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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K / A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
OR
[_]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
COMMISSION FILE NUMBER 0-18429
THE LOEWEN GROUP INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
BRITISH COLUMBIA 98-0121376
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION IDENTIFICATION NO.)
4126 NORLAND AVENUE V5G 3S8
BURNABY, BRITISH COLUMBIA, CANADA (POSTAL CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
604-299-9321
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
LOEWEN GROUP CAPITAL, L.P. NEW YORK STOCK EXCHANGE
9.45% CUMULATIVE MONTHLY INCOME (NAME OF EACH EXCHANGE ON WHICH
PREFERRED SECURITIES, SERIES A, REGISTERED)
GUARANTEED BY THE LOEWEN GROUP INC.
(TITLE OF CLASS)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON SHARES WITHOUT PAR VALUE
(TITLE OF CLASS)
Indicate by check mark 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of Common shares held by non-affiliates of the
registrant was approximately U.S.$1,170,000,000 as of March 15, 1996.
The number of outstanding Common shares as of March 15, 1996, was
50,046,035.
DOCUMENTS INCORPORATED BY REFERENCE
Specified sections of the registrant's definitive Proxy Statement and
Information Circular for the 1996 Annual General Meeting of Shareholders,
which will be filed with the Securities and Exchange Commission within 120
days after December 31, 1995, is incorporated by reference in Part III of this
report.
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ITEM 6. SELECTED FINANCIAL DATA.
Set forth below is certain selected consolidated financial and operating
information of the Company for each year in the five-year period ended
December 31, 1995. The selected consolidated financial information is derived
from the Company's audited Consolidated Financial Statements for such periods.
The Company's Consolidated Financial Statements are prepared in accordance
with Canadian generally accepted accounting principles. The information set
forth below should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations and the Company's
1995 Consolidated Financial Statements and notes thereto.
The financial results for the year ended December 31, 1995 included
provisions for the costs of the Gulf National and Provident settlements,
litigation-related finance costs and certain additional legal and general and
administrative costs.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1995 1994(1) 1993(1) 1992(1) 1991(1)
---------- ---------- -------- -------- --------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE
AMOUNTS AND OPERATING INFORMATION)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT
INFORMATION:
Revenue................... $ 599,939 $ 417,328 $303,011 $218,907 $162,605
Gross margin.............. 226,808 158,854 115,118 83,708 63,087
Earnings from operations.. 119,053 95,113 65,697 50,563 39,053
Net earnings (loss)....... (76,684) 38,494 28,182 19,766 14,425
Basic earnings (loss) per
share (2)................ $ (1.69) $ 0.97 $ 0.77 $ 0.59 $ 0.46
Fully diluted earnings
(loss) per share (2)(3).. $ (1.69) $ 0.97 $ 0.76 $ 0.58 $ 0.46
Ratio of earnings to fixed
charges (4).............. -- 2.5x 2.9x 2.6x 2.6x
Aggregate dividends
declared per share....... 0.050 0.070 0.045 0.030 0.015
<CAPTION>
AS AT DECEMBER 31,
---------------------------------------------------
1995 1994(1) 1993(1) 1992(1) 1991(1)
---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Total assets.............. $2,262,980 $1,326,275 $913,661 $675,111 $518,492
Total long-term debt (5).. 934,509 516,654 341,977 246,715 193,853
Preferred securities of
subsidiary............... 75,000 75,000 -- -- --
Shareholders' equity...... 614,682 411,139 325,890 236,317 172,394
OPERATING INFORMATION:
Number of funeral home
locations (6)............ 815 641 533 451 365
Number of funeral
services................. 114,319 93,760 78,847 63,516 52,212
Number of cemeteries (6).. 179 116 70 38 23
</TABLE>
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(1) Certain of the comparative figures have been reclassified to conform to
the presentation adopted in 1995.
(2) Earnings (loss) per share reflect the two-for-one subdivision of Common
shares in June 1991.
(3) Fully diluted earnings (loss) per share figures assume exercise, if
dilutive, of employee and other stock options effective on their dates of
issue and that the funds derived therefrom were invested at annual after-
tax rates of return ranging from 5.85% to 8.49%, in accordance with
Canadian GAAP.
(4) The 1995 loss is not sufficient to cover fixed charges by a total of
$126,584, and as such the ratio of earnings to fixed charges has not been
computed. See Exhibit 12 to this Form 10-K.
(5) Total long-term debt comprises long-term debt, including current portion.
(6) The numbers of locations for 1994 and 1993 include adjustments and
consolidations related to prior periods.
