SAN FRANCISCO, Aug. 7 /PRNewswire-FirstCall/ -- KKR Financial Holdings LLC
(NYSE: KFN) ("KFN" or the "Company") today announced its results for the
second quarter ended June 30, 2008.
Highlights of KKR Financial Holdings LLC's results include:
-- Distribution of $0.40 per common share declared for the second quarter.
-- For the second quarter ended June 30, 2008, GAAP net income totaled
$37.6 million, or $0.26 per diluted common share and economic net
income, a non-GAAP financial measurement, totaled $37.9 million, or
$0.26 per diluted common share. Economic net income is the Company's
net income adjusted to exclude share-based compensation expense.
-- Elimination of all short-term debt during the quarter ended June 30,
2008.
-- Sales of $422.0 million of investments with a weighted-average discount
margin of 5.42% and purchases of $456.2 million of investments with a
weighted-average discount margin of 8.41%.
For the three and six months ended June 30, 2008, the Company reported
GAAP net income totaling $37.6 million, or $0.26 per diluted common share, and
$51.5 million, or $0.39 per diluted common share, respectively. GAAP net
income for the three and six months ended June 30, 2007 totaled $53.0 million,
or $0.65 per diluted common share, and $101.4 million, or $1.24 per diluted
common share, respectively.
For the three and six months ended June 30, 2008, economic net income, a
non-GAAP financial measurement, totaled $37.9 million, or $0.26 per diluted
common share, and $52.6 million, or $0.40 per diluted common share,
respectively. Economic net income, a non-GAAP financial measurement, for the
three and six months ended June 30, 2007 totaled $53.8 million, or $0.66 per
diluted common share, and $108.1 million, or $1.32 per diluted common share,
respectively. Economic net income is the Company's net income adjusted to
exclude share-based compensation. A reconciliation of GAAP net income to
economic net income is provided in Schedule IV.
Distribution
On August 7, 2008, the Company's Board of Directors declared a
distribution of $0.40 per common share for the quarter ended June 30, 2008.
The distribution is payable on August 29, 2008 to shareholders of record as of
the close of business on August 15, 2008.
Debt Transactions
During the quarter ended June 30, 2008, the Company eliminated all short-
term debt and as of June 30, 2008, the Company had no debt maturing in the
next twelve months.
In addition, during the quarter ended June 30, 2008, the Company retired
$35.0 million of trust preferred securities at a weighted-average dollar price
of 50.8 and recorded a gain from the transactions of $17.2 million.
Economic Portfolio Activity
During the quarter ended June 30, 2008, the Company began repositioning
its portfolio to take advantage of opportunities in the market. During the
quarter, the Company sold $422.0 million of investments with a weighted-
average discount margin of 5.42%. Also during the quarter, the Company
purchased $456.2 million of investments with a weighted-average discount
margin of 8.41%.
In addition, the Company received approximately $150.0 million of
principal payments during the second quarter of 2008 on existing investments
that the Company expects to generate incremental earnings from as it continues
to invest at today's attractive market prices.
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.
Leverage
As of June 30, 2008, net economic leverage, a non-GAAP financial
measurement, was 2.9x. The computation of net economic leverage is included
in Schedule IV.
Book Value Per Common Share
The Company's GAAP book value per common share outstanding was $12.71 and
$14.27 as of June 30, 2008 and December 31, 2007, respectively.
