10q10k10q10k.net

What changed in Kyndryl Holdings, Inc.'s 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of Kyndryl Holdings, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+404 added−334 removedSource: 10-K (2023-05-26) vs 10-K (2022-03-10)

Top changes in Kyndryl Holdings, Inc.'s 2023 10-K

404 paragraphs added · 334 removed · 246 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

85 edited+52 added−25 removed35 unchanged
Biggest changeThis 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.
Biggest changeOur Kyndryl Way is founded on our Vision to become an “employer of choice” and is founded on our 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.
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).
Concurrently, we provide resiliency services that include a mix of business continuity planning and cloud-based disaster recovery capabilities (composed of experts, digital tools, automation and failover environments).
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 .
In parallel, we are extending our operating paradigms and governance and 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. 7 Table of Contents ● Digitally consumable services models .
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.
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 (the “SEC”).
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.
Our Strategies Our strategy is centered on our ability to build and enrich trusted relationships with customers and technology partners, differentiating Kyndryl 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.
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.
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, consulting teams, as well as by shared services teams, to support an effective and efficient engagement.
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.
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 of technology alliances.
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 support chief digital officers, chief information officers (“CIOs”) and chief technology officers (“CTOs”) 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).
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.
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 engineer and operate the IT environments to enable their transformations.
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.
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 customers.
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.
As companies adopt new technologies for improved business performance and innovation, they often face challenges 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.
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.
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 11 Table of Contents 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.
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.
Our services enable us to modernize and manage cloud and on-premises 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.
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 help CIOs and CTOs unlock the full value of leading third-party enterprise resource planning systems (e.g., Oracle and 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.
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 .
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 more than 3,000 patents. ● We consistently deliver unsurpassed performance and reliability for complex environments .
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.
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.
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.
We partner with a broad 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 contemporary technology capabilities that best fit their needs and open new avenues for growth.
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.
Our competitive strengths stem from our intellectual property and data around IT patterns, our employees’ experience and knowledge, 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.
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.
Since 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.
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.
To access these filings, go to the investor relations section of the Company’s website ( https://investors.kyndryl.com ) and under the “Financial Information” heading, click on “SEC Filings.” In addition, the SEC maintains an Internet website (https://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.
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.
As customers pursue multiple cloud-based technology partners, applications and capabilities, integration is increasingly critical for customers to manage and orchestrate the technology environments 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-premises cloud platforms and other full-stack technology solutions.
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.
With respect to governance matters, Kyndryl also leverages 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.
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.
Our Customers Our customer relationships across a broad range of 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.
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.
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 customers’ hybrid IT estates, data and operations.
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 leverage our operational AI approach and set of technologies, along with intellectual property that we apply and continually evolve to develop predictive actions to prevent issues before they arise. ● We are a recognized leader in managed services for cloud and on-premises environments and services such as security and resiliency.
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.
These services allow our customers to operate without issue or disruption in response to attacks, outages, natural disasters and geopolitical events. ● 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.
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 leverage our broad base of expertise, capabilities and partners to prototype, test and develop innovative solutions across various approaches and technologies. Additionally, we offer Kyndryl Consult capabilities in advisory, implementation and transformation services to help customers enhance and evolve their technology environments.
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.
Our services are differentiated based on our expertise, quality of service, innovation, 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 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.
We also maintain a Code of Conduct 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.
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.
In order to leverage advanced capabilities such as artificial intelligence and machine learning, 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.
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.
For example, we are recognized leaders in the use of automation and operational AI in the delivery of our services, with over 45,000,000 automated actions per month in the IT environments we manage, enabling greater quality and efficiency for us and our customers.
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 .
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 top-tier customer satisfaction and advocacy. ● We deliver insights at scale, supported by unique automation capabilities, end-to-end orchestration of processes and application of AI .
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.
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 35,000 hyperscale cloud provider certifications) to securely and reliably handle many of the most complex issues.
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 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 technology infrastructure on behalf of enterprise customers to enable their current and future growth and profitability objectives, whether they want to modernize their existing infrastructure, integrate their existing infrastructure with hyperscale cloud providers, or migrate to a new platform.
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.
Human Capital Resources Employees As of March 31, 2023, we had approximately 90,000 employees in more than 60 countries. Approximately 91% of our employees work outside the U.S., with workforce hubs in India, Poland, Brazil, Japan, Czechia and Hungary. Our people advance the vital systems that power human progress.
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.
Companies will benefit from selecting service providers that have greater insight into their environments and needs, which advantages partners like Kyndryl who have industry-leading scale and long-standing customer relationships. 9 Table of Contents Through decades of collaboration with customers, we have developed deep relationships as we supported the technology environments that advanced their business agendas.
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”).
Kyndryl’s Spin-off In November 2021, our former parent company, International Business Machines Corporation (“IBM” or “Parent”) effected 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”).
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 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.
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.
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 thousands of enterprise customers and with operations in over 60 countries.
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.
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.
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.
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 have several key partnerships, including with Microsoft, Google, AWS, SAP, VMware, Cisco, Dell Technologies, Oracle and Nokia, that accelerate broader market participation, joint solution development and investment in skills and certification enhancements for Kyndryl.
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 apply a mix of skilled practitioners, intelligent automation and modern service management principles of Site Reliability Engineering, artificial intelligence for IT operations (“AIOps”), Infrastructure as Code and DevOps.
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.
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 $17.0 billion in revenue in fiscal year 2023, which ended March 31, 2023.
