KFN Kkr Financial Holdings Llc

SAN FRANCISCO, Jan. 28 /PRNewswire-FirstCall/ -- 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 euro 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 euro 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 http://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 For the year ended ended December 31, 2007 December 31, 2007 (amounts in thousands, except per share information) Reconcil- Reconcil- Economic iation Economic iation Measure Adjust- Reported Measure Adjust- Reported ments ments (1) (1) 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 Reconciliation Measure 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 Estimated Portfolio Mix Cost Fair Value % 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. 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 SOURCE KKR Financial Holdings 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 Holdings LLC Web site: http://www.kkrkfn.com/

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