0001558370-21-016281 | 10-Q | XBRL Viewer

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Document and Entity Information - shares	9 Months Ended
Document and Entity Information - shares	Sep. 30, 2021	Nov. 11, 2021
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Transition Report	false
Document Period End Date	Sep. 30, 2021
Entity File Number	001-40853
Entity Registrant Name	Kyndryl Holdings, Inc
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	86-1185492
Entity Address, Address Line One	One Vanderbilt Avenue, 15th Floor
Entity Address, City or Town	New York
Entity Address, State or Province	NY
Entity Address, Postal Zip Code	10017
City Area Code	212
Local Phone Number	896-2098
Title of 12(b) Security	Common stock, par value $0.01 per share
Trading Symbol	KD
Security Exchange Name	NYSE
Entity Current Reporting Status	No
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Central Index Key	0001867072
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		224,136,041
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q3

COMBINED INCOME STATEMENT - USD ($) $ in Millions	3 Months Ended		9 Months Ended
COMBINED INCOME STATEMENT - USD ($) $ in Millions	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
COMBINED INCOME STATEMENT
Revenue	$ 4,579.0	$ 4,856.0	$ 14,102.0	$ 14,425.0
Cost of services	4,182.0	4,332.0	12,727.0	12,876.0
Expense and other (income)
Selling, general and administrative expenses	854.0	654.0	2,421.0	2,123.0
Workforce rebalancing charges (benefit)	(1.0)	(1.0)	40.0	355.0
Research, development and engineering expenses	14.0	17.0	42.0	56.0
Interest expense	17.0	16.0	46.0	47.0
Other (income) and expense	(17.0)	8.0	16.0	17.0
Total costs and expenses	5,047.0	5,026.0	15,292.0	15,474.0
Income (loss) before income taxes	(469.0)	(170.0)	(1,191.0)	(1,050.0)
Provision for income taxes	223.0	68.0	389.0	243.0
Net income (loss)	$ (692.0)	$ (238.0)	$ (1,579.0)	$ (1,293.0)

COMBINED INCOME STATEMENT (Parenthetical) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
COMBINED INCOME STATEMENT
Related party revenue	$ 144	$ 161	$ 445	$ 483
Related party cost	$ 966	$ 987	$ 2,878	$ 2,823

- Definition

Direct costs arising from transactions with related parties who are not affiliates or joint Ventures. These costs are categorized as cost of goods sold.

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+ Details

- Definition

Amount of revenue, fees and commissions earned from transactions between (a) a parent company and its subsidiaries; (b) subsidiaries of a common parent; (c) an entity and trusts for the benefit of employees, for example, but not limited to, pension and profit-sharing trusts that are managed by or under the trusteeship of the entity's management; (d) an entity and its principal, owners, management, or members of their immediate families; and (e) affiliates.

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COMBINED STATEMENT OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
COMBINED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
Net income (loss)	$ (692.0)	$ (238.0)	$ (1,579.0)	$ (1,293.0)
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments	(125.0)	121.0	(203.0)	(1.0)
Total unrealized gains (losses) on cash flow hedges	3.0		3.0
Retirement-related benefit plans:
Amortization of net (gains) losses	12.0	9.0	32.0	27.0
Total retirement-related benefit plans	12.0	9.0	32.0	27.0
Other comprehensive income (loss), before tax	(110.0)	131.0	(168.0)	26.0
Income tax (expense) benefit related to items of other comprehensive income (loss)	(3.0)	(2.0)	(10.0)	(8.0)
Other comprehensive income (loss), net of tax	(114.0)	128.0	(178.0)	18.0
Total comprehensive income (loss)	$ (806.0)	$ (110.0)	$ (1,756.0)	$ (1,275.0)

COMBINED BALANCE SHEET - USD ($) $ in Millions	Sep. 30, 2021	Dec. 31, 2020
Current assets
Cash and cash equivalents	$ 735	$ 24
Restricted cash	16	14
Accounts receivable (net of allowances of $58 in 2021 and $91 in 2020)	1,746	1,444
Deferred costs	1,142	1,205
Prepaid expenses and other current assets	217	157
Total current assets	3,856	2,843
Property and equipment, net	3,480	3,991
Operating right-of-use assets, net	1,166	1,131
Deferred costs	1,354	1,441
Deferred taxes	845	424
Goodwill	1,201	1,230
Intangible assets, net	47	60
Pension assets	35	1
Other assets	78	85
Total assets	12,063	11,205
Current liabilities
VAT payable	62
Short-term debt	112	69
Accounts payable	798	919
Accrued compensation and benefits	471	350
Deferred income	875	854
Operating lease liabilities	328	333
Accrued contract costs	570	512
Other accrued expenses and liabilities	493	874
Total current liabilities	3,709	3,910
Long-term debt	280	140
Retirement and nonpension postretirement benefit obligations	995	550
Deferred income	520	543
Operating lease liabilities	823	850
Other liabilities	255	282
Total liabilities	6,581	6,274
Commitments and Contingencies
Equity:
Net Parent Investment	7,045	5,972
Accumulated other comprehensive income (loss)	(1,615)	(1,100)
Total net Parent investment	5,430	4,873
Noncontrolling interests	51	58
Total equity	5,481	4,931
Total liabilities and equity	$ 12,063	$ 11,205

COMBINED BALANCE SHEET (Parenthetical) - USD ($) $ in Millions	Sep. 30, 2021	Dec. 31, 2020
COMBINED BALANCE SHEET
Notes and accounts receivable - trade, allowances	$ 58	$ 91

COMBINED STATEMENT OF CASH FLOWS - USD ($) $ in Millions	9 Months Ended
COMBINED STATEMENT OF CASH FLOWS - USD ($) $ in Millions	Sep. 30, 2021	Sep. 30, 2020
Cash flows from operating activities:
Net income (loss)	$ (1,579)	$ (1,293)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation of property and equipment	1,005	1,080
Depreciation of right-of-use assets	237	292
Amortization of deferred costs	1,427	1,496
Amortization of intangibles	26	23
Stock-based compensation	53	47
Deferred taxes	(327)	(1)
Net (gain) loss on asset sales and other	(31)
Change in operating assets and liabilities:
Deferred costs (excluding amortization)	(1,363)	(1,442)
Right-of-use assets and liabilities (excluding depreciation)	(309)	(269)
Workforce rebalancing liabilities	(319)	107
Accounts receivable	(356)	254
Accounts payable	(90)	(39)
Taxes (including items settled with Parent)	780	245
Other assets and other liabilities	121	(177)
Net cash provided by (used in) operating activities	(725)	323
Cash flows from investing activities:
Payments for property and equipment	(600)	(750)
Proceeds from disposition of property and equipment	188	73
Other investing activities, net	(13)	(1)
Net cash used in investing activities	(425)	(678)
Cash flows from financing activities:
Proceeds from new debt	140
Payments to settle debt	(59)	(44)
Net transfers from Parent	1,794	394
Net cash provided by financing activities	1,876	350
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(12)	(3)
Net change in cash, cash equivalents and restricted cash	713	(7)
Cash, cash equivalents and restricted cash at January 1	38	50
Cash, cash equivalents and restricted cash at September 30	$ 751	$ 43

COMBINED STATEMENT OF EQUITY - USD ($) $ in Millions	Total Net Parent Investment	Net Parent Investment	Accumulated Other Comprehensive Income (Loss)	Non-Controlling Interests	Total
Balance at the beginning of the period at Dec. 31, 2019	$ 5,892	$ 7,112	$ (1,220)	$ 56	$ 5,948
Net income (loss) plus other comprehensive income (loss):
Net income (loss)	(1,293)	(1,293)			(1,293)
Other comprehensive income (loss)	18		18		18
Net transfers from Parent	786	786			786
Balance at the end of the period at Sep. 30, 2020	5,403	6,605	(1,202)	56	5,459
Balance at the beginning of the period at Jun. 30, 2020	5,369	6,699	(1,330)	54	5,423
Net income (loss) plus other comprehensive income (loss):
Net income (loss)	(238)	(238)			(238)
Other comprehensive income (loss)	128		128		128
Net transfers from Parent	145	145			145
Changes in noncontrolling interests				2	2
Balance at the end of the period at Sep. 30, 2020	5,403	6,605	(1,202)	56	5,459
Balance at the beginning of the period at Dec. 31, 2020	4,873	5,972	(1,100)	58	4,931
Net income (loss) plus other comprehensive income (loss):
Net income (loss)	(1,579)	(1,579)			(1,579)
Other comprehensive income (loss)	(178)		(178)		(178)
Net transfers from Parent	2,314	2,652	(338)		2,314
Changes in noncontrolling interests				(7)	(7)
Balance at the end of the period at Sep. 30, 2021	5,430	7,045	(1,615)	51	5,481
Balance at the beginning of the period at Jun. 30, 2021	4,822	5,985	(1,163)	53	4,875
Net income (loss) plus other comprehensive income (loss):
Net income (loss)	(692)	(692)			(692)
Other comprehensive income (loss)	(114)		(114)		(114)
Net transfers from Parent	1,414	1,752	(338)		1,414
Changes in noncontrolling interests				(2)	(2)
Balance at the end of the period at Sep. 30, 2021	$ 5,430	$ 7,045	$ (1,615)	$ 51	$ 5,481

- Definition

Amount after tax and reclassification adjustments of other comprehensive income (loss).

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The consolidated profit or loss for the period, net of income taxes, including the portion attributable to the noncontrolling interest.

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Background and Basis of Presentation

9 Months Ended

Sep. 30, 2021

Background and Basis of Presentation

Background and Basis of Presentation

1.	Background and Basis of Presentation:

Kyndryl’s Spin-off

Kyndryl Holdings, Inc. (“we”, “the Company” or “Kyndryl”) is a leading technology services company and the largest infrastructure services provider in the world, serving as a partner to more than 4,000 customers in over 100 countries. Prior to November 3, 2021, the Company was wholly owned by International Business Machines Corporation (“IBM” or “Parent”).

In October 2021, the Board of Directors of IBM approved the spin-off (the “Separation” or the “Spin-off”) of the managed infrastructure services unit (the “Kyndryl Businesses”) of its Global Technology Services (“GTS”) segment through the distribution of shares of Kyndryl’s common stock to IBM stockholders (the “Distribution”). In conjunction with the Distribution, Kyndryl underwent an internal reorganization following which it became the holder, directly or through its subsidiaries, of the Kyndryl Businesses. On November 3, 2021, the Separation was achieved through the Parent’s pro rata distribution of 80.1% of the shares of common stock of Kyndryl to holders of the Parent’s common stock as of the close of business on the record date of October 25, 2021. The Parent retained 19.9% of the shares of the Company’s common stock. The Parent’s stockholders of record received one share of the Company’s common stock for every five shares of the Parent’s common stock.

These combined financial statements should be read in conjunction with the Company’s 2020 combined financial statements included in Kyndryl’s amended Registration Statement on Form 10 (“Form 10”) filed on October 12, 2021 with the U.S. Securities and Exchange Commission (“SEC”).

Description of Business

Our purpose is to design, build and manage secure and responsive private, public and multicloud environments to accelerate our customers’ digital transformations. We have a long track record of helping enterprises navigate major technological changes, particularly by enabling our customers to focus on the core aspects of their businesses during these shifts while trusting us with their most critical systems.

We provide engineering talent, operating paradigms and insights derived from our data around IT patterns. This enables us to deliver advisory, implementation and managed services at scale across technology infrastructures that allow our customers to de-risk and realize the full value of their digital transformations. We do this while embracing new technologies and solutions and continually expanding our skills and capabilities, as we help advance the vital systems that power progress for our customers. We deliver transformation and secure cloud services capabilities, insights and depth of expertise to modernize and manage IT environments based on our customers’ unique patterns of transformation at scale. We offer services across domains such as cloud services, core enterprise and zCloud services, applications, data and artificial intelligence services, digital workplace services, security and resiliency services and network and edge services as we continue to support our customers through technological change. Our services enable us to modernize and manage cloud and on-premise environments as “one” for our customers, enabling them to scale seamlessly. To deliver these services, we rely on our global team of skilled practitioners, consisting of approximately 90,000 professionals.

Basis of Presentation

The accompanying unaudited combined financial statements and footnotes of Kyndryl have been prepared in connection with the Separation and have been derived from the consolidated financial statements and accounting records of IBM as if Kyndryl operated on a standalone basis during the periods presented, and were prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). In the opinion of management, these statements include all adjustments, including normal recurring adjustments, necessary to present a fair statement of the Company’s results of operations, financial position and cash flows. References in these combined financial statements to “the Company” or “Kyndryl” refer to IBM’s managed infrastructure services business as it was historically managed.

The combined financial statements reflect allocations of certain IBM corporate, infrastructure and shared services expenses, including centralized research, legal, human resources, payroll, finance and accounting, employee benefits, real estate, insurance, information technology, telecommunications, treasury and other expenses. Where possible, these charges were allocated based on direct usage, with the remainder allocated on a pro rata basis of headcount, gross profit, asset or other allocation methodologies that are considered to be a reasonable reflection of the utilization of services provided or the benefit received by Kyndryl during the periods presented. The combined financial statements may not be indicative of the Company’s future performance and do not necessarily reflect what the financial position, results of operations and cash flows would have been had it operated as an independent company during the periods presented. Further, interim results are not necessarily indicative of financial results for a full year. These unaudited combined financial statements should be read in conjunction with the audited combined financial statements and the corresponding notes in our Form 10.

The Combined Balance Sheet of the Company includes IBM’s assets and liabilities that are specifically identifiable or otherwise attributable to the Company, including subsidiaries and/or joint ventures conducting managed infrastructure services business in which IBM has a controlling financial interest or is the primary beneficiary.

Transfers of cash, both to and from IBM’s centralized cash management system, are reflected as a component of Net Parent investment in the Combined Balance Sheet and as financing activities in the accompanying Combined Statement of Cash Flows. In addition, the Company also invests a portion of its excess cash in short-term interest-bearing accounts with IBM, which can be withdrawn upon demand. For additional information, see note 13, “Related Party Transactions,” to the combined financial statements. Outside of the excess cash arrangement, cash and cash equivalents held by IBM at the corporate level were not attributable to the Company for any of the periods presented due to IBM’s centralized approach to cash management and financing of its operations. Only cash amounts specifically held by Kyndryl are reflected in the Combined Balance Sheet. IBM’s debt was not attributed to the Company for any of the periods presented because IBM’s borrowings are not the legal obligation of Kyndryl. Third-party debt obligations included in the combined financial statements are those for which the legal obligor is a legal entity of Kyndryl. Interest expense in the Combined Income Statement reflects the allocation of interest on borrowing and funding related activity associated with the portion of IBM’s borrowings where the proceeds benefited the Company.