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.
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.
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 will continue to invest in our teams to be at the heart of technological change for our customers. Talent and Culture; Inclusion, Diversity and Equity (“ID&E”) Our business is centered around our people, and our talent strategy revolves around our ability to best serve our customers through ongoing investment in talent and skill development.
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.
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 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 robust ecosystem of strategic alliances and partners, including large public cloud providers, application-oriented system integrators, independent software vendors and other players in the technology stack provides leading technologies and capabilities for our customers. We offer leading services, together with our ecosystem’s solutions, for all levels of customer environment complexity and integration.
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 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.
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).
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 2022 to 2025), data services (expected compound annual growth of 11% from 2022 to 2025), security services (expected compound annual growth of 12% from 2022 to 2025), intelligent automation services (expected compound annual growth of 55% from 2022 to 2025) and managed services for edge environments (expected compound annual growth of 56% from 2022 to 2025).
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.
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.
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.
We estimate that these markets, which are a subset of the total IT services market, collectively represent a $475 billion opportunity in calendar year 2023, which we expect will grow on average 6% annually to $530 billion by calendar year 2025.
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.
In fiscal year 2023, our top five customers accounted for approximately 12% of our revenue. As companies engage in their digital journeys, they often face a key impediment because of the skills and expertise needed to realize their transformations.
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.
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 more than 3,000 patents that are related to our business model.
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.
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.
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.
Building on our history of collaboration with this customer, 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.
We have an experienced Health and Safety team comprised of medical doctors, nurses, industrial hygiene, safety and workforce health experts.
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.
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 .
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 . As an independent entity, we have embraced a broad ecosystem of strategic partnerships with a wider set of technology and services companies.
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.
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. 13 Table of Contents Company Website, Social Media and Availability of Securities and Exchange Commission Filings ​ The Company’s internet website is www.kyndryl.com .
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.
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-premises environments. ● We offer an integrated ecosystem to help customers adopt and run increasingly heterogeneous sets of technologies .
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.
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.
Many of these companies offer a mix of advisory, implementation and managed services across infrastructure, application and business processes.
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, Tata Consultancy Services and Wipro, among others.
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 depth of experience implementing and operating complex architectures across technology sets has yielded valuable experience and intellectual property. We have more than 3,000 patents that relate to various areas of running complex technology environments, including patents related to multicloud management, orchestration, integrated monitoring, issue triage and resolution and other areas that enable quality of service.
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 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 5 Table of Contents network technologies and wireless technologies.
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.
Partnership and alliance ecosystem. We are continuing to enhance and develop strategic partnerships with companies in the ecosystems most relevant to our customers’ digital transformations.
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.
To execute these strategies, our operating model increasingly reflects that of a flat, fast and focused services company, centered around our customers’ success. We are pursuing an investment and co-investment strategy focused on building and maintaining world-class teams, developing aligned intellectual property and automation, and leveraging our ecosystem of technology alliance partners.
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.
Large-scale transformation to cloud : We partnered with a large, European financial institution to help it migrate from a predominantly on-premises, 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.
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.
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.
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.
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.
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 have a strong and long-standing foundation developed by governing and managing complex technology environments, including a range of third-party technologies (e.g., SAP, VMware, Red Hat, Dell and ServiceNow). We regularly introduce new capabilities with a highly curated ecosystem of technology providers, including strategic relationships with Microsoft, Google Cloud and Amazon Web Services announced since our Spin-off.
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.
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 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.
Through our collaboration, we created an integrated infrastructure to meet our customer’s current and future needs by modernizing its on-premises, off-premises 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.
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.
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.
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.
Looking ahead, we see opportunity to further expand in areas where we can serve customers through consumption models that allow them to experience our services digitally.
Enterprises seek service providers that can deploy the expertise and resources needed to manage their growing cybersecurity needs with an efficient and comprehensive approach.
We expect to see enterprises continue to increase their investments in cybersecurity as cyber threats pose substantial operational, financial and reputational risk. Enterprises seek service providers that can deploy the expertise and resources needed to manage their growing cybersecurity needs with an efficient and comprehensive approach. 4 Table of Contents ● Accelerating pace of technological advancement.
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 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.
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.
Importantly, our culture of customer service excellence – especially in times of crisis, from pandemics to natural disasters, cyber-attacks and power outages – carries on from our heritage through our people.
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.
We are the trusted advisor and partner to thousands of customers worldwide, in technology-intensive and often highly regulated environments, managing mission-critical technology environments across a wide range of industries. ● Nearly 50 percent of our revenue is derived from companies in the financial services industry, where we serve hundreds of global, multinational and regional banks, insurance companies, mutual fund complexes, credit card and transaction processors and providers of other financial services.
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.
Kyndryl’s stock began trading as an 3 Table of Contents independent company on November 4, 2021, and IBM disposed of its 19.9% retained interest in Kyndryl common stock in the year following the Spin-off. Our Industry and Market Opportunity We participate in an industry that provides services for the technology environments that power customers’ businesses.
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.
Our work helps support our customer’s efforts to become one of the most valued and preferred transportation companies in the world.
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.
This trend has expanded in recent years as organizations look to further their digital capabilities and new technologies proliferate. While customers seek to transform, skills availability often represents a challenge, with lack of skills often being an impediment to transformation of the IT environment. ● Ongoing migration to the cloud .

… 82 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

70 edited+18 added−30 removed81 unchanged
Biggest changeESG 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.
Biggest changeFurther, 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.
