Keystone North America Inc. reports third quarter 2009 results

    
    Highlights:
    Third Quarter 2009:

    -   Revenue was $29.1 million, compared to $28.6 million in the third
        quarter of 2008.
    -   Average revenue per service increased 3.1% compared to the third
        quarter of 2008.
    -   Gross profit increased $0.9 million or 11.2% compared to the third
        quarter of 2008.
    -   Cost and expenses decreased $0.3 million or 1.5% compared to the
        third quarter of 2008.
    -   Cash from operating activities of $3.0 million fell short of
        dividends by $2.1 million during the seasonally weaker third quarter
        2009.

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

TORONTO, Nov. 9 /CNW/ - Keystone North America Inc. (TSX:KNA and KNA.UN) ("Keystone" or the "Company") today reported its financial results for the third quarter and nine months ended September 30, 2009. All amounts are reported in U.S. dollars, except as otherwise noted.

Overview

For the third quarter of 2009, revenues were slightly higher than the prior year, totaling $29.1 million, as compared to $28.6 million for the third quarter of 2008. In addition to the slight increase in revenue of 1.7%, the Company was able to increase gross profit by $0.9 million or 11.2%. Moreover, the Company continued to recognize cost savings, evidenced in part by a reduction in cost and expenses of $0.3 million or 1.5%. Corporate, general and administrative expenses increased $1.6 million or 76.2%. This increase is predominantly attributed to amounts accrued under the Long Term Incentive Plan (the "LTIP") of the Company and additional legal fees and project costs associated with work completed prior to and in conjunction with the definitive support agreement with Service Corporation International ("SCI"). Case averages were up quarter over quarter with a 3.1% increase in average revenue per service.

For the third quarter of 2009, the Company's cash from operations fell short of dividends declared by $2.1 million, reflecting the seasonal weakness associated with this period. For the first nine months of 2009, cash from operations exceeded dividends declared by $2.8 million.

"Despite mild funeral volume weakness, a modestly increased cremation mix coupled with challenging economic times, during the third quarter, we have once again demonstrated our ability to increase gross profit from operating activity," said Steve Tidwell, President and CEO. "Our continued focus on enhancing average revenue per case through our innovative product and service initiatives and managing operating expenses contributed to this performance. We believe that our continued positive results, even in difficult economic times, are a testament to the strong underlying business fundamentals of Keystone and the funeral industry in general."

Support Agreement with Service Corporation International

The Company, SCI and SCI Alliance Acquisition Corporation (the "Offeror") entered into a definitive support agreement on October 14, 2009 (the "Support Agreement"), pursuant to which the Offeror will offer to acquire all of the issued and outstanding common shares of the Company ("Shares"), including those represented by income participating securities, for $8.00 per Share (subject to increase if Shares have not been taken up and paid for by February 28, 2010) (the "Offer"). The Company recorded expenses through September 30, 2009, of $0.5 million related to activities taken in connection with the entering into of the Support Agreement, which are recorded through the income statement as corporate, general and administrative expenses. Additional expenses will be recorded in subsequent periods resulting from the Support Agreement. Details regarding the Support Agreement are available through SEDAR in the material change report dated October 21, 2009.

Outlook

Following the entering into of the Support Agreement described above, the Company will continue to operate as a going concern through the closing of the Transactions (as defined in the Support Agreement). The Support Agreement requires that the Company not declare, pay or set aside for payment any further dividends following the dividend that was paid on October 15, 2009.

The Company's cash flow from operations fell short of dividends declared by $2.1 million for the third quarter of 2009 and exceeded dividends declared by $2.8 million for the first nine months of 2009. As the Company approaches its historically stronger seasonal period, management expects that the Company's revenue initiatives, combined with pricing strategies and the continued monitoring and managing of cost, will continue to contribute to profitability during this transitional period.

    
    Third Quarter 2009 Earnings Conference Call Tuesday, November 10, 2009
    10:00 am (EST)
    

Keystone North America Inc. will hold a conference call on Tuesday, November 10, 2009 10:00 am (EST) for analysts and investors to discuss its financial results for the third 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) 646-3096 or (800) 732-6179 confirmation No.4176071. A live audio webcast of the conference call will be available at http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2854060.