Net Parent investment in the Combined Balance Sheet represents the accumulation of the Company's net income (loss) over time and net non-trade intercompany transactions between Kyndryl and IBM (for example, investments from IBM or distributions to IBM). Changes in these non-trade intercompany balances are reflected as Net transfers from Parent in the financing activities section of the Combined Statement of Cash Flows.

On September 1, 2021, legal entities of Kyndryl and its subsidiaries were established in the territories where we operate. IBM transferred ownership of certain specifically identifiable assets and liabilities that are exclusively related to the operations of Kyndryl from the Parent to those legal entities on the same date. Balances of transferred assets and assumed liabilities are reflected in the respective line items and the component of Net Parent investment in the Combined Balance Sheet. Consequently, for certain financial statement line items, including cash and cash equivalents, deferred tax assets and retirement and nonpension postretirement benefit obligations presented in the Combined Balance Sheet at September 30, 2021, the values of these accounts increased compared to the Combined Balance Sheet at December 31, 2020, with more assets and liabilities being specifically identifiable. In addition, the cash flow impacts from the establishment of these new legal entities and other current income tax liabilities were assumed to be settled with Parent through the Net parent investment account and have been presented in the Combined Statement of Cash Flows within “Taxes (including items settled with Parent)”.

Prior to the Separation, Kyndryl’s operations are included in the consolidated U.S. federal, certain state and local and foreign income tax returns filed by IBM, where applicable. The income tax provision included in these combined financial statements has been calculated using the separate return basis, as if Kyndryl had filed separate tax returns. Post separation, Kyndryl’s operating footprint, as well as tax return elections and assertions, are expected to be different, and therefore Kyndryl’s hypothetical income taxes, as presented in the combined financial statements, are not expected to be indicative of the Company’s future income taxes. Current income tax liabilities, including amounts for

unrecognized tax benefits related to Kyndryl’s activities included in the Parent’s income tax returns, were assumed to be immediately settled with Parent through the Net Parent investment account in the Combined Balance Sheet.

Significant judgment is also required in determining any valuation allowance recorded against deferred tax assets on a hypothetical separate-return basis. In assessing the need for a valuation allowance, management considers all available evidence for each jurisdiction including past operating results, estimates of future taxable income and the feasibility of ongoing tax planning strategies/actions. However, amounts presented on the hypothetical separate-return basis, including valuation allowances, are expected to differ from the deferred tax assets reported within our post-spin financial statements, based upon the impacts of the Separation and application of local law, among other factors. We believe it is reasonably possible that the Company’s valuation allowance position will change in the next twelve months.

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.

Principles of Combination

The combined financial statements include the Company’s net assets and results of operations as described above. All significant intracompany transactions between Kyndryl’s businesses have been eliminated. All significant intercompany transactions between Kyndryl and IBM have been included in the combined financial statements. Intercompany transactions between Kyndryl and IBM are considered to be effectively settled in the combined financial statements at the time the transaction is recorded. The total net effect of the settlement of these intercompany transactions is reflected as Net transfers from Parent in the financing activities section in the Combined Statement of Cash Flows and in the Combined Balance Sheet within Net Parent investment.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts that are reported in the combined financial statements and accompanying disclosures. Estimates are used in determining the allocation of costs and expenses from IBM, and are used in determining the following, among others: revenue, costs to complete service contracts, income taxes, pension assumptions, valuation of assets including goodwill and intangible assets, the depreciable and amortizable lives of other long-lived assets, loss contingencies, allowance for credit losses, deferred transition costs and other matters. These estimates are based on management’s knowledge of current events, historical experience and actions that the Company may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances, including the macroeconomic impacts of the COVID-19 pandemic (beginning in 2020). Actual results may be different from these estimates.

Accounting Changes

9 Months Ended

Sep. 30, 2021

Accounting Changes

Accounting Changes

2.	Accounting Changes:

New Standards to be Implemented

In October 2021, the Financial Accounting Standards Board (“FASB”) issued guidance (“Revenue Contracts with Customers Acquired in a Business Combination”) which requires that an acquirer recognize and measure contract assets and liabilities acquired in a business combination as if it had originated the contracts, in accordance with ASC 606, Revenue from Contracts with Customers. Deferred revenue acquired in a business combination is no longer required to be measured at its fair value, which had historically resulted in a deferred revenue impairment at the date of acquisition. The amendment is effective January 1, 2023, and early adoption is permitted. The Company is evaluating the impact of the guidance and adoption date.

Standards Implemented

In December 2019, the FASB issued guidance (“Simplifying the Accounting for Income Taxes”) intended to simplify various aspects of income tax accounting by removing certain exceptions to the general principle of the

guidance and also clarified and amended existing guidance to improve consistency in application. The guidance was effective January 1, 2021, and early adoption was permitted. The Company adopted the guidance on a prospective basis as of the effective date. The guidance did not have a material impact in the combined financial results.

- Definition

The entire disclosure for change in accounting principle. Includes, but is not limited to, nature, reason, and method of adopting amendment to accounting standards or other change in accounting principle.

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+ Details

Revenue Recognition

9 Months Ended

Sep. 30, 2021

Revenue Recognition

Revenue Recognition

3.	Revenue Recognition:

Disaggregation of Revenue

The Company views its segment results to be the best view of disaggregated revenue, including related party sales. Refer to note 4, “Segments.”

Remaining Performance Obligations

The remaining performance obligation (“RPO”) represents the aggregate amount of contractual deliverables yet to be recognized as revenue at the end of the reporting period. It is intended to be a statement of overall work under contract that has not yet been performed and does not include contracts in which the customer is not committed. The customer is not considered committed when it is able to terminate for convenience without payment of a substantive penalty. The RPO also includes estimates of variable consideration. Additionally, as a practical expedient, the Company does not include contracts that have an original duration of one year or less. RPO estimates are subject to change and are affected by several factors, including terminations, changes in the scope of contracts, periodic revalidations, adjustment for revenue that has not materialized and adjustments for currency.

At September 30, 2021, the aggregate amount of the transaction price allocated to RPO related to customer contracts that are unsatisfied or partially unsatisfied was $51.1 billion. Approximately 53 percent of the amount is expected to be recognized as revenue in the subsequent two years, approximately 36 percent in subsequent years three through five years, and the balance thereafter.

Revenue Recognized for Performance Obligations Satisfied (or Partially Satisfied) in Prior Periods

During the three and nine months ended September 30, 2021 the Company reduced revenue by $12 million and $15 million, respectively, related to performance obligations satisfied (or partially satisfied) in previous periods, mainly due to changes in estimates on contracts with cost-to-cost measures of progress.

Contract Balances

The following table provides information about accounts receivable, contract assets and deferred income balances:


(Dollars in millions)	At September 30, 2021		At December 31, 2020
Accounts receivable (net of allowances of $58 in 2021 and $91 in 2020)	$	1,746	$	1,444
Contract assets *		80		72
Deferred income (current)		875		854
Deferred income (noncurrent)		520		543

*	Included within prepaid expenses and other current assets in the Combined Balance Sheet.

The amount of revenue recognized during the three and nine months ended September 30, 2021 that was included within the deferred income balance at June 30, 2021 and December 31, 2020 was $478 million and $726 million, respectively.

The following table provides roll-forwards of the accounts receivable allowance for expected credit losses for the nine months ended September 30, 2021 and the year ended December 31, 2020:


	Nine Months Ended		Year Ended
(Dollars in millions)	September 30, 2021		December 31, 2020
Beginning balance	$	91	$	82
Additions (releases)		(27)		25
Write-offs		(5)		(7)
Other *		(1)		(9)
Ending balance	$	58	$	91

*	Primarily represents translation adjustments and reclassifications.

The contract assets allowance for expected credit losses was not material in any of the periods presented.

Deferred Costs

Costs to acquire and fulfill customer contracts are deferred and amortized over the contract period or expected customer relationship life. The expected customer relationship period is determined based on the average customer relationship period, including expected renewals, for each offering type and ranges from three to six years. For contracts with an estimated amortization period of less than one year, we elected the practical expedient to expense incremental costs immediately.

The following table provides amounts of capitalized costs to acquire and fulfill customer contracts at September 30, 2021 and December 31, 2020:


	At September 30,		At December 31,
(Dollars in millions)	2021		2020
Capitalized costs to obtain a contract	$	285	$	269
Deferred costs to fulfill a contract
Deferred transition and setup costs		1,195		1,369
Other deferred fulfillment costs *		1,016		1,006
Total deferred costs **	$	2,496	$	2,646

*	Includes related party cost of $78 million at September 30, 2021 and $94 million at December 31, 2020.

Of the total deferred costs, $1,142 million was current (related party $66 million) and $1,354 million was noncurrent (related party $12 million) at September 30, 2021, and $1,205 million was current (related party $76 million) and $1,441 million was noncurrent (related party $18 million) at December 31, 2020.

The amount of total deferred costs amortized during the third quarter of 2021 was $447 million, composed of $215 million of amortization of prepaid software, $97 million of amortization of transition and setup costs, and $135 million of other deferred fulfillment costs. The amount of total deferred costs amortized during the first nine months of 2021 was $1,427 million, composed of $685 million of amortization of prepaid software, $291 million of amortization of transition and setup costs, and $451 million of other deferred fulfillment costs.

- Definition

The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts.

+ References

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+ Details

Segments

9 Months Ended

Sep. 30, 2021

Segments

Segments

4.	Segments:

Our reportable segments correspond to how we have historically organized and managed the business and are aligned to key geographic markets in which Kyndryl operates. Segment results do not include any impacts associated with intercompany transactions between the segments. Our reportable segments are:

Americas: This segment comprises Kyndryl’s operations in North and Latin America, and includes countries such as, but not limited to, the United States, Canada, Brazil, Mexico, Peru, Argentina, Colombia, and Chile.

Europe, the Middle East and Africa (“EMEA”): This segment comprises Kyndryl’s operations in Europe, the Middle East and Africa and includes countries such as, but not limited to, France, Spain, Germany, Italy, the United Kingdom, Turkey, Israel, Saudi Arabia, South Africa, Egypt and Nigeria.

Japan: This segment comprises Kyndryl’s operations in Japan.

Asia Pacific: This segment comprises Kyndryl’s operations in Asia and Oceania, excluding Japan, and includes countries such as, but not limited to, Australia, India, Singapore, Korea, China, Thailand, the Philippines and New Zealand.

As a result of the Separation, in the fourth quarter of 2021 we will evaluate whether to recast our geographic segments to reflect management’s updated view of the business.

From time to time, our geographic markets work together to sell and implement certain contracts. The resulting revenues and costs from these contracts may be apportioned among the participating geographic markets. The economic environment and its effects on the industries served by our geographic markets affect revenues and operating expenses within our geographic markets to differing degrees. Local currency fluctuations also tend to affect our geographic markets differently, depending on the geographic concentrations and locations of their businesses.

The following tables reflect the results of the Company’s segments consistent with the management measurement system that has been utilized within the Company. Performance measurement is based on pretax income. These results have been used, in part, by the chief operating decision maker, both in evaluating the performance of, and in allocating resources to, each of the segments.


(Dollars in millions)
For the three months ended September 30,	Americas		EMEA		Japan		Asia Pacific		Total
2021
External revenue	$	1,641	$	1,717	$	719	$	358	$	4,434
Related party revenue		97		23		10		14		144
Total revenue	$	1,737	$	1,741	$	729	$	372	$	4,579
Pretax income (loss)	$	(89)	$	(381)	$	23	$	(23)	$	(469)

2020
External revenue	$	1,745	$	1,807	$	752	$	392	$	4,696
Related party revenue		96		29		17		18		161
Total revenue	$	1,841	$	1,837	$	769	$	410	$	4,856
Pretax income (loss)	$	(13)	$	(280)	$	56	$	66	$	(170)


(Dollars in millions)
For the nine months ended September 30,	Americas		EMEA		Japan		Asia Pacific		Total
2021
External revenue	$	5,056	$	5,293	$	2,194	$	1,114	$	13,657
Related party revenue		278		78		42		47		445
Total revenue	$	5,334	$	5,370	$	2,236	$	1,161	$	14,102
Pretax income (loss)	$	(211)	$	(1,126)	$	78	$	68	$	(1,191)

2020
External revenue	$	5,269	$	5,301	$	2,204	$	1,168	$	13,941
Related party revenue		284		92		53		54		483
Total revenue	$	5,553	$	5,394	$	2,257	$	1,222	$	14,425
Pretax income (loss)	$	(230)	$	(1,101)	$	131	$	149	$	(1,050)

- Definition

The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments.

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+ Details

Financial Assets and Liabilities

9 Months Ended

Sep. 30, 2021

Financial Assets and Liabilities

Financial Assets and Liabilities

5.	Financial Assets and Liabilities:

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company classifies certain assets and liabilities based on the following fair value hierarchy:

●

Level 1–Quoted prices (unadjusted) in active markets for identical assets or liabilities that can be accessed at the measurement date;

●

Level 2–Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and

●

Level 3–Unobservable inputs for the asset or liability.

Items valued using internally generated models are classified according to the lowest level input or value driver that is significant to the valuation. The determination of fair value considers various factors including interest rate yield curves and time value underlying the financial instruments. For derivatives and debt securities, the Company uses a discounted cash flow analysis using discount rates commensurate with the duration of the instrument.

In determining the fair value of financial instruments, the Company considers certain market valuation adjustments to the “base valuations” calculated using the methodologies described below for several parameters that market participants would consider in determining fair value:

●

Counterparty credit risk adjustments are applied to financial instruments, taking into account the actual credit risk of a counterparty as observed in the credit default swap market to determine the true fair value of such an instrument.

●

Credit risk adjustments are applied to reflect the Company’s own credit risk when valuing all liabilities measured at fair value. The methodology is consistent with that applied in developing counterparty credit risk adjustments, but incorporates the Company’s own credit risk as observed in the credit default swap market.

The Company did not hold any equity and debt investments for the periods presented.

Certain non-financial assets such as property, plant and equipment, operating right-of-use assets, land, goodwill and intangible assets are also subject to nonrecurring fair value measurements if they are deemed to be impaired. The impairment models used for non-financial assets depend on the type of asset. There were no impairments of non-financial assets for the three and nine months ended September 30, 2021 and 2020, respectively.

