KFN Kkr Financial Holdings Llc

SAN FRANCISCO, Aug. 2 /PRNewswire-FirstCall/ -- KKR Financial Corp. (NYSE:KFN) ("KFN" or the "Company") today announced its results for the second quarter of 2006. Highlights of KKR Financial Corp.'s performance include: -- Distribution of $0.49 per common share declared for the quarter ended June 30, 2006. -- Book value of $21.58 per common share, an increase of 1.8% from March 31, 2006, and a 4.8% increase from December 31, 2005. -- Net income for the quarter ended June 30, 2006 of $34.9 million, or $0.44 per diluted common share. -- Net income adjusted for share-based compensation, a non-GAAP financial measurement, for the quarter ended June 30, 2006 of $40.1 million, or $0.50 per diluted common share. -- REIT taxable income, a non-GAAP financial measurement, for the quarter ended June 30, 2006 of $41.7 million, or $0.52 per diluted common share. -- Investment portfolio of $15.9 billion as of June 30, 2006, a 6.0% increase from $15.0 billion as of December 31, 2005. -- Closed a $375.0 million three year senior secured revolving credit facility with Bank of America, N.A., Citigroup North America, Inc., and J.P. Morgan Chase Bank N.A. -- Issued $50.0 million of 30-year trust preferred securities at par with an initial fixed interest rate based on ten-year LIBOR plus 2.45%. To date, the Company has issued $100 million of trust preferred securities. -- Closed and funded the Company's sixth private equity investment totaling $40.7 million in Capmark Financial Group Inc. The Company's aggregate private equity portfolio, consisting of common and preferred stock, totaled $139.4 million as of quarter-end. Subsequent to quarter-end the Company completed its seventh private equity investment in Brambles Industrial Services, consisting of $20.0 million in equity and $40.0 million in subordinated zero-coupon debt securities. KFN reported net income for the three and six months ended June 30, 2006 of $34.9 million and $65.3 million, respectively, or $0.44 and $0.82 per diluted common share, respectively. Current period results compare with net income of $8.5 million and $14.6 million, respectively, or $0.21 and $0.36 per diluted common share, respectively, for the three and six months ended June 30, 2005. These figures reflect growth of net income by 310.6% and 347.3%, respectively, for the three and six month periods ended June 30, 2006 over the same periods in the prior year. The change from 2005 to 2006 is primarily attributable to the increase in our investment portfolio subsequent to June 30, 2005. Net income includes share-based compensation expense for the three and six months ended June 30, 2006 totaling $5.1 million and $11.9 million, respectively, or $0.06 and $0.15 per diluted common share, respectively. Net income adjusted for share-based compensation, a non-GAAP financial measurement consisting of GAAP net income plus GAAP share-based compensation expense, for the three and six months ended June 30, 2006 totaled $40.1 million and $77.2 million, respectively, or $0.50 and $0.97 per diluted common share, respectively. Net income adjusted for share-based compensation is an important non-GAAP measure because it is an indicative measurement of cash flow generated from operations that is available to make distributions to common stockholders. REIT taxable income, a non-GAAP financial measurement, for the second quarter ended June 30, 2006 totaled $41.7 million, or $0.52 per diluted common share. The non-GAAP financial measurement of REIT taxable income is important because the Company is structured as a REIT and the Internal Revenue Code requires that the Company pay substantially all of its taxable income in the form of distributions to its stockholders. REIT taxable income is critical in the determination of the amount of the minimum distributions that the Company must pay to its stockholders so as to comply with the rules set forth in the Internal Revenue Code. Attached to this release is a schedule