Keystone North America Inc. reports third quarter 2007 results



    -   Q3 2007 revenues were $27.3 million exceeding Q2 of 2006 by
        $6.0 million or 28.2%. Revenues for the nine months ended
        September 30, 2007 were $77.5 million exceeding the nine months ended
        September 30, 2006 by $13.9 million or 21.8%.
    -   Year-to-date average revenue per service compared to the same period
        of the prior year increased 4.2%. Average revenue per service for the
        quarter compared to the same quarter of the prior year increased
    -   Cash available for distribution for the quarter of C$5.0 million
        trailed distributions by C$1.5 million. Cash available for
        distribution for the first nine months of 2007 of C$16.1 million
        trailed distributions by C$1.2 million.
    -   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.

    TORONTO, Nov. 12 /CNW/ - Keystone North America Inc. (TSX:KNA.UN) today
reported the financial results for its third quarter and nine months ended
September 30, 2007. All amounts are reported in U.S. dollars, except as
otherwise noted.
    "While our revenues continue to grow from our acquisition programs our
cash after distributions is down. The summer months of the second and third
quarters are the Company's seasonally weakest period and this summer was no
exception," said Steve Tidwell, President and CEO. "The March and August IPS
offerings increased the distributions 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."
    "During the quarter we successfully integrated the previously announced
acquisition of the Meridian Mortuary Group, Inc.," added Mr. Tidwell. "This
acquisition was funded through our August offering. We anticipate that this
acquisition will add approximately $21 million in revenues on an annual basis.
We are very pleased with this acquisition both because of the scale of the
deal and the relative seamless merging of the operations into Keystone."
    For the third quarter, revenues totalled $27.3 million, as compared to
$21.3 million for the third quarter of 2006. The $6.0 million increase, or
28.2%, primarily resulted from the revenue generated by new acquisitions and a
3.0% increase in average revenues per funeral service. For the first nine
months of 2007, revenues totalled $77.5 million, as compared to $63.6 million
for the first nine months of 2006. The $13.9 million increase, or 21.8%,
primarily resulted from the revenue generated by new acquisitions and a 4.2%
increase in average revenues per funeral service.
    Cash available for distribution (see Note 1) generated for the third
quarter was C$5.0 million compared to the actual distributions of C$6.5
million. The Company's payout ratio was 126.3% in the third quarter of 2007
compared to 120.9% in the third quarter of 2006. Cash available for
distribution generated for the first nine months of 2007 was C$16.1 million
compared to the actual distributions of C$17.3 million. The Company's payout
ratio was 107.7% for the first nine months of 2007 compared to 99.1% in the
first nine months of 2006. Based on the timing of the major acquisitions in
2007 (March 13th, April 9th, and August 10th), 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 and third quarters remained
stable while the cash flow from the newly acquired operations were seasonally
lower, resulting in somewhat skewed results for the nine month period ended
September 30, 2007. Management expects current year acquisitions to be
accretive on a twelve month basis. Management also noted, based on internal
and external data assembled, that total deaths in our markets appear to be
down for the nine month period ended September 30, 2007. Management utilized
existing cash reserves to fund the excess distributions over cash available
for distribution.
    The Company is exposed to fluctuations in the exchange rate between the
Canadian dollar and the U.S. dollar because the anticipated distributions from
Keystone to the Company and Keystone ULC will be paid in U.S. dollars and the
anticipated distributions on the IPSs and Separate Subordinated Notes will be
paid in Canadian dollars. In order to minimize the impact of fluctuations in
the exchange rate between the Canadian dollar and the U.S. dollar, the Company
has entered into Canadian dollar/U.S. dollar exchange contracts for the total
amount of anticipated IPS distributions and Separate Subordinated Note
interest payments through August 15, 2012. The Company has a risk related to
the exchange rate fluctuation impacts on distributions after this date, but
anticipates that it will continue the stated policy of entering into such
contracts five years forward.
    The Company does not have forward exchange contracts for the principal
balance on the Subordinated Notes and Separate Subordinated Notes due and
payable on February 8, 2017. Exchange rate fluctuations have a direct effect
on the Company's calculation of its total funded debt covenant.
    The funeral service industry is subject to seasonal variations with
historically higher revenues and cash flows in the winter months. The second
quarter along with the third quarter have 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.

    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 growth strategy.


    "The second and third quarter results are reflective of our 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."
    In management's estimation, the Company is the fifth largest funeral
service provider in North America operating 216 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
November 7, 2007 at (see Note 2).

