EX-99.1 7 tm2119587-12_ex99d1.htm EXHIBIT 99.1 tm2119587-12_ex99d1 - none - 56.2034511s
 
Exhibit 99.1
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           , 2021
Dear IBM Stockholder:
In October 2020, IBM announced plans to separate into two market-leading companies, each with strategic focus and flexibility to drive customer and stockholder value. Both will leverage their respective strategies and strengths to accelerate customers’ digital transformations.
The first, IBM, will focus on hybrid cloud and AI. IBM will leverage an open strategy, technology and platform innovation, and expertise to address the $1 trillion hybrid cloud market opportunity. Post separation, IBM will move from a company with more than half of its revenues in services to one with a majority in high-value cloud software and solutions.
The second, Kyndryl, will provide innovative services to design, run and modernize customer technology environments, participating in a $415 billion market. These services will enable enterprises to realize strong, secure, resilient, and adaptive technology environments. Kyndryl is uniquely positioned to address these IT services needs, as a natural extension of the role it plays supporting the mission critical technology infrastructure of the world’s most important businesses and institutions.
As separate businesses, each can capitalize on their respective missions. Both will have more agility to focus on their operating and financial models, both will have greater freedom to partner with others, and both will align their investments and capital to their strategic focus areas. All of this will create value for clients and for you, the investors, with an improved financial profile of both companies.
The separation will occur by means of a pro rata distribution to IBM stockholders of 80.1% of the outstanding shares of Kyndryl. IBM will retain 19.9% of the shares of Kyndryl common stock with the intention of exchanging those shares for IBM debt during the 12-month period following the distribution, subject to market considerations.
Each holder of IBM common stock will receive one share of Kyndryl common stock for every five shares of IBM common stock held on October 25, 2021, the record date for the distribution. The distribution is expected to occur on November 3, 2021. It is intended that, for U.S federal income tax purposes, the distribution generally will be tax-free to IBM stockholders.
You do not need to take any action to receive shares of Kyndryl common stock to which you are entitled as an IBM stockholder. You do not need to pay any consideration or surrender or exchange your shares of IBM common stock to participate in the spin-off.
I encourage you to read the attached information statement, which is being provided to all IBM stockholders who hold shares on the record date for the distribution. The information statement describes the separation in detail and contains important business and financial information about Kyndryl.
We remain committed to working on your behalf to continue to build long-term stockholder value.
Sincerely,
Arvind Krishna
Chairman and Chief Executive Officer
International Business Machines Corporation
 

 
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            , 2021
Dear Future Kyndryl Stockholder:
As we work toward our separation from IBM, I am delighted to welcome you as a future Kyndryl stockholder. This is an exciting time for our new company, which is already recognized as a global leader in designing, building, managing and modernizing mission-critical information and technology systems at scale. More than 4,000 organizations around the world already depend on our nearly 90,000 world-class technologists, consultants and service professionals every day, all focused on growing our business, serving even more customers and delivering value for you.
As an independent company, we will be flatter, faster, more focused and organized around high-priority customer needs and opportunities. We will also have more freedom to invest in and build on our capabilities to serve an addressable market that we expect to expand to over $500 billion by 2024, which is being driven by an explosion in data, migration to the cloud to manage all the data and analytics, and an urgent and obvious need to make information and technology systems more secure.
We are starting “life” as a clear leader in our business, with a world-class board of directors, an experienced management team, an investment grade balance sheet, a revenue base of $19 billion and a commitment to achieving sustainable margins, consistent cash flows and meaningful returns for stockholders. Importantly, we are committed to deploying our capital in a disciplined way to create sustainable long-term value.
In line with our values, we will actively seek to better society by attracting and retaining diverse talent, embracing best-in-class ethical standards, and working to operate more sustainably — particularly around the use of renewable energy to power our data centers.
Our growth plan is built around being the provider of choice for our customers — providing essential services, powering their IT environments and helping them succeed in their digital transformation journeys — as well as the employer of choice in our industry. We bring and will build on an extraordinary intellectual property portfolio, we have unique experience across the technology ecosystem, and we can work with a broader set of technology partners to meet customers’ needs and preferences.
In short, we are embarking on an exciting new path, with a passion for advancing the vital systems that power human progress. We are committed to earning your trust and ongoing investment in the future. I look forward to the opportunities ahead and encourage you to learn more about Kyndryl by reading the enclosed information statement.
Sincerely,
Martin Schroeter
Chief Executive Officer
Kyndryl Holdings, Inc.
 

Information contained herein is subject to completion or amendment. A registration statement on Form 10 relating to these securities has been filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended.
Subject to Completion — Dated October 12, 2021
INFORMATION STATEMENT
Kyndryl Holdings, Inc.
Common Stock
(par value $0.01 per share)
Kyndryl Holdings, Inc. (“Kyndryl” or “we”), a wholly-owned subsidiary of International Business Machines Corporation (“IBM”), is sending you this Information Statement in connection with the spin-off of Kyndryl by IBM. To effect the spin-off, IBM will distribute 80.1% of our common stock on a pro rata basis to the holders of IBM common stock. We expect that the distribution of our common stock will be tax-free to holders of IBM common stock for U.S. federal income tax purposes, except for cash that stockholders may receive (if any) in lieu of fractional shares. Immediately after the distribution becomes effective, IBM will own 19.9% of the outstanding shares of our common stock. Prior to completing the distribution, IBM may adjust the percentage of our common stock to be distributed to IBM stockholders and retained by IBM in response to market and other factors, and we will amend this information statement to reflect any such adjustment.
If you are a record holder of IBM common stock as of the close of business on October 25, 2021, which is the record date for the distribution, you will be entitled to receive one share of our common stock for every five shares of IBM common stock that you hold on that date. IBM will distribute its shares of our common stock in book-entry form, which means that we will not issue physical stock certificates. The distribution agent will not distribute any fractional shares of our common stock.
The distribution will be effective as of 5:00 p.m., New York City time, on November 3, 2021. Immediately after the distribution becomes effective, we will be an independent, publicly traded company.
IBM’s stockholders are not required to vote on or take any other action to approve the spin-off. We are not asking you for a proxy, and request that you do not send us a proxy. IBM stockholders will not be required to pay any consideration for the shares of our common stock they receive in the spin-off, and they will not be required to surrender or exchange their shares of IBM common stock or take any other action in connection with the spin-off.
No trading market for our common stock currently exists. We expect, however, that a limited trading market for our common stock, commonly known as a “when-issued” trading market, will develop as early as one trading day prior to the record date for the distribution, and we expect “regular-way” trading of our common stock will begin on the first trading day after the distribution date. We have been approved to list our common stock on the New York Stock Exchange under the ticker symbol “KD.”
In reviewing this Information Statement, you should carefully consider the matters described in the section entitled “Risk Factors” beginning on page 13 of this Information Statement.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this Information Statement is truthful or complete. Any representation to the contrary is a criminal offense.
This Information Statement is not an offer to sell, or a solicitation of an offer to buy, any securities.
The date of this Information Statement is           , 2021.

 
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TRADEMARKS AND COPYRIGHTS
We own or have rights to various trademarks, logos, service marks and trade names that we use in connection with the operation of our business. We also own or have the rights to copyrights that protect the content of our products. Solely for convenience, the trademarks, service marks, trade names and copyrights referred to in this Information Statement are listed without the ™, ® or © symbols, but such references do not constitute a waiver of any rights that might be associated with the respective trademarks, service marks, trade names and copyrights included or referred to in this Information Statement.
INDUSTRY AND MARKET DATA
This Information Statement includes data concerning our industry and the markets in which we operate that is based on information from public filings, internal company sources, management estimates and various third-party sources. All such industry data is available publicly or for purchase and was not commissioned specifically for us. Forecasts based upon such data involve risks and uncertainties, and actual results regarding the subject matter of such forecasts are subject to change based upon various factors beyond our control.
The sources of certain statistical data, industry data, estimates and forecasts contained in this Information Statement are the following independent industry publications or reports:

Gartner, Smarter With Gartner: Top Security and Risk Trends for 2021, dated April 5, 2021.

Gartner, Forecast: IT Services, Worldwide, 2019-2025, 1Q21 Update, dated March 25, 2021 (the “Gartner IT Services Report”).

Gartner, Forecast Analysis: Digital Business Consulting Services, Worldwide, dated December 7, 2020 (the “Gartner Consulting Services Forecast Report”).

Gartner Press Release, Gartner Forecasts Strong Revenue Growth for Global Container Management Software and Services Through 2024, dated June 25, 2020.

Gartner, Forecast Analysis: Cloud Consulting and Implementation Services, Worldwide, dated March 5, 2020.
We performed calculations of market sizes and growth rates using Gartner research from the Gartner IT Services Report and the Gartner Consulting Services Forecast Report.
The Gartner reports described herein (the “Gartner Content”) represent research opinions or viewpoints published, as part of a syndicated subscription service, by Gartner, Inc. (“Gartner”) and are not representations of fact. Each Gartner Content speaks as of its original publication date (and not as of the date of this Information Statement), and the opinions expressed in the Gartner Content are subject to change without notice.
 
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INFORMATION STATEMENT SUMMARY
In this Information Statement, unless the context otherwise requires:

The “Company,” “Kyndryl,” “we,” “our” and “us” refer to Kyndryl Holdings, Inc. (a newly formed holding company) and, unless otherwise indicated or the context otherwise requires, its consolidated subsidiaries after giving effect to the Spin-Off; and

IBM” or “Parent” refers to International Business Machines Corporation and its consolidated subsidiaries.
The transaction in which IBM will distribute to its stockholders 80.1% of the shares of our common stock is referred to in this Information Statement as the “Distribution” or the “Spin-Off.” Any references to IBM stockholders in this Information Statement refer to holders of IBM’s common stock. Prior to IBM’s Distribution of the shares of our common stock to its stockholders, IBM will undertake a series of internal reorganization transactions, pursuant to which, among other transactions, Kyndryl will hold, through its subsidiaries, IBM’s managed infrastructure services business, which we refer to as the “Business.” We refer to this series of internal reorganization transactions as the “Reorganization Transactions.”
Our Company
We are 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. 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. Today, enterprises are engaged in individual and unique digital transformations to differentiate their businesses and derive value through better customer experiences. However, enterprises often face shortages in critical technical expertise to successfully make this complex change. Our purpose is therefore to design, build, and manage secure and responsive private, public, and multicloud environments to accelerate our customers’ digital transformations.
We put the customer at the center of everything we do, every day. 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 are also organized to be fast and focused, in order to respond more quickly to our customers’ needs, and our principles have led to a structure that drives accountability and responsibility to the teams that work closely with them and our partners. 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 team of skilled practitioners, consisting of approximately 90,000 professionals. Given our large and diversified customer base operates in multiple industries and geographies, we utilize a flexible labor and delivery model with a balanced mix of global and local talent as needed to meet customer-specific needs, regulatory requirements, and data protection and labor laws. Our employees leverage their deep engineering expertise and extensive experience operating complex and heterogeneous technology environments to drive service quality, intellectual property development, and our long-term trusted customer relationships.
As described in “ — Our Customers,” we have many customer relationships that are decades long, as we provide high-quality, mission-critical services that are core to operations with customers that represent the backbones of their respective industries. These customers entrust us to deliver the services they need, and manage their complex environments so that they can achieve their business objectives.
 
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As an independent company, we will be free to partner with a broader ecosystem, including a wide range of hyperscale cloud providers, system integrators, independent software vendors, and technology vendors from startups to market leaders. This enables us to serve our customers with the contemporary technology capabilities that best fit their needs and open new avenues for growth. This is all underpinned by our ability to integrate and operate mission-critical technology at scale using deep engineering expertise and intellectual property.
Our approach has enabled us to reach significant scale, with $19.4 billion in revenue for the fiscal year ended December 31, 2020. We are focused on driving revenue growth with sustainable margins by extending our leadership in the markets in which we operate while investing in our capabilities, and expanding our high value, next generation services consistent with customer needs.
Our Industry and Market Opportunity
We participate in an industry that provides services for customers’ technology environments that power their businesses. These services span areas such as management of mission-critical systems across dedicated data centers and multiple clouds. As customers advance their digital transformations, they are looking for partners that understand their business objectives and unique digital journeys, and have the skills to instrument and engineer the IT environments to enable their transformations. Our long standing position as an informed and trusted partner, with decades-long relationships and leading capabilities, provides us with the knowledge and expertise to best help existing and new customers realize their future.
The market for these services is large and dynamic. We project this market, which is a subset of the total IT services market, to represent a $415 billion opportunity in 2021, growing 7% annually to $510 billion in 2024. Growth in this market is driven by services that are aligned to customers’ transformations, and represent an incremental $75 billion. These transformation services include several high-growth portions of the market that each exceed approximately $10 billion in opportunity, including public cloud managed services (compounded annual growth of 11% from 2021 to 2024), data services (compounded annual growth of 18% from 2021 to 2024), security services (compounded annual growth of 12% from 2021 to 2024), and intelligent automation services (compounded annual growth of 27% from 2021 to 2024). Managed services for edge environments represents a smaller portion connected to many other opportunities, and itself is expected to experience compounded annual growth above 100% from 2021 to 2024.
Several trends underpin the growth of our market, including:

Greater demand for digital transformation services.    Companies continue to digitally transform to deliver better customer experiences and compete more effectively, which drives the need for services to support modernization of IT within the enterprise. The COVID-19 global pandemic has accelerated this already pervasive trend, as organizations look to further their digital capabilities. International Data Corporation (“IDC”) estimates that approximately 65% of GDP will be digitized by 2022. Illustrating the growth in digitization, U.S. online retail sales surged by 32% year-over-year in 2020. While customers seek to transform, skills availability often represents a challenge, with lack of skills ranked as one of the top 3 impediments to transformation of the IT environment according to Technology Business Research, Inc.

Ongoing migration to the cloud.    Companies continue to migrate workloads to the cloud, adopting new capabilities for flexibility, workload portability, and management. These transitions are often complex, with companies seeking assistance from service providers. Gartner forecasts that by 2025, 85% of large organizations will have engaged external service providers to migrate applications to the cloud, an increase from 43% in 2019. Furthermore, Gartner projects that by 2022, more than 75% of global organizations will be running containerized applications in production (an increase from less than 30% today) and worldwide revenue for container management will double by 2024. The extension of public cloud services to multiple environments in different locations has given rise to distributed cloud and migration of workload to these infrastructures that have a greater fit for purpose.

Rapid data growth. As economies have evolved digitally, significantly increasing data volume, management of this data has become much more complex. IDC estimates that in 2020, enterprises created and captured 64 zettabytes of data. The challenge for many organizations is how to collect, harness and govern this data for insights that yield business results and realize data as a differentiator.
 
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In order to leverage advanced capabilities such as artificial intelligence and machine learning to enable their business use cases, enterprises need to address data privacy, compliance, security, multicloud data management and data governance across physical and virtual layers of the IT estate.

Increasing need for secure systems. As technology environments become increasingly complex and online, remote and distributed work environments persist, cybersecurity will remain of paramount importance as threats proliferate. Breaches in security can have severe, lasting financial and reputational consequences on businesses. In response, businesses continue to build out their cybersecurity efforts, using service providers to augment their capabilities. According to PwC’s 2021 CEO Survey, one-third of U.S. CEOs plan to increase investments in cybersecurity by double digits, with 47% of CEOs citing cyber threats as sources of extreme concern to growth prospects. Enterprises seek service providers that can deploy the expertise and resources needed to manage their growing cybersecurity needs with an efficient and comprehensive approach. Gartner estimates approximately 80% of organizations currently have 16 or more tools from different vendors in their cybersecurity portfolio, recognize vendor consolidation as an avenue for reduced costs and better security that addresses the complexity in their IT environments, and are, therefore, interested in vendor consolidation strategies.

Accelerating pace of technological advancement. As companies adopt new technologies for improved business performance and innovation, they face a challenge in complexity to integrate these new technologies with their existing IT estates. As a result, the required skills, integration burden, and cost in end-to-end operational management often increases. This drives adoption of new capabilities, such as automation, artificial intelligence, and machine learning to ensure that the IT environment is well designed and orchestrated to effectively realize business objectives.
Our Services
We provide advisory, implementation, and managed services in and across a range of technology domains to help our customers manage and modernize enterprise IT environments in support of their business and transformation objectives. Our services are differentiated based on our expertise and intellectual property, and data around IT patterns across customers in the following domains:

Cloud Services: We design, build, and provide managed services for our customers’ multicloud environments. We apply a mix of skilled practitioners, intelligent automation and modern service management principles of Site Reliability Engineering, AIOps, Infrastructure as Code and DevOps. We help enterprises optimize their use of hyperscale cloud providers in a unified environment, seamlessly integrating services delivered by: ISVs, large public cloud providers, internal platforms, and other technologies (e.g., IoT).

Core Enterprise & zCloud Services: We establish and operate modern, dedicated technology infrastructure on behalf of enterprise customers to enable their current and future growth and profitability objectives. We support a range of enterprise infrastructure, including private clouds, mainframe environments, distributed computing, enterprise networks, and storage environments.

Application, Data, and Artificial Intelligence Services: We provide end-to-end enterprise data services, including data transformation, data architecture and management, data governance and compliance, and data migration. We support Chief Digital Officers and CIOs in governing the vast quantities of enterprise data across internal and external sources to drive their digital strategies, transactions, and business objectives, while maintaining security, ethical standards, and compliance with country-specific data protection regulations (e.g., GDPR, HIPAA, and PCI). We provide services to design, build, manage, and automate the IT environments for enterprise applications as they migrate to the cloud. Our services help CIOs and Chief Technology Officers (CTOs) unlock the full value of leading third-party Enterprise Resource Planning systems (e.g., Oracle, SAP) and packaged applications through the use of AI and software-defined technologies.

Digital Workplace Services: Our digital workplace services provide the technology infrastructure, mobility, security, and access solutions to support a global workforce that is constantly evolving. Our services include enterprise mobility solutions that provide users with the ability to work seamlessly across environments and locations.
 
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Security & Resiliency Services: We provide comprehensive enterprise cyber-security services for Chief Information Security Officers and CRO, including: insights, protection, detection, response, and recovery to support the security of our client's hybrid IT estate, data and operations. Concurrently, we provide resiliency services that include a mix of business continuity planning and cloud-based disaster recovery capabilities (composed of experts, digital tools and automation, and failover environments). These services allow our customers to operate without issue or disruption in response to attacks, outages, natural disasters, and geopolitical events.

Network Services & Edge: We provide network and edge services to help customers meet their technological and commercial requirements for connectivity and compute across their digital environments. Our strategy and assessment services help evaluate customers’ network needs for their multicloud environments, while our network transformation and managed services allow customers to realize benefits of the latest software-defined network technologies. We deliver these services with a proprietary framework and architecture coupled with proof of concepts to then implement and manage enterprise networks with the right economics.
Our Competitive Strengths
We are a recognized leader in many of the services we provide, as acknowledged by research analysts (e.g., Everest, Forrester, Gartner, and IDC). We are known for our technology integration and modernization expertise — designing, building, and managing complex technology environments. Our worldwide and high-quality service delivery is underpinned by experienced and highly-trained practitioners that bring the best of our capabilities to our customers on a daily basis. Importantly, our culture of customer service excellence — especially in times of crisis, from COVID-19 to tsunamis, floods, cyber-attacks, and power outages — carries on from our heritage through our people. Given our unique capabilities, scale, intellectual property, and engineering talent, we are positioned to partner with enterprises for their future across a range of technologies, use cases, and business strategies to help them maximize the return on their technology investments and digital transformations.
Our competitive strengths stem from our intellectual property and data around IT patterns, our mission-critical expertise, and our broad ecosystem of partners:

We are a leader in technology services. We are the largest provider of IT infrastructure services and are recognized by research analysts (e.g., Gartner, Forrester, IDC, Everest, NelsonHall, and HfS Research) as a leader in key service areas. We possess significant experience in virtually all industries, gained through collaboration with customers across over 30 years designing, building, and managing operating environments for their IT systems. Our highly skilled workforce provides the expertise (e.g., approximately 13,000 Red Hat accreditations) to securely and reliably handle many of the most complex issues. In conjunction with our delivery capabilities (such as artificial intelligence that augments our people) and scale, we provide mission-critical services to a diversified customer base. We also have unique intellectual property applicable to IT environments, as reflected by our portfolio of approximately 3,000 patents.

We consistently deliver unsurpassed performance and reliability for complex environments. Our expert practitioners and talented engineers provide services through modern ways of working, including agile and design thinking. Additionally, our unique intellectual property and industry-leading technology platforms utilize contemporary approaches to IT operations to provide reliable and efficient solutions for each customer’s operating model. These capabilities allow us to execute with secure and compliant operating and delivery models at scale, driving high-quality performance and customer satisfaction. We realize high quality performance across thousands of service-level agreements and consistently achieve world-class customer satisfaction and advocacy.

We deliver insights at scale, supported by unique automation capabilities and application of AI. Our ability to deliver superior outcomes for customers is driven by our capacity to leverage our data around IT patterns and insights, derived from multiple technology environments across customer engagements. We apply machine learning, combined with our practitioner expertise to derive unique insights used to service customers, enhance our offerings and to produce our next-generation services, investing to ensure continuous innovation for improved outcomes. For example, we are
 
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recognized leaders in the use of automation and operational AI in the delivery of our services, with over 6,000,000 automated actions per month, enabling greater quality and efficiency for us and our customers. Our operational AI approach and set of technologies, along with intellectual property that we apply and continually evolve, are leveraged to develop predictive actions to prevent issues before they arise.

We are a recognized leader in managed services for cloud and on-premise environments and services such as security and resiliency. We offer a range of high-value capabilities including cloud services, and security & resiliency services, providing us with a sustainable competitive advantage when helping customers transform their technology environments. Our multicloud management capabilities are differentiated by our ability to deliver an integrated view of our customers’ diverse technology environments and to provide our services and solutions digitally. We offer integrated services between the cloud and on-premise environments.

