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 Fourth Quarter and Full Year 2007 Financial Results
SAN FRANCISCO, CA, January 28, 2008—KKR Financial Holdings LLC (NYSE: KFN) (“KFN” or the “Company”) today announced its results for the fourth quarter and year ended December 31, 2007.
Highlights of KKR Financial Holdings LLC’s results include:
· For the fourth quarter ended December 31, 2007, economic income from continuing operations, a non-GAAP financial measurement, totaled $63.0 million, or $0.55 per diluted common share, and economic net income, a non-GAAP financial measurement, totaled $59.5 million, or $0.52 per diluted common share. For the fourth quarter ended December 31, 2007, GAAP income from continuing operations totaled $63.4 million, or $0.55 per diluted common share, and GAAP net income totaled $59.9 million, or $0.52 per diluted common share. A reconciliation of economic to GAAP results is provided on Schedule I.
· As of year-end, available cash and cash equivalents totaled $1,039.7 million, consisting of $524.1 million of unrestricted cash, $430.1 million of restricted cash that can be used to purchase corporate investments, and $85.5 million of restricted cash that can be used for debt service payments.
· Closed a $1.5 billion structured finance transaction and issued $1.2 billion of senior secured non-recourse debt. The proceeds will be used to fund corporate debt investments.
· Closed a $2.0 billion structured finance transaction which provides for the issuance of up to $1.6 billion of senior secured non-recourse debt. The proceeds will be used to fund corporate debt investments.
· Closed a €800.0 million warehouse facility. The proceeds will be used to fund non-U.S. dollar corporate debt investments.
· As of year-end, continuing operations net economic leverage was 3.4x.
* * *
For the quarter ended December 31, 2007, KFN reported economic income from continuing operations, a non-GAAP financial measurement, of $63.0 million, or $0.55 per diluted common share, and economic net income, a non-GAAP financial measurement, of $59.5 million, or $0.52 per diluted common share. For the year ended December 31, 2007, KFN reported economic income from continuing operations, a non-GAAP financial measurement, of $214.3 million, or $2.37 per diluted common share, and economic net loss, a non-GAAP financial measurement, of $98.3 million, or $1.08 per diluted common share. Economic income from continuing operations, a non-GAAP financial measurement, for the fourth quarter and year ended December 31, 2006 totaled $32.6 million, or $0.40 per diluted common share and $111.9 million, or $1.39 per diluted common share, respectively. Economic net income, a non-GAAP financial measurement, for the fourth quarter and year ended December 31, 2006 totaled $44.5 million, or $0.54 per diluted common share and $164.5 million, or $2.05 per diluted common share, respectively.
For the quarter ended December 31, 2007, GAAP income from continuing operations totaled $63.4 million, or $0.55 per diluted common share and GAAP net income totaled $59.9 million, or $0.52 per diluted common share. For the year ended December 31, 2007, GAAP income from continuing operations totaled $212.4 million, or $2.34 per diluted common share and GAAP net loss totaled $100.2 million, or $1.11 per diluted common share. GAAP income from continuing operations for the fourth quarter and year ended December 31, 2006 totaled $25.5 million, or $0.32 per diluted common share and $82.8 million, or $1.03 per diluted common share, respectively. GAAP net income for the fourth quarter and year ended December 31, 2006 totaled $37.4 million, or $0.46 per diluted common share and $135.3 million, or $1.68 per diluted common share, respectively.
A reconciliation of economic to GAAP results is provided on Schedule I.
Liquidity
As of December 31, 2007, available cash and cash equivalents totaled $1,039.7 million, consisting of $524.1 million of unrestricted cash and cash equivalents, $430.1 million of restricted cash that can be used to purchase corporate investments, and $85.5 million of restricted cash that can be used for debt service payments.
Leverage
As of year-end, continuing operations net economic leverage was 3.4x. Continuing operations net economic leverage is computed as total continuing operations economic borrowings of $7.8 billion less the sum of 30-year trust preferred securities totaling $329.9 million, which are classified as junior subordinated notes on the Company’s consolidated balance sheet, and unrestricted cash of $524.1 million, divided by the sum of economic shareholders’ equity of $1.7 billion plus 30-year trust preferred securities totaling $329.9 million.
Book Value Per Common Share
The Company’s GAAP book value per common share outstanding was $14.27 and $15.01 as of December 31, 2007 and September 30, 2007, respectively. The Company’s economic book value per common share outstanding was $14.62 and $15.19 as of December 31, 2007 and September 30, 2007, respectively.
Financing Transactions
On October 31, 2007, the Company closed a $1.5 billion structured finance transaction that provides $1.2 billion of ten-year non-recourse financing for investments in corporate loans and securities.
Also on October 31, 2007, the Company closed a €800.0 million warehouse facility that is structured as a repurchase facility to provide financing for investments in non-U.S. dollar corporate loans and securities.
On November 5, 2007, the Company closed a $2.0 billion structured finance transaction that provides up to $1.6 billion of five-year non-recourse financing for investments in corporate loans and securities.