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.
Attacks also include social engineering to fraudulently induce customers, business partners, vendors, employees, contractors and other third parties to disclose information, transfer funds or unwittingly provide access to systems or data.
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.
In addition, the fast-paced, evolving, pervasive, and sophisticated nature of certain cyber threats and vulnerabilities, as well as the scale and complexity of our 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.
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.
Our services, systems and networks, including cloud-based systems and other third-party 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 proprietary or confidential data, regulated data, personal information and intellectual property of employees, customers and others.
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.
In addition, if we were to violate or become liable under these 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.
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.
The Organization for Economic Cooperation and Development (the “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.
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.
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 are or may become competitors in other areas.
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.
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 often are in high demand, and competition for their talents is often intense.
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.
Subject in certain circumstances to the consent of IBM under the Tax Matters Agreement, as discussed in “- Risks Relating to our Spin-off from IBM,” we may decide to make acquisitions, alliances and dispositions in furtherance of our strategy.
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 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.
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.
For example, the COVID-19 pandemic created significant volatility, uncertainty and economic disruption. In the current macroeconomic environment, customers continue to balance short-term challenges and opportunities for transformation.
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 risk to us and our customers also depends on factors such as the actions, practices and investments of customers, business partners, vendors, employees, contractors and other third parties.
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 competitors include incumbents that have expanded their offerings to migration and management of cloud-based environments; companies that use 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.
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.
We are at risk of security breaches not only of our own services, systems and networks, but also those of customers, business partners, vendors, employees, contractors and other third parties. Cyber threats are continually evolving, making it challenging to defend against certain threats and vulnerabilities that can persist undetected over extended periods of time.
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.
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 and non-performance.
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.
Our provision for income taxes and cash tax liability in the future could be adversely affected by numerous factors including, but not 21 Table of Contents 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.
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.
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 25 Table of Contents 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.
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.
We maintain information, including confidential and proprietary information, in digital form regarding our business and the business of our customers, business partners, vendors, employees, contractors and other third parties. We also rely on third-party vendors to provide certain digital services in connection with 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.
We are subject to numerous, evolving, and sometimes conflicting, legal regimes on matters as diverse as anticorruption, import/export controls, content requirements, cybersecurity and data privacy, trade restrictions, tariffs, taxation, sanctions, immigration, internal and disclosure control obligations, securities regulation, ESG initiatives, anti-competition, anti-money-laundering, wage-and-hour standards, employment and labor relations and human rights.
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.
Our competitiveness is based on factors including quality of services, technical skills and capabilities, industry knowledge and experience, financial value, ability 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.
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.
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 18 Table of Contents 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.
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.
The choice of forum provision may limit a stockholder’s 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.
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 Distribution were determined not to qualify for non-recognition of gain or loss under Section 355 and related provisions of the Internal Revenue Code of 1986 (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 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.
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.
In the event of such actions, we, our customers and other third parties could be exposed 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.
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.
Furthermore, 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. Service delivery issues could adversely impact our business and operating results. We have customer agreements in place that include certain service-level commitments.
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.
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 attention and resources, and cause us to incur substantial costs or prevent us from offering some services or solutions in the future.
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.
Cybersecurity attacks or other security incidents relating 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, destructive attacks or other means; and business delays, service or system disruptions or denials of service.
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.
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 16 Table of Contents demanded by customers.
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.
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.
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.
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 and services sectors.
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.
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 were to violate or become liable under environmental laws and regulations.
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.
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 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, corporate taxation, import, export and trade restrictions on technology and services.
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.
See Note 10 – Intangible Assets Including Goodwill to our financial statements included elsewhere in this report for additional information about our goodwill impairment. 19 Table of Contents Risks Relating to Cybersecurity and Data Privacy Cybersecurity and privacy considerations could adversely impact our business.
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. ​
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.
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.
There are numerous and evolving risks relating to cybersecurity and data privacy, including risks originating from intentional acts of criminal hackers, nation states and hacktivists; from intentional and unintentional acts of customers, business partners, vendors, employees, contractors, competitors and other third parties; and from errors and omissions in processes or technologies, as well as the risks associated with an increase in the number of customers, business partners, vendors, employees, contractors and other third parties working remotely.
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.
We may be required to record 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 March 31, 2023, our goodwill balance was $812 million, which represented 7% of total consolidated assets.
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.
The enactment and expansion of cybersecurity and data privacy laws and regulations around the globe, including an increased focus on international data transfer mechanisms; 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 increased risks.
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 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 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.
We derive a significant percentage of our revenues and costs from our affiliates operating in non-U.S. dollar currency environments, and results from these affiliates 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.
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.
If overall demand for our solutions decreases, or if customers decide to reduce their spending budgets as a result of such conditions, our revenue and profit could be materially and adversely impacted. Damage to our reputation could adversely impact our business.
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.
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.
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.
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.
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.
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 or, in the case of accounts with substandard margins, services with greater gross margins to our customers.
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.
Additionally, 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.
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.
Risks Relating to our Spin-off from IBM The Spin-off may not achieve some or all of the anticipated benefits. 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.
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.
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. 17 Table of Contents A downturn in the economic environment and customer spending budgets could adversely impact our business.
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.
Item 1A. Risk Factors: Risks Relating to Our Business An inability to attract new customers, retain existing customers and sell additional services to customers could adversely impact our revenue and results of operations.
Tax accounting often involves complex matters and requires our judgment to determine our worldwide provision for income taxes and other tax liabilities.
