UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM _________________ TO _________________

001-40853

(Commission file number)

Kyndryl Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware	86-1185492
(State or other jurisdiction of incorporation or organization)	(IRS employer identification number)
One Vanderbilt Avenue, 15th Floor
New York, New York	10017
(Address of principal executive offices)	(Zip Code)

212-896-2098

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common stock, par value $0.01 per share	KD	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section l3 or l5(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ☒    No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes ☒    No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☐
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ☐    No ☒

The number of shares of the registrant’s Common Stock, par value $0.01 per share, outstanding at February 2, 2023 was 227,505,040.

Index

	Page
Part I - Financial Information:
Item 1. Consolidated Financial Statements (Unaudited):	3
Consolidated Income Statement for the three and nine months ended December 31, 2022 and 2021	3
Consolidated Statement of Comprehensive Income (Loss) for the three and nine months ended December 31, 2022 and 2021	4
Consolidated Balance Sheet at December 31, 2022 and March 31, 2022	5
Consolidated Statement of Cash Flows for the nine months ended December 31, 2022 and 2021	6
Consolidated Statement of Equity for the three and nine months ended December 31, 2022 and 2021	7
Notes to Consolidated Financial Statements	9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3. Quantitative and Qualitative Disclosures About Market Risk	44
Item 4. Controls and Procedures	44
Part II - Other Information:
Item 1. Legal Proceedings	45
Item 1A. Risk Factors	45
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3. Defaults Upon Senior Securities	45
Item 4. Mine Safety Disclosures	45
Item 5. Other Information	45
Item 6. Exhibits	46

2

Part I - Financial Information

Item 1. Consolidated Financial Statements (Unaudited):

KYNDRYL HOLDINGS, INC.
CONSOLIDATED INCOME STATEMENT
(In millions, except per share amounts)
(Unaudited)

	Three Months Ended December 31,				Nine Months Ended December 31,
	2022		2021		2022		2021
Revenues *	$	4,303	$	4,556	$	12,771	$	13,886
Cost of services **	$	3,596	$	3,999	$	10,886	$	12,233
Selling, general and administrative expenses		731		643		2,131		2,062
Workforce rebalancing charges (benefits)		10		(1)		16		(13)
Transaction-related costs		48		129		218		572
Impairment expense		—		469		—		469
Interest expense		27		18		65		50
Other expense (income)		30		19		16		13
Total costs and expenses	$	4,441	$	5,276	$	13,333	$	15,385
Income (loss) before income taxes	$	(138)	$	(720)	$	(563)	$	(1,499)
Provision for (benefit from) income taxes	$	(32)	$	11	$	74	$	311
Net income (loss)	$	(106)	$	(731)	$	(637)	$	(1,810)
Basic earnings (loss) per share	$	(0.47)	$	(3.26)	$	(2.81)	$	(8.07)
Diluted earnings (loss) per share	$	(0.47)	$	(3.26)	$	(2.81)	$	(8.07)
Weighted-average basic shares outstanding		227.0		224.2		226.4		224.1
Weighted-average diluted shares outstanding		227.0		224.2		226.4		224.1

* Including related-party revenue of $260 for the three months ended December 31, 2021 and including related-party revenue of $287 and $550 for the nine months ended December 31, 2022 and 2021, respectively.

** Including related-party cost of services of $1,100 for the three months ended December 31, 2021 and including related-party cost of services of $1,382 and $2,973 for the nine months ended December 31, 2022 and 2021, respectively.

The accompanying notes are an integral part of the financial statements.

3

KYNDRYL HOLDINGS, INC.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(Dollars in millions)

(Unaudited)

	Three Months Ended December 31,				Nine Months Ended December 31,
	2022		2021		2022		2021
Net income (loss)	$	(106)	$	(731)	$	(637)	$	(1,810)
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments		260		400		(229)		290
Unrealized gains (losses) on cash flow hedges:
Unrealized gains (losses) arising during the period		(4)		1		(9)		4
Reclassification of (gains) losses to net income		2		(1)		1		(1)
Total unrealized gains (losses) on cash flow hedges		(2)		1		(8)		3
Retirement-related benefit plans:
Prior service costs (credits)		—		1		—		1
Net gains (losses) arising during the period		—		72		—		67
Curtailments and settlements		—		3		—		3
Amortization of net (gains) losses		10		19		30		41
Total retirement-related benefit plans		10		94		30		112
Other comprehensive income (loss), before tax		267		495		(207)		405
Income tax (expense) benefit related to items of other comprehensive income (loss)		(3)		(24)		(7)		(29)
Other comprehensive income (loss), net of tax		265		470		(214)		375
Total comprehensive income (loss)	$	159	$	(262)	$	(850)	$	(1,435)

The accompanying notes are an integral part of the financial statements.

