Keystone North America Inc. reports second quarter 2009 results
/NOT FOR DISTRIBUTION IN THE UNITED STATES OR OVER UNITED STATES WIRE
SERVICES/
Highlights:
Second Quarter 2009:
- Revenue was $30.0 million, compared to $30.4 million in the second
quarter of 2008.
- Average revenue per service increased 0.2% compared to the second
quarter of 2008.
- Gross profit increased $0.4 million or 4.5% compared to the second
quarter of 2008.
- Cost and expenses decreased $0.8 million or 4.0% compared to the
second quarter of 2008.
- Cash from operating activities was $5.6 million, exceeding dividends
by $0.8 million during the seasonally weaker second quarter 2009.
TORONTO, Aug. 7 /CNW/ - Keystone North America Inc. (TSX:KNA and KNA.UN)
("Keystone" or the "Company") today reported its financial results for the
second quarter and six months ended June 30, 2009. All amounts are reported in
U.S. dollars, except as otherwise noted.
Overview
For the second quarter of 2009, revenues were comparable to the prior
year totaling $30.0 million, as compared to $30.4 million for the second
quarter of 2008. Despite the slight decrease in revenue of 1.3%, the Company
was able to increase gross profit by $0.4 million or 4.5%. Moreover, the
Company continued to recognize cost savings, evidenced in part by a reduction
in cost and expenses of $0.8 million or 4.0% and a reduction in corporate,
general and administrative expenses of $0.2 million or 8.5%. Case averages
were consistent quarter over quarter with a 0.2% increase in average revenue
per service.
Considering the current general economic environment (discussed in
greater detail below) and that the second quarter is one of the industry's
seasonally slower periods, we are well positioned to continue to generate
strong operating results and cash flows. For the second quarter 2009, the
Company generated an excess cash flow of $0.8 million from operations relative
to the current level of dividend declarations, which management views as solid
results for this seasonally weaker period.
"During the quarter, we once again demonstrated our ability to increase
gross profit despite funeral volume weakness and a modestly increased
cremation mix and challenging economic times," said Steve Tidwell, President
and CEO. "The Company achieved continued growth in cash flows from operating
activities which exceeded cash dividends declared by $0.8 million for the
quarter compared to a shortfall of cash of $1.5 million for the same period
last year. Our continued focus on managing operating expenses and solid
average revenue per case contributed to this increase in excess cash. We
believe that our continued positive results, even in difficult economic times,
are a testament to the strong underlying business fundamentals of Keystone and
the funeral industry in general."
Current Economic Conditions
The Company has given specific consideration to recent economic and
financial market uncertainty and potential impacts on future earnings and cash
flows. Management has identified two likely revenue sources that may be
adversely affected including the sale of preneed cemetery contracts and the
insurance commission income earned on the sale of preneed funeral contracts.
As Keystone is almost exclusively a funeral home operating company, the
exposure to reduced preneed cemetery property sales would be minimal as only
2.6% of our total second quarter 2009 revenues represent preneed cemetery
sales. In addition, approximately 1.6% of our second quarter 2009 revenues
represent commissions from preneed funeral contract sales and those revenues
are largely offset by the corresponding commission expenses limiting the
impact on our operating income.
The Company relies on trust fund investments and insurance policies to
provide funding for preneed contracts as they are fulfilled over a period of
years, usually a seven to twelve year time frame. While current market
fluctuations could reduce the cash received and revenues recorded from the
trusts, we believe this is not necessarily indicative of the future long term
performance of these funds. Our investment strategy is centered on more secure
government backed securities (approximately 16% of our total preneed
receivable and preneed trust portfolio is invested in equity securities),
giving us a relatively conservative portfolio as a whole.
Outlook
The Company's cash flow from operations exceeded dividends by $0.8
million for the second quarter 2009 and $4.8 million for the first six months
of 2009. Management has noted that the second quarter cremation rate for the
Company's services has risen higher than our historical expectation, and that
cremation rates can fluctuate significantly over short periods of time. We
continue to monitor the cremation rate trend, and it is management's view that
it is premature to conclude that the outlook for future growth in cremation
would increase above the 75 to 150 basis point increase per year that we would
typically expect. As we proceed through our historically slower seasonal
period, management expects that our revenue initiatives combined with pricing
strategies and the continued monitoring and managing of cost will continue to
contribute to profitability.