An archived recording of the call will be available at (416) 640-1917 or (877) 289-8525 (passcode 4176071 followed by the No. sign) through November 17, 2009. An archived recording of the webcast will be available at http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2854060.

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 195 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 three and nine month periods ended September 30, 2009 together with the notes thereto and the corresponding management's discussion and analysis will be available on November 9, 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
                                                         September  December
                                                          30, 2009  31, 2008
                                                      -----------------------
    Assets
    Current assets:
      Cash and cash equivalents                            $ 6,388   $ 4,514
      Restricted short-term investments                      1,145     2,163
      Trade receivables, less allowances for doubtful
       accounts of $1,733 and $2,219 at September 30,
       2009 and December 31, 2008, respectively              7,403     8,333
      Inventories and cemetery property                      9,506     9,787
      Income tax receivable                                    587       114
      Prepaid and other current assets                         545       626
      Future income taxes                                      377       374
                                                      -----------------------
    Total current assets                                    25,951    25,911

    Preneed receivables and trust funds                     70,131    71,868
    Restricted cemetery care trust funds                     6,559     6,085
    Restricted long-term investments                         3,330     4,132
    Property and equipment, net                            106,019   105,493
    Tradenames                                              34,894    34,739
    Goodwill                                                   358         -
    Covenants not to compete, less accumulated
     amortization of $7,189 and $7,600 at September
     30, 2009 and December 31, 2008, respectively           10,099    11,103
    Derivative contracts                                       927         -
    Other assets                                               127       114
                                                      -----------------------
    Total assets                                         $ 258,395 $ 259,445
                                                      -----------------------
                                                      -----------------------
    Liabilities and shareholders' equity
    Current liabilities:
      Accounts payable and accrued expenses              $   8,232 $   7,430
      Current derivative contract liability                    394     1,907
      Dividends payable                                      1,698     1,492
      Current maturities of long-term debt                   1,667     2,134
                                                      -----------------------
    Total current liabilities                               11,991    12,963

    Deferred revenue                                        87,441    89,697
    Long-term debt                                          84,174    79,006
    Future income taxes                                     10,787    10,744
    Derivative contracts liability                               -     8,332
    Other long-term liabilities                                 66       173

    Non-controlling interests in preneed funds               6,559     6,085

    Shareholders' equity:
      Share capital                                        244,313   244,313
      Accumulated deficit                                 (175,748) (181,384)
      Accumulated other comprehensive loss                 (11,188)  (10,484)
                                                      -----------------------
    Total shareholders' equity                              57,377    52,445
                                                      -----------------------
    Total liabilities and shareholders' equity           $ 258,395 $ 259,445
                                                      -----------------------
                                                      -----------------------



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

                                      Three Months Ended   Nine Months Ended
                                           September 30,       September 30,
                                          2009      2008      2009      2008
                                   ------------------------------------------
    Revenues:
      Funeral services                $ 26,966  $ 27,264  $ 85,509  $ 88,197
      Other                              2,161     1,319     6,065     4,692
                                   ------------------------------------------
    Total Revenue                       29,127    28,583    91,574    92,889
    Costs and expenses                  20,175    20,535    60,240    62,289
                                   ------------------------------------------
    Gross Profit                         8,952     8,048    31,334    30,600
                                   ------------------------------------------

    Corporate, general and
     administrative                      3,671     2,112     8,870     8,032
    Depreciation                         1,102     1,049     3,295     3,116
    Amortization                           541       709     1,765     2,157
                                   ------------------------------------------
                                         3,638     4,178    17,404    17,295

    Interest expense                     1,456     1,847     4,711    12,031
    Unrealized (gain) loss on
     derivative contracts               (5,564)    5,000    (7,162)    9,890
    Litigation (benefit) expense        (1,047)        -     1,281         -
    Expense on extinguishment of
     subordinated notes                      -        53         -     4,578
    Loss on subordinated notes
     extinguishment                          -     3,167         -    32,794
    Other income                          (572)   (1,157)     (765)   (4,264)
                                   ------------------------------------------
    Income (loss) from continuing
     operations before income taxes      9,365    (4,732)   19,339   (37,734)
    Income tax (benefit) expense            (7)      959       970     2,500
                                   ------------------------------------------
    Income (loss) from continuing
     operations                          9,372    (5,691)   18,369   (40,234)
    Loss from discontinued operations   (1,505)     (101)   (2,096)      (37)
                                   ------------------------------------------
    Net income (loss)                 $  7,867    (5,792) $ 16,273   (40,271)
                                   ------------------------------------------
                                   ------------------------------------------
    Basic and diluted income (loss)
     from continuing operations       $   0.36  $  (0.22) $   0.71  $  (2.61)
                                   ------------------------------------------
                                   ------------------------------------------
    Basic and diluted loss from
     discontinued operations          $  (0.06) $  (0.00) $  (0.08) $  (0.00)
                                   ------------------------------------------
                                   ------------------------------------------
    Basic and diluted income (loss)
     per common share                 $   0.30  $  (0.22) $   0.63  $  (2.61)
                                   ------------------------------------------
                                   ------------------------------------------