Information for Investors: Conference Call and Webcast
The Company will host a conference call and audio webcast to review its fourth quarter and annual 2007 results on Monday, January 28, 2008, at 5:00 p.m. EST. The conference call can be accessed by dialing 888-211-0226 (Domestic) or 913-312-0388 (International); a pass code is not required. A replay will be available through Monday, February 11, 2008 by dialing 888-203-1112 (Domestic) and 719-457-0820 (International) / pass code 4944519. 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 items 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) presentation of assets financed through total rate of return swaps on a non-derivative basis; (iii) exclusion of share-based compensation in the calculation of economic net income or loss; and (iv) presentation of the net assets of the Company’s discontinued operations. The Company believes that the non-GAAP measures presented in this earnings release provide useful information to investors by providing an understanding of the Company’s financial condition and operational performance through which liquidity and periodic results, for purposes of evaluating the income available for distributions to shareholders, can be assessed.
About KKR Financial Holdings LLC
KKR Financial Holdings LLC is a 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 on 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 originate new investments, the mix of originations and prepayment levels, 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 December 31, 2007 | | For the year ended December 31, 2007 | |
(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 | | $ | 142,455 | | $ | 35,439 | | $ | 177,894 | | $ | 409,019 | | $ | 52,036 | | $ | 461,055 | |
Securities interest income | | 28,796 | | 8,623 | | 37,419 | | 97,168 | | 20,385 | | 117,553 | |
Dividend income | | 1,103 | | — | | 1,103 | | 3,825 | | — | | 3,825 | |
Other interest income | | 15,663 | | 1,941 | | 17,604 | | 34,342 | | 3,363 | | 37,705 | |
Total investment income | | 188,017 | | 46,003 | | 234,020 | | 544,354 | | 75,784 | | 620,138 | |
Interest expense | | (112,997 | ) | (20,884 | ) | (133,881 | ) | (333,460 | ) | (32,569 | ) | (366,029 | ) |
Interest expense to affiliates | | — | | (31,535 | ) | (31,535 | ) | — | | (60,939 | ) | (60,939 | ) |
Provision for loan losses | | — | | — | | — | | (25,000 | ) | — | | (25,000 | ) |
Net investment income | | 75,020 | | (6,416 | ) | 68,604 | | 185,894 | | (17,724 | ) | 168,170 | |
Other income: | | | | | | | | | | | | | |
Net realized and unrealized gain on investments | | 6,285 | | 1,956 | | 8,241 | | 94,060 | | 4,140 | | 98,200 | |
Net realized and unrealized (loss) gain on derivatives and foreign exchange | | (2,352 | ) | 3,783 | | 1,431 | | (13,587 | ) | 12,596 | | (991 | ) |
Other income | | 2,006 | | 754 | | 2,760 | | 8,957 | | 1,150 | | 10,107 | |
Total other income | | 5,939 | | 6,493 | | 12,432 | | 89,430 | | 17,886 | | 107,316 | |
Non-investment expenses: | | | | | | | | | | | | | |
Related party management compensation | | 13,750 | | (553 | ) | 13,197 | | 51,191 | | 1,344 | | 52,535 | |
General, administrative and directors expenses | | 3,944 | | 256 | | 4,200 | | 17,561 | | 733 | | 18,294 | |
Professional services | | 1,211 | | — | | 1,211 | | 4,706 | | — | | 4,706 | |
Total non-investment expenses | | 18,905 | | (297 | ) | 18,608 | | 73,458 | | 2,077 | | 75,535 | |
Income from continuing operations before equity in income of unconsolidated affiliate and income tax (benefit) expense | | 62,054 | | 374 | | 62,428 | | 201,866 | | (1,915 | ) | 199,951 | |
Equity in income of unconsolidated affiliate | | — | | — | | — | | 12,706 | | — | | 12,706 | |
Income from continuing operations before income tax (benefit) expense | | 62,054 | | 374 | | 62,428 | | 214,572 | | (1,915 | ) | 212,657 | |
Income tax (benefit) expense | | (989 | ) | — | | (989 | ) | 256 | | — | | 256 | |
Income from continuing operations | | 63,043 | | 374 | | 63,417 | | 214,316 | | (1,915 | ) | 212,401 | |
Loss from discontinued operations | | (3,510 | ) | — | | (3,510 | ) | (312,606 | ) | — | | (312,606 | ) |
Net income (loss) | | $ | 59,533 | | $ | 374 | | $ | 59,907 | | $ | (98,290 | ) | $ | (1,915 | ) | $ | (100,205 | ) |
Net income (loss) per common share: | | | | | | | | | | | | | |
Basic | | | | | | | | | | | | | |
Income per share from continuing operations | | $ | 0.55 | | | | $ | 0.55 | | $ | 2.38 | | | | $ | 2.36 | |
Loss per share from discontinued operations | | $ | (0.03 | ) | | | $ | (0.03 | ) | $ | (3.47 | ) | | | $ | (3.47 | ) |
Net income (loss) per share | | $ | 0.52 | | | | $ | 0.52 | | $ | (1.09 | ) | | | $ | (1.11 | ) |
Diluted | | | | | | | | | | | | | |
Income per share from continuing operations | | $ | 0.55 | | | | $ | 0.55 | | $ | 2.37 | | | | $ | 2.34 | |
Loss per share from discontinued operations | | $ | (0.03 | ) | | | $ | (0.03 | ) | $ | (3.45 | ) | | | $ | (3.45 | ) |
Net income (loss) per share | | $ | 0.52 | | | | $ | 0.52 | | $ | (1.08 | ) | | | $ | (1.11 | ) |
Weighted-average number of common shares outstanding: | | | | | | | | | | | | | |
Basic | | 114,466 | | | | 114,466 | | 89,953 | | | | 89,953 | |
Diluted | | 114,813 | | | | 114,813 | | 90,640 | | | | 90,640 | |
Distributions declared per common share | | $ | 0.50 | | | | $ | 0.50 | | $ | 2.16 | | | | $ | 2.16 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
(1) These adjustments reconcile the Company’s GAAP (reported) 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.