4

KYNDRYL HOLDINGS, INC.

CONSOLIDATED BALANCE SHEET

(In millions, except per share amount)

(Unaudited)

	December 31,		March 31,
	2022		2022
Assets:
Current assets:
Cash and cash equivalents	$	2,002	$	2,134
Restricted cash		14		20
Accounts receivable (net of allowances of $34 at December 31, 2022 and $44 at March 31, 2022)*		1,539		2,271
Deferred costs (current portion)		927		1,143
Prepaid expenses and other current assets		486		525
Total current assets	$	4,967	$	6,092
Property and equipment, net	$	2,762	$	2,834
Operating right-of-use assets, net		1,115		1,312
Deferred costs (noncurrent portion)		1,186		1,244
Deferred taxes		478		555
Goodwill		812		823
Intangible assets, net		158		145
Pension assets		58		61
Other noncurrent assets		315		375
Total assets	$	11,851	$	13,442
Liabilities:
Current liabilities:
Accounts payable**	$	1,719	$	1,555
Value-added tax and income tax liabilities		245		284
Short-term debt		103		96
Accrued compensation and benefits		388		509
Deferred income (current portion)		817		882
Operating lease liabilities (current portion)		329		374
Accrued contract costs		402		676
Other accrued expenses and liabilities		604		682
Total current liabilities	$	4,607	$	5,058
Long-term debt	$	3,097	$	3,127
Retirement and nonpension postretirement benefit obligations		660		716
Deferred income (noncurrent portion)		377		452
Operating lease liabilities (noncurrent portion)		790		928
Other noncurrent liabilities		389		449
Total liabilities	$	9,920	$	10,730
Commitments and contingencies
Equity:
Stockholders’ equity
Common stock, par value $0.01 per share, and additional paid-in capital (shares authorized: 1,000.0; shares issued: December 31, 2022 – 229.3, March 31, 2022 – 224.5)	$	4,397	$	4,315
Accumulated deficit		(1,241)		(605)
Treasury stock, at cost (shares: December 31, 2022 – 1.8, March 31, 2022 – 0.2)		(21)		(4)
Accumulated other comprehensive income (loss)		(1,303)		(1,089)
Total stockholders’ equity before non-controlling interests	$	1,832	$	2,618
Non-controlling interests		99		94
Total equity	$	1,930	$	2,711
Total liabilities and equity	$	11,851	$	13,442

* Including related-party accounts receivable of $343 at March 31, 2022.

** Including related-party accounts payable of $806 at March 31, 2022.

The accompanying notes are an integral part of the financial statements.

5

KYNDRYL HOLDINGS, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(Dollars in millions)

(Unaudited)

