Keystone North America Inc. reports second quarter 2008 results



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

    
    Highlights:

    Second Quarter 2008:
        -  Second quarter 2008 revenue was $30.5 million exceeding the second
           quarter of 2007 by $5.5 million or 22.0%.

        -  Average revenue per service increased 3.4% compared to the second
           quarter of 2007.

        -  On May 15, 2008, completed a Non-Cash Rights Offering with 91%
           investor participation, resulting in a conversion to a common
           share company.

        -  In June 2008, completed a 6:1 share consolidation resulting in a
           return to the approximate pre-reorganization share count.

    Six Months Ended June 30, 2008:
        -  Revenue for the first six months of 2008 was $65.2 million
           exceeding revenue in the first six months of 2007 by $16.4 million
           or 33.6%.

        -  Average revenue per service increased 4.3% compared to the first
           six months of 2007.

        -  In July 2008, the Company purchased C$16.0 Subordinated Notes
           saving approximately $1.0 million annually.
    

    TORONTO, Aug. 7 /CNW/ - Keystone North America Inc. (TSX:KNA) today
reported the financial results for its second quarter ended June 30, 2008. All
amounts are reported in U.S. dollars, except as otherwise noted.
    For the second quarter, revenue totaled $30.5 million, as compared to
$25.0 million for the second quarter of 2007 resulting in a $5.5 million
increase, or 22.0%. Additionally, the first six months of 2008 revenue totaled
$65.2 million, as compared to the $48.8 million for the first six months of
2007. The $16.4 million increase or 33.6%, primarily resulted from the revenue
generated by new acquisitions and a 3.4% increase in average revenue per
funeral service.
    "Our revenue grew over the second quarter of 2008 from both new
acquisitions and higher per case averages," said Steve Tidwell, President and
CEO. "Our acquired firms are performing in line with expectations and our same
store business is sound."
    "During the quarter, we executed our plan to convert to a traditional
common share company through our Non-Cash Rights Offering and related
restructuring," added Mr. Tidwell. "Our acquisition and organic growth
programs coupled with the benefits of the successful Non-Cash Rights Offering
provide Keystone with a platform for improved performance, long-term
sustainability and additional growth opportunities. We are very optimistic
about the future of Keystone."

    Non-Cash Rights Offering Conclusion

    In May 2008, the Company successfully completed a non-cash rights
offering, under which rights were issued to holders enabling an exchange of
five pre-consolidation Common Shares for each C$4.286 principal amount
Subordinated Notes attached to an IPS. Approximately 91% of the rights were
exercised eliminating C$107 million in Subordinated Notes. As part of this
transaction, the Company also issued 423,179 Common Shares in exchange for the
remaining outstanding 423,179 Class B shares.
    The transaction resulted in a $29.6 million non-cash loss resulting from
the difference between the fair market value of the Common Shares issued and
the book value of the debt extinguished, the value of the Class B Shares in
Subsidiary, the book value of the related portion of the call option
derivatives, interest expense and loan cost. Additionally, the Company has
recorded $4.5 million in expenses related to the extinguishment of
subordinated notes as of June 30, 2008. The Company liquidated the unused
portions of the forward contracts for $1.7 million in cash which was used to
partially fund these expenses.
    In June 2008, the Company completed a common share consolidation where
six pre-consolidation common shares were converted into one post-consolidation
common share. This consolidation returned the Company to 25,958,102 shares
outstanding which closely approximates its pre-reorganization share count of
27,613,017.
    After quarter end, the Company repurchased and canceled C$16.0 million
aggregate principal amount, representing all, of its Separate Subordinated
Notes. The purchase was financed through additional borrowings under the
Company's term loan and revolving loan facilities and proceeds from the
liquidation of certain forward contracts. In connection with the transaction
the company also negotiated an increase of $15.0 million under its term loan
facility.
    Management estimates that the Non-Cash Rights Offering and the repurchase
and cancellation of its Separate Subordinated Notes will generate net cash
savings of approximately $0.3 million per month.

    Strategy

    "Following our Non-Cash Rights Offering and cancellation of Separate
Subordinated Notes, we have significantly reduced our Canadian dollar debt
exposure and emerged as a common share company," said Mr. Tidwell. "These
changes coupled with the strategies we have in place for acquisitions and
operations should yield strong growth opportunities for the Company."
    In management's estimation, the Company 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. The Company currently pays an annual dividend of
C $0.84 per common share and anticipates continuing to declare this amount.
    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 will be dramatically different than those experienced
historically.
    The Company's consolidated financial statements together with the notes
thereto and management's discussion and analysis will be available on August
6, 2008 at www.sedar.com (see Note 1).

    
    Note 1-Consolidated Financial Statements

                         Keystone North America Inc.

