pany has two major head office in United states, one in Burnaby, British Colombia and a second in Cincinnati, Kentkucky. Loewen Group Inc. (L. G. We. ) is definitely the largest funeral services enterprise in Canada and it is the second largest company inside the North American Burial Services Industry. L. G. I. is the owner of 918 burial homes and 269 cemeteries and also partcipates in the pre-need selling of funeral services including cemetery and cremation services. The business strives upon respecting it is Eagle Rule, which is displayed on the 1st page of its 1995 Annual Report: To climb to height of choices one needs two equally
healthy, strong wings a single being that of men and women or support
problems, the various other that of accountable planning and fiscal
management. It is the balance of these wings that enables
the bald eagle to explode beyond almost all heights1
In 1995, the company defended itself against two significant lawsuits, and also continued to negotiate obtain agreements. The Loewen Group Inc. challenges that when an buy has been completed, community management is inspired to remain while offering long term deals to its key employees, rarely disregarding the different employees. M. G. We. provides a large number of services to its acquired companies which includes offering teaching to new employees upon its managing information systems and masking costs for any renovations which are needed for the acquired places. Each memorial home and cemetery functions as a distinct profit centre, with monthly and total annual financial overall performance monitored by regional and company management according to budgeted predictions.
This report features a study from the Canadian Burial Services Market practices, an assessment the take-over attempt by Service Corporation International, an analysis from the Loewen Group Inc. 95 Annual Record for the time ending December 31, 95, and study of the revenue recognition methods used by L. G. My spouse and i..
The Memorial Services Industry
According to a paper released in August 95, by Statistics Canadas Services, Science and technology Department Final Buy, Growing Require: The Canadian Funeral Providers Industry, the funeral companies industry, in comparison to other industrial sectors, has historically been regarded as a low risk industry. The Funeral service sector is not really significantly affected by economic periods. The stability in the industry can be increased by simply future market trends. Individuals from the baby boomer generation are now coming into their 50s and the fatality rate is growing slowly in 1 . five per cent per year, exponentially boosted, as proven in Appendix A: Fatalities, Actual and Projected. The industry is characterised simply by above-average earnings and revenue growth.
Public Health issues and consumer security issues happen to be primarily governed at the provincial level of government. These rules are implemented to protect the dignity in the deceased and his or her property. These polices are explained in detail inside the revenue reputation section.
Loewen Group Inc. Strategies
The Provident America Corporation legal action was completed in Feb, 1995 pertaining to
ALL OF US $19 , 000, 000. On The fall of 2nd, 95, a jury in Knutson, Mississippi, honored US $250 million in Breach-of-contract lawsuit brought by Gulf National. This amount is almost twenty-six times high than what was at first asked for. In order to appeal, Loewen was required to post a US $625 million connection, which was afterwards reduced to US $125 million with the condition that there would be no significant enhancements made on assets or increases in dividends without prior warning announcement to the the courtroom and the other party. No dotacion on was performed on the financial statement at this moment since the effect was hard to anticipate on the charm. On January 29th, mil novecentos e noventa e seis, Loewen settled the lawsuit for US $175 million and recorded US $135 million, present worth of $175 million.
Loewen decided to settle as a result of two factors: the first is which the appeal could have a financial influence on the companys income and the second explanation is that prolonging the lawsuits would make uncertainty and speculation numerous companys investors.
S. C. I. Take-over Attempt
About September 17, 1996 Support Corporation Intercontinental (S. C. I. ), the largest Memorial service Company on the globe, placed a $ 2 . 5. billion take-over put money for Loewen Group Incorporation. The bids share benefit is equivalent to ALL OF US $ 43 each. Houston based T. C. I. s put money was considered to be fair by many analysts just like Todd Richter of Dean Witter Reynolds Inc. (New York) and Ivar Leipens of Tree, Lawson, Company. (Toronto). Another analyst, Dean Martin of TD investments Inc. (Toronto), stated the bid was too low and that the a bid people $ 50 will be fair. He noted that Chairman Ray Loewen wonderful management group retain twenty % (15 % & 5 % respectively) with the companys share. Canadian institutional holders in the companys stock would be more likely to support the company because they need to follow constraints such as a cover of twenty % on foreign coalition in regards to Canadian Pension cash. Therefore S. C. My spouse and i. will has already established a difficult period gaining the support of 75 % of Loewen Group Incorporation. shareholders necessary as per the Canadian securities rules.