We offer an integrated ecosystem to help customers adopt and run an increasingly heterogeneous set of technologies. As customers pursue multiple cloud-based technology partners, applications, and capabilities, integration is increasingly critical for customers to manage and orchestrate the technology ecosystem required to run their businesses and achieve their broader objectives. We provide holistic services across thousands of diverse technologies, delivering end-to-end integration across public and private / on-premise cloud platforms and other full-stack technology solutions. Following the Spin-Off, we will enhance our ecosystem of partners, including large public cloud providers, application-oriented system integrators, independent software vendors, and other players in the technology stack to provide the best technology and capability for our customers. Our services and ecosystems enable us to offer leading services for all levels of customer environment complexity and integration.
Our Strategies
We will pursue a strategy centered on our ability to build and enrich trusted relationships with customers and technology partners, differentiating through our proven ability to create and deploy scale-derived intellectual property, provide mission-critical expertise across industries, and partner with a broad ecosystem for contemporary capabilities that best suit customers’ needs. We have a strong and long-standing foundation developed by governing and managing complex technology environments, including IBM (e.g., Red Hat and Cloud Paks) and third-party technologies (e.g., VMWare, ServiceNow, and Microsoft). With increased freedom of action, we will extend these capabilities to an even broader ecosystem of technology providers and develop more services that are digitally consumable to expand accessibility to new customers and markets.
We have a long track record of running customers’ technology environments, enabling them to focus on the core aspects of their businesses. Given the nature of the work we do, we have a unique perspective on the operating paradigms that enable the high-quality technology environments which our customers have come to rely on for their most critical systems. This position enables us to meet customers where they are in their unique digital transformations, work alongside our customers to take them where they want to be, and in turn enable them to realize the full, at-scale value of that journey. Underpinning all of this are our intellectual property, mission-critical expertise across industries, and a broad ecosystem.
We benefit from the long-standing and deep relationship with IBM. We manage the largest installed base of IBM hardware and software products, including some of the most complex deployments. While we will be an independent and distinct entity following the separation, we will continue to work with IBM on an arms-length basis. In addition to any transition services agreements for services that IBM will provide to us as part of the Spin-Off, they will be part of our partner ecosystem from the standpoint of a technology provider, cloud provider, and application services partner. See “Certain Relationships and Related Party Transactions — Agreements with IBM — Other Arrangements.”
As we look to the future, our focus is centered on the following strategic tenets:

Scale Insights and Intellectual Property. We will invest to position ourselves at the forefront of developing and innovating the services and operating paradigms for the evolution and integration of mission critical technology, further expanding our existing intellectual property in differentiated areas. Our depth of experience implementing and operating complex architectures across technology
 
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sets has yielded valuable experience and intellectual property that has defined the operating paradigm for much of the technology stack. We have approximately 3,000 patents that relate to various areas of running complex technology environments, including certain patents related to multi-cloud management, orchestration, integrated monitoring, issue triage and resolution, and several other areas that enable quality of service. Our mission-critical expertise across all industries, augmented by our automation platforms that draw on our IP and data, is a key differentiator in managing complex technology environments.

Diverse Ecosystem with Freedom of Action. As an independent entity, we will have the freedom of action to develop a broad ecosystem of strategic partnerships with a wider set of technology and services companies to complement our relationship with IBM. We will invest in an ecosystem of technology providers and corresponding skill-sets that are increasingly relevant as enterprises digitize and transform their business models, building on our existing base of certifications across many market-leading technologies. In parallel, we will extend our operating paradigms and governance and compliance models to this broader set of technologies to integrate and provide end-to-end capabilities for our customers as they digitize and evolve their environments.

Digitally Consumable Services Models. Looking ahead, we see opportunity to further expand in areas where we can better serve customers through consumption models that allow them to experience our services digitally. These models will combine our platforms, our technology governance, and our ecosystem with ease-of-use and scalability, tailored to the needs of specific customer segments such as middle-market enterprises.
To execute these strategies, our operating model will reflect that of a services company, emphasizing customers and resulting in a flatter, faster, and more focused company. We will pursue an investment and co-investment strategy focused on building our team, developing aligned intellectual property and automation, and broadening our ecosystem of partnerships.
The Spin-Off
On October 8, 2020, IBM announced plans for the complete legal and structural separation of our Business from IBM. In reaching the decision to pursue the Spin-Off, IBM considered a range of potential structural alternatives for the Business and concluded that the Spin-Off is the most attractive alternative for enhancing stockholder value. To effect the separation, first, IBM will undertake the series of Reorganization Transactions described under “Certain Relationships and Related Party Transactions — Agreements with IBM — Separation and Distribution Agreement.” IBM will subsequently distribute 80.1% of our common stock to IBM’s stockholders, and following the Distribution, Kyndryl, holding the Business, will become an independent, publicly traded company. IBM will retain 19.9% of our outstanding shares following the Distribution. Prior to completion of the Spin-Off, we intend to enter into a separation and distribution agreement (the “Separation and Distribution Agreement”) and several other agreements with IBM related to the Spin-Off. These agreements will govern our relationship with IBM up to and after completion of the Spin-Off and allocate between us and IBM and various assets, liabilities and obligations, including employee benefits, intellectual property and tax-related assets and liabilities. See “Certain Relationships and Related Party Transactions” for more information.
IBM’s plan to transfer less than all of our common stock to its stockholders in the Distribution is motivated by its desire to establish, in an efficient and non-taxable, cost-effective manner, an appropriate capital structure for each of us and IBM, including by reducing, directly or indirectly, IBM’s indebtedness during the 12-month period following the Distribution. We understand that IBM currently intends to dispose of all of our common stock that it retains after the Distribution through one or more subsequent exchanges of our common stock for IBM debt held by one or more investment banks or, if market and general economic conditions and sound business judgment do not support such exchanges during the 12-month period following the Distribution, IBM may dispose of such common stock (i) through distributions to IBM stockholders as dividends or in exchange for outstanding shares of IBM common stock, in each case during the 12-month period following the Distribution or (ii) in one or more public or private sale transactions (including potentially through secondary transactions) as soon as practicable, taking into account market and general economic conditions and sound business judgment, but in no event later than five years after the Distribution.
 
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Completion of the Spin-Off is subject to the satisfaction or waiver of a number of conditions. In addition, IBM has the right not to complete the Spin-Off if, at any time, IBM’s board of directors, or the “IBM Board,” determines, in its sole and absolute discretion, that the Spin-Off is not in the best interests of IBM or its stockholders, or is otherwise not advisable. See “The Spin-Off — Conditions to the Spin-Off” for more information.
Following the Spin-Off, we and IBM will each have a more focused business that will be better positioned to invest more in growth opportunities and execute strategic plans best suited to address the distinct market trends and opportunities for the respective businesses. Following the Reorganization Transactions, we will hold IBM’s former managed infrastructure services business, and we will have greater agility to design, run and modernize the technology environments of some of the world’s most important organizations. We plan to focus on further developing our expertise in broad and complex mission-critical IT environments and our separation from IBM will allow IBM to focus on its open hybrid cloud platform and artificial intelligence capabilities. Further, the Spin-Off will allow our management team to devote its time and attention to the corporate strategies and policies that are based specifically on the needs of our Business. We plan to create incentives for our management and employees that align more closely with our business performance and the interests of our stockholders, which will help us attract, retain and motivate highly qualified personnel. Moreover, the Spin-Off is expected to increase the aggregate trading price of each of our and IBM’s common stock above what the trading price of IBM common stock would have had if it had continued to represent an interest in both the businesses, allowing each company to use its stock to pursue and achieve strategic objectives including evaluating and effectuating acquisitions. Additionally, we believe the Spin-Off will help align our stockholder base with the characteristics and risk profile of the respective businesses. See “The Spin-Off — Reasons for the Spin-Off” for more information.
Following the Spin-Off, we expect our common stock will trade on the New York Stock Exchange under the ticker symbol “KD.”
Our Corporate Information
We were incorporated in December 2020. Our corporate headquarters will be located at One Vanderbilt Avenue, 15th Floor, New York, New York 10017, and our telephone number is (212) 896-2098. Our website address is www.kyndryl.com. Information contained on, or that can be accessed through, our website is not part of, and is not incorporated into, this Information Statement.
Questions and Answers about IBM’s Reasons for the Spin-Off
The following provides only a summary of certain information regarding IBM’s reasons for the Spin-Off. You should read this Information Statement in its entirety for a more detailed description of the matters described below.
Q:
What are the reasons for the Spin-Off?
A:
The IBM Board believes that the separation of the managed infrastructure services business from IBM is in the best interests of IBM stockholders and for the success of the managed infrastructure services business for a number of reasons. See “The Spin-Off — Reasons for the Spin-Off” for more information.
Q:
Why is our separation structured as a spin-off?
A:
IBM believes that a distribution of our shares that is tax-free to IBM and its stockholders for U.S. federal income tax purposes is the most efficient way to separate our business from IBM.
Questions and Answers about the Spin-Off
The following provides only a summary of certain information regarding the Spin-Off. You should read this Information Statement in its entirety for a more detailed description of the matters described below.
Q:
What is the Spin-Off?
 
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A:
The Spin-Off is the method by which we will separate from IBM. In the Spin-Off, IBM will distribute to its stockholders 80.1% of the outstanding shares of our common stock. Following the Spin-Off, we will be an independent, publicly traded company, and IBM will continue to retain 19.9% of the outstanding shares of our common stock.
Q:
Is the completion of the Spin-Off subject to the satisfaction or waiver of any conditions?
A:
Yes, the completion of the Spin-Off is subject to the satisfaction, or the IBM Board’s waiver, of certain conditions. Any of these conditions may be waived by the IBM Board to the extent such waiver is permitted by law. In addition, IBM may at any time until the Distribution decide to abandon the Distribution or modify or change the terms of the Distribution. See “The Spin-Off — Conditions to the Spin-Off” for more information.
Q:
Will the number of IBM shares I own change as a result of the Spin-Off?
A:
No, the number of shares of IBM common stock you own will not change as a result of the Spin-Off.
Q:
Will the Spin-Off affect the trading price of my IBM common stock?
A:
The trading price of shares of IBM common stock immediately following the Distribution is expected to be lower than the trading price immediately prior to the Distribution because the trading price will no longer reflect the value of the Business. IBM believes that our separation from IBM offers its stockholders the greatest long-term value. There can be no assurance that, following the Distribution, the combined trading prices of the IBM common stock and our common stock will equal or exceed what the trading price of IBM common stock would have been in the absence of the Spin-Off.
It is possible that after the Spin-Off, our and IBM’s combined equity value will be less than IBM’s equity value before the Spin-Off.
Q:
What will I receive in the Spin-Off in respect of my IBM common stock?
A:
As a holder of IBM common stock, you will receive a dividend of one share of our common stock for every five shares of IBM common stock you hold on the Record Date (as defined below). The distribution agent will distribute only whole shares of our common stock in the Spin-Off. See “The Spin-Off — Treatment of Fractional Shares” for more information on the treatment of the fractional share you may be entitled to receive in the Distribution. Your proportionate interest in IBM will not change as a result of the Spin-Off. For a more detailed description, see “The Spin-Off.”
Q:
What is being distributed in the Spin-Off?
A:
IBM will distribute approximately 179,360,070 shares of our common stock in the Spin-Off, based on the approximately 896,800,350 shares of IBM common stock outstanding as of September 30, 2021. The actual number of shares of our common stock that IBM will distribute will depend on the total number of shares of IBM common stock outstanding on the Record Date. The shares of our common stock that IBM distributes will constitute 80.1% of the issued and outstanding shares of our common stock immediately prior to the Distribution. For more information on the shares being distributed in the Spin-Off, see “Description of Our Capital Stock — Common Stock.”
Q:
What do I have to do to participate in the Distribution?
A:
All holders of IBM’s common stock as of the Record Date will participate in the Distribution. You are not required to take any action in order to participate, but we urge you to read this Information Statement carefully. Holders of IBM common stock on the Record Date will not need to pay any cash or deliver any other consideration, including any shares of IBM common stock, in order to receive shares of our common stock in the Distribution. In addition, no stockholder approval of the Distribution is required. We are not asking you for a vote and request that you do not send us a proxy card.
 
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Q:
What is the record date for the Distribution?
A:
IBM will determine record ownership as of the close of business on October 25, 2021, which we refer to as the “Record Date.”
Q:
When will the Distribution occur?
A:
The Distribution will be effective as of 5:00 p.m., New York City time, on November 3, 2021, which we refer to as the “Distribution Date.”
Q:
How will IBM distribute shares of our common stock?
A:
On the Distribution Date, IBM will release the shares of our common stock to the distribution agent to distribute to IBM stockholders. The whole shares of our common stock will be credited in book-entry accounts for IBM stockholders entitled to receive the shares in the Distribution. If you own IBM common stock as of the close of business on October 25, 2021, the shares of our common stock that you are entitled to receive in the Distribution will be issued to your account as follows:
Registered stockholders:   If you own your shares of IBM common stock directly through IBM’s transfer agent (Computershare Trust Company, N.A.), you are a registered stockholder. In this case, the distribution agent will credit the whole shares of our common stock you receive in the Distribution by way of direct registration in book-entry form to a new account with our transfer agent. Registration in book-entry form refers to a method of recording share ownership where no physical stock certificates are issued to stockholders, as is the case in the Distribution. You will be able to access information regarding your book-entry account for shares of our common stock at kyndryl@computershare.com or by calling (833) 981-5963 or (781) 575-4557 (non-U.S.).
“Street name” or beneficial stockholders:   If you own your shares of IBM common stock beneficially through a bank, broker or other nominee, the bank, broker or other nominee holds the shares in “street name” and records your ownership on its books. In this case, your bank, broker or other nominee will credit your account with the whole shares of our common stock that you receive in the Distribution on or shortly after the Distribution Date. We encourage you to contact your bank, broker or other nominee if you have any questions concerning the mechanics of having shares held in “street name.”
See “The Spin-Off — When and How You Will Receive Our Shares” for a more detailed explanation.
Q:
If I sell my shares of IBM common stock on or before the Distribution Date, will I still be entitled to receive shares of our common stock in the Distribution?
A:
If you sell your shares of IBM common stock before the Record Date, you will not be entitled to receive shares of our common stock in the Distribution. If you hold shares of IBM common stock on the Record Date and decide to sell them on or before the Distribution Date, you may have the ability to choose to sell your IBM common stock with or without your entitlement to receive our common stock in the Distribution. You should discuss the available options in this regard with your bank, broker or other nominee. See “The Spin-Off — Trading Prior to the Distribution Date” for more information.
Q:
How will fractional shares be treated in the Distribution?
A:
The distribution agent will not distribute any fractional shares of our common stock in connection with the Spin-Off. Instead, the distribution agent will aggregate all fractional shares into whole shares and sell the whole shares in the open market at prevailing market prices on behalf of IBM stockholders entitled to receive a fractional share. The distribution agent will then distribute the aggregate cash proceeds of the sales, net of brokerage fees, transfer taxes and other costs, pro rata to these holders (net of any required withholding for taxes applicable to each holder). We anticipate that the distribution agent will make these sales in the “when-issued” market, and “when-issued” trades will generally settle within two trading days following
 
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the Distribution Date. See “Q: How will our common stock trade?” for additional information regarding “when-issued” trading and “The Spin-Off — Treatment of Fractional Shares” for a more detailed explanation of the treatment of fractional shares. The receipt of cash in lieu of fractional shares generally will be taxable to the recipient IBM stockholders for U.S. federal income tax purposes as described in the section entitled “Material U.S. Federal Income Tax Consequences of the Spin-Off.” The distribution agent will, in its sole discretion, without any influence by IBM or us, determine when, how, through which broker-dealer and at what price to sell the whole shares of our common stock. The distribution agent is not, and any broker-dealer used by the distribution agent will not be, an affiliate of either IBM or us.
Q:
What are the U.S. federal income tax consequences to me of the Distribution?
A:
IBM has received a private letter ruling from the Internal Revenue Service (“IRS”), to the effect that, among other things, the Distribution, including the retention of 19.9% of the shares of our common stock, will qualify as a transaction that is tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Internal Revenue Code of 1986 (the “Code”). Completion of the Spin-Off is conditioned on IBM’s receipt of a separate written opinion from Paul, Weiss, Rifkind and Wharton & Garrison LLP to the effect that the Distribution will qualify for non-recognition of gain and loss under Section 355 and related provisions of the Code. Accordingly, it is expected that the Distribution, together with certain related transactions, qualifies as a transaction that is tax-free to IBM and IBM’s stockholders, for U.S. federal income tax purposes, under Sections 368(a)(1)(D) and 355 of the Code, and thus no gain or loss will be recognized by, or be includible in the income of, a U.S. Holder (as defined in “Material U.S. Federal Income Tax Consequences of the Spin-Off”) as a result of the Distribution, except with respect to any cash (if any) received by IBM stockholders in lieu of fractional shares. After the Distribution, IBM stockholders will allocate their basis in their IBM common stock held immediately before the Distribution between their IBM common stock and our common stock in proportion to their relative fair market values on the date of Distribution. IBM may also waive the tax opinion as a condition to the completion of the Spin-Off. IBM does not currently intend to waive this condition to the obligation to complete the Spin-Off. If IBM were to waive this condition, it would communicate such waiver to IBM stockholders in a manner as described in “The Spin-Off — Conditions to the Spin-Off.” See “Material U.S. Federal Income Tax Consequences of the Spin-Off” for more information regarding the potential tax consequences to you of the Spin-Off. You should consult your tax advisor as to the particular tax consequences of the Spin-Off to you.
Q:
How will IBM vote any shares of our common stock it retains?
A:
IBM is expected to agree to vote any shares of our common stock that it retains in proportion to the votes cast by our other stockholders and is expected to grant us a proxy with respect to such retained shares. As a result, IBM will not be able to exert any control over us through the shares of our common stock it retains. For additional information on these voting arrangements, see “Certain Relationships and Related Person Transactions — Agreements with IBM — Stockholder and Registration Rights Agreement.”
Q:
What does IBM intend to do with any shares of our common stock it retains?
A:
We understand that IBM currently intends to dispose of all of our common stock that it retains after the Distribution through one or more subsequent exchanges of our common stock for IBM debt held by one or more investment banks or, if market and general economic conditions and sound business judgment do not support such exchanges during the 12-month period following the Distribution, IBM may dispose of such common stock (i) through distributions to IBM stockholders as dividends or in exchange for outstanding shares of IBM common stock, in each case during the 12-month period following the Distribution or (ii) in one or more public or private sale transactions (including potentially through secondary transactions) as soon as practicable, taking into account market and general economic conditions and sound business judgment, but in no event later than five years after the Distribution.
 
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Q:
Do I have appraisal rights in connection with the Spin-Off?
A:
No. Holders of IBM common stock are not entitled to appraisal rights in connection with the Spin-Off.
Q:
Where can I get more information?
A:
If you have any questions relating to the mechanics of the Distribution, you should contact the distribution agent at:
Computershare Trust Company, N.A.
P.O. Box 505005
Louisville, KY 40233-5005
(888) IBM-6700
Before the Spin-Off, if you have any questions relating to the Spin-Off, you should contact IBM at:
IBM Stockholder Relations
P.O. Box 505005
Louisville, KY 40233-5005
After the Spin-Off, if you have any questions relating to Kyndryl, you should contact us
at:
Kyndryl Holdings, Inc.
One Vanderbilt Avenue, 15th Floor
New York, NY 10017
Attention: Investor Relations
Questions and Answers about Kyndryl
The following provides only a summary of certain information regarding Kyndryl. You should read this Information Statement in its entirety for a more detailed description of the matters described below.
Q:
Do we intend to pay cash dividends?
A:
Following the separation, the initial combined dividend level of Kyndryl and IBM is expected to be no less than IBM’s pre-spin dividend per share. The timing, declaration, amount and payment of future dividends to stockholders will fall within the discretion of our board of directors (our “Board”). Among the items we will consider when evaluating the payment of dividends will be the capital needs of our business and opportunities to retain future earnings for use in the operation of our business and to fund future growth. See “Dividend Policy” for more information.
Q:
Will we incur any debt prior to or at the time of the Distribution?
A:
In connection with the Spin-Off, we priced $2.4 billion in aggregate principal amount of senior unsecured notes with closing expected to occur on October 15, 2021, subject to customary closing conditions. In addition, we expect to incur additional indebtedness in an aggregate principal amount of approximately $0.5 billion of term loans. Approximately $0.9 billion of the net proceeds will be transferred to IBM substantially concurrently with the consummation of the Spin-Off. We also intend to enter into a senior unsecured revolving credit facility in an aggregate committed amount of $3,150 million, none of which is expected to be drawn at the closing of the Spin-Off. The terms of such indebtedness are subject to change and will be finalized prior to the closing of the Spin-Off. See “Capitalization,” “Unaudited Pro Forma Condensed Combined Financial Statements,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Other Information — Liquidity and Capital Resources” for more information. Our cash balance at the time of the Spin-Off will be approximately $2.0 billion.
 
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Q:
How will our common stock trade?
A:
We have been approved to list our common stock on the New York Stock Exchange under the symbol “KD.” Currently, there is no public market for our common stock.
We anticipate that trading in our common stock will begin on a “when-issued” basis as early as one trading day prior to the Record Date for the Distribution and will continue up to and including the Distribution Date. “When-issued” trading in the context of a spin-off refers to a sale or purchase made conditionally on or before the Distribution Date because the securities of the spun-off entity have not yet been distributed. “When-issued” trades generally settle within two trading days after the Distribution Date. On the first trading day following the Distribution Date, any “when-issued” trading of our common stock will end and “regular-way” trading will begin. Regular-way trading refers to trading after the security has been distributed and typically involves a trade that settles on the second full trading day following the date of the trade. See “The Spin-Off — Trading Prior to the Distribution Date” for more information. We cannot predict the trading prices for our common stock before, on or after the Distribution Date.
Q:
Who is the transfer agent and registrar for our common stock?
A:
Computershare Trust Company, N.A. is the transfer agent and registrar for our common stock.
Q:
Are there risks associated with owning shares of our common stock?
A:
Yes, there are substantial risks associated with owning shares of our common stock. Accordingly, you should read carefully the information set forth under “Risk Factors” in this Information Statement.
Summary of Risk Factors
An investment in our company is subject to a number of risks. These risks relate to our business, cybersecurity and data privacy, laws and regulations, financing and capital markets activities, the Spin-Off and our common stock and the securities market. Any of these risks and other risks could materially and adversely affect our business, financial condition and results of operations and the actual outcome of matters as to which forward-looking statements are made in this Information Statement. Please read the information in the section captioned “Risk Factors” of this Information Statement for a description of the principal risks that we face.
 