Schedule II
KKR Financial Holdings LLC
CONSOLIDATED BALANCE SHEET (UNAUDITED)
| | December 31, 2007 | |
(amounts in thousands, except share information) | | Economic
Measure | | Reconciliation
Adjustments(1) | | Reported | |
Assets | | | | | | | |
Cash and cash equivalents | | $ | 524,080 | | $ | — | | $ | 524,080 | |
Restricted cash and cash equivalents | | 866,829 | | 196,699 | | 1,063,528 | |
Securities available-for-sale | | 1,070,468 | | 289,073 | | 1,359,541 | |
Loans, net of allowance for loan losses of $25,000 | | 6,819,296 | | 1,814,912 | | 8,634,208 | |
Derivative assets | | 15,870 | | 2,867 | | 18,737 | |
Interest and principal receivable | | 130,867 | | 16,730 | | 147,597 | |
Non-marketable equity securities | | 20,084 | | — | | 20,084 | |
Reverse repurchase agreements | | 69,840 | | — | | 69,840 | |
Other assets | | 73,128 | | 6,176 | | 79,304 | |
Assets of discontinued operations | | 116,822 | | 7,012,284 | | 7,129,106 | |
Total assets | | $ | 9,707,284 | | $ | 9,338,741 | | $ | 19,046,025 | |
Liabilities | | | | | | | |
Repurchase agreements | | $ | 2,365,234 | | $ | 274,726 | | $ | 2,639,960 | |
Collateralized loan obligation senior secured notes | | 4,623,344 | | 1,325,266 | | 5,948,610 | |
Collateralized loan obligation junior secured notes to affiliates | | — | | 525,420 | | 525,420 | |
Secured revolving credit facility | | 156,669 | | — | | 156,669 | |
Secured demand loan | | 24,151 | | — | | 24,151 | |
Convertible senior notes | | 300,000 | | — | | 300,000 | |
Junior subordinated notes | | 329,908 | | — | | 329,908 | |
Subordinated notes to affiliates | | — | | 152,574 | | 152,574 | |
Accounts payable, accrued expenses and other liabilities | | 7,143 | | 247 | | 7,390 | |
Accrued interest payable | | 87,750 | | 15,807 | | 103,557 | |
Accrued interest payable to affiliates | | — | | 44,121 | | 44,121 | |
Related party payable | | 9,694 | | — | | 9,694 | |
Securities sold, not yet purchased | | 100,394 | | — | | 100,394 | |
Derivative liabilities | | 17,815 | | 28,939 | | 46,754 | |
Liabilities of discontinued operations | | — | | 7,012,284 | | 7,012,284 | |
Total liabilities | | 8,022,102 | | 9,379,384 | | 17,401,486 | |
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 115,248,990 shares issued and outstanding | | — | | — | | — | |
Paid-in-capital | | 2,165,241 | | 1,915 | | 2,167,156 | |
Accumulated other comprehensive loss | | (116,602 | ) | (40,643 | ) | (157,245 | ) |
Accumulated deficit | | (363,457 | ) | (1,915 | ) | (365,372 | ) |
Total shareholders’ equity | | 1,685,182 | | (40,643 | ) | 1,644,539 | |
Total liabilities and shareholders’ equity | | $ | 9,707,284 | | $ | 9,338,741 | | $ | 19,046,025 | |
(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 DECEMBER 31, 2007 (UNAUDITED)
(amounts in thousands) (1) | | Amortized Cost | | Estimated
Fair Value | | Portfolio Mix
% by Fair Value | |
Corporate loans (2) | | $ | 6,844,296 | | $ | 6,595,633 | | 85.8 | % |
Corporate debt securities | | 1,118,332 | | 1,022,691 | | 13.3 | |
Marketable equity securities | | 58,529 | | 47,777 | | 0.6 | |
Non-marketable equity securities | | 20,084 | | 20,084 | | 0.3 | |
Total investment portfolio | | $ | 8,041,241 | | $ | 7,686,185 | | 100.0 | % |
(1) Estimated fair values set forth in the 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 an amortized cost of $103.1 million and an estimated fair value of $100.4 million.
(2) Total loans excludes the allowance for loan losses of $25.0 million.
