<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-12163
----------------
THE LOEWEN GROUP INC.
(Exact name of registrant as specified in its charter)
----------------
<TABLE>
<S> <C>
BRITISH COLUMBIA 98-0121376
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
4126 NORLAND AVENUE,
BURNABY, BRITISH COLUMBIA, CANADA V5G 3S8
(Address of principal executive offices)(Zip Code)
604-299-9321
Registrant's telephone number, including area code
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check /X/ whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
----------------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check /X/ whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes / / No / /
----------------
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of outstanding Common shares as of July 31, 1997, was 73,219,570.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE LOEWEN GROUP INC.
AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS
as of June 30, 1997 and December 31, 1996................ 1
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
for the Three Months Ended June 30, 1997 and 1996 and the
Six Months Ended June 30, 1997 and 1996.................. 2
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
for the Six Months Ended June 30, 1997 and 1996.......... 3
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS............. 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.... 19
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................... 27
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.................................................. 32
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................... 33
SIGNATURES............................................................... 39
</TABLE>
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
THE LOEWEN GROUP INC.
CONSOLIDATED BALANCE SHEETS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and term deposits......................... $ 32,931 $ 18,059
Receivables, net of allowances................. 233,577 187,617
Inventories.................................... 32,900 32,008
Prepaid expenses............................... 13,079 11,545
------------- ------------
312,487 249,229
Prearranged funeral services..................... 362,165 334,420
Long-term receivables, net of allowances......... 429,823 288,579
Investments...................................... 285,937 266,228
Insurance invested assets........................ 300,527 296,249
Cemetery property, at cost....................... 799,422 615,192
Property and equipment........................... 730,452 686,285
Names and reputations............................ 570,072 558,710
Deferred income taxes............................ 82,496 67,904
Other assets..................................... 149,646 134,143
------------- ------------
$ 4,023,027 $3,496,939
------------- ------------
------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities....... $ 100,449 $ 114,072
Long-term debt, current portion................ 71,961 79,580
------------- ------------
172,410 193,652
Long-term debt................................... 1,398,699 1,416,345
Other liabilities................................ 262,228 216,842
Insurance policy liabilities..................... 216,746 212,480
Deferred prearranged funeral services revenue.... 362,165 334,420
Preferred securities of subsidiary............... 75,000 75,000
Shareholders' equity
Common shares.................................. 1,248,102 796,431
Preferred shares............................... 157,146 157,146
Retained earnings.............................. 117,906 80,117
Foreign exchange adjustment.................... 12,625 14,506
------------- ------------
1,535,779 1,048,200
------------- ------------
$ 4,023,027 $3,496,939
------------- ------------
------------- ------------
</TABLE>
Commitments and contingencies (Notes 3, 4, 8 and 10)
See accompanying notes to interim consolidated financial statements
-1-
<PAGE>
THE LOEWEN GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue
Funeral........................................................ $ 146,567 $ 133,713 $ 302,110 $ 266,972
Cemetery....................................................... 106,980 67,882 204,415 121,206
Insurance...................................................... 22,101 21,561 43,820 28,062
---------- ---------- ---------- ----------
275,648 223,156 550,345 416,240
Costs and expenses
Funeral........................................................ 88,391 80,203 180,475 157,427
Cemetery....................................................... 71,049 46,690 135,155 84,340
Insurance...................................................... 17,055 16,600 34,248 21,975
---------- ---------- ---------- ----------
176,495 143,493 349,878 263,742
---------- ---------- ---------- ----------
99,153 79,663 200,467 152,498
Expenses
General and administrative..................................... 17,608 16,927 41,087 33,282
Depreciation and amortization.................................. 16,574 13,060 33,400 24,702
---------- ---------- ---------- ----------
34,182 29,987 74,487 57,984
---------- ---------- ---------- ----------
Earnings from operations......................................... 64,971 49,676 125,980 94,514
Interest on long-term debt....................................... 32,945 21,058 63,643 39,546
---------- ---------- ---------- ----------
Earnings before undernoted items................................. 32,026 28,618 62,337 54,968
Dividends on preferred securities of subsidiary.................. 1,772 1,772 3,544 3,544
---------- ---------- ---------- ----------
Earnings before income taxes and undernoted items................ 30,254 26,846 58,793 51,424
Income taxes..................................................... 7,704 7,996 15,700 15,734
---------- ---------- ---------- ----------
22,550 18,850 43,093 35,690
Equity and other earnings of associated companies................ 3,718 639 6,875 1,022
---------- ---------- ---------- ----------
Net earnings for the period...................................... $ 26,268 $ 19,489 $ 49,968 $ 36,712
Retained earnings, beginning of period........................... 101,388 51,163 80,117 36,439
Common share dividends........................................... (7,370) (4,132) (7,370) (6,631)
Preferred share dividends........................................ (2,380) (4,023) (4,809) (4,023)
---------- ---------- ---------- ----------
Retained earnings, end of period................................. $ 117,906 $ 62,497 $ 117,906 $ 62,497
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Basic earnings per Common share.................................. $ 0.38 $ 0.30 $ 0.74 $ 0.60
Fully diluted earnings per Common share.......................... $ 0.38 $ 0.30 $ 0.74 $ 0.60
Dividend per Common share........................................ $ 0.10 $ 0.07 $ 0.10 $ 0.12
</TABLE>
See accompanying notes to interim consolidated financial statements
-2-
<PAGE>
THE LOEWEN GROUP INC.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1997 1996
---------- ----------
(UNAUDITED)
<S> <C> <C>
CASH PROVIDED BY (APPLIED TO)
Operations
Net earnings............................................................................ $ 49,968 $ 36,712
Items not affecting cash
Depreciation and amortization......................................................... 33,400 24,702
Deferred income taxes................................................................. (6,364) 12,013
Equity and other earnings of associated companies..................................... (6,875) (1,022)
Common shares and debt issued for legal settlements..................................... -- (112,000)
Other, including net changes in other non-cash balances................................. (140,220) (108,033)
---------- ----------
(70,091) (147,628)
---------- ----------
Investing
Business acquisitions................................................................... (271,359) (361,748)
Construction of new facilities.......................................................... (5,358) (9,748)
Investments, net........................................................................ (13,860) (22,147)
Purchase of insurance invested assets................................................... (136,373) --
Proceeds on disposition and maturities of insurance invested assets..................... 132,094 --
Purchase of property and equipment...................................................... (29,055) (15,168)
Proceeds on disposition of assets....................................................... 20,862 2,428
Other................................................................................... (20,572) (10,329)
---------- ----------
(323,621) (416,712)
---------- ----------
Financing
Issue of Common shares, before income tax recovery...................................... 443,392 295,773
Issue of Preferred shares, before income tax recovery................................... -- 154,094
Increase in long-term debt.............................................................. 433,984 627,428
Reduction in long-term debt............................................................. (454,753) (448,308)
Common share dividends.................................................................. (7,370) (6,631)
Preferred share dividends............................................................... (4,809) (4,023)
Current note payable.................................................................... -- (38,546)
Other................................................................................... (1,552) (17,982)
---------- ----------
408,892 561,805
---------- ----------
Increase (decrease) in cash and cash equivalents during the period........................ 15,180 (2,535)
Effect of foreign exchange adjustment..................................................... (308) (398)
Cash and cash equivalents, beginning of period............................................ 18,059 39,454
---------- ----------
Cash and cash equivalents, end of period.................................................. $ 32,931 $ 36,521
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to interim consolidated financial statements
-3-
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
1. BASIS OF PRESENTATION
The United States dollar is the principal currency of the Company's business
and accordingly the interim consolidated financial statements are expressed in
United States dollars. The interim consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in Canada.
The interim consolidated financial statements include the accounts of all
subsidiary companies and include all adjustments, consisting only of normal
recurring adjustments, which in management's opinion are necessary for a fair
presentation of the financial results for the interim periods. The financial
statements have been prepared consistent with the accounting policies described
in the Company's Annual Report on Form 10-K filed with the Securities and
Exchange Commission for the year ended December 31, 1996 and should be read in
conjunction therewith. Certain of the comparative figures have been reclassified
to conform to the presentation adopted in the current period.
USE OF ESTIMATES
The preparation of interim 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.
2. ACQUISITIONS
During the six months ended June 30, 1997, the Company acquired 47 funeral
homes and 85 cemeteries in the United States, and four funeral homes in Canada.
During the six months ended June 30, 1996, the Company acquired 78 funeral
homes, 57 cemeteries and two insurance companies in the United States and five
funeral homes and one cemetery in Canada. Included in these acquisitions was 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 included 15 funeral homes, two
cemeteries and two insurance companies.