In the week pursuing the announcement in the take-over bid, the fourth major company in the market, Equity Corp. International, situated in Lufkin, Texas had contacted the National Trade Commission payment in regards to how to grow eligible to bet for divested properties in case the take-over happened. Equity Corp. International is definitely 40 % owned by simply Service Corp. International. An additional company, Continua LLC, presented Loewen Group Inc. dollar 500 , 000, 000 in exchange for some of Loewens southern US holdings. In September twenty seven, 1996 your Florida introduced an antitrust probe in to the take-over wager. The state was worried about the impact it would have on Medicare health insurance issues, charges and other areas.
S. C. I. will raise the bid to US $ forty five per reveal before Loewen rejected the offer on August 10, mil novecentos e noventa e seis, while at the same time introducing an antitrust lawsuit against S. C. I. and Equity Corp. International. The lawsuit falsely accused the two corporations of a conspiracy to eliminate T. G. We. from the industry.
Most companies inside the Funeral Service Sector are carrying on to reposition themselves because the industry continues to increase. If successful, S. C. I. would be able to monopolise the North American market. S. C. I. s i9000 take-over pitch is intended to get rid of the competition in North America. H. C. My spouse and i. wanted to acquire cheap following your one time celebration with the court. By taking more than Loewen, H. C. My spouse and i. would become the preferred client in the industry.
Loewen rejected all their offer because of the following reasons:
1) inadequate proposal with a potential anti-competition effect in thecommonwealth from the industry.
2) Although both companies encourage the integration of new acquisitions within their structures, Loewen felt that its framework would not become preserved.
3) Loewen is known as as the preferred acquirer in the marketplace after the purchase of
a pair of its essential assets: Prime Succession, and Ross Slope Memorial Park, two key
cemeteries in the usa of America.
Loewen made a decision that it is best to continue applying the companys long term strategy as an independent company. Loewen has created an excellent corporate culture and contains a record to get caring for the employees, buyers, and communities it serves.
Twelve-monthly Report Research
The Loewen Group Integrated 1995 Annual Report addresses the period start January one particular, 1994 and ending 12 , 31st, 1995. This evaluation will cover this items: the report to the companys investors, the Striking a Balance part of the survey and the detailed highlights. The operational highlights analysis includes Managements Assertion of Responsibility, the Auditors report to the Shareholders, a ratio analysis of the financial statements disclosed in the report as well as the convenance of the paperwork regarding the financial statements.
The annual statement stresses the companys perception in its Bald eagle Principle. Inside the report to the companys investors, The chairman and ceo, Ray Loewen stresses that the company showed outstanding expansion despite the inflicting costs associated with both major legal cases it managed. He thanked the investors for their support, then mentioned promising statistics that were overshadowed by the previously mentioned for pointed out events. This individual continued with all the aspect of expansion by speaking about the companys acquisitions. Mister. Loewen determined by saying they will continue to maintain the companys standards in 1996.
The Striking a Balance section of the annual information purpose should be to provide answers from managing and professional members about questions shareholders might have about the Loewen Group Inc. beliefs, functions and framework. The subject areas ranged from the result of the Gulf National suit to the way the services offered by Loewen benefit the communities it will serve. This section will not disclose monetary figures, it is responsibility is based on creating or restoring the trust of its potential shareholders and current investors before they analyse the financial assertions in the next section of the annual report, by demonstrating the personal liability of its staff.
Operational Highlights
The canal statement of responsibility claims that management has presented fairly the financial position of the company although respecting the commonly accepted accounting principles in Canada. Management likewise states which it maintains its control systems to assure that also deals are completed and documented properly. The letter summary indicates that the auditors picked are independent.
The auditors report to the shareholders records that the audits made by KPMG Peat Marwick Thorne (independent auditors) were based on the generally accepted auditing standards and summarises the criterion: locating evidence of portions and disclosure policies as well as the manner in which the organization adopted the generally accepted accounting principles. The auditors came to the conclusion upon the completion of the audits which the information offered in the consolidated financial transactions to be provided fairly as the company applied generally acknowledged accounting principles consistently.
Rate Analysis of economic Statements
Most ratios offered show 95 in the 1st column and 1994 in the second column. As demonstrated with the returning on collateral ratio. The dollar characters in the gross annual report happen to be in American currency.
