TRANSACTIONS WITH FORMER PARENT	9 Months Ended
Dec. 31, 2022
TRANSACTIONS WITH FORMER PARENT
TRANSACTIONS WITH FORMER PARENT	NOTE 13. TRANSACTIONS WITH FORMER PARENT Change in Beneficial Ownership IBM transferred all of its 19.9% retained interest in Kyndryl common stock to a third-party financial institution through exchange agreements in May and August 2022. IBM ceased to be a related party of Kyndryl in August 2022. Transactions related to former Parent after August 11, 2022 are no longer reported as related-party activities. As a result, there was no related party revenue or cost of services recognized for the three months ended December 31, 2022. Revenue and Purchases related to Former Parent Kyndryl provides various services to IBM, including those related to hosting data centers and servicing IBM’s information technology infrastructure, which are reported as revenue in the Company’s Consolidated Income Statement. Revenue generated from these services was $260 million for the three months ended December 31, 2021. Revenue generated from these services was $287 million and $550 million for the nine months ended December 31, 2022 and 2021, respectively. No related party revenue was recognized after August 2022. Kyndryl utilizes various IBM products and services, recognized as costs of services, in the fulfillment of services contracts. Total cost of services recognized from these related-party transactions in the Company’s Consolidated Income Statement was $1.1 billion for the three months ended December 31, 2021. Related-party costs of $1.1 billion for the quarter ended December 31, 2021 included $386 million pre-Separation costs and $714 million post-Separation costs. Total cost of services was $1.4 billion and $3.0 billion for the nine months ended December 31, 2022 and 2021, respectively. No related party cost of services was recognized after August 2022. Capital Expenditures with Former Parent Capital expenditures for purchases of IBM hardware were reflected as payments for property and equipment within the investing section of the Company’s Consolidated Statement of Cash Flows in the amounts of $89 million and $212 million for the nine months ended December 31, 2022 and 2021, respectively. Additionally, as part of the Separation, IBM has committed to provide Kyndryl, at no cost, approximately $265 million of upgraded hardware over a two-year period. The amounts committed by IBM are reflected within other assets (noncurrent) within the Consolidated Balance Sheet. For the three and nine months ended December 31, 2022, $21 million and $41 million, respectively, of the upgraded hardware committed by IBM was delivered to Kyndryl. Accordingly, such balance was transferred from other assets (noncurrent) to property and equipment on the Balance Sheet and recognized as non-cash investing activity. The Company intends to recognize depreciation expense related to such equipment over its useful life of five years, consistent with its depreciation policy. Related Party Agreements On November 2, 2021, in connection with the Separation, the Company entered into several agreements with IBM that govern the relationship of the parties following the Separation. Such agreements were described in our 2021 Annual Report. Allocation of Corporate Expenses Post-Separation, general corporate expenses from IBM were no longer allocated to Kyndryl; therefore, no related amounts were reflected on the Company’s financial statements for the three and nine months ended December 31, 2022. Prior to the Separation, IBM allocated certain general corporate expenses that would have been incurred by Kyndryl had it been a separate, standalone company. These allocated general corporate expenses from IBM were recorded in the historical Consolidated Income Statement, Consolidated Statement of Comprehensive Income (Loss) and Consolidated Statement of Cash Flows. Allocations for management costs and corporate support services provided to Kyndryl for the nine months ended December 31, 2021 totaled $652 million, which consisted of $3 million of allocated other (income) and expense, $32 million of allocated interest expense and $615 million of allocated selling, general and administrative expense, which primarily represents expenses for corporate functions including, but not limited to, senior management, legal, human resources, finance and accounting, treasury, information technology and other shared services. All such amounts have been deemed to have been incurred and settled by Kyndryl through net Parent investment in the period in which the costs were recorded. These costs were allocated based on direct usage as applicable, with the remainder allocated on a pro-rata basis of gross profit, headcount, assets or other measures. Net Parent Investment As a result of the Separation, net Parent investment in the Consolidated Balance Sheet and Consolidated Statement of Equity was fully settled on November 3, 2021. As such, there was no balance in net Parent investment at March 31, 2022, and there was no activity within the account during the three and nine months ended December 31, 2022. Prior to the Separation, net Parent investment in the historical Balance Sheet and Statement of Equity represented IBM’s historical investment in Kyndryl, the net effect of transactions with and allocations from IBM, and Kyndryl’s accumulated earnings. In conjunction with the Separation, the Company issued common stock and reclassified net Parent investment to common stock and additional paid-in capital to close out the net Parent investment balance. As a result, there was no balance in net Parent investment at December 31, 2021. Lease Guarantees Kyndryl has lease agreements with third parties with an estimated aggregate lease liability of $111 million that are guaranteed by IBM as of December 31, 2022.

