ARBOR ANNOUNCES THIRD QUARTER RESULTS

TSX ABO.A and ABO.B

TORONTO, Sept. 2 /CNW/ - Arbor Memorial Services Inc. announced today its results for the 13 and 39 weeks ended July 25, 2010 and July 26, 2009.

    
                                               13 weeks ended  39 weeks ended
    (In $Millions)                              2010  2009(1)   2010  2009(1)
                                                ----  ----      ----  ----

    Revenue                                     81.0    61.7   213.3   180.5
    Earnings before interest expense and
     income taxes ("EBIT" - a non-GAAP measure)  9.2     8.5    26.5    23.5
    Net earnings from continuing operations      6.4     5.9    17.6    15.4
    Net earnings                                 6.4     5.6    17.5    15.4
    Basic and diluted earnings per share
     from continuing operations ($)             0.61    0.55    1.65    1.44
    Basic and diluted earnings per share ($)    0.61    0.52    1.65    1.44

    (1) Restated to conform with the current period's presentation.
    

Revenue in the third quarter of 2010 increased by $19.3 million or 31.3% over 2009. Sales in the cemetery division increased by $14.7 million or 53.1% due primarily to higher sales of pre-need burial spaces and delivery of pre-need and at-need markers. Sales in the funeral division increased by $0.1 million or 0.2% due to higher sales from new operations of $0.3 million and a higher average sale per funeral service at existing operations of 2.8%, which were partially offset by a lower number of services performed at existing operations of 3.5%. Investment and other income increased by $4.6 million or 93.2% over 2009 due primarily to higher annuity fee income in the funeral division. The increases in pre-need burial space sales and annuity fee income were mainly due to the implementation of a harmonized sales tax ("HST") in Ontario and British Columbia on July 1, 2010, which caused many customers to make their pre-need arrangements in advance of the transition date. Pre-need contracts written in the quarter increased by 187.5%.

EBIT (a non-GAAP measure) in the third quarter of 2010 increased by $0.7 million or 8.3% over 2009 to $9.2 million. The increase in EBIT was the result of higher earnings in the cemetery division of $2.3 million or 68.1% due to higher sales and a gain on disposal of assets of $0.6 million. The favourable variance in the cemetery division was partially offset by an increase in the loss of the corporate division of $0.8 million or 23.7% and lower earnings in the funeral division of $0.8 million or 9.2% due to an increase in operating expenses of $5.4 million or 24.2%, which exceeded an increase in revenue of $4.6 million or 15.1%. The increase in the loss of the corporate division was mainly attributable to a reduction to the tax contingency provision of $0.1 million compared to $0.3 million in 2009 and a $0.1 million increase in each of salaries and wages, consulting services and recruiting costs. The growth in EBIT was negatively affected by cemetery obtaining costs, which increased by 84.6% compared to an increase in sales of 53.1% due to an increase in pre-need cemetery contracts written of 147.0%. The growth in EBIT was also positively affected by the gain on disposal of assets. If cemetery obtaining costs were matched with the recognition of sales and the gain on disposal of assets was excluded, EBIT would have increased by $1.9 million or 21.7%.

Net earnings in the third quarter of 2010 increased by $0.8 million or 14.8% from 2009 to $6.4 million. The improvement was primarily due to an increase in EBIT of $0.7 million or 8.3% and a lower loss from discontinued operations of $0.3 million or 93.5%, which were partially offset by higher income taxes of $0.3 million or 11.9%. As discussed under EBIT, the growth in net earnings was negatively affected by cemetery obtaining costs. Net earnings were also positively affected by unusual items. If cemetery obtaining costs were matched with the recognition of sales and unusual items were excluded, net earnings would have increased by $1.4 million or 22.9%. Unusual items included the gain on disposal of assets, the impact of tax rate changes on future taxes and the net loss from discontinued operations.

Revenue for the first 39 weeks of 2010 increased by $32.8 million or 18.2% over 2009. Sales in the cemetery division increased by $24.3 million or 31.9% due primarily to higher sales of pre-need burial spaces and delivery of pre-need and at-need markers. Sales in the funeral division increased by $2.3 million or 2.5% due to a higher average sale per service for existing operations of 3.3% and higher sales from new operations of $1.1 million. These favourable variances were partially offset by a decrease in the number of services performed at existing operations of 2.0%. Investment and other income increased by $6.2 million or 44.2% over 2009 due primarily to higher annuity fee income in the funeral division.

EBIT (a non-GAAP measure) for the first 39 weeks of 2010 increased by $2.9 million or 12.5% over 2009 to $26.5 million. The increase in EBIT was the result of higher earnings in the cemetery division of $5.3 million or 68.5% due to higher sales. The favourable variance in the cemetery division was partially offset by lower earnings in the funeral division of $0.4 million or 1.5% and an increase in the loss of the corporate division of $2.0 million or 18.1%, which was mainly due to a $0.7 million increase in employee costs, including an increase in expected bonus payments of $0.3 million, an increase in the tax contingency provision of less than $0.1 million compared to a decrease of $0.3 million in the prior year and a non-recurring provincial sales tax expense of $0.1 million that resulted from a provincial sales tax review in the period. The growth in EBIT was negatively affected by cemetery obtaining costs, which increased by 41.9% compared to an increase in sales of 31.9% due to an increase in pre-need cemetery contracts written of 68.4%. The growth in EBIT was also positively affected by unusual items. If cemetery obtaining costs were matched with the recognition of sales and unusual items were excluded, EBIT would have increased by $4.7 million or 19.0%. Unusual items included the provision for goodwill impairment and the gain on disposal of assets.

Net earnings for the first 39 weeks of 2010 increased by $2.1 million or 13.4% from 2009 to $17.5 million. The improvement was primarily due to an increase in EBIT of $2.9 million or 12.5% and lower interest expense of $0.4 million or 28.7%, which were partially offset by higher income taxes of $1.2 million or 18.8%. As discussed under EBIT, the growth in net earnings was negatively affected by cemetery obtaining costs. Net earnings were also negatively affected by unusual items. If cemetery obtaining costs were matched with the recognition of sales and unusual items were excluded, net earnings would have increased by $3.8 million or 22.8%. Unusual items included the provision for asset impairment, the gain on disposal of assets, the impact of tax rate changes on future taxes and net (loss) earnings from discontinued operations.

In addition to the GAAP results provided in this press release, some of the discussion of operating performance is based on EBIT. EBIT excludes the impact of interest expense and income taxes as disclosed in the statements of earnings. EBIT is a non-GAAP financial measure that does not have any standardized meaning prescribed by GAAP and is therefore unlikely to be comparable to similar measures presented by other companies. This non-GAAP financial measure is more fully defined and discussed in the management discussion and analysis of Arbor Memorial Services Inc. for the year ended October 25, 2009, available on the SEDAR website at www.sedar.com.

Arbor Memorial Services Inc. owns 41 cemeteries, 26 crematoria, 5 reception centres located on cemetery premises and 82 funeral homes in eight provinces of Canada.

%SEDAR: 00007478E

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