/NOT FOR DISTRIBUTION IN THE UNITED STATES OR OVER UNITED STATES
WIRE SERVICES/
Highlights:Fourth Quarter 2007:
- Revenue was $32.1 million exceeding Q4 of 2006 by $9.5 million
or 42.0%.
- Average revenue per service increased 5.6% compared to Q4 of 2006.
- Cash available for distribution of C$7.3 million exceeded
distributions by C$0.4 million for a 94.3% pay out ratio.
Year Ended December 31, 2007:
- Revenue was $108.6 million exceeding revenue for the year ended
December 31, 2006 by $23.0 million or 26.9%.
- Average revenue per service increased 4.5% compared to the
prior year.
- Cash available for distribution of C$23.0 million trailed
distributions by C$1.2 million resulting in a 105.4% pay out ratio.
- All acquisitions completed in 2007, comprising 50 funeral homes and
six cemeteries have been fully integrated into Keystone's network.TORONTO, March 27 /CNW/ - Keystone North America Inc. (TSX:KNA.UN) today
reported the financial results for its fourth quarter and year ended
December 31, 2007. All amounts are reported in U.S. dollars, except as
otherwise noted.
"Our finish in the fourth quarter indicates that our 2007 class of
acquisitions have been fully integrated into Keystone's network and operating
systems," said Steve Tidwell, President and CEO. "But the timing of the March
and August IPS offerings increased cash distributions while the majority of
our 2007 acquisitions were brought on line during the seasonally weaker Q2 and
Q3 periods. As a result, cash distributions exceeded the cash generated during
2007. Our operational programs should continue to provide additional benefits
during 2008."
For the fourth quarter, revenue totaled $32.1 million, as compared to
$22.6 million for the fourth quarter of 2006. The $9.5 million increase, or
42.0%, primarily resulted from the revenue generated by new acquisitions and a
5.6% increase in average revenue per funeral service. Revenue for 2007 totaled
$108.6 million, as compared to $85.6 million in revenue for 2006. The
$23.0 million, or 26.9% increase, primarily resulted from the revenue
generated by new acquisitions and a 4.5% increase in average revenue per
funeral service.
The funeral service industry is subject to seasonal variations with
historically higher revenue and cash flows in the winter months. Management
believes, based upon information gathered internally combined with available
external resources, that total number of deaths were significantly lower in
the fourth quarter of 2007 compared to the same period in the prior year,
primarily in December. Management believes that December's decline in
mortality was a temporary fluctuation and not indicative of a loss in market
share or a fundamental change to the underlying business. It is not uncommon
for the funeral industry to experience short-term fluctuations in the number
of deaths.
"Keystone's Q4 2007 operating results were generally consistent with
prior year Q4 results; despite a decline in the total number of deaths
occurring in our service area in December compared to the prior year. This
decline appears to be industry wide and not Keystone specific. Keystone
attributes its continued success to obtaining higher average revenue per
service and responsible expense management," said Mr. Tidwell.
Cash available for distribution (see Note 1) generated for the fourth
quarter was C$7.3 million compared to the actual distributions of
C$6.9 million. Keystone's payout ratio was 94.3% in the fourth quarter of 2007
compared to 92.0% in the fourth quarter of 2006. Cash available for
distribution generated in 2007 was C$23.0 million compared to the actual
distributions of C$24.2 million. Keystone's payout ratio was 105.4% for the
year ending December 31, 2007 compared to 97.3% for the year ending
December 31, 2006. Based on the timing of the acquisitions completed in 2007
(March 13th, April 9th, and August 10th), Keystone did not receive the benefit
of the seasonally strongest first quarter in its results. Since the
distributions on the IPS are not adjusted to reflect seasonal fluctuations,
the distributions during the second and third quarters remained stable while
the cash flow from the newly acquired operations were seasonally lower,
resulting in somewhat skewed results for the year ended December 31, 2007.
Management expects that these acquisitions will be accretive on a lagging
twelve month basis. Keystone utilized existing cash reserves to fund the
excess distributions over cash available for distribution.
During 2007, the exchange rate between the Canadian dollar and the U.S.
dollar fluctuated significantly. Due to Keystone's hedging policy of
maintaining five years of hedging contracts the exchange rate fluctuation on
distributions is mitigated. Keystone is subject to exposure related to
exchange rate fluctuations on distributions following expiry of the current
hedging contracts, but intends to continue its policy of entering into
additional contracts five years forward. Additionally, fluctuation in the
exchange rate affects the recorded amount of our Canadian dollar denominated
debt. The principal component of this debt is not hedged and exchange rate
fluctuations impact the covenants contained in the agreements governing our
debt.