-4-
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
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.
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1997 1996
---------- ----------
<S> <C> <C>
Current assets.................................................................. $ 4,924 $ 21,756
Prearranged funeral services.................................................... 12,848 14,668
Long-term receivables, net of allowances........................................ 54,460 20,762
Insurance invested assets....................................................... -- 185,971
Cemetery property, at cost...................................................... 178,299 129,389
Property and equipment.......................................................... 40,217 71,801
Names and reputations........................................................... 25,523 104,318
Other assets.................................................................... 179 599
---------- ----------
316,450 549,264
Current liabilities............................................................. (1,692) (6,854)
Long-term debt.................................................................. (390) (18,207)
Other liabilities............................................................... (30,161) (23,200)
Insurance policy liabilities.................................................... -- (125,207)
Deferred income taxes........................................................... -- 620
Deferred prearranged funeral services revenue................................... (12,848) (14,668)
---------- ----------
$ 271,359 $ 361,748
---------- ----------
---------- ----------
Consideration
Cash, including assumed debt repaid at closing................................ $ 264,659 $ 335,501
Debt.......................................................................... 4,804 17,481
Common shares................................................................. 1,896 8,766
---------- ----------
Purchase Price.................................................................. $ 271,359 $ 361,748
---------- ----------
---------- ----------
</TABLE>
The following table reflects, on a pro-forma basis, the combined results of
the Company's operations acquired during the period ended June 30, 1997 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 periods presented, and is not
intended to be a projection of future results or trends.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Revenues........................................................................ $ 566,941 $ 449,364
Net earnings.................................................................... $ 50,665 $ 37,891
Basic earnings per share........................................................ $ 0.68 $ 0.55
Fully diluted earnings per share................................................ $ 0.67 $ 0.55
</TABLE>
-5-
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
In June, 1997, in order to comply with state law, the Company disposed of
all of its eighteen funeral homes in the state of Wisconsin. The aggregate
proceeds from the sale of these properties was $18,500,000, resulting in a gain
before taxes of approximately $3,000,000.
3. INVESTMENT IN PRIME SUCCESSION HOLDINGS, INC. ("PRIME")
On August 26, 1996, the Company acquired 235.2941 shares of Prime common
stock 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 shares of Prime common stock, 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 shares of Prime common stock and
Blackstone has paid $52,000,000 for 764.7059 shares of Prime common stock
representing 21.8% and 78.2% respectively of Prime's voting common stock. 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.
The Company accounts for its investment in Prime preferred stock by the cost
method. For the six months ended June 30, 1997, income of $3,175,000 was
recorded representing the cumulative annual payment-in-kind dividend.
The Company accounts for its investment in Prime common stock 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 six months ended June 30, 1997, a loss of $1,056,000 was recorded
representing the Company's proportionate share of the loss attributable to the
Prime common stock.
Under a Put/Call Agreement entered into with Blackstone, the Company has the
option to acquire ("Call") Blackstone's Prime common stock 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 Prime common stock 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.
-6-
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
3. INVESTMENT IN PRIME SUCCESSION HOLDINGS, INC. ("PRIME") (CONTINUED)
Summarized financial data for Prime are presented as follows:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1997 1997
------------- ------------
<S> <C> <C>
Income statement information:
Revenue................................................................. $ 24,364 $ 48,559
Gross margin............................................................ 8,572 17,253
Earnings from operations................................................ 5,047 10,118
Payment-in-kind dividend................................................ 1,588 3,175
Net loss attributable to common shareholders............................ 2,309 4,846
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Balance sheet information:
Current assets.......................................................... $ 22,225 $ 24,614
Non-current assets...................................................... 371,998 374,174
------------- ------------
Total assets............................................................ 394,223 398,788
Current liabilities..................................................... 20,548 22,531
Non-current liabilities................................................. 248,741 249,652
------------- ------------
Total liabilities....................................................... 269,289 272,183
Shareholders' equity.................................................... 124,934 126,605
</TABLE>
4. INVESTMENT IN ROSE HILLS HOLDING CORP. ("RH HOLDINGS")
On November 19, 1996, the Company acquired 204.5454 shares of RH Holdings
common stock for $9,000,000, representing 20.45% of RH Holdings' voting common
stock, and 100% of RH Holdings' non-voting preferred stock 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 shares of RH Holdings common stock, representing 79.55% of RH Holdings'
voting common stock for $35,000,000.
RH Holdings holds all of the outstanding common stock 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.
The Company accounts for its investment in RH Holdings preferred stock by
the cost method. For the six months ended June 30, 1997, income of $4,300,000
was recorded representing the cumulative annual payment-in-kind dividend.
The Company accounts for its investment in RH Holdings common stock by the
equity method. Under the equity method, the Company records its proportionate
share of the net earnings (loss) of
-7-
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
4. INVESTMENT IN ROSE HILLS HOLDING CORP. ("RH HOLDINGS") (CONTINUED)
RH Holdings after deducting the payment-in-kind dividend. For the six months
ended June 30, 1997, a loss of $755,000 was recorded representing the Company's
proportionate share of the loss attributable to the common stock 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 interim
consolidated balance sheet.
Under a Put/Call Agreement entered into with Blackstone, the Company has the
option to acquire ("Call") Blackstone's RH Holdings common stock 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 RH Holdings common stock 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.
Summarized financial data for RH Holdings are presented as follows:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1997 1997
------------- ------------
<S> <C> <C>
Income statement information:
Revenue................................................................. $ 18,025 $ 35,866
Gross margin............................................................ 14,402 28,465
Earnings from operations................................................ 4,167 8,938
Payment-in-kind dividend................................................ 2,150 4,300
Net loss attributable to common shareholders............................ 2,053 3,693
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Balance sheet information:
Current assets.......................................................... $ 16,102 $ 21,272
Non-current assets...................................................... 298,585 296,562
------------- ------------
Total assets............................................................ 314,687 317,834
Current liabilities..................................................... 11,843 15,510
Non-current liabilities................................................. 173,210 173,298
------------- ------------
Total liabilities....................................................... 185,053 188,808
Shareholders' equity.................................................... 129,634 129,026
</TABLE>
-8-
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
5. LONG-TERM DEBT
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Bank revolving credit agreements..................................................... $ 257,973 $ 270,489
Management Equity Investment Plan bank term loan agreement due in 2000............... 105,596 107,583
Canadian bank term loan agreement due in 2000 (Cdn. $35,000,000)..................... 25,353 25,536
9.70% Series A and C senior amortizing notes due in 1998............................. 62,500 62,500
9.93% Series B senior amortizing notes due in 2001................................... 35,700 35,700
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.............................................. 225,000 225,000
7.75% Series 3 senior notes due in 2001.............................................. 125,000 125,000
8.25% Series 2 and 4 senior notes due in 2003........................................ 350,000 350,000
Present value of notes issued under legal settlements discounted at
an effective interest rate of 7.75%................................................ 39,115 40,000
Present value of contingent consideration payable on acquisitions
discounted at an effective interest rate of 8.0%................................... 26,515 34,681
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.......................................... 107,908 109,436
------------ ------------
1,470,660 1,495,925
Less current portion................................................................. 71,961 79,580
------------ ------------
$ 1,398,699 $1,416,345
------------ ------------
------------ ------------
</TABLE>
Certain of the Company's 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 the Company to maintain specified financial ratios.
At June 30, 1997, all of the Company's retained earnings were not restricted and
available for payment of dividends under the most restrictive agreement.
6. SHARE CAPITAL
In June 1997, the Company completed a public offering in the United States,
Canada and internationally of 13,800,000 Common shares, including 1,800,000
Common shares issued pursuant to the underwriters' over-allotment option, for
aggregate gross proceeds of $455,400,000. The net proceeds of approximately
$437,400,000 will be used for working capital and other general corporate
purposes, including acquisitions. Pending use for such purposes, the net
proceeds were used to repay existing indebtedness.
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
-9-
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
7. PREFERRED SECURITIES OF SUBSIDIARY (CONTINUED)
Company. The consolidated financial statements of LGII are prepared in
accordance with Canadian generally accepted accounting principles and are
presented in United States dollars.
