<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-18429
---------------------
THE LOEWEN GROUP INC.
(Exact name of registrant as specified in its charter)
---------------------
<TABLE>
<S> <C>
BRITISH COLUMBIA, CANADA 98-0121376
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
4126 NORLAND AVENUE
BURNABY, BRITISH COLUMBIA V5G 3S8
(Address of principal executive offices) (zip code)
604-299-9321
(Registrant's telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
Indicate by check x whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
---------------------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check x whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes / / No / /
---------------------
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of outstanding Common shares as of May 3, 1996 was 58,761,765.
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<PAGE> 2
THE LOEWEN GROUP INC.
AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 1996 and December 31, 1995....... 3
Consolidated Statements of Operations and Retained Earnings
for the Three Months Ended March 31, 1996 and 1995........................... 4
Consolidated Statements of Changes in Financial Position
for the Three Months Ended March 31, 1996 and 1995........................... 5
Notes to Interim Consolidated Financial Statements........................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................ 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................... 18
Item 5. Other Information.................................................... 21
Item 6. Exhibits and Reports on Form 8-K..................................... 22
SIGNATURES.............................................................................. 26
</TABLE>
<PAGE> 3
PART I
ITEM 1. FINANCIAL STATEMENTS.
THE LOEWEN GROUP INC.
CONSOLIDATED BALANCE SHEETS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
DECEMBER 31,
1995
MARCH 31, ------------
1996
-----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and term deposits........................................... $ 32,608 $ 39,454
Receivables, net of allowances................................... 132,952 115,953
Inventories...................................................... 28,627 27,489
Prepaid expenses................................................. 11,437 8,185
---------- ----------
205,624 191,081
Prearranged funeral services....................................... 260,328 245,854
Long-term receivables, net of allowances........................... 179,745 167,367
Investments........................................................ 83,004 86,815
Insurance invested assets.......................................... 283,945 97,024
Cemetery property, at cost......................................... 429,334 369,022
Property and equipment............................................. 605,244 551,965
Names and reputations.............................................. 509,533 424,944
Deferred income taxes.............................................. 62,069 61,959
Other assets....................................................... 86,834 66,949
---------- ----------
$ 2,705,660 $2,262,980
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current indebtedness............................................. $ -- $ 38,546
Accrued settlements.............................................. -- 53,000
Accounts payable and accrued liabilities......................... 80,588 80,058
Long-term debt, current portion.................................. 97,025 69,671
---------- ----------
177,613 241,275
Long-term debt..................................................... 912,067 864,838
Other liabilities.................................................. 145,848 136,433
Insurance policy liabilities....................................... 211,008 84,898
Deferred prearranged funeral services revenue...................... 260,328 245,854
Preferred securities of subsidiary................................. 75,000 75,000
Shareholders' equity
Share capital.................................................... 769,008 490,055
Share capital issuable under legal settlements................... -- 72,000
Preferred shares................................................. 87,882 --
Retained earnings................................................ 51,163 36,439
Foreign exchange adjustment...................................... 15,743 16,188
---------- ----------
923,796 614,682
---------- ----------
$ 2,705,660 $2,262,980
========== ==========
Contingencies (Note 5)
</TABLE>
See accompanying notes to interim consolidated financial statements.
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<PAGE> 4
THE LOEWEN GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
(UNAUDITED)
Revenue
Funeral.............................................................. $133,259 $106,892
Cemetery............................................................. 53,324 23,167
Insurance............................................................ 6,501 --
-------- --------
193,084 130,059
Costs and expenses
Funeral.............................................................. 77,224 59,777
Cemetery............................................................. 36,942 16,660
Insurance............................................................ 5,375 --
-------- --------
119,541 76,437
-------- --------
73,543 53,622
Expenses
General and administrative........................................... 16,680 10,506
Depreciation and amortization........................................ 11,642 8,396
-------- --------
28,322 18,902
-------- --------
Earnings from operations............................................... 45,221 34,720
Interest on long-term debt............................................. 18,488 11,361
-------- --------
Earnings before dividends on preferred securities of subsidiary and
income taxes......................................................... 26,733 23,359
Dividends on preferred securities of subsidiary........................ 1,772 1,772
-------- --------
Earnings before income taxes........................................... 24,961 21,587
Income taxes
Current.............................................................. 2,168 7,190
Deferred............................................................. 5,570 340
-------- --------
7,738 7,530
-------- --------
Net earnings for the period............................................ $ 17,223 $ 14,057
Retained earnings, beginning of period................................. 36,439 115,492
Common share dividends................................................. (2,499) --
-------- --------
Retained earnings, end of period....................................... $ 51,163 $129,549
======== ========
Basic earnings per share............................................... $ 0.30 $ 0.34
Fully diluted earnings per share....................................... $ 0.30 $ 0.34
Dividends per Common share............................................. $ 0.05 $ --
</TABLE>
See accompanying notes to interim consolidated financial statements.
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<PAGE> 5
THE LOEWEN GROUP INC.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1996 1995
--------- ---------
(UNAUDITED)
<S> <C> <C>
CASH PROVIDED BY (APPLIED TO)
Operations
Net earnings....................................................... $ 17,223 $ 14,057
Items not affecting cash
Depreciation and amortization................................... 11,642 8,396
Deferred income taxes........................................... 5,570 340
Other........................................................... 4,709 1,978
Share capital and debt issuable under legal settlements............ (112,000) --
Net changes in other non-cash balances............................. (83,992) (8,825)
--------- ---------
(156,848) 15,946
--------- ---------
Investments
Business acquisitions.............................................. (264,769) (148,572)
Construction of new facilities..................................... (2,142) (2,284)
Investments, net................................................... 3,965 (7,557)
Purchase of property and equipment................................. (4,080) (3,696)
Proceeds on disposition of assets.................................. 331 1,566
Other.............................................................. (3,241) (7,191)
--------- ---------
(269,936) (167,734)
--------- ---------
Financing
Issue of share capital, before income tax recovery................. 275,085 2,526
Issue of preferred shares, before income tax recovery.............. 84,842 --
Increase in long-term debt......................................... 131,553 156,285
Reduction in long-term debt........................................ (21,551) (2,010)
Common share dividend.............................................. (2,499) --
Current note payable............................................... (38,546) --
Other.............................................................. (8,209) 525
--------- ---------
420,675 157,326
--------- ---------
Increase in cash and cash equivalents during the period.............. (6,109) 5,538
Effect of foreign exchange adjustment................................ (737) 74
Cash and cash equivalents, beginning of period....................... 39,454 11,649
--------- ---------
Cash and cash equivalents, end of period............................. $ 32,608 $ 17,261
========= =========
Cash and cash equivalents include
Cash and term deposits............................................. $ 32,608 $ 22,161
Bank indebtedness, included in current indebtedness................ -- (4,900)
--------- ---------
$ 32,608 $ 17,261
========= =========
</TABLE>
See accompanying notes to interim consolidated financial statements.
-5-
<PAGE> 6
THE LOEWEN GROUP INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
NOTE 1. BASIS OF PRESENTATION
The United States dollar is the principal currency of the Company's
business and accordingly the consolidated financial statements are expressed in
United States dollars. The financial statements have been prepared in accordance
with accounting principles generally accepted in Canada.
The interim consolidated financial statements (unaudited) include the
accounts of all subsidiary entities and reflect all adjustments of a normal
recurring nature, which in management's opinion are necessary for a fair
presentation of the financial results for the interim periods. The financial
statements have been prepared consistent with the accounting policies described
in the Company's Annual Report on Form 10-K filed with the Securities and
Exchange Commission for the year ended December 31, 1995 and should be read in
conjunction therewith. Certain of the comparative figures have been reclassified
to conform to the presentation adopted in the current period.
NOTE 2. ACQUISITIONS
During the three months ended March 31, 1996, the Company acquired 52
funeral homes, 29 cemeteries and two insurance companies in the United States,
and one funeral home and one cemetery in Canada, for a total consideration of
$264,769,000. Included in these acquisitions is the purchase of 15 funeral
homes, two cemeteries and two insurance companies from SI Acquisition
Associaties L.P. ("SI"), of Donaldsonville, Louisiana, for approximately
$144,000,000.
During the three months ended March 31, 1995, the Company acquired 43
funeral homes and 32 cemeteries in the United States, six funeral homes and two
cemeteries in Canada.
All of the Company's acquisitions have been accounted for by the purchase
method. The preliminary purchase price allocation for certain of these
acquisitions has been estimated based on available information at the time and
is subject to revision. The effect of acquisitions at dates of purchase on the
consolidated balance sheet is as follows:
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Current assets.................................................. $ 12,934 $ 5,411
Prearranged funeral services.................................... 11,432 12,956
Long-term receivables, net of allowances........................ 6,620 28,368
Investments..................................................... -- 10,485
Insurance invested assets....................................... 185,971 --
Cemetery property, at cost...................................... 60,859 102,045
Property and equipment.......................................... 54,014 27,956
Names and reputations........................................... 88,117 16,672
Other assets.................................................... 276 --
--------- --------
420,223 203,893
Current liabilities............................................. (4,329) (4,255)
Long-term debt.................................................. (4,367) (6,283)
Other liabilities............................................... (9,612) (27,128)
Insurance policy liabilities.................................... (125,207) --
Deferred income taxes........................................... (507) (4,699)
Deferred prearranged funeral services revenue................... (11,432) (12,956)
--------- --------
$ 264,769 $148,572
--------- --------
Consideration
Cash and debt $ 256,003 $148,572
Share capital 8,766 --
--------- --------
$ 264,769 $148,572
--------- --------
</TABLE>
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<PAGE> 7
THE LOEWEN GROUP INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
Insurance invested assets consist primarily of fixed maturities including
collateralized mortgage obligations of approximately $111,700,000 and
mortgage-backed securities of approximately $9,200,000 as part of the life
insurance portfolio of SI.
The following table reflects, on an unaudited pro-forma basis, the combined
results of the Company's operations acquired during the period ended March 31,
1996 as if all such acquisitions had taken place at the beginning of the
respective periods presented. Appropriate adjustments have been made to reflect
the accounting basis used in recording these acquisitions. This pro-forma
information does not purport to be indicative of the results of operations that
would have resulted had the acquisitions been in effect for the entire periods
presented, and is not intended to be a projection of future results or trends.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Revenues....................................................... $216,860 $161,450
Net earnings................................................... $ 15,908 $ 13,639
Basic earnings per share....................................... $ 0.27 $ 0.29
Fully diluted earnings per share............................... $ 0.27 $ 0.29
</TABLE>
NOTE 3. PREFERRED SECURITIES OF SUBSIDIARY
On August 15, 1994, 3,000,000 9.45% Cumulative Monthly Income Preferred
Securities, Series A (MIPS) were issued by Loewen Group Capital, L.P. (LGC) in a
public offering for an aggregate amount of U.S. $75,000,000. LGC is a limited
partnership and Loewen Group International, Inc. (LGII) as its general partner
manages its business and affairs. LGII serves as the holding company for United
States assets and operations of the Company. The consolidated financial
statements of LGII are prepared in accordance with Canadian generally accepted
accounting principles and are presented in United States dollars.