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.
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.
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, and penalties, disgorgement of profits, enforcement actions or criminal sanctions against us and/or our employees, prohibitions on doing business, unfavorable publicity and damage to our reputation.
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.
If our goodwill or net intangible assets become impaired, we may be required to record a charge to our income statement. 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.
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.
Also, compliance violations in one state or locality could result in suspension or debarment 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.
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.
Risks Relating to Our Common Stock and the Securities Market 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.
There can be no assurance that we will be able to maintain such relationships, including in light of our separation from IBM.
There can be no assurance that we will be able to maintain such relationships.
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.
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. As a result, our financial performance is exposed to a wide variety of industry sector dynamics worldwide, including sudden shifts in regional or global economic activity.
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.
Although, to date, we have not experienced a cybersecurity incident that has had a material adverse effect on us and we continuously take significant steps to mitigate cybersecurity risk across a range of functions, such measures cannot eliminate the risk entirely or provide absolute security.
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.
While we continue to monitor for, identify, investigate, respond to, remediate and develop plans to quickly recover from cybersecurity incidents, notwithstanding our efforts, we may be subject to a cybersecurity incident in the future that has a material adverse impact. 20 Table of Contents As we are a global enterprise, the regulatory environment with regard to cybersecurity and data privacy issues to which we are subject is increasingly complex and will continue to impact our business, including through increased risk, increased compliance costs, and expanded or otherwise altered compliance obligations.
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.
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.
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.
Bribery Act 2010 could make us responsible for acts of our employees, subcontractors, vendors, agents, alliance or joint venture partners, the companies we may acquire and their employees, subcontractors, vendors and agents, and other third parties with which we associate if they take actions that violate applicable anti-corruption laws or regulations (whether or not we participated or knew about the actions leading to the violations).
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.
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. 24 Table of Contents 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.
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 currency risk or may prove disadvantageous. 23 Table of Contents Additionally, 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 existing or potential customers to these local competitors.
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.
The global nature of our operations, including jurisdictions where legal systems may be less developed or understood by us, business practices and standards which deviate from international standards, and the diverse nature of our operations across a number of regulated industries, further increase the difficulty of compliance. Additionally, certain laws and regulations including the U.S.
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.
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 (ESG) issues or subject to legal liability with respect to our ESG commitments.
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.
Such changes may result in limitations on existing or future business operations in certain markets, and violations of such laws and regulations could result in significant fines, penalties and enforcement actions. 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.
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.
Moreover, as inflation can increase both our labor and non-labor input costs, the profitability of our contracts could be negatively impacted if we are unable to adjust our pricing or costs to take inflation into account.
Those amounts could be material. Any such indemnification obligation could adversely affect our business, financial condition and results of operations. See Part III.
Those amounts could be material. Any such indemnification obligation could adversely affect our business, financial condition and results of operations. We agreed to numerous restrictions to preserve the tax-free treatment of the Spin-off, which may reduce our strategic and operating flexibility.
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.
If the outcome of those arbitrations is unfavorable to Kyndryl, if a mutually acceptable commercial resolution cannot be found, or if we or IBM are or remain otherwise unable or unwilling 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.
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.
Moreover, to the extent we are unable to retain and sell additional services to existing customers, including as part of our initiative to address existing accounts that have substandard margins, our revenue and results of operations may decrease.
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.
In addition, IBM may obtain indemnity from us for judgments against it relating to events that occurred prior to the Separation pursuant to agreements put in place in connection with the Separation. 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.
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 earnings and cash flows, as well as our access to funding, could be negatively impacted by changes in market liquidity conditions.
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.
In such cases, we have, and may in the future, rebalance our workforce, including reducing the rate of new hires and increasing involuntary terminations, which actions could negatively impact employee engagement and attrition. Due to our global presence, our business and operations could be adversely impacted by local legal, economic, political, health and other conditions.
Removed
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.
Added
We may incur higher customer 15 Table of Contents acquisition or retention costs as we seek to grow our customer base and expand our markets.
Removed
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.
Added
Any failure to attract, integrate, motivate and retain these employees could harm our business. Alternatively, from time to time, we may have more people than we need in certain skill sets, geographies or compensation levels.
Removed
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.
Added
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.
Removed
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.
Added
Such changes may result in contracts being terminated or work being transferred on-shore, resulting in greater costs to us.
Removed
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.
Added
Additionally, changes in laws and regulations, including expanding export controls and sanctions resulting from geopolitical developments, could impact our business, including imposing limits on where we can conduct operations, parties with whom we can conduct business, and the nature of work that can be performed.

… 38 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−1 removed0 unchanged
Biggest changeWe 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.
Biggest changeWe believe that our existing properties are in good condition and are suitable for the conduct of our business. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ United States* ​ 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 ​ 30 ​ 3.3 ​ 48 ​ 1.1 ​ 136 ​ 5.4 ​ 145 ​ 3.2 ​ 359 ​ 13.0 Owned ​ 3 ​ 3.1 ​ — ​ — ​ 8 ​ 0.9 ​ 5 ​ 0.8 ​ 16 ​ 4.7 Total ​ 33 ​ 6.4 ​ 48 ​ 1.1 ​ 144 ​ 6.3 ​ 150 ​ 4.0 ​ 375 ​ 17.7 * United States includes our principal executive offices not allocated to the Unites States segment, including our global headquarters located in New York, New York.
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.