Information for Investors: Conference Call and Webcast
The Company will host a conference call and audio webcast to review its
second quarter 2008 results on Thursday, August 7, 2008, at 5:00 p.m. EDT. The
conference call can be accessed by dialing 877-397-0250 (Domestic) or
719-325-4879 (International); a pass code is not required. A replay will be
available through Thursday, August 21, 2008 by dialing 888-203-1112 (Domestic)
and 719-457-0820 (International) / pass code 7459334. 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 Measurements
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 measurements 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 (the "Joint CLOs") and consolidates such vehicles in accordance with
GAAP and (ii) exclusion of share-based compensation in the calculation of
economic net income or loss. The Company believes that the non-GAAP financial
measurements 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, a wholly-owned subsidiary of
Kohlberg Kravis Roberts & Co. (Fixed Income) LLC, which is a wholly-owned
subsidiary of Kohlberg Kravis Roberts & Co. L.P. KKR Financial Holdings LLC is
an affiliate 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)
(Amounts in thousands, except per share information)
For the For the For the For the
three months three months six months six months
ended ended ended ended
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
Net investment income:
Securities interest income $34,788 $27,262 $74,597 $49,935
Loan interest income 184,550 146,435 401,087 277,812
Dividend income 1,092 965 1,908 1,940
Other interest income 4,998 5,674 16,074 8,251
Total investment income 225,428 180,336 493,666 337,938
Interest expense (128,037) (124,265) (282,102) (236,050)
Interest expense
to affiliates (19,707) (8,256) (47,525) (8,256)
Provision for loan losses (10,000) - (10,000) -
Net investment income 67,684 47,815 154,039 93,632
Other (loss) income:
Net realized and
unrealized (loss) gain
on derivatives and
foreign exchange (5,918) 6,481 (52,934) 13,619
Net realized and
unrealized (loss) gain
on investments (17,217) 26,739 (30,976) 33,764
Net realized and
unrealized (loss) gain
on residential mortgage-
backed securities,
residential mortgage
loans, and residential
mortgage-backed
securities issued,
carried at estimated
fair value (5,594) 1,526 (14,772) (1,691)
Net realized and
unrealized gain on
securities sold,
not yet purchased 1,664 575 8,650 575
Gain on extinguishment
of debt 17,225 - 17,225 -
Other income 513 2,540 5,469 4,588
Total other (loss) income (9,327) 37,861 (67,338) 50,855
Non-investment expenses:
Related party management
compensation 10,387 15,114 19,546 34,413
General, administrative
and directors expenses 5,752 3,991 10,274 10,252
Professional services 1,071 759 2,928 1,300
Loan servicing 2,391 2,939 4,960 6,023
Total non-investment
expenses 19,601 22,803 37,708 51,988
Income from continuing
operations before equity
in income of unconsolidated
affiliate and income
tax expense 38,756 62,873 48,993 92,499
Equity in income of
unconsolidated affiliate - 5,725 - 12,706
Income from continuing
operations before income
tax expense 38,756 68,598 48,993 105,205
Income tax expense (116) (83) (116) (859)
Income from continuing
operations 38,640 68,515 48,877 104,346
(Loss) income from
discontinued operations (1,079) (15,544) 2,668 (2,951)
Net income $37,561 $52,971 $51,545 $101,395
Net income per common share:
Basic
Income per share from
continuing operations $0.26 $0.85 $0.38 $1.30
(Loss) income per share
from discontinued
operations - (0.19) 0.02 (0.04)
Net income per share $0.26 $0.66 $0.40 $1.26
Diluted
Income per share from
continuing operations $0.26 $0.84 $0.37 $1.28
(Loss) income per share
from discontinued
operations - (0.19) 0.02 (0.04)
Net income per share $0.26 $0.65 $0.39 $1.24
Weighted-average number
of common shares
outstanding:
Basic 146,025 80,241 130,289 80,240
Diluted 146,749 81,933 130,964 81,805
Distributions
declared per common share $0.40 $0.56 $0.90 $1.10
Schedule II
KKR Financial Holdings LLC
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Amounts in thousands, except share information)
As of As of
June 30, December 31,
2008 2007
Assets
Cash and cash equivalents $189,008 $524,080
Restricted cash and cash equivalents 730,303 1,067,797
Securities available-for-sale,
$1,087,747 and $1,346,247 pledged as
collateral as of June 30, 2008 and
December 31, 2007, respectively 1,117,788 1,359,541
Corporate loans, net of allowance
for loan losses of $35,000 and $25,000
as of June 30, 2008 and December 31,
2007, respectively 8,708,005 8,634,208
Residential mortgage-backed securities,
at estimated fair value, $72,668
and $117,833 pledged as collateral as
of June 30, 2008 and December 31, 2007,
respectively 115,652 131,688
Residential mortgage loans, at
estimated fair value 3,394,996 3,921,323
Corporate loans held for sale 66,652 -
Derivative assets 28,436 18,737