Performance Proportions
19951994
Come back on equity(76684)/614682 = (0. 125)38494/411139 sama dengan 0. 094
Return about equity based on the Jeff formula
(Please make reference to Appendix At the: for full figures)
ROE=SR*AT+ ROA-IN *D/E
1995(0. 125) = (0. 011) 2. 0. 265+(0. 003) 0. 043 5. 2 . 682
19940. 094= 0. 146* 0. 315+0. 046- 0. 025 5. 2 . 226
In 95, $50 million of cash and 1 . 5 million Prevalent shares happen to be paid off to Gulf National. The settlement decreases Loewens 1995 net gain and retained earnings when increasing humans especially their owners equity. Hence the shareholders dropped 12. a few % on the initial investment, compared to a gain of being unfaithful. 4 % in year 1994.
Return in equity, worked out without the suit settlement, reveals a smaller decrease of 7. eight % from your previous 12 months. This is mainly due to the increase in share capital of $210 million of the company to cover the financial obligations incurred throughout the litigation procedures.
Based on the Scott formula results, the decrease on the return in equity proportion was the effect of a loss upon overall working return ahead of interest cost and a higher leverage returning.
Return about assets(72949)/2262980 = (0. 032)95113/1326275 = zero. 0717
Total assets elevated by 70. 6 % however , the expense associated with the legal settlements ($165 million) led to a net loss. These occurrences triggered a negative return on assets.
The negative go back on resources normally indicates trouble in ability to shell out interests.
Only $53 million of $165 million was paid in money and the rest was recorded being a long term the liability without fascination.
We can also relate these kinds of figures towards the decrease in credit scoring of Loewen Group Inc. by the pursuing credit services: Duff & Phelps Credit score, Standard & Poors Ranking Group and Moodys Investor Services mentioned previously in the Current Credit rating Facilities and Credit Ratings section of the 1995 annual survey.
Sales return(76684)/599939 = (0. 128)38494/417328 sama dengan 0. 092
In year 1994, 9. a couple of % coming from all revenues wound up as profit, while in 1995, doze. 8 % of all revenues were recorded as a loss. 0. 080
If the organization would not had to incur the costs relating to the lawsuit, 8 % of its income would have been profit.
The costs concerning funeral homes and cemeteries expenditures exceeded the profits they made, because their particular revenues are not considered profits of L. G. My spouse and i. until the purchases were completed.
Low margin599939-373131/599939 = 0. 378417328-258474/417328 = 0. 381
Typical interest rate50913/1648298 = 0. 03134203/91536 = 0. 037
The gross margin as well as the average interest both remained steady.
Cash flow to total assets39454/2262980 sama dengan 0. 01711649/1326275 = zero. 009
Cash flow to total possessions ratio reveals an increase, as the new acquisitions generated more revenues. Most of the costs associated with the Gulf of mexico National legal action were not as part of the ratio, seeing that a large percentage of the costs were noted as long term liabilities. These liabilities would not involve a cash purchase.
Earnings per share(1. 690)0. 970
Book benefit per share614682000/48167765 = $12. 761 every share411139000/41015447 = $10. 024 per talk about
Price-earning ratio34. 380/(1. 690) = (20. 343)36. 750/0. 970 sama dengan 37. 887
Dividend payment ratio0. 050/(1. 69) = (0. 030)0. 070/0. 970 = zero. 072
Profits per reveal shows a sizable decrease in percentage, since the firm issued US $ 210 million us dollars worth of new shares. Hence the dividends had been distributed to a larger volume of shares.
The value of investors equity per share improved from ALL OF US $ 10. 02 in 1994 to US bucks 12. seventy six in 95.
The dividend payout proportion decreased mainly because earnings per share lowered.
The retail price earning percentage lowered because of the decrease in income per discuss, as well as the market place price per share.
Activity Ratios
Total asset turnover599939/2262980 = zero. 265417328/1326275 = 0. 315
The total advantage turnover continued to be steady due to new acquisitions off well balanced the legal settlements and litigation price.
One American dollar of total assets generated US dollar 0. twenty-seven in 1995, whereas in 1994, that generated US $ 0. 32.
Inventory turnover373131/27489+19673/2= 15. 800210471/19673+15952/2= 11. 820
Collection ratio115953/599939/365 = 75. 50070547/417328/365 = 61. seven-hundred
The inventory turnover was 15. eight times in 1995, a rise from 10. 8 occasions in year 1994.