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Had the Company's Consolidated Financial Statements been prepared in
accordance with accounting principles generally accepted in the United States
(see Note 21 to the Company's 1995 Consolidated Financial Statements),
selected consolidated financial information would be as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1995 1994(1) 1993(1) 1992(1) 1991(1)
---------- ---------- -------- -------- --------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT
INFORMATION:
Total revenue............. $ 599,939 $ 417,479 $308,402 $239,452 $185,993
Earnings from operations.. 117,376 94,758 66,711 54,838 43,692
Earnings (loss) before
cumulative effect of
change in accounting
principles............... (75,800) 39,652 28,912 21,330 15,893
Fully diluted earnings
(loss) per share before
cumulative effect of
change in accounting
principles(2)............ (1.67) 0.98 0.77 0.62 0.50
Ratio of earnings to fixed
charges(3)............... -- 2.4x 2.9x 2.6x 2.5x
Aggregate dividends
declared per share....... 0.050 0.070 0.047 0.033 0.017
BALANCE SHEET INFORMATION:
Total assets.............. $2,345,874 $1,329,928 $921,342 $702,096 $592,666
Total long-term debt(4)... 894,509 516,654 341,977 256,577 221,736
Preferred securities of
subsidiary............... 75,000 75,000 -- -- --
Shareholders' equity...... 519,006 385,950 299,059 245,472 196,071
</TABLE>
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(1) Certain of the comparative figures have been reclassified to conform to
the presentation adopted in 1995.
(2) Earnings (loss) per share reflects the two-for-one subdivision of Common
shares in June 1991.
(3) The 1995 loss is not sufficient to cover fixed charges by a total of
$128,261 and as such the ratio of earnings to fixed charges has not been
computed. See Exhibit 12.2 to this Form 10-K/A.
(4) Total long-term debt comprises long-term debt, including current portion.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
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 March
15, 1996, the Company operated 847 funeral homes (most of which are wholly
owned) throughout North America. This included 738 funeral homes in the United
States (including locations in Puerto Rico) and 109 funeral homes in Canada.
In addition, as at such date, the Company operated 197 cemeteries in the
United States and 6 cemeteries in Canada.
The funeral service industry historically has been characterized by low
business risk compared with most other businesses. According to the 1993
Business Failure Record published by The Dun & Bradstreet Corporation, the
average business failure rate in the United States in 1993 was 109 per 10,000.
The 1993 failure rate of the funeral service and crematoria industry was 24
per 10,000, among the lowest of all industries. Management believes this low
failure rate is the result of a number of factors, including customers'
tendencies to make choices based on reputation for quality service rather than
price and the number of years required to establish a caring reputation in the
community. Further, the funeral service industry historically has not been
significantly affected by economic or market cycles.
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, reflecting the well-publicized "graying
of America" as the baby boom generation reaches old age, the number of deaths
in the United States will grow at approximately 1.0% annually from 1990
through 2010, and at approximately 1.3% annually from 2010 through 2040.
The funeral service 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
and operated by the five largest publicly-traded North American funeral
service companies.
Cremation rates vary considerably from one region of North America to
another. The Company has operations in regions with both high and low
cremation rates. As a percentage of total funeral services, cremations in
North America have been increasing by approximately 1% annually over the past
five years. However, because the number of deaths has been increasing,
industry information indicates that the number of caskets sold (typically
associated with a traditional funeral service) has remained constant. The
Company has proprietary programs to provide a full range of service
alternatives to families choosing cremation.
Growth Strategy
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 locations.
The first element of the Company's growth strategy is the acquisition of
small, family-owned funeral homes and cemeteries. Management believes that the
Company has a competitive advantage in this market due to its culture and its
well-known and understood reputation for honoring existing owners and staff.
The second element of the Company's growth strategy is the strategic
acquisition of large, multi-location urban properties. In 1995, the Company's
strategic acquisitions included Osiris Holding Corporation, a leading cemetery
operator in the United States that operated 22 cemeteries, four funeral
home/cemetery combinations
15
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and one funeral home, and MHI Group, Inc., a publicly traded company that
operated 16 funeral homes and five cemeteries in Florida and Colorado. In
addition, on March 26, 1996, the Company purchased certain net assets from
S.I. Acquisition Associates, L.P., which included 15 funeral homes, two
cemeteries and two insurance companies, all located in Louisiana.
The final element of the Company's growth strategy is its focus on enhancing
the revenue and profitability of newly-acquired and established operations.
Through the Company's integration process, newly-acquired funeral homes
typically show an immediate improvement in gross margins due in part to the
significant economies of scale available to the Company. Cemeteries typically
show an improvement in gross margin within the first year after acquisition.
Over time, the Company has continued to increase the revenue and profitability
of its established operations through the introduction of additional
merchandising, cost control programs and inflation based pricing. On an
ongoing basis, the Company also seeks to improve the market share and earnings
of established operations by helping local managers to market services more
effectively and to enhance the reputation of their operations in the
community.
As a result of the successful implementation of this growth strategy, the
Company has grown significantly. During the period from December 31, 1991
through December 31, 1995, the Company's asset base increased by more than
four-fold from $518.5 million to $2.26 billion. Management of the Company's
growth is critical to profitability. Managing future growth will continue to
be one of the most important responsibilities and challenges facing the
Company.
Acquisitions and Capital Expenditures
The following table provides historical data on the Company's acquisition
program during the years ended December 31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1994 1993
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Funeral homes acquired.............................. 177 110 83
Cemeteries acquired................................. 64 46 33
Consideration....................................... $487.9 $265.6 $148.0
</TABLE>
From January 1 through March 15, 1996, the Company acquired 32 funeral homes
and 24 cemeteries for total consideration of approximately $98 million.