In the second quarter of 2009, the Company demonstrated its continued
ability to generate cash exceeding dividends and the resilience of the
underlying business. Accordingly, we believe that the Company remains in a
strong position to continue to generate positive cash flows and take advantage
of growth opportunities as they arise internally and externally. Management
believes the fundamental assumptions of our business model are strong and
unchanged.
The Company's current dividend policy contemplates an annual dividend of
C$0.84 per common share. This dividend policy is not anticipated to change but
is evaluated monthly, and is subject to modification, at the discretion of the
Company's Board of Directors.
Second Quarter 2009 Earnings Conference Call Monday, August 10, 2009
10:00 am (EST)
Keystone North America Inc. will hold a conference call on Monday, August
10, 2009 10:00 am (EST) for analysts and investors to discuss its financial
results for the second quarter of the 2009 fiscal year. A copy of complete
financial results will be available prior to the call at www.sedar.com. Steve
Tidwell, President and Chief Executive Officer and Stephen Shaffer, Executive
Vice President and Chief Financial Officer, will be available to answer
questions during the call.
To participate in the conference call, please dial (416) 644-3417 or
(800) 731-6179 confirmation No. 21311358. A live audio webcast of the
conference call will be available at
http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2745820.
An archived recording of the call will be available at (416) 640-1917 or
(877) 289-8525 (pass code 21311358 followed by the number sign) through August
17, 2009. An archived recording of the webcast will be available at
http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2745820.
About Keystone North America Inc.
KNA, through its subsidiaries, is a leading funeral service provider in
North America. In management's estimation, the Company is the fifth largest
funeral service provider in North America operating 199 funeral homes and 15
cemeteries across the United States and the province of Ontario, primarily in
suburban and rural areas. The funeral service industry is subject to seasonal
variations with historically higher revenue and cash flows in the winter
months. The second and third quarters have historically been the Company's
weakest seasonal period. The Company has no reason to believe that future
quarterly seasonal fluctuations in services performed will be dramatically
different than those experienced historically.
The Company's unaudited consolidated financial statements for the three
and six month periods ended June 30, 2009 together with the notes thereto and
the corresponding management's discussion and analysis will be available on
August 10, 2009 at www.sedar.com.
Consolidated Financial Statements (unaudited)
Keystone North America Inc.
Consolidated Balance Sheets (unaudited)
(000's of U.S. Dollars)
As at As at
June 30, December 31,
2009 2008
--------------------------
Assets
Current assets:
Cash and cash equivalents $ 5,113 $ 4,514
Restricted short-term investments 1,330 2,163
Trade receivables, less allowances for
doubtful accounts of $1,909 and $2,219 at
June 30, 2009 and December 31, 2008,
respectively 7,532 8,333
Inventories and cemetery property 9,612 9,787
Income tax receivable 220 114
Prepaid and other current assets 1,138 626
Future income taxes 356 374
--------------------------
Total current assets 25,301 25,911
Preneed receivables and trust funds 70,432 71,868
Restricted cemetery care trust funds 6,343 6,085
Restricted long-term investments 3,503 4,132
Property and equipment, net 105,729 105,493
Tradenames 34,714 34,739
Covenants not to compete, less accumulated
amortization of $7,136 and $7,600 at
June 30, 2009 and December 31, 2008,
respectively 10,068 11,103
Other assets 112 114
--------------------------
Total assets $ 256,202 $ 259,445
--------------------------
--------------------------
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 10,117 $ 7,430
Current derivative contract liability 1,586 1,907
Dividends payable 1,563 1,492
Current maturities of long-term debt 1,772 2,134
--------------------------
Total current liabilities 15,038 12,963
Deferred revenue 87,994 89,697
Long-term debt 77,359 79,006
Future income taxes 10,813 10,744
Derivative contracts liability 3,543 8,332
Other long-term liabilities 67 173
Non-controlling interests in preneed funds 6,343 6,085
Shareholders' equity:
Share capital 244,313 244,313
Accumulated deficit (178,520) (181,384)
Accumulated other comprehensive loss (10,748) (10,484)
--------------------------
