EX-99.1 2 a08-12832_1ex99d1.htm EX-99.1

Exhibit 99.1

 

 

Investor Contact
Laurie Poggi
KKR Financial LLC
415-315-3718

 

Media Contact
Roanne Kulakoff and Joseph Kuo
Kekst and Company
212-521-4837 and 212-521-4863

 

KKR Financial Holdings LLC Announces First Quarter 2008 Financial Results and Quarterly Distribution of $0.40 per Common Share

 

SAN FRANCISCO, CA, May 1, 2008—KKR Financial Holdings LLC (NYSE: KFN) (“KFN” or the “Company”) today announced its results for the first quarter ended March 31, 2008.

 

Highlights of KKR Financial Holdings LLC’s results include:

 

·                                   Distribution of $0.40 per common share declared for the first quarter.

 

·                                   For the first quarter ended March 31, 2008, GAAP income from continuing operations totaled $8.8 million, or $0.08 per diluted common share, and GAAP net income totaled $14.0 million, or $0.12 per diluted common share. For the first quarter ended March 31, 2008, economic income from continuing operations, a non-GAAP financial measurement, totaled $9.4 million, or $0.08 per diluted common share, and economic net income, a non-GAAP financial measurement, totaled $14.6 million, or $0.12 per diluted common share. A reconciliation of economic to GAAP results is provided on Schedule I.

 

·                                   As of March 31, 2008, continuing operations net economic leverage, a non-GAAP financial measurement, was 3.6x.

 

·                                   On April 8, 2008, the Company consummated a public offering of 34.5 million common shares at a price of $11.85 per common share.  Net proceeds from the transaction before expenses totaled $384.3 million, which the Company will use for general corporate purposes.

 

*     *     *

 


 

For the quarter ended March 31, 2008, the Company reported GAAP net income from continuing operations of $8.8 million, or $0.08 per diluted common share, and GAAP net income totaled $14.0 million, or $0.12 per diluted common share. GAAP net income from continuing operations for the quarter ended March 31, 2007 totaled $32.2 million, or $0.39 per diluted common share, and GAAP net income totaled $48.4 million, or $0.59 per diluted common share.

 

For the quarter ended March 31, 2008, economic net income from continuing operations, a non-GAAP financial measurement, totaled $9.4 million, or $0.08 per diluted common share, and economic net income, a non-GAAP financial measurement, totaled $14.6 million, or $0.12 per diluted common share. Economic net income from continuing operations, a non-GAAP financial measurement, for the quarter ended March 31, 2007 totaled $38.1 million, or $0.47 per diluted common share and economic net income, a non-GAAP financial measurement, totaled $54.3 million, or $0.67 per diluted common share.

 

A reconciliation of economic to GAAP financial results is provided on Schedule I.

 

Distribution

 

On May 1, 2008, the Company’s Board of Directors declared a distribution of $0.40 per common share for the quarter ended March 31, 2008.  The distribution is payable on May 30, 2008 to shareholders of record as of the close of business on May 15, 2008.

 

Adjusted Economic Earnings Per Diluted Common Share

 

The Company’s adjusted economic earnings per diluted common share, a non-GAAP financial measurement, was $0.54 for the quarter ended March 31, 2008. Adjusted economic earnings per diluted common share is computed as economic net income adjusted to exclude unrealized gains and losses from investments and derivatives.

 

Leverage

 

As of March 31, 2008, continuing operations net economic leverage, a non-GAAP financial measurement, was 3.6x.  Continuing operations net economic leverage is computed as total economic borrowings, less the sum of trust preferred securities (reflected as junior subordinated notes on the Company’s consolidated balance sheet) and unrestricted cash, divided by the sum of economic shareholders’ equity and the trust preferred securities which are treated, for purposes of this calculation, as equity.

 

Book Value Per Common Share

 

The Company’s GAAP book value per common share outstanding was $12.96 and $14.27 as of March 31, 2008 and December 31, 2007, respectively. The Company’s economic book value per common share outstanding, a non-GAAP financial measurement, was $13.42 and $14.62 as of March 31, 2008 and December 31, 2007, respectively.