	Nine Months Ended December 31,
	2022		2021
Cash flows from operating activities:
Net income (loss)	$	(637)	$	(1,810)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization
Depreciation of property and equipment		681		960
Depreciation of right-of-use assets		285		229
Amortization of transition costs and prepaid software		909		955
Amortization of capitalized contract costs		337		403
Amortization of intangible assets		36		30
Goodwill impairment		—		469
Stock-based compensation		81		56
Deferred taxes		5		(418)
Net (gain) loss on asset sales and other		(17)		12
Change in operating assets and liabilities:
Deferred costs (excluding amortization)		(1,063)		(1,071)
Right-of-use assets and liabilities (excluding depreciation)		(275)		(256)
Workforce rebalancing liabilities		(1)		(204)
Receivables		647		(938)
Accounts payable		235		224
Taxes (including items settled with former Parent in prior-year period)		(36)		920
Other assets and other liabilities		(418)		650
Net cash provided by operating activities	$	769	$	209
Cash flows from investing activities:
Capital expenditures	$	(711)	$	(572)
Proceeds from disposition of property and equipment		20		100
Other investing activities, net		(8)		(1)
Net cash used in investing activities	$	(699)	$	(472)
Cash flows from financing activities:
Debt repayments	$	(83)	$	(71)
Proceeds from issuance of debt, net of debt issuance costs		—		3,035
Net transfers to Parent		—		(490)
Common stock repurchases for tax withholdings		(17)		(1)
Net cash provided by (used in) financing activities	$	(100)	$	2,472
Effect of exchange rate changes on cash, cash equivalents and restricted cash	$	(109)	$	(19)
Net change in cash, cash equivalents and restricted cash	$	(138)	$	2,190
Cash, cash equivalents and restricted cash at April 1	$	2,154	$	50
Cash, cash equivalents and restricted cash at December 31	$	2,016	$	2,240
Supplemental data
Income taxes paid, net of refunds received	$	109	$	12
Interest paid on debt	$	89	$	2

The accompanying notes are an integral part of the financial statements.

6

KYNDRYL HOLDINGS, INC.

CONSOLIDATED STATEMENT OF EQUITY

(In millions)

(Unaudited)

	Common Stock and						Accumulated
	Additional				Net		Other						Non-
	Paid-In Capital				Parent		Comprehensive		Treasury		Accumulated		Controlling		Total
	Shares		Amount		Investment		Income (Loss)		Stock		Deficit		Interests		Equity
Equity – October 1, 2022		226.8	$	4,370	$	—	$	(1,567)	$	(17)	$	(1,136)	$	96	$	1,746
Net income (loss)												(106)				(106)
Other comprehensive income (loss), net of tax								265								265
Common stock issued under employee plans		1.1		27												27
Purchases of treasury stock		(0.4)								(4)						(4)
Changes in non-controlling interests														2		2
Equity – December 31, 2022		227.5	$	4,397	$	—	$	(1,303)	$	(21)	$	(1,241)	$	99	$	1,930

	Common Stock and						Accumulated
	Additional				Net		Other						Non-
	Paid-In Capital				Parent		Comprehensive		Treasury		Accumulated		Controlling		Total
	Shares		Amount		Investment		Income (Loss)		Stock		Deficit		Interests		Equity
Equity – October 1, 2021		—	$	—	$	7,102	$	(1,614)	$	—	$	—	$	51	$	5,539
Net income (loss)						(355)						(375)				(731)
Other comprehensive income (loss), net of tax								470								470
Issuance of common stock and reclassification of net transfers from Parent		224.1		4,271		(6,747)										(2,476)
Common stock issued under employee plans		0.1		13												13
Purchases of treasury stock		(0.0)								(1)						(1)
Changes in non-controlling interests														(49)		(49)
Equity – December 31, 2021		224.2	$	4,284	$	—	$	(1,143)	$	(1)	$	(375)	$	3	$	2,767

The accompanying notes are an integral part of the financial statements.

7

KYNDRYL HOLDINGS, INC.

CONSOLIDATED STATEMENT OF EQUITY – (CONTINUED)

(In millions)

(Unaudited)

	Common Stock and						Accumulated
	Additional				Net		Other						Non-
	Paid-In Capital				Parent		Comprehensive		Treasury		Accumulated		Controlling		Total
	Shares		Amount		Investment		Income (Loss)		Stock		Deficit		Interests		Equity
Equity – April 1, 2022		224.5	$	4,315	$	—	$	(1,089)	$	(4)	$	(605)	$	94	$	2,711
Net income (loss)												(637)				(637)
Other comprehensive income (loss), net of tax								(214)								(214)
Common stock issued under employee plans		4.5		81												81
Purchases of treasury stock		(1.5)								(17)						(17)
Changes in non-controlling interests														5		5
Equity – December 31, 2022		227.5	$	4,397	$	—	$	(1,303)	$	(21)	$	(1,241)	$	99	$	1,930

