Keystone North America Inc. reports 2006 year end results and new Chief Executive Officer



    /NOT FOR DISTRIBUTION IN THE UNITED STATES OR OVER UNITED STATES WIRE
    SERVICES/

    
    Highlights:
    -   2006 revenues were $87.2 million, which exceeded revenues for the pro
        forma combined year 2005 by $3.9 million or 4.7%, fueled by the 4.6%
        increase in average revenue per funeral service and the 2006
        acquisitions. Revenues for the quarter were $23.0 million, up
        $2.0 million or 9.8%, over the same period in 2005 on average funeral
        service revenue increases of 5.7% and the 2006 acquisitions.
    -   Distributable cash for the year of C$19.3 million exceeded
        distributions by C$0.5 million. Distributable cash for the fourth
        quarter of C$5.1 million exceeded distributions by C$0.4 million.
    -   Robert G. Horn announced his resignation as Chief Executive Officer
        effective with the completion of the Annual General Meeting on May 8,
        2007, Steven A. Tidwell named President and CEO.
    -   Completed six acquisitions comprising ten funeral homes and four
        cemeteries anticipated to contribute $9.2 million in annual revenues
        and executed an agreement on October 31, 2006 to acquire assets
        expected to produce $11.8 million in revenues from Service
        Corporation International, Inc.
    -   Amended Credit Agreement allows for an increased acquisition
        facility, more favourable debt covenants and a lower interest rate,
        with estimated savings of approximately $0.7 million annually.
    -   Repurchased and cancelled 254,017 Class B shares of Keystone Group
        Holdings, Inc. for $1.0 million that will generate C$254,017 in cash
        savings via reduced distributions.
    -   On March 13, 2007, completed an additional offering of 4.9 million
        income participating securities for C$40.3 million that was used to
        repurchase and cancel 526,403 Class B shares of Keystone Group
        Holdings, Inc. and the purchase of Fred H. Kaul Funeral Homes, Inc.
    -   On March 13, 2007, members of management purchased 301,957 Class B
        shares of Keystone Group Holdings, Inc. increasing management's
        overall stake to 490,544 Class B shares representing a 2% stake
    

    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, 2006. All amounts are reported in U.S. dollars, except as
otherwise noted.
    "We wrapped up the year strong, exceeding our distribution requirements
in the fourth quarter by C$0.4 million. We ramped up our acquisition program
in 2006 closing deals that contributed $2.0 million in revenue this quarter
and $5.5 million year to date. These acquisitions should generate revenues of
$9.2 million annually," said Robert Horn, Chairman and CEO. "We grew revenues
by 5% over the prior year and completed cash saving measures such as amending
our credit facility and buying back Class B shares."
    "The Company also closed several transactions that we believe will add
positive results," added Steven A. Tidwell, President, "including the signing
and finalization of an agreement to purchase eleven homes and four cemeteries
from Service Corporation International, Inc., completion of a secondary
offering of 4.9 million IPS units, the acquisition of Fred H. Kaul Funeral
Homes, Inc., and the repurchase of 426,403 Class B common shares."

    Steven A. Tidwell named CEO

    Robert G. Horn announced his resignation as Chief Executive Officer
effective with the completion of the Annual General Meeting on May 8, 2007.
The Board of Directors has appointed Steven A. Tidwell as the successor to Mr.
Horn as the Company's President and Chief Executive Officer on that same date,
consistent with an established succession plan.
    "Since being an original founder of Keystone in 1996 and with a funeral
service career that spans over 28 years and a wide variety of roles, Steve has
been a driving force within the Company. His leadership has been instrumental
in securing key acquisitions, building major industry partner relationships
and developing our operational programs," said Horn. "as someone who has come
up through the ranks, but has never forgotten his roots, Steve has earned the
admiration and respect of our over 1,000 employees, our former owners, our
customers and the industry as a whole. He is the ideal leader to take the helm
as Keystone's Chief Executive Officer."
    "It is an honour to take the reins of this great company from one of the
industry's true visionaries," said Tidwell. "I'm thrilled with this
opportunity to partner with a world-class leadership team, and some of the
industry's most respected individuals and funeral homes."

