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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
/X/ SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 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
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COMMISSION FILE NUMBER 1-12163
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THE LOEWEN GROUP INC.
(Exact name of registrant as specified in its charter)
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BRITISH COLUMBIA 98-0121376
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
4126 NORLAND AVENUE, BURNABY, BRITISH COLUMBIA, V5G 3S8
CANADA
(Address of principal executive offices) (Postal Code)
Registrant's telephone number, including area code: 604-299-9321
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Securities registered pursuant to Section 12(b) of the Act:
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COMMON SHARES WITHOUT PAR VALUE NEW YORK STOCK EXCHANGE
THE TORONTO STOCK EXCHANGE
THE MONTREAL EXCHANGE
LOEWEN GROUP CAPITAL, L.P. NEW YORK STOCK EXCHANGE
9.45% CUMULATIVE MONTHLY INCOME
PREFERRED SECURITIES, SERIES A,
GUARANTEED BY THE LOEWEN GROUP INC.
(Title of class) (name of each exchange on which
registered)
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Securities registered pursuant to Section 12(g) of the Act:
NONE
(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.$1.7 billion as of March 14, 1997.
The number of outstanding Common shares as of March 14, 1997, was
59,125,114.
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DOCUMENTS INCORPORATED BY REFERENCE
Specified sections of the registrant's definitive Proxy Statement and
Information Circular for the 1997 Annual General Meeting of Shareholders, which
will be filed with the Securities and Exchange Commission within 120 days after
December 31, 1996, are incorporated by reference in Part III of this report.
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TABLE OF CONTENTS
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PAGE
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GENERAL INFORMATION......................................................................................... 1
PART I
ITEM
NUMBER
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1. BUSINESS......................................................................................... 2
2. PROPERTIES....................................................................................... 5
3. LEGAL PROCEEDINGS................................................................................ 5
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.............................................. 11
EXECUTIVE OFFICERS OF LOEWEN..................................................................... 12
PART II
5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS............................ 15
FORWARD-LOOKING AND CAUTIONARY STATEMENTS........................................................ 17
6. SELECTED FINANCIAL DATA.......................................................................... 18
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...................................................................... 20
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................................................... 31
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE............................................................ 149
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............................................... 149
11. EXECUTIVE COMPENSATION........................................................................... 149
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT................................................................................. 149
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................................... 149
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K............................................................................ 150
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GENERAL INFORMATION
Unless the context otherwise requires, (i) "Loewen" refers to The Loewen
Group Inc., a corporation organized under the laws of British Columbia, Canada,
(ii) "LGII" refers to Loewen Group International, Inc., a Delaware corporation
and a wholly-owned subsidiary of Loewen and (iii) the "Company" refers to
Loewen, and its subsidiaries and associated entities.
All dollar amounts are in United States dollars ("U.S.$" or "$") unless
otherwise indicated. References to "Cdn.$" are to Canadian dollars.
Effective January 1, 1994, the Company adopted the United States dollar as
its reporting currency. Financial information relating to periods prior to
January 1, 1994 has been translated from Canadian dollars into United States
dollars as required by accounting principles generally accepted in Canada
("Canadian GAAP") at the December 31, 1993 rate of U.S.$1.00 = Cdn.$1.3217.
Except as specifically noted, financial information is presented in
accordance with Canadian GAAP. Material differences between Canadian GAAP and
accounting principles generally accepted in the United States ("U.S. GAAP"), as
applicable to the Company, are explained in Note 21 to the Company's
consolidated financial statements for the year ended December 31, 1996 (the
"1996 Consolidated Financial Statements"), included in Item 8 of this Form 10-K.
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PART I
ITEM 1. BUSINESS.
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 death ("at-need"), the Company
also sells funeral, cemetery and cremation services on a pre-arranged basis
("pre-need"). As at March 14, 1997, the Company operated 984 funeral homes
throughout North America. This included 862 funeral homes in the United States
(including locations in Puerto Rico) and 122 funeral homes in Canada. In
addition, as at such date, the Company operated 350 cemeteries in the United
States and six cemeteries in Canada. As at the close of business on March 14,
1997, the Company had negotiated agreements for the acquisition of a further 50
funeral homes and 78 cemeteries in the United States and one funeral home in
Canada. As at March 14, 1997, the Company also operated four insurance
subsidiaries which sell a variety of life insurance products, primarily to fund
funeral services purchased through a pre-need arrangement.
The Company's management structure and remuneration practices are designed
to support and encourage entrepreneurial drive and individual responsibility.
Each funeral home and cemetery is operated as a distinct profit center, with
monthly and annual financial performance monitored by regional and corporate
management in accordance with budgeted projections. Local managers are given a
high degree of autonomy because the Company believes that, as members of the
local community, they are best able to judge how to conduct day-to-day
operations in a manner consistent with the established character of the
particular business and the needs of the community.
Loewen serves as the holding company for all operations of the Company,
which are contained in subsidiary and associated entities. Loewen was
incorporated under the Company Act of British Columbia on October 30, 1985. The
principal executive offices of the Company are located at 4126 Norland Avenue,
Burnaby, British Columbia V5G 3S8, telephone number (604) 299-9321. The Company
also maintains corporate offices at 50 East RiverCenter Boulevard, Suite 800,
Covington, Kentucky 41011 and at 3190 Tremont Avenue, Trevose, Pennsylvania
19053.
BUSINESS OPERATIONS
The Company's operations are comprised of three business divisions: funeral
homes, cemeteries and insurance. In August 1996, the Company created a regional
management structure to organize its operations into seven geographic regions.
Within each of these regions, five of which are in the United States and two of
which are in Canada, the Company has integrated certain aspects of its funeral
home and cemetery divisions. Management believes that the new organizational
structure will enable the Company to capitalize on regional operating
efficiencies and to better realize synergies.
FUNERAL HOMES
The Company's funeral homes offer a full range of funeral services,
encompassing the collection of remains, registration of death, professional
embalming, use of funeral home facilities, sale of caskets and other
merchandise, transportation to a place of worship or funeral chapel for a
religious service and transportation to a cemetery or crematorium. To provide
the public with the opportunity to choose the service that is most appropriate
from both a personal and financial perspective, the Company offers complete
funeral services (including caskets and related merchandise) at prices ranging
from approximately $750 to $7,500 (and averaging approximately $3,500).
Substantially all of the Company's funeral homes provide basic cremation
services, and the Company has proprietary programs designed to provide a full
range of service alternatives to families choosing
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cremation. In 1996, cremations accounted for approximately 28% of all funeral
services performed by the Company. As a percentage of all funeral services in
the United States, cremations have been increasing by approximately 1% annually
over the past five years and, in 1996, accounted for approximately 21% of all
funeral services performed in the United States.
Funeral operations accounted for approximately 61% of the Company's
consolidated revenue for 1996. Amounts paid for funeral services are recorded as
revenue at the time the service is performed. Payments made for pre-need funeral
contracts are either placed in trust by the Company or are used on behalf of the
purchaser of the pre-need contract to pay premiums on life insurance polices
under which the Company is designated as the beneficiary. At the date of
performing a pre-arranged funeral service, the Company records as funeral
revenue the amount originally trusted or the insurance contract amount, together
with related accrued earnings retained in trust and increased insurance
benefits. The Company's gross pre-arranged funeral sales were approximately $190
million for 1996, compared with approximately $97 million in 1995.
CEMETERIES
The Company's cemetery division assists families in making burial
arrangements and offers a complete line of cemetery products (including a
selection of burial spaces, burial vaults, lawn crypts, memorials, niches and
mausoleum crypts), the opening and closing of graves and cremation services.
The Company's cemetery operations comprised approximately 32% of the
Company's consolidated revenue for 1996, the majority of which was derived from
pre-need sales of cemetery products and services. The pre-need sale of interment
rights and related products and services is recorded as revenue when customer
contracts are signed. At that time, costs related to the sale are also recorded
and an allowance is established for future cancellations and refunds, based on
management's estimates of expected cancellations. A portion of the proceeds
received by the Company from pre-need merchandise sales is generally set aside
in merchandise trust funds to provide for the future delivery of the cemetery
products. Pre-need sales are usually financed by the Company over three to four
years at interest rates ranging from 10% to 15%.
In addition, the Company provides for the long-term maintenance of its
cemetery properties by placing a portion, typically 10%, of the proceeds from
the sale of interment rights into a perpetual care trust fund. The income from
these funds is used to offset the maintenance costs of operating the cemeteries.
At December 31, 1996, the Company had approximately $160 million in perpetual
care trust funds.
INSURANCE
The Company operates four insurance subsidiaries, all of which were acquired
in conjunction with certain funeral home acquisitions. These insurance
subsidiaries operate in Texas, Louisiana, Mississippi and Arizona and sell a
variety of life insurance products to fund funerals. Revenue from the Company's
insurance operations totaled approximately $72 million in 1996.
COMPETITION
Competition generally arises from two sources in the funeral service
industry. The first form is competition among local funeral homes and cemeteries
for at-need and pre-need business. The market share of a single funeral home or
cemetery in any community is often a function of the name, reputation and
location of that funeral home or cemetery. Accordingly, gains in market share
within a community are usually achieved over a long period of time.
The Company also faces competition in its ongoing acquisition program. In
the North American funeral service industry acquisition market, the Company's
competition includes Service Corporation
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International ("SCI"), Stewart Enterprises, Inc. ("Stewart"), Equity Corporation
International ("ECI") and Carriage Services, Inc. ("CSI"), all of which are
publicly-traded funeral service companies with significant United States
operations, as well as other non-public regional consolidators. On occasion, the
Company also has experienced competition on a local level from consolidators who
have focused on acquiring funeral home and cemetery properties in a concentrated
geographic area.
REGULATION
The funeral service industry is regulated primarily on a state and
provincial basis with a vast majority of jurisdictions requiring licensing and
supervision of individuals who provide funeral-related services. A number of
jurisdictions also regulate the sale of pre-need services and the administration
of any resulting trust funds or insurance contracts. In addition, concerns
regarding lack of competition have led a few jurisdictions to enact legislation
designed to encourage competition by restricting the common ownership of funeral
homes, cemeteries and related operations within a specific geographic region.
The Company's United States operations must also comply with federal
legislation, including the laws administered by the Occupational Safety and
Health Administration, the Americans with Disabilities Act and the Federal Trade
Commission ("FTC") regulations. The FTC administers the Trade Regulation Rule on
Funeral Industry Practices, the purpose of which is to prevent unfair or
deceptive acts or practices in connection with the provision of funeral goods or
services.
The Company's insurance company subsidiaries are subject to regulation by
the states in which they are domiciled and the states in which their products
are sold.
ENVIRONMENTAL RISK
Management believes that the Company's primary environmental risk arises in
connection with the acquisition of a funeral home or cemetery property. The
Company manages this risk by conducting extensive environmental due diligence of
all potential acquisition candidates. Management endeavors to ensure that
environmental issues are identified and addressed in advance of acquisition or
are covered by an indemnity by the seller or an offset to the purchase price.
EMPLOYEES
At December 31, 1996, the Company employed approximately 16,000 people with
approximately 500 people employed at the Company's corporate offices. Management
believes that its relationship with employees is good. Fewer than 150 of the
Company's employees are members of collective bargaining units. All full-time
and eligible part-time employees who have been employed by the Company for more
than 90 days are entitled to five free Common shares as part of the Company's
"Sharing The Vision" program.
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ITEM 2. PROPERTIES.
The Company's properties consist primarily of funeral homes and cemeteries.
Of the Company's 956 funeral homes at December 31, 1996 (including 46 funeral
homes located on or adjacent to a cemetery property), 46 were leased facilities
and 58 were mortgaged as security for loans from the seller of the property or
to a commercial lender. Generally the Company has a right of first refusal and
an option to purchase its leased premises.
The Company's 313 cemeteries at December 31, 1996 contained an aggregate of
approximately 15,000 acres of which approximately 60% were developed. Twenty
four of the Company's cemeteries are not owned but are managed by the Company
and eight cemeteries are mortgaged as security for loans from the seller of the
property.
The Company's corporate offices in Burnaby, British Columbia, and Trevose,
Pennsylvania occupy 54,000 and 52,000 square feet, respectively, in buildings
owned by the Company. The corporate offices in Covington, Kentucky occupy 27,000
square feet under a lease agreement expiring in 2001.
ITEM 3. LEGAL PROCEEDINGS.
CLASS ACTIONS ALLEGING SECURITIES LAWS VIOLATIONS
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 Loewen and five individuals who were officers of the Company
(four of whom were also directors) in the United States District Court for the
Eastern District of Pennsylvania. LGII, Loewen Group Capital, L.P., a limited
partnership of which LGII is the sole general partner ("LGC"), and the lead
underwriters (the "Underwriters") of LGC's 1994 offering of Monthly Income
Preferred Securities ("MIPS"), were subsequently added as defendants. On
November 7, 1995, a class action lawsuit was filed on behalf of a class of
purchasers of Loewen's Common shares without par value ("Common shares") against
Loewen 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 Loewen, LGII, LGC and the same individual defendants in the United
States District Court for the Eastern District of Pennsylvania.
The complaints with respect to the class actions alleged that the defendants
failed to disclose the Company's anticipated liability in connection with
certain litigation with Gulf National Insurance Company and certain of its
affiliates ("Gulf National"). The Pennsylvania class actions also alleged
failure to disclose the Company's potential liability in connection with certain
litigation with Provident American Corporation and one of its subsidiaries
("Provident"). The Company settled the lawsuits with Gulf National and Provident
during the first quarter of 1996.
Pursuant to a Transfer Order filed April 15, 1996 by the Judicial Panel on
Multidistrict Litigation, the Mississippi class action was transferred to the
Eastern District of Pennsylvania for consolidation of pretrial proceedings with
the two Pennsylvania class actions. On September 16, 1996, the plaintiffs filed
a Consolidated and Amended Class Action Complaint (the "Consolidated Class
Action Complaint"). Procedurally, the Consolidated Class Action Complaint
supersedes the complaints filed in the class actions. Plaintiffs allege three
causes of action in the Consolidated Class Action Complaint: (i) Loewen, LGII,
LGC and the five individual defendants violated Sections 10(b) and 20(a) and the
implementing anti-fraud rules under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), (ii) LGII, LGC and three of the five individual
defendants violated Sections 11 and 15 of the Securities Act of 1933, as amended
(the "Securities Act"), in connection with the MIPS offering and (iii) Loewen,
LGII and LGC made material misstatements in connection with the MIPS offering in
violation of Sections 12(2) and 15 of the Securities Act. Plaintiffs seek
compensatory money damages in an unspecified amount, together with attorneys
fees, expert fees and other costs and disbursements. Punitive damages are not
sought.
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The defendants filed their Answer to the Consolidated Class Action Complaint
on November 1, 1996, in which they have denied the material allegations and
raised certain affirmative defenses. The parties have commenced discovery and
document production. No depositions have been taken.
The parties have stipulated to the provisional certification of plaintiff
classes consisting of: (i) all purchasers of Common shares or MIPS on an
American stock exchange or in public offerings during the period from April 16,
1993 through November 1, 1995, with respect to the Exchange Act claims; and (ii)
all persons who purchased MIPS pursuant to the public offering in August 1994,
with respect to the Securities Act claims. Defendants have retained all rights
to conduct discovery on class issues and to move to modify the class definitions
or to decertify the classes. Plaintiffs have agreed to stay all proceedings,
including all discovery, relating to disclosures about the Provident litigation.
Plaintiffs have the right to lift the stay upon written notice, which must be
provided 90 days before the end of discovery or the beginning of trial.
On June 11, 1996, all claims against the Underwriters were dismissed without
prejudice, by agreement of the parties. Prior to the dismissal, the Underwriters
had indicated to the Company that they would seek indemnity from the Company for
costs incurred. The Company paid the Underwriters' costs through the date of
dismissal. The Company expects that the Underwriters will seek further indemnity
from the Company if any of the claims against the Underwriters are reinstated.
The Company referred the claims to its insurance carrier under its directors
and officers liability 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 class action. As of March 27, 1997, the Supreme Court had not ruled on
the action. 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 at this time 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 with respect to the class actions has been made in the
1996 Consolidated Financial Statements.
ROE ET AL., PALLADINO ET AL., O'SULLIVAN AND SCHNEIDER
In October 1995, Roe and 22 other families filed a lawsuit against LGII and
Osiris Holding Corporation ("Osiris") in Florida Circuit Court in St.
Petersburg. 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. In June
1996, the Roe and Palladino lawsuits were consolidated and amended to include a
total of 90 families, and in July 1996, the Palladino lawsuit was dismissed. In
October 1996, a Fifth Amended Complaint ("Complaint") was filed bringing the
number of plaintiff families to 150. The gravamen of the Complaint is 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.
The specific claims include tortious interference with a dead body (intentional
and grossly negligent conduct so extreme and outrageous as to imply malice) and
negligent infliction of emotional distress. The Complaint also names Loewen and
LGII as defendants (on an alter ego theory) and includes claims for negligent
retention of certain cemetery employees. Each plaintiff identified in the
Complaint is seeking damages in excess of $15,000, but the Complaint alleges
aggregate damage in excess of $40,000,000. In addition, in May 1996, Sean M.
O'Sullivan filed a lawsuit against Osiris and LGII and in July 1996, Karen
Schneider filed a lawsuit against Osiris and LGII. The factual allegations
underlying the O'Sullivan and Schneider complaints are identical to those
alleged in the Complaint. Schneider has been named in the Complaint and the
Schneider lawsuit has been dismissed. A mediation was held on November 14, 1996,
but the parties did not reach an agreement. However, over the past
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several months, nearly 100 families have settled their claims for de minimis
sums, leaving the number of plaintiff families at 51. The Complaint was
dismissed for pleading deficiencies. The plaintiffs have indicated that they
will file a Sixth Amended Complaint.
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 carriers for Osiris and Loewen have assumed the defense of these
claims, subject to a reservation of rights. The insurance carrier for Loewen has
stated that it may take the position that each gravesite claim is separately
subject to the per claim policy deductible of $250,000. Accordingly, no
assurance can be made that insurance coverage will be available. The annual
Osiris policy limit is $11,000,000 and the annual Loewen policy limit is
$80,000,000.
The Company has determined that it is not possible at this time 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 with respect to this lawsuit has been made in the 1996
Consolidated Financial Statements.
ESNER ESTATE
On February 1, 1995, Stuart B. Esner and Sandra Esner (the "Executors") as
co-executor 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 (the "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.
In March 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 attorney's 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 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. The two cases were
consolidated by the Court.
On October 9, 1996, the Executors instituted a new civil action against the
Law Firm. On November 18, 1996 the Executors instituted a new civil action
against the individual partners of the Law Firm. In both complaints, the
Executors expanded upon the allegations against the Law Firm contained in the
previous complaints. By stipulation approved by the Court on February 24, 1997,
the parties agreed to consolidate all suits and to permit the Executors to file
a Third Amended Complaint, which was filed on February 10, 1997. The prayers for
relief remain unchanged. Osiris and Messrs. Miller and Shane have filed
preliminary challenges to the Third Amended Complaint. Likewise, LGII has moved
for a dismissal
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of the claims against it for failure to state a claim upon which relief can be
granted. That motion and the preliminary challenges are all pending.
The Company has determined that it is not possible at this time 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 with respect to this lawsuit has been made in the 1996
Consolidated Financial Statements.
SERVICE CORPORATION INTERNATIONAL
On October 2, 1996, SCI filed an action in the United States District Court
for the Southern District of Texas (the "Texas Action"), alleging that Loewen
falsely suggested to its shareholders that it has standing to bring an action to
block or impede SCI's unsolicited exchange offer on federal antitrust grounds.
SCI also seeks a declaratory judgment that Loewen lacks standing to bring such
an action on federal antitrust grounds. SCI asserts a claim under Texas common
law, based upon its allegations that Loewen's actions have tortiously interfered
with SCI's "prospective business relationships" with Loewen's shareholders. As
relief for this assertion, SCI seeks an unspecified amount of damages for
claimed injuries resulting from Loewen's alleged interference with these
prospective relationships. In an amended complaint filed October 3, 1996, SCI
also alleges that the foregoing actions, as well as Loewen's alleged failure to
disclose certain information respecting the Prime and Rose Hills transactions,
constitute violations of Section 14(e) of the Exchange Act. As relief, SCI seeks
an injunction against future violations of that statute. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
further information regarding SCI's unsolicited exchange offer and the Prime and
Rose Hills transactions.
On October 10, 1996, Loewen, LGII and Ridge Chapels, Inc., a subsidiary of
LGII, commenced an action in the United States District Court for the Eastern
District of New York (the "New York Action"), seeking to enjoin SCI
preliminarily and permanently from completing its unsolicited exchange offer on
the grounds that a combination of SCI and Loewen would violate Section 7 of the
Clayton Act. According to the complaint, SCI's unsolicited offer for control of
Loewen, if successful, may substantially lessen competition in numerous local
markets for (i) the sale of funeral services, (ii) the sale of funeral services
on a "pre-need" basis, (iii) the sale of cemetery services, and (iv) the
purchase of funeral homes, cemeteries and crematoria. Loewen also accuses SCI
and ECI (a competitor of Loewen in which SCI had a 40% interest in October
1996), of conspiracy to eliminate Loewen as a competitive force in the funeral
services industry, in violation of Section 1 of the Sherman Act. On October 10,
1996, Loewen filed Motions for Expedited Discovery and for a Preliminary
Injunction to enjoin the unsolicited exchange offer and, on October 15, 1996,
filed a Verified First Amended Complaint.
On October 11, 1996, Loewen moved to dismiss or stay the Texas Action. On
October 15, 1996, SCI moved to dismiss, stay or transfer the New York Action. A
hearing was held on SCI's motion on October 17, 1996, at the conclusion of which
the District Court denied SCI's motion. On October 23, 1996, Magistrate Judge
Caden of the District Court entered a Memorandum and Order allowing expedited
discovery with respect to Loewen's motion for a preliminary injunction. On
October 29, 1996, the District Court overruled the objections of SCI to the
Magistrate Judge's Order but stayed commencement of discovery proceedings, which
stay was extended by stipulation until the resolution of the pending motions in
the Texas Actions described below.
On October 21, 1996, SCI filed a Motion for Preliminary Injunction in the
Texas Action, seeking to enjoin Loewen from pursuing its antitrust claims in any
forum other than the federal District Court in Texas. The matter was referred to
Magistrate Judge Johnson, who issued a Memorandum Recommending Entry of a
Preliminary Injunction on October 28, 1996. Magistrate Judge Johnson recommended
that the District Court restrain Loewen from proceeding in the New York Action
(or elsewhere) until it had resolved Loewen's pending motion to dismiss. In a
telephone conference on October 28, 1996, the District
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Court declined to enter any injunctive relief at that time. A hearing on
Loewen's motion to dismiss was held on November 6, 1996. On November 23, 1996,
the Texas District Court issued a Memorandum Opinion in which it: (i) denied
SCI's motion for a preliminary injunction against the New York Action; and (ii)
granted Loewen's motion to dismiss the Texas Action, subject to the New York
Court's permitting SCI to raise its above-described tortious interference and
violation of Section14(e) claims as counterclaims in the New York Action. SCI's
above-described declaratory judgment claim was dismissed outright.
On December 11, 1996, SCI filed its Answer to Loewen's Verified First
Amended Complaint, in which it denies liability and asserts various defenses and
asserts counterclaims against Loewen, which counterclaims parallel generally the
above-described claims for tortious interference and violation of Section14(e)
claims asserted in the Texas Action. Loewen believes that the counterclaims are
without merit and intends to contest them vigorously. Loewen has served
discovery requests upon SCI and ECI to which both objected. On December 11,
1996, Magistrate Judge Caden ordered expedited discovery to proceed. SCI filed
objections to the Magistrate Judge's order, which objections were denied by the
District Court on January 7, 1997.
On December 11, 1996, ECI filed a Motion to Dismiss the claims against it,
on grounds of improper venue and lack of personal jurisdiction. On December 18,
1996, Loewen filed a Motion for Expedited Discovery respecting jurisdiction over
ECI, and the parties agreed that Loewen would not be required to respond to the
Motion to Dismiss until either a date certain after denial of its Motion for
Expedited Discovery or, if that Motion were granted, completion of
jurisdictional discovery. On January 8, 1997, Magistrate Judge Caden entered an
order providing that Loewen could take certain expedited discovery respecting
jurisdiction over ECI.
On January 7, 1997, SCI announced that it had withdrawn its proposed
exchange offer. On January 14, 1997, Loewen sent a letter to the New York Court
stating that it will move for leave to file an amended complaint seeking
permanent injunctive relief against future actions by SCI and/or ECI against
Loewen in violation of the antitrust laws. On January 15, 1997, SCI sent a
letter to the New York Court stating that it believes Loewen's claims are moot
and will seek dismissal of those claims. Discovery from the parties has been
temporarily suspended by agreement. On January 16, 1997, ECI sent a letter to
the New York Court, seeking to suspend discovery until the Court rules on the
contemplated motions by Loewen and SCI. On January 20, 1997, Loewen sent a
letter to the Court seeking leave to move to dismiss SCI's counterclaims, to
which SCI responded on January 22, 1997, by letter requesting dismissal of the
entire action.
At the New York Court's suggestion, the parties are discussing possible
resolution of the action in a manner that would end the current proceedings but
preserve jurisdiction in the New York Court over similar disputes in the future,
if any.
No provision with respect to these legal proceedings has been made in the
1996 Consolidated Financial Statements.
DERIVATIVE SUIT
On September 26, 1996, Jerry Krim filed a purported derivative and class
action against Loewen's current directors and one former director and against
Loewen as a nominal defendant in the Los Angeles County Superior Court. The
plaintiff alleges, on behalf of himself and all of Loewen's current and former
shareholders, that the defendants "improperly responded to an offer by Service
Corporation International to combine the two companies," refused to negotiate
with SCI, agreed to pay an inflated price for the Rose Hills properties in Los
Angeles, adopted a supposed "poison pill" supermajority voting provision
requiring 75% approval of a merger, and adopted a Shareholders Protection Rights
Plan, each allegedly in violation of the directors' fiduciary duties. Plaintiff
seeks preliminary and permanent injunctive relief that would, among other
things, (i) require the defendants to cooperate with any person having a bona
fide interest in proposing a transaction and take certain other actions that
allegedly would "maximize shareholder value,"
9
<PAGE>
(ii) enjoin the Shareholders Protection Rights Plan in its entirety, (iii)
enjoin the consummation of the Rose Hills transaction, (iv) enjoin the
supermajority voting requirements, (v) require an accounting for unspecified
damages, and (vi) compensate the plaintiffs for their fees and costs. On October
17, 1996, the Court denied the plaintiff's motion for expedited discovery. On
November 8, 1996, Loewen and those individual defendants upon whom service had
purportedly been made appeared specially and moved to quash service of the
summons for lack of jurisdiction or, in the alternative, to dismiss or stay the
action on grounds of forum non conveniens. On December 10, 1996, the Court
granted the defendants' motion to quash the summons and denied the plaintiffs'
request for discovery. The action was dismissed, and no appeal has been filed.
No provision with respect to this legal proceeding has been made in the 1996
Consolidated Financial Statements.
ROJAS ET AL.
On February 22, 1995, Juan Riveras Rojas, Leyda Rivera Vega, the Conjugal
Partnership constituted between them, and Carlos Rivera Bustamente instituted a
legal action against Loewen, 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 at this time 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 with respect to this lawsuit has been made in the 1996 Consolidated
Financial Statements.
FELDHEIM ET AL. V. SI-SIFH CORP. ET AL.
In January 1997, Elmer C. Feldheim and four other individuals filed a
lawsuit on behalf of themselves and a class of similarly situated individuals
and/or entities against SI-SIFH Corp., SI-SI Insurance Company, Inc., Loewen
Louisiana Holdings, Inc., and LGII in the Parish of Jefferson, State of
Louisiana. Plaintiffs seek a class action. SI-SIFH Corp. and SI-SI Insurance
Company, Inc. were acquired by the Company in March 1996 when the Company
acquired the assets of S.I. Acquisition Associates, L.P.
Plaintiffs hold or held funeral insurance policies issued by insurance
companies owned, directly or indirectly, by the defendants. The plaintiffs
allege that (i) the defendants failed to provide the funeral services purchased
with the policies by, among other things, offering a casket of inferior quality
upon presentation of a policy, and (ii) in connection with the sale of the
insurance policy, the insurance companies negligently or fraudulently
represented and interpreted the scope and terms of the policies and omitted to
provide material information regarding the policy benefits and limitations.
Plaintiffs also allege unfair trade practices in violation of Louisiana's
insurance code and trade practices laws.
Plaintiffs seek damages, penalties and attorneys fees. Louisiana law
prohibits plaintiffs from alleging specific amounts of damages. Plaintiffs also
seek a declaratory judgment compelling defendants to honor the policies and
allowing a plaintiff to select a more expensive casket than provided for in the
policy, upon payment of the difference in retail value, without forfeiting the
other benefits provided for in the policy.
10
<PAGE>
As of the date hereof, no discovery has taken place. The Company has
determined that it is not possible at this time to predict the final outcome of
this legal proceeding, including whether a class will be certified, 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
plaintiffs. Accordingly, no provision with respect to this lawsuit has been made
in the 1996 Consolidated Financial Statements.
ENVIRONMENTAL CONTINGENCIES AND LIABILITIES
The Company's operations are subject to numerous environmental laws,
regulations and guidelines adopted by various governmental authorities in the
jurisdictions in which the Company operates. Liabilities are recorded when
environmental liabilities are either known or considered probable and can be
reasonably estimated. The Company policies are designed to control environmental
risk upon acquisition through extensive due diligence and corrective measures
taken prior to acquisition. The Company believes environmental liabilities to be
immaterial individually and in the aggregate.
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 other proceedings,
individually or in the aggregate, to have a material adverse effect on the
Company's financial position, results of operation or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
None.
11
<PAGE>
EXECUTIVE OFFICERS OF LOEWEN
The following table sets forth certain information with respect to the
current executive officers of Loewen. The ages of the executive officers are
shown as of March 14, 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Raymond L. Loewen(1)................................. 56 Chairman of the Board and Chief Executive Officer
Timothy R. Hogenkamp(2).............................. 51 President and Chief Operating Officer
Douglas J. McKinnon(3)............................... 53 Executive Vice-President
Lawrence Miller(4)................................... 48 Executive Vice-President, Operations
Wm. Grant Ballantyne(5).............................. 54 Senior Vice-President, Financial Control and
Administration
Gary D. Cowan(6)..................................... 46 Senior Vice-President, Corporate Development
William R. Shane(7).................................. 50 Senior Vice-President and Chief Financial Officer,
Cemetery and Combination Division
Paul Wagler(8)....................................... 50 Senior Vice-President, Finance and Chief Financial
Officer
George M. Amato(9)................................... 54 Regional President, Operations, North East Region
Jeffrey L. Cashner(10)............................... 42 Regional President, Operations, South East Region
Frank D. Schaefer(11)................................ 48 Regional President, Operations, South Central Region
Michael Stache(12)................................... 45 Regional President, Operations, North Central Region
Dillis E.R. Ward(13)................................. 60 Regional President, West Region
Harry C.B. Rath(14).................................. 61 Vice-President, Operations, Eastern Canada Region
Peter A. Wiesner(15)................................. 45 Vice-President, Operations, Western Canada Region
Timothy A. Birch(16)................................. 38 Vice-President, Corporate Development & Law
Dwight K. Hawes(17).................................. 37 Vice-President, Finance
Peter S. Hyndman(18)................................. 55 Vice-President, Law and Corporate Secretary
David A. Laundy(19).................................. 55 Vice-President, Corporate Communications
Daniel N. Nakagawa(20)............................... 51 Vice-President, Insurance Operations
Roger Ryan(21)....................................... 47 Vice-President, Taxation, LGII
F. Andrew Scott(22).................................. 45 Vice-President, Finance and Investment Management
Thomas E. Stilgenbauer(23)........................... 49 Vice-President, Operations, Funeral Homes
Gregg A. Strom(24)................................... 55 Vice-President, Cemeteries
</TABLE>
- ------------------------
FOOTNOTES APPEAR ON THE FOLLOWING PAGE.
12
<PAGE>
(1) Prior to September 15, 1993, Mr. Loewen was President and Chief Executive
Officer of Loewen.
(2) Mr. Hogenkamp became President and Chief Operating Officer of Loewen on
September 15, 1993. From March 23, 1993 to September 15, 1993, Mr. Hogenkamp
served as Senior Vice-President, Operations of Loewen. Prior to that time,
Mr. Hogenkamp served as Vice-President, Operations of Loewen.
(3) Mr. McKinnon became Executive Vice-President of Loewen in April 1996. From
May 1994 to April 1996, Mr. McKinnon was self-employed as a consultant. From
January 1993 to May 1994, Mr. McKinnon was President of Crown Packaging
Ltd., a producer of recycled paperboard and paper packaging products in
Western Canada. Prior to January 1993, Mr. McKinnon was President and Chief
Operating Officer of Paperboard Industries Corporation, a producer of
recycled paperboard and paperboard packaging.
(4) Mr. Miller became Executive Vice-President, Operations of Loewen in July
1996. From March 1995 to July 1996, Mr. Miller was President, Cemetery and
Combination Division of Loewen. Prior to that time, Mr. Miller was President
of Osiris, a cemetery holding company that was acquired by LGII in March
1995.
(5) Mr. Ballantyne became Senior Vice-President, Financial Control and
Administration of Loewen in May 1996. Prior to that time, Mr. Ballantyne was
Senior Vice-President, Finance and Chief Financial Officer of CUC
Broadcasting Limited in Toronto, Ontario, Canada.
(6) Mr. Cowan became Senior Vice-President, Corporate Development of Loewen in
October 1996. Prior to that time, Mr. Cowan was Vice-President, Corporate
Investments of Marathon Realty Company Limited in Vancouver, British
Columbia, Canada.
(7) Mr. Shane became Senior Vice-President and Chief Financial Officer,
Cemetery and Combination Division of Loewen in March 1995. Prior to that
time, Mr. Shane was Vice-President of Osiris, a cemetery holding company
that was acquired by LGII in March 1995.
(8) Mr. Wagler became Senior Vice-President, Finance and Chief Financial
Officer of Loewen in March 1995. Prior to that time, Mr. Wagler was a Senior
Vice President of ABN AMRO Bank, in Vancouver, British Columbia, Canada.
(9) Mr. Amato became Regional President, Operations, North East Region of
Loewen in August 1996. From November 1994 to August 1996, Mr. Amato served
as Vice-President, Operations, North East Division of Loewen. Prior to
November 1994, Mr. Amato served as Senior Vice-President, Corporate
Development of Loewen.
(10) Mr. Cashner became Regional President, Operations, South East Region of
Loewen in August 1996. From February 1994 to August 1996, Mr. Cashner served
as Vice-President, Cemetery and Combination Division, South and Eastern
Region. Prior to that time, Mr. Cashner served in managerial positions at
Loewen.
(11) Mr. Schaefer became Regional President, Operations, South Central Region of
Loewen in August 1996. Prior to that time, Mr. Schaefer served as
Vice-President, Operations, South Central Division of Loewen.
(12) Mr. Stache became Regional President, North Central Region of Loewen in
August 1996. Prior to that time, Mr. Stache served as Regional Manager and
Vice-President, Operations of Osiris, a cemetery holding company that was
acquired by LGII in March 1995.
(13) Mr. Ward became Regional President, West Region of Loewen in August 1996.
Prior to that time, Mr. Ward served as Vice-President, Operations, Western
Division of Loewen.
13
<PAGE>
(14) Mr. Rath became Vice-President, Operations, Eastern Canada Region of Loewen
in August 1996. From April 1993 to August 1, 1996, Mr. Rath served as
Loewen's Director of Operations, Eastern Canada. Prior to that time, Mr.
Rath served as Loewen's Regional Manager, Ontario.
(15) Mr. Wiesner became Vice-President, Operations, Western Canada Region of
Loewen in August 1996. From April 1993 to August 1, 1996, Mr. Wiesner served
as Loewen's Director of Operations, Western Canada. Prior to that time, Mr.
Wiesner served as Loewen's Regional Manager, Alberta and Saskatchewan.
(16) Mr. Birch became Vice-President, Corporate Development & Law of Loewen in
January 1994. From February 1993 to January 1994, Mr. Birch served as
Assistant Vice-President, Corporate Development & Law of Loewen. Prior to
that time, Mr. Birch served as Corporate Counsel of Loewen.
(17) Mr. Hawes became Vice-President, Finance of Loewen in October 1994. From
January 1993 to October 22, 1994, Mr. Hawes served as Director of Treasury
Operations of Loewen. Prior to that time, Mr. Hawes served as Manager,
Treasury Operations of Loewen.
(18) Mr. Hyndman became Vice-President, Law and Corporate Secretary of Loewen in
March 1995. From November 1994 to March 1995, Mr. Hyndman served as
Corporate Secretary of Loewen. Prior to November 1994, Mr. Hyndman served as
Senior Vice-President, Law and General Counsel and Corporate Secretary of
Loewen.
(19) Mr. Laundy became Vice-President, Corporate Communications of Loewen in
August 1996. Prior to that time, Mr. Laundy was Vice-President, Public
Affairs of the Vancouver Stock Exchange.
(20) Mr. Nakagawa became Vice-President, Insurance Operations of Loewen in
August 1996. From March 1995 to August 1996, Mr. Nakagawa was self-employed
as a consultant. Prior to that time, Mr. Nakagawa served as Vice-President,
Finance and Chief Financial Officer of J.S. McMillan Fisheries Ltd.
(21) Mr. Ryan has been Vice-President, Taxation of LGII since October 1996. From
March 1994 to October 1996, Mr. Ryan was Director of Taxation of LGII. From
September 1992 to March 1994, Mr. Ryan was a Senior Tax Manager of KPMG, in
Seattle, Washington. Prior to that time, Mr. Ryan was a Partner and Senior
Manager of KPMG, in Vancouver, British Columbia.
(22) Mr. Scott became Vice-President, Finance and Investment Management of
Loewen in July 1996. From November 1995 to June 1996, Mr. Scott was
self-employed as a consultant to Loewen. Prior to that time, Mr. Scott
served as Vice-President and Director of Wood Gundy Inc., an investment
dealer in Vancouver, British Columbia.
(23) Mr. Stilgenbauer became Vice-President, Operations, Funeral Homes of Loewen
in February 1996. Prior to that time, Mr. Stilgenbauer served as Senior
Vice-President, Operations of Hook-Superx and President of Superx Drugs, a
division of Hook-Superx.
(24) Mr. Strom became Vice-President, Cemeteries of Loewen in March 1995. Prior
to that time, Mr. Strom was Vice-President, Sales of Osiris, a cemetery
holding company that was acquired by LGII in March 1995.
No executive officer of Loewen is related by blood, marriage or adoption to
any director or other executive officer of Loewen.
There are no arrangements or understandings between any executive officer of
Loewen and any other person pursuant to which the executive officer was selected
to serve as an executive officer of Loewen.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
The Common shares of Loewen have been listed on the New York Stock Exchange
since October 2, 1996 under the symbol "LWN." Prior to such listing, the Common
shares were quoted on the Nasdaq National Market under the symbol "LWNG"
("LWNGF" prior to June 6, 1996).
The Common shares have been trading on The Toronto Stock Exchange since May
6, 1987 under the symbol "LWN" and commenced trading on The Montreal Exchange on
April 28, 1993, also under the symbol "LWN."
The following table sets forth, for the periods indicated, the range of high
and low sales prices, as reported by the New York Stock Exchange, the Nasdaq
National Market and The Toronto Stock Exchange.
<TABLE>
<CAPTION>
NEW YORK STOCK NASDAQ NATIONAL THE TORONTO STOCK
EXCHANGE MARKET EXCHANGE
-------------------- -------------------- --------------------
HIGH LOW HIGH LOW HIGH LOW
--------- --------- --------- --------- --------- ---------
(U.S.$) (U.S.$) (CDN.$)
<S> <C> <C> <C> <C> <C> <C>
1995 First quarter..................................... n/a n/a 29.125 24.703 40.875 35.000
Second quarter..................................... n/a n/a 36.500 26.625 50.750 36.750
Third quarter...................................... n/a n/a 41.750 33.875 56.000 46.000
Fourth quarter..................................... n/a n/a 41.625 23.125 55.750 31.250
1996 First quarter..................................... n/a n/a 29.875 16.375 41.125 22.500
Second quarter..................................... n/a n/a 31.125 26.125 42.350 36.000
Third quarter...................................... n/a n/a 42.750 26.625 58.750 36.600
October 1.......................................... n/a n/a 42.500 41.750 57.750 56.750
October 2 through December 31...................... 42.625 37.625 n/a n/a 58.000 51.450
1997 January........................................... 41.375 35.000 n/a n/a 56.000 47.900
February........................................... 36.875 31.000 n/a n/a 50.350 43.750
March 1-14......................................... 33.250 31.625 n/a n/a 45.600 43.500
</TABLE>
As at March 14, 1997, there were 2,090 record holders of Loewen's Common
shares.
DIVIDENDS
In May 1995, the Company declared a dividend of $0.05 per Common share. In
December 1995, the Board of Directors deferred the declaration of a second
semi-annual dividend for 1995 pending resolution of the effects of the Gulf
National litigation. In February 1996, the Company declared a dividend of $0.05
per Common share as the second semi-annual dividend in respect of 1995. The
Company declared a dividend of $0.07 per Common share in June 1996 and a
dividend of $0.08 per Common share in December 1996.
The general policy of Loewen is to increase the dividend rate on its Common
shares as earnings grow. The declaration and payment of future dividends will be
determined by the Board of Directors and will depend upon earnings and, among
other things, the Company's operating and financial position, capital
requirements and general business conditions.
The payment of cash, stock and deemed dividends on the Common shares is
generally subject to Canadian withholding tax. The rate of withholding tax is
25% or such lesser amount as may be provided by treaty between Canada and the
country of residence of the recipient. Under the current income tax treaty
between the United States and Canada, such withholding tax rate is reduced to
15%.
15
<PAGE>
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations-- Liquidity and Capital Resources--Restrictions on Payment of
Dividends" and Note 6 to the 1996 Consolidated Financial Statements for a
discussion of certain restrictions on Loewen's ability to pay dividends.
SALES OF UNREGISTERED EQUITY SECURITIES
Loewen did not sell any unregistered equity securities during the fourth
quarter of 1996.
16
<PAGE>
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
FORWARD-LOOKING STATEMENTS
Management believes that the aggregate purchase price for acquisitions in
1997 will approximate $600 to $750 million. Management has established a goal
for 1997 fully-diluted earnings per share ("1997 EPS") of $1.55 to $1.60. The
foregoing statements and certain other statements made in this Form 10-K, in
other filings made with the Securities and Exchange 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 and
Section 21E(i) of the Exchange Act. 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.
CAUTIONARY STATEMENTS
The following important factors, among others, could cause 1997 EPS,
acquisition levels and other future results to differ materially from estimates,
predictions or projections included in forward-looking statements.
1. ACQUISITION LEVELS. The funeral services industry acquisition market is
extremely competitive. The Company's competition for acquisitions includes SCI,
Stewart, ECI and CSI, all 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 or dollar amount of 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-need sales and other sales programs
implemented by the Company.
3. LEGAL PROCEEDINGS. The Company's 1995 results were materially and
adversely affected by the unanticipated outcome of certain legal proceedings.
There currently are legal proceedings pending against the Company, the outcome
of which could be material. The Company is unable to predict the outcome of such
proceedings at this time.
4. OTHER. 1997 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, (viii) the amount and growth rate of the Company's
general and administrative costs and (ix) changes in applicable accounting
principles and governmental regulations.
17
<PAGE>
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, 1996. 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 GAAP. 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 1996 Consolidated Financial Statements and Notes thereto.
The financial results for the year ended December 31, 1996 include $18.7
million of finance and other costs related to SCI's October 1996 hostile
takeover proposal for the Company, which proposal was withdrawn in January 1997.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" for additional information regarding SCI's hostile takeover
proposal. The financial results for the year ended December 31, 1995 include an
aggregate of $195.7 million for legal settlements and litigation related finance
costs and certain general and administrative costs related to the legal
settlements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1996 1995(1) 1994 1993 1992
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, RATIOS AND OPERATING
INFORMATION)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT INFORMATION:
Revenue............................................ $ 908,385 $ 598,493 $ 417,328 $ 303,011 $ 218,907
Gross margin....................................... 337,571 225,362 158,854 115,118 83,708
Earnings from operations........................... 204,105 117,607 95,113 65,697 50,563
Net earnings (loss)................................ 63,906 (76,684) 38,494 28,182 19,766
Basic earnings (loss) per share.................... 0.97 (1.69) 0.97 0.77 0.59
Fully diluted earnings (loss) per share(2)......... 0.97 (1.69) 0.97 0.76 0.58
Ratio of earnings to fixed charges(3).............. 1.9x -- 2.5x 2.9x 2.6x
Aggregate dividends declared per share............. 0.200 0.050 0.070 0.045 0.030
</TABLE>
<TABLE>
<CAPTION>
AS AT DECEMBER 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Total assets....................................... $ 3,496,939 $ 2,262,980 $ 1,326,275 $ 913,661 $ 675,111
Total long-term debt(4)............................ 1,508,221 934,509 516,654 341,977 246,715
Preferred securities of subsidiary................. 75,000 75,000 75,000 -- --
Shareholders' equity............................... 1,048,200 614,682 411,139 325,890 236,317
OPERATING INFORMATION:
Number of funeral home locations(5)................ 956 815 641 533 451
Number of funeral services......................... 142,265 114,319 93,760 78,847 63,516
Number of cemeteries............................... 313 179 116(5) 70(5) 38
</TABLE>
- --------------------------
(1) Certain of the comparative figures have been reclassified to conform to the
presentation adopted in 1996.
(2) Fully diluted earnings (loss) per share figures are calculated in accordance
with Canadian GAAP and assume, if dilutive (a) exercise 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 9.10%, and (b) conversion of the Series C Preferred Shares
effective on the date of the issue of the Series C Receipts and the add-back
of the dividends during the period. See Note 9 to the 1996 Consolidated
Financial Statements.
(3) The 1995 loss is not sufficient to cover fixed charges by a total of
approximately $126.6 million and as such the ratio of earnings to fixed
charges has not been computed. Reference is made to the Statement re
Computation of Earnings to Fixed Charges Ratio (Canadian GAAP), which is
Exhibit 12.1 to this Form 10-K.
(4) Total long-term debt comprises long-term debt, including current portion.
(5) The numbers of locations for 1994 and 1993 include adjustments and
consolidations related to prior periods.
18
<PAGE>
Had the Company's Consolidated Financial Statements been prepared in
accordance with U.S. GAAP (see Note 21 to the 1996 Consolidated Financial
Statements), selected consolidated financial information would have been as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1996 1995(1) 1994 1993 1992
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT INFORMATION:
Total revenue...................................... $ 909,137 $ 598,493 $ 417,479 $ 308,402 $ 239,452
Earnings from operations........................... 198,869 117,376 94,758 66,711 54,838
Earnings (loss) before cumulative effect of change
in accounting principles......................... 64,559 (75,800) 39,652 28,912 21,330
Fully diluted earnings (loss) per share before
cumulative effect of change in accounting
principles....................................... 0.96 (1.67) 0.98 0.77 0.62
Ratio of earnings to fixed charges(2).............. 1.8x -- 2.4x 2.9x 2.6x
Aggregate dividends declared per share............. 0.200 0.050 0.070 0.047 0.033
</TABLE>
<TABLE>
<CAPTION>
AS AT DECEMBER 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Total assets....................................... $ 3,768,021 $ 2,345,874 $ 1,329,928 $ 921,342 $ 702,096
Total long-term debt(3)............................ 1,508,221 894,509 516,654 341,977 256,577
Preferred securities of subsidiary................. 75,000 75,000 75,000 -- --
Shareholders' equity............................... 1,026,110 519,006 385,950 299,059 245,472
</TABLE>
- --------------------------
(1) Certain of the comparative figures have been reclassified to conform to the
presentation adopted in 1996.
(2) The 1995 loss is not sufficient to cover fixed charges by a total of
approximately $128.3 million and as such the ratio of earnings to fixed
charges has not been computed. Reference is made to the Statement re
Computation of Earnings to Fixed Charges Ratio (U.S. GAAP), which is Exhibit
12.2 to this Form 10-K.
(3) Total long-term debt comprises long-term debt, including current portion.
19
<PAGE>
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
14, 1997, the Company operated 984 funeral homes throughout North America. This
included 862 funeral homes in the United States (including locations in Puerto
Rico) and 122 funeral homes in Canada. In addition, as at such date, the Company
operated 350 cemeteries in the United States (including locations in Puerto
Rico) and six cemeteries in Canada. As at March 14, 1996, the Company also
operates four insurance subsidiaries which sell a variety of life insurance
products, primarily to fund funerals purchased through a pre-need arrangement.
The funeral service industry has a number of attractive characteristics.
Historically the funeral service industry has had a low business failure risk
compared with most other businesses and has not been significantly affected by
economic or market cycles. According to the 1994 Business Failure Record
published by The Dun & Bradstreet Corporation, the average business failure rate
in the United States in 1994 was 86 per 10,000. The 1994 failure rate of the
funeral service and crematoria industry was 8 per 10,000, among the lowest of
all industries. 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 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 11% of the 23,500
funeral homes and approximately 9% of the 11,000 cemeteries in North America are
currently owned and operated by the five largest publicly-traded North American
funeral service 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. Managing the Company's growth is critical to profitability, and
will continue to be one of the most important responsibilities and challenges
facing the Company.
On January 7, 1997, SCI publicly withdrew its unsolicited proposal to
acquire Loewen through an exchange offer announced in October 1996. SCI had
proposed to exchange $45 worth of common stock for each Common share of Loewen
tendered and $29.51 worth of common stock for each Series C Preferred Share of
Loewen tendered. In October 1996, the Loewen Board of Directors unanimously
determined that the offer was inadequate and not in the best interests of Loewen
or its shareholders and recommended that, if the offer were commenced, Loewen
shareholders should not tender their shares.
RESULTS OF OPERATION
Detailed below are the Company's operating results for the years ended
December 31, 1996, 1995 and 1994, 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 (loss) before income taxes, including equity and other
earnings in associated companies.
20
<PAGE>
The Company's operations are comprised of three business divisions: funeral
homes, cemeteries and insurance. See Note 18 to the 1996 Consolidated Financial
Statements in Item 8 of this Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------------- -------------------------------
1996 1995 1994 1996 1995 1994
--------- --------- --------- --------- --------- ---------
(IN MILLIONS) (PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Revenue
Funeral......................................... $ 549.8 $ 441.4 $ 353.9 60.5% 73.8% 84.8%
Cemetery........................................ 286.7 143.6 63.4 31.6 23.9 15.2
Insurance....................................... 71.9 13.5 -- 7.9 2.3 --
--------- --------- --------- --------- --------- ---------
Total......................................... $ 908.4 $ 598.5 $ 417.3 100.0% 100.0% 100.0%
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Gross margin......................................
Funeral......................................... $ 222.9 $ 182.5 $ 143.4 40.6 41.3 40.5
Cemetery........................................ 95.2 39.9 15.5 33.2 27.8 24.3
Insurance....................................... 19.5 3.0 -- 27.1 22.3 --
--------- --------- ---------
Total......................................... 337.6 225.4 158.9 37.2 37.7 38.1
Expenses..........................................
General and administrative...................... 76.7 67.7 34.8 8.4 11.3 8.3
Depreciation and amortization................... 56.8 40.1 29.0 6.3 6.7 6.9
--------- --------- ---------
Earnings from operations.......................... 204.1 117.6 95.1 22.5 19.7 22.9
Interest on long-term debt........................ 88.9 50.9 34.2 9.8 8.5 8.2
Finance costs related to hostile takeover
proposal........................................ 3.2 -- -- 0.4 -- --
Other costs related to hostile
takeover proposal............................... 15.5 -- -- 1.7 -- --
Legal settlements and litigation related finance
costs........................................... -- 184.9 -- -- 30.9 --
Dividends on preferred securities of subsidiary... 7.1 7.1 2.7 0.8 1.2 0.6
Income taxes...................................... 29.1 (47.2) 19.7 31.3 (38.1) 33.9
--------- --------- ---------
60.3 (78.1) 38.5 6.6 (13.1) 9.2
Equity and other earnings in associated
companies....................................... 3.6 1.4 -- 0.4 0.3 --
--------- --------- ---------
Net earnings (loss)............................... $ 63.9 $ (76.7) $ 38.5 7.0% (12.8)% 9.2%
--------- --------- ---------
--------- --------- ---------
</TABLE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Consolidated revenue increased 51.8% to $908.4 million in the year ended
December 31, 1996 from $598.5 million in 1995. Consolidated gross margin
increased 49.8% to $337.6 million in 1996 from $225.4 million in 1995. As a
percentage of revenue, consolidated gross margin decreased to 37.2% in 1996 from
37.7% in 1995, principally due to the increased proportion of cemetery and
insurance revenue with associated lower margins and the decrease in funeral
gross margin as a percentage of funeral revenue. The Company anticipates that
the consolidated gross margin as a percentage of revenue will continue to
decline slightly, primarily as a result of continued acquisition and
internally-generated growth in the cemetery and insurance divisions.
Funeral revenue increased 24.6% to $549.8 million in 1996 compared to $441.4
million in 1995, primarily due to acquisitions. Funeral revenue for 1996
includes $4.4 million of commission income received by the Company due to
certain non-recurring conversions of trust investments to insurance investments.
The number of funeral services performed at locations in operation for all of
1995 and 1996
21
<PAGE>
("Established Locations") declined by 3.2% from 1995 to 1996; however, this was
offset by a higher average revenue per funeral service. Funeral gross margin as
a percentage of funeral revenue for Established Locations decreased slightly to
41.7% in 1996 from 42.1% in 1995, as the $2.5 million increase in revenue was
more than offset by a $2.7 million increase in costs. As a result of such
decrease, together with the lower margins of acquired funeral locations, overall
funeral gross margin as a percentage of funeral revenue decreased to 40.6% in
1996 from 41.3% in 1995.