	Common Stock and						Accumulated
	Additional				Net		Other						Non-
	Paid-In Capital				Parent		Comprehensive		Treasury		Accumulated		Controlling		Total
	Shares		Amount		Investment		Income (Loss)		Stock		Deficit		Interests		Equity
Equity – April 1, 2021		—	$	—	$	6,027	$	(1,182)	$	—	$	—	$	57	$	4,902
Net income (loss)						(1,434)						(375)				(1,810)
Other comprehensive income (loss), net of tax								375								375
Issuance of common stock and reclassification of net transfers from Parent		224.1		4,271		(4,593)		(338)								(660)
Common stock issued under employee plans		0.1		13												13
Purchases of treasury stock		(0.0)								(1)						(1)
Changes in non-controlling interests														(55)		(55)
Equity – December 31, 2021		224.2	$	4,284	$	—	$	(1,143)	$	(1)	$	(375)	$	3	$	2,767

The accompanying notes are an integral part of the financial statements.

8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SIGNIFICANT ACCOUNTING POLICIES

Description of Business

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

In October 2021, the Board of Directors of IBM approved the spin-off (the “Separation” or the “Spin-off”) of the infrastructure services unit (the “Kyndryl Businesses”) of its Global Technology Services (“GTS”) segment through the distribution of shares of Kyndryl’s common stock to IBM stockholders. In conjunction with the Separation, Kyndryl underwent an internal reorganization following which it became the holder, directly or through its subsidiaries, of the Kyndryl Businesses. On November 3, 2021, the Separation was achieved through the Parent’s pro rata distribution of 80.1% of the shares of common stock of Kyndryl to holders of the Parent’s common stock as of the close of business on the record date of October 25, 2021. The Parent retained 19.9% of the shares of the Company’s common stock upon the Spin-off. The Parent’s stockholders of record received one share of the Company’s common stock for every five shares of the Parent’s common stock. As of September 30, 2022, IBM had transferred all of its 19.9% retained interest in Kyndryl common stock pursuant to exchange agreements with a third-party financial institution.

Basis of Presentation

Prior to the Separation on November 3, 2021 (the “pre-Separation periods”), our historical financial statements were prepared on a combined basis and were derived from the consolidated financial statements of IBM. For the period subsequent to November 3, 2021, the financial statements are presented on a consolidated basis as the Company became a standalone public company. Management believes the accompanying financial statements include all adjustments necessary to present fairly the Company’s financial position and its results of operations for all the periods presented. The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the report on Form 8-K/A we filed with the U.S. Securities and Exchange Commission (“SEC”) on May 27, 2022 (the “8-K/A”) and our transition report for the three months ended March 31, 2022 filed on Form 10-QT.

Within the financial statements and tables presented, certain columns and rows may not add due to the use of rounded numbers for disclosure purposes. Percentages presented are calculated from the underlying whole-dollar amounts. Certain items have been recast to conform to current-period presentation.

Principles of Consolidation

For the pre-Separation periods, the accompanying financial statements were derived from the consolidated financial statements and accounting records of the Parent as if the Company operated on a standalone basis during the periods presented and were prepared in accordance with Generally Accepted Accounting Principles in the United States (“U.S. GAAP”) and pursuant to the rules and regulations of the SEC.

All significant intercompany transactions during the pre-Separation periods between Kyndryl and IBM have been included in the consolidated financial statements. Intercompany transactions between Kyndryl and IBM were considered to be effectively settled in the consolidated financial statements at the time the transaction was recorded. The total net effect of the settlement of these intercompany transactions is reflected as Net transfers from Parent in the financing activities section in the Consolidated Statement of Cash Flows and in the Consolidated Balance Sheet within Net Parent investment.

After the Separation on November 3, 2021, the Company’s consolidated financial statements are based on our reported results as a standalone company. All significant transactions and intercompany accounts between Kyndryl entities were eliminated.

9

Notes to Consolidated Financial Statements (continued)

Use of Estimates

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

Transition Period

In January 2022, the Board of Directors of Kyndryl approved a change to the fiscal year-end of the Company from December 31 to March 31. The Company’s 2023 fiscal year began on April 1, 2022 and will end on March 31, 2023. The Company filed a Transition Report on Form 10-QT for the period of January 1 to March 31, 2022 with the SEC on May 13, 2022.