    Service Corporation International, Inc. Transaction

    October 31, 2006, the Company entered into an agreement with Service
Corporation International, Inc. (which was subsequently amended) to acquire
eleven funeral homes and four cemetery businesses. Once closed, management
believes these locations will contribute $11.8 million in annual revenues. The
acquisition of these locations represents a significant opportunity to further
advance Keystone's middle market strategy. Management anticipates closing this
transaction in April of 2007 as final regulatory approval was received on
March 23, 2007.

    Secondary Offering

    On March 13, 2007, the Company closed its offering of 4,945,000 income
participating securities (IPS), including 645,000 IPSs issued on exercise of
the over-allotment option, at a price of C$8.15 per IPS for total gross
proceeds of C$40.3 million. The offering was underwritten by a syndicate of
underwriters led by BMO Capital Markets and Scotia Capital Inc.

    Fred H. Kaul Funeral Homes, Inc. Acquisition and Class B Share Repurchase

    Keystone used a portion of the offering proceeds to complete two
previously announced transactions: (i) the acquisition of three funeral homes
in Michigan by acquiring 100% of the shares of Fred H. Kaul Funeral Homes,
Inc. and (ii) the redemption of 526,403 Class B Common Shares of Keystone
Group Holdings, Inc. Management expects the remainder of the proceeds to be
used for general corporate purposes and to finance, along with draws on the
senior credit facility, the acquisition of 11 funeral homes and four
cemeteries from Service Corporation International. Simultaneous with the March
offering, certain members of management purchased 301,957 Class B shares
increasing management's overall stake in Class B shares to 490,544
representing a 2.0% ownership stake in Keystone Group Holdings, Inc. or nearly
double their prior ownership percentage.
    To provide investors with a useful comparison to prior year's results,
the Company has reported its results for the year ended December 31, 2005, on
a combined pro forma (see Note 3) basis including the results of the two
predecessor companies.
    For the fourth quarter, revenues totalled $23.0 million, as compared to
$21.0 million for the fourth quarter of 2005. The $2.0 million increase, or
9.8%, primarily relates to the revenue generated by new acquisitions and a
5.7% increase in average revenues per funeral service. For the year ended
December 31, 2006, revenues totalled $87.2 million, as compared to
$83.3 million for the pro forma combined year ended December 31, 2005. The
$3.9 million increase related to revenues from new acquisitions and a 4.7%
increase in average funeral service revenue which were partially offset by a
decrease in case volumes at the same homes held year over year.
    Distributable Cash (see Note 1) generated for the fourth quarter and year
ended December 31, 2006 was C$5.1 million and C$19.3 million compared to the
actual distributions of C$4.7 million and C$18.8 million, respectively. This
represents an excess of C$0.4 million (or 8.6%) for the quarter and
C$0.5 million (or 2.8%) excess for the year compared to distributions,
respectively.
    The funeral service industry is subject to seasonal variations with
historically higher revenues and cash flows in the winter months. The fourth
quarter has historically been our second strongest seasonal period. The
Company has no reason to believe that the quarterly seasonal fluctuations this
year or in the future will be dramatically different than those experienced
historically.

    Strategy
    "While we were pleased with our 2006 accomplishments, we are extremely
excited about the early developments in 2007. We're excited to have the
opportunity to add a number of quality locations to our portfolio. Once
finalized, the acquisitions signed and completed to date are expected to be
immediately accretive to our distributable cash. Keeping with our middle
market strategy and to do so in locations with such respected and valued
tradenames in the business is extremely promising," said Robert Horn, Chairman
and CEO. "When coupled with amending our Credit Agreement, reducing
outstanding Class B shares, and our commitment to increasing cash flow at our
existing locations, we look forward to the opportunity for a very strong 2007.
We remain confident in our business model and ability to meet the anticipated
annual distribution target of C$1.00 per IPS."

    The Company is the fifth largest funeral service provider in North
America operating 171 funeral homes and 10 cemeteries in 27 states and the
province of Ontario, primarily in suburban and rural areas. The Company's
income participating securities 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, a subsidiary of the Company.
    The Company's consolidated financial statements together with the notes
thereto and management's discussion and analysis are available at
www.sedar.com (see Note 2).