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RISK FACTORS
Risks Relating to Our Business
A lack of new customers, retention of existing customers and sales of additional services to customers could adversely impact our revenue and results of operations.
Our ability to maintain or increase our revenues and profit may be impacted by a number of factors, including our ability to attract new customers, retain existing customers and sell additional, comparable gross margin services to our customers. We may incur higher customer acquisition or retention costs as a result of the Spin-Off and as we seek to grow our customer base and expand our markets. Moreover, to the extent we are unable to retain and sell additional services to existing customers, our revenue and results of operations may decrease. Our outsourcing customer contracts typically have an average duration of over five years and, unless terminated, may be renewed or automatically extended on a month-to-month basis. Our customers have no obligation to renew their services after their initial contract periods expire and any termination fees associated with an early termination may not be sufficient to recover our costs associated with such contracts. The loss of business from any of our major customers, whether by the cancellation of existing contracts, the failure to obtain new business or lower overall demand for our services, could adversely impact our revenue and results of operations.
Technological developments and the speed by which we respond to them could adversely impact our long-term success.
Our business depends on generating and maintaining ongoing, profitable customer demand for our services and solutions, including through the creation, adaptation and expansion of our services and solutions in response to ongoing changes in technology. A significant reduction in such demand or a failure to invest in strategic growth areas could materially affect our results of operations. Technological developments may cause customers to delay spending under existing contracts and engagements, or to delay entering into new contracts while they evaluate new technologies, which could negatively impact our results of operations if we are unable to introduce new commercial models that reflect the value of these technological developments or if customer spending on new technologies is not sufficient to make up any shortfall caused by such delays.
We may not meet our growth and productivity objectives.
Our goals for profitability and capital return following the Spin-Off rely upon a number of assumptions, including our ability to make successful investments to grow and further develop our business and simplify our operations. The risks and challenges we face in connection with our strategies include expanding our professional services capability, expanding in geographies where we currently have a small presence and ensuring that our services remain competitive in a rapidly changing technological environment. We may invest significantly in key strategic areas to drive long-term revenue growth and market share gains. These investments may adversely affect our near-term revenue growth and results of operations, and we cannot guarantee that they will ultimately be successful. Customer adoption rates and viable economic models are less certain in highly competitive segments. Additionally, emerging business and delivery models may unfavorably impact demand and profitability for our solutions or services. If we are unable to find partners to develop cutting-edge innovations in a highly competitive and rapidly evolving environment, or are unable to implement and integrate such innovations with sufficient speed and versatility, we could fail in our ongoing efforts to maintain and increase our market share and profit margins.
Competition in the markets in which we operate may adversely impact our results of operations.
Our competitors include incumbents that have expanded their offerings to migration and management of cloud-based environments; companies that utilize labor-based models and leverage talent pools primarily in lower-cost countries that have grown to offer a broad range of services with a worldwide presence; and advisory-focused system integrators specializing in bringing together disparate technology environments so that they function as one. Our competitiveness is based on factors including quality of services, technical skills and capabilities, industry knowledge and experience, financial value, ability to innovate, intellectual
 
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property and methods, contracting flexibility, and speed of execution. If we are unable to compete based on such factors, our results of operations and business prospects could be harmed.
This competition may decrease our revenue and place downward pressure on operating margins in our industry, particularly for contract extensions or renewals. As a result, we may not be able to maintain our current revenue and operating margins, or achieve favorable operating margins, for contracts extended or renewed in the future. If we fail to create and sustain an efficient and effective cost structure that scales with revenues during periods with declining revenues, our margins and results of operations may be adversely affected.
We have a large portfolio of services and we need to strategically allocate financial, personnel and other resources across these services while competing with companies that have smaller portfolios or specialize in one or more of our service lines. Our competitors may have greater financial, technical and marketing resources available to them compared to the resources allocated to our services. In addition, competitors who have a greater presence and brand recognition in some of the markets in which we compete, or who can provide more favorable contractual terms and conditions, may be more successful at winning new business. Industry consolidation may also affect competition by creating larger and potentially stronger competitors in the markets in which we operate, furthering pressuring margins. Additionally, competitors may affect our business by entering into exclusive arrangements with existing or potential customers or suppliers. Companies with whom we have alliances in certain areas may be or become competitors in other areas. In addition, companies with whom we have alliances also may acquire or form alliances with competitors, which could reduce their business with us. If we are unable to effectively manage these complicated relationships with alliance partners, our business and results of operations could be adversely affected.
Our business could be adversely impacted by our relationships with critical suppliers and partners.
Our business employs a wide variety of products and services from a number of suppliers and partners around the world. Our relationships with our partners, who supply us with necessary components to the services and solutions we offer our customers, are also critical to our ability to provide many of our services and solutions that address customer demands. There can be no assurance that we will be able to maintain such relationships, including in light of our separation from IBM. Among other things, such partners may in the future decide to compete with us, form exclusive or more favorable arrangements with our competitors or otherwise reduce our access to their products impairing our ability to provide the services and solutions demanded by customers. Further, changes in the business condition (financial or otherwise) of these suppliers or partners could subject us to losses and affect our ability to bring our offerings to market. Additionally, the failure of our suppliers and partners to deliver products and services in sufficient quantities, in a timely manner, and in compliance with all applicable laws and regulations could adversely affect our business. Any defective products or inadequate services received from suppliers or partners could reduce the reliability of our services and harm our reputation.
If we are unable to attract and retain key personnel and other skilled employees, our business could be harmed.
If any of our key employees were to leave, we could face substantial difficulty in hiring qualified successors and could experience a loss in productivity while any successor obtains the necessary training and experience. Although we have arrangements with some of our executive officers designed to promote retention, our employment relationships are generally at-will and key employees may leave us. We cannot assure you that one or more key employees will not leave in the future. We intend to continue to hire additional highly qualified personnel but may not be able to attract, assimilate or retain similarly qualified personnel in the future.
In addition, much of our future success depends on the continued service, availability and integrity of skilled employees, including technical, marketing and staff resources. Skilled and experienced personnel in the areas where we compete are in high demand, and competition for their talents is intense. Our inability to retain skilled employees could intensify the adverse impact of a shortage of critical skills. Changing demographics and labor workforce trends also may result in a shortage of or insufficient knowledge and skills. Further, as global opportunities and industry demand shifts, realignment, training and scaling of skilled resources may not be sufficiently rapid or successful. Any failure to attract, integrate, motivate and retain these employees could harm our business.
 
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Due to our global presence, our business and operations could be adversely impacted by local legal, economic, political, health and other conditions, including the COVID-19 pandemic.
We are a globally integrated company and have operations worldwide. Changes in the laws or policies of the countries in which we operate, or inadequate development or enforcement of such laws or policies, could affect our business and our overall results of operations. Further, we may be impacted directly or indirectly by the development and enforcement of laws and regulations in the U.S. and globally that are specifically targeted at the technology industry. Our results of operations also could be affected by economic and political changes in those countries and by macroeconomic changes, including recessions, inflation, currency fluctuations between the U.S. dollar and non-U.S. currencies and adverse changes in trade relationships amongst those countries. As we expand our customer base and the scope of our offerings, both within the United States and globally, we may be further impacted by additional regulatory or other risks, including compliance with U.S. and foreign data privacy requirements, data localization requirements, labor relations laws, enforcement of IP protection laws, laws relating to anti-corruption, anti-competition regulations, and import, export and trade restrictions. Further, international trade disputes could create uncertainty. Tariffs and international trade sanctions resulting from these disputes could affect our ability to move goods and services across borders, or could impose added costs to those activities. Measures taken to date by us to mitigate these impacts could be made less effective should trade sanctions or tariffs change. In addition, any widespread outbreak of an illness, pandemic or other local or global health issue, natural disasters including those that could be related to climate change impacts, or uncertain political climates, international hostilities, or any terrorist activities, could adversely affect customer demand, our operations and supply chain, and our ability to source and deliver solutions to our customers. For example, the COVID-19 pandemic has created significant volatility, uncertainty and economic disruption. In the current macroeconomic environment, customers continue to balance short-term challenges and opportunities for transformation. While some customers have begun to accelerate their digital transformation and increase their expenditures, the short-term priorities of other customers continue to be focused on operational stability, flexibility and cash preservation, and as such, we may experience some disruptions in transactional performance. Additionally, customers’ short-term priorities, as well as quarantines, limitations on travel and other factors associated with the COVID-19 pandemic may result in delays in some services projects. Another example, the U.K.’s withdrawal from the E.U., commonly referred to as “Brexit,” has caused global economic, trade and regulatory uncertainty. We are actively monitoring and planning for possible impacts from Brexit.
A downturn in the economic environment and customer spending budgets could adversely impact our business.
Our overall performance depends in part on global macroeconomic and geopolitical conditions, which can change suddenly and unpredictably. Because we operate globally and have significant businesses in many markets, an economic slowdown in any of those markets could adversely affect our results of operations. If overall demand for our solutions decreases, or if customers decide to reduce their spending budgets as a result of such conditions, including those associated with the COVID-19 pandemic, our revenue and profit could be materially and adversely impacted.
Damage to our reputation could adversely impact our business.
Our reputation may be susceptible to damage by events such as significant disputes with customers, internal control deficiencies, delivery failures, cybersecurity incidents, government investigations or legal proceedings or actions of current or former customers, directors, employees, competitors, vendors, alliance partners or joint venture partners. If we fail to gain a positive reputation as leader in our field, or if our brand image is tarnished by negative perceptions, our ability to attract and retain customers and talent could be impacted.
If we are unable to accurately estimate the cost of services and the timeline for completion of contracts, the profitability of our contracts may be materially and adversely affected.
Our commercial contracts are typically awarded on a competitive or “Sole source” basis. Our bids are based upon, among other items, the expected price to provide the services. We are dependent on our internal forecasts and predictions about our projects and the marketplace and, to generate an acceptable return on
 
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our investment in these contracts, we must be able to accurately estimate our costs to provide the services required by the contract and to complete the contracts in a timely manner. We face a number of risks when pricing our contracts, as many of our projects entail the coordination of operations and workforces in multiple locations and utilizing workforces with different skill sets and competencies across geographically diverse service locations. In addition, revenues from some of our contracts are recognized using the percentage-of-completion method, which requires estimates of total costs at completion, fees earned on the contract, or both. This estimation process, particularly due to the technical nature of the services being performed and the long-term nature of certain contracts, is complex and involves significant judgment. Adjustments to original estimates are often required as work progresses, experience is gained, and additional information becomes known, even though the scope of the work required under the contract may not change. If we fail to accurately estimate our costs or the time required to complete a contract, the profitability of our contracts may be materially and adversely affected.
Service delivery issues could adversely impact our business and operating results.
We have customer agreements in place that include certain service level commitments. If we are unable to meet such commitments, we may be contractually obligated to pay penalties or provide these customers with service credits for a portion of the service fees paid by our customers. However, we cannot be assured that our customers will accept these penalties or credits in lieu of other legal remedies that may be available to them. Our failure to meet our commitments could also result in customer dissatisfaction or loss and have an adverse effect on our business, financial condition and results of operations.
Risks from acquisitions, alliances and dispositions include integration challenges, failure to achieve objectives, the assumption of liabilities and higher debt levels.
Subject in certain circumstances to the consent of IBM under the Tax Matters Agreement, as discussed in “— Risks Relating to the Spin-Off,” we may decide to make acquisitions, alliances and dispositions in furtherance of our strategy. Such transactions present significant challenges and risks and there can be no assurances that we will identify or manage such transactions successfully or that strategic opportunities will be available to us on acceptable terms or at all. The related risks include us failing to achieve strategic objectives, anticipated revenue improvements and cost savings, the failure to retain key strategic relationships of acquired companies, the failure to retain key personnel and the assumption of liabilities related to litigation or other legal proceedings involving the businesses in such transactions, as well as the failure to close planned transactions. Such transactions may require us to secure financing and the indebtedness we incur concurrently with or prior to the Distribution may limit the availability of financing to us or the favorability of the terms of available financing. If we do acquire other companies, we may not realize all the economic benefit from those acquisitions, which could cause an impairment of goodwill or intangible assets. If our goodwill or net intangible assets become impaired, we may be required to record a charge to our Combined Income Statement.
We could be adversely impacted by our business with government customers.
Our customers include numerous governmental entities within and outside the United States, including foreign governments and U.S. state and local entities. Some of our agreements with these customers may be subject to periodic funding approval. Funding reductions or delays could adversely impact public sector demand for our services. Also, government contracts tend to be have additional requirements beyond commercial contracts and, for example, may contain provisions providing for higher liability limits for certain losses. In addition, we could be suspended or debarred as a governmental contractor and could incur civil and criminal fines and penalties, which could negatively impact our results of operations, financial results and reputation.
Intellectual property matters could adversely impact our business.
Our intellectual property rights may not prevent competitors from independently developing services similar to or duplicative to ours, nor can there be any assurance that the resources invested by us to protect our intellectual property will be sufficient or that our intellectual property portfolio will adequately deter misappropriation or improper use of our technology. Our ability to protect our intellectual property could
 
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also be impacted by changes to existing laws, legal principles and regulations governing intellectual property. Further, we rely on third party intellectual property rights, open source software, and other third-party software in providing some of our services and solutions and there can be no assurances that we will be able to obtain from third parties the licenses we need in the future. If we cannot obtain licenses to third party intellectual property on commercially reasonable terms, or if we must obtain alternative or substitute technology or to redesign services, our business may be adversely affected. Additionally, we cannot be sure that our services and solutions, or the solutions of others that we offer to our customers, do not infringe on the intellectual property rights of third parties (including competitors as well as non-practicing holders of intellectual property assets), and these third parties could claim that we, our customers or parties indemnified by us are infringing upon their intellectual property rights. In addition, we may be the target of aggressive and opportunistic enforcement of patents by third parties, including patent assertion entities and non-practicing entities. These claims, even if we believe they have no merit, could subject us to a temporary or permanent injunction or damages, harm our reputation, divert management attention and resources, and cause us to incur substantial costs or prevent us from offering some services or solutions in the future. Even if we have an agreement providing for third parties to indemnify us for the foregoing claims, the indemnifying parties may be unwilling or unable to fulfill their contractual obligations.
Risks Relating to Cybersecurity and Data Privacy
Cybersecurity and privacy considerations could adversely impact our business.
There are numerous and evolving risks to cybersecurity and privacy, including risks originating from intentional acts of criminal hackers, hacktivists and nation states; from intentional and unintentional acts of customers, contractors, business partners, vendors, employees, competitors and other third parties; and from errors in processes or technologies, as well as the risks associated with an increase in the number of customers, contractors, business partners, vendors, employees and other third parties working remotely as a result of the COVID-19 pandemic. Computer hackers and others routinely attack the security of technology products, services, systems and networks using a wide variety of methods, including ransomware or other malicious software and attempts to exploit vulnerabilities in hardware, software, and infrastructure. Attacks also include social engineering to fraudulently induce customers, contractors, business partners, vendors, employees and other third parties to disclose information, transfer funds, or unwittingly provide access to systems or data. We are at risk of security breaches not only of our own services, systems and networks, but also those of customers, contractors, business partners, vendors, employees and other third parties. Cyber threats are continually evolving, making it difficult to defend against certain threats and vulnerabilities that can persist undetected over extended periods of time. Our services, systems and networks, including cloud-based systems and systems and technologies that we maintain on behalf of our customers, may be used in critical company, customer or third-party operations, and involve the storage, processing and transmission of sensitive data, including valuable intellectual property, other proprietary or confidential data, regulated data, and personal information of employees, customers and others. These services, systems and networks are also used by customers in heavily regulated industries, including those in the financial services, healthcare, critical infrastructure and government sectors. Successful cybersecurity attacks or other security incidents could result in, for example, one or more of the following: unauthorized access to, disclosure, modification, misuse, loss, or destruction of company, customer, or other third party data or systems; theft or import or export of sensitive, regulated, or confidential data including personal information and intellectual property; the loss of access to critical data or systems through ransomware, crypto mining, destructive attacks or other means; and business delays, service or system disruptions or denials of service. In the event of such actions, we, our customers and other third parties could be exposed to liability, litigation, and regulatory or other government action, as well as the loss of existing or potential customers, damage to brand and reputation, damage to our competitive position, and other financial loss. In addition, the cost and operational consequences of responding to cybersecurity incidents and implementing remediation measures could be significant. In our industry, security vulnerabilities are increasingly discovered, publicized and exploited across a broad range of hardware, software or other infrastructure, elevating the risk of attacks and the potential cost of response and remediation for us and our customers. In addition, the fast-paced, evolving, pervasive, and sophisticated nature of certain cyber threats and vulnerabilities, as well as the scale and complexity of the business and infrastructure, make it possible that certain threats or vulnerabilities will be undetected or unmitigated in time to prevent or minimize the impact of an attack on us or our
 
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customers. Cybersecurity risk to us and our customers also depends on factors such as the actions, practices and investments of customers, contractors, business partners, vendors and other third parties. Cybersecurity attacks or other catastrophic events resulting in disruptions to or failures in power, information technology, communication systems or other critical infrastructure could result in interruptions or delays to company, customer, or other third party operations or services, financial loss, injury or death to persons or property, potential liability, and damage to brand and reputation. Although we continuously take significant steps to mitigate cybersecurity risk across a range of functions, such measures can never eliminate the risk entirely or provide absolute security. To date, while we continue to monitor for, identify, investigate, respond to, remediate and develop plans to quickly recover from cybersecurity incidents, there have not been cybersecurity incidents that have had a material adverse effect on us, though there is no assurance that there will not be cybersecurity incidents that will have a material adverse effect in the future.
As a global enterprise, the regulatory environment with regard to cybersecurity, privacy and data protection issues is increasingly complex and will continue to impact our business, including through increased risk, increased costs, and expanded or otherwise altered compliance obligations. As our reliance on data grows, the potential impact of regulations on our business, risks, and reputation will grow accordingly. The enactment and expansion of data protection and privacy laws and regulations around the globe, including an increased focus on international data transfer mechanisms driven by the European Court of Justice decision in the Schrems II matter; the lack of harmonization of such laws and regulations; the increase in associated litigation and enforcement activity; the potential for damages, fines and penalties; and the potential regulation of new and emerging technologies, such as artificial intelligence, will continue to result in increased compliance costs and risks. Any additional costs and penalties associated with increased compliance, enforcement and risk reduction could make certain offerings less profitable or increase the difficulty of bringing certain offerings to market.
Risks Relating to Laws and Regulations
Tax matters could impact our results of operations and financial condition.
We are subject to income taxes in both the United States and numerous foreign jurisdictions. We calculate and provide for taxes in each tax jurisdiction in which we operate. Tax accounting often involves complex matters and requires our judgment to determine our worldwide provision for income taxes and other tax liabilities. Our provision for income taxes and cash tax liability in the future could be adversely affected by numerous factors including, but not limited to, income before taxes being lower than anticipated in countries with lower statutory tax rates and higher than anticipated in countries with higher statutory tax rates, changes in the valuation of deferred tax assets and liabilities, and changes in tax laws, regulations, accounting principles or interpretations thereof, which could adversely impact our results of operations and financial condition in future periods. The Organization for Economic Cooperation and Development (OECD) continues to issue guidelines that are different, in some respects, than long-standing international tax principles. As countries unilaterally amend their tax laws to adopt certain parts of the OECD guidelines, this may increase tax uncertainty and may adversely impact our income taxes. Local country, state, provincial or municipal taxation may also be subject to review and potential override by regional, federal, national or similar forms of government, which may also adversely impact our income taxes. It is likely that our tax returns could be examined by taxing authorities in the jurisdictions in which we do business which also could adversely impact our income tax provision.
We are subject to legal proceedings and investigatory risks.
As a company with approximately 90,000 employees and with customers in over 100 countries, we are or may become involved as a party and/or may be subject to a variety of claims, demands, suits, investigations, tax matters and other proceedings that arise from time to time in the ordinary course of our business. The risks associated with such legal proceedings are described in more detail in note K, “Commitments and Contingencies” in the combined financial statements elsewhere in this Information Statement. We believe that we have adopted appropriate risk management and compliance programs. Legal and compliance risks, however, will continue to exist and additional legal proceedings and other contingencies, the outcome of which cannot be predicted with certainty, may arise from time to time.
 