Summarized financial data for LGII are presented as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED JUNE
JUNE 30, 30,
---------------------- ----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income statement information:
Revenue.............................................. $ 256,116 $ 206,113 $ 511,047 $ 382,170
Gross margin......................................... 89,898 73,206 177,968 139,083
Earnings from operations............................. 59,449 46,877 110,910 88,232
Net earnings......................................... 1,696 5,447 2,699 10,912
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Balance sheet information:
Current assets.......................................................... $ 279,794 $ 223,388
Non-current assets...................................................... 3,114,416 2,865,005
------------- ------------
Total assets............................................................ 3,394,210 3,088,393
Current liabilities..................................................... 139,926 156,290
Non-current liabilities................................................. 2,913,755 2,719,453
------------- ------------
Total liabilities....................................................... 3,053,681 2,875,743
Shareholders' equity.................................................... 340,529 212,650
</TABLE>
8. LEGAL PROCEEDINGS AND CONTINGENCIES
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 "MIPS Underwriters") of LGC's 1994 offering of the 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 three class action complaints alleged that the defendants failed to
disclose the Company's potential 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.
-10-
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
8. LEGAL PROCEEDINGS AND CONTINGENCIES (CONTINUED)
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.
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 MIPS Underwriters were dismissed
without prejudice, by agreement of the parties. Prior to the dismissal, the MIPS
Underwriters had indicated to the Company that they would seek indemnity from
the Company for costs incurred. The Company paid the MIPS Underwriters' costs
through the date of dismissal. The Company expects that the MIPS Underwriters
will seek further indemnity from the Company if any of the claims against the
Underwriters are reinstated.
On April 29, 1997, the Court issued Pretrial Order No. 2, which provides,
among other things, that: (i) trial will be set on or after February 1, 1999;
(ii) the Court will convene a settlement conference on August 19, 1997; (iii)
depositions are to commence on or after September 10, 1997 and be completed by
June 30, 1998; (iv) expert discovery is to be completed by September 30, 1998;
and (v) dispositive motions are to be filed by October 30, 1998.
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 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.
-11-
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
8. LEGAL PROCEEDINGS AND CONTINGENCIES (CONTINUED)
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 interim 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 in Florida Circuit Court in Clearwater, Florida. In early 1996, a related
lawsuit, PALLADINO, ET AL. was filed by eight families and assigned to the same
judge handling the Roe matter. In May 1996, Sean O'Sullivan filed a lawsuit
against Osiris and LGII, and in July 1996, Karen Schneider filed a lawsuit
against Osiris and LGII. The Roe and Palladino lawsuits ultimately were
consolidated (the "Roe/Palladino Lawsuit"), and the Schneider lawsuit ultimately
was dismissed when Karen Schneider became a plaintiff in the Roe/Palladino
Lawsuit. O'Sullivan ultimately settled for a DE MINIMIS sum and dismissed his
complaint. In October 1996, a Fifth Amended Complaint relating to the
Roe/Palladino lawsuit was filed on behalf of a total of 150 plaintiff families.
The Fifth Amended Complaint was dismissed for pleading deficiencies and a Sixth
Amended Complaint (the "Complaint") was filed. A Motion to Dismiss the Complaint
is currently pending before the Court.
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 (intentionally and grossly negligent
conduct so extreme and outrageous so as to imply malice) and negligent and
intentional 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 damages in excess of $40,000,000. 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.
A mediation was held in November 1996, but the parties did not reach an
agreement. In January 1997, nearly 100 families settled their claims for DE
MINIMIS sums, leaving the number of plaintiff families at 51. In early July
1997, a new suit was filed by Hazel Garafolo and four other families, making
essentially the same allegation as those made in the Roe/Palladino Lawsuit. On
July 8, 1997, the parties met to again mediate in an attempt to resolve all
claims made by plaintiff families relating to graves located in the first row
(the row closest to the sprinkler line) ("First Row Plaintiffs"). All First Row
Plaintiffs were included in the mediation. A tentative settlement of all claims
made by these First Row Plaintiffs was reached at the mediation.
Under the terms of the tentative settlement, the Company will pay $300,000
and the balance of the settlement and defense costs will be borne by the
insurance carriers for Osiris and Loewen. It is anticipated that the settlement
documentation will be completed and that the claims by the First Row Plaintiffs
will be
-12-
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
8. LEGAL PROCEEDINGS AND CONTINGENCIES (CONTINUED)
dismissed within the next several months. There are approximately seven families
who remain as plaintiffs in the Roe/Palladino Lawsuit. None of the remaining
plaintiff families are First Row Plaintiffs.
Assuming that the tentative settlement is formalized, the Company believes
that the settlement of all claims made by the First Row Plaintiffs and any
ultimate liability to the seven families who remain as plaintiffs in the
Roe/Palladino Lawsuit and associated costs would not have a material adverse
effect on the Company's business, financial condition and results of operation.
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 filed, and the
Court granted, preliminary challenges to the Third Amended Complaint. The Court
also dismissed the claims against LGII for failure to state a claim upon which
relief can be granted, although the Third Amended Complaint does continue on
unaffected counts.
-13-
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
8. LEGAL PROCEEDINGS AND CONTINGENCIES (CONTINUED)
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 interim consolidated financial statements.
LAWSUITS RELATING TO FUNERAL INSURANCE POLICIES ISSUED BY AFFILIATES OF S.I.
ACQUISITION ASSOCIATES, L.P.
Three complaints have been filed in 1997 on behalf of individuals who claim
damages in connection with funeral insurance policies allegedly issued to them
by insurance companies owned, directly or indirectly, by S.I. Acquisition
Associates, L.P. ("S.I."). The Company acquired the assets of S.I. in March
1996.
The Company has determined that it is not possible to predict the final
outcome of these legal proceedings and that it is not possible to establish a
reasonable estimate of possible damages, if any, or reasonably to estimate the
range of possible damages that may be awarded to the plaintiffs. Accordingly, no
provision with respect to these lawsuits has been made in the Company's interim
consolidated financial statements.
FELDHEIM ET AL. V. SI-SIFH CORP. ET AL. AND DUFFY 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. are affiliates of S.I.
In June 1997, Lloyd Duffy, Sr. and four other individuals filed a lawsuit on
behalf of themselves and a class or 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 Orleans, State of Louisiana.
Plaintiffs seek a class action. The DUFFY complaint was filed by the same
lawyers who filed the complaint in the FELDHEIM case, and is a virtually
identical copy of the FELDHEIM complaint. The DUFFY case is pending in the trial
court and, as of the date hereof, no discovery has taken place.
The FELDHEIM and DUFFY plaintiffs allegedly 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 alleged unfair trade practices in violation of
Louisiana's trade practices law.
Plaintiffs' petitions 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.
On June 13, 1997, the district court in Jefferson Parish dismissed the
FELDHEIM plaintiffs' claim to a class action, and plaintiffs have appealed.
Briefing is expected to take place in August and September 1997, with an oral
argument scheduled a few months thereafter.
-14-
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
8. LEGAL PROCEEDINGS AND CONTINGENCIES (CONTINUED)
MCMANUS ET AL. V. RABENHORST FUNERAL HOME ET AL.
In May 1997, Mary C. McManus and five other individuals filed a lawsuit on
behalf of themselves and a class of similarly situated individuals and/or
entities against Rabenhorst Funeral Home and several other defendants, including
Hollabaugh-Seale Funeral Home, which was acquired by the Company in March 1996
when the Company acquired the assets of S.I. Other than the Hollabaugh-Seale
Funeral Home, the Company has no ownership or other relationship with any
defendant in this case.
Plaintiffs' complaint seeks a class action, compensatory damages, an
injunction against the defendants' conduct, and additional unspecified relief.
No specific factual allegations in the complaint are directed to acts of the
Company or of Hollabaugh-Seale Funeral Home. As of the date hereof, no discovery
has taken place.
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 designated to control
environmental risk upon acquisition through extensive due diligence and
corrective measures taken prior to acquisition. The Company believes
environmental contingencies and liabilities to be immaterial individually and in
the aggregate.
OTHER
No material developments occurred in connection with any other previously
reported legal proceedings against the Company during the six months ended June
30, 1997.
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.
9. HOSTILE TAKEOVER PROPOSAL
On January 7, 1997, Service Corporation International ("SCI") publicly
withdrew its unsolicited proposed offer to acquire the Company through an
exchange offer announced in October 1996. SCI had proposed to 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
October 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.
10. SUBSEQUENT EVENTS
(a) ACQUISITIONS
During the period from July 1, 1997 to July 31, 1997, the Company acquired
17 funeral homes and 25 cemeteries. The aggregate cost of these transactions was
approximately $75,796,000.
As at July 31, 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
-15-
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
10. SUBSEQUENT EVENTS (CONTINUED)
Board of Directors. The aggregate cost of these transactions, if completed, will
be approximately $213,765,000.
