Arbor Announces Third Quarter Results

TSX ABO.A and ABO.B

TORONTO, Sept. 11, 2012 /CNW/ - Arbor Memorial Services Inc. announced today its results for the 13 and 39 weeks ended July 29, 2012 and July 31, 2011.

		13 weeks ended 39 weeks ended
(In thousands of dollars)		2012		2011^(1)	2012		2011^(1)
Revenue		67,097		66,143	202,276		195,192
Operating earnings		3,237		3,390	14,986		17,053
Net earnings		1,319		2,313	10,055		11,918
Basic and diluted earnings per share ($)		0.13		0.22	0.99		1.13

⁽¹⁾ Restated for effects of adoption of International Financial Reporting Standards.

On September 11, 2012, the Company announced that it had entered into an agreement with a purchaser group of existing shareholders, pursuant to which the group agreed to acquire all of the outstanding Class A voting shares and Class B non-voting shares of the Company other than certain shares owned by members of the purchaser group (the "Privatization Transaction").

Revenue for the third quarter of 2012 increased by $1.0 million or 1.4% over 2011.  Sales in the cemetery division increased by $1.0 million or 3.3% due primarily to higher sales of pre-need interment rights of $0.6 million or 6.4% and higher sales of pre-need bronze memorials and upright monuments of $0.5 million or 10.6%, which were partially offset by a net reduction in sales of other products and services of $0.1 million or 0.3%.  Sales in the funeral division increased by $0.2 million or 0.5% due to higher sales from new operations of $0.4 million and a higher average sale per service for existing operations of 1.0%.  These positive factors were partially offset by a reduction in the number of services at existing operations of 1.1% and lower sales from sold operations of $0.2 million. Investment and other income decreased by $0.2 million or 3.0% to $5.7 million due to lower funeral annuity fee income of $0.1 million or 4.2% and lower cemetery and funeral referral fee income of $0.1 million or 20.2%.

Operating earnings decreased by $0.2 million or 4.5% from 2011 to $3.2 million.  The decrease was the result of a higher operating loss before other income (expenses) in the corporate division of $1.4 million or 35.3% and lower operating earnings in the cemetery division of $0.5 million or 27.9%, which were mostly offset by a reduction in acquisition transaction costs of $1.3 million and higher earnings in the funeral division of $0.4 million or 6.4%.  The reduction in cemetery operating earnings was primarily due to higher obtaining costs and related employee benefits of $0.4 million or 5.8% resulting from higher pre-need contracts written of $1.5 million or 7.7% and a higher cost of sales percentage of 1.4 percentage points that resulted in a negative variance of $0.4 million.  These negative variances were partially offset by other net positive variances of $0.3 million, including higher sales of $1.0 million and a higher cost of sales of $0.3 million resulting from the increase in sales.  The operating loss before other income (expenses) in the corporate division increased due to $1.0 million in costs related to the Privatization Transaction and higher salaries, wages and related benefits, legal fees and depreciation of $0.4 million.  Funeral operating earnings increased due to higher sales of $0.2 million or 0.5%, higher investment and other income of $0.1 million or 2.2% and lower operating expenses of $0.1 million or 0.4%.  Excluding the Privatization Transaction costs, acquisition transaction costs and gain on disposal of assets, operating earnings decreased by $0.5 million or 11.1%.