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We could incur costs for environmental matters.
We are subject to various federal, state, local and foreign laws and regulations concerning the discharge of materials into the environment or otherwise related to environmental protection. We could incur costs, including cleanup costs, fines and civil or criminal sanctions, as well as third-party claims for property damage or personal injury, if we were to violate or become liable under environmental laws and regulations. Compliance with environmental laws and regulations is not expected to have a material adverse effect on our financial position, results of operations and competitive position.
Risks Relating to Financing and Capital Markets Activities
The commercial and credit environment may adversely affect our access to capital.
Our ability to issue debt or enter into other financing arrangements on acceptable terms could be adversely affected if there is a material decline in the demand for our services or in the solvency of our customers or suppliers or if there are other significantly unfavorable changes in economic conditions. Volatility in the world financial markets could increase borrowing costs or affect our ability to access the capital markets. These conditions may adversely affect our ability to obtain targeted credit ratings prior to and following the Spin-Off.
Our financial performance could be adversely impacted by changes in market liquidity conditions and by customer credit risk on receivables.
Our financial performance is exposed to a wide variety of industry sector dynamics worldwide, including sudden shifts in regional or global economic activity such as those associated with the COVID-19 pandemic. Our earnings and cash flows, as well as our access to funding, could be negatively impacted by changes in market liquidity conditions. Our customer base includes many worldwide enterprises, from small and medium businesses to the world’s largest organizations and governments, with a significant portion of our revenue coming from global customers across many sectors. If we become aware of information related to the creditworthiness of a major customer, or if future actual default rates on receivables in general differ from those currently anticipated, we may have to adjust our allowance for credit losses, which could affect our net income in the period the adjustments are made.
Our results of operations and financial condition could be negatively impacted by our pension plans.
Adverse financial market conditions and volatility in the credit markets may have an unfavorable impact on the value of our pension trust assets and its future estimated pension liabilities. As a result, our financial results in any period could be negatively impacted. In addition, in a period of an extended financial market downturn, we could be required to provide incremental pension plan funding with resulting liquidity risk which could negatively impact our financial flexibility. Further, our results could be negatively impacted by premiums for mandatory pension insolvency insurance coverage outside the United States. Premium increases could be significant due to the level of insolvencies of unrelated companies in the country at issue.
We are exposed to currency risk that could adversely impact our revenue and business.
We derive a significant percentage of our revenues and costs from our affiliates operating in local currency environments, and those results are affected by changes in the relative values of non-U.S. currencies and the U.S. dollar, as well as sudden shifts in regional or global economic activity such as those associated with the COVID-19 pandemic. In addition, large changes in foreign exchange rates relative to our functional currencies could increase the costs of our services to customers relative to local competitors, thereby causing us to lose existing or potential customers to these local competitors. Further, as we grow our international operations, our exposure to foreign currency risk could become more significant. We have not independently executed derivative financial instruments to manage our foreign currency risk and instead have participated in a centralized foreign currency hedging program administered by IBM to reduce foreign currency volatility. Our current strategy does not include hedging all of our foreign currency exposures and the hedges placed through the centralized program may not fully mitigate our foreign currency risk or may prove disadvantageous. At the time of the Spin-Off, we intend to have our own risk management program,
 
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hedging foreign currency exposure and interest rate risk. See “— Risks Relating to the Spin-Off — We may be unable to make, on a timely or cost-effective basis, the changes necessary to operate as an independent, publicly traded company, and we may experience increased costs after the Spin-Off.”
Risks Relating to the Spin-Off
The Spin-Off could result in significant tax liability to IBM and its stockholders if it is determined to be a taxable transaction.
IBM has received a private letter ruling from the IRS to the effect that, among other things, the Distribution, including the retention of 19.9% of the shares of our common stock, will qualify as a transaction that is tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code. Completion of the Spin-Off is conditioned on IBM’s receipt of a written opinion from Paul, Weiss, Rifkind and Wharton & Garrison LLP to the effect that the Distribution will qualify for non-recognition of gain and loss under Section 355 and related provisions of the Code. IBM can waive receipt of the tax opinion as a condition to the completion of the Spin-Off.
The opinion of counsel does not address any U.S. state or local or foreign tax consequences of the Spin-Off. The opinion assumes that the Spin-Off will be completed according to the terms of the Separation and Distribution Agreement and relies on the facts as stated in the Separation and Distribution Agreement, the Tax Matters Agreement, the other ancillary agreements, this Information Statement and a number of other documents.
The opinion of counsel and the private letter ruling rely on certain facts, assumptions, representations and undertakings from IBM and us regarding the past and future conduct of the companies’ respective businesses and other matters. If any of these facts, assumptions, representations or undertakings are incorrect or not otherwise satisfied, IBM and its stockholders may not be able to rely on the private letter ruling or the opinion of counsel and could be subject to significant tax liabilities.The opinion of counsel is not binding on the IRS or the courts, and there can be no assurance that the IRS or a court will not take a contrary position. Notwithstanding the private letter ruling or opinion of counsel, the IRS could determine on audit that the Distribution or any of certain related transactions is taxable if it determines that any of these facts, assumptions, representations or undertakings are not correct or have been violated or if it disagrees with the conclusions in the opinion that are not covered by the private letter ruling, or for other reasons, including as a result of certain significant changes in the stock ownership of IBM or us after the Distribution.
If the Spin-Off were determined not to qualify for non-recognition of gain or loss under Section 355 and related provisions of the Code, each U.S. Holder who receives our common stock in the Distribution would generally be treated as receiving a distribution in an amount equal to the fair market value of our common stock received, which would generally result in: (1) a taxable dividend to the U.S. Holder to the extent of that U.S. Holder’s pro rata share of IBM’s current or accumulated earnings and profits; (2) a reduction in the U.S. Holder’s basis (but not below zero) in IBM common stock to the extent the amount received exceeds the stockholder’s share of IBM’s earnings and profits; and (3) taxable gain from the exchange of IBM common stock to the extent the amount received exceeds the sum of the U.S. Holder’s share of IBM’s earnings and profits and the U.S. Holder’s basis in its IBM common stock. See below and “Material U.S. Federal Income Tax Consequences of the Spin-Off.”
If the Spin-Off were determined not to qualify as tax-free for U.S. federal income tax purposes, we could have an indemnification obligation to IBM, which could adversely affect our business, financial condition and results of operations.
If, as a result of any of our representations being untrue or our covenants being breached, the Spin-Off were determined not to qualify for non-recognition of gain or loss under Section 355 and related provisions of the Code, we could be required to indemnify IBM for the resulting taxes and related expenses. Those amounts could be material. Any such indemnification obligation could adversely affect our business, financial condition and results of operations.
In addition, if we or our stockholders were to engage in transactions that resulted in a 50% or greater change by vote or value in the ownership of our stock during the four-year period beginning on the date
 
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that begins two years before the date of the Distribution, the Spin-Off would generally be taxable to IBM, but not to stockholders, under Section 355(e), unless it were established that such transactions and the Spin-Off were not part of a plan or series of related transactions. If the Spin-Off were taxable to IBM due to such a 50% or greater change in ownership of our stock, IBM would recognize gain equal to the excess of the fair market value on the Distribution Date of our common stock distributed to IBM stockholders over IBM’s tax basis in our common stock, and we generally would be required to indemnify IBM for the tax on such gain and related expenses. Those amounts could be material. Any such indemnification obligation could adversely affect our business, financial condition and results of operations. See “Certain Relationships and Related Party Transactions — Agreements with IBM — Tax Matters Agreement.”
We intend to agree to numerous restrictions to preserve the non-recognition treatment of the Spin-Off, which may reduce our strategic and operating flexibility.
To preserve the tax-free nature of the Spin-Off and related transactions, we intend to agree in the Tax Matters Agreement to covenants and indemnification obligations that address compliance with Section 355 of the Code and related provisions of the Code, as well as state, local and foreign tax law. These covenants will include certain restrictions on our activity for a period of two years following the Spin-Off. Specifically, we will be subject to certain restrictions on our ability to enter into acquisition, merger, liquidation, sale and stock redemption transactions with respect to our stock or assets. In addition, under the Tax Matters Agreement, we may be required to indemnify IBM against any such tax liabilities as a result of the acquisition of our stock or assets, even if we do not participate in or otherwise facilitate the acquisition. Furthermore, we will be subject to specific restrictions on discontinuing the active conduct of our trade or business, the issuance or sale of stock or other securities (including securities convertible into our stock but excluding certain compensatory arrangements), and sales of assets outside the ordinary course of business. These covenants and indemnification obligations may limit our ability to pursue strategic transactions or engage in new businesses or other transactions that may maximize the value of our business, and might discourage or delay a strategic transaction that our stockholders may consider favorable. See “Certain Relationships and Related Party Transactions — Agreements with IBM — Tax Matters Agreement.”
We may be unable to achieve some or all of the benefits that we expect to achieve from the Spin-Off.
We may be unable to achieve the full strategic and financial benefits expected to result from the separation and distribution, or such benefits may be delayed or not occur at all. We believe that, as an independent, publicly traded company, we will be able to, among other things, more effectively focus on pursue our own distinct operating priorities and strategies, position us as a global leader in our industry with the ability to better address specific market dynamics and target innovation, increase the aggregate trading price of the stock of IBM and Kyndryl above the trading price that the stock of IBM would have had if it had continued to represent an interest in both the businesses, create incentives for our management and employees that align more closely with our business performance and the interests of our stockholders, and allow us to articulate a clear investment proposition and tailored capital allocation policy to attract a long-term investor base best suited to our business needs. We may be unable to achieve some or all of the benefits that we expect to achieve as an independent company in the time we expect, if at all, for a variety of reasons, including: (i) the completion of the Spin-Off will require significant amounts of our management’s time and effort, which may divert management’s attention from operating and growing our business; (ii) following the Spin-Off, we may be more susceptible to market fluctuations and other adverse events than if it were still a part of IBM; (iii) following the Spin-Off, our businesses will be less diversified than IBM’s businesses prior to the separation; (iv) the other actions required to separate IBM’s and our respective businesses could disrupt our operations; and (v) under the terms of the Tax Matters Agreement, we will be restricted from taking certain actions that could cause the Distribution to fail to qualify as a tax-free transaction and these restrictions may limit us for a period of time from pursuing strategic transactions and equity issuances or engaging in other transactions that may increase the value of our business. If we fail to achieve some or all of the benefits that we expect to achieve as an independent company, or do not achieve them in the time we expect, our business, financial condition and results of operations could be adversely affected.
 
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The terms we will receive in our agreements with IBM could be less beneficial than the terms we may have otherwise received from unaffiliated third parties.
The agreements we will enter into with IBM in connection with the separation, will be negotiated prior to the Spin-Off, at a time when our business will still be operated by IBM. The agreements generally will be entered into on arms-length terms similar to those that would be agreed with an unaffiliated third party such as a buyer in sale transaction, but we will not have an independent board of directors or a management team independent of IBM representing its interests while the agreements are being negotiated. In addition, until the Distribution occurs, we will continue to be a wholly owned subsidiary of IBM and, accordingly, IBM will still have the discretion to determine and change the terms of the separation until the Distribution Date. As a result of these factors, the terms of those agreements may not reflect terms that would have resulted from arm’s-length negotiations between unaffiliated third parties and it is possible that we might have been able to achieve more favorable terms if the circumstances differed. See “Certain Relationships and Related Party Transactions.”
Our customers, prospective customers, suppliers or other companies with whom we conduct business may need assurances that our financial stability on a stand-alone basis is sufficient to satisfy their requirements for doing or continuing to do business with them.
Some of our customers, prospective customers, suppliers or other companies with whom we conduct business may need assurances that our financial stability on a stand-alone basis is sufficient to satisfy their requirements for doing or continuing to do business with them. Any failure of parties to be satisfied with our financial stability could have an adverse effect on our business, financial condition, results of operations and cash flows.
Following the Spin-Off, we could incur substantial additional costs and experience temporary business interruptions, and we may not be adequately prepared to meet the requirements of an independent, publicly traded company.
In connection with the Spin-Off, we have been installing and implementing information technology infrastructure to support certain of our business functions, including accounting and reporting, human resources, sales operations, customer service, and fulfillment. We may incur substantially higher costs than currently anticipated as we transition from the existing transactional and operational systems and data centers we currently use as part of IBM. If we are unable to transition effectively, we may incur temporary interruptions in business operations. Any delay in implementing, or operational interruptions suffered while implementing, our new information technology infrastructure could disrupt our business and have a material adverse effect on our results of operations.
In addition, if we are unable to replicate or transition certain systems, our ability to comply with regulatory requirements could be impaired. As a result of the Spin-Off, we will be directly subject to reporting and other obligations under the U.S. Securities and Exchange Act of 1934, as amended (the “Exchange Act”). Beginning with our second required Annual Report on Form 10-K, we intend to comply with Section 404 of the Sarbanes Oxley Act of 2002, as amended (the “Sarbanes Oxley Act”), which will require annual management assessments of the effectiveness of our internal control over financial reporting and a report by our independent registered public accounting firm on the effectiveness of internal control over financial reporting. These reporting and other obligations may place significant demands on management, administrative and operational resources, including accounting systems and resources.
The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. Under the Sarbanes Oxley Act, we are required to maintain effective disclosure controls and procedures and internal controls over financial reporting. To comply with these requirements, we may need to upgrade our systems, implement additional financial and management controls, reporting systems and procedures and hire additional accounting and finance staff. We expect to incur additional annual expenses for the purpose of addressing these, and other public company reporting, requirements. If we are unable to upgrade our financial and management controls, reporting systems, information technology systems and procedures in a timely and effective fashion, our ability to comply with financial reporting requirements and other rules that apply to reporting companies under the Exchange Act could be impaired, and we may be unable to conclude that our internal control over financial reporting
 
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is effective and to obtain an unqualified report on internal controls from our auditors as required under Section 404 of the Sarbanes-Oxley Act. Any failure to achieve and maintain effective internal controls could have a material adverse effect on our business, financial condition, results of operations and cash flow.
We may be unable to make, on a timely or cost-effective basis, the changes necessary to operate as an independent, publicly traded company, and we may experience increased costs after the Spin-Off.
We have historically operated as part of IBM’s corporate organization, and IBM has provided us with various corporate functions. Following the Spin-Off, IBM will have no obligation to provide us with assistance other than the transition and other services described under “Certain Relationships and Related Party Transactions.” These services do not include every service that we have received from IBM in the past, and IBM is only obligated to provide the transition services for limited periods following completion of the Spin-Off. Following the Spin-Off and the cessation of any transition services agreements, we will need to provide internally or obtain from unaffiliated third parties the services we will no longer receive from IBM. We may be unable to replace these services in a timely manner or on terms and conditions as favorable as those we receive from IBM. Because our business has historically operated as part of the wider IBM organization, we may be unable to successfully establish the infrastructure or implement the changes necessary to operate independently, or may incur additional costs that could adversely affect our business. In particular, our ability to position and market ourselves as a provider of technology services could be adversely affected by our loss of access to IBM’s development platforms. If we fail to obtain the quality of services necessary to operate effectively or incur greater costs in obtaining these services, our business, financial condition and results of operations may be adversely affected.
As an independent, publicly traded company, we may not enjoy the same benefits that we did as a part of IBM.
There is a risk that, by separating from IBM, we may become more susceptible to market fluctuations and other adverse events than we would have been if we were still a part of the current IBM organizational structure. As part of IBM, we have been able to enjoy certain benefits from IBM’s operating diversity, size, purchasing power, lower cost of capital and opportunities to pursue integrated strategies with IBM’s other businesses. As an independent, publicly traded company, we will not have the same benefits. Additionally, as part of IBM, we have been able to leverage the IBM historical market reputation and performance and brand identity to recruit and retain key personnel to run and operate our business. As an independent, publicly traded company, we will not have the same historical market reputation and performance or brand identity as IBM and it may be more difficult for us to recruit or retain such key personnel.
We have no operating history as an independent, publicly traded company, and our historical combined financial information is not necessarily representative of the results we would have achieved as an independent, publicly traded company and may not be a reliable indicator of our future results.
We derived the historical combined financial information included in this Information Statement from IBM’s consolidated financial statements, and this information does not necessarily reflect the results of operations and financial position we would have achieved as an independent, publicly traded company during the periods presented, or those that we will achieve in the future. This is primarily because of the following factors:

Prior to the Spin-Off, we operated as part of IBM’s broader corporate organization, and IBM performed various corporate functions for us. Our historical combined financial information reflects allocations of corporate expenses from IBM for these and similar functions. These allocations may not reflect the costs we will incur for similar services in the future as an independent publicly traded company.

We will enter into transactions with IBM that did not exist prior to the Spin-Off, such as IBM’s provision of transition and other services, and undertake indemnification obligations, which will cause us to incur new costs. See “Certain Relationships and Related Party Transactions — Agreements with IBM.”

Our historical combined financial information does not reflect changes that we expect to experience in the future as a result of our separation from IBM, including changes in the financing, cash
 
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management, operations, cost structure and personnel needs of our business. As part of IBM, we enjoyed certain benefits from IBM’s operating diversity, reputation, size, purchasing power, borrowing leverage and available capital for investments, and we will lose these benefits after the Spin-Off. As an independent entity, we may be unable to purchase goods, services and technologies, such as insurance and health care benefits and computer software licenses, or access capital markets, on terms as favorable to us as those we obtained as part of IBM prior to the Spin-Off, and our results of operations may be adversely affected. In addition, our historical combined financial data do not include an allocation of interest expense comparable to the interest expense we will incur as a result of the Reorganization Transactions and the Spin-Off, including interest expense in connection with our incurrence of indebtedness.
Following the Spin-Off, we will also face additional costs and demands on management’s time associated with being an independent, publicly traded company, including costs and demands related to corporate governance, investor and public relations and public reporting. For additional information about our past financial performance and the basis of presentation of our Combined Financial Statements, see “Unaudited Pro Forma Condensed Combined Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical Combined Financial Statements and the Notes thereto included elsewhere in this Information Statement.
We expect to incur new indebtedness concurrently with or prior to the Distribution, and the degree to which we will be leveraged following completion of the Distribution could adversely affect our business, financial condition and results of operations.
In connection with the Spin-Off, we intend to incur substantial indebtedness in an aggregate principal amount of approximately $2.9 billion, consisting of $2.4 billion of senior unsecured notes and $0.5 billion of term loans. Approximately $0.9 billion of the net proceeds will be transferred to IBM substantially concurrently with the consummation of the Spin-Off. We also intend to enter into a senior unsecured revolving credit facility in an aggregate committed amount of $3,150 million, none of which is expected to be drawn at the closing of the Spin-Off. Our cash balance at the time of the Spin-Off will be approximately $2.0 billion. We have historically relied upon IBM to fund our working capital requirements and other cash requirements. After the Distribution, we will not be able to rely on the earnings, assets or cash flow of IBM, and IBM will not provide funds to finance our working capital or other cash requirements. As a result, after the Distribution, we will be responsible for servicing our own debt and obtaining and maintaining sufficient working capital and other funds to satisfy our cash requirements. After the Spin-Off, our access to and cost of debt financing will be different from the historical access to and cost of debt financing under IBM. Differences in access to and cost of debt financing may result in differences in the interest rate charged to us on financings, as well as the amount of indebtedness, types of financing structures and debt markets that may be available to us. Our ability to make payments on and to refinance our indebtedness, including the debt incurred in connection with the Spin-Off, as well as any future debt that we may incur, will depend on our ability to generate cash in the future from operations, financings or asset sales. Our ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.
A lowering or withdrawal of the ratings, outlook or watch assigned to our new debt securities by rating agencies may increase our future borrowing costs, reduce our access to capital and adversely impact our financial performance.
Our indebtedness has an investment grade rating, and any rating, outlook or watch assigned could be lowered or withdrawn entirely by a rating agency if, in that rating agency’s judgment, current or future circumstances relating to the basis of the rating, outlook or watch such as adverse changes to our business, so warrant. Any future lowering of our ratings, outlook or watch likely would make it more difficult or more expensive for us to obtain additional debt financing. Moreover, a reduction in our rating to below investment grade could cause certain customers to reduce or cease to do business with us, which would adversely impact our financial performance.
 
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Following the Spin-Off, certain of our employees may have actual or potential conflicts of interest because of their financial interests in IBM.
Because of their current or former positions with IBM, certain of our expected executive officers own equity interests in both us and IBM. Continuing ownership of IBM shares and equity awards could create, or appear to create, potential conflicts of interest if we and IBM face decisions that could have implications for both us and IBM. For example, potential conflicts of interest could arise in connection with the resolution of any dispute between us and IBM regarding the terms of the agreements governing the separation and distribution and our relationship with IBM following the separation and distribution. Potential conflicts of interest may also arise out of any commercial arrangements that we or IBM may enter into in the future.
We or IBM may fail to perform under various transaction agreements that will be executed as part of the separation.
In connection with the separation, and prior to the Distribution, we and IBM will enter into various transaction agreements related to the Spin-Off. All of these agreements will also govern our relationship with IBM following the Spin-Off. We will rely on IBM to satisfy its performance obligations under these agreements. If we or IBM are unable to satisfy our or its respective obligations under these agreements, including indemnification obligations, our business, results of operations and financial condition could be adversely affected. See “Certain Relationships and Related Party Transactions.”
Certain non-U.S. entities or assets that are part of our separation from IBM may not be transferred to us prior to the Distribution or at all.
Certain non-U.S. entities and assets that are part of our separation from IBM may not be transferred prior to the Distribution because the entities or assets, as applicable, are subject to foreign government or third party approvals that we may not receive prior to the Distribution. Such approvals may include, but are not limited to, approvals to merge or demerge, to form new legal entities (including obtaining required registrations and/or licenses or permits) and to transfer assets and/or liabilities. It is currently anticipated that most material transfers will occur without delays beyond the Distribution Date, but we cannot offer any assurance that such transfers will ultimately occur or not be delayed for an extended period of time. To the extent such transfers do not occur prior to the Distribution, under the Separation and Distribution Agreement, the economic consequences of owning such assets and/or entities will, to the extent reasonably possible and permitted by applicable law, be provided to us. In the event such transfers do not occur or are significantly delayed because we do not receive the required approvals, we may not realize all of the anticipated benefits of our separation from IBM and we may be dependent on IBM for transition services for a longer period of time than would otherwise be the case.
Risks Relating to Our Common Stock and the Securities Market
No market for our common stock currently exists and an active trading market may not develop or be sustained after the Spin-Off. Following the Spin-Off, our stock price may fluctuate significantly, and there can be no assurance that the combined trading prices of our and IBM’s common stock would exceed the trading price of IBM common stock absent the Spin-Off.
There is currently no public market for our common stock. In connection with the Spin-Off, we have been approved to list our common stock on the New York Stock Exchange . We anticipate that before the Distribution Date, trading of shares of our common stock will begin on a “when-issued” basis and this trading will continue through the Distribution Date. However, an active trading market for our common stock may not develop as a result of the Spin-Off or may not be sustained in the future. The lack of an active market may make it more difficult for stockholders to sell our shares and could lead to our share price being depressed or volatile.
Although the Spin-Off is expected to increase the aggregate trading price of the common stock of IBM and Kyndryl above what the trading price of IBM common stock would have had if it had continued to represent an interest in both the businesses, we cannot predict the prices at which our common stock may trade after the Spin-Off or whether the combined trading prices of a share of our common stock and a
 