(b) SALE OF INVESTMENT IN ARBOR MEMORIAL SERVICES INC.
In August 1997, the Company announced that it has entered into an agreement
to divest its minority interest in Arbor Memorial Services Inc. for gross
proceeds to the Company of approximately $69,000,000 and an after tax gain of
approximately $16,000,000. The sale is subject to regulatory approval.
11. UNITED STATES ACCOUNTING PRINCIPLES
The interim 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 AND EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
EARNINGS
Net earnings in accordance with Canadian GAAP......................... $ 26,268 $ 19,489 $ 49,968 $ 36,712
Effects of differences in accounting for:
Insurance operations.............................................. (278) (691) 245 (691)
Income taxes (d).................................................. 898 528 1,364 952
Stock options..................................................... (174) -- (174) --
--------- --------- --------- ---------
Net earnings in accordance with United States GAAP.................... $ 26,714 $ 19,326 $ 51,403 $ 36,973
--------- --------- --------- ---------
--------- --------- --------- ---------
EARNINGS PER COMMON SHARE
Earnings per Common share in accordance with United States GAAP, are
as follows:
Primary earnings per Common share................................. $ 0.38 $ 0.29 $ 0.75 $ 0.60
Fully diluted earnings per Common share........................... $ 0.38 $ 0.29 $ 0.75 $ 0.60
</TABLE>
The following average number of shares were used for the computation of
primary and fully diluted earnings per Common share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
THOUSANDS OF SHARES
<S> <C> <C> <C> <C>
Primary.................................................................... 64,049 59,380 62,293 55,026
Fully diluted.............................................................. 68,104 59,513 66,128 55,290
</TABLE>
-16-
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
11. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
(b) BALANCE SHEET
The amounts in the interim consolidated balance sheet that differ from those
reported under Canadian GAAP are as follows:
<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31, 1996
-------------------------- ------------------------
CANADIAN UNITED CANADIAN UNITED
GAAP STATES GAAP GAAP STATES GAAP
------------ ------------ ---------- ------------
<S> <C> <C> <C> <C>
Assets
Long-term receivables, net of allowances.............. $ 429,823 $ 434,609 $ 288,579 $ 288,579
Investments........................................... 285,937 248,403 266,228 230,911
Insurance invested assets............................. 300,527 300,296 296,249 297,340
Cemetery property..................................... 799,422 1,132,764 615,192 872,782
Names and reputations................................. 570,072 600,266 558,710 586,847
Other assets.......................................... 149,646 172,516 134,143 153,604
Liabilities and Shareholders' Equity
Insurance policy liabilities.......................... 216,746 242,232 212,480 234,909
Other liabilities..................................... 262,228 223,211 216,842 179,944
Deferred income taxes................................. (82,496) 302,984 (67,904) 239,617
Common shares......................................... 1,248,102 1,274,368 796,431 822,378
Retained earnings..................................... 117,906 101,048 80,117 61,824
Unrealized gains (losses) on securities available for
sale................................................ -- 2,709 -- 933
Foreign exchange adjustment........................... 12,625 (18,014) 14,506 (16,171)
</TABLE>
(c) STATEMENT OF CASH FLOWS
The statement of cash flows under United States GAAP would differ from the
statement of changes in financial position under Canadian GAAP as the following
non-cash transactions would not be reflected as cash flows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
---------------------
1997 1996
---------- ---------
<S> <C> <C>
Non-cash debt and share consideration on acquisitions...................................... $ 6,700 $ 26,247
Note receivable from sale of subsidiaries.................................................. 15,725 --
Common shares and debt issued for legal settlements........................................ -- 112,000
Dividends payable on common and preferred shares........................................... 9,750 8,155
</TABLE>
(d) ACCOUNTING FOR INCOME TAXES
Included in the net effects of accounting for income taxes is approximately
$1,074,000 additional gain related to the sale of subsidiaries. Under United
States GAAP, the gain on the sale of subsidiaries is higher than under Canadian
GAAP as a result of the Company's initial adoption of Financial Accounting
Standard ("FAS") 109, which resulted in a cumulative effect adjustment related
to properties acquired by the Company prior to January 1, 1993.
-17-
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
11. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
(e) RECENT UNITED STATES ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
FAS 128, Earnings per Share, which the Company will adopt in its consolidated
financial statements for the three months and year ending December 31, 1997. The
effect of this pronouncement on the Company's consolidated financial statements
is not expected to be material.
In June 1997, the FASB issued FAS 130, Reporting Comprehensive Income, and
FAS 131, Disclosures About Segments of an Enterprise and Related Information.
These standards will affect the presentation but not the measurement of the
consolidated financial statements and the related notes.
-18-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Unless the context otherwise requires (i) "Loewen" refers to The Loewen
Group Inc., a company 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
together with its subsidiaries and associated companies.
OVERVIEW
The Company is the second-largest operator of funeral homes and cemeteries
in North America. In addition to providing services at the time of need, the
Company also makes funeral, cemetery and cremation arrangements on a preneed
basis. As at July 31, 1997, the Company operated 1,003 funeral homes throughout
the United States and Canada. This included 880 funeral homes in the United
States and 123 funeral homes in Canada. In addition, as at such date, the
Company operated 416 cemeteries in the United States and six cemeteries in
Canada. As at July 31, 1997, the Company also operated four insurance
subsidiaries which sell a variety of life insurance products, primarily to fund
funerals purchased through a preneed 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 1995 Business Failure Record
published by The Dun & Bradstreet Corporation, the average business failure rate
in the United States in 1995 was 82 per 10,000. The 1995 failure rate of the
funeral service and crematoria industry was 13 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 10,500 cemeteries in North America are
currently owned or 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.
-19-
<PAGE>
RESULTS OF OPERATIONS
Detailed below are the Company's operating results for the three months and
the six months ended June 30, 1997 and 1996, expressed in dollar amounts as well
as relevant percentages. The operating results are presented as a percentage of
total revenue, except income taxes, which are presented as a percentage of
earnings before income taxes and equity and other earnings of associated
companies.
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
(IN MILLIONS) (PERCENTAGES)
<S> <C> <C> <C> <C>
Revenue
Funeral.................................................................... $ 146.5 $ 133.7 53.2 59.9
Cemetery................................................................... 107.0 67.9 38.8 30.4
Insurance.................................................................. 22.1 21.6 8.0 9.7
--------- ---------
Total.................................................................... $ 275.6 $ 223.2 100.0 100.0
--------- ---------
--------- ---------
Gross margin
Funeral.................................................................... $ 58.2 $ 53.5 39.7 40.0
Cemetery................................................................... 36.0 21.2 33.6 31.2
Insurance.................................................................. 5.0 5.0 22.8 23.0
--------- ---------
Total.................................................................... $ 99.2 $ 79.7 36.0 35.7
--------- ---------
--------- ---------
Expenses
General and administrative................................................. 17.6 16.9 6.4 7.6
Depreciation and amortization.............................................. 16.6 13.1 6.0 5.9
--------- ---------
Earnings from operations..................................................... 65.0 49.7 23.6 22.3
Interest on long-term debt................................................... 32.9 21.0 12.0 9.4
Dividends on preferred securities of subsidiary.............................. 1.8 1.8 0.6 0.8
Income taxes................................................................. 7.7 8.0 25.5 29.8
--------- ---------
22.6 18.9 8.2 8.4
Equity and other earnings of associated companies............................ 3.7 0.6 1.3 0.3
--------- ---------
Net earnings................................................................. $ 26.3 $ 19.5 9.5 8.7
--------- ---------
--------- ---------
</TABLE>
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
Consolidated revenue increased 24% to $275.6 million in the three months
ended June 30, 1997 from $223.2 million during the same period in 1996.
Consolidated gross margin increased 25% to $99.2 million in the three months
ended June 30, 1997 from $79.7 million during the same period in 1996. As a
percentage of revenue, consolidated gross margin increased to 36.0% in 1997 from
35.7% in 1996.
Funeral revenue increased 10% to $146.5 million for the three months ended
June 30, 1997 compared to $133.7 million for the same period in 1996, due to
acquisitions. The number of funeral services performed at locations in operation
for the three months ended June 30, 1996 and 1997 ("Established Locations")
declined by 3.0% from 1996 to 1997; however, this was partially offset by a
higher average revenue per funeral service. Funeral gross margin as a percentage
of funeral revenue for Established Locations decreased slightly to 40.3% in 1997
from 40.7% in 1996, as revenue decreased $0.6 million and costs remained
constant. 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 slightly to 39.7% in 1997 from 40.0% in 1996.
