The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the audited
consolidated financial statements and the notes related thereto which are
included in "Item 8. Financial Statements and Supplementary Data" of this Annual
Report on Form 10-K. Certain information contained in the discussion and
analysis set forth below includes forward-looking statements. Our actual results
may differ materially from those anticipated in these forward-looking statements
as a result of many factors, including those set forth under "Special Note
Regarding Forward-Looking Statements," "Item 1A. Risk Factors" and elsewhere in
this Annual Report on Form 10-K.
Overview
We are a blank check company incorporated in Delaware on January 14, 2021 for
the purpose of effecting a merger, capital stock exchange, asset acquisition,
share purchase, reorganization or similar business combination with one or more
businesses, which we refer to as our initial business combination. We are an
early-stage emerging growth company and, as such, subject to all of the risks
associated with early stage and emerging growth companies. Our sponsor is KKR
Acquisition Sponsor I LLC, a Delaware limited liability company (our "Sponsor").
Our registration statement for our Initial Public Offering (the "Initial Public
Offering") became effective on March 16, 2021. On March 19, 2021, we
consummated our Initial Public Offering of through the issuance and sale of
138,000,000 units consisting of shares of our Class A common stock and
one-fourth of one redeemable warrant to purchase one share of Class A common
stock (the "Units" and, with respect to the Class A common stock included in the
Units offered, the "Public Shares") at a price of $10.00 per Unit, generating
gross proceeds of approximately $1.4 billion, and incurring offering costs of
approximately $77.4 million (net of reimbursement from underwriters of $13.8
million), of which $48.3 million was for deferred underwriting commissions. Each
whole redeemable warrant entitles the holder to purchase one Public Share at a
price of $11.50 per share (a "Public Warrant").
Simultaneously with the closing of the Initial Public Offering, we consummated
the private placement ("Private Placement") of 21,733,333 warrants (the "Private
Placement Warrants") to our Sponsor at a price of $1.50 per Private Placement
Warrant, generating proceeds of $32.6 million.
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Upon the closing of the Initial Public Offering and the Private Placement,
approximately $1.4 billion ($10.00 per Unit) of the net proceeds of the Initial
Public Offering and certain of the proceeds of the Private Placement was placed
in a trust account ("Trust Account") located in the United States with
Continental Stock Transfer & Trust Company acting as trustee, and invested only
in U.S. government securities with a maturity of 185 days or less or in money
market funds meeting certain conditions under Rule 2a-7 under the Investment
Company Act of 1940, as amended (the "Investment Company Act"), which invest
only in direct U.S. government treasury obligations, as determined by us, until
the earlier of: (i) the completion of a an initial business combination and (ii)
the distribution of the Trust Account as described below.
If we are unable to complete an initial business combination within 24 months
from the closing of the Initial Public Offering, or March 19, 2023 (as such
period may be extended by our stockholders in accordance with the Certificate of
Incorporation, the "Combination Period"), we will (1) cease all operations
except for the purpose of winding up; (2) as promptly as reasonably possible but
not more than ten business days thereafter, redeem the Public Shares, at a
per-share price, payable in cash, equal to the aggregate amount then on deposit
in the Trust Account, including interest earned on the funds in the Trust
Account (net of taxes payable and up to $100,000 of interest to pay dissolution
expenses), divided by the number of then issued and outstanding Public Shares,
which redemption will completely extinguish the public stockholders' rights as
stockholders (including the right to receive further liquidating distributions,
if any); and (3) as promptly as reasonably possible following such redemption,
subject to the approval of the remaining stockholders and our board of
directors, liquidate and dissolve, subject in each case to our obligations under
Delaware law to provide for claims of creditors and the requirements of other
applicable law.
Results of Operations
Our entire activity since inception through December 31, 2021 related to our
formation, the preparation for the Initial Public Offering, and since the
closing of the Initial Public Offering, the search for a prospective initial
business combination. We have neither engaged in any operations nor generated
any revenues to date. We will not generate any operating revenues until after
completion of our initial business combination. We will generate non-operating
income in the form of gain on investment (net), dividends and interest held in
Trust Account. We expect to incur increased expenses as a result of being a
public company (for legal, financial reporting, accounting and auditing
compliance), as well as for due diligence expenses related to prospective
business combination candidates. There can be no assurance that our plans to
complete an initial business combination will be successful.
