Item 9A. Controls and Procedures
Item 9A. Controls and Procedures .
Disclosure 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 March 31, 2024, 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 not considered to be effective as of March 31, 2024 due to a material weakness in internal control over financial reporting (as such term is defined in Rule 12b-2 of the Exchange Act) in the area of our information technology general controls (“ITGCs”). The deficiencies in ITGCs were related to access and program development and change management controls associated with the Company’s large-scale migration in a compressed timeframe of its internal operating systems to a new enterprise resource planning system (“ERP”), which was required to replace the systems temporarily being made available to the Company by our former parent following our Spin-off. These control deficiencies did not result in a misstatement to the annual or interim consolidated financial statements previously filed or included in this Annual Report on Form 10-K.
Subsequent to the identification of the ITGC deficiencies and prior to the issuance of this Annual Report on Form 10-K, the Company performed a lookback review of the users making changes to relevant systems and conducted other supplemental procedures. As a result of these procedures we did not identify any material misstatements in our consolidated financial statements or disclosures in the fiscal year ended March 31, 2024.
Our management has concluded that the consolidated financial statements for the periods covered by and included in this Annual Report on Form 10-K fairly present, in all material respects, our financial position, results of operations and cash flows in conformity with GAAP.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that:
● pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
● provide reasonable assurance that the transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of management and our Board of Directors; and
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● provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management, with the participation of the Chief Executive Officer and Chief Financial Officer, conducted an assessment of the effectiveness of our internal control over financial reporting as of March 31, 2024 based on the criteria set forth in Internal Control – Integrated Framework (“2013 Framework”) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
In connection with our assessment of the effectiveness of internal control over financial reporting, management identified certain control deficiencies associated with the Company’s new ERP environment in the area of ITGCs related to (i) user access and segregation of duty controls that restrict user and privileged access to appropriate personnel; (ii) program development and change management controls; and (iii) certain computer operations controls that, when aggregated, are considered to be a material weakness which is defined in Rule 12b-2 of the Exchange Act as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. Because of this, management has determined our internal control over financial reporting was not effective as of March 31, 2024. These control deficiencies did not result in a misstatement to the annual or interim consolidated financial statements previously filed or included in this Annual Report on Form 10-K.
Our consolidated financial statements included in this Annual Report on Form 10-K and the effectiveness of our internal control over financial reporting as of March 31, 2024 have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report included in this Annual Report on Form 10-K. See “Report of Independent Registered Public Accounting Firm” on page 50 .
Remediation Plan
Management has evaluated the deficiencies described above and has developed and is implementing a remediation plan designed to strengthen our ITGC processes and controls associated with our new ERP environment. This plan includes but is not limited to (i) implementing and/or formalizing additional controls across our information technology environment, including user access and segregation of duty controls, program development and change management controls, and certain computer operations controls, and (ii) training of relevant personnel on the design and operation of any new or modified ITGCs. The remediation plan is subject to ongoing management review, as well as oversight by the Audit Committee of our Board of Directors.
The Company expects to complete the implementation of its remediation plan during fiscal year 2025. We believe our remediation plan will address the deficiencies described above; however, deficiencies will not be considered fully remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We will continue to monitor the design and effectiveness of these and other processes, procedures and controls and make further changes as appropriate.
Changes in Internal Control over Financial Reporting
Other than the deficiencies and remediation activities described above, 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 ended March 31, 2024 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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Item 9B. Other Information .
During the three months ended March 31, 2024, none of the Company’s directors or executive officers adopted, terminated or modified a “Rule 10 b 5 - 1 trading arrangement” or a “non-Rule 10 b 5 - 1 trading arrangement” as such terms are defined in Item 408 of Regulation S-K.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections .
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance .
Information about our executive officers may be found under the caption “Information about our Executive Officers” in Part I of this Form 10-K and is incorporated by reference in this Item 10. Other information called for by this Item 10 will be included in the subsections titled “Proposal 1 - Election of Directors,” “Kyndryl Code of Conduct,” “Securities Trading Policy,” and “Committees of the Board” under the section entitled “Corporate Governance and Board Matters” in our Proxy Statement for our 2024 Annual Meeting of Stockholders (our “2024 Proxy Statement”) and is incorporated herein by reference.
Item 11. Executive Compensation.
The information called for by this Item 11 will be included in the sections titled “Director Compensation” and “2024 Executive Compensation” in our 2024 Proxy Statement for our 2024 Annual Meeting of Stockholders and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters .
The information called for by this Item 12 will be included in the sections titled “Equity Compensation Plan Information” and “Stock Ownership Information” in our 2024 Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information called for by this Item 13 will be included in the sections titled “Director Independence” and “Certain Relationships and Related Person Transactions” in our 2024 Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services .