At the close of business on March 15, 1996, the Company had signed
agreements, some of which are non-binding, for the acquisition of 78
additional funeral homes and 70 additional cemeteries aggregating
approximately $366 million (including approximately $140 million for S.I.,
which closed on March 26, 1996) (the "Signed Acquisitions"). The Company
expects to close most of the remaining Signed Acquisitions by the end of the
second quarter of 1996.
In addition, as at March 15, 1996, the Company was in the process of
evaluating or negotiating prospective acquisitions (in competition with other
potential purchasers) with an aggregate purchase price in excess of $600
million. 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.
In 1995, $14.7 million was invested in the construction of new funeral
homes, similar to the $14.1 million expended in 1994. The Company has budgeted
$28 million for the construction of new funeral homes in 1996.
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During 1995, the Company expended $21.4 million on capital improvements and
the purchase of property and equipment as compared to $17.9 million in 1994.
This increase is consistent with the Company's capital budgeting policies,
which set limits based on the depreciation expense on property and equipment.
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.
RESULTS OF OPERATION
Detailed below are the Company's operating results for the years ended
December 31, 1995, 1994 and 1993, 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.
For financial reporting purposes, the Company's operations consist of
funeral, cemetery and insurance segments. See Note 19 to the Company's 1995
Consolidated Financial Statements in Item 8 of this Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------- --------------------------
1995 1994 1993 1995 1994 1993
------ ------ ------ ------- ------- -----
(IN MILLIONS) (PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Revenue
Funeral.................................................................... $442.8 $353.9 $275.1 73.8% 84.8% 90.8%
Cemetery................................................................... 143.6 63.4 27.9 23.9 15.2 9.2
Insurance.................................................................. 13.5 -- -- 2.3 -- --
------ ------ ------ ------- ------- -------
Total.................................................................... $599.9 $417.3 $303.0 100.0% 100.0% 100.0%
====== ====== ====== ======= ======= =======
Gross margin
Funeral.................................................................... $183.9 $143.4 $108.3 41.5% 40.5% 39.4%
Cemetery................................................................... 39.9 15.5 6.8 27.8 24.3 24.3
Insurance.................................................................. 3.0 -- -- 22.3 -- --
------ ------ ------
Total.................................................................... $226.8 $158.9 $115.1 37.8% 38.1% 38.0%
------ ------ ------
Expenses
General and administrative................................................. $ 67.7 $ 34.8 $ 28.2 11.3% 8.3% 9.3%
Depreciation and amortization.............................................. 40.1 29.0 21.2 6.7 6.9 7.0
------ ------ ------
Earnings from operations..................................................... 119.0 95.1 65.7 19.8 22.9 21.7
Interest on long-term debt................................................... 50.9 34.2 21.8 8.5 8.2 7.2
Legal settlements and litigation related finance costs....................... 184.9 -- -- 30.8 -- --
Dividends on preferred securities of subsidiary.............................. 7.1 2.7 -- 1.2 0.6 --
Income taxes................................................................. (47.2) 19.7 15.7 (38.1) 33.9 35.8
------ ------ ------
Net earnings (loss).......................................................... $(76.7) $ 38.5 $ 28.2 (12.8)% 9.2% 9.3%
====== ====== ======
</TABLE>
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
The results for the year ended December 31, 1995 were significantly affected
by the Gulf National award in November 1995 and the subsequent settlements of
the Gulf National and Provident litigations during the first quarter of 1996.
The related costs are reflected primarily in the results for the three months
ended December 31,
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1995. For that period, the Company recorded a net loss of $113.2 million as
compared to net earnings of $11.4 million in the same period of 1994. For the
year ended December 31, 1995, the Company recorded a net loss of $76.7 million
compared to net earnings of $38.5 million in 1994.
Consolidated revenue increased 43.8% to $599.9 million in the year ended
December 31, 1995 from $417.3 million in 1994, with funeral revenue increasing
25.1% and cemetery revenue increasing 126.4%. Consolidated gross margin
increased 42.8% to $226.8 million in 1995 from $158.9 million in 1994. As a
percentage of revenue, funeral gross margin increased to 41.5% in 1995 from
40.5% in 1994 and cemetery gross margin increased to 27.8% in 1995 from 24.3%
in 1994. As a result of the change in mix between funeral and cemetery
operations, the combined gross margin decreased to 37.8% in 1995 from 38.1%
for the same period in 1994.
Funeral revenue increased 25.1% to $442.8 million in 1995 compared with
$353.9 million in 1994, primarily due to acquisitions. The funeral revenue
from locations in operation for all of 1994 and 1995 ("Established Locations")
increased by $7.5 million while corresponding funeral gross margins increased
from 40.6% to 42.1%. With the implementation of merchandising programs and
inflation-based price increases, the Company was able to more than offset a
1.3% decline in the number of funeral services performed at Established
Locations.
Cemetery revenue increased 126.4% to $143.6 million in 1995 compared with
$63.4 million in 1994, primarily due to acquisitions. Cemetery gross margin
increased to 27.8% in 1995 from 24.3% in 1994, primarily as a result of
increased sales activity and the integration of acquisitions with a higher
cemetery gross margin. The cemetery revenue from Established Locations
increased by $12 million, while corresponding cemetery gross margins increased
from 26.6% to 29.0%, both principally due to a higher level of pre-need sales
at higher margins.