Cemetery revenue increased 99.7% to $286.7 million in 1996 compared to
$143.6 million in 1995, primarily due to acquisitions. Cemetery gross margin
increased to 33.2% in 1996 from 27.8% in 1995 principally as a result of a shift
to increased sales of interment services for newly acquired as well as existing
locations. Management believes that the cemetery gross margin is sustainable at
30% to 32% in 1997. Historically, many of the Company's cemeteries had focused
their marketing activities on the sale of cemetery interment rights and related
merchandise. During 1996, management implemented sales programs designed to
encourage existing pre-need cemetery customers, who are already committed to
Company owned cemeteries, as well as new customers, to purchase interment
services on a pre-need basis. For Established Locations, cemetery gross margin
increased to 31.2% in 1996 from 26.5% in 1995, primarily as a result of an
increase in revenue of $15.2 million, with an $6.1 million increase in costs.
Insurance revenue increased to $71.9 million for 1996 from $13.5 million in
1995. The increase was due primarily to the integration of the March 1996
acquisition of certain net assets of S.I. Acquisition Associates, L.P. ("S.I.")
for approximately $150 million (including related costs), which assets included
two insurance companies. The increase in gross margin for insurance operations
to 27.1% for 1996 from 22.3% in 1995 reflects primarily the impact of certain
non-recurring revisions to actuarial assumptions in the amount of $4.6 million.
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. The Company's gross pre-arranged funeral sales increased to
approximately $190 million in 1996 from approximately $97 million in 1995. Pre-
arranged funeral services comprised approximately 15% of the funeral services
performed by the Company in 1996 and approximately 16% of the funeral services
performed by the Company in 1995. Although pre-need funeral sales increased in
1996, the Company does not expect pre-arranged funeral services as a percentage
of funeral services performed by the Company to vary significantly in 1997 and
1998. The Company estimates that it had a backlog of approximately $840 million
in pre-need funeral sales as of December 31, 1996. Approximately 66% of the
Company's cemetery revenue in 1996 was generated from pre-need sales compared
with 61% in 1995. The Company anticipates approximately the same mix between
pre-need and at-need cemetery sales for at least the next two years. Note 1 to
the 1996 Consolidated Financial Statements provides information regarding the
accounting treatment of pre-arranged funeral services and pre-need cemetery
sales.
United States based operations contributed 93.5% of 1996 consolidated
revenue compared with 91.3% in 1995.
General and administrative expenses, as a percentage of revenue, decreased
to 8.4% in 1996 from 11.3% in 1995. For the year ended December 31, 1996,
general and administrative expenses increased 13.4% to $76.7 million from $67.7
million in 1995. Included in the general and administrative expense for 1995
were $10.8 million for professional fees and other costs related to the Gulf
National and Provident litigations and settlements, and a $3.5 million write-off
of acquisition costs. The increase in general and administrative expenses in
1996 is primarily a result of the expansion of the Company's infrastructure
necessary to purchase, integrate and operate newly acquired locations,
particularly in the cemetery division.
22
<PAGE>
The $3.2 million of finance costs related to the hostile takeover proposal
by SCI are comprised of $1.9 million paid to Company lenders for waiver fees and
$1.3 million in additional interest costs relating to the October 1996 senior
guaranteed note issue. See "--Liquidity and Capital Resources" and Note 14 to
the 1996 Consolidated Financial Statements.
The $15.5 million of other costs related to the hostile takeover proposal by
SCI are comprised of $9.9 million of legal fees, $2.0 million of investment
banking advisory fees and $3.6 million of fees to other advisors. No tax benefit
relating to these other costs is reflected in the 1996 Consolidated Financial
Statements. See Note 14 to the 1996 Consolidated Financial Statements.
Interest expense on long-term debt increased by $38.0 million in 1996
primarily as a result of additional borrowings by the Company to finance its
acquisitions and higher borrowing costs due to lower credit ratings. As a
percentage of revenue, depreciation and amortization decreased to 6.3% in 1996
from 6.7% in 1995, principally due to the increased proportion of cemetery
acquisitions.
Income taxes were $29.1 million for 1996, resulting in an effective tax rate
of 31.3% for the year, after giving effect to the other costs related to the
hostile takeover proposal for which no tax benefit has been provided. In 1995,
the Company recorded a deferred tax benefit of $60.3 million relating to the
settlements of the Gulf National and Provident litigations. Prior to the tax
recovery, 1995 income taxes were $13.2 million, resulting in an effective rate
of 32.0%. The decrease in the effective annual tax rate is due to the expansion
of the Company's international and intercompany financing arrangements, offset
by the costs related to the hostile takeover proposal for which no tax benefit
has been provided.
Net earnings increased to $63.9 million in 1996 from a net loss of $76.7 in
1995. Fully diluted earnings per share ("EPS") increased to $0.97 per share from
a loss of $1.69 per share in 1995. The net loss and loss in EPS for 1995 were
primarily due to the impact of the Gulf National and Provident litigations and
settlements.
The Company's statement of changes in financial position for the year ended
December 31, 1996 reflects cash applied to operations of approximately $131
million, primarily as a result of legal settlements of $165 million recorded in
1995 but funded in the first quarter of 1996.
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 jury award of $500 million 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, 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 43.4% to $598.5 million in the year ended
December 31, 1995 from $417.3 million in 1994, with funeral revenue increasing
24.6% and cemetery revenue increasing 126.4%. Consolidated gross margin
increased 41.9% to $225.4 million in 1995 from $158.9 million in 1994. As a
percentage of revenue, funeral gross margin increased to 41.3% 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 37.7% in 1995 from 38.1% for the same
period in 1994.
Funeral revenue increased 24.6% to $441.4 million in 1995 compared with
$353.9 million in 1994, primarily due to acquisitions. The funeral revenue from
Established Locations in operation for all of 1994 and 1995 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
23
<PAGE>
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 in
operation for all of 1994 and 1995 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 1995, approximately 16% of the funeral services performed by the Company
were pre-arranged, an increase from 15% 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 61%
of the Company's cemetery revenue was generated from pre-need sales compared
with 53% in 1994.
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.
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 the Gulf
National award.
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.
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.
24
<PAGE>
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 and
intercompany 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.
The cash provided from operations for 1995 decreased from $43.3 million to
$10.4 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.
ACQUISITIONS, INVESTMENTS AND CAPITAL EXPENDITURES
The Company acquired 159 funeral homes, 136 cemeteries and two insurance
companies during 1996 for consideration of approximately $620 million through
168 separate acquisition transactions. Of these acquisitions, 149 funeral homes,
135 cemeteries and the two insurance companies were located in the United States
and the balance were located in Canada. Included in these acquisitions is the
March 1996 purchase of 15 funeral homes, two cemeteries and two insurance
companies from S.I. Acquisition Associates, L.P. for approximately $150 million
(including related costs). 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 1995, the Company acquired 177
funeral homes and 64 cemeteries for consideration of approximately $488 million.
In connection with certain acquisitions the Company may issue Common shares
as full or partial payment of the purchase price ("share-for-share
acquisitions"). In August 1996, the Company registered with the Securities and
Exchange Commission 5,000,000 Common shares for issuance in connection with
prospective share-for-share acquisitions. In September 1996, the Company issued
69,533 of such Common shares in connection with one share-for-share acquisition.
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.
As of March 14, 1997, the Company had signed agreements, some of which are
non-binding, for the acquisition of 51 additional funeral homes and 78
additional cemeteries aggregating approximately $222 million. The Company
expects to close a majority of such acquisitions in the first half of 1997. In
addition, in the ordinary course of its business, the Company continually is in
the process of evaluating or negotiating prospective acquisitions in competition
with other potential purchasers. From time to time, the Company may evaluate or
negotiate potential acquisitions, which, if consummated, may be considered
significant based on acquisition price.
In November 1996, Rose Hills Holding Corp. ("RH Holdings"), a company formed
by Blackstone Capital Partners II Merchant Banking Fund L.P. ("Blackstone") and
LGII, acquired the cemetery and
25
<PAGE>
mortuary operations and assets of The Rose Hills Memorial Park Association and
Roses, Inc. of Los Angeles (together, "Rose Hills"). The principal assets of
Rose Hills are the Rose Hills Memorial Park, the largest cemetery in North
America, and a mortuary that serves more families annually than any other single
mortuary location in the United States. To fund the aggregate transaction price
of approximately $285 million, Blackstone and LGII contributed approximately $35
million and $72 million, respectively, to RH Holdings, and an affiliate of LGII
contributed 14 funeral homes and two combination funeral home/ cemetery
operations located in Los Angeles and Orange counties that were valued at $23
million. The remaining $155 million was funded with debt from banks and other
institutional investors. For its contribution, Blackstone received a controlling
interest in RH Holdings. Blackstone also controls the Board of Directors of RH
Holdings. For their contributions, LGII and its affiliate received approximately
20.5% of the outstanding common stock of RH Holdings and an aggregate of $86
million of preferred stock of RH Holdings. The preferred stock constitutes all
of the outstanding preferred stock of RH Holdings and has an annual
payment-in-kind dividend of 10%. Pursuant to a put/call agreement between the
Company and Blackstone, the Company has an option to acquire Blackstone's common
share interest in RH Holdings in certain circumstances (a "call"), and
Blackstone has the option to sell its common share interest in RH Holdings to
the Company in certain circumstances (a "put"). Upon a call, Blackstone will
receive, at a minimum, its original investment and a 22.5% compound return per
annum thereon regardless of the calculated equity value. Any additional equity
attributable to Blackstone's common share interest will be determined on the
basis of a formula set forth in the put/call agreement. Upon a put, there will
be no guaranteed return to Blackstone. Any payment to Blackstone will be limited
to Blackstone's share of the calculated equity value based on a formula
(including earnings before interest, taxes, depreciation and amortization) set
forth in the terms of the put/call agreement.
In August 1996, Prime Succession Holdings, Inc. ("Prime"), a company formed
by Blackstone and LGII, acquired all of the outstanding shares of Prime
Succession, Inc., which at that time was the largest privately-held funeral
services company in North America, with 146 funeral homes and 16 cemeteries in
20 states. To fund the aggregate transaction price of approximately $320
million, Blackstone and LGII contributed approximately $52 million and
approximately $78 million, respectively, to Prime. The remaining $190 million
was funded with debt from banks and other institutional investors. For its
contribution, Blackstone received a controlling interest in Prime. Blackstone
also controls the Board of Directors of Prime. For its contribution, LGII
received approximately 21.8% of the outstanding common stock of Prime and $63.5
million of preferred stock of Prime. The preferred stock constitutes all of the
outstanding preferred stock of Prime and has an annual payment-in-kind dividend
of 10%. Pursuant to a put/call agreement between the Company and Blackstone, the
Company has an option to acquire Blackstone's common share interest Prime in
certain circumstances, and Blackstone has the option to sell its common share
interest in Prime to the Company in certain circumstances. Upon a call,
Blackstone will receive, at a minimum, its original investment plus a 24.1%
compound return per annum thereon regardless of the calculated equity value. Any
additional equity attributable to Blackstone's common share interest will be
determined on the basis of a formula set forth in the put/call agreement. Upon a
put, there is no guaranteed return to Blackstone. Any payment to Blackstone will
be limited to Blackstone's share of the calculated equity value based on a
formula (involving earnings before interest, taxes, depreciation and
amortization) set forth in the terms of the put/call agreement.
With respect to each of RH Holdings and Prime, the call option can be
exercised on the fourth anniversary of the respective closing date and for two
years thereafter, and the put option can be exercised beginning on the sixth
anniversary of the respective closing date and for two years thereafter.
See Note 4 to the 1996 Consolidated Financial Statements for additional
information regarding RH Holdings and Prime, including further discussions of
the put and call options.
26
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company plans to fund future acquisitions through a combination of debt
and equity offerings and borrowings under its credit facilities (described
below). The Company believes that cash flow from operations generally will be
sufficient to meet working capital and short-term liquidity requirements for
current operations and to fund interest payments and dividends on outstanding
Common and preferred shares. The Company plans to finance principal repayments
on debt primarily through the issue of additional debt or equity or borrowings
under revolving credit facilities and plans to ensure financing is available
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 typically will
rise to the high end of the range, and then will be reduced substantially by an
equity issue. At December 31, 1996 the Company's long-term debt/equity ratio was
1.4:1.
The Company's balance sheet at December 31, 1996, as compared to December
31, 1995, reflects changes principally from acquisitions during 1996, as
described further in Note 2 to the 1996 Consolidated Financial Statements. In
addition, the Company's investments in Prime and Rose Hills together increased
investments on the balance sheet by $173 million, as further described in Note 4
to the 1996 Consolidated Financial Statements. 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.
During 1995 and 1996 the Company significantly expanded its cemetery
pre-need sales programs. Cemetery pre-need sales typically are structured with
low initial cash payments by the customer. The balance due is recorded as an
installment contract receivable and the future liability for merchandise as an
other liability. The increase in the level of pre-need sales has resulted in an
increase in both current and long-term receivables and other liabilities.
EQUITY OFFERINGS
In January 1996, Loewen completed a public offering (the "1996 Preferred
Share Offering") in Canada and a simultaneous private placement in the United
States of Series C Receipts representing 8,800,000 Series C Preferred Shares for
gross proceeds of Cdn.$220 million (U.S.$161 million), which were deposited with
an escrow agent. The net proceeds were released to the Company periodically to
fund acquisitions by depositing with the escrow agent an equal dollar amount of
Series C Preferred Shares. By June 1996, all of the Series C Preferred Shares
had been deposited with the escrow agent, all of the net proceeds had been
released to the Company and the Series C Preferred Shares were released to the
holders of the Series C Receipts. Each Series C Preferred Share is convertible
into 0.6557 of a Common share at the option of the holder of Series C Preferred
Shares, subject to certain conditions. See Note 9 to the 1996 Consolidated
Financial Statements for additional information regarding the Series C Preferred
Shares.
In March 1996, Loewen 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 million (U.S.$221 million) (the "1996 Common Share
Offering"). The net proceeds of the 1996 Common Share Offering were used to pay
down the then outstanding balance on the Multi-Currency Revolver (described
below) and for general corporate purposes, including acquisitions.
27
<PAGE>
INDEBTEDNESS
In March 1996, concurrently with the 1996 Common Share Offering, LGII issued
two series of senior guaranteed notes (the "Series 1 and 2 Notes") in the United
States for aggregate gross proceeds of $350 million (the "Series 1 and 2 Senior
Notes Offering"). The Series 1 and 2 Notes are guaranteed by Loewen. The net
proceeds of the Series 1 and 2 Senior Notes Offering were used to repay the then
outstanding balance on the Multi-Currency Revolver in full and for general
corporate purposes, including acquisitions.
In October 1996, LGII issued two additional series of senior guaranteed
notes (the "Series 3 and 4 Notes") in the United States for aggregate gross
proceeds of $350 million (the "Series 3 and 4 Senior Notes Offering"). The
Series 3 and 4 Notes are guaranteed by Loewen. The net proceeds of the Series 3
and 4 Senior Notes Offering were used primarily to repay indebtedness under the
1996 Revolving Credit Facility (described below), and the balance of the net
proceeds were used for general corporate purposes, including acquisitions and
interest and principal payments on existing senior notes.
In addition to the Series 1 through 4 Notes, LGII and Loewen have
outstanding at December 31, 1996 an aggregate of $208 million of senior
amortizing notes, issued in five series (Series A through Series E) in 1991,
1993, and 1994 (the "Series A-E Senior Notes"). The Series A-E Senior Notes bear
interest at rates ranging from 6.49% to 9.93% and have initial terms of seven to
ten years.
Loewen also has a Cdn.$50 million revolving credit facility that matures in
July 1999 (the "Canadian Revolver"), which was amended in July 1996 to modify
certain covenants to parallel the 1996 Revolving Credit Facility. A subsidiary
of Loewen has a $108 million secured term loan implemented in connection with
the 1994 Management Equity Investment Plan that will terminate in July 2000 (the
"MEIP Loan"), which also was amended in July 1996 to modify certain covenants to
parallel the 1996 Revolving Credit Facility. Loewen has a Cdn.$35 million
five-year term loan that will terminate in January 2000 (the "Canadian Term
Loan").
In May 1996, LGII entered into a five-year $750 million secured revolving
credit facility (the "1996 Revolving Credit Facility") with a syndicate of
banks. The 1996 Revolving Credit Facility matures in May 2001 and bears interest
at alternative rates selected by LGII. At December 31, 1996, the amount
outstanding under the 1996 Revolving Credit Facility was $237 million, and such
amount bore interest at 6.87% per annum.
Prior to entering into the 1996 Revolving Credit Facility, LGII had a $400
million unsecured multi-currency revolving credit facility with a syndicate of
banks that was scheduled to mature in May 2000 and a $100 million 364-day
unsecured multi-currency revolving credit facility with the same syndicate of
banks that expired on May 10, 1996 (together, the "Multi-Currency Revolver").
The Multi-Currency Revolver was repaid in full and retired on May 31, 1996.
Also on May 31, 1996, Loewen, LGII and their senior lenders entered into a
collateral trust arrangement pursuant to which the senior lenders share certain
collateral on a pari passu basis. The collateral includes (i) a pledge for the
benefit of the senior lenders of the shares of capital stock held by Loewen of
substantially all of the Loewen subsidiaries and (ii) all of the financial
assets of LGII (including the shares of capital stock held by LGII of various
subsidiaries). The collateral is held by a trustee for the equal and ratable
benefit of the various holders of senior indebtedness. This senior lending group
consists principally of the lenders under the 1996 Revolving Credit Facility,
the Canadian Revolver, the MEIP Loan, and the Canadian Term Loan as well as the
holders of certain letters of credit, the Series A-E Senior Notes, the Series 1
and 2 Notes and the Series 3 and 4 Notes.
RESTRICTIONS ON PAYMENT OF DIVIDENDS
Certain of the Company's debt instruments and credit facilities contain
restrictions, including change of control provisions and provisions restricting
payment of dividends on Common and preferred shares,
28
<PAGE>
restricting encumbrance of assets, limiting redemption or repurchase of shares,
limiting disposition of assets, limiting the amount of additional debt, limiting
the amount of capital expenditures and requiring the Company to maintain
specified financial ratios. At December 31, 1996, approximately $26 million of
the Company's retained earnings were restricted and unavailable for payment of
dividends under the most restrictive agreement. See Note 6 to the 1996
Consolidated Financial Statements.
In connection with the issuance of the MIPS by LGC in August 1994, Loewen is
guarantor of a Series A Junior Subordinated Debenture due August 31, 2024 issued
by LGII (the "Series A Debenture"). Under the terms of the Series A Debenture,
Loewen may not pay dividends on its Common shares if (i) there shall have
occurred any event that, with the giving of notice or the lapse of time or both,
would constitute an Event of Default (as defined in the Series A Debenture),
(ii) Loewen is in default with respect to payment of any obligations under
certain related guarantees or (iii) LGII shall have given notice of its election
to select an Extension Period (as defined in the Series A Debenture), and such
period, or any extension thereof, shall be continuing. For further information
regarding the MIPS, see Note 7 to the 1996 Consolidated Financial Statements.
Payments of dividends and loans and advances by subsidiaries to Loewen or
LGII are not restricted except that the Company's insurance subsidiaries are
subject to certain state regulations which restrict distributions, loans and
advances from such subsidiaries to the Company.
INTEREST RATE RISK MANAGEMENT
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. 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.
29
<PAGE>
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,
-------------------------------
1996 1995(1) 1994
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Sources of capital:
Cash provided by operations..................................................... $ (134.5) $ 10.4 $ 43.3
Issue of common share capital................................................... 300.6 203.1 53.3
Issue of preferred securities of subsidiary..................................... -- -- 75.0
Issue of preferred shares....................................................... 154.1 -- --
Net change in long-term debt and current note payable........................... 575.4 381.2 172.9
--------- --------- ---------
Total......................................................................... $ 895.6 $ 594.7 $ 344.5
--------- --------- ---------
--------- --------- ---------
Uses of capital:..................................................................
Business acquisitions (net of debt and liabilities assumed)..................... $ 619.6 $ 487.9 $ 265.6
Construction of new facilities.................................................. 17.7 14.7 14.1
Investments, net................................................................ 171.4 15.7 30.9
Net capital expenditures........................................................ 30.8 17.9 13.6
Net purchase of insurance invested assets....................................... 34.4 -- --
Common share dividends.......................................................... 11.4 2.4 2.9
Preferred share dividends....................................................... 8.9 -- --
Increase (decrease) in cash and cash equivalents................................ (21.3) 27.3 (2.5)
Other........................................................................... 22.7 28.8 19.9
--------- --------- ---------
Total......................................................................... $ 895.6 $ 594.7 $ 344.5
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(1) Certain of the comparative figures have been reclassified to conform to the
presentation adopted in 1996.
30
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
THE LOEWEN GROUP INC.
Report of Independent Accountants........................................................................ 32
Consolidated Balance Sheets as of December 31, 1996 and 1995............................................. 33
Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995
and 1994............................................................................................... 34
Consolidated Statements of Retained Earnings for the Years Ended December 31, 1996,
1995 and 1994.......................................................................................... 35
Consolidated Statement of Changes in Financial Position for the Years Ended December 31, 1996, 1995 and
1994................................................................................................... 36
Notes to Consolidated Financial Statements............................................................... 37
Supplementary Data: Quarterly Financial Data (Unaudited)................................................. 80
LOEWEN GROUP INTERNATIONAL, INC.
Report of Independent Accountants........................................................................ 82
Consolidated Balance Sheets as of December 31, 1996 and 1995............................................. 83
Consolidated Statements of Operations and Retained Earnings (Deficit) for the Years Ended December 31,
1996, 1995 and 1994.................................................................................... 84
Consolidated Statements of Changes in Financial Position for the Years Ended December 31, 1996, 1995 and
1994................................................................................................... 85
Notes to Consolidated Financial Statements............................................................... 86
NEWEOL INVESTMENTS LTD. (SEE NOTE 1)
Report of Independent Accountants........................................................................ 123
Consolidated Balance Sheets as of December 31, 1996 and 1995............................................. 124
Consolidated Statements of Operations and Retained Earnings for the Years Ended December 31, 1996, 1995
and 1994............................................................................................... 125
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994............... 126
Notes to Consolidated Financial Statements............................................................... 127
LOEWEN FINANCE (WYOMING) LIMITED LIABILITY COMPANY
Report of Independent Accountants........................................................................ 142
Balance Sheets as of December 31, 1996 and 1995.......................................................... 143
Statements of Income and Retained Earnings for the Eight Month Period Ended December 31, 1994 and the
Years Ended December 31, 1996 and 1995................................................................. 144
Statements of Cash Flows for the Eight Month Period Ended December 31, 1994 and the Years Ended December
31, 1996 and 1995...................................................................................... 145
Notes to Financial Statements............................................................................ 146
</TABLE>
FINANCIAL STATEMENTS OF LGII, NEWEOL INVESTMENTS LTD. AND LOEWEN FINANCE
(WYOMING) LIMITED LIABILITY COMPANY ARE INCLUDED IN THIS ANNUAL REPORT ON FORM
10-K BECAUSE THE OUTSTANDING SHARES OF EACH OF SUCH COMPANIES CONSTITUTE A
"SUBSTANTIAL PORTION" OF THE COLLATERAL (WITHIN THE MEANING OF SECURITIES AND
EXCHANGE COMMISSION RULE 3-10 UNDER REGULATION S-X) THAT SECURES THE SERIES 1
THROUGH 4 NOTES THAT WERE ISSUED BY LGII AND GUARANTEED BY LOEWEN.
31
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
The Loewen Group Inc.
We have audited the consolidated balance sheets of The Loewen Group Inc. as
at December 31, 1996 and 1995 and the consolidated statements of operations,
retained earnings and changes in financial position for each of the years in the
three year period ended December 31, 1996. In connection with our audits of the
consolidated financial statements, we also have audited financial statement
schedule II included in item 14 of the Company's annual report on Form 10-K.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable asurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1996 and 1995 and the results of its operations and the changes in its financial
position for each of the years in the three year period ended December 31, 1996,
in accordance with generally accepted accounting principles in Canada. As
required by the Company Act of the Province of British Columbia, we report that,
in our opinion, these principles have been applied on a consistent basis. Also,
in our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
/S/ KPMG
Chartered Accountants
Vancouver, Canada
March 3, 1997
32
<PAGE>
THE LOEWEN GROUP INC.
CONSOLIDATED BALANCE SHEETS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash and term deposits............................................................ $ 18,059 $ 39,454
Receivables, net of allowances.................................................... 187,617 115,953
Inventories....................................................................... 32,008 27,489
Prepaid expenses.................................................................. 11,545 8,185
------------ ------------
249,229 191,081
Prearranged funeral services........................................................ 334,420 245,854
Long-term receivables, net of allowances............................................ 288,579 167,367
Investments......................................................................... 266,228 86,815
Insurance invested assets........................................................... 296,249 97,024
Cemetery property, at cost.......................................................... 615,192 369,022
Property and equipment.............................................................. 686,285 551,965
Names and reputations............................................................... 558,710 424,944
Deferred income taxes............................................................... 67,904 61,959
Other assets........................................................................ 134,143 66,949
------------ ------------
$ 3,496,939 $ 2,262,980
------------ ------------
------------ ------------
LIABILITIES and SHAREHOLDERS' EQUITY
Current liabilities
Current indebtedness.............................................................. $ -- $ 38,546
Accrued settlements............................................................... -- 53,000
Accounts payable and accrued liabilities.......................................... 114,072 80,058
Long-term debt, current portion................................................... 79,580 69,671
------------ ------------
193,652 241,275
Long-term debt...................................................................... 1,428,641 864,838
Other liabilities................................................................... 204,546 136,433
Insurance policy liabilities........................................................ 212,480 84,898
Deferred prearranged funeral services revenue....................................... 334,420 245,854
Preferred securities of subsidiary.................................................. 75,000 75,000
Shareholders' equity
Common shares..................................................................... 796,431 490,055
Common shares issuable under legal settlements.................................... -- 72,000
Preferred shares.................................................................. 157,146 --
Retained earnings................................................................. 80,117 36,439
Foreign exchange adjustment....................................................... 14,506 16,188
------------ ------------
1,048,200 614,682
------------ ------------
$ 3,496,939 $ 2,262,980
------------ ------------
------------ ------------
</TABLE>
COMMITMENTS AND CONTINGENCIES (NOTES 6, 11, 12 AND 20)
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
33
<PAGE>
THE LOEWEN GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
---------- ----------- ----------
<S> <C> <C> <C>
Revenue
Funeral................................................................... $ 549,833 $ 441,352 $ 353,904
Cemetery.................................................................. 286,652 143,577 63,424
Insurance................................................................. 71,900 13,564 --
---------- ----------- ----------
908,385 598,493 417,328
Costs and expenses
Funeral................................................................... 326,892 258,872 210,471
Cemetery.................................................................. 191,473 103,726 48,003
Insurance................................................................. 52,449 10,533 --
---------- ----------- ----------
570,814 373,131 258,474
---------- ----------- ----------
337,571 225,362 158,854
Expenses
General and administrative................................................ 76,703 67,652 34,751
Depreciation and amortization............................................. 56,763 40,103 28,990
---------- ----------- ----------
133,466 107,755 63,741
---------- ----------- ----------
Earnings from operations.................................................... 204,105 117,607 95,113
Interest on long-term debt.................................................. 88,932 50,913 34,203
Finance costs related to hostile takeover proposal.......................... 3,230 -- --
Other costs related to hostile takeover proposal............................ 15,448 -- --
Litigation related finance costs............................................ -- 19,914 --
Legal settlements........................................................... -- 165,000 --
---------- ----------- ----------
Earnings (loss) before undernoted items..................................... 96,495 (118,220) 60,910
Dividends on preferred securities of subsidiary............................. 7,088 7,088 2,678
---------- ----------- ----------
Earnings (loss) before income taxes and undernoted items.................... 89,407 (125,308) 58,232
Income taxes
Current................................................................... 22,544 29,379 17,053
Deferred.................................................................. 6,551 (76,557) 2,685
---------- ----------- ----------
29,095 (47,178) 19,738
---------- ----------- ----------
60,312 (78,130) 38,494
Equity and other earnings of associated companies........................... 3,594 1,446 --
---------- ----------- ----------
Net earnings (loss) for the year............................................ $ 63,906 $ (76,684) $ 38,494
---------- ----------- ----------
---------- ----------- ----------
Basic earnings (loss) per Common share...................................... $ 0.97 $ (1.69) $ 0.97
Fully diluted earnings (loss) per Common share.............................. $ 0.97 $ (1.69) $ 0.97
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
34
<PAGE>
THE LOEWEN GROUP INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Retained earnings, beginning of year.......................................... $ 36,439 $ 115,492 $ 79,867
Net earnings (loss)........................................................... 63,906 (76,684) 38,494
Common share dividends........................................................ (11,354) (2,369) (2,869)
Preferred share dividends..................................................... (8,874) -- --
---------- ---------- ----------
Retained earnings, end of year................................................ $ 80,117 $ 36,439 $ 115,492
---------- ---------- ----------
---------- ---------- ----------
Dividend per Common share..................................................... $ 0.200 $ 0.050 $ 0.070
Dividend per Preferred share.................................................. $ 1.008 $ -- $ --
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
35
<PAGE>
THE LOEWEN GROUP INC.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
CASH PROVIDED BY (APPLIED TO)
Operations
Net earnings (loss)..................................................... $ 63,906 $ (76,684) $ 38,494
Items not affecting cash
Depreciation and amortization......................................... 56,763 40,103 28,990
Deferred income taxes................................................. 6,551 (76,557) 2,685
Equity and other earnings of associated companies..................... (3,594) (1,446) --
Other................................................................. 25,315 14,541 2,455
Common shares and debt issuable under legal settlements................. (112,000) 112,000 --
Net changes in other non-cash balances.................................. (171,450) (1,552) (29,340)
------------ ----------- -----------
(134,509) 10,405 43,284
------------ ----------- -----------
Investing
Business acquisitions................................................... (619,632) (487,948) (265,638)
Construction of new facilities.......................................... (17,719) (14,695) (14,114)
Investments, net........................................................ (171,398) (15,719) (30,917)
Purchase of insurance invested assets................................... (106,335) -- --
Proceeds on disposition of insurance invested assets.................... 71,939 -- --
Purchase of property and equipment...................................... (54,911) (21,369) (17,890)
Proceeds on disposition of assets....................................... 24,067 3,490 4,263
Proceeds on disposition of insurance operations......................... -- -- (4,304)
Other................................................................... 2,335 (32,932) (17,386)
------------ ----------- -----------
(871,654) (569,173) (345,986)
------------ ----------- -----------
Financing
Issue of Common shares, before income tax recovery...................... 300,583 203,056 53,388
Issue of Preferred shares, before income tax recovery................... 154,094 -- --
Issue of preferred securities of subsidiary............................. -- -- 75,000
Increase in long-term debt.............................................. 1,128,449 396,461 187,357
Reduction in long-term debt............................................. (514,510) (53,793) (14,465)
Common share dividends.................................................. (11,354) (2,369) (2,869)
Preferred share dividends............................................... (8,874) -- --
Current note payable.................................................... (38,546) 38,546 --
Other................................................................... (25,004) 4,121 1,744
------------ ----------- -----------
984,838 586,022 300,155
------------ ----------- -----------
Increase (decrease) in cash and cash equivalents during the year.......... (21,325) 27,254 (2,547)
Effect of foreign exchange adjustment..................................... (70) 551 464
Cash and cash equivalents, beginning of year.............................. 39,454 11,649 13,732
------------ ----------- -----------
Cash and cash equivalents, end of year.................................... $ 18,059 $ 39,454 $ 11,649
------------ ----------- -----------
------------ ----------- -----------
Cash and cash equivalents include
Cash and term deposits.................................................. $ 18,059 $ 39,454 $ 15,349
Bank indebtedness, included in current indebtedness..................... -- -- (3,700)
------------ ----------- -----------
$ 18,059 $ 39,454 $ 11,649
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
36
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada, which, in the case of the
Company, generally conform with those established in the United States, except
as explained in Note 21.
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.
BASIS OF CONSOLIDATION
The accounts of all subsidiary companies have been included in the
consolidated financial statements from their respective dates of acquisition of
control or formation. All subsidiaries are wholly owned at December 31, 1996
except for a few companies with small minority interests. The Company's
operating subsidiaries in the United States are held through Loewen Group
International, Inc. ("LGII") .
The Company accounts for its common share investment in companies in which
it has significant influence by the equity method. The Company's proportionate
share of income (loss) as reported, net of amortization of excess purchase price
over net assets acquired, is included in income and added to (deducted from) the
cost of the investment. Common share dividends received reduce the carrying
amount of the investment.
Other long-term investments including preferred share investments are
accounted for using the cost method.
The Company accounts for its investment in joint ventures using the
proportionate consolidation method.
All significant inter-company balances and transactions have been eliminated
in the consolidated financial statements.
USE OF ESTIMATES
The preparation of consolidated financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during the
reporting period. As a result, actual results could differ from those estimates.
PREARRANGED FUNERAL SERVICES
Prearranged funeral services provide for future funeral services generally
determined by prices prevailing at the time the contract is signed. The payments
made under the contract are either placed in trust or are used to pay the
premiums of life insurance policies under which the Company will be designated
as beneficiary. Except for insurance commissions and amounts not required to be
trusted which are used to defray initial costs of administration, no income is
recognized until the performance of a specific funeral.
37
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Trust fund principal amounts and insurance contract amounts, together with
trust fund investment earnings retained in trust and annual insurance benefits,
are deferred until the service is performed. The Company estimates that trust
fund investment earnings and annual insurance benefits exceed the increase in
cost over time of providing the related services. Upon performance of the
specific funeral service, the Company will recognize the trust fund principal
amount or insurance contract amount together with the accumulated trust earnings
and annual insurance benefits as funeral revenues. Direct obtaining costs
related to the sale of prearranged funeral services are included in other assets
and amortized over a period of ten years, approximating the period the benefits
are expected to be realized. Indirect obtaining costs relating to the sale of
prearranged funeral services are expensed in the period incurred.
CEMETERY OPERATIONS
Pre-need sales of cemetery interment rights and other related products and
services are recorded as revenue when customer contracts are signed with
concurrent recognition of related costs. Allowances for customer cancellations
and refunds are provided at the date of sale based on management's estimates of
expected cancellations. Actual cancellation rates in the future may result in a
change in estimate.
A portion of the proceeds from cemetery sales is generally required by law
to be paid into perpetual or endowment care trust funds. Cemetery revenue is
recorded net of the amount to be deposited to perpetual or endowment care trust
funds. Earnings of perpetual or endowment care trust funds are used to defray
the maintenance costs of cemeteries. Additionally, pursuant to state law, a
portion of the proceeds from the sale of pre-need merchandise and services may
also be required to be paid into trust funds which are recorded as long-term
receivables.
INSURANCE OPERATIONS
(A) INSURANCE REVENUE
The Company earns insurance revenue through the sale of industrial life and
ordinary life insurance policies.
(B) INSURANCE INVESTED ASSETS
Bonds and other fixed-term securities are carried at amortized cost. Net
realized gains and losses are deferred and amortized to income over the
remaining term to maturity of the security sold. Equity securities are carried
at moving average market value. Net realized gains and losses on the disposal of
equity securities are deferred and amortized to income on a declining balance
basis.
(C) INSURANCE POLICY LIABILITIES
Insurance policy liabilities represent an estimate of the amount which,
together with future premiums and investment income, will be sufficient to pay
future benefits, dividends and expenses on insurance and annuity contracts.
Liabilities are computed using the policy premium method which involves the use
of estimates concerning such factors as mortality and morbidity rates, future
investment yields, future expense levels and rates of surrender. Consequently
policy liabilities include reasonable provisions for adverse
38
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
deviations from those estimates. These assumptions will be revised if it is
determined that future experience differs substantially from that previously
assumed.
ENVIRONMENTAL CONTINGENCIES AND LIABILITIES
The Company's operations are subject to numerous environmental laws,
regulations and guidelines adopted by various governmental authorities in the
jurisdictions in which the Company operates. Liabilities are recorded when
environmental liabilities are either known or considered probable and can be
reasonably estimated. The Company policies are designed to control environmental
risk upon acquisition through extensive due diligence and corrective measures
taken prior to acquisition and ongoing maintenance programs after acquisition.
INVENTORIES
Inventories are valued at the lower of cost, determined primarily on a
specific identification basis or a first in first out basis, and net realizable
value.
CEMETERY PROPERTY
Cemetery property, including capitalized interest, consists of developed and
undeveloped cemetery property and is valued at average cost, which is not in
excess of market value. Amounts are expensed to costs and expenses as sales of
cemetery plots occur.
PROPERTY AND EQUIPMENT
Property and equipment is recorded initially at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Buildings and improvements......................... 10 to 40 years
Automobiles........................................ 6 years
Furniture, fixtures and equipment.................. 6 to 10 years
Computer hardware and software..................... 6 to 10 years
over the term of the lease plus one
Leasehold improvements............................. renewal
</TABLE>
NAMES AND REPUTATIONS
The amount paid for the names and reputations of operations acquired is
equivalent to the excess of the purchase price over the fair value of
identifiable net assets acquired, as determined by management. Amortization is
provided on a straight-line basis over 40 years.
Covenants not to compete included with names and reputations on the
consolidated balance sheet represent amounts prepaid under non-competition
agreements with certain key management personnel of acquired operations.
Amortization of such prepaid covenants not to compete is provided on a
straight-line basis over the terms of the relevant agreements, typically ten
years.
39
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS
The Company monitors the recoverability of long-lived assets, including
names and reputations, based on factors such as current market value, future
asset utilization, business climate and future undiscounted cash flows expected
to result from the use of the related assets. The Company's policy is to record
an impairment loss in the period when it is determined that the carrying amount
of the asset may not be recoverable.
DEFERRED FINANCE COSTS
Deferred finance costs included in other assets on the consolidated balance
sheet represent the costs of negotiating and securing the Company's long-term
debt and preferred securities of subsidiary and are being amortized to earnings
on a straight-line basis over the respective term of the related debt. These
costs include legal fees, accounting fees, underwriting and agency fees and
other related costs.
ACQUISITION COSTS
The Company's policy is to capitalize direct acquisition costs incurred on
potential acquisitions. Upon completion of an acquisition, these costs are
allocated to the assets acquired and are subject to the accounting policies
outlined above. On certain acquisitions, a portion of the consideration is
contingent upon future operating results. Such consideration, if any, is
allocated to the assets acquired once determinable. Direct acquisition costs
related to acquisitions not completed are written off.
DERIVATIVE INSTRUMENTS
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 enters into interest rate swap agreements to manage interest
rate exposure on its long-term debt. The difference between the amounts paid and
received is accrued and accounted for as an adjustment to interest expense over
the life of the swap agreement.
The Company uses basic swap and option products to manage its exposure to
interest rate movements when anticipated financing transactions are probable and
the significant characteristics and expected terms are identified. Any gain or
loss as a result of the hedging is deferred and amortized as an adjustment to
interest expense over the life of the financing instrument hedged. If at any
point in time, a hedging transaction no longer meets the criteria of a hedge,
any gain or loss is recognized in current earnings.
The Company may also use foreign exchange forward contracts, options and
futures to hedge the Company's exposure to fluctuations in foreign exchange
rates. Gains or losses as a result of the hedge transaction are accounted for as
an adjustment to the related transaction.
40
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SHARE ISSUE EXPENSES
The costs of issuing shares, net of income tax recoveries thereon, are
applied to reduce the stated value of such shares.
DEFERRED INCOME TAXES
The Company follows the allocation method for accounting for income taxes.
Under this method recognition is given in the financial statements to the tax
effects of timing differences between income for financial statement and income
tax purposes. The differences arise primarily from provisions for legal
settlements and related costs, intercompany charges, interest, depreciation,
amortization, deferred finance costs, direct marketing costs, provision for bad
debts and contract cancellations, operating loss carryforwards, cemetery sales
and share issue costs.
EARNINGS PER SHARE
Basic earnings per share figures are calculated based on net earnings
available to Common shareholders using the weighted average number of Common
shares outstanding during the respective periods.
Fully diluted earnings per share figures assume exercise of options,
convertible preference shares and Management Equity Investment Plan ("MEIP")
options, if dilutive, effective on their dates of issue and that the funds
derived therefrom would have been invested at an annual after tax rate of return
of 6.55% (1995 -- 6.19%, 1994 -- 6.18%).
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Canadian operations, which are accounted
for as self-sustaining, have been translated into United States dollars at the
rates of exchange as at the balance sheet dates, and revenue and expenses are
translated at the average rates of exchange for the periods of operation. Gains
or losses arising from the translation are deferred and are classified as
"Foreign exchange adjustment" within Shareholders' equity.
NOTE 2. ACQUISITIONS
During the year ended December 31, 1996, the Company acquired 149 funeral
homes, 135 cemeteries and two insurance companies in the United States, and ten
funeral homes and one cemetery in Canada. Included in these acquisitions is the
purchase of certain net assets of S.I. Acquisition Associates L.P. ("S.I.") of
Donaldsonville, Louisiana, for approximately $155,800,000, including costs of
acquisition. S.I. concurrently acquired all the outstanding shares of Ourso
Investment Corporation. The S.I. assets include 15 funeral homes, two cemeteries
and two insurance companies.
During the year ended December 31, 1995, the Company acquired 170 funeral
homes and 61 cemeteries in the United States and seven funeral homes and three
cemeteries in Canada.
41
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 2. ACQUISITIONS (CONTINUED)
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 shown below. Included in the 1996 amounts is
$11,794,000 representing the present value of total contingent payments of
approximately $13,500,000 which the Company recorded in the third quarter of
1996 when the outcome of the contingency related to a 1995 acquisition became
determinable.
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Current assets......................................................................... $ 13,624 $ 16,538
Prearranged funeral services........................................................... 49,098 62,250
Long-term receivables, net of allowances............................................... 90,882 83,951
Investments............................................................................ 1,837 9,500
Insurance invested assets.............................................................. 185,971 --
Cemetery property, at cost............................................................. 255,239 254,115
Property and equipment................................................................. 111,610 94,741
Names and reputations.................................................................. 154,297 118,531
Other assets........................................................................... 251 9,424
----------- ----------
862,809 649,050
Current liabilities.................................................................... (19,364) (15,832)
Long-term debt......................................................................... (2,068) (14,677)
Other liabilities...................................................................... (53,995) (60,378)
Insurance policy liabilities........................................................... (125,250) --
Deferred income taxes.................................................................. 6,598 (7,965)
Deferred prearranged funeral services revenue.......................................... (49,098) (62,250)
----------- ----------
$ 619,632 $ 487,948
----------- ----------
----------- ----------
Consideration
Cash, including assumed debt repaid at closing....................................... $ 556,921 $ 382,000
Debt................................................................................. 51,060 95,052
Common shares........................................................................ 11,651 10,896
----------- ----------
Purchase Price......................................................................... $ 619,632 $ 487,948
----------- ----------
----------- ----------
</TABLE>
The following table reflects, on an unaudited pro-forma basis, the combined
results of the Company's operations acquired during the period ended December
31, 1996 as if all such acquisitions had taken place at the beginning of the
respective years 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
42
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 2. ACQUISITIONS (CONTINUED)
indicative of the results of operations that would have resulted had the
acquisitions been in effect for the entire years presented, and is not intended
to be a projection of future results or trends.
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Revenues.................................................................................. $ 992,412 $ 819,145
Net earnings (loss)....................................................................... $ 58,552 $ (79,441)
Basic earnings (loss) per share........................................................... $ 0.86 $ (1.95)
Fully diluted earnings (loss) per share................................................... $ 0.86 $ (1.95)
</TABLE>
NOTE 3. PREARRANGED FUNERAL SERVICES
Included in the consolidated balance sheets at December 31, 1996, as
prearranged funeral services is $334,420,000 (1995 -- $245,854,000),
representing amounts deposited in accordance with state trusting laws with
various financial institutions and insurance companies, together with accrued
earnings. The Company will receive the prearranged funeral trust amounts when
the funeral services are performed.
AMOUNTS HELD IN PREARRANGED FUNERAL TRUSTS
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Short-term investments.................................................................... $ 98,615 $ 96,705
Fixed maturities.......................................................................... 116,177 118,244
Balanced mutual funds..................................................................... 58,648 26,589
Equity securities......................................................................... 10,870 3,257
Insurance policies held by trust.......................................................... 45,228 --
Other..................................................................................... 4,882 1,059
---------- ----------
$ 334,420 $ 245,854
---------- ----------
---------- ----------
</TABLE>
As at December 31, 1996, total prearranged funeral trust assets were
approximately equal to the market value. The weighted average rate of return on
the above prearranged funeral trust assets for the year ended December 31, 1996
was 5.2% (1995 -- 5.1%, 1994 -- 4.7%).
43
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 4. INVESTMENTS
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
ARBOR MEMORIAL SERVICES INC. ("ARBOR")
713,825 Class A voting shares (1995 -- 680,225) representing
28.3% (market value $14,843,144 (1995 -- $11,220,721))
2,154,352 Class B non-voting shares (1995 -- 2,057,752)
representing 27.5% (market value -- $43,618,319 (1995 -- $33,189,548))................. $ 39,517 $ 35,710
PRIME SUCCESSION HOLDINGS, INC. ("PRIME")
213.2353 Common shares (1995 -- nil) representing 21.8%.................................. 12,780 --
6,350 Preferred Shares (1995 -- nil) representing 100%................................... 63,500 --
ROSE HILLS HOLDINGS CORP. ("RH HOLDINGS")
204.5454 Common shares (1995 -- nil) representing 20.45%................................. 6,525 --
8,600 Preferred shares (1995 -- nil) representing 100%................................... 86,000 --
INVESTMENTS OF JOINT VENTURE............................................................... 37,187 34,258
OTHER...................................................................................... 20,719 16,847
---------- ---------
$ 266,228 $ 86,815
---------- ---------
---------- ---------
</TABLE>
(A) ARBOR
The investment in Arbor, an operator of funeral homes and cemeteries in
Canada, is accounted for by the equity method commencing January 1, 1995. As at
October 31, 1996, Arbor had total assets and liabilities of $439,261,000 and
$293,808,000 respectively (1995 -- $287,617,000 and $188,837,000 respectively)
and total revenues of $129,978,000 (1995--$117,269,000). The Company's equity in
the earnings of Arbor in 1996 was $1,879,000 (1995 -- $1,391,000). Included in
the Company's retained earnings are $2,888,000 (1995 -- $1,199,000) of
undistributed earnings of Arbor.
(B) PRIME
On August 26, 1996, the Company acquired 235.2941 Common shares of Prime for
$16,000,000, representing 23.5% of Prime's voting common stock, and 100% of
Prime's non-voting preferred stock for $62,000,000. Blackstone Capital Partners
II Merchant Banking Fund L.P. and certain affiliates (together, "Blackstone")
acquired 764.7059 Common shares, representing 76.5% of Prime's voting common
stock for $52,000,000. On February 14, 1997, the Company and Blackstone agreed
to adjust their respective ownership of Prime's voting common stock
retroactively to August 26, 1996. No adjustment to the aggregate purchase price
was made. After giving effect to the readjustment, the Company has paid
$14,500,000 for 213.2353 Common shares and Blackstone has paid $52,000,000 for
764.7059 Common shares representing 21.8% and 78.2% respectively of Prime's
voting common shares. The Company has acquired 100% of Prime's non-voting
preferred stock. A 10% cumulative annual payment-in-kind dividend is payable on
the preferred stock.
Prime holds all of the outstanding common shares of Prime Succession, Inc.,
an operator of funeral homes and cemeteries in the United States. Prime
Succession Inc. was purchased on August 26, 1996 for
44
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 4. INVESTMENTS (CONTINUED)
approximately $320,000,000 of which $130,000,000 was funded by Blackstone and
the Company, and $190,000,000 was financed through bank borrowings and the
issuance of senior subordinated notes. The excess of the purchase price over the
fair value of net assets of approximately $230,000,000, was established as
goodwill in Prime Succession, Inc. and is being amortized over 40 years.
Blackstone and the Company have the right to designate five and three
nominees, respectively, to the Prime Board of Directors. Blackstone controls the
strategic operating, investing and financing policies of Prime. Neither
Blackstone nor the Company can, without the consent of the other party, sell or
transfer its shares in Prime to a party other than to an affiliate of itself.
The Company accounts for its investment in preferred shares of Prime by the
cost method. For the period August 26, 1996 to December 31, 1996, income of
$2,300,000 was recorded representing the cumulative annual payment-in-kind
dividend.
The Company accounts for its investment in common shares of Prime by the
equity method. Under this method, the Company records its proportionate share of
the net earnings (loss) of Prime after deducting the payment-in-kind dividend.
For the period August 26, 1996 to December 31, 1996, a loss of $1,144,000 was
recorded representing the Company's proportionate share of the loss attributable
to the common shares of Prime.
Under a Put/Call Agreement entered into with Blackstone, the Company has the
option to acquire ("Call") Blackstone's common share interest in Prime
commencing on the fourth anniversary of the acquisition, and for a period of two
years thereafter, at a price determined pursuant to the Put/Call Agreement.
Blackstone has the option to sell ("Put") its common share interest to the
Company commencing on the sixth anniversary of the acquisition, and for a period
of two years thereafter, at a price determined pursuant to the Put/Call
Agreement.
The prices for the Call and the Put are based on a formula that calculates
the equity value attributable to Blackstone's common share interest. The
calculated equity value is determined at the Put or Call date based on a
multiple of earnings before interest, taxes, depreciation and amortization
("EBITDA"), after deduction of certain liabilities. The multiple to be applied
to EBITDA is also determined through a formula which is based on future EBITDA.
Any payment to Blackstone under the Call or the Put may be in the form of cash
or Common shares of the Company, at the Company's option.
Upon a Call, Blackstone will receive, at a minimum, its original investment
plus a 24.1% compound return per annum thereon regardless of the calculated
equity value. Any additional equity value attributable to Blackstone common
share interest is determined on the basis of a formula set forth in the Put/Call
Agreement.
Upon a Put by Blackstone, there is no guaranteed return to Blackstone. Any
payment to Blackstone is limited to Blackstone's share of the calculated equity
value based on a formula set forth in the Put/Call Agreement.
Any payment to Blackstone is subject to Blackstone or the Company exercising
their respective rights under the Put or the Call. It is not currently possible
to determine whether Blackstone or the Company will exercise such rights.
Furthermore, any amount to be paid pursuant to the Put is dependent on
calculated
45
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 4. INVESTMENTS (CONTINUED)
equity value which is based on EBITDA of future periods. Accordingly, it is not
possible at this date to estimate the future amount that may be payable to
Blackstone on the exercise of the Put or the Call.
The Company provides various administrative services to Prime under an
Administrative Services Agreement for an annual fee of $250,000.
Summarized financial data for Prime for the period August 26, 1996 to
December 31, 1996, are presented as follows:
<TABLE>
<S> <C>
Income statement information:
Revenue......................................................................... $ 32,651
Gross margin.................................................................... 11,066
Earnings from operations........................................................ 5,492
Payment-in-kind dividend........................................................ 2,300
Net loss attributable to common shareholders.................................... 5,250
Balance sheet information:
Current assets.................................................................. $ 24,614
Non-current assets.............................................................. 374,174
---------
Total assets.................................................................... 398,788
Current liabilities............................................................. 22,531
Non-current liabilities......................................................... 249,652
---------
Total liabilities............................................................... 272,183
Shareholders' equity............................................................ 126,605
</TABLE>
(C) RH HOLDINGS
On November 19, 1996, the Company acquired 204.5454 Common shares of RH
Holdings for $9,000,000, representing 20.45% of RH Holdings' voting common
shares, and 100% of RH Holdings' non-voting preferred shares, with a cumulative
annual payment-in-kind dividend of 10%, for $86,000,000. The Company's total
investment of $95,000,000 consisted of $72,000,000 in cash and a contribution by
the Company of 14 funeral homes and two combination funeral home and cemetery
properties located in California valued at $23,000,000. Blackstone acquired
795.4546 Common shares, representing 79.55% of RH Holdings' voting common stock
for $35,000,000.
RH Holdings holds all of the outstanding common shares of Rose Hills Company
("RHC") and the cemetery related assets of Rose Hills Memorial Park Association,
representing the largest single location cemetery in the United States. These
companies were purchased on November 19, 1996 for approximately $285,000,000 of
which $130,000,000 was funded by Blackstone and the Company, and $155,000,000
was financed through bank borrowings and the issuance of senior subordinated
notes. The excess of the purchase price over the fair value of net assets of
approximately $130,000,000 was established as goodwill in RH Holdings and is
being amortized over 40 years.
46
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 4. INVESTMENTS (CONTINUED)
Blackstone and the Company have the right to designate five and three
nominees, respectively, to the RH Holdings' Board of Directors. Blackstone
controls the strategic operating, investing and financing policies of RH
Holdings. Neither Blackstone nor the Company can, without the consent of the
other party, sell or transfer its shares in RH Holdings to a party other than to
an affiliate of itself.
The Company accounts for its investment in preferred shares of RH Holdings
by the cost method. For the period November 19, 1996 to December 31, 1996,
income of $932,000 was recorded representing the cumulative annual
payment-in-kind dividend.
The Company accounts for its investment in common shares of RH Holdings by
the equity method. Under the equity method, the Company records its
proportionate share of the net earnings (loss) of RH Holdings after deducting
the payment-in-kind dividend. For the period November 19, 1996 to December 31,
1996, a loss of $468,000 was recorded representing the Company's proportionate
share of the loss attributable to the common shares of RH Holdings. The
properties contributed by the Company had a net carrying value of $20,382,000.
The Company has deferred a gain of $2,618,000 on the disposition of these
properties and will recognize the gain if and when the properties are sold. The
deferred gain is recorded in other liabilities on the consolidated balance
sheet.