The information called for by this Item 14 will be included in the sections titled “Audit and Non-Audit Fees” and “Pre-Approval of Services Provided by the Independent Registered Public Accounting Firm” in our 2024 Proxy Statement and is incorporated herein by reference.
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PART IV
Item 15. Exhibits, Financial Statement Schedules .
Exhibit Number
Description of Exhibit
2.1
Separation and Distribution Agreement, dated as of November 2, 2021, by and between International Business Machines Corporation and the registrant was filed as Exhibit 2.1 to the registrant’s Current Report on Form 8-K filed on November 4, 2021 and is hereby incorporated by reference.
3.1
Amended and Restated Certificate of Incorporation of the registrant was filed as Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed on November 4, 2021 and is hereby incorporated by reference.
3.2
Amended and Restated Bylaws of the registrant, effective January 25, 2023, was filed as Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed on January 27, 2023 and is hereby incorporated by reference.
4.1
Indenture, dated as of October 15, 2021, between Kyndryl Holdings, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee, was filed as Exhibit 4.1 to the registrant’s Current Report on Form 8-K filed on October 15, 2021 and is hereby incorporated by reference.
4.2
First Supplemental Indenture, dated as of October 15, 2021, between Kyndryl Holdings, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee, was filed as Exhibit 4.2 to the registrant’s Current Report on Form 8-K filed on October 15, 2021 and is hereby incorporated by reference.
4.3
Second Supplemental Indenture, dated as of February 15, 2024, between Kyndryl Holdings, Inc. and the Bank of New York Mellon Trust Company, N.A., as trustee, was filed as Exhibit 4.1 to the registrant’s Current Report on Form 8-K filed on February 20, 2024 and is hereby incorporated by reference.
4.4
Guarantee Agreement, dated as of October 15, 2021, among International Business Machines Corporation, Kyndryl Holdings, Inc. and the Bank of New York Mellon Trust Company, N.A., as trustee, in favor of the holders of the notes was filed as Exhibit 4.3 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2021 filed on March 10, 2022 and is hereby incorporated by reference.
4.5
Description of the registrant’s securities registered under Section 12 of the Exchange Act (filed herewith).
10.1
Term Loan Credit Agreement, dated as of October 18, 2021, by and among Kyndryl Holdings, Inc., the lenders party thereto and JPMorgan Chase Bank, N.A. as administrative agent, and the other financial institutions party thereto, was filed as Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on October 22, 2021 and is hereby incorporated by reference.
10.2
Amendment No. 1 to Term Loan Credit Agreement dated as of June 21, 2023, among the Company, the Lenders party thereto and JPMorgan Chase Bank N.A., as Administrative Agent, was filed as Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed on June 23, 2023, and is hereby incorporated by reference.
10.3
Five-Year Revolving Credit Agreement, dated as of October 18, 2021, by and among Kyndryl Holdings, Inc., the lenders party thereto and JPMorgan Chase Bank, N.A. as administrative agent, and the other financial institutions party thereto, was filed as Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed on October 22, 2021 and is hereby incorporated by reference.
10.4
Amendment No. 1 to Five-Year Revolving Credit Agreement, dated as of June 21, 2023, among the Company, the Lenders party thereto and JPMorgan Chase Bank N.A., as Administrative Agent, was filed as Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on June 23, 2023 and is hereby incorporated by reference.
10.5
Amended and Restated Receivables Purchase Agreement, dated as of October 28, 2021, among Kyndryl, Inc., Banco Santander S.A. and solely for the purposes of Section 13.19, Kyndryl Holdings, Inc., was filed as Exhibit 10.1 to the registrant’s current report on Form 8-K filed on November 1, 2021 and is hereby incorporated by reference.
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10.6
First Amendment to Amended and Restated Receivables Purchase Agreement, dated as of January 26, 2022, among Kyndryl, Inc., Kyndryl Holdings, Inc. and Banco Santander S.A. was filed as Exhibit 10.4 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2021 filed on March 10, 2022 and is hereby incorporated by reference.
10.7
Second Amendment to Amended and Restated Receivable Purchase Agreement, dated September 21, 2022, by and among Banco Santander S.A., Kyndryl, Inc. and Kyndryl Holdings, Inc. was filed as Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2022 filed on February 9, 2023 and is hereby incorporated by reference.
10.8
Third Amendment to Amended and Restated Receivable Purchase Agreement, dated as of December 21, 2022, by and among Banco Santander S.A., Kyndryl, Inc. and Kyndryl Holdings, Inc. was filed as Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2022 filed on February 9, 2023 and is hereby incorporated by reference.