    
    Note 1 - Reconciliation of cash from operating activities to
    distributable cash
                                                          Three
                                                   Months Ended   Year Ended
                                                    December 31, December 31,
                                                           2006         2006
                                                    -------------------------
    Cash from operating activities                       $2,476      $10,624
    Interest expense                                      4,303       16,696
    Changes in working capital                              (58)      (2,511)
    Current taxes                                            66          164
                                                    -------------------------
    EBITDA                                                6,787       24,973

    Capital expenditures of property and equipment         (219)      (2,825)
    Revolving facility draw for land purchase                 -          700
    Proceeds from debt                                        2          608
    Payments on long term debt                             (899)      (4,197)
    Proceeds from investments                               891        3,895
    Interest on other loans                                (175)        (513)
    Interest on senior credit facility                   (1,048)      (3,676)
    Interest on separate subordinated notes                (319)      (1,279)
    Class B distributions declared                         (241)      (1,088)
    Cash taxes recovered (paid)                            (304)         413
                                                    -------------------------
    Distributable cash                                   $4,475      $17,011
    Average rate of C$ to US$                             1.139        1.134
                                                    -------------------------
    Distributable cash C$                                $5,098      $19,297
                                                    -------------------------
                                                    -------------------------
    Per IPS unit in C$                                   $ 0.27      $  1.03
                                                    -------------------------
                                                    -------------------------

    Interest accrued on IPS units in C$                   2,916       11,664
    Declared dividends on IPS units in C$                 1,776        7,104
                                                    -------------------------
    Total IPS distributions in C$                        $4,692      $18,768
                                                    -------------------------
                                                    -------------------------
    Per IPS unit in C$                                   $ 0.25      $  1.00
                                                    -------------------------
                                                    -------------------------

    Payout ratio                                          92.0%        97.3%
                                                    -------------------------
                                                    -------------------------



    Note 2 - Consolidated Financial Statements

                         Keystone North America Inc.

                         Consolidated Balance Sheets
                           (000's of U.S. Dollars)

                                                          As at        As at
                                                    December 31, December 31,
                                                           2006         2005
                                                    -------------------------
    Assets
    Current assets:
    Cash and cash equivalents                        $    2,824   $    6,614
      Marketable securities                                 188          350
      Restricted short-term investments                   3,474        3,331
      Trade receivables, less allowance for doubtful
       accounts of $1,579 and $1,795 at
       December 31, 2006 and
       December 31, 2005, respectively                    7,774        7,350
      Inventories                                         5,852        3,816
      Income tax receivable                                 238        1,102
      Prepaid and other current assets                    2,612        2,564
      Future income taxes                                 1,933        2,308
                                                    -------------------------
    Total current assets                                 24,895       27,435

    Preneed receivables and funds                        52,316       43,100
    Restricted cemetery care funds                        3,372          552
    Restricted long-term investments                      4,650        8,525
    Property and equipment, net                          68,203       67,546
    Goodwill                                             89,463       86,741
    Tradenames                                           25,507       24,652
    Covenants not to compete, less accumulated
     amortization of $4,937 and $2,898 at
     December 31, 2006 and
     December 31, 2005, respectively                      9,893       11,713
    Derivative contracts                                  2,420        3,597
    Other assets                                          6,477        7,653
                                                    -------------------------
    Total assets                                     $  287,196   $  281,514
                                                    -------------------------
                                                    -------------------------
    Liabilities and shareholders' equity
    Current liabilities:
      Accounts payable and accrued expenses          $    7,537   $    7,532
      Dividends payable                                     582          599
      Current maturities of long-term debt                3,379        3,491
                                                    -------------------------
    Total current liabilities                            11,498       11,622

    Deferred revenue                                     14,642        6,461
    Long-term debt                                      133,472      129,605
    Future income taxes                                  10,708       10,926
    Other long-term liabilities                             355           84