Under a Put/Call Agreement entered into with Blackstone, the Company has the
option to Call Blackstone's common share interest in RH Holdings commencing on
the fourth anniversary of the acquisition, and for a period of two years
thereafter, at a price to be determined pursuant to the terms of the Put/Call
Agreement. Blackstone has the option to Put its common share interest to the
Company commencing on the sixth anniversary of the acquisition, and for a period
of two years thereafter, at a price determined pursuant to the Put/Call
Agreement.
The prices for the Call and Put are based on a formula that calculates the
equity value attributable to Blackstone's common share interest. The calculated
equity value will be determined at the Put or Call date based on a multiple of
EBITDA, after deduction of certain liabilities. The multiple to be applied to
EBITDA will also be determined through a formula which is based on future
EBITDA. Any payment to Blackstone under the Call or the Put may be in the form
of cash or the stock of the Company, subject to certain conditions, at the
Company's option.
Upon a Call, Blackstone will receive, at a minimum, its original investment
plus a 22.5% compound return per annum thereon regardless of the calculated
equity value. Any additional equity attributable to Blackstone common share
interest will be determined on the basis of a formula set forth in the Put/Call
Agreement.
Upon a Put by Blackstone, there will be no guaranteed return to Blackstone.
Any payment to Blackstone will be limited to Blackstone's share of the
calculated equity value based on a formula set forth in the terms of the
agreement.
Any payment to Blackstone will be subject to Blackstone or the Company
exercising their respective rights under the Put or the Call. It is not
currently possible to determine whether Blackstone or LGII will exercise such
rights. Furthermore, any amount to be paid pursuant to the Put is dependent on
calculated
47
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 4. INVESTMENTS (CONTINUED)
equity value which is based on EBITDA of future periods. Accordingly, it is not
possible at this date to estimate the future amount that may be payable to
Blackstone on the exercise of the Put or the Call.
The Company provides various management and administrative services to RHC
and subsidiaries under an Administrative Services Agreement for an annual fee of
$250,000. If the Administrative Services Agreement becomes terminable by
Blackstone due to the Company's material breach thereof or other failure to
comply in any material respect, Blackstone under the Put will receive, at a
minimum, its original investment plus a 25% compound return per annum thereon
which increases to 27.5% in the event of a change in control of the Company,
regardless of the calculated equity value.
(D) INVESTMENTS OF JOINT VENTURE
The Company is a party to a joint venture for investment purposes. The
investment balance represents the Company's proportionate share of the joint
venture's investment in credit card receivables. The Company's proportionate
share of the joint venture's liabilities is $36,897,000 (1995 -- $34,114,000),
resulting in a net investment of $290,000 (1995 -- $144,000).
NOTE 5. INSURANCE INVESTED ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
---------------------- ---------------------
CARRYING MARKET CARRYING MARKET
VALUE VALUE VALUE VALUE
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Fixed maturities.................................................. $ 256,919 $ 257,250 $ 78,895 $ 81,266
Equity securities................................................. 2,376 2,343 4,737 5,342
Short-term investments and other.................................. 36,954 37,016 13,392 13,439
---------- ---------- --------- ----------
$ 296,249 $ 296,609 $ 97,024 $ 100,047
---------- ---------- --------- ----------
---------- ---------- --------- ----------
</TABLE>
The Company earned $16,883,000 of investment income on these assets at
December 31, 1996 (1995 -- $3,289,000) and $1,882,000 and $1,522,000 of
unrealized gains and losses, respectively, on the carrying value of these
investments at December 31, 1996 (1995 -- $3,348,000 and $325,000 respectively).
Maturities of fixed maturity securities, excluding mortgage-backed
securities and collateralized mortgage obligations, are estimated as follows:
$3,750,000 due in one year or less (1995 -- $5,000,000), $56,000,000 due in one
to five years (1995 -- $8,000,000), $47,958,000 due in five to ten years
(1995 -- $21,000,000), and $25,018,000 due after ten years
(1995 -- $13,000,000). Maturities on an amortized cost basis are approximately
the same as the market value basis at December 31, 1996. The Company had
approximately $124,193,000 in mortgage-backed securities and collateralized
mortgage obligations at December 31, 1996 (1995 -- $32,000,000).
48
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 6. LONG-TERM DEBT
<TABLE>
<CAPTION>
1996 1995
------------ ----------
<S> <C> <C>
Bank revolving credit agreements........................................................ $ 270,489 $ 379,488
MEIP bank term loan agreement due 2000.................................................. 107,583 116,007
Canadian bank term loan agreement due 2000 (Cdn.$35,000,000)............................ 25,536 25,659
9.70% Series A and C senior amortizing notes due in 1998................................ 62,500 93,750
9.93% Series B senior amortizing notes due in 2001...................................... 35,700 42,850
9.62% Series D senior amortizing notes due in 2003...................................... 60,000 60,000
6.49% Series E senior amortizing notes due in 2004...................................... 50,000 50,000
7.50% Series 1 senior notes due in 2001................................................. 225,000 --
7.75% Series 3 senior notes due in 2001................................................. 125,000 --
8.25% Series 2 and 4 senior notes due in 2003........................................... 350,000 --
Present value of notes issued under legal settlements discounted at
an effective interest rate of 7.75%................................................... 40,000 40,000
Present value of contingent consideration payable on acquisitions
discounted at an effective interest rate of 8.0%, see Note 19......................... 34,681 35,260
Other, principally arising from vendor financing of acquired operations
or long-term debt assumed on acquisitions, bearing interest at fixed
and floating rates varying from 4.8% to 14.0%, certain of which are
secured by assets of certain subsidiaries............................................. 121,732 91,495
------------ ----------
1,508,221 934,509
Less current portion.................................................................... 79,580 69,671
------------ ----------
$ 1,428,641 $ 864,838
------------ ----------
------------ ----------
</TABLE>
(a) On May 31, 1996, the Company, LGII and their senior lenders entered
into a collateral trust arrangement whereby senior lenders would share certain
collateral on a pari passu basis. This collateral is held by a trustee for the
equal and ratable benefit of the various holders of senior indebtedness. This
group consists principally of lenders under the Company's bank revolving credit
agreements, the MEIP bank term loan, the Canadian bank term loan, the senior
amortizing notes and the senior notes. At December 31, 1996, the indebtedness
owed to senior lenders subject to the collateral trust arrangement, including
holders of certain letters of credit, aggregated $1,331,000,000.
The collateral includes (i) a pledge for the benefit of the senior lenders
of the shares held by the Company of substantially all of its subsidiaries and
(ii) all of the financial assets of LGII (LGII does not have material assets
other than financial assets).
As part of the 1994 Management Equity Investment Plan, see Note 9(e), the
MEIP bank term loan is additionally secured by Senior Exchangeable Debentures.
(b) Certain of the above loan agreements contain various restrictive
provisions, including change of control provisions and provisions restricting
payment of dividends on Common and Preferred shares, restricting encumbrance of
assets, limiting redemption or repurchase of shares, limiting disposition of
assets, limiting the amount of additional debt, limiting the amount of capital
expenditures and requiring
49
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 6. LONG-TERM DEBT (CONTINUED)
the Company to maintain specified financial ratios. At December 31, 1996,
approximately $26,000,000 of the Company's retained earnings were not restricted
and available for payment of dividends under the most restrictive agreement.
(c) The Company's primary bank revolving credit agreement was entered into
on May 31, 1996 and provides for borrowings of up to $750,000,000 with a
maturity of May 29, 2001. Initial borrowings under this facility were used to
repay in full and retire a previous $400,000,000 revolving credit agreement. The
Company also has a Cdn.$50,000,000 revolving credit agreement with a maturity of
July 15, 1999. At December 31, 1996, $237,000,000 and $33,489,000
(Cdn.$45,900,000) were outstanding under the Company's primary and Canadian
revolving credit agreements respectively.
The Company's bank revolving credit agreements and MEIP bank term loan bear
interest at floating rates based on U.S. Libor, Canadian Bankers Acceptance
rates or the prime rates of certain banks, plus an applicable margin depending
upon a combination of the Company's ability to maintain specified financial
ratios and the Company's long-term debt credit ratings. The Company is also
required to pay a commitment fee on the unused portion of the revolving credit
agreements. The Canadian bank term loan bears interest at 10.29%.
(d) Repayment of the senior amortizing notes commenced November 1, 1995 for
Series A, B and C and commences September 11, 1997 for Series D and February 25,
1998 for Series E, all in equal annual amounts to the respective due dates.
(e) In March 1996, LGII consummated a private placement of two series of
senior notes guaranteed by the Company (Series 1 and 2) for gross proceeds of
$350,000,000. In October 1996, these notes were exchanged for notes registered
under Securities Act.
In October 1996, LGII consummated a private placement of two series of
senior notes guaranteed by the Company (Series 3 and 4) for gross proceeds of
$350,000,000. In March 1997, these notes were exchanged for notes registered
under the Securities Act.
(f) The notes issued under legal settlements represents a promissory note
in the amount of $80,000,000 payable over 20 years in equal annual installments
of $4,000,000, without interest. Interest is accrued on the discounted amount
and is included in accounts payable and accrued liabilities. Annual payments
will eliminate this accrual and the balance will be applied to the promissory
note, see Note 11.
(g) The Company incurred and paid approximately $91,000,000 of interest
during 1996 (1995 -- $54,000,000), of which approximately $2,100,000
(1995 -- $2,700,000) was capitalized as cost of construction or development of
cemetery property.
50
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 6. LONG-TERM DEBT (CONTINUED)
(h) Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
1996
------------
<S> <C>
1997................................................................................................ 79,580
1998................................................................................................ 74,889
1999................................................................................................ 79,447
2000................................................................................................ 184,153
2001................................................................................................ 624,210
Thereafter.......................................................................................... 465,942
------------
$ 1,508,221
------------
------------
</TABLE>
NOTE 7. 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 $75,000,000. LGC is a limited
partnership and LGII as its general partner manages its business and affairs.
LGII serves as the holding company for all 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>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Income statement information
Revenue............................................................... $ 839,352 $ 540,825 $ 365,458
Gross margin.......................................................... 302,078 198,867 136,639
Earnings from operations.............................................. 179,185 75,715 84,390
Net earnings (loss)................................................... (4,868) (127,353) 7,491
Balance sheet information
Current assets........................................................ $ 223,388 $ 184,289 $ 96,943
Non-current assets.................................................... 2,865,005 1,776,425 998,753
------------ ------------ ------------
Total assets.......................................................... 3,088,393 1,960,714 1,095,696
Current liabilities................................................... 156,290 221,555 81,472
Non-current liabilities............................................... 2,719,453 1,696,709 844,421
------------ ------------ ------------
Total liabilities..................................................... 2,875,743 1,918,264 925,893
Shareholders' equity.................................................. 212,650 42,450 169,803
</TABLE>
The MIPS are due August 31, 2024 and are subject to redemption at par at the
option of LGC, in whole or in part, from time to time, on or after August 31,
2004.
51
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 7. PREFERRED SECURITIES OF SUBSIDIARY (CONTINUED)
Holders of the MIPS are entitled to receive cumulative dividends at an
annual rate of 9.45% of the liquidation preference of $25 per MIPS. The
dividends accrue from the date of original issuance and are payable monthly in
arrears.
The Company has the right to defer payment of dividends on the MIPS for one
or more periods, each not to exceed 60 consecutive months. In this event the
Company may not declare or pay dividends on, or redeem, purchase or acquire or
make a liquidation payment with respect to any class of its capital stock.
The Company has guaranteed certain payment obligations of LGII to LGC and of
LGC to the MIPS holders. The guarantees are subordinated to all liabilities of
the Company and are unsecured.
The net earnings (loss) of LGII reflects $15,884,000 (1995 -- $34,896,000,
1994 -- $3,661,000) of inter-company charges which are eliminated in the
Company's consolidated financial statements.
NOTE 8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's policy is not to use derivative instruments for speculation.
The Company does not trade in financial instruments and is not a party to
leveraged derivatives.
(A) SWAP AGREEMENTS AND INTEREST RATE OPTIONS
The Company has entered into swap agreements and interest rate options with
a number of different commercial banks and financial institutions to manage its
interest rate exposure on fixed rate long-term debt. At December 31, 1996, such
agreements included:
(1) An interest rate swap agreement with a commercial bank, having a
notional principal amount of $50,000,000 in which the Company will pay a
floating Libor based rate determined semi-annually (5.6875% at December 31,
1996) and receive a fixed rate of 5.725%. The Company has entered into an
offsetting interest rate swap agreement with the same commercial bank, having a
notional principal amount of $50,000,000 in which the Company will receive a
floating Libor based rate determined on the same day as the original interest
rate swap agreement and pay a fixed rate of 5.810%. After offsetting, the
Company will pay a fixed rate of 0.085% under the agreement. The agreement
expires in August 1997.
(2) Three interest rate swap agreements with commercial banks and financial
institutions, each having a notional principal amount of $25,000,000. The
Company will receive floating Libor based rates determined quarterly (5.500% at
December 31, 1996) and will pay fixed rates of 5.755%, 6.200% and 6.190% under
the agreements. The agreements expire in June 1999, June 2001 and June 2001,
respectively.
(3) An interest rate swap agreement with a commercial bank, having a
notional principal amount of Cdn.$15,000,000. The Company will receive floating
Bankers Acceptance based rates determined quarterly (3.17% at December 31, 1996)
and will pay a fixed rate of 7.430% under the agreement. The agreement expires
in September 1997.
The Company is exposed to credit losses in the event of non-performance by
the other parties to the interest rate swap agreements. However, the Company
does not anticipate non-performance by the counterparties.
52
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND
FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
(B) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, receivables, current
indebtedness, accrued settlements and accounts payable and accrued liabilities
approximates fair value due to the short-term maturities of these instruments.
The fair value of insurance liabilities and the Put/Call Agreements have been
omitted because it is not practicable to determine fair value with sufficient
reliability. For further information about these items see Notes 5 and 4
respectively. Financial instruments with a carrying value different from their
fair value include:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
-------------------------- ----------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
(1) Financial assets
Prearranged funeral services............................. $ 334,420 $ 334,420 $ 245,854 $ 245,854
Investments
Practicable to estimate fair value....................... 53,403 54,080 47,743 49,549
Not practicable.......................................... 152,453 -- 2,053 --
Insurance invested assets................................ 296,249 296,609 97,024 100,047
Long-term receivables
Practicable to estimate fair value....................... 123,425 125,289 84,143 86,701
Not practicable.......................................... 165,154 -- 83,224 --
(2) Financial liabilities
Liabilities of joint venture............................. $ 36,897 $ 37,399 $ 34,114 $ 35,279
Long-term debt........................................... 1,508,221 1,535,764 934,509 958,293
Preferred securities of subsidiary....................... 75,000 79,500 75,000 70,125
(3) Derivative instruments
(net receivable/(payable))
Swap agreements.......................................... $ 41 $ (112) $ 11 $ (1,627)
Futures contracts........................................ -- -- (1,533) (1,567)
</TABLE>
The fair value of insurance invested assets and certain investments and
long-term receivables are determined based on quoted market prices. For certain
long-term receivables and other investments, fair value is estimated by
discounting the future cash flows, including interest payments, using rates
currently available for investments of similar terms and maturity. The
investments for which it is not practicable to estimate fair value comprise
primarily the preferred share investments in Prime and RH Holdings. The
long-term receivables for which it is not practicable to estimate fair value
comprise primarily installment receivables on cemetery sales, which generally
have terms of three to five years and bear interest ranging from 8% to 15%.
The fair value of liabilities of a joint venture and long-term debt subject
to fixed interest rates is estimated by discounting the future cash flows,
including interest payments, using rates currently available for debt of similar
terms and maturity, based on the Company's credit standing and other market
factors.
53
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND
FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The fair value of long-term debt subject to floating market rates approximates
its carrying value. The fair value of the preferred securities of a subsidiary
is estimated based upon quoted market prices.
The fair value of the swap agreements is the estimated amount the
counterparty would receive or pay to hypothetically terminate or exchange the
agreements based on market factors. The fair value of futures contracts are
estimated based on quoted market prices and represents the cost to close out the
position.
NOTE 9. SHARE CAPITAL
(A) AUTHORIZED
200,000,000 (1995 -- 3,000,000) First Preferred shares without par value
40,000,000 (1995 -- 40,000,000) Class A shares without par value
750,000,000 (1995 -- 500,000,000) Common shares without par value
On May 16, 1996, the authorized capital of the Company was increased to
750,000,000 Common shares without par value, 40,000,000 Class A shares without
par value and 200,000,000 First Preferred shares without par value of which
1,000,000 shares are designated as 7.75% Cumulative Redeemable Convertible First
Preferred Shares, Series A, 425,000 shares are designated as Convertible First
Preferred Shares, Series B, see Note 9(e), and 8,800,000 shares are designated
as 6.00% Cumulative Redeemable Convertible First Preferred Shares, Series C, see
Note 9(d).
54
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 9. SHARE CAPITAL (CONTINUED)
(B) ISSUED AND OUTSTANDING
<TABLE>
<CAPTION>
NUMBER STATED
OF SHARES VALUE
------------ ----------
<S> <C> <C>
Common shares and contributed surplus
Outstanding December 31, 1993......................................................... 38,647,080 $ 227,968
Issued for cash by public offering, net of expenses of 1,442,000...................... 2,000,000 46,899
Issued for cash on exercise of stock options, including related tax benefits.......... 194,821 3,996
Issued for cash under stock purchase plan............................................. 84,445 1,545
Issued for acquisitions............................................................... 84,701 2,087
Issued under employee stock bonus plan................................................ 4,400 65
------------ ----------
Outstanding December 31, 1994........................................................... 41,015,447 282,560
Issued for cash by public offering, net of expenses of $5,491,000..................... 6,325,000 187,421
Issued for cash on exercise of stock options, including related tax benefits.......... 415,010 6,725
Issued for cash under stock purchase plan............................................. 93,475 2,334
Issued for acquisitions, see Note 2................................................... 312,758 10,896
Issued under employee stock bonus plan................................................ 6,075 119
------------ ----------
Outstanding December 31, 1995........................................................... 48,167,765 490,055
Issued for cash by public offering, net of expenses of $5,558,000..................... 7,700,000 216,576
Issued for legal settlements.......................................................... 2,500,000 72,000
Issued for cash on exercise of stock options, including related tax benefits.......... 315,583 5,214
Issued for cash under stock purchase plan............................................. 20,850 708
Issued for acquisitions, see Note 2................................................... 340,537 11,651
Issued under employee stock bonus plan................................................ 12,280 227
------------ ----------
Outstanding December 31, 1996........................................................... 59,057,015 $ 796,431
------------ ----------
------------ ----------
Preferred shares
Issued for cash by public offering, net of expenses of $3,776,000..................... 8,800,000 $ 157,146
------------ ----------
------------ ----------
</TABLE>
(C) COMMON SHARES ISSUED UNDER LEGAL SETTLEMENTS
As part of the settlement agreement of February 1, 1996, with Gulf National
Insurance Company and certain of its affiliates ("Gulf National"), the Company
issued 1,500,000 Common shares. In addition, as part of the settlement with
Provident American Corporation and a subsidiary ("Provident"), the Company
issued 1,000,000 Common shares of the Company. The shares were valued based on
the guaranteed price under the settlement agreements, see Note 11.
(D) FIRST PREFERRED SHARES
First Preferred shares may be issued from time to time in one or more series
and in such numbers and with such special rights and restrictions as the
directors of the Company determine.
55
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 9. SHARE CAPITAL (CONTINUED)
During 1994, as part of the Management Equity Investment Plan, 425,000
shares were designated as Convertible First Preferred shares, Series B of the
Company. Each Convertible First Preferred share is convertible into ten Common
shares at any time prior to July 13, 2011. No Series B Preferred shares have
been issued.
In January 1996, the Company 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 Cdn.$220,000,000
(U.S.$161,000,000). The gross proceeds were deposited with an escrow agent and
were subsequently exchanged for 8,800,000 Series C Preferred shares, and all of
the net proceeds were released to the Company. A holder of Series C Preferred
shares will have the right at any time before January 1, 2003, to convert each
Series C Preferred share into that number of Common shares determined by
dividing Cdn.$25.00 by Cdn.$38.125. Thereafter, a holder of Series C Preferred
shares will have the right on January 1, 2003, and on the first business day of
each quarter thereafter, to convert all or part of such Series C Preferred
shares into that number of Common shares determined by dividing Cdn.$25.00 plus
accrued and unpaid dividends by the greater of Cdn.$3.00 and 95% of the Current
Market Price (as defined) on the date of conversion.
The holders of the Series C Preferred shares are entitled, as and when
declared by the Board of Directors, to a fixed preferential cumulative cash
dividend of 6% per year, payable quarterly.
The Series C Preferred Shares will not be redeemable by the Company prior to
July 1, 1999.
On or after July 1, 1999, the Series C Preferred shares will be redeemable
by the Company, upon giving not less than 30 days notice, at a redemption price
equal to Cdn.$25.00 per share together with accrued and unpaid dividends. Prior
to July 1, 2001, the redemption will only be effected by the issuance of Common
shares, determined by dividing the redemption price by the greater of Cdn.$3.00
and 95% of the Current Market Price at the date of redemption. On and after July
1, 2001, the redemption may be effected by the issuance of Common shares or
payment of a cash amount.
In the event of the liquidation, dissolution or winding up of the Company or
other distribution of assets of the Company among its shareholders for the
purpose of winding up its affairs, the holders of the Series C Preferred shares
shall be entitled to receive the redemption price before any amounts are paid to
the holders of Common shares or any other class of shares ranking junior to the
Series C Preferred shares.
(E) MANAGEMENT EQUITY INVESTMENT PLAN ("MEIP")
4,250,000 Common shares of the Company were reserved upon adoption by the
Company of the MEIP on June 15, 1994. Senior Exchangeable Debentures amounting
to $127,670,000 were issued by LGII to a wholly-owned subsidiary of LGII formed
to act as agent for the MEIP. The Debentures are due July 15, 2001 and bear
interest at floating rates. Each $300.40 of principal amount of Debentures will
be exchangeable for one Convertible First Preferred share, Series B of the
Company, each of which will be convertible into ten Common shares of the
Company. As part of the MEIP, the present participants paid $3,409,240
(1995 - $3,827,023) for option rights to acquire $68,184,792
(1995 - $77,052,600) of Debentures exercisable as to 50% in 1999, 25% in 2000
and 25% in 2001, of which $751,000 was paid by the Chairman of the Company. If
an option expires unexercised, the participant will receive a refund without
interest of
56
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 9. SHARE CAPITAL (CONTINUED)
the amount paid to acquire such option right. In addition, the Chairman paid
$2,253,000 for the right and obligation to acquire $45,060,000 of Debentures
with the same exercise dates.
(F) SHAREHOLDER PROTECTION RIGHTS PLAN
On April 20, 1990, the Board of Directors of the Company approved a
Shareholder Protection Rights Plan (the "Plan"), which was confirmed by the
shareholders in accordance with the provisions of the Plan at the Annual General
Meeting on May 24, 1990. The Plan was amended on June 18, 1991 to adjust the
Exercise Price consequent upon the two-for-one stock split of the Company. The
Plan was also amended on April 7, 1994 to further adjust the Exercise Price and
to amend the definition of "Inherited Acquisitions." The Plan was reconfirmed by
the shareholders at the Annual General Meeting on May 17, 1995 for a further
five-year period expiring April 20, 2000.
The Plan is meant to discourage unfair take-over bid tactics and to give the
Board of Directors time, if there is an unsolicited bid, to pursue alternatives
to maximize shareholder value. To preserve the shareholders' right to consider
take-over bids on a fully-informed basis, the Plan provides that a bidder's
position may be substantially diluted if it does not make either a "permitted
bid" directly to all shareholders or negotiate with the Board for a waiver of
the Plan's provisions.
Under the Plan, each Common shareholder is entitled to receive one right in
certain situations. The rights however will not trade separately from the Common
shares unless a take-over bid is announced or someone, excluding "Grandfathered
Persons," acquires 20% of the Common shares. To the Company's knowledge, only
Raymond L. Loewen and Anne Loewen are Grandfathered Persons.
The rights issued to Common shareholders under the Plan entitle the holder,
upon the occurrence of certain triggering events, to acquire Common shares in
the Company at a 50% discount to the market. Triggering events include the
acquisition of 20% or more of the Common shares in a transaction not approved by
the Board of Directors. However, the rights are not triggered by certain
permitted bids that are made to all holders of Common shares and that are
approved by a majority vote of independent shareholders.
By creating the potential for substantial dilution of an unfair bidder's
position, the Plan encourages an acquirer to proceed by way of a permitted bid
or to approach the Board with a view to negotiation. The Plan's permitted bid
provision allows bidders to take bids directly to all the shareholders. The Plan
thus preserves the shareholder's right to consider such bids on a fully-informed
basis. The Company, at the time of the adoption of the Plan, was not aware of
any pending or threatened take-over bid for the Company. The Company is not
presently aware of any pending or threatened take-over bid for the Company. On
January 7, 1997, Service Corporation International ("SCI") withdrew its
unsolicited hostile takeover proposal, see Note 14.
There are exceptions to the Plan to permit the acquisition of shares by (i)
persons who held more than 20% of the Common shares on April 20, 1990, subject
to certain restrictions, and (ii) registered pension plans whose governing
legislation prohibits them from holding more than 30% and who are acquiring the
Common shares independently for investment.
57
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 9. SHARE CAPITAL (CONTINUED)
(G) STOCK OPTION PLANS
The Company has separate fixed stock option plans for its United States and
Canadian employees which enable the Company to grant options to its employees
and directors. The option plans are administered by the Compensation Committee
of the Company's Board of Directors. Each participant enters into an option
agreement which sets forth, among other things, the number of options granted,
the exercise price and the vesting conditions of the options. The exercise price
of an option may not be less than the market price of the Company's stock on the
trading day immediately prior to the grant date and in no event may an option
terminate later than ten years after the grant date of such option.
A summary status of the Company's fixed stock option plans and changes
during the two years ended December 31, 1996, are as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------------- -------------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
STOCK OPTIONS SHARES EXERCISE PRICE SHARES EXERCISE PRICE
- ---------------------------------------------------- ---------- ------------------- ---------- -------------------
<S> <C> <C> <C> <C>
Outstanding beginning of year....................... 2,861,664 $ 21 2,402,562 $ 16
Options granted................................... 2,001,586 28 947,399 30
Options exercised................................. (315,583) 13 (415,010) 10
Options cancelled................................. (130,150) 25 (73,287) 20
---------- ----------
Outstanding end of year............................. 4,417,517 $ 25 2,861,664 $ 21
---------- ----------
---------- ----------
Options exercisable at end of year.................. 1,618,262 982,245
</TABLE>
58
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 9. SHARE CAPITAL (CONTINUED)
The following table summarizes information about the Company's fixed stock
options outstanding at December 31, 1996:
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE
OUTSTANDING AT REMAINING WEIGHTED AVERAGE
OPTIONS OUTSTANDING DECEMBER 31, 1996 CONTRACTUAL LIFE EXERCISE PRICE
- ----------------------------------------------------------- ----------------- --------------------- -------------------
<S> <C> <C> <C>
Range of exercise prices
$ 9.70 - $20.00............................................ 809,630 6.5 $ 13
20.01 - 30.00............................................ 3,298,070 8.6 27
30.01 - 40.00............................................ 290,857 8.7 35
40.01 - 45.00............................................ 18,960 9.3 41
-----------------
4,417,517 8.2 $ 25
-----------------
-----------------
<CAPTION>
NUMBER
OUTSTANDING AT WEIGHTED AVERAGE
OPTIONS EXERCISABLE DECEMBER 31, 1996 EXERCISE PRICE
- ----------------------------------------------------------- ----------------- -------------------
<S> <C> <C> <C>
Range of exercise prices
$ 9.70 - $20.00............................................ 626,408 $ 13
20.01 - 30.00............................................ 938,676 25
30.01 - 40.00............................................ 50,796 35
40.01 - 45.00 2,382 41
-----------------
1,618,262 $ 21
-----------------
-----------------
</TABLE>
NOTE 10. FOREIGN EXCHANGE ADJUSTMENT
The foreign exchange adjustment account represents the net changes due to
exchange rate fluctuations in the equivalent United States dollar book values of
the Company's net investments in self-sustaining non-United States operations
since their respective dates of acquisition.
NOTE 11. LEGAL PROCEEDINGS
GULF NATIONAL SETTLEMENT
On February 1, 1996, the Company and Gulf National executed a settlement
agreement pursuant to which, among other things, the parties agreed to a full
and mutual release of all claims against each other. The Company delivered to
Gulf National $50,000,000 in cash, 1,500,000 Common shares ("Gulf National
Settlement Shares") and a promissory note in the amount of $80,000,000 payable
over 20 years in equal installments of $4,000,000, without interest. The Gulf
National Settlement Shares were issued in February 1996, and a registration
statement registering the resale of the Gulf National Settlement Shares filed
with the Securities and Exchange Commission ("SEC") was declared effective in
December 1996.
The Company recorded a charge against its 1995 earnings in the amount of
$135,000,000 before taxes of $49,530,000 to account for the Gulf National
settlement. This amount represents the cash portion, the
59
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 11. LEGAL PROCEEDINGS (CONTINUED)
present value of the non-interest bearing promissory note and the guaranteed
value of the Gulf National Settlement Shares.
PROVIDENT SETTLEMENT
On February 4, 1996, Provident and the Company settled certain litigation
and on March 19, 1996, the parties entered into a settlement providing for a
full mutual release from all claims against each other, and the Company
delivered 1,000,000 Common shares ("Provident Settlement Shares") and $3,000,000
in cash to Provident and certain designees. The Company filed a registration
statement registering the resale of the Provident Settlement Shares with the
SEC, which was declared effective in July 1996.
The Company recorded a charge against its 1995 earnings in the amount of
$30,000,000 before taxes of $10,800,000 to account for the Provident settlement.
CLASS ACTIONS ALLEGING SECURITIES LAWS VIOLATIONS
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 the Company and five individuals who were officers of the
Company (four of whom were also directors) in the United States District Court
for the Eastern District of Pennsylvania. LGII, LGC, and the lead underwriters
(the "Underwriters") of LGC's 1994 offering of Monthly Income Preferred
Securities ("MIPS"), were subsequently added as defendants. On November 7, 1995,
a class action lawsuit was filed on behalf of a class of purchasers of Common
shares against the Company 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 the Company, LGII, LGC and the same individual
defendants in the United States District Court for the Eastern District of
Pennsylvania.
The complaints with respect to the class actions alleged that the defendants
failed to disclose the Company's anticipated liability in connection with
certain litigation with Gulf National. The Pennsylvania class actions also
alleged failure to disclose the Company's potential liability in connection with
certain litigation with Provident. The Company settled the lawsuits with Gulf
National and Provident during the first quarter of 1996.
Pursuant to a Transfer Order filed April 15, 1996 by the Judicial Panel on
Multidistrict Litigation, the Mississippi class action was transferred to the
Eastern District of Pennsylvania for consolidation of pretrial proceedings with
the two Pennsylvania class actions. On September 16, 1996, the plaintiffs filed
a Consolidated and Amended Class Action Complaint (the "Consolidated Class
Action Complaint"). Procedurally, the Consolidated Class Action Complaint
supersedes the complaints filed in the class actions. Plaintiffs allege three
causes of action in the Consolidated Class Action Complaint: (i) the Company,
LGII, LGC and the five individual defendants violated Sections 10(b) and 20(a)
and the implementing anti-fraud rules under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), (ii) LGII, LGC and three of the five individual
defendants violated Sections 11 and 15 of the Securities Act of 1933, as amended
(the "Securities Act"), in connection with the MIPS offering and (iii) the
Company, LGII and LGC made material misstatements in connection with the MIPS
offering in
60
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 11. LEGAL PROCEEDINGS (CONTINUED)
violation of Sections 12(2) and 15 of the Securities Act. Plaintiffs seek
compensatory money damages in an unspecified amount, together with attorneys
fees, expert fees and other costs and disbursements. Punitive damages are not
sought.
The defendants filed their Answer to the Consolidated Class Action Complaint
on November 1, 1996, in which they have denied the material allegations and
raised certain affirmative defenses. The parties have commenced discovery and
document production. No depositions have been taken.
The parties have stipulated to the provisional certification of plaintiff
classes consisting of: (i) all purchasers of Common shares or MIPS on an
American stock exchange or in public offerings during the period from April 16,
1993 through November 1, 1995, with respect to the Exchange Act claims; and (ii)
all persons who purchased MIPS pursuant to the public offering in August 1994,
with respect to the Securities Act claims. Defendants have retained all rights
to conduct discovery on class issues and to move to modify the class definitions
or to decertify the classes. Plaintiffs have agreed to stay all proceedings,
including all discovery, relating to disclosures about the Provident litigation.
Plaintiffs have the right to lift the stay upon written notice, which must be
provided 90 days before the end of discovery or the beginning of trial.
On June 11, 1996, all claims against the Underwriters were dismissed without
prejudice, by agreement of the parties. Prior to the dismissal, the Underwriters
had indicated to the Company that they would seek indemnity from the Company for
costs incurred. The Company paid the Underwriters' costs through the date of
dismissal. The Company expects that the Underwriters will seek further indemnity
from the Company if any of the claims against the Underwriters are reinstated.
The Company referred the claims to its insurance carrier under its directors
and officers liability 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 Class Action. As of the date hereof, the Supreme Court has not ruled on
the action. 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 at this time 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 with respect to the class actions has been made in the
Company's 1996 consolidated financial statements.
ROE ET AL., PALLADINO ET AL., O'SULLIVAN AND SCHNEIDER
In October 1995, Roe and 22 other families filed a lawsuit against LGII and
Osiris Holding Corporation ("Osiris") in Florida Circuit Court in St.
Petersburg. 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. In June
1996, the Roe and Palladino lawsuits were consolidated and amended to include a
total of 90 families, and in July 1996, the Palladino lawsuit was dismissed. In
October 1996, a Fifth Amended Complaint ("Complaint") was filed
61
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 11. LEGAL PROCEEDINGS (CONTINUED)
bringing the number of plaintiff families to 150. The gravamen of the Complaint
is 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. The specific claims include tortious interference with a dead body
(intentional and grossly negligent conduct so extreme and outrageous as to imply
malice) and negligent infliction of emotional distress. The Complaint also names
the Company and LGII as defendants (on an alter ego theory) and includes claims
for negligent retention of certain cemetery employees. Each plaintiff identified
in the Complaint is seeking damages in excess of $15,000, but the Complaint
alleges aggregate damage in excess of $40,000,000. In addition, in May 1996,
Sean M. O'Sullivan filed a lawsuit against Osiris and LGII and in July 1996,
Karen Schneider filed a lawsuit against Osiris and LGII. The factual allegations
underlying the O'Sullivan and Schneider complaints are identical to those
alleged in the Complaint. Schneider has been named in the Complaint and the
Schneider lawsuit has been dismissed. A mediation was held on November 14, 1996,
but the parties did not reach an agreement. However, over the past several
months, nearly 100 families have settled their claims for de minimus sums,
leaving the number of plaintiff families at 51. The Complaint was dismissed for
pleading deficiencies. The plaintiffs have indicated that they will file a Sixth
Amended Complaint.
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 carriers for Osiris and the Company have assumed the defense of these
claims, subject to a reservation of rights. The insurance carrier for the
Company has stated that it may take the position that each gravesite claim is
separately subject to the per claim policy deductible of $250,000. Accordingly,
no assurance can be made that insurance coverage will be available. The annual
Osiris policy limit is $11,000,000 and the annual Company policy limit is
$80,000,000.
The Company has determined that it is not possible at this time 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 with respect to this lawsuit has been made in the
Company's 1996 consolidated financial statements.
ESNER ESTATE
On February 1, 1995, Stuart B. Esner and Sandra Esner (the "Executors") as
co-executor 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 (the "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
62
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 11. LEGAL PROCEEDINGS (CONTINUED)
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.
In March 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 attorney's 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 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. The two cases were
consolidated by the Court.
On October 9, 1996, the Executors instituted a new civil action against the
Law Firm. On November 18, 1996, the Executors instituted a new civil action
against the individual partners of the Law Firm. In both complaints, the
Executors expanded upon the allegations against the Law Firm contained in the
previous complaints. By stipulation approved by the Court on February 24, 1997,
the parties agreed to consolidate all suits and to permit the Executors to file
a Third Amended Complaint, which was filed on February 10, 1997. The prayers for
relief remain unchanged. Osiris and Messrs. Miller and Shane have filed
preliminary challenges to the Third Amended Complaint. Likewise, LGII has moved
for a dismissal of the claims against it for failure to state a claim upon which
relief can be granted. That motion and the preliminary challenges are all
pending.
The Company has determined that it is not possible at this time 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 with respect to this lawsuit has been made in the
Company's 1996 consolidated financial statements.
SERVICE CORPORATION INTERNATIONAL
On October 2, 1996, Service Corporation International ("SCI") filed an
action in the United States District Court for the Southern District of Texas
(the "Texas Action"), alleging that the Company falsely suggested to its
shareholders that it has standing to bring an action to block or impede SCI's
unsolicited exchange offer on federal antitrust grounds. SCI also seeks a
declaratory judgment that the Company lacks standing to bring such an action on
federal antitrust grounds. SCI asserts a claim under Texas common law, based
upon its allegations that the Company's actions have tortiously interfered with
SCI's "prospective business relationships" with the Company's shareholders. As
relief for this assertion, SCI seeks an unspecified amount of damages for
claimed injuries resulting from the Company's alleged interference with these
prospective relationships. In an amended complaint filed October 3, 1996, SCI
also alleges that the foregoing actions, as well as the Company's alleged
failure to disclose certain information respecting
63
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 11. LEGAL PROCEEDINGS (CONTINUED)
the Prime and Rose Hills transactions, constitute violations of Section 14(e) of
the Exchange Act. As relief, SCI seeks an injunction against future violations
of that statute.
On October 10, 1996, the Company, LGII and Ridge Chapels, Inc., a subsidiary
of LGII, commenced an action in the United States District Court for the Eastern
District of New York (the "New York Action"), seeking to enjoin SCI
preliminarily and permanently from completing its unsolicited exchange offer on
the grounds that a combination of SCI and the Company would violate Section 7 of
the Clayton Act. According to the complaint, SCI's unsolicited offer for control
of the Company, if successful, may substantially lessen competition in numerous
local markets for (i) the sale of funeral services, (ii) the sale of funeral
services on a "pre-need" basis, (iii) the sale of cemetery services, and (iv)
the purchase of funeral homes, cemeteries and crematoria. The Company also
accuses SCI and Equity Corporation International, Inc. (a competitor of the
Company in which SCI had a 40% interest in October 1996) ("ECI"), of conspiracy
to eliminate the Company as a competitive force in the funeral services
industry, in violation of Section 1 of the Sherman Act. On October 10, 1996, the
Company filed Motions for Expedited Discovery and for a Preliminary Injunction
to enjoin the unsolicited exchange offer and, on October 15, 1996, filed a
Verified First Amended Complaint.
On October 11, 1996, the Company moved to dismiss or stay the Texas Action.
On October 15, 1996, SCI moved to dismiss, stay or transfer the New York Action.
A hearing was held on SCI's motion on October 17, 1996, at the conclusion of
which the District Court denied SCI's motion. On October 23, 1996, Magistrate
Judge Caden of the District Court entered a Memorandum and Order allowing
expedited discovery with respect to the Company's motion for a preliminary
injunction. On October 29, 1996, the District Court overruled the objections of
SCI to the Magistrate Judge's Order but stayed commencement of discovery
proceedings, which stay was extended by stipulation until the resolution of the
pending motions in the Texas Actions described below.
On October 21, 1996, SCI filed a Motion for Preliminary Injunction in the
Texas Action, seeking to enjoin the Company from pursuing its antitrust claims
in any forum other than the federal District Court in Texas. The matter was
referred to Magistrate Judge Johnson, who issued a Memorandum Recommending Entry
of a Preliminary Injunction on October 28, 1996. Magistrate Judge Johnson
recommended that the District Court restrain the Company from proceeding in the
New York Action (or elsewhere) until it had resolved the Company's pending
motion to dismiss. In a telephone conference on October 28, 1996, the District
Court declined to enter any injunctive relief at that time. A hearing on the
Company's motion to dismiss was held on November 6, 1996. On November 23, 1996,
the Texas District Court issued a Memorandum Opinion in which it: (i) denied
SCI's motion for a preliminary injunction against the New York Action; and (ii)
granted the Company's motion to dismiss the Texas Action, subject to the New
York Court's permitting SCI to raise its above-described tortious interference
and violation of Section14(e) claims as counterclaims in the New York Action.
SCI's above-described declaratory judgment claim was dismissed outright.
On December 11, 1996, SCI filed its Answer to the Company's Verified First
Amended Complaint, in which it denies liability and asserts various defenses and
asserts counterclaims against the Company, which counterclaims parallel
generally the above-described claims for tortious interference and violation of
Section14(e) claims asserted in the Texas Action. The Company believes that the
counterclaims are without merit
64
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 11. LEGAL PROCEEDINGS (CONTINUED)
and intends to contest them vigorously. The Company has served discovery
requests upon SCI and ECI to which both objected. On December 11, 1996,
Magistrate Judge Caden ordered expedited discovery to proceed. SCI filed
objections to the Magistrate Judge's order, which objections were denied by the
District Court on January 7, 1997.
On December 11, 1996, ECI filed a Motion to Dismiss the claims against it,
on grounds of improper venue and lack of personal jurisdiction. On December 18,
1996, the Company filed a Motion for Expedited Discovery respecting jurisdiction
over ECI, and the parties agreed that the Company would not be required to
respond to the Motion to Dismiss until either a date certain after denial of its
Motion for Expedited Discovery or, if that Motion were granted, completion of
jurisdictional discovery. On January 8, 1997, Magistrate Judge Caden entered an
order providing that the Company could take certain expedited discovery
respecting jurisdiction over ECI.
On January 7, 1997, SCI announced that it had withdrawn its proposed
exchange offer. On January 14, 1997, the Company sent a letter to the New York
Court stating that it will move for leave to file an amended complaint seeking
permanent injunctive relief against future actions by SCI and/or ECI against the
Company in violation of the antitrust laws. On January 15, 1997, SCI sent a
letter to the New York Court stating that it believes the Company's claims are
moot and will seek dismissal of those claims. Discovery from the parties has
been temporarily suspended by agreement. On January 16, 1997, ECI sent a letter
to the New York Court, seeking to suspend discovery until the Court rules on the
contemplated motions by the Company and SCI. On January 20, 1997, the Company
sent a letter to the Court seeking leave to move to dismiss SCI's counterclaims,
to which SCI responded on January 22, 1997, by letter requesting dismissal of
the entire action.
At the New York Court's suggestion, the parties are discussing possible
resolution of the action in a manner that would end the current proceedings but
preserve jurisdiction in the New York Court over similar disputes in the future,
if any.
No provision with respect to these legal proceedings has been made to date
in the Company's 1996 consolidated financial statements.
DERIVATIVE SUIT
On September 26, 1996, Jerry Krim filed a purported derivative and class
action against the Company's current directors and one former director and
against the Company as a nominal defendant in the Los Angeles County Superior
Court. The plaintiff alleges, on behalf of himself and all of the Company's
current and former shareholders, that the defendants "improperly responded to an
offer by SCI to combine the two companies," refused to negotiate with SCI,
agreed to pay an inflated price for the Rose Hills properties in Los Angeles,
adopted a supposed "poison pill" supermajority voting provision requiring 75%
approval of a merger, and adopted a Shareholders Protection Rights Plan, each
allegedly in violation of the directors' fiduciary duties. Plaintiff seeks
preliminary and permanent injunctive relief that would, among other things, (i)
require the defendants to cooperate with any person having a bona fide interest
in proposing a transaction and take certain other actions that allegedly would
"maximize shareholder value," (ii) enjoin the Shareholders Protection Rights
Plan in its entirety, (iii) enjoin the consummation of the Rose Hills
transaction, (iv) enjoin the supermajority voting requirements, (v) require
65
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 11. LEGAL PROCEEDINGS (CONTINUED)
an accounting for unspecified damages, and (vi) compensate the plaintiffs for
their fees and costs. On October 17, 1996, the Court denied the plaintiff's
motion for expedited discovery. On November 8, 1996, the Company and those
individual defendants upon whom service had purportedly been made appeared
specially and moved to quash service of the summons for lack of jurisdiction or,
in the alternative, to dismiss or stay the action on grounds of forum non
conveniens. On December 10, 1996, the Court granted the defendants' motion to
quash the summons and denied the plaintiffs' request for discovery. The action
was dismissed, and no appeal has been filed.
No provision with respect to this legal proceeding has been made in the
Company's 1996 consolidated financial statements.
ROJAS ET AL.
On February 22, 1995, Juan Riveras 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 at this time 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 with respect to this lawsuit has been made in the
Company's 1996 consolidated financial statements.
FELDHEIM ET AL. V. SI-SIFH CORP. ET AL.
In January 1997, Elmer C. Feldheim and four other individuals filed a
lawsuit on behalf of themselves and a class of similarly situated individuals
and/or entities against SI-SIFH Corp., SI-SI Insurance Company, Inc., Loewen
Louisiana Holdings, Inc., and LGII in the Parish of Jefferson, State of
Louisiana. Plaintiffs seek a class action. SI-SIFH Corp. and SI-SI Insurance
Company, Inc. were acquired by LGII in March 1996 when LGII acquired the assets
of S.I. Acquisition Associates, L.P.
Plaintiffs hold or held funeral insurance policies issued by insurance
companies owned, directly or indirectly, by the defendants. Plaintiffs allege
that (i) the defendants failed to provide the funeral services purchased with
the policies by, among other things, offering a casket of inferior quality upon
presentation of a policy, and (ii) in connection with the sale of the insurance
policy, the insurance companies negligently or fraudulently represented and
interpreted the scope and terms of the policies and omitted to provide
66
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 11. LEGAL PROCEEDINGS (CONTINUED)
material information regarding the policy benefits and limitations. Plaintiffs
also allege unfair trade practices in violation of Louisiana's insurance code
and trade practices laws.
Plaintiffs seek damages, penalties and attorneys fees. Louisiana law
prohibits plaintiffs from alleging specific amounts of damages. Plaintiffs also
seek a declaratory judgment compelling defendants to honour the policies and
allowing a plaintiff to select a more expensive casket than provided for in the
policy, upon payment of the difference in retail value, without forfeiting the
other benefits provided for in the policy.
As of the date hereof, no discovery has taken place. The Company has
determined that it is not possible at this time to predict the final outcome of
this legal proceeding, including whether a class will be certified, 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
plaintiffs. Accordingly, no provision with respect to this lawsuit has been made
in the Company's 1996 consolidated 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 other proceedings,
individually or in the aggregate, to have a material adverse effect on the
Company's financial position, results of operation or liquidity.
NOTE 12. COMMITMENTS AND CONTINGENCIES
(A) LEASES
At December 31, 1996, the Company was committed to operating lease payments
for premises, aircraft, helicopter, automobiles and office equipment in the
following approximate amounts:
<TABLE>
<CAPTION>
TOTAL
---------
<S> <C>
1997................................................................................................... $ 11,133
1998................................................................................................... 9,248
1999................................................................................................... 8,442
2000................................................................................................... 7,643
2001................................................................................................... 6,408
Thereafter............................................................................................. 38,198
</TABLE>
Total rent expense for each of the years in the three year period ended
December 31, 1996 was $12,626,000, $10,590,000 and $10,098,000 respectively.
(B) COVENANTS NOT TO COMPETE
In connection with various acquisitions, the Company has entered into
non-competition agreements ("covenants not to compete") with certain key
management personnel of operations acquired. The Company's payments under the
agreements may be made variously at closing or over future periods and
67
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
are expensed over the terms of the specific contracts. At December 31, 1996, the
agreements in place will result in future payments in the following approximate
amounts:
<TABLE>
<S> <C>
1997............................................................................... $ 15,723
1998............................................................................... 14,733
1999............................................................................... 13,507
2000............................................................................... 14,065
2001............................................................................... 11,162
Thereafter......................................................................... 40,915
</TABLE>
(C) ENVIRONMENTAL CONTINGENCIES AND LIABILITIES
The Company believes environmental contingencies and liabilities to be
immaterial individually and in the aggregate.
NOTE 13. RETIREMENT PLANS
The Company has a defined contribution retirement plan covering
substantially all United States employees. There are no required future
contributions under this plan in respect of past service. The Company has a 401K
Profit Sharing Plan for United States employees who may defer between 2% and 15%
of their compensation. The Company contributes a minimum of 2% of employees'
eligible compensation to the 401K Plan.
The Company has a Registered Retirement Savings Plan for Canadian employees
who may contribute 3% of their compensation which is matched by an equal
contribution to the plan by the Company on behalf of employees. There are no
required future contributions under these plans in respect of past service.
The total expense for retirement plans for the three years ended December
31, 1996 was $2,318,000, $1,934,000 and $1,250,000 respectively.
NOTE 14. HOSTILE TAKEOVER PROPOSAL
On January 7, 1997, SCI publicly withdrew its unsolicited proposed offer to
acquire the Company through an exchange offer announced in October 1996.
Pursuant to the proposed exchange offer, SCI would exchange $45 worth of Common
stock for each Common share of the Company tendered and $29.51 worth of Common
stock for each Series C Preferred share of the Company tendered. In September
1996, the Board of Directors of the Company unanimously determined that the
offer was inadequate and not in the best interests of the Company or its
shareholders and recommended that, if the offer were commenced, the Company's
shareholders should not tender their shares.
Effective as of October 10, 1996, in order to attract and retain key
executives and managers of the Company in the context of a threatened change in
control of the Company, the Board of Directors of the Company, upon the
recommendation of the Compensation Committee thereof, approved the execution of
individual change-in-control severance agreements ("Severance Agreements") with
approximately 80 of the Company's executives and managers ("Executives"). With
the exception of Mr. Loewen, certain
68
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 14. HOSTILE TAKEOVER PROPOSAL (CONTINUED)
executive officers of the Company entered into such a Severance Agreement. Under
each Severance Agreement, if there is a "change in control" (as defined), an
Executive becomes entitled to severance pay amounting to one to three years'
compensation, and certain other benefits during the "Severance Period" (as
defined), if the Executive's employment terminates for any reason other than
"cause" (as defined) or if the Executive terminates his or her employment for
certain specified reasons. Each Severance Agreement also provides that the
Executive is entitled to a retention bonus if the Executive remains employed by
the Company for 30 days after a change in control. Benefits under the Severance
Agreements can be reduced in certain circumstances.
In addition, the Board of Directors of the Company adopted a
change-in-control severance compensation plan ("Severance Plan") that is
designed to provide certain benefits to full-time salaried employees of the
Company whose principal duties include corporate or regional management
responsibilities. Under the Severance Plan, upon a "change in control" (as
defined), each of the participants is entitled to a severance payment if, within
24 months after a change in control, the participant is terminated other than by
reason of death, voluntary termination or retirement, or for "Just Cause" (as
defined). Benefits payable under the Severance Plan can be reduced in certain
circumstances.
Effective as of October 10, 1996, the Board of Directors of the Company
authorized the Company to enter into indemnification agreements with certain of
its directors and officers whereby the Company will agree to indemnify such
person against all costs, charges and expenses incurred by reason of being a
director or officer of the Company.
In late September, 1996, the Company on considering the possible effects of
the hostile takeover proposal on its acquisition program, determined that access
to capital markets might have been restricted or unavailable if the hostile
takeover proposal remained outstanding for a long period of time. The Company
concluded that an immediate debt issue was available and was the best
alternative to provide continued liquidity during the likely period of the
hostile takeover proposal. In October 1996, LGII consummated a private issue of
two series of senior notes guaranteed by the Company for gross proceeds of
$350,000,000. As the Company had not planned a long-term debt issue in late
1996, it believes that the incremental interest cost of the long-term debt issue
over its bank revolving credit agreement is a direct result of the hostile
takeover proposal. Included in finance costs related to the hostile takeover
proposal is the incremental cost of $1,313,000 before income tax benefit for the
period to December 31, 1996, which amount was determined as if the $350,000,000
debt issue was funded by the Company's bank revolving credit agreement.
In addition, the Company determined that it should obtain certain amendments
from its bank lenders to provide flexibility during the hostile takeover
proposal. The Company believes these amendment fees would not have been required
if not for the hostile takeover proposal and has expensed the aggregate
amendment fees of $1,917,000 before income tax benefit. These fees also are
included in finance costs related to the hostile takeover proposal.
The other costs related to the hostile takeover proposal by SCI are
comprised primarily of legal and financial advisory fees. In aggregate, the
$15,448,000 incurred was composed of $9,890,000 in legal fees, $2,000,000 in
investment banking advisory fees, with the balance made up of fees to other
advisors. No income tax benefit relating to these other costs has been reflected
in the consolidated financial statements.
69
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 14. HOSTILE TAKEOVER PROPOSAL (CONTINUED)
The Company has indemnified certain of its advisors against certain
liabilities, including liabilities under United States and Canadian securities
laws, arising out of their engagements.
NOTE 15. INCOME TAXES
The Company's effective income tax rate is derived as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
% % %
<S> <C> <C> <C>
Combined Canadian federal and provincial income tax rate.................................. 45.5 (45.5) 45.5
Non-deductible costs of hostile takeover proposal......................................... 7.6 -- --
Tax benefits of legal settlements at lower rates.......................................... -- 11.9 --
Foreign income taxed at lower rates....................................................... (30.1) (8.9) (18.5)
Non-deductible depreciation and amortization arising from acquisitions.................... 9.5 3.7 5.6
Other..................................................................................... (1.2) 0.7 1.3
--------- --------- ---------
31.3 (38.1) 33.9
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company paid income taxes for each of the years in the three year period
ended December 31, 1996 amounting to $21,180,000, $19,131,000 and $16,485,000
respectively.