Summarized financial data for LGII are presented as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Income statement information
Total revenue............................................. $176,057 $115,453
Gross profit.............................................. 66,585 47,017
Earnings from operations.................................. 41,355 31,403
Net earnings.............................................. 5,465 7,742
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
---------- ------------
<S> <C> <C>
Balance sheet information
Current assets........................................... $ 193,397 $ 184,289
Non-current assets....................................... 2,198,025 1,776,425
---------- ----------
Total assets.......................................... 2,391,422 1,960,714
Current liabilities...................................... 130,920 221,555
Non-current liabilities.................................. 2,038,047 1,696,709
---------- ----------
Total liabilities..................................... $2,168,967 $1,918,264
Shareholders' equity..................................... 222,455 42,450
</TABLE>
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<PAGE> 8
THE LOEWEN GROUP INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
NOTE 4. FINANCING
In March 1996, LGII consummated a private placement of 1996 Notes in the
United States for gross proceeds of $350,000,000. Concurrently with the 1996
Notes offering, TLGI completed a public offering in Canada and a simultaneous
private placement in the United States of 7,000,000 Common shares for aggregate
gross proceeds of approximately $275,000,000 Canadian (U.S.$201,000,000).
In conjunction with the placement of the 1996 Notes, the Company closed out
an anticipatory hedge resulting in a gain of $2,821,000 which will be amortized
as a reduction of interest expense over the life of the 1996 Notes.
In January 1996, TLGI completed a public offering in Canada and a
simultaneous private placement in the United States of 8,800,000 Convertible
First Preferred Shares Series C Receipts for gross proceeds of $220,000,000
Canadian (U.S.$161,000,000). The gross proceeds were deposited with an escrow
agent. The net proceeds will be released to the Company from time to time by
issuing and depositing with the escrow agent an equal dollar amount of Series C
Preferred Shares. As of May 3, 1996, approximately $199,000,000 Canadian
(U.S.$146,000,000) had been released from escrow, leaving $21,000,000 Canadian
(U.S.$15,000,000) in escrow.
NOTE 5. LEGAL PROCEEDINGS
Gulf National Settlement
In November 1995, a jury in the Circuit Court of the First Judicial
District of Hinds County, Mississippi, awarded J.J. O'Keefe, Sr. Gulf National
Insurance Company and certain affiliates (collectively, "Gulf National")
$100,000,000 in compensatory damages and $400,000,000 in punitive damages (the
"Gulf National award") in a lawsuit against the Company, LGII and two indirect
subsidiaries (the "Company Defendants") in which Gulf National claimed breach of
contract and related torts in connection with its allegations that the Company
failed to consummate certain business transactions. The Company Defendants
appealed the Gulf National award. On January 24, 1996, the Mississippi Supreme
Court ruled that in order to stay execution of the Gulf National award pending
the appeal thereof, the Company Defendants would be required to post a
supersedeas bond with the Circuit Court in an amount equal to 125% of the
judgment, or $625,000,000.
On February 1, 1996, the Company Defendants and Gulf National executed a
settlement agreement pursuant to which, among other things, the parties agreed
to a full mutual release of all claims against each other, and the Company
Defendants agreed to deliver to Gulf National or its designees $50,000,000 in
cash, 1.5 million Common Shares (the "Gulf National Settlement Shares") and a
promissory note in the amount of $80,000,000 payable over 20 years in equal
annual installments of $4,000,000, without interest (the "Gulf National
Settlement"). In connection with the issuance of the Gulf National Settlement
Shares, on February 9, 1996, the Company, LGII, Gulf National and various
individuals and law firms that represented Gulf National (collectively the
"Shareholders") entered into an agreement with respect to the Gulf National
Settlement Shares (the "Shareholders Agreement"), pursuant to which, among other
things, TLGI agreed to file by September 1, 1996 a registration statement
relating to the Gulf National Settlement Shares with the Securities and Exchange
Commission (the "Commission") and to have such registration statement declared
effective by December 31, 1996. LGII also has agreed to pay to each Shareholder,
upon due notice ("Notice") a per share price guarantee amount in certain
circumstances. The per share price guarantee amount is equal to the amount, if
any, by which $30 exceeds the weighted average trading price of the Common
Shares for the five consecutive trading days preceding the date of Notice. LGII
may elect to pay the aggregate price guarantee in Common Shares or cash. Notice
may be delivered, and LGII is required to pay the price guarantee, only with
respect to a 30-day period commencing February 14, 1997 (the "Determination
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<PAGE> 9
THE LOEWEN GROUP INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
Period"). LGII is relieved of its obligation to make such payment if during the
Determination Period the trading price of the Common Shares exceeds $30 for any
five consecutive trading days, provided that the registration statement has
become effective before the Determination Period or the Shareholders have
otherwise had an opportunity to sell their Gulf National Settlement Shares
during the Determination Period. The Shareholders have granted to TLGI or its
assignee a right of first refusal with respect to the Gulf National Settlement
Shares and have agreed, until February 9, 1998, to vote the Gulf National
Settlement Shares in accordance with the recommendations of the Board of
Directors of TLGI. The right of first refusal does not apply in respect of any
offers and sales at prices of $30 or more per Common Share during the
Determination Period.
Provident Settlement
In April 1992, Provident American Corporation and a subsidiary (together,
"Provident") filed a lawsuit against TLGI and LGII in the United States District
Court for the Eastern District of Pennsylvania alleging breach of contract and
related tort claims arising out of terminated negotiations concerning a possible
pre-need funeral insurance marketing arrangement. The complaint requested
compensatory damages in excess of $58.8 million and unspecified punitive
damages, based on allegations that the loss of the Company's pre-need business
had deprived the plaintiffs of aggregate future profits of approximately $58.8
million to $132,000,000.
On February 12, 1996, Provident, TLGI and LGII agreed to settle the
litigation. On March 19, 1996 the parties entered into a settlement providing
for a full mutual release from all claims against each other, and TLGI and LGII
delivered one million Common Shares (the "Provident Settlement Shares") and
$3,000,000 in cash (together with the Provident Settlement Shares, the
"Provident settlement") to Provident and certain designees. TLGI agreed to file
a registration statement relating to the Provident Settlement Shares with the
Commission by June 30, 1996. LGII agreed to pay to Provident for each Provident
Settlement Share, in cash or Common Shares, at LGII's election, the amount, if
any, by which $27 exceeds the weighted average trading price of the Common
Shares during the five consecutive trading days ending on the day before the
registration statement is declared effective.
Shareholder Suits
On November 4, 1995, a class action lawsuit claiming violations of Federal
securities laws was filed on behalf of a class of purchasers of Company
securities against TLGI and five officers (four of whom are directors) in the
United States District Court for the Eastern District of Pennsylvania. LGII,
Loewen Group Capital, L.P. ("LGCLP") and the lead underwriters of the Monthly
Income Preferred Securities ("MIPS") offering were subsequently added as
defendants. The underwriters have indicated they will seek indemnity from the
Company. On November 7, 1995, a class action lawsuit was filed on behalf of a
class of purchasers of Common Shares against TLGI and the same individual
defendants in the United States District Court for the Southern District of
Mississippi alleging Federal securities law violations and related common law
claims. On December 1, 1995, a class action lawsuit was filed on behalf of a
class of purchasers of the Company's securities against TLGI, LGII, LGCLP and
the same individual defendants in the United States District Court for the
Eastern District of Pennsylvania. All suits (collectively, the "Shareholder
Suits") allege that the defendants failed to disclose the Company's anticipated
liability in connection with the Gulf National litigation and the Pennsylvania
Shareholder Suits allege failure to disclose the potential liability in
connection with the Provident litigation. In each of the foregoing claims, the
plaintiffs seek compensatory money damages in an unspecified amount, together
with attorneys fees, expert fees and other costs and disbursements and in
addition, the November 7 action seeks unspecified punitive damages. The longest
class period specified is from April 16, 1993 to November 1, 1995. Pursuant to a
Transfer Order filed April 15, 1996 by the Judicial Panel on Multidistrict
Litigation, the Mississippi Shareholder Suit was transferred to the Eastern
District of Pennsylvania for consolidation of pretrial proceedings with the two
Pennsylvania Shareholder Suits. The Company referred the claims to its insurance
carrier under its directors and officers insurance policy. On
-9-
<PAGE> 10
THE LOEWEN GROUP INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
February 9, 1996, the carrier denied coverage of the claim. The Company believes
that such denial was improper. On March 21, 1996, the Company commenced an
action in British Columbia Supreme Court seeking a declaration that the policy
covers indemnification with respect to the Shareholder Suits. The Company cannot
predict at this time the extent to which any settlement or litigation that may
result from these claims will ultimately be covered by insurance, if at all. The
Company has determined that it is not possible to predict the final outcome of
these legal proceedings and that it is not possible to establish a reasonable
estimate of possible damages, if any, or reasonably to estimate the range of
possible damages that may be awarded to the plaintiffs. Accordingly, no
provision has been made in the Company's financial statements.
Roe, et al., Palladino et al. and O'Sullivan
In October 1995, Roe and 22 other families filed a lawsuit against LGII and
Osiris in Florida Circuit Court in St. Petersburg. The complaint, as amended,
now includes a total of 62 families. Plaintiffs allege that in July 1992,
employees of the Royal Palm Cemetery facility who were installing a sprinkler
line disturbed the remains of infants in one section of the cemetery. Each
plaintiff in Roe is seeking damages in excess of $15,000, but counsel for the
plaintiffs in Roe has publicly stated that the claims will aggregate to
$1,000,000 per family ($62,000,000 based on the current plaintiffs). In early
April 1996, a related lawsuit, Palladino et al., was filed by eight families
against LGII and Osiris in Florida Circuit Court in St. Petersburg, and was
assigned to the same judge handling the Roe matter and early in May 1996, Sean
M. O'Sullivan filed a lawsuit against Osiris and LGII. The factual allegations
underlying the O'Sullivan complaint and the Palladino complaint, which was filed
as a class action lawsuit, are identical to those in Roe. The Company is in the
process of determining whether to agree to or oppose the certification of a
class in Palladino.