reconciling this measure to net income. The Company filed its Form 10-Q for the quarterly period ended June 30, 2006 with the Securities and Exchange Commission today, August 2, 2006. KFN encourages investors to carefully read the Company's Form 10-Q which contains condensed consolidated financial statements and footnotes and Management's Discussion and Analysis of Financial Condition and Results of Operations. Investment Portfolio During the period ended June 30, 2006, the Company's investment portfolio increased by 6.0% from $15.0 billion as of December 31, 2005 to $15.9 billion as of June 30, 2006. As of June 30, 2006, the aggregate amortized cost of the Company's investment portfolio exceeded the estimated fair value of its investment portfolio by $89.1 million and, as of the same date, the Company had unrealized gains totaling $118.0 million related to its cash flow hedges, as defined under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. In comparison, as of December 31, 2005, the aggregate amortized cost of the Company's investment portfolio exceeded the estimated fair value of its investment portfolio by $54.1 million and, as of the same date, the Company had unrealized gains totaling $45.6 million related to its cash flow hedges. As of June 30, 2006, the aggregate net unamortized purchase discount (i.e., the amount by which aggregate purchase discounts exceed aggregate purchase premiums on the Company's investment portfolio) related to the investment portfolio was $14.9 million and the weighted average amortized cost, as a percentage of aggregate par value, of the investment portfolio was 99.91%. Management has been able to maintain the aggregate amortized cost value of the investment portfolio below aggregate par value due to the Company's ability to make a substantial amount of its residential real estate, corporate, and commercial real estate investments in primary market transactions at a cost of par or below. Since the Company's formation, management has positioned the Company so as not to be materially impacted by either an overall higher interest rate environment or a flatter, or inverted, interest rate curve environment by investing in floating rate and hybrid rate investments, which as of June 30, 2006 totaled 58.3% and 37.2% of the investment portfolio, respectively. Fixed rate loans and securities total 3.2% of the Company's investment portfolio as of June 30, 2006. Additionally, the Company's adjustable rate residential loans and residential adjustable rate mortgage ("ARM") securities reset monthly and substantially all of its floating rate corporate and commercial real estate loans and securities reset at least quarterly. The Company has also fixed borrowings used to fund hybrid ARM security investments using interest rate swaps and interest rate corridors, which are accounted for as cash flow hedges under GAAP. The Company invested $1.7 billion and $3.5 billion during the three and six months ended June 30, 2006, respectively, compared to $1.4 billion and $5.4 billion par amount of assets during the three and six months ended June 30, 2005, respectively. The table below summarizes investment portfolio purchases for the periods indicated and includes the par amount, or face amount, of the securities and loans that were purchased. Investment Portfolio Purchases (Amounts in thousands) Three months Three months ended June 30, 2006 ended June 30, 2005 Par Amount % Par Amount % Securities: Residential ARM Securities $800,491 47.5% $73,423 5.3% Residential Hybrid ARM Securities -- -- 299,040 21.9 Corporate Debt Securities 212,247 12.6 106,500 7.8 Commercial Real Estate Debt Securities -- -- -- -- Total Securities Principal Balance 1,012,738 60.1 478,963 35.0 Loans: Residential ARM Loans 26,054 1.5 189,781 13.9 Corporate Loans 647,619 38.4 592,150 43.3 Commercial Real Estate Loans -- -- 106,750 7.8 Total Loans Principal Balance 673,673 39.9 888,681 65.0 Grand Total Principal Balance $1,686,411 100.0% $1,367,644 