Keystone North America Inc. reports first quarter 2009 results



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

    Highlights:

    First Quarter 2009:

    -   Revenue was $33.1 million, compared to $34.7 million in the first
        quarter of 2008 because of 7.2% fewer funeral services performed.
    -   Average revenue per service increased 3.1% compared to the first
        quarter of 2008.
    -   Cost and expenses decreased $0.9 million or 4.2% compared to the
        first quarter of 2008.
    -   Gross profit decreased $0.7 million or 5.6% compared to the first
        quarter of 2008.
    -   Recorded a reserve related to litigation of $2.3 million.
    -   Cash from operating activities was $8.4 million, exceeding dividends
        by $4.0 million during the first quarter 2009.
    -   Acquired two funeral businesses for $1.1 million, funded through cash
        from operations.
    

    TORONTO, May 14 /CNW/ - Keystone North America Inc. (TSX:KNA and KNA.UN)
("Keystone" or the "Company") today reported the financial results for its
first quarter ended March 31, 2009. All amounts are reported in U.S. dollars,
except as otherwise noted.

    Overview

    During the first quarter of 2009, the Company's total revenues decreased
slightly when compared to the first quarter of 2008. For the first quarter,
revenue totaled $33.1 million, as compared to $34.7 million for the first
quarter of 2008 resulting in a decrease of $1.6 million, or 4.6%. This
decrease is attributable to an approximate 8.0% quarter over quarter decline
in total mortality for the Company, which is consistent with the decline in
mortality indicated in the information reported by the United States Centers
for Disease Control (the "CDC"). The Company continued to realize improved
case averages quarter over quarter with a 3.1% increase in average revenue per
service.
    Despite the current general economic turmoil (discussed in greater detail
below), we are well positioned to continue to generate strong operating
results and cash flows. For the first quarter 2009, the Company generated
significant excess cash flow from operations relative to the current level of
dividend declarations generating an excess of $4.0 million.
    "During the quarter, we continued to demonstrate our ability to increase
average revenue per service even during these challenging economic times.
Consistent with the published CDC data, the Company's total number of services
is down approximately 8% when compared to the first quarter 2008, which
impacted our total revenues," said Steve Tidwell, President and CEO. "The
Company did achieve a significant positive impact on cash flows from operating
activities which exceeded cash dividends declared by $4.0 million for the
quarter, despite reduced revenues, as compared to the excess cash of $1.7
million in the first quarter of 2008. Our continued tight focus on operating
expenses and increased average revenue per case contributed to this increase
in excess cash."

    Subsequent Events

    On April 16, 2009, a Cook County, Illinois jury awarded $3.2 million to a
former employee terminated by the Company in 2002. The Company continues to
evaluate additional coverage under its insurance policies and has recorded
$2.3 million of litigation expense as a reserve for the amount of the
obligation net of confirmed insurance coverage. The Company is in the process
of filing post trial motions asking the court to overturn a significant
portion of this verdict. The Company is considering its options in this case
including potential for appeal.
    On May 14, 2009, the Company amended its credit facility, which included
changes to exclude amounts related to the judgment up to $3.5 million from
covenant calculations and exclude the judgment itself from creating a
potential Event of Default, among other things. In connection with the
amendment, commitments under the revolving credit facility were reduced by
$5.0 million and the Company agreed to an additional reduction of revolving
credit facility commitments of $5.0 million on February 1, 2010. The Company
paid a fee of 0.5% of the total facility for this amendment. These changes are
described in greater detail in the Company's first quarter filings.