    Note 1 - Reconciliation of cash from operating activities to cash
    available for distribution

                              Three Months Ended        Nine Months Ended
                                September 30,             September 30,
                              2007         2006         2007         2006
    Cash from operating
     activities           $     1,914  $     2,133  $     9,186  $     8,148
    Interest expense            5,787        4,070       14,861       12,391
    Changes in working
     capital                     (197)        (486)      (2,909)      (2,453)
    Cash tax expense               75           40          235           98
    Interest expense
     (other than
     non-cash and IPS
     sub-notes)                (1,776)      (1,278)      (4,473)      (3,925)
     expenditure, net            (772)        (458)      (1,454)      (1,300)
    Payments on debt, net        (169)        (219)        (450)        (294)
    Class B distributions
     declared                    (120)        (284)        (377)        (847)
    Cash taxes paid                (3)         (59)         (88)         717
    Cash Available for
     Distribution US$     $     4,739  $     3,459  $    14,531  $    12,535
    Average rate of C$
     to US$                     1.045        1.122        1.105        1.133
    Cash Available for
     Distribution C$      $     4,952  $     3,880  $    16,056  $    14,199
    Per IPS unit in C$    $      0.20  $      0.21  $      0.70  $      0.76

    Interest accrued on
     IPS units in C$            3,886        2,916       10,742        8,748
    Declared dividends
     on IPS units in C$         2,367        1,776        6,543        5,328
    Total IPS
     distributions in C$  $     6,453  $     4,692  $    17,286  $    14,076
    Per IPS unit in C$    $      0.25  $      0.25  $      0.75  $      0.75

    Payout ratio               126.3%       120.9%       107.7%        99.1%

    Note 2 - Consolidated Financial Statements

                         Keystone North America Inc.

                    Unaudited Consolidated Balance Sheets

                           (000's of U.S. Dollars)

                                                       As at        As at
                                                   September 30, December 31,
                                                        2007         2006
    Current assets:
      Cash and cash equivalents                     $     2,349  $     2,824
      Marketable securities                                 188          188
      Restricted short-term investments                   3,791        3,474
      Trade receivables, less allowances for
       doubtful accounts of $2,509 and $1,579 at
       September 30, 2007 and December 31, 2006,
       respectively                                      10,278        7,774
      Inventories                                        10,317        5,852
      Income tax receivable                                   -          238
      Prepaid and other current assets                    5,288        2,612
      Future income taxes                                 2,249        1,933
    Total current assets                                 34,460       24,895

    Preneed receivables and funds                        77,633       52,316
    Restricted cemetery care funds                        6,308        3,372
    Restricted long-term investments                      6,306        4,650
    Property and equipment, net                         106,515       68,203
    Goodwill                                            110,825       89,463
    Tradenames                                           37,180       25,507
    Covenants not to compete, less accumulated
     amortization of $6,092 and $4,937 at
     September 30, 2007 and December 31, 2006,
     respectively                                        15,302        9,893
    Derivative contracts                                 12,506        2,420
    Other assets                                            177        6,477
    Total assets                                    $   407,212  $   287,196

    Liabilities and shareholders' equity
    Current liabilities:
      Accounts payable and accrued expenses         $     9,789  $     7,537
      Taxes payable                                          45            -
      Dividends payable                                     918          582
      Class B shares of subsidiary                        3,985            -
      Current maturities of long-term debt                3,580        3,379
    Total current liabilities                            14,332       11,498

    Deferred revenue                                     30,975       14,642
    Long-term debt                                      187,248      133,472
    Future income taxes                                  13,997       10,708
    Other long-term liabilities                             174          355

    Non-controlling interests in preneed funds           61,883       43,561
    Non-controlling interests in
     cemetery care funds                                  6,308        3,372
    Minority interest                                         -        7,112

    Shareholders' equity:
      Share capital                                     109,771       78,312
      Accumulated deficit                                (9,704)     (11,029)
      Accumulated other comprehensive loss              (11,757)      (4,807)
    Total shareholders' equity                           88,310       62,476
    Total liabilities and shareholders' equity      $   407,212  $   287,196

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

                             Three        Three        Nine         Nine
                             months       months       months       months
                             ended        ended        ended        ended
                            September    September    September    September
                            30, 2007     30, 2006     30, 2007     30, 2006
      Funeral services    $    25,680  $    20,110  $    73,138  $    60,195
      Other                     1,632        1,192        4,313        3,406
    Total revenues             27,312       21,302       77,451       63,601
    Costs and expenses         19,357       14,144       52,422       41,451
    Gross profit                7,955        7,158       25,029       22,150

    Other operating
      Corporate, general
       and administrative
       expenses                 1,761        2,049        6,661        5,770
      Depreciation                899          717        2,539        2,073
      Amortization                803          679        2,191        2,424
    Income from operations      4,492        3,713       13,638       11,883