Net earnings decreased by $1.0 million or 43.0% from 2011 to $1.3 million.  The reduction in net earnings was the result of higher income tax expense of $0.9 million or 126.1% and lower operating earnings of $0.2 million or 4.5%, which were partially offset by lower interest expense of $0.1 million or 14.4%.  Income tax expense increased by $0.9 million due to an increase in the effective tax rate from 23.5% in 2011 to 54.9% in 2012, an increase of 31.4 percentage points.  The increase in the effective rate was due to the unfavourable effect of future tax rate changes in Ontario of 23.3 percentage points, a change in the tax treatment of dividends and capital gains earned on the pre-need trust fund investments, which increased the effective rate by 7.4 percentage points, the impact of prior year adjustments of 2.1 percentage points, which primarily related to deferred taxes and other factors, which netted to 0.1 of a percentage point.  These items were partially offset by a lower combined basic rate of 1.5 percentage points.  The lower combined basic rate was the result of a reduction in the federal statutory rate.  The change in the tax treatment of dividends and capital gains was related to the first three quarters of fiscal 2012.  Excluding other income (expenses), future tax adjustments related to substantively enacted tax rate changes, the change in the tax treatment of dividends and capital gains earned on the trust fund investments and after-tax Privatization Transaction costs of $0.7 million, net earnings decreased by $0.3 million or 10.2%.  Other income (expenses) in the period included acquisition transaction costs and gain on disposal of assets.

Revenue for the first 39 weeks of 2012 increased by $7.1 million or 3.6% from 2011 primarily due to higher sales.  Sales in the cemetery division increased by $4.9 million or 6.1% primarily due to higher sales of pre-need interment rights of $5.2 million or 20.7%.  Sales in the funeral division increased by $2.1 million or 2.1% due to higher sales from new operations of $2.2 million and a higher average sale per service for existing operations of 2.2%, which were partially offset by a decrease in the number of services performed by existing operations of 1.7% and a decrease in sales from sold operations of $0.6 million. Investment and other income increased by $0.1 million or 0.6% over 2011 due mainly to an increase of $0.5 million or 10.2% in funeral annuity fee income, which was partially offset by declines in other categories.

Operating earnings decreased by $2.1 million or 12.1% from 2011 to $15.0 million.  The decrease was the result of lower earnings before other income (expenses) in the cemetery division of $2.4 million or 35.8%, a higher operating loss before other income (expenses) in the corporate division of $1.0 million or 8.0% and a lower gain on disposal of assets of $0.5 million, which were partially offset by a reduction in acquisition transaction costs of $1.6 million and higher operating earnings before other income (expenses) in the funeral division of $0.3 million or 1.3%.  Cemetery operating earnings before other income (expenses) were negatively affected by higher obtaining costs and related employee benefits of $2.4 million or 12.0% resulting from higher pre-need contracts written of $10.2 million or 18.3%, a higher cost of sales percentage of 1.2 percentage points that resulted in a negative variance of $1.0 million, higher administrative costs of $0.5 million or 10.2% and higher expenses of new reception centres of $0.6 million or 70.5%.  These negative variances were partially offset by other net positive variances of $2.1 million, including higher sales of $4.9 million and a higher cost of sales of $1.5 million resulting from the increase in sales.  The operating loss before other income (expenses) in the corporate division increased due to $1.0 million in costs related to the Privatization Transaction.  Funeral operating earnings increased due to higher sales of $2.1 million or 2.1% and higher investment and other income of $0.6 million or 7.8%, which were partially offset by higher operating expenses of $2.2 million or 3.3% and a higher cost of sales of $0.1 million or 0.8%. Excluding the Privatization Transaction costs, acquisition transaction costs and gain on disposal of assets, operating earnings decreased by $2.1 million or 11.8%.

Net earnings decreased by $1.9 million or 15.6% from 2011 to $10.1 million.  The reduction in net earnings was the result of a $2.1 million or 12.1% decline in operating earnings, which was partially offset by a $0.1 reduction in both interest expense and income tax expense.  Excluding other income (expenses), future tax adjustments related to substantively enacted tax rate changes and after-tax Privatization Transaction costs of $0.7 million, net earnings decreased by $1.2 million or 9.3%.  Other income (expenses) in the period included acquisition transaction costs and gain on disposal of assets.

Arbor Memorial Services Inc. owns 41 cemeteries, 27 crematoria, 8 reception centres located on cemetery premises and 83 funeral homes in eight provinces of Canada. 

SOURCE: Arbor Memorial Services Inc.

Brian D. Snowdon, President and Chief Executive Officer
Laurel L. Ancheta, Vice-President and Chief Financial Officer
Telephone: [phone]