At the time the remains allegedly were disturbed, the Royal Palm Cemetery
was owned by Osiris. Osiris was acquired by the Company in March 1995. The
insurance carrier for Osiris has assumed the defense of these claims, subject to
a reservation of rights. The policy limit is $11,000,000. No provision with
respect to these lawsuits have been made in the Company's financial statements.
Rojas et al.
On February 22, 1995, Juan Rivera Rojas, Leyda Rivera Vega, the Conjugal
Partnership constituted between them, and Carlos Rivera Bustamente instituted a
legal action against the Company, LGII and a subsidiary in the United States
District Court for the District of Puerto Rico. The complaint alleges that the
defendants breached a contract and ancillary agreements with the plaintiffs
relating to the purchase of funeral homes and cemeteries, and committed related
torts. The plaintiffs seek compensatory damages of $12,500,000, and unspecified
punitive damages (although the Company is advised by counsel that there is no
entitlement to punitive damages under Puerto Rican law). The Company has filed a
motion to dismiss the complaint on the grounds of failure to join an
indispensable party.
In addition, the Company claims it has suffered damages far in excess of
the amount claimed by the plaintiffs as a result of breach of contract and
related torts on the part of the plaintiffs. A subsidiary of the Company has
filed a complaint seeking damages in excess of $19,000,000 from the plaintiffs
in the General Court of Justice of the Commonwealth of Puerto Rico. The Company
has determined that it is not possible to predict the final outcome of these
legal proceedings and that it is not possible to establish a reasonable estimate
of possible damages, if any, or reasonably to estimate the range of possible
damages that may be awarded to the plaintiffs. Accordingly, no provision has
been made in the Company's financial statements.
-10-
<PAGE> 11
THE LOEWEN GROUP INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
Esner Estate
As described in the Company's previous periodic reports, on February 1,
1995, Stuart B. Esner and Sandra Esner (the "Executors") as co-executors for the
Estate of Gerald F. Esner (the "Esner Estate") filed an action in the Court of
Common Pleas in Bucks County, Pennsylvania against Osiris and a law firm that
previously represented Osiris and its principal shareholders, Gerald F. Esner,
Lawrence Miller and William R. Shane. Messrs. Miller and Shane currently are
executive officers of the Company and LGII. The complaint alleged that Osiris
breached the terms of a Second Amended and Restated Shareholders' Agreement
among Messrs. Esner, Miller and Shane (the "Shareholders' Agreement") by
attempting to repurchase shares of Osiris held by the Esner Estate (the "Esner
Shares") without complying with the terms of the Shareholders' Agreement, and
that the law firm breached its fiduciary duty and committed malpractice in
connection with the drafting of the Shareholders' Agreement and its
representation of Esner and Osiris. The Executors asked the Court (i) to have
the value of Osiris reappraised pursuant to the terms of the Shareholders'
Agreement and (ii) to require Osiris to repurchase the Esner Shares pursuant to
a new appraisal and the alleged terms of the Shareholders' Agreement or,
alternatively, to pay the Esner Estate the fair value of the Esner Shares as
determined by the new appraisal.
On March 17, 1995, LGII purchased all of the issued and outstanding shares
of Osiris, including the Esner Shares. In connection with the purchase, LGII
entered into an indemnification agreement whereby Messrs. Miller and Shane
agreed to indemnify and hold LGII harmless with respect to any claims,
liabilities, losses and expenses, including reasonable attorneys' fees, in
connection with or arising from the Esner Estate litigation.
On April 9, 1996, the Executors filed a second complaint, which names
Messrs. Miller and Shane and LGII as defendants. The second complaint alleges
breach of contract, fraud and related claims against Messrs. Miller and Shane,
and that LGII joined in a civil conspiracy by acquiring Osiris. The Executors
request compensatory damages of $24,300,000 against the various defendants, and
seek punitive damages from Messrs. Miller and Shane. A motion for consolidation
of the two cases is pending.
No provision with respect to these lawsuits have been made in the Company's
financial statements.
Other
The Company is a party to other legal proceedings in the ordinary course of
its business but does not expect the outcome of any such proceedings to have a
material adverse affect on the Company's financial condition.
NOTE 6. SUBSEQUENT EVENTS
(a) Acquisitions
During the period from April 1, 1996 to May 3, 1996, the Company acquired
13 funeral homes and 16 cemeteries. The aggregate cost of these transactions was
approximately $41,000,000.
As at May 3, 1996, the Company has committed to acquire certain funeral
homes and cemeteries, subject in most instances to certain conditions including
approval by the Company's Board of Directors. The aggregate cost of these
transactions will be approximately $196,000,000.
(b) Common share offering
On April 16, 1996 the underwriters of the Company's recent public Common
share offering exercised an option to purchase an additional 700,000 Common
shares from the Company. The net proceeds to the
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<PAGE> 12
THE LOEWEN GROUP INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
Company of approximately $27,000,000 Canadian (U.S.$20,000,000) from the
exercise of the option will be used for working capital and other corporate
purposes, including acquisitions.
(c) Credit facilities
As at May 3, 1996, LGII had borrowed $95,000,000 under the multicurrency
revolver. No further borrowings are available under this facility without the
consent of the lenders thereunder. The lenders under the multicurrency revolver
have also extended to May 31, 1996, the requirement for the Company to provide
collateral. The Company intends to retire the multicurrency revolver in full
prior to May 31, 1996. The $100,000,000 364-day multicurrency revolver matured
on May 10, 1996 and was not renewed.
NOTE 7. UNITED STATES ACCOUNTING PRINCIPLES
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") in Canada. These principles
differ from GAAP in the United States as described in Note 21 of the Company's
consolidated financial statements for the year ended December 31, 1995.
The major difference between Canadian and U.S. GAAP during the period from
January 1, 1996 to March 31, 1996 results from the application of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes and
accounting for insurance operations. As a result of these differences, assets
and liabilities would increase or decrease at dates of purchase as follows:
(a) Cemetery property and names and reputations would increase by
$10,732,000 and $3,034,000 respectively, and deferred income tax
liabilities would increase by $13,766,000.
(b) Insurance policy liabilities and present value of insurance
policies acquired would increase by approximately $16,000,000.
In addition, cash applied to operations and cash provided by financing
would decrease by $112,000,000 because shares and debt issued for legal
settlements would be considered as non-cash transactions.
Net earnings under U.S. GAAP were $17,647,000 and $14,210,000 for the three
months ended March 31, 1996 and 1995 respectively.
The number of shares in thousands, used in the calculation of earnings per
share for the three months ended March 31, 1996 and 1995 were 50,726
(1995 -- 42,021) for primary earnings per share and 51,009 (1995 -- 42,049) for
fully diluted earnings per share.
The earnings per share under U.S. GAAP are as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-----------------
1996 1995
----- -----
<S> <C> <C>
Primary earnings per share......................................... $0.31 $0.34
Fully diluted earnings per share................................... $0.31 $0.34
</TABLE>
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<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
ALL FIGURES IN UNITED STATES DOLLARS UNLESS OTHERWISE INDICATED. THE
"COMPANY" REFERS TO THE LOEWEN GROUP INC., A CORPORATION ORGANIZED UNDER THE
LAWS OF BRITISH COLUMBIA, CANADA ("TLGI"), AND ITS SUBSIDIARIES AND ASSOCIATED
ENTITIES.
INTRODUCTION
The Company operates the second-largest number of funeral homes and
cemeteries in North America and the largest number of funeral homes in Canada.
In addition to providing services at the time of need, the Company also makes
funeral, cemetery and cremation arrangements on a pre-need basis. As at May 3,
1996, the Company operated 881 funeral homes (most of which are wholly owned)
throughout North America. This included 770 funeral homes in the United States
(including locations in Puerto Rico) and 111 funeral homes in Canada. In
addition, as at such date, the Company operated 219 cemeteries in the United
States and 6 cemeteries in Canada.
The death care industry has a number of attractive characteristics and
historically has had a low business failure risk compared with most other
businesses. Further, the death care industry historically has not been
significantly affected by economic or market cycles. In addition, future
demographic trends are expected to contribute to the continued stability of the
funeral service industry. The U.S. Department of Commerce, Bureau of the Census,
projects that the number of deaths in the United States will grow at
approximately 1.0% annually from 1990 through 2010. Finally, the death care
industry in North America is highly fragmented, consisting primarily of small,
stable, family-owned businesses. Management estimates that notwithstanding the
increasing trend toward consolidation over the last few years, only
approximately 9% of the 23,500 funeral homes and approximately 6% of the 11,000
cemeteries in North America currently are owned by the five largest
publicly-traded North American death care companies.
The Company capitalizes on these attractive industry fundamentals through a
growth strategy that emphasizes three principal components: (i) acquiring a
significant number of small, family-owned funeral homes and cemeteries; (ii)
acquiring "strategic" operations consisting predominantly of large,
multi-location urban properties that generally serve as platforms for acquiring
small, family-owned businesses in surrounding regions; and (iii) improving the
revenue and profitability of newly-acquired and established operations. As a
result of the successful implementation of this strategy, the Company has grown
significantly. Management of the Company's growth is critical to profitability,
and will continue to be one of the most important responsibilities and
challenges facing the Company.
RESULTS OF OPERATIONS
The Company's operations are directly affected by the level of recent
acquisitions and the performance of established operations. Detailed below for
the three months ended March 31, 1996 and the corresponding period in the prior
year are the Company's operating results expressed in dollar amounts as well as
relevant percentages. Revenue, gross margin data and expenses other than income
taxes are presented as a percentage of revenue. Income taxes are presented as a
percentage of earnings before income taxes.
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<PAGE> 14
For financial reporting purposes, the Company's operations consist of
funeral, cemetery and insurance segments.