In addition to its focus on quality at-need funeral and cemetery services,
the Company provides advanced funeral and cemetery planning to the communities
it serves. In 1995, approximately 16.0% of the funeral services performed by
the Company were prearranged, an increase from 14.8% in 1994. During 1995, the
Company sold approximately 28,000 funeral services to families planning in
advance compared with approximately 24,000 funeral services in 1994. In 1995,
approximately 60.9% of the Company's cemetery revenue was generated from pre-
need cemetery planning compared with 53.1% in 1994. The Company expects that
approximately 66% of its cemetery revenue will be generated from pre-need
planning in 1996. Notes 1 and 4 to the 1995 Consolidated Financial Statements
provide information regarding the accounting treatment of pre-need sales.
Insurance revenue in 1995 was $13.5 million. The Company determined in 1995
that it would not, as previously planned, sell a life insurance subsidiary
which had been acquired in connection with a larger acquisition in 1994 with
the intent that it be sold. The subsidiary was accounted for at cost from the
date of acquisition to June 30, 1995. Beginning July 1, 1995, the Company
reported the operations of the life insurance subsidiary on a consolidated
basis. On March 26, 1996, the Company purchased certain net assets of S.I.
Acquisitions Associates, L.P., which included two insurance companies.
United States based operations contributed 91.3% of 1995 consolidated
revenue compared with 88.4% in 1994.
For the year ended December 31, 1995, general and administrative expenses
increased 94.7% to $67.7 million from $34.8 million in 1994. As a percentage
of consolidated revenue, general and administrative expenses in 1995 were
11.3% as compared with 8.3% in 1994. Included in general and administrative
expenses in 1995, and principally in the fourth quarter, are litigation,
acquisition and other expenses, including $10.8 million for professional fees
and other costs related to the Gulf National and Provident litigation and
settlements, and a $3.5 million write-off of acquisition costs. The remaining
increase in general and administration expenses can be attributed to an
expansion of the Company's infrastructure as a result of the integration of
acquired operations.
Interest expense on long-term debt increased by $16.7 million in 1995
primarily as a result of additional borrowings by the Company to finance its
acquisitions. The Company's credit ratings were reduced as a result of
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the Gulf National award. Unless the credit ratings are raised to the
investment grade ratings applied to the Company prior to the Gulf National
award, the Company's cost of borrowing in 1996 is likely to be higher than
that experienced in 1995.
The dividends on preferred securities increased from $2.7 million to $7.1
million as a result of the MIPS issued by an affiliated entity in 1994 being
outstanding for a full year. See Note 8 to the Company's 1995 Consolidated
Financial Statements.
The Company recorded an expense of $165.0 million for the year ended
December 31, 1995 for the Gulf National and Provident settlements announced on
January 29, 1996 and February 12, 1996, respectively. The accrual of $135.0
million for the Gulf National settlement consisted of (i) $50.0 million
recorded in current liabilities in respect of a cash payment made in February
1996, (ii) $45.0 million recorded in shareholders' equity for the issue of 1.5
million Common shares in February 1996 with a price guarantee of $30 per share
in certain circumstances, and (iii) $40.0 million recorded as long-term debt
representing the discounted value of a non-interest bearing promissory note
dated January 31, 1996 with payments of $4.0 million per annum over 20 years.
The accrual of $30 million for the Provident settlement consisted of (i)
$3.0 million recorded in current liabilities in respect of a payment made
March 19, 1996 and (ii) $27.0 million recorded in shareholders' equity for the
issue in March 1996 of one million Common shares with a price guarantee of $27
in certain circumstances.
The deferred income tax benefit of $60.3 million from the Gulf National and
Provident settlements has been recorded as a deferred income tax asset. Prior
to the tax recovery from the Gulf National and Provident settlements, income
taxes were $13.2 million, an effective rate of 32.0%, compared with $19.7
million in 1994, an effective rate of 33.9%. The decrease in the effective tax
rate in 1995 was primarily due to the expansion of the Company's international
financing arrangements. As a result of the above, the Company shows a net
income tax recovery of $47.2 million versus a net income tax expense of $19.7
million in 1994.
As a result of litigation during 1995 and the resulting Gulf National and
Provident settlements, litigation-related finance costs, aggregating $19.9
million, were expensed in 1995. These finance costs consisted of (i) $7.4
million of finance costs incurred as a result of posting a $125 million bond
in connection with the appeal of the Gulf National award, (ii) $3.9 million
for amendment of bank facilities due to litigation and write-off of related
existing deferred financing costs, and (iii) $8.6 million including $7.1
million for the termination of interest rate agreements and a $1.5 million
unrealized loss with respect to interest rate agreements entered into in
anticipation of a long-term debt issue that was aborted as a result of the
Gulf National award. See "Liquidity and Capital Resources."
