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 Funeral service industry is not significantly affected by economic cycles. The stability of the industry is increased by future demographic trends. Individuals from the "baby boomer" generation are now entering their fifties and the death rate is growing slowly at 1.5% per year, compounded, as demonstrated in Appendix A: Deaths, Actual and Projected. The industry is characterised by above-average profitability and revenue growth.
Public Health issues and consumer protection issues are primarily regulated at the provincial level of government. These regulations are implemented to protect the dignity of the deceased as well as his or her estate. These regulations are described in detail in the revenue recognition section.
Loewen Group Inc. Strategies
The Provident America Corporation lawsuit was settled in February, 1995 for US $19 million. On November 2nd, 1995, a jury in Jackson, Mississippi, awarded US $500 million in Breach-of-contract lawsuit brought by Gulf National. This amount is almost twenty-six times high than what was originally asked for. In order to appeal, Loewen was required to post a US $625 million bond, which was later reduced to US $125 million with the condition that there would be no significant change in assets or increases in dividends without prior notification to the court and the other party. No provision on was made on the financial statement at this point since the result was hard to predict on the appeal. On January 29th, 1996, Loewen settled the lawsuit for US $175 million and recorded US $135 million, present value of $175 million....