NOTE 16. CHANGES IN OTHER NON-CASH BALANCES
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
(Increase) decrease in assets
Receivables, net of allowances............................................. $ (32,050) $ (15,608) $ (17,448)
Inventories................................................................ (2,689) (2,334) (793)
Prepaid expenses........................................................... (2,670) (2,848) 1,527
Amounts receivable from cemetery merchandise trusts........................ (6,672) (11,206) (2,756)
Installment contracts, net of allowances................................... (64,652) (24,582) (12,781)
Development of cemetery property........................................... (11,406) (9,710) --
Deferred charges........................................................... (28,684) (11,786) (11,532)
Increase (decrease) in liabilities
Accrued settlements........................................................ (53,000) 53,000 --
Accounts payable and accrued liabilities................................... 27,600 9,746 4,979
Cemetery long-term liabilities............................................. 441 8,451 9,446
Insurance policy liabilities............................................... 2,332 5,221 --
Other changes in non-cash balances........................................... -- 104 18
----------- ---------- ----------
$ (171,450) $ (1,552) $ (29,340)
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
70
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 17. SUPPLEMENTARY FINANCIAL INFORMATION
A summary of certain balance sheet accounts as at December 31, is as
follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Receivables, net of allowances
Trade accounts.......................................................................... $ 110,022 $ 83,404
Installment contracts................................................................... 80,607 38,381
Other................................................................................... 37,127 20,050
Unearned finance income................................................................. (12,422) (6,216)
Allowances for contract cancellations and doubtful accounts............................. (27,717) (19,666)
---------- ----------
$ 187,617 $ 115,953
---------- ----------
---------- ----------
Long-term receivables, net of allowances
Notes receivable........................................................................ $ 12,093 $ 17,492
Amounts receivable from cemetery merchandise trusts..................................... 131,748 67,623
Installment contracts................................................................... 189,233 111,551
Unearned finance income................................................................. (24,647) (18,438)
Allowances for contract cancellations and doubtful accounts............................. (19,848) (10,861)
---------- ----------
$ 288,579 $ 167,367
---------- ----------
---------- ----------
Cemetery property, at cost
Developed land and lawn crypts.......................................................... $ 109,708 $ 82,008
Undeveloped land........................................................................ 469,421 263,850
Mausoleums.............................................................................. 36,063 23,164
---------- ----------
$ 615,192 $ 369,022
---------- ----------
---------- ----------
Property and equipment
Land.................................................................................... $ 140,903 $ 121,770
Buildings and improvements.............................................................. 431,820 347,848
Automobiles............................................................................. 66,186 53,967
Furniture, fixtures and equipment....................................................... 110,901 80,585
Computer hardware and software.......................................................... 32,954 19,469
Leasehold improvements.................................................................. 11,614 7,689
Accumulated depreciation and amortization............................................... (108,093) (79,363)
---------- ----------
$ 686,285 $ 551,965
---------- ----------
---------- ----------
Names and reputations
Names and reputations................................................................... $ 552,803 $ 405,803
Covenants not to compete................................................................ 65,418 61,351
Accumulated amortization................................................................ (59,511) (42,210)
---------- ----------
$ 558,710 $ 424,944
---------- ----------
---------- ----------
</TABLE>
71
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 17. SUPPLEMENTARY FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
Other assets
<S> <C> <C>
Deferred finance charges................................................................ $ 33,248 $ 8,439
Deferred direct obtaining costs......................................................... 49,319 24,599
Acquisitions in progress................................................................ 35,783 25,820
Other................................................................................... 15,793 8,091
---------- ----------
$ 134,143 $ 66,949
---------- ----------
---------- ----------
Accounts payable and accrued liabilities
Trade payables.......................................................................... $ 23,784 $ 45,492
Interest................................................................................ 26,009 7,111
Dividends............................................................................... 4,675 --
Insurance, property and business taxes.................................................. 5,897 4,072
Other................................................................................... 53,707 23,383
---------- ----------
$ 114,072 $ 80,058
---------- ----------
---------- ----------
Other liabilities
Cemetery long-term liabilities.......................................................... $ 141,573 $ 78,609
Liabilities of joint venture (Note 4)................................................... 36,897 34,114
Regional partnership liabilities........................................................ 13,276 11,390
Participants' deposits in MEIP (Note 9(e)).............................................. 5,636 6,080
Other................................................................................... 7,164 6,240
---------- ----------
$ 204,546 $ 136,433
---------- ----------
---------- ----------
</TABLE>
72
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 18. SEGMENTED INFORMATION
The following information corresponds to the Company's major industry
segments, all of which operate in North America.
<TABLE>
<CAPTION>
FUNERAL CEMETERY INSURANCE CORPORATE CONSOLIDATED
------------ ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Revenue
1996......................................... $ 549,833 $ 286,652 $ 71,900 $ -- $ 908,385
1995......................................... 441,352 143,577 13,564 -- 598,493
1994......................................... 353,904 63,424 -- -- 417,328
------------ ------------ ---------- ---------- ------------
Depreciation and amortization
1996......................................... $ 46,681 $ 4,237 $ 42 $ 5,803 $ 56,763
1995......................................... 34,101 2,210 313 3,479 40,103
1994......................................... 24,904 1,759 -- 2,327 28,990
------------ ------------ ---------- ---------- ------------
Earnings from operations
1996......................................... $ 182,581 $ 84,530 $ 19,411 $ (82,417) $ 204,105
1995......................................... 148,379 37,641 2,718 (71,131) 117,607
1994......................................... 118,529 13,662 -- (37,078) 95,113
------------ ------------ ---------- ---------- ------------
Total assets
1996......................................... $ 1,784,717 $ 1,117,216 $ 329,134 $ 265,872 $3,496,939
1995......................................... 1,379,951 598,766 107,076 177,187 2,262,980
1994......................................... 994,030 232,305 -- 99,940 1,326,275
------------ ------------ ---------- ---------- ------------
Capital expenditures
1996......................................... $ 136,220 $ 36,782 $ 1,274 $ 9,966 $ 184,242
1995......................................... 103,955 19,341 -- 7,509 130,805
1994......................................... 84,742 14,063 -- 5,254 104,059
------------ ------------ ---------- ---------- ------------
</TABLE>
NOTE 19. RELATED PARTY TRANSACTIONS
During the year ended December 31, 1996, as part of the normal course of
operations, the Company chartered a jet aircraft, a motor vessel and a
helicopter at competitive rates from companies which the Chairman of the Company
owns or controls. For each of the years in the three year period ended December
31, 1996, the total costs of the charters amounted to $605,110, $1,622,448 and
$1,269,000 respectively, of which ($52,900), $108,924 and $132,000 respectively,
remained outstanding at the year end.
In connection with the intended transfer of each of these assets to
companies owned by third parties, the Company provided interim financing to
companies owned by the Chairman of the Company totalling $1,750,000. The interim
financing was repaid in full by October 1996.
The intended transfer of the motor vessel to a third party was not
consummated. On October 28, 1996, the Company purchased all of the shares of the
company that owned the vessel, 476822 B.C. Ltd. ("BC Ltd."), for an effective
purchase price of Cdn.$7,860,000. In the transaction, the motor vessel was
valued at Cdn.$7,200,000 and the other assets were valued at cost and aggregated
approximately Cdn.$660,000. A third party appraisal of the motor vessel had
established its fair market value at Cdn.$7,350,000 and its replacement value at
Cdn.$12,500,000.
73
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 19. RELATED PARTY TRANSACTIONS (CONTINUED)
The Chairman has an option to reacquire either the motor vessel and related
assets (the "Boat Assets") or the shares of BC Ltd. until October 1, 2006, under
certain circumstances including a change in control of the Company. The option
price for the Boat Assets is their fair market value, and the option price for
the shares is the fair market value of the net assets of BC Ltd.
During the year, the company which owned the jet aircraft and helicopter
sold them to a third party. The Company has leased the jet aircraft and
helicopter from the third party at commercially reasonable terms.
The Board of Directors of the Company approved the transactions pertaining
to the jet aircraft in July 1996 and the transactions pertaining to the motor
vessel and helicopter in September 1996.
As part of the 1995 acquisition of Osiris Holding Corporation ("Osiris"),
the Company has recorded as a long-term liability, $27,840,000. The balance
outstanding is the present value of total remaining contingent payments of
approximately $33,800,000 which the Company expects to pay over a five year
period to the former shareholders of Osiris, two of whom are officers of the
Company.
In addition, as part of the 1995 acquisition of Shipper Management
("Shipper"), the Company has recorded as a long-term liability, $6,841,000
representing the present value of total remaining contingent payments of
approximately $8,500,000 which the Company recorded in the third quarter of 1996
when the outcome of the contingency became determinable and which the Company
expects to pay over a six year period to the former shareholders of Shipper, one
of whom is an officer of the Company.
NOTE 20. SUBSEQUENT EVENTS
During the period from January 1, 1997 to March 3, 1997, the Company
acquired 19 funeral homes and 11 cemeteries. The aggregate cost of these
transactions was approximately $35,467,000.
In March 1997, the Company has committed to acquire certain funeral homes,
cemeteries and related operations, subject in most instances to certain
conditions including approval by the Company's Board of Directors. The aggregate
cost of these transactions, if completed, will be approximately $284,254,000.
NOTE 21. UNITED STATES ACCOUNTING PRINCIPLES
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") in Canada. These principles
differ in the following material respects from those in the United States as
summarized below:
74
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 21. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
(A) EARNINGS (LOSS) AND EARNINGS (LOSS) PER COMMON SHARE
<TABLE>
<CAPTION>
1996 1995 1994
--------- ---------- ---------
<S> <C> <C> <C>
EARNINGS (LOSS)
Net earnings (loss) in accordance with Canadian GAAP............................ $ 63,906 $ (76,684) $ 38,494
Less effects of differences in accounting for:
Insurance operations(d)....................................................... (1,440) -- --
Stock options................................................................. -- (191) (220)
Income taxes(f)............................................................... 2,093 1,075 1,378
--------- ---------- ---------
Earnings (loss) before cumulative effect of changes in accounting
principles.................................................................. 64,559 (75,800) 39,652
Cumulative effect of change in accounting for cemetery revenue
recognition(g).............................................................. -- -- 157
--------- ---------- ---------
Net earnings (loss) in accordance with United States GAAP..................... $ 64,559 $ (75,800) $ 39,809
--------- ---------- ---------
--------- ---------- ---------
EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per share in accordance with United States GAAP, are as follows:
Primary earnings (loss) per share............................................. $ 0.97 $ (1.67) $ 0.98
--------- ---------- ---------
--------- ---------- ---------
Fully diluted earnings (loss) per share....................................... $ 0.96 $ (1.67) $ 0.98
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
The following average number of shares were used for the computation of
primary and fully diluted earnings (loss) per share:
<TABLE>
<CAPTION>
THOUSANDS OF SHARES 1996 1995 1994
- ------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Primary.............................................................................. 57,418 45,291 40,549
--------- --------- ---------
--------- --------- ---------
Fully diluted........................................................................ 58,159 45,291 40,704
--------- --------- ---------
--------- --------- ---------
</TABLE>
75
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 21. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
(B) BALANCE SHEET
The amounts in the consolidated balance sheet that differ from those
reported under Canadian GAAP are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------ ------------------------
CANADIAN UNITED CANADIAN UNITED
GAAP STATES GAAP GAAP STATES GAAP
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Assets
Investments............................................... 266,228 230,911 86,815 52,701
Insurance invested assets................................. 296,249 297,340 97,024 97,024
Cemetery property......................................... 615,192 872,782 369,022 533,775
Present value of insurance policies acquired.............. -- 14,933 -- --
Deferred policy acquisition costs......................... -- 5,047 -- --
Names and reputations..................................... 558,710 586,847 424,944 439,181
Liabilities and Shareholders' equity
Accrued settlements....................................... -- -- 40,000 --
Provision for legal settlements--non-current.............. -- -- -- 112,000
Insurance policy liabilities.............................. 212,480 234,909 84,898 84,898
Deferred income taxes..................................... (67,904) 239,617 (61,959) 140,707
Common shares............................................. 796,431 822,378 490,055 516,002
Common shares issuable under legal settlements............ -- -- 72,000 --
Retained earnings......................................... 80,117 61,824 36,439 17,493
Foreign exchange adjustment............................... 14,506 (16,171) 16,188 (14,489)
</TABLE>
(C) STATEMENT OF CASH FLOWS
Under United States GAAP, cash provided by financing and applied to
investing would decrease by approximately $63,000,000 (1995--$106,000,000,
1994--$19,000,000) for non-cash debt and common share consideration on
acquisitions. Similarly, cash provided by financing and applied to investing
would decrease by approximately $2,600,000 (1995--nil, 1994--nil) for non-cash
proceeds on disposal of certain subsidiaries, see Note 4(c).
Cash applied to operations and cash provided by financing activities would
decrease by $112,000,000 because shares and debt issued for legal settlements
would be considered non-cash transactions.
(D) INSURANCE OPERATIONS
PRESENT VALUE OF INSURANCE POLICIES
Under United States GAAP, the Company recognizes an asset that represents
the actuarilly-determined present value of the projected future profits of the
insurance in-force at dates of acquisition. Canadian GAAP does not recognize
such an asset. The asset is being amortized to insurance expense over the
estimated life of the insurance in-force at the date of acquisition. In 1995,
United States GAAP differences were not significant.
76
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 21. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
DEFERRED POLICY ACQUISITION COSTS
Under United States GAAP, the Company defers costs related to the production
of new business, which consist principally of commissions, certain underwriting
expenses, and the costs of issuing policies. Deferred acquisition costs are
amortized over the expected premium-paying periods of the related policies.
Canadian GAAP does not permit deferral of such costs. In 1995, United States
GAAP differences were not significant.
INSURANCE POLICY LIABILITIES
Insurance policy liabilities, which represent liabilities for future policy
benefits, are accounted for under United States GAAP using the net level premium
method which involves different actuarial assumptions and methodologies than the
policy premium method used for Canadian GAAP. In addition, under Canadian GAAP,
all actuarial assumptions are re-evaluated on a periodic basis, resulting in
adjustments to insurance policy liabilities and insurance costs and expenses.
Under United States GAAP, assumptions established at the time a policy is
written are locked in and only revised if it is determined that future
experience will worsen from that previously assumed.
(E) UNREALIZED GAINS AND LOSSES
Under United States GAAP, fixed maturity securities which the Company has
the positive intent and ability to hold to maturity are classified as
held-to-maturity and are carried at amortized cost. Fixed maturity securities
classified as held-to-maturity were approximately $83,719,000 at December 31,
1996 (1995--$23,000,000). Debt and equity securities that are held with the
objective of trading to generate profits on short-term differences in price are
carried at fair value, with changes in fair value reflected in the results of
operations. At December 31, 1996, securities classified as trading were
approximately $5,600,000. All other fixed maturity and equity securities not
classified as either held-to-maturity or trading are classified as
available-for-sale and carried at fair value which was approximately
$316,028,000 at December 31, 1996 (1995--$74,000,000). Available-for-sale
securities may be sold in response to changes in interest rates and liquidity
needs. Unrealized holding gains and losses related to available-for-sale
investments, after deducting amounts allocable to income taxes, are reflected as
a separate component of stockholders' equity. There were no significant
unrealized gains or losses on securities available-for-sale as of December 31,
1996. Unrealized holding gains and losses related to trading investments, after
deducting amounts allocable to income taxes, are reflected in earnings.
(F) INCOME TAXES
Under United States GAAP, deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
Temporary differences are tax-effected at current rates whereas under Canadian
GAAP, temporary differences are tax-effected at historic rates. There was no
deferred tax effect of changes in tax rates during 1996.
77
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 21. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
The Company's deferred tax liabilities under FAS 109 at December 31, are as
follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Deferred tax liabilities
Cemetery property....................................................................... $ 254,995 $ 164,436
Property and equipment.................................................................. 62,609 50,101
Deferred costs related to prearranged funeral services.................................. 5,068 9,932
Other tax liabilities................................................................... 24,515 19,102
---------- ----------
Total deferred tax liabilities............................................................ 347,187 243,571
---------- ----------
Deferred tax assets
Legal settlements....................................................................... 16,049 61,037
Interest and intercompany management fees............................................... 55,119 20,584
Other tax assets, net of valuation allowance............................................ 36,402 21,243
---------- ----------
Total deferred tax assets................................................................. 107,570 102,864
---------- ----------
Net deferred tax liabilities.............................................................. $ 239,617 $ 140,707
---------- ----------
---------- ----------
</TABLE>
The Company believes realization of its net deferred tax assets is more
likely than not. The Company's ability to realize its deferred tax assets is
based on several factors, including a presumption of future profitability in
certain jurisdictions and is subject to some degree of uncertainty. At December
31, 1996, the Company had a valuation allowance of $3,499,000 (1995--$2,228,000)
During the year ended December 31, 1996, the Company increased its valuation
allowance by $1,271,000 for operating loss carryforwards.
(G) CHANGE IN ACCOUNTING POLICY
During the year ended December 31, 1994, the Company changed its revenue
recognition policy with regard to pre-need sales of cemetery interment rights
and other related products. Previously revenue was recognized in accordance with
principles prescribed for sales of real estate.
(H) CHANGE IN REPORTING CURRENCY
Effective January 1, 1994, the Company adopted the United States dollar as
its reporting currency as a result of the significance of business activities
conducted in the United States and of shareholdings held by residents of the
United States.
(I) RECENT UNITED STATES ACCOUNTING STANDARDS
The Company adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 123 ("FAS 123"), Accounting for Stock-Based
Compensation, for United States GAAP purposes, to account for grants under the
Company's existing stock based compensation plans.
The Company continues to record compensation expense for United States GAAP
purposes following the intrinsic value principles of APB 25 for Accounting for
Stock Issued to Employees in accounting for
78
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 21. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
the plans. Under APB 25, no compensation expense has been recognized for its
stock-based compensation plans in 1996 (1995--$191,000, 1994--$220,000). Had
compensation cost been determined based on fair value at the grant dates for
awards under those plans consistent with the measurement provisions of FAS 123,
net earnings under United States GAAP would have been $58,860,000 for the year
ended December 31, 1996 (1995--$(76,600,000)) and primary and fully diluted
earnings per share would have been $0.87 and $0.86 respectively (1995--($1.69)
and ($1.69), respectively) For these purposes, the fair value of each option is
estimated on the date of the grant using the Black-Scholes option-pricing model
with the following weighted average assumptions; dividend yield 0.5%
(1995--0.5%), expected volatility 24% (1995--24%), Canadian risk-free interest
rates 5.68% (1995--7.65%) United States risk-free interest rates 5.57%
(1995--6.58%) and expected average option term of 3.4 years (1995--4.5 years).
The weighted average fair value of the options granted is $6.78 (1995--$9.42)
per option.
NOTE 22. COMPARATIVE FIGURES
Certain of the comparative figures have been reclassified to conform to the
presentation adopted in the current period.
79
<PAGE>
THE LOEWEN GROUP INC.
SUPPLEMENTARY DATA
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER(1) QUARTER(1) QUARTER(1) QUARTER(1)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(ALL AMOUNTS IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, 1996
Revenue....................................................... $ 193,084 $ 223,156 $ 231,453 $ 260,692
Gross profit.................................................. 73,543 80,554 83,285 100,189
Net earnings.................................................. 17,223 19,489 16,914 10,280
Fully diluted earnings per share.............................. $ 0.30 $ 0.30 $ 0.25 $ 0.13
YEAR ENDED DECEMBER 31, 1995
Revenue....................................................... $ 129,770 $ 137,848 $ 153,502 $ 177,373
Gross profit.................................................. 53,622 52,806 55,430 64,950
Net earnings.................................................. 14,057 12,340 10,109 (113,190)
Fully diluted earnings per share.............................. $ 0.34 $ 0.28 $ 0.20 $ (2.35)
</TABLE>
- ------------------------
(1) Certain of the comparative figures have been reclassified to conform to the
presentation adopted for the year ended December 31, 1996.
80
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
FINANCIAL STATEMENTS
81
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Loewen Group International, Inc.
We have audited the consolidated balance sheets of Loewen Group
International, Inc. as at December 31, 1996 and 1995 and the consolidated
statements of operations and retained earnings (deficit) and changes in
financial position for each of the years in the three year period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1996 and 1995, and the results of its operations and the changes in its
financial position for each of the years in the three year period ended December
31, 1996, in accordance with generally accepted accounting principles in Canada.
/s/ KPMG
Chartered Accountants
Vancouver, Canada
March 3, 1997, except as to Note 21(b), which is as of March 27, 1997.
82
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash and term deposits............................................................ $ 17,510 $ 38,722
Receivables, net of allowances.................................................... 167,410 115,079
Inventories....................................................................... 28,464 24,393
Prepaid expenses.................................................................. 10,004 6,095
------------ ------------
223,388 184,289
Prearranged funeral services........................................................ 274,266 190,687
Long-term receivables, net of allowances............................................ 243,614 164,382
Investments......................................................................... 170,245 1,016
Insurance invested assets........................................................... 296,249 97,024
Cemetery property, at cost.......................................................... 597,528 356,022
Property and equipment.............................................................. 584,744 463,392
Names and reputations............................................................... 514,054 382,784
Deferred income taxes............................................................... 60,018 58,645
Other assets........................................................................ 124,287 62,473
------------ ------------
$ 3,088,393 $ 1,960,714
------------ ------------
------------ ------------
LIABILITIES and SHAREHOLDERS' EQUITY
Current liabilities
Current indebtedness.............................................................. $ -- $ 38,546
Accrued settlements............................................................... -- 53,000
Accounts payable and accrued liabilities.......................................... 93,163 70,959
Long-term debt, current portion................................................... 63,127 59,050
------------ ------------
156,290 221,555
Loans and advances from affiliates.................................................. 691,570 522,854
Long-term debt...................................................................... 1,308,838 730,355
Other liabilities................................................................... 161,073 95,103
Insurance policy liabilities........................................................ 208,706 82,710
Deferred prearranged funeral services revenue....................................... 274,266 190,687
Preferred securities of subsidiary.................................................. 75,000 75,000
Shareholders' equity
Share capital..................................................................... 302,264 127,196
Retained earnings (Deficit)....................................................... (89,614) (84,746)
------------ ------------
212,650 42,450
------------ ------------
$ 3,088,393 $ 1,960,714
------------ ------------
------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTES 8, 12, 13 AND 21)
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
83
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
---------- ----------- ----------
<S> <C> <C> <C>
Revenue
Funeral................................................................... $ 489,571 $ 389,124 $ 303,488
Cemetery.................................................................. 277,881 138,137 61,970
Insurance................................................................. 71,900 13,564 --
---------- ----------- ----------
839,352 540,825 365,458
Costs and expenses
Funeral................................................................... 294,033 232,038 181,662
Cemetery.................................................................. 190,792 99,387 47,157
Insurance................................................................. 52,449 10,533 --
---------- ----------- ----------
537,274 341,958 228,819
---------- ----------- ----------
302,078 198,867 136,639
Expenses
General and administrative................................................ 73,902 88,177 27,431
Depreciation and amortization............................................. 48,991 34,975 24,818
---------- ----------- ----------
122,893 123,152 52,249
---------- ----------- ----------
Earnings from operations.................................................... 179,185 75,715 84,390
Interest and financing fees paid to affiliates, net......................... 71,313 38,885 36,462
Interest on long-term debt.................................................. 76,825 39,325 26,429
Finance costs related to hostile takeover proposal.......................... 3,230 -- --
Other costs related to hostile takeover proposal............................ 9,789 -- --
Litigation related finance costs............................................ -- 18,929 --
Legal settlements........................................................... -- 164,800 --
---------- ----------- ----------
Earnings (loss) before undernoted items..................................... 18,028 (186,224) 21,499
Dividends on preferred securities of subsidiary............................. 7,088 7,088 2,678
---------- ----------- ----------
Earnings (loss) before income taxes and undernoted items.................... 10,940 (193,312) 18,821
Income taxes
Current................................................................... 11,009 11,898 9,143
Deferred.................................................................. 6,419 (77,857) 2,187
---------- ----------- ----------
17,428 (65,959) 11,330
---------- ----------- ----------
(6,488) (127,353) 7,491
Earnings and other earnings of associated companies......................... 1,620 -- --
---------- ----------- ----------
Net earnings (loss) for the year............................................ $ (4,868) $ (127,353) $ 7,491
Retained earnings (deficit), beginning of year.............................. $ (84,746) $ 42,607 $ 35,116
---------- ----------- ----------
Retained earnings (deficit), end of year.................................... $ (89,614) $ (84,746) $ 42,607
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
84
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
------------ ----------- ----------
<S> <C> <C> <C>
CASH PROVIDED BY (APPLIED TO)
Operations
Net earnings (loss)...................................................... $ (4,868) $ (127,353) $ 7,491
Items not affecting cash
Depreciation and amortization.......................................... 48,991 34,975 24,818
Deferred income taxes.................................................. 6,419 (77,857) 2,187
Equity and other earnings of associated companies...................... (1,620) -- --
Other.................................................................. 30,453 14,563 3,192
Loans and advances from affiliates to be advanced and debt to be issued
under legal settlements................................................ (111,800) 111,800 --
Net changes in other non-cash balances................................... (184,597) (6,725) (30,375)
------------ ----------- ----------
(217,022) (50,597) 7,313
------------ ----------- ----------
Investing
Business acquisitions.................................................... (609,326) (457,648) (261,992)
Construction of new facilities........................................... (13,756) (13,359) (9,512)
Investments, net......................................................... (163,712) 2,707 (497)
Purchase of insurance invested assets.................................... (106,335) -- --
Proceeds on disposition of insurance invested assets..................... 71,939 -- --
Purchase of property and equipment....................................... (42,634) (15,055) (11,372)
Proceeds on disposition of assets........................................ 23,637 3,335 4,004
Proceeds on disposition of insurance operations.......................... -- -- (4,304)
Proceeds on transfer of Puerto Rico operations to Parent Company......... -- -- 19,836
Other.................................................................... 7,922 (32,885) (21,894)
------------ ----------- ----------
(832,265) (512,905) (285,731)
------------ ----------- ----------
Financing
Issue of share capital................................................... 175,069 -- --
Issue of preferred securities of subsidiary.............................. -- -- 75,000
Increase in long-term debt............................................... 1,127,608 359,261 167,662
Reduction in long-term debt.............................................. (504,586) (47,292) (6,605)
Loans and advances from affiliates....................................... 239,434 241,388 33,257
Current note payable..................................................... (38,546) 38,546 --
Proceeds of factoring accounts receivable................................ 56,318 -- --
Other.................................................................... (27,222) 3,323 3,090
------------ ----------- ----------
1,028,075 595,226 272,404
------------ ----------- ----------
Increase (decrease) in cash and cash equivalents during the year........... (21,212) 31,724 (6,014)
Cash and cash equivalents, beginning of year............................... 38,722 6,998 13,012
------------ ----------- ----------
Cash and cash equivalents, end of year..................................... $ 17,510 $ 38,722 $ 6,998
------------ ----------- ----------
------------ ----------- ----------
Cash and cash equivalents include
Cash and term deposits................................................... $ 17,510 $ 38,722 $ 10,698
Bank indebtedness, included in current indebtedness...................... -- -- (3,700)
------------ ----------- ----------
$ 17,510 $ 38,722 $ 6,998
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
85
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company was incorporated on February 25, 1987 under the laws of the
State of Delaware and is directly and indirectly a wholly owned subsidiary of
The Loewen Group Inc. ("Parent Company"). 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 consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada and generally conform with
those established in the United States, except as explained in Note 22.
BASIS OF CONSOLIDATION
The accounts of all subsidiary companies have been included in the
consolidated financial statements from their respective dates of acquisition of
control or formation. All subsidiaries are wholly owned at December 31, 1996
except for a few companies with small minority interests.
The Company accounts for its common share investment in companies in which
it has significant influence by the equity method. The Company's proportionate
share of income as reported, net of amortization of excess purchase price over
net assets acquired, is included in income and added to the cost of the
investment. Common share dividends received reduce the carrying amount of the
investment.
Other long-term investments including preferred shares are accounted for
using the cost method.
All significant inter-company balances and transactions have been eliminated
in the consolidated financial statements.
USE OF ESTIMATES
The preparation of consolidated financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during the
reporting period. As a result, actual results could differ from those estimates.
PREARRANGED FUNERAL SERVICES
Prearranged funeral services provide for future funeral services generally
determined by prices prevailing at the time the contract is signed. The payments
made under the contract are either placed in trust or are used to pay the
premiums of life insurance policies under which the Company will be designated
as beneficiary. Except for insurance commissions and amounts not required to be
trusted which are used to defray initial costs of administration, no income is
recognized until the performance of a specific funeral.
Trust fund principal amounts and insurance contract amounts, together with
trust fund investment earnings retained in trust and annual insurance benefits,
are deferred until the service is performed. The Company estimates that trust
fund investment earnings and annual insurance benefits exceed the increase in
cost over time of providing the related services. Upon performance of the
specific funeral service, the Company will recognize the trust fund principal
amount or insurance contract amount together with the accumulated trust earnings
and annual insurance benefits as funeral revenues. Direct obtaining costs
86
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
related to the sale of prearranged funeral services are included in other assets
and amortized over a period of ten years, approximating the period the benefits
are expected to be realized. Indirect obtaining costs relating to the sale of
prearranged funeral services are expensed in the period incurred.
CEMETERY OPERATIONS
Pre-need sales of cemetery interment rights and other related products and
services are recorded as revenue when customer contracts are signed with
concurrent recognition of related costs. Allowances for customer cancellations
and refunds are provided at the date of sale based on management's estimates of
expected cancellations. Actual cancellation rates in the future may result in a
change in estimate.
A portion of the proceeds from cemetery sales is generally required by law
to be paid into perpetual or endowment care trust funds. Cemetery revenue is
recorded net of the amount to be deposited to perpetual or endowment care trust
funds. Earnings of perpetual or endowment care trust funds are used to defray
the maintenance costs of cemeteries. Additionally, pursuant to state law, a
portion of the proceeds from the sale of pre-need merchandise and services may
also be required to be paid into trust funds which are recorded as long-term
receivables.
INSURANCE OPERATIONS
(A) INSURANCE REVENUE
The Company earns insurance revenue through the sale of industrial life and
ordinary life insurance policies.
(B) INSURANCE INVESTED ASSETS
Bonds and other fixed-term securities are carried at amortized cost. Net
realized gains and losses are deferred and amortized to income over the
remaining term to maturity of the security sold. Equity securities are carried
at moving average market value. Net realized gains and losses on the disposal of
equity securities are deferred and amortized to income on a declining balance
basis.
(C) INSURANCE POLICY LIABILITIES
Insurance policy liabilities represent an estimate of the amount which,
together with future premiums and investment income, will be sufficient to pay
future benefits, dividends and expenses on insurance and annuity contracts.
Liabilities are computed using the policy premium method which involves the use
of estimates concerning such factors as mortality and morbidity rates, future
investment yields, future expense levels and rates of surrender. Consequently,
policy liabilities include reasonable provisions for adverse deviations from
those estimates. These assumptions will be revised if it is determined that
future experience differs substantially from that previously assumed.
ENVIRONMENTAL CONTINGENCIES AND LIABILITIES
The Company's operations are subject to numerous environmental laws,
regulations and guidelines adopted by various governmental authorities in the
jurisdictions in which the Company operates. Liabilities are recorded when
environmental liabilities are either known or considered probable and can be
reasonably estimated. The Company policies are designed to control environmental
risk upon acquisition
87
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
through extensive due diligence and corrective measures taken prior to
acquisition and ongoing maintenance programs after acquisition.
INVENTORIES
Inventories are valued at the lower of cost, determined primarily on a
specific identification basis or a first in first out basis, and net realizable
value.
CEMETERY PROPERTY
Cemetery property, including capitalized interest, consists of developed and
undeveloped cemetery property and is valued at average cost, which is not in
excess of market value. Amounts are expensed to costs and expenses as sales of
cemetery plots occur.
PROPERTY AND EQUIPMENT
Property and equipment is recorded initially at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Buildings and improvements 10 to 40 years
Automobiles 6 years
Furniture, fixtures and equipment 6 to 10 years
Computer hardware and software 6 to 10 years
over the term of the lease plus one
Leasehold improvements renewal
</TABLE>
NAMES AND REPUTATIONS
The amount paid for the names and reputations of operations acquired is
equivalent to the excess of the purchase price over the fair value of
identifiable net assets acquired, as determined by management. Amortization is
provided on a straight-line basis over 40 years.
Covenants not to compete included with names and reputations on the
consolidated balance sheet represent amounts prepaid under non-competition
agreements with certain key management personnel of acquired operations.
Amortization of such prepaid covenants not to compete is provided on a
straight-line basis over the terms of the relevant agreements, typically ten
years.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company monitors the recoverability of long-lived assets, including
names and reputations, based on factors such as current market value, future
asset utilization, business climate and future undiscounted cash flows expected
to result from the use of the related assets. The Company's policy is to record
an impairment loss in the period when it is determined that the carrying amount
of the asset may not be recoverable.
DEFERRED FINANCE COSTS
Deferred finance costs included in other assets on the consolidated balance
sheet represent the costs of negotiating and securing the Company's long-term
debt and preferred securities of subsidiary and are
88
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
being amortized to earnings on a straight-line basis over the respective term of
the related debt. These costs include legal fees, accounting fees, underwriting
and agency fees and other related costs.
ACQUISITION COSTS
The Company's policy is to capitalize direct acquisition costs incurred on
potential acquisitions. Upon completion of an acquisition, these costs are
allocated to the assets acquired and are subject to the accounting policies
outlined above. On certain acquisitions, a portion of the consideration is
contingent upon future operating results. Such consideration, if any, is
allocated to the assets acquired once determinable. Direct acquisition costs
related to acquisitions not completed are written off.
DERIVATIVE INSTRUMENTS
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 enters
into interest rate swap agreements to manage interest rate exposure on its
long-term debt. The difference between the amounts paid and received is accrued
and accounted for as an adjustment to interest expense over the life of the swap
agreement.
The Company uses basic swap and option products to manage its exposure to
interest rate movements when anticipated financing transactions are probable and
the significant characteristics and expected terms are identified. Any gain or
loss as a result of the hedging is deferred and amortized as an adjustment to
interest expense over the life of the financing instrument hedged. If at any
point in time, a hedging transaction no longer meets the criteria of a hedge,
any gain or loss is recognized in current earnings.
The Company also uses foreign exchange forward contracts, options and
futures to hedge the Company's exposure to fluctuations in foreign exchange
rates. Gains or losses as a result of the hedge transaction are accounted for as
an adjustment to the related transaction.
SHARE ISSUE EXPENSES
The costs of issuing shares, net of income tax recoveries thereon, are
applied to reduce the stated value of such shares.
DEFERRED INCOME TAXES
The Company follows the allocation method for accounting for income taxes.
Under this method recognition is given in the financial statements to the tax
effects of timing differences between income for financial statement and income
tax purposes. The differences arise primarily from provisions for legal
settlements and related costs, inter-company charges, interest, depreciation,
amortization, deferred finance costs, direct marketing costs, provision for bad
debts and contract cancellations, operating loss carryforwards, cemetery sales
and share issue costs.
89
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 2. CHANGES IN ACCOUNTING POLICY
During the year ended December 31, 1994, the Company changed its revenue
recognition policy with regard to pre-need sales of cemetery interment rights
and other related products. Previously revenue was recognized in accordance with
principles prescribed for sales of real estate.
NOTE 3. ACQUISITIONS
During the year ended December 31, 1996, the Company acquired 149 funeral
homes, 135 cemeteries and two insurance companies. Included in these
acquisitions is the purchase of certain net assets of S.I. Acquisition
Associates L.P. ("S.I.") of Donaldsville, Louisiana, for approximately
$155,800,000, including costs of acquisition. S.I. concurrently acquired all of
the outstanding shares of Ourso Investment Corporation. The S.I. assets included
15 funeral homes, two cemeteries and two insurance companies.
During the year ended December 31, 1995, the Company acquired 170 funeral
homes and 61 cemeteries.
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 shown below. Included in these amounts is
$11,794,000 representing the present value of total contingent payments of
approximately $13,500,000 which the Company recorded in
90
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 3. ACQUISITIONS (CONTINUED)
the third quarter of 1996 when the outcome of the contingency related to a 1995
acquisition became determinable.
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Current assets........................................................................... $ 12,402 $ 15,630
Prearranged funeral services............................................................. 46,773 61,114
Long-term receivables, net of allowances................................................. 90,052 82,103
Investments.............................................................................. 896 9,500
Insurance invested assets................................................................ 185,971 --
Cemetery property, at cost............................................................... 250,619 251,857
Property and equipment................................................................... 107,575 84,138
Names and reputations.................................................................... 151,139 98,497
Other assets............................................................................. 1,565 8,140
----------- ----------
846,992 610,979
Current liabilities...................................................................... (17,380) (15,556)
Long-term debt........................................................................... (2,469) (10,087)
Other liabilities........................................................................ (52,405) (58,603)
Insurance policy liabilities............................................................. (125,249) --
Deferred income taxes.................................................................... 6,610 (7,971)
Deferred prearranged funeral services revenue............................................ (46,773) (61,114)
----------- ----------
$ 609,326 $ 457,648
----------- ----------
----------- ----------
Consideration
Cash, including assumed debt repaid at closing......................................... $ 546,615 $ 351,700
Debt................................................................................... 51,060 95,052
Share capital of Parent Company........................................................ 11,651 10,896
----------- ----------
Purchase Price........................................................................... $ 609,326 $ 457,648
----------- ----------
----------- ----------
</TABLE>
91
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 3. ACQUISITIONS (CONTINUED)
The following table reflects, on an unaudited pro-forma basis, the combined
results of the Company's operations acquired during the period ended December
31, 1996 as if all such acquisitions had taken place at the beginning of the
respective years 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 years
presented, and is not intended to be a projection of future results or trends.
<TABLE>
<CAPTION>
1996 1995
---------- -----------
<S> <C> <C>
Revenues................................................................................. $ 921,917 $ 757,777
Net earnings (loss)...................................................................... $ (14,747) $ (137,336)
</TABLE>
NOTE 4. PREARRANGED FUNERAL SERVICES
Included in the consolidated balance sheets at December 31, 1996, as
prearranged funeral services is $274,266,000 (1995--$190,687,000), representing
amounts deposited in accordance with state trusting laws with various financial
institutions together with accrued earnings. The Company will receive the
prearranged funeral trust amounts when the funeral services are performed.
AMOUNTS HELD IN PREARRANGED FUNERAL TRUSTS
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Short-term investments.................................................................... $ 59,400 $ 60,863
Fixed maturities.......................................................................... 95,238 98,919
Balanced mutual funds..................................................................... 58,648 26,589
Equity securities......................................................................... 10,870 3,257
Insurance policies held by trust.......................................................... 45,228 --
Other..................................................................................... 4,882 1,059
---------- ----------
$ 274,266 $ 190,687
---------- ----------
---------- ----------
</TABLE>
As at December 31, 1996, total prearranged funeral trust assets were
approximately equal to market value. The weighted average rate of return on the
above prearranged funeral trust assets for the year ended December 31, 1996 was
5.1% (1995--4.9%, 1994--4.9%).
92
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 5. INVESTMENTS
<TABLE>
<CAPTION>
1996 1995
----------- ---------
<S> <C> <C>
PRIME SUCCESSION HOLDINGS, INC. ("PRIME")
213.2353 Common shares (1995--nil) representing 21.8%.................................... $ 12,780 $ --
6,350 Preferred Shares (1995--nil) representing 100%..................................... 63,500 --
ROSE HILLS HOLDINGS CORP. ("RH HOLDINGS")
204.5454 Common shares (1995--nil) representing 20.45%................................... 6,525 --
8,600 Preferred shares (1995--nil) representing 100%..................................... 86,000 --
OTHER...................................................................................... 1,440 1,016
----------- ---------
$ 170,245 $ 1,016
----------- ---------
----------- ---------
</TABLE>
(A) PRIME
On August 26, 1996, the Company acquired 235.2941 Common shares of Prime for
$16,000,000, representing 23.5% of Prime's voting common stock, and 100% of
Prime's non-voting preferred stock for $62,000,000. Blackstone Capital Partners
II Merchant Banking Fund L.P. and certain affiliates (together, "Blackstone")
acquired 764.7059 Common shares, representing 76.5% of Prime's voting common
stock for $52,000,000. On February 14, 1997, the Company and Blackstone agreed
to adjust their respective ownership of Prime's voting common stock
retroactively to August 26, 1996. No adjustment to the aggregate purchase price
was made. After giving effect to the readjustment, the Company has paid
$14,500,000 for 213.2353 Common shares and Blackstone has paid $52,000,000 for
764.7059 Common shares representing 21.8% and 78.2% respectively of Prime's
voting common shares. The Company has acquired 100% of Prime's non-voting
preferred stock. A 10% cumulative annual payment-in-kind dividend is payable on
the preferred stock.
Prime holds all of the outstanding common shares of Prime Succession, Inc.,
an operator of funeral homes and cemeteries in the United States. Prime
Succession, Inc. was purchased on August 26, 1996 for approximately $320,000,000
of which $130,000,000 was funded by Blackstone and the Company, and $190,000,000
was financed through bank borrowings and the issuance of senior subordinated
notes. The excess of the purchase price over the fair value of net assets of
approximately $230,000,000, was established as goodwill in Prime Succession,
Inc. and is being amortized over 40 years.
Blackstone and the Company have the right to designate five and three
nominees, respectively, to the Prime Board of Directors. Blackstone controls the
strategic operating, investing and financing policies of Prime. Neither
Blackstone nor the Company can, without the consent of the other party, sell or
transfer its shares in Prime to a party other than to an affiliate of itself.
The Company accounts for its investment in preferred shares of Prime by the
cost method. For the period August 26, 1996 to December 31, 1996, income of
$2,300,000 was recorded representing the cumulative annual payment-in-kind
dividend.
The Company accounts for its investment in common shares of Prime by the
equity method. Under this method, the Company records its proportionate share of
the net earnings (loss) of Prime after deducting the payment-in-kind dividend.
For the period August 26, 1996 to December 31, 1996, a loss of
93
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 5. INVESTMENTS (CONTINUED)
$1,144,000 was recorded representing the Company's proportionate share of the
loss attributable to the common shares of Prime.
Under a Put/Call Agreement entered into with Blackstone, the Company has the
option to acquire ("Call") Blackstone's common share interest in Prime
commencing on the fourth anniversary of the acquisition, and for a period of two
years thereafter, at a price determined pursuant to the terms of the Put/Call
Agreement. Blackstone has the option to sell ("Put") its common share interest
to the Company commencing on the sixth anniversary of the acquisition, and for a
period of two years thereafter, at a price determined pursuant to the Put/Call
Agreement.
The prices determined for the Call and the Put are based on a formula that
calculates the equity value attributable to Blackstone's common share interest.
The calculated equity value is determined at the Put or Call date based on a
multiple of earnings before interest, taxes, depreciation and amortization
("EBITDA"), after deduction of certain liabilities. The multiple to be applied
to EBITDA is also determined through a formula which is based on future EBITDA.
Any payment to Blackstone under the Call or the Put may be in the form of cash
or Common shares of the Company, at the Company's option.
Upon a Call, Blackstone will receive at a minimum, its original investment
plus a 24.1% compound return per annum thereon regardless of the calculated
equity value. Any additional equity value attributable to Blackstone common
share interest is determined on the basis of a formula set forth in the Put/Call
Agreement.
Upon a Put by Blackstone, there is no guaranteed return to Blackstone. Any
payment to Blackstone is limited to Blackstone's share of the calculated equity
value based on a formula set forth in the Put/Call Agreement.
Any payment to Blackstone is subject to Blackstone or the Company exercising
their respective rights under the Put or the Call. It is not currently possible
to determine whether Blackstone or the Company will exercise such rights.
Furthermore, any amount to be paid pursuant to the Put is dependent on
calculated equity value which is based on EBITDA of future periods. Accordingly,
it is not possible at this date to estimate the future amount that may be
payable to Blackstone on the exercise of the Put or the Call.
The Company provides various administrative services to Prime under an
Administrative Services Agreement for an annual fee of $250,000.
94
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 5. INVESTMENTS (CONTINUED)
Summarized financial data for Prime for the period August 26, 1996 to
December 31, 1996, are presented as follows:
<TABLE>
<S> <C>
Income statement information:
Revenue......................................................................... $ 32,651
Gross margin.................................................................... 11,066
Earnings from operations........................................................ 5,492
Payment-in-kind dividend........................................................ 2,300
Net loss attributable to common shareholders.................................... 5,250
Balance sheet information:
Current assets.................................................................. $ 24,614
Non-current assets.............................................................. 374,174
---------
Total assets.................................................................... 398,788
Current liabilities............................................................. 22,531
Non-current liabilities......................................................... 249,652
---------
Total liabilities............................................................... 272,183
Shareholders' equity............................................................ 126,605
</TABLE>
(C) RH HOLDINGS
On November 19, 1996, the Company acquired 204.5454 common shares of RH
Holdings for $9,000,000, representing 20.45% of RH Holdings' voting common
shares, and 100% of RH Holdings' non-voting preferred shares, with a cumulative
annual payment-in-kind dividend of 10%, for $86,000,000. The Company's total
investment of $95,000,000 consisted of $72,000,000 in cash and a contribution by
the Company of 14 funeral homes and two combination funeral home and cemetery
properties located in California valued at $23,000,000. Blackstone acquired
795.4546 common shares, representing 79.55% of RH Holdings' voting common stock
for $35,000,000.
RH Holdings holds all of the outstanding common shares of Rose Hills Company
("RHC") and the cemetery related assets of Rose Hills Memorial Park Association,
representing the largest single location cemetery in the United States. These
companies were purchased on November 19, 1996 for approximately $285,000,000 of
which $130,000,000 was funded by Blackstone and the Company, and $155,000,000
was financed through bank borrowings and the issuance of senior subordinated
notes. The excess of the purchase price over the fair value of net assets of
approximately $130,000,000 was established as goodwill in RH Holdings and is
being amortized over 40 years.
Blackstone and the Company have the right to designate five and three
nominees, respectively, to the RH Holdings' Board of Directors. Blackstone
controls the strategic operating, investing and financing policies of RH
Holdings. Neither Blackstone nor the Company can, without the consent of the
other party, sell or transfer its shares in RH Holdings to a party other than to
an affiliate of itself.
The Company accounts for its investment in preferred shares of RH Holdings
by the cost method. For the period November 19, 1996 to December 31, 1996,
income of $932,000 was recorded representing the cumulative annual
payment-in-kind dividend.
95
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 5. INVESTMENTS (CONTINUED)
The Company accounts for its investment in common shares of RH Holdings by
the equity method. Under the equity method, the Company records its
proportionate share of the net earnings (loss) of RH Holdings after deducting
the payment-in-kind dividend. For the period November 19, 1996 to December 31,
1996, a loss of $468,000 was recorded representing the Company's proportionate
share of the loss attributable to the common shares of RH Holdings. The
properties contributed by the Company had a net carrying value of $20,382,000.
The Company has deferred a gain of $2,618,000 on the disposition of these
properties and will recognize the gain if and when the properties are sold. The
deferred gain is recorded in other liabilities on the consolidated balance
sheet.
Under a Put/Call Agreement entered into with Blackstone, the Company has the
option to Call Blackstone's common share interest in RH Holdings commencing on
the fourth anniversary of the acquisition, and for a period of two years
thereafter, at a price determined pursuant to the terms of the Put/Call
Agreement. Blackstone has the option to Put its common share interest to the
Company commencing on the sixth anniversary of the acquisition, and for a period
of two years thereafter, at a price determined pursuant to the Put/Call
Agreement.
The prices determined for the Call and Put are based on a formula that
calculates the equity value attributable to Blackstone's common share interest.
The calculated equity value will be determined at the Put or Call date based on
a multiple of EBITDA, after deduction of certain liabilities. The multiple to be
applied to EBITDA will also be determined through a formula which is based on
future EBITDA. Any payment to Blackstone under the Call or the Put may be in the
form of cash or the stock of the Company, subject to certain conditions, at the
Company's option.
Upon a Call, Blackstone will receive, at a minimum, its original investment
plus a 22.5% compound return per annum thereon regardless of the calculated
equity value. Any additional equity attributable to Blackstone common share
interest will be determined on the basis of a formula set forth in the Put/Call
Agreement.
Upon a Put by Blackstone, there will be no guaranteed return to Blackstone.
Any payment to Blackstone will be limited to Blackstone's share of the
calculated equity value based on a formula set forth in the terms of the
agreement.
Any payment to Blackstone will be subject to Blackstone or the Company
exercising their respective rights under the Put or the Call. It is not
currently possible to determine whether Blackstone or LGII will exercise such
rights. Furthermore, any amount to be paid pursuant to the Put is dependent on
calculated equity value which is based on EBITDA of future periods. Accordingly,
it is not possible at this date to estimate the future amount that may be
payable to Blackstone on the exercise of the Put or the Call.
The Company provides various management and administrative services to RHC
and subsidiaries under an Administrative Services Agreement for an annual fee of
$250,000. If the Administrative Services Agreement becomes terminable by
Blackstone due to the Company's material breach thereof or other failure to
comply in any material respect, Blackstone under the Put will receive, at a
minimum, its original investment plus a 25% compound return per annum thereon
which increases to 27.5% in the event of a change in control of the Company,
regardless of the calculated equity value.
96
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 6. INSURANCE INVESTED ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
---------------------- ---------------------
CARRYING MARKET CARRYING MARKET
VALUE VALUE VALUE VALUE
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Fixed maturities.................................................. $ 256,919 $ 257,250 $ 78,895 $ 81,266
Equity securities................................................. 2,376 2,343 4,737 5,342
Short-term investments and other.................................. 36,954 37,016 13,392 13,439
---------- ---------- --------- ----------
$ 296,249 $ 296,609 $ 97,024 $ 100,047
---------- ---------- --------- ----------
---------- ---------- --------- ----------
</TABLE>
The Company earned $16,883,000 of investment income on these assets at
December 31, 1996 (1995--$3,289,000) and $1,882,000 and $1,522,000 of unrealized
gains and losses, respectively, on the carrying values of these investments at
December 31, 1996 (1995--$3,348,000 and $325,000 respectively).
Maturities of fixed maturity securities, excluding mortgage-backed
securities and collateralized mortgage obligations, are estimated as follows:
$3,750,000 due in one year or less (1995--$5,000,000), $56,000,000 due in one to
five years (1995--$8,000,000), $47,958,000 due in five to ten years (1995--
$21,000,000), and $25,018,000 due after ten years (1995--$13,000,000).
Maturities on an amortized cost basis are approximately the same as the market
value basis at December 31, 1996. The Company had approximately $124,193,000 in
mortgage-backed securities and collateralized mortgage obligations at December
31, 1996 (1995--$32,000,000).
NOTE 7. LOANS AND ADVANCES FROM (TO) AFFILIATES
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Term loan from affiliated company
Interest at 9.83% due August 15, 1999................................................... $ -- $ 206,000
Term loan from affiliated company
Interest at 10.01% due April 11, 2000................................................... -- 199,650
Term loan from affiliated company
Interest at 11.50%...................................................................... 590,040 --
Revolving credit loans from affiliated companies
Interest at prime plus 2% due in 1999................................................... 70,333 35,351
Other demand loans to affiliates
Non-interest bearing and due on demand.................................................. (4,437) (1,866)
---------- ----------
655,936 439,135
Demand loan to be advanced from Parent Company under legal settlements.................... -- 71,800
Demand loan from Parent Company........................................................... 35,634 11,919
---------- ----------
$ 691,570 $ 522,854
---------- ----------
---------- ----------
</TABLE>
The term loan and certain revolving credit loans from an affiliated company
are secured under a collateral trust arrangement with a group of senior lenders
to the Company and Parent Company, see Note 8. The $590,040,000 term loan is
comprised of $206,000,000 due August 15, 1999, $199,650,000 due April 11, 2000
and $184,390,000 due February 1, 2001.
97
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 8. LONG-TERM DEBT
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Bank revolving credit agreement....................................................... $ 237,000 $ 348,000
MEIP bank term loan agreement due 2000................................................ 107,583 116,007
9.70% Series A senior amortizing notes due in 1998.................................... 50,000 75,000
9.93% Series B senior amortizing notes due in 2001.................................... 35,700 42,850
6.49% Series E senior amortizing notes due in 2004.................................... 50,000 50,000
7.50% Series 1 senior notes due in 2001............................................... 225,000 --
7.75% Series 3 senior notes due in 2001............................................... 125,000 --
8.25% Series 2 and 4 senior notes due in 2003......................................... 350,000 --
Present value of notes issued under legal settlements discounted at
an effective interest rate of 7.75%, see Note 12.................................... 40,000 40,000
Present value of contingent consideration payable on acquisitions
discounted at an effective interest rate of 8.0%, see Note 19....................... 34,681 35,260
Other, principally arising from vendor financing of acquired operations
or long-term debt assumed on acquisitions, bearing interest at fixed
and floating rates varying from 4.8% to 14.0%, certain of which are
secured by assets of certain subsidiaries........................................... 117,001 82,288
------------ ------------
1,371,965 789,405
Less current portion.................................................................. 63,127 59,050
------------ ------------
$ 1,308,838 $ 730,355
------------ ------------
------------ ------------
</TABLE>
(a) On May 31, 1996, the Company, the Parent Company and their senior lenders
entered into a collateral trust arrangement whereby senior lenders would
share certain collateral on a pari passu basis. This collateral is held by a
trustee for the equal and ratable benefit of the various holders of senior
indebtedness. This group consists principally of senior lenders to the
Parent Company and lenders under the Company's bank revolving credit
agreement, the MEIP bank term loan, senior amortizing notes, the senior
notes and certain loans from an affiliated company, see Note 7. At December
31, 1996, the indebtedness owed to senior lenders and subject to the
collateral trust arrangement, including holders of certain letters of
credit, aggregated $1,844,670,000.
The collateral includes (i) a pledge for the benefit of the senior lenders
of the shares held by the Parent Company of substantially all of its
subsidiaries (including the Company and its subsidiaries) and (ii) all of
the financial assets of the Company (the Company does not have material
assets other than financial assets).