    Current Economic Conditions

    The Company has given specific consideration to recent economic and
financial market uncertainty and potential impacts on future earnings and cash
flows. Management has identified two likely revenue sources that may be
adversely affected including the sale of preneed cemetery contracts and the
insurance commission income earned on the sale of preneed funeral contracts.
As Keystone is almost exclusively a funeral home operating company, the
exposure to reduced preneed cemetery property sales would be minimal with only
1.1% of our total 2008 revenues comprised of preneed cemetery sales. In
addition, approximately 1.6% of our 2008 revenues represent commissions from
preneed funeral contract sales and those revenues are largely offset by the
corresponding commission expenses limiting the impact on our operating income.
    The Company relies on trust fund investments and insurance policies to
provide funding for preneed contracts as they are fulfilled over a period of
years, usually a seven to twelve year time frame. While current market
fluctuations could reduce the cash received and revenues recorded from the
trusts, we believe this is not necessarily indicative of the future long term
performance of these funds. Our investment strategy is centered on more secure
government backed securities (approximately 16% of our total preneed
receivable and preneed trust portfolio is invested in equity securities),
giving us a relatively conservative portfolio as a whole.

    Outlook

    As we proceed through our historically slower seasonal period, management
expects that our revenue initiatives combined with pricing strategies and the
continued monitoring and managing of cost will contribute to profitability.
Management believes the fundamental assumptions of our business model are
unchanged.
    In the first quarter of 2009, the Company demonstrated its continued
ability to generate significant cash exceeding dividends. Accordingly, we
believe that these internally generated cash flows strengthen the Company's
ability to weather the current economic turmoil and may provide opportunities
for investing in growth projects and reducing debt.
    The Company's current dividend policy contemplates an annual dividend of
C$0.84 per common share. This dividend policy is not anticipated to change but
is evaluated monthly, and is subject to modification, at the discretion of the
Company's Board of Directors.

    
    First Quarter 2009 Earnings Conference Call Friday, May 15, 2009
    10:00 am (EST)
    

    Keystone North America Inc. will hold a conference call on Friday, May
15, 2009 10:00 am (EST) for analysts and investors to discuss its financial
results for the first quarter of the 2009 fiscal year. A copy of complete
financial results will be available prior to the call at www.sedar.com. Steve
Tidwell, President and Chief Executive Officer and Stephen Shaffer, Executive
Vice President and Chief Financial Officer, will be available to answer
questions during the call.
    To participate in the conference call, please dial (416) 644-3423 or
(800) 731-5319 confirmation No.21305521. A live audio webcast of the
conference call will be available at
http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=21305521.
    An archived recording of the call will be available at (416) 640-1917 or
(877) 289-8525 (passcode 21305521 followed by the number sign) through May 22,
2009. An archived recording of the webcast will be available at
http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=21305521.

    About Keystone North America Inc.

    KNA, through its subsidiaries, is a leading funeral service provider in
North America. In management's estimation, the Company is the fifth largest
funeral service provider in North America operating 200 funeral homes and 15
cemeteries across the United States and the province of Ontario, primarily in
suburban and rural areas. 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 in services performed will be dramatically
different than those experienced historically.
    The Company's unaudited consolidated financial statements for the first
quarter of 2009 together with the notes thereto and the corresponding
management's discussion and analysis will be available on May 14, 2009 at
www.sedar.com.

    
    Consolidated Financial Statements (unaudited)

                         Keystone North America Inc.

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

                                                       As at        As at
                                                      March 31,  December 31,
                                                        2009         2008
                                                    -------------------------
    Assets
      Current assets:
        Cash and cash equivalents                    $    3,990   $    4,514
        Restricted short-term investments                 1,753        2,163
        Trade receivables, less allowances for
         doubtful accounts of $2,018 and $2,219 at
         March 31, 2009 and December 31, 2008,
         respectively                                     7,984        8,333
        Inventories and cemetery property                 9,569        9,787
        Income tax receivable                               433          114
        Prepaid and other current assets                  1,108          626
        Future income taxes                                 353          374
                                                    -------------------------
    Total current assets                                 25,190       25,911

