Keystone North America Inc. reports second quarter 2007 results



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

    
    Highlights:

    -   Q2 2007 revenues were $25.8 million exceeding Q2 of 2006 by
        $4.5 million or 21.3%. Revenues for 2007 were $50.5 million exceeding
        2006 by $7.9 million or 18.4%.
    -   Year-to-date average revenue per service compared to the same period
        of the prior year has increased 4.6%, from $5,044 to $5,278. Average
        revenue per service for the quarter compared to the same quarter of
        the prior year increased 4.9%, from $5,057 to $5,308.
    -   Distributable cash for the quarter of C$4.8 million trailed
        distributions by C$1.2 million. Distributable cash for the first six
        months of 2007 of C$11.1 million exceeded distributions by
        C$0.1 million.
    -   Completed purchase of 11 funeral homes and 4 cemeteries that are
        anticipated to contribute $11.8 million in annual revenues.
    -   Completed a placement of C$6.0 million in separate subordinated
        notes.
    -   Subsequent to quarter end, completed an additional offering, of
        3.9 million income participating securities for C$35.1 million to
        fund the acquisition of the Meridian Mortuary Group, Inc., which
        operates 36 funeral homes and 2 cemeteries.
    

    TORONTO, Aug. 13 /CNW/ - Keystone North America Inc. (TSX:KNA.UN) today
reported the financial results for its second quarter and six months ended
June 30, 2007. All amounts are reported in U.S. dollars, except as otherwise
noted.
    "Historically, the second quarter is the Company's seasonally weakest
period; the second quarter of 2007 was no exception. Revenues continue to
improve over the same period in the prior year but cash after distributions is
down," said Steve Tidwell, President and CEO. "Our recently acquired firms are
performing in line with expectations and our same store business is sound. The
offering completed in March increased the distributions required in the second
quarter while the new homes acquired were brought on during this seasonally
weak period. As a result, distributions exceeded the cash generated. We
believe this is reflective of seasonal trends and that the new acquisitions
are additive to cash after distribution on a full year basis."
    "Shortly after the quarter, we successfully completed an offering of
3.9 million income participating securities to acquire Meridian Mortuary
Group, Inc.," added Mr. Tidwell, President and CEO. "We anticipate that this
acquisition will add approximately $21 million in revenues on an annual basis.
We are very pleased with this acquisition because, in our industry,
opportunities to acquire additional revenues of this magnitude and scale in a
single transaction are uncommon."
    For the second quarter, revenues totalled $25.8 million, as compared to
$21.2 million for the second quarter of 2006. The $4.5 million increase, or
21.3%, primarily resulted from the revenue generated by new acquisitions and a
4.9% increase in average revenues per funeral service. For the first six
months of 2007, revenues totalled $50.5 million, as compared to $42.7 million
for the first six months of 2006. The $7.8 million increase, or 18.3%,
primarily resulted from the revenue generated by new acquisitions and a 4.6%
increase in average revenues per funeral service.
    Distributable Cash (see Note 1) generated for the second quarter was
C$4.8 million compared to the actual distributions of C$5.9 million. The
Company's payout ratio was 124.5% in the second quarter of 2007 compared to
90.2% in the second quarter of 2006. Distributable cash in the second quarter
of 2006 included the one-time benefit of a tax receipt of $0.9 million.
Distributable Cash (see Note 1) generated for the first six months of 2007 was
C$11.1 million compared to the actual distributions of C$11.0 million. The
Company's payout ratio was 99.3% for the first six months of 2007 compared to
90.9% in the first half of 2006. Based on the timing of the major acquisitions
in 2007 (March 13th and April 9th), the Company did not receive the benefit of
the seasonally strongest first quarter in its results. Since the distributions
on the IPS units and debt are not adjusted to seasonal fluctuations, the
distributions during the second quarter remained stable while the cash flow
from the newly acquired operations were seasonally lower, resulting in
somewhat skewed results for the six month period ended June 30, 2007.
Management expects these acquisitions to be accretive on a twelve month basis.
Management intends to retain this excess distributable cash to fund
anticipated working capital, capital expenditures and other capital needs of
the Company.
    The funeral service industry is subject to seasonal variations with
historically higher revenues and cash flows in the winter months. The second
quarter has historically been the Company's weakest 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.