Financial Assets and Liabilities Measured at Fair Value

The gross balances of derivative assets contained within prepaid expenses and other current assets in the Combined Balance Sheet at September 30, 2021 were $4 million. These financial instruments are categorized as Level 2 in the fair value hierarchy. There were no outstanding derivatives in the Combined Balance Sheet at December 31, 2020.

Financial Assets and Liabilities Not Measured at Fair Value

Accounts receivable are financial assets with carrying values that approximate fair value. Accounts payable,

other accrued expenses and short-term debt (excluding the current portion of long-term debt and including short-term finance lease liabilities) are financial liabilities with carrying values that approximate fair value. If measured at fair value in the financial statements, these financial instruments would be classified as Level 3 in the fair value hierarchy, except for short-term debt, which would be classified as Level 2.

Derivative Financial Instruments

Prior to the third quarter of 2021, Kyndryl did not independently execute derivative financial instruments to manage its foreign currency risk and instead participated in a centralized foreign currency hedging program administered by IBM. The hedging activity allocated to Kyndryl is for the management of the Company’s forecasted foreign currency expenses. In the third quarter of 2021, we began to execute trades to hedge the Company’s foreign exchange exposures, and this activity is recorded in the Company’s combined financial statements.

Foreign Exchange Risk

Anticipated Cost Transactions

The Company has foreign exchange derivative financial instruments designated as cash flow hedges to manage foreign currency risk that is deemed to be associated with the Company’s operations and has been allocated to the Company’s Combined Income Statement, up to and including the third quarter of 2021, based on its pro rata share of the underlying items hedged, where applicable, with the remainder allocated on a pro rata basis of revenue. Changes in fair value of derivatives designated as a cash flow hedge are recorded, net of applicable taxes, in other comprehensive income and subsequently reclassified into the same income statement line item as the hedged exposure when the underlying hedged item is recognized in earnings. The cash flows associated with derivatives designated as cash flow hedges are reported in cash flows from operating activities in the Combined Statement of Cash Flows.

At September 30, 2021, the total notional amount of forward contracts designated as cash flow hedges of forecasted foreign currency cost transactions was $227 million. The Company had no forward contracts outstanding under this program at December 31, 2020. The notional amounts of derivative instruments do not necessarily represent the amounts exchanged by the Company with third parties and are not necessarily a direct measure of the financial exposure. The maximum remaining length of time over which the Company hedged its exposure is approximately one year. At September 30, 2021, the weighted-average remaining maturity of these instruments was approximately 0.5 years.

The Company may also enter into master netting agreements with certain counterparties that allow for netting of exposures in the event of default or breach. However, in the Combined Balance Sheet, the Company does not offset derivative assets against liabilities with counterparties in master netting arrangements by counterparty, and there were no derivative instruments activity impacted by master netting agreements at September 30, 2021 and December 31, 2020.

At September 30, 2021, in connection with cash flow hedges of foreign currency cost transactions, the Company recorded net deferred gains of $3 million (before taxes) in AOCI. At December 31, 2020, there were no foreign exchange exposures that were recorded in the Company’s combined financial statements. The Company estimates that $3 million (before taxes) of deferred net gains on derivatives in AOCI at September 30, 2021 will be reclassified to net income within the next twelve months, providing an offsetting economic impact against the underlying anticipated transactions.

Subsidiary Cash and Foreign Currency Asset/Liability Management

The Company uses global treasury centers to manage the cash of its subsidiaries. These centers principally use currency swaps to convert cash flows in a cost-effective manner. Changes in fair value of derivatives not designated as hedges are reported in earnings in other (income) and expense. Cash flows from derivatives not designated as hedges are reported in cash flows from investing activities in the Combined Statement of Cash flows. The terms of these swap contracts are generally less than one year. The changes in the fair values of these contracts and of the underlying hedged exposures are generally offsetting and are recorded in other (income) and expense in the Combined Income Statement. At September 30, 2021 the total notional amount of derivative instruments in economic hedges of foreign currency exposure was $120 million, and there were no outstanding derivatives instruments at December 31, 2020.

The Effect of Derivative Instruments in the Combined Income Statement

The total amounts of income and expense line items presented in the Combined Income Statement in which the effects of cash flow hedges and derivatives not designated as hedging instruments are recorded, and the total effect of hedge activity on these income and expense line items are as follows:


					Gains (Losses) from
(Dollars in millions)	Total				Hedge Activity
For the three months ended September 30:	2021		2020		2021		2020
Cost of services	$	4,182	$	4,332	$	2	$	3
Selling, general and administrative expenses		854		654		—		(2)
Other (income) and expense		(17)		8		5		1

Gain (Loss) Recognized in Combined Income Statement

Combined

Recognized on

Attributable to Risk

(Dollars in millions)

Income Statement

Derivatives

Being Hedged

For the three months ended September 30:

Line Item

2021

2020

2021

2020

Derivative instruments not designated as hedging instruments:

Foreign exchange contracts

Other (income) and expense

—

Total

—


	Gain (Loss) Recognized in Combined Income Statement and Other Comprehensive Income
(Dollars in millions)					Combined	Reclassified				Amounts Excluded from
For the three months	Recognized in OCI				Income Statement	from AOCI				Effectiveness Testing (1)
ended September 30:	2021		2020		Line Item	2021		2020		2021		2020
Derivative instruments in cash flow hedges:
Foreign exchange contracts	$	3	$	—	Cost of services	$	2	$	3	$	—	$	—
					Selling, general and administrative expenses		—		(2)		—		—
					Other (income) and expense		4		1		—		—
Total	$	3	$	—		$	6	$	3	$	—	$	—

(1)	The Company’s policy is to recognize all fair value changes in amounts excluded from effectiveness testing in net income each period.

NA - not applicable


					Gains (Losses) from
(Dollars in millions)	Total				Hedge Activity
For the nine months ended September 30:	2021		2020		2021		2020
Cost of services	$	12,727	$	12,876	$	11	$	5
Selling, general and administrative expenses		2,421		2,123		(6)		2
Other (income) and expense		16		17		(3)		10

Gain (Loss) Recognized in Combined Income Statement

Combined

Recognized on

Attributable to Risk

(Dollars in millions)

Income Statement

Derivatives

Being Hedged

For the nine months ended September 30:

Line Item

2021

2020

2021

2020

Derivative instruments not designated as hedging instruments:

Foreign exchange contracts

Other (income) and expense

—

Total

—


	Gain (Loss) Recognized in Combined Income Statement and Other Comprehensive Income
(Dollars in millions)					Combined	Reclassified				Amounts Excluded from
For the nine months	Recognized in OCI				Income Statement	from AOCI				Effectiveness Testing (1)
ended September 30:	2021		2020		Line Item	2021		2020		2021		2020
Derivative instruments in cash flow hedges:
Foreign exchange contracts	$	3	$	—	Cost of services	$	11	$	5	$	—	$	—
					Selling, general and administrative expenses		(6)		2		—		—
					Other (income) and expense		(4)		10		—		—
Total	$	3	$	—		$	1	$	17	$	—	$	—

(1)	The Company’s policy is to recognize all fair value changes in amounts excluded from effectiveness testing in net income each period.

NA - not applicable

For the three and nine months ended September 30, 2021 and 2020, there were no gains or losses excluded from the assessment of hedge effectiveness for cash flow hedges, or associated with an underlying exposure that did not or was not expected to occur; nor are there any anticipated in the normal course of business.

Intangible Assets Including Goodwill

9 Months Ended

Sep. 30, 2021

Intangible Assets Including Goodwill

Intangible Assets Including Goodwill

6.	Intangible Assets Including Goodwill:

Intangible Assets

The following tables present the Company’s intangible asset balances by major asset class.


	At September 30, 2021
	Gross Carrying		Accumulated		Net Carrying
(Dollars in millions)	Amount		Amortization		Amount
Capitalized software	$	17	$	(10)	$	7
Client relationships		130		(91)		39
Completed technology		20		(19)		—
Patents and trademarks		2		(2)		—
Total	$	169	$	(122)	$	47


	At December 31, 2020
	Gross Carrying		Accumulated		Net Carrying
(Dollars in millions)	Amount		Amortization		Amount
Capitalized software	$	7	$	(4)	$	3
Client relationships		130		(77)		53
Completed technology		20		(17)		3
Patents and trademarks		2		(2)		—
Total	$	159	$	(99)	$	60

The net carrying amount of intangible assets decreased $13 million during the first nine months of 2021, primarily due to intangible asset amortization, partially offset by additions of capitalized software. The aggregate intangible asset amortization expense was $9 million and $26 million for the third quarter and first nine months of 2021, respectively. In the first nine months of 2021, the Company retired $3 million of fully amortized intangible assets, impacting both the gross carrying amount and accumulated amortization by this amount.

The future amortization expense relating to intangible assets currently recorded in the Combined Balance Sheet was estimated to be the following at September 30, 2021:


	Capitalized		Acquired
(Dollars in millions)	Software		Intangibles		Total
Remainder of 2021	$	4	$	5	$	9
2022		3		18		21
2023		—		10		11
2024		—		6		6
2025		—		—		—
Thereafter		—		—		—

Goodwill

Goodwill attributed to the Company represents the historical goodwill balances in the Parent’s managed infrastructure services business arising from acquisitions specific to the Company. The changes in the goodwill balances by segment for the nine months ended September 30, 2021 and for the year ended December 31, 2020 were as follows:


			Foreign				Foreign
			Currency				Currency
			Translation				Translation
(Dollars in millions)	Balance at		and Other		Balance at		and Other		Balance at
Segment	January 1, 2020		Adjustments*		December 31, 2020		Adjustments*		September 30, 2021
Americas	$	416	$	24	$	440	$	(8)	$	431
EMEA		272		16		288		4		292
Japan		401		23		424		(9)		415
Asia Pacific		74		4		78		(16)		62
Total	$	1,162	$	67	$	1,230	$	(29)	$	1,201

*	Primarily driven by foreign currency translation.

There were no goodwill impairment losses recorded during the first nine months of 2021 or full-year 2020 and the Company has no accumulated impairment losses. We review goodwill for impairment annually and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable by first assessing qualitative factors to determine if it is more likely than not that fair value is less than carrying value. As discussed in note 4, “Segments”, we will evaluate whether to recast our geographic segments to reflect management’s updated view of the business. Segment changes are considered triggering events for quantitative assessment for impairment, so if the Company determines that a change in its segment definitions is warranted, it will perform quantitative tests for all affected reporting units. The Company intends to complete its annual goodwill impairment analysis for all reporting units during the fourth quarter of 2021.

Borrowings

9 Months Ended

Sep. 30, 2021

Borrowings

Borrowings

7.	Borrowings:

Short-Term Debt


	At September 30,		At December 31,
(Dollars in millions)	2021		2020
Current maturities of long-term debt	$	112	$	69

Long-Term Debt


	Weighted-Average		At September 30,		At December 31,
(Dollars in millions)	Interest Rate*	Maturities	2021		2020
U.S. dollar debt:
Long-term debt	3.0%	2021-2026	$	136	$	—
Finance lease obligations	1.2%	2021-2026		257		209
			$	392	$	209
Less: current maturities				112		69
Total			$	280	$	140

* As of September 30, 2021.

In the second quarter of 2021, IBM entered into a $140 million loan agreement with a bank to finance a purchase of software licenses on behalf of Kyndryl. The amortizing loan is secured by collateral and contains covenants, primarily for compliance with the scheduled payments in the loan agreement. Failure to comply with the loan covenants

could constitute an event of default and result in the immediate repayment of the principal and interest on the loan. The Company is in compliance with all of the loan covenants and is expected to maintain a credit rating at or above the level outlined in the loan agreement. The loan has been transferred to Kyndryl and is included in the Company’s financial statements. The carrying amount of the loan approximates fair value. If measured at fair value in the financial statements, the loan would be classified as Level 2 in the fair value hierarchy.

Contractual obligations of long-term debt outstanding at September 30, 2021, were as follows:


(Dollars in millions)
At September 30, 2021:	Total
Remainder of 2021	$	29
2022		110
2023		96
2024		74
2025		59
Thereafter		24
Total	$	392

Interest on Debt

Interest expense for the nine months ended September 30, 2021 and 2020 was $46 million and $47 million, respectively. Interest capitalized for the periods presented was immaterial. Most of the interest in the Combined Income Statement reflects the allocation of interest expense associated with debt issued by IBM for which a portion of the proceeds benefited Kyndryl. Such Parent debt has not been attributed to the Company for any periods presented because Parent’s borrowings are not the legal obligation of the Company. Refer to note 13, “Related Party Transactions,” for more information on the allocation of Parent’s corporate expenses.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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+ Details

Commitments

9 Months Ended

Sep. 30, 2021

Commitments

Commitments

8.	Commitments:

The Company has applied the guidance requiring a guarantor to disclose certain types of guarantees, even if the likelihood of requiring the guarantor’s performance is remote. The Company guarantees certain loans and financial commitments. The maximum potential future payment under these financial guarantees and the fair value of these guarantees recognized in the Combined Balance Sheet at September 30, 2021 and December 31, 2020 were not material.

Contingencies

9 Months Ended

Sep. 30, 2021

Contingencies

Contingencies

9.	Contingencies:

As a company with approximately 90,000 employees and with clients around the world, Kyndryl is subject to, or could become subject to, either as plaintiff or defendant, a variety of contingencies, including claims, demands and suits, investigations, tax matters and proceedings that arise from time to time in the ordinary course of its business. Given the rapidly evolving external landscape of cybersecurity, privacy and data protection laws, regulations and threat actors, the Company or its clients could become subject to actions or proceedings in various jurisdictions. Also, as is typical for companies of Kyndryl’s scope and scale, the Company is subject to, or could become subject to, actions and proceedings in various jurisdictions involving a wide range of labor and employment issues (including matters related to contested employment decisions, country-specific labor and employment laws, and the Company’s benefit plans), as well as actions with respect to contracts, securities, foreign operations, competition law and environmental matters. These actions may be commenced by a number of different parties, including competitors, clients, employees, government and regulatory agencies, stockholders and representatives of the locations in which the Company does business. Some of the actions to which the Company is, or may become, party may involve particularly complex technical issues, and some actions may raise novel questions under the laws of the various jurisdictions in which these matters arise. Additionally, the Company is, or may be, a party to agreements pursuant to which it may be obligated to indemnify the other party with respect to certain matters.

The Company records a provision with respect to a claim, suit, investigation or proceeding when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In accordance with the relevant accounting guidance, the Company provides disclosures of matters for which the likelihood of material loss is at least reasonably possible. In addition, the Company may also disclose matters based on its consideration of other matters and qualitative factors, including the experience of other companies in the industry, and investor, customer and employee relations considerations.