 

Common Share Offering

 

On April 8, 2008, the Company consummated a public offering of 34.5 million common shares at a price of $11.85 per common share.  Net proceeds from the transaction before expenses totaled $384.3 million, which the Company will use for general corporate purposes.

 

Information for Investors: Conference Call and Webcast

 

The Company will host a conference call and audio webcast to review its first quarter 2008 results on Thursday, May 1, 2008, at 5:00 p.m. EDT. The conference call can be accessed by dialing 888-631-3389 (Domestic) or 913-312-1278 (International); a pass code is not required. A replay will be available through Thursday, May 15, 2008 by dialing 888-203-1112 (Domestic) and 719-457-0820 (International) / pass code 1979741. Supplemental materials that will be discussed during the call, as well as a live webcast of the call, will be accessible on the Company’s website, at www.kkrkfn.com, via a link

 


 

from the Investor Relations section. A replay of the audio webcast will be archived in the Investor Relations section of the Company’s website.

 

Note Regarding Use of Non-GAAP Financial Measures

 

The non-GAAP financial measurements referred to in this earnings release are provided as supplemental information, and should not be relied upon as alternative measures to GAAP. These non-GAAP financial measures consist of items calculated by the Company on an “economic” basis, which includes the following: (i) presentation of the Company’s proportionate share of certain structured finance vehicles where the Company holds a majority ownership interest and consolidates such vehicles in accordance with GAAP; (ii) exclusion of share-based compensation in the calculation of economic net income or loss; (iii) presentation of the Company’s adjusted economic income per diluted common share (economic net income or loss excluding unrealized gains and losses on investments and derivatives); and (iv) presentation of the net assets of the Company’s discontinued operations. The Company believes that the non-GAAP financial measures presented in this earnings release provide useful information to investors by providing an understanding of the Company’s financial condition and operating performance by which liquidity and periodic results, for purposes of evaluating the net income available for distributions to shareholders, can be assessed.

 

About KKR Financial Holdings LLC

 

KKR Financial Holdings LLC is a publicly traded specialty finance company that invests in multiple asset classes. KKR Financial Holdings LLC is externally managed by KKR Financial Advisors LLC. KKR Financial Holdings LLC and KKR Financial Advisors LLC are affiliates of Kohlberg Kravis Roberts & Co. L.P.  Additional information regarding KKR Financial Holdings LLC is available at http://www.kkrkfn.com.

 

Statements in this press release which are not historical fact may be deemed forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although KKR Financial Holdings LLC believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, the Company can give no assurance that its expectations will be attained. Factors that could cause actual results to differ materially from the Company’s expectations include completion of pending investments, continued ability to source new investments, the availability and cost of capital for future investments, competition within the specialty finance sector, economic conditions, credit loss experience, availability of financing, maintenance of sufficient liquidity, and other risks disclosed from time to time in the Company’s filings with the SEC.

 


 

Schedule I

KKR Financial Holdings LLC

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 

 

 

For the three months ended March 31, 2008

 

For the three months ended March 31, 2007 (2)

 

(amounts in thousands, except per share
information)

 

Economic
Measure

 

Reconciliation
Adjustments(1)

 

Reported

 

Economic
Measure

 

Reconciliation
Adjustments(1)

 

Reported

 

Net investment income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan interest income

 

$

124,607

 

$

44,902

 

$

169,509

 

$

66,635

 

$

—

 

$

66,635

 

Securities interest income

 

28,901

 

8,359

 

37,260

 

20,011

 

—

 

20,011

 

Dividend income

 

816

 

—

 

816

 

974

 

—

 

974

 

Other interest income

 

9,667

 

1,377

 

11,044

 

2,577

 

—

 

2,577

 

Total investment income

 

163,991

 

54,638

 

218,629

 

90,197

 

—

 

90,197

 

Interest expense

 

(92,971

)

(24,738

)

(117,709

)

(54,282

)

—

 

(54,282

)

Interest expense to affiliates

 

—

 

(27,817

)

(27,817

)

—

 

—

 

—

 

Net investment income

 

71,020

 

2,083

 

73,103

 

35,915

 

—

 

35,915

 

Other (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net realized and unrealized (loss) gain on investments

 