    Preneed receivables and trust funds                  70,100       71,868
    Restricted cemetery care trust funds                  6,266        6,085
    Restricted long-term investments                      3,824        4,132
    Property and equipment, net                         105,467      105,493
    Tradenames                                           34,742       34,739
    Covenants not to compete, less accumulated
     amortization of $7,622 and $7,600 at
     March 31, 2009 and December 31, 2008,
     respectively                                        10,624       11,103
    Other assets                                            114          114
                                                    -------------------------
    Total assets                                     $  256,327   $  259,445
                                                    -------------------------
                                                    -------------------------
    Liabilities and shareholders' equity
    Current liabilities:
        Accounts payable and accrued expenses        $    9,606   $    7,430
        Current derivative contract liability             2,963        1,907
        Dividends payable                                 1,441        1,492
        Current maturities of long-term debt              1,811        2,134
                                                    -------------------------
      Total current liabilities                          15,821       12,963

      Deferred revenue                                   88,039       89,697
      Long-term debt                                     75,929       79,006
      Future income taxes                                10,995       10,744
      Derivative contracts liability                     10,519        8,332
      Other long-term liabilities                           193          173

      Non-controlling interests in preneed funds          6,266        6,085

      Shareholders' equity:
        Share capital                                   244,313      244,313
        Accumulated deficit                            (185,399)    (181,384)
        Accumulated other comprehensive loss            (10,349)     (10,484)
                                                    -------------------------
      Total shareholders' equity                         48,565       52,445
                                                    -------------------------
      Total liabilities and shareholders' equity     $  256,327   $  259,445
                                                    -------------------------
                                                    -------------------------



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

                                                   Three months  Three months
                                                       ended        ended
                                                      March 31,    March 31,
                                                        2009         2008
                                                    -------------------------
    Revenues:
      Funeral services                               $   31,511   $   33,004
      Other                                               1,622        1,686
                                                    -------------------------
    Total revenues                                       33,133       34,690
    Costs and expenses                                   20,739       21,558
                                                    -------------------------
    Gross profit                                         12,394       13,132

    Other operating expenses:
      Corporate, general and administrative expenses      2,576        3,053
      Depreciation                                        1,115        1,042
      Amortization                                          639          727
                                                    -------------------------
                                                          8,064        8,310

    Interest expense                                      1,270        6,117
    Unrealized loss on derivative contracts               3,248        8,204
    Litigation expense                                    2,328            -
    Expense on the extinguishment of subordinated notes       -          615
    Other income                                            (51)      (1,671)
                                                    -------------------------
    Income (loss) from continuing operations before
     income taxes                                         1,269       (4,955)

    Income tax expense (benefit)                            535       (1,923)
                                                    -------------------------
    Income (loss) from continuing operations                734       (3,032)
    Loss from discontinued operations                      (374)        (159)
                                                    -------------------------
    Net income (loss)                                $      360   $   (3,191)

    Weighted average number of shares outstanding    25,958,102    4,602,169
                                                    -------------------------
                                                    -------------------------
    Basic and diluted income (loss)
     from continuing operations                      $     0.03   $    (0.66)
                                                    -------------------------
                                                    -------------------------
    Basic and diluted loss from
     discontinued operations                         $    (0.01)  $    (0.03)
                                                    -------------------------
                                                    -------------------------
    Basic and diluted loss income (loss)
     per common share                                $     0.01   $    (0.69)
                                                    -------------------------
                                                    -------------------------



              Consolidated Statements of Cash Flows (unaudited)
                           (000's of U.S. Dollars)

                                                   Three months  Three months
                                                       ended        ended
                                                      March 31,    March 31,
                                                        2009         2008
                                                    -------------------------
    Operating activities:
      Net income (loss)                              $      360   $   (3,191)
      Adjustments to reconcile net income (loss)
       to net cash provided by operating activities:
        Payments on Class B shares of subsidiary              -         (122)
        Unrealized loss on change in fair value of
         Class B shares of  subsidiary                        -           64
        Provision for future income taxes (benefit)          63       (2,175)
        Provision for bad debt                               17          317
        Unrealized loss on derivative contracts           3,248        8,204
        Amortization expense                                639          746
        Depreciation expense                              1,115        1,058
        Loss on disposal of businesses and assets           442          355
    Changes in operating assets and liabilities           2,478         (936)
                                                    -------------------------
    Net cash provided by operating activities             8,362        4,320
      Investing activities:
        Business acquisitions, net of cash acquired      (1,086)        (149)
        Cash paid to repurchase Class B shares,
         net of cash received from management                 -         (592)
        Purchases of property and equipment                (669)        (833)
        Proceeds from dispositions of business              213          478
        Proceeds from restricted investments                716        1,200
                                                    -------------------------
    Net cash (used in) provided by investing
     activities                                            (826)         104
      Financing activities:
        Proceeds from Credit Facility                         -        1,000
        Payments on credit facility                      (2,500)           -
        Borrowings on long-term debt                          -           51
        Payments on long-term debt                       (1,009)      (1,208)
        Cash paid for Keystone North America
         Common Share dividends                          (4,551)      (2,219)
                                                    -------------------------
    Net cash used in financing activities                (8,060)      (2,376)
                                                    -------------------------
    Net (decrease) increase in cash                        (524)       2,048