The cash provided from operations for 1995 decreased from $43.3 million to
$13.2 million primarily as a result of increased expenses associated with the
Gulf National litigation and increases in required working capital and other
non-cash balances arising from the additional cemetery operations. As at
December 31, 1995, there was a working capital deficiency arising from the $53
million accrual for the cash payments required to be made in 1996 under the
Gulf National and Provident settlements. The $50 million payment for the Gulf
National settlement was funded in 1996 by borrowings under the Company's
credit facilities. Cash provided from operations also reflects Common shares
and debt to be issued under legal settlements which will be reflected as cash
applied to operations in 1996.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Consolidated revenue increased 37.7% to $417.3 million in 1994 from $303.0
million in 1993, with funeral revenue increasing 28.6% and cemetery revenue
increasing 127.3%. Consolidated gross margin increased 38.0% to $158.9 million
in 1994 from $115.1 million in 1993, with funeral gross margin increasing
32.4% and cemetery gross margin increasing 127.0%. As a percentage of revenue,
funeral gross margin increased to 40.5% in 1994 from 39.4% in 1993 and
cemetery gross margin remained flat at 24.3% in 1994 and 1993.
19
<PAGE>
Funeral revenue from locations in operation for all of 1993 and 1994
increased $14.6 million, assisted by the implementation of merchandising
programs and inflation based price increases. Related costs increased $6.8
million. Funeral gross margin of locations in operation for all of 1993 and
1994 increased to 40.5% in 1994 from 39.8% in 1993. The inclusion of a full
year's results from locations acquired or constructed in 1993 generated an
additional $25.5 million of funeral revenue in 1994.
Cemetery revenue increased to $63.4 million in 1994 from $27.9 million in
1993, primarily as a result of cemetery acquisitions.
Although general and administrative expenses in 1994 increased by $6.5
million, they decreased to 8.3% of consolidated revenue from 9.3% of
consolidated revenue in 1993. Ongoing covenant not to compete payments
included in general and administrative expenses increased to 2.2% of revenue
in 1994 from 2.1% in 1993.
Interest expense on long-term debt increased by $12.4 million, primarily as
a result of additional borrowings by the Company to finance its acquisitions
and capital expenditures.
Income taxes were $19.7 million in 1994, an effective tax rate of 33.9%,
compared to $15.7 million in 1993, an effective tax rate of 35.8%. The
decrease in the effective tax rate in 1994 was due to the expansion of the
Company's international financing arrangements and several one-time tax
savings realized because of the deduction for goodwill permitted by the United
States Revenue Reconciliation Act of 1993.
Net earnings increased 36.6% to $38.5 million in 1994 from $28.2 million in
1993 due to higher revenue noted above coupled with reduced operating expenses
as a percentage of revenue. Fully diluted earnings per share increased 27.6%
to $0.97 per share in 1994 from $0.76 per share in 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that cash generated from operations generally will be
sufficient to meet working capital and short-term liquidity requirements for
current operations. The Company intends to fund interest payments and
dividends on its outstanding Common shares and Series C Preferred Shares from
cash flow from operations.
The Company intends to fund future acquisitions through a combination of
debt and equity offerings and borrowings under its credit facilities.
Based on balances outstanding as at December 31, 1995, minimum required
principal repayments will aggregate $69.7 million in 1996 and $99.5 million in
1997. The Company plans to finance principal repayments primarily through the
issue of additional debt or borrowings under revolving credit facilities and
plans to ensure available financing well in advance of scheduled principal
repayment dates, thereby protecting the Company's liquidity and maintaining
its financial flexibility.
The Company's objective is to maintain its long-term debt/equity ratio, on
average, in a range of 1.0:1 to 1.5:1. Due to the timing of its ongoing
acquisition program, the Company's long-term debt/equity ratio will rise to
the top of the range before reduction by a subsequent equity issue. At
December 31, 1995, the Company's long-term debt/equity ratio was 1.52:1 but
will be significantly lower after the 1996 Equity Offering (as defined below)
and the 1996 Preferred Share Offering (as defined below).
The Company's balance sheet at December 31, 1995, as compared to December
31, 1994, reflects changes principally from acquisitions during 1995 as
outlined in Note 3 of the 1995 Financial Statements of the Company. In
addition, the consolidation of a life insurance subsidiary in 1995 previously
accounted for at cost resulted primarily in an increase in insurance invested
assets of $79.8 million and an increase in insurance policy liabilities of
$71.5 million. The Gulf National and Provident settlements resulted in an
increase in the deferred tax asset of $60.3 million and an increase in accrued
settlements of $53.0 million.
20
<PAGE>
During 1995, the Company significantly expanded its cemetery pre-need
programs. Cemetery pre-need sales typically have a low upfront cash payment
with the remainder as an installment contract receivable over a period of
several years. The Company's emphasis on these sales resulted in an increase
in both current and long-term receivables.
Debt and Equity Offerings
In March 1996, the Company consummated a public offering in Canada of Common
Shares for gross proceeds of approximately Cdn.$275 (U.S.$202) million (the
"1996 Equity Offering"), and a private placement of Senior Guaranteed Notes in
the United States for gross proceeds of $350 million (the "1996 Senior Note
Offering").
In January 1996, TLGI completed a public offering (the "1996 Preferred Share
Offering") in Canada and a simultaneous private placement under Rule 144A in
the United States of 8,800,000 Convertible First Preferred Shares Series C
Receipts (the "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 TLGI from time to time by issuing and depositing
with the escrow agent an equal dollar amount of 6.00% Cumulative Redeemable
Convertible First Preferred Shares, Series C ("Series C Preferred Shares") and
used to fund acquisitions. As of March 15, 1996, 489,098 Series C Preferred
Shares had been issued and Cdn.$123 (U.S.$90) million had been released from
escrow, leaving Cdn.$97 (U.S.$71) million in escrow to fund future
acquisitions.