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
----------------- ---------------
1996 1995 1996 1995
------ ------ ----- -----
(IN MILLIONS)
<S> <C> <C> <C> <C>
REVENUE
Funeral................................................. $133.3 $106.9 69.0% 82.2%
Cemetery................................................ 53.3 23.2 27.6 17.8
Insurance............................................... 6.5 -- 3.4 --
---- ---- ----- -----
Total................................................ $193.1 $130.1 100.0% 100.0%
==== ==== ===== =====
GROSS MARGIN
Funeral................................................. $ 56.0 $ 47.1 42.0% 44.1%
Cemetery................................................ 16.4 6.5 30.7 28.1
Insurance............................................... 1.1 -- 17.3 --
---- ----
Total................................................ 73.5 53.6 38.1 41.2
==== ====
EXPENSES
General and administrative.............................. 16.7 10.5 8.6 8.1
Depreciation and amortization........................... 11.6 8.4 6.0 6.5
---- ----
EARNINGS FROM OPERATIONS
Interest on long-term debt.............................. 45.2 34.7 23.4 26.7
Dividends on preferred securities of subsidiary......... 18.5 11.3 9.6 8.7
Income taxes............................................ 1.8 1.8 0.9 1.4
7.7 7.5 31.0 34.9
---- ----
NET EARNINGS.............................................. $ 17.2 $ 14.1 8.9% 10.8%
==== ====
</TABLE>
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31,
1995
Consolidated revenue increased 48.5% to $193.1 million for the three months
ended March 31, 1996 from $130.1 million for the same period in 1995, with
funeral revenue increasing 24.7% and cemetery revenue increasing 130.2%.
Consolidated gross margin increased 37.2% to $73.5 million in 1996 from $53.6
million in 1995, with funeral gross margin increasing 18.9% and cemetery gross
margin increasing 151.8%. As a percentage of revenue, consolidated gross margin
decreased to 38.1% for the three months ended March 31, 1996 from 41.2% for the
comparable period in 1995, with funeral gross margin decreasing to 42.0% in 1996
from 44.1% in 1995 and cemetery gross margin increasing to 30.7% in 1996 from
28.1% in 1995. The decrease in the consolidated gross margin was due to the
decrease in funeral home margin and the increased proportion of cemetery revenue
with associated lower margin. The decrease in funeral home margin was due
primarily to the impact of acquired operations with lower margins.
Funeral revenue increased to $133.3 million for the three months ended
March 31, 1996 from $106.9 million for the same period in 1995, primarily due to
acquisitions. Funeral revenue and gross margin from locations in operation for
all of the three months ended March 31, 1995 and 1996 remained constant.
Cemetery revenue increased to $53.3 million for the three months ended
March 31, 1996 from $23.2 million for the same period in 1995, primarily due to
acquisitions. Cemetery gross margin increased to 30.7% in 1996 from 28.1% in
1995 as a result of increased pre-need sales activity and a shift in products
and services sold.
Insurance revenue was $6.5 million for the three months ended March 31,
1996. No insurance revenue was reported for the three months ended March 31,
1995. During that period, the Company owned a life insurance subsidiary acquired
in connection with a 1994 acquisition but because the Company intended to
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<PAGE> 15
dispose of the subsidiary, revenue was not consolidated or identified
separately. Beginning July 1, 1995, the Company reported the operations of the
subsidiary on a consolidated basis. On March 26, 1996, the Company acquired
certain net assets of S.I. Acquisition Associates, L.P. ("S.I.") for
approximately $144 million, which assets included two insurance companies. Due
primarily to the S.I. acquisition, insurance revenue for future 1996 periods
will be significantly higher than for the corresponding periods for 1995.
United States based operations contributed 92.5% of the consolidated
revenue for the three months ended March 31, 1996 compared with 90.2% for the
same period in 1995.
General and administrative expenses for the three months ended March 31,
1996 increased by $6.2 million to 8.6% of consolidated revenue from 8.1% of
consolidated revenue for the same period in 1995. The increase in general and
administrative expenses is primarily a result of the expansion of the Company's
infrastructure, particularly in the cemetery division.
Interest expense on long-term debt increased by $7.1 million, primarily as
a result of additional borrowings by the Company to finance its acquisitions and
capital expenditures.
Income taxes were $7.7 million for the three months ended March 31, 1996,
resulting in an effective tax rate of 31.0% compared to $7.5 million for the
same period in 1995, and an effective tax rate of 34.9%. The decrease in the
effective tax rate for the three months ended March 31, 1996 reflects the
continuing expansion of the Company's international financing arrangements.
Net earnings increased 22.5% to $17.2 million for the three months ended
March 31, 1996 from $14.1 million for the same period in 1995. Fully diluted
earnings per share ("EPS") decreased 11.8% to $0.30 per share from $0.34 per
share primarily as a result of the increased number of Common shares without par
value ("Common Shares") outstanding and the effect of a dividend (deemed to have
been paid for purposes of the EPS calculation) on TLGI's 6.00% Cumulative
Redeemable Convertible First Preferred Shares, Series C ("Series C Preferred
Shares"). Management's EPS goal for the 1996 fiscal year is $1.30-$1.40. See
Item 5. Other Information.
ACQUISITIONS AND CAPITAL EXPENDITURES
The Company acquired 53 funeral homes, 30 cemeteries and two insurance
companies during the three months ended March 31, 1996 for consideration of
approximately $265 million through 36 separate acquisition transactions. Of
these acquisitions, 52 funeral homes, 29 cemeteries and the two insurance
companies were located in the United States. Included in these acquisitions is
the March 1996 purchase of 15 funeral homes, two cemeteries and two insurance
companies from S.I. for approximately $144 million. As a result of this
acquisition, the Company recorded approximately $186 million of insurance
invested assets and approximately $125 million of insurance policy liabilities.
During the three months ended March 31, 1995, the Company acquired 49 funeral
homes and 34 cemeteries for consideration of approximately $149 million.
As of May 3, 1996, the Company had signed agreements, some of which are
non-binding, for the acquisition of 59 additional funeral homes and 58
additional cemeteries aggregating approximately $196 million (the "Signed
Acquisitions"). The Company expects to close most of the Signed Acquisitions by
the end of the third quarter of 1996. In addition, as at May 3, 1996, the
Company was in the process of evaluating or negotiating prospective acquisitions
in competition with other potential purchasers. Several of such potential
acquisitions, one or more of which may be completed in 1996, would be considered
significant based on acquisition price. The Company is not able at this time to
determine the number or aggregate purchase price of the prospective acquisitions
to which the Company may become committed. The Company does not expect that all
such acquisitions will be completed during 1996, if at all. Failure by the
Company to consummate acquisitions may result in the payment of liquidated
damages or actions alleging breach of contract which, individually or in the
aggregate, may have a material adverse effect on the Company's financial
condition and prospects for future growth.
During the three months ended March 31, 1996, $2.1 million was invested in
the construction of new funeral homes and the development of cemetery properties
as compared to $2.3 million for the same period in
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<PAGE> 16
1995. In addition, during the three months ended March 31, 1996, the Company
expended $4.1 million on capital improvements as compared to $3.7 million for
the same period in 1995.
From time to time, the Company may dispose of non-core assets or businesses
acquired in conjunction with the acquisition of funeral homes and cemeteries. In
addition, the Company expects to continue to combine or sell a small number of
locations in order to utilize its resources to produce a better return from its
assets.
LIQUIDITY AND CAPITAL RESOURCES
The timing and certainty of completion of Signed Acquisitions and of future
acquisitions are based on many factors, including the availability of financing.
The Company will continue to finance acquisitions with a combination of debt and
equity offerings and credit facilities. The Company believes that it has
sufficient funding for all Signed Acquisitions scheduled to close prior to May
31, 1996 from the escrowed funds remaining from the 1996 Preferred Share
Offering (described below) and working capital. Funding for 1996 acquisitions
that close after May 31, 1996 will be provided primarily by the New Bank
Facility (described below) and, to a lesser extent by additional equity and debt
offerings and credit facilities. There can be no assurance that funds will be
available to complete all future acquisitions. Accordingly, there is no
assurance that the Company will complete any specific number or dollar amount of
acquisitions in a particular year.
The Company's statement of changes in financial position for the three
months ended March 31, 1996 reflects cash applied to operations of $157 million,
primarily as a result of legal settlements of $165 million recorded in 1995 but
funded in the first quarter of 1996. The Company believes that cash generated
from operations generally will be sufficient to meet working capital and
short-term liquidity requirements for current operations.
DEBT AND EQUITY OFFERINGS
In March 1996, Loewen Group International, Inc. ("LGII") consummated a
private placement of Senior Guaranteed Notes in the United States for gross
proceeds of $350 million (the "1996 Senior Note Offering"). Concurrently with
the 1996 Senior Note Offering, TLGI completed a public offering in Canada and a
simultaneous private placement in the United States of 7,000,000 Common Shares
and, in April 1996, sold an additional 700,000 Common Shares (pursuant to the
exercise of an over-allotment option) for aggregate gross proceeds of
approximately Cdn.$302 (U.S.$221) million (the "1996 Equity Offering").
In January 1996, TLGI completed a public offering (the "1996 Preferred
Share Offering") in Canada and a simultaneous private placement in the United
States of 8,800,000 Convertible First Preferred Shares Series C Receipts for
gross proceeds of Cdn.$220 (U.S.$161) million. The gross proceeds were deposited
with an escrow agent. The net proceeds will be released to the Company from time
to time by issuing and depositing with the escrow agent an equal dollar amount
of Series C Preferred Shares and used to fund acquisitions. As of May 3, 1996,
794,256 Series C Preferred Shares had been issued and approximately Cdn.$199
(U.S.$146) million had been released from escrow, leaving Cdn.$21 (U.S.$15)
million in escrow to fund future acquisitions.
The Company intends to fund interest payments and dividends on its
outstanding Common Shares and Series C Preferred Shares with cash flow from
operations.
NEW BANK FACILITY
On February 14, 1996, LGII signed a commitment letter with a Canadian bank
in respect of a new five-year $750 million secured revolving credit facility,
which is expected to close by May 31, 1996 (the "New Bank Facility"). Under the
terms of the New Bank Facility, LGII will be required to comply with certain
financial covenants, including without limitation, maintenance of net worth,
limitations on indebtedness, debt to cash flow ratios and fixed charges
coverage. In addition, the New Bank Facility is expected to be secured by, among
other things, a pledge for the benefit of the lenders under the New Bank
Facility of substantially all of the shares of the direct and indirect United
States and Canadian subsidiaries in which TLGI holds more than a 50% voting or
economic interest, and all of the material assets of LGII. The Company's senior
lenders will share the collateral to be pledged under the New Bank Facility on a
pari passu basis.
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<PAGE> 17
CREDIT FACILITIES AND CREDIT RATINGS
As a result of the Gulf National award (described in "Legal Proceedings"
below) and the Gulf National settlement (described in "Legal Proceedings"
below), the Company's ability to borrow further under its current credit
facilities is restricted. A number of waivers have been granted under the
current credit facilities. The waivers have principally been obtained in
connection with the Gulf National award and settlement. In February 1996, the
lenders under the Company's credit facilities granted waivers and amendments to
take into account the effect of the Gulf National and Provident settlements
(described in Legal Proceedings, below) on the Company's financial results for
the year ended December 31, 1995. The waivers and amendments of the
Multi-Currency Revolver (described below) and the MEIP Facility (described
below) also provide that the Company will grant security over all of the assets
of the Company by May 31, 1996 and the Company's consolidated debt shall be
limited to $1,100 million. However, the Company intends, prior to May 31, 1996,
to retire the Multi-Currency Revolver in full by drawing down on the New Bank
Facility and to enter into an amendment to the MEIP Facility modifying certain
covenants and providing for the same collateral as the New Bank Facility.