100.0% Six months ended Six months ended June 30, 2006 June 30, 2005 Par Amount % Par Amount % Securities: Residential ARM Securities $1,864,267 53.0% $739,205 13.8% Residential Hybrid ARM Securities -- -- 2,935,532 54.7 Corporate Debt Securities 340,016 9.7 218,505 4.1 Commercial Real Estate Debt Securities -- -- 10,000 0.2 Total Securities Principal Balance 2,204,283 62.7 3,903,242 72.8 Loans: Residential ARM Loans 125,552 3.6 436,501 8.1 Corporate Loans 1,186,502 33.7 916,701 17.1 Commercial Real Estate Loans -- -- 106,750 2.0 Total Loans Principal Balance 1,312,054 37.3 1,459,952 27.2 Grand Total Principal Balance $3,516,337 100.0% $5,363,194 100.0% The table above excludes purchases of $16.8 million (purchase cost) of marketable equity securities and $40.7 million of non-marketable equity securities during the three months ended June 30, 2006, and $27.2 million (purchase cost) of marketable equity securities and $91.6 million (purchase cost) of non-marketable equity securities during the six months ended June 30, 2006. The table also excludes $8.8 million (purchase cost) and $24.7 million (purchase cost) of marketable equity securities during the three and six months ended June 30, 2005, respectively. Distribution On August 2, 2006, the Company's Board of Directors declared a distribution of $0.49 per common share for the quarter ended June 30, 2006, to stockholders of record on August 16, 2006, and payable on August 30, 2006. Because the distribution was declared subsequent to June 30, 2006, the aggregate distribution payable of $39.4 million is not reflected in the Company's consolidated balance sheet as of June 30, 2006. Book Value Per Common Share The Company's book value per common share was $21.58 and $20.59 as of June 30, 2006 and December 31, 2005, respectively, exclusive of the distributions declared subsequent to the end of the second quarter of 2006 of $0.49 and the fourth quarter of 2005 of $0.40. The Company's book value per common share as of June 30, 2006 and December 31, 2005, computed on a pro forma basis inclusive of distributions declared subsequent to the respective quarter ended, was $21.09 and $20.19, respectively. Credit Facility During June 2006, the Company's $275.0 million secured revolving credit facility matured and was replaced with a $375.0 million three year senior secured revolving credit facility. The Company has the option to increase the senior secured revolving credit facility size up to $550.0 million at any time so long as no default or event of default on the facility has occurred and subject to addition of new lenders, increases in the commitments of existing lenders, or a combination thereof. The senior secured revolving credit facility matures in June 2009 and consists of two tranches. Outstanding borrowings under the senior secured revolving credit facility bear interest at either (i) an alternate base rate per annum equal to the greater of (a) the prime rate in effect on such day, and (b) the federal funds in effect on such day plus 0.50%, or (ii) an interest rate per annum equal to the LIBOR rate for the applicable interest period plus 0.50% for borrowings under tranche A of the facility and 0.75% for borrowings under tranche B of the facility. As of June 30, 2006 the Company had $112.6 million of borrowings outstanding under this facility. Trust Preferred Securities During June 2006, the Company formed KKR Financial Capital Trust II ("Trust II") for the sole purpose of issuing trust preferred securities. On June 2, 2006, Trust II issued preferred securities to unaffiliated investors for gross proceeds of $50.0 million and common securities to the Company for $1.6 million. Interest is payable quarterly at a fixed rate of 8.09% (ten-year LIBOR plus 2.45%) through July 2016 and thereafter at a floating rate equal to three-month LIBOR plus 2.65%. The trust preferred securities can be called at par on or after five years. Private Equity Investments During the second quarter of 