Our primary strategic objective is to increase cash flow and profitability by (i) continued optimization of existing operational programs generating organic growth, (ii) leveraging our operating and financial infrastructure within our regional platforms through acquisitions, (iii) expanding into new geographical markets, and (iv) expanding into new product and service markets associated with the death care industry.

  
  Our organic growth strategy focuses on three key areas:

Increase revenue per case:
We have enhanced service and merchandise packages, and developed a full line of marketing materials used in presenting burial and cremation package selections to customers, an approach that differentiates us among other death care providers in our markets. Package presentations generally generate higher revenue than customer selection of individual items. We carefully select additional merchandise and service items for inclusion in packages that provide for greater value while increasing the overall package margin. This strategy has been particularly successful with cremations and has increased our sales of cremations with memorial services. We support this strategy with regular training for all local managers related to effective presentation and sales techniques. In addition, we offer a range of personalized memorial programs and paper goods, again designed to increase margin while further enhancing personalization and thus value for the customer. We have historically been successful in increasing average revenue per case, even as case count has varied and cremation levels have increased from year to year. Increase the volume of full service cremations

Increase the volume of full service cremations:
In recognition of the growing proportion of cremations, arrangement presentations have been designed to ensure that families are well informed as to all available options and considerations when contemplating this type of service. The objective of these efforts is to increase the number of customers selecting additional service and merchandise options, thereby enhancing value and increasing margin. Marketing and advertising materials, together with best practices sales training programs, have been developed and are being utilized by our higher volume cremation facilities to increase the average revenue per case and increase the number of cremations with memorial services. Although cremations typically generate profit margin percentages higher than those of traditional burial services, the total revenue and margin dollars of direct cremation have historically been lower. By raising average revenue, we will be able to take full advantage of cremation's margin potential. Increase market share

Increase Market Share:
Given the importance of tradition and heritage in selecting a funeral home, gains in market share are won through long-term marketing efforts. To that end, management has focused on programs such as "Key Memories" to build awareness of the Keystone tradition and to build goodwill in the communities that we serve. Through the "Key Memories" program we strive to be the preferred death care provider in the communities we serve. In addition, we have remained focused on increasing prearranged, prefunded funeral sales in our funeral business and ultimately strive to continually increase the ratio of pre-need sales as compared to at-need sale at a given funeral home. Growing our advance planning program at a rate faster than our competition in any given market eventually results in direct market share gains from that competition.

Operations:
Keystone's operational executives have extensive death care industry management experience. All are licensed funeral directors who fully understand the needs of running a funeral home business. The managers at each location continue to have responsibility for day-to-day operations, reporting to and benefiting from Keystone management, while being required to abide by Keystone's strict service and financial standards. This strategy allows each local funeral home to maintain its unique style of operation, as appropriate for each given market, and to capitalize on its reputation and heritage, while we maintain supervisory controls and provide specialized services from our corporate headquarters.

Outside of day-to-day operations, there are certain areas where corporate management maintains sole responsibility. It is the sole responsibility of our corporate office, for example, to negotiate national contracts with major suppliers, in particular caskets and pre-need insurance, and make decisions pertaining to selection of the professional employer organization that employs all staff, coordination of employee benefits such as health care, development of our national strategy and management of our industry profile.

We have well established training programs to support the technical and managerial talent within our organization, including: Compliance, Technical Training Skills, Presentation Methods, Basic Fiscal Management, Human Resource Management, Service Delivery Models, and Risk Management. These programs are designed to be delivered in both group and individual settings, as necessary.

 
 


Leverage our Infrastructure within our Regional Platforms:
Our external growth strategy focuses primarily on selective strategic acquisitions of existing funeral homes that complement our existing portfolio. We believe that growing our organization through such acquisitions will allow us to enjoy the important synergies and economies of scale from our scalable infrastructure. We will seek to capitalize on the quality and location of our existing portfolio of funeral homes and lower individual overhead costs by sharing common resources in geographical clusters.

Expand into New Geographical Markets:
Exercising a carefully diligent acquisition program, we intend to expand into new geographical markets with the acquisition of premier, stand-alone funeral businesses which can serve as the nucleus of new funeral home clusters.

Recent Developments:
During 2007, Keystone experienced an unprecedented year of external growth.  In March, Keystone acquired Kaul Funeral Homes in the northern suburbs of Detroit, MI.  Shortly thereafter, Keystone acquired 15 funeral home and cemetery properties from SCI.  Finally, in August, Keystone completed its merger with the Meridian Group thereby adding 36 funeral homes and 2 cemeteries.  While most of these transactions were unique and large in size, the company continued to demonstrate strong operational and financial discipline during the evaluation process.  Keystone currently owns 199 funeral homes and 16 cemeteries in 32 states and the Province of Ontario.

Keystone continues to pursue external growth opportunities in 2008.  The company believes the funeral home acquisition market to be flush with opportunity and anticipates growing by $12 million in acquired annual revenues.  Keystone will continue to exhibit the strong discipline which has proven to be successful for the past 11 years.