LGII has a $400 million unsecured multi-currency revolving credit facility
with a bank syndicate which matures in May 2000 (the "Multi-Currency Revolver").
LGII also had a $100 million 364-day unsecured multi-currency revolving credit
facility with the same syndicate of banks that matured on May 10, 1996. On March
20, 1996, the balance outstanding under the Multi-Currency Revolver was paid in
full with proceeds from the 1996 Equity Offering. LGII subsequently reborrowed
under the Multi-Currency Revolver and, as at May 3, 1996, LGII had an
outstanding balance of $95 million. No further borrowings are available under
the Multi-Currency Revolver without the consent of the lenders thereunder.
The Company has a Cdn.$50 million unsecured revolving credit facility which
matures in April 1997 (the "Canadian Revolver"). At May 3, 1996, the Company had
borrowed Cdn.$42.3 million under the Canadian Revolver. The lender has capped
the Canadian Revolver at Cdn.$45 million as a result of the Gulf National award
and settlement. A subsidiary of the Company has a $121.3 million secured term
credit facility implemented in connection with the 1994 Management Equity
Investment Plan that will terminate in July 2000 (the "MEIP Facility"). As at
May 3, 1996, the outstanding amount on the MEIP Facility was $116 million. No
further borrowings are available under the MEIP Facility. The Company has a
Cdn.$35 million five-year unsecured term credit facility with a bank syndicate
that will terminate in January 2000. LGII provided an unsecured guarantee of the
obligations under such credit facility. No further borrowings are available
under this facility.
Certain of the above loan agreements contain various restrictive
provisions, including restricting payment of dividends on Common and Preferred
Shares, limiting redemption or repurchase of shares, limiting disposition of
assets, limiting the amount of additional debt, limiting the amount of capital
expenditures and maintaining specified financial ratios.
The Company enters into derivative transactions with financial institutions
only as hedges of other financial transactions and not for speculative purposes.
The Company's policies do not allow leveraged transactions and are designed to
minimize credit and concentration risk with counter-parties. The Company's
practice is to use swaps and options to manage its exposure to interest rate
movements. Going forward, the Company's strategy is to maintain an average of
between 60% and 80% of its debt subject to fixed interest rates, although at any
point in time during a period the percentage of debt subject to fixed interest
rates may be higher or lower. The Company also uses futures and options to fix
the interest rate of anticipated financing transactions in advance. All
derivatives are entered into as hedges based on several criteria, including the
timing, size and term of the anticipated transaction. Any gain or loss from an
effective hedging transaction is deferred and amortized over the life of the
financing transaction as an adjustment to interest expense.
In March 1996, Duff & Phelps Credit Rating, Standard & Poor's Rating Group
and Moody's Investor Services assigned ratings to the 1996 Senior Notes of BBB,
BB+ and Bal, respectively, affirmed ratings of the Monthly Income Preferred
Securities ("MIPS") of BB, BB, and Ba3, respectively, and affirmed ratings of
the Series C Preferred Shares of BB, BB and not rated, respectively.
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<PAGE> 18
PART II
ITEM 1. LEGAL PROCEEDINGS.
GULF NATIONAL SETTLEMENT
In November 1995, a jury in the Circuit Court of the First Judicial
District of Hinds County, Mississippi, awarded J.J. O'Keefe, Sr., Gulf National
Insurance Company and certain affiliates (collectively, "Gulf National") $100
million in compensatory damages and $400 million in punitive damages (the "Gulf
National award") in a lawsuit against the Company, LGII and two indirect
subsidiaries (the "Company Defendants") in which Gulf National claimed breach of
contract and related torts in connection with its allegations that the Company
failed to consummate certain business transactions. The Company Defendants
appealed the Gulf National award. On January 24, 1996, the Mississippi Supreme
Court ruled that in order to stay execution of the Gulf National award pending
the appeal thereof, the Company Defendants would be required to post a
supersedeas bond with the Circuit Court in an amount equal to 125% of the
judgment, or $625 million.
On February 1, 1996, the Company Defendants and Gulf National executed a
settlement agreement pursuant to which, among other things, the parties agreed
to a full mutual release of all claims against each other, and the Company
Defendants agreed to deliver to Gulf National or its designees $50 million in
cash, 1.5 million Common Shares (the "Gulf National Settlement Shares") and a
promissory note in the amount of $80 million payable over 20 years in equal
annual installments of $4 million, without interest (the Gulf National
Settlement"). In connection with the issuance of the Gulf National Settlement
Shares, on February 9, 1996, the Company, LGII, Gulf National and various
individuals and law firms that represented Gulf National (collectively the
"Shareholders") entered into an agreement with respect to the Gulf National
Settlement Shares (the "Shareholders' Agreement"), pursuant to which, among
other things, TLGI agreed to file by September 1, 1996 a registration statement
relating to the Gulf National Settlement Shares with the Securities and Exchange
Commission (the "Commission") and to have such registration statement declared
effective by December 31, 1996. LGII also has agreed to pay to each Shareholder,
upon due notice ("Notice") a per share price guarantee amount in certain
circumstances. The per share price guarantee amount is equal to the amount, if
any, by which $30 exceeds the weighted average trading price of the Common
Shares for the five consecutive trading days preceding the date of Notice. LGII
may elect to pay the aggregate price guarantee in Common Shares or cash. Notice
may be delivered, and LGII is required to pay the price guarantee, only with
respect to a 30-day period commencing February 14, 1997 (the "Determination
Period"). LGII is relieved of its obligation to make such payment if during the
Determination Period the trading price of the Common Shares exceeds $30 for any
five consecutive trading days, provided that the registration statement has
become effective before the Determination Period or the Shareholders have
otherwise had an opportunity to sell their Gulf National Settlement Shares
during the Determination Period. The Shareholders have granted to TLGI or its
assignee a right of first refusal with respect to the Gulf National Settlement
Shares and have agreed, until February 9, 1998, to vote the Gulf National
Settlement Shares in accordance with the recommendations of the Board of
Directors of TLGI. The right of first refusal does not apply in respect of any
offers and sales at prices of $30 or more per Common Share during the
Determination Period.
PROVIDENT SETTLEMENT
In April 1992, Provident American Corporation and a subsidiary (together,
"Provident") filed a lawsuit against TLGI and LGII in the United States District
Court for the Eastern District of Pennsylvania alleging breach of contract and
related tort claims arising out of terminated negotiations concerning a possible
pre-need funeral insurance marketing arrangement. The complaint requested
compensatory damages in excess of $58.8 million and unspecified punitive
damages, based on allegations that the loss of the Company's pre-need business
had deprived the plaintiffs of aggregate future profits of approximately $58.8
million to $132 million.
On February 12, 1996, Provident, TLGI and LGII agreed to settle the
litigation. On March 19, 1996 the parties entered into a settlement providing
for a full mutual release from all claims against each other, and TLGI and LGII
delivered one million Common Shares (the "Provident Settlement Shares") and $3
million
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<PAGE> 19
in cash (together with the Provident Settlement Shares, the "Provident
settlement") to Provident and certain designees. TLGI agreed to file a
registration statement relating to the Provident Settlement Shares with the
Commission by June 30, 1996. LGII agreed to pay to Provident for each Provident
Settlement Share, in cash or Common Shares, at LGII's election, the amount, if
any, by which $27 exceeds the weighted average trading price of the Common
Shares during the five consecutive trading days ending on the day before the
registration statement is declared effective.
SHAREHOLDER SUITS
On November 4, 1995, a class action lawsuit claiming violations of Federal
securities laws was filed on behalf of a class of purchasers of Company
securities against TLGI and five officers (four of whom are directors) in the
United States District Court for the Eastern District of Pennsylvania. LGII,
Loewen Group Capital, L.P. ("LGCLP") and the lead underwriters of the MIPS
offering were subsequently added as defendants. The underwriters have indicated
they will seek indemnity from the Company. On November 7, 1995, a class action
lawsuit was filed on behalf of a class of purchasers of Common Shares against
TLGI and the same individual defendants in the United States District Court for
the Southern District of Mississippi alleging Federal securities law violations
and related common law claims. On December 1, 1995, a class action lawsuit was
filed on behalf of a class of purchasers of the Company's securities against
TLGI, LGII, LGCLP and the same individual defendants in the United States
District Court for the Eastern District of Pennsylvania. All suits
(collectively, the "Shareholder Suits") allege that the defendants failed to
disclose the Company's anticipated liability in connection with the Gulf
National litigation and the Pennsylvania Shareholder Suits allege failure to
disclose the potential liability in connection with the Provident litigation. In
each of the foregoing claims, the plaintiffs seek compensatory money damages in
an unspecified amount, together with attorneys fees, expert fees and other costs
and disbursements and in addition, the November 7 action seeks unspecified
punitive damages. The longest class period specified is from April 16, 1993 to
November 1, 1995. Pursuant to a Transfer Order filed April 15, 1996 by the
Judicial Panel on Multidistrict Litigation, the Mississippi Shareholder Suit was
transferred to the Eastern District of Pennsylvania for consolidation of
pretrial proceedings with the two Pennsylvania Shareholder Suits. The Company
referred the claims to its insurance carrier under its directors and officers
insurance policy. On February 9, 1996 the carrier denied coverage of the claim.
The Company believes that such denial was improper. On March 21, 1996, the
Company commenced an action in British Columbia Supreme Court seeking a
declaration that the policy covers indemnification with respect to the
Shareholder Suits. The Company cannot predict at this time the extent to which
any settlement or litigation that may result from these claims will ultimately
be covered by insurance, if at all. The Company has determined that it is not
possible to predict the final outcome of these legal proceedings and that it is
not possible to establish a reasonable estimate of possible damages, if any, or
reasonably to estimate the range of possible damages that may be awarded to the
plaintiffs. Accordingly, no provision has been made in the Company's financial
statements.