Cemetery revenue increased 58% to $107.0 million for the three months ended
June 30, 1997 compared to $67.9 million during the same period in 1996,
primarily due to acquisitions. Cemetery gross margin increased to 33.6% in 1997
from 31.2% in 1996 principally as a result of a shift to increased sales of
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<PAGE>
pre-need interment services for newly acquired as well as Established Locations.
For Established Locations, cemetery gross margin increased to 33.9% in 1997 from
33.1% in 1996, primarily as a result of an increase in revenue of $0.9 million,
offset by a $0.1 million increase in costs.
Insurance revenue increased to $22.1 million for the three months ended June
30, 1997 from $21.6 million during the same period in 1996.
General and administrative expenses, as a percentage of revenue, decreased
to 6.4% for the three months ended June 30, 1997 from 7.6% during the same
period in 1996. The decrease in 1997 was due in part to the recording of a gain
before taxes of $3.0 million on the sale of certain funeral home properties (see
Acquisitions, Investments and Capital Expenditures). For the three months ended
June 30, 1997, general and administrative expenses increased to $17.6 million
from $16.9 million in 1996. The increase in general and administrative expenses
in 1997 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, offset by the gain on the sale of certain
funeral home properties.
Interest expense on long-term debt increased by $11.9 million for the three
months ended June 30, 1997 primarily as a result of additional borrowings by the
Company to finance its acquisitions.
Income taxes were $7.7 million, resulting in an effective tax rate of 25.5%
on earnings before income taxes and equity and other earnings of associated
companies for the three months ended June 30, 1997, compared to an effective tax
rate of 29.8% during the same period in 1996. The decrease in the effective tax
rate is due to the expansion and restructuring of the Company's international
and intercompany financing arrangements.
Equity and other earnings of associated companies increased to $3.7 million
for the three months ended June 30, 1997 from $0.6 million in 1996 due to the
inclusion of payment-in-kind dividends and the Company's proportionate share of
the loss attributable to the Common shares of Prime Succession Holdings, Inc.
and Rose Hills Holding Corp., as described further in Notes 3 and 4 to the
Company's financial statements.
Net earnings increased to $26.3 million for the three months ended June 30,
1997 from $19.5 million during the same period in 1996. Fully diluted earnings
per share increased to $0.38 per share in 1997 from $0.30 per share during the
same period in 1996.
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<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
(IN MILLIONS) (PERCENTAGES)
<S> <C> <C> <C> <C>
Revenue
Funeral.................................................................... $ 302.1 $ 267.0 54.9 64.1
Cemetery................................................................... 204.4 121.2 37.1 29.1
Insurance.................................................................. 43.8 28.0 8.0 6.8
--------- ---------
Total.................................................................... $ 550.3 $ 416.2 100.0 100.0
--------- ---------
--------- ---------
Gross margin
Funeral.................................................................... $ 121.6 $ 109.5 40.3 41.0
Cemetery................................................................... 69.3 36.9 33.9 30.4
Insurance.................................................................. 9.6 6.1 21.8 21.7
--------- ---------
Total.................................................................... $ 200.5 $ 152.5 36.4 36.6
--------- ---------
--------- ---------
Expenses
General and administrative................................................. 41.1 33.3 7.5 8.0
Depreciation and amortization.............................................. 33.4 24.7 6.1 5.9
--------- ---------
Earnings from operations..................................................... 126.0 94.5 22.9 22.7
Interest on long-term debt................................................... 63.7 39.6 11.6 9.5
Dividends on preferred securities of subsidiary.............................. 3.5 3.5 0.6 0.9
Income taxes................................................................. 15.7 15.7 26.7 30.6
--------- ---------
43.1 35.7 7.8 8.6
Equity and other earnings of associated companies............................ 6.9 1.0 1.3 0.2
--------- ---------
Net earnings................................................................. $ 50.0 $ 36.7 9.1 8.8
--------- ---------
--------- ---------
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Consolidated revenue increased 32% to $550.3 million in the six months ended
June 30, 1997 from $416.2 million during the same period in 1996. Consolidated
gross margin increased 31% to $200.5 million in the six months ended June 30,
1997 from $152.5 million during the same period in 1996. As a percentage of
revenue, consolidated gross margin decreased to 36.4% in 1997 from 36.6% in
1996. The Company anticipates that the consolidated gross margin as a percentage
of revenue will continue to decline slightly, primarily as a result of
acquisitions and internally generated growth in the cemetery division.
Funeral revenue increased 13% to $302.1 million for the six months ended
June 30, 1997 compared to $267.0 million for the same period in 1996, due to
acquisitions. The number of funeral services performed at locations in operation
for the six months ended June 30, 1996 and 1997 ("Established Locations")
declined by 2.7% from 1996 to 1997; 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 40.9% in 1997 from 41.5%
in 1996, as the $1.4 million increase in revenue was offset by a $2.1 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 40.3% in 1997 from 41.0% in 1996.
Cemetery revenue increased 69% to $204.4 million for the six months ended
June 30, 1997 compared to $121.2 million during the same period in 1996,
primarily due to acquisitions. Cemetery gross margin increased to 33.9% in 1997
from 30.4% in 1996 principally as a result of a shift to increased sales of
preneed interment services for newly acquired as well as Established Locations.
For Established Locations, cemetery gross margin increased to 34.0% in 1997 from
32.4% in 1996, primarily as a result of an increase in revenue of $12.0 million,
offset by a $6.2 million increase in costs.
-22-
<PAGE>
Insurance revenue increased to $43.8 million for the six months ended June
30, 1997 from $28.0 million during the same period in 1996. 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 $155.8 million (including
related costs), which assets included two insurance companies. The full benefit
of this acquired operation was not reflected in the results for the six month
period ended June 30, 1996 because the acquisition was consummated late in the
first quarter.
General and administrative expenses, as a percentage of revenue, decreased
to 7.5% for the six months ended June 30, 1997 from 8.0% for the same period in
1996 due in part to the recording of a gain before tax of $3.0 million on the
sale of certain funeral home properties. For the six months ended June 30, 1997,
general and administrative expenses increased to $41.1 million from $33.3
million in 1996. The increase in general and administrative expenses in 1997 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, offset by the gain on the sale of certain funeral home
properties.
In August 1997, as part of its ongoing program to reduce general and
administrative expenses, the Company announced plans to consolidate its
Cincinnati corporate office with its other corporate offices in Vancouver and
Philadelphia. This initiative is expected to result in both long-term savings
and improved operating efficiencies.
Interest expense on long-term debt increased by $24.1 million for the six
months ended June 30, 1997 primarily as a result of additional borrowings by the
Company to finance its acquisitions.
Income taxes were $15.7 million, resulting in an effective tax rate of 26.7%
on earnings before income taxes and equity and other earnings of associated
companies for the six months ended June 30, 1997 compared to an effective tax
rate of 30.6% during the same period in 1996. The decrease in the effective tax
rate is due to the expansion and restructuring of the Company's international
and intercompany financing arrangements.
Equity and other earnings of associated companies increased to $6.9 million
for the six months ended June 30, 1997 from $1.0 million in 1996 due to the
inclusion of payment-in-kind dividends and the Company's proportionate share of
the loss attributable to the Common shares of Prime Succession Holdings, Inc.
and Rose Hills Holding Corp., as described further in Notes 3 and 4 to the
Company's financial statements.
Net earnings increased to $50.0 million for the six months ended June 30,
1997 from $36.7 during the same period in 1996. Fully diluted earnings per share
increased to $0.74 per share in 1997 from $0.60 per share during the same period
in 1996.
ACQUISITIONS, INVESTMENTS AND CAPITAL EXPENDITURES
During the six months ended June 30, 1997 the Company acquired 47 funeral
homes and 85 cemeteries in the United States and four funeral homes in Canada
for consideration of approximately $271 million. During the same period in 1996,
the Company acquired 83 funeral homes, 58 cemeteries and two insurance companies
for consideration of approximately $362 million. Included in the 1996
acquisitions was the purchase of certain net assets of S.I. Acquisition
Associates L.P., for $155.8 million.
As of July 31, 1997, the Company had signed agreements, some of which are
non-binding, for the acquisition of 76 additional funeral homes and 61
additional cemeteries aggregating approximately $214 million. 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.
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
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<PAGE>
combine or sell a small number of locations in order to utilize its resources to
produce a better return from its assets.