(b) Certain of the above loan agreements contain various restrictive provisions,
including change of control provisions, restricting payment by the Parent
Company of dividends on Common and Preferred shares, restricting encumbrance
of assets, limiting redemption or repurchase by the Parent Company of its
shares, limiting disposition of assets, limiting the amount of additional
debt, limiting the amount of capital expenditures and maintaining specified
financial ratios of the Parent Company and its subsidiaries. The Company's
insurance subsidiaries are subject to certain state regulations which
restrict distributions, loans and advances from such subsidiaries to the
Company. At December 31, 1996, the net assets of such subsidiaries
aggregated $101,405,000.
98
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 8. LONG-TERM DEBT (CONTINUED)
(c) The Company's bank revolving credit agreement was entered into on May 31,
1996 and provides for borrowings of up to $750,000,000 with a maturity of
May 29, 2001. Initial borrowings under this facility were used to repay in
full and retire a previous $400,000,000 revolving credit agreement.
The Company's bank revolving credit agreement and MEIP bank term loan bear
interest at floating rates based on U.S. Libor or the prime rates of certain
banks, plus an applicable margin depending upon a combination of the Parent
Company's ability to maintain specified consolidated financial ratios and
long-term debt credit ratings. The Company is also required to pay a
commitment fee on the unused portion of the revolving credit agreement.
(d) Repayment for the senior amortizing notes commenced November 1, 1995 for
Series A and B and commences February 25, 1998 for Series E in equal
amounts.
(e) In March 1996, the Company consummated a private placement of two series of
senior notes guaranteed by the Parent Company (Series 1 and 2) for gross
proceeds of $350,000,000. In October 1996, these notes were exchanged for
notes registered under the Securities Act.
In October 1996, the Company consummated a private placement of two series
of senior notes guaranteed by the Parent Company (Series 3 and 4) for gross
proceeds of $350,000,000. In March 1997, these notes were exchanged for
notes registered under the Securities Act.
(f) The notes issued under legal settlements represent a promissory note in the
amount of $80,000,000 payable over 20 years in equal annual installments of
$4,000,000, without interest. Interest is accrued on the discounted amount
and is included in accounts payable and accrued liabilities. Annual payments
will eliminate this accrual and the balance will be applied to the
promissory note, see Note 12.
(g) The Company incurred and paid approximately $78,800,000 of interest to third
parties during 1996 (1995 -- $42,000,000), of which approximately $2,000,000
(1995 -- $2,600,000) was capitalized as cost of construction or development
of cemetery property.
(h) Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
TOTAL
------------
<S> <C>
1997............................................................................ $ 63,127
1998............................................................................ 58,875
1999............................................................................ 36,311
2000............................................................................ 149,598
2001............................................................................ 615,584
Thereafter...................................................................... 448,470
------------
$ 1,371,965
------------
------------
</TABLE>
NOTE 9. 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
99
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 9. PREFERRED SECURITIES OF SUBSIDIARY (CONTINUED)
amount of $75,000,000. LGC is a limited partnership and the Company as its
general partner manages its business and affairs.
The MIPS are due August 31, 2024 and are subject to redemption at par at the
option of LGC, in whole or in part, from time to time, on or after August 31,
2004.
Holders of the MIPS will be entitled to receive cumulative dividends at an
annual rate of 9.45% of the liquidation preference of $25 per MIPS. The
dividends accrue from the date of original issuance and are payable monthly in
arrears.
The Company has the right to defer payment of dividends on the MIPS for one
or more periods, each not to exceed 60 consecutive months. In this event the
Parent Company may not declare or pay dividends on, or redeem, purchase or
acquire or make a liquidation payment with respect to any class of its capital
stock.
The Parent Company has guaranteed certain payment obligations of the Company
to LGC and of LGC to the MIPS holders. The guarantees are subordinated to all
liabilities of the Parent Company and are unsecured.
NOTE 10. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's policy is not to use derivative instruments for speculation.
The Company does not trade in financial instruments and is not a party to
leveraged derivatives.
(A) SWAP AGREEMENTS AND INTEREST RATE OPTIONS
The Company has entered into swap agreements and interest rate options with
a number of different commercial banks and financial institutions to manage its
interest rate exposure on fixed rate long-term debt. At December 31, 1996, such
agreements included three interest rate swap agreements with commercial banks
and financial institutions, each having a notional principal amount of
$25,000,000. The Company will receive floating Libor based rates determined
quarterly (5.500% at December 31, 1996) and will pay fixed rates of 5.755%,
6.200% and 6.190%. The agreements expire in June 1999, June 2001 and June 2001,
respectively.
The Company is exposed to a credit loss in the event of non-performance by
the other parties to the interest rate swap agreements. However, the Company
does not anticipate non-performance by the counterparties.
(B) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, receivables, current
indebtedness, accrued settlements and accounts payable and accrued liabilities
approximates fair value due to the short-term maturities of these instruments.
The fair value of insurance liabilities and the Put/Call Agreement have been
omitted because it is not practicable to determine fair value with sufficient
reliability. For further
100
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 10. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND
FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
information about these items see Notes 6 and 5 respectively. Financial
instruments with a carrying value different from their fair value include:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
-------------------------- ----------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
(1) Financial assets:
$ 274,266 $ 274,266 $ 190,687 $ 190,687
Prearranged funeral services...........................
Investments:
$ -- $ -- $ 922 $ 922
Practicable to estimate fair value.....................
$ 150,939 $ -- $ 94 $ --
Not practicable........................................
$ 296,249 $ 296,609 $ 97,024 $ 100,047
Insurance invested assets..............................
Long-term receivables:
$ 123,425 $ 125,289 $ 84,126 $ 86,701
Practicable to estimate fair value.....................
$ 120,189 $ -- $ 80,256 $ --
Not practicable........................................
(2) Financial liabilities:
$ 691,570 $ 715,403 $ 522,854 $ 544,390
Loans and advances from affiliate......................
$ 1,371,965 $ 1,393,068 $ 789,405 $ 801,829
Long-term debt.........................................
$ 75,000 $ 79,500 $ 75,000 $ 70,125
Preferred securities of subsidiary.....................
(3) Derivative instruments (net receivable/(payable)):
$ 29 $ 259 $ 88 $ (1,092)
Swap agreements........................................
$ -- $ -- $ (1,533) $ (1,533)
Futures contracts......................................
</TABLE>
The fair value of insurance invested assets and certain investments and
long-term receivables are determined based on quoted market prices. For certain
long-term receivables, fair value is estimated by discounting the future cash
flows, including interest payments, using rates currently available for
investments of similar terms and maturity. The investments for which it is not
practicable to estimate fair value comprise primarily the preferred share
investments in Prime and RH Holdings. The long-term receivables for which it is
not practicable to estimate fair value comprise primarily installment
receivables on cemetery sales, which generally have terms of three to five years
and bear interest ranging from 8% to 15%.
The fair value of loans and advances from affiliates and long-term debt
subject to fixed interest rates is estimated by discounting the future cash
flows, including interest payments, using rates currently available for debt of
similar terms and maturity, based on the Company's credit standing and other
market factors. The fair value of long-term debt, subject to floating market
rates, approximate their carrying values. The fair value of the preferred
securities of a subsidiary is estimated based upon quoted market prices.
The fair value of the swap agreements is the estimated amount the
counterparty would receive or pay to hypothetically terminate or exchange the
agreements based on market factors. The fair value of futures contracts are
estimated based on quoted market prices. The fair value of futures contracts
represents the cost to close out the position.
101
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 11. SHARE CAPITAL
(A) AUTHORIZED
3,000 Common shares with a par value of $0.01.
(B) ISSUED AND OUTSTANDING
<TABLE>
<CAPTION>
NUMBER OF SHARES
STATED VALUE
-------------------- ------------------------------
1996 1995 1996 1995
--------- --------- -------------- --------------
<S> <C> <C> <C> <C>
Common shares................................................... 1,208 1,091 $ 75,068,732 $ 11
Contributed surplus............................................. 227,195,603 127,195,603
-------------- --------------
$ 302,264,335 $ 127,195,614
-------------- --------------
-------------- --------------
</TABLE>
In March, 1996, the Company issued 117 common shares to affiliated companies
for gross proceeds of $75,068,721, and received capital contributions from
affiliated companies totalling $100,000,000.
NOTE 12. LEGAL PROCEEDINGS
GULF NATIONAL SETTLEMENT
On February 1, 1996, the Company and Gulf National Insurance Company and
certain of its affiliates ("Gulf National") executed a settlement agreement
pursuant to which, among other things, the parties agreed to a full and mutual
release of all claims against each other. The Company delivered to Gulf National
$50,000,000 in cash, 1,500,000 million Common shares of the Parent Company
("Gulf National Settlement Shares") and a promissory note in the amount of
$80,000,000 payable over 20 years in equal installments of $4,000,000, without
interest. The Gulf National Settlement Shares were issued in February 1996 and a
registration statement registering the resale of the Gulf National Settlement
Shares filed with the Securities and Exchange Commission ("SEC") was declared
effective in December 1996.
The Company recorded a change against its 1995 earnings in the amount of
$134,800,000 before taxes of $49,457,000 to account for the Gulf National
settlement. This amount represents the cash portion, the present value of the
non-interest bearing promissory note and the guaranteed value of Common shares
to be issued.
PROVIDENT SETTLEMENT
On February 4, 1996, Provident American Corporation and one of its
subsidiaries ("Provident") and the Company settled certain litigation and on
March 19, 1996, the parties entered into a settlement providing for a full
mutual release from all claims against each other, and the Company delivered
1,000,000 Common shares of the Parent Company ("Provident Settlement Shares"),
and $3,000,000 in cash to Provident and certain designees. The Parent Company
filed a registration statement registering the resale of the Provident
Settlement Shares with the SEC, which was declared effective in July 1996.
The Company recorded a charge against its 1995 earnings in the amount of
$30,000,000 before taxes of $10,800,000 to account for the Provident settlement.
102
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 12. LEGAL PROCEEDINGS (CONTINUED)
CLASS ACTIONS ALLEGING SECURITIES LAWS VIOLATIONS
On November 4, 1995, a class action lawsuit claiming violations of federal
securities laws was filed on behalf of a class of purchasers of Parent Company
securities against the Parent Company and five individuals who were officers of
the Parent Company (four of whom were also directors) in the United States
District Court for the Eastern District of Pennsylvania. The Company, LGC, and
the lead underwriters (the "Underwriters") of LGC's 1994 offering of Monthly
Income Preferred Securities ("MIPS"), were subsequently added as defendants. On
November 7, 1995, a class action lawsuit was filed on behalf of a class of
purchasers of Common shares against the Parent Company 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 Parent Company's securities against the Parent
Company, the Company, LGC and the same individual defendants in the United
States District Court for the Eastern District of Pennsylvania.
The complaints with respect to the class actions alleged that the defendants
failed to disclose the Company's anticipated liability in connection with
certain litigation with Gulf National. The Pennsylvania class actions also
alleged failure to disclose the Company's potential liability in connection with
certain litigation with Provident. The Parent Company settled the lawsuits with
Gulf National and Provident during the first quarter of 1996.
Pursuant to a Transfer Order filed April 15, 1996 by the Judicial Panel on
Multidistrict Litigation, the Mississippi class action was transferred to the
Eastern District of Pennsylvania for consolidation of pretrial proceedings with
the two Pennsylvania class actions. On September 16, 1996, the plaintiffs filed
a Consolidated and Amended Class Action Complaint (the "Consolidated Class
Action Complaint"). Procedurally, the Consolidated Class Action Complaint
supersedes the complaints filed in the class actions. Plaintiffs allege three
causes of action in the Consolidated Class Action Complaint: (i) the Parent
Company, the Company, LGC and the five individual defendants violated Sections
10(b) and 20(a) and the implementing anti-fraud rules under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), (ii) the Company, LGC and
three of the five individual defendants violated Sections 11 and 15 of the
Securities Act of 1933, as amended (the "Securities Act"), in connection with
the MIPS offering and (iii) the Parent Company, the Company and LGC made
material misstatements in connection with the MIPS offering in violation of
Sections 12(2) and 15 of the Securities Act. Plaintiffs seek compensatory money
damages in an unspecified amount, together with attorneys fees, expert fees and
other costs and disbursements. Punitive damages are not sought.
The defendants filed their Answer to the Consolidated Class Action Complaint
on November 1, 1996, in which they have denied the material allegations and
raised certain affirmative defenses. The parties have commenced discovery and
document production. No depositions have been taken.
The parties have stipulated to the provisional certification of plaintiff
classes consisting of: (i) all purchasers of Common shares or MIPS on an
American stock exchange or in public offerings during the period from April 16,
1993 through November 1, 1995, with respect to the Exchange Act claims; and (ii)
all persons who purchased MIPS pursuant to the public offering in August 1994,
with respect to the Securities Act claims. Defendants have retained all rights
to conduct discovery on class issues and to move to modify the class definitions
or to decertify the classes. Plaintiffs have agreed to stay all proceedings,
including all
103
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 12. LEGAL PROCEEDINGS (CONTINUED)
discovery, relating to disclosures about the Provident litigation. Plaintiffs
have the right to lift the stay upon written notice, which must be provided 90
days before the end of discovery or the beginning of trial.
On June 11, 1996, all claims against the Underwriters were dismissed without
prejudice, by agreement of the parties. Prior to the dismissal, the Underwriters
had indicated to the Parent Company that they would seek indemnity from the
Parent Company for costs incurred. The Parent Company paid the Underwriters'
costs through the date of dismissal. The Company expects that the Underwriters
will seek further indemnity from the Parent Company if any of the claims against
the Underwriters are reinstated.
The Parent Company referred the claims to its insurance carrier under its
directors and officers liability insurance policy. On February 9, 1996, the
carrier denied coverage of the claim. The Parent Company believes that such
denial was improper. On March 21, 1996, the Parent Company commenced an action
in British Columbia Supreme Court seeking a declaration that the policy covers
indemnification with respect to the Class Action. As of the date hereof, the
Supreme Court has not ruled on the action. The Parent 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 Parent Company has determined that it is not possible at this time 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 with respect to the class actions has been made in the
Parent Company's or the Company's 1996 consolidated financial statements.
ROE ET AL., PALLADINO ET AL., O'SULLIVAN AND SCHNEIDER
In October 1995, Roe and 22 other families filed a lawsuit against the
Company and Osiris Holding Corporation ("Osiris") in Florida Circuit Court in
St. Petersburg. In early April 1996, a related lawsuit, Palladino et al., was
filed by eight families against the Company and Osiris in Florida Circuit Court
in St. Petersburg, and was assigned to the same judge handling the Roe matter.
In June 1996, the Roe and Palladino lawsuits were consolidated and amended to
include a total of 90 families, and in July 1996, the Palladino lawsuit was
dismissed. In October 1996, a Fifth Amended Complaint ("Complaint") was filed
bringing the number of plaintiff families to 150. The gravamen of the Complaint
is 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. The specific claims include tortious interference with a dead body
(intentional and grossly negligent conduct so extreme and outrageous as to imply
malice) and negligent infliction of emotional distress. The Complaint also names
the Parent Company and the Company as defendants (on an alter ego theory) and
includes claims for negligent retention of certain cemetery employees. Each
plaintiff identified in the Complaint is seeking damages in excess of $15,000,
but the Complaint alleges aggregate damage in excess of $40,000,000. In
addition, in May 1996, Sean M. O'Sullivan filed a lawsuit against Osiris and the
Company and in July 1996, Karen Schneider filed a lawsuit against Osiris and the
Company. The factual allegations underlying the O'Sullivan and Schneider
complaints are identical to those alleged in the Complaint. Schneider has been
named in the Complaint and the Schneider lawsuit has been dismissed. A mediation
was held on November 14, 1996, but the parties did not reach an agreement.
However, over the past several months, nearly 100 families have settled their
claims for de minimus sums, leaving the number of plaintiff families at 51. The
Complaint was dismissed for pleading deficiencies. The plaintiffs have indicated
that they will file a Sixth Amended Complaint.
104
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 12. LEGAL PROCEEDINGS (CONTINUED)
At the time the remains allegedly were disturbed, the Royal Palm Cemetery
was owned by Osiris. Osiris was acquired by the Parent Company in March 1995.
The insurance carriers for Osiris and the Parent Company have assumed the
defense of these claims, subject to a reservation of rights. The insurance
carrier for the Parent Company has stated that it may take the position that
each gravesite claim is separately subject to the per claim policy deductible of
$250,000. Accordingly, no assurance can be made that insurance coverage will be
available. The annual Osiris policy limit is $11,000,000 and the annual Parent
Company policy limit is $80,000,000.
The Parent Company has determined that it is not possible at this time 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 with respect to this lawsuit has been made in the
Parent Company's or the Company's 1996 consolidated financial statements.
ESNER ESTATE
On February 1, 1995, Stuart B. Esner and Sandra Esner (the "Executors") as
co-executor 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 (the "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 Parent Company
and the Company.
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.
In March 1995, the Company purchased all of the issued and outstanding
shares of Osiris, including the Esner Shares. In connection with the purchase,
the Company entered into an indemnification agreement whereby Messrs. Miller and
Shane agreed to indemnify and hold the Company harmless with respect to any
claims, liabilities, losses and expenses, including reasonable attorney's 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 the Company as defendants. The second complaint
alleges breach of contract, fraud and related claims against Messrs. Miller and
Shane, and that the Company joined 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. The two
cases were consolidated by the Court.
On October 9, 1996, the Executors instituted a new civil action against the
Law Firm. On November 18, 1996 the Executors instituted a new civil action
against the individual partners of the Law
105
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 12. LEGAL PROCEEDINGS (CONTINUED)
Firm. In both complaints, the Executors expanded upon the allegations against
the Law Firm contained in the previous complaints. By stipulation approved by
the Court on February 24, 1997, the parties agreed to consolidate all suits and
to permit the Executors to file a Third Amended Complaint, which was filed on
February 10, 1997. The prayers for relief remain unchanged. Osiris and Messrs.
Miller and Shane have filed preliminary challenges to the Third Amended
Complaint. Likewise, the Company has moved for a dismissal of the claims against
it for failure to state a claim upon which relief can be granted. That motion
and the preliminary challenges are all pending.
The Parent Company has determined that it is not possible at this time 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 with respect to this lawsuit has been made in the
Parent Company's or the Company's 1996 consolidated financial statements.
SERVICE CORPORATION INTERNATIONAL
On October 2, 1996, SCI filed an action in the United States District Court
for the Southern District of Texas (the "Texas Action"), alleging that the
Parent Company falsely suggested to its shareholders that it has standing to
bring an action to block or impede SCI's unsolicited exchange offer on federal
antitrust grounds. SCI also seeks a declaratory judgment that the Parent Company
lacks standing to bring such an action on federal antitrust grounds. SCI asserts
a claim under Texas common law, based upon its allegations that the Parent
Company's actions have tortiously interfered with SCI's "prospective business
relationships" with the Parent Company's shareholders. As relief for this
assertion, SCI seeks an unspecified amount of damages for claimed injuries
resulting from the Parent Company's alleged interference with these prospective
relationships. In an amended complaint filed October 3, 1996, SCI also alleges
that the foregoing actions, as well as the Parent Company's alleged failure to
disclose certain information respecting the Prime and Rose Hills transactions,
constitute violations of Section 14(e) of the Exchange Act. As relief, SCI seeks
an injunction against future violations of that statute.
On October 10, 1996, the Parent Company, the Company and Ridge Chapels,
Inc., a subsidiary of the Company, commenced an action in the United States
District Court for the Eastern District of New York (the "New York Action"),
seeking to enjoin SCI preliminarily and permanently from completing its
unsolicited exchange offer on the grounds that a combination of SCI and the
Parent Company would violate Section 7 of the Clayton Act. According to the
complaint, SCI's unsolicited offer for control of the Parent Company, if
successful, may substantially lessen competition in numerous local markets for
(i) the sale of funeral services, (ii) the sale of funeral services on a
"pre-need" basis, (iii) the sale of cemetery services, and (iv) the purchase of
funeral homes, cemeteries and crematoria. The Parent Company also accuses SCI
and Equity Corporation International, Inc. (a competitor of the Parent Company
in which SCI had a 40% interest in October 1996) ("ECI"), of conspiracy to
eliminate the Parent Company as a competitive force in the funeral services
industry, in violation of Section 1 of the Sherman Act. On October 10, 1996, the
Parent Company filed Motions for Expedited Discovery and for a Preliminary
Injunction to enjoin the unsolicited exchange offer and, on October 15, 1996,
filed a Verified First Amended Complaint.
On October 11, 1996, the Parent Company moved to dismiss or stay the Texas
Action. On October 15, 1996, SCI moved to dismiss, stay or transfer the New York
Action. A hearing was held on SCI's motion on
106
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 12. LEGAL PROCEEDINGS (CONTINUED)
October 17, 1996, at the conclusion of which the District Court denied SCI's
motion. On October 23, 1996, Magistrate Judge Caden of the District Court
entered a Memorandum and Order allowing expedited discovery with respect to the
Parent Company's motion for a preliminary injunction. On October 29, 1996, the
District Court overruled the objections of SCI to the Magistrate Judge's Order
but stayed commencement of discovery proceedings, which stay was extended by
stipulation until the resolution of the pending motions in the Texas Actions
described below.
On October 21, 1996, SCI filed a Motion for Preliminary Injunction in the
Texas Action, seeking to enjoin the Parent Company from pursuing its antitrust
claims in any forum other than the federal District Court in Texas. The matter
was referred to Magistrate Judge Johnson, who issued a Memorandum Recommending
Entry of a Preliminary Injunction on October 28, 1996. Magistrate Judge Johnson
recommended that the District Court restrain the Parent Company from proceeding
in the New York Action (or elsewhere) until it had resolved the Parent Company's
pending motion to dismiss. In a telephone conference on October 28, 1996, the
District Court declined to enter any injunctive relief at that time. A hearing
on the Parent Company's motion to dismiss was held on November 6, 1996. On
November 23, 1996, the Texas District Court issued a Memorandum Opinion in which
it: (i) denied SCI's motion for a preliminary injunction against the New York
Action; and (ii) granted the Parent Company's motion to dismiss the Texas
Action, subject to the New York Court's permitting SCI to raise its above-
described tortious interference and violation of Section14(e) claims as
counterclaims in the New York Action. SCI's above-described declaratory judgment
claim was dismissed outright.
On December 11, 1996, SCI filed its Answer to the Parent Company's Verified
First Amended Complaint, in which it denies liability and asserts various
defenses and asserts counterclaims against the Parent Company, which
counterclaims parallel generally the above-described claims for tortious
interference and violation of Section14(e) claims asserted in the Texas Action.
The Parent Company believes that the counterclaims are without merit and intends
to contest them vigorously. The Parent Company has served discovery requests
upon SCI and ECI to which both objected. On December 11, 1996, Magistrate Judge
Caden ordered expedited discovery to proceed. SCI filed objections to the
Magistrate Judge's order, which objections were denied by the District Court on
January 7, 1997.
On December 11, 1996, ECI filed a Motion to Dismiss the claims against it,
on grounds of improper venue and lack of personal jurisdiction. On December 18,
1996, the Parent Company filed a Motion for Expedited Discovery respecting
jurisdiction over ECI, and the parties agreed that the Parent Company would not
be required to respond to the Motion to Dismiss until either a date certain
after denial of its Motion for Expedited Discovery or, if that Motion were
granted, completion of jurisdictional discovery. On January 8, 1997, Magistrate
Judge Caden entered an order providing that the Parent Company could take
certain expedited discovery respecting jurisdiction over ECI.
On January 7, 1997, SCI announced that it had withdrawn its proposed
exchange offer. On January 14, 1997, the Parent Company sent a letter to the New
York Court stating that it will move for leave to file an amended complaint
seeking permanent injunctive relief against future actions by SCI and/ or ECI
against the Parent Company in violation of the antitrust laws. On January 15,
1997, SCI sent a letter to the New York Court stating that it believes the
Parent Company's claims are moot and will seek dismissal of those claims.
Discovery from the parties has been temporarily suspended by agreement. On
January 16, 1997, ECI sent a letter to the New York Court, seeking to suspend
discovery until the Court rules on the contemplated motions by the Parent
Company and SCI. On January 20, 1997, the Parent
107
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 12. LEGAL PROCEEDINGS (CONTINUED)
Company sent a letter to the Court seeking leave to move to dismiss SCI's
counterclaims, to which SCI responded on January 22, 1997, by letter requesting
dismissal of the entire action.
At the New York Court's suggestion, the parties are discussing possible
resolution of the action in a manner that would end the current proceedings but
preserve jurisdiction in the New York Court over similar disputes in the future,
if any.
No provision with respect to these legal proceedings has been made to date
in the Parent Company's or the Company's 1996 consolidated financial statements.
DERIVATIVE SUIT
On September 26, 1996, Jerry Krim filed a purported derivative and class
action against TLGI's current directors and one former director and against the
Parent Company as a nominal defendant in the Los Angeles County Superior Court.
The plaintiff alleges, on behalf of himself and all of the Parent Company's
current and former shareholders, that the defendants "improperly responded to an
offer by Service Corporation International ("SCI") to combine the two
companies," refused to negotiate with SCI, agreed to pay an inflated price for
the Rose Hills properties in Los Angeles, adopted a supposed "poison pill"
supermajority voting provision requiring 75% approval of a merger, and adopted a
Shareholders Protection Rights Plan, each allegedly in violation of the
directors' fiduciary duties. Plaintiff seeks preliminary and permanent
injunctive relief that would, among other things, (i) require the defendants to
cooperate with any person having a bona fide interest in proposing a transaction
and take certain other actions that allegedly would "maximize shareholder
value," (ii) enjoin the Shareholders Protection Rights Plan in its entirety,
(iii) enjoin the consummation of the Rose Hills transaction, (iv) enjoin the
supermajority voting requirements, (v) require an accounting for unspecified
damages, and (vi) compensate the plaintiffs for their fees and costs. On October
17, 1996, the Court denied the plaintiff's motion for expedited discovery. On
November 8, 1996, the Parent Company and those individual defendants upon whom
service had purportedly been made appeared specially and moved to quash service
of the summons for lack of jurisdiction or, in the alternative, to dismiss or
stay the action on grounds of forum non conveniens. On December 10, 1996, the
Court granted the defendants' motion to quash the summons and denied the
plaintiffs' request for discovery. The action was dismissed, and no appeal has
been filed.
No provision with respect to this legal proceeding has been made in the
Parent Company's or the Company's 1996 consolidated financial statements.
ROJAS ET AL.
On February 22, 1995, Juan Riveras Rojas, Leyda Rivera Vega, the Conjugal
Partnership constituted between them, and Carlos Rivera Bustamente instituted a
legal action against the Parent Company, the Company 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 Parent Company is
advised by counsel that there is no entitlement to punitive damages under Puerto
Rican law). The Parent Company has filed a motion to dismiss the complaint on
the grounds of failure to join an indispensable
108
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 12. LEGAL PROCEEDINGS (CONTINUED)
party. In addition, the Parent 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 Parent
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 Parent Company has determined that it is not possible at this time 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 with respect to this lawsuit has been made in the
Parent Company's or the Company's 1996 consolidated financial statements.
FELDHEIM ET AL. V. SI-SIFH CORP. ET AL.
In January 1997, Elmer C. Feldheim and four other individuals filed a
lawsuit on behalf of themselves and a class of similarly situated individuals
and/or entities against SI-SIFH Corp., SI-SI Insurance Company, Inc., Loewen
Louisiana Holdings, Inc., and the Company in the Parish of Jefferson, State of
Louisiana. Plaintiffs seek a class action. SI-SIFH Corp. and SI-SI Insurance
Company, Inc. were acquired by the Company in March 1996 when the Company
acquired the assets of S.I. Acquisition Associates, L.P.
Plaintiffs hold or held funeral insurance policies issued by insurance
companies owned, directly or indirectly, by the defendants. The plaintiffs
allege that (i) the defendants failed to provide the funeral services purchased
with the policies by, among other things, offering a casket of inferior quality
upon presentation of a policy, and (ii) in connection with the sale of the
insurance policy, the insurance companies negligently or fraudulently
represented and interpreted the scope and terms of the policies and omitted to
provide material information regarding the policy benefits and limitations.
Plaintiffs also allege unfair trade practices in violation of Louisiana's
insurance code and trade practices laws.
Plaintiffs seek damages, penalties and attorneys fees. Louisiana law
prohibits plaintiffs from alleging specific amounts of damages. Plaintiffs also
seek a declaratory judgment compelling defendants to honor the policies and
allowing a plaintiff to select a more expensive casket than provided for in the
policy, upon payment of the difference in retail value, without forfeiting the
other benefits provided for in the policy.
As of the date hereof, no discovery has taken place. The Parent Company has
determined that it is not possible at this time to predict the final outcome of
this legal proceeding, including whether a class will be certified, 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
plaintiffs. Accordingly, no provision with respect to this lawsuit has been made
in the Parent Company's or the Company's 1996 consolidated financial statements.
OTHER
Each of the Parent Company and the Company is party to other legal
proceedings in the ordinary course of its business but does not expect the
outcome of any other proceedings, individually or in the aggregate, to have a
material adverse effect on its respective financial position, results of
operation or liquidity.
109
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 13. COMMITMENTS AND CONTINGENCIES
(A) LEASES
At December 31, 1996, the Company was committed to operating lease payments
for premises, automobiles and office equipment in the following approximate
amounts:
<TABLE>
<CAPTION>
TOTAL
---------
<S> <C>
1997................................................................................................... $ 10,371
1998................................................................................................... 8,810
1999................................................................................................... 8,081
2000................................................................................................... 7,220
2001................................................................................................... 6,230
Thereafter............................................................................................. 38,198
</TABLE>
Total rent expense for the year ended December 31, 1996 was $11,144,000
(1995 -- $9,011,000; 1994 -- $8,536,000).
(B) COVENANTS NOT TO COMPETE
In connection with various acquisitions, the Company has entered into
non-competition agreements ("covenants not to compete") with certain key
management personnel of operations acquired. The Company's payments under the
agreements may be made variously at closing or over future periods and are
expensed over the terms of the specific contracts. At December 31, 1996, the
agreements in place will result in future payments in the following approximate
amounts:
<TABLE>
<CAPTION>
TOTAL
---------
<S> <C>
1997................................................................................................... $ 15,603
1998................................................................................................... 14,613
1999................................................................................................... 13,387
2000................................................................................................... 13,965
2001................................................................................................... 11,062
Thereafter............................................................................................. 40,615
</TABLE>
(C) ENVIRONMENTAL CONTINGENCIES AND LIABILITIES
The Company believes environmental contingencies and liabilities to be
immaterial individually and in the aggregate.
NOTE 14. RETIREMENT PLAN
The Company has a defined contribution retirement plan covering
substantially all employees. There are no required future contributions under
this plan in respect of past service. The Company's 401(K) Profit Sharing Plan
allows employees to defer between 2% and 15% of their compensation. The Company
contributes a minimum of 2% of employees' eligible compensation to the 401(K)
Plan.
The total expense for the retirement plan for the year ended December 31,
1996 was $1,802,000, $1,514,000 and $862,000 respectively.
110
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 15. HOSTILE TAKEOVER PROPOSAL
On January 7, 1997, SCI publicly withdrew its unsolicited proposed exchange
offer to acquire the Parent Company through an exchange offer announced in
October 1996. Pursuant to the proposed exchange offer, SCI would exchange $45
worth of common stock for each Common share of the Parent Company tendered and
$29.51 worth of common stock for each Series C Preferred share of the Parent
Company tendered. In September 1996, the Board of Directors of the Parent
Company unanimously determined that the offer was inadequate and not in the best
interests of the Parent Company or its shareholders and recommended that, if the
offer were commenced, the Parent Company's shareholders should not tender their
shares. Effective as of October 10, 1996, in order to attract and retain key
executives and managers of the Parent Company in the context of a threatened
change in control of the Parent Company, the Board of Directors of the Parent
Company, upon the recommendation of the Compensation Committee thereof, approved
the execution of individual change-in-control severance agreements ("Severance
Agreements") with approximately 80 of the Parent Company's executives and
managers ("Executives"). With the exception of Mr. Loewen, certain of the
executive officers of the Parent Company entered into such a Severance
Agreement. Under each Severance Agreement, if there is a "change in control" (as
defined), an Executive becomes entitled to severance pay amounting to one to
three years' compensation, and certain other benefits during the "Severance
Period" (as defined), if the Executive's employment terminates for any reason
other than "cause" (as defined) or if the Executive terminates his or her
employment for certain specified reasons. Each Severance Agreement also provides
that the Executive is entitled to a retention bonus if the Executive remains
employed by the Parent Company for 30 days after a change in control. Benefits
under the Severance Agreements can be reduced in certain circumstances.
In addition, the Board of Directors of the Parent Company adopted a
change-in-control severance compensation plan ("Severance Plan") that is
designed to provide certain benefits to full-time salaried employees of the
Parent Company whose principal duties include corporate or regional management
responsibilities. Under the Severance Plan, upon a "change in control" (as
defined), each of the participants is entitled to a severance payment if, within
24 months after a change in control, the participant is terminated other than by
reason of death, voluntary termination or retirement, or for "Just Cause" (as
defined). Benefits payable under the Severance Plan can be reduced in certain
circumstances.
Effective as of October 10, 1996, the Board of Directors of the Parent
Company authorized the Parent Company to enter into indemnification agreements
with certain of its directors and officers whereby the Parent Company will agree
to indemnify such person against all costs, charges and expenses incurred by
reason of being a director or officer of the Parent Company.
In late September 1996, the Parent Company on considering the possible
effects of the hostile takeover proposal on its acquisition program, determined
that access to capital markets might have been restricted or unavailable if the
hostile takeover proposal remained outstanding for a long period of time. The
Parent Company concluded that an immediate debt issue was available and was the
best alternative to provide continued liquidity during the likely period of the
hostile takeover proposal. In October 1996, the Company consummated a private
placement of two series of senior notes guaranteed by the Parent Company for
gross proceeds of $350,000,000. As the Parent Company had not planned a
long-term debt issue in late 1996, it believes that the incremental interest
cost of the long-term debt issue over its bank revolving credit agreement is a
direct result of the hostile takeover proposal. Included in finance costs
related to the hostile takeover proposal is the incremental cost of $1,313,000
before income tax benefit for
111
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 15. HOSTILE TAKEOVER PROPOSAL (CONTINUED)
the period to December 31, 1996 which amount was determined as if the
$350,000,000 debt issue was funded by the Company's bank revolving credit
agreement.
In addition, the Company determined that it should obtain certain amendments
from its bank lenders to provide flexibility during the hostile takeover
proposal. The Company believes these amendment fees would not have been required
if not for the hostile takeover proposal and has expensed the aggregate
amendment fee of $1,917,000 before income tax benefit. These fees are also
included in finance costs related to the hostile takeover proposal.
The other costs relating to the hostile takeover proposal by SCI are
comprised primarily of legal and financial advisory fees. In aggregate, the
$9,789,000 incurred by the Company was composed of $8,978,000 in legal fees with
the balance made up of fees to other advisors. No income tax benefit relating to
these costs has been reflected in the consolidated financial statements.
The Company has indemnified certain of its advisors against certain
liabilities, including liabilities under United States and Canadian securities
laws, arising out of their engagements.
NOTE 16. INCOME TAXES
The Company's effective income tax rate is derived as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
% % %
<S> <C> <C> <C>
Combined United States federal and state income tax rate............................... 44.6 (39.7) 40.1
Tax benefits of legal settlements at lower rates....................................... -- 2.3 --
Tax benefits of insurance operations at lower rates.................................... (13.6) 0.3 --
Non-deductible depreciation and amortization arising from acquisitions................. 64.6 2.2 15.5
Non-deductible costs of hostile takeover proposal...................................... 28.9 -- --
Other.................................................................................. 14.3 0.8 4.6
--------- --------- ---
138.8 (34.1) 60.2
--------- --------- ---
--------- --------- ---
</TABLE>
The Company paid income taxes for each of the years in the three year period
ended December 31, 1996 amounting to $9,965,000, $9,384,000 and $11,508,000.
112
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 17. CHANGES IN OTHER NON-CASH BALANCES
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
(Increase) decrease in assets
Receivables, net of allowances............................................. $ (32,536) $ (20,980) $ (17,735)
Inventories................................................................ (2,400) (2,155) (182)
Prepaid expenses........................................................... (3,246) (1,702) 2,242
Amounts receivable from cemetery merchandise trusts........................ (6,703) (12,969) (2,756)
Installment contracts, net of allowances................................... (68,125) (25,323) (16,684)
Development of cemetery property........................................... (10,455) (9,352) --
Deferred charges........................................................... (27,253) (11,786) (11,532)
Increase (decrease) in liabilities
Accrued settlements........................................................ (53,000) 53,000 --
Accounts payable and accrued liabilities................................... 17,755 22,882 4,821
Cemetery long-term liabilities............................................. 619 (1,477) 11,697
Insurance policy liabilities............................................... 747 3,033 --
Other changes in non-cash balances........................................... -- 104 (246)
----------- ---------- ----------
$ (184,597) $ (6,725) $ (30,375)
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
113
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 18. SUPPLEMENTARY FINANCIAL INFORMATION
A summary of certain balance sheet accounts as at December 31, is as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Receivables, net of allowances
Trade accounts.......................................................................... $ 101,337 $ 76,049
Installment contracts................................................................... 55,822 36,983
Other................................................................................... 41,212 26,847
Unearned finance income................................................................. (6,703) (6,216)
Allowances for contract cancellations and doubtful accounts............................. (24,258) (18,584)
---------- ----------
$ 167,410 $ 115,079
---------- ----------
---------- ----------
Long-term receivables, net of allowances
Notes receivable........................................................................ $ 12,093 $ 17,492
Amounts receivable from cemetery merchandise trusts..................................... 131,748 67,623
Installment contracts................................................................... 131,288 108,225
Unearned finance income................................................................. (16,522) (18,438)
Allowances for contract cancellations and doubtful accounts............................. (14,993) (10,520)
---------- ----------
$ 243,614 $ 164,382
---------- ----------
---------- ----------
Cemetery property, at cost
Developed land and lawn crypts.......................................................... $ 104,952 $ 79,119
Undeveloped land........................................................................ 457,258 254,555
Mausoleums.............................................................................. 35,318 22,348
---------- ----------
$ 597,528 $ 356,022
---------- ----------
---------- ----------
Property and equipment
Land.................................................................................... $ 121,089 $ 102,659
Building and improvements............................................................... 369,703 293,801
Automobiles............................................................................. 57,003 44,589
Furniture, fixtures and equipment....................................................... 91,924 68,065
Computer hardware and software.......................................................... 19,043 8,057
Leasehold improvements.................................................................. 10,620 6,743
Accumulated depreciation and amortization............................................... (84,638) (60,522)
---------- ----------
$ 584,744 $ 463,392
---------- ----------
---------- ----------
Names and reputations
Names and reputations................................................................... $ 503,091 $ 359,830
Covenants not to compete................................................................ 64,972 60,919
Accumulated amortization................................................................ (54,009) (37,965)
---------- ----------
$ 514,054 $ 382,784
---------- ----------
---------- ----------
</TABLE>
114
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 18. SUPPLEMENTARY FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
Other assets
<S> <C> <C>
Deferred finance charges................................................................ $ 31,637 $ 6,542
Deferred direct obtaining costs......................................................... 47,896 24,599
Acquisitions in progress................................................................ 31,121 25,225
Other................................................................................... 13,633 6,107
---------- ----------
$ 124,287 $ 62,473
---------- ----------
---------- ----------
Accounts payable and accrued liabilities
Trade payables.......................................................................... $ 15,500 $ 42,753
Interest................................................................................ 23,229 4,231
Insurance, property and business taxes.................................................. 5,135 4,021
Other................................................................................... 49,299 19,954
---------- ----------
$ 93,163 $ 70,959
---------- ----------
---------- ----------
Other liabilities
Cemetery long-term liabilities.......................................................... $ 138,014 $ 75,208
Regional partnership liabilities........................................................ 13,203 11,326
Participants' deposits in MEIP.......................................................... 5,637 6,080
Other................................................................................... 4,219 2,489
---------- ----------
$ 161,073 $ 95,103
---------- ----------
---------- ----------
</TABLE>
NOTE 19. RELATED PARTIES
During the year ended December 31, 1996, as part of the normal course of
operations, the Company chartered a jet aircraft, a motor vessel and a
helicopter at competitive rates from companies which the Chairman of the Company
owns or controls. For each of the years in the three year period ended December
31, 1996, the total costs of the charters amounted to $381,330, $1,051,389 and
$786,000 respectively, of which $0, $108,924 and $42,000 respectively, remains
outstanding at the year end.
In connection with the intended transfer of each of these assets to
companies owned by third parties, the Parent Company provided interim financing
to companies owned by the Chairman of the Company totalling $1,750,000. The
interim financing was repaid in full by October 1996.
The intended transfer of the motor vessel to a third party was not
consummated. On October 28, 1996, the Parent Company purchased all of the shares
of the company that owned the vessel, 476822 B.C. Ltd. ("BC Ltd."), for an
effective purchase price of Cdn. $7,860,000. In the transaction, the motor
vessel was valued at Cdn. $7,200,000 and the other assets were valued at cost
and aggregated approximately Cdn. $660,000. A third party appraisal of the motor
vessel had established its fair market value at Cdn. $7,350,000 and its
replacement value at Cdn. $12,500,000.
The Chairman has an option to reacquire either the motor vessel and related
assets (the "Boat Assets") or the shares of BC Ltd. until October 1, 2006 under
certain circumstances including a change in
115
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 19. RELATED PARTIES (CONTINUED)
control of the Parent Company. The option price of the Boat Assets is their fair
market value, and the option price for the shares is the fair market value of
the net assets of BC Ltd.
During the year, the company which owned the jet aircraft and helicopter
sold them to a third party. The Company has leased the jet aircraft and
helicopter from the third party at commercially reasonable terms.
The Board of Directors of the Parent Company approved the transactions
pertaining to the jet aircraft in July 1996 and the transactions pertaining to
the motor vessel and helicopter in September 1996.
On August 6, and December 27, 1996, the Company entered into agreements to
sell cemetery installment contract receivables to an affiliate of the Company
for approximately $57,000,000. The Company realized a loss of $4,891,000 on the
sale.
As part of the 1995 acquisition of Osiris Holding Corporation ("Osiris"),
the Company has recorded as a long-term liability $27,840,000. The balance
outstanding is the present value of total remaining contingent payments of
approximately $33,800,000 which the Company expects to pay over a five year
period to the former shareholders of Osiris, two of whom are officers of the
Company.
In addition, as part of the 1995 acquisition of Shipper Management Company
("Shipper"), the Company has recorded as a long-term liability, $6,841,000
representing the present value of total contingent payments of approximately
$8,500,000 which the Company recorded in the third quarter of 1996 when the
outcome of the contingency became determinable and which the Company expects to
pay over a six year period to the former shareholders of Shipper, two of whom
are officers of the Company.
The Company has guaranteed indebtedness of participants of the 1994
Management Equity Investment Plan totaling approximately $3,300,000
(1995--$3,500,000).
During the fiscal year ended December 31, 1996, the Company paid
approximately $7,700,000 (1995-- $5,400,000) for insurance and other services to
a related company.
116
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 20. SEGMENTED INFORMATION
The following information corresponds to the Company's major industry
segments, all of which operate in North America.
<TABLE>
<CAPTION>
FUNERAL CEMETERY INSURANCE CORPORATE CONSOLIDATED
------------ ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Revenue
1996......................................... $ 489,571 $ 277,881 $ 71,900 $ -- $ 839,352
1995......................................... 389,124 138,137 13,564 -- 540,825
1994......................................... 303,488 61,970 -- -- 365,458
Depreciation and amortization
1996......................................... $ 41,596 $ 3,987 $ 40 $ 3,368 $ 48,991
1995......................................... 30,988 2,114 313 1,560 34,975
1994......................................... 21,320 1,506 -- 1,992 24,818
Earnings from operations
1996......................................... $ 153,942 $ 83,103 $ 19,411 $ (77,271) $ 179,185
1995......................................... 94,011 23,619 2,718 (44,633) 75,715
1994......................................... 105,166 12,122 -- (32,898) 84,390
Total assets
1996......................................... $ 1,654,280 $ 1,013,073 $ 311,406 $ 109,634 $3,088,393
1995......................................... 1,208,791 575,501 107,076 69,346 1,960,714
1994......................................... 821,213 191,918 -- 82,565 1,095,696
Capital expenditures
1996......................................... $ 116,676 $ 36,187 $ 1,274 $ 9,828 $ 163,965
1995......................................... 92,670 16,915 -- 2,958 112,543
1994......................................... 76,221 13,370 -- 1,364 90,955
</TABLE>
NOTE 21. SUBSEQUENT EVENTS
(A) ACQUISITIONS
During the period from January 1, 1997 to March 3, 1997, the Company
acquired 16 funeral homes and 11 cemeteries. The aggregate cost of these
transactions was approximately $32,200,000.
As at March 3, 1997, the Company has committed to acquire certain funeral
homes, cemeteries and related operations, subject in most instances to certain
conditions including approval by the Company's Board of Directors. The aggregate
cost of these transactions, if completed, will be approximately $281,200,000.
(B) PRIME AND RH HOLDINGS
On March 27, 1997, the Company transferred substantially all of its
investment in Prime and Rose Hills to an affiliated company.
117
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 22. UNITED STATES ACCOUNTING PRINCIPLES
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") in Canada. These principles
differ in the following material respects from those in the United States as
summarized below:
(A) EARNINGS (LOSS) AND RETAINED EARNINGS
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ---------
<S> <C> <C> <C>
Net earnings (loss) in accordance with Canadian GAAP......................... $ (4,868) $ (127,353) $ 7,491
Less effects of differences in accounting for:
Insurance operations (d)................................................... (1,440) -- --
Income taxes (f)........................................................... 1,761 1,028 1,296
----------- ----------- ---------
Earnings (loss) before cumulative effect of changes in accounting
principles................................................................. (4,547) (126,325) 8,787
Cumulative effect of change in accounting for cemetery revenue recognition... -- -- 157
----------- ----------- ---------
Net earnings (loss) in accordance with United States GAAP.................... (4,547) (126,325) 8,944
Opening retained earnings in accordance with United States GAAP.............. (107,077) 19,248 10,304
----------- ----------- ---------
Closing retained earnings in accordance with United States GAAP.............. $ (111,624) $ (107,077) $ 19,248
----------- ----------- ---------
----------- ----------- ---------
</TABLE>
(B) BALANCE SHEET
The amounts in the consolidated balance sheet that differ from those
reported under Canadian GAAP are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------ ------------------------
CANADIAN UNITED CANADIAN UNITED
GAAP STATES GAAP GAAP STATES GAAP
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Assets
Investments............................................... $ 170,245 $ 171,830 $ 1,016 $ 1,016
Insurance invested assets................................. 296,249 297,340 97,024 97,024
Cemetery property......................................... 597,528 852,987 356,022 517,609
Present value of insurance policies acquired.............. -- 14,933 -- --
Deferred policy acquisition costs......................... -- 5,047 -- --
Names and reputations..................................... 514,054 538,598 382,784 394,579
Liabilities and Shareholders' equity
Accrued settlements....................................... -- -- 40,000 --
Provision for legal settlements--non current.............. -- -- -- 40,000
Insurance policy liabilities.............................. 208,706 231,135 82,710 82,710
Deferred income taxes..................................... (60,018) 239,475 (58,645) 135,394
Retained earnings......................................... (89,614) (111,624) (84,746) (107,077)
</TABLE>
118
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 22. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
(C) STATEMENT OF CASH FLOWS
Under United States GAAP, cash provided by financing would decrease by
approximately $63,000,000 (1995--$106,000,000, 1994--$19,000,000) for non-cash
debt and common share consideration on acquisitions. Similarly, cash provided by
financing and applied to investing would decrease by approximately $2,600,000
(1995--nil, 1994--nil) for non-cash proceeds on disposal of certain
subsidiaries, see Note 5(c).
Cash applied to operations and cash provided by financing activities would
decrease by $111,800,000 because shares and debt issued for legal settlements
would be considered non-cash transactions.
(D) INSURANCE OPERATIONS
PRESENT VALUE OF INSURANCE POLICIES.
Under United States GAAP, the Company recognizes an asset that represents
the actuarilly-determined present value of the projected future profits of the
insurance in-force at dates of acquisition. Canadian GAAP does not recognize
such an asset. The asset is being amortized to insurance expense over the
estimated life of the insurance in-force at the date of acquisition. In 1995,
United States GAAP differences were not considered significant.
DEFERRED POLICY ACQUISITION COSTS
Under United States GAAP, the Company defers costs related to the production
of new business which consist principally of commissions, certain underwriting
expenses, and the costs of issuing policies. Deferred acquisition costs are
amortized over the expected premium-paying periods of the related policies.
Canadian GAAP does not permit deferral of such costs. In 1995, United States
GAAP differences were considered significant.
INSURANCE POLICY LIABILITIES
Insurance policy liabilities, which represent liabilities for future policy
benefits, are accounted for under United States GAAP using the net level premium
method which involves different actuarial assumptions and methodologies than the
policy premium method used for Canadian GAAP, all actuarial assumptions are
re-evaluated on a periodic basis, resulting in adjustments to insurance policy
liabilities and insurance costs and expenses. Under United States GAAP,
assumptions established at the time a policy is written are locked in and only
revised if it is determined that future experience will worsen from that
previously assumed.
(E) UNREALIZED GAINS AND LOSSES
Under United States GAAP, fixed maturity securities which the Company has
the positive intent and ability to hold to maturity are classified as
held-to-maturity and are carried at amortized cost. Fixed maturity securities
classified as held-to-maturity at December 31, 1996 were approximately
$83,719,000 (1995--$23,000,000). Fixed maturity and equity securities that are
held with the objective of trading to generate profits on short-term differences
in price are carried at fair value, with changes in fair value reflected in the
results of operations. At December 31, 1996, debt securities classified as
trading were
119
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 22. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
approximately $5,600,000. All other fixed maturity and equity securities not
classified as either held-to-maturity or trading are classified as
available-for-sale and carried at fair value which was approximately
$316,028,000 (1995--$74,000,000). Available-for-sale securities may be sold in
response to changes in interest rates and liquidity needs. Unrealized holding
gains and losses related to available-for-sale investments, after deducting
amounts allocable to income taxes, are reflected as a separate component of
stockholders' equity. There were no significant unrealized gains or losses on
securities available-for-sale as of December 31, 1996. Unrealized holding gains
and losses related to trading investments, after deducting amounts allocable to
income taxes, are reflected in earnings. There were no significant unrealized
gains or losses on trading securities as of December 31, 1996.
(F) INCOME TAXES
Under United States GAAP, deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
Temporary differences are tax-effected at current rates whereas under Canadian
GAAP, temporary differences are tax-effected at historic rates. There was no
deferred tax effect of changes in tax rates during 1996.
The Company's deferred tax liabilities under FAS 109 at December 31, are as
follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Deferred tax liabilities
Cemetery property....................................................................... $ 252,802 $ 161,587
Property and equipment.................................................................. 56,103 42,132
Deferred costs related to prearranged funeral services.................................. 5,068 9,932
Other tax liabilities................................................................... 20,902 14,872
---------- ----------
Total deferred tax liabilities............................................................ 334,875 228,523
---------- ----------
Deferred tax assets
Legal settlements....................................................................... 16,049 61,037
Intercompany management fees and interest............................................... 55,119 20,584
Other tax assets, net of valuation allowance............................................ 24,232 11,508
---------- ----------
Total deferred tax assets................................................................. 95,400 93,129
---------- ----------
Net deferred tax liabilities.............................................................. $ 239,475 $ 135,394
---------- ----------
---------- ----------
</TABLE>
The Company believes realization of its net deferred tax assets is more
likely than not. The Company's ability to realize its deferred tax assets is
based on several factors, including a presumption of future profitability in
certain jurisdictions, and is subject to some degree of uncertainty. At December
31, 1996, the Company had a valuation allowance of $3,499,000
(1995--$2,228,000). During the year ended December 31, 1996, the Company
increased its valuation allowance by $1,271,000 for operating loss
carryforwards.
120
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 22. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
(G) RECENT UNITED STATES ACCOUNTING STANDARDS
The Parent Company has a stock-based compensation plan which enables the
Parent Company to grant options to employees of the Company. The option plan is
administered by the Compensation Committee of the Parent Company's Board of
Directors. Each participant enters into an option agreement which sets forth,
among other things, the number of options granted, the exercise price and the
vesting conditions of the options. The exercise price of an option may not be
less than the market price of the Parent Company's stock on the trading day
immediately prior to the grant date and in no event may an option terminate
later than ten years after grant date of such option.
The Company adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 123 ("FAS 123"), Accounting for Stock-Based
Compensation for United States GAAP purposes.
The Company continues to record compensation expense for United States GAAP
purposes following the intrinsic value principles of APB 25, Accounting for
Stock Issued to Employees, in accounting for the plans.
Had compensation cost been determined based on fair value at the grant dates
for awards under those plans, under FAS 123, net earnings would have been
charged an additional $2,828,000 (1995--$653,000).
The fair value of each option is estimated on the date of the grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions; dividend yield 0.5% (1995--0.5%), expected volatility 24%
(1995--24%), United States risk-free interest rates 5.57% (1995--6.58%) and
expected average option term of 2.9 years (1995--4.5 years). The weighted
average fair value of the options granted is $6.25 (1995--$9.33) per option.
NOTE 23. COMPARATIVE FIGURES
Certain of the comparative figures have been reclassified to conform to the
presentation adopted in the current period.
121
<PAGE>
NEWEOL INVESTMENTS LTD.
FINANCIAL STATEMENTS
122
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholder
Neweol Investments Ltd.
We have audited the consolidated balance sheets of Neweol Investments Ltd.,
as defined in Note 1 to the financial statements, as at December 31, 1996 and
1995 and the consolidated statements of operations and retained earnings and
cash flows for each of the years in the three year period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of Neweol Investments Ltd. as at
December 31, 1996 and 1995 and the results of its operations and its cash flows
for each of the years in the three year period ended December 31, 1996, in
accordance with generally accepted accounting principles in the United States.