The Company reviews claims, suits, investigations and proceedings at least quarterly, and decisions are made with respect to recording or adjusting provisions and disclosing reasonably possible losses or range of losses (individually or in the aggregate) to reflect the impact and status of settlement discussions, discovery, procedural and substantive rulings, reviews by counsel and other information pertinent to a particular matter.

Whether any losses, damages or remedies finally determined in any claim, suit, investigation or proceeding could reasonably have a material effect on the Company’s business, financial condition, results of operations or cash flows will depend on a number of variables, including: the timing and amount of such losses or damages; the structure and type of any such remedies; the significance of the impact any such losses, damages or remedies may have in the combined financial statements; and the unique facts and circumstances of the particular matter that may give rise to additional factors. While the Company will continue to defend itself vigorously, it is possible that the Company’s business, financial condition, results of operations or cash flows could be affected in any particular period by the resolution of one or more of these matters.

The following is a summary of a significant legal matter relating to the Company.

In July 2017, BMC Software, Inc. (“BMC”) sued IBM in the U.S. Court for the Southern District of Texas in a dispute involving IBM’s managed infrastructure services business. BMC alleges IBM’s removal of BMC software from one of its client’s sites at the client’s request constituted breach of contract and trade secret misappropriation. IBM defeated BMC’s motion for injunctive relief, completed the client’s transformation project and counterclaimed for breach of contract. In September 2021, the trial court overruled in part and granted in part the magistrate judge’s recommendations on summary judgment, dismissing IBM’s counterclaims and permitting some of BMC’s claims for damages to proceed. The case remains pending.

Income Taxes

9 Months Ended

Sep. 30, 2021

Income Taxes

Income Taxes

10.

Income Taxes:

For purposes of our combined financial statements, income taxes have been calculated as if we file income tax returns for the Company on a standalone basis. The Company’s operations historically have been included in the income tax returns of IBM. The Company believes the assumptions supporting its allocation and presentation of income taxes on a separate return basis are reasonable. However, the Company’s tax results, as presented in the combined financial statements, may not be reflective of the results that the Company expects to generate in the future.

For the third quarter of 2021, the Company’s effective tax rate was (47.8%) compared to (39.7%) in the third quarter of 2020. The negative effective tax rate in 2021 and 2020 reflects a tax expense on a pretax loss. The third quarter of 2021 rate was lower than the Company's statutory tax rate primarily due to changes in valuation allowance, losses in certain jurisdictions that cannot be benefited from, and tax charges related to the transfer of Kyndryl’s operations from Parent in contemplation of the Company’s Separation. The increase in deferred taxes in the third quarter primarily reflects the transfer of operations from Parent in contemplation of our Spin-off. The third quarter of 2020 rate was lower than the Company's statutory tax rate primarily due to changes in valuation allowance and losses in certain jurisdictions that cannot be benefited from.

For the first nine months of 2021, the Company's effective tax rate was (32.6%) compared to (23.2%) in the first nine months of 2020. The negative effective tax rate in 2021 and 2020 reflects a tax expense on a pretax loss. The year-to-date 2021 rate was lower than the Company's statutory tax rate primarily due to changes in valuation allowance, losses in certain jurisdictions that cannot be benefited from, and tax charges related to the transfer of Kyndryl’s

operations from Parent in contemplation of the Company’s Separation. The 2020 rate was lower than the Company’s combined statutory tax rate primarily due to changes in valuation allowance and losses in certain jurisdictions that cannot be benefited from.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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+ Details

Equity Activity

9 Months Ended

Sep. 30, 2021

Equity Activity

Equity Activity

11.

Equity Activity:

Reclassifications and Taxes Related to Items of Other Comprehensive Income (Loss)


(Dollars in millions)	Pretax		Tax (Expense)		Net of Tax
For the three months ended September 30, 2021:	Amount		Benefit		Amount
Other comprehensive income (loss):
Foreign currency translation adjustments	$	(125)	$	—	$	(125)
Unrealized gains (losses) on cash flow hedges:
Unrealized gains (losses) arising during the period	$	3	$	—	$	3
Total unrealized gains (losses) on cash flow hedges	$	3	$	—	$	3
*Retirement-related benefit plans:**
Amortization of net (gains) losses	$	12	$	(3)	$	8
Total retirement-related benefit plans	$	12	$	(3)	$	8
Other comprehensive income (loss)	$	(110)	$	(3)	$	(114)

*	These AOCI components are included in the computation of net periodic pension cost. Refer to note 12, “Retirement-Related Benefits,” for additional information.

Reclassifications and Taxes Related to Items of Other Comprehensive Income (Loss)


(Dollars in millions)	Pretax		Tax (Expense)		Net of Tax
For the three months ended September 30, 2020:	Amount		Benefit		Amount
Other comprehensive income (loss):
Foreign currency translation adjustments	$	121	$	—	$	121
*Retirement-related benefit plans:**
Net (losses) gains arising during the period	$	—	$	1	$	1
Amortization of net (gains) losses		9		(3)		6
Total retirement-related benefit plans	$	9	$	(2)	$	7
Other comprehensive income (loss)	$	131	$	(2)	$	128

*	These AOCI components are included in the computation of net periodic pension cost. Refer to note 12, “Retirement-Related Benefits,” for additional information.

Reclassifications and Taxes Related to Items of Other Comprehensive Income (Loss)


(Dollars in millions)	Pretax		Tax (Expense)		Net of Tax
For the nine months ended September 30, 2021:	Amount		Benefit		Amount
Other comprehensive income (loss):
Foreign currency translation adjustments	$	(203)	$	—	$	(203)
Unrealized gains (losses) on cash flow hedges:
Unrealized gains (losses) arising during the period	$	3	$	—	$	3
Total unrealized gains (losses) on cash flow hedges	$	3	$	—	$	3
*Retirement-related benefit plans:**
Amortization of net (gains) losses	$	32	$	(10)	$	22
Total retirement-related benefit plans	$	32	$	(10)	$	22
Other comprehensive income (loss)	$	(168)	$	(10)	$	(178)

*	These AOCI components are included in the computation of net periodic pension cost. Refer to note 12, “Retirement-Related Benefits,” for additional information.

Reclassifications and Taxes Related to Items of Other Comprehensive Income (Loss)


(Dollars in millions)	Pretax		Tax (Expense)		Net of Tax
For the nine months ended September 30, 2020:	Amount		Benefit		Amount
Other comprehensive income (loss):
Foreign currency translation adjustments	$	(1)	$	—	$	(1)
*Retirement-related benefit plans:**
Net (losses) gains arising during the period	$	—	$	—	$	1
Amortization of net (gains) losses		27		(9)		18
Total retirement-related benefit plans	$	27	$	(8)	$	19
Other comprehensive income (loss)	$	26	$	(8)	$	18

*	These AOCI components are included in the computation of net periodic pension cost. Refer to note 12, “Retirement-Related Benefits,” for additional information.

Accumulated Other Comprehensive Income (Loss) (net of tax)


					Net Change
	Net Unrealized		Foreign		Retirement-		Accumulated
	Gain (Losses)		Currency		Related		Other
	on Cash		Translation		Benefit		Comprehensive
(Dollars in millions)	Flow Hedges		Adjustments*		Plans		Income (Loss)
January 1, 2021	$	—	$	(882)	$	(218)	$	(1,100)
Net transfers from Parent		—		—		(338)		(338)
Other comprehensive income (loss)**		3		(203)		22		(178)
September 30, 2021	$	3	$	(1,084)	$	(534)	$	(1,615)

*	Foreign currency translation adjustments are presented gross.

**	No amounts were reclassified from accumulated other comprehensive income.


					Net Change
	Net Unrealized		Foreign		Retirement-		Accumulated
	Gain (Losses)		Currency		Related		Other
	on Cash		Translation		Benefit		Comprehensive
(Dollars in millions)	Flow Hedges		Adjustments*		Plans		Income (Loss)
January 1, 2020	$	—	$	(1,007)	$	(214)	$	(1,220)
Other comprehensive income (loss)**		—		(1)		19		18
September 30, 2020	$	—	$	(1,007)	$	(195)	$	(1,202)

*	Foreign currency translation adjustments are presented gross.

**	No amounts were reclassified from accumulated other comprehensive income.

- Definition

The entire disclosure for shareholders' equity comprised of portions attributable to the parent entity and noncontrolling interest, including other comprehensive income. Includes, but is not limited to, balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings, accumulated balance for each classification of other comprehensive income and amount of comprehensive income.

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+ Details

Retirement-Related Benefits

9 Months Ended

Sep. 30, 2021

Retirement-Related Benefits

Retirement-Related Benefits

12.

Retirement-Related Benefits:

The following tables present the components of net periodic benefit cost for the retirement-related benefit plans recognized in the Combined Income Statement, excluding defined contribution plans.


	Defined Benefit				Nonpension Postretirement
(Dollars in millions)	Pension Plans				Benefit Plans
For the three months ended September 30:	2021		2020		2021		2020
Service cost	$	20	$	26	$	1	$	1
Interest cost *		2		2		—		—
Expected return on plan assets *		(7)		(6)		—		—
Recognized actuarial losses (gains) *		12		9		—		—
Multi-employer plans/other costs **		1		4		—		—
Net periodic benefit cost	$	27	$	35	$	1	$	1


	Defined Benefit				Nonpension Postretirement
(Dollars in millions)	Pension Plans				Benefit Plans
For the nine months ended September 30:	2021		2020		2021		2020
Service cost	$	65	$	79	$	2	$	2
Interest cost *		5		7		1		1
Expected return on plan assets *		(18)		(18)		(1)		(1)
Recognized actuarial losses (gains) *		32		27		—		—
Multi-employer plans/other costs **		6		10		—		—
Net periodic benefit cost	$	90	$	105	$	2	$	2

*These components of net periodic benefit cost are included in other (income) and expense in the Combined Income Statement.

**	Multi-employer plan costs represent required contributions for the period to multi-employer plans, which are plans sponsored by third parties. The Company recognizes expense in connection with these plans as contributions are funded.

During the nine months ended September 30, 2021 and 2020, the Company contributed $7 million and $3 million, respectively, to the non-U.S. defined benefit pension plans and nonpension postretirement benefit plans. The Company expects additional contributions paid to these plans in the remainder of the current fiscal year to be $2 million.

The Company’s defined contribution plan expense for the three months ended September 30, 2021 and 2020 was $39 million and $49 million, respectively and for the nine months ended September 30, 2021 and 2020 was $129 million and $144 million, respectively.

In connection with establishment of certain Kyndryl legal entities, the Company was required to assume pension assets and liabilities, along with the associated deferred costs, in accumulated other comprehensive income (loss). As a result, the noncurrent liability for retirement and nonpension postretirement benefit obligations increased from $516 million at June 30, 2021 to $995 million at September 30, 2021. In addition, the impact to accumulated other comprehensive income (loss) was a loss of $338 million, net of tax benefit of $128 million.

- Definition

The entire disclosure for retirement benefits.

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+ Details

Related Party Transactions

9 Months Ended

Sep. 30, 2021

Related Party Transactions

Related Party Transactions

13.

Related Party Transactions:

Related Party Revenue and Purchases

Kyndryl provides various services to IBM, including those related to hosting data centers and servicing IBM’s information technology infrastructure, which are reported as revenue in the Combined Income Statement. Revenues for these services were $144 million and $161 million for the three months ended September 30, 2021 and 2020, respectively, and $445 million and $483 million for the nine months ended September 30, 2021 and 2020, respectively. The costs related to these services are reported in cost of services in Kyndryl’s Combined Income Statement and were

$114 million and $127 million for the three months ended September 30, 2021 and 2020, respectively, and $351 million and $382 million for the nine months ended September 30, 2021 and 2020, respectively.

IBM historically provided its branded and related hardware, software and services to Kyndryl for use in the delivery of services arrangements with Kyndryl customers. The cost of the hardware and software was reflected at a price indicative of what the Company would have incurred had it operated on a standalone basis. These costs and their associated depreciation and amortization were recorded as cost of services in the Company’s Combined Income Statement in the amounts of $845 million and $852 million, for the three months ended September 30, 2021 and 2020, respectively, and $2,504 million and $2,415 million, for the nine months ended September 30, 2021 and 2020, respectively. The capital expenditures for purchases of IBM hardware were reflected as payments for property and equipment within the investing section of the Combined Statement of Cash Flows in the amounts of $250 million and $381 million, for the first nine months of 2021 and 2020, respectively.

Acquired Intangible Assets

Within the historical periods presented, the Company has been charged a fee for the use of certain acquired intangible assets by IBM for acquisitions which were not specific to Kyndryl. The amounts reflected within cost of services on the Combined Income Statement for these fees were $8 million for the third quarter of both 2021 and 2020, and $23 million for the first nine months of both 2021 and 2020. The amounts for these fees reflected within Selling, general and administrative expense within the Combined Income Statement were $12 million for the third quarter of both 2021 and 2020, and $37 million for the first nine months of both 2021 and 2020.

Allocation of Corporate Expenses

The Combined Income Statement, Combined Statement of Comprehensive Income (Loss) and Combined Statement of Cash Flows include an allocation of general corporate expenses from IBM. The financial information in these combined financial statements does not necessarily include all of the expenses that would have been incurred by Kyndryl had it been a separate, standalone company. It is not practicable to estimate actual costs that would have been incurred had Kyndryl been a standalone company during the periods presented. Allocations for management costs and corporate support services provided to Kyndryl for the three months ended September 30, 2021 and 2020 totaled $310 million and $284 million, respectively, and $977 million and $915 million for the nine months ended September 30, 2021 and 2020, respectively. These amounts include costs for corporate functions including, but not limited to, senior management, legal, human resources, finance and accounting, treasury, information technology and other shared services. All such amounts have been deemed to have been incurred and settled by Kyndryl in the period in which the costs were recorded and are included in the Net Parent investment. These costs were allocated based on direct usage as applicable, with the remainder allocated on a pro-rata basis of gross profit, headcount, asset ownership or other measures determined to be reasonable.

The following table presents the components of the allocation of general corporate expenses from IBM to Kyndryl.