    Non-controlling interests in preneed funds           43,561       41,251
    Non-controlling interests in cemetery care funds      3,372          552
    Minority interest                                     7,112        9,513

    Shareholders' equity:
      Share capital                                      78,312       78,312
      Accumulated deficit                               (11,029)      (2,114)
      Cumulative currency translation adjustments        (4,807)      (4,698)
                                                    -------------------------
    Total shareholders' equity                           62,476       71,500
                                                    -------------------------
    Total liabilities and shareholders' equity       $  287,196   $  281,514
                                                    -------------------------
                                                    -------------------------



       Consolidated Statements of Operations and Accumulated Deficit)
             (000's of U.S. Dollars - except per share amounts)

                                                                 Period from
                                                    Year ended  Feb. 8, 2005
                                                   December 31,  to Sept. 30,
                                                          2006          2005
                                                   --------------------------
    Revenues:
      Funeral services                               $   82,762   $   70,539
      Other                                               4,435        3,496
                                                   --------------------------
    Total revenues                                       87,197       74,035
    Costs and expenses                                   57,130       47,912
                                                   --------------------------
    Gross profit                                         30,067       26,123

    Other operating expenses:
      Corporate, general and administrative expenses      7,542        5,392
      Depreciation                                        2,820        2,316
      Amortization                                        3,127        2,828
      Tradename impairment                                   71            -
                                                   --------------------------
    Income from operations                               16,507       15,587

    Interest expense                                     16,691       14,247
    Unrealized gain (loss) on derivative contracts       (1,985)       4,627
    Other income                                          2,103          674
                                                   --------------------------
    Income (loss) from continuing operations before
     income taxes and minority interest                     (66)       6,641

    Income tax expense (benefit)                           (193)       2,929
    Minority interest                                       647          787
                                                   --------------------------
    Net income (loss) from continuing operations           (520)       2,925
    Income (loss) from discontinued operations           (2,136)         213
                                                   --------------------------
    Income (loss)                                        (2,656)       3,138

    Accumulated deficit - beg. of period                 (2,114)           -
    Dividends                                             6,259        5,252
                                                   --------------------------
    Accumulated deficit - end of period              $  (11,029)  $   (2,114)
                                                   --------------------------
                                                   --------------------------

    Weighted average number of shares outstanding    18,768,017   18,768,017
                                                   --------------------------
                                                   --------------------------
    Basic and diluted net income (loss) from
     continuing operations                           $    (0.03)  $     0.16
                                                   --------------------------
                                                   --------------------------
    Basic and diluted net income (loss) from
     discontinued operations                         $    (0.11)  $     0.01
                                                   --------------------------
                                                   --------------------------
    Basic and diluted net income (loss) per
     common share                                    $    (0.14)  $     0.17
                                                   --------------------------
                                                   --------------------------



                    Consolidated Statements of Cash Flows
                           (000's of U.S. Dollars)
                                                                 Period from
                                                                  February 8,
                                                     Year ended      2005 to
                                                    December 31, December 31,
                                                           2006         2005
                                                   --------------------------
    Operating activities:
      Net income (loss)                              $   (2,656)  $    3,138
      Adjustments to reconcile net income (loss) to
       net cash provided by operating activities:
        Minority interest                                   506          801
        Provision (benefit) future income taxes            (534)       2,888
        Unrealized loss (gain) on derivative contracts    1,985       (4,627)
        Amortization expense                              3,199        2,979
        Depreciation expense                              2,950        2,471
        Tradename impairment                                 71            -
        Loss on sale of businesses and assets             2,592          196
        Changes in operating assets and liabilities
          Accounts receivable                              (588)       1,775
          Prepaid and other current assets                  402         (950)
          Deferred preneed funeral contracts                 45          (40)
          Other assets                                    1,578        1,757
          Accounts payable and accrued expenses             798          665
          Other                                             276         (828)
                                                    -------------------------
             Net cash provided by operating
              activities                                 10,624       10,225