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share of IBM’s common stock will be less than, equal to or greater than the trading price of a share of IBM common stock prior to the Spin-Off. The market price of our common stock may fluctuate widely, depending on many factors, some of which may be beyond our control.
Furthermore, our business profile and market capitalization may not fit the investment objectives of some IBM stockholders and, as a result, these IBM stockholders may sell their shares of our common stock after the Distribution. See “— Substantial sales of our common stock may occur in connection with the Spin-Off, or in the future, including the disposition by IBM of our shares of common stock that it may retain after the Distribution either of which could cause our stock price to decline.” Low trading volume for our stock, which may occur if an active trading market does not develop, among other reasons, would amplify the effect of the above factors on our stock price volatility. Should the market price of our shares drop significantly, stockholders may institute securities class action lawsuits against us. A lawsuit against us could cause us to incur substantial costs and could divert the time and attention of our management and other resources.
Substantial sales of our common stock may occur in connection with the Spin-Off, or in the future, including the disposition by IBM of our shares of common stock that it may retain after the Distribution, either of which could cause our stock price to decline.
Immediately following the Distribution, IBM will own 19.9% of the economic interest and voting power of our outstanding common stock. We understand that IBM currently intends to dispose of all of our common stock that it retains after the Distribution through one or more subsequent exchanges of our common stock for IBM debt held by one or more investment banks or, if market and general economic conditions and sound business judgment do not support such exchanges during the 12-month period following the Distribution, IBM may dispose of such common stock (i) through distributions to IBM stockholders as dividends or in exchange for outstanding shares of IBM common stock, in each case during the 12-month period following the Distribution or (ii) in one or more public or private sale transactions (including potentially through secondary transactions) as soon as practicable, taking into account market and general economic conditions and sound business judgment, but in no event later than five years after the Distribution. Prior to the Distribution, we will enter into a stockholder and registration rights agreement under which we will agree, upon the request of IBM, to use our reasonable best efforts to effect a registration under applicable federal and state securities laws of any shares of our common stock retained by IBM, to facilitate IBM’s disposition of our common stock. See “Certain Relationships and Related Party Transactions — Agreements with IBM — Stockholder and Registration Rights Agreement.”
Further, IBM stockholders receiving shares of our common stock in the Distribution generally may sell those shares immediately in the public market. It is likely that some IBM stockholders, including some of its larger stockholders, will sell their shares of our common stock received in the Distribution if, for reasons such as our business profile or market capitalization as an independent company, we do not fit their investment objectives, or, in the case of index funds, we are not a participant in the index in which they are investing. The sales of significant amounts of our common stock or the perception in the market that such sales might occur may decrease the market price of our common stock.
We cannot guarantee the timing, amount or payment of dividends on our common stock.
Following the Spin-Off, the initial combined dividend level of Kyndryl and IBM is expected to be no less than IBM’s pre-spin dividend per share. The timing, declaration, amount and payment of future dividends to stockholders will fall within the discretion of our Board. The Board’s decisions regarding the payment of dividends will depend on consideration of many factors, such as our financial condition, earnings, sufficiency of distributable reserves, opportunities to retain future earnings for use in the operation of our business and to fund future growth, capital requirements, covenants associated with certain debt service obligations, legal requirements, regulatory constraints and other factors that the Board deems relevant. For more information, see “Dividend Policy.” There can be no assurance that we will pay our anticipated dividend in the same amount, frequency or at all in the future.
Holders of our common stock may be diluted due to future equity issuances.
In the future, holders of our common stock may be diluted because of equity issuances for acquisitions, capital market transactions or otherwise, including any equity awards that we will grant to our directors,
 
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officers and employees. Our employees will have stock-based awards that correspond to shares of our common stock after the distribution as a result of the conversion of and/or adjustments to their IBM stock-based awards. Such awards will have a dilutive effect on our earnings per share, which could adversely affect the market price of our common stock. We also plan to issue additional stock-based awards, including annual awards, new hire awards and periodic retention awards, as applicable, to our directors, officers and other employees under our employee benefits plans as part of our ongoing equity compensation program.
The rights associated with our common stock will differ from the rights associated with IBM common stock.
Upon completion of the Distribution, the rights of IBM stockholders who become our stockholders will be governed by our Amended and Restated Certificate of Incorporation and by Delaware law. The rights associated with IBM shares are different from the rights associated with our shares. In addition, the rights of IBM stockholders are governed by New York law, while the rights of our stockholders will be governed by Delaware law. Material differences between the rights of stockholders of IBM and the rights of our stockholders include differences with respect to, among other things, anti-takeover measures. See “Description of Our Capital Stock — Certain Provisions of Delaware Law, Our Amended and Restated Certificate of Incorporation and Amended and Restated By-Laws” for more information.
Certain provisions in our Amended and Restated Certificate of Incorporation and Amended and Restated By-Laws and Delaware law may discourage takeovers and limit the power of our stockholders.
Several provisions of our Amended and Restated Certificate of Incorporation, Amended and Restated By-Laws and Delaware law may discourage, delay or prevent a merger or acquisition. These include, among others, provisions that (i) provide for staggered terms for directors on our Board for a period following the Spin-Off; (ii) establish advance notice requirements for stockholder nominations and proposals; (iii) provide for the removal of directors only for cause during the time the Board is classified; (iv) limit the ability of stockholders to call special meetings or act by written consent; and (v) provide the Board the right to issue shares of preferred stock without stockholder approval. In addition, we are subject to Section 203 of the Delaware General Corporation Law (“DGCL”), which could have the effect of delaying or preventing a change of control that you may favor. See “Description of our Capital Stock” for more information.
These and other provisions of our Amended and Restated Certificate of Incorporation, Amended and Restated By-Laws and Delaware law may discourage, delay or prevent certain types of transactions involving an actual or a threatened acquisition or change in control of Kyndryl, including unsolicited takeover attempts, even though the transaction may offer our stockholders the opportunity to sell their shares of our common stock at a price above the prevailing market price. Our Board believes these provisions will protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with the Board and by providing the Board with more time to assess any acquisition proposal. These provisions will apply even if the offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that the Board determines is not in our and our stockholders’ best interests. See “Description of Our Capital Stock” for more information.
Our Amended and Restated Certificate of Incorporation will provide that certain courts in the State of Delaware or the federal district courts of the United States will be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our Amended and Restated Certificate of Incorporation will provide, in all cases to the fullest extent permitted by law, unless we consent in writing to the selection of an alternative forum, the Court of Chancery located within the State of Delaware will be the sole and exclusive forum for any derivative action or proceeding brought on behalf of us, any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee or stockholder of Kyndryl to us or our stockholders, any action asserting a claim arising pursuant to the DGCL or as to which the DGCL confers jurisdiction on the Court of Chancery located in the State of Delaware or any action asserting a claim governed by the internal affairs doctrine or any other action asserting an “internal corporate claim” as that term is defined in Section 115 of the DGCL, or any action asserting a claim arising under the DGCL, our Amended and Restated Certificate of Incorporation or our Amended and Restated By-Laws. However, if the Court of Chancery within the State
 
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of Delaware does not have jurisdiction, the action may be brought in the United States District Court for the District of Delaware. The exclusive forum provision will provide that it will not apply to claims arising under the Securities Act, the Exchange Act or other federal securities laws for which there is exclusive federal or concurrent federal and state jurisdiction. Unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act.
Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed to have notice of and, to the fullest extent permitted by law, to have consented to the provisions of our Amended and Restated Certificate of Incorporation described above. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, other employees or stockholders, which may discourage such lawsuits against us and our directors, officers, other employees or stockholders. However, the enforceability of similar forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings. If a court were to find the exclusive choice of forum provision contained in our Amended and Restated Certificate of Incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions.
 
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Information Statement may constitute “forward-looking statements” that involve risks and uncertainties. Forward-looking statements are based on our current assumptions regarding future business and financial performance. These statements by their nature address matters that are uncertain to different degrees. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Words such as “anticipates,” “believes,” “expects,” “estimates,” “intends,” “plans,” “projects,” and similar expressions, may identify such forward-looking statements. Any forward-looking statement in this Information Statement speaks only as of the date on which it is made. Although we believe that the forward-looking statements contained in this Information Statement are based on reasonable assumptions, you should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those in such forward-looking statements, including but not limited to:

the failure to attract new customers, retain existing customers or make sales of additional services to customers;

technological developments and the speed by which we respond to them;

the failure to meet growth and productivity objectives;

competition in the markets in which we operate;

our relationship with critical suppliers and partners;

our ability to attract and retain qualified personnel and other skilled employees;

local economic, political, health and other conditions due to our global presence;

a downturn in the economic environment and customer spending budgets;

damage to our reputation;

the failure to accurately estimate the cost of services and timeline for completion of contracts;

service delivery issues;

the risks from acquisitions, alliances and dispositions;

the additional requirements or approvals needed for business with government customers;

the failure to protect our intellectual property or allegations that we have infringed the intellectual property of others;

cybersecurity and privacy considerations;

tax matters;

legal proceedings and investigatory risks;

environmental matters;

the impact of the commercial and credit environment on our access capital;

changes in market liquidity conditions and customer credit risk on receivables;

a lowering or withdrawal of our credit ratings;

the impact by our pension plans;

exposure to currency risk; and

certain factors discussed elsewhere in this Information Statement.
These and other factors are more fully discussed in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections and elsewhere in this Information Statement. Those cautionary statements are not exclusive and are in addition to other factors discussed elsewhere in this Information Statement. Except as required by law, we assume no obligation to update or revise any forward-looking statements.
 
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THE SPIN-OFF
Background
On October 8, 2020, IBM announced that it intended to separate its Managed Infrastructure Services unit from its Hybrid Cloud platform and AI capabilities. To effect the separation, IBM is undertaking the Reorganization Transactions described under “Certain Relationships and Related Party Transactions —  Agreements with IBM — Separation and Distribution Agreement” and, following the Reorganization Transactions, will distribute 80.1% of the outstanding shares of our common stock to holders of IBM’s common stock on a pro rata basis. IBM will retain 19.9% of our outstanding shares of common stock following the Distribution. Prior to completing the Distribution, IBM may adjust the percentage of our common stock to be distributed to IBM stockholders and retained by IBM in response to market and other factors, and we will amend this Information Statement to reflect any such adjustment.
On October 10, 2021, the IBM Board approved the distribution of 80.1% of the issued and outstanding shares of our common stock, on the basis of one share of our common stock for every five shares of IBM common stock held as of the close of business on the record date of October 25, 2021.
On November 3, 2021, the Distribution Date, each IBM stockholder will receive one share of our common stock for every five shares of IBM common stock held at close of business on the record date. Following the Spin-Off, we will operate independently from IBM. No approval of IBM’s stockholders is required in connection with the Spin-Off, and IBM’s stockholders will not have any appraisal rights in connection with the Spin-Off.
Completion of the Spin-Off is subject to the satisfaction, or the IBM Board’s waiver, to the extent permitted by law, of a number of conditions. In addition, IBM may at any time until the Distribution decide to abandon the Distribution or modify or change the terms of the Distribution. For a more detailed discussion, see “— Conditions to the Spin-Off.”
Reasons for the Spin-Off
The IBM Board has reviewed various factors, including the company’s portfolio and capital allocation options with the goal of enhancing long-term stockholder value and determined that the Spin-Off is in the best interests of IBM and its stockholders. The potential benefits considered by the IBM Board in making the determination to consummate the Spin-Off include the following:

Greater Focus and Enhanced Operational Agility: The Spin-Off will permit both us and IBM and their management teams to more effectively focus on pursuing their own distinct operating priorities and strategies. IBM will focus on its open hybrid cloud platform and AI capabilities, and we will have greater agility to design, run and modernize the technology environments of some of the world’s most important organizations. This will enable each company to better serve and adapt faster to clients’ changing needs.

Strong Financial Profile to Support Growth: The Spin-Off will enable each business to be positioned as a global leader in its industry with investment grade credit ratings and strong financial characteristics to independently drive growth and investment to better address specific market dynamics and target innovation.

Value Creation: The Spin-Off is expected to increase the aggregate trading price of the stock of IBM and Kyndryl above the trading price that the stock of IBM would have had if it had continued to represent an interest in both the businesses, so as to: (i) allow each company to use its stock to pursue and achieve strategic objectives including evaluating and effectuating acquisitions, and (ii) increase the long-term attractiveness of equity compensation programs in a significantly more efficient and effective manner with significantly less dilution to existing stockholders.

Alignment of Incentives with Performance: The Spin-Off will enable each company to create incentives for its management and employees that align more closely with business performance and the interests of their respective stockholders, which is also expected to help each company attract, retain and motivate highly qualified personnel.
 
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Broadening of Investor Base: The Spin-Off allows each company to articulate a clear investment proposition and tailored capital allocation policy to attract a long-term investor base best suited to its business needs.
The IBM Board of Directors also considered some factors that may be adverse to us, including any one-time costs and dissynergies associated with separation, and the possibility of disruptions to the business as a result of the Spin-Off. Notwithstanding these costs and risks, IBM determined that the Spin-Off provided the best opportunity to achieve the above benefits and enhance long-term stockholder value. Please refer to the “Risk Factors — Risks Relating to the Spin-Off” elsewhere in this Information Statement for additional considerations.
IBM’s Retention of Shares of Our Common Stock
IBM’s plan to transfer less than all of our common stock to its stockholders in the Distribution is motivated by its desire to establish, in an efficient and non-taxable, cost-effective manner, an appropriate capital structure for each of us and IBM, including by reducing, directly or indirectly, IBM’s indebtedness during the 12-month period following the Distribution. We understand that IBM currently intends to dispose of all of our common stock that it retains after the Distribution through one or more subsequent exchanges of our common stock for IBM debt held by one or more investment banks or, if market and general economic conditions and sound business judgment do not support such exchanges during the 12-month period following the Distribution, IBM may dispose of such common stock (i) through distributions to IBM stockholders as dividends or in exchange for outstanding shares of IBM common stock, in each case during the 12-month period following the Distribution or (ii) in one or more public or private sale transactions (including potentially through secondary transactions) as soon as practicable, taking into account market and general economic conditions and sound business judgment, but in no event later than five years after the Distribution.
When and How You Will Receive Our Shares
IBM will distribute to its stockholders, as a pro rata dividend, one share of our common stock for every five shares of IBM common stock outstanding as of October 25, 2021, the Record Date of the Distribution.
Prior to the Distribution, IBM will deliver 80.1% of the issued and outstanding shares of our common stock to the distribution agent. Computershare Trust Company, N.A. will serve as distribution agent in connection with the Distribution and as transfer agent and registrar for our common stock.
If you own IBM common stock as of the close of business on October 25, 2021, the shares of our common stock that you are entitled to receive in the Distribution will be issued to your account as follows:

Registered stockholders. If you own your shares of IBM common stock directly through IBM’s transfer agent, you are a registered stockholder. In this case, the distribution agent will credit the whole shares of our common stock you receive in the Distribution by way of direct registration in book-entry form to a new account with our transfer agent. Registration in book-entry form refers to a method of recording share ownership where no physical stock certificates are issued to stockholders, as is the case in the Distribution. You will be able to access information regarding your book-entry account for our shares at kyndryl@computershare.com or by calling (833) 981-5963 or (781) 575-4557 (non-U.S.).
Commencing on or shortly after the Distribution Date, the distribution agent will mail to you an account statement that indicates the number of whole shares of our common stock that have been registered in book-entry form in your name. We expect it will take the distribution agent up to two weeks after the Distribution Date to complete the distribution of the shares of our common stock and mail statements of holding to all registered stockholders.

“Street name” or beneficial stockholders. If you own your shares of IBM common stock beneficially through a bank, broker or other nominee, the bank, broker or other nominee holds the shares in “street name” and records your ownership on its books. In this case, your bank, broker or other nominee will credit your account with the whole shares of our common stock that you receive in the
 
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Distribution on or shortly after the Distribution Date. We encourage you to contact your bank, broker or other nominee if you have any questions concerning the mechanics of having shares held in “street name.”
If you sell any of your shares of IBM common stock on or before the Distribution Date, the buyer of those shares may in some circumstances be entitled to receive the shares of our common stock to be distributed in respect of the IBM shares you sold. See “— Trading Prior to the Distribution Date” for more information.
We are not asking IBM stockholders to take any action in connection with the Spin-Off. We are not asking you for a proxy and request that you not send us a proxy. We are also not asking you to make any payment or surrender or exchange any of your shares of IBM common stock for shares of our common stock. The number of outstanding shares of IBM common stock will not change as a result of the Spin-Off.
Number of Shares You Will Receive
On the Distribution Date, you will be entitled to receive one share of our common stock for every five shares of IBM common stock that you hold on the record date.
Treatment of Fractional Shares
The distribution agent will not distribute any fractional shares of our common stock in connection with the Spin-Off. Instead, the distribution agent will aggregate all fractional shares into whole shares and sell the whole shares in the open market at prevailing market prices on behalf of IBM stockholders entitled to receive a fractional share. The distribution agent will then distribute the aggregate cash proceeds of the sales, net of brokerage fees, transfer taxes and other costs, pro rata to these holders (net of any required withholding for taxes applicable to each holder). We anticipate that the distribution agent will make these sales in the “when-issued” market, and “when-issued” trades will generally settle within two trading days following the Distribution Date. See “— Trading Prior to the Distribution Date” for additional information regarding “when-issued” trading. The distribution agent will, in its sole discretion, without any influence by IBM or us, determine when, how, through which broker-dealer and at what price to sell the whole shares. The distribution agent is not, and any broker-dealer used by the distribution agent will not be, an affiliate of either IBM or us.
The distribution agent will send to each registered holder of IBM common stock entitled to a fractional share a check in the cash amount deliverable in lieu of that holder’s fractional share as soon as practicable following the Distribution Date. We expect the distribution agent to take about two weeks after the Distribution Date to complete the distribution of cash in lieu of fractional shares to IBM stockholders. If you hold your shares through a bank, broker or other nominee, your bank, broker or nominee will receive, on your behalf, your pro rata share of the aggregate net cash proceeds of the sales. No interest will be paid on any cash you receive in lieu of a fractional share. The cash you receive in lieu of a fractional share will generally be taxable to you for U.S. federal income tax purposes. See “Material U.S. Federal Income Tax Consequences of the Spin-Off” for more information.
Incurrence of Debt
In connection with the Spin-Off, we priced $2.4 billion in aggregate principal amount of senior unsecured notes with closing expected to occur on October 15, 2021, subject to customary closing conditions. In addition, we expect to incur additional indebtedness in an aggregate principal amount of approximately $0.5 billion of term loans. Approximately $0.9 billion of the net proceeds will be transferred to IBM substantially concurrently with the consummation of the Spin-Off. We also intend to enter into a senior unsecured revolving credit facility in an aggregate committed amount of $3,150 million, none of which is expected to be drawn at the closing of the Spin-Off. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Other Information — Liquidity and Capital Resources.” Our cash balance at the time of the Spin-Off will be approximately $2.0 billion.
Results of the Spin-Off
After the Spin-Off, we will be an independent, publicly traded company. Immediately following the Spin-Off, we expect to have approximately 223,920,187 shares of our common stock outstanding, based on the
 
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number of IBM shares of common stock outstanding on September 30, 2021 and the number of shares to be retained by IBM as described above. The actual number of shares of our common stock IBM will distribute in the Spin-Off will depend on the actual number of shares of IBM common stock outstanding on the Record Date, which will reflect any issuance of new shares, vesting of equity awards or exercises of outstanding options pursuant to IBM’s equity plans, and any repurchase of IBM shares by IBM under its common stock repurchase program, on or prior to the Record Date. Shares of IBM common stock held by IBM as treasury shares will not be considered outstanding for purposes of, and will not be entitled to participate in, the Distribution. The Spin-Off will not affect the number of outstanding shares of IBM common stock or any rights of IBM stockholders. However, following the Distribution, the equity value of IBM will no longer reflect the value of the Business (except to the extent of the shares of our common stock retained by IBM as described above). Although IBM believes that our separation from IBM offers its stockholders the greatest long-term value, there can be no assurance that the combined trading prices of the IBM common stock and our common stock will equal or exceed what the trading price of IBM common stock would have been in absence of the Spin-Off.
Before our separation from IBM, we intend to enter into the Separation and Distribution Agreement and several other agreements with IBM related to the Spin-Off. These agreements will govern the relationship between us and IBM up to and after completion of the Spin-Off and allocate between us and IBM various assets, liabilities, rights and obligations, including employee benefits, environmental, intellectual property and tax-related assets and liabilities. We describe these arrangements in greater detail under “Certain Relationships And Related Party Transactions — Agreements with IBM.”
Listing and Trading of Our Common Stock
As of the date of this Information Statement, we are a wholly owned subsidiary of IBM. Accordingly, no public market for our common stock currently exists, although a “when-issued” market in our common stock may develop prior to the Distribution. See “— Trading Prior to the Distribution Date” below for an explanation of a “when-issued” market. We have been approved to list our shares of common stock on the New York Stock Exchange the symbol “KD.” Following the Spin-Off, IBM common stock will continue to trade on the New York Stock Exchange under the symbol “IBM.”
Although IBM believes that our separation from IBM offers its stockholders the greatest long-term value, neither we nor IBM can assure you as to the trading price of IBM common stock or our common stock after the Spin-Off, or as to whether the combined trading prices of our common stock and the IBM common stock after the Spin-Off will equal or exceed the trading prices of IBM common stock prior to the Spin-Off. The trading price of our common stock may fluctuate significantly following the Spin-Off.
The shares of our common stock distributed to IBM stockholders will be freely transferable, except for shares received by individuals who are our affiliates. Individuals who may be considered our affiliates after the Spin-Off include individuals who control, are controlled by or are under common control with us, as those terms generally are interpreted for federal securities law purposes. These individuals may include some or all of our directors and executive officers. Individuals who are our affiliates will be permitted to sell their shares of our common stock only pursuant to an effective registration statement under the Securities Act of 1933, or the “Securities Act,” or an exemption from the registration requirements of the Securities Act, such as those afforded by Section 4(a)(1) of the Securities Act or Rule 144 thereunder.
Trading Prior to the Distribution Date
We expect a “when-issued” market in our common stock to develop as early as one trading day prior to the Record Date for the Distribution and continue up to and including the Distribution Date. “When-issued” trading refers to a sale or purchase made conditionally on or before the Distribution Date because the securities of the spun-off entity have not yet been distributed. If you own shares of IBM common stock at the close of business on the Record Date, you will be entitled to receive shares of our common stock in the Distribution. You may trade this entitlement to receive shares of our common stock, without the shares of IBM common stock you own, on the “when-issued” market. We expect “when-issued” trades of our common stock to settle within two trading days after the Distribution Date. On the first trading day following the Distribution Date, we expect that “when-issued” trading of our common stock will end and “regular-way” trading will begin.
 