TRANSACTIONS WITH FORMER PARENT

9 Months Ended

Dec. 31, 2022

NOTE 13. TRANSACTIONS WITH FORMER PARENT

Change in Beneficial Ownership

IBM transferred all of its 19.9% retained interest in Kyndryl common stock to a third-party financial institution through exchange agreements in May and August 2022. IBM ceased to be a related party of Kyndryl in August 2022. Transactions related to former Parent after August 11, 2022 are no longer reported as related-party activities. As a result, there was no related party revenue or cost of services recognized for the three months ended December 31, 2022.

Revenue and Purchases related to Former Parent

Kyndryl provides various services to IBM, including those related to hosting data centers and servicing IBM’s information technology infrastructure, which are reported as revenue in the Company’s Consolidated Income Statement. Revenue generated from these services was $260 million for the three months ended December 31, 2021. Revenue generated from these services was $287 million and $550 million for the nine months ended December 31, 2022 and 2021, respectively. No related party revenue was recognized after August 2022.

Kyndryl utilizes various IBM products and services, recognized as costs of services, in the fulfillment of services contracts. Total cost of services recognized from these related-party transactions in the Company’s Consolidated Income Statement was $1.1 billion for the three months ended December 31, 2021. Related-party costs of $1.1 billion for the quarter ended December 31, 2021 included $386 million pre-Separation costs and $714 million post-Separation costs. Total cost of services was $1.4 billion and $3.0 billion for the nine months ended December 31, 2022 and 2021, respectively. No related party cost of services was recognized after August 2022.

Capital Expenditures with Former Parent

Capital expenditures for purchases of IBM hardware were reflected as payments for property and equipment within the investing section of the Company’s Consolidated Statement of Cash Flows in the amounts of $89 million and $212 million for the nine months ended December 31, 2022 and 2021, respectively. Additionally, as part of the Separation, IBM has committed to provide Kyndryl, at no cost, approximately $265 million of upgraded hardware over a two-year period. The amounts committed by IBM are reflected within other assets (noncurrent) within the Consolidated Balance Sheet. For the three and nine months ended December 31, 2022, $21 million and $41 million, respectively, of the upgraded hardware committed by IBM was delivered to Kyndryl. Accordingly, such balance was transferred from other assets (noncurrent) to property and equipment on the Balance Sheet and recognized as non-cash investing activity. The Company intends to recognize depreciation expense related to such equipment over its useful life of five years, consistent with its depreciation policy.

Related Party Agreements

On November 2, 2021, in connection with the Separation, the Company entered into several agreements with IBM that govern the relationship of the parties following the Separation. Such agreements were described in our 2021 Annual Report.

Allocation of Corporate Expenses

Post-Separation, general corporate expenses from IBM were no longer allocated to Kyndryl; therefore, no related amounts were reflected on the Company’s financial statements for the three and nine months ended December 31, 2022.

Prior to the Separation, IBM allocated certain general corporate expenses that would have been incurred by Kyndryl had it been a separate, standalone company. These allocated general corporate expenses from IBM were recorded in the historical Consolidated Income Statement, Consolidated Statement of Comprehensive Income (Loss) and Consolidated Statement of Cash Flows. Allocations for management costs and corporate support services provided to Kyndryl for the nine months ended December 31, 2021 totaled $652 million, which consisted of $3 million of allocated other (income) and expense, $32 million of allocated interest expense and $615 million of allocated selling, general and administrative expense, which primarily represents expenses for corporate functions including, but not limited to, senior management, legal, human resources, finance and accounting, treasury, information technology and other shared services. All such amounts have been deemed to have been incurred and settled by Kyndryl through net Parent investment in the period in which the costs were recorded. These costs were allocated based on direct usage as applicable, with the remainder allocated on a pro-rata basis of gross profit, headcount, assets or other measures.

Net Parent Investment

As a result of the Separation, net Parent investment in the Consolidated Balance Sheet and Consolidated Statement of Equity was fully settled on November 3, 2021. As such, there was no balance in net Parent investment at March 31, 2022, and there was no activity within the account during the three and nine months ended December 31, 2022.

Prior to the Separation, net Parent investment in the historical Balance Sheet and Statement of Equity represented IBM’s historical investment in Kyndryl, the net effect of transactions with and allocations from IBM, and Kyndryl’s accumulated earnings. In conjunction with the Separation, the Company issued common stock and reclassified net Parent investment to common stock and additional paid-in capital to close out the net Parent investment balance. As a result, there was no balance in net Parent investment at December 31, 2021.

Lease Guarantees

Kyndryl has lease agreements with third parties with an estimated aggregate lease liability of $111 million that are guaranteed by IBM as of December 31, 2022.