Total shareholders' equity 55,045 52,445
--------------------------
Total liabilities and shareholders' equity $ 256,202 $ 259,445
--------------------------
--------------------------
Unaudited Consolidated Statements of Operations
(000's of U.S. Dollars - except per share amounts)
Quarter Quarter
Ended Ended YTD YTD
June 30, June 30, June 30, June 30,
2009 2008 2009 2008
---------------------------------------------------
Revenues:
Funeral services $ 27,741 $ 28,742 $ 59,186 $ 61,692
Other 2,282 1,688 3,904 3,374
---------------------------------------------------
Total revenues 30,023 30,430 63,090 65,066
Costs and expenses 20,134 20,963 40,823 42,477
---------------------------------------------------
Gross profit 9,889 9,467 22,267 22,589
Other operating
expenses:
Corporate, general
and administrative
expenses 2,623 2,867 5,199 5,920
Depreciation 1,130 1,071 2,241 2,110
Amortization 600 739 1,237 1,464
---------------------------------------------------
5,536 4,790 13,590 13,095
Interest expense 1,988 4,071 3,258 10,188
Unrealized (gain) loss
on derivative
contracts (4,328) (3,314) (1,599) 4,890
Litigation expense - - 2,328 -
Expense on the
extinguishment
of subordinated notes - 3,910 - 4,525
Loss on subordinated
notes extinguishment - 29,627 - 29,627
Other income (135) (1,456) (181) (3,125)
---------------------------------------------------
Income (loss) from
continuing operations
before income taxes 8,011 (28,048) 9,784 (33,010)
Income tax expense 443 3,463 977 1,538
---------------------------------------------------
Income (loss) from
continuing
operations 7,568 (31,511) 8,807 (34,548)
(Loss) income from
discontinued
operations (40) 224 (400) 69
---------------------------------------------------
Net Income (loss) $ 7,528 $ (31,287) $ 8,407 $ (34,479)
Weighted average
number of shares
outstanding 25,958,102 15,632,156 25,958,102 10,117,163
---------------------------------------------------
---------------------------------------------------
Basic and diluted
income (loss) from
continuing
operations $ 0.29 $ (2.02) $ 0.34 $ (3.41)
---------------------------------------------------
---------------------------------------------------
Basic and diluted
income (loss)
from discontinued
operations $ - $ 0.01 $ (0.02) $ 0.01
---------------------------------------------------
---------------------------------------------------
Basic and diluted
income (loss)
Per common share $ 0.29 $ (2.00) $ 0.32 $ (3.41)
---------------------------------------------------
---------------------------------------------------
Unaudited Consolidated Statements of Cash Flows
(000's of U.S. Dollars)
Quarter Quarter
Ended Ended YTD YTD
June 30, June 30, June 30, June 30,
2009 2008 2009 2008
---------------------------------------------------
Operating activities:
Net income (loss) $ 7,528 $ (31,287) $ 8,407 $ (34,479)
Adjustments to
reconcile net
income (loss) to
net cash provided
by operating
activities:
Payments on Class B
shares of subsidiary - (69) - (191)
Unrealized loss on
change in fair value
of Class B shares of
subsidiary - (597) - (533)
Provision for future
income taxes 91 3,351 153 1,176
Loss on subordinated
notes extinguishment - 29,627 - 29,627
Provision for bad
debts 210 142 227 459
Unrealized (gain) loss
on derivative
contracts (4,328) (3,314) (1,599) 4,890
Amortization expense 602 754 1,241 1,500
Depreciation expense 1,133 1,083 2,248 2,141
Loss (gain) on disposal
of businesses and
assets 28 (256) 470 99
Changes in operating
assets and
liabilities 355 3,438 2,834 2,502
---------------------------------------------------
Net cash provided by
operating activities 5,619 2,872 13,981 7,191
Investing activities:
Business acquisitions,
net of cash acquired (340) (1,746) (1,426) (1,895)
Cash paid to repurchase
Class B shares, net of
cash received from
management - - - (592)
Purchases of property
and equipment (731) (562) (1,400) (1,395)
Proceeds from
dispositions of
businesses 356 1,623 569 2,102
Proceeds from
restricted
investments 708 998 1,424 2,198
---------------------------------------------------
Net cash provided by
(used in) investing
activities (7) 313 (833) 418
Financing activities:
Proceeds from
credit facility 1,000 1,500 1,000 2,500
Payments on credit
facility - (1,400) (2,500) (1,400)
Borrowings on
long-term debt - 77 - 128
Payments on
long-term debt (938) (1,047) (1,947) (2,255)
Cash paid for
Keystone North
America Common
Share dividends (4,551) (3,005) (9,102) (5,224)
---------------------------------------------------
Net cash used in
financing activities (4,489) (3,875) (12,549) (6,251)
---------------------------------------------------
Net increase
(decrease) in cash 1,123 (690) 599 1,358