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We also anticipate that, as early as one trading day prior to the Record Date and continuing up to and including the Distribution Date, there will be two markets in IBM common stock: a “regular-way” market and an “ex-distribution” market. Shares of IBM common stock that trade on the regular-way market will trade with an entitlement to receive shares of our common stock in the Distribution. Shares that trade on the ex-distribution market will trade without an entitlement to receive shares of our common stock in the Distribution. Therefore, if you sell shares of IBM common stock in the regular-way market up to and including the Distribution Date, you will be selling your right to receive shares of our common stock in the Distribution. However, if you own shares of IBM common stock at the close of business on the Record Date and sell those shares on the ex-distribution market up to and including the Distribution Date, you will still receive the shares of our common stock that you would otherwise be entitled to receive in the Distribution.
If “when-issued” trading occurs, the listing for our common stock is expected to be under a trading symbol different from our regular-way trading symbol. We will announce our “when-issued” trading symbol when and if it becomes available. If the Spin-Off does not occur, all “when-issued” trading will be null and void.
Conditions to the Spin-Off
We expect that the Spin-Off will be effective on the Distribution Date, provided that the following conditions shall have been satisfied or waived by IBM:

the IBM Board shall have approved the Distribution and not withdrawn such approval, and shall have declared the dividend of our common stock to IBM stockholders;

the Separation and Distribution Agreement, as well as the ancillary agreements contemplated by the Separation and Distribution Agreement, shall have been executed by each party to those agreements;

the Securities and Exchange Commission (the “SEC”) shall have declared effective our Registration Statement on Form 10, of which this Information Statement is a part, under the Exchange Act, and no stop order suspending the effectiveness of the Registration Statement shall be in effect and no proceedings for that purpose shall be pending before or threatened by the SEC;

our common stock shall have been accepted for listing on a national securities exchange approved by IBM, subject to official notice of issuance;

IBM shall have received the written opinion of Paul, Weiss, Rifkind, Wharton & Garrison LLP, which shall remain in full force and effect, regarding the intended treatment of the Distribution under the Code;

the Reorganization Transactions shall have been completed (other than those steps that are expressly contemplated to occur at or after the Distribution);

no order, injunction or decree issued by any governmental authority of competent jurisdiction or other legal restraint or prohibition preventing consummation of the Distribution shall be in effect, and no other event outside the control of IBM shall have occurred or failed to occur that prevents the consummation of the Distribution;

no other events or developments shall have occurred prior to the Distribution that, in the judgment of the IBM Board, would result in the Distribution having a material adverse effect on IBM or its stockholders;

prior to the Distribution Date, the Notice of Internet Availability of this Information Statement or this Information Statement shall have been mailed to the holders of IBM common stock as of the Record Date; and

certain other conditions set forth in the Separation and Distribution Agreement.
Any of the above conditions may be waived by the IBM Board to the extent such waiver is permitted by law. If the IBM Board waives any condition prior to the effectiveness of the Registration Statement on Form 10, of which this Information Statement forms a part, or change the terms of the Distribution, and the result of such waiver or change is material to IBM stockholders, we will file an amendment to the
 
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Registration Statement on Form 10, of which this Information Statement forms a part, to revise the disclosure in the Information Statement accordingly. In the event that IBM waives a condition or changes the terms of the Distribution after this Registration Statement on Form 10 becomes effective and such waiver or change is material to IBM stockholders, we would communicate such waiver or change to IBM’s stockholders by filing a Form 8-K describing the waiver or change.
The fulfillment of the above conditions will not create any obligation on IBM’s part to complete the Spin-Off. We are not aware of any material federal, foreign or state regulatory requirements with which we must comply, other than SEC rules and regulations, or any material approvals that we must obtain, other than the approval for listing of our common stock and the SEC’s declaration of the effectiveness of the Registration Statement, in connection with the Distribution. IBM may at any time until the Distribution decide to abandon the Distribution or modify or change the terms of the Distribution.
Reasons for Furnishing this Information Statement
We are furnishing this Information Statement solely to provide information to IBM’s stockholders who will receive shares of our common stock in the Distribution. You should not construe this Information Statement as an inducement or encouragement to buy, hold or sell any of our securities or any securities of IBM. We believe that the information contained in this Information Statement is accurate as of the date set forth on the cover. Changes to the information contained in this Information Statement may occur after that date, and neither we nor IBM undertakes any obligation to update the information except in the normal course of our and IBM’s public disclosure obligations and practices.
 
35

 
DIVIDEND POLICY
Following the separation, the initial combined dividend level of Kyndryl and IBM is expected to be no less than IBM’s pre-spin dividend per share. The payment of any dividends in the future, and the timing and amount thereof, is within the discretion of the Board. The Board’s decisions regarding the payment of dividends will depend on many factors, such as our financial condition, earnings, capital requirements, debt service obligations, restrictive covenants in our debt, industry practice, legal requirements, regulatory constraints and other factors that the Board deems relevant. Our ability to pay dividends will depend on our ongoing ability to generate cash from operations and on our access to the capital markets. We cannot guarantee that we will pay a dividend in the future or continue to pay any dividends if and when we commence paying dividends.
 
36

 
CAPITALIZATION
The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2021, on a historical basis and on an as adjusted basis to give effect to the Spin-Off and the transactions related to the Spin-Off, as if they occurred on June 30, 2021. You should review the following table in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our historical Combined Financial Statements and the accompanying notes thereto and our unaudited pro forma condensed combined financial statements and the accompanying notes thereto included elsewhere in this Information Statement. See “Unaudited Pro Forma Condensed Combined Financial Statements.”
As of June 30, 2021
($ in millions)
Historical
Pro Forma
Cash and cash equivalents
$ 29 $ 2,013
Capitalization:
Indebtedness:
Revolving credit facility
$ $
Short-term debt and current portion of long-term debt
109 94
Long-term debt
285 3,143
Total indebtedness
$ 394 $ 3,237
Equity:
Net Parent investment
$ 5,985 $
Common Stock
2
Additional paid-in-capital
5,203
Accumulated other comprehensive income/(loss)
(1,163) (1,572)
Noncontrolling interests
53 33
Total Parent invested equity
$ 4,875 $ 3,666
Total capitalization
$ 5,269 $ 6,903
 
37

 
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Our unaudited pro forma condensed combined financial statements consist of an unaudited Pro Forma Condensed Combined Income Statement for the six months ended June 30, 2021 and the year ended December 31, 2020, and an unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2021.
The following unaudited pro forma condensed combined financial statements give effect to the separation and related adjustments in accordance with Article 11 of the Securities and Exchange Commission’s Regulation S-X. In May 2020, the SEC adopted Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses,” or the Final Rule. The Final Rule became effective on January 1, 2021 and the unaudited pro forma condensed combined financial information herein is presented in accordance therewith.
The unaudited pro forma condensed combined financial statements presented below have been derived from our historical unaudited Combined Income Statement for the six months ended June 30, 2021, our historical audited Combined Income Statement for the year ended December 31, 2020 and the historical unaudited Combined Balance Sheet at June 30, 2021. The unaudited Pro Forma Condensed Combined Balance Sheet gives effect to the separation and related transactions described below as if they had occurred on June 30, 2021. The pro forma adjustments to the unaudited Pro Forma Condensed Combined Income Statement for the six months ended June 30, 2021 and the year ended December 31, 2020 assume that the separation and related transactions occurred as of January 1, 2020.
The unaudited pro forma condensed combined financial statements have been prepared to include transaction accounting, autonomous entity and other transaction adjustments to reflect the financial condition and results of operations as if we were a separate stand-alone entity. In addition, we have provided a presentation of adjustments on page 48 that management believes are necessary to enhance an understanding of the pro forma effects of the transaction.
The Company has historically assigned receivables with extended payment terms to IBM’s Global Financing business. The Company will not retain these receivables in the Spin-Off. In addition, following the Spin-Off, it intends to enter into an agreement with a third-party financial institution to sell these receivables. As a result, both the historical financial statements and pro forma adjustments exclude such receivables. The average annual amount of receivables assigned, and therefore not reflected in the balance sheet, was approximately $3.0 billion. Fees and the net gains and losses associated with the assignment of receivables were not material in any of the periods.
The net loss of ($531) million and ($2,091) million for the six months ended June 30, 2021 and the year ended December 31, 2020, respectively, in our unaudited Pro Forma Condensed Combined Income Statements includes $237 million and $836 million for the six months ended June 30, 2021 and the year ended December 31, 2020, respectively, of certain transaction costs resulting from the Spin-Off. These costs include actual expenses incurred through June 30, 2021 included in our historical financial results and estimates for additional costs we expect to incur between June 30, 2021 and eighteen months after the Spin-Off. These costs primarily relate to legal, audit and advisory fees, system implementation costs, business separation and applicable employee retention fees and direct taxes from internal restructuring transactions. Actual transaction costs incurred may differ from the estimates.
The unaudited pro forma condensed combined financial information is for informational purposes only and does not purport to represent what our financial position and results of operations actually would have been had the separation and distribution occurred on the dates indicated, or to project our financial performance for any future period. Our historical combined financial statements have been derived from IBM’s historical accounting records and reflect certain allocation of expenses. All of the allocations and estimates in such financial statements are based on assumptions that management believes are reasonable. Our historical combined financial statements do not necessarily represent our financial position or results of operations had we been operated as a standalone company during the periods or at the dates presented. As a result, autonomous entity adjustments have been reflected in the unaudited pro forma condensed combined financial information and management adjustments are presented for additional information.
 
38

 
The unaudited pro forma condensed combined financial information reported below should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the historical combined financial statements and the corresponding notes included elsewhere in this Information Statement.
Within the financial statements and tables presented, certain columns and rows may not add due to the use of rounded numbers for disclosure purposes.
 
39

 
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE SIX MONTHS ENDED JUNE 30, 2021
($ in millions except per share amounts)
Historical
Transaction
Accounting
Adjustments
Notes
Autonomous
Entity
Adjustments
Notes
Other
Transaction
Adjustments
(Note w)
Pro
Forma
Revenues
$ 9,523 $ 166
(b,n)
$ $ (274) $ 9,415
Cost of services
$ 8,545 $ 2
(b,n,o)
$ (221)
(s)
$ (250) $ 8,076
Selling, general and administrative
1,567 7
(b,n,o)
36
(t)
(1) 1,609
Workforce rebalancing charges
41 41
Research, development and engineering
29 5
(u)
34
Interest expense
29 39
(j)
68
Other (income) and expense
34 13
(g)
47
Total costs and expenses
$ 10,245 $ 60 $ (180) $ (250) $ 9,875
Income/(loss) before income taxes
$ (722) $ 106 $ 180 $ (24) $ (460)
Provision for income taxes
$ 165 $ 47
(p)
$ (134)
(v)
$ (7) $ 71
Net income/(loss) (Note x)
$ (887) $ 59 $ 314 $ (17) $ (531)
Earnings/(loss) per share of common stock (Note y)
Assuming dilution
$ (2.38)
Basic
$ (2.38)
Weighted-average number of common shares outstanding (Note y)
Assuming dilution
223,305,111
Basic
223,305,111
See accompanying notes to the unaudited pro forma condensed combined financial statements.
 
40

 
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2020
($ in millions except per share amounts)
Historical
Transaction
Accounting
Adjustments
Notes
Autonomous
Entity
Adjustments
Notes
Other
Transaction
Adjustments
(Note w)
Pro
Forma
Revenues
$ 19,352 $ 288
(b,n)
$ $ (544) $ 19,096
Cost of services
$ 17,143 $ 229
(b,n,o)
$ (501)
(s)
$ (490) $ 16,380
Selling, general and administrative
2,893 357
(b,n,o)
73
(t)
(2) 3,321
Workforce rebalancing charges
918 12
(b,o)
930
Research, development and engineering
76 10
(u)
86
Interest expense
63 77
(j)
140
Other (income) and expense
25 34
(g)
59
Total costs and expenses
$ 21,118 $ 709 $ (418) $ (492) $ 20,916
Income/(loss) before income taxes
$ (1,766) $ (421) $ 418 $ (51) $ (1,820)
Provision for income taxes
$ 246 $ 255
(p)
$ (214)
(v)
$ (15) $ 271
Net income/(loss) (Note x)
$ (2,011) $ (676) $ 633 $ (36) $ (2,091)
Earnings/(loss) per share of common stock (Note y)
Assuming dilution
$ (9.41)
Basic
$ (9.41)
Weighted-average number of common shares outstanding (Note y)
Assuming dilution
222,309,283
Basic
222,309,283
See accompanying notes to the unaudited pro forma condensed combined financial statements.
 
41

 
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AT JUNE 30, 2021
($ in millions)
Historical
Transaction
Accounting
Adjustments
Notes
Autonomous
Entity
Adjustments
Notes
Other
Transaction
Adjustments
(Note w)
Pro
Forma
Assets:
Current assets:
Cash and cash equivalents
$ 29 $ 1,984
(a)
$ $ $ 2,013
Restricted cash
14 14
Notes and accounts receivable – net
1,614 (14)
(b)
(49) 1,551
Deferred costs
1,259 (55)
(b)
(64) 1,140
Prepaid expenses and other current assets
199 85
(c)
(2) 282
Total current assets
$ 3,115 $ 2,000 $ $ (116) $ 4,999
Property and equipment – net
$ 3,632 $ (173)
(b,d)
$ $ (169) $ 3,290
Operating right-of-use assets – net
1,125 (29)
(b)
372
(q)
1,469
Deferred costs
1,420 (128)
(b)
(53) 1,239
Deferred taxes
434 725
(e)
6
(r)
(8) 1,156
Goodwill
1,206 1,206
Intangible assets – net
56 56
Other assets
78 304
(f,g)
382
Total assets
$ 11,066 $ 2,699 $ 379 $ (346) $ 13,798
Liabilities and equity:
Current liabilities:
Short-term debt
$ 109 $ $ $ (15) $ 94
Accounts payable
803 (28)
(b)
(18) 757
Compensation and benefits
393 136
(g,h)
(4) 525
Deferred income
939 (136) 802
Operating lease liabilities
333 (8)
(b)
85
(q)
411
Accrued contract costs
489 (12)
(b)
(79) 397
Other accrued expenses and liabilities
686 (143)
(b,c,i)
543
Total current liabilities
$ 3,752 $ (56) $ 85 $ (252) $ 3,529
Long-term debt
$ 285 $ 2,884
(j)
$ $ (26) $ 3,143
Retirement and nonpension postretirement
benefit
obligations
516 581
(b,g)
1,098
Deferred income
554 (4) 550
Operating lease liabilities
805 (20)
(b)
303
(q)
1,087
Other liabilities
278 403
(c,e,h,i)
43
(r)
724
Total liabilities
$ 6,190 $ 3,792 $ 431 $ (282) $ 10,132
Commitments and contingencies
Equity:
Net Parent investment
$ 5,985 $ (5,985)
(k)
$ $ $
Common Stock, $0.01 par value
2
(l)
2
Additional paid-in capital
5,299
(m)
(52)
(q,r)
(43) 5,203
Accumulated other comprehensive
income/(loss)
(1,163) (409)
(g)
(1,572)
Noncontrolling interest
53 (21) 33
Total equity
$ 4,875 $ (1,093) $ (52) $ (64) $ 3,666
Total liabilities and equity
$ 11,066 $ 2,699 $ 379 $ (346) $ 13,798
See accompanying notes to the unaudited pro forma condensed combined financial statements.
 
42

 
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Transaction Accounting Adjustments:
(a)
Reflects $2.9 billion of borrowings expected to be incurred in connection with the Spin-Off, net of approximately $0.9 billion expected to be distributed to IBM and an estimated $16 million of debt issuance costs. See note (j) below.
(b)
Reflects the impact of removing from our combined historical results of operations and balance sheet a joint venture relationship, that was historically managed by us and included in our combined historical financial results that will not be transferred to us as part of the Spin-Off. The pro forma adjustments are summarized below:
($ in millions)
Notes and accounts receivable
$ (14)
Deferred costs - current
(55)
Property and equipment
(81)
Operating right-of-use assets
(29)
Deferred costs - non current
(128)
Accounts payable
(28)
Operating lease liabilities - current
(8)
Accrued contract costs
(12)
Other accrued expenses and liabilities
(15)
Retirement and nonpension postretirement benefit obligations
(30)
Operating lease liabilities - non current
(20)
($ in millions)
Six Months
Ended
June 30, 2021
Year Ended
December 31, 2020
Revenue
$ (189) $ (373)
Cost of services
(215) (389)
Selling, general and administrative
(4) (11)
Workforce rebalancing charges
(34)
Total pre-tax income
$ 30 $ 61
(c)
The majority of the prepaid taxes relate to Kyndryl’s share of prepaid taxes for entities transferring to the Kyndryl group.
Kyndryl has estimated approximately $25 million due from IBM related to IBM’s share of income taxes for the pre-spin period for which Kyndryl has an associated liability.
Kyndryl may realize tax benefits in the future from pre-spin taxes. These tax benefits are estimated at $450 million and have been primarily recognized as Deferred Tax Assets on the Balance Sheet. Under the terms of the Tax Matters Agreement, these tax benefits may need to be reimbursed to IBM. Kyndryl has currently estimated this liability to be approximately $450 million and has recorded this amount in Other Liabilities. This amount is an estimate, and the final liability is likely to be different.
(d)
Reflects the impact of property and equipment directly attributable to Kyndryl that will not be transferred from IBM to Kyndryl in connection with the Spin-Off. This $92 million adjustment is primarily driven by owned buildings that will be retained by IBM. Going forward, we will enter into new leasing agreements with IBM for these buildings prior to the Spin-Off. See note (q) below.
(e)
The tax effects of the pro forma adjustments at the applicable statutory income tax rates include $725 million in deferred taxes and ($77) million in Other liabilities. The majority of the deferred tax impact reflected herein relates to tax basis in Kyndryl assets including the anticipated step ups in tax basis
 
43

 
Kyndryl expects to receive as a result of the separation transactions. For the most part, the tax basis step ups are based on the valuation of related assets and liabilities, which have not yet been completed. We expect to finalize such valuations after completion of the transactions. In addition, this adjustment includes the deferred tax impact related to additional retirement and nonpension postretirement benefit plan assets and obligations that will be transferred to Kyndryl prior to completion of the Spin-Off described in note (g) below.
(f)
Reflects an agreement under which IBM will commit to provide Kyndryl with approximately $265 million of upgraded hardware at no cost over an expected two-year period following completion of the Spin-Off. The expected average useful life of the upgraded hardware is approximately 5 years and the Company intends to recognize total depreciation approximating $265 million over the useful life, consistent with our depreciation policy. No associated income statement adjustment to reflect an increase in depreciation has been made as the timing of the receipt of the new hardware could not be reasonably estimated and the expected impact in the periods presented was not deemed material.
(g)
Reflects additional retirement and nonpension postretirement benefit plan assets and obligations that will be transferred to Kyndryl prior to completion of the Spin-Off including prepaid pension assets of $39 million, current liabilities — compensation and benefits of $38 million and noncurrent liabilities — compensation and benefits of $611 million. The assets and obligations associated with such plans resulted in recognizing accumulated other comprehensive loss of $409 million, net of tax at June 30, 2021 and an adjustment to other (income) and expense associated with the plan of $13 million and $34 million for the six months ended June 30, 2021 and the year ended December 31, 2020, respectively. These additional plans are excluded from our historical Combined Balance Sheets as Kyndryl was not the plan sponsor for the related benefit plans. Certain benefit plan expenses associated with these additional plans are included in our historical Combined Income Statements.
(h)
Reflects $98 million of current and $34 million of non-current accrued liabilities for retention bonuses related to the Spin-Off estimated to be accrued between June 30, 2021 and the Spin-Off. The income statement impact has been reflected in the unaudited Pro Forma Condensed Combined Income Statement for the year ended December 31, 2020. See note (o) below.
(i)
Reflects $153 million of current and $4 million of non-current accrued restructuring liabilities that will be retained by IBM for former and current Kyndryl employees pursuant to the terms in our local transfer agreements in certain countries.
(j)
Reflects indebtedness of approximately $2.9 billion, consisting of expected term loans and senior notes with maturities ranging from three years to twenty years and an average interest rate of approximately 2.5%, which are expected to be issued in connection with the Spin-Off, and related debt issuance costs of $16 million. Taking into account the current strategic view of Kyndryl’s required capital structure and related working capital needs, it is estimated that we will distribute approximately $0.9 billion of the proceeds received from the issuance of debt to IBM in connection with the Spin-Off with the remaining proceeds to be held by the Company in cash equivalent investments. The value and terms of such indebtedness and related capital structure requirements of Kyndryl remain under continuing strategic review, which will be finalized prior to the Spin-Off.
We also expect to enter into a revolving credit facility, however, the facility is not expected to be utilized at the closing of the Spin-Off.
The unaudited Pro Forma Condensed Combined Income Statement adjustments reflect estimated interest expense related to the debt issuances and amortization of deferred issuance costs. Interest expense was calculated assuming constant debt levels throughout the periods. A 0.125 percent change to the annual interest rate would change interest expense by approximately $2 million and $4 million for the six months ended June 30, 2021 and the year ended December 31, 2020, respectively.
($ in millions)
Six Months
Ended
June 30, 2021
Year Ended
December 31, 2020
Interest expense on debt
$ 38 $ 75
Amortization of issuance costs
1 2
Total pro forma adjustment to interest expense
$ 39 $ 77
 
44

 
(k)
Represents the reclassification of IBM’s net investment in our company to additional paid-in capital.
(l)
Reflects the issuance of 223,920,187 shares of our common stock with a par value of $0.01 per share pursuant to the Separation and Distribution Agreement. We have assumed the number of outstanding shares of our common stock based on 896,800,350 shares of IBM common stock outstanding on September 30, 2021, and assuming a distribution of 80.1% of our common stock to IBM's stockholders and a distribution ratio of one share of our common stock for every five shares of IBM common stock. The actual number of shares issued will not be known until the record date for the distribution. We expect 19.9% of our common stock will continue to be owned by IBM.
(m)
The additional paid-in capital adjustments are summarized below:
($ in millions)
Cash payment to IBM(a)
$ (900)
Joint venture retained by IBM(b)
(192)
Indemnification receivables and payables with IBM(c)
(425)
Prepaid taxes / taxes payable(c)
35
Property and equipment(d)
(92)
Deferred taxes(e)
802
Upgraded hardware(f)
265
Retirement and nonpension postretirement benefit plans(g)
(202)
Retention accruals(h)
(132)
Restructuring accruals(i)
157
Net parent investment(k)
5,985
Common stock issuance(l)
(2)
Total adjustment
$ 5,299
(n)
Reflects the net impact of incremental customer contracts and services offerings being transferred to Kyndryl from IBM that were not historically managed by Kyndryl and specific customer contracts being retained by IBM. The pro forma adjustments are summarized below:
($ in millions)
Six Months
Ended
June 30, 2021
Year Ended
December 31, 2020
Revenue
$ 355 $ 660
Cost of services
213 397
Selling, general and administrative
9 19
Total pre-tax income
$ 133 $ 244
(o)
All transaction costs incurred in 2020 and the first half of 2021 related to the Spin-Off are included in our historical combined financial statements. The pro forma adjustments for the year ended December 31, 2020 include estimates for additional charges we expect to incur between June 30, 2021 and twelve months after the Spin-Off and the adjustments for the six months ended June 30, 2021 include estimates for additional charges we expect to incur in the first half of the second year after the Spin-Off. For the year ended December 31, 2020, we recorded an adjustment of $615 million which consisted of $271 million of estimated employee retention and separation charges, $271 million of estimated system implementation and other business separation charges, and $73 million of estimated third-party legal, audit and advisory fees. For the six months ended June 30, 2021, we recorded an adjustment of $6 million for estimated employee retention. The year ended December 31, 2020 adjustment includes estimated non-recurring expenses of $427 million with no related tax effect due to the valuation allowances discussed in note (p) below. Actual amounts may differ from these estimates. The pro forma adjustments are summarized below:
 