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


                                                        As at       As at
                                                       June 30,  December 31,
                                                         2008        2007
                                                     ------------------------
    Assets
    Current assets:
      Cash and cash equivalents                      $    3,953   $    2,595
      Restricted short-term investments                   3,047        3,604
      Trade receivables, less allowances
       for doubtful accounts of $2,573 and
       $2,511 at June 30, 2008 and
      December 31, 2007, respectively                     9,571       11,108
      Inventories and cemetery property                   9,966       10,172
      Income tax receivable                                 673           60
      Prepaid and other current assets                    4,245        5,233
      Future income taxes                                 1,561        2,239
                                                     ------------------------
    Total current assets                                 33,016       35,011

    Preneed receivables and trust funds                  77,202       77,583
    Restricted cemetery care trust funds                  6,058        6,274
    Restricted long-term investments                      4,533        5,987
    Property and equipment, net                         106,607      107,417
    Goodwill                                            107,746      107,608
    Tradenames                                           35,495       35,661
    Covenants not to compete, less accumulated
     amortization of $7,313 and $6,410 at
     June 30, 2008 and December 31, 2007,
     respectively                                        12,579       14,029
        Derivative contracts                              5,009       10,057
    Other assets                                            115          139
    Total assets                                     $  388,360   $  399,766
                                                     ------------------------
                                                     ------------------------
    Liabilities and shareholders' equity
    Current liabilities:
      Accounts payable and accrued expenses          $    9,717   $   10,040
      Dividends payable                                   1,782          926
      Class B shares of subsidiary                            -        3,936
      Current maturities of long-term debt                2,989        3,336
                                                     ------------------------
    Total current liabilities                            14,488       18,238

    Deferred revenue                                     92,380       92,644
    Long-term debt                                       82,446      184,656
    Future income taxes                                  15,893       14,344
    Other long-term liabilities                              84          114

    Non-controlling interests in cemetery
     care funds                                           6,058        6,274

    Shareholders' equity:
      Share capital                                     244,313      109,771
      Accumulated deficit                               (55,720)     (14,189)
      Accumulated other comprehensive loss              (11,582)     (12,086)
                                                     ------------------------
    Total shareholders' equity                          177,011       83,496
                                                     ------------------------
    Total liabilities and shareholders'
     equity                                          $  388,360   $  399,766
                                                     ------------------------
                                                     ------------------------



               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,
                               2008         2007         2008         2007
                          ---------------------------------------------------
    Revenues:
       Funeral services   $    28,830  $    23,564  $    61,875  $    46,331
       Other                    1,688        1,442        3,374        2,551
                          ---------------------------------------------------
      Total revenues           30,518       25,006       65,249       48,882
      Costs and expenses       21,067       16,943       42,679       32,007
                          ---------------------------------------------------
      Gross profit              9,451        8,063       22,570       16,875

      Other operating
       expenses:
        Corporate, general
         and administrative
         expenses               2,999        2,504        6,053        4,900
       Depreciation             1,079          866        2,217        1,610
       Amortization               743          650        1,472        1,316
                          ---------------------------------------------------
     Income from operations     4,630        4,043       12,918        9,049

     Interest expense           4,071        4,818       10,188        9,071
     Unrealized (gain) loss
      on derivative
      contracts                (3,314)      (6,399)       4,890       (6,572)
     Extinguishment of
      subordinated notes
      expenses                  3,910            -        4,525            -
     Loss on subordinated
      notes extinguishment     29,627            -       29,627            -
     Other income              (1,454)        (666)      (3,132)      (1,154)
                          ---------------------------------------------------
     Income from continuing
      operations before
      income taxes and
      minority interest       (28,210)       6,290      (33,180)       7,704

    Income tax expense          3,319        2,438        1,391        3,069
    Minority interest               -          191            -          350
                          ---------------------------------------------------
    Income (loss) from
     continuing operations    (31,529)       3,661      (34,571)       4,285
    Net income from
     discontinued
     operations                   242           21           92           93
                          ---------------------------------------------------
    Net Income (loss)     $   (31,287) $     3,682  $   (34,479) $     4,378

    Weighted average
     number of shares
     outstanding           15,632,157    3,952,169   10,117,163    3,628,877
                          ---------------------------------------------------
                          ---------------------------------------------------
    Basic and diluted
     income (loss)
     from continuing
     operations           $     (2.02) $      0.93  $     (3.42) $      1.18
                          ---------------------------------------------------
                          ---------------------------------------------------
    Basic and diluted
     income from
     discontinued
     operations           $      0.02  $      0.01  $      0.01  $      0.03
                          ---------------------------------------------------
                          ---------------------------------------------------
    Basic and diluted
     income (loss)
     Per common share     $     (2.00) $      0.93  $     (3.41) $      1.21
                          ---------------------------------------------------
                          ---------------------------------------------------