ROE, ET AL., PALLADINO ET AL. AND O'SULLIVAN
In October 1995, Roe and 22 other families filed a lawsuit against LGII and
Osiris in Florida Circuit Court in St. Petersburg. The complaint, as amended,
now includes a total of 62 families. Plaintiffs allege that in July 1992,
employees of the Royal Palm Cemetery facility who were installing a sprinkler
line disturbed the remains of infants in one section of the cemetery. Each
plaintiff in Roe is seeking damages in excess of $15,000, but counsel for the
plaintiffs in Roe has publicly stated that the claims will aggregate to $1
million per family ($62 million based on the current plaintiffs). In early April
1996, a related lawsuit, Palladino et al., was filed by eight families against
LGII and Osiris in Florida Circuit Court in St. Petersburg, and was assigned to
the same judge handling the Roe matter, and in early May 1996, Sean M.
O'Sullivan filed a lawsuit against Osiris and LGII. The factual allegations
underlying the O'Sullivan complaint and the Palladino complaint, which was filed
as a class action lawsuit, are identical to those in Roe. The Company is in the
process of determining whether to agree to or oppose the certification of a
class in Palladino.
At the time the remains allegedly were disturbed, the Royal Palm Cemetery
was owned by Osiris. Osiris was acquired by the Company in March 1995. The
insurance carrier for Osiris has assumed the defense of
-19-
<PAGE> 20
these claims, subject to a reservation of rights. The policy limit is $11
million. No provision with respect to these lawsuits have been made in the
Company's financial statements.
ROJAS ET AL.
On February 22, 1995, Juan Rivera Rojas, Leyda Rivera Vega, the Conjugal
Partnership constituted between them, and Carlos Rivera Bustamente instituted a
legal action against the Company, LGII and a subsidiary in the United States
District Court for the District of Puerto Rico. The complaint alleges that the
defendants breached a contract and ancillary agreements with the plaintiffs
relating to the purchase of funeral homes and cemeteries, and committed related
torts. The plaintiffs seek compensatory damages of $12.5 million, and
unspecified punitive damages (although the Company is advised by counsel that
there is no entitlement to punitive damages under Puerto Rican law). The Company
has filed a motion to dismiss the complaint on the grounds of failure to join an
indispensable party. In addition, the Company claims it has suffered damages far
in excess of the amount claimed by the plaintiffs as a result of breach of
contract and related torts on the part of the plaintiffs. A subsidiary of the
Company has filed a complaint seeking damages in excess of $19 million from the
plaintiffs in the General Court of Justice of the Commonwealth of Puerto Rico.
The Company has determined that it is not possible to predict the final outcome
of these legal proceedings and that it is not possible to establish a reasonable
estimate of possible damages, if any, or reasonably to estimate the range of
possible damages that may be awarded to the plaintiffs. Accordingly, no
provision has been made in the Company's financial statements.
ESNER ESTATE
As described in the Company's previous periodic reports, on February 1,
1995, Stuart B. Esner and Sandra Esner (the "Executors") as co-executors for the
Estate of Gerald F. Esner (the "Esner Estate") filed an action in the Court of
Common Pleas in Bucks County, Pennsylvania against Osiris and a law firm that
previously represented Osiris and its principal shareholders, Gerald F. Esner,
Lawrence Miller and William R. Shane. Messrs. Miller and Shane currently are
executive officers of the Company and LGII. The complaint alleged that Osiris
breached the terms of a Second Amended and Restated Shareholders' Agreement
among Messrs. Esner, Miller and Shane (the "Shareholders' Agreement") by
attempting to repurchase shares of Osiris held by the Esner Estate (the "Esner
Shares") without complying with the terms of the Shareholders' Agreement, and
that the law firm breached its fiduciary duty and committed malpractice in
connection with the drafting of the Shareholders' Agreement and its
representation of Esner and Osiris. The Executors asked the Court (i) to have
the value of Osiris reappraised pursuant to the terms of the Shareholders'
Agreement and (ii) to require Osiris to repurchase the Esner Shares pursuant to
a new appraisal and the alleged terms of the Shareholders' Agreement or,
alternatively, to pay the Esner Estate the fair value of the Esner Shares as
determined by the new appraisal.
On March 17, 1995, LGII purchased all of the issued and outstanding shares
of Osiris, including the Esner Shares. In connection with the purchase, LGII
entered into an indemnification agreement whereby Messrs. Miller and Shane
agreed to indemnify and hold LGII harmless with respect to any claims,
liabilities, losses and expenses, including reasonable attorneys' fees, in
connection with or arising from the Esner Estate litigation.
On April 9, 1996, the Executors filed a second complaint, which names
Messrs. Miller and Shane and LGII as defendants. The second complaint alleges
breach of contract, fraud and related claims against Messrs. Miller and Shane,
and that LGII joined in a civil conspiracy by acquiring Osiris. The Executors
request compensatory damages of $24.3 million against the various defendants,
and seek punitive damages from Messrs. Miller and Shane. A motion for
consolidation of the two cases is pending.
No provision with respect to these lawsuits have been made in the Company's
financial statements.
-20-
<PAGE> 21
OTHER
The Company is a party to other legal proceedings in the ordinary course of
its business but does not expect the outcome of any such proceedings to have a
material adverse affect on the Company's financial condition.
ITEM 5. OTHER INFORMATION.
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
Management has established a 1996 EPS goal of $1.30-$1.40. The foregoing
statement and certain other statements made in this Form 10-Q, in other filings
made with the Commission, and elsewhere (including oral statements made on
behalf of the Company) are forward-looking statements within the meaning of
Section 27A(i) of the Securities Act of 1933, as amended, and Section 21E(i) of
the Securities Exchange Act of 1934, as amended. Shareholders and potential
investors are hereby cautioned that certain events or circumstances could cause
actual results to differ materially from those estimated, projected or
predicted. In addition, forward-looking statements are based on management's
knowledge and judgment as of the date that such statements are made. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
The following important factors, among others, could cause the Company's
EPS and other future results to differ materially from estimates, predictions or
projections included in forward-looking statements.
1. Acquisition Levels. The death care industry acquisition market is
extremely competitive. The Company's competition for acquisitions includes
Service Corporation International and Stewart Enterprises, Inc., both of which
are publicly-traded companies with significant United States operations.
Aggressive pricing by the Company's competitors, particularly for strategic
operations, may result in increased acquisition costs. The timing and certainty
of completion of potential acquisitions are based on many factors, including the
availability of financing. There can be no assurance that funds will be
available to complete all future acquisitions, and there can be no assurance
that the Company will complete any specific number of dollar amount or
acquisitions in a particular year.
2. Revenue. The most significant component of increases in revenue is the
level of acquisitions, discussed above. In addition, revenue is affected by the
volume of services rendered, and the mix and pricing of services and products
sold. The foregoing may be affected by fluctuations in the number of deaths,
competitive pricing strategies, pre-arranged sales and other sales programs
implemented by the Company.
3. General and Administrative Expenses. General and administrative
expenses were 8.6% of consolidated revenue for the first three months of 1996.
Management's goal is that general and administrative expenses for the 1996
fiscal year will be 8.2% of consolidated revenue. While the Company has
implemented various cost control measures, no assurances can be made that such
measures will be successful.
4. Legal Proceedings. The Company's 1995 results were materially and
adversely affected by the unanticipated outcome of certain legal proceedings.
There currently are material legal proceedings pending against the Company. The
Company is unable to predict the outcome of such proceedings at this time.
5. Other. EPS and consolidated financial results also may be affected by
(i) the ability of the Company to manage its growth by implementing appropriate
management and administrative support structures, (ii) margins achieved by
newly-acquired and established operations, (iii) the cost of the Company's
financing arrangements (including interest rates on long-term debt), (iv) the
number of Common Shares outstanding, (v) competition, (vi) the Company's
effective tax rate, (vii) the accounting treatment of acquisitions and the
valuation of assets and (viii) changes in applicable accounting principles and
governmental regulations.
-21-
<PAGE> 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------
<C> <S>
4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES
4.1 Indenture, dated as of March 20, 1996, by and between Loewen Group International,
Inc. ("LGII"), the Registrant, as guarantor of the obligations of LGII under the
Indenture, and Fleet National Bank of Connecticut, as Trustee, with respect to
7 1/4% Series 1 Senior Guaranteed Notes due 2001 and 8 1/8% Series 2 Senior
Guaranteed Notes due 2003(5)
4.2 Purchase Agreement, dated as of March 13, 1996, by and between LGII, the
Registrant and the Initial Purchasers(6)
4.3 Receipt Agreement, dated as of January 3, 1996, for the Cumulative Redeemable
Convertible First Preferred Shares Series C of the Registrant(5)
4.4 Shareholder Protection Rights Plan, dated as of April 20, 1990, as amended on May
24, 1990 and April 7, 1994 and reconfirmed on May 17, 1995(2)
4.5 Amended and Restated Multi-currency Credit Agreement, dated as of May 11, 1995, by
and between LGII, as borrower, the Registrant, as guarantor, the banks named
therein as lenders and The First National Bank of Chicago, as agent for the banks
named therein as lenders(3)
4.6 Multi-currency Credit Agreement, dated as of May 11, 1995, by and between LGII, as
borrower, the Registrant, as guarantor, the banks named therein as lenders and The
First National Bank of Chicago, as agent for the banks named therein as lenders(3)
4.7 Zero Coupon Loan Agreement, dated as of November 1, 1994, by and between WLSP
Investment Parmers I, Neweol Finance B.V., Electrolux Holdings B.V., Man Producten
Rotterdam B.V., Adinvest A.G., and Wachovia Bank of Georgia, N.A.(2)
4.8 Monthly Income Preferred Securities Guarantee Agreement, dated August 15, 1994(1)
4.9 Indenture, dated as of August 15, 1994, by and between LGII, as issuer, the
Registrant, as guarantor, and State Street Bank and Trust Company, as trustee with
respect to 9.45% Junior Subordinated Debentures, Series A, due 2024, issued by
LGII and guaranteed by the Registrant(1)
4.10 Exchange Acknowledgment by the Registrant, with respect to the 1994 Exchangeable
Floating Rate Debentures due July 15, 2001 issued by LGII, dated June 15, 1994(2)
4.11 1994 Management Equity Investment Plan ("MEIP") Credit Agreement, dated as of June
14, 1994, by and between Loewen Management Investment Corporation, in its capacity
as agent for LGII ("LMIC"), the Registrant and the banks listed therein (the "MEIP
Banks") and Wachovia Bank of Georgia, N.A., as agent for the MEIP Banks ("MEIP
Agent")(2)
4.12 Guaranty dated as of June 14, 1994 by the Registrant in favor of the MEIP Agent
for the ratable benefit of the MEIP Banks(2)
4.13 Guaranty dated as of June 14, 1994 by LGII in favor of the MEIP Agent for the
ratable benefit of the MEIP Banks(2)
4.14 Security Agreement, dated as of June 14, 1994, by and between LMIC and the MEIP
Agent(2)
4.15 Note Agreement, dated for reference September 1, 1993, by and between the
Registrant and LGII re 9.62% Senior Guaranteed Notes, Series D, due September 11,
2003, issued by Loewen ("Series D Notes"), as amended on June 10, 1994(2)
4.16 Note Agreement by LGII and the Registrant re 6.49% Senior Guaranteed Notes, Series
E, due February 25, 2004, issued by LGII ("Series E Notes"), dated for reference
February 1, 1994(2)
</TABLE>
-22-
<PAGE> 23
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------
<C> <S>
4.17 Guaranty Agreement by the Registrant re Series E Notes, dated for reference
February 1, 1994(2)
4.18 Guaranty Agreement by LGII re Series D Notes, dated for reference April 1, 1993(2)
4.19 Note Agreement by the Registrant and LGII re 9.70% Senior Guaranteed Notes, Series
A, due November 1, 1998, issued by LGII ("Series A Notes"), 9.93% Senior
Guaranteed Notes, Series B, due November 1, 2001, issued by LGII ("Series B
Notes"), and 9.70 Senior Guaranteed Notes, Series C, due November 1, 1998, issued
the Registrant ("Series C Notes"), dated for reference October 1, 1991(2)
4.20 Guaranty Agreement by the Registrant re Series A Notes and Series B Notes, dated
for reference October 1, 1991(2)
4.21 Guaranty Agreement by LGII re Series C Notes, dated for reference October 1,
1991(2)
4.22 Form of Senior Guarantee of the Notes (included in Exhibit 4.1)(6)
4.23 Form of Global Outstanding Note (included in Exhibit 4.1)(6)
4.24 Form of Physical Outstanding Note (included in Exhibit 4.1)(6)
4.25 Form of Global Exchange Note(6)
4.26 Form of Physical Exchange Note(6)
4.27 The Registrant and LGII hereby agrees to furnish to the Commission, upon request,
a copy of the instruments which define the rights of holders of long-term debt of
the Company. None of such instruments not included as exhibits herein collectively
represents long-term debt in excess of 10% of the consolidated total assets of the
Company.