45

 
($ in millions)
Six Months
Ended
June 30, 2021
Year Ended
December 31, 2020
Cost of services
$ 4 $ 221
Selling, general and administrative
2 349
Workforce rebalancing charges
46
Total adjustment
$ 6 $ 615
(p)
Reflects $47 million and $255 million for the six months ended June 30, 2021 and for the year ended December 31, 2020, respectively, of the income tax effects of pro forma adjustments, inclusive of Kyndryl’s anticipated transfer pricing policies. This adjustment was determined by applying the respective statutory tax rates to pre-tax pro forma adjustments in jurisdictions where valuation allowances were not required. The amount for the year ended December 31, 2020 also includes $200 million of non-recurring tax impacts of internal restructuring transactions which will be completed prior to the Spin-Off. These internal restructuring transactions will include taxable and non-taxable transfers to establish the Kyndryl legal entity structure which will ultimately be separated from IBM. The tax impact of these transactions is based on estimated amounts since the valuation of assets and liabilities has not been completed and hence subject to change. Due to the complexities involved, the tax impact could increase or decrease materially. Kyndryl’s post-separation income taxes will be impacted by many factors, including the profitability in local jurisdictions and the legal entity structure implemented subsequent to separation, and may be materially different from the pro forma results.
Autonomous Entity Adjustments:
(q)
Reflects the net impact of lease arrangements with third parties and lease and sub-lease arrangements with IBM for corporate offices and data centers that have been entered into or will be entered into prior to the Spin-Off. These adjustments record the operating right-of-use assets and related operating lease liabilities based on the estimated present value of the lease payments over the lease term. There is no income statement impact as lease expense is expected to be consistent with facilities charges included in our historical Combined Income Statements. The pro forma adjustments are summarized below:
($ in millions)
Operating
Right-of-Use
Assets
Current
Operating Lease
Liabilities
Non-Current
Operating Lease
Liabilities
Operating leases with third parties
$ 121 $ 29 $ 101
Operating leases and sub-leases with IBM
251 56 201
Total adjustment
$ 372 $ 85 $ 303
(r)
Reflects the tax effects of the pro forma adjustments at the applicable statutory income tax rates. The majority of the deferred tax impact reflected herein relates to reversal of hypothetical tax balances calculated on a separate return basis in the combined financial statements that will not be transferred to Kyndryl, including removal of hypothetical net operating losses, tax credits, and valuation allowances. In addition, this adjustment also includes the deferred tax impact of new lease arrangements discussed in note (q) above.
(s)
Reflects the effect of agreements that Kyndryl and IBM have entered into or will enter into prior to the Spin-Off. The net reduction to cost of $221 million and $501 million for the six months ended June 30, 2021 and for the year ended December 31, 2020, respectively, reflects the impacts of the new commercial pricing in these arrangements applied to historical purchases of goods and services from IBM.
(t)
Reflects $36 million and $73 million for the six months ended June 30, 2021 and for the year ended December 31, 2020, respectively, of certain transition services costs associated with the Transition Services Agreement (TSA) we intend to enter into with IBM. The costs are primarily associated with information technology services.
(u)
Reflects $5 million and $10 million for the six months ended June 30, 2021 and for the year ended December 31, 2020, respectively, of estimated research, development and engineering expense associated with the research master collaboration agreement that Kyndryl and IBM intend to enter into for future joint research projects between Kyndryl and IBM’s Research Division.
 
46

 
(v)
Reflects ($134) million and ($214) million for the six months ended June 30, 2021 and for the year ended December 31, 2020, respectively, of the income tax pro forma adjustments. This adjustment was determined by applying the respective statutory tax rates to pre-tax pro forma adjustments in jurisdictions where valuation allowances were not required. Additionally, the tax effects relate to the impacts of Kyndryl’s anticipated transfer pricing policies. Kyndryl’s post-separation income taxes will be impacted by many factors, including the profitability in local jurisdictions and the legal entity structure implemented subsequent to separation, and may be materially different from the pro forma results.
Other Transaction Adjustments:
(w)
Reflects the mutual agreement between IBM and a client of the infrastructure services business to dissolve their joint venture relationship, that was historically managed by us, which will be accelerated to become effective at the date of Spin-Off and does not take into account any anticipated post-spin client contractual relationships with us. The adjustment reflects the removal of the assets and liabilities of this joint venture as of June 30, 2021 that will not be transferred to Kyndryl and the removal of the revenue, cost and expense, including the related income taxes, from this joint venture relationship for the six months ended June 30, 2021 and for the year ended December 31, 2020. Going forward, we expect the client will develop separate, unique contractual relationships with IBM and Kyndryl, directly.
Net Income/(Loss):
(x)
Pro Forma Net Loss of ($531) million and ($2,091) million for the six months ended June 30, 2021 and the year ended December 31, 2020, respectively, includes transaction costs resulting from the Spin-Off of ($237) million and ($836) million for the six months ended June 30, 2021 and the year ended December 31, 2020, respectively. These costs include actual expenses incurred through June 30, 2021 included in our historical financial results and estimates for additional costs we expect to incur between June 30, 2021 and eighteen months after the Spin-Off. These costs primarily relate to legal, audit and advisory fees, system implementation costs, business separation and applicable employee retention fees and direct taxes from internal restructuring transactions. Actual transaction costs incurred may differ from the estimates.
Earnings (Loss) Per Share:
(y)
The weighted-average number of shares of our common stock used to compute basic earnings per share for the six months ended June 30, 2021 and the year ended December 31, 2020 is based on the number of weighted average IBM common shares outstanding during the six months ended June 30, 2021 and year ended December 31, 2020, respectively, assuming a distribution ratio of one share of our common stock for every five shares of IBM common stock and the 19.9% interest of the outstanding shares of our common stock that will be retained by IBM.
The weighted average number of shares used to compute diluted earnings per share is based on the weighted average number of basic shares of our common stock since the company had a net loss for the six months ended June 30, 2021 and the year ended December 31, 2020. The incremental shares associated with the stock-based awards granted to our employees under IBM's stock-based compensation plans were not included in the computation of earnings per share in either period since if included they would have been anti-dilutive. The actual future impact of potential dilution from stock-based awards granted to our employees under IBM equity plans will depend on various factors, including employees who may change employment from one company to another.
Management Adjustments:
We have calculated net savings related to certain expenses previously allocated from IBM. Following the Spin-Off, we expect to incur incremental costs as a separate public company in certain of our corporate support functions (e.g., finance, accounting, tax, treasury, IT, HR, legal, among others). We received the benefit of economies of scale as a business unit within IBM’s overall centralized model, however, in establishing these support functions independently, the expenses will be higher than the prior shared allocation. In the adjustments shown below, these dis-synergies, or higher costs are $161 million for the year ended December 31, 2020 and $81 million for the six months ended June 30, 2021. In addition, pursuant to the Transition
 
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Services Agreement we intend to enter into with IBM, we will incur incremental expenses primarily related to internal information technology support of $73 million for the year ended December 31, 2020 and $36 million for the six months ended June 30, 2021, respectively. The TSA is reflected in the autonomous entity adjustments and described in Note (t). In contrast, operating as a separate stand-alone company with a flatter cost structure, we anticipate synergies in the form of lower costs in other corporate support functions, such as sales, marketing, and communications and other corporate overhead, reflected below for the year ended December 31, 2020 in the amount of $752 million and $384 million for the six months ended June 30, 2021.
Each function (e.g., finance, IT, HR, etc.) performed a zero-based budget assessment of the resources and associated cost required as a baseline to stand up Kyndryl as a stand-alone company. Internal resources were matched to job roles to meet the required baseline. Any shortfall to required resource needs were filled through external hiring or will be supported by IBM through the TSAs. In addition to resources, vendor costs and other third-party spending in each function were considered and resulted in either the inclusion of new spending requirements or the cessation of certain spending (referred to as non-labor-based in the table below). These types of costs include, for example, audit fees, vendor software licensing fees, external legal fees, external advertising and marketing agency fees, etc. This process was used by all functions and certain functions had incremental costs and others had lower costs than the corporate allocations included in the historical financial statements, resulting in an overall net savings. In addition to the baseline assessment, certain other allocated charges result in synergy management adjustments, referred to below as other corporate overhead. This includes for example, interest expense that was previously allocated and other acquired intangible asset fees that will no longer be incurred. The Kyndryl legal entities were established as of September 1, 2021 and the resources were transferred to those legal entities. From a timeframe standpoint, these net cost reductions will begin to materialize at the effective date of separation. Management believes the resource transfers and costs which were used as the basis for the management adjustments below are reasonable and representative of the baseline to stand up Kyndryl as a stand-alone company. Both the resource and vendor cost baseline would be impacted by additional costs and investments that Kyndryl may incur as it pursues its growth strategies. In addition, other adverse effects and limitations including those discussed in the section entitled “Risk Factors” to this document may impact actual costs incurred.
Primarily as a result of the above items, the management adjustments presented below show a net reduction of expenses compared to the allocated expenses from IBM included in our historical Combined Income Statements. The total adjustments for the six months ended June 30, 2021 and for the year ended December 31, 2020 are ($303) million and ($591) million, respectively. However, actual expenses that will be incurred could differ materially from these estimates.
Management believes the presentation of these adjustments are necessary to enhance an understanding of the pro forma effects of the transaction. The pro forma financial information below reflects all adjustments that are, in the opinion of management necessary to provide a fair statement of the pro forma financial information, aligned with the assessment described above. If Kyndryl decides to increase or reduce resource or invest more heavily in certain areas in the future, that will be part of its future decisions and have not been included in the management adjustments below.
These management adjustments include forward-looking information that is subject to the safe harbor protections of the Exchange Act. The tax effect has been determined by applying the respective statutory tax rates to the aforementioned adjustments in jurisdictions where valuation allowances were not required.
The below table includes each category of management adjustments split between synergies and dis-synergies.
 
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For the six months ended June 30, 2021:
($ in millions except per share amounts)
Net loss
Basic and diluted
loss per share
Weighted
average shares
Pro Forma*
$ (531)    $ (2.38) 223,305,111
Management adjustments
Synergies
Corporate support functions labor-based(1)
$ 178
Corporate support functions non-labor-based(2)
60
Other corporate overhead(3)
146
Dis-synergies
Corporate support functions labor-based(4)
(41)
Corporate support functions non-labor-based(5)
(40)
Total Management adjustments
$ 303
Tax effect
0
Pro forma net loss after management’s adjustments
$ (228) $ (1.02) 223,305,111
*
As shown in the unaudited Pro Forma Condensed Combined Income Statement
(1)
Primarily sales, marketing, communications and RD&E headcount related
(2)
This includes costs such as audit fees, vendor software licensing fees, external legal fees, external advertising and marketing agency fees.
(3)
Includes interest expense (see Footnote (6) on page F-64), Acquired Intangible Asset Fee (see Footnote (12) on page F-71) and other corporate overhead synergies
(4)
Primarily finance, accounting, tax, treasury, IT, HR, legal
(5)
Primarily IT infrastructure and networking, third-party fees and software licenses
For the year ended December 31, 2020:
($ in millions except per share amounts)
Net loss
Basic and diluted
loss per share
Weighted
average shares
Pro Forma*
$ (2,091)      $ (9.41) 222,309,283
Management adjustments
Synergies
Corporate support functions labor-based(1)
$ 339
Corporate support functions non-labor-based(2)
124
Other corporate overhead(3)
289
Dis-synergies
Corporate support functions labor-based(4)
(91)
Corporate support functions non-labor-based(5)
(70)
Total Management adjustments
$ 591
Tax effect
(3)
Pro forma net loss after management’s adjustments
$ (1,503) $ (6.76) 222,309,283
*
As shown in the unaudited Pro Forma Condensed Combined Income Statement
(1)
Primarily sales, marketing, communications and RD&E headcount related
(2)
This includes costs such as audit fees, vendor software licensing fees, external legal fees, external advertising and marketing agency fees.
(3)
Includes interest expense (see Footnote (I) on page F-35), Acquired Intangible Asset Fee (see Footnote (O) on page F-49) and other corporate overhead synergies
(4)
Primarily finance, accounting, tax, treasury, IT, HR, legal
(5)
Primarily IT infrastructure and networking, third-party fees and software licenses
 
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BUSINESS
Our Company
We are 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. 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. Today, enterprises are engaged in individual and unique digital transformations to differentiate their businesses and derive value through better customer experiences. However, enterprises often face shortages in critical technical expertise to successfully make this complex change. Our purpose is therefore to design, build, and manage secure and responsive private, public, and multicloud environments to accelerate our customers’ digital transformations.
We put the customer at the center of everything we do, every day. 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 are also organized to be fast and focused, in order to respond more quickly to our customers’ needs, and our principles have led to a structure that drives accountability and responsibility to the teams that work closely with them and our partners. 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 team of skilled practitioners, consisting of approximately 90,000 professionals. Given our large and diversified customer base operates in multiple industries and geographies, we utilize a flexible labor and delivery model with a balanced mix of global and local talent as needed to meet customer-specific needs, regulatory requirements, and data protection and labor laws. Our employees leverage their deep engineering expertise and extensive experience operating complex and heterogeneous technology environments to drive service quality, intellectual property development, and our long-term trusted customer relationships.
As described in “— Our Customers,” we have many customer relationships that are decades long, as we provide high-quality, mission-critical services that are core to operations with customers that represent the backbones of their respective industries. These customers entrust us to deliver the services they need, and manage their complex environments so that they can achieve their business objectives.
As an independent company, we will be free to partner with a broader ecosystem, including a wide range of hyperscale cloud providers, system integrators, independent software vendors, and technology vendors from startups to market leaders. This enables us to serve our customers with the contemporary technology capabilities that best fit their needs and open new avenues for growth. This is all underpinned by our ability to integrate and operate mission-critical technology at scale using deep engineering expertise and intellectual property.
Our approach has enabled us to reach significant scale, with $19.4 billion in revenue for the fiscal year ended December 31, 2020. We are focused on driving revenue growth with sustainable margins by extending our leadership in the markets in which we operate while investing in our capabilities, and expanding our high value, next generation services consistent with customer needs.
 
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Our Segments
Our reportable segments correspond to how we organize and manage the business and are aligned to key geographic markets in which Kyndryl operates. Segment results do not include any impacts associated with inter-company transactions between the segments:

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, Colombia, Argentina and Chile. For the year ended the December 31, 2020, Americas contributed 38 percent of our revenue and 55 percent of Kyndryl’s gross profit.

Europe/Middle East/Africa (EMEA): This segment comprises Kyndryl’s operations in Europe, the Middle East, and Africa and includes countries such as, but not limited to, Germany, France, the United Kingdom, Italy, Spain, Turkey, Israel, Saudi Arabia, South Africa, and Egypt. For the year ended December 31, 2020, EMEA contributed 38 percent of our revenue and 5 percent of the company’s gross profit.

Japan: This segment comprises Kyndryl’s operations in Japan and does not include any other countries. For the year ended December 31, 2020, Japan contributed 16 percent of our revenue and 29 percent of Kyndryl’s gross profit.

Asia Pacific: This segment comprises Kyndryl’s operations in Australia and Asia, excluding Japan, and includes countries such as, but not limited to India, China, Australia, Singapore, Korea, New Zealand and Thailand. For the year ended December 31, 2020, Asia Pacific contributed 8 percent of our revenue and 12 percent of the company’s gross profit.
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. We present additional segment financial information in note D, “Segments,” to our combined financial statements.
Our Industry and Market Opportunity
We participate in an industry that provides services for customers’ technology environments that power their businesses. These services span areas such as management of mission-critical systems across dedicated data centers and multiple clouds. As customers advance their digital transformations, they are looking for partners that understand their business objectives and unique digital journeys, and have the skills to instrument and engineer the IT environments to enable their transformations. Our long standing position as an informed and trusted partner, with decades-long relationships and leading capabilities, provides us with the knowledge and expertise to best help existing and new customers realize their future.
The market for these services is large and dynamic. We project this market, which is a subset of the total IT services market, to represent a $415 billion opportunity in 2021, growing 7% annually to $510 billion in 2024. Growth in this market is driven by services that are aligned to customers’ transformations, and represent an incremental $75 billion. These transformation services include several high-growth portions of the market that each exceed approximately $10 billion in opportunity, including public cloud managed services (compounded annual growth of 11% from 2021 to 2024), data services (compounded annual growth of 18% from 2021 to 2024), security services (compounded annual growth of 12% from 2021 to 2024), and intelligent automation services (compounded annual growth of 27% from 2021 to 2024). Managed services for edge environments represents a smaller portion connected to many other opportunities, and itself is expected to experience compounded annual growth above 100% from 2021 to 2024.
Several trends underpin the growth of our market, including:

Greater demand for digital transformation services. Companies continue to digitally transform to deliver better customer experiences and compete more effectively, which drives the need for services to support modernization of IT within the enterprise. The COVID-19 global pandemic has accelerated
 
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this already pervasive trend, as organizations look to further their digital capabilities. IDC estimates that approximately 65% of GDP will be digitized by 2022. Illustrating the growth in digitization, U.S. online retail sales surged by 32% year-over-year in 2020. While customers seek to transform, skills availability often represents a challenge, with lack of skills ranked as one of the top 3 impediments to transformation of the IT environment according to Technology Business Research, Inc.

Ongoing migration to the cloud. Companies continue to migrate workloads to the cloud, adopting new capabilities for flexibility, workload portability, and management. These transitions are often complex, with companies seeking assistance from service providers. Gartner forecasts that by 2025, 85% of large organizations will have engaged external service providers to migrate applications to the cloud, an increase from 43% in 2019. Furthermore, Gartner projects that by 2022, more than 75% of global organizations will be running containerized applications in production (an increase from less than 30% today) and worldwide revenue for container management will double by 2024. The extension of public cloud services to multiple environments in different locations has given rise to distributed cloud and migration of workload to these infrastructures that have a greater fit for purpose.

Rapid data growth. As economies have evolved digitally, significantly increasing data volume, management of this data has become much more complex. IDC estimates that in 2020, enterprises created and captured 64 zettabytes of data. The challenge for many organizations is how to collect, harness and govern this data for insights that yield business results and realize data as a differentiator. In order to leverage advanced capabilities such as artificial intelligence and machine learning to enable their business use cases, enterprises need to address data privacy, compliance, security, multicloud data management and data governance across physical and virtual layers of the IT estate.

Increasing need for secure systems. As technology environments become increasingly complex and online, remote and distributed work environments persist, cybersecurity will remain of paramount importance as threats proliferate. Breaches in security can have severe, lasting financial and reputational consequences on businesses. In response, businesses continue to build out their cybersecurity efforts, using service providers to augment their capabilities. According to PwC’s 2021 CEO Survey, one-third of U.S. CEOs plan to increase investments in cybersecurity by double digits, with 47% of CEOs citing cyber threats as sources of extreme concern to growth prospects. Enterprises seek service providers that can deploy the expertise and resources needed to manage their growing cybersecurity needs with an efficient and comprehensive approach. Gartner estimates approximately 80% of organizations currently have 16 or more tools from different vendors in their cybersecurity portfolio, recognize vendor consolidation as an avenue for reduced costs and better security that addresses the complexity in their IT environments, and are, therefore, interested in vendor consolidation strategies.

Accelerating pace of technological advancement. As companies adopt new technologies for improved business performance and innovation, they face a challenge in complexity to integrate these new technologies with their existing IT estates. As a result, the required skills, integration burden, and cost in end-to-end operational management often increases. This drives adoption of new capabilities, such as automation, artificial intelligence, and machine learning to ensure that the IT environment is well designed and orchestrated to effectively realize business objectives.
Our Services
We provide advisory, implementation, and managed services in and across a range of technology domains to help our customers manage and modernize enterprise IT environments in support of their business and transformation objectives. Our services are differentiated based on our expertise and intellectual property, and data around IT patterns across customers in the following domains:

Cloud Services: We design, build, and provide managed services for our customers’ multicloud environments. We apply a mix of skilled practitioners, intelligent automation and modern service management principles of Site Reliability Engineering, AIOps, Infrastructure as Code and DevOps. We help enterprises optimize their use of hyperscale cloud providers in a unified environment, seamlessly integrating services delivered by: ISVs, large public cloud providers, internal platforms, and other technologies (e.g., IoT).
 
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Core Enterprise & zCloud Services: We establish and operate modern, dedicated technology infrastructure on behalf of enterprise customers to enable their current and future growth and profitability objectives. We support a range of enterprise infrastructure, including private clouds, mainframe environments, distributed computing, enterprise networks, and storage environments.

Application, Data, and Artificial Intelligence Services: We provide end-to-end enterprise data services, including data transformation, data architecture and management, data governance and compliance, and data migration. We support Chief Digital Officers and CIOs in governing the vast quantities of enterprise data across internal and external sources to drive their digital strategies, transactions, and business objectives, while maintaining security, ethical standards, and compliance with country-specific data protection regulations (e.g., GDPR, HIPAA, and PCI). We provide services to design, build, manage, and automate the IT environments for enterprise applications as they migrate to the cloud. Our services help CIOs and Chief Technology Officers (CTOs) unlock the full value of leading third-party Enterprise Resource Planning systems (e.g., Oracle, SAP) and packaged applications through the use of AI and software-defined technologies.

