EX-99.1 2 a08-3801_1ex99d1.htm EARNINGS RELEASE

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.