As required by the Company Act of British Columbia, we report that, in our
opinion, these principles have been applied on a consistent basis.
/S/ KPMG
Chartered Accountants
Vancouver, Canada
March 3, 1997, except for Note 15, which is as of March 27, 1997
123
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 1)
CONSOLIDATED BALANCE SHEETS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
ASSETS
Current assets
Cash and term deposits................................................... $ 12 $ 81
Receivables, net of allowances........................................... 16,089 --
Notes receivable from affiliates......................................... 56,061 24,831
-------- --------
72,162 24,912
-------- --------
Long-term receivables, net of allowances................................... 36,761 --
Investment................................................................. 39,642 35,717
Investments in affiliates.................................................. 32,595 6,367
Due from affiliates........................................................ 914 --
Revolving credit loans..................................................... 3,679 --
Notes receivable from affiliates........................................... 590,040 405,650
Notes receivable from Parent Company....................................... 78,633 --
Other assets............................................................... 838 291
-------- --------
$ 855,264 $ 472,937
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDER EQUITY
Current liabilities
Accounts payable and accrued liabilities................................. $ 3,782 $ 5,402
Due to affiliate......................................................... 309 --
Notes payable to affiliate............................................... 9,926 4,275
-------- --------
14,017 9,677
Due to Parent Company...................................................... 338,464 168,982
Minority interest.......................................................... 105,209 8,508
Redeemable preferred shares
$1 Canadian par value, 500,000,000 shares authorized, 77,200,000 shares
issued and outstanding (1995--77,200,000).............................. 56,326 56,598
Shareholder equity
Capital stock, no par value, 1,000,000 shares authorized, 80,401 shares
issued and outstanding (1995--80,401).................................. 281,512 214,539
Retained earnings........................................................ 54,163 10,415
Foreign exchange adjustment.............................................. 5,573 4,218
-------- --------
341,248 229,172
-------- --------
$ 855,264 $ 472,937
-------- --------
-------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
124
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 1)
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
--------- ---------- ---------
<S> <C> <C> <C>
Revenue from affiliates
Interest income................................................................ $ 60,198 $ 33,129 $ 7,599
Other revenue.................................................................. 1,900 1,201 471
--------- ---------- ---------
62,098... 34,330 8,070
Expenses
General and administrative..................................................... 1,388 739 218
--------- ---------- ---------
Earnings from operations......................................................... 60,710 33,591 7,852
Equity in earnings (losses) of investees......................................... 1,557 (19,444) --
Minority interest................................................................ (6,236) (564) (130)
--------- ---------- ---------
Earnings before income taxes..................................................... 56,031 13,583 7,722
Current income tax expense....................................................... 6,611 5,377 1,238
--------- ---------- ---------
Net earnings..................................................................... $ 49,420 $ 8,206 $ 6,484
Dividends on redeemable preferred shares......................................... 5,672 4,275 --
--------- ---------- ---------
Net earnings available to Common shareholder..................................... 43,748 3,931 6,484
Retained earnings, beginning of year............................................. 10,415 6,484 --
--------- ---------- ---------
Retained earnings, end of year................................................... $ 54,163 $ 10,415 $ 6,484
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
125
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 1)
CONSOLIDATED STATEMENTS OF CASH FLOWS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH PROVIDED BY (APPLIED TO)
Operations
Net earnings............................................................. $ 49,420 $ 8,206 $ 6,484
Items not affecting cash
Minority interest...................................................... 6,236 564 130
Equity in losses (earnings) of investees............................... (1,557) 19,444 --
Net changes in other non-cash balances................................... 9,898 7,779 5,159
----------- ----------- -----------
63,997 35,993 11,773
----------- ----------- -----------
Investing
Loans to affiliate....................................................... (251,171) (252,519) (213,595)
Repayments of notes receivable from affiliate............................ 35,551 46,113 --
Purchase of accounts receivable from affiliate........................... (57,483) -- --
Investment............................................................... (2,212) -- --
----------- ----------- -----------
(275,315) (216,886) (213,595)
----------- ----------- -----------
Financing
Advances from Parent Company............................................. 190,130 180,916 201,880
Repayment of advances from Parent Company................................ (19,673) -- --
Capital contributions from Parent Company................................ 40,792 -- --
----------- ----------- -----------
211,249 180,916 201,880
----------- ----------- -----------
Increase in cash and cash equivalents during the year...................... (69) 23 58
Cash and cash equivalents, beginning of year............................... 81 58 --
----------- ----------- -----------
Cash and cash equivalents, end of year..................................... $ 12 $ 81 $ 58
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
126
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Neweol Investments Ltd. ("Neweol") was incorporated on November 6, 1992
under the federal laws of Canada and continued on June 3, 1993 under the laws of
the Province of British Columbia as a wholly owned subsidiary of The Loewen
Group Inc. ("Parent Company'). The principal activities of the Company, which
commenced operations in 1994, are to provide financing to other subsidiaries of
the Parent Company ("affiliates") and to hold investments in affiliated and
non-affiliated companies.
The consolidated financial statements have been prepared in United States
dollars in accordance with accounting principles generally accepted in the
United States. The consolidated financial statements require the use of
management estimates. As a result, actual results could differ from those
estimates.
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements have been prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission ("SEC").
These consolidated financial statements include Neweol's 85% ownership
interests in Loewen Finance (Wyoming) Limited Liability Company ("LFW"), Loewen
Trading Corporation, Eagle Financial Associates, LLC, and 100% ownership
interest in 1096952 Ontario Limited, and its equity investment in its affiliate
Loewen Group International, Inc. ("LGII") (collectively the "Company"). These
interests constitute the ongoing operations of Neweol subsequent to a
reorganization that occurred July 19 and August 13, 1996. These consolidated
financial statements exclude certain subsidiaries of Neweol which were
transferred to an affiliate effective July 19 and August 13, 1996 and
accordingly are not intended to be a complete presentation of the historical
consolidated financial position, results of operations, and cash flows of
Neweol. To the extent that Neweol's interests in those subsidiaries were not
transferred as a result of the reorganization, such interests are reflected in
the accompanying financial statements.
All significant intercompany balances and transactions have been eliminated
from the consolidated financial statements.
Neweol has no operations independent of those carried on by its
subsidiaries. Neweol is dependent on future remittances from its subsidiaries or
capital contributions from its Parent Company to satisfy its obligations,
substantially all of which are to affiliates.
INVESTMENTS
The Company initially records investments acquired from third parties at
cost and investments acquired from entities under common control at the
transferor's carrying value. The Company follows the equity method of accounting
for investments where it has significant influence over the investee. The excess
of the Company's carrying value of the investment as reported on the balance
sheet and the underlying equity in the net assets of Arbor Memorial Services
Inc. ("Arbor") is amortized over the estimated weighted average useful lives of
the underlying assets and included in equity in earnings and losses of investees
in the statements of operations and retained earnings and cash flows.
ACCOUNTING FOR INCOME TAXES
The Company follows the asset and liability method of accounting for income
taxes. Deferred income taxes are recognized for the future tax effects of
temporary differences between the carrying amounts of
127
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes. Deferred tax assets and liabilities are measured using
enacted rates expected to apply to taxable income in the years in which these
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
FOREIGN CURRENCY
The assets and liabilities of the Canadian operations have been translated
into United States dollars at the rates of exchange at the balance sheet dates,
and revenues and expenses are translated at the average rates of exchange for
the periods of operation. Unrealized gains and losses arising from the
translation are deferred and are classified as "Foreign exchange adjustment"
within shareholder equity.
NOTE 2. NOTES RECEIVABLE FROM AFFILIATE
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Current
Revolving credit loans.................................................................. $ 56,061 $ 24,831
---------- ----------
---------- ----------
Long-term
Term loans due in 1999.................................................................. $ 206,000 $ 206,000
Term loans due in 2000.................................................................. 199,650 199,650
Term loans due in 2001.................................................................. 184,390 --
---------- ----------
$ 590,040 $ 405,650
---------- ----------
---------- ----------
</TABLE>
The revolving credit loans are due on demand. Effective August 1, 1996,
interest is earned at a fixed rate of 11.5% (1995--rates ranged from 9.06% to
10.01% per annum) on the term loans and the revolving credit loans (1995--U.S.
prime plus 2%) respectively.
The notes receivable from affiliate are secured under a collateral trust
arrangement whereby senior lenders to the affiliate and the Parent Company would
share certain collateral on a pari passu basis. This collateral is held by a
trustee for equal and ratable benefit of the various holders of senior
indebtedness.
The collateral includes (i) a pledge for the benefit of the senior lenders
of the shares held by the Parent Company of substantially all its subsidiaries
(including the Company, certain of its subsidiaries and its investment in LGII)
and (ii) all of the financial assets of LGII (LGII does not have material assets
other than financial assets).
NOTE 3. INVESTMENT
The Company holds 713,825 Class A voting shares (1995--680,225) of Arbor
representing 28.3% (market value $14,843,144) and 2,154,352 Class B non-voting
shares (1995--2,057,752) representing 27.5% (market value $43,618,319). This
investment has been accounted for by the equity method commencing January 1,
1995, the date the Company determined it had significant influence over Arbor.
Arbor's fiscal year end is October 31, 1996. Accordingly the Company records its
equity in the earnings of Arbor on a two month lag. The Company's equity in the
earnings of Arbor amounted to $1,879,000 (1995--
128
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 3. INVESTMENT (CONTINUED)
$1,391,000) in 1996. Arbor is a Canadian funeral services company and at October
31, 1996, Arbor had assets and liabilities of $439,261,000 and $293,808,000
respectively (1995--$287,617,000 and $188,837,000 respectively) and total
revenues of $129,978,000 (1995--117,269,000).
NOTE 4. INVESTMENTS IN AFFILIATES
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Investments in affiliates
Investments in LGII........................................................................ $ 32,595 $ 6,367
--------- ---------
--------- ---------
</TABLE>
On July 13, 1995, the Company acquired a 15% interest in LGII from the
Parent Company. LGII serves as the holding company for the Parent Company's
United States funeral, cemetery and insurance operations. This investment was
recorded at the Parent Company's carrying value of approximately $27,202,000.
During 1996, the Company contributed additional capital of $26,181,000. The
Company's equity in the loss of LGII amounted to approximately ($321,000) for
the year ended December 31, 1996 (1995--($20,834,850)). At December 31, 1996,
LGII had assets and liabilities of approximately $3,088,393,000 and
$2,875,743,000 respectively (1995--$1,960,714,000 and $1,918,264,000).
NOTE 5. LEGAL PROCEEDINGS
The Parent Company and LGII are subject to material legal proceedings and
contingencies, as disclosed below:
GULF NATIONAL SETTLEMENT
On February 1, 1996, the Parent Company and Gulf National Insurance Company
and certain of its affiliates ("Gulf National") executed a settlement agreement
pursuant to which, among other things, the parties agreed to a full and mutual
release of all claims against each other. The Parent Company delivered to Gulf
National $50,000,000 in cash, 1,500,000 Common shares ("Gulf National Settlement
Shares") and a promissory note in the amount of $80,000,000 payable over 20
years in equal installments of $4,000,000, without interest. The Gulf National
Settlement Shares were issued on February 9, 1996 and a registration statement
registering the resale of the Gulf National Settlement Shares filed with the SEC
was declared effective in December 1996.
The Parent Company recorded a charge against its 1995 earnings in the amount
of $134,800,000 before taxes of $49,457,000 to account for the Gulf National
settlement. This amount represents the cash portion, the present value of the
non-interest bearing promissory note and the guaranteed value of the Gulf
National Settlement Shares.
PROVIDENT SETTLEMENT
On February 4, 1996, Provident American Corporation and one of its
subsidiaries ("Provident") and the Parent Company settled certain litigation and
on March 19, 1996, the parties entered into a settlement providing for a full
mutual release from all claims against each other, and the Parent Company
delivered 1,000,000 Common shares ("Provident Settlement Shares"), and
$3,000,000 in cash to Provident and
129
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 5. LEGAL PROCEEDINGS (CONTINUED)
certain designees. The Parent Company filed a registration statement registering
the resale of the Provident Settlement Shares with the SEC which was declared
effective in July 1996.
The Parent Company recorded a charge against its 1995 earnings in the amount
of $30,000,000 before taxes of $10,800,000 to account for the Provident
settlement.
CLASS ACTIONS ALLEGING SECURITIES LAWS VIOLATIONS
On November 4, 1995, a class action lawsuit claiming violations of federal
securities laws was filed on behalf of a class of purchasers of Parent Company
securities against the Parent Company and five individuals who were officers of
the Parent Company (four of whom were also directors) in the United States
District Court for the Eastern District of Pennsylvania. LGII, Loewen Group
Capital, L.P., a limited partnership of which LGII is the sole general partner
("LGC"), and the lead underwriters (the "Underwriters") of LGC's 1994 offering
of Monthly Income Preferred Securities ("MIPS"), were subsequently added as
defendants. On November 7, 1995, a class action lawsuit was filed on behalf of a
class of purchasers of Common shares against the Parent Company 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 Parent Company's securities against the
Parent Company, LGII, LGC and the same individual defendants in the United
States District Court for the Eastern District of Pennsylvania.
The complaints with respect to the class actions alleged that the defendants
failed to disclose the Parent Company's anticipated liability in connection with
certain litigation with Gulf National. The Pennsylvania class actions also
alleged failure to disclose the Parent Company's potential liability in
connection with certain litigation with Provident. The Parent Company settled
the lawsuits with Gulf National and Provident during the first quarter of 1996.
Pursuant to a Transfer Order filed April 15, 1996 by the Judicial Panel on
Multidistrict Litigation, the Mississippi class action was transferred to the
Eastern District of Pennsylvania for consolidation of pretrial proceedings with
the two Pennsylvania class actions. On September 16, 1996, the plaintiffs filed
a Consolidated and Amended Class Action Complaint (the "Consolidated Class
Action Complaint"). Procedurally, the Consolidated Class Action Complaint
supersedes the complaints filed in the class actions. Plaintiffs allege three
causes of action in the Consolidated Class Action Complaint: (i) the Parent
Company, LGII, LGC and the five individual defendants violated Sections 10(b)
and 20(a) and the implementing anti-fraud rules under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), (ii) LGII, LGC and three of the
five individual defendants violated Sections 11 and 15 of the Securities Act of
1933, as amended (the "Securities Act"), in connection with the MIPS offering
and (iii) the Parent Company, LGII and LGC made material misstatements in
connection with the MIPS offering in violation of Sections 12(2) and 15 of the
Securities Act. Plaintiffs seek compensatory money damages in an unspecified
amount, together with attorneys fees, expert fees and other costs and
disbursements. Punitive damages are not sought.
The defendants filed their Answer to the Consolidated Class Action Complaint
on November 1, 1996, in which they have denied the material allegations and
raised certain affirmative defenses. The parties have commenced discovery and
document production. No depositions have been taken.
130
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 5. LEGAL PROCEEDINGS (CONTINUED)
The parties have stipulated to the provisional certification of plaintiff
classes consisting of: (i) all purchasers of Common shares or MIPS on an
American stock exchange or in public offerings during the period from April 16,
1993 through November 1, 1995, with respect to the Exchange Act claims; and (ii)
all persons who purchased MIPS pursuant to the public offering in August 1994,
with respect to the Securities Act claims. Defendants have retained all rights
to conduct discovery on class issues and to move to modify the class definitions
or to decertify the classes. Plaintiffs have agreed to stay all proceedings,
including all discovery, relating to disclosures about the Provident litigation.
Plaintiffs have the right to lift the stay upon written notice, which must be
provided 90 days before the end of discovery or the beginning of trial.
On June 11, 1996, all claims against the Underwriters were dismissed without
prejudice, by agreement of the parties. Prior to the dismissal, the Underwriters
had indicated to the Parent Company that they would seek indemnity from the
Parent Company for costs incurred. The Parent Company paid the Underwriters'
costs through the date of dismissal. The Parent Company expects that the
Underwriters will seek further indemnity from the Parent Company if any of the
claims against the Underwriters are reinstated.
The Parent Company referred the claims to its insurance carrier under its
directors and officers liability insurance policy. On February 9, 1996, the
carrier denied coverage of the claim. The Parent Company believes that such
denial was improper. On March 21, 1996, the Parent Company commenced an action
in British Columbia Supreme Court seeking a declaration that the policy covers
indemnification with respect to the Class Action. As of the date hereof, the
Supreme Court has not ruled on the action. The Parent 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 Parent Company has determined that it is not possible at this time 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 with respect to the class actions has been made in the
Parent Company's or LGII's 1996 consolidated financial statements.
ROE ET AL., PALLADINO ET AL., O'SULLIVAN AND SCHNEIDER
In October 1995, Roe and 22 other families filed a lawsuit against LGII and
Osiris Holding Corporation ("Osiris") in Florida Circuit Court in St.
Petersburg. 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. In June
1996, the Roe and Palladino lawsuits were consolidated and amended to include a
total of 90 families (the "Consolidated Roe Complaint"), and in July 1996, the
Palladino lawsuit was dismissed. In October 1996, a Fifth Amended Complaint
("Complaint") was filed bringing the number of plaintiff families to 150. The
gravamen of the Complaint is 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. The specific claims include tortious
interference with a dead body (intentional and grossly negligent conduct so
extreme and outrageous as to imply malice) and negligent infliction of emotional
distress. The Complaint also names the Parent Company and LGII as defendants (on
an alter ego theory) and includes claims for negligent retention of certain
cemetery employees. Each plaintiff identified in the Complaint is seeking
damages in excess of $15,000, but the Complaint alleges aggregate damage in
excess of $40,000,000. In addition, in
131
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 5. LEGAL PROCEEDINGS (CONTINUED)
May 1996, Sean M. O'Sullivan filed a lawsuit against Osiris and LGII and in July
1996, Karen Schneider filed a lawsuit against Osiris and LGII. The factual
allegations underlying the O'Sullivan and Schneider complaints are identical to
those alleged in the Complaint. Schneider has been named in the Complaint and
the Schneider lawsuit has been dismissed. A mediation was held on November 14,
1996 but the parties did not reach an agreement. However, over the past several
months, nearly 100 families have settled their claims for de minimus sums,
leaving the number of plaintiff families at 51. The Complaint was dismissed for
pleading deficiencies. The plaintiffs have indicated that they will file a Sixth
Amended Complaint.
At the time the remains allegedly were disturbed, the Royal Palm Cemetery
was owned by Osiris. Osiris was acquired by LGII in March 1995. The insurance
carriers for Osiris and the Parent Company have assumed the defense of these
claims, subject to a reservation of rights. The insurance carrier for the Parent
Company has stated that it may take the position that each gravesite claim is
separately subject to the per claim policy deductible of $250,000. Accordingly,
no assurance can be made that insurance coverage will be available. The annual
Osiris policy limit is $11,000,000 and the annual Parent Company policy limit is
$80,000,000.
The Parent Company has determined that it is not possible at this time 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 with respect to this lawsuit has been made in the
Parent Company's or LGII's 1996 consolidated financial statements.
ESNER ESTATE
On February 1, 1995, Stuart B. Esner and Sandra Esner (the "Executors") as
co-executor 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 (the "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 Parent 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.
In March 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 attorney's fees, in
connection with or arising from the Esner Estate litigation.
132
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 5. LEGAL PROCEEDINGS (CONTINUED)
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 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. The two cases were
consolidated by the Court.
On October 9, 1996, the Executors instituted a new civil action against the
Law Firm. On November 18, 1996 the Executors instituted a new civil action
against the individual partners of the Law Firm. In both complaints, the
Executors expanded upon the allegations against the Law Firm contained in the
previous complaints. By stipulation approved by the Court on February 24, 1997,
the parties agreed to consolidate all suits and to permit the Executors to file
a Third Amended Complaint, which was filed on February 10, 1997. The prayers for
relief remain unchanged. Osiris and Messrs. Miller and Shane have filed
preliminary challenges to the Third Amended Complaint. Likewise, LGII has moved
for a dismissal of the claims against it for failure to state a claim upon which
relief can be granted. That motion and the preliminary challenges are all
pending.
The Parent Company has determined that it is not possible at this time 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 with respect to this lawsuit has been made in the
Parent Company's or LGII's 1996 consolidated financial statements.
SERVICE CORPORATION INTERNATIONAL
On October 2, 1996, Service Corporation International ("SCI") filed an
action in the United States District Court for the Southern District of Texas
(the "Texas Action"), alleging that the Parent Company falsely suggested to its
shareholders that it has standing to bring an action to block or impede SCI's
unsolicited exchange offer on federal antitrust grounds. SCI also seeks a
declaratory judgment that the Parent Company lacks standing to bring such an
action on federal antitrust grounds. SCI asserts a claim under Texas common law,
based upon its allegations that the Parent Company's actions have tortiously
interfered with SCI's "prospective business relationships" with the Parent
Company's shareholders. As relief for this assertion, SCI seeks an unspecified
amount of damages for claimed injuries resulting from the Parent Company's
alleged interference with these prospective relationships. In an amended
complaint filed October 3, 1996, SCI also alleges that the foregoing actions, as
well as the Parent Company's alleged failure to disclose certain information
respecting the Prime and Rose Hills transactions, constitute violations of
Section 14(e) of the Exchange Act. As relief, SCI seeks an injunction against
future violations of that statute.
On October 10, 1996, the Parent Company, LGII and Ridge Chapels, Inc., a
subsidiary of LGII, commenced an action in the United States District Court for
the Eastern District of New York (the "New York Action"), seeking to enjoin SCI
preliminarily and permanently from completing its unsolicited exchange offer on
the grounds that a combination of SCI and the Parent Company would violate
Section 7 of the Clayton Act. According to the complaint, SCI's unsolicited
offer for control of the Parent Company, if successful, may substantially lessen
competition in numerous local markets for (i) the sale of funeral services, (ii)
the sale of funeral services on a "pre-need" basis, (iii) the sale of cemetery
services, and (iv) the purchase of funeral homes, cemeteries and crematoria. The
Parent Company also accuses SCI and
133
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 5. LEGAL PROCEEDINGS (CONTINUED)
Equity Corporation International, Inc. (a competitor of the Parent Company in
which SCI had a 40% interest in October 1996) ("ECI"), of conspiracy to
eliminate the Parent Company as a competitive force in the funeral services
industry, in violation of Section 1 of the Sherman Act. On October 10, 1996, the
Parent Company filed Motions for Expedited Discovery and for a Preliminary
Injunction to enjoin the unsolicited exchange offer and, on October 15, 1996,
filed a Verified First Amended Complaint.
On October 11, 1996, the Parent Company moved to dismiss or stay the Texas
Action. On October 15, 1996, SCI moved to dismiss, stay or transfer the New York
Action. A hearing was held on SCI's motion on October 17, 1996, at the
conclusion of which the District Court denied SCI's motion. On October 23, 1996,
Magistrate Judge Caden of the District Court entered a Memorandum and Order
allowing expedited discovery with respect to the Parent Company's motion for a
preliminary injunction. On October 29, 1996, the District Court overruled the
objections of SCI to the Magistrate Judge's Order but stayed commencement of
discovery proceedings, which stay was extended by stipulation until the
resolution of the pending motions in the Texas Actions described below.
On October 21, 1996, SCI filed a Motion for Preliminary Injunction in the
Texas Action, seeking to enjoin the Parent Company from pursuing its antitrust
claims in any forum other than the federal District Court in Texas. The matter
was referred to Magistrate Judge Johnson, who issued a Memorandum Recommending
Entry of a Preliminary Injunction on October 28, 1996. Magistrate Judge Johnson
recommended that the District Court restrain the Parent Company from proceeding
in the New York Action (or elsewhere) until it had resolved the Parent Company's
pending motion to dismiss. In a telephone conference on October 28, 1996, the
District Court declined to enter any injunctive relief at that time. A hearing
on the Parent Company's motion to dismiss was held on November 6, 1996. On
November 23, 1996, the Texas District Court issued a Memorandum Opinion in which
it: (i) denied SCI's motion for a preliminary injunction against the New York
Action; and (ii) granted the Parent Company's motion to dismiss the Texas
Action, subject to the New York Court's permitting SCI to raise its above-
described tortious interference and violation of Section14(e) claims as
counterclaims in the New York Action. SCI's above-described declaratory judgment
claim was dismissed outright.
On December 11, 1996, SCI filed its Answer to the Parent Company's Verified
First Amended Complaint, in which it denies liability and asserts various
defenses and asserts counterclaims against the Parent Company, which
counterclaims parallel generally the above-described claims for tortious
interference and violation of Section14(e) claims asserted in the Texas Action.
The Parent Company believes that the counterclaims are without merit and intends
to contest them vigorously. The Parent Company has served discovery requests
upon SCI and ECI to which both objected. On December 11, 1996, Magistrate Judge
Caden ordered expedited discovery to proceed. SCI filed objections to the
Magistrate Judge's order, which objections were denied by the District Court on
January 7, 1997.
On December 11, 1996, ECI filed a Motion to Dismiss the claims against it,
on grounds of improper venue and lack of personal jurisdiction. On December 18,
1996, the Parent Company filed a Motion for Expedited Discovery respecting
jurisdiction over ECI, and the parties agreed that the Parent Company would not
be required to respond to the Motion to Dismiss until either a date certain
after denial of its Motion for Expedited Discovery or, if that Motion were
granted, completion of jurisdictional discovery. On January 8, 1997, Magistrate
Judge Caden entered an order providing that the Parent Company could take
certain expedited discovery respecting jurisdiction over ECI.
134
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 5. LEGAL PROCEEDINGS (CONTINUED)
On January 7, 1997, SCI announced that it had withdrawn its proposed
exchange offer. On January 14, 1997, the Parent Company sent a letter to the New
York Court stating that it will move for leave to file an amended complaint
seeking permanent injunctive relief against future actions by SCI and/ or ECI
against the Parent Company in violation of the antitrust laws. On January 15,
1997, SCI sent a letter to the New York Court stating that it believes the
Parent Company's claims are moot and will seek dismissal of those claims.
Discovery from the parties has been temporarily suspended by agreement. On
January 16, 1997, ECI sent a letter to the New York Court, seeking to suspend
discovery until the Court rules on the contemplated motions by the Parent
Company and SCI. On January 20, 1997, the Parent Company sent a letter to the
Court seeking leave to move to dismiss SCI's counterclaims, to which SCI
responded on January 22, 1997, by letter requesting dismissal of the entire
action.
At the New York Court's suggestion, the parties are discussing possible
resolution of the action in a manner that would end the current proceedings but
preserve jurisdiction in the New York Court over similar disputes in the future,
if any.
No provision with respect to these legal proceedings has been made to date
in the Parent Company's or LGII's 1996 consolidated financial statements.
DERIVATIVE SUIT
On September 26, 1996, Jerry Krim filed a purported derivative and class
action against the Parent Company's current directors and one former director
and against the Parent Company as a nominal defendant in the Los Angeles County
Superior Court. The plaintiff alleges, on behalf of himself and all of the
Parent Company's current and former shareholders, that the defendants
"improperly responded to an offer by SCI to combine the two companies," refused
to negotiate with SCI, agreed to pay an inflated price for the Rose Hills
properties in Los Angeles, adopted a supposed "poison pill" supermajority voting
provision requiring 75% approval of a merger, and adopted a Shareholders
Protection Rights Plan, each allegedly in violation of the directors' fiduciary
duties. Plaintiff seeks preliminary and permanent injunctive relief that would,
among other things, (i) require the defendants to cooperate with any person
having a bona fide interest in proposing a transaction and take certain other
actions that allegedly would "maximize shareholder value," (ii) enjoin the
Shareholders Protection Rights Plan in its entirety, (iii) enjoin the
consummation of the Rose Hills transaction, (iv) enjoin the supermajority voting
requirements, (v) require an accounting for unspecified damages, and (vi)
compensate the plaintiffs for their fees and costs. On October 17, 1996, the
Court denied the plaintiff's motion for expedited discovery. On November 8,
1996, the Parent Company and those individual defendants upon whom service had
purportedly been made appeared specially and moved to quash service of the
summons for lack of jurisdiction or, in the alternative, to dismiss or stay the
action on grounds of forum non conveniens. On December 10, 1996, the Court
granted the defendants' motion to quash the summons and denied the plaintiffs'
request for discovery. The action was dismissed, and no appeal has been filed.
No provision with respect to this legal proceeding has been made in the
Parent Company's or LGII's 1996 consolidated financial statements.
135
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 5. LEGAL PROCEEDINGS (CONTINUED)
ROJAS ET AL.
On February 22, 1995, Juan Riveras Rojas, Leyda Rivera Vega, the Conjugal
Partnership constituted between them, and Carlos Rivera Bustamente instituted a
legal action against the Parent 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 Parent Company is
advised by counsel that there is no entitlement to punitive damages under Puerto
Rican law). The Parent Company has filed a motion to dismiss the complaint on
the grounds of failure to join an indispensable party. In addition, the Parent
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 Parent 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 Parent Company has
determined that it is not possible at this time 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 with respect to this lawsuit has been made in the Parent Company's or
LGII's 1996 consolidated financial statements.
FELDHEIM ET AL. V. SI-SIFH CORP. ET AL.
In January 1997, Elmer C. Feldheim and four other individuals filed a
lawsuit on behalf of themselves and a class of similarly situated individuals
and/or entities against SI-SIFH Corp., SI-SI Insurance Company, Inc., Loewen
Louisiana Holdings, Inc., and LGII in the Parish of Jefferson, State of
Louisiana. Plaintiffs seek a class action. SI-SIFH Corp. and SI-SI Insurance
Company, Inc. were acquired by LGII in March 1996 when LGII acquired the assets
of S.I. Acquisition Associates, L.P.
Plaintiffs hold or held funeral insurance policies issued by insurance
companies owned, directly or indirectly, by the defendants. Plaintiffs allege
that (i) the defendants failed to provide the funeral services purchased with
the policies by, among other things, offering a casket of inferior quality upon
presentation of a policy, and (ii) in connection with the sale of the insurance
policy, the insurance companies negligently or fraudulently represented and
interpreted the scope and terms of the policies and omitted to provide material
information regarding the policy benefits and limitations. Plaintiffs also
allege unfair trade practices in violation of Louisiana's insurance code and
trade practices laws.
Plaintiffs seek damages, penalties and attorneys fees. Louisiana law
prohibits plaintiffs from alleging specific amounts of damages. Plaintiffs also
seek a declaratory judgment compelling defendants to honor the policies and
allowing a plaintiff to select a more expensive casket than provided for in the
policy, upon payment of the difference in retail value, without forfeiting the
other benefits provided for in the policy.
As of the date hereof, no discovery has taken place. The Parent Company has
determined that it is not possible at this time to predict the final outcome of
this legal proceeding, including whether a class will be certified, 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
plaintiffs. Accordingly, no provision with respect to this lawsuit has been made
in the Parent Company's or LGII's 1996 consolidated financial statements.
136
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 5. LEGAL PROCEEDINGS (CONTINUED)
OTHER
Each of the Parent Company and LGII is a party to other legal proceedings in
the ordinary course of its business but does not expect the outcome of any other
proceedings, individually or in the aggregate, to have a material adverse effect
on its respective financial position, results of operation or liquidity.
NOTE 6. INCOME TAXES
All income tax expense in 1996, 1995 and 1994 represent income taxes payable
outside Canada. Income tax differed from amounts computed by applying Canadian
federal and provincial income tax rates of 45.5% on earnings before income taxes
as a result of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
Expected income tax expense...................................................... $ 25,494 $ 6,180 $ 3,514
Foreign income taxed at lower rates.............................................. (21,013) (9,912) (2,283)
Equity in (earnings) losses of investees......................................... (708) 8,847 --
Other............................................................................ 2,838 262 7
---------- --------- ---------
$ 6,611 $ 5,377 $ 1,238
---------- --------- ---------
---------- --------- ---------
</TABLE>
NOTE 7. NOTES PAYABLE TO AFFILIATES AND DUE TO PARENT COMPANY
Notes payable to affiliates were issued in settlement of preferred share
dividends and are due on demand. The amount due to the Parent Company has no
designated repayment terms however, the Parent Company has agreed not to demand
payment prior to June 30, 1998. The notes payable to affiliates and due to
Parent Company are denominated in Canadian dollars and are non-interest bearing.
NOTE 8. REDEEMABLE PREFERRED SHARES
On January 31, 1995 the authorized share capital of Neweol was increased by
creating 500,000,000 non-voting Preferred shares with a par value of Cdn. $1.00
each and a redemption price of Cdn. $1.00 per share plus all declared but unpaid
dividends. The holders of the preferred shares receive priority in the payment
of non-cumulative dividends, as declared annually by the directors at a rate to
be determined by resolution of the directors. Upon liquidation, dissolution or
wind-up, the preferred shareholders are entitled to distribution equal to the
redemption price before any assets of Neweol shall be distributed to the common
shareholders. The preferred shares are redeemable at Neweol's option upon 21
days notice and retractable by the holder upon 120 days notice at any time in
whole or in part at the redemption price. The redeemable preferred shares were
issued upon the cancellation of 20,000 Common shares.
NOTE 9. NOTES RECEIVABLE FROM PARENT COMPANY
Notes receivable from the Parent Company were issued in settlement of the
sale of 13% of the issued and outstanding units of LFW to the Parent Company.
The sale price of $78,633,000 was determined to be Neweol's carrying value, and
no gain or loss was realized. The notes receivable from the Parent Company have
no designated repayment terms. The notes receivable from the Parent Company are
denominated in Canadian dollars and are non-interest bearing.
137
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 10. CAPITAL STOCK
ISSUED AND OUTSTANDING
<TABLE>
<CAPTION>
NUMBER OF SHARES DOLLARS
--------------------- ----------------------
1996 1995 1996 1995
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Common shares
Balance beginning of year....................................... 80,401 301 $ 214,539 $ 88,177
Issued during the year.......................................... -- 100,100 -- 181,536
Repurchased by Company for cancellation in exchange for
redeemable preferred shares................................... -- (20,000) -- (55,174)
--------- ---------- ---------- ----------
80,401 80,401 214,539 214,539
--------- ----------
--------- ----------
Contributed Surplus
Contributed by Parent Company................................... 66,973 --
---------- ----------
$ 281,512 $ 214,539
---------- ----------
---------- ----------
</TABLE>
NOTE 11. RELATED PARTY TRANSACTIONS
The Company receives administrative support from the Parent Company at no
charge to the Company. Direct costs of the Company's operations are recorded as
expenses.
LFW is managed by an affiliated entity. General and administrative expenses
are primarily a result of amounts paid under this management agreement.
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, receivables, receivables from affiliates,
revolving credit loans receivable, accounts payable and accrued liabilities
approximate fair value due to the short-term maturities of these instruments.
Financial instruments with a carrying value different from their fair value
include:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
---------------------- ----------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Notes receivable from affiliate................................ $ 590,040 $ 613,872 $ 405,650 $ 427,186
Not practicable to estimate fair value
Investment in affiliate...................................... 32,595 -- 6,367 --
Notes receivable from Parent Company......................... 78,633 -- -- --
Financial liabilities:
Not practicable to estimate fair value
Notes payable to affiliate................................... $ 9,926 $ -- $ 4,275 $ --
Due to Parent Company........................................ 338,484 -- 168,982 --
Redeemable preferred shares.................................. 56,326 -- 56,598 --
Due to affiliate............................................. 309 -- -- --
</TABLE>
138
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 13. PURCHASE OF RECEIVABLES
On August 6, and December 27, 1996, the Company entered into agreements to
purchase cemetery installment contract receivables from subsidiaries of LGII for
approximately $57,000,000. The Company has recorded the purchase at the gross
amount of the cemetery installment contract receivables net of the allowance for
doubtful accounts, unearned finance income and purchase discount. At December
31, 1996, the total unearned finance income is approximately $12,185,000 and the
total purchase discount is approximately $4,891,000. At December 31, 1996, the
allowance for doubtful accounts is approximately $4,500,000. The purchase
discount and unearned finance income will be recognized as interest income in
earnings over the collection period of the contract receivables. At December 31,
1996, the Company has recognized interest income of $955,000.
On August 1, 1996, the Company entered into a management and receivables
servicing agreement with an affiliate, Loewen Financial Corporation ("LFC"),
whereby LFC performs specified collection services on the receivables for a
management and servicing fee equal to 109.8% of their cost of servicing the
receivables.
Proceeds received by LFC from the collection of the receivables are advanced
directly to LGII as loans from the Company pursuant to a Revolving Credit
Facility entered into on August 1, 1996. Revolving credit loans may be made up
to a maximum of $250,000,000 and bear interest at the Libor rate plus 300 basis
points, as computed by the Company at December 31, 1996. Amounts outstanding
under the Revolving Credit Facility are due on demand or December 31, 1999. As
at December 31, 1996, the Company has advanced $3,679,000 to LGII pursuant to
the Facility.
NOTE 14. NON-CASH TRANSACTIONS
The Company entered into the following non-cash transactions:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Investments in Arbor shares, funded by an increase in due to Parent Company................. $ -- $ 7,338
Increase in investment in affiliate funded by contribution from Parent Company.............. 26,181 --
Sale of 13% interest in units of LFW in exchange for notes receivable from Parent Company... 78,633 --
Dividends declared and settled by issuance of notes payable to affiliate.................... 5,672 --
Reduction in receivables advanced to affiliate.............................................. 3,679 --
Reduction of amount due to Parent Company upon issuance of 100,000 Common shares............ -- 154,334
Issuance of 77,200,000 Preferred shares and cancellation
of 20,000 Common shares................................................................... -- 55,174
Acquisition of 15% of Parent Company's interest in LGII's Common shares in exchange for
issuance of 100 Common shares............................................................. -- 27,202
Application of notes receivable and other transactions reducing the balance due to Parent
Company................................................................................... -- 23,619
</TABLE>
139
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT NUMBER OF SHARES
NOTE 15. SUBSEQUENT EVENTS
SALE OF ARBOR
Effective March 27, 1997 the Company transferred its investment in Arbor to
TLGI Management Corp., an affiliated company, at carrying value.
140
<PAGE>
LOEWEN FINANCE (WYOMING) LIMITED LIABILITY COMPANY
FINANCIAL STATEMENTS
141
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Members
Loewen Finance (Wyoming) Limited Liability Company
We have audited the accompanying balance sheets of Loewen Finance (Wyoming)
Limited Liability Company as at December 31, 1996 and 1995 and the related
statements of income and retained earnings and cash flows for each of the years
in the two year period ended December 31, 1996 and for the eight month period
ended December 31, 1994. These financial statements are the responsibility of
the company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Loewen Finance (Wyoming)
Limited Liability Company as at December 31, 1996 and 1995, and the results of
its operations and its cash flows for each of the years in the two year period
ended December 31, 1996 and for the eight month period ended December 31, 1994
in conformity with generally accepted accounting principles in the United
States.
/s/ PEAT MARWICK
Chartered Accountants
Bridgetown, Barbados
March 3, 1997
142
<PAGE>
LOEWEN FINANCE (WYOMING) LIMITED LIABILITY COMPANY
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
ASSETS
Cash........................................................................... $ 483 $ 106
Due from related companies..................................................... 878,480 331,286
Notes receivable from affiliate................................................ 56,060,122 24,831,000
-------------- --------------
56,939,085 25,162,392
Notes receivable from affiliate................................................ 590,040,660 405,650,000
-------------- --------------
Total Assets................................................................. $ 646,979,745 $ 430,812,392
-------------- --------------
-------------- --------------
LIABILITIES AND MEMBERS' EQUITY
Due to affiliated companies.................................................... $ 231,151 $ 148,685
Taxes payable.................................................................. 3,740,154 5,286,973
-------------- --------------
Total liabilities............................................................ 3,971,305 5,435,658
MEMBERS' EQUITY
Capital
100 units authorized, issued and outstanding................................... 100 100
Additional contributions....................................................... 589,739,660 397,150,000
-------------- --------------
Total capital................................................................ 589,739,760 397,150,100
Retained earnings.............................................................. 53,268,680 28,226,634
-------------- --------------
Total members' equity........................................................ 643,008,440 425,376,734
-------------- --------------
Total Liabilities and Members' Equity........................................ $ 646,979,745 $ 430,812,392
-------------- --------------
-------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
143
<PAGE>
LOEWEN FINANCE (WYOMING) LIMITED LIABILITY COMPANY
STATEMENTS OF INCOME AND RETAINED EARNINGS
YEAR ENDED DECEMBER 31, 1996, 1995 AND FOR THE EIGHT MONTH PERIOD ENDED DECEMBER
31, 1994
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Revenue
Interest on affiliated companies loans receivable................. $ 59,170,640 $ 33,128,490 $ 7,593,970
Less: foreign withholding tax..................................... (5,985,245) (5,040,470) (1,160,880)
------------- ------------- -------------
Interest (net of foreign withholding tax)......................... 53,185,395 28,088,020 6,433,090
------------- ------------- -------------
Other revenue
Financial services.............................................. 89,244 141,940 68,600
Other services.................................................. 1,811,040 1,059,506 286,942
------------- ------------- -------------
1,900,284 1,201,446 355,542
------------- ------------- -------------
Total revenue................................................... 55,085,679 29,289,466 6,788,632
Expenses
Administrative and general........................................ 1,218,474 726,801 210,316
------------- ------------- -------------
Income before taxation.............................................. 53,867,205 28,562,665 6,578,316
Taxation............................................................ 598,525 336,031 77,392
------------- ------------- -------------
Net income for the year/period...................................... 53,268,680 28,226,634 6,500,924
Retained earnings, beginning of year/period......................... 28,226,634 6,500,924 --
------------- ------------- -------------
81,495,314 34,727,558 6,500,924
Dividends paid...................................................... 28,226,634 6,500,924 --
------------- ------------- -------------
Retained earnings, end of year/period............................... $ 53,268,680 $ 28,226,634 $ 6,500,924
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
144
<PAGE>
LOEWEN FINANCE (WYOMING) LIMITED LIABILITY COMPANY
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996, 1995 AND FOR THE EIGHT MONTH PERIOD ENDED DECEMBER
31, 1994
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
CASH PROVIDED BY (APPLIED TO)
Operations
Net income for the year/period............................... $ 53,268,680 $ 28,226,634 $ 6,500,924
Add (deduct) changes in non-cash working capital balances
relating to operations:
Accrued interest and prepaid expenses...................... -- 34,019 (34,019)
Due from related companies................................. (547,194) (133,173) (198,113)
Due to related companies................................... 82,466 33,298 115,387
Taxes payable.............................................. (1,546,819) 4,048,701 1,238,272
--------------- --------------- ---------------
51,257,133 32,209,479 7,622,451
--------------- --------------- ---------------
Investing
Notes advanced to affiliate.................................. (251,170,782) (262,999,000) (213,595,000)
Note repayments from affiliate............................... 35,551,000 46,113,000 --
--------------- --------------- ---------------
(215,619,782) (216,886,000) (213,595,000)
--------------- --------------- ---------------
Financing
Capital contributions........................................ 192,589,660 191,150,000 206,000,100
Dividends paid............................................... (28,226,634) (6,500,924) --
--------------- --------------- ---------------
164,363,026 184,649,076 206,000,100
--------------- --------------- ---------------
Increase (decrease) in cash during the year/period........... 377 (27,445) 27,551
Cash, beginning of year/period............................... 106 27,551 --
--------------- --------------- ---------------
Cash, end of year/period..................................... $ 483 $ 106 $ 27,551
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
145
<PAGE>
LOEWEN FINANCE (WYOMING) LIMITED LIABILITY COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(EXPRESSED IN U.S. DOLLARS)
NOTE 1. GENERAL
The company was formed under the Wyoming Limited Liability Company Act on
March 30, 1994.
It was registered in Barbados as an external company under the provisions of
the Companies Act and conducts its principal activities as a licensee under the
International Business Companies Act. It commenced operations on August 4, 1994,
after having obtained its IBC license on April 27, 1994.
The principal activity of the company is to act as a finance company to
affiliates of The Loewen Group Inc. Substantially all transactions are with
related parties.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF ACCOUNTING
The company follows accrual basis accounting and in all material respects,
financial statements have been prepared in accordance with generally accepted
accounting principles in the United States.
(B) CORPORATION TAX
The company is subject to taxation in accordance with Section 10 of the
Barbados International Business Companies Act, at rates between 1.0% to 2.5%.
For U.S. tax purposes the company is viewed as a fiscally transparent entity
whereby its income is deemed to be that of its partners.
NOTE 3. NOTES RECEIVABLE FROM AFFILIATE
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Current
Revolving credit loans......................................................... $ 56,060,122 $ 24,831,000
-------------- --------------
-------------- --------------
Long-term
Term loans due in 1999......................................................... $ 206,000,000 $ 206,000,000
Term loans due in 2000......................................................... 199,650,000 199,650,000
Term loans due in 2001......................................................... 184,390,660 --
-------------- --------------
$ 590,040,660 $ 405,650,000
-------------- --------------
-------------- --------------
</TABLE>
Effective August 1, 1996, interest is earned at a fixed rate of 11.5% per
annum on the term loans (1995 -- 9.06% to 10.01% per annum) and the revolving
credit loans (1995 -- U.S. prime plus 2%), respectively.
The notes receivable from affiliate are secured under a collateral trust
arrangement whereby senior lenders to Loewen Group International, Inc. ("LGII")
and The Loewen Group Inc. ("TLGI") would share certain collateral on a PARI
PASSU basis. This collateral is held by a trustee for the equal and ratable
benefit of the various holders of senior indebtedness.
146
<PAGE>
LOEWEN FINANCE (WYOMING) LIMITED LIABILITY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
(EXPRESSED IN U.S. DOLLARS)
NOTE 3. NOTES RECEIVABLE FROM AFFILIATE (CONTINUED)
The collateral includes (i) a pledge for the benefit of the senior lenders
of the shares held by TLGI of substantially all its subsidiaries (including the
Company) and (ii) all of the financial assets of LGII (LGII does not have
material assets other than financial assets).
NOTE 4. CAPITAL
The capital of the company is divided into units with no par value. After
the initial capital contributions, members may by agreement make further
contributions in proportion to the units they hold. Changes in capital were as
follows:
<TABLE>
<CAPTION>
1996 1995
----------------------------- -----------------------------
UNITS: NUMBER AMOUNTS NUMBER AMOUNTS
- -------------------------------------------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Outstanding, beginning and end of year............ 100 $ 100 100 $ 100
Contributions:
Balance, beginning of year........................ 397,150,000 206,000,000
Additional during year............................ 192,589,660 191,150,000
-------------- --------------
Balance, end of year.............................. 589,739,660 397,150,000
-------------- --------------
Total Capital................................. $ 589,739,760 $ 397,150,100
-------------- --------------
-------------- --------------
</TABLE>
The company's units are held by:
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Neweol Investments Ltd.............................................................................. 85 98
The Loewen Group Inc................................................................................ 15 2
--- ---
Total........................................................................................... 100 100
--- ---
--- ---
</TABLE>
NOTE 5. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, due from related companies and due to
affiliated companies and taxes payable approximate fair value due to the
short-term maturities of these instruments. Financial instruments with a
carrying value different from their fair value include:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------------ ------------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Financial assets:
Loans receivable from
affiliated companies....................... $ 646,100,782 $ 669,933,000 $ 430,481,000 $ 452,017,000
</TABLE>
Fair value estimates are made at a specific point in time, based on market
conditions and information about the financial instrument. These estimates are
subjective in nature and involve uncertainties and
147
<PAGE>
LOEWEN FINANCE (WYOMING) LIMITED LIABILITY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
(EXPRESSED IN U.S. DOLLARS)
NOTE 5. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS (CONTINUED)
matters of significant judgement and therefore, changes in assumptions could
significantly affect the estimates.
NOTE 6. TAXES PAYABLE
Taxes payable comprise the following:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Withholding tax on foreign source interest income..................................... $ 3,384,644 $ 5,040,470
Corporation tax....................................................................... 355,510 246,503
------------ ------------
$ 3,740,154 $ 5,286,973
------------ ------------
------------ ------------
</TABLE>
NOTE 7. COMPARATIVE FIGURES
Certain of the comparative figures have been reclassified to conform with
the presentation adopted in the current year.
148
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
149
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
In accordance with General Instruction G(3), the information required by
Item 10 (with the exception of certain information pertaining to executive
officers, which is included in Part I hereof) has been omitted and is
incorporated by reference from the Registrant's definitive proxy statement and
information circular relating to its 1997 annual general meeting of shareholders
(the "Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION.
In accordance with General Instruction G(3), the information required by
Item 11 has been omitted and is incorporated by reference from the Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
In accordance with General Instruction G(3), the information required by
Item 12 has been omitted and is incorporated by reference from the Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In accordance with General Instruction G(3), the information required by
Item 13 has been omitted and is incorporated by reference from the Proxy
Statement.
150
<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
THE LOEWEN GROUP INC.
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Operations for the Years Ended December 31,
1996, 1995 and 1994
Consolidated Statements of Retained Earnings for the Years Ended December
31, 1996, 1995 and 1994
Consolidated Statement of Changes in Financial Position for the Years
Ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Supplementary Data: Quarterly Financial Data (unaudited)
LOEWEN GROUP INTERNATIONAL, INC.
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Operations and Retained Earnings (Deficit) for
the Years Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Changes in Financial Position for the Years
Ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
NEWEOL INVESTMENTS LTD. (SEE NOTE 1)
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Operations and Retained Earnings for the Years
Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
LOEWEN FINANCE (WYOMING) LIMITED LIABILITY COMPANY
Report of Independent Accountants
Balance Sheets as of December 31, 1996 and 1995
Statements of Income and Retained Earnings for the Eight Month Period
Ended December 31, 1994 and the Years Ended December 31, 1996 and 1995
151
<PAGE>
Statements of Cash Flows for the Eight Month Period Ended December 31,
1994 and the Years Ended December 31, 1996 and 1995
Notes to Financial Statements
(2) FINANCIAL STATEMENT SCHEDULE
Schedule II--Valuation and Qualifying Accounts
(3) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------
<C> <S>
3 CHARTER DOCUMENTS
3.1 Certificate of Incorporation of Loewen, issued by the British Columbia Registrar of Companies (the
"Registrar") on October 30, 1985(1)
3.2 Altered Memorandum of Loewen, filed with the Registrar on June 21, 1996(2)
3.3 Articles of Loewen, restated, filed with the Registrar on March 1, 1988, as amended on March 30,
1988, April 21, 1988, May 19, 1989, May 28, 1992, May 20, 1993, June 29, 1994, December 21, 1995
and February 7, 1996(3)
4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY-HOLDERS, INCLUDING INDENTURES
4.1.1 Note Agreement by Loewen and Loewen Group International, Inc. ("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 Loewen ("Series C Notes"), dated
for reference October 1, 1991(1)
4.1.2 Second Amendment, dated for reference May 15, 1996, to Note Agreements, dated for reference
October 1, 1991, among Loewen, LGII and institutions named therein, re Series A Notes, Series B
Notes and Series C Notes(4)
4.2 Guaranty Agreement by Loewen re Series A Notes and Series B Notes, dated for reference October 1,
1991(1)
4.3 Guaranty Agreement by LGII re Series C Notes, dated for reference October 1, 1991(1)
4.4.1 Note Agreement, dated for reference September 1, 1993, by and between Loewen 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(1)
4.4.2 Second Amendment, dated for reference May 15, 1996, to Note Agreements, dated for reference
September 1, 1993, among Loewen, LGII and institutions named therein, re Series D Notes(4)
4.5 Guaranty Agreement by LGII re Series D Notes, dated for reference April 1, 1993(1)
4.6.1 Note Agreement by LGII and Loewen re 6.49% Senior Guaranteed Notes, Series E, due February 25,
2004, issued by LGII ("Series E Notes"), dated for reference February 1, 1994(1)
4.6.2 Second Amendment, dated for reference May 15, 1996, to Note Agreements, dated for reference
February 1, 1994, among Loewen, LGII and Teachers Insurance and Annuity Association of America,
re Series E Notes(4)
</TABLE>
152
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------
<C> <S>
4.7 Guaranty Agreement by Loewen re Series E Notes, dated for reference February 1, 1994(1)
4.8 Amended and Restated 1994 MEIP Credit Agreement, dated as of June 14, 1994, by and between Loewen
Management Investment Corporation, in its capacity as agent for LGII ("LMIC"), Loewen and the
banks listed therein (the "MEIP Banks") and Wachovia Bank of Georgia, N.A., as agent for the
MEIP Banks ("MEIP Agent")(1)
4.9 Security Agreement, dated as of June 14, 1994, by and between LMIC and the MEIP Agent(1)
4.10 Guaranty dated as of June 14, 1994, by LGII in favor of the MEIP Agent for the ratable benefit of
the MEIP Banks(1)
4.11 Guaranty dated as of June 14, 1994, by Loewen in favor of the MEIP Agent for the ratable benefit
of the MEIP Banks(1)
4.12 Exchange Acknowledgment by Loewen, with respect to the 1994 Exchangeable Floating Rate Debentures
due July 1, 2001 issued by LGII, dated June 15, 1994(1)
4.13 Indenture, dated as of August 15, 1994, by and between LGII, as issuer, Loewen, 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 Loewen(5)
4.14 MIPS Guarantee Agreement, dated August 15, 1994(5)
4.15 Zero Coupon Loan Agreement, dated as of November 1, 1994, by and between WLSP Investment Partners
I Neweol Finance B.V., Electrolux Holdings B.V., Man Production Rotterdam B.V., Adinvest A.G.,
and Wachovia Bank of Georgia, N.A.(1)
4.16 Indenture, dated as of March 20, 1996, by and between LGII, Loewen, as guarantor of the
obligations of LGII under the Indenture, and Fleet National Bank as Trustee, with respect to
Senior Guaranteed Notes of LGII(3)
4.17 Form of Global Series 1 and 2 Outstanding Notes of LGII(3)
4.18 Form of Physical Series 1 and 2 Outstanding Notes of LGII(3)
4.19 Form of Global Series 1 and 2 Exchange Notes of LGII(4)
4.20 Form of Physical Series 1 and 2 Exchange Notes of LGII(4)
4.21 Form of Senior Guarantee of LGII's Series 1 and 2 Notes(4)
4.22 Credit Agreement, dated as of May 15, 1996, among LGII, as borrower, Loewen, as a guarantor, the
lenders named therein, as the lenders, Goldman, Sachs & Co., as the documentation agent and Bank
of Montreal, as issuer, swingline lender and agent(4)
4.23 Collateral Trust Agreement, dated as of May 15, 1996, among Bankers Trust Company, as trustee,
Loewen, LGII and various other pledgers(4)
4.24.1 Amended and Restated Operating Credit Agreement, dated for reference July 15, 1996, between Loewen
and Royal Bank of Canada(6)
4.24.2 Third Amendment to Operating Credit Agreement, dated for reference July 15, 1996, among Loewen,
LGII and Royal Bank of Canada(6)
</TABLE>
153
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------
<C> <S>
4.25 Indenture, dated as of October 1, 1996, by and between LGII, Loewen, as guarantor of the
obligations of LGII under the Indenture, and Fleet National Bank, as Trustee, with respect to
the Series 3 and 4 Notes(6)
4.26 Form of Global Series 3 and 4 Outstanding Notes of LGII(6)
4.27 Form of Physical Series 3 and 4 Outstanding Notes of LGII(6)
4.28 Form of Global Series 3 and 4 Exchange Notes of LGII(7)
4.29 Form of Physical Series 3 and 4 Exchange Notes of LGII(7)
4.30 Form of Senior Guarantee of LGII's Series 3 and 4 Notes(6)
4.31 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(1)
4.32 Loewen 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 Loewen. None of such instruments not included
as exhibits herein collectively represents long-term debt in excess of 10% of the consolidated
total assets of Loewen.