(4,085

)

(2,688

)

(6,773

)

7,024

 

—

 

7,024

 

Net realized and unrealized (loss) gain on derivatives and foreign exchange

 

(47,016

)

—

 

(47,016

)

7,138

 

—

 

7,138

 

Other income

 

3,941

 

1,014

 

4,955

 

2,049

 

—

 

2,049

 

Total other (loss) income

 

(47,160

)

(1,674

)

(48,834

)

16,211

 

—

 

16,211

 

Non-investment expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Related party management compensation

 

8,696

 

463

 

9,159

 

13,567

 

5,731

 

19,298

 

General, administrative and directors expenses

 

3,887

 

586

 

4,473

 

6,156

 

107

 

6,263

 

Professional services

 

1,857

 

—

 

1,857

 

541

 

—

 

541

 

Total non-investment expenses

 

14,440

 

1,049

 

15,489

 

20,264

 

5,838

 

26,102

 

Income from continuing operations before equity in income of unconsolidated affiliate and income tax expense

 

9,420

 

(640

)

8,780

 

31,862

 

(5,838

)

26,024

 

Equity in income of unconsolidated affiliate

 

—

 

—

 

—

 

6,981

 

—

 

6,981

 

Income from continuing operations before income tax expense

 

9,420

 

(640

)

8,780

 

38,843

 

(5,838

)

33,005

 

Income tax expense

 

—

 

—

 

—

 

776

 

—

 

776

 

Income from continuing operations

 

9,420

 

(640

)

8,780

 

38,067

 

(5,838

)

32,229

 

Income from discontinued operations

 

5,203

 

—

 

5,203

 

16,195

 

—

 

16,195

 

Net income

 

$

14,623

 

 

$

(640

)

 

$

13,983

 

 

$

54,262

 

 

$

(5,838

)

 

$

48,424

 

Net income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

 

 

 

 

Income per share from continuing operations

 

$

0.08

 

 

 

$

0.08

 

$

0.47

 

 

 

$

0.40

 

Income per share from discontinued operations

 

$

0.04

 

 

 

$

0.04

 

$

0.20

 

 

 

$

0.20

 

Net income per share

 

$

0.12

 

 

 

$

0.12

 

$

0.67

 

 

 

$

0.60

 

Diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

Income per share from continuing operations

 

$

0.08

 

 

 

$

0.08

 

$

0.47

 

 

 

$

0.39

 

Income per share from discontinued operations

 

$

0.04

 

 

 

$

0.04

 

$

0.20

 

 

 

$

0.20

 

Net income per share

 

$

0.12

 

 

 

$

0.12

 

$

0.67

 

 

 

$

0.59

 

Weighted-average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

115,048

 

 

 

115,048

 

80,239

 

 

 

80,239

 

Diluted

 

115,599

 

 

 

115,599

 

81,728

 

 

 

81,728

 

Distributions declared per common share

 

$

0.50

 

 

 

$

0.50

 

$

0.54

 

 

 

$

0.54

 

 

(1)   These adjustments reconcile the Company’s GAAP statements of operations presentation to an economic, non-GAAP presentation. The nature of these adjustments is described under “Note Regarding Use of Non-GAAP Financial Measures” in this earnings release.

 

(2)   The jointly-owned collateralized loan obligation entities consolidated by the Company in accordance with Financial Accounting Standards Board Interpretation No. 46R, Consolidation of Variable Interest Entities, were formed subsequent to March 31, 2007. As such, the economic presentation includes only the share-based compensation adjustment.

 


 

Schedule II

KKR Financial Holdings LLC

CONSOLIDATED BALANCE SHEET (UNAUDITED)

 

 

 

March 31, 2008

 

(amounts in thousands, except share information)

 

Economic
Measure

 

Reconciliation
Adjustments(1)

 

Reported

 

Assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

210,689

 

$

—

 

$

210,689

 

Restricted cash and cash equivalents

 

923,094

 

140,242

 

1,063,336

 

Securities available-for-sale

 

873,986

 

233,572

 

1,107,558

 

Loans, net of allowance for loan losses

 

6,574,849

 

2,344,444

 

8,919,293

 