Item 2. Properties: As of March 31, 2023, we owned or leased approximately 17.7 million square feet of space worldwide, a summary of which is provided below.
Removed
We believe that our facilities are sufficient for our current needs.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

1 edited+0 added−0 removed0 unchanged
Biggest changeItem 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.
Biggest changeItem 4. Mine Safety Disclosures 27 ​ ​ PART II ​ ​ ​ Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 27 Item 6. (Reserved) 29 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 30 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 49 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

2 edited+1 added−1 removed0 unchanged
Biggest changeThis 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.
Biggest changeThis 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 cash dividends on our common stock.
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.
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 May 19, 2023, there were approximately 272,362 record holders of our common stock.
Removed
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. ​ ​
Added
Future dividends, if any, and the timing of declaration of any such dividends, will be at the discretion of our Board of Directors and will depend upon many factors including, but not limited to, our results of operations, financial condition, level of indebtedness, capital requirements, contractual restrictions, restrictions in our debt agreements and in any preferred stock, business prospects and other factors that our Board of Directors deems relevant. 27 Table of Contents Stock Performance Graph ​ The following graphs compare 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 below tracks the performance of a $100 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 March 31, 2023. ​ ​ 28 Table of Contents The graph below tracks the performance of a $100 investment in our common stock and in each index from April 1, 2022, the beginning of our fiscal year, to March 31, 2023. ​ ​

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

80 edited+84 added−31 removed44 unchanged
Biggest changeOther 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.
Biggest changeGAAP net income (loss) to adjusted EBITDA: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ​ Twelve ​ ​ ​ ​ ​ ​ ​ ​ Ended ​ Months Ended ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ March 31, ​ Year Ended December 31, (Dollars in millions) 2023 2022 (unaudited) 2021 2020 Net income (loss) ​ $ (1,374) ​ $ (2,039) ​ $ (2,304) ​ $ (2,007) Provision for income taxes ​ ​ 524 ​ ​ 350 ​ ​ 402 ​ ​ 247 Workforce rebalancing charges (benefits) ​ ​ 71 ​ ​ (13) ​ ​ 39 ​ ​ 918 Charges related to ceasing to use leased/fixed assets and lease terminations ​ ​ 80 ​ ​ — ​ ​ — ​ ​ — Transaction-related costs ​ ​ 264 ​ ​ 630 ​ ​ 627 ​ ​ 21 Stock-based compensation expense ​ ​ 113 ​ ​ 86 ​ ​ 71 ​ ​ 64 Impairment expense ​ ​ — ​ ​ 469 ​ ​ 469 ​ ​ — Interest expense ​ ​ 94 ​ ​ 71 ​ ​ 64 ​ ​ 63 Depreciation of property, equipment and capitalized software ​ ​ 900 ​ ​ 1,206 ​ ​ 1,300 ​ ​ 1,445 Amortization expense ​ ​ 1,245 ​ ​ 1,310 ​ ​ 1,314 ​ ​ 1,408 Other adjustments* ​ ​ 59 ​ ​ 124 ​ ​ 88 ​ ​ 27 Adjusted EBITDA (non-GAAP) ​ $ 1,975 ​ $ 2,195 ​ $ 2,069 ​ $ 2,185 * Other adjustments represent pension expense other than pension servicing costs and multi-employer plan costs, significant litigation costs and currency impacts of highly inflationary countries. ​ United States ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Twelve ​ ​ Year Ended ​ Months Ended ​ ​ March 31, ​ March 31, (Dollars in millions) 2023 ​ 2022 (unaudited) Revenue ​ $ 4,726 ​ ​ $ 4,745 ​ Revenue year-over-year change ​ ​ (0) % ​ ​ (6) % Adjusted EBITDA ​ ​ 839 ​ ​ ​ 910 ​ Adjusted EBITDA year-over-year change ​ ​ (8) % ​ ​ ​ ​ ​ For the year ended March 31, 2023, United States revenue of $4.7 billion was unchanged compared to the twelve months ended March 31, 2022.
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.
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.
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.
The Company also filed 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.
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.
The estimation of cost at completion is complex and requires us to make judgments 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.
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 .
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. ​ 48 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 .
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.
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 separate 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.
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.
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 was tax-free for U.S. federal tax purposes.
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.
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 $297 million versus the prior year.
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.
We provide these non-GAAP financial measures as 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.
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.
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.
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.
The consolidated financial statements for the pre-Separation periods 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.
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.
Workforce rebalancing charges arise from cost-reduction 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.
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”).
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 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”).
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.
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 31 Table of Contents during the periods presented and were prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the SEC.
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.
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 as well as the length of those contracts.
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.
After the Separation on November 3, 2021, the Company’s financial statements for the periods from November 4, 2021, through March 31, 2023, are consolidated financial statements based on our reported results as a standalone company. All significant transactions and accounts between Kyndryl entities were eliminated.
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.
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 cost-reduction actions, partially offset by additional legal liabilities recorded in the fourth quarter of 2021.
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.
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. Significant judgment is required in determining any valuation allowance recorded against deferred tax assets.
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.
For all of these estimates, it should be noted that future events rarely develop exactly as forecasted and estimates require regular review and adjustment. 44 Table of Contents Revenue Recognition Application of GAAP related to the measurement and recognition of revenue requires us to make judgments and estimates.
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.
All significant intercompany transactions between IBM and Kyndryl prior to the Separation were included within Net Parent investment on the accompanying Consolidated Financial Statements. 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’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.
