Keystone North America Inc. reports 2007 year end results and fourth quarter 2007 results



    /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
                               ----------------------------------------------
    Cash from operating
     activities                   $2,105      $2,476     $11,372     $10,624
    Adjustments:
    Interest expense               6,247       4,303      21,108      16,696
    Changes in working capital     2,110          75        (459)     (1,833)
    Current tax expense              209          66         444         164
    Provision for bad debts         (386)       (133)       (726)       (678)
    Interest expense (other than
     non-cash and IPS sub-notes)  (1,725)     (1,542)     (6,198)     (5,468)
    Capital expenditure, net        (724)       (217)     (2,178)     (1,517)
    Payments on debt, net           (287)         (8)       (737)       (302)
    Class B distributions
     declared                          -        (241)       (296)     (1,088)
    Cash taxes paid                 (154)       (304)       (242)        413
                               ----------------------------------------------
    Cash Available for
     Distribution US$             $7,395      $4,475     $22,088     $17,011
    Average rate of C$ to US$      0.989       1.139       1.039       1.134
                               ----------------------------------------------
    Cash Available for
     Distribution C$              $7,317      $5,098     $22,958     $19,297
                               ----------------------------------------------
                               ----------------------------------------------
    Per IPS unit in C$             $0.26       $0.27       $0.95       $1.03
                               ----------------------------------------------
                               ----------------------------------------------
    Interest accrued on IPS
     units in C$                   4,290       2,916      15,033      11,664
    Declared dividends on IPS
     units in C$                   2,613       1,776       9,156       7,104
                               ----------------------------------------------
    Total IPS distributions
     in C$                        $6,903      $4,692     $24,189     $18,768
                               ----------------------------------------------
                               ----------------------------------------------
    Per IPS unit in C$             $0.25       $0.25       $1.00       $1.00
                               ----------------------------------------------
                               ----------------------------------------------
    Payout ratio                    94.3%       92.0%      105.4%       97.3%
                               ----------------------------------------------
                               ----------------------------------------------



    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
                                                  ---------------------------
                                                  ---------------------------

    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
                                                  ---------------------------
                                                  ---------------------------

                                                  ---------------------------
                                                  ---------------------------



               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
                              -----------------------------------------------
    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)
                              -----------------------------------------------
                              -----------------------------------------------
      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
                                                  ---------------------------
                                                  ---------------------------
    Cash paid (recovered) for income taxes             $     242   $    (413)
                                                  ---------------------------
                                                  ---------------------------


                              Non-GAAP Measures
    

    The 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 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. 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:

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/

Organization Profile

KEYSTONE NORTH AMERICA INC.

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