	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
(Dollars in millions)	2021		2020		2021		2020
Selling, general and administrative expense	$	292	$	266	$	922	$	860
Research, development and engineering expense		(1)		—		(1)		3
Other (income) and expense		2		2		10		5
Interest expense		17		16		46		47
Total expense and other (income)	$	310	$	284	$	977	$	915

Cash Management and Financing

The Company participates in IBM’s centralized cash management and financing programs. Disbursements are made through centralized accounts payable systems, which are operated by IBM. Cash receipts are transferred to centralized accounts, which are also maintained by IBM. As cash is received and disbursed by IBM, it is accounted for by Kyndryl through Net Parent investment. During the nine months ended September 30, 2021, short- and long-term debt was financed by IBM, and financing decisions were determined by IBM. Refer to note 1, “Background and Basis of Presentation,” for additional information. Kyndryl’s cash that was not included in the centralized cash management and financing programs is classified as Cash and cash equivalents on the Combined Balance Sheet.

Net Parent Investment

Related party transactions between Kyndryl and IBM have been included within Net Parent investment in the Combined Balance Sheet in the historical periods presented as these related party transactions were not settled in cash. Net Parent investment in the Combined Balance Sheet and Combined Statement of Changes in Equity represents IBM’s historical investment in Kyndryl, the net effect of transactions with and allocations from IBM, and Kyndryl’s accumulated earnings. Net transfers from IBM are included within Net Parent investment. The components of Net transfers from IBM and the reconciliation to the corresponding amount presented on the Combined Statement of Cash Flows were as follows:


	For the Nine Months Ended September 30,
(Dollars in millions)	2021		2020
Cash pooling and general financing activities/other	$	(1,515)		(2,853)
Allocation of Parent’s corporate expenses/other		1,139		1,204
Related party sales and purchases		2,252		2,130
Related party intangible assets fee		60		60
Income taxes		716		245
Total Net transfers from Parent per Combined Statement of Equity	$	2,652		786
Income taxes		(716)		(245)
Allocation of Parent’s stock-based compensation		(53)		(47)
Other		(89)		(100)
Total Net transfers from Parent per Combined Statement of Cash Flows	$	1,794		394

Assignment of Receivables

A portion of Kyndryl’s receivables with extended payment terms have historically been assigned to IBM’s Global Financing business. These receivables were not recognized on the Company’s Combined Balance Sheet. The gross amounts of Kyndryl receivables assigned to IBM Global Financing were $487 million and $750 million for the third quarter of 2021 and 2020, respectively, and $1,781 million and $2,301 million for the first nine months of 2021 and 2020, respectively. The fees and the net gains and losses associated with the assignment of receivables were not material for any of the periods presented. In October 2021, in preparation for the Separation, the Company entered into a Receivables Purchase Agreement with an unaffiliated bank with similar volumes to the amounts historically financed by IBM.

Lease Guarantees

Kyndryl identified 72 lease agreements with third parties with an estimated aggregate lease liability guaranteed by IBM of $267 million.

Subsequent Events

9 Months Ended

Sep. 30, 2021

Subsequent Events

Subsequent Events

14.

Subsequent Events:

On October 14, 2021, Kyndryl’s Form 10 was declared effective by the SEC. 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. On November 3, 2021, the Separation was completed through IBM’s distribution of 80.1% of outstanding shares of Kyndryl common stock to holders of IBM common stock as of the close of business on the record date of October 25, 2021. As a result of the distribution, IBM stockholders of record received one share of Kyndryl’s common stock for every five shares of IBM common stock. After this distribution, IBM continued to own 19.9% of the shares of Kyndryl common stock. On November 4, 2021, Kyndryl began trading as an independent, publicly traded company under the stock symbol “KD” on the New York Stock Exchange.

In October 2021, in preparation for the Separation, Kyndryl completed the offering of $2.4 billion in aggregate principal amount of senior unsecured fixed-rate notes (the “Notes”) as follows: $700 million aggregate principal amount of 2.05% Senior Notes due 2026, $500 million aggregate principal amount of 2.70% Senior Notes due 2028, $650 million aggregate principal amount of 3.15% Senior Notes due 2031 and $550 million aggregate principal amount of 4.10% Senior Notes due 2041. In addition, Kyndryl entered into a $500 million three-year variable rate term loan (the “Term Loan”). Approximately $963 million of the net proceeds of the Notes and the Term Loan was transferred to IBM in conjunction with the Separation. In October 2021, Kyndryl also entered into a $3.2 billion five-year multi-currency revolving credit facility (the “Credit Facility”) for its future liquidity needs. The Credit Facility became available to the Company upon completion of the Separation. The Notes and the Term Loan were initially guaranteed by IBM. Following the completion of the Separation, the guarantee was released, and the Notes and the Term Loan are no longer obligations of IBM.

In October 2021, the Company entered into a factoring arrangement with an unaffiliated financial institution specifically designed to factor trade receivables with certain customers that have extended terms. Under this factoring arrangement, from time to time, we sell these certain customers’ trade receivables at a discount on a non-recourse basis. Pursuant to this arrangement, we may sell at any one time, on a revolving basis, up to $1.1 billion of our trade receivables. These transactions are accounted for as sales, and cash proceeds are included in cash provided by operating activities in the Combined Statement of Cash Flows.

Background and Basis of Presentation (Policies)	9 Months Ended
Background and Basis of Presentation (Policies)	Sep. 30, 2021
Significant Accounting Policies
Basis of Presentation	Basis of Presentation The accompanying unaudited combined financial statements and footnotes of Kyndryl have been prepared in connection with the Separation and have been derived from the consolidated financial statements and accounting records of IBM as if Kyndryl operated on a standalone basis during the periods presented, and were prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). In the opinion of management, these statements include all adjustments, including normal recurring adjustments, necessary to present a fair statement of the Company’s results of operations, financial position and cash flows. References in these combined financial statements to “the Company” or “Kyndryl” refer to IBM’s managed infrastructure services business as it was historically managed. The combined financial statements reflect allocations of certain IBM corporate, infrastructure and shared services expenses, including centralized research, legal, human resources, payroll, finance and accounting, employee benefits, real estate, insurance, information technology, telecommunications, treasury and other expenses. Where possible, these charges were allocated based on direct usage, with the remainder allocated on a pro rata basis of headcount, gross profit, asset or other allocation methodologies that are considered to be a reasonable reflection of the utilization of services provided or the benefit received by Kyndryl during the periods presented. The combined financial statements may not be indicative of the Company’s future performance and do not necessarily reflect what the financial position, results of operations and cash flows would have been had it operated as an independent company during the periods presented. Further, interim results are not necessarily indicative of financial results for a full year. These unaudited combined financial statements should be read in conjunction with the audited combined financial statements and the corresponding notes in our Form 10. The Combined Balance Sheet of the Company includes IBM’s assets and liabilities that are specifically identifiable or otherwise attributable to the Company, including subsidiaries and/or joint ventures conducting managed infrastructure services business in which IBM has a controlling financial interest or is the primary beneficiary. Transfers of cash, both to and from IBM’s centralized cash management system, are reflected as a component of Net Parent investment in the Combined Balance Sheet and as financing activities in the accompanying Combined Statement of Cash Flows. In addition, the Company also invests a portion of its excess cash in short-term interest-bearing accounts with IBM, which can be withdrawn upon demand. For additional information, see note 13, “Related Party Transactions,” to the combined financial statements. Outside of the excess cash arrangement, cash and cash equivalents held by IBM at the corporate level were not attributable to the Company for any of the periods presented due to IBM’s centralized approach to cash management and financing of its operations. Only cash amounts specifically held by Kyndryl are reflected in the Combined Balance Sheet. IBM’s debt was not attributed to the Company for any of the periods presented because IBM’s borrowings are not the legal obligation of Kyndryl. Third-party debt obligations included in the combined financial statements are those for which the legal obligor is a legal entity of Kyndryl. Interest expense in the Combined Income Statement reflects the allocation of interest on borrowing and funding related activity associated with the portion of IBM’s borrowings where the proceeds benefited the Company. Net Parent investment in the Combined Balance Sheet represents the accumulation of the Company's net income (loss) over time and net non-trade intercompany transactions between Kyndryl and IBM (for example, investments from IBM or distributions to IBM). Changes in these non-trade intercompany balances are reflected as Net transfers from Parent in the financing activities section of the Combined Statement of Cash Flows. On September 1, 2021, legal entities of Kyndryl and its subsidiaries were established in the territories where we operate. IBM transferred ownership of certain specifically identifiable assets and liabilities that are exclusively related to the operations of Kyndryl from the Parent to those legal entities on the same date. Balances of transferred assets and assumed liabilities are reflected in the respective line items and the component of Net Parent investment in the Combined Balance Sheet. Consequently, for certain financial statement line items, including cash and cash equivalents, deferred tax assets and retirement and nonpension postretirement benefit obligations presented in the Combined Balance Sheet at September 30, 2021, the values of these accounts increased compared to the Combined Balance Sheet at December 31, 2020, with more assets and liabilities being specifically identifiable. In addition, the cash flow impacts from the establishment of these new legal entities and other current income tax liabilities were assumed to be settled with Parent through the Net parent investment account and have been presented in the Combined Statement of Cash Flows within “Taxes (including items settled with Parent)”. Prior to the Separation, Kyndryl’s operations are included in the consolidated U.S. federal, certain state and local and foreign income tax returns filed by IBM, where applicable. The income tax provision included in these combined financial statements has been calculated using the separate return basis, as if Kyndryl had filed separate tax returns. Post separation, Kyndryl’s operating footprint, as well as tax return elections and assertions, are expected to be different, and therefore Kyndryl’s hypothetical income taxes, as presented in the combined financial statements, are not expected to be indicative of the Company’s future income taxes. Current income tax liabilities, including amounts for unrecognized tax benefits related to Kyndryl’s activities included in the Parent’s income tax returns, were assumed to be immediately settled with Parent through the Net Parent investment account in the Combined Balance Sheet. Significant judgment is also required in determining any valuation allowance recorded against deferred tax assets on a hypothetical separate-return basis. In assessing the need for a valuation allowance, management considers all available evidence for each jurisdiction including past operating results, estimates of future taxable income and the feasibility of ongoing tax planning strategies/actions. However, amounts presented on the hypothetical separate-return basis, including valuation allowances, are expected to differ from the deferred tax assets reported within our post-spin financial statements, based upon the impacts of the Separation and application of local law, among other factors. We believe it is reasonably possible that the Company’s valuation allowance position will change in the next twelve months. 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.
Principles of Combination	Principles of Combination The combined financial statements include the Company’s net assets and results of operations as described above. All significant intracompany transactions between Kyndryl’s businesses have been eliminated. All significant intercompany transactions between Kyndryl and IBM have been included in the combined financial statements. Intercompany transactions between Kyndryl and IBM are considered to be effectively settled in the combined financial statements at the time the transaction is recorded. The total net effect of the settlement of these intercompany transactions is reflected as Net transfers from Parent in the financing activities section in the Combined Statement of Cash Flows and in the Combined Balance Sheet within Net Parent investment.
Use of Estimates	Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts that are reported in the combined financial statements and accompanying disclosures. Estimates are used in determining the allocation of costs and expenses from IBM, and are used in determining the following, among others: revenue, costs to complete service contracts, income taxes, pension assumptions, valuation of assets including goodwill and intangible assets, the depreciable and amortizable lives of other long-lived assets, loss contingencies, allowance for credit losses, deferred transition costs and other matters. These estimates are based on management’s knowledge of current events, historical experience and actions that the Company may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances, including the macroeconomic impacts of the COVID-19 pandemic (beginning in 2020). Actual results may be different from these estimates.
Accounting Changes	New Standards to be Implemented In October 2021, the Financial Accounting Standards Board (“FASB”) issued guidance (“Revenue Contracts with Customers Acquired in a Business Combination”) which requires that an acquirer recognize and measure contract assets and liabilities acquired in a business combination as if it had originated the contracts, in accordance with ASC 606, Revenue from Contracts with Customers. Deferred revenue acquired in a business combination is no longer required to be measured at its fair value, which had historically resulted in a deferred revenue impairment at the date of acquisition. The amendment is effective January 1, 2023, and early adoption is permitted. The Company is evaluating the impact of the guidance and adoption date. Standards Implemented In December 2019, the FASB issued guidance (“Simplifying the Accounting for Income Taxes”) intended to simplify various aspects of income tax accounting by removing certain exceptions to the general principle of the guidance and also clarified and amended existing guidance to improve consistency in application. The guidance was effective January 1, 2021, and early adoption was permitted. The Company adopted the guidance on a prospective basis as of the effective date. The guidance did not have a material impact in the combined financial results.
Segments	Our reportable segments correspond to how we have historically organized and managed the business and are aligned to key geographic markets in which Kyndryl operates. Segment results do not include any impacts associated with intercompany transactions between the segments. Our reportable segments are: Americas: This segment comprises Kyndryl’s operations in North and Latin America, and includes countries such as, but not limited to, the United States, Canada, Brazil, Mexico, Peru, Argentina, Colombia, and Chile. Europe, the Middle East and Africa (“EMEA”): This segment comprises Kyndryl’s operations in Europe, the Middle East and Africa and includes countries such as, but not limited to, France, Spain, Germany, Italy, the United Kingdom, Turkey, Israel, Saudi Arabia, South Africa, Egypt and Nigeria. Japan: This segment comprises Kyndryl’s operations in Japan. Asia Pacific: This segment comprises Kyndryl’s operations in Asia and Oceania, excluding Japan, and includes countries such as, but not limited to, Australia, India, Singapore, Korea, China, Thailand, the Philippines and New Zealand. As a result of the Separation, in the fourth quarter of 2021 we will evaluate whether to recast our geographic segments to reflect management’s updated view of the business. From time to time, our geographic markets work together to sell and implement certain contracts. The resulting revenues and costs from these contracts may be apportioned among the participating geographic markets. The economic environment and its effects on the industries served by our geographic markets affect revenues and operating expenses within our geographic markets to differing degrees. Local currency fluctuations also tend to affect our geographic markets differently, depending on the geographic concentrations and locations of their businesses.

Revenue Recognition (Tables)

9 Months Ended

Sep. 30, 2021

Revenue Recognition

Schedule of reconciliation of contract balances


(Dollars in millions)	At September 30, 2021		At December 31, 2020
Accounts receivable (net of allowances of $58 in 2021 and $91 in 2020)	$	1,746	$	1,444
Contract assets *		80		72
Deferred income (current)		875		854
Deferred income (noncurrent)		520		543

*	Included within prepaid expenses and other current assets in the Combined Balance Sheet.

Schedule of notes and accounts receivable - trade allowance for credit losses


	Nine Months Ended		Year Ended
(Dollars in millions)	September 30, 2021		December 31, 2020
Beginning balance	$	91	$	82
Additions (releases)		(27)		25
Write-offs		(5)		(7)
Other *		(1)		(9)
Ending balance	$	58	$	91

*	Primarily represents translation adjustments and reclassifications.