In May 1995, TLGI completed a public offering of Common shares in the United
States and internationally (except Canada) for gross proceeds of $192.9
million.
Proposed Bank Facility
On February 14, 1996, LGII signed a commitment letter with a Canadian bank
in respect of a five-year $750 million secured revolving credit facility (the
"Proposed Bank Facility"). The Proposed Bank Facility has repayment terms and
covenants similar to those prevailing under the Company's credit facilities
before the Gulf National award, except that the Proposed Bank Facility will be
secured by a pledge of the shares of the operating
subsidiaries of TLGI and LGII. Such collateral will be shared ratably among
certain senior creditors including the holders of the Senior Notes. The
Proposed Bank Facility is expected to close on or about April 15, 1996.
Initial drawings will be used to repay any outstanding balance under the
Multi-Currency Revolver (as defined below). The balance of the Proposed Bank
Facility will be used for general corporate purposes, including future
acquisitions. The closing of the Proposed Bank Facility is subject to the
satisfactory completion of a due diligence review and settlement of definitive
documentation.
Current Credit Facilities and Credit Ratings
As a result of the Gulf National award and the Gulf National settlement, 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 on the
Company's financial results for the year ended December 31, 1995. The waivers
and amendments of the Multi-Currency Revolver and the MEIP Facility (as
defined below) also provide that the Company will grant security over all of
the assets of the Company by April 30, 1996 and the Company's consolidated
debt shall be limited to $1,100 million.
LGII has a $400.0 million unsecured multi-currency revolving credit facility
with a bank syndicate which matures in May 2000 and a $100.0 million 364-day
unsecured multi-currency revolving credit facility with the same syndicate of
banks which matures in May 1996 (together with the $400.0 million facility,
the "Multi-Currency Revolver"). On March 20, 1996, $450 million of the
approximately $534 million aggregate net proceeds from the 1996 Senior Note
Offering and the 1996 Equity Offering was used to pay in full the balance
outstanding under the Multi-Currency Revolver. The Company may borrow up to
$275 million under the Multi-Currency Revolver to fund future acquisitions and
up to $25 million for working capital purposes. Borrowings
21
<PAGE>
in excess of $300 million will require the approval of members of the lending
syndicate holding 66- 2/3% of the value of the lending commitments
outstanding. There can be no assurance that the requisite approval for
additional borrowings, if requested, will be obtained. The Company intends to
retire the Multi-Currency Revolver in full prior to April 30, 1996 by drawing
down on the Proposed Bank Facility.
TLGI has a Cdn.$50.0 million unsecured revolving credit facility which
matures in April 1997 (the "Canadian Revolver"). The lender has capped the
Canadian Revolver at Cdn.$45.0 million as a result of the Gulf National award
and settlement. A subsidiary of TLGI 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"). No further
borrowings are available under this facility. TLGI has a Cdn.$35.0 million
five-year unsecured term credit facility with a bank syndicate that will
terminate in January 2000 (the "Canadian Term Loan"). 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. For a further
description of restrictions on payment of dividends on the Common shares, see
Item 5 of this Form 10-K.
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 Ba1, respectively, affirmed ratings of the MIPS of BB, BB, and
Ba3, respectively, and affirmed ratings of the Series C Preferred Shares of
BB, BB and not rated, respectively.
Funding for Acquisitions
The timing and certainty of completion of the Signed Acquisitions and 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 borrowings under its credit
facilities. The Company believes that it has sufficient funding for all Signed
Acquisitions from the escrowed funds remaining from the 1996 Preferred Share
Offering, the credit available under the Multi-Currency Revolver and working
capital. Funding for future acquisitions will be provided in part by the
Proposed Bank Facility and 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. 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.
Derivative Transactions
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 basic swap and option products 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. As at December
31, 1995 the Company's long-term debt had an average interest rate of 7.56%
and an average maturity of approximately 4.3 years, and approximately 51% of
its total long-term debt was subject to fixed interest rates. Although for
financial reporting purposes, the MIPS are not considered long-term debt, if
they were included in long-term debt, the Company's long-term debt would have
an average interest rate of 7.70% and an average maturity of approximately 5.3
years, and approximately 55% of total long-term debt would be subject to fixed
interest rates. See Notes 1 and 9 to the Company's 1995 Consolidated Financial
Statements in Item 8 of this Form 10-K for additional information on
derivative and
22
<PAGE>
financial instruments. Assuming the December 31, 1995 level of debt was
outstanding for a full year and subject to the same ratio of fixed and
floating interest rates as at December 31, 1995, interest expense would
increase by $4.6 million if the floating interest rate increased by 1% for the
year.
The Company also uses basic future and option products 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. During 1995, the Company
entered into several derivative transactions in order to hedge the rate of
interest to be paid in connection with debt offerings planned for 1995. As a
result of the Gulf National award, the debt offerings were canceled and the
Company wrote-off $7.1 million of realized losses and $1.5 million of
unrealized losses in connection with the derivative transactions. At December
31, 1995, the Company had aggregate deferred hedging gains of $3.7 million to
be amortized as an adjustment to interest expense.