Interest and principal receivable 111,038 162,465
Non-marketable equity securities 20,079 20,084
Reverse repurchase agreements - 69,840
Other assets 78,459 86,504
Assets of discontinued operations - 3,049,758
Total assets $14,560,416 $19,046,025
Liabilities
Repurchase agreements $- $2,808,066
Collateralized loan obligation senior
secured notes 7,549,318 5,948,610
Collateralized loan obligation junior
secured notes to affiliates 525,420 525,420
Secured revolving credit facility 378,306 167,024
Secured demand loan - 24,151
Convertible senior notes 300,000 300,000
Junior subordinated notes 293,826 329,908
Subordinated notes to affiliates 80,000 152,574
Residential mortgage-backed securities
issued, at estimated fair value 3,204,392 3,169,353
Accounts payable, accrued expenses and
other liabilities 13,392 7,390
Accrued interest payable 97,749 114,035
Accrued interest payable to affiliates 55,375 44,121
Related party payable 5,439 9,694
Securities sold, not yet purchased 22,890 100,394
Derivative liabilities 116,880 56,663
Liabilities of discontinued operations - 3,644,083
Total liabilities 12,642,987 17,401,486
Shareholders' Equity
Preferred shares, no par value,
50,000,000 shares authorized and none
issued and outstanding at June 30, 2008
and December 31, 2007 - -
Common shares, no par value, 250,000,000
shares authorized, and 150,843,151 and
115,248,990 shares issued and outstanding
at June 30, 2008 and December 31, 2007,
respectively - -
Paid-in-capital 2,551,800 2,167,156
Accumulated other comprehensive loss (202,586) (157,245)
Accumulated deficit (431,785) (365,372)
Total shareholders' equity 1,917,429 1,644,539
Total liabilities and shareholders'
equity $14,560,416 $19,046,025
Schedule III
KKR Financial Holdings LLC
ECONOMIC INVESTMENT PORTFOLIO AS OF JUNE 30, 2008 (UNAUDITED)
(amounts in thousands) (1) Amortized Cost Estimated Portfolio Mix%
Fair Value by Fair Value
Corporate loans (2) (3) $6,924,449 $6,467,907 84.1%
Corporate securities (3) 1,004,765 871,315 11.3
Residential mortgage-backed
securities (4) 368,278 315,175 4.1
Marketable equity securities 28,154 17,666 0.2
Non-marketable equity
securities 20,079 20,079 0.3
Total $8,345,725 $7,692,142 100.0%
-------------------------------
(1) The table excludes securities sold, not yet purchased with a cost of
$27.2 million and an estimated fair value of $22.9 million.
(2) Total loans exclude the allowance for loan losses of $35.0 million
and include loans held for sale with an estimated fair value of
$48.6 million.
(3) Represents corporate loans and securities adjusted to reflect the
Company's proportionate share of its investment of the Joint CLOs as
further described above in the note regarding use of non-GAAP
financial measurements. GAAP corporate loans and securities have an
amortized cost of $8.8 billion and $1.3 billion, respectively, and
estimated fair value of $8.2 billion and $1.1 billion, respectively.
(4) Represents residential mortgage-backed securities with a cost of
$134.5 million and an estimated fair value of $115.7 million, plus
the net difference between residential mortgage loans (cost of $3.7
billion and estimated fair value of $3.4 billion) and residential
mortgage-backed securities issued (cost of $3.4 billion and estimated
fair value of $3.2 billion) plus $8.9 million of real estate owned,
which is included in other assets on the consolidated balance sheet.
Schedule IV
KKR Financial Holdings LLC
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASUREMENTS (UNAUDITED)
Economic Net Income
The reconciliation of economic net income to GAAP net income for the three
and six months ended June 30, 2008 and 2007 is as follows:
For the For the For the For the
three months three months six months six months
ended ended ended ended
June 30, June 30, June 30, June 30,
(amounts in thousands) 2008 2007 2008 2007
Economic net income $37,934 $53,825 $52,558 $108,087
Share-based compensation (373) (854) (1,013) (6,692)
GAAP net income $37,561 $52,971 $51,545 $101,395
Net Economic Leverage
The computation of net economic leverage as of June 30, 2008 is as
follows:
(amounts in thousands)
Economic borrowings:
Collateralized loan obligation senior secured notes $5,983,917
Secured revolving credit facility 378,306
Convertible senior notes 300,000
Total economic borrowings excluding junior
subordinated notes 6,662,223
Less: Economic unrestricted cash (189,008)
Total economic debt excluding junior subordinated
notes and economic unrestricted cash (A) $6,473,215
Total economic shareholders' equity $1,960,705
Economic junior subordinated notes 293,826
Total economic shareholders' equity including
economic junior subordinated notes (B) $2,254,531
Net economic leverage (A)/(B) 2.9x
Investor Contact:
Laurie Poggi
Kohlberg Kravis Roberts & Co. L.P.
415-315-3718
Media Contact:
Roanne Kulakoff and Joseph Kuo
Kekst and Company
212-521-4837 and 212-521-4863
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