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 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 and partners; ● inability to attract and retain key personnel and other skilled employees; ● impact of local legal, economic, political, health and other conditions; ● 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; ● the impairment of our goodwill or long-lived assets; ● risks relating to cybersecurity and data privacy; ● risks relating to non-compliance with legal and regulatory requirements; ● adverse effects from tax matters and environmental matters; ● legal proceedings and investigatory risks and potential indemnification obligations; ● impact of changes in market liquidity conditions and customer credit risk on receivables; ● the Company’s pension plans; ● the impact of 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.
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.
Adjusted EBITDA decreased $34 million from the prior year, primarily due to lower revenue, partially offset by cost-reductions actions taken in the prior year.
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.
Evaluations are conducted each quarter to assess the adequacy of the estimates. 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.
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.
Following the completion of the Separation, the guarantee was released, and the Notes and the Credit Agreements are no longer obligations of IBM. ​ 42 Table of Contents We may 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.
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.
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, the macroeconomic environment or external events. Critical Accounting Estimates The application of U.S.
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).
To the extent the outlook for long-term returns changes such that management changes its expected long-term return on plan assets assumption, a 25-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 March 31, 2023 and expected contributions and benefit payments for fiscal 2024).
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.
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. 33 Table of Contents 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 U.S.
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.
We do not have retained interests in assets transferred to unconsolidated entities or other material off-balance sheet interests or instruments. At March 31, 2023, the Company’s material future contractual obligations were primarily related to leases, debt and pension liabilities.
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.
A 25-basis-point increase or decrease in the discount rate would result in an approximate corresponding decrease or increase, respectively, of approximately $42 million in the Plans’ estimated PBO and accumulated postretirement benefit obligation (APBO) based upon March 31, 2023 data. 45 Table of Contents The expected long-term return on plan assets assumption is used in calculating the net periodic benefit cost.
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.
Other expense was 0.6% of revenue in the three months ended March 31, 2022 compared to 0.5% in the three months ended March 31, 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ ​ 16,550 ​ ​ 17,137 ​ 88.7 % ​ 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 expense ​ 35 ​ 25 0.2 % ​ 0.1 % 40 % Income (loss) before income taxes ​ $ (1,903) ​ $ (1,760) ​ ​ ​ NM ​ ​ Costs of services were 88.7% of revenue in the year ended December 31, 2021 compared to 88.6% in the year ended December 31, 2020, primarily driven by the impact of a revenue decrease related to advisory & implementation services and price decreases embedded in certain new and renewed contracts mostly offset by benefits realized from prior-year cost-reduction actions.
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.
Adjusted EBITDA increased $52 million from the prior year, primarily due to exiting low-margin accounts and realizing benefits from cost-reduction actions taken in the prior year.
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.
If the average discount rate assumption for the non-U.S. defined benefit pension plans had increased or decreased by 25-basis-points from 3.57 percent on March 31, 2023, this would not result in a material change to pretax income recognized in fiscal 2024.
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.
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 are based on prevailing market interest rates, plus a margin, as further described in the Credit Agreements.
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.
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.
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 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.
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.
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), charges related to ceasing to use leased/fixed assets, charges related to lease terminations, transaction-related costs, pension costs other than pension servicing costs and multi-employer plan costs, stock-based compensation expense, workforce rebalancing charges, impairment expense, significant litigation costs and foreign currency impacts of highly inflationary countries.
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.
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. 46 Table of Contents Valuation of Assets The application of valuation and impairment accounting requires the use of significant estimates and assumptions.
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.
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.
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.
Following the distribution, Kyndryl became an independent, publicly-traded company and is the world’s leading managed infrastructure services provider. IBM disposed of its 19.9% retained interest in Kyndryl common stock in the year following the Spin-off. ​ Kyndryl utilized allocations and carve-out methodologies through November 3, 2021 to prepare historical financial statements.
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.
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.
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.
Net loss of $229 million improved by $265 million versus the prior-year quarter, primarily driven by cost reductions, including the benefit from workforce actions taken in prior periods. 2021 Financial Performance For the year ended December 31, 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.
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.
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.
Key factors reviewed to estimate the future costs to complete each contract are future labor costs and product costs and expected productivity efficiencies.
For other types of services contracts, any losses are recorded as incurred. Key factors reviewed to estimate the future costs to complete each contract are future labor costs and product costs and expected productivity efficiencies.
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.
See the information below for definitions of these metrics and a reconciliation of adjusted EBITDA to net income (loss). (2) Represents net amounts not allocated to segments ​ We report our financial results in accordance with U.S. GAAP. We also present certain non-GAAP financial measures to provide useful supplemental information to investors.
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.
See 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 has contractual commitments that are noncancellable with certain software, hardware and cloud partners used in the delivery of services to customers.
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.
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.
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.
Retirement-related Benefit Plan 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.
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.
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.
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.
Within the financial statements and tables presented, certain columns and rows may not add due to the use of rounded numbers for disclosure purposes.
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.
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 the year ended March 31, 2023 was lower compared to the twelve months ended March 31, 2022 primarily due to increases in valuation allowances in certain jurisdictions against deferred tax assets that are not more likely than not to be realized.
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.
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.
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.
For the year ended December 31, 2021, Strategic Markets revenue of $3.8 billion decreased 5 percent as compared to the prior year.
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.
As of March 31, 2023, there has been no drawdown on the Revolving Credit Agreement. ​ 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.
The use of different assumptions would increase or decrease discounted cash flows or earnings projections and therefore, could change impairment determinations.