NOTE 2. ACCOUNTING CHANGES

Standards Implemented

In October 2021, the Financial Accounting Standards Board (“FASB”) issued guidance (“Revenue Contracts with Customers Acquired in a Business Combination”) which requires that an acquirer recognize and measure contract assets and liabilities acquired in a business combination as if the acquirer had originated the contracts, in accordance with ASC 606, Revenue from Contracts with Customers. Deferred revenue acquired in a business combination is no longer required to be measured at its fair value, which had historically resulted in a deferred revenue impairment at the date of acquisition. The guidance is effective January 1, 2023, and early adoption is permitted. The Company has early adopted the guidance as of January 1, 2022. Our adoption did not materially affect our consolidated financial statements.

New Standards to be Implemented

In September 2022, the FASB amended its guidance related to supplier finance programs. The amended guidance requires additional disclosures surrounding the use of supplier finance programs to purchase goods or services, including disclosing the key terms of the programs, the amount of obligations outstanding at the end of the reporting period, and a roll-forward of those obligations. The new guidance, except the roll-forward information, is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The roll-forward information is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Company is currently evaluating the impact that this amended guidance will have on the Company’s financial statements.

In December 2022, the FASB issued guidance deferring the sunset date of ASC 848, Reference Rate Reform to December 31, 2024. The FASB previously issued temporary, optional expedients related to the accounting for contract modifications and hedging transactions as a result of markets transitioning from the use of LIBOR and other interbank offered rates to alternative reference rates. The Company has evaluated the impact of the amended guidance and concluded that the guidance will not have a material impact on the Company’s consolidated financial statements.

10

Notes to Consolidated Financial Statements (continued)

NOTE 3. REVENUE RECOGNITION

Disaggregation of Revenue

The Company views its segment results to be the best view of disaggregated revenue. Refer to Note 4 – Segments.

Remaining Performance Obligations

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

At December 31, 2022, the aggregate amount of RPO related to customer contracts that are unsatisfied or partially unsatisfied was $39.6 billion. Approximately 59 percent of the amount is expected to be recognized as revenue in the next two years, approximately 34 percent in the subsequent three years, and the balance thereafter.

During the three and nine months ended December 31, 2022, revenue decreased by $3 million and increased by $4 million, respectively, for performance obligations satisfied (or partially satisfied) in previous periods, mainly due to changes in estimates on contracts with cost-to-cost measures of progress.

Contract Balances

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

	December 31,		March 31,
(Dollars in millions)	2022		2022
Accounts receivable (net of allowances of $34 at December 31, 2022 and $44 at March 31, 2022) *	$	1,539	$	2,271
Contract assets **		30		41
Deferred income (current)		817		882
Deferred income (noncurrent)		377		452

* Including unbilled receivable balances of $382 million at December 31, 2022 and $473 million at March 31, 2022.

** Contract assets represent services performed by the Company prior to billing the client, which give the Company the right to consideration that is typically subject to milestone completion or client acceptance. They are included within prepaid expenses and other current assets in the Consolidated Balance Sheet.

The amount of revenue recognized during the three and nine months ended December 31, 2022 that was included within the deferred income balance at the beginning of the period was $249 million and $496 million, respectively.

11

Notes to Consolidated Financial Statements (continued)

The following table provides roll-forwards of the accounts receivable allowance for expected credit losses for the nine months ended December 31, 2022 and the nine months ended December 31, 2021.

	Nine Months Ended		Nine Months Ended
(Dollars in millions)	December 31, 2022		December 31, 2021
Beginning balance	$	44	$	90
Additions (releases)		5		(21)
Write-offs		(8)		(4)
Other *		(6)		(21)
Ending balance	$	34	$	44

* Primarily represents currency translation adjustments.

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

Major Clients

No single client represented more than 10 percent of the Company’s total revenue during the three and nine months ended December 31, 2022 and 2021. No single client represented more than 10 percent of the Company’s total accounts receivable balance as of December 31, 2022 and March 31, 2022.

Deferred Costs

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

The following table provides amounts of capitalized costs to acquire and fulfill customer contracts at December 31, 2022 and March 31, 2022:

	December 31,		March 31,
(Dollars in millions)	2022		2022
Deferred transition costs	$	863	$	961
Prepaid software costs		661		806
Capitalized costs to fulfill contracts		279		302