In June 1997, in order to comply with state law, the Company disposed of all
of its eighteen funeral homes in the state of Wisconsin. The aggregate proceeds
from the sale of these properties was $18.5 million, resulting in a gain before
taxes of $3.0 million. The Company continues to own cemeteries in Wisconsin and
is actively pursuing cemetery acquisitions, however, in the future will not
purchase any funeral homes in that state until such time as the regulatory
issues related to ownership are resolved.
On August 11, 1997 the Company announced that it had entered into an
agreement to divest of its minority interest in Arbor Memorial Services Inc. for
gross proceeds to the Company of approximately $69 million and an after-tax gain
of approximately $16 million. The sale is subject to regulatory approval and is
anticipated to be recorded in the third quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company intends to fund its ongoing expansion programs through a
combination of debt and equity offerings and borrowings under its credit
facilities (described below). 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 balance sheet at June 30, 1997, as compared to December 31,
1996, reflects changes principally from acquisitions during 1997, as described
further in Note 2 to the Company's financial statements, and the equity issue
(described below). In addition, during the last two years the Company has
significantly expanded its cemetery preneed sales programs. Cemetery preneed
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
preneed sales has resulted in an increase in both current and long-term
receivables and other liabilities.
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 June 30, 1997 the Company's long-term debt/equity ratio was
0.96:1, as a result of the recently completed 1997 equity issue (described
below).
In June 1997, the Company completed a public offering in the United States,
Canada and internationally of 13,800,000 Common shares (including 1,800,000
Common shares issued pursuant to the underwriters' over-allotment option) for
aggregate gross proceeds of $455 million. The net proceeds from the offering of
approximately $437 million will be used for working capital and general
corporate purposes, including acquisitions. Pending use for such purposes, the
net proceeds were used to repay existing indebtedness.
Also in June 1997, LGII filed a registration statement with the Securities
and Exchange Commission ("SEC") for the future offering on a periodic basis of
up to $500 million in debt securities. In addition, Loewen currently has
registered with the SEC 5,000,000 Common shares for issuance in connection with
prospective acquisitions for which the Company may issue Common shares as full
or partial payment of the purchase price ("share-for-share acquisitions"). The
Company issued 59,388 of such Common shares in connection with share-for-share
acquisitions during 1997.
INDEBTEDNESS
At June 30, 1997 LGII has outstanding four series of senior guaranteed notes
(the "Series 1-4 Senior Notes") issued in March and October of 1996. The Series
1-4 Notes are guaranteed by Loewen and bear interest rates ranging from 7.50% to
8.25% and have terms of five to seven years.
-24-
<PAGE>
LGII also has a five-year $750 million secured revolving credit facility
(the "Revolving Credit Facility") with a syndicate of banks. The Revolving
Credit Facility matures in May 2002 and bears interest at alternative rates
selected by LGII. At June 30, 1997, the amount outstanding under the Revolving
Credit Facility was $224 million, and such amount bore interest at 6.8% per
annum. The Company is currently negotiating with its senior lenders to amend and
expand this facility to $1.0 billion.
In addition LGII and Loewen have outstanding at June 30, 1997 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 Amortizing Notes").
The Series A-E Amortizing 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 Revolving Credit Facility") and a Cdn.$35 million
five-year term loan that will terminate in January 2000 (the "Canadian Term
Loan"). A subsidiary of Loewen has a $106 million secured term loan due in July
2000 that was implemented in connection with the 1994 Management Equity
Investment Plan (the "MEIP Loan").
In 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 Series 1-4 Senior Notes, the
Series A-E Amortizing Notes, the Revolving Credit Facility, the Canadian
Revolving Credit Facility, the Canadian Term Loan and the MEIP Loan as well as
the holders of certain letters of credit.
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, 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 June 30, 1997, all of the Company's retained earnings were not restricted and
available for payment of dividends under the most restrictive agreement. See
Note 5 to the Company's 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 Company's 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 counterparties. The
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<PAGE>
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.
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<PAGE>
PART II
ITEM 1. 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, LGC, and the lead underwriters (the
"MIPS Underwriters") of LGC's 1994 offering of the 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 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 three class action complaints alleged that the defendants failed to
disclose the Company's potential 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.
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 MIPS Underwriters were dismissed
without prejudice, by agreement of the parties. Prior to the dismissal, the MIPS
Underwriters had indicated to the Company that
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<PAGE>
they would seek indemnity from the Company for costs incurred. The Company paid
the MIPS Underwriters' costs through the date of dismissal. The Company expects
that the MIPS Underwriters will seek further indemnity from the Company if any
of the claims against the Underwriters are reinstated.
On April 29, 1997, the Court issued Pretrial Order No. 2, which provides,
among other things, that: (i) trial will be set on or after February 1, 1999;
(ii) the Court will convene a settlement conference on August 19, 1997; (iii)
depositions are to commence on or after September 10, 1997 and be completed by
June 30, 1998; (iv) expert discovery is to be completed by September 30, 1998;
and (v) dispositive motions are to be filed by October 30, 1998.
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 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
Company's interim 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 in Florida Circuit Court in Clearwater, Florida. In early 1996, a related
lawsuit, PALLADINO, ET AL. was filed by eight families and assigned to the same
judge handling the Roe matter. In May 1996, Sean O'Sullivan filed a lawsuit
against Osiris and LGII, and in July 1996, Karen Schneider filed a lawsuit
against Osiris and LGII. The Roe and Palladino lawsuits ultimately were
consolidated (the "Roe/Palladino Lawsuit"), and the Schneider lawsuit ultimately
was dismissed when Karen Schneider became a plaintiff in the Roe/Palladino
Lawsuit. O'Sullivan ultimately settled for a DE MINIMIS sum and dismissed his
complaint. In October 1996, a Fifth Amended Complaint relating to the
Roe/Palladino lawsuit was filed on behalf of a total of 150 plaintiff families.
The Fifth Amended Complaint was dismissed for pleading deficiencies and a Sixth
Amended Complaint (the "Complaint") was filed. A Motion to Dismiss the Complaint
is currently pending before the Court.
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 (intentionally and grossly negligent
conduct so extreme and outrageous so as to imply malice) and negligent and
intentional 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 damages in excess of $40,000,000. 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.
A mediation was held in November 1996, but the parties did not reach an
agreement. In January 1997, nearly 100 families settled their claims for DE
MINIMIS sums, leaving the number of plaintiff families at 51.
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<PAGE>
In early July 1997, a new suit was filed by Hazel Garafolo and four other
families, making essentially the same allegation as those made in the
Roe/Palladino Lawsuit. On July 8, 1997, the parties met to again mediate in an
attempt to resolve all claims made by plaintiff families relating to graves
located in the first row (the row closest to the sprinkler line) ("First Row
Plaintiffs"). All First Row Plaintiffs were included in the mediation. A
tentative settlement of all claims made by these First Row Plaintiffs was
reached at the mediation.
Under the terms of the tentative settlement, the Company will pay $300,000
and the balance of the settlement and defense costs will be borne by the
insurance carriers for Osiris and Loewen. It is anticipated that the settlement
documentation will be completed and that the claims by the First Row Plaintiffs
will be dismissed within the next several months. There are approximately seven
families who remain as plaintiffs in the Roe/Palladino Lawsuit. None of the
remaining plaintiff families are First Row Plaintiffs.
Assuming that the tentative settlement is formalized, the Company believes
that the settlement of all claims made by the First Row Plaintiffs and any
ultimate liability to the seven families who remain as plaintiffs in the
Roe/Palladino Lawsuit and associated costs would not have a material adverse
effect on the Company's business, financial condition and results of operation.
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 filed, and the
Court granted, preliminary challenges to the Third Amended Complaint. The Court
also dismissed the
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claims against LGII for failure to state a claim upon which relief can be
granted, although the Third Amended Complaint does continue on unaffected
counts.
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 interim consolidated financial statements.
LAWSUITS RELATING TO FUNERAL INSURANCE POLICIES ISSUED BY AFFILIATES OF S.I.
ACQUISITION ASSOCIATES, L.P.
Three complaints have been filed in 1997 on behalf of individuals who claim
damages in connection with funeral insurance policies allegedly issued to them
by insurance companies owned, directly or indirectly, by S.I. Acquisition
Associates, L.P. ("S.I."). The Company acquired the assets of S.I. in March
1996.
The Company has determined that it is not possible to predict the final
outcome of these legal proceedings and that it is not possible to establish a
reasonable estimate of possible damages, if any, or reasonably to estimate the
range of possible damages that may be awarded to the plaintiffs. Accordingly, no
provision with respect to these lawsuits has been made in the Company's interim
consolidated financial statements.