In 95, it took 70. 5 days and nights to collect accounts receivables when compared with 61. seven days in 1994. This has a bad impact on the companys liquidity.
Loans Ratios
Debt-equity ratio1648298/614682 sama dengan 2 . 682915136/411139 = 2 . 200
Long lasting debt-equity934509/614682 sama dengan 1 . 520516654/411139 = 1 ) 260
Debts to possessions ratio1648298/2262980 sama dengan 0. 728915136/1326275 = 0. 690
The companys reliability on personal debt increased for the reason that costs it had to bear relating to the Gulf Countrywide lawsuit and also the insurance financial obligations incurred created by the two insurance companies this received throughout the acquisition of S. I. Acquisitions Associates, T. P.
Liquidity and Solvency Alert Ratio
Seed money ratio191081/241275 sama dengan 0. 790109868/97665 = 1 . 125
The significant capital percentage lowered to 0. 790 from 1 ) 125 in 1994. Therefore their current liabilities improved at a faster rate than their current assets in 1995. This really is cause for matter because essentially this rate should be for $ two of assets to dollar 1 of liabilities.
Rough draft ratio39454+115953/241275 = 0. 64415349+70547/97665 = 0. 880
Interest coverage ratio72949-47178/50913 = 0. 50624029+19738/34203 sama dengan 1 . 280
Both the rough draft ratio plus the interest insurance ratio both equally fell coming from last year. The acid test proportion decrease was caused by greater increase in debts than assets. The interest protection ratio reduced below to 0. 506 which is below the ideal focus on of 1. The organization is certainly not generating enough income to hide its responsibilities as they become due.
Revenue Recognition
This kind of analysis in the revenue recognition practices by Loewen Group Inc. is divided into two sections. The first section will concentrate on revenue acknowledgement practices concerning funeral companies and the second section will develop those associated with the cemetery operations of the company. We now have included three Appendixes
Appendix B: Average Burial Costs, Appendix C: Earnings by Supply in the Memorial service Industry and Appendix D: Total Earnings of the Funeral Service Industry simply by Sector for more references.
Burial homes present services, that include everything from using the service and registration in the death associated with an individual to the sale of a casket. These services can be acquired at-need, which is considered as a purchase at the time of loss of life, or
pre-need, a prearranged contract established as the deceased remains living.
Provincial polices in Ontario protect the consumer with respect to pre-need funeral and cemetery companies. In general, the regulations demand a specific percentage of pre-paid funds to be deposited in trust. Ontario requires completely deposits in trust on the sale of pre-arranged funeral solutions. This is required in order to protect the consumer by service non-delivery due to the seal or failing of the company where they purchased the funeral services. Firms within the province of Ontario cannot take the maximum financial benefit of pre-need companies due to regulating restrictions on the funds in question. However the organizations still profit, in that they can be gaining charge of future market share, and can be selected of long term revenue moves.
Payments made for pre-need agreements are possibly placed in
trust by the business or are used on behalf from the purchaser
from the pre-need contract to pay out premiums upon life insurance
policies underneath which the business is the selected
named beneficiary. At the day of overall performance of a pre-arranged
service, the business records as a funeral revenue the
amount formerly trusted or the insurance deal amount
together with all related insurance deal amount
together with every related accumulated trust income and
increased insurance benefits2
Pre-arranged funeral services happen to be included in other assets and amortised over a period of ten years approximating the period the advantages are expected to get realised.
The regulations concerning cemeteries focus on public health aspects and the treatment and maintenance of cemetery grounds. Funeral home companies are necessary to deposit a particular percentage in the proceeds of sales of interment rights (ie: the lot, crypt or souple for the ultimate disposition from the remains). These perpetual care funds happen to be held in perpetuity and is not considered an asset to the company. The company does even so have the right to the interest received on the funds in order to provide the care and maintenance of their particular cemeteries. The proportion required to be deposited in the perpetual care fund differs from 5% to 40%, with regards to the area. When the company suspends its operation these funds can be made available through the province or perhaps municipality.
