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
September 30, 2019, 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 September 30, 2019. All significant 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 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 December 19, 2018, the Company completed its
acquisition, or the Merger, of Corporate Capital Trust, Inc., or CCT, pursuant to that certain Agreement and Plan of Merger, or the Merger Agreement, dated as of July 22, 2018, by and among the Company, CCT, IC Acquisition, Inc., a former
wholly-owned subsidiary of the Company, or Merger Sub, and the Advisor.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation: The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance
with accounting principles generally accepted in the United States of America, or GAAP, for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. For a more complete discussion of significant accounting policies and certain other information, the Companys interim unaudited consolidated financial statements should be read
in conjunction with its audited consolidated financial statements as of and for the year ended December 31, 2018 included in the Companys annual report on Form 10-K for the year ended
December 31, 2018. Operating results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. The December 31, 2018
consolidated balance sheet and consolidated schedule of investments are derived from the Companys audited consolidated financial statements as of and for the year ended December 31, 2018. The Company is considered an investment company
under GAAP and follows the accounting and reporting guidance applicable to investment companies under Accounting Standards Codification Topic 946, Financial ServicesInvestment Companies.
Use of Estimates: The preparation of the unaudited consolidated financial statements in conformity with GAAP requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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