FELDHEIM ET AL. V. SI-SIFH CORP. ET AL. AND DUFFY 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. are affiliates of S.I.
In June 1997, Lloyd Duffy, Sr. and four other individuals filed a lawsuit on
behalf of themselves and a class or 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 Orleans, State of Louisiana.
Plaintiffs seek a class action. The DUFFY complaint was filed by the same
lawyers who filed the complaint in the FELDHEIM case, and is a virtually
identical copy of the FELDHEIM complaint. The DUFFY case is pending in the trial
court and, as of the date hereof, no discovery has taken place.
The FELDHEIM and DUFFY plaintiffs allegedly 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 alleged unfair trade practices in violation of
Louisiana's trade practices law.
Plaintiffs' petitions 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.
On June 13, 1997, the district court in Jefferson Parish dismissed the
FELDHEIM plaintiffs' claim to a class action, and plaintiffs have appealed.
Briefing is expected to take place in August and September 1997, with an oral
argument scheduled a few months thereafter.
MCMANUS ET AL. V. RABENHORST FUNERAL HOME ET AL.
In May 1997, Mary C. McManus and five other individuals filed a lawsuit on
behalf of themselves and a class of similarly situated individuals and/or
entities against Rabenhorst Funeral Home and several other defendants, including
Hollabaugh-Seale Funeral Home, which was acquired by the Company in
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March 1996 when the Company acquired the assets of S.I. Other than the
Hollabaugh-Seale Funeral Home, the Company has no ownership or other
relationship with any defendant in this case.
Plaintiffs' complaint seeks a class action, compensatory damages, an
injunction against the defendants' conduct, and additional unspecified relief.
No specific factual allegations in the complaint are directed to acts of the
Company or of Hollabaugh-Seale Funeral Home. As of the date hereof, no discovery
has taken place.
OTHER
No material developments occurred in connection with any other previously
reported legal proceedings against the Company during the six months ended June
30, 1997.
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.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
(a) The Annual General Meeting of Shareholders of Loewen (the "AGM") was held on
May 15, 1997.
(b) Not applicable, because (i) proxies for the AGM were solicited pursuant to
Regulation 14 under the Securities Exchange Act of 1934, as amended, (ii)
there was no solicitation in opposition to the management's nominees as
listed in the proxy statement, and (iii) all of such nominees were elected.
(c) The following matters were voted upon at the meeting:
<TABLE>
<CAPTION>
NUMBER OF VOTES
--------------------------------------------------
WITHHELD/ BROKER
FOR AGAINST ABSTENTIONS NON-VOTES
------------ ------------ ----------- ---------
<S> <C> <C> <C> <C>
Election of directors
Reverend Kenneth Sidney Bagnell....................... 38,140,559 0 498,679 0
Dr. Earl Alan Grollman................................ 38,140,614 0 498,624 0
Charles Barnard Loewen................................ 37,576,005 0 1,063,233 0
Lawrence Miller....................................... 38,155,200 0 484,038 0
Appointment of KPMG as auditors......................... 38,584,829 0 36,719 0
Authorization of directors to fix the
remuneration to be paid to the auditors............... 38,497,838 102,278 79,822 0
Amendments to the Employee Stock Option
Plan (United States) to increase:
(a) the number of Common Shares issuable thereunder by
1,000,000........................................... 28,925,109 8,798,639 875,990 0
(b) the number of Common Shares for which options may be
granted thereunder in any one calendar year to any
one participant by 300,000 Common Shares............ 25,466,967 12,980,596 192,075 0
Amendments to the Employee Stock Option
Plan (Canada) to increase:
(a) the number of Common Shares issuable thereunder by
1,000,000........................................... 19,090,596 11,127,873 8,421,652 0
(b) the number of Common Shares for which options may be
granted thereunder in any one calendar year to any
one participant by 300,000 Common Shares............ 17,342,755 12,816,399 8,480,967 0
Amendment to the Employee Stock Bonus
Plan to increase the number of
Common Shares issuable thereunder by
50,000 Common Shares.................................. 31,831,490 5,931,163 876,985 0
</TABLE>
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -----------------------------------------------------------------------------------
<C> <S>
3 CHARTER DOCUMENTS
3.1 Certificate of Incorporation of The Loewen Group Inc. ("Loewen") issued by
the British Columbia Registrar of Companies (the "Registrar") on October
30, 1985(1)
3.2 Altered Memorandum of the Registrant, filed with the Registrar on June 21,
1996(2)
3.3 Articles of the Registrant, 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)
4.7 Guaranty Agreement by Loewen re Series E Notes, dated for reference
February 1, 1994(1)
4.8.1 Amended and Restated 1994 MEIP Credit Agreement, dated as of June 14,
1994, amended and restated as of May 15, 1996 (the "MEIP Credit
Agreement"), 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)
4.8.2 First Amendment to the MEIP Credit Agreement, dated as of December 2,
1996(5)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -----------------------------------------------------------------------------------
<C> <S>
4.8.3 Second Amendment to the MEIP Credit Agreement, dated as of April 30,
1997(5)
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(6)
4.14 MIPS Guarantee Agreement, dated August 15, 1994(6)
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(7)
4.17 Form of Global Series 1 and 2 Outstanding Note of LGII(7)
4.18 Form of Physical Series 1 and 2 Outstanding Note of LGII(7)
4.19 Form of Global Series 1 and 2 Exchange Note of LGII(4)
4.20 Form of Physical Series 1 and 2 Exchange Note of LGII(4)
4.21 Form of Senior Guarantee of LGII's Series 1 and 2 Notes(4)
4.22.1 Credit Agreement, dated as of May 15, 1996 ("BMO Credit Agreement"), 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)
4.22.2 First Amendment to BMO Credit Agreement, dated as of December 2, 1996(8)
4.22.3 Second Amendment to BMO Credit Agreement, dated as of April 30, 1997(5)
4.22.4 Commitment Letter regarding BMO Credit Agreement, dated as of April 14,
1997(5)
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(9)
4.24.2 Third Amendment to Operating Credit Agreement, dated for reference July
15, 1996, among Loewen, LGII and Royal Bank of Canada(9)
4.25 Indenture, dated as of October 1, 1996, by and between LGII, Loewen and
Fleet National Bank, as Trustee, with respect to the Series 3 and 4
Notes(9)
4.26 Form of Global Series 3 and 4 Outstanding Note of LGII(9)
4.27 Form of Physical Series 3 and 4 Outstanding Note of LGII(9)
4.28 Form of Global Series 3 and 4 Exchange Note of LGII(10)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -----------------------------------------------------------------------------------
<C> <S>
4.29 Form of Physical Series 3 and 4 Exchange Note of LGII(10)
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 Form of Indenture by and between LGII, as issuer, Loewen, as guarantor,
and Fleet National Bank, as trustee(8)
4.33 Altered Memorandum of The Loewen Group Inc., filed with the British
Columbia Registrar of Companies (the "Registrar") on June 21, 1996(11)
4.34 Articles of Loewen, restated, filed with the Registrar on March 1, 1988,
as amended(7)
4.35 The Registrants hereby agree to furnish to the Commission, upon request, a
copy of the instruments which define the rights of holders of long-term
debt of the Registrants. None of such instruments not included as
exhibits herein collectively represents long-term debt in excess of 10%
of the consolidated total assets of LGII or Loewen.
10 MATERIAL CONTRACTS
10.1 Stock Purchase Agreement, dated as of March 16, 1995, by and between
Osiris Holding Corporation and LGII(12)
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(13)
*10.11 Form of Indemnification Agreement with Officers(13)
*10.12 Form of The Loewen Group Inc. Severance Agreement(13)
*10.13 The Loewen Group Inc. Severance Pay Plan(13)
*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)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -----------------------------------------------------------------------------------
<C> <S>
*10.16 Employment Agreement, dated March 21, 1990, by and between Loewen and
David FitzSimmon(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(6)
*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(6)
*10.27 1994 Outside Director Compensation Plan as restated and amended as at
January 9, 1997(11)
*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(11)
*10.30 Employee Stock Option Plan (Canada), as restated and amended as at April
2, 1996(14)
*10.31 Employment Agreement, dated April 30, 1996, by and between Loewen and
Grant Ballantyne(6)
*10.32 Employment Agreement, dated May 1, 1996, amended July 18, 1996 by and
between Loewen and Douglas J. McKinnon(6)
*10.33 Resignation and Release Agreement, effective June 10, 1996, by and between
Loewen, LGII and Robert O. Wienke(6)
11 STATEMENTS RE COMPUTATION OF PER SHARE EARNINGS
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.(15)
99.2 Put/Call Agreement, dated as of August 25, 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(15)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -----------------------------------------------------------------------------------
<C> <S>
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(15)
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")(16)
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(16)
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(16)
</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 (File No. 0-18429)
(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 (File No. 0-18429)
(3) Incorporated by reference from Loewen's Annual Report on Form 10-K for the
year ended December 31, 1994, filed on March 31, 1995 (File No. 0-18429)
(4) Incorporated by reference from the Registration Statement on Form S-4 filed
by Loewen on May 3, 1996, as amended (File No. 333-03135)
(5) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997, filed on May 13, 1997 (File No. 1-12163)
(6) Incorporated by reference from the combined Registration Statement on Form
F-9/F-3 filed by LGII and Loewen on July 1, 1994, as amended (File Nos.