10.9
Tax Matters Agreement, dated as of November 2, 2021, between International Business Machines Corporation and Kyndryl Holdings, Inc. was filed as Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed on November 4, 2021 and is hereby incorporated by reference.
10.10
Employee Matters Agreement, dated as of November 2, 2021, between International Business Machines Corporation and Kyndryl Holdings, Inc. was filed as Exhibit 10.3 to the registrant’s Current Report on Form 8-K filed on November 4, 2021 and is hereby incorporated by reference.
10.11
Intellectual Property Agreement, dated as of November 2, 2021, between International Business Machines Corporation and Kyndryl, Inc. was filed as Exhibit 10.4 to the registrant’s Current Report on Form 8-K filed on November 4, 2021 and is hereby incorporated by reference.
10.12
Real Estate Matters Agreement, dated as of November 2, 2021, between International Business Machines Corporation and Kyndryl Holdings, Inc. was filed as Exhibit 10.5 to the registrant’s Current Report on Form 8-K filed on November 4, 2021 and is hereby incorporated by reference.
10.13
IBM International Client Relationship Agreement, dated as of November 2, 2021, between International Business Machines Corporation and Kyndryl, Inc. was filed as Exhibit 10.6 to the registrant’s Current Report on Form 8-K filed on November 4, 2021 and is hereby incorporated by reference.*
10.14
Master Subcontracting Framework Agreement, dated as of November 2, 2021, between International Business Machines Corporation and Kyndryl, Inc. was filed as Exhibit 10.7 to the registrant’s Current Report on Form 8-K filed on November 4, 2021 and is hereby incorporated by reference.*
10.15
Amended and Restated Kyndryl 2021 Long-Term Performance Plan was filed as Exhibit 4.3 to the registrant’s Registration Statement on Form S-8 filed on July 29, 2022 and is hereby incorporated by reference.†
10.16
Amended and Restated Kyndryl 2021 Long-Term Performance Plan (LTPP) was filed as Exhibit 4.3 to the Registrant’s Registration Statement on Form S-8 filed on July 31, 2023, and is hereby incorporated by reference.†
10.17
Forms of LTPP equity award agreements for (i) stock options, restricted stock, restricted stock units, cash-settled restricted stock units and (ii) retention restricted stock unit awards was filed as Exhibit 10.10 to the registrant’s Current Report on Form 8-K filed on November 4, 2021 and is hereby incorporated by reference.†
10.18
Form of LTPP equity award agreement for performance share units was filed as Exhibit 10.11 to the registrant’s Current Report on Form 8-K filed on November 4, 2021 and is hereby incorporated by reference.†
10.19
Form of Terms and Conditions of LTPP equity award agreements was filed as Exhibit 10.12 to the registrant’s Current Report on Form 8-K filed on November 4, 2021 and is hereby incorporated by reference.†
10.20
Form of LTPP equity award agreement for directors was filed as Exhibit 10.25 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2021 filed on March 10, 2022 and is hereby incorporated by reference.†
10.21
Form of Terms and Conditions for LTPP equity award agreement for directors was filed as Exhibit 10.26 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2021 filed on March 10, 2022 and is hereby incorporated by reference.†
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10.22
Form of LTPP equity award agreement for performance share units (Fiscal 2023) was filed as Exhibit 10.3 to the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2022 filed on November 4, 2022 and is hereby incorporated by reference. †
10.23
Form of LTPP equity award agreements for restricted stock units was filed as Exhibit 10.5 to the registrants Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2023 filed on November 8, 2023, and is hereby incorporated by reference.†
10.24
Form of LTPP equity award agreement for performance share units was filed as Exhibit 10.6 to the registrants Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2023 filed on November 8, 2023, and is hereby incorporated by reference.†
10.25
Kyndryl Excess Plan was filed as Exhibit 10.13 to the registrant’s Current Report on Form 8-K filed on November 4, 2021 and is hereby incorporated by reference.†
10.26
Offer Letter by and between International Business Machines Corporation and Martin Schroeter, dated January 2, 2021, the LTPP performance share unit award agreement, dated February 1, 2021, and the related terms and conditions document, effective December 15, 2020, and the noncompetition agreement, dated January 3, 2021, was filed as Exhibit 10.13 to the registrant’s Registration Statement on Form 10 filed on October 12, 2021 and is hereby incorporated by reference.†
10.27
Offer Letter by and between International Business Machines Corporation and David Wyshner, dated July 23, 2021, and the noncompetition agreement, dated July 25, 2021, was filed as Exhibit 10.14 to the registrant’s Registration Statement on Form 10 filed on October 12, 2021 and is hereby incorporated by reference.†
10.28