For the period from January 14, 2021 (inception) through December 31, 2021, we
had net income of approximately $2.7 million, which consisted of:
•a loss from operations of approximately $2.9 million;
•non-operating income of approximately $7.7 million for changes in fair value of
derivative liabilities;
•income from investments held in the Trust Account of approximately $85,000;
•a non-operating expense of approximately $2.2 million for offering costs
associated with derivative warrant liabilities.
The loss from operations consisted of approximately $2.7 million of general and
administrative expenses and approximately $190,000 in franchise tax expense.
Liquidity and Capital Resources; Going Concern Considerations
As of December 31, 2021, we had investments held in the Trust Account of $1.4
billion consisting of cash and U.S. government securities. Interest income on
the balance in the Trust Account may be used by us to pay taxes, and to pay up
to $100,000 of any dissolution expenses. Our liquidity needs to date have been
satisfied through a contribution of $25,000 from the Sponsor to cover certain
expenses in exchange for the issuance of the Class B ordinary shares, a loan
from the Sponsor pursuant to a promissory note (see Note 4 to our audited
financial statements contained elsewhere in this Annual Report on Form 10-K)
(the "Promissory Note"), and the proceeds from the consummation of the Private
Placement not held in the Trust Account. The Company repaid the Promissory Note
during 2021.
As of December 31, 2021, we had current liabilities of $2.7 million and
approximately $1.6 million in our operating bank account. We do not have
sufficient liquidity to meet our anticipated obligations over the next year from
the date of issuance of the financial statements included in this report. In
connection with the Company's assessment of going concern considerations
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in accordance with Accounting Standards Update ("ASU") 2014-15, "Disclosures of
Uncertainties about an Entity's Ability to Continue as a Going Concern," our
management has determined that if the Company is unsuccessful in consummating an
initial business combination, the mandatory liquidation and subsequent
dissolution raise substantial doubt about our ability to continue as a going
concern. We have access to funds from the Sponsor that are sufficient to fund
the working capital needs of the Company until a potential business combination
or up to the mandatory liquidation date as stipulated in the certificate of
incorporation. As of December 31, 2021, there were no amounts outstanding under
any working capital loan (see Note 4 to our audited financial statements
contained elsewhere in this Annual Report on Form 10-K). As of December 31,
2021, the Company had a $1.7 million payable outstanding to a related party of
the Sponsor for the reimbursement of operating expenses incurred on behalf of
the Company. Management further intends to close an initial business combination
before the mandatory liquidation date.
We continue to evaluate the impact of both the COVID-19 pandemic and Russia's
invasion of Ukraine and have concluded that the specific impact is not readily
determinable as of December 31, 2021. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Contractual Obligations
We do not have any long-term debt obligations, capital lease obligations,
operating lease obligations, purchase obligations or long-term liabilities,
other than a contingent obligation to pay the underwriters for our Initial
Public Offering $48.3 million in the aggregate for deferred underwriting
commissions. The deferred fee will become payable to the underwriters from the
amounts held in the Trust Account solely in the event that we complete an
initial business combination, subject to the terms of the underwriting
agreement.
Critical Accounting Policies
This management's discussion and analysis of our financial condition and results
of operations is based on our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of our financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses and the disclosure of contingent assets and liabilities in
our financial statements. On an ongoing basis, we evaluate our estimates and
judgments, including those related to the fair value of financial instruments
and accrued expenses. We base our estimates on historical experience, known
trends and events and various other factors that we believe to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. We have identified the
following as our critical accounting policies:
Derivative Warrant Liabilities
We do not use derivative instruments to hedge exposures to cash flow, market, or
foreign currency risks. We evaluate all of our financial instruments, including
issued stock purchase warrants, to determine if such instruments are derivatives
or contain features that qualify as embedded derivatives, pursuant to Financial
Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC")
Topic 480 and FASB ASC Topic 815-15. The classification of derivative
instruments, including whether such instruments should be recorded as
liabilities or as equity, is re-assessed at the end of each reporting period.