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


                                      Three Months Ended   Nine Months Ended
                                           September 30,       September 30,
                                          2009      2008      2009      2008
                                   ------------------------------------------
    Operating activities:
      Net income (loss)               $  7,867  $ (5,792) $ 16,273 $ (40,271)
      Adjustments to reconcile net
       income (loss) to net cash
       provided by operating
       activities:
      Payments on Class B shares of
       subsidiary                            -         -         -      (191)
      Unrealized loss on change in
       fair value of Class B
       shares of subsidiary                  -         -         -      (533)
      Provision for future income taxes    (41)      498       112     1,674
      Loss on subordinated notes
       extinguishment                        -     3,167         -    32,794
      Provision for bad debts              172       312       399       771
      Unrealized (gain) loss on
       derivative contracts             (5,563)    5,000    (7,162)    9,890
      Amortization expense                 544       718     1,785     2,218
      Depreciation expense               1,119     1,082     3,367     3,222
      Loss (gain) on disposal of
       businesses and assets             1,428      (224)    1,898      (125)
      Changes in operating assets
       and liabilities                  (2,481)      819       354     3,322
                                   ------------------------------------------
    Net cash provided by operating
     activities                          3,045     5,580    17,026    12,771
    Investing activities:
      Business acquisitions, net of
       cash acquired                    (3,293)        -    (4,719)   (1,895)
      Cash paid to repurchase Class
       B shares, net of cash
       received from management              -         -         -      (592)
      Purchases of property and
       equipment                        (1,227)     (831)   (2,627)   (2,226)
      Proceeds from dispositions
       of businesses                     1,388       399     1,957     2,501
      Proceeds from restricted
       investments                         406       843     1,830     3,041
                                   ------------------------------------------
    Net cash provided by (used in)
     investing activities               (2,726)      411    (3,559)      829
    Financing activities:
      Repurchase of 14.5% Separate
       Subordinated Notes                    -   (16,913)        -   (16,913)
      Proceeds from credit facility      6,000    17,250     7,000    19,750
      Payments on credit facility            -    (1,000)   (2,500)   (2,400)
      Borrowings on long-term debt           -       110         -       238
      Payments on long-term debt          (493)   (1,140)   (2,440)   (3,395)
      Cash paid for Keystone North
       America
        Common Share dividends          (4,551)   (4,560)  (13,653)   (9,784)
                                   ------------------------------------------
    Net cash provided by (used in)
     financing activities                  956    (6,253)  (11,593)  (12,504)
                                   ------------------------------------------
    Net increase (decrease) in cash      1,275      (262)    1,874     1,096
    Cash and cash equivalents,
     beginning of period                 5,113     3,953     4,514     2,595
                                   ------------------------------------------
    Cash and cash equivalents, end
     of the period                     $ 6,388   $ 3,691   $ 6,388   $ 3,691
                                   ------------------------------------------
                                   ------------------------------------------
    Supplement disclosure of cash
     flow information:
    Cash paid for interest             $ 1,412   $ 1,826   $ 4,496  $ 12,503
                                   ------------------------------------------
                                   ------------------------------------------
    Cash paid (recovered) for
     income taxes                      $   428   $   115   $ 1,341  $  1,000
                                   ------------------------------------------
                                   ------------------------------------------
    

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 expectations 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", "endeavor" 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 the Company's actual results, performance or achievements or other outcomes 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 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

SOURCE KEYSTONE NORTH AMERICA INC.

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/

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KEYSTONE NORTH AMERICA INC.

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