Schedule of capitalized costs to acquire and fulfill customer


	At September 30,		At December 31,
(Dollars in millions)	2021		2020
Capitalized costs to obtain a contract	$	285	$	269
Deferred costs to fulfill a contract
Deferred transition and setup costs		1,195		1,369
Other deferred fulfillment costs *		1,016		1,006
Total deferred costs **	$	2,496	$	2,646

*	Includes related party cost of $78 million at September 30, 2021 and $94 million at December 31, 2020.

Segments (Tables)

9 Months Ended

Sep. 30, 2021

Segments

Revenue and Pre-tax Income by Segment


(Dollars in millions)
For the three months ended September 30,	Americas		EMEA		Japan		Asia Pacific		Total
2021
External revenue	$	1,641	$	1,717	$	719	$	358	$	4,434
Related party revenue		97		23		10		14		144
Total revenue	$	1,737	$	1,741	$	729	$	372	$	4,579
Pretax income (loss)	$	(89)	$	(381)	$	23	$	(23)	$	(469)

2020
External revenue	$	1,745	$	1,807	$	752	$	392	$	4,696
Related party revenue		96		29		17		18		161
Total revenue	$	1,841	$	1,837	$	769	$	410	$	4,856
Pretax income (loss)	$	(13)	$	(280)	$	56	$	66	$	(170)


(Dollars in millions)
For the nine months ended September 30,	Americas		EMEA		Japan		Asia Pacific		Total
2021
External revenue	$	5,056	$	5,293	$	2,194	$	1,114	$	13,657
Related party revenue		278		78		42		47		445
Total revenue	$	5,334	$	5,370	$	2,236	$	1,161	$	14,102
Pretax income (loss)	$	(211)	$	(1,126)	$	78	$	68	$	(1,191)

2020
External revenue	$	5,269	$	5,301	$	2,204	$	1,168	$	13,941
Related party revenue		284		92		53		54		483
Total revenue	$	5,553	$	5,394	$	2,257	$	1,222	$	14,425
Pretax income (loss)	$	(230)	$	(1,101)	$	131	$	149	$	(1,050)

Financial Assets and Liabilities (Tables)

9 Months Ended

Sep. 30, 2021

Financial Assets and Liabilities

Effect of Derivative Instruments in the Combined Income Statement


					Gains (Losses) from
(Dollars in millions)	Total				Hedge Activity
For the three months ended September 30:	2021		2020		2021		2020
Cost of services	$	4,182	$	4,332	$	2	$	3
Selling, general and administrative expenses		854		654		—		(2)
Other (income) and expense		(17)		8		5		1

Gain (Loss) Recognized in Combined Income Statement

Combined

Recognized on

Attributable to Risk

(Dollars in millions)

Income Statement

Derivatives

Being Hedged

For the three months ended September 30:

Line Item

2021

2020

2021

2020

Derivative instruments not designated as hedging instruments:

Foreign exchange contracts

Other (income) and expense

—

Total

—


	Gain (Loss) Recognized in Combined Income Statement and Other Comprehensive Income
(Dollars in millions)					Combined	Reclassified				Amounts Excluded from
For the three months	Recognized in OCI				Income Statement	from AOCI				Effectiveness Testing (1)
ended September 30:	2021		2020		Line Item	2021		2020		2021		2020
Derivative instruments in cash flow hedges:
Foreign exchange contracts	$	3	$	—	Cost of services	$	2	$	3	$	—	$	—
					Selling, general and administrative expenses		—		(2)		—		—
					Other (income) and expense		4		1		—		—
Total	$	3	$	—		$	6	$	3	$	—	$	—

(1)	The Company’s policy is to recognize all fair value changes in amounts excluded from effectiveness testing in net income each period.

NA - not applicable


					Gains (Losses) from
(Dollars in millions)	Total				Hedge Activity
For the nine months ended September 30:	2021		2020		2021		2020
Cost of services	$	12,727	$	12,876	$	11	$	5
Selling, general and administrative expenses		2,421		2,123		(6)		2
Other (income) and expense		16		17		(3)		10

Gain (Loss) Recognized in Combined Income Statement

Combined

Recognized on

Attributable to Risk

(Dollars in millions)

Income Statement

Derivatives

Being Hedged

For the nine months ended September 30:

Line Item

2021

2020

2021

2020

Derivative instruments not designated as hedging instruments:

Foreign exchange contracts

Other (income) and expense

—

Total

—


	Gain (Loss) Recognized in Combined Income Statement and Other Comprehensive Income
(Dollars in millions)					Combined	Reclassified				Amounts Excluded from
For the nine months	Recognized in OCI				Income Statement	from AOCI				Effectiveness Testing (1)
ended September 30:	2021		2020		Line Item	2021		2020		2021		2020
Derivative instruments in cash flow hedges:
Foreign exchange contracts	$	3	$	—	Cost of services	$	11	$	5	$	—	$	—
					Selling, general and administrative expenses		(6)		2		—		—
					Other (income) and expense		(4)		10		—		—
Total	$	3	$	—		$	1	$	17	$	—	$	—

(1)	The Company’s policy is to recognize all fair value changes in amounts excluded from effectiveness testing in net income each period.

NA - not applicable

Intangible Assets Including Goodwill (Tables)

9 Months Ended

Sep. 30, 2021

Intangible Assets Including Goodwill

Intangible asset balances by major asset class


	At September 30, 2021
	Gross Carrying		Accumulated		Net Carrying
(Dollars in millions)	Amount		Amortization		Amount
Capitalized software	$	17	$	(10)	$	7
Client relationships		130		(91)		39
Completed technology		20		(19)		—
Patents and trademarks		2		(2)		—
Total	$	169	$	(122)	$	47


	At December 31, 2020
	Gross Carrying		Accumulated		Net Carrying
(Dollars in millions)	Amount		Amortization		Amount
Capitalized software	$	7	$	(4)	$	3
Client relationships		130		(77)		53
Completed technology		20		(17)		3
Patents and trademarks		2		(2)		—
Total	$	159	$	(99)	$	60

Intangible assets, future amortization expense


	Capitalized		Acquired
(Dollars in millions)	Software		Intangibles		Total
Remainder of 2021	$	4	$	5	$	9
2022		3		18		21
2023		—		10		11
2024		—		6		6
2025		—		—		—
Thereafter		—		—		—

Changes in goodwill balances by reportable segment


			Foreign				Foreign
			Currency				Currency
			Translation				Translation
(Dollars in millions)	Balance at		and Other		Balance at		and Other		Balance at
Segment	January 1, 2020		Adjustments*		December 31, 2020		Adjustments*		September 30, 2021
Americas	$	416	$	24	$	440	$	(8)	$	431
EMEA		272		16		288		4		292
Japan		401		23		424		(9)		415
Asia Pacific		74		4		78		(16)		62
Total	$	1,162	$	67	$	1,230	$	(29)	$	1,201

*	Primarily driven by foreign currency translation.

Borrowings (Tables)

9 Months Ended

Sep. 30, 2021

Borrowings

Summary of short-term debt


	At September 30,		At December 31,
(Dollars in millions)	2021		2020
Current maturities of long-term debt	$	112	$	69

Summary of long-term debt

Long-Term Debt


	Weighted-Average		At September 30,		At December 31,
(Dollars in millions)	Interest Rate*	Maturities	2021		2020
U.S. dollar debt:
Long-term debt	3.0%	2021-2026	$	136	$	—
Finance lease obligations	1.2%	2021-2026		257		209
			$	392	$	209
Less: current maturities				112		69
Total			$	280	$	140

* As of September 30, 2021.

Schedule of contractual obligations of long-term debt outstanding

Contractual obligations of long-term debt outstanding at September 30, 2021, were as follows:


(Dollars in millions)
At September 30, 2021:	Total
Remainder of 2021	$	29
2022		110
2023		96
2024		74
2025		59
Thereafter		24
Total	$	392

- Definition

Tabular disclosure of long-debt instruments or arrangements, including identification, terms, features, collateral requirements and other information necessary to a fair presentation. These are debt arrangements that originally required repayment more than twelve months after issuance or greater than the normal operating cycle of the entity, if longer.

+ References

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+ Details

Equity Activity (Tables)

9 Months Ended

Sep. 30, 2021

Equity Activity

Reclassifications and taxes related to items of other comprehensive income

Reclassifications and Taxes Related to Items of Other Comprehensive Income (Loss)


(Dollars in millions)	Pretax		Tax (Expense)		Net of Tax
For the three months ended September 30, 2021:	Amount		Benefit		Amount
Other comprehensive income (loss):
Foreign currency translation adjustments	$	(125)	$	—	$	(125)
Unrealized gains (losses) on cash flow hedges:
Unrealized gains (losses) arising during the period	$	3	$	—	$	3
Total unrealized gains (losses) on cash flow hedges	$	3	$	—	$	3
*Retirement-related benefit plans:**
Amortization of net (gains) losses	$	12	$	(3)	$	8
Total retirement-related benefit plans	$	12	$	(3)	$	8
Other comprehensive income (loss)	$	(110)	$	(3)	$	(114)

*	These AOCI components are included in the computation of net periodic pension cost. Refer to note 12, “Retirement-Related Benefits,” for additional information.

Reclassifications and Taxes Related to Items of Other Comprehensive Income (Loss)


(Dollars in millions)	Pretax		Tax (Expense)		Net of Tax
For the three months ended September 30, 2020:	Amount		Benefit		Amount
Other comprehensive income (loss):
Foreign currency translation adjustments	$	121	$	—	$	121
*Retirement-related benefit plans:**
Net (losses) gains arising during the period	$	—	$	1	$	1
Amortization of net (gains) losses		9		(3)		6
Total retirement-related benefit plans	$	9	$	(2)	$	7
Other comprehensive income (loss)	$	131	$	(2)	$	128

*	These AOCI components are included in the computation of net periodic pension cost. Refer to note 12, “Retirement-Related Benefits,” for additional information.

Reclassifications and Taxes Related to Items of Other Comprehensive Income (Loss)


(Dollars in millions)	Pretax		Tax (Expense)		Net of Tax
For the nine months ended September 30, 2021:	Amount		Benefit		Amount
Other comprehensive income (loss):
Foreign currency translation adjustments	$	(203)	$	—	$	(203)
Unrealized gains (losses) on cash flow hedges:
Unrealized gains (losses) arising during the period	$	3	$	—	$	3
Total unrealized gains (losses) on cash flow hedges	$	3	$	—	$	3
*Retirement-related benefit plans:**
Amortization of net (gains) losses	$	32	$	(10)	$	22
Total retirement-related benefit plans	$	32	$	(10)	$	22
Other comprehensive income (loss)	$	(168)	$	(10)	$	(178)

*	These AOCI components are included in the computation of net periodic pension cost. Refer to note 12, “Retirement-Related Benefits,” for additional information.

Reclassifications and Taxes Related to Items of Other Comprehensive Income (Loss)


(Dollars in millions)	Pretax		Tax (Expense)		Net of Tax
For the nine months ended September 30, 2020:	Amount		Benefit		Amount
Other comprehensive income (loss):
Foreign currency translation adjustments	$	(1)	$	—	$	(1)
*Retirement-related benefit plans:**
Net (losses) gains arising during the period	$	—	$	—	$	1
Amortization of net (gains) losses		27		(9)		18
Total retirement-related benefit plans	$	27	$	(8)	$	19
Other comprehensive income (loss)	$	26	$	(8)	$	18

*	These AOCI components are included in the computation of net periodic pension cost. Refer to note 12, “Retirement-Related Benefits,” for additional information.

Accumulated other comprehensive income (loss) (net of tax)

Accumulated Other Comprehensive Income (Loss) (net of tax)


					Net Change
	Net Unrealized		Foreign		Retirement-		Accumulated
	Gain (Losses)		Currency		Related		Other
	on Cash		Translation		Benefit		Comprehensive
(Dollars in millions)	Flow Hedges		Adjustments*		Plans		Income (Loss)
January 1, 2021	$	—	$	(882)	$	(218)	$	(1,100)
Net transfers from Parent		—		—		(338)		(338)
Other comprehensive income (loss)**		3		(203)		22		(178)
September 30, 2021	$	3	$	(1,084)	$	(534)	$	(1,615)

*	Foreign currency translation adjustments are presented gross.

**	No amounts were reclassified from accumulated other comprehensive income.


					Net Change
	Net Unrealized		Foreign		Retirement-		Accumulated
	Gain (Losses)		Currency		Related		Other
	on Cash		Translation		Benefit		Comprehensive
(Dollars in millions)	Flow Hedges		Adjustments*		Plans		Income (Loss)
January 1, 2020	$	—	$	(1,007)	$	(214)	$	(1,220)
Other comprehensive income (loss)**		—		(1)		19		18
September 30, 2020	$	—	$	(1,007)	$	(195)	$	(1,202)

*	Foreign currency translation adjustments are presented gross.

**	No amounts were reclassified from accumulated other comprehensive income.

Retirement-Related Benefits (Tables)

9 Months Ended

Sep. 30, 2021

Retirement-Related Benefits

Components of net periodic cost of the retirement-related benefit plans


	Defined Benefit				Nonpension Postretirement
(Dollars in millions)	Pension Plans				Benefit Plans
For the three months ended September 30:	2021		2020		2021		2020
Service cost	$	20	$	26	$	1	$	1
Interest cost *		2		2		—		—
Expected return on plan assets *		(7)		(6)		—		—
Recognized actuarial losses (gains) *		12		9		—		—
Multi-employer plans/other costs **		1		4		—		—
Net periodic benefit cost	$	27	$	35	$	1	$	1


	Defined Benefit				Nonpension Postretirement
(Dollars in millions)	Pension Plans				Benefit Plans
For the nine months ended September 30:	2021		2020		2021		2020
Service cost	$	65	$	79	$	2	$	2
Interest cost *		5		7		1		1
Expected return on plan assets *		(18)		(18)		(1)		(1)
Recognized actuarial losses (gains) *		32		27		—		—
Multi-employer plans/other costs **		6		10		—		—
Net periodic benefit cost	$	90	$	105	$	2	$	2

*These components of net periodic benefit cost are included in other (income) and expense in the Combined Income Statement.

**	Multi-employer plan costs represent required contributions for the period to multi-employer plans, which are plans sponsored by third parties. The Company recognizes expense in connection with these plans as contributions are funded.