    Service Corporation International, Inc. Transaction

    On April 9, 2007, the Company completed the transaction with SCI to
acquire eleven funeral homes and four cemetery businesses. These locations
generated approximately $12 million in annual revenues in 2006. The
acquisition of these locations represents a significant opportunity to further
advance Keystone's middle market strategy.

    Public Offering

    On August 10, 2007, the Company closed its offering of 3,900,000 income
participating securities (IPS), at a price of C$9.00 per IPS for total gross
proceeds of C$35.1 million.

    Acquisition of the Assets of Meridian Mortuary Group, Inc.

    On August 10, 2007, the Company completed a transaction to acquire
36 funeral homes and two cemetery businesses from the Meridian Mortuary Group,
Inc. Management believes these locations will contribute approximately
$21 million in annual revenues. The acquisition of these locations represents
a significant opportunity to further advance Keystone's middle market
strategy.

    Strategy

    "While second quarter results are reflective of the historically weaker
seasonal period, we feel that the overall performance of the entire business
is in line and consistent with our expectations. We continue to add quality
locations to our portfolio which should yield accretive results as the year
continues to unfold and we enter our seasonally stronger months," said
Mr. Tidwell. "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 217 funeral homes and 16 cemeteries across the United 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 will be available on
August 13, 2007 at www.sedar.com (see Note 2).

    
    Note 1 - Reconciliation of cash from operating activities to
             distributable cash

                         Three Months  Three Months  Six Months   Six Months
                            Ended         Ended        Ended        Ended
                           June 30,      June 30,     June 30,     June 30,
                            2007          2006         2007         2006
                                                    -------------------------
    Cash from operating
     activities            $    4,365   $    3,526   $    7,272   $    6,015

    Interest expense            4,819        4,156        9,074        8,323
    Changes in working
     capital                   (2,662)      (1,829)      (2,712)      (1,967)
    Current tax expense            85           29          160           59
                                                    -------------------------
    EBITDA                      6,647        5,882       13,794       12,430

    Capital expenditures of
     property and equipment      (689)        (601)        (970)      (1,339)
    Proceeds from debt            190          199          288          497
    Payments on long
     term debt                 (1,193)      (1,129)      (2,201)      (2,153)
    Proceeds from investments     990        1,084        1,920        2,078
    Interest on other loans      (127)        (149)        (206)        (261)
    Interest on senior
     credit facility             (946)        (589)      (1,849)      (1,752)
    Interest on separate
     subordinated notes          (333)        (323)        (642)        (637)
    Class B distributions
     declared                    (114)        (284)        (257)        (563)
    Cash taxes recovered
     (paid)                       (90)         814          (85)         776
                          ---------------------------------------------------
    Distributable cash US$
     (Note 1)              $    4,335   $      634   $    9,792   $    9,076
    Average rate of C$
     to US$                     1.098        1.122        1.135        1.138
                          ---------------------------------------------------
    Distributable cash C$  $    4,761   $    5,201   $   11,114   $   10,328
                          ---------------------------------------------------
                          ---------------------------------------------------
    Per IPS unit in C$     $     0.20   $     0.28   $     0.51   $     0.55
                          ---------------------------------------------------
                          ---------------------------------------------------

    Interest accrued on
     IPS units in C$            3,684        2,916        6,856        5,832
    Declared dividends on
     IPS units in C$            2,244        1,776        4,176        3,552
                          ---------------------------------------------------
    Total IPS distributions
     in C$                 $    5,928   $    4,692   $   11,032   $    9,384
                          ---------------------------------------------------
                          ---------------------------------------------------
    Per IPS unit in C$     $     0.25   $     0.25   $     0.50   $     0.50
                          ---------------------------------------------------
                          ---------------------------------------------------
    Payout ratio               124.5%        90.2%        99.3%        90.9%
                          ---------------------------------------------------
                          ---------------------------------------------------



    Note 2 - 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,
                                                       2007         2006
                                                 ----------------------------
    Assets
    Current assets:
      Cash and cash equivalents                   $     9,310    $     2,824
      Marketable securities                               188            188
      Restricted short-term investments                 3,082          3,474
      Trade receivables, less allowances for
       doubtful accounts of $1,601 and $1,579
       at June 30, 2007 and December 31, 2006,
       respectively                                     8,489          7,774
      Inventories                                       9,418          5,852
      Income tax receivable                               173            238
      Prepaid and other current assets                  4,269          2,612
      Future income taxes                               2,038          1,933
                                                 ----------------------------
    Total current assets                               36,967         24,895