Loans held for sale

 

61,515

 

6,365

 

67,880

 

Derivative assets

 

32,577

 

—

 

32,577

 

Interest and principal receivable

 

90,660

 

29,882

 

120,542

 

Non-marketable equity securities

 

20,084

 

—

 

20,084

 

Reverse repurchase agreements

 

14,911

 

—

 

14,911

 

Other assets

 

133,276

 

(24,195

)

109,081

 

Net assets of discontinued operations

 

251,182

 

3,519,354

 

3,770,536

 

Total assets

 

$

9,186,823

 

$

6,249,664

 

$

15,436,487

 

Liabilities

 

 

 

 

 

 

 

Repurchase agreements

 

$

1,751,244

 

$

646,527

 

$

2,397,771

 

Collateralized loan obligation senior secured notes

 

4,749,698

 

1,399,266

 

6,148,964

 

Collateralized loan obligation junior secured notes to affiliates

 

79,865

 

445,555

 

525,420

 

Secured revolving credit facility

 

129,319

 

—

 

129,319

 

Secured demand loan

 

16,176

 

—

 

16,176

 

Convertible senior notes

 

300,000

 

—

 

300,000

 

Junior subordinated notes

 

329,908

 

—

 

329,908

 

Subordinated notes to affiliates

 

—

 

167,752

 

167,752

 

Accounts payable, accrued expenses and other liabilities

 

19,177

 

13,243

 

32,420

 

Accrued interest payable

 

85,470

 

36,833

 

122,303

 

Accrued interest payable to affiliates

 

—

 

65,859

 

65,859

 

Related party payable

 

4,881

 

—

 

4,881

 

Securities sold, not yet purchased

 

30,727

 

—

 

30,727

 

Derivative liabilities

 

128,803

 

8,484

 

137,287

 

Liabilities of discontinued operations

 

—

 

3,519,354

 

3,519,354

 

Total liabilities

 

7,625,268

 

6,302,873

 

13,928,141

 

Shareholders’ Equity

 

 

 

 

 

 

 

Preferred shares, no par value, 50,000,000 shares authorized and none issued and outstanding

 

—

 

—

 

—

 

Common shares, no par value, 250,000,000 shares authorized and 116,343,151 shares issued and outstanding

 

—

 

—

 

—

 

Paid-in-capital

 

2,167,796

 

—

 

2,167,796

 

Accumulated other comprehensive loss

 

(197,872

)

(52,569

)

(250,441

)

Accumulated deficit

 

(408,369

)

(640

)

(409,009

)

Total shareholders’ equity

 

1,561,555

 

(53,209

)

1,508,346

 

Total liabilities and shareholders’ equity

 

$

9,186,823

 

$

6,249,664

 

$

15,436,487

 

 

(1)          These adjustments reconcile the Company’s GAAP balance sheet presentation to an economic, non-GAAP presentation. The nature of these adjustments is described under “Note Regarding Use of Non-GAAP Financial Measures” in this earnings release.

 


 

Schedule III

KKR Financial Holdings LLC

ECONOMIC INVESTMENT PORTFOLIO AS OF MARCH 31, 2008 (UNAUDITED)

 

(amounts in thousands) (1)

 

Amortized Cost

 

Estimated
Fair Value

 

Portfolio Mix
% by Fair Value

 

Corporate loans (2)

 

$

6,661,364

 

$

6,003,362

 

87.0

%

Corporate securities

 

990,871

 

845,264

 

12.3

 

Marketable equity securities

 

49,000

 

28,722

 

0.4

 

Non-marketable equity securities

 

20,084

 

20,084

 

0.3

 

Total

 

$

7,721,319

 

$

6,897,432

 

100.0

%

 

(1)  Estimated fair values set forth in this schedule are based on dealer quotes and/or nationally recognized pricing services and management estimates for investment positions for which dealer quotes and/or nationally recognized pricing data are not available. The table above excludes securities sold, not yet purchased with a cost of $34.4 million and an estimated fair value of $30.7 million, and residential mortgage-backed securities with an estimated fair value of $324.4 million.

 

(2)  Total loans exclude the allowance for loan losses of $25.0 million and include loans held for sale.