2006, the Company made a private equity co- investment on a pari passu basis with Kohlberg Kravis Roberts & Co. L.P. totaling $40.7 million in Capmark Financial Group Inc. ("Capmark"). Capmark, formerly known as GMAC Commercial Holding Corp., is an industry leader in real estate finance, investments and services. Subsequent to quarter-end, the Company made a $20.0 million private equity investment in Brambles Industrial Services ("Brambles") during July 2006 and simultaneously invested $40.0 million in subordinated zero-coupon debt securities issued by Brambles. Brambles is based in Australia and is a leading provider of on-site and off-site support services, primarily to blue chip companies operating in the coal, metals and minerals, and steel industries. Information for Investors: Conference Call and Webcast The Company will host a conference call and audio webcast to review its second quarter 2006 results on Thursday, August 3, 2006, at 8:00 a.m. EDT. The conference call can be accessed by dialing 800-665-0430 (Domestic) or 913-312-1300 (International); a pass code is not required. A replay will be available through August 17, 2006 by dialing 888-203-1112 (Domestic) and 719-457-0820 (International)/pass code 9454137. A live web cast of the call will be accessible on the Company's website, at http://www.kkrfinancial.com/ , via a link from the Investor Relations section. A replay of the audio web cast will be archived in the Investor Relations section of the Company's website. About KKR Financial Corp. KKR Financial Corp. is a specialty finance company that invests in multiple asset classes and uses leverage to generate competitive leveraged risk-adjusted returns. The Company currently makes investments in the following asset classes: (i) residential mortgage loans and mortgage-backed securities; (ii) corporate loans and debt securities; (iii) commercial real estate loans and debt securities; (iv) asset-backed securities; and (v) marketable and non-marketable equity securities. The Company also makes opportunistic investments in other asset classes from time to time. The Company was organized as a Maryland corporation on July 7, 2004, and commenced operations on August 12, 2004. The Company is structured as a real estate investment trust and KKR Financial Advisors LLC manages the Company pursuant to a management agreement. KKR Financial Corp. and KKR Financial Advisors LLC are affiliates of Kohlberg Kravis Roberts & Co. L.P. 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 Corp. 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, and other risks disclosed from time to time in the Company's filings with the SEC. Investor Contact Media Contact Laurie Poggi Roanne Kulakoff and Joseph Kuo KKR Financial LLC Kekst and Company 415-315-3718 212-521-4837 and 212-521-4863 Schedule I KKR Financial Corp. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (amounts in thousands, except per share information) For the three For the three For the six For the six months ended months ended months ended months ended June 30, 2006 June 30, 2005 June 30, 2006 June 30, 2005 Net investment income: Securities interest income $94,010 $46,048 $173,974 $69,918 Loan interest income 130,098 21,102 255,204 31,990 Dividend income 912 933 1,795 1,467 Other interest income 1,807 943 3,652 1,197 Total investment income 226,827 69,026 434,625 104,572 Interest expense (175,094) (48,281) (331,657) (68,730) Net investment income 51,733 20,745 102,968 35,842 Other income: Net realized and unrealized gain (loss) on derivatives and foreign exchange 3,299 (176) 3,309 (49) Net realized gain on investments 691 790 2,139 1,151 Fee and other income 458 1,245 673 1,595 Total other income 4,448 1,859 6,121 2,697 Non-investment expenses: Related party management compensation 13,778 10,731 28,218 18,739 Professional services 548 788 1,495 1,185 Loan servicing expense 3,720 363 7,716 630 Insurance expense 274 216 498 433 Directors expenses 375 152 748 351 General and administrative expenses 2,436 858 4,664 1,477 Total non- investment expenses 21,131 13,108 43,339 22,815 Income before income tax expense 35,050 9,496 65,750 15,724 Income tax expense 119 994 431 1,106 Net income $34,931 $8,502 $65,319 $14,618 Net income per common share: Basic $0.45 $0.21 $0.84 $0.37 Diluted $0.44 $0.21 $0.82 $0.36 Weighted-average number of common shares outstanding: Basic 77,675 40,212 77,675 40,004 Diluted 79,410 40,994 79,237 40,689 Distributions declared per common share $0.45 $0.40 $0.85 $0.65 Schedule II KKR Financial Corp. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (amounts in thousands, except share information) June 30, December 31, 2006 2005 Assets Cash and cash equivalents $21,684 $16,110 Restricted cash and cash equivalents 105,254 80,223 Securities available-for-sale, $6,856,963 and $5,910,399 pledged as collateral as of June 30, 2006 and December 31, 2005, respectively 7,268,047 6,149,506 Loans, net of allowance for loan losses of $1,500 as of June 30, 2006 and December 31, 2005 8,423,645 8,846,341 Loans held for sale 107,262 -- Derivative assets 129,588 58,898 Interest receivable 75,001 59,993 Principal receivable 1,258 7,108 Non-marketable equity securities 139,429 52,500 Income tax receivable 908 -- Other assets 34,859 19,861 Total assets $16,306,935 $15,290,540 Liabilities Repurchase agreements $5,146,903 $9,761,258 Collateralized loan obligation senior secured notes 1,525,000 1,500,000 Asset-backed secured liquidity notes 7,292,844 2,008,069 Secured revolving credit facility 112,594 54,000 Secured demand loan 41,658 40,511 Junior subordinated notes 103,100 -- Payable for securities purchases 212,299 196,315 Accounts payable, accrued expenses and other liabilities 104,347 45,925 Accrued interest payable 27,287 21,415 Related party payable 5,276 3,673 Income tax liability 622 2,763 Derivative liabilities 188 1,465 Total liabilities 14,572,118 13,635,394 Stockholders' Equity Preferred stock, $0.01 par value, 50,000,000 shares authorized and none issued and outstanding at June 30, 2006 and December 31, 2005 -- -- Common stock, $0.01 par value, 250,000,000 shares authorized and 80,374,061 shares issued and outstanding at June 30, 2006 and December 31, 2005 804 804 Additional paid-in-capital 1,651,922 1,639,996 Accumulated other comprehensive income 89,087 18,344 Accumulated deficit (6,996) (3,998) Total stockholders' equity 1,734,817 1,655,146 Total liabilities and stockholders' equity $16,306,935 $15,290,540 Schedule III KKR Financial Corp. SUMMARY FINANCIAL DATA (UNAUDITED) (amounts in thousands, except share information) Three Months Three Months Six Months Six Months Ended Ended Ended Ended June 30, 2006 June 30, 2005 June 30, 2006 June 30, 2005 Net Income: $34,931 $8,502 $65,319 $14,618 Earnings per diluted common share $0.44 $0.21 $0.82 $0.36 Net Income + Share-Based Compensation (1): $40,074 $15,836 $77,245 $26,698 Net income, adjusted for share-based compensation, per diluted common share $0.50 $0.39 $0.97 $0.66 REIT Taxable Income (2): $41,684 $16,895 $89,378 $32,209 REIT taxable income per diluted common share $0.52 $0.41 $1.12 $0.79 Profitability Ratio Information (3): Return on equity 8.1% 4.6% 7.8% 3.9% Return on assets 0.9% 0.5% 0.8% 0.5% Efficiency ratio 9.1% 18.5% 9.8% 21.3% Share Information: Common shares outstanding 80,374 78,471 80,374 78,471 Basic EPS common shares outstanding 77,675 40,212 77,675 40,004 Diluted EPS common shares outstanding 79,410 40,994 79,237 40,689 Investment Portfolio Information June 30, 2006 December 31, 2005 Residential mortgage securities $6,385,732 $5,537,838 Residential loans 5,742,956 6,428,822 Total residential 12,128,688 11,966,660 Corporate securities 746,288 481,754 Corporate loans 2,478,459 1,897,277 Total corporate 3,224,747 2,379,031 Commercial real estate securities 69,543 82,912 Commercial real estate loans 310,992 521,742 Total commercial real estate 380,535 604,654 Marketable equity securities 66,484 47,002 Non-marketable equity