Financial Report of Loewen Group Inc.

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Financial Report of Loewen Group Inc.

The Loewen Group Inc. was founded in 1969. The company has two major

headquarters in North America, one in Burnaby, British Colombia and a second in

Cincinnati, Ohio. Loewen Group Inc. (L.G.I.) is the largest funeral services

enterprise in Canada and is the second largest company in the North American

Funeral Services Industry. L.G.I. owns 918 funeral homes and 269 cemeteries and

also engages in the pre-need selling of funeral services including cemetery and

cremation services. The company strives on respecting its Eagle Principle,

which is displayed on the first page of its 1995 Annual Report:

"To soar to heights of possibilities one needs two equally

healthy, strong wings - one being that of people or service concerns, the other

that of responsible planning and fiscal management. It is the balance of these

wings that enables the eagle to soar beyond all heights"1

In 1995, the company defended itself against two major lawsuits, as well

as continued to negotiate acquisition agreements. The Loewen Group Inc.

stresses that once an acquisition has been completed, local management is

encouraged to remain and offers long term contracts to its key employees, rarely

dismissing the other employees. L.G.I. provides many services to its acquired

companies including offering training to new employees on its management

information systems and covering costs for any renovations which are needed on

the acquired locations. Each funeral home and cemetery is operated as a

distinct profit centre, with monthly and annual financial performance monitored

by regional and corporate management in accordance with budgeted projections.

This report includes a study of The Canadian Funeral Services Industry

practices, a review of the take-over attempt by Service Corporation

International, an analysis of the Loewen Group Inc. 1995 Annual Report for the

period ending December 31, 1995, and examination of the revenue recognition

practices used by L.G.I..

The Funeral Services Industry

According to a paper issued in August 1995, by Statistics Canada's Services,

Science and technology Division Final Purchase, Growing Demand: The Canadian

Funeral Services Industry, the funeral services industry, in comparison to other

industries, has historically been considered a low risk industry. The Fu...

... middle of paper ...

...adian Funeral Services

Industry. APPENDIX D: Total Revenue of the Funeral Services Industry by Sector

Source: p.4 of Final Purchase, Growing Demand The Canadian Funeral Services

Industry.

APPENDIX E: The Scott Formula

(Expressed in thousands of U.S. Dollars)

1995 1994 Symbols

Total assets 2262980 1326275 A

Total liabilities 1648298 915136 L

Total equity 614682 411139 E

Total revenue 599939 417328 REV

Net income (76684) 38494 NI

Interest expense 50913 34203 INT

Income tax rate (38.1) % 33.9 % TR

After-tax interest expense 50913 * 1.381 = 70311 34203 * .661 = 22608 ATI =

INT (1 - TR)

ROE (return on equity) (76684) / 614682 =

(0.125) 38494 / 411139 = 0.094 NI / E

SR (sales return before interest) [(76684) + 70311] / 599939 = (0.011) [38494 +

22608] / 417328 = 0.146 [NI + ATI] / REV

AT (asset turnover) 599939 / 2262980 = 0.265 417328 / 1326275 = 0.315

REV / A

ROA (return on assets) [(76684) + 70311] / 2262980 = (0.003) [38494 + 22608] /

1326275 = 0.046 [NI + ATI] / A

IN (average interest rate after tax) 70311 / 1648298 = 0.043 22608 / 915136 =

0.025 ATI / L

D / E (debt-equity ratio) 1648298 / 614682 = 2.682 915136 / 411139 = 2.226 L

/ E

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