    Cash and cash equivalents, beginning of period        4,514        2,595
                                                    -------------------------
    Cash and cash equivalents, end of the period     $    3,990   $    4,643
                                                    -------------------------


    Supplemental disclosure of cash flow information:
    Cash paid for interest                           $    1,289   $    5,999
                                                    -------------------------
                                                    -------------------------
    Cash paid for income taxes                       $      404   $      136
                                                    -------------------------
                                                    -------------------------


                         FORWARD-LOOKING INFORMATION
    

    This press release may contain "forward-looking statements" that reflect
the current expectations of management regarding potential future outcomes
relating to the Company or other matters, such as the Company's future growth,
results of operations, performance and business prospects and opportunities.
Forward-looking statements are only predictions and are not guarantees of
future performance or other future outcomes. Wherever possible, words such as
"may", "would", "could", "will", "anticipate", "believe", "plan", "expect",
"intend", "estimate", "aim", "endeavour" and similar expressions, and the
negative forms thereof, have been used to identify these forward-looking
statements.
    Forward-looking 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. The material factors and assumptions used to
develop the forward-looking statements contained in this press release may
include, in addition to those described elsewhere herein, competitive
conditions in our markets, consumer preferences, key employee retention,
identification of quality acquisition targets, integration of acquired
businesses, current and future capital expenditures and other expenses,
customer and supplier retention, insurance benefits related to pre-need
funeral contracts, earnings from and performance of trust fund investments,
compliance with regulations and licensing requirements, changes in the law,
natural disasters, unanticipated litigation, number of deaths, access to
capital, compliance with financial covenants, interest rates, exchange rates,
applicable accounting rules, current and historical results of operations and
performance and general economic conditions. Many risks and uncertainties
could cause our actual results, performance or achievements to be materially
different from any future results, performance, achievements or other outcomes
that may be expressed or implied by such forward-looking statements including,
without limitation, those factors listed and discussed in the "Risk Factors"
section of the Company's Annual Information Form for the year ended December
31, 2008 or elsewhere in our filings with Canadian securities regulators,
including in our Management's Discussion and Analysis, which are available on
SEDAR at www.sedar.com. Should one or more of these risks or uncertainties
materialize, or should any of the assumptions underlying any forward-looking
statements prove incorrect, actual results, performance or achievements could
vary materially from those expressed or implied by the forward-looking
statements contained herein. These factors should be considered carefully and
prospective investors should not place undue reliance on any forward-looking
statements. Although any forward-looking statements contained in this press
release are based upon what management currently believes to be reasonable
assumptions, we cannot assure investors that actual results, performance or
achievements will be consistent with these forward-looking statements and the
differences may be material.
    Any forward-looking statements contained in this press release are,
unless otherwise indicated, made as of the date of this press release, and are
expressly qualified in their entirety by this cautionary language. We do not
intend, and do not assume any obligation, to update or revise these
forward-looking statements, except as required by applicable law.

    %SEDAR: 00021578E




For further information:

For further information: Steven A. Tidwell, Chief Executive Officer,
(813) 225-4653, stidwell@keystonegroup.com; Stephen Shaffer, Executive
Vice-President and 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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