securities 139,429 52,500 Total investment portfolio 15,939,883 15,049,847 Balance Sheet Information June 30, 2006 December 31, 2005 Investment portfolio $15,939,883 $15,049,847 Total assets 16,306,935 15,290,540 Total borrowings 14,222,099 13,363,838 Total liabilities 14,572,118 13,635,394 Stockholders' equity 1,734,817 1,655,146 Book value per common share 21.58 20.59 Leverage 8.2x 8.1x Statement of Operations Information Three Months Three Months Six Months Six Months Ended Ended Ended Ended June 30, 2006 June 30, 2005 June 30, 2006 June 30, 2005 Investment income $226,827 $69,026 $434,625 $104,572 Other income 4,448 1,859 6,121 2,697 Total income 231,275 70,885 440,746 107,269 Interest expense (175,094) (48,281) (331,657) (68,730) Share-based compensation expense (5,143) (7,334) (11,926) (12,080) Management compensation (8,810) (3,383) (16,641) (6,719) Loan servicing expense (3,720) (363) (7,716) (630) Other expenses (3,458) (2,028) (7,056) (3,386) Total non- investment expenses (21,131) (13,108) (43,339) (22,815) Income before income tax expense 35,050 9,496 65,750 15,724 Income tax expense 119 994 431 1,106 Net income 34,931 8,502 65,319 14,618 (1) Non-GAAP financial measurement consisting of GAAP net income plus GAAP share-based compensation expense. (2) Non-GAAP financial measurement. (3) All ratios computed on an annualized basis. The efficiency ratio is defined as non-interest expense divided by total income. Schedule IV KKR Financial Corp. INVESTMENT PORTFOLIO BY INTEREST RATE TYPE AS OF JUNE 30, 2006 (UNAUDITED) (amounts in thousands) Carrying Amortized Estimated Portfolio Mix Value Cost Fair Value % by Fair Value Floating Rate: Residential ARM Loans $1,779,419 $1,779,419 $1,774,532 11.2% Residential ARM Securities 4,387,857 4,378,482 4,387,857 27.6 Corporate Loans 2,440,722 2,440,722 2,449,724 15.4 Corporate Debt Securities 345,979 336,374 345,979 2.2 Commercial Real Estate Loans 232,515 232,515 232,294 1.5 Commercial Real Estate Debt Securities 62,312 62,503 62,312 0.4 Total Floating Rate 9,248,804 9,230,015 9,252,698 58.3 Hybrid Rate: Residential Hybrid ARM Loans 3,963,537 3,963,537 3,899,597 24.6 Residential Hybrid ARM Securities 1,997,875 2,048,441 1,997,875 12.6 Total Hybrid Rate 5,961,412 6,011,978 5,897,472 37.2 Fixed Rate: Corporate Loans 37,737 37,737 37,698 0.2 Corporate Debt Securities 400,309 395,791 400,309 2.5 Commercial Real Estate Loans 78,477 78,477 78,374 0.4 Commercial Real Estate Debt Securities 7,231 6,714 7,231 0.1 Total Fixed Rate 523,754 518,719 523,612 3.2 Marketable and Non- Marketable Equity Securities: Common and Preferred Stock 66,484 68,608 66,484 0.4 Non-Marketable Equity Securities 139,429 139,429 139,429 0.9 Total Marketable and Non-Marketable Equity Securities 205,913 208,037 205,913 1.3 Total $15,939,883 $15,968,749 $15,879,695 100.0% (1) As of June 30, 2006, the aggregate amortized cost value of the Company's investment portfolio exceeded the aggregate fair value of its portfolio by $89.1 million and, as of the same date, the Company had unrealized gains totaling $118.0 million related to its cash flow hedges, as defined under SFAS No. 133. As of June 30, 2006, the aggregate net unamortized purchase discount related to the Company's investment portfolio was $14.9 million. (2) The schedule summarizes the carrying value, amortized cost, and fair value of the Company's investment portfolio as of June 30, 2006, classified by interest rate type. Carrying value is the value that investments are recorded on the Company's consolidated balance sheet and is fair value for securities and amortized cost for loans. Estimated fair values set forth in the schedule are as of June 30, 2006 and are based on dealer quotes and/or nationally recognized pricing services and using management estimates for investment positions for which dealer quotes and/or nationally recognized pricing data is not available. Schedule V KKR Financial Corp. RECONCILIATION OF REPORTED GAAP NET INCOME TO TOTAL TAXABLE INCOME