The pre-need sale of interment rights and also other related
products can be recorded while revenue when ever customer legal agreements
will be signed and, concurrently, related costs will be recorded
and a great allowance is established for customers cancellation
and refunds depending on managements predicted of anticipated
cancellations. 3
95, was a controversial year for The Loewen Group Inc. The company demonstrated its aspire to expand inside the funeral sector by attaining funeral homes and cemeteries from Osiris Holding Corp., MHI Group as well as other businesses. The speed through which they attempted to acquire fresh holdings made the company vulnerable to lawsuits. The business stated in it is annual statement that it is becoming more conscious of this issue following the Gulf Nationwide incident. Although the company was severely affected financially by the settlement while demonstrated by financing and liquidity proportions, the company confirmed its potential to maintain its placement in the industry, as shown by the relative unchanged gross perimeter.
The business now finds itself very leveraged (as demonstrated by Scott Method calculations) and thus has the possibility of big profits for shareholders. This has as well made the corporation vulnerable to outsiders, as shown by the Service Corporation Internationals attempt to take-over the company. If Loewen Group Incorporated is able to stop the take-over strive, it will prove its stability.
REFERENCES
1 . Loewen Group Incorporated, The Loewen Group Inc. 95 Annual Statement, H. MacDonald Printing., mil novecentos e noventa e seis, 1 .
2 . Loewen Group International Inc., online Available @ http://www.sec.gov/archives/edgar/data/845577/0000950109/09-96-003953.txt.
3. Ibid.
BIBLIOGRAPHY
Freiedman, Plug P., Book of Business Terms, New york city, Barrons Educational
Series Inc., year 1994.
Gibbins, Michael, Financial Accounting: An Integrated Way, 2nd Release
Scarborough, Nelson Canada, 1995.
Heimbecker, John, Last Purchase, Growing Demand, The Canadian Funeral service Services
Industry, Ottawa, Statistics Canada, 1995.
The Loewen Group Inc., The Loewen Group Inc. 95 Annual Record, Burnaby M. C.:
H. MacDonald Printing, 1996.
The Loewen Group International Inc., online Available @
http://www.sec.gov/archives/edgar/data/845577/0000950109/09-96-003953.txt.
Milner, Brian. Loewen board rejects SCI takeover bid, The world and Postal mail
14 October 1996, B13.
Milner, Brian. Opponents target Loewen assets, The world and Postal mail
twenty-three Sepetember mil novecentos e noventa e seis, B1, B10.
Schreiner, Steve. Loewen wont concede wipe out without accurate a high price The
Economical Post 19 September 1996: 1-2.
Schreiner, John. U. S. giant bids to get Loewen The Financial Post 18 Sept. 2010 1996:
1-2.
APPENDIX A: Death, Actual and Projected
Source: p. 18 of Final Buy, Growing Require The Canadian Funeral Services Industry.
APPENDIX B: Normal Funeral Costs
Source: l. 13 of ultimate Purchase, Growing Demand The Canadian Funeral service Services Sector.
APPENDIX C: Revenue by Source in the Funeral Providers Industry
Origin: p. six of Final Purchase, Growing Demand The Canadian Funeral Services Industry.
APPENDIX D: Total Revenue from the Funeral Services Industry simply by Sector
Supply: p. 4 of Final Order, Growing Require The Canadian Funeral Solutions Industry.
APPENDIX E: The Scott Method
(Expressed in 1000s of U. H. Dollars)
19951994Symbols
Total assets22629801326275A
Total liabilities1648298915136L
Total equity614682411139E
Total revenue599939417328REV
Net income(76684)38494NI
Interest expense5091334203INT
Income tax rate(38. 1) %33. 9 %TR
After-tax fascination expense50913 5. 1 . 381 = 7031134203 *. 661 = 22608ATI = INT (1 TR)
ROE (return on equity)(76684) / 614682 = (0. 125)38494 as well as 411139 = 0. 094NI / Elizabeth
SR (sales return before interest)(76684) + 70311 as well as 599939 = (0. 011) 38494 & 22608 / 417328 = 0. 146 NI + ATI as well as REV
FOR (asset turnover)599939 / 2262980 = zero. 265417328 / 1326275 = 0. 315REV / A
ROA (return on assets)(76684) + 70311 / 2262980 = (0. 003) 38494 + 22608 / 1326275 = zero. 046 NI + ATI / A
IN (average interest rate following tax)70311 as well as 1648298 = 0. 04322608 / 915136 = zero. 025ATI as well as L
Deb / Electronic (debt-equity ratio)1648298 / 614682 = 2 . 682915136 / 411139 = 2 . 226L / E