Related Party Transactions (Tables)

9 Months Ended

Sep. 30, 2021

Related Party Transactions


	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
(Dollars in millions)	2021		2020		2021		2020
Selling, general and administrative expense	$	292	$	266	$	922	$	860
Research, development and engineering expense		(1)		—		(1)		3
Other (income) and expense		2		2		10		5
Interest expense		17		16		46		47
Total expense and other (income)	$	310	$	284	$	977	$	915

Schedule of net parent investment reconciliation


	For the Nine Months Ended September 30,
(Dollars in millions)	2021		2020
Cash pooling and general financing activities/other	$	(1,515)		(2,853)
Allocation of Parent’s corporate expenses/other		1,139		1,204
Related party sales and purchases		2,252		2,130
Related party intangible assets fee		60		60
Income taxes		716		245
Total Net transfers from Parent per Combined Statement of Equity	$	2,652		786
Income taxes		(716)		(245)
Allocation of Parent’s stock-based compensation		(53)		(47)
Other		(89)		(100)
Total Net transfers from Parent per Combined Statement of Cash Flows	$	1,794		394

Background and Basis of Presentation (Details)		9 Months Ended
Background and Basis of Presentation (Details)	Nov. 03, 2021 shares	Sep. 30, 2021 employee customer country
Percentage of common stock transferred on spin off	80.10%
Number of shares issued per share on spin off \| shares	0.2
Number of employees \| employee		90,000
IBM
Ownership percentage retained	19.90%
Maximum
Number of countries \| country		100
Number of customers \| customer		4,000

Revenue Recognition - Remaining Performance Obligations (Details) - USD ($) $ in Billions	9 Months Ended	12 Months Ended
	Sep. 30, 2021	Dec. 31, 2020
Revenue Recognition
Practical expedient, remaining performance obligations	true	true
Remaining performance obligations related to customer contracts that are unsatisfied or partially unsatisfied	$ 51.1

Revenue Recognition - Remaining Performance Obligations, Expected Timing of Satisfaction (Details)	Sep. 30, 2021
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-10-01
Remaining Performance Obligations
Percentage of remaining performance obligation expected to be recognized	53.00%
Duration of expected recognition period for remaining performance obligation	2 years
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2023-10-01
Remaining Performance Obligations
Percentage of remaining performance obligation expected to be recognized	36.00%
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2023-10-01 \| Minimum
Remaining Performance Obligations
Duration of expected recognition period for remaining performance obligation	3 years
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2023-10-01 \| Maximum
Remaining Performance Obligations
Duration of expected recognition period for remaining performance obligation	5 years

Revenue Recognition - Performance Obligations Satisfied or Partially Satisfied in Prior Periods (Details) - USD ($) $ in Millions	3 Months Ended	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2021
Revenue Recognition
Impact to revenue from performance obligations satisfied (or partially satisfied) in previous periods	$ (12)	$ (15)

Revenue Recognition - Reconciliation of Contract Balances (Details) - USD ($) $ in Millions	3 Months Ended	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2021	Dec. 31, 2020
Reconciliation of Contract Balances
Accounts receivable (net of allowances of $58 in 2021 and $91 in 2020)	$ 1,746	$ 1,746	$ 1,444
Accounts receivable, allowances	58	58	91
Contract assets	80	80	72
Deferred income (current)	875	875	854
Deferred income (noncurrent)	520	520	$ 543
Revenue recognized that was included in deferred income at the beginning of the period	$ 478	$ 726

Revenue Recognition - Trade Allowance for Credit Losses (Details) - USD ($) $ in Millions	9 Months Ended	12 Months Ended
	Sep. 30, 2021	Dec. 31, 2020
Roll forward of notes and accounts receivable - trade allowance for credit losses
Allowance for Credit Loss, Beginning Balance	$ 91	$ 82
Additions / (Releases)	(27)	25
Write-offs	(5)	(7)
Other	(1)	(9)
Allowance for Credit Loss, Ending Balance	$ 58	$ 91

Revenue Recognition - Deferred Costs (Details) - USD ($) $ in Millions	3 Months Ended	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2021	Dec. 31, 2020
Capitalized Contract Cost, Net [Abstract]
Capitalized costs to obtain a contract	$ 285	$ 285	$ 269
Deferred costs to fulfill a contract
Deferred transition and setup costs	1,195	1,195	1,369
Other deferred fulfillment costs	1,016	1,016	1,006
Total deferred costs	2,496	2,496	2,646
Deferred costs current	1,142	1,142	1,205
Deferred costs noncurrent	1,354	1,354	1,441
Total deferred costs amortized	447	1,427
Amortization of prepaid software	215	685
Amortization of transition and setup costs	97	291
Amortization of other deferred fulfilment costs	135	$ 451
Minimum
Capitalized Contract Cost [Line Items]
Term of contract with customer		3 years
Maximum
Capitalized Contract Cost [Line Items]
Term of contract with customer		6 years
IBM
Deferred costs to fulfill a contract
Other deferred fulfillment costs	78	$ 78	94
Deferred costs current	66	66	76
Deferred costs noncurrent	$ 12	$ 12	$ 18

Segments (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
Segments (Details) - USD ($) $ in Millions	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Segment Information
External revenue	$ 4,434.0	$ 4,696.0	$ 13,657.0	$ 13,941.0
Related party revenue	144.0	161.0	445.0	483.0
Total revenue	4,579.0	4,856.0	14,102.0	14,425.0
Pre-tax income (loss)	(469.0)	(170.0)	(1,191.0)	(1,050.0)
Americas
Segment Information
External revenue	1,641.0	1,745.0	5,056.0	5,269.0
Related party revenue	97.0	96.0	278.0	284.0
Total revenue	1,737.0	1,841.0	5,334.0	5,553.0
Pre-tax income (loss)	(89.0)	(13.0)	(211.0)	(230.0)
EMEA
Segment Information
External revenue	1,717.0	1,807.0	5,293.0	5,301.0
Related party revenue	23.0	29.0	78.0	92.0
Total revenue	1,741.0	1,837.0	5,370.0	5,394.0
Pre-tax income (loss)	(381.0)	(280.0)	(1,126.0)	(1,101.0)
Japan
Segment Information
External revenue	719.0	752.0	2,194.0	2,204.0
Related party revenue	10.0	17.0	42.0	53.0
Total revenue	729.0	769.0	2,236.0	2,257.0
Pre-tax income (loss)	23.0	56.0	78.0	131.0
Asia Pacific
Segment Information
External revenue	358.0	392.0	1,114.0	1,168.0
Related party revenue	14.0	18.0	47.0	54.0
Total revenue	372.0	410.0	1,161.0	1,222.0
Pre-tax income (loss)	$ (23.0)	$ 66.0	$ 68.0	$ 149.0

- Definition

Amount of income (loss) from continuing operations, including income (loss) from equity method investments, before deduction of income tax expense (benefit), and income (loss) attributable to noncontrolling interest.

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- Definition

Amount, excluding tax collected from customer, of revenue from satisfaction of performance obligation by transferring promised good or service to customer. Tax collected from customer is tax assessed by governmental authority that is both imposed on and concurrent with specific revenue-producing transaction, including, but not limited to, sales, use, value added and excise.

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Amount of revenue recognized from goods sold, services rendered, insurance premiums, or other activities that constitute an earning process. Includes, but is not limited to, investment and interest income before deduction of interest expense when recognized as a component of revenue, and sales and trading gain (loss).

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+ Details

Financial Assets and Liabilities - Fair Value Measurements (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020
Financial assets and financial liabilities measured at fair value on a recurring basis:
Impairments of non-financial assets	$ 0	$ 0	$ 0	$ 0
Prepaid expenses and other current assets
Financial assets and financial liabilities measured at fair value on a recurring basis:
Derivative assets	$ 4		$ 4		$ 0

Financial Assets and Liabilities - Foreign Exchange Risk (Details) $ in Millions	9 Months Ended	12 Months Ended
	Sep. 30, 2021 USD ($)	Dec. 31, 2020 USD ($) DerivativeInstrument
Not designated as hedging instruments - economic hedges \| Currency swaps
Derivatives, Fair Value [Line Items]
Notional amount	$ 120
Number of derivatives instruments outstanding \| DerivativeInstrument		0
Not designated as hedging instruments - economic hedges \| Currency swaps \| Maximum
Derivatives, Fair Value [Line Items]
Term of contract	1 year
Derivative instruments in cash flow hedges \| Foreign exchange contracts
Derivatives, Fair Value [Line Items]
Net gains from derivatives	$ 3	$ 0
Deferred net loss/ profit on derivatives reclassified to net income	$ 3
Derivative instruments in cash flow hedges \| Foreign exchange forward contracts
Derivatives, Fair Value [Line Items]
Maximum length of time hedged	1 year
Weighted average remaining maturity	6 months
Derivative instruments in cash flow hedges \| Designated as hedging instruments \| Foreign exchange forward contracts
Derivatives, Fair Value [Line Items]
Notional amount	$ 227	$ 0

Financial Assets and Liabilities - Effect of Hedge Activity on Income and Expense (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Derivative Instruments, Gain (Loss) [Line Items]
Cost of services	$ 4,182.0	$ 4,332.0	$ 12,727.0	$ 12,876.0
Selling, general and administrative expenses	854.0	654.0	2,421.0	2,123.0
Other (income) and expense	(17.0)	8.0	16.0	17.0
Cost of services.
Derivative Instruments, Gain (Loss) [Line Items]
Gains (Losses) from Hedge Activity	2.0	3.0	11.0	5.0
Selling, general and administrative expense
Derivative Instruments, Gain (Loss) [Line Items]
Gains (Losses) from Hedge Activity		(2.0)	(6.0)	2.0
Other (income) and expense
Derivative Instruments, Gain (Loss) [Line Items]
Gains (Losses) from Hedge Activity	$ 5.0	$ 1.0	$ (3.0)	$ 10.0

- Definition

The aggregate cost of goods produced and sold and services rendered during the reporting period.

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-URI http://asc.fasb.org/extlink&oid=124359900&loc=SL124442552-122756

Reference 10: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 10
-Section S99
-Paragraph 1B
-Subparagraph (SX 210.13-02(a)(4)(iii)(A))
-URI http://asc.fasb.org/extlink&oid=124359900&loc=SL124442552-122756

Reference 11: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 10
-Section S99
-Paragraph 1A
-Subparagraph (SX 210.13-01(a)(4)(i))
-URI http://asc.fasb.org/extlink&oid=124359900&loc=SL124442526-122756

Reference 12: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 10
-Section S99
-Paragraph 1A
-Subparagraph (SX 210.13-01(a)(4)(iii)(A))
-URI http://asc.fasb.org/extlink&oid=124359900&loc=SL124442526-122756

Reference 13: http://www.xbrl.org/2009/role/commonPracticeRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 10
-Section S99
-Paragraph 1A
-Subparagraph (SX 210.13-01(a)(4)(ii))
-URI http://asc.fasb.org/extlink&oid=124359900&loc=SL124442526-122756

Reference 14: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 10
-Section S99
-Paragraph 1B
-Subparagraph (SX 210.13-02(a)(4)(iv))
-URI http://asc.fasb.org/extlink&oid=124359900&loc=SL124442552-122756

+ Details

Financial Assets and Liabilities - Gains and Losses (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Derivative instruments in cash flow hedges
Derivative Instruments, Gain (Loss) [Line Items]
Gain (Loss) Recognized in Earnings and Other Comprehensive Income - Recognized in OCI	$ 3		$ 3
Gain (Loss) Recognized in Earnings and Other Comprehensive Income - Reclassified from AOCI	6	$ 3	1	$ 17
Gain (Loss) Recognized in Earnings and Other Comprehensive Income - Amounts Excluded from Effectiveness Testing	0	0	0	0
Not designated as hedging instruments - economic hedges
Derivative Instruments, Gain (Loss) [Line Items]
Net gains (loss) from derivatives	1		1
Cost of services. \| Derivative instruments in cash flow hedges
Derivative Instruments, Gain (Loss) [Line Items]
Gain (Loss) Recognized in Earnings and Other Comprehensive Income - Reclassified from AOCI	2	3	11	5
Cost of services. \| Foreign exchange contracts \| Derivative instruments in cash flow hedges
Derivative Instruments, Gain (Loss) [Line Items]
Gain (Loss) Recognized in Earnings and Other Comprehensive Income - Recognized in OCI	3		3
Selling, general and administrative expense \| Derivative instruments in cash flow hedges
Derivative Instruments, Gain (Loss) [Line Items]
Gain (Loss) Recognized in Earnings and Other Comprehensive Income - Reclassified from AOCI		(2)	(6)	2
Other (income) and expense \| Derivative instruments in cash flow hedges
Derivative Instruments, Gain (Loss) [Line Items]
Gain (Loss) Recognized in Earnings and Other Comprehensive Income - Reclassified from AOCI	4	$ 1	(4)	$ 10
Other (income) and expense \| Foreign exchange contracts \| Not designated as hedging instruments - economic hedges
Derivative Instruments, Gain (Loss) [Line Items]
Net gains (loss) from derivatives	$ 1		$ 1

Intangible Assets Including Goodwill - Intangible Assets by Class (Details) - USD ($) $ in Millions	Sep. 30, 2021	Dec. 31, 2020
Intangible asset balances by major asset class
Gross Carrying Amount	$ 169	$ 159
Accumulated Amortization	(122)	(99)
Net Carrying Amount	47	60
Capitalized software
Intangible asset balances by major asset class
Gross Carrying Amount	17	7
Accumulated Amortization	(10)	(4)
Net Carrying Amount	7	3
Client relationships
Intangible asset balances by major asset class
Gross Carrying Amount	130	130
Accumulated Amortization	(91)	(77)
Net Carrying Amount	39	53
Completed technology
Intangible asset balances by major asset class
Gross Carrying Amount	20	20
Accumulated Amortization	(19)	(17)
Net Carrying Amount		3
Patents/trademarks
Intangible asset balances by major asset class
Gross Carrying Amount	2	2
Accumulated Amortization	$ (2)	$ (2)

Intangible Assets Including Goodwill - Intangible Assets Activity (Details) - USD ($) $ in Millions	3 Months Ended	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2021	Sep. 30, 2020
Intangible assets
Intangible assets, increase (decrease)		$ (13)
Intangible asset amortization expense	$ 9	$ 26
Retirement of fully amortized intangible assets			$ 3

Intangible Assets Including Goodwill - Future Amortization (Details) $ in Millions	Sep. 30, 2021 USD ($)
Future amortization expense, by year
Remainder of 2021	$ 9
2022	21
2023	11
2024	6
Capitalized software
Future amortization expense, by year
Remainder of 2021	4
2022	3
Acquired intangibles
Future amortization expense, by year
Remainder of 2021	5
2022	18
2023	10
2024	$ 6