    Interest expense            5,789        4,069       14,863       12,387
    Unrealized gain
     (loss) on derivative
     contracts                  5,488       (1,060)      12,060        1,787
    Other income                  905          658        2,048        1,385
    Income from continuing
     operations before
     income taxes and
     minority interest          5,096         (758)      12,883        2,668

    Income tax expense          2,254         (296)       5,357        1,176
    Minority interest               -          135          348          584
    Income (loss) from
     continuing operations      2,842         (597)       7,178          908
    Net Income from
     operations                    71         (132)         114         (616)
    Net Income (loss)     $     2,913  $      (729) $     7,292  $       292

    Weighted average
     number of shares
     outstanding           26,175,115   18,768,017   23,169,812   18,768,017
    Basic and diluted
     income (loss)
     from continuing
     operations           $      0.11  $     (0.03) $      0.31  $      0.05
    Basic and diluted
     income (loss)
     from discontinued
     operations           $      0.00  $     (0.01) $      0.00  $     (0.03)
    Basic and diluted
     income (loss)
      Per common share    $      0.11  $     (0.04) $      0.31  $      0.02

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

                             Three        Three        Nine         Nine
                             months       months       months       months
                             ended        ended        ended        ended
                            September    September    September    September
                            30, 2007     30, 2006     30, 2007     30, 2006
    Operating activities:
    Net income (loss)     $     2,913  $      (729) $     7,292  $       292
    Adjustments to
     reconcile net
     income (loss) to
     net cash provided
     by operating
      Minority interest             -          127          356          543
      Unrealized gain
       on Class B shares
       of subsidiary              492            -          492            -
      Provision (benefit)
       for future income
       taxes                    2,364         (424)       5,335        1,755
      Unrealized loss
       (gain) on
       contracts               (5,488)       1,060      (12,060)      (1,787)
       expense                    809          699        2,209        2,503
       expense                    901          751        2,546        2,187
      Loss (gain) on
       disposal of
       businesses and
       assets                    (274)         163          107          202
      Changes in
       operating assets
       and liabilities            197          486        2,909        2,453
    Net cash provided
     by operating
     activities                 1,914        2,133        9,186        8,148
    Investing activities:
       net of cash
       acquired               (35,046)      (2,019)     (67,423)     (10,508)
      Cash paid to
       repurchase Class B
       shares, net of cash
       received from
       management                   -            -       (3,387)           -
      Purchases of
       property and
       equipment               (1,074)      (1,267)      (2,044)      (2,606)
      Proceeds from
       dispositions of
       business                   828          197          828          197
      Cash paid for
       transition costs             -          (23)           -         (673)
      Proceeds from
       investments                804          926        2,724        3,004
      Proceeds invested
       to fund
       indebtedness to
       former owners
       and employees           (4,200)           -       (4,200)           -
    Net cash used in
     investing activities     (38,688)      (2,186)     (73,502)     (10,586)
    Financing activities:
      Public offering
       and over-allotment
       proceeds of
       common shares,
       net of expenses         16,448            -       31,459            -
      Public offering
       and over-allotment
       proceeds of 14.5%
       Subordinated Notes      16,084            -       34,014            -
      Issuance of 14.5%
       Subordinated Notes       2,359            -        5,655            -
      Proceeds from
       Credit Facility          8,000        2,200       13,000        7,200
       financing costs         (1,220)           -       (2,624)        (403)
      Payments on credit
       agreement               (8,950)           -       (9,250)           -
      Borrowings on
       long-term debt             160          109          448          606
      Payments on
       long-term debt            (973)      (1,145)      (3,174)      (3,298)
      Cash paid for
       Class A dividends       (1,978)      (1,449)      (5,279)      (4,346)
      Cash paid for
       Class B dividends         (117)        (284)        (408)        (843)
    Net cash provided by
     (used in) financing
     activities                29,813         (569)      63,841       (1,084)
    Net increase
     (decrease) in cash        (6,961)        (622)        (475)      (3,522)

    Cash and cash
     beginning of period        9,310        3,714        2,824        6,614
    Cash and cash
     end of the period    $     2,349  $     3,092  $     2,349  $     3,092

     disclosure of cash
     flow information:
    Cash paid for
     interest             $     5,479  $     3,832  $    13,852  $    11,223
    Cash paid (recovered)
     for income taxes     $         3  $        59  $        88  $      (717)

                              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 cash
available for distribution 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. The major differences between
cash available for distribution, 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, net of debt incurred on equipment financing
    2)  Payments on debt, net of proceeds from investments
    3)  Cash taxes
    4)  Cash tax expense
    5)  Class B distributions declared
    6)  Changes in working capital
    7)  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

    Cash available for distribution 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. 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. 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" 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,; Stephen Shaffer, Chief Financial
Officer, (813) 225-4654, or please visit our
investor website at

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