The 34,500,000 Public Warrants issued as part of the Units sold in connection
with the Initial Public Offering and exercise of the over-allotment and the
21,733,333 Private Placement Warrants are recognized as derivative liabilities
in accordance with FASB ASC Topic 815-40. Accordingly, we recognize the warrant
instruments as liabilities at fair value and adjust the instruments to fair
value at each reporting period. The liabilities are subject to re-measurement at
each balance sheet date until exercised, and any change in fair value is
recognized in the Company's statement of operations. The estimated fair value of
the Private Placement Warrants is measured at fair value using a Black-Scholes
valuation model, while the Public Warrants were valued using a Monte-Carlo
simulation model as of March 31, 2021 and the fair value of the Public Warrants
is based on their quoted market price as of December 31, 2021.
Class A Common Stock Subject to Possible Redemption
Class A common stock subject to mandatory redemption (if any) is classified as a
liability instrument and measured at fair value. Conditionally redeemable Class
A common stock (including Class A common stock that features redemption rights
that are either within the control of the holder or subject to redemption upon
the occurrence of uncertain events not solely within our
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control) is classified as temporary equity. At all other times, Class A common
stock is classified as stockholders' equity. Our outstanding Class A common
stock features certain redemption rights that are considered to be outside of
our control and subject to the occurrence of uncertain future events.
Accordingly, at December 31, 2021, all 138,000,000 shares of Class A common
stock subject to possible redemption is presented as temporary equity, outside
of the stockholders' equity section of the balance sheet.
Please refer to Note 2 to our audited financial statements contained elsewhere
in this Annual Report on Form 10-K for further information on our accounting
policies.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU No. 2020-06, Debt-Debt with Conversion and
Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in
Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments
and Contracts in an Entity's Own Equity ("ASU 2020-06"), which simplifies
accounting for convertible instruments by removing major separation models
required under current U.S. GAAP. ASU 2020-06 also removes certain settlement
conditions that are required for equity-linked contracts to qualify for the
derivative scope exception, and it simplifies the diluted earnings per share
calculation in certain areas. We adopted ASU 2020-06 on January 14, 2021.
Adoption of the ASU 2020-06 did not impact our financial position, results of
operations or cash flows.
Management does not believe that any recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect on the
accompanying financial statement
Off-Balance Sheet Arrangements
As of December 31, 2021, we did not have any off-balance sheet arrangements as
defined in Item 303(a)(4)(ii) of Regulation S-K.
JOBS Act
The Jumpstart Our Business Startups Act of 2012 (the "JOBS Act") contains
provisions that, among other things, relax certain reporting requirements for
qualifying public companies. We qualify as an "emerging growth company" and
under the JOBS Act are allowed to comply with new or revised accounting
pronouncements based on the effective date for private (not publicly traded)
companies. We are electing to delay the adoption of new or revised accounting
standards, and as a result, we may not comply with new or revised accounting
standards on the relevant dates on which adoption of such standards is required
for non-emerging growth companies. As a result, our financial statements may not
be comparable to companies that comply with new or revised accounting
pronouncements as of public company effective dates.
Subject to certain conditions set forth in the JOBS Act, as an "emerging growth
company," we rely on exemptions that permit us to not (i) provide an auditor's
attestation report on our system of internal controls over financial reporting
pursuant to Section 404, (ii) provide all of the compensation disclosure that
may be required of non-emerging growth public companies under the Dodd-Frank
Wall Street Reform and Consumer Protection Act, (iii) comply with any
requirement that may be adopted by the PCAOB regarding mandatory audit firm
rotation or a supplement to the auditor's report providing additional
information about the audit and the financial statements (auditor discussion and
analysis) and (iv) disclose certain executive compensation related items such as
the correlation between executive compensation and performance and comparisons
of the CEO's compensation to median employee compensation, among other things.
These exemptions will apply for a period of five years following the completion
of our Initial Public Offering or until we are no longer an "emerging growth
company," whichever is earlier.
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