10 MATERIAL CONTRACTS
10.1 Stock Purchase Agreement, dated as of March 16, 1995, by and between Osiris Holding Corporation
and LGII(8)
10.2 Receipt Agreement, dated as of January 3, 1996, for the Cumulative Redeemable Convertible First
Preferred Shares Series C of Loewen ("Series C Shares")(3)
10.3 Undertaking by Raymond L. Loewen and Anne Loewen, dated as of January 3, 1996, to vote in favor of
the motion to subdivide the Series C Shares(3)
10.4 Settlement Agreement, dated as of February 1, 1996, by and between Loewen, LGII and affiliated
entities and J.J. O'Keefe, Sr., Gulf National Life Insurance Company and affiliated entities(3)
10.5 Shareholders' Agreement, dated as of February 9, 1996, by and between Loewen, LGII, J.J. O'Keefe,
Sr., Gulf National Life Insurance Company and affiliated entities, and certain individuals and
law firms named therein(3)
10.6 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, Loewen and LGII(3)
10.7 Registration Rights Agreement, dated as of March 20, 1996, by and between LGII, Loewen and the
Initial Purchasers named therein(3)
10.8 Asset Purchase Agreement, dated as of March 26, 1996, by and between LLI, Inc., and LLPC, Inc. and
S.I. Acquisition Associates, L.P.(3)
10.9 Asset Purchase Agreement, dated as of March 26, 1996, by and between Loewen Louisiana Holdings,
Inc. and S.I. Acquisition Associates, L.P.(3)
*10.10 Form of Indemnification Agreement with Outside Directors(9)
*10.11 Form of Indemnification Agreement with Officers(9)
*10.12 Form of The Loewen Group Inc. Severance Agreement(9)
</TABLE>
154
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------
<C> <S>
*10.13 The Loewen Group Inc. Severance Pay Plan(9)
*10.14 Employment Agreement, dated August 19, 1988, by and between Loewen and Tim Hogenkamp(1)
*10.15 Employment Agreement, dated March 6, 1990, by and between Loewen and Peter S. Hyndman(1)
*10.16 Employment Agreement, dated March 21, 1990, by and between Loewen and David FitzSimmons(1)
*10.17 Employment Agreement, and Covenant Not to Compete, dated November 14, 1990, by and between LGII
and Albert S. Lineberry, Sr.(1)
*10.18 Employment Agreement, dated December 18, 1990, by and between Loewen and Peter W. Roberts(1)
*10.19 Employment Agreement, dated April 12, 1991, by and between Loewen and Dwight Hawes(1)
*10.20 Employment Agreement, dated October 9, 1991, by and between Loewen and Timothy A. Birch(1)
*10.21 Consulting Agreement, dated July 18, 1994, by and between Loewen and Charles B. Loewen, LGII, and
Corporate Services International Inc.(1)
*10.22 Employment Letter, dated March 10, 1995, by Raymond L. Loewen to Paul Wagler(5)
*10.23 Employment Agreement, dated March 17, 1995, by and between Loewen, LGII and Lawrence Miller(1)
*10.24 Employment Agreement, dated March 17, 1995, by and between Loewen and William R. Shane(1)
*10.25 1994 Management Equity Investment Plan (the "MEIP")(1)
*10.26 Form of Executive Agreement executed by participants in the MEIP(5)
*10.27 1994 Outside Director Compensation Plan as restated and amended as at January 9, 1997
*10.28 Severance Agreement, dated June 15, 1995, by and between Loewen and Robert Garnett(3)
*10.29 Employee Stock Option Plan (United States), as restated and amended as at April 2, 1996
*10.30 Employee Stock Option Plan (Canada), as restated and amended as at April 2, 1996
*10.31 Employment Agreement, dated April 30, 1996, by and between Loewen and Grant Ballantyne(5)
*10.32 Employment Agreement, dated May 1, 1996, amended July 18, 1996 by and between Loewen and Douglas
J. McKinnon(5)
*10.33 Resignation and Release Agreement, effective June 10, 1996, by and between Loewen, LGII and Robert
O. Wienke(5)
11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
</TABLE>
155
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------
<C> <S>
12 STATEMENT RE COMPUTATION OF EARNINGS TO FIXED CHARGES RATIO
12.1 Statement re Computation of Earnings to Fix Charges Ratio (Canadian GAAP)
12.2 Statement re Computation of Earnings to Fix Charges Ratio (U.S. GAAP)
21 SUBSIDIARIES OF LOEWEN
23 CONSENTS OF EXPERTS
23.1 Consent of KPMG
23.2 Consent of Peat Marwick
24 POWERS OF ATTORNEY (included in the signature pages to this report)
27 FINANCIAL DATA SCHEDULE
99 ADDITIONAL EXHIBITS
99.1 Stock Purchase Agreement, dated as of June 14, 1996, by and among Prime Succession, Inc., the
other individuals or entities listed on the signature pages thereof, Loewen and Blackhawk
Acquisition Corp.(10)
99.2 Put/Call Agreement, dated as of August 26, 1996, by and among Blackstone, Blackstone Offshore
Capital Partners II L.P. ("Blackstone Offshore"), Blackstone Family Investment Partnership II
L.P. ("Blackstone Family"), PSI Management Direct L.P. ("PSI"), LGII and Loewen(10)
99.3 Stockholders' Agreement, dated as of August 26, 1996, by and among Prime Succession, Inc. (to be
renamed Prime Succession Holdings, Inc.), Blackstone, Blackstone Offshore, Blackstone Family,
PSI and LGII(10)
99.4 Subscription Agreement, dated as of November 19, 1996, by and among Rose Hills Holdings Corp.,
Blackstone, Blackstone Rose Hills Offshore Capital Partners L.P. ("Blackstone Rose Hills"),
Blackstone Family, Roses Delaware, Inc. ("RDI"), Loewen, LGII and RHI Management Direct, L.P.
("RHI")(11)
99.5 Put/Call Agreement, dated as of November 19, 1996, by and among Blackstone, Blackstone Offshore,
Blackstone Family, Blackstone Rose Hills, LGII, RDI, Loewen and RHI(11)
99.6 Stockholders' Agreement, dated as of November 19, 1996, by and among Rose Hills, Blackstone,
Blackstone Rose Hills, Blackstone Family, RDI, LGII and RHI(11)
</TABLE>
- ------------------------
* Compensatory plan or management contract
(1) Incorporated by reference from Loewen's Annual Report on Form 10-K for the
year ended December 31, 1994, filed on March 31, 1995
(2) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996, filed on August 15, 1996
(3) Incorporated by reference from Loewen's Annual Report on Form 10-K for the
year ended December 31, 1995, filed on March 28, 1996, as amended
(4) Incorporated by reference from the S-4 Registration Statement filed with
the Commission by LGII and Loewen (File Nos. 333-03135 and 333-03135-01) on
May 3, 1996, as amended
156
<PAGE>
(5) Incorporated by reference from the combined Form F-9/F-3 Registration
Statements filed with the Commission by Loewen and LGII, respectively (Nos.
33-81032 and 33-81034), on July 1, 1994, as amended
(6) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996, filed on November 14, 1996
(7) Incorporated by reference from the S-4 Registration Statement filed with
the Commission by LGII and Loewen (File Nos. 333-16319 and 333-16319-01),
filed on November 18, 1996, as amended
(8) Incorporated by reference from Loewen's Periodic Report on Form 8-K/A No. 1
dated April 18, 1995, filed May 5, 1995
(9) Incorporated by reference from Loewen's Solicitation/Recommendation
Statement on Schedule 14D-9 filed on October 10, 1996, as amended
(10) Incorporated by reference from Loewen's Periodic Report on Form 8-K, dated
August 26, 1996, filed October 12, 1996, amended October 30, 1996
(11) Incorporated by reference from Loewen's Periodic Report on Form 8-K, dated
November 19, 1996, filed December 27, 1996
(b) The following reports on Form 8-K were filed by the Company during the last
quarter of fiscal 1996:
<TABLE>
<CAPTION>
FILING DATE ITEM NUMBER DESCRIPTION
- ------------------------- ------------------------ -------------------------------------------------------------
<S> <C> <C>
October 2, 1996 Item 5. Other Events 1) Press release announcing that Florida's Attorney General
(dated September 26, had launched an antitrust investigation of SCI's proposed
1996) acquisition of Loewen.
2) Press release regarding Loewen's nearly $100 million in
acquisitions.
October 2, 1996 Item 5. Other Events Press release announcing that Loewen would vigorously contest
(dated October 1, 1996) a shareholder class action and derivative lawsuit filed
against Loewen's Board of Directors (the "Board").
October 3, 1996 Item 5. Other Events 1) Press release announcing the FTC's request for information
(dated October 1, 1996) in connection with SCI's proposed acquisition of Loewen.
2) Press release announcing Loewen's listing on the New York
Stock Exchange.
3) Press release announcing the Board's intention to review
SCI's exchange offer proposal.
October 12, 1996 Item 5. Other Events Description of the acquisition of Prime Succession Inc. by
(dated August 26, 1996) LGII and Blackstone, including, as exhibits, the Stock
Purchase Agreement, the Put/Call Agreement and the
Stockholders' Agreement.
October 16, 1996 Item 5. Other Events Press release announcing the Board's unanimous rejection of
(dated October 12, 1996) SCI's exchange offer proposal.
</TABLE>
157
<PAGE>
<TABLE>
<CAPTION>
FILING DATE ITEM NUMBER DESCRIPTION
- ------------------------- ------------------------ -------------------------------------------------------------
<S> <C> <C>
October 16, 1996 Item 5. Other Events Press release announcing the Pennsylvania Attorney General's
(dated October 14, 1996) antitrust probe of SCI's proposed acquisition of Loewen.
October 22, 1996 Item 5. Other Events Press release announcing that Loewen prevailed on SCI's New
(dated October 17, 1996) York federal court motion to dismiss, stay or transfer
Loewen's antitrust action against SCI.
October 23, 1996 Item 5. Other Events Press release announcing that Loewen responded to antitrust
(dated October 20, 1996) inquiries of state authorities regarding SCI's proposed
acquisition of Loewen.
October 30, 1996 Item 7. Exhibits Exhibit 99.2 (Put/Call Agreement) of Item 7 refiled in its
(dated August 26, 1996, entirety.
originally filed October
12, 1996)
November 6, 1996 Item 5. Other Events Press release announcing Loewen's receipt of a second FTC
(dated November 1, 1996) information request concerning SCI's proposed acquisition of
Loewen.
November 6, 1996 Item 5. Other Events Press release regarding over $50 million of acquisitions
(dated November 3, 1996) signed by Loewen in conjunction with an industry conference.
November 13, 1996 Item 5. Other Events Press release announcing third quarter financial results.
(dated November 7, 1996)
November 22, 1996 Item 5. Other Events Press release announcing Loewen and Blackstone's $240 million
(dated November 20, 1996) purchase of Rose Hills Memorial Park.
December 4, 1996 Item 5. Other Events Press release regarding the United States District Court for
(dated December 1, 1996) the Southern District of Texas' dismissal of SCI's lawsuit,
and Loewen's intent to pursue its antitrust lawsuit in New
York federal court.
December 9, 1996 Item 5. Other Events Press release announcing a cash dividend.
(dated December 5, 1996)
December 12, 1996 Item 5. Other Events Press release announcing Loewen's acquisition of additional
(dated December 10, 1996) Arbor Memorial shares.
December 13, 1996 Item 5. Other Events Press release announcing the dismissal of a shareholder
(dated December 11, 1996) action against Loewen.
December 19, 1996 Item 5. Other Events Press release regarding Loewen's acquisitions since
(dated December 16, 1996) announcement of SCI's proposed acquisition of Loewen.
</TABLE>
158
<PAGE>
<TABLE>
<CAPTION>
FILING DATE ITEM NUMBER DESCRIPTION
- ------------------------- ------------------------ -------------------------------------------------------------
<S> <C> <C>
December 27, 1996 Item 5. Other Events Description of the acquisition of Rose Hills, including, as
(dated December 19, 1996) exhibits, the Subscription Agreement, the Put/Call Agreement
and the Stockholders' Agreement.
</TABLE>
(d) Financial statements of LGII, Neweol Investments Ltd. and Loewen Finance
(Wyoming) Limited Liability Company are included in this Annual Report on
Form 10-K because the outstanding shares of each of such companies
constitute a "substantial portion" of the collateral (within the meaning of
Securities and Exchange Commission Rule 3-10 under Regulation S-X) that
secures the Series 1 through 4 Notes that were issued by LGII and guaranteed
by Loewen. See Item 8.
159
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF U.S.$)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING CHARGED TO COSTS OTHER END OF
DESCRIPTION OF PERIOD AND EXPENSES ACCOUNTS(1) DEDUCTIONS(2) PERIOD
- ------------------------------------------ ----------- ----------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Current--Allowance for contract cancellations and doubtful accounts:
Year ended December 31, 1996.............. 19,666 16,427 9,468 (17,844) 27,717
Year ended December 31, 1995.............. 12,733 7,952 3,855 (4,874) 19,666
Year ended December 31, 1994.............. 8,523 4,656 1,463 (1,909) 12,733
Due after one year--Allowance for contract cancellations and doubtful accounts:
Year ended December 31, 1996.............. 10,861 18,323 10,564 (19,900) 19,848
Year ended December 31, 1995.............. 5,673 7,139 2,450 (4,401) 10,861
Year ended December 31, 1994.............. 2,990 3,602 933 (1,852) 5,673
</TABLE>
- ------------------------
(1) Primarily the opening balance for acquired companies.
(2) Uncollected receivables written off, net of recoveries.
160
<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.
Dated: March 27, 1997 THE LOEWEN GROUP INC.
By: /s/ RAYMOND L. LOEWEN
-----------------------------------------
Raymond L. Loewen
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Raymond L. Loewen,
Timothy R. Hogenkamp and Paul Wagler, and each of them severally, acting alone
and without the other, his true and lawful attorney-in-fact with authority to
execute in the name of each such person, and to file with the Securities and
Exchange Commission, together with any exhibits thereto and other documents
therewith, any and all amendments to this Annual Report on Form 10-K necessary
or advisable to enable the registrant to comply with the Securities Exchange Act
of 1934, as amended, and any rules, regulations and requirements of the
Securities and Exchange Commission in respect thereof, which amendments may make
such other changes in the Annual Report on Form 10-K as the aforesaid
attorney-in-fact deems appropriate.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<TABLE>
<S> <C>
March 27, 1997 /s/ RAYMOND L. LOEWEN
- --------------------------- ------------------------------------------------------------
Date Raymond L. Loewen
Chairman of the Board, Chief Executive Officer
and Director
(Principal Executive Officer)
March 27, 1997 /s/ TIMOTHY R. HOGENKAMP
- --------------------------- ------------------------------------------------------------
Date Timothy R. Hogenkamp
President, Chief Operating Officer and Director
(Principal Executive Officer)
March 27, 1997 /s/ PAUL WAGLER
- --------------------------- ------------------------------------------------------------
Date Paul Wagler
Senior Vice President, Finance, Chief Financial Officer
and Director
(Principal Financial Officer)
</TABLE>
161
<PAGE>
<TABLE>
<S> <C>
March 27, 1997 /s/ WILLIAM G. BALLANTYNE
- --------------------------- ------------------------------------------------------------
Date William G. Ballantyne
Senior Vice President, Financial Control and Administration
(Principal Accounting Officer)
March 27, 1997 /s/ REVEREND KENNETH S. BAGNELL
- --------------------------- ------------------------------------------------------------
Date Reverend Kenneth S. Bagnell
Director
March 27, 1997 /s/ THE HONORABLE J. CARTER BEESE, JR.
- --------------------------- ------------------------------------------------------------
Date The Honorable J. Carter Beese, Jr.
Director
- --------------------------- ------------------------------------------------------------
Date Dr. Earl A. Grollman
Director
March 27, 1997 /s/ PETER S. HYNDMAN
- --------------------------- ------------------------------------------------------------
Date Peter S. Hyndman
Vice-President, Law and Corporate Secretary and Director
March 27, 1997 /s/ ALBERT S. LINEBERRY, SR.
- --------------------------- ------------------------------------------------------------
Date Albert S. Lineberry, Sr.
Director
March 27, 1997 /s/ CHARLES B. LOEWEN
- --------------------------- ------------------------------------------------------------
Date Charles B. Loewen
Director
March 27, 1997 /s/ ROBERT B. LUNDGREN
- --------------------------- ------------------------------------------------------------
Date Robert B. Lundgren
Director
</TABLE>
162
<PAGE>
<TABLE>
<S> <C>
March 27, 1997 /s/ JAMES D. MCLENNAN
- --------------------------- ------------------------------------------------------------
Date James D. McLennan
Director
March 27, 1997 /s/ LAWRENCE MILLER
- --------------------------- ------------------------------------------------------------
Date Lawrence Miller
Director
- --------------------------- ------------------------------------------------------------
Date Ernest G. Penner
Director
March 27, 1997 /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
</TABLE>
163
<PAGE>
THE LOEWEN GROUP INC.
1994 OUTSIDE DIRECTOR COMPENSATION PLAN
(AMENDED AND RESTATED AS AT JANUARY 9, 1997)
SECTION 1. PURPOSE
The purpose of the 1994 Outside Director Compensation Plan (the "Plan") is to
promote the interests of The Loewen Group Inc. ("TLGI") by attracting and
retaining qualified individuals who are neither employees nor officers of TLGI
or a Subsidiary (as defined below) to serve as directors of TLGI or a
Subsidiary. The Plan is intended to further align the interests of outside
directors with the shareholders of TLGI, thereby promoting long-term growth and
performance of TLGI.
SECTION 2. DEFINITIONS
"ANNUAL FEES" means (i) the annual retainer, (ii) the fees for serving on a
Committee, (iii) the fees for serving as Chairman of a Committee and (iv) any
other fees for serving as a director of TLGI with respect to an Annual Service
Period (other than Meeting Fees), to be paid by TLGI to a TLGI Participant
during or in respect of any Annual Service Period, at the rates determined by
the Board of Directors in advance of such period.
"ANNUAL FEES ELECTION" means an irrevocable election made in accordance with
Section 5(a).
"ANNUAL SERVICE PERIOD" means an annual period determined by the Board of
Directors, which annual period shall be January 1 through December 31 or such
other annual period as may be designated from time to time by the Board of
Directors.
"APPLICABLE STOCK EXCHANGE" means, with respect to Common Shares issued or
Options granted (i) to a Participant who is a resident of Canada, the TSE; and
(ii) to a Participant who is a resident of any country other than Canada, the
New York Stock Exchange; provided, however, that the Board of Directors may,
subject to any required stock exchange approval, from time to time, designate
another Stock Exchange as the Applicable Stock Exchange for purposes of clause
(i) or clause (ii).
"BOARD OF DIRECTORS" means the Board of Directors of TLGI.
"BUSINESS DAY" means any day on which the principal executive offices of TLGI in
Burnaby, British Columbia, are open for business and all of the Stock Exchanges
are open for trading.
"COMMITTEE" means a committee of the Board of Directors.
"COMMON SHARES" means the Common shares without par value of TLGI.
<PAGE>
"DETERMINATION DATE" means (i) with respect to Common Shares issued pursuant to
Section 5(a), the first Business Day of the Annual Service Period to which the
Annual Fee Election relates, (ii) with respect to Common Shares granted pursuant
to Section 5(b), the first Business Day of the Quarterly Service Period
immediately following the Quarterly Service Period to which the Meeting Fees
Election relates, (iii) with respect to Options granted pursuant to Section 6,
the Grant Date, and (iv) with respect to Options granted pursuant to Section 7,
the first Business Day of the first full calendar month that a Participant first
serves as a director.
"GRANT DATE" means the date that an Option is granted; provided, however, that
if the date the Option is granted is not a Business Day, the Grant Date shall be
deemed to be the Business Day immediately following such date of grant.
"MEETING FEES" means the aggregate fee compensation actually earned during a
Quarterly Service Period by a TLGI Participant for attending (in person, by
telephone, or by videoconference) Board of Director and Committee meetings.
"MEETING FEES ELECTION" means an irrevocable election made in accordance with
Section 5(b).
"OPTION" means an option to acquire Common Shares granted pursuant to Section 6
or Section 7.
"PARTICIPANT" means a TLGI Participant or a Subsidiary Participant.
"PLAN" means this 1994 Outside Director Compensation Plan, as amended and
restated.
"QUARTERLY SERVICE PERIOD" means each of the quarters ended March 31, June 30,
September 30 and December 31, or such other quarterly periods as may be
designated by the Board of Directors from time to time.
"SECURITIES LAWS" means the securities laws of the United States, Canada, the
states and territories of the United States, the provinces and territories of
Canada, the securities laws of the jurisdiction of residence of any Subsidiary
Participant, and applicable laws, rules and regulations promulgated thereunder.
"SHARE PRICE" means (i) with respect to Common Shares, the Weighted Average
Trading Price or (ii) with respect to Options, the greater of (A) the weighted
average of the trading prices on the Determination Date of the Common Shares on
the Applicable Stock Exchange and (B) the Weighted Average Trading Price.
"SHARES" means the Common Shares and any security convertible into or
exchangeable for Common Shares.
"STOCK EXCHANGES" means the New York Stock Exchange (or, if the Common Shares
are not traded on the New York Stock Exchange, any United States national
securities exchange or
-2-
<PAGE>
quotation system on which the Common Shares are traded) and any securities
exchange outside of the United States on which the Common Shares are traded.
"SUBSIDIARY" means a direct or indirect subsidiary of TLGI.
"SUBSIDIARY PARTICIPANT" means an individual duly elected or appointed as a
director of a Subsidiary who is (i) not an officer or employee of TLGI or any
Subsidiary or (ii) not a resident of the United States or Canada.
"TLGI" means The Loewen Group Inc., a body corporate under the laws of British
Columbia, Canada.
"TLGI PARTICIPANT" means an individual duly elected or appointed as a director
of TLGI who is not also an officer or employee of TLGI or any Subsidiary.
Absent action by the Board of Directors to the contrary, an honorary director or
a director emeritus shall be deemed to be TLGI Participant.
"TSE" means The Toronto Stock Exchange.
"WEIGHTED AVERAGE TRADING PRICE" means the weighted average trading price of the
Common Shares on the Applicable Stock Exchange for the five trading days on
which such shares are traded immediately preceding the Determination Date.
"1934 ACT" means the Securities Exchange Act of 1934, as amended.
SECTION 3. ADMINISTRATION
The Plan shall be administered by the Board of Directors.
SECTION 4. COMMON SHARES SUBJECT TO THE PLAN
The total number of Common Shares that may be issued under the Plan shall not
exceed 250,000. The number of Common Shares reserved for issuance to any one
person pursuant to options (whether granted under this Plan or otherwise) shall
not exceed 5% of the total issued and outstanding Common Shares on a non-diluted
basis. If any Options granted under this Plan are surrendered before exercise
or lapse without exercise, in whole or in part, then the Common Shares reserved
therefor shall continue to be available under the Plan.
SECTION 5. ELECTIONS
(a) ANNUAL FEES ELECTION. Not later than ten Business Days prior to the
first day of an Annual Service Period, each TLGI Participant may, by filing a
written election with TLGI, direct TLGI to pay to such TLGI Participant, in the
form of Common Shares, some or all of the Annual
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Fees payable to such TLGI Participant for the related Annual Service Period (the
"Annual Fees Election"). An Annual Fees Election filed with TLGI shall be
effective for the entire Annual Service Period to which the Annual Fees Election
relates. The number of Common Shares to be issued pursuant to Section 5(a)
shall be equal to the Annual Fees or such portion thereof to which the Annual
Fee Election relates, divided by the Share Price as at the Determination Date.
Such Common Shares shall be issued as soon as is reasonably possible after last
day of the Annual Service Period to which the Annual Fees Election relates.
Cash shall be paid in lieu of fractional shares. If actual fees to be paid with
respect to any component of Annual Fees is increased during the Annual Service
Period, TLGI Participant shall receive such increase in cash and not Common
Shares, regardless of whether an Annual Fees Election has been made.
(b) MEETING FEES ELECTION. Each TLGI Participant may deliver a notice to
TLGI directing TLGI to pay to such TLGI Participant, in the form of Common
Shares, some or all of the Meeting Fees for the immediately preceding Quarterly
Service Period (the "Meeting Fees Election"); provided, however, that the first
Quarterly Service Period for which a Meetings Fees Election may be filed is the
quarter ended March 31, 1997. The Meeting Fees Election shall be delivered to
TLGI between the 40th and 60th day following the relevant Quarterly Service
Period. The number of Common Shares to be issued pursuant to Section 5(b) shall
be equal to the Meeting Fees to which the Meeting Fee Election relates, divided
by the Share Price as at the Determination Date. Such Common Shares shall be
issued as soon as is reasonably possible after the due date of the relevant
Meetings Fee Election. Cash shall be paid in lieu of fractional shares.
SECTION 6. ANNUAL GRANT OF OPTIONS
On June 1 of each year or such other date as the Board of Directors shall
determine, each TLGI Participant who is a Board member immediately following the
last meeting of shareholders in which directors have been elected (a
"Shareholders' Meeting") shall receive an annual grant of Options; provided,
however, that with respect to the year commencing June 1, 1996, the annual grant
of Options shall occur on January 9, 1997. In addition, each TLGI Participant
who is a Committee member immediately following the Shareholders' Meeting shall
receive a grant of Options for service as a Committee member. The number of
Options to be granted for Board service and Committee service shall be
determined annually by the Board of Directors by no later than the last physical
Board meeting held prior to June 1 of the relevant year.
SECTION 7. INITIAL AND ONE-TIME GRANTS
A TLGI Participant who is initially appointed (rather than elected at a
Shareholders' Meeting) to the Board of Directors shall, on the first Business
Day of the first full calendar month after the date during which such
appointment occurred, receive an initial grant of Options in an amount to be
determined by the Board of Directors. In addition, the Board of Directors shall
have the discretion to make a one-time grant of up to 2,000 Options to a
Subsidiary Participant, such grant to be made as of the first Business Day of
the first full calendar month after the date on which a Subsidiary Participant
is initially elected or appointed to a Subsidiary board of directors.
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SECTION 8. OPTION AGREEMENT
Each Option granted under the provisions of this Plan shall be evidenced by an
option agreement ("Option Agreement") in such form as may be approved by the
Board of Directors, which agreement shall be duly executed and delivered on
behalf of TLGI and by the Participant to whom such Option is granted. The
Option Agreement shall contain such terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Board of Directors.
SECTION 9. TERMS OF OPTIONS
(a) EXERCISE PRICE. The Option exercise price shall be the Share Price.
(b) TERM. Except as determined pursuant to Section 12 hereof, each Option
shall expire ten years after the Grant Date.
(c) VESTING; EXERCISE. Each Option Agreement shall specify the dates upon
which all or any installment of the Option will be exercisable. An Option may
be exercised when installments vest and at any time and from time to time
thereafter with respect to all or a portion of the Common Shares covered by such
vested installments. In addition, if an Offer (as hereinafter defined) is made,
the Board of Directors may while the Offer remains outstanding:
(i) determine that each Option granted by TLGI to purchase Common
Shares shall, notwithstanding any vesting period or deferral of
the right to exercise otherwise applicable, be immediately
exercisable effective on and after a date declared by the Board
of Directors, or Committee, to be an advanced exercise date
("Advanced Exercise Date"); and
(ii) rescind any declaration of an Advanced Exercise Date but no such
rescission shall affect the validity of the exercise of such
Option if validly exercised on or after a particular Advanced
Exercise Date and before the date of rescission of the
declaration of the particular Advanced Exercise Date.
For the purposes hereof, "Offer" means an offer to acquire Shares made to the
holders of Shares where the Shares which are the subject of the offer to
purchase, together with the offeror's then presently owned Shares, will in the
aggregate exceed twenty percent (20%) of the outstanding Shares and where two or
more persons or companies make offers jointly or in concert or intending to
exercise jointly or in concert any voting rights attaching to the Shares to be
acquired, then the Shares owned by each of them shall be included in the
calculation of the percentage of the Shares owned by each of them.
Paragraphs (i) and (ii) shall apply to each Option granted or to be granted by
TLGI, which is outstanding at the time of any such declaration regardless of the
date of grant thereof, provided that all other terms and conditions of the
Option shall continue to apply and nothing herein shall operate to extend,
enlarge or revise any Option which has expired, has been exercised, has been
canceled or otherwise has ceased to exist.
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<PAGE>
(d) PAYMENT. An Option shall be exercised by delivery of a written notice
of such exercise to TLGI at its principal executive office, together with full
payment of the aggregate exercise price for the Common Shares with respect to
which the Option is exercised.
(e) SHARE ISSUANCE. Upon payment of the aggregate exercise price, TLGI
shall issue the Common Shares so acquired as soon as is reasonably possible.
SECTION 10. OPTIONS NOT TRANSFERABLE
An Option granted under the Plan shall not be transferred, pledged or assigned
except to the extent permitted by applicable Securities Laws and the applicable
rules and regulations of the Stock Exchanges and (i) only as hereinafter
provided or (ii) with the approval of the Board of Directors.
SECTION 11. PROTECTION AGAINST DILUTION
The Board of Directors shall adjust the number of Common Shares covered by the
Plan and any Option in a manner which it considers equitable to reflect any
change in the capitalization of TLGI including, but not limited to, such changes
as stock dividends, consolidations and subdivisions of shares or changes
resulting from an amalgamation of TLGI with one or more corporations. No
fractional shares or rights to acquire a fractional share will be created as a
result of an adjustment made pursuant to this section. The Board of Directors
shall also adjust the exercise price under any Option in a manner which it
considers equitable if the number of Common Shares covered by the Option is
adjusted pursuant to this section.
SECTION 12. PERSONAL HOLDING COMPANY
To the extent permitted by applicable Securities Laws and the applicable rules
and regulations of the Stock Exchanges, a Participant shall be entitled to
direct TLGI to issue Shares or Options to a personal holding company of which
the Participant holds all of the direct and indirect interests ("PHC").
SECTION 13. EFFECT OF TERMINATION OF DIRECTORSHIP
(a) DEATH. In the event of the death of a Participant, the Participant's
personal legal representatives (the "Successors") or PHC, as the case may be,
may exercise any Options previously issued to the extent that such Options are
exercisable at the date of death, but no further vesting shall occur. Absent
the prior written consent of the Board of Directors, any such Option must be
exercised prior to the earlier to occur of (i) two years after the date of death
and (ii) the expiration date of the Option. In addition, the Successors or the
PHC, as the case may be, shall be entitled to receive, on behalf of a deceased
TLGI Participant, a pro rata amount of the Common Shares that the TLGI
Participant elected to receive pursuant to Section 5(a), and all of the Common
Shares that the TLGI Participant elected to receive pursuant to Section 5(b).
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<PAGE>
(b) TERMINATION BY BOARD RESOLUTION. If a Participant's directorship is
terminated by resolution of the Board of Directors or the board of directors of
a Subsidiary, all Options previously issued to such Participant or PHC, as the
case may be, shall expire on a date to be determined by the Board of Directors.
Until such date, any Options previously issued may be exercised to the extent
that such Options are exercisable on the termination date, but no further
vesting shall occur. The Board of Directors shall also determine the extent, if
at all, that such TLGI Participant or PHC, as the case may be, shall receive any
Common Shares with respect to the Annual Service Period during which such
termination occurs.
(c) OTHER TERMINATION. In the event that a Participant's directorship
terminates for any reason other than by death or by resolution, any Options
previously issued may be exercised, to the extent that such Options are
exercisable on the termination date, but no further vesting shall occur. Any
such Options must be exercised prior to the earlier to occur of (i) forty-five
days after the date of termination and (ii) the expiration date of the Option.
A TLGI Participant or PHC, as the case may be, shall be entitled to receive a
pro rata amount of the Common Shares that the TLGI Participant elected to
receive pursuant to Section 5(a), and all of the Common Shares that the TLGI
Participant elected to receive pursuant to Section 5(b).
(d) HONORARY/EMERITUS DIRECTOR. Notwithstanding Sections 13(a) and 13(b)
above, a director who becomes an honorary director or director emeritus shall
not be deemed to be terminated as a result of assuming such status.
(e) SHARE CERTIFICATES. A certificate representing Common Shares to be
acquired pursuant to this Section 13 shall be issued in accordance with Section
5(a), 5(b) or 9(e), as the case may be.
SECTION 14. RESTRICTIONS ON ISSUANCE OF SHARES
TLGI shall have no obligation to issue any Common Shares or deliver any
certificate representing Common Shares until the following conditions shall be
satisfied:
(i) At the time of the issue, (A) such shares effectively shall have
been registered or qualified by prospectus, as the case may be,
under applicable Securities Laws as now in force or hereafter
amended or (B) counsel for TLGI shall have given an opinion that
such shares are exempt from registration or qualification by
prospectus, as the case may be, under Securities Laws as now in
force or hereafter amended; and
(ii) TLGI shall have complied with all regulations imposed by the
Stock Exchanges.
In addition, any such certificate shall bear such restrictive legends as TLGI
determines are necessary or desirable, from time to time, in order to comply
with applicable Securities Laws and all regulations imposed by the Stock
Exchanges.
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SECTION 15. TERMINATION OR AMENDMENT
Subject to regulatory approval and, where required, approval of the shareholders
of TLGI, the Board of Directors may, at any time and for any reason, amend or
terminate the Plan. The Plan shall remain in effect until it is so terminated
by the Board of Directors. No Options may be granted under this Plan after its
termination, but no termination or amendment of the Plan shall affect any
previously granted Option.
SECTION 16. GENERAL LIMITATIONS
Neither the Participant, the Participant's Successors nor the Participant's PHC
shall have any rights as a shareholder of TLGI with respect to Common Shares
covered by Options until the Participant, Participant's Successors or PHC, as
the case may be, becomes the holder of record of such shares.
SECTION 17. RISK
EACH PARTICIPANT ASSUMES THE RISK OF ANY MARKET FLUCTUATIONS IN THE PRICE OF THE
COMMON SHARES.
SECTION 18. APPLICABLE LAW
All questions concerning the interpretation, validity and construction of this
Plan and the instruments evidencing Options shall be governed by the internal
law, and not the law of conflicts, of the Province of British Columbia.
SECTION 19. COMPLIANCE WITH CERTAIN U.S. LAWS
So long as TLGI is subject to Section 16 of the 1934 Act, any equity security,
as defined in the rules and regulations under the 1934 Act, offered pursuant to
the Plan may not be sold for at least six months after the date of grant
thereof, and any derivative security, as defined in the rules and regulations
promulgated under Section 16, offered pursuant to the Plan may not be sold for
at least six months after the acquisition thereof, except in the event of the
death or disability of the holder thereof. To the extent that any provision of
this Plan or action by the Board of Directors fails to comply with the rules and
regulations promulgated under Section 16, it shall be null and void to the
extent permitted by law and deemed advisable by the Board of Directors.
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THE LOEWEN GROUP INC.
EMPLOYEE STOCK OPTION PLAN (UNITED STATES)
(RESTATED AND AMENDED AS AT APRIL 7, 1994 AND FURTHER AMENDED AS AT
APRIL 7, 1995, SEPTEMBER 19, 1995 AND APRIL 2, 1996)
SECTION 1 - GENERAL
(a) The purpose of the Employee Stock Option Plan (United States) (the "Plan")
is to promote the interests of The Loewen Group Inc. (the "Company") by:
(i) furnishing Eligible Employees (as defined below) with greater
incentive to develop and promote the business and financial
success of the Company; and
(ii) further associating the interests of Eligible Employees with those
of the shareholders of the Company by encouraging such employees
to acquire share ownership in the Company.
(b) The Plan is not qualified under Section 401(a) of the Internal Revenue Code
of 1986, as amended (the "Code") and is not subject to any of the provisions of
the Employment Retirement Income Security Act of 1974.
(c) Any questions concerning the Plan should be directed to the Corporate
Secretary of the Company, at the Company's principal executive office located at
4126 Norland Avenue, Burnaby, British Columbia, Canada V5G 3S8, telephone
number (604) 299-9321.
(d) The Plan shall be governed by, and construed in accordance with, the laws
of the province of British Columbia.
SECTION 2 - ELIGIBILITY
(a) Under the Plan, employees of the Company or any of its direct or indirect
subsidiaries ("Subsidiaries") who are residents of the United States or its
territories (the "Eligible Employees") are eligible to be granted options
("Options") to purchase Common shares without par value of the Company
("Shares").
(b) The Compensation Committee of the Company (the "Committee") or such officer
as the Committee may designate shall determine from time to time those Eligible
Employees to be granted Options under the Plan, and the number of Shares subject
to each such Option. Each grant of an Option pursuant to the Plan shall be
evidenced by a stock option agreement ("Option Agreement") executed by the
employee to whom the Option is granted (the "Optionee") and the
<PAGE>
Company. Each Option Agreement shall incorporate such terms and conditions as
the Committee, in its discretion, deems consistent with the terms of the Plan.
(c) Each Option Agreement shall specify the dates upon which all or any
installment of the Option will be exercisable. An Option may be exercised when
installments vest at any time and from time to time thereafter with respect to
all or a portion of the Shares covered by such vested installments. In
addition, if an Offer (as hereinafter defined) is made, the Board of Directors,
or Committee, may while the Offer remains outstanding:
(i) determine that each Option granted by the Company to purchase
Shares shall, notwithstanding any vesting period or deferral of
the right to exercise otherwise applicable, be immediately
exercisable effective on and after a date declared by the Board
of Directors, or Committee, to be an advanced exercise date
("Advanced Exercise Date"); and
(ii) rescind any declaration of an Advanced Exercise Date but no such
rescission shall affect the validity of the exercise of such
Option if validly exercised on or after a particular Advanced
Exercise Date and before the date of rescission of the
declaration of the particular Advanced Exercise Date.
For the purposes hereof, "Offer" means an offer to acquire the Shares made to
the holders of the Company's Shares where the Shares which are the subject of
the offer to purchase, together with the offeror's then presently owned Shares,
will in the aggregate exceed twenty percent (20%) of the outstanding Shares of
the Company and where two or more persons or companies make offers jointly or in
concert or intending to exercise jointly or in concert any voting rights
attaching to the Shares to be acquired, then the Shares owned by each of them
shall be included in the calculation of the percentage of the Shares of the
Company owned by each of them. Paragraphs (i) and (ii) shall apply to each
Option granted or to be granted by the Company, which is outstanding at the time
of any such declaration regardless of the date of grant thereof, provided that
all other terms and conditions of the Option shall continue to apply and nothing
herein shall operate to extend, enlarge or revise any Option which has expired,
has been exercised, has been cancelled or otherwise has ceased to exist.
SECTION 3 - NUMBER OF SHARES SUBJECT TO PLAN
(a) The number of Shares issuable pursuant to the exercise of Options
after the effective date of the restatement and amendment of the Plan is limited
as follows:
(i) subject to adjustment pursuant to Section 9, the aggregate number of
Shares issuable pursuant to Options under the Plan shall not exceed
3,400,000 Shares (including 1,178,457 Shares under Options previously
granted but not exercised as of April 7, 1994); and
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(ii) the number of Shares reserved for issuance to any one person
pursuant to options (whether granted under this Plan or
otherwise) shall not exceed 5% of the total issued and
outstanding Shares on a non-diluted basis.
(b) The maximum number of Shares for which Options are granted after the
effective date of restatement and amendment of the Plan in any one calendar year
under the Plan to any one Eligible Employee shall not exceed 300,000 Shares,
subject to adjustment pursuant to Section 9.
(c) If an Option granted under the Plan expires for any reason without
being exercised in full, the number of Shares that would have been issuable upon
the exercise of such Option shall continue to be available under the Plan.
(d) Subject to the maximum limits described in subsections (a) and (b)
above, the Board of Directors of the Company (the "Board") shall reserve the
number of Shares required to honor Options granted from time to time to
Optionees pursuant to the Plan, and shall reserve from time to time additional
Shares, if any, to ensure that a sufficient number of Shares are available for
purchase under Options granted in the future.
SECTION 4 - ADMINISTRATION OF THE PLAN
(a) The Plan shall be administered by the Committee which shall be
comprised of two or more members of the Board who are "outside directors" within
the meaning of Section 162(m) of the United States Internal Revenue Code of
1986, as amended; provided, however, that, with respect to Options that may be
granted to Eligible Employees who are not subject to Section 16 of the United
States Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Committee may delegate its responsibilities to a subcommittee consisting of one
or more executive officers of the Company. The address of the Committee is care
of the Company's principal executive office at 4126 Norland Avenue, Burnaby,
British Columbia, Canada, V5G 3S8.
(b) The Committee shall have all powers and discretion necessary or
appropriate to administer the Plan, consistent with and subject to the
parameters set forth in the Plan, including but not limited to the power (1) to
determine from time to time the Eligible Employees to be granted Options under
the Plan, (2) to determine the number of Shares subject to each Option granted
under the Plan, (3) to set or amend the terms of each Option Agreement, (4) to
interpret the Plan, (5) to adopt such rules or guidelines as it deems
appropriate to administer the Plan, and (6) to make all other decisions, and
take or cause to be taken all other actions, relating to the operation of the
Plan. The Committee's determinations under the Plan shall be final and binding
on all persons. No member of the Committee shall be liable to any person for
any action or decision made in good faith in connection with the performance of
the Committee's duties or the exercise of its powers under the Plan.
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<PAGE>
SECTION 5 - OPTION PRICE AND EXERCISABILITY
(a) The exercise price of an Option shall not be less than the closing
price of a Share on the trading day immediately prior to the date of grant, as
quoted on The Toronto Stock Exchange (with respect to Options denominated in
Canadian currency) and on the Nasdaq National Market or a United States national
securities exchange or quotation system on which the Shares are then traded
(with respect to Options denominated in United States currency).
(b) Except as otherwise provided in an Option Agreement, no Options shall
be exercised by an Optionee until at least 6 months after the date of the grant.
An Optionee may exercise an Option by delivering to the Company a duly completed
form of notice of such exercise together with full payment for the Shares being
purchased under the Option. The form of notice must identify the Option being
exercised, state the exercise price, be signed by the Optionee and be dated the
date of exercise. The Company shall promptly notify the Optionee as to any
taxes required to be withheld and collected from the Optionee. Unless otherwise
provided in the Option Agreement or consented to by the Company, payment for the
Shares must be made in the currency in which the Option is denominated.
(c) The sale of the Shares to the Optionee shall be deemed to have
occurred, and the Optionee shall be deemed to be the holder of such Shares, on
the date that both the form of notice and the payment in a manner acceptable to
the Company of the exercise price and any applicable taxes have been received by
the Company. A certificate representing the Shares acquired by the Optionee
shall be issued and delivered to the Optionee by the Company as soon is
reasonably possible after the sale.
SECTION 6 - TERMINATION OF OPTIONS
(a) Any Option granted pursuant to the Plan shall terminate upon the
earlier of: (i) ten years after the date of grant; and (ii) such event(s) of
termination as are provided in the Option Agreement or as are determined from
time to time by the Committee.
(b) A change in the duties or position of the Optionee, or the transfer of
the Optionee from one position with the Company to another, or the transfer of
an Optionee from one employer to another employer shall not trigger the
termination of such Optionee's Option so long as such Optionee remains a bona
fide employee of the Company or any Subsidiary.
SECTION 7 - NON-TRANSFERABILITY OF OPTIONS
Except as hereafter provided, an Option granted under the Plan may not
be transferred, pledged or assigned otherwise than by will or the laws of
descent and distribution and may be exercised only by the Optionee during his or
her lifetime. Options that are exercisable at the date of an Optionee's death
may be exercised by the Optionee's heirs entitled thereto or by the
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administrator or the executor or trustee of his or her last will and testament.
Any such exercise may not take place after the earlier of: (i) the expiration of
the Option in accordance with Section 6(a)(i) above; and (ii) two years after
the date of the Optionee's death without the prior written consent of the
Company.
SECTION 8 - TERMINATION OR AMENDMENT
Subject to regulatory approval and, where required, approval of the
shareholders of the Company, the Committee may, at any time and for any reason,
amend or terminate the Plan, subject to ratification by the Board. The Plan
shall remain in effect until it is terminated by the Committee, subject to
ratification by the Board. No Options may be granted under the Plan after its
termination, but no termination or amendment of the Plan shall affect any
previously granted Option.
SECTION 9 - PROTECTION AGAINST DILUTION
The Committee shall adjust the number of Shares covered by the Plan
and any Option in a manner it considers equitable to reflect any change in the
capitalization of the Company including, but not limited to, such changes as
stock dividends, consolidations and subdivisions of shares or changes resulting
from an amalgamation of the Company with one or more corporations. No
fractional shares or rights to acquire a fractional share will be created as a
result of an adjustment made pursuant to this section. The Committee shall also
adjust the exercise price under any Option in a manner it considers equitable if
the number of Shares covered by the Option is adjusted pursuant to this section.
SECTION 10 - RIGHTS AS SHAREHOLDERS
An Optionee shall have no rights as a shareholder (including the right
to vote and to receive dividends) of the Company with respect to Shares covered
by Options until such participant becomes the holder of record of such Shares.
SECTION 11 - COMPLIANCE WITH CERTAIN U.S. SECURITIES LAWS
With respect to persons subject to Section 16 of the Exchange Act,
transactions under the Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Exchange Act. If any
provision of the Plan or action by the Committee fails to so comply, it shall be
deemed null and void, to the extent permitted by law and deemed advisable by the
Committee.
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SECTION 12 - RESTRICTIONS ON RESALE
Under United States federal law, Shares purchased pursuant to Options
granted under the Plan by Optionees who are not "affiliates" of the Company
within the meaning of the Securities Act of 1933, as amended (the "Act"),
generally may be resold without registration or other restriction under the Act.
Generally, Shares purchased by "affiliates" pursuant to Options granted under
the Plan may not be resold to the public in the United States without
registration under the Act, except pursuant to an exemption from such
registration. One such exemption from registration is Rule 144 under the Act,
which permits resales by affiliates so long as certain volume, manner of sale
and other requirements have been satisfied. An "affiliate" is a person who
directly or indirectly controls, or is controlled by, or is under common control
with, the Company.
SECTION 13 - GENERAL LIMITATIONS
Neither the Plan nor any Option granted hereunder is to be interpreted as
giving any person a right to remain an employee of the Company or any of its
Subsidiaries. The Company and its Subsidiaries reserve the right to terminate
anyone's service at any time, with or without cause, and neither the Plan nor
any Option granted hereunder affects that right. THE EMPLOYEE ASSUMES THE RISK
OF ANY MARKET FLUCTUATIONS IN THE PRICE OF THE SHARES.
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THE LOEWEN GROUP INC.
EMPLOYEE STOCK OPTION PLAN (CANADA)
(RESTATED AND AMENDED AS AT APRIL 7, 1994 AND FURTHER AMENDED AS AT
APRIL 7, 1995, SEPTEMBER 19, 1995 AND APRIL 2, 1996)
SECTION 1 - GENERAL
(a) The purpose of the Employee Stock Option Plan (Canada) (the "Plan") is to
promote the interests of The Loewen Group Inc. (the "Company") by:
(i) furnishing Eligible Employees (as defined below) with greater
incentive to develop and promote the business and financial success of the
Company; and
(ii) further associate the interests of Eligible Employees with those
of the shareholders of the Company by encouraging such employees to acquire
share ownership in the Company.
(b) Any questions concerning the Plan should be directed to the Corporate
Secretary of the Company, at the Company's principal executive office located at
4126 Norland Avenue, Burnaby, British Columbia, Canada, V5G 3S8, telephone
number (604) 299-9321.
(c) The Plan shall be governed by, and construed in accordance with, the laws
of the province of British Columbia.
SECTION 2 - ELIGIBILITY
(a) Under the Plan, employees of the Company or any of its direct or indirect
subsidiaries ("Subsidiaries") who are residents of Canada ("Eligible Employees")
are eligible to be granted options ("Options") to purchase Common shares without
par value of the Company ("Shares").
(b) The Compensation Committee of the Company (the "Committee") or such officer
as the Committee may designate shall determine from time to time those Eligible
Employees to be granted Options under the Plan, and the number of Shares subject
to each such Option. Each grant of an Option pursuant to the Plan shall be
evidenced by a stock option agreement ("Option Agreement") executed by the
employee to whom the Option is granted (the "Optionee") and the Company. Each
Option Agreement shall incorporate such terms and conditions as the Committee,
in its discretion, deems consistent with the terms of the Plan.
(c) Each Option Agreement shall specify the dates upon which all or any
instalment of the Option will be exercisable. An Option may be exercised when
instalments vest at any time and from time to time thereafter with respect to
all or a portion of the Shares covered by such vested installments. In
addition, if an Offer (as hereinafter defined) is made, the Board of Directors,
or Committee, may while the Offer remains outstanding:
<PAGE>
(i) determine that each Option granted by the Company to purchase
Shares shall, notwithstanding any vesting period or deferral of the right
to exercise otherwise applicable, be immediately exercisable effective on
and after a date declared by the Board of Directors, or Committee, to be an
advanced exercise date ("Advanced Exercise Date"); and
(ii) rescind any declaration of an Advanced Exercise Date but no such
rescission shall affect the validity of the exercise of such Option if
validly exercised on or after a particular Advanced Exercise Date and
before the date of rescission of the declaration of the particular Advanced
Exercise Date.
For the purposes hereof, "Offer" means an offer to acquire the Shares made to
the holders of the Company's Shares where the Shares which are the subject of
the offer to purchase, together with the offeror's then presently owned Shares,
will in the aggregate exceed twenty percent (20%) of the outstanding Shares of
the Company and where two or more persons or companies make offers jointly or in
concert or intending to exercise jointly or in concert any voting rights
attaching to the Shares to be acquired, then the Shares owned by each of them
shall be included in the calculation of the percentage of the Shares of the
Company owned by each of them. Paragraphs (i) and (ii) shall apply to each
Option granted or to be granted by the Company, which is outstanding at the time
of any such declaration regardless of the date of grant thereof, provided that
all other terms and conditions of the Option shall continue to apply and nothing
herein shall operate to extend, enlarge or revise any Option which has expired,
has been exercised, has been cancelled or otherwise has ceased to exist.
SECTION 3 - NUMBER OF SHARES SUBJECT TO PLAN
(a) The number of Shares issuable pursuant to the exercise of Options after the
effective date of restatement and amendment of the Plan is limited as follows:
(i) subject to adjustment pursuant to Section 9, the aggregate number
of Shares issuable pursuant to Options under the Plan shall not exceed
1,700,000 Shares (including 1,051,025 Shares under Options previously
granted but not exercised as of April 7, 1994); and
(ii) the number of Shares reserved for issuance to any one person
pursuant to options (whether granted under this Plan or otherwise) shall
not exceed 5% of the total issued and outstanding Shares on a non-diluted
basis.
(b) The maximum number of Shares for which Options are granted after the
effective date of restatement and amendment of the Plan in any one calendar year
under the Plan to any one Eligible Employee shall not exceed 300,000 Shares,
subject to adjustment pursuant to Section 9.
-2-
<PAGE>
(c) If an Option granted under the Plan expires for any reason without being
exercised in full, the number of Shares that would have been issuable upon the
exercise of such Option shall continue to be available under the Plan.
(d) Subject to the maximum limits described in subsections (a) and (b) above,
the Board of Directors of the Company (the "Board") shall reserve the number of
Shares required to honour Options granted from time to time to Optionees
pursuant to the Plan, and shall reserve from time to time additional Shares, if
any, to ensure that a sufficient number of Shares are available for purchase
under Options granted in the future.
SECTION 4 - ADMINISTRATION OF THE PLAN
(a) The Plan shall be administered by the Committee which shall be comprised of
two or more members of the Board who are "outside directors" within the meaning
of Section 162(m) of the United States Internal Revenue Code of 1986, as
amended; provided, however, that, with respect to Options that may be granted to
Eligible Employees who are not subject to Section 16 of the United States
Securities Exchange Act of 1934, as amended, the Committee may delegate its
responsibilities to a subcommittee consisting of one or more executive officers
of the Company. The address of the Committee is care of the Company's principal
executive office at 4126 Norland Avenue, Burnaby, British Columbia, Canada, V5G
3S8.
