KFN Kkr Financial Holdings Llc

SAN FRANCISCO, May 1 /PRNewswire-FirstCall/ -- 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 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 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 For the three months ended March 31, 2008 ended March 31, 2007 (2) (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 $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, Economic Reconciliation except share information) Measure 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 Portfolio Mix Fair Value % 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. 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 DATASOURCE: KKR Financial Holdings LLC CONTACT: Investor, Laurie Poggi of KKR Financial LLC, +1-415-315-3718; or Media , Roanne Kulakoff and Joseph Kuo, both of Kekst and Company, +1-212-521-4837 and +1-212-521-4863, for KKR Financial LLC Web site: http://www.kkrkfn.com/

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