    Preneed receivables and funds                      66,498         52,316
    Restricted cemetery care funds                      6,157          3,372
    Restricted long-term investments                    3,465          4,650
    Property and equipment, net                        84,961         68,203
    Goodwill                                          101,426         89,463
    Tradenames                                         30,796         25,507
    Covenants not to compete, less accumulated
     amortization of $5,269 and $4,937 at
     March 31, 2007 and December 31, 2006,
     respectively                                      11,522          9,893
    Derivative contracts                                8,138          2,420
    Other assets                                          148          6,477
                                                 ----------------------------
    Total assets                                  $   350,078    $   287,196
                                                 ----------------------------
                                                 ----------------------------
    Liabilities and shareholders' equity
    Current liabilities:
      Accounts payable and accrued expenses       $     9,147    $     7,537
      Dividends payable                                   742            582
      Current maturities of long-term debt              3,158          3,379
                                                 ----------------------------
    Total current liabilities                          13,047         11,498

    Deferred revenue                                   30,216         14,642
    Long-term debt                                    159,818        133,472
    Future income taxes                                10,141         10,708
    Other long-term liabilities                           235            355

    Non-controlling interests in preneed funds         50,887         43,561
    Non-controlling interests in cemetery
     care funds                                         6,157          3,372
    Minority interest                                   3,617          7,112

    Shareholders' equity:
      Share capital                                    93,323         78,312
      Accumulated deficit                             (10,070)       (11,029)
      Accumulated other comprehensive loss             (7,293)        (4,807)
                                                 ----------------------------
    Total shareholders' equity                         75,960         62,476
                                                 ----------------------------
    Total liabilities and shareholders' equity    $   350,078    $   287,196
                                                 ----------------------------
                                                 ----------------------------



               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,
                              2007         2006         2007         2006
                         ----------------------------------------------------
    Revenues:
      Funeral services    $    24,270  $    19,923  $    47,866  $    40,464
      Other                     1,509        1,322        2,681        2,214
                         ----------------------------------------------------
    Total revenues             25,779       21,245       50,547       42,678
    Costs and expenses         17,621       14,192       33,382       27,612
                         ----------------------------------------------------
    Gross profit                8,158        7,053       17,165       15,066

    Other operating expenses:
      Corporate, general
       and administrative
       expenses                 2,504        1,801        4,900        3,721
      Depreciation                885          708        1,645        1,359
      Amortization                673          867        1,400        1,758
    Income from operations      4,096        3,677        9,220        8,228
                         ----------------------------------------------------

    Interest expense            4,819        4,154        9,074        8,320
    Unrealized gain (loss)
     on derivative contracts    6,399        3,203        6,572        2,847
    Other income                  652          474        1,147          739
                         ----------------------------------------------------
    Income from continuing
     operations before
     income taxes and
     minority interest          6,328        3,200        7,865        3,494

    Income tax expense          2,453        1,330        3,131        1,479
    Minority interest             193          284          356          453
                         ----------------------------------------------------
    Income (loss) from
     continuing operations      3,682        1,586        4,378        1,562
    Net Income from
     discontinued
     operations                     -           26            -         (541)
                         ----------------------------------------------------
    Net Income (loss)     $     3,682  $     1,612  $     4,378  $     1,021

    Weighted average
     number of shares
     outstanding
                           23,713,017   18,768,017   21,773,266   18,768,017
                         ----------------------------------------------------
                         ----------------------------------------------------
    Basic and diluted
     income (loss) from
     continuing
     operations           $      0.16  $      0.08  $      0.20  $      0.08
                         ----------------------------------------------------
                         ----------------------------------------------------
    Basic and diluted
     income (loss) from
     discontinued
     operations           $         -  $      0.00  $         -  $     (0.03)
                         ----------------------------------------------------
                         ----------------------------------------------------
    Basic and diluted
     income (loss)
      Per common share    $      0.16  $      0.09  $      0.20  $      0.05
                         ----------------------------------------------------
                         ----------------------------------------------------