Cash and cash
equivalents,
beginning of period 3,990 4,643 4,514 2,595
---------------------------------------------------
Cash and cash
equivalents, end of
the period $ 5,113 $ 3,953 $ 5,113 $ 3,953
---------------------------------------------------
---------------------------------------------------
Supplement disclosure
of cash flow
information:
Cash paid for
interest $ 1,796 $ 4,678 $ 3,085 $ 10,677
---------------------------------------------------
---------------------------------------------------
Cash paid (recovered)
for income taxes $ 331 $ 749 $ 913 $ 885
---------------------------------------------------
---------------------------------------------------
FORWARD-LOOKING INFORMATION
This press release may contain "forward-looking statements" that reflect
the current expectations of management regarding potential future outcomes
relating to the Company or other matters, such as the Company's future growth,
results of operations, performance and business prospects and opportunities.
Forward-looking statements are only expectations and are not guarantees of
future performance or other future outcomes. Wherever possible, words such as
"may", "would", "could", "will", "anticipate", "believe", "plan", "expect",
"intend", "estimate", "aim", "endeavor" and similar expressions, and the
negative forms thereof, have been used to identify these forward-looking
statements.
Forward-looking statements reflect management's beliefs with respect to
future events and are based on information currently available to management.
Forward-looking statements involve significant known and unknown risks,
uncertainties and assumptions. The material factors and assumptions used to
develop the forward-looking statements contained in this press release may
include, in addition to those described elsewhere herein, competitive
conditions in our markets, consumer preferences, key employee retention,
identification of quality acquisition targets, integration of acquired
businesses, current and future capital expenditures and other expenses,
customer and supplier retention, insurance benefits related to pre-need
funeral contracts, earnings from and performance of trust fund investments,
compliance with regulations and licensing requirements, changes in the law,
natural disasters, unanticipated litigation, number of deaths, access to
capital, compliance with financial covenants, interest rates, exchange rates,
applicable accounting rules, current and historical results of operations and
performance and general economic conditions. Many risks and uncertainties
could cause the Company's actual results, performance or achievements or other
outcomes to be materially different from any future results, performance,
achievements or other outcomes that may be expressed or implied by such
forward-looking statements including, without limitation, those factors listed
and discussed in the "Risk Factors" section of the Company's Annual
Information Form for the year ended December 31, 2008 or elsewhere in our
filings with Canadian securities regulators, including in our Management's
Discussion and Analysis, which are available on SEDAR at www.sedar.com. Should
one or more of these risks or uncertainties materialize, or should any of the
assumptions underlying any forward-looking statements prove incorrect, actual
results, performance or achievements could vary materially from those
expressed or implied by the forward-looking statements contained herein. These
factors should be considered carefully and investors should not place undue
reliance on any forward-looking statements. Although any forward-looking
statements contained in this press release are based upon what management
currently believes to be reasonable assumptions, we cannot assure investors
that actual results, performance or achievements will be consistent with these
forward-looking statements and the differences may be material.
Any forward-looking statements contained in this press release are,
unless otherwise indicated, made as of the date of this press release, and are
expressly qualified in their entirety by this cautionary language. We do not
intend, and do not assume any obligation, to update or revise these
forward-looking statements, except as required by applicable law.
%SEDAR: 00021578E
For further information: Steven A. Tidwell, Chief Executive Officer,
(813) 225-4653, stidwell@keystonegroup.com; Stephen Shaffer, Executive
Vice-President and Chief Financial Officer, (813) 225-4654,
sshaffer@keystonegroup.com or please visit our investor website at
http://www.keystonenorthamerica.ca
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