AND REIT TAXABLE INCOME (UNAUDITED) Estimated for the Three months three months ended June 30, ended June 30, 2006 2005 (amounts in thousands, except per share information) Amount Per Share Amount Per Share Reported net income $34,931 $0.44 $8,502 $0.21 Interest income and expense 3,199 0.04 (21) -- Share- based compensation 5,143 0.06 7,334 0.18 Tax gains on sales of assets to affiliates 670 0.01 52 -- Realized and unrealized derivative gains and losses (1,955) (0.02) 119 -- Foreign currency translations (gains) and losses (826) (0.01) 2,344 0.06 Book/tax year end difference adjustment for CLOs/CDOs -- -- -- -- Other 227 -- 57 -- Income tax expense 119 -- 994 0.02 Total taxable income 41,508 0.52 19,381 0.47 Undistributed taxable (income) and loss of domestic taxable REIT subsidiary 176 -- (2,486) (0.06) REIT taxable income $41,684 $0.52 $16,895 $0.41 Number of common shares outstanding: Weighted-average diluted common shares outstanding during the period 79,410 40,994 Estimated for the Six months six months ended ended June 30, 2006 June 30, 2005 Amount Per Share Amount Per Share Reported net income $65,319 $0.82 $14,618 $0.36 Interest income and expense 5,292 0.07 89 -- Share-based compensation 11,926 0.15 12,080 0.30 Tax gains on sales of assets to affiliates 1,558 0.02 4,305 0.11 Realized and unrealized derivative gains and losses (539) (0.01) (369) (0.01) Foreign currency translations (gains) and losses (1,200) (0.02) 2,536 0.06 Book/tax year end difference adjustment for CLOs/CDOs 8,168 0.10 -- -- Other 431 0.01 109 -- Income tax expense 431 0.01 1,106 0.03 Total taxable income 91,386 1.15 34,474 0.85 Undistributed taxable (income) and loss of domestic taxable REIT subsidiary (2,008) (0.03) (2,265) (0.06) REIT taxable income $89,378 $1.12 $32,209 $0.79 Number of common shares outstanding: Weighted-average diluted common shares outstanding during the period 79,237 40,689 (1) Total taxable income and REIT taxable income are non-GAAP financial measurements and do not purport to be an alternative to net income determined in accordance with GAAP as a measure of operating performance or to cash flows from operating activities determined in accordance with GAAP as a measure of liquidity. Total taxable income is the aggregate amount of taxable income generated by the Company and by its domestic and foreign taxable REIT subsidiaries. REIT taxable income excludes the undistributed taxable income of the Company's domestic taxable REIT subsidiary, which is not included in REIT taxable income until distributed to the Company. There is no requirement that the Company's domestic taxable REIT subsidiary distribute its earnings to the Company. REIT taxable income, however, includes the taxable income of the Company's foreign taxable REIT subsidiaries because the Company will generally be required to recognize and report its taxable income on a current basis. These non-GAAP financial measurements are important to the Company because the Company is structured as a REIT and the Internal Revenue Code requires that the Company pay substantially all of its taxable income in the form of distributions to its stockholders. The non-GAAP financial measurements of total taxable income and REIT taxable income are critical in the determination of the amount of the minimum distributions that the Company must pay to its stockholders so as to comply with the rules set forth in the Internal Revenue Code of 1986, as amended. Because not all companies use identical calculations, this presentation of total taxable income and REIT taxable income may not be comparable to other similarly titled measures prepared and reported by of other companies. DATASOURCE: KKR Financial LLC CONTACT: investors, Laurie Poggi of KKR Financial LLC, +1-415-315-3718; or media, Roanne Kulakoff, +1-212-521-4837, or Joseph Kuo, +1-212-521-4863, both of Kekst and Company, for KKR Financial LLC Web site: http://www.kkrfinancial.com/

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