Digital Workplace Services: Our digital workplace services provide the technology infrastructure, mobility, security, and access solutions to support a global workforce that is constantly evolving. Our services include enterprise mobility solutions that provide users with the ability to work seamlessly across environments and locations.

Security & Resiliency Services: We provide comprehensive enterprise cyber-security services for Chief Information Security Officers and CRO, including: insights, protection, detection, response, and recovery to support the security of our client’s hybrid IT estate, data and operations. Concurrently, we provide resiliency services that include a mix of business continuity planning and cloud-based disaster recovery capabilities (composed of experts, digital tools and automation, and failover environments). These services allow our customers to operate without issue or disruption in response to attacks, outages, natural disasters, and geopolitical events.

Network Services & Edge: We provide network and edge services to help customers meet their technological and commercial requirements for connectivity and compute across their digital environments. Our strategy and assessment services help evaluate customers’ network needs for their multicloud environments, while our network transformation and managed services allow customers to realize benefits of the latest software-defined network technologies. We deliver these services with a proprietary framework and architecture coupled with proof of concepts to then implement and manage enterprise networks with the right economics.
Our Competitive Strengths
We are a recognized leader in many of the services we provide, as acknowledged by research analysts (e.g., Everest, Forrester, Gartner, and IDC). We are known for our technology integration and modernization expertise — designing, building, and managing complex technology environments. Our worldwide and high-quality service delivery is underpinned by experienced and highly-trained practitioners that bring the best of our capabilities to our customers on a daily basis. Importantly, our culture of customer service excellence — especially in times of crisis, from COVID-19 to tsunamis, floods, cyber-attacks, and power outages — carries on from our heritage through our people. Given our unique capabilities, scale, intellectual property, and engineering talent, we are positioned to partner with enterprises for their future across a range of technologies, use cases, and business strategies to help them maximize the return on their technology investments and digital transformations.
Our competitive strengths stem from our intellectual property and data around IT patterns, our mission-critical expertise, and our broad ecosystem of partners:

We are a leader in technology services. We are the largest provider of IT infrastructure services and are recognized by research analysts (e.g., Gartner, Forrester, IDC, Everest, NelsonHall, and HfS Research) as a leader in key service areas. We possess significant experience in virtually all industries, gained through collaboration with customers across over 30 years designing, building, and managing operating environments for their IT systems. Our highly skilled workforce provides the expertise (e.g., approximately 13,000 Red Hat accreditations) to securely and reliably handle many of the most
 
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complex issues. In conjunction with our delivery capabilities (such as artificial intelligence that augments our people) and scale, we provide mission-critical services to a diversified customer base. We also have unique intellectual property applicable to IT environments, as reflected by our portfolio of approximately 3,000 patents.

We consistently deliver unsurpassed performance and reliability for complex environments. Our expert practitioners and talented engineers provide services through modern ways of working, including agile and design thinking. Additionally, our unique intellectual property and industry-leading technology platforms utilize contemporary approaches to IT operations to provide reliable and efficient solutions for each customer’s operating model. These capabilities allow us to execute with secure and compliant operating and delivery models at scale, driving high-quality performance and customer satisfaction. We realize high quality performance across thousands of service-level agreements and consistently achieve world-class customer satisfaction and advocacy.

We deliver insights at scale, supported by unique automation capabilities and application of AI. Our ability to deliver superior outcomes for customers is driven by our capacity to leverage our data around IT patterns and insights, derived from multiple technology environments across customer engagements. We apply machine learning, combined with our practitioner expertise to derive unique insights used to service customers, enhance our offerings and to produce our next-generation services, investing to ensure continuous innovation for improved outcomes. For example, we are recognized leaders in the use of automation and operational AI in the delivery of our services, with over 6,000,000 automated actions per month, enabling greater quality and efficiency for us and our customers. Our operational AI approach and set of technologies, along with intellectual property that we apply and continually evolve, are leveraged to develop predictive actions to prevent issues before they arise.

We are a recognized leader in managed services for cloud and on-premise environments and services such as security and resiliency. We offer a range of high-value capabilities including cloud services, and security & resiliency services, providing us with a sustainable competitive advantage when helping customers transform their technology environments. Our multicloud management capabilities are differentiated by our ability to deliver an integrated view of our customers’ diverse technology environments and to provide our services and solutions digitally. We offer integrated services between the cloud and on-premise environments.

We offer an integrated ecosystem to help customers adopt and run an increasingly heterogeneous set of technologies. As customers pursue multiple cloud-based technology partners, applications, and capabilities, integration is increasingly critical for customers to manage and orchestrate the technology ecosystem required to run their businesses and achieve their broader objectives. We provide holistic services across thousands of diverse technologies, delivering end-to-end integration across public and private / on-premise cloud platforms and other full-stack technology solutions. Following the Spin-Off, we will enhance our ecosystem of partners, including large public cloud providers, application-oriented system integrators, independent software vendors, and other players in the technology stack to provide the best technology and capability for our customers. Our services and ecosystems enable us to offer leading services for all levels of customer environment complexity and integration.
Our Strategies
We will pursue a strategy centered on our ability to build and enrich trusted relationships with customers and technology partners, differentiating through our proven ability to create and deploy scale-derived intellectual property, provide mission-critical expertise across industries, and partner with a broad ecosystem for contemporary capabilities that best suit customers’ needs. We have a strong and long-standing foundation developed by governing and managing complex technology environments, including IBM (e.g., Red Hat and Cloud Paks) and third-party technologies (e.g., VMWare, ServiceNow, and Microsoft). With increased freedom of action, we will extend these capabilities to an even broader ecosystem of technology providers and develop more services that are digitally consumable to expand accessibility to new customers and markets.
We have a long track record of running customers’ technology environments, enabling them to focus on the core aspects of their businesses. Given the nature of the work we do, we have a unique perspective on
 
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the operating paradigms that enable the high-quality technology environments which our customers have come to rely on for their most critical systems. This position enables us to meet customers where they are in their unique digital transformations, work alongside our customers to take them where they want to be, and in turn enable them to realize the full, at-scale value of that journey. Underpinning all of this are our intellectual property, mission-critical expertise across industries, and a broad ecosystem.
We benefit from the long-standing and deep relationship with IBM. We manage the largest installed base of IBM hardware and software products, including some of the most complex deployments. While we will be an independent and distinct entity following the separation, we will continue to work with IBM on an arms-length basis. In addition to any transition services agreements for services that IBM will provide to us as part of the Spin-Off, they will be part of our partner ecosystem from the standpoint of a technology provider, cloud provider, and application services partner. See “Certain Relationships and Related Party Transactions — Agreements with IBM — Other Arrangements.”
As we look to the future, our focus is centered on the following strategic tenets:

Scale Insights and Intellectual Property. We will invest to position ourselves at the forefront of developing and innovating the services and operating paradigms for the evolution and integration of mission critical technology, further expanding our existing intellectual property in differentiated areas. Our depth of experience implementing and operating complex architectures across technology sets has yielded valuable experience and intellectual property that has defined the operating paradigm for much of the technology stack. We have approximately 3,000 patents that relate to various areas of running complex technology environments, including certain patents related to multi-cloud management, orchestration, integrated monitoring, issue triage and resolution, and several other areas that enable quality of service. Our mission-critical expertise across all industries, augmented by our automation platforms that draw on our IP and data, is a key differentiator in managing complex technology environments.

Diverse Ecosystem with Freedom of Action. As an independent entity, we will have the freedom of action to develop a broad ecosystem of strategic partnerships with a wider set of technology and services companies to complement our relationship with IBM. We will invest in an ecosystem of technology providers and corresponding skill-sets that are increasingly relevant as enterprises digitize and transform their business models, building on our existing base of certifications across many market-leading technologies. In parallel, we will extend our operating paradigms and governance and compliance models to this broader set of technologies to integrate and provide end-to-end capabilities for our customers as they digitize and evolve their environments.

Digitally Consumable Services Models. Looking ahead, we see opportunity to further expand in areas where we can better serve customers through consumption models that allow them to experience our services digitally. These models will combine our platforms, our technology governance, and our ecosystem with ease-of-use and scalability, tailored to the needs of specific customer segments such as middle-market enterprises.
To execute these strategies, our operating model will reflect that of a services company, emphasizing customers and resulting in a flatter, faster, and more focused company. We will pursue an investment and co-investment strategy focused on building our team, developing aligned intellectual property and automation, and broadening our ecosystem of partnerships.
Our Customers
Our customer relationships across all industries demonstrate the deep level of trust that we have earned, and the role we play as a partner that provides technical expertise, insight, and intellectual property to solve customer challenges. We are the trusted advisor and partner to more than 4,000 customers, in technology-intensive, and often highly regulated environments, spread across over 100 countries, managing mission-critical technology environments across all industries. Our customers collectively represent:

Financial Services: over 60% of the top 50 banks’ assets under management

Telecommunications: approximately 50% of the total industry’s mobile connections worldwide
 
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Retail: over 50% of the total industry’s hypermarket sales

Automotive: approximately 45% of the total industry’s production of passenger vehicles

Airlines: over 35% of total revenue passenger miles flown
As companies engage in their digital journey, they face a key impediment related to the skills and expertise needed to realize their transformations. This, in part, is brought on by the increasing complexity of enterprise environments, the incorporation of new technologies, and the deployment of different operating models. While many companies have strengthened their technology teams, they have also encountered difficulties in sourcing the breadth of expertise needed for their environments and leveraged service providers to address their needs. Companies will benefit from selecting service providers that have greater insight into their environments and needs, which advantages partners with long-lasting customer relationships.
Through decades of collaboration with customers, we have developed deep relationships as we supported the technology environments that advanced their business agendas. Recent examples include:
Large-scale transformation to cloud: We partnered with a large, European financial institution to help them migrate from a predominantly on-premise, classic infrastructure environment to a cloud-based infrastructure, utilizing both private and public clouds. We provided the expertise and support to navigate this digital transformation while maintaining and improving quality of service as we moved over one thousand applications. We also deployed a new Kubernetes container-based environment and management capabilities to increase workload portability and flexibility. This work enabled the customer’s platform to run with increased digital agility and efficiency, embedding strong data security within the new cloud-based infrastructure and providing alignment to the existing infrastructure environment. The customer’s transformation has brought business benefits, from new products and services that are brought to market faster, to an increase in sales through online channels.
Modernization of the technology environment: Based on a relationship spanning almost 2 decades, we partnered with a large European bank to help launch a 10-year transformational program to increase operational agility and efficiency by optimizing the customer’s critical infrastructure, reducing complexity, migrating to hybrid cloud, and reducing operational costs. We reduced IT infrastructure complexity by redesigning critical infrastructure architecture, including networks, storage, virtualization, and data backup for improved efficiency, enabled ‘scalable’ hybrid cloud by implementing and updating existing systems to a hybrid cloud solution supported by Red Hat, and transformed legacy IT services by modernizing tools and the operating model for deployment of IT services. The customer will benefit from modern IT infrastructure including cloud and mainframes that supports their core banking services and treasury functions.
Digital transformation across the enterprise: We collaborated with a large material sciences company in North America to support their mission-critical IT infrastructure globally, providing integrated management for environments that include hybrid cloud infrastructure, network, security, and end-user services. As the COVID-19 pandemic impacted the operations of many companies, we worked with our customer to help move more than 40,000 employees to a remote model while maintaining critical operations in production facilities without disruption. Building on our 16-year history of collaboration, we are working to accelerate their digital transformation. We are helping our customer build foundational capabilities for their digital journey, powered by data, analytics, and artificial intelligence and machine learning integrated into core business processes and connected through a flexible and secure network. This will support our customer’s ability to fully exploit digital technologies, and realize business benefit.
Digitization for flexibility: Our customer, a large Japanese transportation company, was engaged in a technology-driven transformation to establish a flexible IT environment using hybrid cloud that evolves with changing business needs. Our teams worked together to build an integrated private and public cloud with the same virtualization architecture, and a management capability that unifies operations and evolves with the business. Through our collaboration, we created an integrated infrastructure to meet our customer’s current and future needs by modernizing on premise, off premise, and network environment as well as its management platform. We deployed software-defined networks across the environment and automation to realize improved quality and business continuity. Our work helps support our customer’s efforts to become one of the most valued and preferred transportation companies in the world.
 
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An important part of our services involve supporting our customers during times of crisis, including global disruptions. For instance, during the COVID-19 pandemic, our business continuity plans mitigated all COVID-driven outages in 2020, providing peace-of-mind to our customers and giving them the confidence to focus on their core businesses. We ensured that our customers had the data and IT services needed to migrate operations to a work-from-home environment. Our response also demonstrated the resilience of our delivery model, as most of our professionals moved to work-from-home without impact to customer service.
Sales and Marketing
Our customer engagement and brand positioning will focus on deepening our existing customer relationships, attracting and winning new customers, and creating an ecosystem built on go-to-market relationships with leading cloud and other technology providers, advisors, and integrators to offer best-in- class advisory, implementation, and managed services tailored to each existing and new customer’s environment and requirements.
Customer-Centric Account Approach. Following the Spin-Off, we will deploy dedicated account coverage teams within our global operating structure. The teams will leverage our intellectual capital and tools underpinned by insights and proven practices derived from operating at scale. Senior account leaders will lead the teams and have end-to-end accountability from sale to delivery for managed services customers. They will tailor the full suite of our services to the customers’ needs to deliver value and business outcomes across a wide range of technology environments. Account leaders will be supported by dedicated, multi-disciplinary technical sales and delivery teams, as well as by shared services teams, to support an effective and efficient engagement. This new account coverage model will ensure consistent and reliable delivery of services for our existing relationships over the lifetime of current and renewal contracts. In addition, the model will support the potential expansion of existing relationships based on our deep industry perspective and expertise and knowledge of customers’ unique needs. Finally, this account-based model will seek to build and expand existing relationships with line of business buyers, as they have become critical decision makers working alongside our customers.
Customer Growth and New Customer Acquisition. In line with our customer-centric approach, we will focus on co-creating and innovating with customers to advance and deepen our relationships. We will leverage our broad base of expertise, capabilities, and partners to prototype, test, and develop innovative solutions across various approaches and technologies. Additionally, we will offer bespoke project capabilities in advisory, implementation, and transformation services to help customers enhance and evolve their technology environments. We will deploy our talent, thought leadership, proven practices, intellectual capital, and partnership ecosystem as part of our project engagements to mature them into longer-tail managed services opportunities. In addition, we will attract and develop new customers across the globe via account-based marketing, insights derived from operating at scale, and direct sales teams with years of sector-specific experience and proven practices to generate unique insights for customers. As we gain new customers, we will apply our account coverage model to expand our relationships and footprint over time.
Partnership and Alliance Ecosystem. While we will maintain a strategic partnership with IBM, we will also benefit from greater flexibility to enhance and develop strategic relationships with other partners. We will build a set of new routes to market to serve as a multiplier that enables us to expand business with our partner ecosystem. The ecosystem will at least include: public cloud providers, ISVs, technology providers (ranging from established, scaled players to growth-stage start-ups), system integrators, business consulting firms, and business services providers. These relationships will benefit our customers through broader access to best-in-class solutions that are tailored for their unique technology situations and digital journeys. We will have dedicated teams supporting our key alliance partners and will co-create and co-market with them to deliver value to our mutual customers.
Our Competition
We compete in a market for technology services along with many other providers, ranging from small, highly specialized companies that serve a limited number of customers to large, multi-service enterprises with many clients. These service providers include: incumbents that have expanded their offerings to migration and management of cloud-based environments; companies that utilize labor-based models and leverage
 
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talent pools primarily in lower-cost countries that have grown to offer a broad range of services with a worldwide presence; and advisory-focused system integrators specializing in bringing together disparate technology environments so that they function as one. Many of these companies offer a mix of advisory, implementation, and managed services across infrastructure, application, and business processes. Examples include: Atos, DXC, Fujitsu, Infosys, Rackspace, Tata Consultancy Services, and Wipro, among others.
The basis of competition involves multiple factors, with key elements including quality of service, technical skills and capabilities, industry knowledge and experience, financial value, ability to innovate, intellectual property and methods, contracting flexibility, and speed of execution. Long-standing partnerships and knowledge of the customers’ technology environment often enable service providers to better address requirements and future needs. Our decades-long collaboration with customers provides us with the insights to realize distinctive performance that supports their digital transformation. We deliver unique value by providing intellectual property derived from insights at scale, deploying mission-critical expertise, and leveraging a broad ecosystem — while building and strengthening partnerships to enhance the customer experience.
We will position ourselves uniquely, leveraging a core strength in governance and management of complex IT infrastructure environments, delivered through a global footprint. Our services support customers’ digital transformations, as we help accelerate their journeys by providing instrumented and engineered technology environments. We offer choice with consistency through an operating paradigm and management model built from our experiences with complex technologies. These capabilities uniquely position us as both a leading partner and competitor within the same market.
Intellectual Property
We are committed to developing leading-edge ideas and technologies and see innovation as a source of competitive advantage. We will bring approximately 3,000 patents from IBM that are related to our business model. A key pillar of our strategy is continuing to invest in knowledge and intellectual property to support extending our services to a broader ecosystem of technology providers and customer challenges and solutions. Our decades of experiences working with our customers has generated operational insights, creating intellectual property that we leverage for the benefit of our customers. We will leverage our multicloud management platform and orchestration and intelligence layer intellectual property to provide insights to our customers at scale. We rely on intellectual property protections in the countries in which we operate, along with contractual restrictions, to establish and protect our offerings and services and other applicable rights. In addition, we license third-party software along with other technologies that are used in the provision of or incorporated into some elements of our services. We possess a significant intellectual property portfolio, which we believe is important to our success. However, we believe our business as a whole is not materially dependent on any particular intellectual property right or any particular group of patents, trademarks, copyrights or licenses.
Additionally, we own or have rights to various trademarks, logos, service marks, and trade names that are used in the operation of our business. We also own or have the rights to copyrights that protect the content of our products and other proprietary materials.
Human Capital Resources
Employees
We had approximately 90,000 employees as of June 30, 2021 spanning 63 countries. Approximately 92% of our employees work outside the U.S., with workforce hubs in India, Poland, Brazil, Japan, Czech Republic, and Hungary.
We work alongside the best people advancing the vital systems that power human progress. Our global workforce is highly skilled, reflective of the work we do for our customers’ digital transformations and in support of their mission-critical operations. Our industry experts are also always continuously learning. In 2020 alone, we earned more than 140,000 badges through our learning platform in strategic skills, including cloud, AI, analytics, design thinking, quantum and security. At Kyndryl, we are:
 
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A purpose-led culture, focused on inspiring our dedicated people to advance what’s possible for our customers

A business where our people are our business. We want empowered employees who keep learning, thriving, and creating

Inclusive and open. This starts with a diverse and empathetic workforce that listens and learns at every step

Fostering an environment that supports new ways of working, accelerated career progression, and the chance to work with the most interesting technology systems

Promoting innovation at every turn — in our open and transparent leadership, in our purpose, and in our shared values built around a commitment to advancing what’s next for ourselves and our customers
Our people are truly at the center of designing, building, and managing the technology environments that the world depends on every day. We will continue to invest in our teams to be at the heart of technological change for our customers.
Talent and Culture
Our business is our people; and our talent strategy revolves around our ability to best serve our customers through ongoing investment in talent and skill development. We attract, develop, and retain talent in a dynamic and competitive environment. We are singularly focused on optimizing the employee experience at Kyndryl through:

Attracting: We create technical careers of the future through increased skill development to meet and exceed new market demands

Developing: We align our people’s goals with our customers, promoting acquisition of critical skills on an individual level, and continuous learning

Retaining: We retain the best talent through increased career mobility/ velocity through internal upskilling and reskilling opportunities and promotions
We are committed to building the technical careers of the future and have made investments in training and skills to ensure our people are relevant, experienced, and technically positioned to serve our customers on their most complex challenges. We continue to expand our certifications and accreditations each year through consistent investment in skill development around emerging technologies and key areas for growth.
We offer market competitive, comprehensive rewards and benefits programs including health benefits, mental health support and Employee Assistance Plans, retirement savings benefits, paid time off, and salary and recognition programs, among others. We will continue to build on strong employee engagement including conducting an annual engagement survey, measuring elements such as workplace experience, inclusion, and pride.
Diversity and Inclusion
Diversity and Inclusion is inherent in our DNA. We will uphold and build upon a strong history of diversity, inclusion and equity. Key diversity and inclusion objectives are:

Continually drive to achieve a diverse and equitable representation in both leadership positions and the broader workforce

Aim to eliminate implicit bias and ensure equity in all our employment practices for underrepresented groups

Drive engaging and inclusive employee experiences

Exceed Equal Opportunity compliance goals in all countries where we operate, and

Comply with Equal Opportunity audits
 
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Health, Safety and Well-Being
We have a clear commitment to the health, safety and well-being of our employees. We have an experienced Health and Safety team comprised of medical doctors, nurses, industrial hygiene, safety, and workforce health experts. This team will implement a health and safety management system that ensures compliance with all local health and safety regulations, minimizes workplace health and safety risks, and provides for safe and healthy workplaces so our employees can do their best work.
During the COVID-19 pandemic, our priority continues to be the health and safety of employees, customers, and partners, while supporting our customers’ operations. We have a comprehensive, global, pandemic management plan. This includes a robust case management system to manage potential COVID-19 exposures and a comprehensive playbook on workplace health and safety measures that allow our offices to reopen when conditions improve. Our employees are supported with access to our Health and Safety team, education, timely updates and forums to ask questions and raise concerns. Additionally, we will continue to focus on mental health and supporting our employees through different phases of the pandemic.
Properties
As of June 30, 2021 we owned or leased approximately 19 million square feet of space worldwide, a summary of which is provided below. We believe that our existing properties are in good condition and are suitable for the conduct of our business.
Americas
EMEA
Japan
Asia Pacific
Total
Number
of
Locations
Square
Feet
(millions)
Number
of
Locations
Square
Feet
(millions)
Number
of
Locations
Square
Feet
(millions)
Number
of
Locations
Square
Feet
(millions)
Number
of
Locations
Square
Feet
(millions)
Total
79 8.0 162 6.5 40 1.1 62 3.1 343 18.8
Leased