filings.toolsCover and table of contents
29K characters. Original on sec.gov · Markdown
Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year 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 .
Commission File Number 001-34820
KKR & CO. INC.
(Exact name of Registrant as specified in its charter)
| Delaware | 88-1203639 | |||||||
| (State or other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number) |
30 Hudson Yards
New York, New York 10001
Telephone: (212) 750-8300
(Address, zip code, and telephone number, including
area code, of registrant's principal executive office.)
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 | KKR | New York Stock Exchange | ||||||
| 6.00% Series C Mandatory Convertible Preferred Stock | KKR PR C | New York Stock Exchange | ||||||
| 4.625% Subordinated Notes due 2061 of KKR Group Finance Co. IX LLC | KKRS | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 and 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. □
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). □
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of common stock of the registrant held by non-affiliates as of June 30, 2022, was approximately $29.9 billion. As of February 24, 2023, the registrant had 861,107,985 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
KKR & CO. INC.
FORM 10-K
For the Year Ended December 31, 2022
INDEX
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which reflect our current views with respect to, among other things, our operations and financial performance. You can identify these forward-looking statements by the use of words such as "outlook," "believe," "think," "expect," "potential," "continue," "may," "should," "seek," "approximately," "predict," "intend," "will," "plan," "estimate," "anticipate," the negative version of these words, other comparable words or other statements that do not relate strictly to historical or factual matters. Without limiting the foregoing, statements regarding the declaration and payment of dividends on common or preferred stock of KKR & Co. Inc.; the timing, manner and volume of repurchase of common stock pursuant to its repurchase program; expansion and growth opportunities and other synergies resulting from acquisitions, reorganizations or strategic partnerships; the return of balance sheet capital if a fund has a successful fundraise; investment opportunities offered to individual investors to continue to grow and to represent a larger percentage of our assets under management; the estimate of the amounts expected to be owed under the tax receivable agreement; the ability of core private equity investments to generate earnings that compound over a long period of time; and the timing and completion of certain transactions contemplated by the Reorganization Agreement (as defined below) may constitute forward-looking statements. Forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements or cause the anticipated benefits and synergies from transactions to not be realized. We believe these factors include those described in the section entitled "Risk Factors" in this report. These factors should be read in conjunction with the other cautionary statements that are included in this report and in our other filings with the U.S. Securities and Exchange Commission (the "SEC"). We do not undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.
CERTAIN TERMS USED IN THIS REPORT
In this report, references to "KKR," "we," "us" and "our" refer to KKR & Co. Inc. and its subsidiaries, including The Global Atlantic Financial Group LLC ("TGAFG" and, together with its subsidiaries, "Global Atlantic"), unless the context requires otherwise.
References to the “Series I preferred stockholder” or “KKR Management” are to KKR Management LLP, the holder of the sole outstanding share of our Series I preferred stock. References to our “senior principals” are to our senior employees who hold interests in the Series I preferred stockholder, including Mr. Henry Kravis and Mr. George Roberts (our "Co-Founders"). References to "principals" are to our current and former employees who formerly held interests in KKR Holdings L.P. ("KKR Holdings"), which we acquired on May 31, 2022, pursuant to the Reorganization Agreement, as discussed below. References to “carry pool participants” are to our current and former employees who hold interests in our “carry pool,” which refers to the carried interest generated by KKR’s business that is allocated to KKR Associates Holdings L.P. (“KKR Associates Holdings”), in which carry pool participants are limited partners. KKR Associates Holdings is currently not a subsidiary of KKR & Co. Inc.
