with a proprietary framework and architecture coupled with proof of concepts to then implement and manage enterprise networks with the right economics. Our Competitive Strengths We are a recognized leader in many of the services we provide, as acknowledged by research analysts (e.g., Everest, Forrester, Gartner, IDC, NelsonHall and HfS Research). We are known for our technology integration and modernization expertise – designing, building and managing complex technology environments. Our worldwide and high-quality service delivery is underpinned by experienced and highly-trained practitioners that bring the best of our capabilities to our customers on a daily basis. Importantly, our culture of customer service excellence – especially in times of crisis, from COVID-19 to tsunamis, floods, cyber-attacks and power outages – carries on from our heritage through our people. Given our unique capabilities, scale, intellectual property and engineering talent, we are positioned to partner with enterprises for their future across a range of technologies, use cases and business strategies to help them maximize the return on their technology investments and digital transformations. Our competitive strengths stem from our intellectual property and data around IT patterns, our mission-critical expertise and our broad ecosystem of partners: ● We are a leader in technology services . We are the largest provider of IT infrastructure services and are recognized by research analysts as a leader in key service areas. We possess significant experience in virtually all industries, gained through collaboration with customers across over 30 years designing, building and managing operating environments for their IT systems. Our highly skilled workforce provides the expertise (e.g., approximately 13,000 Red Hat accreditations) to securely and reliably handle many of the most complex issues. In conjunction with our delivery capabilities (such as artificial intelligence that augments our people) and scale, we provide mission-critical services to a diversified customer base. We also have unique intellectual property applicable to IT environments, as reflected by our portfolio of approximately 3,000 patents. ● We consistently deliver unsurpassed performance and reliability for complex environments . Our expert practitioners and talented engineers provide services through modern ways of working, including agile and design thinking. Additionally, our unique intellectual property and industry-leading technology platforms utilize contemporary approaches to IT operations to provide reliable and efficient solutions for each customer’s operating model. These capabilities allow us to execute with secure and compliant operating and delivery models at scale, driving high-quality performance and customer satisfaction. We realize high-quality performance across thousands of service-level agreements and consistently achieve world-class customer satisfaction and advocacy. ● We deliver insights at scale, supported by unique automation capabilities and application of AI . Our ability to deliver superior outcomes for customers is driven by our capacity to leverage our data around IT patterns and insights, derived from multiple technology environments across customer engagements. We apply machine learning, combined with our practitioner expertise, to derive unique insights used to service customers, enhance our offerings and produce our next-generation services. For example, we are recognized leaders in the use of automation and operational AI in the delivery of our services, with over 6,000,000 automated actions per month, enabling greater quality and efficiency for us and our customers. Our operational AI approach and set of technologies, along with intellectual property that we apply and continually evolve, are leveraged to develop predictive actions to prevent issues before they arise. ● We are a recognized leader in managed services for cloud and on-premise environments and services such as security and resiliency. We offer a range of high-value capabilities including cloud services and security & resiliency services, providing us with a sustainable competitive advantage when helping customers transform their technology environments. Our multicloud management capabilities are differentiated by our ability to 6 Table of Contents deliver an integrated view of our customers’ diverse technology environments and to provide our services and solutions digitally. We offer integrated services between the cloud and on-premise environments. ● We offer an integrated ecosystem to help customers adopt and run an increasingly heterogeneous set of technologies . As customers pursue multiple cloud-based technology partners, applications and capabilities, integration is increasingly critical for customers to manage and orchestrate the technology ecosystem required to run their businesses and achieve their broader objectives. We provide holistic services across thousands of diverse technologies, delivering end-to-end integration across public and private / on-premise cloud platforms and other full-stack technology solutions. We continue to enhance our ecosystem of partners, including large public cloud providers, application-oriented system integrators, independent software vendors and other players in the technology stack to provide leading technologies and capabilities for our customers. Our services and ecosystems enable us to offer leading services for all levels of customer environment complexity and integration. Our Strategies Our strategy is centered on our ability to build and enrich trusted relationships with customers and technology partners, differentiating through our proven ability to create and deploy scale-derived intellectual property, provide mission-critical expertise across industries and partner with a broad ecosystem for contemporary capabilities that best suit customers’ needs. We have a strong and long-standing foundation developed by governing and managing complex technology environments, including IBM (e.g., Red Hat and Cloud Paks) and third-party technologies (e.g., VMware, ServiceNow and Microsoft). We are extending these capabilities to an even broader ecosystem of technology providers, including new strategic relationships with Microsoft and Google Cloud announced in fourth quarter 2021, and are developing more services that are digitally consumable to expand accessibility to new customers and markets. We have a long track record of running customers’ technology environments, enabling them to focus on the core aspects of their businesses. Given the nature of the work we do, we have a unique perspective on the operating paradigms that enable the high-quality technology environments which our customers have come to rely on for their most critical systems. This position enables us to meet customers where they are in their unique digital transformations, work alongside our customers to take them where they want to be and in turn enable them to realize the full, at-scale value of that journey. Underpinning all of this are our intellectual property, mission-critical expertise across industries and a broad ecosystem. We benefit from our long-standing and deep relationship with IBM. We manage the largest installed base of IBM hardware and software products, including some of the most complex deployments. Our focus is centered on the following strategic tenets: ● Scale insights and intellectual property . We are investing to position ourselves at the forefront of developing and innovating the services and operating paradigms for the evolution and integration of mission-critical technology, further expanding our existing intellectual property in differentiated areas. Our depth of experience implementing and operating complex architectures across technology sets has yielded valuable experience and intellectual property that has defined the operating paradigm for much of the technology stack. We have approximately 3,000 patents that relate to various areas of running complex technology environments, including certain patents related to multi-cloud management, orchestration, integrated monitoring, issue triage and resolution and several other areas that enable quality of service. Our mission-critical expertise across all industries, augmented by our automation platforms that draw on our IP and data, is a key differentiator in managing complex technology environments. ● Diverse ecosystem with freedom of action . As an independent entity, we have the freedom of action to develop a broad ecosystem of strategic partnerships with a wider set of technology and services companies. We are investing in an ecosystem of technology providers and corresponding skill-sets that are increasingly relevant as enterprises digitize and transform their business models, building on our existing base of certifications across many market-leading technologies. In parallel, we are extending our operating paradigms and governance and 7 Table of Contents compliance models to this broader set of technologies to integrate and provide end-to-end capabilities for our customers as they digitize and evolve their environments. ● Digitally consumable services models . Looking ahead, we see opportunity to further expand in areas where we can better serve customers through consumption models that allow them to experience our services digitally. These models will combine our platforms, our technology governance and our ecosystem with ease-of-use and scalability, tailored to the needs of specific customer segments such as middle-market enterprises. To execute these strategies, our operating model reflects that of a services company, emphasizing customers and resulting in a flatter, faster and more focused company. We are pursuing an investment and co-investment strategy focused on building our team, developing aligned intellectual property and automation and broadening our ecosystem of partnerships. Our Environmental, Social and Governance (“ESG”) strategy is at the heart of Kyndryl’s purpose to power human progress. We aim to create a sustainable and inclusive future by driving sustainable business practices and positive social impact at scale. As a newly independent company, Kyndryl is working to assess and establish its operational baseline across ESG dimensions. Kyndryl expects to develop greenhouse gas (“GHG”) emissions targets and plans to recertify pursuant to the ISO certifications most relevant to Kyndryl, including the ISO 14001 standard. Beyond our environmental commitments, Kyndryl is focused on building a diverse workforce and an inclusive and equitable culture. With respect to governance matters, Kyndryl will also leverage industry best practices to govern its quality management system, processes and tools to ensure operations meet the standards of compliance and responsible business practices that clients and partners expect. We also maintain Business Conduct Guidelines for directors, executive officers and employees which summarize our policies addressing anti-harassment; anti-discrimination; retaliation prevention; physical and cybersecurity; confidentiality and data privacy; and prevention of fraud, waste and abuse. Our Customers Our customer relationships across all industries demonstrate the deep level of trust that we have earned and the role we play as a partner that provides technical expertise, insight and intellectual property to solve customer challenges. We are the trusted advisor and partner to more than 4,000 customers worldwide, in technology-intensive and often highly regulated environments, managing mission-critical technology environments across a wide range of industries. Our customers collectively represent: ● In financial services, over 60% of the top 50 banks’ assets under management ● In telecommunications, approximately half of the industry’s mobile connections worldwide ● In retail, over 50% of the industry’s hypermarket sales ● In automotive, approximately 45% of the industry’s production of passenger vehicles ● In transportation, over 35% of total revenue passenger miles flown Our revenues are concentrated in the industries mentioned above, but our revenues are diversified across a broad set of customers. In 2021, our top five customers accounted for approximately 9% of our revenue, with our largest customer representing approximately 2% of our revenue. As companies engage in their digital journeys, they face a key impediment related to the skills and expertise needed to realize their transformations. This, in part, is brought on by the increasing complexity of enterprise environments, the incorporation of new technologies and the deployment of different operating models. While many companies have strengthened their technology teams, they have also encountered difficulties in sourcing the breadth of expertise needed for their environments and leveraged service providers to address their needs. Companies will benefit 8 Table of Contents from selecting service providers that have greater insight into their environments and needs, which advantages partners with long-lasting customer relationships. Through decades of collaboration with customers, we have developed deep relationships as we supported the technology environments that advanced their business agendas. Recent examples include: Large-scale transformation to cloud : We partnered with a large, European financial institution to help it migrate from a predominantly on-premise, classic infrastructure environment to a cloud-based infrastructure, utilizing both private and public clouds. We provided the expertise and support to navigate this digital transformation while maintaining and improving quality of service as we moved over 1,000 applications. We also deployed a new Kubernetes container-based environment and management capabilities to increase workload portability and flexibility. This work enabled the customer’s platform to run with increased digital agility and efficiency, embedding strong data security within the new cloud-based infrastructure and providing alignment to the existing infrastructure environment. The customer’s transformation has brought business benefits, from new products and services that are brought to market faster, to an increase in sales through online channels. Modernization of the technology environment : Based on a relationship spanning almost two decades, we partnered with a large European bank to help launch a 10-year transformational program to increase operational agility and efficiency by optimizing the customer’s critical infrastructure, reducing complexity, migrating to hybrid cloud and reducing operational costs. We reduced IT infrastructure complexity by redesigning critical infrastructure architecture, including networks, storage, virtualization and data backup for improved efficiency, enabled ‘scalable’ hybrid cloud by implementing and updating existing systems to a hybrid cloud solution supported by Red Hat and transformed legacy IT services by modernizing tools and the operating model for deployment of IT services. The customer will benefit from modern IT infrastructure including cloud and mainframes that supports their core banking services and treasury functions. Digital transformation across the enterprise : We collaborated with a large material sciences company in North America to support their mission-critical IT infrastructure globally, providing integrated management for environments that include hybrid cloud infrastructure, network, security and end-user services. As the COVID-19 pandemic impacted the operations of many companies, we worked with our customer to help move more than 40,000 employees to a remote model while maintaining critical operations in production facilities without disruption. Building on our 16-year history of collaboration, we are working to accelerate their digital transformation. We are helping our customer build foundational capabilities for their digital journey, powered by data, analytics and artificial intelligence and machine learning integrated into core business processes and connected through a flexible and secure network. This will support our customer’s ability to fully exploit digital technologies and realize business benefit. Digitization for flexibility : Our customer, a large Japanese transportation company, was engaged in a technology-driven transformation to establish a flexible IT environment using hybrid cloud that evolves with changing business needs. We worked with the customer to build an integrated private and public cloud with the same virtualization architecture and a management capability that unifies operations and evolves with the business. Through our collaboration, we created an integrated infrastructure to meet our customer’s current and future needs by modernizing its on-premise, off-premise and network environments as well as its management platform. We deployed software-defined networks across the environment and automation to realize improved quality and business continuity. Our work helps support our customer’s efforts to become one of the most valued and preferred transportation companies in the world. An important part of our services involve supporting our customers during times of crisis, including global disruptions. For instance, during the COVID-19 pandemic, our business continuity plans mitigated all COVID-driven outages in the height of the pandemic, providing peace-of-mind to our customers and giving them the confidence to focus on their core businesses. We ensured that our customers had the data and IT services needed to migrate operations to a work-from-home environment. Our response also demonstrated the resilience of our delivery model, as most of our professionals moved to work-from-home without impact to customer service. 9 Table of Contents Sales and Marketing Our customer engagement and brand positioning is focused on deepening our existing customer relationships, attracting and winning new customers and creating an ecosystem built on go-to-market relationships with leading cloud and other technology providers, advisors and integrators to offer best-in-class advisory, implementation and managed services tailored to each existing and new customer’s environment and requirements. Customer-centric account approach . We have dedicated account coverage teams within our global operating structure. The teams leverage our intellectual capital and tools underpinned by insights and proven practices derived from operating at scale. Senior account leaders orchestrate the teams and have end-to-end accountability from sale to delivery for managed services customers. They tailor the full suite of our services to customers’ needs to deliver value and business outcomes across a wide range of technology environments. Account leaders are supported by dedicated, multi-disciplinary technical sales and delivery teams, as well as by shared services teams, to support an effective and efficient engagement. This account coverage model ensures consistent and reliable delivery of services for our existing relationships over the lifetime of current and renewal contracts. In addition, the model supports the potential expansion of existing relationships based on our deep industry perspective and expertise and knowledge of customers’ unique needs. Finally, this account-based model seeks to build and expand existing relationships with line-of-business buyers, as they have become critical decision makers working alongside our customers. Customer growth and new customer acquisition. In line with our customer-centric approach, we are focused on co-creating and innovating with customers to advance and deepen our relationships. We leverage our broad base of expertise, capabilities and partners to prototype, test and develop innovative solutions across various approaches and technologies. Additionally, we offer bespoke project capabilities in advisory, implementation and transformation services to help customers enhance and evolve their technology environments. We deploy our talent, thought leadership, proven practices, intellectual capital and partnership ecosystem as part of our project engagements to mature them into longer-tail managed services opportunities. In addition, we attract and develop new customers across the globe via account-based marketing, insights derived from operating at scale and direct sales teams with years of sector-specific experience and proven practices to generate unique insights for customers. As we gain new customers, we apply our account coverage model to expand our relationships and footprint over time. ​ Partnership and alliance ecosystem. While we maintain a large and strong partnership with IBM, we are continuing to enhance and develop strategic partnerships with companies in the ecosystems most relevant to our customers’ digital transformations. This includes building new routes to market across these ecosystems to serve as a multiplier enabling us to expand business via partners such as: public cloud providers, ISVs, technology providers (ranging from established, scaled players to growth-stage start-ups), system integrators, business consulting firms and business services providers. These relationships bring value to our customers through broader access to best-in-class solutions that are tailored for their unique technology environments and digital journeys. We announced several partnerships in the fourth quarter of 2021, including with Microsoft, Google, SAP and VMware, that accelerate broader market participation, joint solution development and investment in skills and certification enhancements for Kyndryl. We have established dedicated teams to support our key alliance partners and will continue to co-create and co-market with them to deliver value to our mutual customers, driving differentiation in the market with industry leading technology and Kyndryl services. Our Competition We compete in a market for technology services along with many other providers, ranging from small, highly specialized companies that serve a limited number of customers to large, multi-service enterprises with many clients. These service providers include incumbents that have expanded their offerings to migration and management of cloud-based environments; companies that utilize labor-based models and leverage talent pools primarily in lower-cost countries that have grown to offer a broad range of services with a worldwide presence; and advisory-focused system integrators specializing in bringing together disparate technology environments so that they function as one. Many of these companies offer a mix of advisory, implementation and managed services across infrastructure, application and business processes. Examples include Atos, DXC, Fujitsu, Infosys, Rackspace, Tata Consultancy Services and Wipro, among others. 10 Table of Contents The basis of competition involves multiple factors, with key elements including quality of service, technical skills and capabilities, industry knowledge and experience, financial value, ability to innovate, intellectual property and methods, contracting flexibility and speed of execution. Long-standing partnerships and knowledge of the customers’ technology environment often enable service providers to better address requirements and future needs. Our decades-long collaboration with customers provides us with the insights to realize distinctive performance that supports their digital transformation. We deliver unique value by providing intellectual property derived from insights at scale, deploying mission-critical expertise and leveraging a broad ecosystem – while building and strengthening partnerships to enhance the customer experience. We position ourselves uniquely, leveraging a core strength in governance and management of complex IT infrastructure environments, delivered through a global footprint. Our services support customers’ digital transformations, as we help accelerate their journeys by providing instrumented and engineered technology environments. We offer choice with consistency through an operating paradigm and management model built from our experiences with complex technologies. These capabilities uniquely position us as both a leading partner and competitor within the same market. Intellectual Property We are committed to developing leading-edge ideas and technologies and see innovation as a source of competitive advantage. We have approximately 3,000 patents that are related to our business model. A key pillar of our strategy is continuing to invest in knowledge and intellectual property to support extending our services to a broader ecosystem of technology providers and customer challenges and solutions. Our decades of experiences working with our customers has generated operational insights, creating intellectual property that we leverage for the benefit of our customers and deploy at scale. We rely on intellectual property protections in the countries in which we operate, along with contractual restrictions, to establish and protect our offerings and services and other applicable rights. In addition, we license third-party software along with other technologies that are used in the provision of or incorporated into some elements of our services. We possess a significant intellectual property portfolio, which we believe is important to our success. However, we believe our business as a whole is not materially dependent on any particular intellectual property right or any particular group of patents, trademarks, copyrights or licenses. Additionally, we own or have rights to various trademarks, logos, service marks and trade names that are used in the operation of our business. We also own or have the rights to copyrights that protect the content of our products and other proprietary materials. Human Capital Resources Employees As of December 31, 2021, we had approximately 90,000 employees in more than 60 countries. Approximately 92% of our employees work outside the U.S., with workforce hubs in India, Poland, Brazil, Japan, Czech Republic and Hungary. Our people advance the vital systems that power human progress. Our global workforce is highly skilled, reflective of the work we do for our customers’ digital transformations and in support of their mission-critical operations. Our industry experts are also always continuously learning. Over the past five years, we earned more than 245,000 badges through our learning platform in strategic skills, including cloud, AI, analytics, design thinking, quantum and security. At Kyndryl, we are: ● A purpose-led culture, focused on inspiring our dedicated people to advance what’s possible for our customers ● A business where our people are our business. We want empowered employees who keep learning, thriving and creating ● Inclusive and open. This starts with a diverse and empathetic workforce that listens and learns at every step 11 Table of Contents ● Fostering an environment that supports new ways of working, accelerated career progression and the chance to work with the most interesting technology systems ● Promoting innovation at every turn – in our open and transparent leadership, in our purpose and in our shared values built around a commitment to advancing what’s next for ourselves and our customers Our people are at the center of designing, building and managing the technology environments that the world depends on every day. We will continue to invest in our teams to be at the heart of technological change for our customers. Talent and Culture Our business is our people, and our talent strategy revolves around our ability to best serve our customers through ongoing investment in talent and skill development. We attract, develop and retain talent in a dynamic and competitive environment. We are focused on optimizing the employee experience at Kyndryl through: ● Attracting: We create technical careers of the future through increased skill development to meet and exceed new market demands ● Developing: We align our people’s goals with our customers’, promoting acquisition of critical skills on an individual level and continuous learning ● Retaining: We retain talent through increased career mobility, internal upskilling, reskilling opportunities and promotions We are committed to building the technical careers of the future and have made investments in training and skills to ensure our people are relevant, experienced and technically positioned to serve our customers on their most complex challenges. We continue to expand our certifications and accreditations each year through consistent investment in skill development around emerging technologies and key areas for growth. We offer comprehensive market-competitive rewards and benefits programs including health benefits, mental health support and Employee Assistance Plans, retirement savings benefits, paid time off and recognition programs, among others. Inclusion, Diversity and Equity (“ID&E”) We empower Kyndryls to embed ID&E throughout our business to engender a diverse workforce and inclusive, equitable culture that delivers exceptional service for our customers and advances the vital systems that power human progress. We will uphold and build upon a strong history of inclusion, diversity and equity. Key diversity and inclusion objectives are: ● Connected and inclusive culture: Drive a culture where employees feel a sense of inclusion and belonging​ ● Diverse and representative teams​: Attract, develop and retain diverse talent across levels and geographies​ ● Embedding ID&E within business and operations: Embedding ID&E in every part of our business​ ● Community engagement and advocacy: Cultivate opportunity and promote equity for unde r- served communities 12 Table of Contents Health, Safety and Well-Being We have a clear commitment to the health, safety and well-being of our employees. We have an experienced Health and Safety team comprised of medical doctors, nurses, industrial hygiene, safety and workforce health experts. This team has implemented a health and safety management system that ensures compliance with all local health and safety regulations, minimizes workplace health and safety risks and provides for safe and healthy workplaces so our employees can do their best work. Throughout the COVID-19 pandemic, our priority has continued to be the health and safety of employees, customers and partners, while supporting our customers’ operations. We have a comprehensive, global pandemic management plan that is regularly updated to reflect the changing environment of workplace health and safety. Our employees are supported with access to our Health and Safety team, education, timely updates and forums to ask questions and raise concerns. Additionally, we have continued to focus on mental health and supporting our employees through different phases of the pandemic. Company Website, Social Media and Availability of SEC Filings ​ The Company’s internet website is www.kyndryl.com . Information on the Company’s website is not incorporated by reference herein and is not a part of this report. The Company makes available free of charge on its website or provides a link on its website to the Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after those reports are electronically filed with or furnished to the Securities and Exchange Commission. To access these filings, go to the investor relations section of the Company’s website ( investors.kyndryl.com ) and under the “Financials” heading, click on “SEC Filings.” In addition, the SEC maintains an Internet website (http://www.sec.gov) containing reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. ​ The Company may use its website and/or social media outlets, such as Facebook, LinkedIn and Twitter, as distribution channels of material Company information. Financial and other important information regarding the Company is routinely posted on and accessible through the Company’s website at https://investors.kyndryl.com, its Facebook page at https://www.facebook.com/kyndryl, its LinkedIn page at https://linkedin.com/company/kyndryl and its Twitter account (@Kyndryl) at https://twitter.com/Kyndryl. In addition, you may automatically receive email alerts and other information about the Company when you enroll your email address by visiting the “Investor Email Alerts” section under the “Resources” section at https://investors.kyndryl.com. Industry and Market Data The sources of certain statistical data, industry data, estimates and forecasts contained in this 10-K are the following independent industry publications or reports: ● Gartner, Smarter With Gartner: Top Security and Risk Trends for 2021, dated April 5, 2021 ● Gartner, Forecast: IT Services, Worldwide, 2019-2025, 4Q21 Update, dated December 21, 2021 (the “Gartner IT Services Report”) ● Gartner, Forecast Analysis: Digital Business Consulting Services, Worldwide, dated December 7, 2020 (the “Gartner Consulting Services Forecast Report”) ● Gartner, Forecast Analysis: Cloud Consulting and Implementation Services, Worldwide, dated July 23, 2021 ● Gartner, Magic Quadrant for Managed Mobility Services, Global 2021, dated April 6, 2021 ● Gartner, Market Share: IT Services, Worldwide 2020, dated April 8, 2021 ​ 13 Table of Contents We performed calculations of market sizes and growth rates using Gartner research from the Gartner IT Services Report and the Gartner Consulting Services Forecast Report. The Gartner reports described herein (the “Gartner Content”) represent research opinion or viewpoints published, as part of a syndicated subscription service, by Gartner, Inc. (“Gartner”) and are not representations of fact. The Gartner Content speaks as of its original publication date (and not as of the date of this 10-K), and the opinions expressed in the Gartner Content are subject to change without notice. Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner’s research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose. Item 1A. Risk Factors: Risks Relating to Our Business A lack of new customers, retention of existing customers and sales of additional services to customers could adversely impact our revenue and results of operations. Our ability to maintain or increase our revenues and profit may be impacted by a number of factors, including our ability to attract new customers, retain existing customers and sell additional, comparable gross margin services to our customers. We may incur higher customer acquisition or retention costs as a result of the Spin-off and as we seek to grow our customer base and expand our markets. Moreover, to the extent we are unable to retain and sell additional services to existing customers, our revenue and results of operations may decrease. Our outsourcing customer contracts typically have an average duration of over five years and, unless terminated, may be renewed or automatically extended on a month-to-month basis. Our customers have no obligation to renew their services after their initial contract periods expire and any termination fees associated with an early termination may not be sufficient to recover our costs associated with such contracts. The loss of business from any of our major customers, whether by the cancellation of existing contracts, the failure to obtain new business or lower overall demand for our services, could adversely impact our revenue and results of operations. We may not meet our growth and productivity objectives. Our goals for profitability and growth rely upon a number of assumptions, including our ability to make successful investments to grow and further develop our business and simplify our operations. The risks and challenges we face in connection with our strategies include expanding our professional services capability, expanding in geographies where we currently have a small presence and ensuring that our services remain competitive in a rapidly changing technological environment. We may invest significantly in key strategic areas to drive long-term revenue growth and share gains. These investments may adversely affect our near-term revenue growth and results of operations, and we cannot guarantee that they will ultimately be successful. Customer adoption rates and viable economic models are less certain in highly competitive segments. Additionally, emerging business and delivery models may unfavorably impact demand and profitability for our solutions or services. If we are unable to find partners to develop cutting-edge innovations in a highly competitive and rapidly evolving environment or are unable to implement and integrate such innovations with sufficient speed and versatility, we could fail in our ongoing efforts to maintain and increase our revenue and profit margins. Competition in the markets in which we operate may adversely impact our results of operations. Our competitors include incumbents that have expanded their offerings to migration and management of cloud-based environments; companies that utilize labor-based models and leverage talent pools primarily in lower-cost countries that have grown to offer a broad range of services with a worldwide presence; and advisory-focused system integrators specializing in bringing together disparate technology environments. Our competitiveness is based on factors including quality of services, technical skills and capabilities, industry knowledge and experience, financial value, ability 14 Table of Contents to innovate, intellectual property and methods, contracting flexibility, and speed of execution. If we are unable to compete based on such factors, our results of operations and business prospects could be harmed. This competition may decrease our revenue and place downward pressure on operating margins in our industry, particularly for contract extensions or renewals. As a result, we may not be able to maintain our current revenue and operating margins, or achieve favorable operating margins, for contracts extended or renewed in the future. If we fail to create and sustain an efficient and effective cost structure that scales with revenues during periods with declining revenues, our margins and results of operations may be adversely affected. Companies with whom we have alliances in certain areas may be or become competitors in other areas. In addition, companies with whom we have alliances also may acquire or form alliances with competitors, which could reduce their business with us. If we are unable to effectively manage these complicated relationships with alliance peers, our business and results of operations could be adversely affected. Our business could be adversely impacted by our relationships with critical suppliers and partners. Our business employs a wide variety of products and services from a number of suppliers and partners around the world. Our relationships with our partners, who supply us with necessary components to the services and solutions we offer our customers, are also critical to our ability to provide many of our services and solutions that address customer demands. There can be no assurance that we will be able to maintain such relationships, including in light of our separation from IBM. Among other things, such partners may in the future decide to compete with us, form exclusive or more favorable arrangements with our competitors or otherwise reduce our access to their products, impairing our ability to provide the services and solutions demanded by customers. Further, changes in the business condition (financial or otherwise) of these suppliers or partners could subject us to losses and affect our ability to bring our offerings to market. Additionally, the failure of our suppliers and partners to deliver products and services in sufficient quantities, in a timely manner, and in compliance with all applicable laws and regulations could adversely affect our business. Any defective products or inadequate services received from suppliers or partners could reduce the reliability of our services and harm our reputation. If we are unable to attract and retain key personnel and other skilled employees, our business could be harmed. If any of our key employees were to leave, we could face substantial difficulty in hiring qualified successors and could experience a loss in productivity while any successor obtains the necessary training and experience. Although we have arrangements with some of our executive officers designed to promote retention, our employment relationships are generally at-will, and key employees may leave us. We intend to continue to hire additional highly qualified personnel but may not be able to attract, assimilate or retain similarly qualified personnel in the future. In addition, much of our future success depends on the continued service, availability and integrity of skilled employees, including technical, sales and staff resources. Skilled and experienced personnel in the areas where we compete are in high demand, and competition for their talents is intense. Our inability to retain skilled employees could intensify the adverse impact of a shortage of critical skills. Changing demographics and labor workforce trends also may result in a shortage of or insufficient knowledge and skills. Further, as global opportunities and industry demand shift, realignment, training and scaling of skilled resources may not be sufficiently rapid or successful. Any failure to attract, integrate, motivate and retain these employees could harm our business. Due to our global presence, our business and operations could be adversely impacted by local legal, economic, political, health and other conditions, including the COVID-19 pandemic. We are a globally integrated company and have operations worldwide. Changes in the laws or policies of the countries in which we operate, or inadequate development or enforcement of such laws or policies, could affect our business and our overall results of operations. Further, we may be impacted directly or indirectly by the development and enforcement of laws and regulations in the U.S. and globally that are specifically targeted at the technology industry. Our results of operations also could be affected by economic and political changes in those countries and by macroeconomic changes, including recessions, inflation, currency fluctuations between the U.S. dollar and non-U.S. currencies and adverse changes in trade relationships among those countries. As we expand our customer base and the scope of our offerings, both within the United States and globally, we may be further impacted by additional regulatory 15 Table of Contents or other risks, including compliance with U.S. and foreign data privacy requirements, data localization requirements, labor relations laws, enforcement of intellectual property protection laws, laws relating to anti-corruption, anti-competition regulations, and import, export and trade restrictions. Further, international trade disputes could create uncertainty. Tariffs and international trade sanctions resulting from these disputes could affect our ability to move goods and services across borders, or could impose added costs to those activities. Measures taken to date by us to mitigate these impacts could be made less effective should trade sanctions or tariffs change. In addition, any widespread outbreak of an illness, pandemic or other local or global health issue, natural disasters including those that could be related to climate change impacts, or uncertain political climates, international hostilities, or any terrorist activities, could adversely affect customer demand, our operations and supply chain, and our ability to source and deliver solutions to our customers. For example, the COVID-19 pandemic has created significant volatility, uncertainty and economic disruption. In the current macroeconomic environment, customers continue to balance short-term challenges and opportunities for transformation. While some customers have begun to accelerate their digital transformation and increase their expenditures, the short-term priorities of other customers continue to be focused on operational stability, flexibility and cash preservation, and as such, we may experience some disruptions in transactional performance. Additionally, customers’ short-term priorities, as well as quarantines, limitations on travel, supply chain disruptions and other factors associated with the COVID-19 pandemic have resulted and may continue to result in delays in some services projects. A downturn in the economic environment and customer spending budgets could adversely impact our business. Our overall performance depends in part on global macroeconomic and geopolitical conditions, which can change suddenly and unpredictably. Because we operate globally and have significant businesses in many markets, an economic slowdown in any of those markets could adversely affect our results of operations. If overall demand for our solutions decreases, or if customers decide to reduce their spending budgets as a result of such conditions, including those associated with the COVID-19 pandemic, our revenue and profit could be materially and adversely impacted. Damage to our reputation could adversely impact our business. Our reputation may be susceptible to damage by events such as significant disputes with customers, internal control deficiencies, delivery failures, cybersecurity incidents, government investigations or legal proceedings or actions of current or former customers, directors, employees, competitors, vendors, alliance partners or joint venture partners. If we fail to gain a positive reputation as leader in our field, or if our brand image is tarnished by negative perceptions, our ability to attract and retain customers and talent could be impacted. If we are unable to accurately estimate the cost of services and the timeline for completion of contracts, the profitability of our contracts may be materially and adversely affected. Our commercial contracts are typically awarded on a competitive or “sole-source” basis. Our bids are priced upon, among other items, the expected cost to provide the services. We are dependent on our internal forecasts and predictions about our projects and the marketplace and, to generate an acceptable return on our investment in these contracts, we must be able to accurately estimate our costs to provide the services required by the contract and to complete the contracts in a timely manner. We face a number of risks when pricing our contracts, as many of our projects entail the coordination of operations and workforces in multiple locations and utilizing workforces with different skill sets and competencies across geographically diverse service locations. In addition, revenues from some of our contracts are recognized using the percentage-of-completion method, which requires estimates of total costs at completion, fees earned on the contract, or both. This estimation process, particularly due to the technical nature of the services being performed and the long-term nature of certain contracts, is complex and involves significant judgment. Adjustments to original estimates are often required as work progresses, experience is gained, and additional information becomes known, even though the scope of the work required under the contract may not change. Moreover, inflation can adversely affect us by increasing our costs and, if we are unable to adjust our pricing, revenue or costs, can adversely affect the profitability of our contracts. If we fail to accurately estimate our costs or the time required to complete a contract, the profitability of our contracts may be materially and adversely affected. 