Strategy
"Despite lower than anticipated December mortality, our operating results
for the fourth quarter 2007 demonstrate the potential for excess cash
available after distributions as a result of the contribution of our recent
acquisitions. However, Keystone's year-to-date pay out ratio was still in
excess of 100% due to the higher distributions in Q2 & Q3 and the lack of Q1's
seasonally higher cash contribution from the acquisitions completed this
year," said Mr. Tidwell.
In management's estimation, Keystone is the fifth largest funeral service
provider in North America operating 199 funeral homes and 16 cemeteries across
the United States and the province of Ontario, primarily in suburban and rural
areas. Keystone's income participating securities (IPSs) each consist of one
common share of Keystone North America Inc. and C$4.286 principal amount of
14.5% subordinated notes of Keystone Newport ULC, an indirect subsidiary of
Keystone.
Keystone's consolidated financial statements together with the notes
thereto and management's discussion and analysis thereon will be available on
March 27, 2008 at www.sedar.com (see Note 2).Note 1- Reconciliation of cash from operating activities to cash
available for distribution
Three Months Ended Year Ended
December 31, December 31,
----------------------------------------------
2007 2006 2007 2006
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Cash from operating
activities $2,105 $2,476 $11,372 $10,624
Adjustments:
Interest expense 6,247 4,303 21,108 16,696
Changes in working capital 2,110 75 (459) (1,833)
Current tax expense 209 66 444 164
Provision for bad debts (386) (133) (726) (678)
Interest expense (other than
non-cash and IPS sub-notes) (1,725) (1,542) (6,198) (5,468)
Capital expenditure, net (724) (217) (2,178) (1,517)
Payments on debt, net (287) (8) (737) (302)
Class B distributions
declared - (241) (296) (1,088)
Cash taxes paid (154) (304) (242) 413
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Cash Available for
Distribution US$ $7,395 $4,475 $22,088 $17,011
Average rate of C$ to US$ 0.989 1.139 1.039 1.134
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Cash Available for
Distribution C$ $7,317 $5,098 $22,958 $19,297
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----------------------------------------------
Per IPS unit in C$ $0.26 $0.27 $0.95 $1.03
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Interest accrued on IPS
units in C$ 4,290 2,916 15,033 11,664
Declared dividends on IPS
units in C$ 2,613 1,776 9,156 7,104
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Total IPS distributions
in C$ $6,903 $4,692 $24,189 $18,768
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----------------------------------------------
Per IPS unit in C$ $0.25 $0.25 $1.00 $1.00
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Payout ratio 94.3% 92.0% 105.4% 97.3%
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Note 2-Consolidated Financial Statements
Keystone North America Inc.
Unaudited Consolidated Balance Sheets
(000's of U.S. Dollars)
As at As at
December 31, December 31,
2007 2006
---------------------------
Assets
Current assets:
Cash and cash equivalents $ 2,595 $ 2,824
Marketable securities - 188
Restricted short-term investments 3,604 3,474
Trade receivables, less allowances for
doubtful accounts of $2,509 and
$1,579 at December 31, 2007 and
December 31, 2006, respectively 11,108 7,774
Inventories 10,172 5,852
Income tax receivable 60 238
Prepaid and other current assets 5,233 2,612
Future income taxes 2,239 1,933
---------------------------
Total current assets 35,011 24,895
Preneed receivables and funds 77,583 52,316
Restricted cemetery care funds 6,274 3,372
Restricted long-term investments 5,987 4,650
Property and equipment, net 107,417 68,203
Goodwill 107,608 89,463
Tradenames 35,661 25,507
Covenants not to compete, less accumulated
amortization of $6,092 and $4,937 at
December 31, 2007 and December 31,
2006, respectively 14,029 9,893
Derivative contracts 10,057 2,420
Other assets 139 6,477
---------------------------
Total assets $ 399,766 $ 287,196
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---------------------------
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 10,040 $ 7,537
Dividends payable 926 582
Class B shares of subsidiary 3,936 -
Current maturities of long-term debt 3,336 3,379
---------------------------
Total current liabilities 18,238 11,498
Deferred revenue 92,644 58,203
Long-term debt 184,656 133,472
Future income taxes 14,344 10,708
Other long-term liabilities 114 355
Non-controlling interests in cemetery
care funds 6,274 3,372
Minority interest - 7,112
Shareholders' equity:
Share capital 109,771 78,312
Accumulated deficit (14,189) (11,029)
Accumulated other comprehensive loss (12,086) (4,807)
---------------------------
Total shareholders' equity 83,496 62,476
---------------------------
Total liabilities and shareholders' equity $ 399,766 $ 287,196
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Unaudited Consolidated Statements of Operations
