Notes to Unaudited Consolidated Financial Statements
(in millions, except share and per share amounts)
Note 1. Principal Business and Organization
FS KKR Capital Corp. (NYSE: FSK), or the Company, was incorporated under the general corporation laws of the State of
Maryland on December 21, 2007 and formally commenced investment operations on January 2, 2009. The Company is an externally managed, non-diversified,
closed-end management investment company that has elected to be regulated as a business development company, or BDC, under the Investment Company Act of 1940, as amended, or the 1940 Act. In addition, the
Company has elected to be treated for U.S. federal income tax purposes, and intends to qualify annually, as a regulated investment company, or RIC, as defined under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code. As of
March 31, 2021, the Company had various wholly-owned subsidiaries, including special-purpose financing subsidiaries and subsidiaries through which it holds interests in portfolio companies. The unaudited consolidated financial statements
include both the Companys accounts and the accounts of its wholly-owned subsidiaries as of March 31, 2021. All intercompany transactions have been eliminated in consolidation. Certain of the Companys consolidated subsidiaries are
subject to U.S. federal and state income taxes.
The Companys investment objectives are to generate current income and,
to a lesser extent, long-term capital appreciation. The Companys portfolio is comprised primarily of investments in senior secured loans and second lien secured loans of private middle-market U.S. companies and, to a lesser extent,
subordinated loans and certain asset-based financing loans of private U.S. companies. In addition, a portion of the Companys portfolio may be comprised of equity and equity-related securities, corporate bonds, structured products, other debt
securities and derivatives, including total return swaps and credit default swaps.
The Company is externally managed by FS/KKR
Advisor, LLC, or the Advisor, pursuant to an investment advisory agreement, dated as of December 20, 2018, or the investment advisory agreement. On April 9, 2018, GSO / Blackstone Debt Funds Management LLC, or GDFM, resigned as the
investment sub-adviser to the Company and terminated the investment sub-advisory agreement, or the investment sub-advisory
agreement, between FB Income Advisor, LLC, or FB Advisor, and GDFM, effective April 9, 2018. In connection with GDFMs resignation as the investment sub-adviser to the Company, on April 9, 2018,
the Company entered into an investment advisory agreement, or the prior investment advisory agreement, with the Advisor. The prior investment advisory agreement replaced the amended and restated investment advisory agreement, dated July 17,
2014, or the FB Advisor investment advisory agreement, by and between the Company and FB Advisor.
On June 15, 2020, the
Company filed Articles of Amendment to its Articles of Incorporation, or the Reverse Stock Split Amendment, with the State Department of Assessments and Taxation of the State of Maryland to effect a 4 to 1 reverse split of the Companys shares
of common stock, or the Reverse Stock Split. The Reverse Stock Split became effective in accordance with the terms of the Reverse Stock Split Amendment on June 15, 2020.
The Reverse Stock Split affected all shareholders uniformly and did not alter any shareholders percentage interest in the Companys equity, except to the extent that the Reverse Stock Split
resulted in some shareholders owning a fractional share. In that regard, no fractional shares were issued in connection with the Reverse Stock Split. Shareholders of record who would have otherwise been entitled to receive a fractional share instead
received a cash payment based on the closing price of the Companys common stock as reported on the NYSE as of June 15, 2020. A summary of the Companys weighted average number of shares of common stock outstanding and earnings per
share after adjusting for the Reverse Stock Split is as follows:
|
|
|
|
|
|
|
Three Months
Ended
March 31,
2020
|
|
Weighted average number of shares of common stock outstanding (as previously reported)
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|
|
503,423,652
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|
Weighted average number of shares of common stock outstanding (as adjusted)
|
|
|
125,855,913
|
|
Net investment income per share (as previously reported)
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$
|
0.19
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|
Net investment income per share (as adjusted)
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$
|
0.78
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|
Earnings per share (as previously reported)
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$
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(1.40
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)
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Earnings per share (as adjusted)
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$
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(5.59
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)
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On November 23, 2020, the Company entered into an Agreement and Plan of Merger, or the 2020 Merger
Agreement, with FS KKR Capital Corp II., a Maryland corporation, or FSKR and, together with the Company, the Funds, Rocky Merger Sub, Inc.,
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