16 Table of Contents Service delivery issues could adversely impact our business and operating results. We have customer agreements in place that include certain service-level commitments. If we are unable to meet such commitments, we may be contractually obligated to pay penalties or provide these customers with service credits for a portion of the service fees paid by our customers. However, we cannot be assured that our customers will accept these penalties or credits in lieu of other legal remedies that may be available to them. Our failure to meet our commitments could also result in customer dissatisfaction or loss and have an adverse effect on our business, financial condition and results of operations. Risks from acquisitions, alliances and dispositions include integration challenges, failure to achieve objectives, the assumption of liabilities and higher debt levels. Subject in certain circumstances to the consent of IBM under the Tax Matters Agreement, as discussed in “- Risks Relating to our Recent Spin-off from IBM,” we may decide to make acquisitions, alliances and dispositions in furtherance of our strategy. Such transactions can present significant challenges and risks, and there can be no assurances that we will identify or manage such transactions successfully or that strategic opportunities will be available to us on acceptable terms or at all. The related risks include our failure to achieve strategic objectives, our failure to achieve anticipated revenue improvements and cost savings, our failure to retain key strategic relationships of acquired companies, our failure to retain key personnel and our assumption of liabilities related to litigation or other legal proceedings involving the businesses in such transactions, as well as our failure to close planned transactions. Such transactions may require us to secure financing, and our indebtedness may limit the availability of financing to us or the favorability of the terms of available financing. If we do acquire other companies, we may not realize all the economic benefit from those acquisitions, which could cause an impairment of goodwill or intangible assets. If our goodwill or net intangible assets become impaired, we may be required to record a charge to our income statement as we did in the quarter ended December 31, 2021. See “⸺We have recorded significant goodwill impairment charges and may be required to record additional charges to future earnings if our goodwill or long-lived assets become impaired.” We could be adversely impacted by our business with government customers. Our customers include numerous governmental entities within and outside the United States, including foreign governments and U.S. state and local entities. Some of our agreements with these customers may be subject to periodic funding approval. Funding reductions or delays could adversely impact public sector demand for our services. Also, government contracts tend to have additional requirements beyond commercial contracts and, for example, may contain provisions providing for higher liability limits for certain losses. In addition, we could be suspended or debarred as a governmental contractor and could incur civil and criminal fines and penalties, which could negatively impact our results of operations, financial results and reputation. Intellectual property matters could adversely impact our business. Our intellectual property rights may not prevent competitors from independently developing services similar to or duplicative of ours, nor can there be any assurance that the resources invested by us to protect our intellectual property will be sufficient or that our intellectual property portfolio will adequately deter misappropriation or improper use of our technology. Our ability to protect our intellectual property could also be impacted by changes to existing laws, legal principles and regulations governing intellectual property. Further, we rely on third-party intellectual property rights, open-source software, and other third-party software in providing some of our services and solutions, and there can be no assurances that we will be able to obtain from third parties the licenses we need in the future. If we cannot obtain licenses to third party intellectual property on commercially reasonable terms, or if we must obtain alternative or substitute technology or redesign services, our business may be adversely affected. Additionally, we cannot be sure that our services and solutions, or the solutions of others that we offer to our customers, do not infringe on the intellectual property rights of third parties (including competitors as well as non-practicing holders of intellectual property assets), and these third parties could claim that we, our customers or parties indemnified by us are infringing upon their intellectual property rights. In addition, we may be the target of aggressive and opportunistic enforcement of patents by third parties, including patent assertion entities and non-practicing entities. These claims, even if we believe they have no merit, could subject us to a temporary or permanent injunction or damages, harm our reputation, divert management 17 Table of Contents attention and resources, and cause us to incur substantial costs or prevent us from offering some services or solutions in the future. Even if we have an agreement providing for third parties to indemnify us for the foregoing claims, the indemnifying parties may be unwilling or unable to fulfill their contractual obligations. We have recorded significant goodwill impairment charges and may be required to record additional charges to future earnings if our goodwill or long-lived assets become impaired. We are required under accounting principles generally accepted in the United States of America (“GAAP”) to review our goodwill for impairment at least annually, and to review goodwill and long-lived assets when events or changes in circumstances indicate the carrying value may not be recoverable. Some factors that may be considered events or changes in circumstances that would require our long-lived assets and/or goodwill to be reviewed for impairment include a sustained decline in stock price, a substantial decline in business performance or other entity-specific events such as changes in business management and strategy. In the fourth quarter of 2021, we reviewed our long-lived assets and goodwill for impairment and identified certain reporting units in which the carrying value of the reporting unit exceeded the fair value. Consequently, the Company recorded a non-cash impairment charge of $469 million in the fourth quarter. We may be required to record additional non-cash impairment charges during any period in which we determine that our goodwill or long-lived assets are impaired, which could adversely affect our results of operations. As of December 31, 2021, our goodwill balance was $732 million, which represented 6% of total consolidated assets. See Note 10 – Intangible Assets Including Goodwill to our financial statements included elsewhere in this report for additional information about our 2021 goodwill impairment. Risks Relating to Cybersecurity and Data Privacy Cybersecurity and privacy considerations could adversely impact our business. We maintain information, including confidential and proprietary information, in digital form regarding our business and information of our customers, contractors, business partners, vendors, employees, competitors and other third parties. We also rely on third-party vendors to provide certain digital services in connection with our business. There are numerous and evolving risks to our cybersecurity and privacy, including risks originating from intentional acts of criminal hackers, hacktivists and nation states; from intentional and unintentional acts of customers, contractors, business partners, vendors, employees, competitors and other third parties; and from errors in processes or technologies, as well as the risks associated with an increase in the number of customers, contractors, business partners, vendors, employees and other third parties working remotely as a result of the COVID-19 pandemic. Computer hackers and others routinely attack the security of technology products, services, systems and networks using a wide variety of methods, including ransomware or other malicious software and attempts to exploit vulnerabilities in hardware, software, and infrastructure. Attacks also include social engineering to fraudulently induce customers, contractors, business partners, vendors, employees and other third parties to disclose information, transfer funds or unwittingly provide access to systems or data. We are at risk of security breaches not only of our own services, systems and networks, but also those of customers, contractors, business partners, vendors, employees and other third parties. Cyber threats are continually evolving, making it difficult to defend against certain threats and vulnerabilities that can persist undetected over extended periods of time. Our services, systems and networks, including cloud-based systems and systems and technologies that we maintain on behalf of our customers, may be used in critical Company, customer or third-party operations, and involve the storage, processing and transmission of sensitive data, including valuable intellectual property, other proprietary or confidential data, regulated data, and personal information of employees, customers and others. These services, systems and networks are also used by customers in heavily regulated industries, including those in the financial services, healthcare, critical infrastructure and government sectors. Successful cybersecurity attacks or other security incidents with respect to our systems or those of our third-party vendors could result in, for example, one or more of the following: unauthorized access to, disclosure, modification, misuse, loss or destruction of Company, customer or other third-party data or systems; theft or import or export of sensitive, regulated or confidential data including personal information and intellectual property; the loss of access to critical data or systems through ransomware, crypto mining, destructive attacks or other means; and business delays, service or system disruptions or denials of service. In the event of such actions, we, our customers and other third parties could be exposed 18 Table of Contents to liability, litigation, and regulatory or other government action, as well as the loss of existing or potential customers, damage to brand and reputation, damage to our competitive position, and other financial loss. The cost and operational consequences of responding to cybersecurity incidents and implementing remediation measures could be significant. In our industry, security vulnerabilities are increasingly discovered, publicized and exploited across a broad range of hardware, software or other infrastructure, elevating the risk of attacks and the potential cost of response and remediation for us and our customers. In addition, the fast-paced, evolving, pervasive, and sophisticated nature of certain cyber threats and vulnerabilities, as well as the scale and complexity of the business and infrastructure, make it possible that certain threats or vulnerabilities will be undetected or unmitigated in time to prevent or minimize the impact of an attack on us or our customers. Cybersecurity risk to us and our customers also depends on factors such as the actions, practices and investments of customers, contractors, business partners, vendors and other third parties. Cybersecurity attacks or other catastrophic events resulting in disruptions to or failures in power, information technology, communication systems or other critical infrastructure could result in interruptions or delays to Company, customer or other third-party operations or services, financial loss, injury or death to persons or property, potential liability, and damage to brand and reputation. Although we continuously take significant steps to mitigate cybersecurity risk across a range of functions, such measures can never eliminate the risk entirely or provide absolute security. To date, while we continue to monitor for, identify, investigate, respond to, remediate and develop plans to quickly recover from cybersecurity incidents, there have not been cybersecurity incidents that have had a material adverse effect on us, though there is no assurance that there will not be cybersecurity incidents that will have a material adverse effect in the future. As we are a global enterprise, the regulatory environment with regard to cybersecurity, privacy and data protection issues to which we are subject is increasingly complex and will continue to impact our business, including through increased risk, increased costs, and expanded or otherwise altered compliance obligations. As our reliance on data grows, the potential impact of regulations on our business, risks, and reputation will grow accordingly. The enactment and expansion of data protection and privacy laws and regulations around the globe, including an increased focus on international data transfer mechanisms driven by the European Court of Justice decision in the Schrems II matter; the lack of harmonization of such laws and regulations; the increase in associated litigation and enforcement activity; the potential for damages, fines and penalties; and the potential regulation of new and emerging technologies, such as artificial intelligence, will continue to result in increased compliance costs and risks. Any additional costs and penalties associated with increased compliance, enforcement and risk reduction could make certain offerings less profitable or increase the difficulty of bringing certain offerings to market. Risks Relating to Laws and Regulations Our global operations expose us to numerous and sometimes conflicting legal and regulatory requirements, and violation of these regulations could harm our business. We are subject to numerous, and sometimes conflicting, legal regimes on matters as diverse as anticorruption, import/export controls, content requirements, trade restrictions, tariffs, taxation, sanctions, immigration, internal and disclosure control obligations, securities regulation, ESG initiatives, anti-competition, anti-money-laundering, data privacy and protection, wage-and-hour standards, employment and labor relations and human rights. The global nature of our operations, including emerging markets where legal systems may be less developed or understood by us, and the diverse nature of our operations across a number of regulated industries, further increase the difficulty of compliance. Compliance with diverse legal requirements is costly and time-consuming and requires significant resources. Violations of one or more of these regulations in the conduct of our business could result in significant fines, enforcement actions or criminal sanctions against us and/or our employees, prohibitions on doing business, unfavorable publicity and damage to our reputation. Violations of these regulations in connection with the performance of our obligations to our customers also could result in liability for significant monetary damages and restrictions on our ability to effectively carry out our contractual obligations and thereby expose us to potential claims from our customers. Due to the varying degrees of development of the legal systems of the countries in which we operate, local laws may not be well developed or provide sufficiently clear guidance and may be insufficient to protect our rights. ​ 19 Table of Contents In particular, in many parts of the world, including countries in which we operate and/or seek to expand, practices in the local business community might not conform to international business standards and could violate anti-corruption laws, or regulations, including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act 2010. Our employees, subcontractors, vendors, agents, alliance or joint venture partners, the companies we acquire and their employees, subcontractors, vendors and agents, and other third parties with which we associate could take actions that violate policies or procedures designed to promote legal and regulatory compliance or applicable anti-corruption laws or regulations. Violations of these laws or regulations by us, our employees or any of these third parties could subject us to criminal or civil enforcement actions (whether or not we participated or knew about the actions leading to the violations), including fines or penalties, disgorgement of profits and suspension or disqualification from work, including U.S. federal contracting, any of which could materially adversely affect our business, including our results of operations and our reputation. ​ Changes in laws and regulations could also mandate significant and costly changes to the way we implement our services or could impose additional taxes on our services. For example, changes in laws and regulations to limit using off-shore resources in connection with our work or to penalize companies that use off-shore resources, which have been proposed from time to time in various jurisdictions, could adversely affect our results of operations. Such changes may result in contracts being terminated or work being transferred on-shore, resulting in greater costs to us. Tax matters could impact our results of operations and financial condition. We are subject to income taxes in both the United States and numerous foreign jurisdictions. We calculate and provide for taxes in each tax jurisdiction in which we operate. Tax accounting often involves complex matters and requires our judgment to determine our worldwide provision for income taxes and other tax liabilities. Our provision for income taxes and cash tax liability in the future could be adversely affected by numerous factors including, but not limited to, income before taxes being lower than anticipated in countries with lower statutory tax rates and higher than anticipated in countries with higher statutory tax rates, changes in the valuation of deferred tax assets and liabilities, and changes in tax laws, regulations, accounting principles or interpretations thereof, which could adversely impact our results of operations and financial condition in future periods. The Organization for Economic Cooperation and Development (OECD) continues to issue guidelines that are different, in some respects, than long-standing international tax principles. As countries unilaterally amend their tax laws to adopt certain parts of the OECD guidelines, this may increase tax uncertainty and may adversely impact our income taxes. Local country, state, provincial or municipal taxation may also be subject to review and potential override by regional, federal, national or similar forms of government, which may also adversely impact our income taxes. In addition, it is likely that our tax returns could be examined by taxing authorities in the jurisdictions in which we do business. While we regularly assess the likelihood of adverse outcomes resulting from these examinations in order to determine the adequacy of our provision for income taxes, there can be no assurance that the outcomes from these examinations will not have an adverse effect on the Company’s provision for income taxes and cash flows. We are subject to legal proceedings and investigatory risks. As a company with approximately 90,000 employees and with customers in over 100 countries, we are or may become involved as a party and/or may be subject to a variety of claims, demands, suits, investigations, tax matters and other proceedings that arise from time to time in the ordinary course of our business. The risks associated with such legal proceedings are described in more detail in Note 13 – Commitments and Contingencies in the financial statements elsewhere in this report. We believe that we have adopted appropriate risk management and compliance programs. Legal and compliance risks, however, will continue to exist, and additional legal proceedings and other contingencies, the outcome of which cannot be predicted with certainty, may arise from time to time. We could incur costs for regulated environmental matters. We are subject to various federal, state, local and foreign laws and regulations concerning the discharge of materials into the environment or otherwise related to environmental protection. We could incur costs, including cleanup costs, fines and civil or criminal sanctions, as well as third-party claims for property damage or personal injury, if we 20 Table of Contents were to violate or become liable under environmental laws and regulations. In addition, if we were to violate or become liable under environmental laws and regulations our reputation could be harmed, which could have a negative impact on demand for our products and services. Compliance with environmental laws and regulations is not expected to have a material adverse effect on our financial position, results of operations and competitive position. We could be materially and adversely affected by increased focus on and demands from customers, investors and regulators with respect to climate change and environmental, social and governance issues. Global climate change is the result of increasing carbon emissions and has been linked to increasing environmental degradation and increased incidence of natural disasters. Governments are implementing local, national and international regulations, taxes and carbon mechanisms to reduce these emissions. If we do not meet these demands, our business and operations may be negatively impacted. In addition, investors have linked corporate risks and management of ESG to sustainable profits and growth. ESG includes not only environmental issues but also human rights, diversity, responsible supply chain management, ethics, cybersecurity and privacy concerns. We risk divestment and challenges to corporate practices and policies if we do not meet the ESG expectations of stockholders. Further, employees and customers may seek employment opportunities, products and services that offer ESG benefits and/or minimize ESG risks. If we fail to meet these demands, it may negatively impact our business and damage our reputation. Risks Relating to Financing and Capital Markets Activities A lowering or withdrawal of the ratings, outlook or watch assigned to our debt securities by rating agencies may increase our future borrowing costs, reduce our access to capital and adversely impact our financial performance. Any rating, outlook or watch assigned could be lowered or withdrawn entirely by a rating agency if, in that rating agency’s judgment, current or future circumstances relating to the basis of the rating, outlook or watch, such as adverse changes to our business, so warrant. Any future lowering of our ratings, outlook or watch likely would make it more difficult or more expensive for us to obtain additional debt financing. Moreover, a reduction in our rating to below certain levels could cause certain customers to reduce or cease to do business with us, which would adversely impact our financial performance. The commercial and credit environment may adversely affect our access to capital. Our ability to issue debt or enter into other financing arrangements on acceptable terms could be adversely affected if there is a material decline in the demand for our services or in the solvency of our customers or suppliers or if there are other significantly unfavorable changes in economic conditions. Volatility in the world financial markets could increase borrowing costs or affect our ability to access the capital markets. These conditions may adversely affect our credit ratings. Our financial performance could be adversely impacted by changes in market liquidity conditions and by customer credit risk on receivables. Our financial performance is exposed to a wide variety of industry sector dynamics worldwide, including sudden shifts in regional or global economic activity such as those associated with the COVID-19 pandemic. Our earnings and cash flows, as well as our access to funding, could be negatively impacted by changes in market liquidity conditions. Our customer base includes many worldwide enterprises, from small and medium businesses to the world’s largest organizations and governments, with a significant portion of our revenue coming from global customers across many sectors. If we become aware of information related to the creditworthiness of a major customer, or if future actual default rates on receivables in general differ from those currently anticipated, we may have to adjust our allowance for credit losses, which could affect our net income in the period the adjustments are made. 21 Table of Contents Our results of operations and financial condition could be negatively impacted by our pension plans. Adverse financial market conditions and volatility in the credit markets may have an unfavorable impact on the value of our pension trust assets and its future estimated pension liabilities. As a result, our financial results in any period could be negatively impacted. In addition, in a period of an extended financial market downturn, we could be required to provide incremental pension plan funding with resulting liquidity risk which could negatively impact our financial flexibility. Further, our results could be negatively impacted by premiums for mandatory pension insolvency insurance coverage outside the United States. Premium increases could be significant due to the level of insolvencies of unrelated companies in the country at issue. We are exposed to currency risk that could adversely impact our revenue and business. We derive a significant percentage of our revenues and costs from our affiliates operating in local currency environments, and those results are affected by changes in the relative values of non-U.S. currencies and the U.S. dollar, as well as sudden shifts in regional or global economic activity such as those associated with the COVID-19 pandemic. In addition, large changes in foreign exchange rates relative to our functional currencies could increase the costs of our services to customers relative to local competitors, thereby causing us to lose existing or potential customers to these local competitors. Further, as we grow our international operations, our exposure to foreign currency risk could become more significant. Our hedging strategies may not fully mitigate our foreign currency risk or may prove disadvantageous. Risks Relating to our Recent Spin-off from IBM The Spin-off may not achieve some or all of the anticipated benefits. We may not realize some or all of the anticipated strategic, financial, operational, marketing or other benefits from the Spin-off, or such benefits may be delayed by a variety of circumstances, which may be outside of our control. As an independent publicly-traded company, we are smaller and less diversified with a narrower business focus than IBM and may be more vulnerable to changing market conditions, which could materially and adversely affect our business, financial condition and results of operations. The Spin-off could result in significant tax liability to IBM and its stockholders if it is determined to be a taxable transaction. Prior to the Spin-off, IBM received a private letter ruling from the Internal Revenue Service (“IRS”) together with a written opinion of Paul, Weiss, Rifkind, Wharton & Garrison LLP to the effect that, among other things, the Distribution, including IBM’s retention of 19.9% of the shares of our common stock, will qualify as a transaction that is tax-free for U.S. federal income tax purposes under the Internal Revenue Code of 1986 (the “Code”). The opinion of counsel does not address any U.S. state or local or foreign tax consequences of the Spin-off. The opinion of counsel and the private letter ruling rely on certain facts, assumptions, representations and undertakings from IBM and us regarding the past and future conduct of the companies’ respective businesses and other matters. If any of these facts, assumptions, representations or undertakings are incorrect or not otherwise satisfied, IBM and its stockholders may not be able to rely on the private letter ruling or the opinion of counsel and could be subject to significant tax liabilities. The opinion of counsel is not binding on the IRS or the courts, and there can be no assurance that the IRS or a court will not take a contrary position. Notwithstanding the private letter ruling or opinion of counsel, the IRS could determine on audit that the Distribution or any of certain related transactions is taxable if it determines that any of these facts, assumptions, representations or undertakings are not correct or have been violated or if it disagrees with the conclusions in the opinion that are not covered by the private letter ruling, or for other reasons, including as a result of certain significant changes in the stock ownership of IBM or us after the Distribution. If the Distribution were determined not to qualify for non-recognition of gain or loss under Section 355 and related provisions of the Code, each stockholder that is subject to U.S. federal income tax who received our common stock in the Distribution would generally be treated as having received a distribution in an amount equal to the fair market value of our common stock received, which would generally result in: (i) a taxable dividend to such stockholder to the extent of that such stockholder’s pro rata share of IBM’s current or accumulated earnings and profits; (ii) a 22 Table of Contents reduction in such stockholder’s basis (but not below zero) in IBM common stock to the extent the amount received exceeds the stockholder’s share of IBM’s earnings and profits; and (iii) taxable gain from the exchange of IBM common stock to the extent the amount received exceeded the sum of such stockholder’s share of IBM’s earnings and profits and such stockholder’s basis in its IBM common stock. If the Spin-off were determined not to qualify as tax-free for U.S. federal income tax purposes, we could have an indemnification obligation to IBM, which could adversely affect our business, financial condition and results of operations. If, as a result of any of our representations being untrue or our covenants being breached, the Spin-off were determined not to qualify for non-recognition of gain or loss under Section 355 and related provisions of the Code, we could be required to indemnify IBM for the resulting taxes and related expenses. Those amounts could be material. Any such indemnification obligation could adversely affect our business, financial condition and results of operations. In addition, if we or our stockholders were to engage in transactions that resulted in a 50% or greater change by vote or value in the ownership of our stock during the four-year period beginning on the date that begins two years before the date of the Distribution, the Distribution would generally be taxable to IBM, but not to its stockholders, under Section 355(e) of the Code, unless it were established that such transactions and the Distribution were not part of a plan or series of related transactions. If the Distribution were taxable to IBM due to such a 50% or greater change in ownership of our stock, IBM would recognize gain equal to the excess of the fair market value on the Distribution Date of our common stock distributed to IBM stockholders over IBM’s tax basis in our common stock, and we generally would be required to indemnify IBM for the tax on such gain and related expenses. Those amounts could be material. Any such indemnification obligation could adversely affect our business, financial condition and results of operations. See Part III. Item 13, “Certain Relationships and Related Transactions, and Director Independence – Agreements with IBM – Tax Matters Agreement.” We agreed to numerous restrictions to preserve the tax-free treatment of the Spin-off, which may reduce our strategic and operating flexibility. To preserve the tax-free nature of the Spin-off and related transactions, we agreed in the Tax Matters Agreement with IBM to covenants and indemnification obligations that address compliance with Section 355 of the Code and related provisions of the Code, as well as state, local and foreign tax law. These covenants include certain restrictions on our activity for a period of two years following the Spin-off. Specifically, we are subject to certain restrictions on our ability to enter into acquisition, merger, liquidation, sale and stock redemption transactions with respect to our stock or assets. In addition, under the Tax Matters Agreement, we may be required to indemnify IBM against any such tax liabilities as a result of the acquisition of our stock or assets, even if we do not participate in or otherwise facilitate the acquisition. Furthermore, we are subject to specific restrictions on discontinuing the active conduct of our trade or business, the issuance or sale of stock or other securities (including securities convertible into our stock, but excluding certain compensatory arrangements), and sales of assets outside the ordinary course of business. These covenants and indemnification obligations may limit our ability to pursue strategic transactions or engage in new businesses or other transactions that may maximize the value of our business, and might discourage or delay a strategic transaction that our stockholders may consider favorable. See Part III, Item 13, “Certain Relationships and Related Transactions, and Directors Independence – Agreements with IBM – Tax Matters Agreement.” Our accounting and other management systems and resources may not be adequately prepared to meet the financial reporting and other requirements to which we are subject following the Spin-off. As a result of the Spin-off, we are subject to reporting and other obligations under the U.S. Securities and Exchange Act of 1934, as amended (the “Exchange Act”). Beginning with our second required Annual Report on Form 10-K, we intend to comply with Section 404 of the Sarbanes Oxley Act of 2002, as amended (the “Sarbanes Oxley Act”), which will require annual management assessments of the effectiveness of our internal control over financial reporting and a report by our independent registered public accounting firm on the effectiveness of internal control over financial reporting. These reporting and other obligations may place significant demands on management, administrative and operational resources, including accounting systems. 23 Table of Contents The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. Under the Sarbanes Oxley Act, we are required to maintain effective disclosure controls and procedures and internal controls over financial reporting. To comply with these requirements, we may need to upgrade our systems, implement additional financial and management controls, reporting systems and procedures and hire additional accounting and finance staff. We expect to incur additional annual expenses for the purpose of addressing these, and other public company reporting, requirements. If we are unable to upgrade our financial and management controls, reporting systems, information technology systems and procedures in a timely and effective fashion, our ability to comply with financial reporting requirements and other rules that apply to reporting companies under the Exchange Act could be impaired, and we may be unable to conclude that our internal control over financial reporting is effective and to obtain an unqualified report on internal controls from our auditors as required under Section 404 of the Sarbanes-Oxley Act. Any failure to achieve and maintain effective internal controls could have a material adverse effect on our business, financial condition, results of operations and cash flow. Certain of our employees may have actual or potential conflicts of interest because of their financial interests in IBM. Because of their former positions with IBM, certain of our executive officers own equity interests in both us and IBM. Continuing ownership of IBM shares could create, or appear to create, potential conflicts of interest if we face decisions that could have implications for both us and IBM. For example, potential conflicts of interest could arise in connection with the resolution of any dispute between us and IBM regarding the terms of the agreements governing the separation and distribution and our relationship with IBM. Potential conflicts of interest may also arise out of any commercial arrangements that we or IBM may enter into in the future. We or IBM may fail to perform under various transaction agreements that were executed as part of the Separation. In connection with the Separation, we and IBM entered into various transaction agreements related to the Spin-off. These agreements also govern our relationship with IBM following the Spin-off. We rely on IBM to satisfy its performance obligations under these agreements. If we or IBM are unable to satisfy our or its respective obligations under these agreements, including indemnification obligations, our business, results of operations and financial condition could be adversely affected. See “Certain Relationships and Related Transactions, and Directors Independence” in Part III, Item 13 of this report. Risks Relating to Our Common Stock and the Securities Market Substantial sales of our common stock may occur in the future, including the disposition by IBM of our shares of common stock that it retained after the Distribution, which could cause our stock price to decline. IBM owns 19.9% of our outstanding common stock. We understand that IBM currently intends to dispose of all of our common stock that it retained after the Distribution through one or more subsequent exchanges of our common stock for IBM debt held by one or more investment banks or, if market and general economic conditions and sound business judgment do not support such exchanges during the twelve-month period following the Distribution, IBM may dispose of such common stock (i) through distributions to IBM stockholders as dividends or in exchange for outstanding shares of IBM common stock, in each case during the twelve-month period following the Distribution or (ii) in one or more public or private sale transactions (including potentially through secondary transactions) as soon as practicable, taking into account market and general economic conditions and sound business judgment, but in no event later than five years after the Distribution. Prior to the Distribution, we entered into a stockholder and registration rights agreement under which we agreed, upon the request of IBM, to use our reasonable best efforts to effect a registration under applicable federal and state securities laws of any shares of our common stock retained by IBM, to facilitate IBM’s disposition of our common stock. See Part III, Item 13, “Certain Relationships and Related Transactions, and Directors Independence – Agreements with IBM – Stockholder and Registration Rights Agreement.” The sales of significant amounts of our common stock or the perception in the market that such sales might occur may decrease the market price of our common stock. 