KKR Group Partnership L.P. ("KKR Group Partnership") is the intermediate holding company that owns the entirety of KKR’s business. Unless otherwise indicated, references to equity interests in KKR’s business, or to percentage interests in KKR’s business, reflect the aggregate equity interests in KKR Group Partnership, and are net of amounts that have been allocated to carry pool participants and any other holders of minority interests in KKR Group Partnership. References to “KKR Group Partnership” for periods prior to January 1, 2020 refer to KKR Fund Holdings L.P., KKR Management Holdings L.P. and KKR International Holdings L.P., collectively, which were combined on that date to form KKR Group Partnership. References to a “KKR Group Partnership Unit” refer to (i) one Class A partner interest in each of KKR Fund Holdings L.P., KKR Management Holdings L.P. and KKR International Holdings L.P., collectively, for periods prior to prior to January 1, 2020, and (ii) one Class A partner interest in KKR Group Partnership for periods on and after January 1, 2020. “Exchangeable securities” refers to securities that have the right to acquire KKR Group Partnership Units and to exchange them for our shares of common stock. As of the date of this report, our only outstanding exchangeable securities are vested restricted holdings units issued under the Amended and Restated KKR & Co. Inc. 2019 Equity Incentive Plan (the "2019 Equity Incentive Plan"). In the future, we may issue securities other than restricted holdings units that may constitute exchangeable securities.
On October 8, 2021, KKR entered into a Reorganization Agreement (the "Reorganization Agreement") with KKR Holdings, KKR Management, KKR Associates Holdings, and the other parties thereto. Pursuant to the Reorganization Agreement, the parties agreed to undertake a series of integrated transactions to effect a number of transformative structural and governance changes, including (a) the acquisition by KKR of KKR Holdings and all of the KKR Group Partnership Units held by it (which as noted below was completed), (b) the future elimination of voting control by KKR Management and the Series I preferred stock held by it, (c) the future establishment of voting rights for all common stock on a one vote per share basis, including with respect to the election of directors, and (d) the future control of the carry pool by KKR. On May 31, 2022, KKR
completed the acquisition of KKR Holdings and the 258.3 million KKR Group Partnership Units held by it, and in exchange KKR issued and delivered 266.8 million shares of common stock to our principals. On the "Sunset Date" (which will occur no later than December 31, 2026), KKR will cancel the Series I preferred stock, establish voting rights for all common stock on a one vote per share basis, and acquire control of the carry pool. For more information about the Reorganization Agreement, see "Certain Relationships and Related Transactions, and Director Independence—Reorganization Agreement" in this report.
KKR’s asset management business is conducted by Kohlberg Kravis Roberts & Co. L.P. and various other subsidiaries of KKR & Co. Inc. other than Global Atlantic. KKR’s insurance business is operated by Global Atlantic, which KKR acquired on February 1, 2021 (the "GA Acquisition"). KJR Management ("KJRM") is a Japanese real estate asset manager, which KKR acquired on April 28, 2022.
References to our "funds" or "vehicles" refer to a wide array of investment funds, vehicles and accounts that are advised, managed or sponsored by one or more subsidiaries of KKR, including collateralized loan obligations ("CLOs") and business development companies (each, a "BDC"), unless the context requires otherwise. These references do not include the investment funds, vehicles or accounts of any hedge fund partnership or any other third-party manager with which we have formed a strategic partnership or have acquired a minority ownership interest. Unless the context requires otherwise, references to “fund investors” refers to the third-party investors in our funds and vehicles. References to “strategic investor partnerships” refers to separately managed accounts with certain investors, which typically have investment periods longer than our traditional funds and typically provide for investments across different investment strategies. References to “hedge fund partnerships” refers to strategic partnerships with third-party hedge fund managers in which KKR owns a minority stake.
Unless otherwise indicated, references in this report to our outstanding common stock on a fully exchanged and diluted basis reflect (i) actual shares of common stock outstanding, (ii) shares of common stock into which all outstanding shares of Series C Mandatory Convertible Preferred Stock are convertible, and (iii) shares of common stock issuable pursuant to equity awards actually granted pursuant to the Amended and Restated KKR & Co. Inc. 2010 Equity Incentive Plan (the "2010 Equity Incentive Plan" and, together with the 2019 Equity Incentive Plan, our "Equity Incentive Plans"). Our outstanding common stock on a fully exchanged and diluted basis does not include shares of common stock available for issuance pursuant to the Equity Incentive Plans for which equity awards have not yet been granted.