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.
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.
GAAP, see “⸺Segment Results.” ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ March 31, ​ December 31, (Dollars in millions) 2023 2022 2021 Assets ​ $ 11,464 ​ $ 13,442 ​ $ 13,213 Liabilities ​ ​ 10,002 ​ ​ 10,730 ​ ​ 10,446 Equity ​ ​ 1,462 ​ ​ 2,711 ​ ​ 2,767 ​ Organization of Information Kyndryl Holdings, Inc. 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.
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.
Demand for technology services rebounded after declines resulting from the COVID-19 pandemic, as large organizations again demonstrated a need for assistance in designing, building, managing and modernizing their technology systems.
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.
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.
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.
Principal Markets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Twelve ​ ​ Year Ended ​ Months Ended ​ ​ March 31, ​ March 31, (Dollars in millions) 2023 ​ 2022 (unaudited) Revenue ​ $ 5,957 ​ ​ $ 6,838 ​ Revenue year-over-year change ​ ​ (13) % ​ ​ (5) % Revenue growth in constant currency ​ ​ (4) % ​ ​ (7) % Adjusted EBITDA ​ ​ 371 ​ ​ ​ 387 ​ Adjusted EBITDA year-over-year change ​ ​ (4) % ​ ​ ​ ​ ​ For the year ended March 31, 2023, Principal Markets revenue of $6.0 billion decreased 13 percent compared to the twelve months ended March 31, 2022.
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 $31 million from the prior-year quarter, primarily driven by lower costs from our post-Separation commercial agreements with IBM, partially offset by unfavorable currency impacts. 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.
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.
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.
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.
Segment revenue and revenue growth in constant currency exclude any transactions between the segments. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Twelve ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ Months Ended ​ Year Ended ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ March 31, ​ December 31, ​ Year-over-Year Change (Dollars in millions) 2023 ​ 2022 (unaudited) ​ 2021 ​ 2020 ​ 2023 vs. 2022 ​ 2021 vs. 2020 Revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ United States ​ $ 4,726 ​ ​ $ 4,745 ​ ​ $ 4,805 ​ ​ $ 5,084 ​ ​ (0) % ​ (5) % Japan ​ ​ 2,502 ​ ​ ​ 2,866 ​ ​ ​ 2,923 ​ ​ ​ 3,042 ​ ​ (13) % ​ (4) % Principal Markets ​ ​ 5,957 ​ ​ ​ 6,838 ​ ​ ​ 7,085 ​ ​ ​ 7,187 ​ ​ (13) % ​ (1) % Strategic Markets ​ ​ 3,840 ​ ​ ​ 3,867 ​ ​ ​ 3,844 ​ ​ ​ 4,040 ​ ​ (1) % ​ (5) % Total revenue ​ $ 17,026 ​ ​ $ 18,317 ​ ​ $ 18,657 ​ ​ $ 19,352 ​ ​ (7) % ​ (4) % Revenue growth in constant currency (1) ​ ​ 0 % ​ ​ (5) % ​ ​ (5) % ​ ​ (5) % ​ ​ ​ ​ ​ ​ Adjusted EBITDA (1) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ United States ​ $ 839 ​ ​ $ 910 ​ ​ $ 842 ​ ​ $ 940 ​ ​ (8) % ​ (10) % Japan ​ ​ 407 ​ ​ ​ 532 ​ ​ ​ 501 ​ ​ ​ 534 ​ ​ (23) % ​ (6) % Principal Markets ​ ​ 371 ​ ​ ​ 387 ​ ​ ​ 341 ​ ​ ​ 375 ​ ​ (4) % ​ (9) % Strategic Markets ​ ​ 436 ​ ​ ​ 535 ​ ​ ​ 540 ​ ​ ​ 488 ​ ​ (19) % ​ 11 % Corporate and other (2) ​ ​ (77) ​ ​ ​ (170) ​ ​ ​ (154) ​ ​ ​ (153) ​ ​ NM ​ ​ NM ​ Total adjusted EBITDA (1) ​ $ 1,975 ​ ​ $ 2,195 ​ ​ $ 2,069 ​ ​ $ 2,185 ​ ​ (10) % ​ (5) % NM – not meaningful (1) Revenue growth in constant currency and adjusted EBITDA are non-GAAP financial metrics.
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.
The net loss for the year ended December 31, 2021 included 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. Basis of Presentation We prepare our consolidated financial statements in accordance with U.S.
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.
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.
For additional information, see “Basis of Presentation” in Note 1 – Significant Accounting Policies to the accompanying Consolidated Financial Statements.
For additional information, see “Basis of Presentation” in Note 1 – Significant Accounting Policies in the accompanying Consolidated Financial Statements. 30 Table of Contents Financial Performance Summary Macro Dynamics In calendar year 2021, we saw a broad-based macroeconomic recovery in most regions of the world.
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.
The fees associated with the transfers of receivables were $47 million for the year ended March 31, 2023, and $11 million for the twelve months ended March 31, 2022. ​ 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.
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.