               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,
                              2007         2006         2007         2006
                         ----------------------------------------------------
    Operating activities:
      Net income (loss)    $    3,682   $    1,612   $    4,378   $    1,021
      Adjustments to
       reconcile net income
       (loss) to net cash
       provided by operating
       activities:
        Minority interest         193          285          356          416
        Provision (benefit)
         for future income
         taxes                  2,369        1,319        2,972        2,179
        Unrealized loss
         (gain) on derivative
         contracts             (6,399)      (3,203)      (6,572)      (2,847)
        Amortization expense      673          881        1,400        1,804
        Depreciation expense      885          740        1,645        1,436
        Loss (gain) on
         disposal of
         businesses and
         assets                   340           63          381           39
        Changes in operating
         assets and
         liabilities            2,622        1,829        2,712        1,967
                         ----------------------------------------------------
    Net cash provided by
     operating activities       4,365        3,526        7,272        6,015
    Investing activities:
      Business acquisitions,
       net of cash acquired   (17,997)      (6,937)     (32,377)      (8,489)
      Cash paid to repurchase
       Class B shares, net
       of cash received
       from management              -            -       (3,387)           -
      Purchases of property
       and equipment             (689)        (601)        (970)      (1,339)
      Cash paid for
       transition costs             -         (109)           -         (650)
      Proceeds from
       restricted
       investments                990        1,084        1,920        2,078
                         ----------------------------------------------------
    Net cash used in
     investing activities     (17,696)      (6,563)     (34,814)      (8,400)
    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                 5,000        5,000        5,000        5,000
      Deferred financing costs   (124)        (403)      (1,405)        (403)
      Payments on credit
       agreement                    -            -         (300)           -
      Borrowings on
       long-term debt             190          199          288          497
      Payments on long-term
       debt                    (1,193)      (1,129)      (2,201)      (2,153)
      Cash paid for Class A
       dividends               (1,853)      (1,449)      (3,301)      (2,897)
      Cash paid for Class B
       dividends                 (111)        (282)        (291)        (559)
                         ----------------------------------------------------
    Net cash provided by
     (used in) financing
     activities                 5,205        1,936       34,027         (515)
    Net increase (decrease)
     in cash                   (8,126)      (1,101)       6,485       (2,900)

    Cash and cash
     equivalents,
     beginning of period       17,435        4,815        2,824        6,614
                         ----------------------------------------------------
    Cash and cash
     equivalents,
     end of the period     $    9,309   $    3,714  $     9,309   $    3,714
                         ----------------------------------------------------
                         ----------------------------------------------------
    Supplement disclosure
     of cash flow
     information:
    Cash paid for interest $    4,591   $    3,329   $    8,373   $    7,390
                         ----------------------------------------------------
                         ----------------------------------------------------
    Cash paid (recovered)
     for income taxes      $       90   $     (814)  $       85   $     (776)
                         ----------------------------------------------------
                         ----------------------------------------------------
    



    NON-GAAP MEASURES

    The Company distributes a majority of its free cash flows from operations
to holders of its Income Participating Securities ("IPS"), 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
distributable cash on its IPS 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. References to "EBITDA" are to earnings
before interest, taxes, depreciation, amortization and certain other
adjustments related to discontinued operations (when present). The major
differences between distributable cash, which is not a defined term under
Canadian GAAP, and cash provided by operating activities as reported in the
Company's financial statements are:

    
    1)  Capital expenditures
    2)  Proceeds from debt (equipment financing)
    3)  Payments on debt
    4)  Proceeds from investments
    5)  Cash taxes
    6)  Current Taxes
    7)  Class B distributions declared
    8)  Changes in working capital
    9)  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.
    

    Distributable cash is not intended to be representative of cash flow or
results of operations determined in accordance with generally accepted
accounting principles in Canada ("GAAP") and does not have a standardized
meaning prescribed by Canadian GAAP. Distributable cash may not be comparable
to similar measures used by other companies. EBITDA is a non-GAAP financial
measure, but management believes it is useful in measuring Keystone's
performance. 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. These forward-looking statements reflect management's current
reasonable expectations regarding future events and operating performance and
speak only as of June 30, 2007. 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: 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.

More on this organization


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890