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.