In this report, the term "GAAP" refers to accounting principles generally accepted in the United States of America. We disclose certain financial measures in this report that are calculated and presented using methodologies other than in accordance with GAAP, including after-tax distributable earnings, distributable operating earnings, fee related earnings ("FRE"), asset management segment revenues, book value and book value per adjusted share. We believe that providing these performance measures on a supplemental basis to our GAAP results is helpful to stockholders in assessing the overall performance of KKR's businesses. These non-GAAP financial measures should not be considered as a substitute for similar financial measures calculated in accordance with GAAP. We caution readers that these non-GAAP financial measures may differ from the calculations of other investment managers, and as a result, may not be comparable to similar measures presented by other investment managers. Reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP, where applicable, are included under "Management's Discussion and Analysis of Financial Condition and Results of Operations—Analysis of Non-GAAP Performance Measures—Reconciliations to GAAP Measures." This report also uses the terms assets under management ("AUM"), fee paying assets under management ("FPAUM") and capital invested. You should note that our calculations of these and other operating metrics may differ from the calculations of other investment managers and, as a result, may not be comparable to similar metrics presented by other investment managers. These non-GAAP and operating metrics are defined in the section "Management's Discussion and Analysis of Financial Condition and Results of Operations—Key Non-GAAP Performance Measures and Other Operating Measures."
The use of any defined term in this report to mean more than one entity, person, security or other item collectively is solely for convenience of reference and in no way implies that such entities, persons, securities or other items are one indistinguishable group. For example, notwithstanding the use of the defined terms "KKR," "we" and "our" in this report to refer to KKR & Co. Inc. and its subsidiaries, each subsidiary of KKR & Co. Inc. is a standalone legal entity that is separate and distinct from KKR & Co. Inc. and any of its other subsidiaries. Any KKR entity (including any Global Atlantic entity) referenced herein is responsible for its own financial, contractual and legal obligations. Additionally, references to "including" are for the purpose of illustration and shall be read to mean "including but not limited to."
SUMMARY RISK FACTORS
The following is a summary of the risk factors associated with investing in our securities. You should read this summary together with a more detailed description of these risks in the "Risk Factors" section of this report and in other filings that we make from time to time with the SEC.
We are subject to risks related to our business, including risks involving:
-
difficult market and economic conditions;
-
geopolitical developments and other local and global events;
-
disruptions caused by public health crises, such as COVID-19;
-
changes in debt financing markets;
-
transition away from LIBOR;
-
significant liquidity requirements and sources of liquidity;
-
"clawback" provisions in our governing agreements;
-
assets we refer to as "perpetual capital" being subject to material reduction;
-
high variability in our earnings and cash flow;
-
inability to raise additional or successor funds successfully;
-
intense competition in the investment management business;
-
increasing focus by stakeholders on ESG matters;
-
changes in relevant tax laws, regulations and treaties or adverse interpretations by tax authorities;
-
our dependence on our founders and other key personnel;
-
recruiting, retaining and motivating our employees and other key personnel;
-
operational risks, cyber-security failures, data security breaches and compliance with global privacy laws;
-
expansion into new investment strategies, geographic markets and businesses;
-
ability to syndicate securities or indebtedness and realize returns on balance sheet investments;
-
extensive regulation of our businesses, increased regulatory scrutiny, and legislative and regulatory changes;
-
federal, state and foreign anti-corruption and trade sanctions laws;
-
litigation allegations and negative publicity;
-
certain types of investment vehicles with increased risk of litigation and regulatory scrutiny;
-
failure to protect intellectual property rights;
-
misconduct of our employees, consultants or sub-contractors or by our portfolio companies;
-
our capital markets activities;
-
use of derivative financial instruments in our risk management strategy; and
-
use of third-party service providers.