               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,
                                2008         2007         2008         2007
                         ----------------------------------------------------
    Operating activities:
      Net income (loss)   $   (31,287) $     3,682  $   (34,479) $     4,378
      Adjustments to
       reconcile net
       income (loss) to
       net cash provided
       by operating
       activities:
      Minority interest             -          193            -          356
      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             3,351        2,369        1,176        2,972
      Loss on subordinated
       notes extinguishment    29,627            -       29,627            -
      Provision for bad
       debts                      142            -          459            -
      Unrealized (gain)
       loss on derivative
       contracts               (3,314)      (6,399)       4,890       (6,572)
      Amortization expense        754          673        1,500        1,400
      Depreciation expense      1,083          885        2,141        1,645
      Loss (gain) on
       disposal of
       businesses and
       assets                    (256)         340           99          381
      Changes in
       operating assets
       and liabilities          3,438        2,622        2,502        2,712
                         ----------------------------------------------------
    Net cash provided by
     operating activities       2,872        4,365        7,191        7,272
    Investing activities:
      Business acquisitions,
       net of cash acquired    (1,746)     (17,997)      (1,895)     (32,377)
      Cash paid to
       repurchase Class B
       shares, net of
       cash received from
       management                   -            -         (592)      (3,387)
      Purchases of property
       and equipment             (562)        (689)      (1,395)        (970)
      Proceeds from
       dispositions of
       businesses               1,623            -        2,102            -
      Proceeds from
       restricted
       investments                998          990        2,198        1,920
                         ----------------------------------------------------
    Net cash provided by
     (used in) investing
     activities                   313      (17,696)         418      (34,814)
    Financing activities:
      Public offering and
       over-allotment
       proceeds of common
       shares, net of
       expenses                     -            -            -       15,011
      Public offering and
       over-allotment
       proceeds of 14.5%
       Subordinated Notes,
       net of expenses              -            -            -       17,930
      Issuance of 14.5%
       Separate
       Subordinated Notes           -        3,296            -        3,296
      Proceeds from Credit
       Facility                 1,500        5,000        2,500        5,000
      Payment of deferred
       financing costs              -         (125)           -       (1,405)
      Payments on credit
       facility                (1,400)           -       (1,400)        (300)
      Borrowings on
       long-term debt              77          191          128          288
      Payments on
       long-term debt          (1,047)      (1,192)      (2,255)      (2,201)
      Cash paid for
       Class A dividends       (3,005)      (1,853)      (5,224)      (3,301)
      Cash paid for
       Class B dividends            -         (112)           -         (291)
                         ----------------------------------------------------
    Net cash provided by
     (used in) financing
     activities                (3,875)       5,205       (6,251)      34,027
    Net increase
     (decrease) in cash          (690)      (8,126)       1,358        6,485

    Cash and cash
     equivalents,
     beginning of period        4,643       17,435        2,595        2,824
                         ----------------------------------------------------
    Cash and cash
     equivalents,
     end of the period    $     3,953  $     9,309  $     3,953  $     9,309
                         ----------------------------------------------------
                         ----------------------------------------------------

    Supplement disclosure
     of cash flow
     information:
    Cash paid for
     interest             $     4,678  $     4,591  $    10,677  $     8,373
                         ----------------------------------------------------
                         ----------------------------------------------------
    Cash paid (recovered)
     for income taxes     $       749  $        90  $       885  $        85
                         ----------------------------------------------------
                         ----------------------------------------------------


                              Non-GAAP Measures

    EBITDA

    In this management's discussion and analysis, reference is made to EBITDA,
which represents earnings before interest, provision for income taxes, gain or
loss on sale of fixed assets, depreciation and amortization, impairment
losses, loss on extinguishment of Subordinated Notes, minority interest,
change in the market value of the Class B shares of subsidiary and other
non-recurring expenses as defined. This is a non-GAAP measure and, as there is
no generally accepted method of calculating EBITDA, the measure as calculated
by the Company may not be comparable to similarly-titled measures reported by
other companies. EBITDA is presented as management believes it is a useful
indicator of a Company's operating and financial performance. EBITDA should
not be considered by an investor as an alternative to net income or cash flows
as determined in accordance with Canadian GAAP.

                         FORWARD LOOKING INFORMATION
    

    This Management's Discussion and Analysis contains "forward-looking
statements" that reflect the current expectations of management regarding our
future growth, results of operations, performance and business prospects and
opportunities. Forward-looking statements are only predictions and are not
guarantees of performance. Wherever possible, words such as "may", "would",
"could", "will", "anticipate", "believe", "plan", "expect", "intend",
"estimate", "aim", "endeavor" and similar expressions have been used to
identify these forward-looking statements. These 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.
Important assumptions relating to the forward-looking statements contained in
this Management's Discussion and Analysis include expansion, capital
expenditures, competitive conditions and gross economic conditions. Many
factors could cause our actual results, performance or achievements to be
materially different from any future results, performance or achievements that
may be expressed or implied by such forward-looking statements, including,
without limitation, those listed in the "Risk Factors" sections of the Annual
Information Form dated March 27th, 2008 and the Final Short Form Prospectus
dated April 14, 2008. Should one or more of these risks or uncertainties
materialize, or should assumptions underlying the forward-looking statements
prove incorrect, actual results, performance or achievements could vary
materially from those expressed or implied by the forward-looking statements
contained in this Management's Discussion and Analysis. These factors should
be considered carefully and prospective investors should not place undue
reliance on the forward-looking statements. Although the forward-looking
statements contained in this Management's Discussion and Analysis are based
upon what management currently believes to be reasonable assumptions, we
cannot assure prospective investors that actual results, performance or
achievements will be consistent with these forward-looking statements.

    %SEDAR: 00021578E




For further information:

For further information: Steven A. Tidwell, Chief Executive Officer,
(813) 225-4653, 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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