    Investing activities:
      Business acquisitions, net cash acquired          (10,945)    (153,415)
      Purchase of Class B Minority Interest Shares
       related to the exercise of the
       over-allotment option                                  -      (12,691)
      Cash paid to repurchase Class B Minority
       Interest Shares                                     (982)           -
      Purchases of property and equipment                (2,825)      (2,223)
      Proceeds from dispositions of businesses
       and assets                                         2,751        3,303
      Cash paid for transition costs                       (716)      (3,162)
      Proceeds from restricted investments                3,895        4,801
      Proceeds invested to fund indebtedness to former
       owners and employees                                   -      (16,393)
                                                    -------------------------
             Net cash used in investing activities       (8,822)    (179,780)

    Financing activities:
      Initial public offering and over-allotment
       proceeds of common shares, net of expenses             -       78,312
      Initial public offering and over-allotment
       proceeds of 14.5% Subordinated Notes,
       net of expenses                                        -       64,492
      Issuance of 14.5% Separate Subordinated Notes,
       net of expenses                                        -        8,005
      Proceeds from credit agreement                      7,700       43,100
      Payments on credit agreement                       (2,400)           -
      Deferred financing costs                             (403)      (8,085)
      Borrowings on long-term debt                          608          222
      Payments on long-term debt                         (4,197)      (4,272)
      Cash paid for Class A dividends                    (5,794)      (4,751)
      Cash paid for Class B dividends                    (1,106)        (854)
                                                    -------------------------
             Net cash provided by (used in)
              financing activities                       (5,592)     176,169
                                                    -------------------------

                 Net increase (decrease) in cash         (3,790)       6,614

    Cash and cash equivalents, beginning of period        6,614            -
                                                    -------------------------
    Cash and cash equivalents, end of the period     $    2,824   $    6,614
                                                    -------------------------
                                                    -------------------------

    Supplement disclosure of cash flow information:
    Cash paid for interest                           $   15,395   $   12,959
                                                    -------------------------
                                                    -------------------------
    Cash paid (recovered) for income taxes           $     (413)  $      821
                                                    -------------------------
                                                    -------------------------


    Note 3 - 2005 Pro forma combined data
    Results for all periods prior to February 8, 2005 are based on combined,
pro forma same funeral home operating results as presented in internally
prepared financial statements for Keystone and Hamilton. These amounts do not
include pro forma adjustments for the change in treatment of consulting and
non-compete payments expensed in the Hamilton historical financial statements.

                              NON-GAAP MEASURES

    EBITDA and Distributable Cash are not recognized measures under generally
accepted accounting principals ("GAAP") and do not have standardized meanings
prescribed by GAAP. Therefore, EBITDA and Distributable Cash may not be
comparable to similar measures presented by other issuers. As the Company
intends to distribute substantially all of its cash on an ongoing basis,
management believes that EBITDA and Distributable Cash are important measures
in evaluating the Company's performance. Distributable Cash is not intended to
be representative of cash flow or results of operations determined in
accordance with GAAP. Management believes that Distributable Cash is a useful
financial measure as it provides investors with an indication of cash
available for distribution and is a measure generally used by Canadian income
funds as an indicator of financial performance. The Company's method of
determining distributable cash is derived from EBITDA, which in turn is
derived from net earnings, a measure recognized under GAAP.

                         FORWARD LOOKING INFORMATION
    

    Certain 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. These forward-looking statements reflect management's current
reasonable expectations regarding future events and operating performance and
speak only as of December 31, 2006. 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" section
of the Company's Annual Information Form dated March 27, 2007, 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 and the Company's ability to
attract and retain customers and to manage its assets and operating costs, may
prove to be incorrect. With respect to the proposed acquisitions and
anticipated revenues and accretion, additional risks include, among other
things, that there is no guarantee that the Company will be able to
successfully integrate the new acquisitions, that the Company will be able to
retain key employees and that the Company will be able to realize all
anticipated synergies. 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:

For further information: Robert G. Horn, Chief Executive Officer, (813)
225-4652, bhorn@keystonegroup.com; Stephen Shaffer, Chief Financial Officer,
(813) 225-4654, sshaffer@keystonegroup.com; or please visit our investor
website at http://www.keystonenorthamerica.ca

Organization Profile

KEYSTONE NORTH AMERICA INC.

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