Business Context and Reporting Period
This Form 8-K, dated July 1, 2018, reports the completion of KKR & Co. L.P.'s conversion into a Delaware corporation named KKR & Co. Inc., effective at 12:01 a.m. Eastern Time on July 1, 2018. The filing also details a change in accounting policy regarding general partner capital interest and the adoption of FASB guidance on restricted cash, necessitating the reclassification of prior period financial information.
Key Financial Metrics and Reclassifications
The filing does not report current period revenue, profit, or cash flow figures. Instead, it quantifies specific reclassifications to prior period data (2015–2017) due to accounting changes:
- Revenue Reclassification: Due to combining carried interest and general partner capital interest into a single unit of account, $275.0 million (2017) and $131.9 million (2016) were reclassified from Net Gains (Losses) from Investment Activities to Revenues.
- Net Income Impact: The change in accounting policy had no impact on Net Income Attributable to KKR & Co. L.P. for 2017 or 2016.
- Cash Flow Reclassification: Adoption of ASU No. 2016-18 regarding restricted cash resulted in reclassifications between operating/investing activities and the net increase/decrease in cash. For 2017, $97.9 million was reclassified from operating activities and $(155.9) million from investing activities.
Material Changes Versus Prior Period
The primary material change is the corporate structure conversion from a limited partnership to a corporation. Financially, the material change involves the presentation of historical data:
- Accounting Policy Change: Effective January 1, 2018, carried interest and general partner capital interest in unconsolidated funds are now recognized as a single unit in Revenues, whereas previously they were split between Revenues and Net Gains (Losses).
- Cash Flow Presentation: Restricted cash is now included in cash and cash equivalents balances, and transfers between these categories are no longer presented as cash flow activities.
Guidance, Outlook, Risks, and Unusual Items
The filing does not provide forward-looking guidance or management commentary on future performance. However, it highlights the following:
- Risk Factors: New risk factors supplementing the 2017 10-K and 2018 10-Q are filed as Exhibit 99.2 to reflect the Conversion.
- Tax Considerations: Material U.S. federal tax considerations relevant to the new capital stock are provided in Exhibit 99.4, superseding prior prospectus disclosures.
- Pro Forma Information: Unaudited pro forma financial information reflecting the impact of the Conversion is included in Exhibit 99.3.
Investor Verification Checklist
- Review Exhibit 99.1 for the complete description of KKR & Co. Inc.'s capital stock terms.
- Examine Exhibit 99.2 for updated risk factors specific to the corporate conversion.
- Analyze Exhibit 99.3 for unaudited pro forma financial information to understand the conversion's impact on financial condition.
- Consult Exhibit 99.4 for updated material U.S. federal income tax considerations.
- Verify that historical financial statements (2015–2017) are adjusted for the reclassification of carried interest and restricted cash as described.