The Company continues to maintain a conservative posture with respect to
foreign exchange by financing United States based assets with United States
based liabilities and Canadian based assets with Canadian based liabilities,
including the occasional use of financial derivatives. Fluctuations in the
exchange rate between the Canadian and U.S. dollar will not have a material
impact on the consolidated results of the Company.
Sources and Uses of Capital
The following table summarizes the sources and uses of capital for the past
three years based on the Company's Consolidated Statements of Changes in
Financial Position.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1994(1) 1993(1)
------ ------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Sources of capital:
Cash provided by operations........................ $ 13.2 $ 43.3 $ 47.2
Issue of common share capital...................... 203.1 53.3 54.6
Issue of preferred securities of subsidiary........ -- 75.0 --
Net change in long-term debt and current note
payable........................................... 381.2 172.9 84.2
------ ------ -------
Total............................................ $597.5 $344.5 $186.0
====== ====== =======
Uses of capital:
Business acquisitions (net of debt and liabilities
assumed).......................................... $487.9 $265.6 $148.0
Construction of new facilities..................... 14.7 14.1 6.4
Investments, net................................... 15.7 30.9 0.3
Net capital expenditures........................... 17.9 13.6 10.2
Common share dividends............................. 2.4 2.9 1.7
Increase (decrease) in cash and cash equivalents... 27.3 (2.5) 4.6
Other.............................................. 31.6 19.9 14.8
------ ------ -------
Total............................................ $597.5 $344.5 $186.0
====== ====== =======
</TABLE>
- --------
(1)Certain of the comparative figures have been reclassified to conform to the
presentation adopted in 1995.
23
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) DOCUMENTS FILED AS A PART OF THIS REPORT:
(1) FINANCIAL STATEMENTS:
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1995 and 1994
Consolidated Statements of Operations for the Years Ended December
31, 1995, 1994 and 1993
Consolidated Statements of Retained Earnings for the Years Ended
December 31, 1995, 1994 and 1993
Consolidated Statement of Changes in Financial Position for the
Years Ended December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
Supplementary Data: Quarterly Financial Data (unaudited)
(2) FINANCIAL STATEMENT SCHEDULE:
Schedule II--Valuation and Qualifying Accounts
57
<PAGE>
(3)EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
12 STATEMENT RE COMPUTATION OF RATIOS
12.2 Statement re Computation of Earnings to Fixed Charges Ratio
(U.S. GAAP)
23 CONSENTS OF EXPERTS AND COUNSEL
23.1 Consent of KPMG Peat Marwick Thorne
</TABLE>
(b) The following reports on Form 8-K were filed by the Company during the last
quarter of fiscal 1995:
<TABLE>
<CAPTION>
FILING DATE ITEM NUMBER DESCRIPTION
- ----------------- -------------------- -----------------------------------------------------------------
<S> <C> <C>
November 2, 1995 Item 5. Other Events Press release regarding the Gulf National award.
November 3, 1995 Item 5. Other Events Press release regarding the Company's challenge of the Gulf
National award.
November 6, 1995 Item 5. Other Events Press release regarding third quarter earnings.
November 21, 1995 Item 5. Other Events Press release regarding the Mississippi trial court's upholding
of the Gulf National award.
November 22, 1995 Item 5. Other Events Press release regarding reaction to the trial court's decision to
uphold the Gulf National award.
November 30, 1995 Item 5. Other Events 1) Press release regarding the Company's motion to reduce the
bond requirement relating to the Gulf National award.
2) Press release regarding the Mississippi trial court's
decision not to reduce the Gulf National award.
3) Press release announcing that the Mississippi Supreme
Court granted the Company's stay of execution of the Gulf
National award.
December 13, 1995 Item 5. Other Events Press release announcing TLGI's filing of a preliminary
prospectus with all of the Canadian securities commissions
relating to a proposed public offering of receipts.
December 21, 1995 Item 5. Other Events 1) Press release regarding the pricing of the receipts.
2) Press release announcing that the Mississippi Supreme
Court continued the Company's interim stay of execution.
</TABLE>
58
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
June 19, 1996 /s/ Peter S. Hyndman
- ---------------- ---------------------------------------
Date Peter S. Hyndman
Vice-President, Law
64
<PAGE>
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Exchange Act of 1934, this
amendment to the report has been signed below by the following persons on
behalf of the registrant in the capacities and on the date indicated.
June 19, 1996 /s/ Raymond L. Loewen
- ---------------- ----------------------------------------
Date Raymond L. Loewen
Chairman of the Board, Chief Executive
Officer and Director (Principal
Executive Officer)
June 19, 1996 /s/ Timothy R. Hogenkamp*
- ---------------- ----------------------------------------
Date Timothy R. Hogenkamp
President, Chief Operating Officer and
Director (Principal Executive Officer)
June 19, 1996 /s/ A.M. Bruce Watson*
- ---------------- ----------------------------------------
Date A.M. Bruce Watson
Executive Vice-President and Director
(Principal Financial Officer)
June 19, 1996 /s/ Peter W. Roberts*
- ---------------- ----------------------------------------
Date Peter W. Roberts
Vice-President, Financial Information
Services and Corporate Controller
(Principal Accounting Officer)
June 19, 1996 /s/ Reverend Kenneth S. Bagnell*
- ---------------- ----------------------------------------
Date Reverend Kenneth S. Bagnell
Director
June 19, 1996 /s/ J. Carter Beese, Jr.*
- ---------------- ----------------------------------------
Date J. Carter Beese, Jr.