(b) The Committee shall have all powers and discretion necessary or appropriate
to administer the Plan, consistent with and subject to the parameters set forth
in the Plan, including but not limited to the power (1) to determine from time
to time the Eligible Employees to be granted Options under the Plan, (2) to
determine the number of Shares subject to each Option granted under the Plan,
(3) to set or amend the terms of each Option Agreement, (4) to interpret the
Plan, (5) to adopt such rules or guidelines as it deems appropriate to
administer the Plan, and (6) to make all other decisions, and take or cause to
be taken all other actions, relating to the operation of the Plan. The
Committee's determinations under the Plan shall be final and binding on all
persons. No member of the Committee shall be liable to any person for any
action or decision made in good faith in connection with the performance of the
Committee's duties or the exercise of its powers under the Plan.
SECTION 5 - OPTION PRICE AND EXERCISABILITY
(a) The exercise price of an Option shall not be less than the closing price of
the Shares as quoted on The Toronto Stock Exchange on the trading day
immediately prior to the date of the grant.
(b) Except as otherwise provided in an Option Agreement, no Options shall be
exercised by an Optionee for at least 6 months after the date of the grant. An
Optionee may exercise an Option by delivering to the Company a duly completed
form of notice of such exercise together with full payment for the Shares being
purchased under the Option. The form of notice must identify the Option being
exercised, state the exercise price, be signed by the Optionee and be dated the
date of exercise. The Company shall promptly notify the Optionee as to any
taxes
-3-
<PAGE>
required to be collected from the Optionee. Unless otherwise provided in the
Option Agreement or consented to by the Company, payment for the Shares must be
made in the currency in which the Option is denominated.
(c) The sale of the Shares to the Optionee shall be deemed to have occurred,
and the Optionee shall be deemed to be the holder of such Shares, on the date
that both the form of notice and the payment in a manner acceptable to the
Company of the exercise price and any applicable taxes have been received by the
Company. A certificate representing the Shares acquired by the Optionee shall
be issued and delivered to the Optionee by the Company as soon as is reasonably
possible after the sale.
SECTION 6 - TERMINATION OF OPTIONS
(a) Any Option granted pursuant to the Plan shall terminate upon the earlier
of: (i) ten years after the date of grant; and (ii) such event(s) of termination
as are provided in the Option Agreement or as are determined from time to time
by the Committee.
(b) A change in the duties or position of the Optionee, or the transfer of the
Optionee from one position with the Company to another, or the transfer of an
Optionee from one employer to another employer shall not trigger the termination
of such Optionee's Option so long as such Optionee remains a bona fide employee
of the Company or any Subsidiary.
SECTION 7 - NON-TRANSFERABILITY OF OPTIONS
Except as hereafter provided, an Option granted under the Plan may not be
transferred, pledged or assigned otherwise than by will or the laws of descent
and distribution and may be exercised only by the Optionee during the Optionee's
lifetime. Options that are exercisable at the date of an Optionee's death may
be exercised by the Optionee's heirs entitled thereto or by the administrator or
the executor or trustee of his or her last will and testament. Any such exercise
may not take place after the earlier of: (i) the expiration of the Option in
accordance with Section 6(a)(i) above; and (ii) two years after the date of the
Optionee's death without the prior written consent of the Company.
SECTION 8 - TERMINATION OR AMENDMENT
Subject to regulatory approval and, where required, approval of the
shareholders of the Company, the Committee may, at any time and for any reason,
amend or terminate the Plan, subject to ratification by the Board. The Plan
shall remain in effect until it is terminated by the Committee, subject to
ratification by the Board. No Options may be granted under the Plan after its
termination, but no termination or amendment of the Plan shall affect any
previously granted Option.
-4-
<PAGE>
SECTION 9 - PROTECTION AGAINST DILUTION
The Committee shall adjust the number of Shares covered by the Plan and any
Option in a manner which it considers equitable to reflect any change in the
capitalization of the Company including, but not limited to, such changes as
stock dividends, consolidations and subdivisions of shares or changes resulting
from an amalgamation of the Company with one or more corporations. No
fractional shares or rights to acquire a fractional share will be created as a
result of an adjustment made pursuant to this section. The Committee shall also
adjust the exercise price under any Option in a manner it considers equitable if
the number of Shares covered by the Option is adjusted pursuant to this section.
SECTION 10 - RIGHTS AS SHAREHOLDERS
An Optionee shall have no rights as a shareholder (including the right to
vote and to receive dividends) of the Company with respect to Shares covered by
Options until such participant becomes the holder of record of such Shares.
SECTION 11 - SECURITIES REGULATION
Where necessary to effect an exemption from the registration or
distribution requirements applicable to the Options or the Shares under
applicable securities laws or policies, the Committee may take such action or
require such action or agreement by any Optionee as may from time to time be
necessary to comply with such applicable securities laws and policies. The
directors may decline to grant some or all of the Options or to issue some or
all of the Shares pursuant to the Plan unless the grant of such Options or the
issuance of such Shares is exempt from such requirements, upon the advice of
counsel to the Company.
SECTION 12 - GENERAL LIMITATIONS
Neither the Plan nor any Option granted hereunder is to be interpreted as
giving any person a right to remain an employee of the Company or any of its
Subsidiaries. The Company and its Subsidiaries reserve the right to terminate
anyone's service at any time, with or without cause, and neither the Plan nor
any Option granted hereunder affects that right.
THE EMPLOYEE ASSUMES THE RISK OF ANY MARKET FLUCTUATIONS IN THE PRICE OF
THE SHARES.
-5-
<PAGE>
EXHIBIT 11
THE LOEWEN GROUP INC.
COMPUTATION OF PER SHARE EARNINGS (LOSS)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
BASIC
Net earnings (loss) available to Common shareholders $ 55,032 $(76,684) $ 38,494
Weighted average shares outstanding. . . . . . . . . 56,743 45,291 39,701
Basic earnings (loss) per share. . . . . . . . . . . $ 0.97 $ (1.69) $ 0.97
======== ======== ========
Fully diluted
Net earnings (loss). . . . . . . . . . . . . . . . . $ 55,032 $(76,684) $ 38,494
Add: imputed earnings from dilutive options,
net of tax effect. . . . . . . . . . . . . . . . . . 497 -- 1,775
-------- -------- --------
Fully diluted net earnings (loss). . . . . . . . . . $ 55,529 $(76,684) $ 40,269
======== ======== ========
Weighted average shares outstanding. . . . . . . . . $ 56,743 45,291 39,701
Shares issuable upon assumed conversion of
dilutive options . . . . . . . . . . . . . . . . . . 642 -- 2,019
-------- -------- --------
Fully diluted shares . . . . . . . . . . . . . . . . 57,385 45,291 41,720
======== ======== ========
Fully diluted earnings (loss) per share. . . . . . . $ 0.97 $ (1.69) $ 0.97
======== ======== ========
</TABLE>
<PAGE>
EXHIBIT 12.1
THE LOEWEN GROUP INC.
COMPUTATION OF EARNINGS TO FIXED CHARGES RATIO(1)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Earnings (loss) before income taxes. . . . . . . . . . $ 93,001 $(123,862) $ 58,232 $ 43,896 $ 31,480
--------- ---------- --------- --------- ---------
Fixed charges included in earnings (loss) before
income taxes:
Interest on long-term debt . . . . . . . . . . . . 88,932 50,913 34,203 21,801 19,083
Amortization of deferred finance costs . . . . . . 4,171 1,512 1,139 832 580
Dividends on preferred securities of subsidiary. . 7,088 7,088 2,678 -- --
--------- ---------- ---------- --------- ---------
100,191 59,513 38,020 22,633 19,663
--------- ---------- ---------- --------- ---------
Earnings (loss). . . . . . . . . . . . . . . . . . . . $ 193,192 $ (64,349) $ 96,252 $ 66,529 $ 51,143
========= ========== ========== ========= =========
Fixed charges:
Fixed charges included in earnings before income
taxes. . . . . . . . . . . . . . . . . . . . . . $ 100,191 $ 59,513 $ 38,020 $ 22,633 $ 19,663
Capitalized interest . . . . . . . . . . . . . . . 2,092 2,722 1,128 117 --
--------- ---------- --------- --------- ---------
Total fixed charges. . . . . . . . . . . . . . . . . . 102,283 $ 62,235 $ 39,148 $ 22,750 $ 19,663
========= ========== ========== ========= =========
Ratio of earnings to fixed charges . . . . . . . . . . 1.9x --(2) 2.5x 2.9x 2.6x
========= ========== ========== ========= =========
</TABLE>
- ----------------
(1) The ratios are computed on the basis of Canadian generally accepted
accounting principles as presented in the Company's primary financial
statements and would not materially differ under U.S. generally accepted
accounting principles.
(2) The 1995 loss is not sufficient to cover fixed charges by a total of
approximately $126.6 million, and as such the ratio of earnings to fixed
charges has not been computed.
<PAGE>
EXHIBIT 12.2
THE LOEWEN GROUP INC.
COMPUTATION OF EARNINGS TO FIXED CHARGES RATIO
U.S. GAAP
<TABLE>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
Earnings (loss) before
income taxes......... $ 89,144 $(125,539) $ 57,877 $ 44,374 $ 33,964
Fixed charges included
in earnings (loss)
before income taxes:
Interest on long-term
debt............... $ 88,932 $ 50,913 $ 34,203 $ 22,337 $ 20,874
Amortization of
deferred finance
costs............... $ 4,171 1,512 1,139 852 634
Dividends on preferred
securities of
subsidiary.......... $ 7,088 7,088 2,678 -- --
-------- -------- -------- -------- --------
100,191 59,513 38,020 23,189 21,508
-------- -------- -------- -------- --------
Earnings (loss)....... $189,335 $(66,026) $ 95,897 $ 67,563 $ 55,472
======== ======== ======== ======== ========
Fixed charges:
Fixed charges included
in earnings before
income taxes........ $100,191 $ 59,813 $ 38,020 $ 23,189 $ 21,508
Capitalized interest. 2,092 2,722 1,128 120 --
-------- -------- -------- -------- -------
Total fixed charges... $102,283 $ 62,235 $ 39,148 $ 23,309 $ 21,508
======== ======== ======== ======== ========
Ratio of earnings to
fixed charges........ 1.9x --(1) 2.4x 2.9x 2.6x
======== ======== ======== ======== ========
</TABLE>
- --------
(1) The 1995 loss is not sufficient to cover fixed charges by a total of
approximately $128.3 million, and as such the ratio of earnings to fixed
charges has not been computed.
<PAGE>
THE LOEWEN GROUP INC.
THE FOLLOWING TABLE SHOWS THE RELATIONSHIP BETWEEN TLGI AND
ITS HOLDING COMPANIES OPERATING SUBSIDIARIES AND
ASSOCIATED COMPANIES. THE TABLE ALSO SHOWS THE RESPECTIVE
JURISDICTION OF INCORPORATION OF SUCH COMPANIES.
HOLDING COMPANIES AND OPERATING SUBSIDIARIES
AND ASSOCIATED COMPANIES AS OF MARCH 15, 1997
--------------------
CANADA
------
JURISDICTION OF
INCORPORATION
-------------
ALBERTA
247663 Alberta Ltd. and subsidiary company:
Memento Funeral Chapel (1975) Ltd.
Courtney-Winter's Funeral Chapel Ltd.
Lakeland Funeral Home Ltd.
BRITISH COLUMBIA
4032 Investments Ltd.
4054 Investments Ltd. and subsidiary companies:
Puerto Rico
Camposanto-Aguadilla, Inc. and subsidiary company:
Monte Cristo, Inc.
Camposanto PR, Inc.
Los Jardines Memorial Park, Inc.
476822 B.C. Ltd.
Aldon Enterprises Ltd.
Armstrong-Enderby Funeral Home Ltd.
Graham Funeral Home Ltd.
Haywards Thomson & Irving Funeral Directors (1986) Inc.
and subsidiary company:
Hayward's B.C. Funeral Company & Limousine Service Ltd.
Hollyburn Funeral Home Ltd.
Hollyburn Funeral Services Ltd.
Mt. Washington Memorial and Funeral Chapel Ltd.
Neweol Investments Ltd. and subsidiary companies:
Ontario
1096952 Ontario Limited and associated company:
BRITISH COLUMBIA
Pine Grove Crematorium (1996) Ltd.
TLGI Holdings Limited and subsidiary companies:
<PAGE>
- 2 -
Glenhaven Memorial Chapel Ltd.
Kamloops Funeral Home Ltd.
Suburban Funeral Homes Ltd.
Surrey Memorial Services and Crematorium Ltd.
TLGI Management Corp. and subsidiary companies:
Assman's Funeral Chapel Ltd.
Chapel Hill Funeral Home Ltd.
Chapel of Memories Funeral Directors Ltd.
Hamilton-Harron Funeral Centre And Crematorium Ltd.
Henderson's Fraser Valley Funeral Home Ltd.
Henderson's Funeral Homes Ltd.
Lakewood Funeral Home Ltd.
Pabril Ventures Limited and subsidiary companies:
Piercy's Funeral Home Limited and subsidiary companies:
Mission Hill Crematorium Ltd.
Sutton's Funeral Directors Ltd.
Parksville Funeral Chapel Ltd.
Vancouver Memorial Services and Crematorium Ltd.
Vernon Funeral Home (1986) Ltd.
Alberta
Mountain View and Metcalf Funeral Chapels Ltd.
Manitoba
Kerr's Funeral Chapel (1988) Ltd.
Loewen Funeral Chapels (1973) Ltd.
60752 Manitoba Ltd. and subsidiary companies:
The J. Thomson Company Limited and subsidiary company:
Garry Memorial Crematorium Ltd.
Nova Scotia
Digby Funeral Home Limited
Independent Funeral Services Incorporated
J.A. Snow's Funeral Home (1985) Limited
Jayne's Funeral Home (1984) Limited and associated
company:
Digby County Ambulance Service Limited
Mattatall Funeral Home (1986) Limited
Robert L. Hall Funeral Home Limited
Wayne Hatt Enterprises Limited and subsidiary company:
Ettinger-Kennedy Memorial Residence Limited
Ontario
Addison Funeral Home, Inc.
Canadian Funeral Services Inc. and subsidiary company:
Cambridge Funeral Services Limited
<PAGE>
- 3 -
Comstock Funeral Home (1987) Ltd.
Giffen-Mack Chapel Ltd.
Green Funeral Home Limited
H.S. Anderson and Sons (1986) Ltd.
J.B. Marlatt Funeral Homes (1985) Limited
R. Martino Funeral Homes (1987) Ltd.
Sault Ste. Marie Funeral Homes Ltd.
Schreiter-Sandrock Limited
The Brown Funeral Home (Kenora 1983) Limited
The Ratz-Bechtel Limited
Trull Funeral Homes (1987) Limited
Prince Edward Island
Cutcliffe Funeral Home (1986) Ltd.
MacLean Funeral Home (1986) Limited
Moase Funeral Home Ltd.
Saskatchewan
Lee Funeral Home Ltd.
Parkview Funeral Home Ltd.
Weyburn Funeral Home (1987) Ltd.
British Columbia
TLGM Holdings Inc. and subsidiary company:
TLGM One Holdings Inc. and subsidiary companies :
Mexico
Grupo Loewen De Mexico, S.A. de C.V. and
subsidary companies:
Prestadora De Servicios Funerarios,
S.A. de C.V.
Servicios Administrativos Funerarios,
S.A. de C.V.
CANADA
Troispap Inc. and subsidiary company:
Quebec
Paperman & Sons Inc. and subsidiary companies:
Canada
170535 Canada Inc.
3144569 Canada Inc.
MANITOBA
2239699 Manitoba Ltd. and subsidiary company:
Klassen Funeral Chapel Ltd.
2696216 Manitoba Ltd.
P. Coutu Funeral Chapels Ltd.
Green Acres Memorial Services (1969) Ltd.
Green Acres Memorial Gardens (1969) Limited and subsidiary company:
Holy Angel Mausoleum Inc.
<PAGE>
- 4 -
ONTARIO
1026698 Ontario Inc. and subsidiary companies:
Delmoro Funeral Home Ltd.
Delmoro Funeral Home (North York) Ltd.
Dryden Funeral Service Limited
Hawkins Funeral Home Ltd.
SASKATCHEWAN
600838 Saskatchewan Ltd. and its subsidary companies:
Alberta
Memories Funeral Directors & Crematory Inc.
Saskatchewan
Unser-Rist Funeral Home Services Inc.
Wilson & Zehner Funeral Chapel Ltd.
SASKATCHEWAN
601346 Saskatchewan Ltd.
Centre-Sask Funeral Management Co. Ltd.
Community Crematorium Services Limited
Coventry Funeral Services Ltd.
Dionne-Moriarty Enterprises Ltd.
E. Andrychuk Funeral Home Ltd.
H D Funeral Home Ltd.
Helmsing Funeral Chapels Ltd.:
Prairie Funeral Services Ltd. and subsidiary companies:
Clements' Rosetown Funeral Home Limited
McKague's Funeral Chapels Ltd.
Sallows and McDonald Funeral Home (1987) Limited
Scharf's Funeral Home Ltd.
Unity Funeral Chapel Ltd.
Rist Enterprises Corporation
Ross Funeral Service Ltd.
UNITED STATES
-------------
DELAWARE
Loewen Group International, Inc. and subsidiary companies:
ALABAMA
Advanced Planning (Alabama), Inc.
Gethsemane Cemetery, Inc.
Searcy Funeral Home, Inc.
ALASKA
Evergreen Memorial Chapel, Inc.
<PAGE>
- 5 -
ARIZONA
Dimond & Sons Silver Bell Chapel, Inc.
Flagstaff-Greenlaw Mortuary, Inc.
RYM Acquisitions, Inc.
CALIFORNIA
C.P. Bannon Mortuary, Inc.
Calico General Partner, Inc.
Coge Investment Corporation
Conrad Lemon Grove Mortuary, Inc.
Culjis, Miller, Skelton and Herberger, Inc.
Directors Succession Planning, Inc. and
subsidiary company:
Texas
Directors Cemetery (Texas), Inc. and its
subsidiary company:
Del Rio Memorial Park, Inc.
CALIFORNIA
Guerrero Mortuary, Inc.
International Memorial Society, Inc.
Jensen-Carpenter Mortuary, Inc.
Keaton Mortuaries, Inc.
Loewen (Alabama), Inc. and subsidiary company:
Alabama
Gracelawn Acquisition, Inc.
Loewen (Indiana), Inc.
Loewen (Texas), Inc. and subsidiary companies:
Texas
Loewen Cemetery (Texas), Inc.
Northwest Services, Inc.
Sharpstown Services, Inc.
CALIFORNIA
McLeod Mortuary, Inc.
Merkley-Mitchell Mortuary
Palm Springs Mausoleum, Inc.
Paris-Frederick Mortuary, Inc.
Pierce Mortuary Chapels, Inc.
Pinkham-Mitchell Mortuary, Inc.
Security Plus Mini & RV Storage, Inc.
Wallace-Martin Funeral Home, Inc.
Whitehurst California and subsidiary companies:
Advance Funeral Insurance Services
A. J. Nicoletti Funeral Home, Inc.
Brentwood Funeral Home, Inc.
Chapel of Seaside, Inc.
Chapel of the Valley of Castro Valley, Inc.
<PAGE>
- 6 -
Delano Mortuary
Driscoll Mortuary, Inc.
Johnson Funeral Home, Inc.
Hadley Funeral Chapels, Inc.
Merced Funeral Chapel
Miller's Tulare Funeral Home
Mission Memorial Park
Mission Mortuary, Inc.
Norman's Family Chapel, Inc.
Smith-Reardon Incorporated and its
subsidary company:
Conejo Mountain Memorial Park
Stephens & Bean
Willow Glen Mortuary, Inc.
Valley Mortuary, Inc.
Whitehurst, Sullivan, Burns & Blair Funeral Service
Whitehurst-Grim Funeral Service
Whitehurst-Lakewood Memorial Park and Funeral Service
Whitehurst-Loyd Funeral Service
Whitehurst-McNamara Funeral Service
Whitehurst-Muller Funeral Service
Whitehurst-Norton Funeral Service
Whitehurst-Terry Funeral Service
CONNECTICUT
New England Holding Company, Inc.and
subsidiary companies:
Gilman Funeral Home, Inc.
Rhode Island
Corbett, Quirk & Pontarelli, Inc.
George M. Wilbur-Romano & Sons, Inc.
John B. Romano & Sons, Inc.
South Dakota
Prata Funeral Homes, Inc.
CONNECTICUT
Willowbrook Management Corp.
DELAWARE
American Burial and Cremation Centers, Inc.
Eagle Lending, Inc.
Directors (Texas), L.P.
Henlopen Memorial Park, Inc.
Lester L. Hayman Funeral Home, Inc.
Loewen (Alabama), L.P.
Loewen (Indiana), L.P.
Loewen (Texas), L.P.
Loewen Corporate Benefits of North Carolina, Inc.
Loewen Group Capital
Loewen Management Investment Corporation
<PAGE>
- 7 -
Neweol Investments (U.S.A.), Inc.
Osiris Holding Corporation and subsidiary companies:
Arizona
Phoenix Memorial Mortuary, Inc.
Delaware
Osiris Holding of Maryland, Inc.
Osiris Holding Finance Company
Sunset Acquisition Corporation
Florida
Osiris Holding of Florida, Inc.
Royal Palm Acquisition Corporation
Illinois
Osiris Holding of Illinois, Inc. and its
subsidiary company:
Woodlawn Memorial Park, Inc.
Elmwood Acquisition Corporation
The Oak Woods Cemetery Association
Pennsylvania
Oak Woods Management Company
Osiris Insurance Agency of Pennsylvania, Inc.
Osiris Holding of Pennsylvania, Inc.
Rhode Island
Osiris Holding of Rhode Island, Inc.
Wisconsin
Osiris Holding of Wisconsin, Inc. and
subsidiary company:
Knollwood Memorial Park, Inc.
Prime Succession Holdings, Inc.
Roses Delaware, Inc.
DISTRICT OF
COLUMBIA
Stein Hebrew Memorial Funeral Home, Inc.
FLORIDA
Bess-Kolski-Combs, Inc.
Charlotte Memorial Gardens Acquisition, Inc.
Garden Sanctuary Acquisition, Inc.
Kraeer Holdings, Inc. and subsidiary companies:
Adams Funeral Home, Inc.
Cardwell Funeral Home, Inc.
Curry Raley Funeral Home, Inc.
Dale Maloney Funeral Home, Inc.
Harris Funeral Home, Inc.
Joseph B. Cofer Funeral Home, Inc.
Kraeer Funeral Homes, Inc.
<PAGE>
- 8 -
Moody Funeral Home, Inc.
Naples Memorial Gardens, Inc.
North American Cremation Society, Inc.
Scott Funeral Home, Inc.
Security Trust Plans, Inc.
Sherrill-Guerry Funeral Home, Inc.
Wylie-Baxley Funeral Home, Inc.
FLORIDA
MHI Group, Inc. and subsidiary companies:
Funeral Services Acquisition Group, Inc.
and subsidiary companies:
Abreau Gonzalez Funeral Homes, Inc.
Eternal Light Funeral Directors and
Counselors, Inc.
LM Park, Inc.
MHI Financial, Inc.
Memorial Services Acquisition, Inc.
Sarasota Memorial Park Acquisition, Inc.
Skyway Memorial Gardens Acquisition, Inc.
Weinstein Family Services, Inc. and its
subsidiary companies:
Illinois
Devon Livery, Inc.
Weinstein Family Services, Inc. and its
subsidiary companies:
Florida
Beth David Memorial Gardens, Inc.
Blasberg Memorial Chapels, Inc.
Jewish Memorial Society, Inc.
Levitt-Weinstein Memorial Chapels, Inc.
and its subsidiary companies:
Levitt Memorial Chapel, Inc.
Resmal, Inc.
Mount Nebo Memorial Gardens, Inc.
Mount Nebo of the Palm Beaches Memorial Gardens, Inc.
Palm Beach County Community Chapel, Inc.
Illinois
Horizon Funeral Direction, Inc.
Weinstein Brothers, Inc. and its
subsidiary companies:
Florida
Mount Nebo Chapels, Inc.
Sinai Funeral Home, Inc.
Star of David Memorial Gardens, Inc.
Illinois
Weinstein Chapels, Inc.
GEORGIA
Advanced Planning of Georgia, Inc.
Dixon-Bowen-Taylor Funeral Home, Inc.
Foster Family Funeral Home, Inc. and
subisidary companies:
<PAGE>
- 9 -
Alpharetta Funeral Home, Inc.
Sandy Springs Chapel, Inc.
United Cemetery Management & Development Corp.
and subsidiary company:
Green Lawn Cemetery Corporation
Woodstock Funeral Home, Inc.
Harvey Funeral Home, Inc.
Horizon-Glynn Properties, Inc.
Loewen (Georgia), Inc. and subsidiary companies:
Southeastern Funeral Homes, Inc.
South Carolina
Graceland Cemetery Development Co.
Texas
Travis Land Company
Waco Memorial Park
North Carolina
Reeves, Inc.
GEORGIA
Morrison Funeral Home, Inc.
Poteet Holdings, Inc. and subsidiary companies:
BN Incorporated
Frazier & Son Funeral Home, Inc.
A. C. Hemperley & Sons, Inc.
Lowe's Funeral Home, Inc.
Mann-Walden Funeral Home, Inc.
Thomas L. King Funeral Home, Inc.
Roundtree Funeral Home, Inc.
Sims-Medford Enterprises, Inc.
Sunset Memory Gardens, Inc.
HAWAII
Associated Memorial Group, Ltd. and its
subsidiary companies:
50th State Funeral Plan, Ltd.
Valley Of The Temples Mortuaries, Ltd.
Hawaiian Memorial Park Mortuary Corporation and its
subsidiary company:
The Center For Pre-Arranged Funeral Planning, Inc.
Windward Crematory, Inc.
IDAHO
Parks Development Company, Inc.
ILLINOIS
Allen-Melvin Funeral Home, Ltd.
Grennan Funeral Home, Ltd.
McCracken Funeral Home, Inc.
OBC Acquisitions, Ltd.
Robert A. Weinstein, Ltd. and subsidiary companies
<PAGE>
- 10 -
Genesis Associates, Ltd. and subsidiary company:
Brown Funeral Home, Ltd.
Chapel Hill Memorial Gardens & Funeral Home Ltd.
Chicago Cemetery Corporation
Chrastka Funeral Home, Ltd.
Community-Opyt Funeral Home, Ltd.
Furman Funeral Home, Inc.
Robert A. Weinstein Funeral Directors Ltd.
Zefran Funeral Home, Ltd.
Ruzich Funeral Home, Inc.
Windridge Acquisition, Inc.
Woodlawn Cemetery Of Chicago, Inc.
INDIANA
AFH, Inc.
Brosmer-Drabing Funeral Home, Inc.
Berhalter-Hutchins Funeral Home, Inc.
Denbo Funeral Home, Inc.
Deremiah-Frye Mortuary, Inc.
Gordon E. Utt Funeral Home, Inc.
Green Lawn Cemetery, Inc.
Kemple Funeral Homes, Inc.
McClure Funeral Service, Inc.
Oak Enterprises, Inc.
Rest-Haven Cemetery Association, Inc.
Ruzich Funeral Home, Inc.
St. Joseph Valley Memorial Park, Inc.
South Bend Highland Cemetery Association, Inc.
Titzer Funeral Home, Inc.
IOWA
Burlington Cemetery Management, Inc.
Loewen (Iowa), Inc.
Shrine of Memories, Inc.
KANSAS
Byrd-Snodgrass Funeral Home, Inc.
Colonial Services, Ltd.
Hawks Funeral Home, Inc.
Potts Funeral Home, Inc.
Quiring Monument Company
Restlawn Gardens of Memory, Inc.
Sperry-McConnell-Bath Funeral Homes, Inc.
Sunset Funeral Home, Inc.
<PAGE>
- 11 -
KENTUCKY
Advanced Planning of Kentucky, Inc.
Danville Memorial Gardens, Incorporated
East Ashland Memorial Gardens, Inc.
Green Hills Memorial Gardens, Inc.
Golden Oaks Memorial Gardens, Incorporated
Hillcrest Garden of Memories, Inc.
Jenkins Funeral Home, Inc.
Loewen Group Inc.
Loewen (Kentucky), Inc.
Louisville Memorial Gardens, Inc. and its
subsidiary company:
Memory Gardens, Inc.
Madison County Memorial Gardens, Inc.
New Rose Hill, Inc.
Rogers Funeral Home of Clarkson, Kentucky, Inc.
Roselawn Memorial Gardens, Inc.
Sunset Memorial Park, Inc.
The Pulaski Funeral Home, Inc.
LOUISIANA
Eagan Holding Company and subsidiary company:
First Capital Life Insurance Company of
Louisiana and subsidiary companies:
Acadian Life Insurance Company
Administrative Resources Company, Inc.
Planned Funeral Services, Inc.
Loewen Louisiana Holdings, Inc. and subsidiary companies:
New Orleans Limousine Service, Inc.
Woodlawn Memorial Park, Inc.
Security Industrial Insurance Company and its
subsidiary company:
Security Industrial Fire Insurance Company
MARYLAND
Modern Park Development Company
Springhill Memory Gardens, Inc.
Sunset Memorial Park, Inc. and its subsidiary company:
Leasure-Stein Funeral Home, Inc.
W N C, Inc.
MASSACHUSETTS
Byron's Funeral Homes, Inc.
Cuffe-McGinn Funeral Home, Inc.
Doane Beal & Ames, Inc.
Doba-Haby Insurance Agency, Inc.
Edward J. Gaffey & Sons, Inc.
<PAGE>
- 12 -
Ernest A. Richardson Funeral Home, Inc.
Hafey Funeral Service, Inc.
Loewen Cape Cod Holdings (1991), Inc. and
subsidiary company:
New Hampshire
ZS Acquisition, Inc.
Loewen Eastern Massachusetts Holdings (1992), Inc.
Loewen Massachusetts Holdings (1991), Inc.
Ratell Funeral Home, Inc.
MICHIGAN
Care Memorial Society, Inc.
Covell Funeral Home Inc.
Covell-Smith Funeral Home, Inc.
ESFH Acquisition, Inc.
Gethsemane Mausoleum And Sales Company
Halverson Chapel, Inc.
Hibbard-Ruggles Funeral Home, Inc.
Hill Funeral Home, Inc.
Loewen HDG Acquisition, Inc.
Loewen (Michigan), Inc.
Memorial Guardian Company
Peace Rose, Inc.
Peter Feldpaush & Co., Inc.
Resurrection Funeral Home, Inc.
Roseland Park Sales Company
Star Cement And Vault Company
Wren Funeral Home, Inc.
MINNESOTA
Enga Memorial Chapels, Inc.
Kapala-Glodek Funeral Service, Ltd. and subsidiary
companies:
Gleason Mortuary, Inc.
Kapala-Glodek Gearhart Funeral Home, Inc.
Malone Funeral Home, Inc.
Florida
Coral Ridge Funeral Home And Cemetery, Inc.
Kadek Enterprises of Florida, Inc.
Phil Kiser Funeral Home, Inc.
Minnesota
Morningside Memorial Gardens, Inc.
North American Cremation Society, Inc.
Wulff Family Mortuary, Inc. and its subsidary
company: WHC, Inc. and its subsidiary
company: East Metro Agency, Inc. Wisconsin
<PAGE>
- 13 -
Goodman-Bensman Funeral Home Inc.
Lendman-Mischler Funeral Home, Inc.
Thomas Hansen & Sons Funeral Home, Inc.
MISSISSIPPI
Riemann Holdings, Inc. and subsidiary companies:
Louisiana
Forest Park Cemetery of Shreveport, Inc.
Forest Park Cemetery West of Shreveport, Inc.
H. C. Alexander Funeral Home, Inc.
Leitz-Eagan Funeral Home, Inc.
Mississippi
Advance Planning of Mississippi, Inc.
Baldwin-Lee Funeral Homes, Inc.
Browning Funeral Homes, Inc.
Browning Funeral Home, Inc. Water Valley, Mississippi
Cardinal Flowers and Fine Gifts, Inc.
Cockrell Funeral Home, Inc.
Coleman Funeral Home, Inc.
F.J.W. Incorporated
Family Care, Inc.
Floral Hills Memorial Gardens, Inc.
Frank J. Fisher Funeral Directors, Inc. and
subsidiary company:
Fisher-Riles Funeral Insurance Company
Gulf Coast Funeral Services, Inc.
Holder-Wells Funeral Home, Inc.
McPeters, Incorporated - Funeral Directors
Riemann Enterprises, Inc.
Riemann Funeral Homes, Inc.
Riemann Funeral Insurance Company, Inc.
Riemann Insurance Company, Inc.
Southern Memorial Park, Inc.
Stephens Funeral Homes, Inc. and subsidiary companies:
Stephens Burial Association, Inc.
Stephens Funeral Benefit Association, Inc.
Stephens Funeral Fund, Inc.
Stringer's Hartman-Baldwin Funeral Home, Inc.
Thweatt-King Funeral Home, Inc. and subsidiary company:
Thweatt Funeral Insurance Company, Inc.
Wright & Ferguson Funeral Home and subsidiary company:
Parkway Memorial Cemetery Corporation
MISSOURI
Loewen Missouri, Inc.
Mount Auburn Cemetery Company
<PAGE>
- 14 -
NEBRASKA
Boyd E. Braman Mortuary, Inc.
Moon Acquisition, Inc.
Moon Cemetery Association
NEVADA
American Burial & Crematory Service
Davis Funeral Home, Inc.
Davis Funeral Home Memorial Plan
Paradise Memorial Gardens, Inc.
NEW HAMPSHIRE
Loewen New Hampshire Holdings 1990, Inc.
McHugh Funeral Home, Inc.
NEW JERSEY
Osiris Management, Inc.
NEW MEXICO
Advance Planning - Southwest, Inc.
Fitzgerald & Son Funeral Directors, Inc.
Grants Mortuary, Inc.
Griffin Funeral Home, Inc.
Hillcrest Memorial Gardens Cemetery, Inc.
Larry A. McGee, Inc.
Strong-Thorne Mortuary, Inc.
Valley Memory Gardens, Inc.
West Funeral Home, Inc.
NEW YORK
Delaware Park Memorial Chapel, Inc.
Joseph G. Duffy, Inc.
John J. Healey Funeral Home, Inc.
M. J. Smith Sons, Inc.
Osiris Telemarketing Corp.
Ridge Chapels, Inc.
T.J. McGowan Sons Funeral Home, Inc.
Vay-Meeson Holding Company, Inc. and
subsidary company:
Vay-Schleich & Meeson Funeral Home Inc.
Wagner Acquisition Corporation and
subsidiary companies:
Connecticut
S. Spadaccino & Sons Funeral Home, Inc.
New York
Carpenter's Funeral Homes, Inc.
Coloni Funeral Homes, Inc.
Edward F. Carter, Inc.
<PAGE>
- 15 -
James Funeral Home, Inc.
Kennedy-Roth Funeral Home, Inc.
Lang-Tobia-DiPalma Funeral Home, Inc.
R. Stutzmann & Son, Inc.
Vernon C. Wagner Funeral Homes, Inc.
Virag-Maddex Funeral Home, Inc.
Wattengel Acquisitions, Inc.
William Leahy Funeral Home, Inc.
Wanamaker & Carlough, Inc.
Weeks Funeral Home, Inc.
NORTH CAROLINA
Carothers Holding Company, Inc. and
subsidiary companies:
Advanced Funeral Planning of North Carolina, Inc.
Bob Miller Funeral Home, Inc.
Highland Memorial Gardens, Inc.
Reeves Funeral Home, Inc.
Raleigh Memorial Park, Inc.
RMC Acquisitions, Inc.
Sandling Funeral Home, Inc.
Williams Funeral Service, Incorporated
Georgia
Carothers Holding Company (Georgia), Inc.
Dekle-Wainwright Funeral Home, Inc.
E.K. May Funeral Home, Inc.
Edo Miller & Sons, Inc.
Kennedy Monument Co., Inc.
Kennedy-Morgan Funeral Home, Inc.
Parkway Garden Chapel, Inc.
Smith-Tillman Mortuary, Inc.
Kentucky
Schoppenhorst Brothers - Funeral Home
South Carolina
Carothers Holding Company (South Carolina), Inc.
(formerly: Bass Funeral Home)
Virginia
Barnett's Marion Funeral Home, Inc.
NORTH CAROLINA
Cumberland Memorial Gardens, Inc.
Fairview Memorial Park of Albemarle, Inc.
Harnett Devotional Gardens, Inc.
Lineberry Cemetery Corporation and subsidiary company:
Westminster Gardens, Inc.
Lineberry Group, Inc. and subsidiary companies:
Crestview Memorial Park, Inc.
Evergreen Acquisition, Inc.
Hanes-Lineberry Advanced Funeral Planning, Inc.
<PAGE>
- 16 -
Lumbee Memorial Gardens, Inc.
Oak Ridge Memorial Park, Inc.
Padgett Funeral Home, Inc.
Rockfish Memorial Cemetery, Inc.
Virginia
Henry Memorial Park, Inc.
Lineberry Group (Virginia), Inc. and
subsidiary companies:
District of Columbia
Takoma Funeral Home, Inc.
Virginia
Ives-Pearson Funeral Homes, Inc.
Lee Funeral Home of Manassas, Inc.
Robert E. Evans Funeral Home, Inc.
Tomlinson Funeral Home, Inc.
NORTH CAROLINA
Loewen (North Carolina), Inc.
Stanly Gardens of Memory, Inc.
West Lawn Cemetery, Inc.
NORTH DAKOTA
Advanced Funeral Planning of the Dakotas, Inc.
(formerly: Advanced Funeral Planning of North Dakota, Inc.)
Dakota Memorial Chapel, Inc.
Eastgate Holdings, Inc. and subsidiary companies:
Eastgate Funeral Service, Inc.
Boelter Funeral Home, Inc.
Thompson Funeral Home, Incorporated
Weigel Funeral Home, Inc.
OHIO
Bennett-Emmert Funeral Home, Inc.
Berry Funeral Home, Inc.
Corrigan Funeral Home, Inc.
Craciun Funeral Home, Inc.
Crawford County Memory Gardens, Inc.
DiCicco and Son, Inc.
East Lawn Memorial Park Association
Fort Steuben Management, Inc.
Gemini Memorial, Inc. and its subsidiary company:
Danlan Corporation
Green Haven Memorial Gardens, Inc.
H. & D. Management Company, Inc. and subsdiary companies:
<PAGE>
- 17 -
Pet Haven Memorial Gardens, Inc.
Pennsylvania
Memorial Cemetery Advisors, Inc.
OHIO
H.H. Birkenkamp Funeral Home, Inc.
Heritage Cemetery Management Corporation
Hogenkamp-Bonham Funeral Home, Inc.
J.H. Finefrock & Sons, Inc.
Loewen Cemetery (Ohio), Inc.
Long and Folk Funeral Home, Inc.
MGC Acquisition, Inc.
MVMP Acquisition, Inc.
Midwest Cemetery Service Company and its subsidiary company:
Restlawn Memorial Gardens, Inc.
Northeast Ohio Crematory, Inc.
Reed-Nichols Funeral Home, Inc.
Resthaven Memory Garden Cemetery, Inc.
Restlawn Memorial Park Association
Rose Hill Management Co., Inc.
Rose Hill Memorial Gardens
Seneca Memory Gardens
Siferd Professional Associates, Inc.
Sinfran, Inc.
Spiker-Foster-Shriver Funeral Homes, Inc.
The Forest Hill Cemetery Association
The Fort Steuben Burial Estates Association
The Schmidt-Dhonau Company
Western Reserve Memorial Garden
OKLAHOMA
Loewen (Oklahoma), Inc. and its
subsidiary company:
Hunsaker-Wooten Funeral Home, Inc.
Lowell Holdings, Inc. and its subsidiary companies:
Gray Gish, Inc.
Gray Funeral Service, Inc.
Greer Funeral Home, Inc.
HM Acquisition, Inc.
Kiesau Funeral Home, Inc.
Ludlum Management Services, Inc.
Patterson Greer Funeral Home, Inc.
Sunset Memorial Gardens, Inc.
OREGON
Advanced Planning, Inc.
Bateman Funeral Chapel, Inc.
<PAGE>
- 18 -
Beaverton Funeral Home, Inc.
Belcrest Memorial Park, Inc.
Bishop Funeral Chapel Inc.
Buell Chapel, Inc.
Cemetery Services, Inc.
Fir Lawn Chapel, Inc.
Gable and Parkrose Funeral Chapels, Inc.
Haakinson-Groulx Mortuary, Inc.
Howell-Edwards-Doerksen Chapel of the Gardens, Inc.
O'Hair's Funeral Chapel, Inc.
Pacific Mausoleum Co., Inc.
Payne Family Mortuary, Inc.
Peake Memorial Chapel, Inc.
Portland Funeral Alternatives, Inc.
The Portland Memorial, Inc.
Young's Funeral Home, Inc.
PENNSYLVANIA
Alleva Leasing Corporation
Bethlehem Cemetery Association
BLH Management, Inc.
J. V. Walker Inc.
Juniata Memorial Park, Inc.
Melrose Land Company
NFH Leasing Corporation
Reese Leasing Corporation
Reese Management Corporation
Riverside Cemetery Company
The Prospect Cemetery
Twin Hills Memorial Park and Mausoleum Corporation
SOUTH CAROLINA
MGC Acquisitions, Inc.
SOUTH DAKOTA
HRMP Management, Inc.
Hofmeister Funeral Chapels, Inc.
Osthus Funeral Home, Inc.
Restlawn Memory Gardens, Inc.
Sunset Management, Inc.
TENNESSEE
Booth Funeral Home, Inc.
Coffey Mortuary, Inc.
Crestview Memorial Park, Inc.
DMA Corporation
<PAGE>
- 19 -
Eastview Memorial Gardens, Inc.
Family Funeral Service Group, Inc. and
subsidiary companies:
Indiana
Elzey & Haggard Funeral Homes, Inc.
Kentucky
Greenwell-Jenkins Funeral Home, Inc.
Laurel Funeral Home, Inc.
Lindsey Funeral Home, Inc.
Maplelawn Park Cemetery, Inc.
Roth Funeral Chapel, Incorporated
Wilder Funeral Home, Inc.
Ohio
Beam Funeral Home, Inc.
Burcham Funeral Home, Inc.
Tennessee
Burris Funeral Home, Inc.
Dickson Funeral Home, Incorporated
Hilcrest Cemetery Corporation
Johnson Funeral Home Of Church Hill, Inc.
Luff Bowen Funeral Home, Inc.
Roselawn Memorial Gardens Corporation
Spring Hill Cemetery Company
Tennessee Valley Memory Gardens And Funeral Home, Inc.
(formerly: Tennessee Valley Acquisition, Inc.)
Wilson County Memorial Park, Inc.
Virginia
Russell Memorial Cemetery, Inc.
TENNESSEE
Franklin Memorial Chapel, Inc.
Funeral Concepts of Knoxville, Inc.
Mayes Mortuary, Inc. and subsidiary company:
Advance Planning of Tennessee, Inc.
Newby Funeral Home, Inc.
Pettus-Owen & Wood Funeral Home, Inc.
Rawlings Funeral Home, Inc. and subsidiary company
Smith Funeral Home, Inc.
TEXAS
Allen-Korzenewski Funeral Home, Inc.
American Mausoleum Co.
Chism-Smith Funeral Home, Inc.
DSP General Partner, Inc.and subsidiary companies:
Del Rio Funeral Home, Inc.
Roger Pool Funeral Home, Inc.
<PAGE>
- 20 -
Tembico-Harkey, Inc.
Darling-Mouser Funeral Home, Inc.
Earthman Holdings, Inc. and subsidiary companies:
Bernard Probst Funeral Home, Inc.
Crown Hill Memorial Park, Inc.
Dudley M. Hughes Funeral Home, Inc.
Dudley M. Hughes Funeral Home North Chapel, Inc.
Ed C. Smith & Brothers Funeral Directors, Inc.
Hughes Funeral Homes, Inc.
Hughes Funerals, Inc.
Hughes Southland Funeral Home, Inc.
Max Martinez Funeral Home, Inc.
Oak Bluff Memorial Park, Inc., Of Port Neches
Pace-Stancil Funeral Home, Inc.
Pace-Stancil Memorial Rest Gardens, Inc.
Funeral Service, Inc. and subsidiary company:
National Capital Life Insurance Company
George C. Price Funeral Directors, Inc.
Garza Memorial Funeral Home, Inc.
Harper-Talasek Funeral Homes, Inc.
Huff Funeral Home, Inc.
James Funeral Home, Incorporated and subsidiary company:
Dunwood Cemetery Service Company
Memorial Park Cemetery, of Tyler, Texas
Paradise Chapel of Roses Mortuary, Inc.
Paragon Trevino Funeral Home, Inc.
Pitts Kreidler-Ashcraft Funeral Directors, Inc.
Thomae-Garza Funeral Directors, Inc.
Tyler Memorial Funeral Home And Chapel, Inc.
VIRGINIA
Advanced Planning of Virginia, Inc.
Altavista Memorial Park, Inc.
Roselawn Development Corporation
HFH, Inc.
Huff-Cook Funeral Home, Inc.
Loewen (Virginia), Inc.
Mullins Holding Company and subsidiary companies:
Alleghany Memorial Park, Inc.
Arlington Funeral Home, Incorporated
Bucktrout Funeral Home of Williamsburg, Inc.
Hill Funeral Home, Inc.
Jones-Ash Funeral Home, Inc.
L & D Enterprises, Incorporated
Lacy Funeral Home, Inc.
PMSI, Inc. and its subsidiary companies:
<PAGE>
- 21 -
Kiris, Inc.
Southern Memorial Sales, Inc.
Sidney F. Harrell Funeral Home, Inc.
Umphlett Funeral Home, Inc.
Virginia Memorial Service Corporation
Williamsburg Funeral Home, Inc.
Woodward Funeral Home, Incorporated
PVD Acquisitions, Inc.
RMG Acquisition, Inc.
Rose Lawn Cemeteries, Incorporated
Sunset Memorial, Inc.
WASHINGTON
Advanced Planning of Washington, Inc.
American Burial & Cremation Services, Inc.
Brown Mortuary Service, Inc.
Dahl/McVicker Funeral Homes, Inc.
Green Service Corporation and subsidiary company:
Sunset Marketing, Inc.
J & K Management Company
Jerns Funeral Chapel, Inc.
Longview Memorial Park, Inc.
Malletta-Vertin Holdings Inc. and subsidiary companies:
Arizona
Carr Mortuary, Inc.
Hatfield Funeral Home, Inc.
Colorado
Almont, Inc.
Imperial Memorial Gardens, Inc.
Delaware
Chapel of Chimes Funeral Home, Inc.
Gorder Funeral Home, Inc.
Lienkaemper Chapels, Inc.
Livingston-Malletta & Geraghty Funeral Home, Inc.
O'Connor Funeral Home & Crematory, Inc.
Retz Funeral Home, Inc.
Short's Funeral Chapel, Inc.
Squire-Simmons & Carr Funeral Home, Inc.
Sunset Memorial Cemetery & Funeral Home, Inc.
Idaho
Reynolds Acquisition, Inc.
White Mortuary, Inc.
Washington
<PAGE>
- 22 -
Evergreen Funeral Home And Cemetery, Inc.
Kimball Funeral Home, Inc.
WASHINGTON
Marysville Acquisition, Inc.
Powers Funeral Home, Inc.
Price-Helton Funeral Chapel, Inc.
S & H Properties and Enterprises, Inc. and subsidiary
companies:
Oregon
Universal Memorial Centers I, Inc.
Universal Memorial Centers II, Inc.
Universal Memorial Centers III, Inc.
California
Universal Memorial Centers V, Inc.
Universal Memorial Centers VI, Inc.
Washington
Vancouver Funeral Chapel, Inc. and
subsidiary company:
Northwood Park Cemetery, Inc.
Schaefer-Shipman Funeral Home, Inc.
Shaw & Sons Funeral Directors, Inc.
Sticklin Funeral Chapel, Inc.
WEST VIRGINIA
Advance Planning of West Virginia, Inc.
Beverly Hills Memorial Gardens, Inc.
Park View Memorial Gardens, Inc.
Davis Funeral Home, Inc.
Delta Marketing, Inc.
Dorsey Funeral Home, Inc.
Floral Hills Memorial Gardens, Inc.
Greenbrier Burial Park, Inc.
Highland Memory Gardens, Inc. and subsidiary company:
Guyan Memorial Gardens, Inc.
Montgomery Memorial Park Corporation
Mountaineer Vaults, Inc.
Mountain State Wilbert Vault, Inc.
Pineview Cemetery, Inc.
Resthaven Memorial Park, Inc.
Restwood Memorial Gardens, Inc.
R.J.P. Enterprises, Inc.
SMP Acquisition, Inc.
Stanley N. Vaughan Funeral Home, Inc.
Spurgeon Funeral Home, Inc.
SVM Acquisition, Inc.
Tankersley Funeral Home, Inc.
<PAGE>
- 23 -
Valley View Memorial Park, Inc.
White Chapel Memorial Gardens, Inc.
Woodlawn Memorial Park Corporation and subsidiary companies:
Cemetery Estates, Inc.
Restlawn Company
WISCONSIN
Advanced Planning of Wisconsin, Inc.
Acklam Funeral Home, Inc.
Community Funeral Home of Wisconsin, Inc. and its
subsidiary company:
D. H. Axtell, Inc. and its subsidiary companies:
Columbia Coach Service, Inc.
Edwardson-Axtell, Inc.
Murray Community Funeral Homes, Inc. and its
subsidiary company:
Kohls Community Funeral Homes, Inc.
Overton Funeral Home, Inc.
Schauer & Schumacher Funeral Homes, Inc.
WYOMING
Buck-Heggie Funeral Home, Inc.
HFH Acquisition, Inc.
HPS Acquisition, Inc.
Loewen Finance (Wyoming) Limited
Liability Company
Rostad Mortuary, Inc.
INTERNATIONAL COMPANIES
-----------------------
BARBADOS
Loewen International Holdings Ltd. and subsidiary companies:
Loewen Financial Corporation and subsidiary companies:
NETHERLANDS
Neweol Finance B.V.
TENNESSEE
Eagle Financial Associates, Inc.
BARBADOS
Loewen Insurance Holdings Inc. and subsidiary company:
Alula Insurance Corporation
Loewen Mexico Holdings Ltd.
Loewen Trading Corporation
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
The Loewen Group Inc. and Loewen Group International, Inc.
We consent to incorporation by reference in the registration statements on
Forms S-8 (Nos. 33-95496, 33-79602, 33-79604, 33-79606, 33-72808, 33-42892,
333-07033 and 333-22551), S-3 (Nos. 333-07175 and 333-10543), and S-4 (No.
333-09523) of The Loewen Group Inc. and the registration statement on Form
S-3 (Nos. 333-23747 and 333-23747-01) of Loewen Group International, Inc. and
The Loewen Group Inc. of our reports (i) dated March 3, 1997 relating to the
consolidated balance sheets of The Loewen Group Inc. as at December 31, 1996
and 1995 and the consolidated statements of operations, retained earnings,
and changes in financial position of The Loewen Group Inc. for each of the
years in the three year period ended December 31, 1996 and related schedule,
(ii) dated March 3, 1997, except as to Note 21(b), which is as of March 27,
1997, relating to the consolidated balance sheets of Loewen Group
International, Inc. as at December 31, 1996 and 1995 and the consolidated
statements of operations and retained earnings (deficit) and changes in
financial position of Loewen Group International, Inc. for each of the years
in the three year period ended December 31, 1996, and (iii) dated as of March
3, 1997, except for Note 15, which is as of March 27, 1997, relating to the
consolidated balance sheets of Neweol Investments Ltd. (as defined in Note 1
thereto) as at December 31, 1996 and 1995 and the consolidated statements of
operations and retained earnings and cash flows of Neweol Investments Ltd.
for each of the years in the three year period ended December 31, 1996, all
of which reports appear in the December 31, 1996 annual report on Form 10-K
of The Loewen Group Inc.
/s/ KPMG
Chartered Accountants
Vancouver, Canada
March 28, 1997
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
The Boards of Directors
The Loewen Group Inc. and Loewen Group International, Inc.
We consent to incorporation by reference in the registration statements on
Forms S-8 (Nos. 33-95496, 33-79602, 33-79604, 33-79606, 33-72808, 33-42892,
333-07033 and 333-22551), S-3 (Nos. 333-07175 and 333-10543) and S-4 (No.
333-09523) of The Loewen Group Inc. and the registration statement on Form
S-3 (Nos. 333-23747 and 333-23747-01) of The Loewen Group International, Inc.
and The Loewen Group Inc. of our report dated March 3, 1997, relating to the
balance sheets of Loewen Finance (Wyoming) Limited Liability Company as at
December 31, 1996 and 1995 and the related statements of income and retained
earnings and cash flows for each of the years in the two year period ended
December 31, 1996 and for the eight month period ended December 31, 1994,
which report appears in the December 31, 1996 annual report on Form 10-K of
The Loewen Group Inc.
/s/ PEAT MARWICK
Chartered Accountants
Bridgetown, Barbados
March 28, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE LOEWEN
GROUP INC. FINANCIALS FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 18,059
<SECURITIES> 0
<RECEIVABLES> 235,182
<ALLOWANCES> 47,565
<INVENTORY> 32,008
<CURRENT-ASSETS> 249,229
<PP&E> 794,378
<DEPRECIATION> 108,093
<TOTAL-ASSETS> 3,496,939
<CURRENT-LIABILITIES> 193,652
<BONDS> 1,428,641
75,000
157,146
<COMMON> 796,431
<OTHER-SE> 94,623
<TOTAL-LIABILITY-AND-EQUITY> 3,496,939
<SALES> 908,385
<TOTAL-REVENUES> 908,385
<CGS> 570,814
<TOTAL-COSTS> 570,814
<OTHER-EXPENSES> 133,466
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 88,932
<INCOME-PRETAX> 89,407
<INCOME-TAX> 29,095
<INCOME-CONTINUING> 63,906
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 63,906
<EPS-PRIMARY> 0.97
<EPS-DILUTED> 0.97
</TABLE>