(000's of U.S. Dollars - except per share amounts)
Three Three
months months Year Year
ended ended ended ended
December December December December
31, 2007 31, 2006 31, 2007 31, 2006
-----------------------------------------------
Revenues:
Funeral services $ 30,397 21,614 $ 102,645 $ 81,173
Other 1,665 1,028 5,978 4,434
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Total revenues 32,062 22,642 108,623 85,607
Costs and expenses 21,758 14,902 73,439 55,911
-----------------------------------------------
Gross profit 10,304 7,740 35,184 29,696
Other operating expenses:
Corporate, general and
administrative expenses 1,685 1,772 8,344 7,542
Depreciation 1,141 734 3,663 2,792
Amortization 776 678 2,902 3,102
Impairment expense 299 71 299 71
-----------------------------------------------
Income from operations 6,403 4,485 19,976 16,189
Interest expense 6,249 4,301 21,108 16,687
Unrealized gain (loss) on
derivative contracts (2,060) (3,772) 10,000 (1,985)
Other income 1,557 718 3,598 2,097
-----------------------------------------------
Income from continuing
operations before income
taxes and minority interest (349) (2,870) 12,466 (386)
Income tax expense 41 (2,085) 5,370 (310)
Minority interest 94 101 444 636
-----------------------------------------------
Income (loss) from
continuing operations (484) (886) 6,652 (712)
Net Income from
discontinued operations (1,393) (2,061) (1,238) (1,944)
-----------------------------------------------
Net Income (loss) $ (1,877) $ (2,947) $ 5,414 $ (2,656)
-----------------------------------------------
-----------------------------------------------
Weighted average number
of shares outstanding 27,613,017 18,768,017 24,289,743 18,768,017
-----------------------------------------------
-----------------------------------------------
Basic and diluted income
(loss) from continuing
operations $ (0.02) $ (0.05) $ 0.27 $ (0.04)
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-----------------------------------------------
Basic and diluted income
(loss) from discontinued
operations $ (0.05) $ (0.11) $ (0.05) $ (0.10)
-----------------------------------------------
-----------------------------------------------
Basic and diluted income
(loss)
Per common share $ (0.07) $ (0.16) $ 0.22 $ (0.14)
-----------------------------------------------
-----------------------------------------------
Unaudited Consolidated Statements of Cash Flows
(000's of U.S. Dollars)
Twelve Twelve
months months
ended ended
December December
31, 2007 31, 2006
---------------------------
Operating activities:
Net income (loss) $ 5,414 $ (2,656)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Minority interest 361 506
Payments on Class B Liability (167) -
Unrealized gain on Class B shares of subsidiary 566 -
Provision (benefit) for future income taxes 4,235 (534)
Provision for bad debt 726 678
Unrealized loss (gain) on derivative contracts (10,000) 1,985
Amortization expense 3,016 3,199
Depreciation expense 3,759 2,950
Impairment expense 299 71
Loss (gain) on disposal of businesses and assets 2,704 2,592
Changes in operating assets and liabilities
Trade receivables (2,188) (1,266)
Prepaid and other current assets (2,487) 402
Preneed receivables and funds (2,083) 1,535
Derivative contracts 2,940 (808)
Accounts payable and accrued expenses 1,285 1,641
Deferred revenue 2,972 (2,186)
Other 20 2,515
---------------------------
Net cash provided by operating activities 11,372 10,624
Investing activities:
Business acquisitions, net of cash acquired (67,423) (10,945)
Cash paid to repurchase Class B shares, net of
cash received from management (3,387) (982)
Purchases of property and equipment (2,853) (2,825)
Proceeds from dispositions of business 3,620 2,751
Cash paid for transition costs - (716)
Proceeds from restricted investments 3,474 3,895
Proceeds invested to fund indebtedness to former
owners and employees (4,200) -
---------------------------
Net cash used in investing activities (70,769) (8,822)
Financing activities:
Public offering and over-allotment proceeds
of common shares, net of expenses 31,459 -
Public offering and over-allotment proceeds of
14.5% Subordinated Notes 34,014 -
Issuance of 14.5% Separate Subordinated Notes 5,655 -
Proceeds from Credit Facility 14,000 7,700
Deferred financing costs (2,623) (403)
Payments on credit agreement (11,750) (2,400)
Borrowings on long-term debt 491 608
Payments on long-term debt (4,211) (4,197)
Cash paid for Class A dividends (7,498) (5,794)
Cash paid for Class B dividends (369) (1,106)
---------------------------
Net cash provided by (used in) financing
activities 59,168 (5,592)
Net increase (decrease) in cash (229) (3,790)
Cash and cash equivalents, beginning of period 2,824 6,614
---------------------------
Cash and cash equivalents, end of the period $ 2,595 $ 2,824
---------------------------
---------------------------
Supplemental disclosure of cash flow
information:
Cash paid for interest $ 19,903 $ 15,395
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---------------------------