24 Table of Contents Holders of our common stock may be diluted due to future equity issuances. In the future, holders of our common stock may be diluted because of equity issuances for acquisitions, capital market transactions or otherwise, including any equity awards that we will grant to our directors, officers and employees. Such awards have a dilutive effect on our earnings per share, which could adversely affect the market price of our common stock. We plan to issue additional stock-based awards, including annual awards, new hire awards and periodic retention awards, as applicable, to our directors, officers and other employees under our employee benefits plans as part of our ongoing equity compensation program. Certain provisions in our Amended and Restated Certificate of Incorporation and Amended and Restated By-Laws and Delaware law may discourage takeovers and limit the power of our stockholders. Several provisions of our Amended and Restated Certificate of Incorporation, Amended and Restated By-Laws and Delaware law may discourage, delay or prevent a merger or acquisition. These include, among others, provisions that (i) provide for staggered terms for directors on our Board for a period following the Spin-off; (ii) establish advance notice requirements for stockholder nominations and proposals; (iii) provide for the removal of directors only for cause during the time the Board is classified; (iv) limit the ability of stockholders to call special meetings or act by written consent; and (v) provide the Board the right to issue shares of preferred stock without stockholder approval. In addition, we are subject to Section 203 of the Delaware General Corporation Law (“DGCL”), which could have the effect of delaying or preventing a change of control that you may favor. These and other provisions of our Amended and Restated Certificate of Incorporation, Amended and Restated By-Laws and Delaware law may discourage, delay or prevent certain types of transactions involving an actual or a threatened acquisition or change in control, including unsolicited takeover attempts, even though the transaction may offer our stockholders the opportunity to sell their shares of our common stock at a price above the prevailing market price. Our Board believes these provisions will protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with the Board and by providing the Board with more time to assess any acquisition proposal. These provisions will apply even if the offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that the Board determines is not in our and our stockholders’ best interests. Our Amended and Restated Certificate of Incorporation provides that certain courts in the State of Delaware or the federal district courts of the United States will be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees. Our Amended and Restated Certificate of Incorporation provides, in all cases to the fullest extent permitted by law, unless we consent in writing to the selection of an alternative forum, the Court of Chancery located within the State of Delaware will be the sole and exclusive forum for any derivative action or proceeding brought on behalf of us, any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee or stockholder to us or our stockholders, any action asserting a claim arising pursuant to the DGCL or as to which the DGCL confers jurisdiction on the Court of Chancery located in the State of Delaware or any action asserting a claim governed by the internal affairs doctrine or any other action asserting an “internal corporate claim” as that term is defined in Section 115 of the DGCL, or any action asserting a claim arising under the DGCL, our Amended and Restated Certificate of Incorporation or our Amended and Restated By-Laws. However, if the Court of Chancery within the State of Delaware does not have jurisdiction, the action may be brought in the United States District Court for the District of Delaware. The exclusive forum provision provides that it will not apply to claims arising under the Securities Act, the Exchange Act or other federal securities laws for which there is exclusive federal or concurrent federal and state jurisdiction. Unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed to have notice of and, to the fullest extent permitted by law, to have consented to the provisions of our Amended and Restated Certificate of Incorporation described above. The choice of forum provision may limit a stockholder’s 25 Table of Contents ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, other employees or stockholders, which may discourage such lawsuits against us and our directors, officers, other employees or stockholders. However, the enforceability of similar forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings. If a court were to find the exclusive choice of forum provision contained in our Amended and Restated Certificate of Incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions. Item 1B. Unresolved Staff Comments: None. ​ Item 2. Properties: As of December 31, 2021, we owned or leased approximately 27.4 million square feet of space worldwide, a summary of which is provided below. We believe that our existing properties are in good condition and are suitable for the conduct of our business. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. ​ Japan ​ Principal Markets ​ Strategic Markets ​ Total ​ ​ Number of ​ Square Feet ​ Number of ​ Square Feet ​ Number of ​ Square Feet ​ Number of ​ Square Feet ​ Number of ​ Square Feet ​ ​ Locations ​ (in millions) ​ Locations ​ (in millions) ​ Locations ​ (in millions) ​ Locations ​ (in millions) ​ Locations ​ (in millions) Leased ​ 28 ​ 5.2 ​ 52 ​ 1.5 ​ 144 ​ 10.0 ​ 148 ​ 5.9 ​ 372 ​ 22.7 Owned ​ 3 ​ 3.1 ​ — ​ — ​ 8 ​ 0.9 ​ 4 ​ 0.8 ​ 15 ​ 4.7 Total ​ 31 ​ 8.3 ​ 52 ​ 1.5 ​ 152 ​ 10.8 ​ 152 ​ 6.7 ​ 387 ​ 27.4 ​ Our principal executive offices, including our global headquarters, are located at New York, New York. We believe that our facilities are sufficient for our current needs. Item 3. Legal Proceedings: Refer to Note 13 – Commitments and Contingencies to the consolidated financial statements included elsewhere in this Form 10-K. ​ Item 4. Mine Safety Disclosures: Not applicable. ​ PART II Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities: Our common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol KD. ​ As of March 4, 2022, there were approximately 280,520 record holders of our common stock. This is not the actual number of beneficial owners of the Company’s common stock as some shares are held in “street name” by brokers and others on behalf of individual owners. ​ Since the Separation, we have not paid, and we currently do not plan to pay, cash dividends on our common stock. ​ Stock Performance Graph ​ The graph below compares the cumulative total return of holders of our common stock with the cumulative total return of the S&P 400 Midcap index and S&P IT Sector index. The graph tracks the performance of a $100 26 Table of Contents investment in our common stock and in each index from November 4, 2021, the date our stock commenced regular-way trading on the NYSE, to December 31, 2021. ​ ​ Item 6. [Reserved] ​ 27 Table of Contents Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations: Overview ​ Included below are year-over-year comparisons between 2021 and 2020. For further information on year-over-year comparisons between 2020 and 2019 not covered in the “Segment Results” below, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Form 10 for the period, which was filed with the SEC on September 28, 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (Dollars in millions) 2021 ​ 2020 Revenue ​ $ 18,657 ​ ​ $ 19,352 ​ Revenue growth (GAAP) ​ ​ (4) % ​ ​ (5) % Revenue growth in constant currency (1) ​ ​ (5) % ​ ​ (5) % Net income (loss) ​ ​ (2,319) ​ ​ ​ (2,011) ​ Adjusted EBITDA (1) ​ ​ 2,049 ​ ​ ​ 2,179 ​ (1) Revenue growth in constant currency and adjusted EBITDA are non-GAAP financial metrics. For definitions of these metrics and a reconciliation of adjusted EBITDA to the most directly comparable financial measure calculated and presented in accordance with GAAP, see “⸺Segment Results.” ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At December 31, (Dollars in millions) 2021 2020 Assets ​ $ 13,213 ​ $ 11,205 Liabilities ​ ​ 10,511 ​ ​ 6,274 Equity ​ ​ 2,702 ​ ​ 4,931 ​ Organization of Information Kyndryl was formed as a wholly-owned subsidiary of IBM in September 2021 to hold the operations of the managed infrastructure services unit of IBM’s Global Technology Services segment. On November 3, 2021, IBM distributed shares representing 80.1% of Kyndryl’s outstanding common stock to holders of record of IBM’s common stock as of the close of business on October 25, 2021, in a Spin-off that is tax-free for U.S. federal tax purposes. Following the distribution, Kyndryl became an independent, publicly-traded company and is the world’s leading managed infrastructure services provider. ​ Kyndryl utilized allocations and carve-out methodologies through the date of distribution to prepare historical financial statements. The consolidated financial statements for periods prior to the Separation herein may not be indicative of our future performance, do not necessarily include the actual expenses that would have been incurred by us and may not reflect our results of operations, financial position and cash flows had we been a separate, standalone company during the historical periods presented. For additional information, see “Basis of Presentation” in Note 1 – Significant Accounting Policies to the accompanying Consolidated Financial Statements. Financial Performance Summary Macro Dynamics The COVID-19 pandemic and related macroeconomic uncertainty beginning in March 2020 caused many clients to experience declines in their business volumes and resulted in client priorities shifting toward maintaining operational stability, flexibility, and preservation of cash. The declines in business volumes and shifting client priorities negatively impacted demand for technology services in 2020. In 2021, we saw a broad-based macroeconomic recovery in most regions of the world. Demand for technology services rebounded, as large organizations again demonstrated a need for assistance in designing, building, managing 28 Table of Contents and modernizing their technology systems. Most economists, including the International Monetary Fund, expect global macroeconomic growth to continue in 2022. 2021 Financial Performance In 2021, we reported $18.7 billion in revenue, a decline of 4 percent when compared to the prior year primarily driven by lower contract volumes due to existing and new clients pausing activities during our planned Separation from our former Parent, as well as expected price declines in certain new and renewed customer contracts. This was a consistent trend across all segments. United States revenue declined 5 percent, Japan declined 4 percent, Principal Markets declined 1 percent and Strategic Markets declined 5 percent compared to 2020. Net loss of $2.3 billion increased by $308 million versus the prior year. The current year Net loss includes a goodwill impairment charge of $469 million, transaction-related costs of $627 million and litigation charges for certain long-standing claims and disputes of $52 million, as well as cost allocations from our former Parent. 2020 Financial Performance In 2020, we reported $19.4 billion in revenue, a decline of 5 percent when compared to the prior year which was primarily driven by declines in the United States. Revenue declined primarily due to a reduction in client volumes within industries heavily impacted by the global pandemic. Net loss was $2.0 billion, an increase of $1.1 billion when compared to the prior year, primarily due to higher workforce rebalancing charges of $759 million. We took these structural actions to simplify and optimize our operating model. Basis of Presentation We prepare our consolidated financial statements in accordance with U.S. GAAP, which requires us to make estimates and assumptions that impact the amounts reported and disclosed in our consolidated financial statements and the accompanying notes. We prepared these estimates based on the most current and best available information, but actual results could differ materially from these estimates and assumptions. COVID-19 has had and we expect will continue to have, significant effects on economic activity, on demand for our services and on our results of operations in 2022. Prior to November 4, 2021, the accompanying financial statements of Kyndryl were derived from the consolidated financial statements and accounting records of the Parent as if the Company operated on a standalone basis during the periods presented and were prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the SEC. Historically, the Company consisted of the managed infrastructure services unit of the Parent’s Global Technology Services segment and did not operate as a separate standalone company. Accordingly, the Parent had reported the financial position and results of operations, cash flows and changes in equity of the Company in the Parent’s consolidated financial statements. The accompanying financial statements through the Separation date reflect allocations of certain IBM corporate, infrastructure and shared services expenses, including centralized research, legal, human resources, payroll, finance and accounting, employee benefits, real estate, insurance, information technology, telecommunications, treasury and other expenses. Where possible, these charges were allocated based on direct usage, with the remainder allocated on a pro rata basis of headcount, gross profit, asset or other allocation methodologies that are considered to be a reasonable reflection of the utilization of services provided or the benefit received by Kyndryl during the periods presented. The accompanying financial statements through the Separation date may not be indicative of the Company’s future performance and do not necessarily reflect what the financial position, results of operations and cash flows would have been had it operated as an independent company during the periods presented. After the Separation on November 3, 2021, the Company’s financial statements for the periods from November 4, 2021, through December 31, 2021, are consolidated financial statements based on our reported results as a standalone company. All significant transactions and accounts between Kyndryl entities were eliminated. All significant intercompany transactions between IBM and Kyndryl prior to the Separation were included within Net Parent investment on the accompanying Consolidated Financial Statements. 29 Table of Contents Prior to the Separation, our operations were included in the consolidated U.S. federal and certain state and local and foreign income tax returns filed by IBM, where applicable. The Company also files certain separate foreign income tax returns. For purposes of the historical periods presented on a “carve-out” basis, the income tax provisions have been calculated using the separate return basis, as if we filed separate tax returns. Post-Separation, the income tax provisions are calculated based on Kyndryl’s operating footprint, as well as tax return elections and assertions. Current income tax liabilities including amounts for unrecognized tax benefits related to our activities included in IBM’s income tax returns were deemed to be immediately settled with IBM through the Net Parent investment account in the Consolidated Balance Sheet and reflected in Net transfers from Parent in the financing activities section in the Consolidated Statement of Cash Flows. Within the financial statements and tables presented, certain columns and rows may not add due to the use of rounded numbers for disclosure purposes. Percentages presented are calculated from the underlying whole-dollar amounts. Certain items have been recast to conform to current-period presentation. Segment Results As a result of the Separation, in the fourth quarter of 2021, the Company implemented a new operating model and reporting structure resulting in four reportable segments: United States, Japan, Principal Markets and Strategic Markets. Principal Markets consists of our operations in Australia/New Zealand, Canada, France, Germany, Italy, India, Spain/Portugal and United Kingdom/Ireland. Strategic Markets consists of our operations in all other countries. In addition to this change, the measures of segment operating performance changed to revenue and adjusted EBITDA. The following table presents our reportable segments’ revenue and adjusted EBITDA for the years ended December 31, 2021, 2020 and 2019. Segment revenue and revenue growth in constant currency exclude any transactions between the segments. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ Year-over-Year Change (Dollars in millions) 2021 ​ 2020 ​ 2019 ​ 2021 vs. 2020 ​ 2020 vs. 2019 Revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ United States ​ $ 4,805 ​ ​ $ 5,084 ​ ​ $ 5,340 ​ ​ (5) % ​ (5) % Japan ​ ​ 2,923 ​ ​ ​ 3,042 ​ ​ ​ 2,929 ​ ​ (4) % ​ 4 % Principal Markets ​ ​ 7,085 ​ ​ ​ 7,187 ​ ​ ​ 7,587 ​ ​ (1) % ​ (5) % Strategic Markets ​ ​ 3,844 ​ ​ ​ 4,040 ​ ​ ​ 4,424 ​ ​ (5) % ​ (9) % Total revenue ​ $ 18,657 ​ ​ $ 19,352 ​ ​ $ 20,279 ​ ​ (4) % ​ (5) % Revenue growth in constant currency (1) ​ ​ (5) % ​ ​ (5) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Adjusted EBITDA (1) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ United States ​ $ 757 ​ ​ $ 859 ​ ​ $ 855 ​ ​ (12) % ​ 0 % Japan ​ ​ 823 ​ ​ ​ 924 ​ ​ ​ 757 ​ ​ (11) % ​ 22 % Principal Markets ​ ​ 144 ​ ​ ​ 162 ​ ​ ​ 430 ​ ​ (11) % ​ (62) % Strategic Markets ​ ​ 479 ​ ​ ​ 386 ​ ​ ​ 662 ​ ​ 24 % ​ (42) % Corporate and other (2) ​ ​ (154) ​ ​ ​ (153) ​ ​ ​ (144) ​ ​ NM ​ ​ NM ​ Total adjusted EBITDA (1) ​ $ 2,049 ​ ​ $ 2,179 ​ ​ $ 2,561 ​ ​ (6) % ​ (15) % NM – not meaningful (1) Revenue growth in constant currency and adjusted EBITDA are non-GAAP financial metrics. See the information below for definitions of these metrics and a reconciliation of adjusted EBITDA to the most directly comparable financial measure calculated and presented in accordance with GAAP. (2) Represents net amounts not allocated to segments ​ We report our financial results in accordance with GAAP. We also present certain non-GAAP financial measures to provide useful supplemental information to investors. We provide these non-GAAP financial measures as 30 Table of Contents we believe it improves visibility to underlying results and the impact of management decisions on operational performance and enables better comparison to peer companies. ​ Revenue growth in constant currency is a non-GAAP measure that eliminates the effects of exchange rate fluctuations when translating from foreign currencies to the United States dollar. It is calculated by using the average exchange rates that existed for the same period of the prior year. Constant-currency measures are provided so that revenue can be viewed without the effect of fluctuations in currency exchange rates, which is consistent with how management evaluates our revenue results and trends. ​ Additionally, management uses adjusted EBITDA to evaluate our performance. Adjusted EBITDA is a non-GAAP measure and defined as net income (loss) excluding net interest expense, depreciation and amortization (excluding depreciation of right-of-use assets and amortization of capitalized contract costs), pension costs other than pension servicing costs and multi-employer plan costs, early extinguishment of debt charges, workforce rebalancing and restructuring charges, transaction-related and integration-related items, goodwill and long-lived asset impairment charges, foreign currency impacts of highly inflationary countries, significant litigation costs, stock-based compensation expense and income taxes. We believe that adjusted EBITDA is a helpful supplemental measure to assist investors in evaluating our operating results as it excludes certain items whose fluctuation from period to period does not necessarily correspond to changes in the operations of our business. We provide this non-GAAP financial measure as we believe it improves visibility to underlying results and the impact of management decisions on operational performance, enables better comparison to peer companies and allows us to provide a long-term strategic view of the business. ​ These disclosures are provided in addition to and not as a substitute for the percentage change in revenue and profit or loss measures on a GAAP basis compared to the corresponding period in the prior year. Other companies may calculate and define similarly labeled items differently, which may limit the usefulness of this measure for comparative purposes. ​ The following table provides a reconciliation of GAAP net income (loss) to adjusted EBITDA: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (Dollars in millions) 2021 2020 ​ 2019 Net income (loss) ​ $ (2,319) ​ $ (2,011) ​ $ (943) Provision for income taxes ​ ​ 397 ​ ​ 246 ​ ​ 364 Workforce rebalancing charges ​ ​ 39 ​ ​ 918 ​ ​ 159 Transaction-related costs ​ ​ 627 ​ ​ 21 ​ ​ 0 Stock-based compensation expense ​ ​ 71 ​ ​ 64 ​ ​ 51 Impairment expense ​ ​ 469 ​ ​ — ​ ​ — Interest expense ​ ​ 64 ​ ​ 63 ​ ​ 76 Depreciation expense ​ ​ 1,300 ​ ​ 1,445 ​ ​ 1,469 Amortization expense ​ ​ 1,314 ​ ​ 1,408 ​ ​ 1,335 Other adjustments * ​ ​ 88 ​ ​ 25 ​ ​ 50 Adjusted EBITDA (non-GAAP) ​ $ 2,049 ​ $ 2,179 ​ $ 2,561 * Other adjustments represents pension expense other than pension servicing costs and multi-employer plan costs, significant litigation costs and currency impacts of highly inflationary countries. ​ United States ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ Year-over-Year (Dollars in millions) 2021 ​ 2020 ​ Change Revenue ​ $ 4,805 ​ ​ $ 5,084 ​ ​ (5) % Adjusted EBITDA ​ ​ 757 ​ ​ ​ 859 ​ ​ (12) % ​ For the year ended December 31, 2021, United States revenue of $4.8 billion decreased 5 percent as compared to the prior year, primarily driven by lower contract volumes due to clients pausing activities during the pandemic and our planned Separation as well as lower pricing. Adjusted EBITDA decreased $102 million from the prior year, primarily due to lower revenue, partially offset by cost reductions. For the year ended December 31, 2020, United States 31 Table of Contents revenue of $5.1 billion decreased 5 percent as compared to the prior year, driven by declines across the contract portfolio and impacts from the COVID-19 pandemic. Adjusted EBITDA increased $4 million from the prior year benefited from travel and discretionary cost reductions due to the COVID-19 pandemic as well as realizing benefits from structural actions taken in first quarter of 2020. Japan ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ Year-over-Year (Dollars in millions) 2021 ​ 2020 ​ Change Revenue ​ $ 2,923 ​ ​ $ 3,042 ​ ​ (4) % Revenue growth in constant currency ​ ​ (1) % ​ ​ 2 % ​ ​ ​ Adjusted EBITDA ​ ​ 823 ​ ​ ​ 924 ​ ​ (11) % ​ For the year ended December 31, 2021, Japan revenue of $2.9 billion decreased 4 percent as compared to the prior year. Revenue decreased primarily as a result of currency exchange rates. Adjusted EBITDA decreased $101 million from the prior year largely due to decreased revenue. For the year ended December 31, 2020, Japan revenue of $3.0 billion increased 4 percent as compared to the prior year driven by strong performance in new client contracts. Adjusted EBITDA increased $167 million from the prior year behind the strength of revenue growth mixed with lower travel and discretionary costs due to the COVID-19 pandemic. Principal Markets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ Year-over-Year (Dollars in millions) 2021 ​ 2020 ​ Change Revenue ​ $ 7,085 ​ ​ $ 7,187 ​ ​ (1) % Revenue growth in constant currency ​ ​ (6) % ​ ​ (6) % ​ ​ ​ Adjusted EBITDA ​ ​ 144 ​ ​ ​ 162 ​ ​ (11) % ​ For the year ended December 31, 2021, Principal Markets revenue of $7.1 billion decreased 1 percent as compared to the prior year. Revenue decreased due to certain joint ventures not transferring to us in connection with the Separation partially offset by a favorable currency exchange rate impact of 4 points, primarily driven by the weakening of the U.S. dollar against the euro and British pound. Adjusted EBITDA decreased $18 million from the prior year, primarily due to lower revenue, partially offset by cost reductions from structural actions taken in the prior year. For the year ended December 31, 2020, Principal Markets revenue of $7.2 billion decreased 5 percent as compared to the prior year, driven by declines across the contract portfolio and impacts from the COVID-19 pandemic. Adjusted EBITDA decreased $268 million from the prior year, primarily due to revenue decline in these higher fixed-cost European countries. Strategic Markets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ Year-over-Year (Dollars in millions) 2021 ​ 2020 ​ Change Revenue ​ $ 3,844 ​ ​ $ 4,040 ​ ​ (5) % Revenue growth in constant currency ​ ​ (7) % ​ ​ (7) % ​ ​ ​ Adjusted EBITDA ​ ​ 479 ​ ​ ​ 386 ​ ​ 24 % ​ For the year ended December 31, 2021, Strategic Markets revenue of $3.8 billion decreased 5 percent as compared to the prior year. Revenue decreased due to certain joint-ventures not transferring to us in connection with the Separation and impacts from exiting low-margin accounts, partially offset by a favorable currency exchange rate impact of 2 points, primarily driven by the weakening of the U.S. dollar against the euro. Adjusted EBITDA increased $93 million from the prior year, primarily due to exiting low-margin accounts and realizing benefits from structural actions taken in the prior year. For the year ended December 31, 2020, Strategic Markets revenue of $4.0 billion decreased 9 percent as compared to the prior year, driven primarily by strategic decisions to exit certain loss-making contracts to strengthen our go-forward profit position. Adjusted EBITDA decreased $276 million from the prior year, primarily due 32 Table of Contents to lower revenue as a result of both client volumes and pause of small-deal signings after the announcement of our Separation in the higher fixed-cost European countries. Corporate and Other ​ Corporate and other had an adjusted EBITDA loss of $154 million in 2021 compared to a loss of $153 million in 2020. Corporate and other had an adjusted EBITDA loss of $144 million in 2019. Costs and Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ Percent of Revenue ​ Change (Dollars in millions) 2021 ​ 2020 2021 ​ 2020 2021 vs. 2020 Revenue ​ $ 18,657 ​ $ 19,352 ​ 100.0 % ​ 100.0 % ​ (4) % Cost of services ​ ​ 16,570 ​ ​ 17,143 ​ 88.8 % ​ 88.6 % (3) % Selling, general and administrative expenses ​ ​ 2,776 ​ ​ 2,948 ​ 14.9 % ​ 15.2 % (6) % Workforce rebalancing charges ​ 39 ​ 918 0.2 % ​ 4.7 % (96) % Transaction-related costs ​ ​ 627 ​ ​ 21 ​ 3.4 % ​ 0.1 % ​ NM ​ Impairment expense ​ 469 ​ — 2.5 % ​ — % — % Interest expense ​ 64 ​ 63 0.3 % ​ 0.3 % 2 % Other (income) and expense ​ 35 ​ 25 0.2 % ​ 0.1 % 43 % Income (loss) before income taxes ​ $ (1,922) ​ $ (1,766) ​ ​ ​ NM ​ NM – not meaningful ​ Costs of services were 88.8% of revenue in 2021 compared to 88.6% in 2020, primarily driven by the impact of revenue decrease of advisory & implementation services and price decreases embedded in certain new and renewed contracts mostly offset by benefits realized from prior-year structural actions. Selling, general and administrative expenses were 14.9% of revenue in 2021 compared to 15.2% in 2020, primarily driven by benefits realized from prior-year structural actions, partially offset by additional legal liabilities recorded in the fourth quarter of 2021. Workforce rebalancing charges arising from structural actions to enhance productivity and cost-competitiveness and to rebalance skills that result in payments to employees terminated in the ongoing course of business. Workforce rebalancing charges were 0.2% of revenue in 2021 compared to 4.7% in 2020, when the Company announced a significant workforce reduction, primarily in Europe, in the fourth quarter of 2020. Transaction-related costs were 3.4% of revenue in 2021 compared to 0.1% in 2020, primarily driven by costs related to our Separation, including legal, consulting, audit and other professional fees, information technology transition costs, and employee retention expenses. Impairment expenses were 2.5% of revenue in 2021, primarily driven by an impairment of goodwill we recorded in the fourth quarter of 2021. Interest expense was 0.3% of revenue in 2021 compared to 0.3% in 2020, and includes interest expense associated with the indebtedness we incurred in connection with our Separation. Other (income) and expenses were 0.2% of revenue in 2021 compared to 0.1% in 2020. ​ Transaction-related Charges ​ The process of completing our Separation involves significant costs and expenses. Transaction-related charges are primarily related to additional spend to establish certain standalone functions and information technology systems, professional services fees, employee retention expenses and other spend related to contract and supplier novation agreements. These costs primarily include items that are incremental and one-time in nature. Transaction-related charges totaled $627 million in 2021. Transaction-related charges recorded for the year ended December 31, 2020 and 2019 were $21 million and $0, respectively. The $498 million of transaction-related charges incurred in the periods prior to Separation had no tax effect due to the valuation allowances discussed in Note 5 – Taxes. The tax impact of the $129 million of transaction-related charges incurred post-Separation was $33 million. 33 Table of Contents ​ Income Taxes The Company’s consolidated provision for income taxes and effective tax rate were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (Dollars in millions) 2021 2020 Provision for income taxes ​ $ 397 ​ ​ $ 246 ​ Effective tax rate ​ ​ (20.6) % ​ ​ (13.9) % ​ In 2021 and 2020, we recorded income tax expense of $397 million and $246 million, respectively, on a pretax book loss, which resulted in a negative effective tax rate. Our 2021 income tax expense was primarily related to taxes on foreign operations generating taxable income, uncertain tax positions, and tax charges related to the transfer of Kyndryl’s operations from Parent in contemplation of the Company’s Separation from IBM. ​ The effective tax rate for 2021 was lower compared to 2020 due primarily to tax charges related to the transfer of Kyndryl’s operations from Parent in contemplation of the Company’s Separation and nondeductible goodwill impairment. For more information, see Note 5 – Taxes. ​ Financial Position Dynamics Cash and cash equivalents at December 31, 2021, were $2.2 billion, an increase of $2.2 billion when compared to prior year-end since Kyndryl’s cash was managed by the Parent’s centralized treasury system in 2020. Total assets of $13.2 billion increased by $2.0 billion from December 31, 2020 predominantly driven by an increase in cash and cash equivalents of $2.2 billion driven by proceeds from debt issuances net of payment made to former Parent; an increase in accounts receivable of $835 million primarily driven by a reduction in factoring of receivables, new commercial activity with our former Parent, and receivables with the former Parent that are no longer settled immediately post-Separation; and an increase in right-of-use assets of $230 million primarily due to entering into post-Separation leases with the former Parent for spaces that are partially occupied by Kyndryl employees. These increases were partially offset by a decrease in property and equipment of $1.1 billion mainly driven by the disposal of certain properties with net book value of approximately $200 million, removal of property and equipment of approximately $300 million that were previously attributable to Kyndryl but did not transfer to Kyndryl upon Separation and depreciation outpacing capital expenditures in 2021, a decrease of goodwill of $497 million primarily due to an impairment charge of $469 million recorded in the fourth quarter of 2021 and a decrease of deferred costs of $460 million driven by lower revenue and joint ventures previously attributed to Kyndryl that did not transfer to Kyndryl upon Separation. Total liabilities of $10.5 billion increased by $4.2 billion from December 31, 2020 primarily as a result of a $3.0 billion increase in indebtedness, an increase in value-added and income tax liabilities of $357 million because the Company’s tax liabilities were paid by the Parent through the Separation date, an increase of accounts payable of $221 million primarily due to commercial activity with our former Parent and balances owed to our former Parent that are no longer settled immediately post-Separation, an increase in right-of-use liabilities of $184 million primarily due to entering into post-Separation leases with the former Parent for spaces that are partially occupied by Kyndryl employees, and an increase in retirement and nonpension postretirement benefit obligations of $307 million driven by pension obligations transferred to Kyndryl after establishment of Kyndryl’s legal entities in the third quarter of 2021; see Note 1 – Significant Accounting Policies for more details. This was partially offset by a decrease in workforce rebalancing liabilities of $513 million driven by payments to employees. Total equity of $2.7 billion decreased $2.2 billion from year-end 2020, mainly driven by our loss from operations of $2.3 billion. Overall pension funded status as of December 31, 2021, was 64% of estimated pension benefit obligation, an increase from 55% at year-end 2020 . 34 Table of Contents Working Capital ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At December 31, (Dollars in millions) 2021 2020 Current assets $ 5,777 $ 2,843 Current liabilities ​ 4,544 ​ 3,910 Working capital ​ $ 1,233 ​ $ (1,067) ​ Working capital increased $2.3 billion from the year-end 2020 position. Current assets increased $2.9 billion due to an increase of $2.2 billion in cash and cash equivalents primarily driven by proceeds from our debt issuance and an increase of $835 million in accounts receivable primarily driven by a reduction in factoring of receivables, new commercial activity with our former Parent, and receivables with the former Parent that are no longer settled immediately post-Separation. Current liabilities increased $633 million as a result of an increase in value-added and income taxes of $357 million, and an increase in accounts payable of $221 million primarily due to commercial activity with our former Parent and balances owed to our former Parent that are no longer settled immediately post-Separation. ​ Cash Flow Our cash flows from operating, investing and financing activities, as reflected in the Consolidated Statement of Cash Flows are summarized in the table below. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31: ​ (Dollars in millions) 2021 2020 ​ Net cash provided by (used in): ​ ​ ​ Operating activities ​ $ (119) ​ $ 628 ​ Investing activities ​ (572) ​ (953) ​ Financing activities ​ 2,915 ​ 312 ​ Effect of exchange rate changes on cash, cash equivalents and restricted cash ​ (22) ​ 1 ​ Net change in cash, cash equivalents and restricted cash ​ $ 2,203 ​ $ (13) ​ ​ The change in net cash used of $119 million compared to a net cash provided by operating activities of $628 million in prior year was driven by payments of workforce rebalancing liabilities of $370 million arising from restructuring actions taken by the former Parent in the fourth quarter of 2020 and cash used due to an increase in accounts receivable of $1.1 billion primarily driven by a reduction in factoring of receivables, new commercial activity with our former Parent, and receivables with the former Parent that are no longer settled immediately post-Separation; partially offset by an increase in operating liabilities and accrued costs of approximately $400 million that were established by the Company for the first time as an independent entity. Net cash used by investing activities decreased $381 million in 2021 when compared to the prior year driven by sales of two data centers and lower capital expenditures than in 2020. Net cash provided by financing activities increased $2.6 billion in 2021 when compared to the prior year driven by debt issuances of $3.0 billion, partially offset by a reduction in transfer from former Parent of $408 million. Liquidity and Capital Resources We believe that our existing cash and cash equivalents and the Revolving Credit Agreement entered into in October 2021 will be sufficient to meet our anticipated cash needs for at least the next twelve months. Senior Unsecured Notes In October 2021, in preparation for our Spin-off, we completed the offering of $2.4 billion in aggregate principal amount of senior unsecured fixed-rate notes as follows: $700 million aggregate principal amount of 2.05% Senior Notes due 2026, $500 million aggregate principal amount of 2.70% Senior Notes due 2028, $650 million 35 Table of Contents aggregate principal amount of 3.15% Senior Notes due 2031 and $550 million aggregate principal amount of 4.10% Senior Notes due 2041 (the “Notes”). The Notes were offered and sold to qualified institutional buyers in reliance on Rule 144A under the Securities Act and to non-U.S. persons in reliance on Regulation S of the Securities Act. The Notes are subject to customary affirmative covenants, negative covenants and events of default for financings of this type and are redeemable at our option in a customary manner. In connection with the issuance of the Notes, we entered into a registration rights agreement with the initial purchasers of the Notes, pursuant to which we will use commercially reasonable efforts to file and have declared effective a registration statement with respect to a registered offer to exchange each series of Notes for new notes with substantially identical terms by October 15, 2022. If the exchange offer is not completed on or before October 15, 2022, and under certain other circumstances, we are required to use commercially reasonable efforts to file and have declared effective a shelf registration statement relating to the resale of the Notes. ​ Term Loan and Revolving Credit Facility ​ In October 2021, we entered into a $500 million three-year variable rate term loan credit agreement (the “Term Loan Credit Agreement”). In November 2021, we drew down the full $500 million available under the Term Loan Credit Agreement. ​ In October 2021, we entered into a $3.15 billion multi-currency revolving credit agreement (the “Revolving Credit Agreement” and, together with the Term Loan Credit Agreement, the “Credit Agreements”) for our future liquidity needs. The Revolving Credit Agreement expires, unless extended, in October 2026, and the Term Loan Credit Agreement matures, unless extended, in November 2024. Interest rates on borrowings under the Credit Agreements will be based on prevailing market interest rates, plus a margin, as further described in the Credit Agreements. ​ The Notes and the Credit Agreements were initially guaranteed by IBM. Approximately $900 million of the net proceeds from the term loan and the sale of the Notes was transferred to IBM in conjunction with the Separation. Following the completion of the Separation, the guarantee was released, and the Notes and the Credit Agreements are no longer obligations of IBM. ​ We expect to be able to voluntarily prepay borrowings under the Credit Agreements without premium or penalty, subject to customary “breakage” costs. The Credit Agreements include certain customary mandatory prepayment provisions. In addition, the Credit Agreements include customary events of default and affirmative and negative covenants as well as a maintenance covenant that will require that the ratio of our indebtedness for borrowed money to consolidated EBITDA (as defined in the Credit Agreements) for any period of four consecutive fiscal quarters be no greater than 3.50 to 1.00. ​ Receivables Purchase Agreement A portion of our receivables with extended payment terms were historically assigned to IBM’s Global Financing business. In connection with the assignment, these receivables were not recognized on the Company’s Consolidated Balance Sheet. In October 2021, in preparation for the Separation, we entered into a receivables purchase agreement with an unaffiliated bank with similar volumes to the amounts historically financed by IBM (the “Receivables Agreement”). Pursuant to the Receivables Agreement, we may sell at any one time, on a revolving basis, up to $1.1 billion of our trade receivables. Under the Receivables Agreement, from time to time, we sell certain customers’ trade receivables with extended payment terms at a discount on a non-recourse basis. These transactions are accounted for as sales. The initial term of the Receivables Agreement is 18 months. ​ Off-Balance Sheet Arrangements and Contractual Obligations From time to time, we may enter into (i) off-balance sheet arrangements as defined by SEC Financial Reporting Release 67 (FRR-67), “Disclosure in Management’s Discussion and Analysis about Off-Balance Sheet Arrangements and Aggregate Contractual Obligations.” or (ii) purchase commitments, which we expect to use in the ordinary course of business. 36 Table of Contents At December 31, 2021, and December 31, 2020, we had no such off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. We do not have retained interests in assets transferred to unconsolidated entities or other material off-balance sheet interests or instruments. At December 31, 2021, the Company’s material future contractual obligations were related to tax indemnifications, leases, debt and pension liabilities. See Note 5 – Taxes, Note 9 – Leases, Note 11 – Borrowings, Note 12 – Other Liabilities and Note 16 – Retirement-Related Benefits of Notes to the Company’s consolidated financial statements. Additionally, the Company uses several software and cloud partners to provides services to its customers. The majority of the Company’s purchase obligations relate to noncancelable commitments to those third parties. At December 31, 2021, we had short-term (in 2022), mid-term (in 2023 and 2024) and long-term (after 2024) purchase commitments in the amount of $0.8 billion, $1.5 billion and $1.1 billion, respectively. Other Information Signings ​ The following table presents the Company’s signings for the years ended December 31, 2021 and 2020. ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ($ in billions) 2021 2020 Total signings ​ $ 13.5 ​ $ 17.8 ​ A significant portion of the year-over-year decline in signings was driven by large renewals of existing client contracts in the first and third quarters of 2020. ​ The following table presents the total contract value for the Company’s signings greater than $100 million for new and existing customers for the years ended December 31, 2021 and 2020. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ($ in millions) ​ 2021 ​ 2020 New customers ​ $ 775 ​ $ 1,484 Existing customers ​ $ 3,401 ​ $ 6,770 ​ We believe that the estimated values of signings provide insight into the Company’s potential future revenue and a tool to monitor trends in the business, including the business’ ability to attract new customers and sell additional scope into our existing customer base, and we believe signings are helpful information for investors. There are no third-party standards or requirements governing the calculation of signings. We define signings as an initial estimate of the value of a customer’s commitment under a contract. The calculation involves estimates and judgments to gauge the extent of a customer’s commitment, including the type and duration of the agreement and the presence of termination charges or wind-down costs. Contract extensions and increases in scope are treated as signings only to the extent of the incremental new value. Signings can vary over time due to a variety of factors including, but not limited to, the timing of signing a small number of larger outsourcing contracts. The conversion of signings into revenue may vary based on the types of services and solutions, customer decisions and other factors, which may include, but are not limited to, macroeconomic environment or external events. Critical Accounting Estimates The application of GAAP requires us to make estimates and assumptions about certain items and future events that directly affect our reported financial condition. The accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to our financial statements. Our significant accounting policies are described in Note 1 – Significant Accounting Policies to our consolidated financial statements. 