Offer Letter by and between International Business Machines Corporation and Elly Keinan, dated March 1, 2021, the LTPP performance share unit award agreement, dated April 1, 2021, and the related terms and conditions document, effective March 1, 2021, the Executive Sign-on Repayment Agreement and the noncompetition agreement, dated March 2, 2021, was filed as Exhibit 10.15 to the registrant’s Registration Statement on Form 10 filed on October 12, 2021 and is hereby incorporated by reference.†
10.29
Offer Letter by and between International Business Machines Corporation and Maryjo Charbonnier, dated May 28, 2021, the LTPP performance share unit award agreement, dated August 2, 2021, and the related terms and conditions document, effective March 1, 2021, the LTPP retention restricted stock unit award agreement, dated August 2, 2021, and the related terms and conditions document, effective June 1, 2020, the Executive Sign-on Repayment Agreement and the noncompetition agreement, dated June 1, 2021, was filed as Exhibit 10.16 to the registrant’s Registration Statement on Form 10 filed on October 12, 2021 and is hereby incorporated by reference.†
10.30
LTPP performance share unit award agreement for Edward Sebold, dated May 3, 2021, and the related terms and conditions document, effective May 1, 2021, and the noncompetition agreement, dated April 25, 2012, was filed as Exhibit 10.17 to the registrant’s Registration Statement on Form 10 filed on October 12, 2021 and is hereby incorporated by reference.†
10.31
Kyndryl Executive Severance Plan and Executive Retirement Policy was filed as Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed on February 25, 2022 and is hereby incorporated by reference.†
10.32
Amendment to the Kyndryl Executive Severance Plan and Executive Retirement Policy was filed as Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed on August 1, 2022 and is hereby incorporated by reference. †
10.33
Amendment to the Kyndryl Executive Severance Plan and Executive Retirement Policy was filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on July 31, 2023, and is hereby incorporated by reference.†
10.34
Amendment to the Kyndryl Executive Severance Plan and Executive Retirement Policy was filed as Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2023 filed on November 8, 2023, and is hereby incorporated by reference.†
10.35
Kyndryl Annual Incentive Plan for Executives was filed as Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on February 25, 2022 and is hereby incorporated by reference. †
19.1
Kyndryl Holdings, Inc. Securities Trading Policy (filed herewith).
21.1
Subsidiaries of the registrant (filed herewith).
23.1
Consent of PricewaterhouseCoopers LLP (filed herewith).
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24.1
Power of attorney (filed herewith).
31.1
Certification of principal executive officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2
Certification of principal financial officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1
Certification of principal executive officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
32.2
Certification of principal financial officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
97.1
Kyndryl Financial Statement Clawback Policy (filed herewith).
101.INS
XBRL Instance Document – the instance document does not appear on the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH
XBRL Taxonomy Extension Schema Document.
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.
104
Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
* Certain portions of this exhibit have been redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K. The Company agrees to furnish supplementally an unredacted copy of the exhibit to the Commission upon its request.
† Management contract or compensatory plan in which directors and/or executive officers are eligible to participate.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by the Company in these agreements or other documents were made solely within the specific context of the relevant agreement or document and do not apply in any other context or at any time other than the date they were made.
Item 16. Form 10-K Summary .
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Kyndryl Holdings, Inc.
(Registrant)
Date:
May 30, 2024
By:
/s/ Martin J. Schroeter
Martin J. Schroeter
Chairman of the Board and Chief Executive Officer
(Authorized Signatory)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date
By
/s/ Martin J. Schroeter
Director, Chairman and Chief Executive Officer
May 30, 2024
Martin J. Schroeter
(Principal Executive Officer)
By
/s/ David B. Wyshner
Chief Financial Officer
May 30, 2024
David B. Wyshner
(Principal Financial Officer)
By
/s/ Vineet Khurana
Senior Vice President and Global Controller
May 30, 2024
Vineet Khurana
(Principal Accounting Officer)
By
*
Dominic J. Caruso
Director
May 30, 2024
By
*
John D. Harris II
Director
May 30, 2024
By
*
Stephen A.M. Hester
Director
May 30, 2024
By
*
Shirley Ann Jackson
Director
May 30, 2024
By
*
Janina Kugel
Director
May 30, 2024
By
*
Denis Machuel
Director
May 30, 2024
By
*
Rahul N. Merchant
Director
May 30, 2024
By
*
Jana Schreuder
Director
May 30, 2024
By
*
Howard I. Ungerleider
Director
May 30, 2024
*By
/s/ Evan Barth
Evan Barth, Attorney-in-fact
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