For additional information, see Note 19 – Workforce Rebalancing and Site-Rationalization Charges in the accompanying Consolidated Financial Statements. ​ Income Taxes The Company’s consolidated provision for income taxes and effective tax rate were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Twelve Months ​ ​ ​ ​ ​ ​ Year Ended ​ Ended March ​ Year Ended ​ ​ March 31, ​ 31, 2022 ​ December 31, (Dollars in millions) 2023 (unaudited) 2021 Provision for income taxes ​ $ 524 ​ ​ $ 350 ​ ​ $ 402 ​ Effective tax rate ​ ​ (61.6) % ​ ​ (20.7) % ​ ​ (21.1) % ​ In the year ended March 31, 2023, the twelve months ended March 31, 2022 and the year ended December 31, 2021, we recorded income tax expense of $524 million, $350 million and $402 million, respectively, on pretax book losses, which resulted in negative effective tax rates.
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.
Our significant accounting policies are described in Note 1 – Significant Accounting Policies to our consolidated financial statements. A quantitative sensitivity analysis is provided where that information is reasonably available, can be reliably estimated and provides material information to investors.
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.
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.
Such estimates require judgment and assumptions, and actual future cash flows could differ from these estimates.
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.
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 further information on the comparisons between the years ended December 31, 2021 and 2020 not covered in the “Segment Results” below, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Amendment No. 1 to our Current Report on Form 8-K/A filed with the SEC on May 27, 2022 (the “8-K/A”).
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.
Corporate and Other ​ Corporate and other generated an adjusted EBITDA loss of $77 million in the year ended March 31, 2023, compared to a loss of $170 million in the twelve months ended March 31, 2022.
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.
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.
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.
Adjusted EBITDA decreased $99 million from the prior year, primarily due to lower revenue, partially offset by cost reductions. 34 Table of Contents Japan ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Twelve ​ ​ Year Ended ​ Months Ended ​ ​ March 31, ​ March 31, (Dollars in millions) 2023 ​ 2022 (unaudited) Revenue ​ $ 2,502 ​ ​ $ 2,866 ​ Revenue year-over-year change ​ ​ (13) % ​ ​ (7) % Revenue growth in constant currency ​ ​ 5 % ​ ​ (1) % Adjusted EBITDA ​ ​ 407 ​ ​ ​ 532 ​ Adjusted EBITDA year-over-year change ​ ​ (23) % ​ ​ ​ ​ ​ For the year ended March 31, 2023, Japan revenue of $2.5 billion decreased 13 percent compared to the twelve months ended March 31, 2022.
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.
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 completed a registered offering to exchange each series of Notes for new notes with substantially identical terms during the quarter ended September 30, 2022. ​ 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”).
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.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations: Overview ​ In January 2022, the Company changed its fiscal year-end to March 31 from December 31.
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.
Adjusted EBITDA increased $46 million from the prior-year quarter, primarily due to the benefit from cost-reduction actions taken in prior periods as well as lower costs from our post-Separation commercial agreements with IBM. 35 Table of Contents For the year ended December 31, 2021, Principal Markets revenue of $7.1 billion decreased 1 percent as compared to the prior year.
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.
Percentages presented are calculated from the underlying whole-dollar amounts. 32 Table of Contents Segment Results The following table presents our reportable segments’ revenue and adjusted EBITDA for the year ended March 31, 2023, the twelve months ended March 31, 2022, and the years ended December 31, 2021 and 2020.
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.
An agreement with a third-party financial institution executed in November 2021 enabled us to sell, at any one time, on a revolving basis, up to $1.1 billion of our trade receivables with payment terms from three to nine months and was subsequently amended to decrease such amount to $1.0 billion.
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 used by investing activities of $225 million in the three months ended March 31, 2022 (transition period) compared to a net cash use of $100 million in the prior-year period, driven by the sale of a data center in the quarter ended March 31, 2021, that provided net cash proceeds of $90 million and cash used for business combinations in the quarter ended March 31, 2022.
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.
Net cash used by financing activities of $43 million in the three months ended March 31, 2022 (transition period) compared to net cash provided by financing activities of $443 million in the prior-year period, driven by a decrease in net transfers from former Parent of $460 million, as transfers from former Parent did not continue post-Separation.

… 115 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

6 edited+3 added−0 removed7 unchanged
Biggest changeThe 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.
Biggest changeA hypothetical 10 percent adverse change in the levels of interest rates, with all other variables held constant, would result in a $12 million and a $17 million impact in the fair value of our financial instruments at March 31, 2023 and 2022, respectively.
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.
The discount rates used for the present value computations were selected based on market interest and foreign currency exchange rates in effect at March 31, 2023 and 2022. The differences in this comparison are the hypothetical losses associated with each type of risk.
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.
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 March 31, 2023, currency changes resulted in assets and liabilities denominated in local currencies being translated into fewer dollars than the prior year.
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
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 $220 million and a $180 million impact in the fair value of our financial instruments at March 31, 2023 and 2022, respectively. 50 Table of Contents
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.
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 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.
Based on the currency rate movements in the year ended March 31, 2023, total revenue decreased 7 percent as reported and was unchanged in constant currency versus the twelve months ended March 31, 2022. 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.
Added
At December 31, 2021, currency changes resulted in assets and 49 Table of Contents liabilities denominated in local currencies being translated into more dollars than the prior year. During periods of sustained movements in currency, the marketplace and competition adjust to the changing rates.
Added
The results of the sensitivity analysis at March 31, 2023 and 2022 are as follows: Interest Rate Risk Our exposure to market risk for changes in interest rates relates primarily to our fixed and variable-rate debts (See Note 11 – Borrowings in the accompanying Consolidated Financial Statements ).
Added
A hypothetical 10 percent adverse change in the levels of interest rates would not be material to our consolidated results of operations or cash flow.

Other KD 10-K year-over-year comparisons