10 MATERIAL CONTRACTS
10.1 Asset Purchase Agreement, dated as of March 26, 1996, by and between Loewen
Louisiana Holdings, Inc. and S.I. Acquisition Associates, L.P.(5)
10.2 Asset Purchase Agreement, dated as of March 26, 1996, by and between LLI, Inc.,
and LLPC, Inc. and S.I. Acquisition Associates, L.P.(5)
10.3 Settlement Agreement and Mutual General Release effective as of February 12, 1996,
entered into on March 19, 1996, by and between Provident American Corporation,
Provident Indemnity Life Insurance Company, the Registrant and LGII(5)
10.4 Settlement Agreement, dated as of February 1, 1996, by and between the Registrant,
LGII and affiliated entities and J.J. O'Keefe, Sr., Gulf National Life Insurance
Company and affiliated entities(5)
10.5 Shareholders' Agreement, dated as of February 9, 1996, by and between the
Registrant, LGII, J.J. O'Keefe, Sr., Gulf National Life Insurance Company and
affiliated entities, and certain individuals and law firms named therein(5)
10.6 Undertaking by Raymond L. Loewen and Anne Loewen, dated as of January 3, 1996(5)
10.7 Registration Rights Agreement, dated as of March 20, 1996, by and between LGII,
the Registrant and the Initial Purchasers named therein(5)
10.8 Stock Purchase Agreement, dated as of March 16, 1995, by and between Osiris
Holding Corporation and LGII(4)
*10.9 Employee Stock Option Plan (United States), as restated and amended as at
September 19, 1995(5)
*10.10 Employee Stock Option Plan (Canada), as restated and amended as at September 19,
1995(5)
*10.11 1994 Outside Director Compensation Plan as amended as on April 7, 1995(5)
*10.12 1994 Management Equity Investment Plan(2)
</TABLE>
-23-
<PAGE> 24
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------
<C> <S>
*10.13 Form of Executive Agreement executed by participants in the MEIP(2)
*10.14 Employment Agreement, dated October 9, 1991, by and between the Registrant and
Timothy A. Birch(2)
*10.15 Employment Agreement, dated March 21, 1990, by and between the Registrant and
David FitzSimmons(2)
*10.16 Employment Agreement, dated April 12, 1991, by and between the Registrant and
Dwight Hawes(2)
*10.17 Employment Agreement, dated August 19, 1988, by and between the Registrant and Tim
Hogenkamp(2)
*10.18 Employment Agreement, dated March 6, 1990, by and between the Registrant and Peter
S. Hyndman(2)
*10.19 Employment Agreement, dated March 17, 1995, by and between the Registrant, LGII
and Lawrence Miller(2)
*10.20 Employment Agreement, dated December 18, 1990, by and between the Registrant and
Peter W. Roberts(2)
*10.21 Employment Agreement, dated March 17, 1995, by and between the Registrant and
William R. Shane(2)
*10.22 Employment Agreement, dated April 27, 1993, by and between the Registrant and A.M.
Bruce Watson(2)
*10.23 Employment Agreement, and Covenant Not to Compete, dated November 14, 1990, by and
between LGII and Albert S. Lineberry, Sr.(2)
*10.24 Consulting Agreement, dated July 18, 1994, by and between the Registrant and
Charles B. Loewen, LGII and Corporate Services International Inc.(2)
*10.25 Employment Agreement, dated December 15, 1994, by and between the Registrant and
Robert O. Wienke(5)
*10.26 Severance Agreement, dated June 15, 1995, by and between the Registrant and Robert
Garnett(5)
11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
27 FINANCIAL DATA SCHEDULE
</TABLE>
- ---------------
<TABLE>
<C> <S>
* Compensatory plan or management contract
(1) Incorporated by reference from the combined form F-9/F-3 Registration Statements filed
by the Registrant and LGII, respectively, (Nos. 33-81032 and 33-81034) with the
Commission on July 1, 1994, as amended on July 11, 1994 and August 2, 1994
(2) Incorporated by reference from the Registrant's Annual Report on Form 10-K for the year
ended December 31, 194, filed on March 31, 1995
(3) Incorporated by reference from the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995, filed on May 11, 1995
(4) Incorporated by reference from the Registrant's Periodic Report on Form 8-K filed on
April 18, 1995
(5) Incorporated by reference from the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995, filed on March 28, 1996
(6) Incorporated by reference from the Form S-4 Registration Statement filed by LGII and the
Registrant (Nos. 333-03135 and 333-03135-01, respectively) with the Commission on May 3,
1996
</TABLE>
-24-
<PAGE> 25
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONT.)
(b) Reports on Form 8-K
The following Current Reports on Form 8-K were filed by the Registrant
during the subject quarter:
<TABLE>
<CAPTION>
DATE OF REPORT ITEM NUMBER DESCRIPTION
- ------------------ --------------------- ------------------------------------------------
<S> <C> <C>
January 3, 1996 Item 5. Other Events Press release regarding the Registrant's
completion of Canadian public offering
January 17, 1996 Item 5. Other Events Press release regarding the exercise of
over-allotment option for the Canadian public
offering
January 24, 1996 Item 5. Other Events Press release regarding the Mississippi Supreme
Court lifting the interim stay on the Gulf
National award.
January 26, 1996 Item 5. Other Events 1) Press release regarding the Registrant's
discussion on bond requirements
2) Press release regarding the reaching of a
settlement in the Gulf National litigation
February 6, 1996 Item 5. Other Events Press release regarding cash dividend
February 12, 1996 Item 5. Other Events Press release regarding the settlement of the
Provident American litigation
February 27, 1996 Item 5. Other Events Press release regarding 1995 financial results
March 4, 1996 Item 5. Other Events Press release announcing the Registrant's
financing plans
March 13, 1996 Item 5. Other Events 1) Press release regarding the $350 million debt
offering
2) Press release regarding the public offering
of 7,000,000 common shares
March 20, 1996 Item 5. Other Events Press release regarding the completion of the
debt and common share offerings for gross
proceeds of approximately $550 million
March 26, 1996 Item 2. Acquisition Press release describing the Registrant's
or Disposition of acquisition of certain assets of S.I.
Assets Acquisition Associates, L.P.
</TABLE>
-25-
<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE LOEWEN GROUP INC.
