TRANSACTIONS WITH FORMER PARENT

6 Months Ended

Sep. 30, 2023

TRANSACTIONS WITH FORMER PARENT

TRANSACTIONS WITH FORMER PARENT

NOTE 13. TRANSACTIONS WITH FORMER PARENT

Change in Beneficial Ownership

IBM ceased to be a related party of Kyndryl in August 2022 after 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. 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 and six months ended September 30, 2023.

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 $82 million and $287 million for the three and six months ended September 30, 2022, respectively.

Kyndryl utilizes various IBM products and services, recognized as costs of services, in the fulfillment of services contracts. Total cost of services recognized from these related-party transactions in the Company’s Consolidated Income Statement was $421 million and $1,382 million for the three and six months ended September 30, 2022. The related-party cost for the prior-year periods includes outsourcing goods and services provided by the former Parent to Kyndryl’s customers post-Separation.

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 amount of $89 million for the six months ended September 30, 2022. Additionally, as part of the Separation, IBM has committed to provide Kyndryl, at no cost, up to $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 at September 30, 2023. For the three and six months ended September 30, 2023, $84 million and $110 million, respectively, of the upgraded hardware committed by IBM was delivered to Kyndryl. For the three and six months ended September 30, 2022, $21 million of the upgraded hardware committed by IBM was delivered to Kyndryl. From the inception of the program to date, $193 million of upgraded hardware committed by IBM has been delivered to Kyndryl. The expected average useful life of the upgraded hardware is approximately five years, and the Company intends to recognize total depreciation approximating $265 million over the useful life, consistent with our depreciation policy.

Lease Guarantees

Kyndryl has lease agreements with third parties with an estimated aggregate lease liability of $56 million that are guaranteed by IBM as of September 30, 2023.