Intangible Assets Including Goodwill - Goodwill by Segment (Details) - USD ($) $ in Millions	9 Months Ended	12 Months Ended
	Sep. 30, 2021	Dec. 31, 2020
Changes in Goodwill Balances
Beginning Balance	$ 1,230
Ending Balance	1,201	$ 1,230
Goodwill impairment losses	0	0
Goodwill accumulated impairment losses	0	0
Business Segments
Changes in Goodwill Balances
Beginning Balance	1,230	1,162
Foreign Currency Translation and Other Adjustments	(29)	67
Ending Balance	1,201	1,230
Business Segments \| Americas
Changes in Goodwill Balances
Beginning Balance	440	416
Foreign Currency Translation and Other Adjustments	(8)	24
Ending Balance	431	440
Business Segments \| EMEA
Changes in Goodwill Balances
Beginning Balance	288	272
Foreign Currency Translation and Other Adjustments	4	16
Ending Balance	292	288
Business Segments \| Japan
Changes in Goodwill Balances
Beginning Balance	424	401
Foreign Currency Translation and Other Adjustments	(9)	23
Ending Balance	415	424
Business Segments \| Asia Pacific
Changes in Goodwill Balances
Beginning Balance	78	74
Foreign Currency Translation and Other Adjustments	(16)	4
Ending Balance	$ 62	$ 78

Borrowings - Short-Term Debt (Details) - USD ($) $ in Millions	Sep. 30, 2021	Dec. 31, 2020
Borrowings
Current maturities of long-term debt	$ 112	$ 69

Borrowings - Long-Term Debt, Components (Details) - USD ($) $ in Millions	Sep. 30, 2021	Jun. 30, 2021	Dec. 31, 2020
Borrowings
Long-term debt	$ 136
Finance lease obligations	257		$ 209
Total	392		209
Less: current maturities	112		69
Total long-term debt (excluding current portion)	$ 280		$ 140
Debt instrument, weighted-average interest rate (as a percent)	3.00%
Finance lease obligations, interest rate (as a percent)	1.20%
IBM
Borrowings
Aggregate principal amount		$ 140

Borrowings - Contractual obligations of long-term debt outstanding (Details) $ in Millions	Sep. 30, 2021 USD ($)
Pre-swap annual contractual obligations of long-term debt outstanding
Remainder of 2021	$ 29
2022	110
2023	96
2024	74
2025	59
Thereafter	24
Total	$ 392

Borrowings - Interest on Debt (Details) - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Interest on Debt
Interest paid	$ 46	$ 47

Contingencies (Details)	Sep. 30, 2021 employee
Contingencies
Number of employees	90,000

Income Taxes (Details)	3 Months Ended		9 Months Ended
Income Taxes (Details)	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Income Taxes
Effective tax rate (as a percent)	(47.80%)	(39.70%)	(32.60%)	(23.20%)

Equity Activity - Reclassifications and Taxes (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Reclassifications and Taxes Related to Items of Other Comprehensive Income (Loss)
Other comprehensive income (loss)	$ (114)	$ 128	$ (178)	$ 18
Accumulated Other Comprehensive Income (Loss)
Reclassifications and Taxes Related to Items of Other Comprehensive Income (Loss)
Other comprehensive income (loss), before tax amount	(110)	131	(168)	26
Other comprehensive income (loss), tax (expense) benefit	(3)	(2)	(10)	(8)
Other comprehensive income (loss)	(114)	128	(178)	18
Foreign Currency Translation Adjustments
Reclassifications and Taxes Related to Items of Other Comprehensive Income (Loss)
Other comprehensive income (loss), before tax amount	(125)	121	(203)	(1)
Other comprehensive income (loss)	(125)	121	(203)	(1)
Unrealized Gains (Losses) on Cash Flow Hedges
Reclassifications and Taxes Related to Items of Other Comprehensive Income (Loss)
Unrealized gains (losses) arising during the period, before tax amount	3		3
Unrealized gains (losses) arising during the period, net of tax amount	3		3
Other comprehensive income (loss), before tax amount	3		3
Other comprehensive income (loss)	3		3
Net Change Retirement-Related Benefit Plans
Reclassifications and Taxes Related to Items of Other Comprehensive Income (Loss)
Other comprehensive income (loss), before tax amount	12	9	32	27
Other comprehensive income (loss), tax (expense) benefit	(3)	(2)	(10)	(8)
Other comprehensive income (loss)	8	7	22	19
Retirement-Related Benefit Plans, Net Gains (Losses)
Reclassifications and Taxes Related to Items of Other Comprehensive Income (Loss)
Unrealized gains (losses) arising during the period, tax (expense) benefit		1
Unrealized gains (losses) arising during the period, net of tax amount		1		1
Reclassification/amortization, before tax amount	12	9	32	27
Reclassification/amortization, tax (expense) benefit	(3)	(3)	(10)	(9)
Reclassification/amortization, net of tax amount	$ 8	$ 6	$ 22	$ 18

Equity Activity - AOCI Rollforward (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Accumulated Other Comprehensive Income (Loss) (net of tax)
Balance at the beginning of the period	$ 4,875	$ 5,423	$ 4,931	$ 5,948
Net transfers from Parent	1,414	145	2,314	786
Other comprehensive income (loss)	(114)	128	(178)	18
Balance at the end of the period	5,481	5,459	5,481	5,459
Accumulated Other Comprehensive Income (Loss)
Accumulated Other Comprehensive Income (Loss) (net of tax)
Balance at the beginning of the period	(1,163)	(1,330)	(1,100)	(1,220)
Net transfers from Parent	(338)		(338)
Other comprehensive income (loss)	(114)	128	(178)	18
Balance at the end of the period	(1,615)	(1,202)	(1,615)	(1,202)
Unrealized Gains (Losses) on Cash Flow Hedges
Accumulated Other Comprehensive Income (Loss) (net of tax)
Other comprehensive income (loss)	3		3
Balance at the end of the period	3		3
Foreign Currency Translation Adjustments
Accumulated Other Comprehensive Income (Loss) (net of tax)
Balance at the beginning of the period			(882)	(1,007)
Other comprehensive income (loss)	(125)	121	(203)	(1)
Balance at the end of the period	(1,084)	(1,007)	(1,084)	(1,007)
Net Change Retirement-Related Benefit Plans
Accumulated Other Comprehensive Income (Loss) (net of tax)
Balance at the beginning of the period			(218)	(214)
Net transfers from Parent			(338)
Other comprehensive income (loss)	8	7	22	19
Balance at the end of the period	$ (534)	$ (195)	$ (534)	$ (195)

- Definition

Amount after tax and reclassification adjustments of other comprehensive income (loss).

Retirement-Related Benefits - Net Periodic Benefit Cost of Retirement-Related Benefit Plans (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Cost/(Income) of Pension Plans
Cost of defined contribution expense	$ 39	$ 49	$ 129	$ 144
Defined Benefit Pension Plans
Cost/(Income) of Pension Plans
Service cost	20	26	65	79
Interest cost	$ 2	$ 2	$ 5	$ 7
Interest cost - income statement location	kd:OtherIncomeExpenseMember	kd:OtherIncomeExpenseMember	kd:OtherIncomeExpenseMember	kd:OtherIncomeExpenseMember
Expected return on plan assets	$ (7)	$ (6)	$ (18)	$ (18)
Expected return on plan assets - income statement location	kd:OtherIncomeExpenseMember	kd:OtherIncomeExpenseMember	kd:OtherIncomeExpenseMember	kd:OtherIncomeExpenseMember
Recognized actuarial losses (gains)	$ 12	$ 9	$ 32	$ 27
Recognized actuarial losses - income statement location	kd:OtherIncomeExpenseMember	kd:OtherIncomeExpenseMember	kd:OtherIncomeExpenseMember	kd:OtherIncomeExpenseMember
Multi-employer plans/other costs	$ 1	$ 4	$ 6	$ 10
Net periodic benefit cost	27	35	90	105
Non Pension Postretirement Benefit Plans
Cost/(Income) of Pension Plans
Service cost	$ 1	$ 1	2	2
Interest cost			$ 1	$ 1
Interest cost - income statement location	kd:OtherIncomeExpenseMember	kd:OtherIncomeExpenseMember	kd:OtherIncomeExpenseMember	kd:OtherIncomeExpenseMember
Expected return on plan assets			$ (1)	$ (1)
Expected return on plan assets - income statement location	kd:OtherIncomeExpenseMember	kd:OtherIncomeExpenseMember	kd:OtherIncomeExpenseMember	kd:OtherIncomeExpenseMember
Recognized actuarial losses - income statement location	kd:OtherIncomeExpenseMember	kd:OtherIncomeExpenseMember	kd:OtherIncomeExpenseMember	kd:OtherIncomeExpenseMember
Net periodic benefit cost	$ 1	$ 1	$ 2	$ 2

Retirement-Related Benefits - Contributions (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020	Jun. 30, 2021	Dec. 31, 2020
Retirement-Related Benefits
Employer contributions			$ 7	$ 3
Employer contributions, remainder of year	$ 2		2
Noncurrent liability for retirement and nonpension postretirement benefit	995		995		$ 516	$ 550
Net transfers from Parent	1,414	$ 145	2,314	$ 786
Accumulated Other Comprehensive Income (Loss)
Retirement-Related Benefits
Net transfers from Parent	$ (338)		(338)
Tax credit associated with equity transfer			128
Net Change Retirement-Related Benefit Plans
Retirement-Related Benefits
Net transfers from Parent			$ (338)

- Definition

Amount of contribution received by defined benefit plan from employer which increases plan assets.

+ References + Details

Related Party Transactions - Related Party Revenue and Purchases (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Related Party Transaction [Line Items]
Revenues	$ 144.0	$ 161.0	$ 445.0	$ 483.0
Cost of services	966.0	987.0	2,878.0	2,823.0
Cost of hardware and software	4,182.0	4,332.0	12,727.0	12,876.0
Payment for purchase of hardware from IBM			600.0	750.0
IBM
Related Party Transaction [Line Items]
Revenues	144.0	161.0	445.0	483.0
IBM \| Hardware, software and services
Related Party Transaction [Line Items]
Cost of hardware and software	845.0	852.0	2,504.0	2,415.0
Payment for purchase of hardware from IBM			250.0	381.0
IBM \| Cost of service
Related Party Transaction [Line Items]
Cost of services	$ 114.0	$ 127.0	$ 351.0	$ 382.0

- Definition

The aggregate cost of goods produced and sold and services rendered during the reporting period.

+ References

+ Details

- Definition

Direct costs arising from transactions with related parties who are not affiliates or joint Ventures. These costs are categorized as cost of goods sold.

Related Party Transactions - Acquired Intangible Assets (Details) - IBM - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Cost of services
Related Party Transaction [Line Items]
Fee for use of acquired intangible assets	$ 8	$ 8	$ 23	$ 23
Selling, general and administrative expense
Related Party Transaction [Line Items]
Fee for use of acquired intangible assets	$ 12	$ 12	$ 37	$ 37

Related Party Transactions - Allocation of Corporate Expenses (Details) - IBM - Management Costs And Corporate Support Services - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Related Party Transaction [Line Items]
Allocation of corporate expenses	$ 310	$ 284	$ 977	$ 915
Selling, general and administrative expense
Related Party Transaction [Line Items]
Allocation of corporate expenses	292	266	922	860
Research, development and engineering expense
Related Party Transaction [Line Items]
Allocation of corporate expenses	(1)		(1)	3
Other (income) and expense.
Related Party Transaction [Line Items]
Allocation of corporate expenses	2	2	10	5
Interest expense
Related Party Transaction [Line Items]
Allocation of corporate expenses	$ 17	$ 16	$ 46	$ 47

Related Party Transactions - Net Parent Investment (Details) - IBM - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Related Party Transaction [Line Items]
Cash pooling and general financing activities/other	$ (1,515)	$ (2,853)
Allocation of Parent's corporate expenses/other	1,139	1,204
Related party sales and purchases	2,252	2,130
Related party intangible assets fee	60	60
Income taxes	716	245
Total Net transfers from Parent per Combined Statement of Equity	2,652	786
Income taxes	(716)	(245)
Allocation of Parent's stock-based compensation	(53)	(47)
Other	(89)	(100)
Total Net transfers from Parent per Combined Statement of Cash Flows	$ 1,794	$ 394

Related Party Transactions - Assignment of Receivables and Term Deposit Account (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
IBM
Related Party Transaction [Line Items]
Receivables	$ 487	$ 750	$ 1,781	$ 2,301

Related Party Transactions - Leases and Lease Guarantees (Details) - IBM $ in Millions	1 Months Ended
	Sep. 30, 2021 USD ($) lease
Related Party Transaction [Line Items]
Number of leases agreements with third parties \| lease	72
Lease liability guaranteed by IBM \| $	$ 267

Subsequent Events (Details) - USD ($) $ in Millions		1 Months Ended
Subsequent Events (Details) - USD ($) $ in Millions	Nov. 03, 2021	Oct. 31, 2021
Subsequent Events
Percentage of common stock transferred on spin off	80.10%
Number of shares issued per share on spin off	0.2
Subsequent event
Subsequent Events
Percentage of common stock transferred on spin off	80.10%
Maximum amount of receivables which could be sold in factoring arrangement		$ 1,100
Subsequent event \| IBM.
Subsequent Events
Net proceeds		963,000
Number of shares issued per share on spin off	0.2
Ownership percentage retained	19.90%
Subsequent event \| Fixed Rate, Senior Unsecured Notes
Subsequent Events
Aggregate principal amount		2,400
Subsequent event \| Senior Notes due 2026
Subsequent Events
Aggregate principal amount		$ 700
Coupon rate (as a percent)		2.05%
Subsequent event \| Senior Notes due 2028
Subsequent Events
Aggregate principal amount		$ 500
Coupon rate (as a percent)		2.70%
Subsequent event \| Senior Notes due 2031
Subsequent Events
Aggregate principal amount		$ 650
Coupon rate (as a percent)		3.15%
Subsequent event \| Senior Notes due 2041
Subsequent Events
Aggregate principal amount		$ 550
Coupon rate (as a percent)		4.10%
Subsequent event \| Variable rate term loan
Subsequent Events
Aggregate principal amount		$ 500
Term of debt		3 years
Subsequent event \| Global credit facility
Subsequent Events
Aggregate principal amount		$ 3,200
Term of debt		5 years