By: /s/ DWIGHT K. HAWES
-----------------------------------
Name: Dwight K. Hawes
Date: May 15, 1996 Title: Vice-President, Finance
By: /s/ PETER W. ROBERTS
------------------------------------
Name: Peter W. Roberts
Date: May 15, 1996 Title: Vice-President, Financial
Information
Services and Corporate Controller
(Chief Accounting Officer)
-26-
<PAGE> 27
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. EXHIBIT PAGE NUMBER
- ----------- ---------------------------------------------------------------
<S> <C> <C>
4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES
4.1 Indenture, dated as of March 20, 1996, by and between Loewen
Group International, Inc. ("LGII"), the Registrant, as
guarantor of the obligations of LGII under the Indenture, and
Fleet National Bank of Connecticut, as Trustee, with respect to
7 1/4% Series 1 Senior Guaranteed Notes due 2001 and 8 1/8%
Series 2 Senior Guaranteed Notes due 2003(5) --
4.2 Purchase Agreement, dated as of March 13, 1996, by and between
LGII, the Registrant and the Initial Purchasers(6) --
4.3 Receipt Agreement, dated as of January 3, 1996, for the
Cumulative Redeemable Convertible First Preferred Shares Series
C of the Registrant(5) --
4.4 Shareholder Protection Rights Plan, dated as of April 20, 1990,
as amended on May 24, 1990 and April 7, 1994 and reconfirmed on
May 17, 1995(2) --
4.5 Amended and Restated Multi-currency Credit Agreement, dated as
of May 11, 1995, by and between LGII, as borrower, the
Registrant, as guarantor, the banks named therein as lenders
and The First National Bank of Chicago, as agent for the banks
named therein as lenders(3) --
4.6 Multi-currency Credit Agreement, dated as of May 11, 1995, by
and between LGII, as borrower, the Registrant, as guarantor,
the banks named therein as lenders and The First National Bank
of Chicago, as agent for the banks named therein as lenders(3) --
4.7 Zero Coupon Loan Agreement, dated as of November 1, 1994, by
and between WLSP Investment Parmers I, Neweol Finance B.V.,
Electrolux Holdings B.V., Man Producten Rotterdam B.V.,
Adinvest A.G., and Wachovia Bank of Georgia, N.A.(2) --
4.8 Monthly Income Preferred Securities Guarantee Agreement, dated
August 15, 1994(1) --
4.9 Indenture, dated as of August 15, 1994, by and between LGII, as
issuer, the Registrant, as guarantor, and State Street Bank and
Trust Company, as trustee with respect to 9.45% Junior
Subordinated Debentures, Series A, due 2024, issued by LGII and
guaranteed by the Registrant(1) --
4.10 Exchange Acknowledgment by the Registrant, with respect to the
1994 Exchangeable Floating Rate Debentures due July 15, 2001
issued by LGII, dated June 15, 1994(2) --
4.11 1994 Management Equity Investment Plan ("MEIP") Credit
Agreement, dated as of June 14, 1994, by and between Loewen
Management Investment Corporation, in its capacity as agent for
LGII ("LMIC"), the Registrant and the banks listed therein (the
"MEIP Banks") and Wachovia Bank of Georgia, N.A., as agent for
the MEIP Banks ("MEIP Agent")(2) --
4.12 Guaranty dated as of June 14, 1994 by the Registrant in favor
of the MEIP Agent for the ratable benefit of the MEIP Banks(2) --
4.13 Guaranty dated as of June 14, 1994 by LGII in favor of the MEIP
Agent for the ratable benefit of the MEIP Banks(2) --
</TABLE>
<PAGE> 28
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. EXHIBIT PAGE NUMBER
- ----------- ---------------------------------------------------------------
<S> <C> <C>
4.14 Security Agreement, dated as of June 14, 1994, by and between
LMIC and the MEIP Agent(2) --
4.15 Note Agreement, dated for reference September 1, 1993, by and
between the Registrant and LGII re 9.62% Senior Guaranteed
Notes, Series D, due September 11, 2003, issued by Loewen
("Series D Notes"), as amended on June 10, 1994(2) --
4.16 Note Agreement by LGII and the Registrant re 6.49% Senior
Guaranteed Notes, Series E, due February 25, 2004, issued by
LGII ("Series E Notes"), dated for reference February 1,
1994(2) --
4.17 Guaranty Agreement by the Registrant re Series E Notes, dated
for reference February 1, 1994(2) --
4.18 Guaranty Agreement by LGII re Series D Notes, dated for
reference April 1, 1993(2) --
4.19 Note Agreement by the Registrant and LGII re 9.70% Senior
Guaranteed Notes, Series A, due November 1, 1998, issued by
LGII ("Series A Notes"), 9.93% Senior Guaranteed Notes, Series
B, due November 1, 2001, issued by LGII ("Series B Notes"), and
9.70 Senior Guaranteed Notes, Series C, due November 1, 1998,
issued the Registrant ("Series C Notes"), dated for reference
October 1, 1991(2) --
4.20 Guaranty Agreement by the Registrant re Series A Notes and
Series B Notes, dated for reference October 1, 1991(2) --
4.21 Guaranty Agreement by LGII re Series C Notes, dated for
reference October 1, 1991(2) --
4.22 Form of Senior Guarantee of the Notes (included in Exhibit
4.1)(6) --
4.23 Form of Global Outstanding Note (included in Exhibit 4.1)(6) --
4.24 Form of Physical Outstanding Note (included in Exhibit 4.1)(6) --
4.25 Form of Global Exchange Note(6) --
4.26 Form of Physical Exchange Note(6) --
4.27 The Registrant and LGII hereby agrees to furnish to the
Commission, upon request, a copy of the instruments which
define the rights of holders of long-term debt of the Company.
None of such instruments not included as exhibits herein
collectively represents long-term debt in excess of 10% of the
consolidated total assets of the Company.
10 MATERIAL CONTRACTS
10.1 Asset Purchase Agreement, dated as of March 26, 1996, by and
between Loewen Louisiana Holdings, Inc. and S.I. Acquisition
Associates, L.P.(5) --
10.2 Asset Purchase Agreement, dated as of March 26, 1996, by and
between LLI, Inc., and LLPC, Inc. and S.I. Acquisition
Associates, L.P.(5) --
10.3 Settlement Agreement and Mutual General Release effective as of
February 12, 1996, entered into on March 19, 1996, by and
between Provident American Corporation, Provident Indemnity
Life Insurance Company, the Registrant and LGII(5) --
10.4 Settlement Agreement, dated as of February 1, 1996, by and
between the Registrant, LGII and affiliated entities and J.J.
O'Keefe, Sr., Gulf National Life Insurance Company and
affiliated entities(5) --
</TABLE>
<PAGE> 29
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. EXHIBIT PAGE NUMBER
- ----------- ---------------------------------------------------------------
<S> <C> <C>
10.5 Shareholders' Agreement, dated as of February 9, 1996, by and
between the Registrant, LGII, J.J. O'Keefe, Sr., Gulf National
Life Insurance Company and affiliated entities, and certain
individuals and law firms named therein(5) --
10.6 Undertaking by Raymond L. Loewen and Anne Loewen, dated as of
January 3, 1996(5) --
10.7 Registration Rights Agreement, dated as of March 20, 1996, by
and between LGII, the Registrant and the Initial Purchasers
named therein(5) --
10.8 Stock Purchase Agreement, dated as of March 16, 1995, by and
between Osiris Holding Corporation and LGII(4) --
* 10.9 Employee Stock Option Plan (United States), as restated and
amended as at September 19, 1995(5) --
* 10.10 Employee Stock Option Plan (Canada), as restated and amended as
at September 19, 1995(5) --
* 10.11 1994 Outside Director Compensation Plan as amended as on April
7, 1995(5) --
* 10.12 1994 Management Equity Investment Plan(2) --
* 10.13 Form of Executive Agreement executed by participants in the
MEIP(2) --
* 10.14 Employment Agreement, dated October 9, 1991, by and between the
Registrant and Timothy A. Birch(2) --
* 10.15 Employment Agreement, dated March 21, 1990, by and between the
Registrant and David FitzSimmons(2) --
* 10.16 Employment Agreement, dated April 12, 1991, by and between the
Registrant and Dwight Hawes(2) --
* 10.17 Employment Agreement, dated August 19, 1988, by and between the
Registrant and Tim Hogenkamp(2) --
* 10.18 Employment Agreement, dated March 6, 1990, by and between the
Registrant and Peter S. Hyndman(2) --
* 10.19 Employment Agreement, dated March 17, 1995, by and between the
Registrant, LGII and Lawrence Miller(2) --
* 10.20 Employment Agreement, dated December 18, 1990, by and between
the Registrant and Peter W. Roberts(2) --
* 10.21 Employment Agreement, dated March 17, 1995, by and between the
Registrant and William R. Shane(2) --
* 10.22 Employment Agreement, dated April 27, 1993, by and between the
Registrant and A.M. Bruce Watson(2) --
* 10.23 Employment Agreement, and Covenant Not to Compete, dated
November 14, 1990, by and between LGII and Albert S. Lineberry,
Sr.(2) --
* 10.24 Consulting Agreement, dated July 18, 1994, by and between the
Registrant and Charles B. Loewen, LGII and Corporate Services
International Inc.(2) --
* 10.25 Employment Agreement, dated December 15, 1994, by and between
the Registrant and Robert O. Wienke(5) --
* 10.26 Severance Agreement, dated June 15, 1995, by and between the
Registrant and Robert Garnett(5) --
</TABLE>
<PAGE> 30
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. EXHIBIT PAGE NUMBER
- ----------- ---------------------------------------------------------------
<S> <C> <C>
11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
27 FINANCIAL DATA SCHEDULE
</TABLE>
- ---------------
<TABLE>
<C> <S>
* Compensatory plan or management contract
(1) Incorporated by reference from the combined form F-9/F-3 Registration Statements filed
by the Registrant and LGII, respectively, (Nos. 33-81032 and 33-81034) with the
Commission on July 1, 1994, as amended on July 11, 1994 and August 2, 1994
(2) Incorporated by reference from the Registrant's Annual Report on Form 10-K for the year
ended December 31, 194, filed on March 31, 1995
(3) Incorporated by reference from the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995, filed on May 11, 1995
(4) Incorporated by reference from the Registrant's Periodic Report on Form 8-K filed on
April 18, 1995
(5) Incorporated by reference from the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995, filed on March 28, 1996
(6) Incorporated by reference from the Form S-4 Registration Statement filed by LGII and the
Registrant (Nos. 333-03135 and 333-03135-01, respectively) with the Commission on May 3,
1996
</TABLE>
<PAGE> 1
EXHIBIT 11
THE LOEWEN GROUP INC.
COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS OF U.S. DOLLARS EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1996 1995
------- -------
<S> <C> <C>
(UNAUDITED)
Basic
Net earnings........................................................... $17,223 $14,057
Undeclared cumulative preferred share dividends........................ 1,974 --
------- -------
Net earnings available to Common shareholders.......................... $15,249 $14,057
Weighted average shares outstanding.................................... 50,203 41,111
Basic earnings per share............................................... $ 0.30 $ 0.34
------- -------
Fully diluted
Net earnings available to Common shareholders.......................... $15,249 $14,057
Add: imputed earnings from dilutive options, net of tax effect......... 207 1,930
------- -------
Fully diluted net earnings............................................. $15,456 $15,987
------- -------
Weighted average shares outstanding.................................... 50,203 41,111
Shares issuable upon assumed conversion of dilutive options............ 1,044 6,470
------- -------
Fully diluted shares................................................... 51,247 47,581
------- -------
Fully diluted earnings per share....................................... $ 0.30 $ 0.34
------- -------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS CERTAIN SUMMARY INFORMATION THAT IS DERIVED FROM THE
LOEWEN GROUP INC. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE
MONTHS ENDED MARCH 31, 1996, INCLUDED HEREIN AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 32,608
<SECURITIES> 0
<RECEIVABLES> 150,374
<ALLOWANCES> 17,422
<INVENTORY> 28,627
<CURRENT-ASSETS> 205,624
<PP&E> 691,657
<DEPRECIATION> 86,413
<TOTAL-ASSETS> 2,705,660
<CURRENT-LIABILITIES> 177,613
<BONDS> 912,067
<COMMON> 769,008
75,000
87,882
<OTHER-SE> 66,906
<TOTAL-LIABILITY-AND-EQUITY> 2,705,660
<SALES> 193,084
<TOTAL-REVENUES> 193,084
<CGS> 119,541
<TOTAL-COSTS> 119,541
<OTHER-EXPENSES> 28,322
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,488
<INCOME-PRETAX> 24,961
<INCOME-TAX> 7,738
<INCOME-CONTINUING> 17,223
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,223
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.30
</TABLE>