37 Table of Contents The inputs into certain of our critical accounting estimates considered the macroeconomic impacts of the ongoing COVID-19 pandemic. These estimates included but were not limited to, the allowances for credit losses, the carrying values of goodwill and intangible assets and other long-lived assets, valuation allowances for tax assets and revenue recognition. The macroeconomic impacts of the COVID-19 pandemic did not have a material impact on our critical accounting estimates reflected in our 2021 results. Given the inherent uncertainty of the magnitude of future impacts from and/or the duration of the pandemic, our estimates may change materially in future periods. A quantitative sensitivity analysis is provided where that information is reasonably available, can be reliably estimated and provides material information to investors. The amounts used to assess sensitivity (e.g., 1 percent, 10 percent, etc.) are included to allow users of this report to understand a general effect of changes in the estimates and do not represent management’s predictions of variability. For all of these estimates, it should be noted that future events rarely develop exactly as forecasted and estimates require regular review and adjustment. Revenue Recognition Application of GAAP related to the measurement and recognition of revenue requires us to make judgments and estimates. Specifically, complex arrangements with nonstandard terms and conditions may require significant contract interpretation to determine the appropriate accounting, including whether promised goods and services specified in an arrangement are distinct performance obligations. In certain arrangements revenue is recognized based on progress toward completion of the performance obligation using a cost-to-cost measure of progress. The estimation of cost at completion is complex and requires us to make judgements and estimates. Other significant judgments include determining whether we are acting as the principal in a transaction and whether separate contracts should be combined and considered part of one arrangement. Revenue recognition is also impacted by our ability to determine when a contract is probable of collection and to estimate variable consideration, including, for example, rebates, price concessions, service-level penalties and performance bonuses. We consider various factors when making these judgments, including a review of specific transactions, historical experience and market and economic conditions. Evaluations are conducted each quarter to assess the adequacy of the estimates. If the estimates were changed by 10 percent in 2021, the impact on net income would have been immaterial. Costs to Complete Service Contracts During the contractual period, revenue, cost and profits may be impacted by estimates of the ultimate profitability of each contract, especially contracts for which we use cost-to-cost method to measure progress. If at any time these estimates indicate the contract will be unprofitable, the entire estimated loss for the remainder of the contract is recorded immediately in cost. We perform ongoing profitability analyses of these services contracts in order to determine whether the latest estimates require updating. Key factors reviewed to estimate the future costs to complete each contract are future labor costs and product costs and expected productivity efficiencies. Capitalization of Contract Costs In connection with services arrangements, we incur and capitalize direct costs for transition and setup activities performed at the inception of these long-term contracts that are necessary to enable us to perform under the terms of the arrangement. These costs are capitalized and are amortized on a straight-line basis over the expected period of benefit. We perform periodic reviews to assess the recoverability of deferred contract transition and setup costs. To assess recoverability, undiscounted estimated cash flows of the contract are projected over its remaining life and compared to the carrying amount of contract-related assets, including the unamortized deferred cost balance. Such estimates require judgment and assumptions, and actual future cash flows could differ from these estimates. A significant change in an estimate or assumption on one or more contracts could have a material effect on our results of operations. 38 Table of Contents Pension Assumptions For Company-sponsored and co-sponsored defined benefit pension plans, the measurement of the benefit obligation to plan participants and net periodic benefit cost requires the use of certain assumptions, including, among others, estimates of discount rates and expected return on plan assets. Changes in the discount rate assumptions would impact the actuarial (gain)/loss amortization and interest cost components of the net periodic benefit cost calculation and the projected benefit obligation (PBO). If the average discount rate assumption for the non-U.S. defined benefit pension plans had increased or decreased by 25 basis points from 1.19 percent on December 31, 2021, this would not result in a material change to pretax income recognized in 2022. Further changes in the discount rate assumptions would impact the PBO which, in turn, may impact our funding decisions if the PBO exceeds plan assets. A 25 basis point increase or decrease in the discount rate would result in an approximate corresponding decrease or increase, respectively, of $85 million in the Plans’ estimated PBO and accumulated postretirement benefit obligation (APBO) based upon December 31, 2021 data. The expected long-term return on plan assets assumption is used in calculating the net periodic benefit cost. Expected returns on plan assets are calculated based on the market-related value of plan assets, which recognizes changes in the fair value of plan assets systematically over a five-year period in the expected return on plan assets line in net periodic benefit cost. The differences between the actual return on plan assets and the expected long-term return on plan assets are recognized over five years in the expected return on plan assets line in net periodic benefit cost and also as a component of actuarial (gains)/losses, which are recognized over the service lives or life expectancy of the participants, depending on the plan, provided such amounts exceed thresholds which are based upon the benefit obligation or the value of plan assets, as provided by accounting standards. To the extent the outlook for long-term returns changes such that management changes its expected long-term return on plan assets assumption, a 50 basis point increase or decrease in the expected long-term return on plan assets assumption would not have a material estimated decrease or increase on the following year’s pretax net periodic benefit cost (based upon plan assets at December 31, 2021 and expected contributions and benefit payments for 2022). We may voluntarily make contributions or be required, by law, to make contributions to our pension plans. Actual results that differ from the estimates may result in more or less future funding into the pension plans than is planned by management. Impacts of these types of changes on our pension plans would vary depending upon the status of each respective plan. In addition to the above, we evaluate other pension assumptions involving demographic factors, such as retirement age and mortality and update these assumptions to reflect experience and expectations for the future. Actual results in any given year can differ from actuarial assumptions because of economic and other factors. For additional information on our pension plans and the development of these assumptions, see Note 16 – Retirement-Related Benefits to our consolidated financial statements. Income Taxes Prior to the Separation, our operations were included in the consolidated U.S. federal and certain state and local and foreign income tax returns filed by IBM. The Company also filed certain separate foreign income tax returns. For purposes of the financial statements presented on a “carve-out” basis, the income tax provisions were calculated as if we filed separate tax returns and include transactions related to our Separation attributed to us, even if the related tax liabilities were our former Parent’s responsibility. Post-Separation, our income tax provisions are calculated based on Kyndryl’s operating footprint, as well as our tax return elections and assertions. Current income tax liabilities including amounts for unrecognized tax benefits related to our activities included in IBM’s income tax returns were deemed to be immediately settled with IBM through the Net Parent investment account in the Consolidated Balance Sheet and reflected in Net transfers from Parent in the financing activities section in the Consolidated Statement of Cash Flows. Post-Separation, liabilities related to unrecognized tax 39 Table of Contents benefits for which the Company is liable are reported within the Consolidated Balance Sheet based upon tax authorities’ ability to assert the Company may be the primary obligor for historical taxes, among other factors. Significant judgment is required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, management considers all available evidence for each jurisdiction including past operating results, estimates of future taxable income and the feasibility of ongoing tax planning strategies and actions. In the event that we change our determination as to the amount of deferred tax assets that can be realized, we will adjust the valuation allowance with a corresponding impact to income tax expense in the period in which such determination is made. Prior to the Separation, the Company recorded deferred tax assets for stock-based compensation awards that result in tax deductions in the consolidated financial statements calculated using the separate return basis based on the amount of compensation cost recognized and the relevant statutory tax rates. Post-Separation, the differences between the deferred tax assets recognized for financial reporting purposes and the actual tax deduction reported on the Company’s income tax return are recorded as a benefit or expense to the provision for income taxes in the Consolidated Income Statement. Valuation of Assets The application of valuation and impairment accounting requires the use of significant estimates and assumptions. Impairment testing for assets, other than goodwill, requires the allocation of cash flows to those assets or group of assets and if required, an estimate of fair value for the assets or group of assets. Our estimates are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. These valuations require the use of management’s assumptions, which would not reflect unanticipated events and circumstances that may occur. Assumptions used to perform a recoverability test are consistent with those used for goodwill impairment; see “Valuation of Goodwill” for further detail. Valuation of Goodwill We review goodwill for impairment annually and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable by first assessing qualitative factors to determine if it is more likely than not that fair value is less than carrying value. The fair values of the reporting units were determined using a discounted cash flow model. Significant assumptions inherent in the valuation methodologies include estimates of future projected business results, long-term growth rates and the weighted-average cost of capital. We assess qualitative factors in each of our reporting units that carry goodwill including relevant events and circumstances that affect the fair value of reporting units. Examples include, but are not limited to, macroeconomic, industry and market conditions, as well as other individual factors such as: ● A significant adverse shift in the operating environment of the reporting unit such as unanticipated competition; ● Significant pending litigation; ● A loss of key personnel; ● A more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or otherwise disposed of; and ● An adverse action or assessment by a regulator. We assess these qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. This quantitative test is required only if we conclude that it is more likely than not that a reporting unit’s fair value is less than its carrying amount. After performing the annual goodwill impairment qualitative analysis during the fourth quarter of 2021, the Company determined it was necessary to perform the quantitative goodwill impairment test. 40 Table of Contents We use an income-based approach where fair value is determined using a discounted cash flow model that requires significant judgment with respect to revenue and growth rates, based upon annual budgets and long-term strategic plans. Fair value estimates employed in our annual impairment review of goodwill involve using various assumptions. Assumptions critical to our fair value were discount rates used in determining the fair value of the reporting unit, expected revenue growth and projected EBITDA margins. These and other assumptions are impacted by economic conditions and expectations of management and may change based on different facts and circumstances. We believe the assumptions used to estimate future cash flows are reasonable, but there can be no assurance that the expected cash flows will be realized. The use of different assumptions would increase or decrease discounted cash flows or earnings projections and therefore, could change impairment determinations. As a result of the impairment testing performed in the fourth quarter, we determined that $293 million of the goodwill balance was impaired in our legacy EMEA segment and $176 million of the goodwill was impaired in our new United States segment. As of October 1, 2021, the estimated fair value of the Strategic Markets reporting unit, which had goodwill of $176 million, exceeded its carrying amount by greater than 50 percent. Management’s cash flow projections for this reporting unit included significant judgments and assumptions relating to expected revenue growth and projected EBITDA margins. A decline in the expected revenue growth rate of 50 basis points or projected EBITDA margins of 50 basis points would not have resulted in an impairment of the Strategic Market reporting unit. See Note 10 – Intangible Assets Including Goodwill for further discussion. ​ Loss Contingencies We are currently involved in various claims and legal proceedings. At least quarterly, we review the status of each significant matter and assess our potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss. Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable. Because of uncertainties related to these matters, accruals are based only on the best information available at the time. As additional information becomes available, we reassess the potential liability related to our pending claims and litigation and may revise our estimates. These revisions in the estimates of the potential liabilities could have a material impact on our results of operations and financial position. Cybersecurity While cybersecurity risk can never be completely eliminated, our approach draws on the depth and breadth of our global capabilities, both in terms of our offerings to clients and our internal approaches to risk management. In cooperation with partners, we offer commercial security solutions that deliver capabilities in areas such as identity and access management, data security, application security, network security and endpoint security. These solutions include pervasive encryption, threat intelligence, analytics, cognitive and artificial intelligence and forensic capabilities that analyze client security events, yielding insights about attacks, threats and vulnerabilities facing the client. We also offer professional consulting and technical services solutions for security from assessment and incident response to deployment and resource augmentation. In addition, we offer managed and outsourced security solutions from multiple security operations centers around the world. Finally, security is embedded in a multitude of our offerings through secure engineering and operations and by critical functions (e.g., encryption, access control) in servers, storage, software, services and other solutions. From an enterprise perspective, we implement a multi-faceted risk-management approach based on the National Institute of Standards and Technology Cybersecurity Framework to identify and address cybersecurity risks. In addition, we have established policies and procedures that provide the foundation upon which our infrastructure and data are managed. We regularly assess and adjust our technical controls and methods to identify and mitigate emerging cybersecurity risks. We use a layered approach with overlapping controls to defend against cybersecurity attacks and threats on networks, end-user devices, servers, applications, data and cloud solutions. We also have threat intelligence and security monitoring programs, as well as a global incident response process to respond to cybersecurity threats and attacks. In addition, we utilize a combination of online training, educational tools, videos and other awareness initiatives to foster a culture of security awareness and responsibility among our workforce. ​ 41 Table of Contents Cautionary Note Regarding Forward-Looking Statements ​ This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 . All statements other than statements of historical fact included in this report, including statements concerning the Company’s plans, objectives, goals, beliefs, business strategies, future events, business condition, results of operations, financial position, business outlook and business trends and other non-historical statements in this report are forward-looking statements. Such forward-looking statements often contain words such as “will,” “anticipate,” “predict,” “project,” “contemplate,” “plan,” “forecast,” “estimate,” “expect,” “intend,” “target,” “may,” “should,” “would,” “could,” “seek,” “aim” and other similar words or expressions or the negative thereof or other variations thereon. Forward-looking statements are based on the Company’s current assumptions and beliefs regarding future business and financial performance. The Company’s actual business, financial condition or results of operations may differ materially from those suggested by forward-looking statements as a result of risks and uncertainties which include, among others: ​ ● risks related to the Company’s recent Spin-off from IBM; ● failure to attract new customers, retain existing customers or sell additional services to customers; ● technological developments and the Company’s response to such developments; ● failure to meet growth and productivity objectives; ● competition; ● impacts of relationships with critical suppliers; ● inability to attract and retain key personnel and other skilled employees; ● impact of local legal, economic, political, health and other conditions, including the COVID-19 pandemic; ● a downturn in economic environment and customer spending budgets; ● damage to the Company’s reputation; ● inability to accurately estimate the cost of services and the timeline for completion of contracts; ● service delivery issues; ● the Company’s ability to successfully manage acquisitions, alliances and dispositions, including integration challenges, failure to achieve objectives, the assumption of liabilities and higher debt levels; ● the impact of our business with government customers; ● failure of the Company’s intellectual property rights to prevent competitive offerings and the failure of the Company to obtain necessary licenses; ● risks relating to cybersecurity and data privacy; ● adverse effects from tax matters and environmental matters; ● legal proceedings and investigatory risks; ● impact of changes in market liquidity conditions and customer credit risk on receivables; ● the Company’s pension plans; ● the impact of foreign currency fluctuations; and ● risks related to the Company’s common stock and the securities market . ​ Additional risks and uncertainties include, among others, those risks and uncertainties described in the “Risk Factors” section of this report, as such factors may be updated from time to time in the Company’s periodic filings with the SEC. Any forward-looking statement in this report speaks only as of the date on which it is made. Except as required by law, the Company assumes no obligation to update or revise any forward-looking statements. ​ Item 7A. Quantitative and Qualitative Disclosures About Market Risk: Currency Rate Fluctuations Changes in the relative values of non-U.S. currencies to the U.S. dollar affect our financial results and financial position. At December 31, 2021, currency changes resulted in assets and liabilities denominated in local currencies being translated into more dollars than at year-end 2020. During periods of sustained movements in currency, the marketplace and competition adjust to the changing rates. Large changes in currency exchange rates relative to our functional currencies could increase the costs of our services to customers relative to local competitors, thereby causing us to lose 42 Table of Contents existing or potential customers. Currency movements impacted our year-to-year revenue growth. Based on the currency rate movements in 2021, total revenue decreased 4 percent as reported and 5 percent in constant currency versus 2020. For non-U.S. subsidiaries and branches that operate in U.S. dollars or whose economic environment is highly inflationary, translation adjustments are reflected in results of operations. Generally, we manage currency risk in these entities by linking prices and contracts to U.S. dollars. Market Risk In the normal course of business, our financial position is routinely subject to a variety of risks. In addition to the market risk associated with non-U.S. dollar denominated assets and liabilities, another example of risk is the collectability of accounts receivable. We regularly assess these risks and have established policies and business practices to protect against the adverse effects of these and other potential exposures. As a result, we do not anticipate any material losses from these risks. To meet disclosure requirements, we perform a sensitivity analysis to determine the effects that market risk exposures may have on the fair values of our financial assets. The financial instruments that are included in the sensitivity analysis are comprised of our cash and cash equivalents and short-term and long-term debt. To perform the sensitivity analysis, we assess the risk of loss in fair values from the effect of hypothetical changes in interest rates and currency exchange rates on market-sensitive instruments. The market values for interest and currency exchange risk are computed based on the present value of future cash flows as affected by the changes in rates that are attributable to the market risk being measured. The discount rates used for the present value computations were selected based on market interest and foreign currency exchange rates in effect at December 31, 2021 and 2020. The differences in this comparison are the hypothetical losses associated with each type of risk. Information provided by the sensitivity analysis does not necessarily represent the actual changes in fair value that we would incur under normal market conditions because, due to practical limitations, all variables other than the specific market risk factor are held constant. In addition, the results of the model are constrained by the fact that certain items are specifically excluded from the analysis, while the financial instruments relating to the financing or hedging of those items are included by definition. The results of the sensitivity analysis at December 31, 2021 and 2020 are as follows: Interest Rate Risk A hypothetical 10 percent adverse change in the levels of interest rates, with all other variables held constant, would result in a $21 million and a $2 million impact in the fair value of our financial instruments at December 31, 2021 and 2020, respectively. Currency Exchange Rate Risk A hypothetical 10 percent adverse change in the levels of currency exchange rates relative to the U.S. dollar, with all other variables held constant, would result in a $188 million and a $19 million impact in the fair value of our financial instruments at December 31, 2021 and 2020, respectively. ​ ​ 43 Table of Contents Item 8. Financial Statements and Supplementary Data: ​ Index to Consolidated Financial Statements ​ ​ ​ Page ​ ​ Report of Independent Registered Public Accounting Firm (PCAOB ID 238 ) 45 Consolidated Income Statement for the Years Ended December 31, 2021, 2020 and 2019 47 Consolidated Statement of Comprehensive Income (Loss) for the Years Ended December 31, 2021, 2020 and 2019 48 Consolidated Balance Sheet as of December 31, 2021 and 2020 49 Consolidated Statement of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019 50 Consolidated Statement of Equity for the Years Ended December 31, 2021, 2020 and 2019 51 Notes to Consolidated Financial Statements 52 ​ ​ ​ ​ ​ 44 Table of Contents ​ Report of Independent Registered Public Accounting Firm ​ To the Board of Directors and Stockholders of Kyndryl Holdings, Inc. ​ Opinion on the Financial Statements ​ We have audited the accompanying consolidated balance sheets of Kyndryl Holdings, Inc. and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated income statements, statements of comprehensive income (loss), statements of equity and statements of cash flows for each of the three years in the period ended December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and December 31, 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. ​ Basis for Opinion ​ These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. ​ We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. ​ Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. ​ Critical Audit Matters ​ The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Reporting Unit Goodwill Impairment Assessment As described in Note 10 to the consolidated financial statements, the Company’s goodwill balance was $732 million as of December 31, 2021 including $176 million associated with the Strategic Markets reporting unit (the “Reporting Unit”). Goodwill is reviewed for impairment annually, or whenever events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable. In the fourth quarter of 2021, management reviewed its goodwill balances for impairment. Fair value is determined by management using a discounted cash flow model, which requires significant judgments and assumptions relating to discount rates, expected revenue growth, and projected EBITDA margins. ​ 45 Table of Contents The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment for the Reporting Unit is a critical audit matter are (i) the significant judgment by management when developing the fair value of the Reporting Unit; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the expected revenue growth and projected EBITDA margins; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge. ​ Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, (i) testing management's process for developing the fair value estimate of the Reporting Unit, (ii) evaluating the appropriateness of the discounted cash flow model; (iii) testing the completeness and accuracy of underlying data used in the model; and (iv) evaluating the reasonableness of the significant assumptions used by management related to the expected revenue growth and projected EBITDA margins. Evaluating management’s assumptions related to the expected revenue growth and projected EBITDA margins involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the Reporting Unit; (ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s discounted cash flow model. ​ ​ ​ ​ /s/ PricewaterhouseCoopers LLP New York, New York March 10, 2022 ​ We have served as the Company's auditor since 2020. ​ ​ ​ 46 Table of Contents KYNDRYL HOLDINGS, INC. CONSOLIDATED INCOME STATEMENT (In millions, except per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ Notes 2021 2020 2019 Revenues * ​ 3 ​ $ 18,657 ​ $ 19,352 ​ $ 20,279 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of services ** ​ 3 ​ $ 16,570 ​ $ 17,143 ​ $ 17,682 Selling, general and administrative expenses ​ ​ ​ ​ 2,776 ​ ​ 2,948 ​ ​ 2,970 Workforce rebalancing charges ​ ​ ​ ​ 39 ​ ​ 918 ​ ​ 159 Transaction-related costs ​ ​ ​ ​ 627 ​ ​ 21 ​ ​ — Impairment expense ​ 10 ​ ​ 469 ​ ​ — ​ ​ — Interest expense ​ 11 ​ ​ 64 ​ ​ 63 ​ ​ 76 Other (income) and expense ​ ​ ​ ​ 35 ​ ​ 25 ​ ​ ( 29 ) Total costs and expenses ​ ​ ​ $ 20,580 ​ $ 21,118 ​ $ 20,858 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income (loss) before income taxes ​ ​ ​ $ ( 1,922 ) ​ $ ( 1,766 ) ​ $ ( 579 ) Provision for income taxes ​ 5 ​ $ 397 ​ $ 246 ​ $ 364 Net income (loss) ​ ​ ​ $ ( 2,319 ) ​ $ ( 2,011 ) ​ $ ( 943 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic earnings (loss) per share ​ 6 ​ $ ( 10.35 ) ​ $ ( 8.97 ) ​ $ ( 4.21 ) Diluted earnings (loss) per share ​ ​ ​ ​ ( 10.35 ) ​ ​ ( 8.97 ) ​ ​ ( 4.21 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average basic shares outstanding ​ 6 ​ ​ 224.1 ​ ​ 224.1 ​ ​ 224.1 Weighted-average diluted shares outstanding ​ ​ ​ ​ 224.1 ​ ​ 224.1 ​ ​ 224.1 ​ * Including related-party revenue of $ 704 in 2021, $ 645 in 2020 and $ 613 in 2019 ** Including related-party cost of service of $ 3,979 in 2021, $ 3,767 in 2020 and $ 3,592 in 2019 ​ The accompanying notes are an integral part of the financial statements. ​ ​ 47 Table of Contents KYNDRYL HOLDINGS, INC. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) (Dollars in millions) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2021 2020 2019 Net income (loss) $ ( 2,319 ) ​ $ ( 2,011 ) ​ $ ( 943 ) Other comprehensive income (loss), before tax: ​ ​ ​ ​ ​ ​ ​ ​ ​ Foreign currency translation adjustments ​ ​ 198 ​ ​ 125 ​ ​ 12 Unrealized gains (losses) on cash flow hedges: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized gains (losses) arising during the period ​ ​ 4 ​ ​ — ​ ​ — Reclassification of (gains) losses to net income ​ ​ ( 1 ) ​ ​ — ​ ​ — Total unrealized gains (losses) on cash flow hedges ​ ​ 3 ​ ​ — ​ ​ — Retirement-related benefit plans: ​ ​ ​ ​ ​ ​ ​ ​ ​ Prior service costs (credits) ​ ​ 1 ​ ​ — ​ ​ ( 1 ) Net (losses) gains arising during the period ​ ​ 72 ​ ​ ( 41 ) ​ ​ ( 84 ) Curtailments and settlements ​ ​ 3 ​ ​ — ​ ​ — Amortization of prior service (credits) costs ​ ​ — ​ ​ ( 1 ) ​ ​ — Amortization of net (gains) losses ​ ​ 51 ​ ​ 36 ​ ​ 27 Total retirement-related benefit plans ​ ​ 127 ​ ​ ( 6 ) ​ ​ ( 57 ) Other comprehensive income (loss), before tax ​ ​ 329 ​ ​ 119 ​ ​ ( 45 ) Income tax (expense) benefit related to items of other comprehensive income (loss) ​ ​ ( 33 ) ​ ​ 2 ​ ​ 18 Other comprehensive income (loss), net of tax ​ ​ 296 ​ ​ 121 ​ ​ ( 27 ) Total comprehensive income (loss) ​ $ ( 2,023 ) ​ $ ( 1,891 ) ​ $ ( 970 ) ​ The accompanying notes are an integral part of the financial statements. ​ 48 Table of Contents KYNDRYL HOLDINGS, INC. CONSOLIDATED BALANCE SHEET (In millions, except per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ Notes 2021 2020 Assets: ​ ​ ​ ​ ​ Current assets: ​ ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ ​ ​ $ 2,223 ​ $ 24 Restricted cash ​ ​ ​ ​ 17 ​ ​ 14 Accounts receivable (net of allowances of $ 44 in 2021 and $ 91 in 2020)* ​ ​ ​ ​ 2,279 ​ ​ 1,444 Deferred costs ​ 3 ​ 920 ​ ​ 1,205 Prepaid expenses and other current assets ​ ​ ​ ​ 337 ​ ​ 157 Total current assets ​ ​ ​ $ 5,777 ​ $ 2,843 ​ ​ ​ ​ ​ ​ ​ ​ ​ Property and equipment, net ​ 8 ​ $ 2,923 ​ $ 3,991 Operating right-of-use assets, net ​ 9 ​ ​ 1,361 ​ ​ 1,131 Deferred costs ​ 3 ​ ​ 1,265 ​ ​ 1,441 Deferred taxes ​ 5 ​ ​ 675 ​ ​ 424 Goodwill ​ 10 ​ ​ 732 ​ ​ 1,230 Intangible assets, net ​ 10 ​ ​ 36 ​ ​ 60 Pension assets ​ ​ ​ ​ 58 ​ ​ 1 Other assets ​ ​ ​ ​ 385 ​ ​ 85 Total assets ​ ​ ​ $ 13,213 ​ $ 11,205 ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ ​ ​ ​ ​ Accounts payable** ​ ​ ​ $ 1,140 ​ $ 919 Value-added tax and income tax liabilities ​ ​ ​ ​ 357 ​ ​ — Short-term debt ​ 11 ​ ​ 105 ​ ​ 69 Accrued compensation and benefits ​ ​ ​ 381 ​ ​ 350 Deferred income (current portion) ​ 3 ​ 872 ​ ​ 854 Operating lease liabilities (current portion) ​ 8 ​ 360 ​ ​ 333 Accrued contract costs ​ ​ ​ ​ 585 ​ ​ 512 Other accrued expenses and liabilities ​ 12 ​ ​ 744 ​ ​ 874 Total current liabilities ​ ​ ​ $ 4,544 ​ $ 3,910 ​ ​ ​ ​ ​ ​ ​ ​ ​ Long-term debt ​ 11 ​ $ 3,128 ​ $ 140 Retirement and nonpension postretirement benefit obligations ​ 16 ​ ​ 856 ​ ​ 550 Deferred income (noncurrent portion) ​ 3 ​ ​ 475 ​ ​ 543 Operating lease liabilities (noncurrent portion) ​ 9 ​ ​ 1,007 ​ ​ 850 Other liabilities ​ 12 ​ ​ 501 ​ ​ 282 Total liabilities ​ ​ ​ $ 10,511 ​ $ 6,274 Commitments and contingencies ​ 13 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Equity: ​ ​ ​ ​ ​ ​ ​ ​ Stockholders’ equity ​ 14 ​ ​ ​ ​ ​ ​ Net Parent investment ​ ​ ​ ​ — ​ ​ 5,972 Common stock, par value $ 0.01 per share, and additional paid-in capital ( 1,000.0 shares authorized, 224.2 shares issued) ​ ​ ​ ​ 4,218 ​ ​ — Accumulated deficit ​ ​ ​ ​ ( 375 ) ​ ​ — Treasury stock, at cost (shares: 2021 - 0.0 ) ​ ​ ​ ​ ( 1 ) ​ ​ — Accumulated other comprehensive income (loss) ​ ​ ​ ​ ( 1,143 ) ​ ​ ( 1,100 ) Total stockholders’ equity before noncontrolling interests ​ ​ ​ $ 2,700 ​ $ 4,873 Noncontrolling interests ​ ​ ​ ​ 3 ​ ​ 58 Total equity ​ ​ ​ $ 2,702 ​ $ 4,931 Total liabilities and equity ​ ​ ​ $ 13,213 ​ $ 11,205 ​ * Including related-party accounts receivable of $ 373 at December 31, 2021 ** Including related-party accounts payable of $ 733 at December 31, 2021 ​ The accompanying notes are an integral part of the financial statements. ​ 49 Table of Contents KYNDRYL HOLDINGS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars in millions) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2021 2020 2019 ​ Cash flows from operating activities: ​ ​ ​ ​ ​ ​ Net income (loss) ​ ​ $ ( 2,319 ) ​ $ ( 2,011 ) ​ $ ( 943 ) ​ Adjustments to reconcile net income (loss) to cash provided by operating activities: ​ ​ ​ ​ ​ ​ ​ ​ Depreciation and amortization ​ ​ ​ ​ ​ ​ ​ ​ Depreciation of property and equipment ​ ​ ​ 1,300 ​ ​ 1,445 ​ ​ 1,469 ​ Depreciation of right-of-use assets ​ ​ ​ 327 ​ ​ 424 ​ ​ 429 ​ Amortization of transition costs and prepaid software ​ ​ 1,278 ​ 1,379 ​ 1,305 ​ Amortization of capitalized contract costs ​ ​ ​ 563 ​ ​ 683 ​ ​ 803 ​ Amortization of intangible assets ​ ​ 37 ​ 29 ​ 29 ​ Goodwill impairment ​ ​ ​ 469 ​ ​ — ​ ​ — ​ Stock-based compensation ​ ​ ​ 71 ​ ​ 64 ​ ​ 51 ​ Deferred taxes ​ ​ ​ ( 401 ) ​ ​ ( 52 ) ​ ​ ( 33 ) ​ Net (gain) loss on asset sales and other ​ ​ ​ 11 ​ ​ 4 ​ ​ 1 ​ Change in operating assets and liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Deferred costs (excluding amortization) ​ ​ ​ ( 1,618 ) ​ ​ ( 1,917 ) ​ ​ ( 1,802 ) ​ Right-of-use assets and liabilities (excluding depreciation) ​ ​ ​ ( 374 ) ​ ​ ( 372 ) ​ ​ ( 418 ) ​ Workforce rebalancing liabilities ​ ​ ​ ( 341 ) ​ ​ 560 ​ ​ 27 ​ Receivables ​ ​ ( 1,076 ) ​ 387 ​ 23 ​ Accounts payable ​ ​ ​ 125 ​ ​ 70 ​ ​ 33 ​ Taxes (including items settled with Parent) ​ ​ ​ 989 ​ ​ 297 ​ ​ 397 ​ Other assets and other liabilities ​ ​ 842 ​ ( 360 ) ​ ( 238 ) ​ Net cash provided by (used in) operating activities ​ ​ $ ( 119 ) ​ $ 628 ​ $ 1,134 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash flows from investing activities: ​ ​ ​ ​ ​ ​ ​ ​ Payments for property and equipment ​ ​ $ ( 752 ) ​ $ ( 1,036 ) ​ $ ( 1,190 ) ​ Proceeds from disposition of property and equipment ​ ​ 194 ​ 84 ​ 63 ​ Other investing activities, net ​ ​ ​ ( 14 ) ​ ​ ( 1 ) ​ ​ ( 2 ) ​ Net cash used in investing activities ​ ​ $ ( 572 ) ​ $ ( 953 ) ​ $ ( 1,128 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash flows from financing activities: ​ ​ ​ ​ ​ ​ ​ ​ Debt repayments ​ ​ $ ( 91 ) ​ $ ( 66 ) ​ $ ( 18 ) ​ Proceeds from issuance of debt, net of debt issuance costs ​ ​ ​ 3,038 ​ ​ — ​ ​ — ​ Net transfers (to) from Parent ​ ​ ( 30 ) ​ ​ 377 ​ ​ 18 ​ Common stock repurchases for tax withholdings ​ ​ ​ ( 1 ) ​ — ​ — ​ Net cash provided by financing activities ​ ​ $ 2,915 ​ $ 312 ​ $ ( 0 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Effect of exchange rate changes on cash, cash equivalents and restricted cash ​ ​ $ ( 22 ) ​ $ 1 ​ $ ( 1 ) ​ Net change in cash, cash equivalents and restricted cash ​ ​ $ 2,203 ​ $ ( 13 ) ​ $ 5 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash, cash equivalents and restricted cash at January 1 ​ ​ $ 38 ​ $ 50 ​ $ 46 ​ Cash, cash equivalents and restricted cash at December 31 ​ ​ $ 2,240 ​ $ 38 ​ $ 50 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Supplemental data ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income taxes paid, net of refunds received ​ ​ $ 12 ​ $ — ​ $ — ​ Interest paid on debt ​ ​ $ 2 ​ $ — ​ $ — ​ ​ The accompanying notes are an integral part of the financial statements. 