Cash paid (recovered) for income taxes $ 242 $ (413)
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Non-GAAP MeasuresThe Company distributes a majority of its free cash flows from operations
to holders of its Income Participating Securities ("IPSs"), with a portion of
such distributions being interest payments on its subordinated notes and a
portion being dividends on its common shares. The Company believes that cash
available for distribution on its IPSs provides a useful measure for
evaluation of the Company's performance. In particular, the Company believes
that investors should be able to ascertain the extent to which the
distributions are funded by operations as discussed below. The major
differences between cash available for distribution, which is not a defined
term under generally accepted accounting principles in Canada ("GAAP"), and
cash provided by operating activities as reported in the Company's financial
statements are:1. Capital expenditures, net of debt incurred on equipment financing
2. Payments on debt, net of proceeds from investments
3. Cash taxes
4. Current tax expense
5. Provision for bad debt
6. Class B distributions declared
7. Changes in working capital
8. Adjustments to interest that in effect exclude the IPS interest,
which is included in distributions, to exclude non-cash interest
expense and to present interest expense on an accrual basis for
the period.Cash available for distribution is not intended to be representative of
cash flow or results of operations determined in accordance with GAAP and does
not have a standardized meaning prescribed by GAAP. Cash available for
distribution may not be comparable to similar measures used by other
companies. Readers are cautioned that this measure should not be construed as
an alternative to net income or loss or other comparable measures determined
in accordance with GAAP as an indicator of the company's performance or as a
measure of its liquidity and cash flow. The Company's method of calculating
non-GAAP measures may differ from the methods used by other issuers and
accordingly, the company's non-GAAP measures may not be comparable to
similarly titled measures used by other issuers.FORWARD-LOOKING INFORMATIONCertain statements in this news release are "forward-looking statements",
which reflect the expectations of management regarding the Company's future
growth, results of operations, performance and business prospects and
opportunities. Wherever possible, words such as "plans", "expects" or "does
not expect", "forecasts", "anticipates" or "does not anticipate", "believes",
"intends" and similar expressions or statements that certain actions, events
or results "may", "could", "would", "might" or "will" be taken, occur or be
achieved have been used to identify these forward-looking statements. These
forward-looking statements reflect management's current reasonable
expectations regarding future events and operating performance and speak only
as of the date of this news release. Forward-looking statements involve
significant risks and uncertainties, should not be read as guarantees of
future performance or results, and will not necessarily be accurate
indications of whether or not or the times at or by which such performance or
results will be achieved. A number of factors could cause actual results to
differ materially from the results discussed in the forward-looking statements
including, among others, those factors set out in the "Risk Factors" sections
of the Company's Annual Information Form dated March 27, 2008, which factors
are incorporated herein by reference. However, the risk factors set out
therein are not exhaustive of the factors that may affect any of the Company's
forward-looking statements. Although the forward-looking statements contained
in this news release are based upon what management believes to be reasonable
assumptions, investors cannot be assured that actual results will be
consistent with these forward-looking statements, and the differences may be
material. These assumptions, which include, management's current expectations,
estimates and assumptions about the markets the Company operates in, mix of
funeral services, interest rates, exchange rates, tax considerations and the
Company's ability to attract and retain customers and to manage its assets and
operating costs, may prove to be incorrect. Further information regarding
these and other factors is included in the Company's public filings with
Canadian securities regulatory authorities. These forward-looking statements
are made as of the date of this news release and, except as otherwise required
by law, the Company assumes no obligation to update or revise them to reflect
new events or circumstances.
%SEDAR: 00021578E
For further information: Steven A. Tidwell, Chief Executive Officer
(813) 225-4652, stidwell@keystonegroup.com; Stephen Shaffer, Chief Financial
Officer, (813) 225-4654, sshaffer@keystonegroup.com; or please visit our
investor website at http://www.keystonenorthamerica.ca/