Director
<PAGE>
June 19, 1996 /s/ Dr. Earl A. Grollman*
- ---------------- ----------------------------------------
Date Dr. Earl A. Grollman
Director
June 19, 1996 /s/ Senator Harold E. Hughes*
- ---------------- ----------------------------------------
Date Senator Harold E. Hughes
Director
June 19, 1996 /s/ Peter S. Hyndman*
- ---------------- ----------------------------------------
Date Peter S. Hyndman
Vice-President, Law and Corporate
Secretary and Director
June 19, 1996 /s/ Albert S. Lineberry, Sr.*
- ---------------- ----------------------------------------
Date Albert S. Lineberry, Sr.
Director
June 19, 1996 /s/ Charles B. Loewen*
- ---------------- ----------------------------------------
Date Charles B. Loewen
Director
June 19, 1996 /s/ Robert B. Lundgren*
- ---------------- ----------------------------------------
Date Robert B. Lundgren
Director
June 19, 1996 /s/ James D. McLennan*
- ---------------- ----------------------------------------
Date James D. McLennan
Director
June 19, 1996 /s/ Ernest G. Penner*
- ---------------- ----------------------------------------
Date Ernest G. Penner
Director
<PAGE>
June 19, 1996 /s/ The Right Honourable John N. Turner, P.C., C.C., Q.C.*
- ---------------- ----------------------------------------------------------
Date The Right Honourable John N. Turner, P.C., C.C., Q.C.
Director
June 19, 1996 /s/ Paul Wagler*
- ---------------- ----------------------------------------------------------
Date Paul Wagler
Senior Vice-President, Finance, Chief
Financial Officer and Director
*By: /s/ Raymond L. Loewen
-------------------------------
Raymond L. Loewen
Attorney-in-fact
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<S> <C>
12 STATEMENT RE COMPUTATION OF RATIOS
12.2 Statement re Computation of Earnings to Fixed Charges Ratio
(U.S. GAAP)
23 CONSENTS OF EXPERTS AND COUNSEL
23.1 Consent of KPMG Peat Marwick Thorne
</TABLE>
1
<PAGE>
THE LOEWEN GROUP INC. EXHIBIT 12.2
COMPUTATION OF EARNINGS TO FIXED CHARGES RATIO
U.S. GAAP
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
--------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Earnings (loss) before income taxes
and cumulative effect of change in
accounting principles............. $(125,539) $57,877 $44,374 $33,964 $26,634
--------- ------- ------- ------- -------
Fixed charges included in earnings
(loss) before income taxes and cu-
mulative effect of change in ac-
counting principles:
Interest on long-term debt....... 50,913 34,203 22,337 20,874 17,058
Amortization of deferred finance
costs........................... 1,512 1,139 852 634 495
Dividends on preferred securities
of subsidiary................... 7,088 2,678 -- -- --
--------- ------- ------- ------- -------
59,513 38,020 23,189 21,508 17,553
--------- ------- ------- ------- -------
Earnings (loss).................... $ (66,026) $95,897 $67,653 $55,472 $44,187
========= ======= ======= ======= =======
Fixed charges:
Fixed charges included in earn-
ings before income taxes and cu-
mulative effect of change in ac-
counting principles............. $ 59,513 $38,020 $23,189 $21,508 $17,553
Capitalized interest............. 2,722 1,128 120 -- --
--------- ------- ------- ------- -------
Total fixed charges................ $ 62,235 $39,148 $23,309 $21,508 $17,553
========= ======= ======= ======= =======
Ratio of earnings to fixed charges
(1)............................... -- 2.4x 2.9x 2.6x 2.5x
========= ======= ======= ======= =======
</TABLE>
- --------
(1) The 1995 loss is not sufficient to cover fixed charges by a total of
$128,261, and as such the ratio of earnings to fixed charges has not been
computed.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
The Loewen Group Inc.
We consent to incorporation by reference in the registration statements on Forms
S-8 (Nos. 33-95496, 33-79604, 33-79602, 33-79606, 33-72808 and 33-42892) of The
Loewen Group Inc. and the registration statement on Form S-4 (Reg. Nos. 333-
03135 and 333-03135-01) of Loewen Group International, Inc., and The Loewen
Group Inc. of our report dated February 26, 1996, except as to Note 12(b), which
is as of March 19, 1996 and Note 20, which is as of March 26, 1996, relating to
the consolidated balance sheets of The Loewen Group Inc. as at December 31, 1995
and 1994 and the related consolidated statements of operations, retained
earnings, and changes in financial position for each of the years in the three
year period ended December 31, 1995, and related schedule, which report appears
in the December 31, 1995 annual report on Form 10-K of The Loewen Group Inc. (as
amended by Form 10-K/A, filed June 19, 1996).
/s/ KPMG Peat Marwick Thorne
- ----------------------------
KPMG PEAT MARWICK THORNE
Chartered Accountants
Vancouver, Canada
June 19, 1996