50 Table of Contents KYNDRYL HOLDINGS, INC. CONSOLIDATED STATEMENT OF EQUITY (In millions) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock and ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ Net ​ Other ​ ​ ​ ​ ​ ​ Non- ​ ​ ​ ​ ​ Paid-In Capital ​ Parent ​ Comprehensive ​ Treasury ​ Accumulated ​ Controlling ​ Total ​ ​ Shares ​ Amount ​ Investment ​ Income (Loss) ​ Stock ​ Deficit ​ Interests ​ Equity Equity – January 1, 2019 ​ ​ — ​ $ — ​ $ 7,457 ​ $ ( 1,193 ) ​ $ — ​ $ — ​ $ 52 ​ $ 6,315 Net income (loss) ​ ​ ​ ​ ​ ​ ​ ​ ( 943 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 943 ) Other comprehensive income (loss), net of tax ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 27 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 27 ) Net transfers from Parent ​ ​ ​ ​ ​ ​ ​ ​ 598 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 598 Changes in non-controlling interests ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 4 ​ ​ 4 Equity – December 31, 2019 ​ ​ — ​ $ — ​ $ 7,112 ​ $ ( 1,220 ) ​ $ — ​ $ — ​ $ 56 ​ $ 5,948 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock and ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ Net ​ Other ​ ​ ​ ​ ​ ​ Non- ​ ​ ​ ​ ​ Paid-In Capital ​ Parent ​ Comprehensive ​ Treasury ​ Accumulated ​ Controlling ​ Total ​ ​ Shares ​ Amount ​ Investment ​ Income (Loss) ​ Stock ​ Deficit ​ Interests ​ Equity Equity – January 1, 2020 ​ ​ — ​ $ — ​ $ 7,112 ​ $ ( 1,220 ) ​ $ — ​ $ — ​ $ 56 ​ $ 5,948 Net income (loss) ​ ​ ​ ​ ​ ​ ​ ​ ( 2,011 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 2,011 ) Other comprehensive income (loss), net of tax ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 121 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 121 Net transfers from Parent ​ ​ ​ ​ ​ ​ ​ ​ 872 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 872 Changes in non-controlling interests ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2 ​ ​ 2 Equity – December 31, 2020 ​ ​ — ​ $ — ​ $ 5,972 ​ $ ( 1,100 ) ​ $ — ​ $ — ​ $ 58 ​ $ 4,931 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock and ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ Net ​ Other ​ ​ ​ ​ ​ ​ Non- ​ ​ ​ ​ ​ Paid-In Capital ​ Parent ​ Comprehensive ​ Treasury ​ Accumulated ​ Controlling ​ Total ​ ​ Shares ​ Amount ​ Investment ​ Income (Loss) ​ Stock ​ Deficit ​ Interests ​ Equity Equity - January 1, 2021 ​ ​ — ​ $ — ​ $ 5,972 ​ $ ( 1,100 ) ​ $ — ​ $ — ​ $ 58 ​ $ 4,931 Net income (loss) ​ ​ ​ ​ ​ ​ ​ ​ ( 1,943 ) ​ ​ ​ ​ ​ ​ ​ ​ ( 375 ) ​ ​ ​ ​ ​ ( 2,319 ) Other comprehensive income (loss), net of tax ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 296 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 296 Issuance of common stock and reclassification of net transfers from Parent ​ ​ 224.1 ​ ​ 4,205 ​ ​ ( 4,029 ) ​ ​ ( 339 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 163 ) Common stock issued under employee plans ​ ​ 0.1 ​ ​ 13 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 13 Purchases of treasury stock ​ ​ 0.0 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 1 ) ​ ​ ​ ​ ​ ​ ​ ​ ( 1 ) Changes in non-controlling interests ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 56 ) ​ ​ ( 56 ) Equity - December 31, 2021 ​ ​ 224.2 ​ $ 4,218 ​ $ — ​ $ ( 1,143 ) ​ $ ( 1 ) ​ $ ( 375 ) ​ $ 3 ​ $ 2,702 ​ The accompanying notes are an integral part of the financial statements. ​ ​ ​ ​ ​ 51 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SIGNIFICANT ACCOUNTING POLICIES ​ Kyndryl’s Spin-off Kyndryl Holdings, Inc. (“we”, “the Company” or “Kyndryl”) is a leading technology services company and the largest infrastructure services provider in the world, serving as a partner to more than 4,000 customers whose operations span over 100 countries. Prior to November 3, 2021, the Company was wholly owned by International Business Machines Corporation (“IBM”, “Parent” or “former Parent”). In October 2021, the Board of Directors of IBM approved the spin-off (the “Separation” or the “Spin-off”) of the infrastructure services unit (the “Kyndryl Businesses”) of its Global Technology Services (“GTS”) segment through the distribution of shares of Kyndryl’s common stock to IBM stockholders. In conjunction with the Distribution, Kyndryl underwent an internal reorganization following which it became the holder, directly or through its subsidiaries, of the Kyndryl Businesses. On October 12, 2021, Kyndryl’s registration statement on Form 10, as amended, was declared effective by the US Securities and Exchange Commission (“SEC”). On November 3, 2021, the Separation was achieved through the Parent’s pro rata distribution of 80.1 % of the shares of common stock of Kyndryl to holders of the Parent’s common stock as of the close of business on the record date of October 25, 2021. The Parent retained 19.9 % of the shares of the Company’s common stock. The Parent’s stockholders of record received one share of the Company’s common stock for every five shares of the Parent’s common stock. Description of Business Our purpose is to design, build and manage secure and responsive private, public and multicloud environments to accelerate our customers’ digital transformations. We have a long track record of helping enterprises navigate major technological changes, particularly by enabling our customers to focus on the core aspects of their businesses during these shifts while trusting us with their most critical systems. We provide engineering talent, operating paradigms and insights derived from our data around IT patterns. This enables us to deliver advisory, implementation and managed services at scale across technology infrastructures that allow our customers to de-risk and realize the full value of their digital transformations. We do this while embracing new technologies and solutions and continually expanding our skills and capabilities, as we help advance the vital systems that power progress for our customers. We deliver transformation and secure cloud services capabilities, insights and depth of expertise to modernize and manage IT environments based on our customers’ unique patterns of transformation at scale. We offer services across domains such as cloud services, core enterprise and zCloud services, applications, data and artificial intelligence services, digital workplace services, security and resiliency services and network and edge services as we continue to support our customers through technological change. Our services enable us to modernize and manage cloud and on-premise environments as “one” for our customers, enabling them to scale seamlessly. To deliver these services, we rely on our global team of skilled practitioners, consisting of approximately 90,000 professionals. Basis of Presentation We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”), which requires us to make estimates and assumptions that impact the amounts reported and disclosed in our consolidated financial statements and the accompanying notes. We prepared these estimates based on the most current and best available information, but actual results could differ materially from these estimates and assumptions, particularly in light of the continuing COVID-19 pandemic. COVID-19 has had and we expect will continue to have, significant effects on economic activity, on demand for our services and on our results of operations in 2022. The financial statements and footnotes for the annual periods ending December 31, 2020 and 2019 and the period from January 1 through November 3, 2021 (the “pre-Separation periods”) reflect allocations of certain IBM corporate, infrastructure and shared services expenses using a variety of allocation methodologies that are appropriate for the type of allocated expense. Where possible, these charges were allocated based on direct usage, with the remainder 52 Table of Contents allocated on a pro rata basis of headcount, gross profit, asset or other allocation methodologies that are considered to be a reasonable reflection of the utilization of services provided or the benefit received by Kyndryl during the periods presented. The Consolidated Balance Sheet of the Company for the pre-Separation periods includes assets and liabilities of IBM that are specifically identifiable or otherwise attributable to the Company, including subsidiaries and/or joint ventures (“JVs”) conducting managed infrastructure services business in which IBM had a controlling financial interest or was the primary beneficiary. Certain of these subsidiaries and JVs were historically managed by IBM’s GTS segment but not transferred to Kyndryl in conjunction with the Separation. The JVs’ balance sheet balances, revenues, costs, expenses and cash flow activities were recorded in the consolidated financial statements during the pre-Separation periods. The JVs’ balance sheet amounts were settled through Net Parent investment on the Separation date, and their business activities were no longer recorded in the Consolidated Income Statement and Consolidated Statement of Cash Flow after the Separation date. Cash and cash equivalents held by IBM at the corporate level during the pre-Separation periods were not attributable to the Company for any of the periods presented due to IBM’s centralized approach to cash management and the financing of its operations. Only cash amounts specifically held by Kyndryl are reflected in the Consolidated Balance Sheet. IBM’s debt was not attributed to the Company for any of the periods presented because IBM’s borrowings are not the legal obligation of Kyndryl. The only third-party debt obligations included in the consolidated financial statements are those for which the legal obligor is a legal entity of Kyndryl. Interest expense for the pre-Separation periods in the Consolidated Income Statement reflects the allocation of interest on borrowing and funding related activity associated with the portion of IBM’s borrowings where the proceeds benefited us. ​ Transfers of cash, both to and from IBM’s centralized cash management system prior to Separation, are reflected as a component of Net Parent investment in the Consolidated Balance Sheet and as financing activities in the accompanying Consolidated Statement of Cash Flows. In addition, Net Parent investment in the Consolidated Balance Sheet represents the accumulation of the Company’s net income (loss) over time and net non-trade intercompany transactions between Kyndryl and IBM (for example, investments from IBM or distributions to IBM). As a result of the allocations and carve-out methodologies used to prepare the consolidated financial statements for the pre-Separation periods, the results may not be indicative of the Company’s future performance, and may not reflect the results of operations, financial position and cash flows Kyndryl would have achieved if it had been a separate, standalone company during the pre-Separation periods. The income tax provision included in these consolidated financial statements for the pre-Separation periods was calculated using the separate return basis, as if Kyndryl filed separate tax returns. The calculation of income taxes on a hypothetical separate return basis requires a considerable amount of judgment and use of both estimates and allocations; pre-Separation current and deferred taxes may not be reflective of the actual tax balances subsequent to the Separation. Current income tax liabilities including amounts for unrecognized tax benefits related to Kyndryl’s activities included in the Parent’s income tax returns were assumed to be immediately settled with Parent through the Net Parent investment account in the Consolidated Balance Sheet and reflected in Net transfers from Parent in the Consolidated Statement of Cash Flows during these periods. Certain items have been recast to conform to current period presentation. Consolidation For the pre-Separation periods, the accompanying financial statements of Kyndryl were derived from the consolidated financial statements and accounting records of the Parent as if the Company operated on a standalone basis during the periods presented and were prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the SEC. Historically, the Company consisted of the managed infrastructure services unit of the Parent’s Global Technology Services segment and did not operate as a separate standalone company. Accordingly, the Parent had reported the financial position and results of operations, cash flows and changes in equity of the Company in the Parent’s consolidated financial statements. 53 Table of Contents All significant intercompany transactions during the pre-Separation periods between Kyndryl and IBM have been included in the consolidated financial statements. Intercompany transactions between Kyndryl and IBM are considered to be effectively settled in the consolidated financial statements at the time the transaction is recorded. The total net effect of the settlement of these intercompany transactions is reflected as Net transfers from Parent in the financing activities section in the Consolidated Statement of Cash Flows and in the Consolidated Balance Sheet within Net Parent investment. After the Separation on November 3, 2021, the Company’s financial statements for the periods from November 4, 2021, through December 31, 2021, are consolidated financial statements based on our reported results as a standalone company. All significant transactions and accounts within Kyndryl were eliminated. All significant intercompany transactions between IBM and Kyndryl prior to the Separation were included within Net Parent investment on the accompanying Consolidated Financial Statements. Within the financial statements and tables presented, certain columns and rows may not add due to the use of rounded numbers for disclosure purposes. Percentages presented are calculated from the underlying whole-dollar amounts. Certain items have been recast to conform to current-period presentation. Dollars are in millions except where otherwise noted. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts that are reported in the consolidated financial statements and accompanying disclosures. Estimates are used in determining the allocation of costs and expenses from IBM and are used in determining the following, among others: revenue, costs to complete service contracts, income taxes, pension assumptions, valuation of assets including goodwill and intangible assets, the depreciable and amortizable lives of other long-lived assets, loss contingencies, allowance for credit losses, deferred transition costs and other matters. These estimates are based on management’s knowledge of current events, historical experience and actions that the Company may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances, including the macroeconomic impacts of the COVID-19 pandemic (beginning in 2020). Actual results may be different from these estimates. Revenue The Company accounts for a contract with a client when it has written approval, the contract is committed, the rights of the parties, including payment terms, are identified, the contract has commercial substance and consideration is probable of collection. Revenue is recognized when, or as, control of a promised service or product transfers to a client, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring those products or services. If the consideration promised in a contract includes a variable amount, the Company estimates the amount to which it expects to be entitled using either the expected value or most likely amount method. The Company’s contracts may include terms that could cause variability in the transaction price, including, for example, rebates, volume discounts, service-level penalties and performance bonuses or other forms of variable consideration. In certain rare circumstances, if we grant the customer the right to return a product and receive a full or partial credit or refund of any consideration paid, the Company (i) recognizes revenue for the transferred products in the amount of consideration to which it expects to be entitled, (ii) records a refund liability and (iii) recognizes an asset for its right to recover products from customers on settling the refund liability. The Company only includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The Company may not be able to reliably estimate variable consideration in certain long-term arrangements due to uncertainties that are not expected to be resolved for a long period of time or when the Company’s experience with similar types of contracts is limited. Changes in estimates of variable consideration are included in Note 3 – Revenue Recognition. 54 Table of Contents The Company’s standard billing terms are that payment is due upon receipt of invoice, payable within 30 days . Invoices are generally issued as services are rendered and/or as control transfers, either at monthly or quarterly intervals or upon achievement of contractual milestones. In some services contracts, the Company bills the client prior to recognizing revenue from performing the services. In these cases, deferred income is presented in the Consolidated Balance Sheet. In other services contracts, the Company performs the services prior to billing the client. When the Company performs services prior to billing the client, the right to consideration is typically subject to milestone completion or client acceptance and the amount is recorded as a contract asset. Contract assets are generally classified as current and are recorded on a net basis with deferred income (i.e., contract liabilities) at the contract level. Refer to Note 3 – Revenue Recognition for contract assets for the periods presented. Contract assets are included in prepaid expenses and other current assets in the Consolidated Balance Sheet. The unconditional unbilled accounts receivable of $ 454 million and $ 358 million at December 31, 2021 and 2020, respectively, is included in accounts receivable in the Consolidated Balance Sheet. Additionally, in determining the transaction price, the Company would adjust the promised amount of consideration for the effects of the time value of money if the billing terms are not standard and the timing of payments agreed to by the parties to the contract provide the client or the Company with a significant benefit of financing, in which case the contract contains a significant financing component. As a practical expedient, the Company does not account for significant financing components if the period between when the Company transfers the promised product or service to the client and when the client pays for that product or service will be one year or less. The Company may include subcontractor services or Original Equipment Manufacturer (OEM) hardware and/or OEM software components in certain integrated services arrangements. In these types of arrangements, revenue from sales of OEM hardware and/or OEM software components or services is recorded net of costs when the Company is acting as an agent between the client and the vendor and gross when the Company is the principal for the transaction. To determine whether the Company is an agent or principal, the Company considers whether it obtains control of the products or services before they are transferred to the customer. In making this evaluation, several factors are considered, most notably whether the Company has primary responsibility for fulfillment to the client, as well as inventory risk and pricing discretion. The Company reports revenue net of any revenue-based taxes assessed by governmental authorities that are imposed on and concurrent with specific revenue-producing transactions. Performance Obligations The Company’s capabilities as an infrastructure services company include offerings that often encompass multiple types of services and may integrate various OEM hardware and/or OEM software components. When an arrangement contains multiple distinct performance obligations, revenue follows the specific revenue recognition policies for each performance obligation, depending on the type of offering. The Company determines if the products or services are distinct and allocates the consideration to each distinct performance obligation on a relative standalone selling price basis. When products and services are not distinct, the Company determines an appropriate measure of progress based on the nature of its overall promise for the single performance obligation. 55 Table of Contents The revenue policies below are applied to each performance obligation, as applicable. Standalone Selling Price The Company allocates the transaction price to each performance obligation on a relative standalone selling price basis. The standalone selling price (SSP) is the price at which the Company would sell a promised product or service separately to a client. The Company establishes SSP based on management’s estimated selling price or observable prices of products or services sold separately in comparable circumstances to similar clients. For OEM hardware and/or OEM software components, the Company is able to establish SSP based on the cost from the vendor. The Company reassesses SSP ranges on a periodic basis or when facts and circumstances change. In certain instances, the Company may not be able to establish a SSP range based on observable prices and the Company estimates SSP. The Company estimates SSP by considering multiple factors including, but not limited to, overall market conditions, including geographic or regional specific factors, competitive positioning, competitor actions, internal costs, profit objectives and pricing practices. Estimating SSP is a formal process that includes review and approval by the Company’s management. Nature of Products and Services The Company delivers transformation and secure cloud services capabilities, insights and depth of expertise to modernize and manage IT environments based on its customers’ unique patterns of transformation at scale. The Company offers services such as cloud managed services, data services, security and resiliency services, enterprise infrastructure services, digital workplace services, network services, managed Independent Software Vendor services and distributed cloud services to support its customers through technological change. Many of these services can be delivered entirely or partially through cloud or as-a-service delivery models. The Company’s services are provided on a time-and-material basis, as a fixed-price contract or as a fixed-price-per-measure-of-output contract, and the contract terms range from less than one year to over 10 years . The Company typically satisfies the performance obligation and recognizes revenue over time in services arrangements because the client simultaneously receives and consumes the benefits provided as the Company performs the services. In outsourcing, other managed services, application management and other cloud-based services arrangements, the Company determines whether the services performed during the initial phases of the arrangement, such as setup activities, are distinct. In most cases, the arrangement is a single performance obligation comprised of a series of distinct services that are substantially the same and that have the same pattern of transfer (i.e., distinct days of service). The Company applies a measure of progress (typically time-based) to any fixed consideration and allocates variable consideration to the distinct periods of service based on usage. As a result, revenue is generally recognized over the period the services are provided on a usage basis. This results in revenue recognition that corresponds with the value to the client of the services transferred to date relative to the remaining services promised. Revenue from time-and-material contracts is recognized on an output basis as labor hours are delivered and/or direct expenses are incurred. Revenue from as-a-service type contracts is recognized either on a straight-line basis or on a usage basis, depending on the terms of the arrangement (such as whether the Company is standing ready to perform or whether the contract has usage-based metrics). If an as-a-service contract includes setup activities, those promises in the arrangement are evaluated to determine if they are distinct. In design and build arrangements, revenue is recognized based on progress toward completion of the performance obligation using a cost-to-cost measure of progress (e.g., labor costs incurred to date as a percentage of the total estimated labor costs to fulfill the contract). The estimation of cost at completion is complex, subject to many variables and requires significant judgment. Changes in original estimates are reflected in revenue on a cumulative catch-up basis in the period in which the circumstances that gave rise to the revision become known by the Company. Refer to Note 3 – Revenue Recognition for the amount of revenue recognized in the reporting period on a cumulative catch-up basis (i.e., from performance obligations satisfied, or partially satisfied, in previous periods). 56 Table of Contents The Company performs ongoing profitability analyses of its design and build services contracts accounted for using a cost-to-cost measure of progress to determine whether the latest estimates of revenues, costs and profits require updating. If at any time these estimates indicate that the contract will be unprofitable, the entire estimated loss for the remainder of the contract is recorded immediately. For other types of services contracts, any losses are recorded as incurred. The Company’s services offerings may include the integration and/or sale of OEM hardware and/or software components. Contracts that include hardware and/or software components are evaluated to determine if they are distinct performance obligations as discussed in “Performance Obligations” above. Further, the Company assesses contracts with customers to determine whether an embedded lease arrangement exists. A contract with a customer includes an embedded lease when the Company grants the customer a right to control the use of an identified asset for a period of time in exchange for consideration. Generally, the hardware or software utilized in outsourcing, managed services, application management and other cloud-based services arrangements are not distinct and do not meet the criteria to be considered an embedded lease. As a result, revenue is generally recognized over time, consistent with the services provided to the customer. For distinct OEM hardware sales, revenue is recognized when control has transferred to the customer which typically occurs when the hardware has been shipped to the client, risk of loss has transferred to the client and the Company has a present right to payment for the hardware. Arrangements that include a license to the software are determined to have distinct software components. To meet this criterion, the customer must have both the contractual right to take possession of the software at any time and the ability to feasibly run the software on its own hardware or hire another party to host the software without significant economic or functional penalty. Revenue for distinct software is typically recognized at the beginning of the services arrangement as that is the point in time the customer can access and benefit from the software and the point at which they have a legal right to possession. Cost of Services ​ Recurring operating costs for services contracts are recognized as incurred. Certain eligible, nonrecurring costs (i.e., setup costs) incurred in the initial phases of outsourcing contracts and other cloud-based services contracts, are capitalized when the costs relate directly to the contract, the costs generate or enhance resources of the Company that will be used in satisfying the performance obligation in the future and the costs are expected to be recovered. These costs consist of transition and setup costs related to the installation of systems and processes and other deferred fulfillment costs, including, for example, prepaid assets used in services contracts (i.e., prepaid software or prepaid maintenance). Capitalized costs are amortized on a straight-line basis over the expected period of benefit, which approximates the pattern of transfer to the client of the services to which the asset relates and includes anticipated contract renewals or extensions. Additionally, fixed assets associated with these contracts are capitalized and depreciated on a straight-line basis over the expected useful life of the asset and recorded in cost of sales. If an asset is contract-specific and cannot be repurposed, then the depreciation period is the shorter of the useful life of the asset or the contract term. Setup costs paid on behalf of clients in excess of the fair value of services delivered in outsourcing arrangements are deferred and amortized on a straight-line basis as a reduction of revenue over the expected period of benefit. The Company performs periodic reviews to assess the recoverability of deferred contract transition and setup costs. If the carrying amount is deemed not recoverable, an impairment loss is recognized. Refer to Note 3 – Revenue Recognition for the amount of deferred costs to fulfill a contract at December 31, 2021 and 2020. In situations in which an outsourcing contract is terminated, the terms of the contract may require the client to reimburse the Company for the recovery of unbilled accounts receivable, unamortized deferred contract costs and additional costs incurred by the Company to transition the services. Incremental Costs of Obtaining a Contract Incremental costs of obtaining a contract (e.g., sales commissions) are capitalized and amortized on a straight-line basis, which approximates the pattern that the assets’ economic benefits are expected to be consumed, over the 57 Table of Contents expected customer relationship period if the Company expects to recover those costs. The expected customer relationship period is determined based on the average customer relationship period, including expected renewals, for each offering type and ranges from three to six years . Expected renewal periods are only included in the expected customer relationship period if commission amounts paid upon renewal are not commensurate with amounts paid on the initial contract. Incremental costs of obtaining a contract include only those costs the Company incurs to obtain a contract that it would not have incurred if the contract had not been obtained. The Company has determined that certain commissions programs meet the requirements to be capitalized. Some commission programs are not subject to capitalization as the commission expense is paid and recognized as the related revenue is recognized. Expense and Other (Income) Expense and other income within the Company’s financial statements through the Separation reflect allocations to the Company by IBM based on direct usage, with the remainder allocated on a pro-rata basis of gross profit, headcount, assets or other measures the Company has determined as reasonable. Expense and other income within the Company’s consolidated financial statements for the periods from November 4, 2021, through December 31, 2021, are based on our reported results as a standalone company. Selling, General and Administrative Selling, general and administrative (“SG&A”) expense is charged to income as incurred, except for certain sales commissions, which are capitalized and amortized. For further information regarding capitalizing sales commissions, see “Incremental Costs of Obtaining a Contract” above. Expenses of promoting and selling services are classified as selling expense and, in addition to sales commissions, include such items as compensation, advertising and travel. General and administrative expense includes such items as compensation, legal costs, office supplies, non-income taxes, insurance and office rental. In addition, general and administrative expense includes other operating items such as allowance for credit losses, amortization of certain intangible assets and research, development and engineering (“RD&E”) costs allocated to the Company by the former Parent. Total RD&E costs allocated to Kyndryl were $ 63 million, $ 76 million and $ 83 million for the years ended December 31, 2021, 2020 and 2019. Advertising and Promotional Expense Advertising and promotional costs are expensed as incurred. Advertising and promotional expense, which includes media, agency and promotional expense directly incurred by the Company was $ 56 million, $ 34 million and $ 55 million in 2021, 2020 and 2019, respectively, and is recorded in SG&A expense in the Consolidated Income Statement. Other (Income) and Expense Other (income) and expense primarily consists of expense related to certain components of retirement-related costs, including interest costs, expected return on plan assets, amortization of prior service costs (credits), curtailments and settlements and other net periodic benefit costs. Also included are gains and losses from foreign currency transactions, certain real estate transactions and corporate expenses. For more information, see Note 17 – Related-Party Transactions. Defined Benefit Pension and Nonpension Postretirement Benefit Plans Prior to the Separation, the defined benefit plans and nonpension postretirement benefit plans in which certain Kyndryl employees participated were sponsored by IBM. During this period, an allocation of certain assets and liabilities was reflected in the Consolidated Balance Sheet based on legal entities, and the Consolidated Income Statement reflected a proportional allocation of net period benefit cost based on headcount associated with the Company. In September 2021, in preparation for the Separation, certain defined benefit plans and nonpension postretirement benefit plans were amended, and Kyndryl became sponsor or co-sponsor (with IBM) of these plans. Refer to Note 16 – Retirement-Related Benefits for further details on the accounting for these plans. 58 Table of Contents As a result of the amendment of these plans to make Kyndryl sponsor or co-sponsor in September 2021, the funded status of these plans became recognized in the Consolidated Balance Sheet. The funded status is measured as the difference between the fair value of plan assets and the projected benefit obligation at the balance sheet date. For defined benefit pension plans, the benefit obligation is the projected benefit obligation (PBO), which represents the actuarial present value of benefits expected to be paid upon retirement based on employee services already rendered and estimated future compensation levels. For nonpension postretirement benefit plans, the benefit obligation is the accumulated postretirement benefit obligation (APBO), which represents the actuarial present value of postretirement benefits attributed to employee services already rendered. The fair value of plan assets represents the current market value of assets held for the benefit of participants. For co-sponsored plans, the fair value of plan assets based on Company contributions, distributions and market returns and the benefit obligation attributed to employees of the Company are allocated to Kyndryl. Overfunded plans, in which the fair value of plan assets exceeds the benefit obligation, are aggregated and recorded as a prepaid pension asset equal to this excess. Underfunded plans, in which the benefit obligation exceeds the fair value of plan assets, are aggregated and recorded as a retirement and nonpension postretirement benefit obligation equal to this excess. The current portion of the retirement and nonpension post-retirement benefit obligations represents the actuarial present value of benefits payable in the next twelve months exceeding the fair value of plan assets, measured on a plan-by-plan basis. This obligation is recorded in accrued compensation and benefits in the Consolidated Balance Sheet. Net periodic benefit cost of defined benefit pension and nonpension postretirement benefit plans is recorded in the Consolidated Income Statement and includes service cost, interest cost, expected return on plan assets, amortization of prior service costs/(credits) and actuarial (gains)/losses previously recognized as a component of other comprehensive income/(loss) (OCI). The service cost component of net benefit cost is recorded in Cost of services and SG&A in the Consolidated Income Statement (unless eligible for capitalization) based on the employees’ respective functions. The other components of net benefit cost are presented separately from service cost within other (income) and expense in the Consolidated Income Statement. Actuarial (gains) losses and prior service costs/(credits) are recognized as a component of OCI in the Consolidated Statement of Comprehensive Income (Loss) as they arise. Those actuarial (gains) losses and prior service costs/(credits) are subsequently recognized as a component of net periodic benefit cost pursuant to the recognition and amortization provisions of applicable accounting guidance. Actuarial (gains) losses arise as a result of differences between actual experience and assumptions or as a result of changes in actuarial assumptions. Prior service costs/(credits) represent the cost of benefit changes attributable to prior service granted in plan amendments. The measurement of benefit obligations and net periodic benefit cost is based on estimates and assumptions approved by the Company’s management. These valuations reflect the terms of the plans and use participant-specific information such as compensation, age and years of service, as well as certain assumptions, including estimates of discount rates, expected return on plan assets, rate of compensation increases, interest crediting rates and mortality rates. The Company participates in non-U.S. multi-employer pension plans and makes required contributions to those plans, which are recorded in Cost of services and SG&A in the Consolidated Income Statement based on the employees’ respective functions. Defined Contribution Plans Prior to the Separation, the Parent offered various defined contribution plans for U.S. and non-U.S. employees. In September 2021, in preparation for the Separation, Kyndryl established standalone defined contribution plans, and employees identified as Kyndryl employees were enrolled into these plans. Contribution expense associated with employer matching benefits are recorded when the employee renders service to the Company. The charge is recorded in Cost of services and SG&A in the Consolidated Income Statement based on the employees’ respective functions. 59 Table of Contents Stock-Based Compensation Prior to the Separation, the Company participated in various IBM stock-based compensation plans, including incentive compensation plans and an employee stock purchase plan. All awards granted under the plans were based on IBM’s common shares and, as such, were reflected in the Parent’s Consolidated Statement of Stockholders’ Equity and not in the Company’s Consolidated Statement of Equity. For historical periods, stock-based compensation cost is based on the awards and terms previously granted to employees by the Parent. Compensation costs associated with Kyndryl employees’ participation in the Parent’s incentive plans have been identified for employees who exclusively support Kyndryl operations. Stock-based compensation represents the cost related to stock-based awards granted to employees under the stock-based compensation plans. The Company establishes stock-based compensation values at the grant date, based on the estimated fair value of the award and recognizes the cost on a straight-line basis (net of estimated forfeitures) over the requisite employee service period. Kyndryl grants the Company’s employees Restricted Stock Units (RSUs), market-conditioned performance awards (Launch Performance Stock Units, or “Launch PSUs”) and stock options. RSUs are stock awards granted to employees that entitle the holder to shares of Kyndryl common stock as the award vests, typically over a one - to four-year period. Market-conditioned performance awards are restricted stock units granted to employees with vesting conditions based on the Company’s stock price and are cliff-vested at the end of the service period. Stock options are vested over a one - to four-year period. Dividend equivalents are not paid on the stock-based awards described above. The fair value of the RSUs is determined on the grant date based on Kyndryl’s stock price, adjusted for the exclusion of dividend equivalents where applicable. The fair value of market-conditioned performance awards is determined on the date of grant using a Monte Carlo simulation model which estimates the probability of satisfying market conditions. The fair value of stock options is determined on the grant date using a Black-Scholes model. Stock-based compensation cost is recorded in Cost of services and SG&A in the Consolidated Income Statement based on the employees’ respective functions. At the time of Kyndryl’s Spin-off, each outstanding IBM RSU and PSU held by a Kyndryl employee was converted into a Kyndryl RSU. The equity award exchange ratio was determined as the closing per share price of IBM shares on the last trading day prior to the Spin-off divided by the opening price of Kyndryl common stock on the first trading day following the Spin-off. The Company records deferred tax assets for awards that result in tax deductions in the consolidated financial statements calculated using the separate return basis based on the amount of compensation cost recognized and the relevant statutory tax rates. The differences between the deferred tax assets recognized for financial reporting purposes and the actual tax deduction reported on the income tax return are recorded as a benefit or expense to the provision for income taxes in the Consolidated Income Statement. Derivative Financial Instruments Prior to the third quarter of 2021, Kyndryl did not independently execute derivative financial instruments to manage its foreign currency risk and instead participated in a centralized foreign currency hedging program administered by IBM. The hedging activity allocated to Kyndryl is for the management of the Company’s forecasted foreign currency expenses. In the third quarter of 2021, we began to execute trades to manage foreign currency risk. The Company does not use derivative financial instruments for trading or speculative purposes. The Company’s derivative financial instruments that qualify for hedge accounting are designated as cash flow hedges. Additionally, the Company may enter into derivative contracts that economically hedge certain of its risks, even when hedge accounting does not apply, or the Company elects not to apply hedge accounting. Derivatives are recognized in the Consolidated Balance Sheet at fair value on a gross basis as either assets or liabilities and classified as current or noncurrent based upon whether the maturity of the instrument is less than or greater than twelve months. We designate the derivative based on the exposure being hedged and assess, both at the hedge’s inception and on an ongoing basis, whether the designated derivative instrument is highly effective in offsetting changes 60 Table of Contents in cash flows of the hedged items. Changes in the fair value of effective derivatives designated as cash flow hedge are recorded, net of applicable taxes, in OCI and subsequently reclassified into the same income statement line item as the hedged exposure when the underlying hedged item is recognized in earnings. Changes in fair value of derivatives not designated as effective hedges are reported in earnings primarily in other (income) and expense. See Note 7 – Financial Assets and Liabilities for further information. The cash flows associated with derivatives designated as cash flow hedges are reported in cash flows from operating activities in the Consolidated Statement of Cash Flows. Cash flows from derivatives not designated as hedges are reported in cash flows from investing activities in the Consolidated Statement of Cash Flows. Translation of Non-U.S. Currency Amounts Assets and liabilities of non-U.S. subsidiaries that have a local functional currency are translated to U.S. dollars at year-end exchange rates. Translation adjustments are recorded in OCI. Income and expense items are translated at weighted-average rates of exchange prevailing during the year. Property and equipment, deferred income and other non-monetary assets and liabilities of non-U.S. subsidiaries and branches that operate in U.S. dollars are translated at the approximate exchange rates prevailing when the Company acquired the assets or liabilities. All other assets and liabilities denominated in a currency other than U.S. dollars are translated at year-end exchange rates with the transaction gain or loss recognized in other (income) and expense. Income and expense items are translated at the weighted-average rates of exchange prevailing during the year. These translation gains and losses are included in net income for the period in which exchange rates change. Cash and Cash Equivalents All highly liquid investments with an original maturity of three months or less on the date of purchase are considered to be cash equivalents. Accounts Receivable and Allowance for Current Expected Credit Losses The Company classifies the right to consideration in exchange for products or services transferred to a client as a receivable. Receivables are recorded concurrent with billing and delivery of a service to customers. An allowance for uncollectible receivables and contract assets, if needed, is estimated based on specific customer situations, current and future expected economic conditions and past experiences of losses, as well as an assessment of potential recoverability of the balance due. Effective January 1, 2020, the Company adopted the new accounting standard related to current expected credit losses (Accounting Standards Update 2016-13, “Financial Instruments – Credit Losses (Topic 326)). The standard applies to financial assets measured at amortized cost, including accounts receivable and certain off-balance sheet commitments. As of the effective date, the Company estimates its allowance for current expected credit losses based on an expected loss model, compared to prior periods which were estimated using an incurred loss model. The impact related to adopting the new standard was not material. Receivable losses are charged against the allowance in the period in which the receivable is deemed uncollectible. Subsequent recoveries, if any, are credited to the allowance. Write-offs of receivables and associated reserves occur to the extent that the customer is no longer in operation and/or there is no reasonable expectation of additional collections or repossession. Transfers of Financial Assets The Company enters into arrangements to sell to third-party financial institutions certain financial assets (primarily accounts receivable). For a transfer of financial assets to be considered a sale, the asset must be legally isolated from the Company, and the purchaser must have control of the asset. Determining whether all the requirements have been met includes an evaluation of legal considerations, the extent of the Company’s continuing involvement with 61 Table of Contents the assets transferred and any other relevant consideration. While we do continue to service the assets, doing so does not create significant continuing involvement. When the true-sale criteria are met, the Company derecognizes the carrying value of the financial asset transferred and recognizes a net gain or loss on the sale. The proceeds from these arrangements are reflected as cash provided by operating activities in the Consolidated Statement of Cash Flows. If the true-sale criteria are not met, the transfer is considered a secured borrowing, and the financial asset remains on the Consolidated Balance Sheet with proceeds from the sale recognized as debt and recorded as cash flows from financing activities in the Consolidated Statement of Cash Flows. Arrangements to sell accounts receivable are used in the normal course of business as part of the Company’s cash and liquidity management. Third-party programs primarily in the U.S. and several countries in Europe enable the Company to sell certain accounts receivable, without recourse, to third parties to manage credit, collection, concentration and currency risk. In the fourth quarter of 2021, the Company entered into a third-party factoring program and had arrangements to sell certain financial assets under this facility. Proceeds from receivables sold under this program and proceeds from receivables sold to third parties outside of this program, were $ 326 million and $ 36 million, respectively, for the year ended December 31, 2021. Prior to the Separation, the gross amount of the Company’s receivables sold to third parties under the former Parent’s facility was $ 296 million, $ 803 million and $ 650 million for the years ended December 31, 2021, 2020 and 2019, respectively. The fees and the net gains and losses associated with the transfer of receivables were not material for any of the periods presented. Additionally, prior to entering into the third-party factoring program in the fourth quarter of 2021, the Company had arrangements to assign certain financial assets to IBM’s Global Financing business. Refer to Note 17 – Related-Party Transactions for further information, including the amount of proceeds under these arrangements for the years ended December 31, 2021, 2020 and 2019. Fair Value Measurement In determining the fair value of its financial instruments, the Company uses methods and assumptions that are based on market conditions and risks existing at each balance sheet date. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company classifies certain assets and liabilities based on the following fair value hierarchy: ● Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that can be accessed at the measurement date; ● Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and ● Level 3 — Unobservable inputs for the asset or liability. Items valued using internally generated models are classified according to the lowest level input or value driver that is significant to the valuation. The determination of fair value considers various factors including interest rate yield curves and time value underlying the financial instruments. For derivatives and debt securities, the Company uses a discounted cash flow analysis using discount rates commensurate with the duration of the instrument. In determining the fair value of financial instruments, the Company considers certain market valuation adjustments to the “base valuations” using the methodologies described below for several parameters that market participants would consider in determining fair value: ● Counterparty credit risk adjustments are applied to financial instruments, taking into account the actual credit risk of a counterparty as observed in the credit default swap market to determine the true fair value of such an instrument. 62 Table of Contents ● Credit risk adjustments are applied to reflect the Company’s own credit risk when valuing all liabilities measured at fair value. The methodology is consistent with that applied in developing counterparty credit risk adjustments, but incorporates the Company’s credit risk as observed in the credit default swap market. The Company holds investments in time deposits that are designated as available-for-sale. Available-for-sale securities are measured for impairment on a recurring basis by comparing the security’s fair value with its amortized cost basis. There were no impairments recognized for any of the periods presented. Certain non-financial assets such as property, plant and equipment, operating right-of-use assets, land, goodwill and intangible assets are recorded at fair value or at cost, as appropriate, in the period they are initially recognized, and such fair value may be adjusted in subsequent periods if an event occurs or circumstances change that indicate that the asset may be impaired. The impairment models used for non-financial assets depend on the type of asset. The fair value measurements, in such instances, would be classified in Level 3 of the fair value hierarchy. Leases When procuring goods or services, the Company determines whether an arrangement contains a lease at its inception. As part of that evaluation, the Company considers whether there is an implicitly or explicitly identified asset in the arrangement and whether the Company, as the lessee, has the right to control the use of that asset. In its ordinary course of business, the Company enters into leases as a lessee for property and equipment. Prior to the Separation, the Company recognized right-of-use (“ROU”) assets and associated lease liabilities in the Consolidated Balance Sheet for leases with a term of more than twelve months when a majority percentage of utilization was attributed to the Company. The lease liabilities were measured at the lease commencement date and determined using the present value of the lease payments not yet paid and the Parent’s incremental borrowing rate, since they were negotiated by the Parent prior to Separation. Any new or modified leases entered into after the Separation are measured at Kyndryl’s incremental borrowing rate. The interest rate implicit in the lease is generally not determinable in transactions where the Company is the lessee. The ROU asset equals the lease liability adjusted for any initial direct costs, prepaid rent and lease incentives. The Company’s variable lease payments generally relate to payments tied to various indexes, non-lease components and payments above a contractual minimum fixed amount. Operating leases are included in operating right-of-use assets net, current operating lease liabilities and operating lease liabilities in the Consolidated Balance Sheet. Finance leases are included in property and equipment, short-term debt and long-term debt in the Consolidated Balance Sheet. The lease term includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company made a policy election to not recognize leases with a lease term of twelve months or less in the Consolidated Balance Sheet. For all asset classes, the Company has elected the lessee practical expedient to combine lease and non-lease components (e.g., maintenance services) and account for the combined unit as a single lease component. A significant portion of the Company’s lease portfolio is real estate leases, which are mainly accounted for as operating leases and are primarily used for corporate offices and data centers. The average term of the real estate leases is approximately five years . The Company also has equipment leases, such as for IT equipment and vehicles, which have lease terms that range from two to five years . For certain of these operating and finance leases, the Company applies a portfolio approach to account for the lease assets and lease liabilities. Intangible Assets Including Goodwill Goodwill attributed to the Company represents the historical goodwill balances in the Parent’s managed infrastructure services business arising from acquisitions specific to the Company. Goodwill represents the excess of the purchase price over the fair value of net assets, including the amount assigned to identifiable intangible assets. The primary drivers that generate goodwill are the value of synergies between the acquired entities and the Company and the acquired assembled workforce, neither of which qualifies as a separately identifiable intangible asset. Goodwill recorded 63 Table of Contents in an acquisition is assigned to applicable reporting units based on expected revenues or expected cash flows. Identifiable intangible assets with finite lives are amortized on a straight-line basis over their useful lives, which approximates the pattern that the assets’ economic benefits are expected to be consumed over time. Amortization of completed technology is recorded in cost of services and amortization of all other intangible assets is recorded in SG&A expense. All costs related to internally developed computer software during planning and evaluation stage are expensed as incurred. Costs incurred during application development stage are capitalized and included in intangibles. Impairment Long-lived assets, other than goodwill, are tested for impairment annually and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The impairment test is based on undiscounted cash flows and, if impaired, the asset is written down to fair value based on either discounted cash flows or appraised values. Goodwill is tested for impairment at least annually and whenever changes in circumstances indicate an impairment may exist. The goodwill impairment test is performed at the reporting unit level, which aligns with our operating segments. Impairment charges related to long-lived assets, intangible assets and goodwill, if any, are recorded as impairment expense in the Consolidated Income Statement. Transaction-related Costs The Company classifies certain expenses related to the Separation, acquisitions and divestitures (if any) as “transaction-related costs” in the Consolidated Income Statement. Transaction-related costs include expenditures incurred to prepare for and execute the Separation and establish Kyndryl as a standalone business. These costs include employee retention expenses, information technology costs, marketing expenses to establish the Kyndryl brand, legal, accounting, consulting and other professional service costs required to prepare for and execute the Separation, and other costs related to contract and supplier novation and integration. Property and Equipment Property and equipment are recorded at cost, or in the case of acquired property and equipment, at fair value at the date of the acquisition. Expenditures for repairs and maintenance costs are expensed as incurred, whereas expenditures that extend the life or increase the functionality of the asset are capitalized as additions to property and equipment. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is included in the determination of net income or loss. We compute depreciated expense on a straight-line method over the estimated useful lives of the assets as follows: ​ ​ ​ ​ Classification Estimated Useful Life Buildings ​ 30 to 50 years Land improvements ​ 20 years Leasehold improvements* ​ Estimated useful life or term of lease Office and other equipment ​ 2 to 20 years Information technology equipment ​ 1.5 to 5 years * Leasehold improvements are amortized over the shorter of their estimated useful lives or the related lease term, rarely exceeding 10 years . Environmental The costs of internal environmental protection programs that are preventative in nature are expensed as incurred. When a cleanup program becomes likely and it is probable that the Company will incur cleanup costs and those costs can be reasonably estimated, the Company accrues remediation costs for known environmental liabilities. 64 Table of Contents Income Taxes Prior to the Separation, our operations were included in the consolidated U.S. federal and certain state and local and foreign income tax returns filed by IBM, where applicable. The Company also files certain separate foreign income tax returns. For purposes of the historical periods presented on a “carve-out” basis, the income tax provisions have been calculated using the separate return basis, as if the Company filed separate tax returns. The separate return method applies the accounting guidance for income taxes to the standalone financial statements as if the Company were a separate taxpayer and a standalone enterprise for the periods presented. Tax attributes have been reported based on the hypothetical separate return basis results for the periods presented in the Company’s financial statements. The calculation of income taxes on a hypothetical separate return basis requires a considerable amount of judgment and use of both estimates and allocations; pre-Separation current and deferred taxes may not be reflective of the actual tax balances subsequent to the Separation. Post-Separation, the income tax provisions are calculated based on Kyndryl’s operating footprint, as well as tax return elections and assertions. Current income tax liabilities including amounts for unrecognized tax benefits related to our activities included in IBM’s income tax returns were deemed to be immediately settled with IBM through the Net Parent investment account in the Consolidated Balance Sheet and reflected in Net transfers from Parent in the financing activities section in the Consolidated Statement of Cash Flows. Post-Separation, liabilities related to unrecognized tax benefits for which the Company is liable are reported within the Consolidated Balance Sheet based upon tax authorities’ ability to assert the Company may be the primary obligor for historical taxes, among other factors. Income tax expense is based on reported income before income taxes. Deferred income taxes reflect the tax effect of temporary differences between asset and liability amounts that are recognized for financial reporting purposes and the amounts that are recognized for income tax purposes. These deferred taxes are measured by applying currently enacted tax laws. U.S. tax reform introduced Global Intangible Low-Taxed Income (“GILTI”), which subjects a U.S. shareholder to current tax on income earned by certain foreign subsidiaries. GAAP allows companies to either (i) recognize deferred taxes for temporary differences that are expected to reverse as GILTI in future years or (ii) account for taxes on GILTI as period costs in the year the tax is incurred. The Company has elected to recognize GILTI impact in the specific period in which it occurs. Valuation allowances are recognized to reduce deferred tax assets to the amount that will more likely than not be realized. In assessing the need for a valuation allowance, management considers all available evidence for each jurisdiction including past operating results, estimates of future taxable income and the feasibility of ongoing tax planning strategies and actions. When there is a change in the determination as to the amount of deferred tax assets that can be realized, the valuation allowance is adjusted with a corresponding impact to provision for income taxes in the period in which such determination is made. The Company recognizes additional tax liabilities when the Company believes that certain positions may not be fully sustained upon review by tax authorities. Benefits from tax positions are measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement. The noncurrent portion of tax liabilities is included in other liabilities in the Consolidated Balance Sheet. To the extent that new information becomes available which causes the Company to change its judgment regarding the adequacy of existing tax liabilities, such changes to tax liabilities will impact income tax expense in the period in which such determination is made. Interest and penalties, if any, related to accrued liabilities for potential tax assessments are included in income tax expense. 65 Table of Contents Net Loss per Share Net loss per share is computed by dividing net loss for the period by the weighted-average number of common shares outstanding during the period. The calculation of basic and diluted earnings per share for any of the periods presented prior to the Separation and the Distribution were based on the number of shares outstanding on November 4, 2021. For periods prior to the Separation and Distribution, it is assumed that there are no dilutive equity instruments as there were no Kyndryl stock-based awards outstanding prior to the Separation and the Distribution. Weighted-average common shares outstanding do not include restricted stock, market-conditioned performance awards or stock options for the periods presented because the effect of their inclusion would have been anti-dilutive. Refer to Note 6 – Net Loss per Share for a reconciliation as well as Note 15 – Stock-based Compensation for further discussion on awards. ​ NOTE 2. ACCOUNTING CHANGES New Standards to be Implemented In October 2021, the Financial Accounting Standards Board (“FASB”) issued guidance (“Revenue Contracts with Customers Acquired in a Business Combination”) which requires that an acquirer recognize and measure contract assets and liabilities acquired in a business combination as if it had originated the contracts, in accordance with ASC 606, Revenue from Contracts with Customers. Deferred revenue acquired in a business combination is no longer required to be measured at its fair value, which had historically resulted in a deferred revenue impairment at the date of acquisition. The amendment is effective January 1, 2023, and early adoption is permitted. The Company is evaluating the impact of the guidance and adoption date. Standards Implemented ​ In December 2019, the FASB issued guidance (“Simplifying the Accounting for Income Taxes”) intended to simplify various aspects of income tax accounting by removing certain exceptions to the general principle of the guidance and also clarified and amended existing guidance to improve consistency in application. The guidance was effective January 1, 2021, and early adoption was permitted. The Company adopted the guidance on a prospective basis as of the effective date. The guidance did not have a material impact in the consolidated financial results. ​ NOTE 3. REVENUE RECOGNITION Disaggregation of Revenue The Company views its segment results to be the best view of disaggregated revenue. Refer to Note 4 – Segments. Remaining Performance Obligations The remaining performance obligation (“RPO”) represents the aggregate amount of contractual deliverables yet to be recognized as revenue at the end of the reporting period. It is intended to be a statement of overall work under contract that has not yet been performed and does not include contracts in which the customer is not committed. The customer is not considered committed when it is able to terminate for convenience without payment of a substantive penalty. The RPO also includes estimates of variable consideration. Additionally, as a practical expedient, the Company does not include contracts that have an original duration of one year or less. RPO estimates are subject to change and are affected by several factors, including terminations, changes in the scope of contracts, periodic revalidations, adjustment for revenue that has not materialized and adjustments for currency. At December 31, 2021, the aggregate amount of RPO related to customer contracts that are unsatisfied or partially unsatisfied was $ 49.7 billion. Approximately 54 percent of the amount is expected to be recognized as revenue in the subsequent two years , approximately 37 percent in subsequent years three through five , and the balance thereafter. 66 Table of Contents Revenue Recognized for Performance Obligations Satisfied (or Partially Satisfied) in Prior Periods For the year ended December 31, 2021, revenue was reduced by $ 16 million for performance obligations satisfied (or partially satisfied) in previous periods, mainly due to changes in estimates on contracts with cost-to-cost measures of progress. Contract Balances The following table provides information about accounts receivable, contract assets and deferred income balances: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, (Dollars in millions) 2021 2020 Accounts receivable (net of allowances of $ 44 in 2021 and $ 91 in 2020) ​ $ 2,279 ​ $ 1,444 Contract assets * ​ 62 ​ 72 Deferred income (current) ​ 872 ​ 854 Deferred income (noncurrent) ​ 475 ​ 543 * Included within prepaid expenses and other current assets in the Consolidated Balance Sheet. The amount of revenue recognized during the year ended December 31, 2021, that was included within the deferred income balance at December 31, 2020, was $ 877 million. The following table provides roll-forwards of the accounts receivable allowance for expected credit losses for the years ended December 31, 2021, 2020 and 2019: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (Dollars in millions) ​ 2021 2020 2019 Beginning balance ​ $ 91 ​ $ 82 ​ $ 111 Additions (releases) ​ ​ ( 23 ) ​ ​ 25 ​ ​ 51 Write-offs ​ ​ ( 5 ) ​ ​ ( 7 ) ​ ​ ( 78 ) Other * ​ ​ ( 19 ) ​ ​ ( 9 ) ​ ​ ( 3 ) Ending balance ​ $ 44 ​ $ 91 ​ $ 82 * Primarily represents translation adjustments and reclassifications . The decrease in the accounts receivable allowance during 2021 was primarily due to collections from certain clients that we previously reserved for. The contract assets allowance for expected credit losses was not material in any of the periods presented. Deferred Costs ​ Costs to acquire and fulfill customer contracts are deferred and amortized over the contract period or expected customer relationship life. The expected customer relationship period is determined based on the average customer relationship period, including expected renewals, for each offering type and ranges from three to six years . For contracts with an estimated amortization period of less than one year, we elected the practical expedient to expense incremental costs immediately. ​ 67 Table of Contents The following table provides amounts of capitalized costs to acquire and fulfill customer contracts at December 31, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, (Dollars in millions) 2021 2020 Deferred transition costs ​ $ 1,012 ​ $ 1,369 Prepaid software costs ​ 658 ​ 679 Capitalized costs to fulfill contracts ​ 235 ​ 328 Capitalized costs to obtain contracts ​ 282 ​ 269 Total deferred costs * ​ $ 2,185 ​ $ 2,646 * Of the total deferred costs, $ 920 million was current and $ 1,265 million was noncurrent at December 31, 2021, and $ 1,205 million was current and $ 1,441 million was noncurrent at December 31, 2020. ​ The amount of total deferred costs amortized during the year ended December 31, 2021 was $ 1.8 billion, composed of $ 403 million of amortization of deferred transition costs, $ 874 million of amortization of prepaid software and $ 563 million of amortization of capitalized contract costs. Total deferred costs amortized during the year ended December 31, 2020 was $ 2.1 billion, composed of $ 478 million of amortization of deferred transition costs, $ 901 million of amortization of prepaid software and $ 683 million of amortization of capitalized contract costs. There were no material impairment losses incurred in both years. Refer to Note 1 – Significant Accounting Policies for additional information on deferred costs to fulfill a contract and capitalized costs of obtaining a contract. NOTE 4. SEGMENTS ​ In conjunction with the Separation, the Company implemented a new operating structure. With this change, the way the Company organizes its operating and reportable segments was revised to better reflect the way the chief operating decision maker (“CODM”) reviews performance and allocates resources. ​ In addition, the measure of segment operating performance used by Kyndryl’s CODM changed. The updated measure of segment operating performance used by Kyndryl’s CODM is adjusted EBITDA. Adjusted EBITDA is defined as net income (loss) excluding net interest expense, depreciation and amortization (excluding depreciation of right-of-use assets and amortization of capitalized contract costs), pension costs other than pension servicing costs and multi-employer plan costs, early extinguishment of debt charges, workforce rebalancing and restructuring charges, transaction-related and integration-related items, goodwill and long-lived asset impairment charges, foreign currency impacts of highly inflationary countries, significant litigation costs, stock-based compensation expense and income taxes. The use of revenue and adjusted EBITDA aligns with how the CODM assesses performance and allocates resources for the Company’s segments. ​ Our four reportable segments consist of the following: ​ United States: This reportable segment is comprised of Kyndryl’s operations in the United States. ​ Japan: This reportable segment is comprised of Kyndryl’s operations in Japan. ​ Principal Markets: This reportable segment represents the aggregation of our operations in Australia / New Zealand, Canada, France, Germany, India, Italy, Spain / Portugal, and the United Kingdom / Ireland, comprised of Kyndryl’s operations in those respective countries. ​ Strategic Markets: This reportable segment is comprised of our operations in all other countries. ​ While this reporting change did not impact the Company's consolidated results, segment data has been recast in the tables below to be consistent for all periods presented. ​ Our geographic markets frequently work together to sell and implement certain contracts. The resulting revenues and costs from these contracts may be apportioned among the participating geographic markets. The economic 68 Table of Contents environment and its effects on the industries served by our geographic markets affect revenues and operating expenses within our geographic markets to differing degrees. Currency fluctuations also tend to affect our geographic markets differently, depending on the geographic concentrations and locations of their businesses. ​ The following table reflects the results of the Company’s segments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (Dollars in millions) 2021 2020 2019 Revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ United States ​ $ 4,805 ​ $ 5,084 ​ $ 5,340 Japan ​ ​ 2,923 ​ ​ 3,042 ​ ​ 2,929 Principal Markets ​ ​ 7,085 ​ ​ 7,187 ​ ​ 7,587 Strategic Markets ​ ​ 3,844 ​ ​ 4,040 ​ ​ 4,424 Total revenue ​ $ 18,657 ​ $ 19,352 ​ $ 20,279 Segment adjusted EBITDA ​ ​ ​ ​ ​ ​ ​ ​ ​ United States ​ $ 757 ​ $ 859 ​ $ 855 Japan ​ ​ 823 ​ ​ 924 ​ ​ 757 Principal Markets ​ ​ 144 ​ ​ 162 ​ ​ 430 Strategic Markets ​ ​ 479 ​ ​ 386 ​ ​ 662 Total segment adjusted EBITDA ​ $ 2,203 ​ $ 2,332 ​ $ 2,704 ​ The following table reconciles consolidated totals to certain segment information: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (Dollars in millions) 2021 2020 ​ 2019 Pretax income (loss) ​ $ ( 1,922 ) ​ $ ( 1,766 ) ​ $ ( 579 ) Workforce rebalancing charges ​ ​ 39 ​ ​ 918 ​ ​ 159 Transaction-related costs ​ ​ 627 ​ ​ 21 ​ ​ — Stock-based compensation expense ​ ​ 71 ​ ​ 64 ​ ​ 51 Impairment expense ​ ​ 469 ​ ​ — ​ ​ — Interest expense ​ ​ 64 ​ ​ 63 ​ ​ 76 Depreciation expense ​ ​ 1,300 ​ ​ 1,445 ​ ​ 1,469 Amortization expense ​ ​ 1,314 ​ ​ 1,408 ​ ​ 1,335 Corporate expense not allocated to the segments ​ ​ 154 ​ ​ 153 ​ ​ 144 Other adjustments * ​ ​ 87 ​ ​ 25 ​ ​ 50 Segment adjusted EBITDA ​ $ 2,203 ​ $ 2,332 ​ $ 2,704 * Other adjustments represents significant litigation costs and pension costs other than pension servicing costs and multi-employer plan costs. ​ Segment Assets and Other Items ​ The Company does not allocate assets to the above reportable segments for our CODM’s review. ​ Major Clients ​ Other than transactions with the Parent (see Note 17 – Related-Party Transactions), no single client represented 10 percent or more of the Company’s total revenue in 2021, 2020 or 2019. 69 Table of Contents Geographic Information ​ The following tables provide information for those countries that represent 10 percent or more of the specific category. Refer to Note 8 – Property and Equipment and Note 9 – Leases for more information on allocation methodologies. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (Dollars in millions) 2021 2020 ​ 2019 Revenue* ​ ​ ​ ​ ​ ​ ​ ​ ​ United States ​ $ 4,805 ​ $ 5,081 ​ $ 5,340 Japan ​ ​ 2,923 ​ ​ 3,037 ​ ​ 2,925 Other countries ​ ​ 10,930 ​ ​ 11,235 ​ ​ 12,015 Total revenue ​ $ 18,657 ​ $ 19,352 ​ $ 20,279 * Revenues are attributed to countries based on the location of the client and exclude certain allocations. ​ ​ ​ ​ ​ ​ ​ ​ ​ At December 31, (Dollars in millions) 2021 2020 Property and equipment, net ​ ​ ​ ​ ​ ​ United States * ​ $ 890 ​ $ 922 Canada ​ ​ 260 ​ ​ 430 Other countries ​ ​ 1,773 ​ ​ 2,638 Total property and equipment, net ​ $ 2,923 ​ $ 3,991 ​ ​ ​ ​ ​ ​ ​ Operating right-of-use assets, net ​ ​ ​ ​ ​ ​ United States * ​ $ 205 ​ $ 66 Japan ​ ​ 139 ​ ​ 77 Belgium ​ ​ 176 ​ ​ 197 Italy ​ ​ 86 ​ ​ 114 Other countries ​ ​ 755 ​ ​ 677 Total operating right-of-use assets, net ​ $ 1,361 ​ $ 1,131 * Includes corporate and other. ​ ​ ​ ​ NOTE 5. TAXES Prior to the Separation, income taxes have been calculated as if we filed income tax returns for the Company on a standalone basis. The Company’s operations historically have been included in the income tax returns of IBM. ​ Income (loss) before income taxes by geography was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (Dollars in millions) 2021 2020 2019 Income (loss) before income taxes: ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. operations ​ $ ( 1,765 ) ​ $ ( 974 ) ​ $ ( 732 ) Non-U.S. operations ​ ​ ( 158 ) ​ ​ ( 792 ) ​ ​ 153 Total income (loss) before income taxes ​ $ ( 1,922 ) ​ $ ( 1,766 ) ​ $ ( 579 ) ​ ​ 70 Table of Contents The components of the provision for income taxes by taxing jurisdiction were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (Dollars in millions) 2021 2020 2019 U.S. federal: ​ ​ ​ ​ ​ ​ ​ ​ ​ Current ​ $ 17 ​ $ — ​ $ — Deferred ​ ​ ( 73 ) ​ ​ — ​ ​ — ​ ​ $ ( 56 ) ​ $ — ​ $ — U.S. state and local: ​ ​ ​ ​ ​ ​ ​ ​ ​ Current ​ $ — ​ $ — ​ $ — Deferred ​ ​ ( 5 ) ​ ​ — ​ ​ — ​ ​ $ ( 5 ) ​ $ — ​ $ — Non-U.S.: ​ ​ ​ ​ ​ ​ ​ ​ ​ Current ​ $ 785 ​ $ 304 ​ $ 411 Deferred ​ ​ ( 327 ) ​ ​ ( 58 ) ​ ​ ( 47 ) ​ ​ $ 458 ​ $ 246 ​ $ 364 Total provision for income taxes ​ $ 397 ​ $ 246 ​ $ 364 ​ A reconciliation of the statutory U.S. federal tax rate to the Company’s effective tax rate from continuing operations was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2021 2020 2019 Statutory rate ​ 21.0 % ​ 21.0 % ​ 21.0 % Tax differential on foreign income ​ ( 8.8 ) % ​ ( 5.9 ) % ​ ( 18.9 ) % State and local taxes ​ 2.9 % ​ 2.8 % ​ 6.3 % Valuation allowances ​ ( 15.9 ) % ​ ( 26.1 ) % ​ ( 59.1 ) % Reserves for uncertain tax positions ​ ( 8.0 ) % ​ ( 4.8 ) % ​ ( 6.9 ) % Intercompany prepayment * ​ 0.5 % ​ 0.7 % ​ 0.5 % Undistributed foreign earnings ​ ( 0.6 ) % ​ ( 1.0 ) % ​ ( 3.4 ) % Impact of foreign operations ​ ( 4.6 ) % ​ — % ​ ( 0.9 ) % Separation-related transactions ​ ( 2.5 ) % ​ — % ​ — % Goodwill impairment ​ ( 3.9 ) % ​ — % ​ — % Other ​ ( 0.7 ) % ​ ( 0.6 ) % ​ ( 1.6 ) % Effective tax rate ​ ( 20.6 ) % ​ ( 13.9 ) % ​ ( 62.9 ) % * Represents a U.S. tax rate benefit related to foreign tax prepayment on prepaid royalty income. ​ The provision for income taxes for 2021 was $ 397 million compared to $ 246 million in 2020. The increase in income tax expense was primarily driven by foreign operations, tax charges related to the transfer of Kyndryl’s operations from IBM that were deemed to be immediately settled with IBM through the Net Parent Investment account and changes in uncertain tax positions, offset by valuation allowance reductions. The provision for income taxes for 2020 was $ 246 million compared to $ 364 million in 2019. The decrease in the provision was primarily driven by higher pretax losses in 2020 partially offset by an increase in valuation allowances in jurisdictions with losses. The Company’s effective tax rate for 2021 was lower than the statutory tax rate primarily due to changes in valuation allowances, losses in certain jurisdictions that cannot be benefited from and tax charges related to the transfer of Kyndryl’s operations from IBM that were deemed to be immediately settled with IBM through the Net Parent Investment account. The Company’s effective tax rate for 2020 was lower than the statutory tax rate primarily due to changes in valuation allowances and losses in certain jurisdictions that cannot be benefited from. U.S. tax reform introduced Global Intangible Low-Taxed Income (“GILTI”), which subjects a U.S. shareholder to current tax on income earned by certain foreign subsidiaries. GAAP allows companies to either (i) recognize deferred taxes for temporary differences that are expected to reverse as GILTI in future years or (ii) account for taxes on GILTI as 71 Table of Contents period costs in the year the tax is incurred. The Company has elected to recognize GILTI impact in the specific period in which it occurs. The tax effects of temporary differences that give rise to significant portions of the deferred taxes were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, (Dollars in millions) 2021 2020 Deferred tax assets ​ ​ ​ ​ ​ ​ Retirement benefits ​ $ 255 ​ $ 126 Leases ​ ​ 340 ​ ​ 380 Stock-based and other compensation ​ ​ 60 ​ ​ 37 Domestic tax loss/credit carryforwards ​ ​ 16 ​ ​ 643 Deferred income ​ ​ 31 ​ ​ 50 Foreign tax loss/credit carryforwards ​ ​ 76 ​ ​ 509 Allowance for credit losses ​ ​ 10 ​ ​ 37 Fixed assets and depreciation ​ ​ 130 ​ ​ — Restructuring charges ​ ​ — ​ ​ 59 Limitation on deductibility of interest ​ ​ — ​ ​ 50 Accruals ​ ​ 57 ​ ​ 91 Other ​ ​ 54 ​ ​ — Gross deferred tax assets ​ $ 1,029 ​ $ 1,982 Less: valuation allowance ​ ​ ( 6 ) ​ ​ ( 1,110 ) Net deferred tax assets ​ $ 1,023 ​ $ 872 ​ ​ ​ ​ ​ ​ ​ Deferred tax liabilities ​ ​ ​ ​ ​ ​ Fixed assets and depreciation ​ $ — ​ $ 80 Goodwill and intangible assets ​ ​ — ​ ​ 45 Leases and right-of-use assets ​ ​ 331 ​ ​ 331 Undistributed foreign earnings ​ ​ 25 ​ ​ 57 Deferred transition costs ​ ​ 106 ​ ​ — Other ​ ​ 21 ​ ​ 12 Gross deferred tax liabilities ​ $ 483 ​ $ 525 ​ As of December 31, 2021, the Company had tax-affected domestic and foreign net operating loss deferred tax assets of $ 16 million and $ 76 million, respectively. If not utilized, the foreign net operating loss carryforwards will begin to expire in 2022. The federal net operating loss can be carried forward indefinitely. The valuation allowances as of December 31, 2021, 2020 and 2019 were $ 6 million, $ 1.11 billion and $ 650 million, respectively. The additions to valuation allowances for the years ended December 31, 2020 and 2019 were $ 460 million and $ 342 million, respectively. The reduction in valuation allowances in 2021 was $ 1.10 billion. The decrease in valuation allowance is primarily attributable to net operating losses and tax credit carryforwards that existed on a separate return basis for the historical periods presented on a “carve-out” basis. For purposes of the historical periods presented on a “carve-out” basis, the Company’s income tax provisions were calculated using the separate return basis, as if the Company filed separate tax returns. Prior to Separation, the Company’s operations were included in the consolidated U.S. federal and certain state, local and foreign income tax returns filed by IBM. Post-Separation, certain net operating losses and tax credit carryforwards that were included for purposes of the historical periods presented on a “carve-out” basis available to be utilized by IBM are not available for future utilization by the Company and were settled through Net Parent investment immediately prior to the Separation. The Company scheduled the utilization of net operating losses and tax credit carryforwards and concluded that a valuation allowance of $ 6 million should remain on a portion of our foreign net operating losses that are not more-likely-than-not to be realized prior to expiration. As of December 31, 2021, based on all available evidence, Management concluded that no other valuation allowance was necessary to reduce the deferred tax assets remaining post-Separation since estimated future taxable income is expected 72 Table of Contents to be sufficient to utilize these assets prior to their expiration. Estimates of future taxable income could change, perhaps materially, which may require us to revise our assessment of the recoverability of the deferred tax asset at that time. A reconciliation of the beginning and ending amount of unrecognized tax benefits was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in millions) 2021 2020 2019 Balance at January 1 ​ $ — ​ $ — ​ $ — Additions based on tax positions related to the current year ​ ​ 476 ​ ​ 86 ​ ​ 40 Additions for tax positions of prior years ​ ​ — ​ ​ — ​ ​ — Reductions for tax positions of prior years (including impacts due to a lapse of statute) ​ ​ — ​ ​ — ​ ​ — Settlements (closed out to Net Parent investment) ​ ​ ( 453 ) ​ ​ ( 86 ) ​ ​ ( 40 ) Balance at December 31 ​ $ 23 ​ $ — ​ $ — ​ Post-Separation, liabilities related to unrecognized tax benefits for which the Company is liable are reported within the Consolidated Balance Sheet based upon tax authorities’ ability to assert the Company may be the primary obligor for historical taxes, among other factors. With limited exceptions, the Company is subject to U.S. federal, state and local, and non-U.S. income tax audits for tax years subsequent to September 1, 2021. Pursuant to the Tax Matters Agreement, any tax liabilities attributable to the tax period (or portion thereof) ending on or before November 3, 2021, are generally not the Company’s liability. As of December 31, 2021, the Company is not aware of any open income tax audits that would result in a liability owed by the Company. The Company does not expect a significant increase or decrease in unrecognized tax benefits within the next twelve months. The net amount of $ 23 million in unrecognized tax benefits, if recognized, would favorably affect the Company’s effective tax rate. Interest and penalties related to income tax liabilities are included in income tax expense. During the year ended December 31, 2021, the Company recognized $ 0 million in interest expense and penalties. The Company had $ 0 million for interest and penalties accrued at December 31, 2021. Pursuant to the Tax Matters Agreement with Kyndryl’s former Parent, the Company identified certain tax refunds related to estimated tax payments and refundable value-added taxes for which we are required to reimburse our former Parent as the refunds are received, as well as certain tax benefits related to net operating losses that were transferred to the Company for which we are required to indemnify our former Parent as the tax benefits are realized. As of December 31, 2021, the Company estimated the amount of our indemnification obligations to our former Parent related to these tax refunds and tax benefits to be approximately $ 99 million, where $ 66 million is recorded in other accrued expenses and liabilities expected to be paid within one year, and $ 33 million is recorded in other liabilities expected to be paid beyond the one-year period. The Company also estimated the amount of our former Parent’s indemnification obligations to us related to income tax liabilities attributable to tax periods (or portions thereof) ending on or before November 3, 2021, to be approximately $ 41 million, which is recorded in prepaid expenses and other current assets on our Consolidated Balance Sheet. ​ At December 31, 2021, the Company’s undistributed earnings from certain non-U.S. subsidiaries were not indefinitely reinvested. Accordingly, the Company recorded a deferred tax liability of $ 25 million for the estimated taxes associated with the repatriation of these earnings. The Company intends to repatriate certain foreign earnings that have been taxed in the U.S. and undistributed earnings to the extent the foreign earnings are not restricted by local laws and can be accessed in a cost-effective manner. Undistributed earnings of approximately $ 122 million and other outside basis differences in foreign subsidiaries are indefinitely reinvested in foreign operations. Quantification of the deferred tax liability, if any, associated with indefinitely reinvested earnings and outside basis differences is not practicable. ​ 73 Table of Contents NOTE 6. NET LOSS PER SHARE We did no t declare any stock dividends in the periods presented. The following tables provide the computation of basic and diluted earnings per share of common stock for the twelve months ended December 31, 2021, 2020 and 2019. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (In millions, except per share amounts) ​ 2021 ​ 2020 ​ 2019 Net income (loss) on which basic and diluted earnings per share is calculated ​ $ ( 2,319 ) ​ $ ( 2,011 ) ​ $ ( 943 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of shares on which basic and diluted earnings per share is calculated ​ ​ 224.1 ​ ​ 224.1 ​ ​ 224.1 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic earnings (loss) per share ​ ( 10.35 ) ​ ​ ( 8.97 ) ​ ​ ( 4.21 ) Diluted earnings (loss) per share ​ ( 10.35 ) ​ ​ ( 8.97 ) ​ ​ ( 4.21 ) ​ The following securities were not included in the computation of diluted earnings (loss) per share because they would have been anti-dilutive: ​ ​ ​ ​ (In millions) ​ ​ Nonvested RSUs issued and outstanding ​ 10.2 Market-conditioned performance awards ​ 1.8 Stock options issued and outstanding ​ 3.8 Total ​ 15.8 ​ ​ NOTE 7. FINANCIAL ASSETS AND LIABILITIES Financial Assets and Liabilities Measured at Fair Value The gross balances of derivative assets contained within prepaid expenses and other current assets in the Consolidated Balance Sheet at December 31, 2021, were $ 9 million. The gross balances of derivative liabilities contained within other accrued expenses and liabilities, and other liabilities in the Consolidated Balance Sheet at December 31, 2021, were $ 1 million. These financial instruments are categorized as Level 2 in the fair value hierarchy. There were no outstanding derivatives in the Consolidated Balance Sheet at December 31, 2020. The Company may enter into master netting agreements with certain counterparties that allow for netting of exposures in the event of default or breach. However, in the Consolidated Balance Sheet, the Company does not offset derivative assets against liabilities with counterparties in master netting arrangements by counterparty, and there were no derivative instruments activity impacted by master netting agreements at December 31, 2021 and 2020. The Company also has time deposits that are classified as available-for-sale debt securities with carrying values that approximate fair value. The balance of these securities contained within cash and cash equivalents in the Consolidated Balance Sheet at December 31, 2021, was $ 609 million. These securities are categorized as Level 2 in the fair value hierarchy. There were no outstanding available-for-sale debt securities in the Consolidated Balance Sheet at December 31, 2020. Financial Assets and Liabilities Not Measured at Fair Value Accounts receivable are financial assets with carrying values that approximate fair value. Accounts payable, other accrued expenses and short-term debt (excluding the current portion of long-term debt and including short-term finance lease liabilities) are financial liabilities with carrying values that approximate fair value. If measured at fair value in the consolidated financial statements, these financial instruments would be classified as Level 3 in the fair value 74 Table of Contents hierarchy, except for short-term debt, which would be classified as Level 2. Fair value of long-term debt for which quoted prices are not available, is calculated using an expected present value technique that uses rates currently available to the Company for debt with similar terms and remaining maturities. The carrying value of long-term debt approximates fair value. If measured at fair value in the consolidated financial statements, long-term debt (including the current portion) would be classified as Level 2 in the fair value hierarchy. Derivative Financial Instruments In the normal course of business, we are exposed to risks arising from business operations and economic factors, such as fluctuations in currency exchange rates. We use derivatives to manage the volatility related to these exposures with the objective of reducing fluctuations in earnings and cash flows associated with changes in currency exchange rates. Anticipated Cost Transactions At December 31, 2021, the total notional amount of forward contracts designated as cash flow hedges of forecasted foreign currency cost transactions was $ 213 million. The Company had no forward contracts outstanding under this program at December 31, 2020. The notional amounts of derivative instruments do not necessarily represent the amounts exchanged by the Company with third parties and are not necessarily a direct measure of the financial exposure. The maximum remaining length of time over which the Company hedged its exposure is approximately one year . At December 31, 2021, the weighted-average remaining maturity of these instruments was approximately 0.5 years. At December 31, 2021, in connection with cash flow hedges of currency cost transactions, the Company recorded net deferred gains of $ 4 million (before taxes) in AOCI. At December 31, 2020, there were no currency exchange derivatives that were recorded in the Company’s consolidated financial statements. The Company estimates that $ 4 million (before taxes) of deferred net gains on derivatives in AOCI at December 31, 2021, will be reclassified to net income within the next twelve months, providing an offsetting economic impact against the underlying anticipated transactions. Subsidiary Cash and Foreign Currency Asset/Liability Management ​ The Company uses a global treasury center to manage the cash of its subsidiaries. This center principally uses currency swaps to convert cash flows in a cost-effective manner. Changes in fair value of derivatives not designated as hedges are reported in earnings in other (income) and expense. Cash flows from derivatives not designated as hedges are reported in cash flows from investing activities in the Consolidated Statement of Cash Flows. The terms of these swap contracts are generally less than one year . The changes in the fair values of these contracts and of the underlying hedged exposures are generally offsetting and are recorded in other (income) and expense in the Consolidated Income Statement. At December 31, 2021, the total notional amount of derivative instruments in economic hedges of currency exposure was $ 581 million, and there were no outstanding derivatives instruments at December 31, 2020. ​ 75 Table of Contents The Effect of Derivative Instruments in the Consolidated Income Statement The total amounts of income and expense line items presented in the Consolidated Income Statement in which the effects of cash flow hedges and derivatives not designated as hedging instruments are recorded and the total effect of hedge activity on these income and expense line items are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gains (Losses) from (Dollars in millions) ​ Total ​ Hedge Activity For the year ended December 31: 2021 2020 ​ 2019 2021 2020 2019 Cost of services ​ $ 16,570 ​ $ 17,143 ​ $ 17,682 ​ $ 1 ​ $ 7 ​ $ 19 Selling, general and administrative expenses ​ ​ 2,776 ​ ​ 2,948 ​ ​ 2,970 ​ ​ — ​ ​ ( 1 ) ​ ​ 12 Other (income) and expense ​ ​ 35 ​ ​ 25 ​ ​ ( 29 ) ​ ​ 4 ​ ​ 6 ​ ​ 20 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gain (Loss) Recognized in Consolidated Income Statement ​ ​ Consolidated ​ Recognized on ​ Attributable to Risk (Dollars in millions) ​ Income Statement ​ Derivatives ​ Being Hedged For the year ended December 31: Line Item ​ 2021 2020 2019 2021 2020 ​ 2019 Derivative instruments not designated as hedging instruments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Foreign exchange contracts ​ Other (income) and expense ​ $ 4 ​ $ 6 ​ $ 20 ​ ​ NA ​ ​ NA ​ ​ NA Total ​ ​ $ 4 ​ $ 6 ​ $ 20 ​ $ — ​ $ — ​ $ — NA – not applicable ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gain (Loss) Recognized in Consolidated Income Statement and Other Comprehensive Income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consolidated ​ Reclassified ​ (Dollars in millions) ​ Recognized in OCI ​ Income Statement ​ from AOCI ​ For the year ended December 31: 2021 2020 2019 Line Item 2021 2020 2019 Derivative instruments in cash flow hedges: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Foreign exchange contracts ​ $ 4 ​ $ — ​ $ — ​ Cost of services ​ $ 1 ​ $ 7 ​ $ 19 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Selling, general and administrative expenses ​ ​ — ​ ​ ( 1 ) ​ ​ 12 ​ Total ​ $ 4 ​ $ — ​ $ — ​ ​ $ 1 ​ $ 6 ​ $ 31 ​ ​ For the years ended December 31, 2021, 2020 and 2019, there were no gains or losses excluded from the assessment of hedge effectiveness for cash flow hedges, or associated with an underlying exposure that did not or was not expected to occur; nor are there any anticipated in the normal course of business. ​ ​ 76 Table of Contents N OTE 8. PROPERTY AND EQUIPMENT ​ The following table presents the balances of property and equipment by type: ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, (Dollars in millions) 2021 2020 Information technology equipment ​ $ 7,847 ​ $ 10,005 Buildings and leasehold improvements ​ ​ 2,869 ​ ​ 2,968 Office and other equipment ​ ​ 397 ​ ​ 346 Land and land improvements ​ ​ 72 ​ ​ 149 Property and equipment, gross ​ $ 11,185 ​ $ 13,468 Less: Accumulated depreciation ​ ​ 8,261 ​ ​ 9,478 Property and equipment, net ​ $ 2,923 ​ $ 3,991 ​ Depreciation of property and equipment was $ 1.30 billion, $ 1.45 billion and $ 1.47 billion for the years ended December 31, 2021, 2020 and 2019, respectively. ​ During the year ended December 31, 2021, the Company disposed of certain property and equipment with net book value of approximately $ 200 million. Additionally, the decrease in net property and equipment in 2021 was attributable to depreciation outpacing capital expenditures and the final transfer of assets from our former Parent at Separation. In the 2020 period, the Company’s property and equipment balance was based on an allocation of IBM’s balances depending on the type of asset. Information technology equipment balances relating to assets specifically utilized by the Company were fully allocated to the Company. Leasehold improvements associated with leases attributed to Kyndryl were fully allocated to the Company. The remaining asset balances representing assets associated with space (land, buildings, and office and other equipment in the space) were allocated based on the percentage of space utilized. The 2020 basis of presentation prior to Separation assumed a greater basis of assets attributable to Kyndryl as compared to the assets ultimately transferred, and the transfer was recorded as a non-cash distribution within the net parent investment at Separation. ​ ​ ​ NOTE 9. LEASES The following table presents the various components of lease costs: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (Dollars in millions) 2021 2020 2019 Finance lease costs $ 69 ​ $ 61 ​ $ 18 Operating lease costs ​ 354 ​ 424 ​ ​ 429 Short-term lease costs ​ 7 ​ 10 ​ ​ 12 Variable lease costs ​ 73 ​ 114 ​ ​ 124 Sublease income ​ ( 5 ) ​ ( 4 ) ​ ​ ( 2 ) Total lease costs $ 498 ​ $ 605 ​ $ 581 ​ For pre-Separation periods, the Company’s right-of-use assets and lease liabilities reflected in the Consolidated Balance Sheet are based on an allocation of IBM’s balances depending on the type of lease. Finance lease balances relating to assets specifically utilized by the Company were fully allocated to the Company. The real estate lease balances were allocated based on the percentage of space utilized. The remaining lease balances were allocated to the Company based on headcount. The Company had no sale and leaseback transactions for the years ended December 31, 2021, 2020 and 2019. 77 Table of Contents The following table presents supplemental information relating to the cash flows arising from lease transactions. Cash payments related to variable lease costs and short-term leases are not included in the measurement of operating and finance lease liabilities and, as such, are excluded from the amounts below. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ (Dollars in millions) 2021 2020 ​ 2019 ​ Cash paid for amounts included in the measurement of lease liabilities: ​ ​ ​ ​ ​ ​ Operating cash outflows for finance leases ​ $ 3 ​ $ 3 ​ $ 1 ​ Financing cash outflows for finance leases ​ ​ 70 ​ ​ 72 ​ ​ 19 ​ Operating cash outflows for operating leases ​ ​ 327 ​ ​ 450 ​ ​ 454 ​ Right-of-use assets obtained in exchange for new finance lease liabilities ​ ​ 86 ​ ​ 129 ​ ​ 147 * Right-of-use assets obtained in exchange for new operating lease liabilities ​ ​ 562 ​ ​ 336 ​ ​ 1,647 * * Includes opening balance additions as a result of the adoption of the new lease guidance effective January 1, 2019. The post-adoption addition of leases for the year ended December 31, 2019 was $ 430 million for operating leases and $ 141 million for finance leases. The following table presents the weighted-average lease term and discount rate for finance and operating leases: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2021 ​ 2020 Finance leases ​ ​ ​ ​ ​ ​ Weighted-average remaining lease term 3.3 years ​ 3.5 years Weighted-average discount rate 1.41 % ​ 1.35 % Operating leases ​ ​ ​ ​ ​ Weighted-average remaining lease term 5.2 years ​ 5.7 years Weighted-average discount rate 2.66 % ​ 2.19 % ​ The following table presents a maturity analysis of expected undiscounted cash flows for operating and finance leases on an annual basis for the next five years and thereafter. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Imputed ​ ​ (Dollars in millions) 2022 2023 2024 2025 2026 Thereafter Interest* Total** Finance leases $ 78 $ 68 $ 44 $ 28 $ 8 $ — $ ( 5 ) ​ $ 222 ​ Operating leases ​ 403 ​ 302 ​ 236 ​ 201 ​ 121 ​ 190 ​ ( 87 ) ​ ​ 1,366 ​ * Imputed interest represents the difference between undiscounted cash flows and discounted cash flows. ** The Company entered into lease agreements for certain facilities and equipment with payments totaling approximately $ 27 million that have not yet commenced as of December 31, 2021, and therefore are not included in this table. ​ The following table presents the total amount of finance leases recognized in the Consolidated Balance Sheet: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, (Dollars in millions) 2021 2020 Right-of-use assets – Property and equipment ​ $ 221 ​ $ 201 Lease liabilities: ​ ​ ​ Short-term debt ​ ​ 76 ​ ​ 69 Long-term debt ​ ​ 147 ​ ​ 140 ​ ​ 78 Table of Contents NOTE 10. INTANGIBLE ASSETS INCLUDING GOODWILL Intangible Assets The following tables present the Company’s intangible asset balances by major asset class. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At December 31, 2021 ​ Gross Carrying Accumulated Net Carrying (Dollars in millions) Amount Amortization Amount Capitalized software ​ $ 16 ​ $ ( 13 ) ​ $ 3 Client relationships ​ 130 ​ ( 97 ) ​ 33 Completed technology ​ 20 ​ ( 20 ) ​ — Patents and trademarks ​ 2 ​ ( 2 ) ​ — Total ​ $ 169 ​ $ ( 132 ) ​ $ 36 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At December 31, 2020 ​ Gross Carrying Accumulated Net Carrying (Dollars in millions) Amount Amortization Amount Capitalized software ​ $ 7 ​ $ ( 4 ) ​ $ 3 Client relationships ​ 130 ​ ( 77 ) ​ 53 Completed technology ​ 20 ​ ( 17 ) ​ 3 Patents and trademarks ​ 2 ​ ( 2 ) ​ — Total ​ $ 159 ​ $ ( 99 ) ​ $ 60 ​ There was no impairment of identifiable intangible assets recorded in 2021 and 2020. The net carrying amount of intangible assets decreased $ 24 million during the year ended December 31, 2021, primarily due to intangible asset amortization, partially offset by additions of capitalized software. The aggregate intangible asset amortization expense was $ 37 million, $ 29 million and $ 29 million for the years ended December 31, 2021, 2020 and 2019 respectively. In 2021, the Company retired $ 7 million of fully amortized intangible assets, impacting both the gross carrying amount and accumulated amortization by this amount. The future amortization expense relating to intangible assets currently recorded in the Consolidated Balance Sheet was estimated to be the following at December 31, 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Capitalized ​ Acquired ​ ​ (Dollars in millions) Software Intangibles Total 2022 ​ $ 3 ​ $ 18 ​ $ 21 2023 ​ — ​ 10 ​ 11 2024 ​ — ​ 6 ​ 6 2025 ​ — ​ — ​ — 2026 ​ — ​ — ​ — Thereafter ​ ​ — ​ ​ — ​ — ​ Goodwill The Company reviews goodwill for impairment annually and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable by first assessing qualitative factors to determine if it is more likely than not that fair value is less than carrying value and whether it is necessary to perform the quantitative goodwill impairment test. This quantitative test is required only if we conclude that it is more likely than not that a reporting unit’s fair value is less than its carrying amount. After performing the annual goodwill impairment qualitative analysis during the fourth quarter of 2021, the Company determined it was necessary to perform the quantitative goodwill impairment test. We use an income-based approach where fair value is determined using a discounted cash flow model that requires significant judgment with respect to revenue and growth rates, based upon annual budgets and long-term 79 Table of Contents strategic plans. Fair value estimates employed in our annual impairment review of goodwill involve using various assumptions. Assumptions critical to our fair value estimates were discount rates, expected revenue growth and projected EBITDA margins used in determining the fair value of the reporting units. These and other assumptions are impacted by economic conditions and expectations of management and may change based on different facts and circumstances. We believe the assumptions used to estimate future cash flows are reasonable, but there can be no assurance that the expected cash flows will be realized. The use of different assumptions would increase or decrease discounted cash flows or earnings projections and therefore could change impairment determinations. In the fourth quarter of 2021, the Company reviewed its goodwill balances for impairment under both the previous segment structure and the new segment structure, as required. For further details on segment changes, see Note 4 – Segments. The Company determined that $ 469 million of goodwill in the former EMEA ($ 293 million) and current U.S. ($ 176 million) reporting units was impaired in fourth quarter 2021, largely attributable to margin challenges in the EMEA segment as well as the geographic re-segmentation of the former Americas segment. The impairment was recorded in the Impairment expense line item within the Consolidated Income Statement. The rollforward of goodwill balances by segment for the years ended December 31, 2021 and December 31, 2020 were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Foreign ​ ​ ​ Foreign ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Currency ​ ​ ​ Currency ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Translation ​ ​ ​ Translation ​ ​ ​ ​ ​ ​ ​ (Dollars in millions) ​ Balance at ​ and Other ​ Balance at ​ and Other ​ Re-allocation ​ ​ ​ Balance at Segment ​ January 1, 2020 Adjustments* December 31, 2020 ​ Adjustments* ​ of Goodwill ​ Impairment December 31, 2021 Americas ​ $ 416 ​ $ 24 ​ $ 440 ​ $ ( 10 ) ​ $ ( 431 ) ​ $ — ​ $ — EMEA ​ ​ 272 ​ ​ 16 ​ ​ 288 ​ ​ 5 ​ ​ — ​ ​ ( 293 ) ​ ​ — Asia Pacific ​ ​ 74 ​ ​ 4 ​ ​ 78 ​ ​ ( 16 ) ​ ​ ( 62 ) ​ ​ — ​ ​ — Japan ​ ​ 401 ​ ​ 23 ​ ​ 424 ​ ​ ( 9 ) ​ ​ — ​ ​ — ​ ​ 415 U.S. ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 176 ​ ​ ( 176 ) ​ ​ — Principal Markets ​ — ​ — ​ — ​ 1 ​ ​ 141 ​ — ​ 142 Strategic Markets ​ — ​ — ​ — ​ — ​ ​ 176 ​ — ​ 176 Total ​ $ 1,162 ​ $ 67 ​ $ 1,230 ​ $ ( 29 ) ​ ​ — ​ $ ( 469 ) ​ $ 732 * Primarily driven by foreign currency translation. NOTE 11. BORROWINGS Debt The following table presents the components of our debt: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-Average ​ December 31, (Dollars in millions) ​ Interest Rate* ​ Maturities* ​ 2021 ​ 2020 Long-term debt ​ 2.7 % ​ 2024-2041 ​ $ 3,029 ​ $ — Finance lease obligations ​ 1.4 % ​ 2022-2026 ​ ​ 222 ​ ​ 209 ​ ​ ​ ​ ​ ​ $ 3,251 ​ $ 209 Less: Unamortized discount ​ ​ ​ ​ ​ ​ 5 ​ ​ — Less: Unamortized debt issuance costs ​ ​ ​ ​ 15 ​ ​ — Less: Current maturities of long-term debt ​ ​ ​ ​ 103 ​ ​ 69 Total ​ ​ ​ $ 3,128 ​ $ 140 * As of December 31, 2021. ​ 80 Table of Contents Contractual obligations of long-term debt outstanding at December 31, 2021, were as follows: ​ ​ ​ ​ ​ ​ ​ December 31, (Dollars in millions)* 2021 2022 ​ $ 103 2023 ​ 94 2024 ​ 572 2025 ​ 57 2026 ​ 726 Thereafter ​ 1,700 Total ​ $ 3,251 * Contractual obligations approximate scheduled repayments. ​ Senior Unsecured Notes In October 2021, in preparation for the Separation, we completed the offering of $ 2.4 billion in aggregate principal amount of senior unsecured fixed-rate notes (the “Notes”) as follows: $ 700 million aggregate principal amount of 2.05 % Senior Notes due 2026, $ 500 million aggregate principal amount of 2.70 % Senior Notes due 2028, $ 650 million aggregate principal amount of 3.15 % Senior Notes due 2031 and $ 550 million aggregate principal amount of 4.10 % Senior Notes due 2041. The Notes were offered and sold to qualified institutional buyers in reliance on Rule 144A under the Securities Act and to non-U.S. persons in reliance on Regulation S of the Securities Act. The Notes are subject to customary affirmative covenants, negative covenants and events of default for financings of this type and are redeemable at our option in a customary manner. In connection with the issuance of the Notes, we entered into a registration rights agreement with the initial purchasers of the Notes, pursuant to which we will use commercially reasonable efforts to file and have declared effective a registration statement with respect to a registered offer to exchange each series of Notes for new notes with substantially identical terms by October 15, 2022. If the exchange offer is not completed on or before October 15, 2022 and, under certain other circumstances, we are required to use commercially reasonable efforts to file and have declared effective a shelf registration statement relating to the resale of the Notes. ​ Term Loan and Revolving Credit Facility ​ In October 2021, we entered into a $ 500 million three-year variable rate term loan credit agreement (the “Term Loan Credit Agreement”). In November 2021, we drew down the full $ 500 million available under the Term Loan Credit Agreement. ​ In October 2021, we entered into a $ 3.15 billion multi-currency revolving credit agreement (the “Revolving Credit Agreement” and, together with the Term Loan Credit Agreement, the “Credit Agreements”) for our future liquidity needs. ​ The Revolving Credit Agreement expires, unless extended, in October 2026, and the Term Loan Credit Agreement matures, unless extended, in November 2024. Interest rates on borrowings under the Credit Agreements will be based on prevailing market interest rates, plus a margin, as further described in the Credit Agreements. The total expense recorded by the Company for the Term Loan Credit Agreement and Revolving Credit Agreement was immaterial in 2021. ​ The Notes, revolving credit facility and term loan were initially guaranteed by Parent. Approximately $ 900 million of the net proceeds from the term loan and the sale of the Notes was transferred to Parent in conjunction with the Separation. Following the completion of the Separation on November 3, 2021, the guarantee was released and the Notes, term loan and revolving credit facility are no longer obligations of IBM. ​ We expect to be able to voluntarily prepay borrowings under the Credit Agreements without premium or penalty, subject to customary “breakage” costs. The Credit Agreements include certain customary mandatory 81 Table of Contents prepayment provisions. In addition, the Credit Agreements include customary events of default and affirmative and negative covenants as well as a maintenance covenant that will require that the ratio of our indebtedness for borrowed money to consolidated EBITDA (as defined in the Credit Agreements) for any period of four consecutive fiscal quarters be no greater than 3.50 to 1.00. ​ Loan Agreement In the second quarter of 2021, our former Parent entered into a $ 140 million loan agreement with a bank to finance a purchase of software licenses on behalf of Kyndryl. The loan was transferred to Kyndryl in conjunction with the Separation and is included in the Company’s consolidated financial statements. The carrying amount of the loan approximates fair value. If measured at fair value in the consolidated financial statements, the loan would be classified as Level 2 in the fair value hierarchy. ​ The amortizing loan is secured by collateral and contains covenants, primarily for compliance with the scheduled payments in the loan agreement. Failure to comply with the loan covenants could constitute an event of default and result in the immediate repayment of the principal and interest on the loan. The Company is in compliance with all of the loan covenants and is expected to maintain a credit rating at or above the level outlined in the loan agreement. ​ Interest on Debt Interest expense for the years ended December 31, 2021, 2020 and 2019 was $ 64 million, $ 63 million and $ 76 million, respectively. Cost of financing and interest capitalized for the periods presented was immaterial. Pre-Separation, most of the interest in the Consolidated Income Statement reflects the allocation of interest expense associated with debt issued by IBM for which a portion of the proceeds benefited Kyndryl. Such IBM debt has not been attributed to the Company for any periods presented because IBM’s borrowings were not the legal obligation of the Company, except for the loan agreement described below. Post-Separation, interest expense also reflects the standalone interest related to our fourth quarter borrowings. Refer to Note 17 – Related-Party Transactions for more information on the allocation of IBM’s corporate expenses. ​ NOTE 12. OTHER LIABILITIES ​ The following table provides the components of other liabilities at December 31, 2021 and 2020. ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, (Dollars in millions) 2021 2020 Workforce rebalancing (current) ​ $ 82 ​ $ 595 Other service accruals ​ ​ 662 ​ ​ 279 Other accrued expenses and liabilities ​ $ 744 ​ $ 874 Workforce rebalancing (noncurrent) ​ $ 51 ​ $ 82 Deferred taxes ​ ​ 135 ​ ​ 78 Income tax reserve ​ ​ 23 ​ ​ — Other ​ ​ 293 ​ ​ 122 Other noncurrent liabilities ​ $ 501 ​ $ 282 ​ In response to changing business needs, the Company has in the past taken workforce rebalancing actions to increase productivity, enhance cost-competitiveness and rebalance skills. The noncurrent liabilities related to workforce rebalancing actions are accruals primarily related to terminated employees who are no longer working for the Company who were granted annual payments to supplement their incomes in certain countries. Depending on the individual country’s legal requirements, these required payments will continue until the former employee begins receiving pension benefits or dies. Workforce rebalancing costs decreased in 2021 compared to 2020. ​ 82 Table of Contents Pursuant to the Tax Matters Agreement with our former Parent, the Company will be required to reimburse our former Parent for certain tax refunds we receive and to indemnify our former Parent for certain tax payments. For more information, see Note 5 – Taxes. NOTE 13. COMMITMENTS AND CONTINGENCIES The Company guarantees certain loans and financial commitments. The maximum potential future payment under these financial guarantees and the fair value of these guarantees recognized in the Consolidated Balance Sheet at December 31, 2021, and December 31, 2020, were not material. Additionally, the Company has contractual commitments that are noncancellable with certain software and cloud partners to provides services to its customers. At December 31, 2021, we had short-term (in 2022), mid-term (in 2023 and 2024) and long-term (after 2024) purchase commitments in the amount of $ 0.8 billion, $ 1.5 billion and $ 1.1 billion, respectively. ​ As a company with approximately 90,000 employees and with clients around the world, Kyndryl is subject to, or could become subject to, either as plaintiff or defendant, a variety of contingencies, including claims, demands and suits, investigations, tax matters and proceedings that arise from time to time in the ordinary course of its business. Given the rapidly evolving external landscape of cybersecurity, privacy and data protection laws, regulations and threat actors, the Company or its clients could become subject to actions or proceedings in various jurisdictions. Also, as is typical for companies of Kyndryl’s scope and scale, the Company is subject to, or could become subject to, actions and proceedings in various jurisdictions involving a wide range of labor and employment issues (including matters related to contested employment decisions, country-specific labor and employment laws and the Company’s benefit plans), as well as actions with respect to contracts, securities, foreign operations, competition law and environmental matters. These actions may be commenced by a number of different parties, including competitors, clients, employees, government and regulatory agencies, stockholders and representatives of the locations in which the Company does business. Some of the actions to which the Company is, or may become, party may involve particularly complex technical issues, and some actions may raise novel questions under the laws of the various jurisdictions in which these matters arise. Additionally, the Company is, or may be, a party to agreements pursuant to which it may be obligated to indemnify the other party with respect to certain matters. ​ The Company records a provision with respect to a claim, suit, investigation or proceeding when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In accordance with the relevant accounting guidance, the Company provides disclosures of matters for which the likelihood of material loss is at least reasonably possible. In addition, the Company may also disclose matters based on its consideration of other matters and qualitative factors, including the experience of other companies in the industry and investor, customer and employee relations considerations. Following the Separation from IBM, the Company has continued to analyze its ongoing disputes and outstanding claims in the context of the Separation and Distribution agreement from IBM and the avenues available for resolution post-Separation. In connection with this assessment, in the quarter ended December 31, 2021, the Company recorded $ 62 million of estimated liabilities in anticipation of the potential resolution related to these matters. ​ The Company reviews claims, suits, investigations and proceedings at least quarterly, and decisions are made with respect to recording or adjusting provisions and disclosing reasonably possible losses or range of losses (individually or in the aggregate) to reflect the impact and status of settlement discussions, discovery, procedural and substantive rulings, reviews by counsel and other information pertinent to a particular matter. Whether any losses, damages or remedies finally determined in any claim, suit, investigation or proceeding could reasonably have a material effect on the Company’s business, financial condition, results of operations or cash flows will depend on a number of variables, including the timing and amount of such losses or damages; the structure and type of any such remedies; the significance of the impact any such losses, damages or remedies may have in the consolidated financial statements; and the unique facts and circumstances of the particular matter that may give rise to additional factors. While the Company will continue to defend itself vigorously, it is possible that the Company’s business, financial condition, results of operations or cash flows could be affected in any particular period by the resolution of one or more of these matters. ​ 83 Table of Contents In July 2017, BMC Software, Inc. (“BMC”) sued IBM in the U.S. Court for the Southern District of Texas in a dispute involving IBM’s managed infrastructure services business. BMC alleges IBM’s removal of BMC software from one of its client’s sites at the client’s request constituted breach of contract and trade secret misappropriation. IBM defeated BMC’s motion for injunctive relief, completed the client’s transformation project and counterclaimed for breach of contract. In September 2021, the trial court overruled in part and granted in part the magistrate judge’s recommendations on summary judgment, dismissing IBM’s counterclaims and permitting some of BMC’s claims for damages to proceed. The case remains pending. ​ NOTE 14. EQUITY ​ The following tables present reclassifications and taxes related to items of other comprehensive income (loss) for the years ended December 31, 2021, 2020 and 2019: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in millions) Pretax Tax (Expense) Net of Tax For the year ended December 31, 2021: Amount Benefit Amount Foreign currency translation adjustments ​ $ 198 ​ $ — ​ $ 198 Unrealized gains (losses) on cash flow hedges ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized gains (losses) arising during the period ​ ​ 4 ​ ​ — ​ ​ 4 Reclassification of (gains) losses to net income ​ ​ ( 1 ) ​ ​ — ​ ​ ( 1 ) Total unrealized gains (losses) on cash flow hedges ​ ​ 3 ​ ​ — ​ ​ 3 Retirement-related benefit plans*: ​ ​ ​ ​ ​ ​ Prior service (credits) costs ​ ​ 1 ​ ​ ( 2 ) ​ ​ ( 1 ) Net (losses) gains arising during the period ​ ​ 72 ​ ​ ( 17 ) ​ ​ 54 Curtailments and settlements ​ ​ 3 ​ ​ ( 1 ) ​ ​ 2 Amortization of net (gains) losses ​ ​ 51 ​ ​ ( 13 ) ​ ​ 38 Total retirement-related benefit plans ​ ​ 127 ​ ​ ( 33 ) ​ ​ 94 Other comprehensive income (loss) ​ $ 329 ​ $ ( 33 ) ​ $ 296 * These AOCI components are included in the computation of net periodic benefit cost. Refer to Note 16 – Retirement-Related Benefits for additional information. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in millions) Pretax Tax (Expense) Net of Tax For the year ended December 31, 2020: Amount Benefit Amount Foreign currency translation adjustments ​ $ 125 ​ $ — ​ $ 125 Retirement-related benefit plans*: ​ ​ ​ ​ ​ ​ Net (losses) gains arising during the period ​ $ ( 41 ) ​ $ 13 ​ $ ( 28 ) Amortization of prior service (credits) costs ​ ​ ( 1 ) ​ ​ — ​ ​ — Amortization of net (gains) losses ​ 36 ​ ​ ( 12 ) ​ ​ 24 Total retirement-related benefit plans ​ $ ( 6 ) ​ $ 2 ​ $ ( 4 ) Other comprehensive income (loss) ​ $ 119 ​ $ 2 ​ $ 121 * These AOCI components are included in the computation of net periodic benefit cost. Refer to Note 16 – Retirement-Related Benefits for additional information. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in millions) Before Tax Tax (Expense) Net of Tax For the year ended December 31, 2019: Amount Benefit Amount Foreign currency translation adjustments ​ $ 12 ​ $ — ​ $ 12 Retirement-related benefit plans*: ​ ​ ​ ​ ​ ​ Prior service costs (credits) ​ $ ( 1 ) ​ $ — ​ $ ( 1 ) Net (losses) gains arising during the period ​ ​ ( 84 ) ​ ​ 27 ​ ​ ( 57 ) Amortization of net (gains) losses ​ 27 ​ ​ ( 9 ) ​ ​ 18 Total retirement-related benefit plans ​ $ ( 57 ) ​ $ 18 ​ $ ( 39 ) Other comprehensive income (loss) ​ $ ( 45 ) ​ $ 18 ​ $ ( 27 ) * These AOCI components are included in the computation of net periodic benefit cost. Refer to Note 16 – Retirement-Related Benefits for additional information. 84 Table of Contents The following table presents the components of accumulated other comprehensive income (loss), net of taxes: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net Unrealized ​ Foreign Currency ​ Net Change ​ Accumulated Other ​ ​ Gains (Losses) ​ Translation ​ Retirement-Related ​ Comprehensive (Dollars in millions) on Cash Flow Hedges ​ Adjustments* Benefit Plans Income (Loss) December 31, 2018 ​ $ — ​ $ ( 1,019 ) ​ $ ( 175 ) ​ $ ( 1,193 ) Other comprehensive income (loss)** ​ — ​ 12 ​ ( 39 ) ​ ( 27 ) December 31, 2019 ​ $ — ​ $ ( 1,007 ) ​ $ ( 214 ) ​ $ ( 1,220 ) Other comprehensive income (loss)** ​ — ​ 125 ​ ( 4 ) ​ 121 December 31, 2020 ​ $ — ​ $ ( 882 ) ​ $ ( 218 ) ​ $ ( 1,100 ) Net transfers from Parent ​ ​ — ​ ​ — ​ ​ ( 339 ) ​ ​ ( 339 ) Other comprehensive income (loss)** ​ ​ 3 ​ ​ 198 ​ ​ 94 ​ ​ 296 December 31, 2021 ​ $ 3 ​ $ ( 684 ) ​ $ ( 462 ) ​ $ ( 1,143 ) ​ * Foreign currency translation adjustments are presented gross. ** No amounts were reclassified from accumulated other comprehensive income. ​ NOTE 15. STOCK-BASED COMPENSATION ​ The following table presents stock-based compensation cost which is included in net income (loss). ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31 (Dollars in millions) 2021 2020 2019 Cost of services ​ $ 28 ​ $ 26 ​ $ 15 Selling, general and administrative expense ​ ​ 44 ​ ​ 37 ​ ​ 35 Pretax stock-based compensation cost ​ $ 71 ​ $ 64 ​ $ 51 Income tax benefits ​ ​ ( 13 ) ​ ​ ( 14 ) ​ ​ ( 12 ) Stock-based compensation cost, net of tax ​ $ 58 ​ $ 49 ​ $ 40 ​ The Company’s total unrecognized compensation cost related to non-vested awards at December 31, 2021 was $ 235 million and is expected to be recognized over a weighted-average period of approximately 2.7 years. If there are any modifications or cancellations of the underlying unvested awards, the Company may be required to accelerate, increase or cancel all or a portion of the remaining unearned stock-based compensation expense. Future unearned stock-based compensation will increase to the extent the Company grants additional equity awards, changes incentive awards terms, or assumes unvested equity awards in connection with acquisitions. Capitalized stock-based compensation cost was not material at December 31, 2021, 2020 and 2019. Incentive Awards ​ Stock-based incentive awards were provided to employees under the terms of Kyndryl’s employment and the long-term performance plans (the “Plans” or “LTPP”). Awards under the Plans principally include Restricted Stock Units (RSUs), market-conditioned performance awards (launch PSUs) and stock options. RSUs and stock options generally vest based on continued passage of time. Market-conditioned performance awards are cliff-vested at the end of the service period. 85 Table of Contents The following table summarizes RSU, market-conditioned performance award and stock option activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Market-Conditioned ​ ​ RSUs ​ Performance Awards ​ ​ ​ ​ ​ Weighted- ​ ​ ​ ​ Weighted- ​ ​ Number ​ Average ​ Number ​ Average ​ of Units ​ Grant-Date of Units Grant-Date ​ (in millions) ​ Fair Value (in millions) Fair Value Balance at December 31, 2020 ​ ​ — ​ $ — ​ ​ — ​ $ — Awards converted from IBM programs ​ ​ 8.5 ​ ​ 28.78 ​ ​ — ​ ​ — Awards granted ​ ​ 2.0 ​ ​ 18.20 ​ ​ 1.8 ​ ​ 15.14 Awards vested ​ ​ ( 0.1 ) ​ ​ 29.30 ​ ​ — ​ ​ — Awards canceled/ forfeited ​ ​ ( 0.2 ) ​ ​ 21.71 ​ ​ — ​ ​ — Balance at December 31, 2021 ​ ​ 10.2 ​ $ 26.82 ​ ​ 1.8 ​ $ 15.14 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock Options ​ ​ ​ ​ ​ Weighted- ​ Weighted- ​ ​ ​ ​ Weighted- ​ ​ Number ​ Average ​ Average ​ Intrinsic ​ Average ​ of Units Grant-Date ​ Exercise Price ​ Value ​ Contractual ​ (in millions) Fair Value ​ per Share ​ per Share ​ Term (in years) Balance at December 31, 2020 ​ ​ — ​ $ — ​ $ — ​ $ — ​ ​ — Awards converted from IBM programs ​ ​ — ​ ​ NM ​ ​ 8.28 ​ ​ 9.82 ​ ​ NM Awards granted ​ ​ 3.8 ​ ​ 6.54 ​ ​ 17.78 ​ ​ — ​ ​ 6.3 Awards vested ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Awards canceled/forfeited ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Balance at December 31, 2021 ​ ​ 3.8 ​ $ 6.56 ​ $ 17.76 ​ $ — ​ ​ 6.3 NM – not meaningful; stock options from former Parent were fully vested in 2019. ​ The weighted-average grant date fair value of RSUs granted for the years ended December 31, 2021, 2020 and 2019 was $ 18 , $ 117 and $ 123 , respectively. The weighted-average grant price prior to Separation used in the assessment was derived from the Parent’s stock price at grant. The aggregate fair value (which is based on the stock price at grant date) of restricted stock units (including former Parent’s PSUs converted to RSUs) vested was $ 45 million, $ 36 million and $ 34 million during the years ended December 31, 2021, 2020 and 2019, respectively. ​ NOTE 16. RETIREMENT-RELATED BENEFITS Description of Plans The Company sponsors and co-sponsors defined benefit pension plans and other nonpension postretirement benefit plans that cover certain non-U.S. employees and retirees. The defined benefit pension plan benefits are based principally on employees’ years of service and/or compensation levels at or near retirement. These plans are accounted for as defined benefit pension plans for purposes of the consolidated financial statements. Accordingly, the net benefit plan obligations and the related benefit plan expenses of those plans have been recorded in the Company’s consolidated financial statements. The nonpension postretirement benefit plans provide a fixed monthly dollar credit for retiree health care expense. The benefit obligation and related expenses for these plans are included in the consolidated financial statements. Additionally, certain Company employees participate in multi-employer defined benefit pension plans and post-retirement health plans which are sponsored by third parties and include other participants as well as defined contribution plans that are sponsored by the Company. Accordingly, the Company does not record an asset or liability to recognize the funded status of the multi-employer plans. However, the Company records service cost and defined contribution cost attributable to its employees who participate in the multi-employer and the defined contribution plans, as well as expense allocated for certain corporate and shared functional employees. These amounts are included in the Consolidated Income Statement. 86 Table of Contents Plan Financial Information The following tables present the components of net periodic benefit cost for the retirement-related benefit plans recognized in the Consolidated Income Statement, excluding defined contribution plans. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in millions) ​ Defined Benefit Pension Plans ​ Nonpension Postretirement Benefit Plans For the year ended December 31: 2021 2020 2019 2021 2020 2019 Service cost $ 81 $ 109 $ 101 $ 2 $ 3 $ 3 Interest cost* ​ 11 ​ 10 ​ 17 ​ 2 ​ 1 ​ 1 Expected return on plan assets* ​ ( 30 ) ​ ( 24 ) ​ ( 27 ) ​ ( 1 ) ​ ( 1 ) ​ ( 1 ) Amortization of prior service costs (credits)* ​ — ​ ( 1 ) ​ — ​ — ​ — ​ — Recognized actuarial losses* ​ 51 ​ 36 ​ 26 ​ — ​ — ​ — Curtailments and settlements* ​ 2 ​ — ​ — ​ — ​ — ​ — Multi-employer plans and other costs** ​ 7 ​ 13 ​ 20 ​ — ​ — ​ — Total net periodic benefit cost $ 123 $ 143 $ 138 $ 3 $ 3 $ 4 * These components of net periodic benefit cost are included in other (income) and expense in the Consolidated Income Statement. ** Multi-employer plan costs represent required contributions for the period to multi-employer plans, which are plans sponsored by third parties. The Company recognizes expense in connection with these plans as contributions are funded. ​ The following table presents the changes in net benefit obligation and plan assets, excluding defined contribution plans and multi-employer plans. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Defined Benefit ​ Nonpension Postretirement ​ ​ ​ Pension Plans ​ Benefit Plans ​ (Dollars in millions) 2021 2020 2021 2020 ​ Change in benefit obligation ​ ​ ​ ​ Benefit obligation at January 1 $ 1,202 ​ $ 1,099 ​ $ 13 ​ $ 13 ​ Service cost* 10 ​ 15 ​ — ​ 1 ​ Interest cost 4 ​ 10 ​ 1 ​ 1 ​ Plan participants’ contributions 1 ​ — ​ — ​ — ​ Benefit obligation assumed from former Parent** 1,178 ​ ( 12 ) ​ 6 ​ — ​ Actuarial losses (gains) ( 43 ) ​ 33 ​ 3 ​ ( 1 ) ​ Benefits paid from trust ( 2 ) ​ ( 21 ) ​ — ​ — ​ Direct benefit payments ( 3 ) ​ ( 19 ) ​ — ​ — ​ Foreign exchange impact ( 34 ) ​ 97 ​ — ​ — ​ Amendments, curtailments, settlements and other ( 11 ) ​ — ​ ( 4 ) ​ — ​ Benefit obligation at December 31 $ 2,302 ​ $ 1,202 ​ $ 19 ​ $ 13 ​ Change in plan assets ​ ​ ​ ​ ​ ​ ​ ​ Fair value of plan assets at January 1 $ 654 ​ $ 612 ​ $ 13 ​ $ 12 ​ Actual return on plan assets 39 ​ 13 ​ — ​ 2 ​ Employer contributions 23 ​ 4 ​ — ​ — ​ Fair value of plan assets assumed from former Parent** 810 ​ ( 10 ) ​ ( 13 ) ​ — ​ Plan participants’ contributions 1 ​ — ​ — ​ — ​ Benefits paid from trust ( 2 ) ​ ( 21 ) ​ — ​ — ​ Foreign exchange impact ( 22 ) ​ 56 ​ — ​ ( 1 ) ​ Settlements ( 8 ) ​ — ​ — ​ — ​ Fair value of plan assets at December 31 $ 1,496 ​ $ 654 ​ $ — ​ $ 13 ​ Funded status at December 31 $ ( 807 ) ​ $ ( 548 ) ​ $ ( 19 ) ​ $ — ​ Accumulated benefit obligation*** $ 2,181 $ 1,171 ​ ​ ​ ​ ​ * Represents service costs attributable to Company-sponsored and co-sponsored plans. ** Represents the impact to benefit obligation and fair value of plan assets resulting from pension assets and liabilities assumed in connection with establishment of certain Kyndryl legal entities . *** Represents the benefit obligation assuming no future participant compensation increases. 87 Table of Contents The following table presents the amounts recorded in the Consolidated Balance Sheet. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Defined Benefit ​ Nonpension Postretirement ​ ​ Pension Plans ​ Benefit Plans ​ ​ December 31, ​ December 31, (Dollars in millions) 2021 2020 2021 2020 Noncurrent assets – pension assets ​ $ 58 ​ $ — ​ $ — ​ $ 1 Current liabilities – accrued compensation and benefits ​ ( 28 ) ​ — ​ — ​ — Noncurrent liabilities – retirement and nonpension postretirement benefit obligations ​ ( 836 ) ​ ( 548 ) ​ ( 18 ) ​ ( 1 ) Funded status, net ​ $ ( 807 ) ​ $ ( 548 ) ​ $ ( 19 ) ​ $ — ​ The following table presents information for defined benefit plans with accumulated benefit obligations (ABO) or projected benefit obligations (PBO) in excess of plan assets. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At December 31, 2021 ​ At December 31, 2020 ​ ​ Benefit ​ Plan ​ Benefit ​ Plan (Dollars in millions) Obligation Assets Obligation Assets PBO in excess of plan assets ​ $ 1,990 ​ $ 1,125 ​ $ 1,202 ​ $ 654 ABO in excess of plan assets ​ 1,790 ​ 1,039 ​ 1,079 ​ 561 Plan assets in excess of PBO ​ 312 ​ 371 ​ — ​ — ​ The following table presents information for the nonpension postretirement benefit plans with accumulated postretirement benefit obligations (APBO) in excess of plan assets. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At December 31, 2021 ​ At December 31, 2020 ​ Benefit Plan Benefit Plan (Dollars in millions) Obligation Assets Obligation Assets APBO in excess of plan assets ​ $ 19 ​ $ — ​ $ 1 ​ $ — Plan assets in excess of APBO ​ ​ — ​ ​ — ​ ​ 12 ​ ​ 13 88 Table of Contents ​ The following table presents the pretax net loss and prior service costs (credits) recognized in OCI and the changes in pretax net loss and prior service costs (credits) as well as Separation-related transfers from Parent recognized in AOCI for the retirement-related benefits plans. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Defined Benefit ​ Nonpension Postretirement ​ ​ Pension Plans ​ Benefit Plans (Dollars in millions) 2021 2020 2021 2020 Net loss (gain) at January 1 $ 314 $ 307 $ ( 2 ) $ ( 1 ) Current period loss (gain) ​ ​ ( 75 ) ​ ​ 43 ​ ​ 3 ​ ​ ( 2 ) Curtailments and settlements ​ ​ ( 3 ) ​ ​ — ​ ​ — ​ ​ — Amortization of net loss included in net periodic benefit cost ​ ​ ( 51 ) ​ ​ ( 36 ) ​ ​ — ​ ​ — Separation-related transfers from Parent ** ​ ​ 444 ​ ​ — ​ ​ 5 ​ ​ — Net loss (gain) at December 31 ​ $ 629 ​ $ 314 ​ $ 6 ​ $ ( 2 ) Prior service costs (credits) at January 1 ​ ​ ( 2 ) ​ ​ ( 3 ) ​ ​ — ​ ​ — Current period prior service costs (credits) ​ ​ 3 ​ ​ — ​ ​ ( 4 ) ​ ​ — Amortization for prior service costs (credits) included in net periodic benefit cost ​ ​ — ​ ​ 1 ​ ​ — ​ ​ — Separation-related transfers from Parent ** ​ ​ 9 ​ ​ — ​ ​ — ​ ​ — Prior service costs (credits) at December 31 ​ $ 9 ​ $ ( 2 ) ​ $ ( 4 ) ​ $ — Total amounts recognized in accumulated other comprehensive loss (income) * $ 638 $ 312 $ 2 $ ( 2 ) * See Note 14 - Equity for the total change in AOCI and the Consolidated Statement of Comprehensive Income for the components of net periodic benefit cost, including the related tax effects, recognized in OCI for the retirement-related benefit plans. ** Separation-related transfers from Parent represent the pretax impact resulting from the assumption of pension assets and liabilities, along with the associated deferred costs, in connection with establishment of certain Kyndryl legal entities. These transfers are not recognized in OCI; rather they are recognized as transfers into AOCI. See Note 14 – Equity. The following table presents the weighted-average assumptions used to measure the net periodic benefit cost and the year-end benefit obligations. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Defined Benefit ​ Nonpension Postretirement ​ ​ ​ Pension Plans ​ Benefit Plans ​ Weighted-average assumptions used to measure 2021 2020 2019 2021 2020 2019 Net periodic benefit cost ​ Discount rate 0.62 % 0.86 % 1.65 % 8.31 % 8.31 % 8.89 % Expected long-term returns on plan assets 3.00 % 4.03 % 4.62 % ​ ​ 8.20 % 9.00 % Rate of compensation increase 2.22 % 2.25 % 1.37 % ​ ​ ​ ​ Benefit obligations ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Discount rate ​ 1.19 % 0.62 % 0.86 % 1.04 % 8.31 % 8.31 % Rate of compensation increase ​ 2.30 % 2.22 % 2.25 % ​ ​ ​ ​ ​ ​ Interest crediting rate - cash balance plans ​ 1.43 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ In certain countries, a portfolio of high-quality corporate bonds is used to construct a yield curve. Cash flows from the Company’s expected benefit obligation payments are matched to the yield curve to derive discounts. In other countries where the markets for high-quality long-term bonds are not as well developed, a portfolio of long-term government bonds is used as a base and a credit spread is added to simulate corporate bond yields at these maturities in the jurisdiction of each plan. This is the benchmark for developing the respective discount rates. In developing the expected long-term rate of return on assets, the Company considers the long-term expectations for future returns. The use of expected returns may result in pension income that is greater or less than the actual return of those plan assets in a given year. Over time, however, the expected rate of return is expected to 89 Table of Contents approximate the actual long-term results, leading to a pattern of income or loss recognition that more closely matches the pattern of services provided by the employees. For the nonpension postretirement benefit plans, the Company reviews external data to determine the healthcare costs trends. The healthcare cost trend rates have an insignificant effect on plan costs or other benefit obligations due to terms of the plan which limit the Company’s obligation to the participants. Investment Policies and Strategies The investment objective of the plan assets is to generate returns that will enable the plan to meet its future obligations. The weighted-average target allocation for the defined benefit plans is 24 percent equity securities, 45 percent fixed-income securities, 4 percent real estate, 17 percent insurance contracts and 11 percent other investments. Typically the responsibility for determining the target allocation and managing the investments lies with a plan governing board that may include up to 50 percent of members elected by employees and retirees. Generally, these defined benefit plans do not invest in illiquid assets, and their use of derivatives is mainly for currency hedging, interest rate risk management, credit exposure and alternative investment strategies. Plan Assets and Fair Value Measurements The following table presents the Company’s defined benefit pension plans’ asset classes and their associated fair value at December 31, 2021 and 2020. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ December 31, 2020 (Dollars in millions) Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Equity securities ​ $ 9 ​ $ — ​ $ — ​ $ 9 ​ $ — ​ $ — ​ $ — ​ $ — Fixed income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Government and related (1) ​ ​ — ​ ​ 158 ​ ​ — ​ ​ 158 ​ ​ — ​ ​ 18 ​ ​ — ​ ​ 18 Corporate bonds ​ — ​ 32 ​ — ​ 32 ​ — ​ — ​ — ​ — Insurance contracts ​ — ​ 255 ​ — ​ 255 ​ — ​ 91 ​ — ​ 91 Cash and short-term investments (2) ​ 14 ​ — ​ — ​ 14 ​ 1 ​ — ​ — ​ 1 Derivative assets (3) ​ ​ 3 ​ ​ 12 ​ ​ — ​ ​ 15 ​ ​ — ​ ​ — ​ ​ — ​ ​ ​ Mutual funds ​ — ​ — ​ — ​ — ​ 7 ​ — ​ — ​ 7 Subtotal ​ $ 26 ​ $ 457 ​ $ — ​ $ 483 ​ $ 8 ​ $ 110 ​ $ — ​ $ 118 Investments measured at net asset value using NAV as a practical expedient (4) ​ — ​ — ​ — ​ 1,013 ​ — ​ — ​ — ​ 537 Fair value of plan assets ​ $ 26 ​ $ 457 ​ $ — ​ $ 1,496 ​ $ 8 ​ $ 110 ​ $ — ​ $ 654 (1) Includes debt issued by national, state and local governments and agencies. (2) Includes cash, cash equivalents and short-term marketable securities. (3) Includes forward contracts, interest rate swaps, exchange traded and other over-the-counter derivatives. (4) Investments measured at fair value using the net asset value (NAV) per share (or its equivalent), as a practical expedient. These investments include commingled funds, hedge funds, common collective trusts, private equity partnerships and real estate partnerships. ​ For the year ended December 31, 2021, there were no plan assets in the nonpension postretirement benefit plans. For the year ended December 31, 2020, the nonpension postretirement benefit plans held plan assets of $ 13 million, invested in government debt and corporate bonds categorized as Level 2 in the fair value hierarchy. Approximately 78 % of plan assets are held in plans which are co-sponsored by the Company along with IBM. The allocation of the fair value of co-sponsored plan assets is based on the initial pension assets assumed in connection with establishment of certain Kyndryl legal entities, Company contributions, distributions and market returns. Retirement-related benefit plan assets are recognized and measured at fair value. Because of the inherent uncertainty of valuations, these fair value measurements may not necessarily reflect the amounts the Company could 90 Table of Contents realize in current market transactions. The following is a description of the valuation techniques used to measure plan assets at fair value. There were no changes in valuation techniques during the periods presented. Equity securities and mutual funds: Equity securities are valued at the closing price reported on the stock exchange on which the individual securities are traded. Mutual funds are typically valued based on quoted market prices. These assets are generally classified as Level 1. Fixed income: Fixed-income securities, other than insurance contracts, are typically valued using the closing price reported on the major market on which the individual securities are traded, if available. Assets fair valued using this methodology are generally classified as Level 2. If market prices are unavailable, the fair value is estimated using pricing models or quoted prices of securities with similar characteristics. Insurance contracts: Fair value is based on the expected value of the insurance benefits of the insurance contracts. The insurance benefits are assessed using the same interest rate and mortality table used to determine the liability. These assets are generally classified as Level 2. Cash and short-term investments: Cash includes money market accounts that are valued at their cost plus interest on a daily basis, which approximates fair value. Short-term investments represent securities with original maturities of one year or less. These assets are generally classified as Level 1. Derivatives assets: Exchange-traded derivatives are valued at the closing price reported on the exchange on which the individual securities are traded. Forward contracts are valued using a mid-close price. Over-the-counter derivatives are valued using pricing models. These models require a variety of inputs, yield curves, credit curves, measures of volatility and foreign exchange rates. Derivative assets are classified as Level 1 or Level 2 depending on availability of quoted market prices. Investments measured at net asset value: Certain investments are measured at fair value using the net asset value (“NAV”) per share (or its equivalent) as a practical expedient. These investments, which may include commingled funds, hedge funds, common collective trusts, private equity partnerships and real estate partnerships, are typically valued using the NAV provided by the administrator of the fund. The NAV is based on the value of the underlying assets owned by the fund, minus liabilities multiplied by the plan’s ownership of the investment. Contributions and Direct Benefit Payments It is the Company’s general practice to fund amounts for pensions sufficient to meet the minimum requirements set forth in applicable employee benefits laws and local tax laws. From time to time, the Company contributes additional amounts as it deems appropriate. The following table presents the contributions made to the defined benefit pension plan, nonpension postretirement benefit plans, multi-employer plans, defined contribution plans and direct payments made in 2021, 2020 and 2019. The cash contributions to the multi-employer plans represent the annual cost included in the net periodic benefit cost recognized in the Consolidated Income Statement. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (Dollars in millions) 2021 2020 ​ 2019 Defined benefit plans ​ $ 25 ​ $ 4 ​ $ 4 Multi-employer plans* ​ 5 ​ ​ 7 ​ ​ 9 Defined contribution plans ​ 165 ​ ​ 194 ​ ​ 207 Direct payments ​ 33 ​ ​ 19 ​ ​ 16 Total ​ $ 229 ​ $ 225 ​ $ 236 * Multi-employer plans are sponsored by third parties. 91 Table of Contents Contributions to nonpension postretirement benefit plans were not material for any periods presented. Prior to September 1, 2021, certain U.S. employees were eligible to participate in the IBM 401(k) Plus Plan, which provided matching contributions up to 6 % of eligible pay. On September 1, 2021, employees who participated in the IBM 401(k) Plus Plan were transferred to the Kyndryl 401(k) Plan and eligible to continue to receive matching contributions up to 6 % of eligible pay. For all eligible employees hired or rehired on or after September 1, 2021, the Kyndryl 401(k) Plan provides a matching contribution of up to 3 % of eligible pay. The Company estimates contributions to its defined benefit and multi-employer plans in 2022 to be approximately $ 29 million, the largest of which will be contributed to a defined benefit plan in Spain. This amount generally represents legally mandated minimum contributions. Financial market performance in 2022 could increase the legally mandated minimum contribution in certain countries that require monthly or daily remeasurement of the funded status. The Company could also elect to contribute more than the legally mandated amount based on market conditions or other factors. Expected Benefit Payments – Defined Benefit Pension Plans and Nonpension Postretirement Benefit Plans The following table presents the total expected benefit payments to participants of both the defined benefit pension plans and nonpension postretirement benefit plans. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nonpension ​ ​ Defined Benefit ​ Postretirement (Dollars in millions) Pension Plans Benefit Plans 2022 ​ $ 99 ​ $ — 2023 ​ 87 ​ ​ 1 2024 ​ 87 ​ ​ 1 2025 ​ 107 ​ ​ 1 2026 ​ 100 ​ ​ 1 2027‑2031 ​ 592 ​ ​ 3 ​ The 2022 expected benefit payments not covered by the respective plan assets represent a component of compensation and benefits, within current liabilities, in the Consolidated Balance Sheet. ​ NOTE 17. RELATED-PARTY TRANSACTIONS ​ Related-Party Revenue and Purchases Kyndryl provides various services to IBM, including those related to hosting data centers and servicing IBM’s information technology infrastructure, which are reported as revenue in the Company’s Consolidated Income Statement. Revenue generated from these services was $ 704 million, $ 645 million and $ 613 million for the years ended December 31, 2021, 2020 and 2019, respectively. Kyndryl utilizes various IBM products and services, recognized as costs of services, in the fulfillment of services contracts. Total cost of services recognized from these related-party transactions in the Company’s Consolidated Income Statement was $ 4.0 billion, $ 3.8 billion and $ 3.6 billion for the years ended December 31, 2021, 2020 and 2019, respectively. Included in these related-party cost of services were: costs incurred by Kyndryl to provide services to the former Parent for networking and IT services prior to Separation in the amounts of $ 384 million, $ 509 million and $ 484 million for the years ended December 31, 2021, 2020 and 2019, respectively; costs related to the usage of IBM-branded software allocated to Kyndryl by the former Parent prior to Separation in the amounts of $ 2.8 billion, $ 2.7 billion and $ 2.6 billion for the years ended December 31, 2021, 2020 and 2019, respectively; depreciation charges related to IBM hardware allocated to Kyndryl prior to Separation in the amounts of $ 447 million, $ 520 million and $ 538 million for the years ended December 31, 2021, 2020 and 2019, respectively; and costs related to services provided to Kyndryl’s customers that were outsourced to IBM post-Separation in the amount of $ 312 million during the fourth quarter of 2021. 92 Table of Contents The capital expenditures for purchases of IBM hardware were reflected as payments for property and equipment within the investing section of the Company’s Consolidated Statement of Cash Flows in the amounts of $ 299 million, $ 504 million and $ 526 million for the years ended December 31, 2021, 2020 and 2019, respectively. Additionally, as part of the Separation, IBM has committed to provide Kyndryl, at no cost, up to approximately $ 265 million of upgraded hardware over an expected two-year period. The amounts committed by IBM are reflected within other assets (noncurrent) within the Consolidated Balance Sheet at December 31, 2021. The expected average useful life of the upgraded hardware is approximately five years , and the Company intends to recognize total depreciation approximating $ 265 million over the useful life, consistent with our depreciation policy. Acquired Intangible Assets Within the historical periods presented, the Company has been charged a management fee for the use of certain acquired intangible assets by IBM for acquisitions which were not specific to Kyndryl. The amounts reflected within cost of services on the Consolidated Income Statement for these fees were $ 26 million, $ 31 million and $ 15 million for the years ended December 31, 2021, 2020 and 2019, respectively. The amounts for these fees reflected within Selling, general and administrative expense within the Consolidated Income Statement were $ 37 million, $ 49 million and $ 23 million for the years ended December 31, 2021, 2020 and 2019, respectively. Allocation of Corporate Expenses The Consolidated Income Statement, Consolidated Statement of Comprehensive Income (Loss) and Consolidated Statement of Cash Flows include an allocation of general corporate expenses from IBM prior to the Separation. The financial information in these consolidated financial statements does not necessarily include all of the expenses that would have been incurred by Kyndryl had it been a separate, standalone company. It is not practicable to estimate actual costs that would have been incurred had Kyndryl been a standalone company during the periods presented. Allocations for management costs and corporate support services provided to Kyndryl for the years ended December 31, 2021, 2020 and 2019 totaled $ 1.0 billion, $ 1.3 billion and $ 1.2 billion, respectively. These amounts include costs for corporate functions including, but not limited to, senior management, legal, human resources, finance and accounting, treasury, information technology and other shared services. All such amounts have been deemed to have been incurred and settled by Kyndryl in the period in which the costs were recorded and are included in the Net Parent investment. These costs were allocated based on direct usage as applicable, with the remainder allocated on a pro-rata basis of gross profit, headcount, assets or other measures. ​ The following table presents the components of the allocation of general corporate expenses from IBM. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, (Dollars in millions) 2021 2020 ​ 2019 Selling, general and administrative expense ​ $ 932 ​ $ 1,220 ​ $ 1,185 Interest expense ​ ​ 46 ​ ​ 63 ​ ​ 76 Other (income) and expense ​ ​ 10 ​ ​ 4 ​ ​ ( 31 ) Total expense and other (income) ​ $ 989 ​ $ 1,287 ​ $ 1,230 ​ Net Parent Investment Prior to the Separation, related-party transactions between Kyndryl and IBM were included within Net Parent investment in the Consolidated Balance Sheet as these related-party transactions were not settled in cash. Net Parent investment in the Consolidated Balance Sheet and Consolidated Statement of Changes in Equity represents IBM’s historical investment in Kyndryl, the net effect of transactions with and allocations from IBM and Kyndryl’s accumulated earnings. Net transfers from IBM are included within Net Parent investment. The components of Net 93 Table of Contents transfers from IBM and the reconciliation to the corresponding amount presented on the Consolidated Statement of Cash Flows were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, (Dollars in millions) 2021 2020 ​ 2019 Cash pooling and general financing activities/other ​ $ ( 445 ) ​ $ ( 4,165 ) ​ $ ( 4,390 ) Allocation of Parent’s corporate expenses/other ​ ​ 1,255 ​ ​ 1,668 ​ ​ 1,610 Related-party sales and purchases ​ ​ 2,440 ​ ​ 2,991 ​ ​ 2,944 Related-party intangible assets fee ​ ​ 63 ​ ​ 80 ​ ​ 38 Income taxes ​ ​ 716 ​ ​ 297 ​ ​ 397 Issuance of common stock and reclassification of net parent investment ​ ​ ( 4,029 ) ​ ​ — ​ ​ — Total Net transfers (to) from Parent per Consolidated Statement of Equity ​ $ — ​ $ 872 ​ $ 598 Income taxes ​ ​ ( 716 ) ​ ​ ( 297 ) ​ ​ ( 397 ) Allocation of Parent’s stock-based compensation ​ ​ ( 58 ) ​ ​ ( 64 ) ​ ​ ( 51 ) Other* ​ ​ 744 ​ ​ ( 133 ) ​ ​ ( 132 ) Total Net transfers (to) from Parent per Consolidated Statement of Cash Flows ​ $ ( 30 ) ​ $ 377 ​ $ 18 * Approximately $ 900 million of the net proceeds from the term loan and the sale of the Notes was transferred to IBM in conjunction with the Separation. See Note 11 – Borrowings. Assignment of Receivables A portion of Kyndryl’s receivables with extended payment terms have historically been assigned to IBM’s Global Financing business. These receivables were not recognized on the Company’s Consolidated Balance Sheet. The gross amounts of Kyndryl receivables assigned to IBM Global Financing were $ 1.9 billion, $ 3.1 billion and $ 3.0 billion for the years ended December 31, 2021, 2020 and 2019, respectively. The fees and the net gains and losses associated with the assignment of receivables were not material for any of the periods presented. In October 2021, in preparation for the Separation, the Company entered into a Receivables Purchase Agreement with an unaffiliated bank with capacity similar to the amounts historically financed by IBM. Software Purchase Agreements In conjunction with the Separation, Kyndryl has agreed to purchase IBM software for internal use and the delivery of services to Kyndryl customers in a pricing arrangement with IBM that extends through 2026, subject to adjustment in certain circumstances, including the termination of customer contracts. Lease Guarantees Kyndryl identified 71 lease agreements with third parties with an estimated aggregate lease liability guaranteed by IBM of $ 181 million. NOTE 18. SUBSEQUENT EVENTS On January 27, 2022, the Board of Directors approved a change in the Company’s fiscal year from the twelve months beginning January 1 and ending December 31 to the twelve months beginning April 1 and ending March 31. The Company will file a transition report on Form 10-QT for the three-month period ended March 31, 2022, in accordance with SEC rules and regulations. All subsequent fiscal years for the Company will be from April 1 to March 31. The Company is making the fiscal year change on a prospective basis and will not adjust operating results for prior periods. ​ ​ 94 Table of Contents ​ Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure: None. ​ ​ Item 9A. Controls and Procedures: ​ The Company’s management evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report. ​ There has been no change in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) of the Exchange Act) that occurred during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. ​ This Annual Report on Form 10-K does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of the Company’s independent registered public accounting firm due to an exemption established by the rules of the SEC for newly public companies. ​ Item 9B. Other Information : ​ Section 13(r) Disclosure ​ Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which added Section 13(r) of the Exchange Act, we hereby incorporate by reference herein Exhibit 99.1 of this report, which includes disclosures regarding activities at International Business Machines Corporation, which was, during a portion of the period covered by this report, our affiliate. ​ ​ Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections: ​ Not applicable. ​ ​ 95 Table of Contents PART III Item 10. Directors, Executive Officers and Corporate Governance . Set forth below is certain information regarding each of our current directors and executive officers as of March 10, 2022. ​ ​ ​ ​ ​ ​ Name Age Position Martin Schroeter ​ 57 ​ Chief Executive Officer and Chairman of the Board David Wyshner ​ 54 ​ Chief Financial Officer Elly Keinan ​ 57 ​ Group President Maryjo Charbonnier ​ 52 ​ Chief Human Resources Officer Edward Sebold ​ 57 ​ General Counsel and Secretary Vineet Khurana ​ 48 ​ Controller Dominic J. Caruso ​ 64 ​ Director John D. Harris II ​ 60 ​ Director Stephen A. M. Hester ​ 61 ​ Director Shirley Ann Jackson ​ 75 ​ Director Janina Kugel ​ 52 ​ Director Denis Machuel ​ 57 ​ Director Rahul N. Merchant ​ 65 ​ Director Jana Schreuder ​ 63 ​ Director Howard I. Ungerleider ​ 53 ​ Director ​ The following are brief biographies describing the backgrounds of our executive officers and directors. Martin Schroeter. Mr. Schroeter was appointed our first Chief Executive Officer in January 2021 and was appointed as Chairman of the Board in October 2021 in connection with the Spin-off. Previously, Mr. Schroeter served in a variety of business line and finance executive positions at IBM including Senior Vice President of Global Markets from 2018 until 2020, responsible for IBM’s global sales, customer relationships and satisfaction and worldwide geographic operations and overseeing IBM’s marketing and communication functions and building IBM’s brand and reputation globally, and Senior Vice President and Chief Financial Officer from 2014 until 2017, leading IBM’s shift in spending profile to align with IBM strategic initiatives. Earlier in his career, Mr. Schroeter served as General Manager of IBM global financing, managing a total asset base in excess of $37 billion, and had served numerous roles in Japan, the United States and Australia. Previously, Mr. Schroeter served as a director of the American Australian Association. Mr. Schroeter received his MBA from Carnegie Mellon University and his undergraduate degree from Temple University. Mr. Schroeter’s global business and leadership experience and financial expertise make him a well-qualified addition to our Board. David Wyshner. Mr. Wyshner was appointed our Chief Financial Officer in September 2021. From March 2020 until his appointment as our Chief Financial Officer, Mr. Wyshner served as the Chief Financial Officer at XPO Logistics, Inc., where he led all financial functions for the global transportation and contract logistics company that manages supply chains for customers worldwide. Prior to that, Mr. Wyshner served as the Chief Financial Officer at Wyndham Hotels & Resorts, Inc. from May 2018 to December 2019, and as its senior advisor from December 2019 to March 2020. He served as Executive Vice President and Chief Financial Officer of Wyndham Worldwide Corporation, from which Wyndham Hotels was spun-off, from August 2017 to May 2018. From August 2006 to June 2017, Mr. Wyshner served as the Chief Financial Officer of Avis Budget Group and also served as Avis Budget Group’s president from January 2016 to June 2017. Mr. Wyshner received his MBA from the Wharton School of the University of Pennsylvania and his bachelor’s degree from Yale University. 96 Table of Contents Elly Keinan. Mr. Keinan was appointed our Group President in March 2021. From September 2020 until his appointment as our Group President, Mr. Keinan served as a venture partner at Pitango Venture Capital, Israel’s leading venture capital group, focused on scaling the success of growth stage technology companies. Prior to that, Mr. Keinan served a variety of executive roles at IBM from July 1987 to June 2020, including General Manager of IBM North America and Chairman of IBM Japan, and held top leadership roles in Latin America and Europe. Mr. Keinan currently serves on the boards of Cellebrite, Ottopia and United Way of New York City. Mr. Keinan received his MBA from University of Miami Herbert Business School and his Bachelor of Science in Computer Science and Electrical Engineering from Rensselaer Polytechnic Institute. Maryjo Charbonnier. Ms. Charbonnier was appointed our Chief Human Resources Officer in July 2021. From January 2015 until her appointment, Ms. Charbonnier served as the Chief Human Resources Officer at Wolters Kluwer, where she was responsible for the design and implementation of all human resources strategies, policies and processes. Prior to that, Ms. Charbonnier served as the Chief Human Resources Officer at Broadridge Financial Solutions from August 2008 to December 2014. From August 1995 to August 2008, Ms. Charbonnier was an HR executive in a variety of leadership roles at PepsiCo, including Vice President for Talent Sustainability for PepsiCo Foods Americas. Ms. Charbonnier received her MBA from Southern Methodist University and her undergraduate degree from Catholic University. Edward Sebold. Mr. Sebold was appointed our General Counsel and Secretary in October 2021 in connection with the Spin-off. From March 2012 until his appointment as our General Counsel, Mr. Sebold served as Assistant General Counsel at IBM, leading several global legal functions at IBM, including teams that worked with services, IBM's Watson Health, litigation and mergers and acquisitions. Prior to joining IBM in 2012, Mr. Sebold was a partner at Jones Day in the firm’s Cleveland and Houston offices. Mr. Sebold serves on the board of the Pro Bono Partnership. Mr. Sebold received his JD from University of Michigan and his undergraduate degree from John Carroll University. Vineet Khurana. Mr. Khurana was appointed our Controller in May 2021. Since July 2020, Mr. Khurana had been serving as Chief Financial Officer of IBM’s Global Business Services. Prior to assuming this role, Mr. Khurana was the Chief Financial Officer of IBM Europe from March 2018 through July 2020 and the Vice President and Chief Financial Officer of IBM United Kingdom and Ireland from July 2016 until March 2018. Earlier in his IBM tenure, Mr. Khurana has held roles of increasing responsibility spanning financial strategy and IBM’s Global Financing division. Mr. Khurana also serves as an External Governor and a member of the Infrastructure and Finance committee of the University of Portsmouth, United Kingdom. Mr. Khurana received his MBA from University of Warwick and his undergraduate degree from Manipal Institute of Technology. Dominic J. Caruso. Mr. Caruso was elected to our Board in October 2021 in connection with the Spin-off. Mr. Caruso served as the Executive Vice President and Chief Financial Officer of Johnson & Johnson from 2007 until his retirement in 2018. Earlier in his career, Mr. Caruso served Centocor, Inc. as Vice President, Finance and Chief Financial Officer from 1994 to 1998, and as Senior Vice President and Chief Financial Officer from 1998 until the acquisition of Centocor by Johnson & Johnson in 1999. Mr. Caruso then joined Johnson & Johnson and served in various executive positions until his appointment as the Executive Vice President and Chief Financial Officer in 2007. Mr. Caruso is a director of McKesson Corporation. Mr. Caruso previously served as the Co-Chair of the U.S. Chamber of Commerce Global Initiative on Health and the Economy and currently serves on the Board of Trustees of The Children’s Hospital of Philadelphia and the Cystic Fibrosis Foundation. Mr. Caruso received his BS from Drexel University. Mr. Caruso’s global business experience and financial expertise make him a well-qualified member of our Board. 97 Table of Contents John D. Harris II. Mr. Harris was elected to our Board in October 2021 in connection with the Spin-off. Mr. Harris served as Chief Executive Officer of Raytheon International Inc. from 2013 until 2020. Mr. Harris also served as Vice President of Business Development for Raytheon Company during his tenure. Mr. Harris joined Raytheon in 1983 and held positions of increasing responsibility, including Vice President of Operations and Contracts for Raytheon’s former electronic systems business, Vice President of Contracts for the company’s government and defense businesses until 2003, and Vice President of Contracts and Supply Chain for Raytheon Company until 2010, when he was named president of the Raytheon Technical Services Company, a role he served until 2013. Mr. Harris served on the Radio Technical Commission for Aeronautics NextGen Advisory Committee of the U.S. Department of Transportation, the National Advisory Council on Minority Business Enterprise with the U.S. Department of Commerce and the Association of the United States Army’s Council of Trustees. Mr. Harris serves as a board member for Cisco Systems Inc. and Flex Ltd. He received his undergraduate degree from Boston University. Mr. Harris’ global business experience and technology, digital and cybersecurity expertise make him a well-qualified member of our Board. Stephen A. M. Hester. Mr. Hester was elected to our Board in October 2021 in connection with the Spin-off. Mr. Hester joined RSA Insurance Group in 2014, and was the Chief Executive Officer until his retirement in June 2021. Prior to joining RSA, he was group Chief Executive of Royal Bank of Scotland from 2008 to 2013, Chief Executive of British Land Plc from 2004 to 2008, and Chief Operating Officer and Chief Financial Officer of Abbey National plc from 2002 to 2004. Mr. Hester began his career at Credit Suisse First Boston in 1982 and held positions of increasing responsibility including Chief Financial Officer and Head of Support Division from 1996 until 2000, when he was appointed as Global Head of the Fixed Income Division, a role he served until 2001. Mr. Hester currently serves as a non-executive director of easyJet plc and a director of Centrica plc. Additionally, during the past five years, he served as a director of RSA Insurance Group plc. Mr. Hester was formerly a director of the Royal Bank of Scotland, Northern Rock and Abbey National plc. Mr. Hester received his undergraduate degree from Oxford University. Mr. Hester’s global business experience and financial expertise make him a well-qualified member of our Board. Shirley Ann Jackson. Dr. Jackson was elected to our Board in October 2021 in connection with the Spin-off. Since 1999, Dr. Jackson has served as the President of Rensselaer Polytechnic Institute. From 1995 until she assumed her current position, Dr. Jackson was the Chairwoman of the U.S. Nuclear Regulatory Commission. From 1991 to 1995 Dr. Jackson served as a consultant to the former AT&T Bell Laboratories and was also a professor of theoretical physics at Rutgers University. Prior to such roles, Dr. Jackson was a theoretical physicist at the former AT&T Bell Laboratories from 1976 to 1991. Dr. Jackson is a member of the United States Secretary of Energy Advisory Board. She has been Co-Chair of the President’s Intelligence Advisory Board, a member of the International Security Advisory Board to the United States Secretary of State. Dr. Jackson is a fellow of the Royal Academy of Engineering (U.K.), the American Academy of Arts and Sciences, and a member of the U.S. National Academy of Engineering and the American Philosophical Society. Dr. Jackson is a recipient of the National Medal of Science, the highest award in science and engineering awarded by the U.S. Government. Dr. Jackson is a member of the Council on Foreign Relations. She is a Regent Emerita and former Vice-Chair of the Board of Regents of the Smithsonian Institution, a past president of the American Association for the Advancement of Sciences, and an honorary trustee of the Brookings Institution. Dr. Jackson is a director of FedEx Corporation and Public Service Enterprise Group Incorporated. Additionally, during the past five years, she served as a director of IBM. Dr. Jackson received her PhD and BS degrees from MIT. Dr. Jackson’s extensive leadership and technology experience make her a well-qualified member of our Board. 98 Table of Contents Janina Kugel. Ms. Kugel was elected to our Board in October 2021 in connection with the Spin-off. Ms. Kugel served as the Chief Human Resources Officer and member of the Managing Board of Siemens AG from 2015 until 2020. Ms. Kugel joined Siemens AG in 2001 as Vice President of Communications Group Strategy and in 2005, was appointed Director of Global Commercial Excellence before becoming Director of Human Resources in 2009. Ms. Kugel joined Osram in 2012, where she served as the Chief Human Resources Officer until 2013, when she was appointed Corporate Vice President of Human Resources and Chief Diversity Officer at Siemens AG. Ms. Kugel serves on the Board of Konecranes plc and TUI AG and is a member of the supervisory board of the German Pension Benefit Guaranty Association (Pensions-Sicherungs-Verein) and the Executive Committee of the Supervisory Board of the Confederation of German Employers’ Associations (Bundesvereinigung der Deutschen Arbeitgeberverbände). Ms. Kugel is also trustee of the Hertie School of Governance in Germany, a member of the International Advisory Board of the IESE Business School in Spain and, the University Council of the Technical University of Munich. Since 2020, Ms. Kugel has served as senior advisor to EQT, AB Group and Boston Consulting Group, Inc. She received her MS from the Johannes Gutenberg University Mainz. Ms. Kugel’s global business experience and government service make her a well-qualified member of our Board. Denis Machuel. Mr. Machuel was elected to our Board in October 2021 in connection with the Spin-off. From 2018 to September 2021, Mr. Machuel served as Chief Executive Officer of Sodexo S.A. Mr. Machuel joined Sodexo in 2007 as the Managing Director of Benefits and Rewards Services for Central and Eastern Europe. In 2012, he became Chief Executive Officer of Sodexo benefits and rewards worldwide. Mr. Machuel joined the Sodexo Group Executive Committee in 2014, and from 2015 until 2018, served as Group Chief Digital Officer and since 2017, he has served as Deputy Chief Executive Officer of Sodexo. Additionally, between 2016 and 2017, Mr. Machuel served as Chief Executive Officer of Personal and Home Services at Sodexo. Mr. Machuel has also been a member of the G7 Business for Inclusive Growth Coalition and the Consumer Goods Forum. Mr. Machuel received his MS from Texas A&M University and his undergraduate degree from ENSIMAG College of Engineering. Mr. Machuel’s global business experience and technology and digital expertise make him a well-qualified member of our Board. Rahul N. Merchant. Mr. Merchant was elected to our Board in October 2021 in connection with the Spin-off. Mr. Merchant has served as Senior Executive Vice President and Head of Client Services and Technology at TIAA since 2015. Prior to serving this role, Mr. Merchant served as citywide Chief Information and Innovation Officer for the City of New York from 2012 until 2014. From 2006 until 2009, Mr. Merchant served as Executive Vice President, Chief Information and Operations Officer and member of the Executive Committee at the Federal National Mortgage Association (Fannie Mae), and Senior Vice President, Chief Information Officer and Chief Technology Officer at Merrill Lynch, Pierce, Fenner & Smith Incorporated from 2000 until 2006. Mr. Merchant also serves as a director for Juniper Networks, Inc. Mr. Merchant received his MBA from Temple University, his MS from Memphis State University and his BS from Bombay University. Mr. Merchant’s global business and technology experience make him a well-qualified member of our Board. Jana Schreuder. Ms. Schreuder was elected to our Board in October 2021 in connection with the Spin-off. Ms. Schreuder served as Executive Vice President and Chief Operating Officer of Northern Trust Corporation from 2014 until she retired from that role in 2018. Ms. Schreuder joined Northern Trust in 1980 and during her tenure held multiple roles as a member of the management team, including service as Chief Risk Officer from 2005 to 2006, President of Operations and Technology from 2006 to 2011, and President of Wealth Management from 2011 to 2014. Ms. Schreuder is a member of the Global Governance Committee of Women Corporate Directors. Ms. Schreuder currently sits on the board of Blucora, Inc. and The Bank of N.T. Butterfield & Son Limited. Additionally, during the past five years, she served as a director of LifePoint Health Inc. Ms. Schreuder received her MBA from Northwestern University and her BA from Southern Methodist University. Ms. Schreuder’s technology, digital and cybersecurity expertise make her a well-qualified member of our Board. 99 Table of Contents Howard I. Ungerleider. Mr. Ungerleider was elected to our Board in October 2021 in connection with the Spin-off. Mr. Ungerleider has served as President and Chief Financial Officer of Dow Inc. since April 2019. In 1990, he joined The Dow Chemical Company and subsequently held various positions, including Chief Financial Officer from 2014 to 2015. In 2016, he was appointed Chief Financial Officer of DowDuPont effective upon the merger of The Dow Chemical Company and E.I. du Pont de Nemours and Company. Mr. Ungerleider served in this role from 2017 until April of 2019, when Dow Inc. separated from DowDuPont. Mr. Ungerleider is Chairman of the Dow Company Foundation and serves on the board of directors of FCLTGlobal, the Michigan Israel Business Bridge and Keep America Beautiful. Mr. Ungerleider is also Chair of the Business Leaders for Michigan business roundtable and the Michigan Climate Executive Advisory Group. Additionally, during the past five years, he served as a director of Wolverine Bancorp, Inc. Mr. Ungerleider received his MBA from UCLA and his BBA from The University of Texas at Austin. Mr. Ungerleider’s global business and leadership experience and financial expertise make him a well-qualified member of our Board. Our Board of Directors Our Board of Directors (our “Board”) consists of ten members. Until the conclusion of the 2027 annual meeting, our Board will be divided into three classes, with each class consisting, as nearly as may be possible, of one-third of the total number of directors. The directors designated as Class I directors have terms expiring at the annual meeting of stockholders in 2022. The directors designated as Class II directors have terms expiring at the annual meeting of stockholders in 2023 and the directors designated as Class III directors have terms expiring at the annual meeting of stockholders in 2024. Any director elected at the 2022, 2023 or 2024 annual meeting will belong to the class whose term expires at such annual meeting and will hold office for a three-year term until his or her successor has been duly elected and qualified or until his or her earlier resignation or removal. Ms. Kugel, Mr. Machuel and Mr. Merchant serve as Class I directors. Mr. Harris, Ms. Schreuder and Mr. Ungerleider serve as Class II directors. Mr. Caruso, Mr. Hester, Dr. Jackson and Mr. Schroeter serve as Class III directors. Beginning at the 2025 annual meeting and at each annual meeting thereafter, all of our directors up for election at such meeting will be elected annually and will hold office until the next annual meeting and until his or her successor has been duly elected and qualified or until his or her earlier resignation or removal. Effective as of the conclusion of the 2027 annual meeting, our Board will therefore no longer be divided into three classes. Before our Board is declassified, it would take at least two elections of directors for any individual or group to gain control of our Board. Accordingly, while the classified board is in effect, these provisions could discourage a third party from initiating a proxy contest, making a tender offer or otherwise attempting to control us. This temporary classified Board structure is intended to provide better continuity of leadership during Kyndryl’s first years of operation as an independent, publicly held business, versus annually elected directors. Business Conduct Guidelines Our Business Conduct Guidelines are applicable to all of our directors, officers and employees, including our Chairman and Chief Executive Officer, Chief Financial Officer, Controller and other senior financial officers. Our Business Conduct Guidelines set forth our policies and expectations on a number of topics, including conflicts of interest, compliance with laws (including insider trading laws), use of our assets and business conduct and fair dealing. Our Business Conduct Guidelines also satisfy the requirements for a code of ethics, as defined by Item 406 of Regulation S-K promulgated by the SEC. The Business Conduct Guidelines may be found on our website at www.kyndryl.com under Investors: Governance: Governance Documents: Business Conduct Guidelines. To the extent applicable, we will disclose within four business days any substantive changes in, or waivers of, the Business Conduct Guidelines granted to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, by posting such information on our website as set forth above rather than by filing a Current Report on Form 8-K. In the case of a waiver for an executive officer or a director, the required disclosure also will be made available on our website within four business days of the date of such waiver. 100 Table of Contents Audit Committee The Audit Committee of our Board consists entirely of independent directors, Mr. Caruso, Mr. Machuel and Mr. Merchant, each of whom meets the independence requirements set forth in the listing standards of the New York Stock Exchange, Rule 10A-3 under the Exchange Act and our Audit Committee charter. Mr. Caruso serves as Chair of the Audit Committee. Each member of the Audit Committee is financially literate, and each of Mr. Caruso, Mr. Machuel and Mr. Merchant has accounting and related financial management expertise and satisfies the criteria to be an “audit committee financial expert” under the rules and regulations of the SEC, as those qualifications are interpreted by our Board in its business judgment. The Audit Committee is responsible for overseeing reports of our financial results, audit reporting, internal controls, and adherence to our Business Conduct Guidelines in compliance with applicable laws and regulations. Concurrent with that responsibility, as set out more fully in the Audit Committee charter, t