We are subject to risks related to assets we manage, including risks involving:
-
historical returns not being indicative of future results;
-
valuation methodologies;
-
various market and economic conditions and events outside our control;
-
dependence on significant leverage in our investments;
-
exposures to, and investments in, leveraged companies or companies experiencing financial or business difficulties;
-
limitations inherent in the due diligence process;
-
investments in relatively high-risk, illiquid assets;
-
risks inherent in our investments, including risks specific to real assets and growth equity investments;
-
investments in real assets and emerging and less established companies;
-
complex investments, including large-sized investments and non-controlled investments;
-
investments in companies that are based outside of the United States;
-
third-party investors' contractual obligation to fund capital calls;
-
ranking of our equity and debt investments compared to investments made by others;
-
hedging transactions and other risk management activities undertaken by us;
-
concentration of investments by our funds or by our balance sheet;
-
conflicts of interest between our business and our clients;
-
redemption by fund investors in certain of our real asset funds;
-
termination of our investment advisory arrangements; and
-
our hedge fund partnerships.
We are subject to risks related to our common stock, including risks involving:
-
significant voting power held by the Series I preferred stockholder;
-
exemptions available to us as a "controlled company" under the NYSE corporate governance rules;
-
exemptions from proxy rules under U.S. securities laws;
-
provisions in our charter limiting the obligation and liability of the Series I preferred stockholder;
-
exclusive forum provision included in our charter;
-
volatility of market price and trading volume of our common stock;
-
assets and revenues of our funds not being directly available to us or our common stockholders;
-
large number of shares eligible for future sale and issuable as grants or in acquisitions;
-
ability to issue preferred stock may cause the price of our common stock to decline; and
-
our right to repurchase all outstanding shares of common stock under specific circumstances.
We are subject to risks related to our organizational structure, including risks involving:
-
potential conflicts of interest among the Series I preferred stockholder and our common stockholders;
-
certain actions by our board of directors requiring the approval of the Series I preferred stockholder;
-
limitations on our ability to pay periodic dividends;
-
our obligations to pay under a tax receivable agreement;
-
potential application of restrictions under the Investment Company Act of 1940;
-
reorganizations undertaken by us; and
-
anti-takeover provisions in our organizational documents.
We are subject to risks related to Global Atlantic, including risks involving:
-
possibility of not achieving the intended benefit of the acquisition;
-
interest rate fluctuations, including sustained periods of low or high interest rates and interest rate increases;
-
use of derivative financial instruments in Global Atlantic's risk management strategy;
-
dependence on third-party service providers, including distribution partners and agents;
-
guarantees within certain of Global Atlantic's products;
-
volatility in its net income under GAAP;
-
acceleration of amortization of deferred revenues and expenses;
-
difference between policyholder behavior estimates, reserve assumptions and actual claim experience;
-
estimates used in preparation of financial statements and models for insurance products;
-
ability to execute Global Atlantic's growth strategies successfully;
-
any gaps in Global Atlantic's risk management policies and procedures;
-
Global Atlantic's actual or perceived financial strength and ratings of Global Atlantic and its subsidiaries;
-
failure to comply with covenants in credit facilities or agreements;
-
lack of captive or proprietary distribution or direct sale;
-
businesses Global Atlantic reinsures and business it cedes to reinsurers;
-
protection of confidentiality of client information;
-
changes in accounting standards;
-
ability to cover policyholder benefits, withdrawals, recaptures or collateralization requirements;
-
reinsurance assets held in trust, which limits Global Atlantic's ability to invest those assets;
-
triggering a recapture event under reinsurance agreements where Global Atlantic's clients may recapture some or all of the assumed business;
-
determination of the amount of impairments and allowances for credit losses;
-
repurchase and reverse repurchase transactions that subject Global Atlantic to liquidity risks;
-
applicability of U.S. federal taxes, changes to U.S. tax laws or Global Atlantic's tax status in Bermuda; and
-
insurance and other regulations, including those related to statutory accounting rules, reserves, guaranty association laws and licensing requirements, that apply to Global Atlantic and its insurance subsidiaries.
PART I