33-81032 and 33-81034)
(7) 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 (File No.
0-18429)
(8) Incorporated by reference from the Registration Statement on Form S-3 filed
by Loewen and LGII on March 21, 1997, as amended (File No. 333-23747)
(9) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996, filed on November 14, 1996 (File No.
1-12163)
(10) Incorporated by reference from the Registration Statement on Form S-4 filed
by LGII and Loewen on November 18, 1996, as amended (File Nos. 333-16319 and
333-16319-01)
(11) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996, filed August 15, 1996 (File No. 0-18429)
(12) Incorporated by reference from Loewen's Periodic Report on Form 8-K/A No. 1
dated April 18, 1995, filed May 5, 1995 (File No. 0-18429)
(13) Incorporated by reference from Loewen's Solicitation/Recommendation
Statement on Schedule 14D-9, filed on October 10, 1996, as amended
(14) Incorporated by reference from Loewen's Annual Report on Form 10-K for the
year ended December 31, 1996, filed on March 31, 1997 (File No. 1-12163)
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<PAGE>
(15) Incorporated by reference from Loewen's Periodic Report on Form 8-K, dated
April 26, 1996, filed October 12, 1996, amended October 30, 1996 (File No.
0-18429)
(16) Incorporated by reference from Loewen's Periodic Report on Form 8-K, dated
November 19, 1996, filed December 27, 1996 (File No. 1-12163)
(b) REPORTS ON FORM 8-K
The following Current Reports on Form 8-K were filed by Loewen during the
subject quarter:
<TABLE>
<CAPTION>
DATE OF REPORT ITEM NUMBER DESCRIPTION
- ----------------------- ------------------------ ---------------------------------------------------------------
<S> <C> <C>
March 24, 1997 Item 5. Other Events Press release announcing the filing by Loewen and LGII of a
(filed April 1, 1997) U.S.$1 billion shelf registration statement
May 2, 1997 Item 5. Other Events Update to the description of Loewen's Common shares contained
(filed May 2, 1997) in the Registration Statement on Form 20-F, filed by Loewen on
March 30, 1990 (File No. 0-18429)
May 5, 1997 Item 5. Other Events Press release announcing financial results for the first
(filed May 7, 1997) quarter of 1997
May 21, 1997 Item 5. Other Events Press release announcing cash dividends on Loewen's Common
(filed May 23, 1997) shares and 6% Cumulative Redeemable Convertible First Preferred
Shares, Series C
June 5, 1997 Item 5. Other Events (a) Press release announcing that Loewen's Chairman and Chief
(filed June 11, 1997) Executive Officer has acquired additional Common shares
(b) Press release announcing that the underwriters of Loewen's
recent equity offering exercised their over-allotment option in
full, increasing the gross proceeds of the offering to $455
million
</TABLE>
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Loewen
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
THE LOEWEN GROUP INC.
Date: August 12, 1997 By: /s/ PAUL WAGLER
-----------------------------------------
Name: Paul Wagler
Title: SENIOR VICE-PRESIDENT, FINANCE
AND CHIEF FINANCIAL OFFICER
Date: August 12, 1997 By: /s/ WILLIAM G. BALLANTYNE
-----------------------------------------
Name: William G. Ballantyne
Title: SENIOR VICE-PRESIDENT, FINANCIAL CONTROL
AND ADMINISTRATION
(CHIEF ACCOUNTING OFFICER)
-39-
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
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<C> <S>
3 CHARTER DOCUMENTS
3.1 Certificate of Incorporation of The Loewen Group Inc. ("Loewen") issued by
the British Columbia Registrar of Companies (the "Registrar") on October
30, 1985(1)
3.2 Altered Memorandum of the Registrant, filed with the Registrar on June 21,
1996(2)
3.3 Articles of the Registrant, 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)
4.7 Guaranty Agreement by Loewen re Series E Notes, dated for reference
February 1, 1994(1)
4.8.1 Amended and Restated 1994 MEIP Credit Agreement, dated as of June 14,
1994, amended and restated as of May 15, 1996 (the "MEIP Credit
Agreement"), 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)
4.8.2 First Amendment to the MEIP Credit Agreement, dated as of December 2,
1996(5)
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EXHIBIT
NUMBER DESCRIPTION PAGE
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4.8.3 Second Amendment to the MEIP Credit Agreement, dated as of April 30,
1997(5)
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(6)
4.14 MIPS Guarantee Agreement, dated August 15, 1994(6)
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(7)
4.17 Form of Global Series 1 and 2 Outstanding Note of LGII(7)
4.18 Form of Physical Series 1 and 2 Outstanding Note of LGII(7)
4.19 Form of Global Series 1 and 2 Exchange Note of LGII(4)
4.20 Form of Physical Series 1 and 2 Exchange Note of LGII(4)
4.21 Form of Senior Guarantee of LGII's Series 1 and 2 Notes(4)
4.22.1 Credit Agreement, dated as of May 15, 1996 ("BMO Credit Agreement"), 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)
4.22.2 First Amendment to BMO Credit Agreement, dated as of December 2, 1996(8)
4.22.3 Second Amendment to BMO Credit Agreement, dated as of April 30, 1997(5)
4.22.4 Commitment Letter regarding BMO Credit Agreement, dated as of April 14,
1997(5)
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(9)
4.24.2 Third Amendment to Operating Credit Agreement, dated for reference July
15, 1996, among Loewen, LGII and Royal Bank of Canada(9)
4.25 Indenture, dated as of October 1, 1996, by and between LGII, Loewen and
Fleet National Bank, as Trustee, with respect to the Series 3 and 4
Notes(9)
4.26 Form of Global Series 3 and 4 Outstanding Note of LGII(9)
4.27 Form of Physical Series 3 and 4 Outstanding Note of LGII(9)
4.28 Form of Global Series 3 and 4 Exchange Note of LGII(10)
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EXHIBIT
NUMBER DESCRIPTION PAGE
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4.29 Form of Physical Series 3 and 4 Exchange Note of LGII(10)
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 Form of Indenture by and between LGII, as issuer, Loewen, as guarantor,
and Fleet National Bank, as trustee(8)
4.33 Altered Memorandum of The Loewen Group Inc., filed with the British
Columbia Registrar of Companies (the "Registrar") on June 21, 1996(11)
4.34 Articles of Loewen, restated, filed with the Registrar on March 1, 1988,
as amended(7)
4.35 The Registrants hereby agree to furnish to the Commission, upon request, a
copy of the instruments which define the rights of holders of long-term
debt of the Registrants. None of such instruments not included as
exhibits herein collectively represents long-term debt in excess of 10%
of the consolidated total assets of LGII or Loewen.
10 MATERIAL CONTRACTS
10.1 Stock Purchase Agreement, dated as of March 16, 1995, by and between
Osiris Holding Corporation and LGII(12)
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(13)
*10.11 Form of Indemnification Agreement with Officers(13)
*10.12 Form of The Loewen Group Inc. Severance Agreement(13)
*10.13 The Loewen Group Inc. Severance Pay Plan(13)
*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)
<PAGE>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------------------------------------------------------------------------------------------
*10.16 Employment Agreement, dated March 21, 1990, by and between Loewen and
David FitzSimmon(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(6)
*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(6)
*10.27 1994 Outside Director Compensation Plan as restated and amended as at
January 9, 1997(11)
*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(11)
*10.30 Employee Stock Option Plan (Canada), as restated and amended as at April
2, 1996(14)
*10.31 Employment Agreement, dated April 30, 1996, by and between Loewen and
Grant Ballantyne(6)
*10.32 Employment Agreement, dated May 1, 1996, amended July 18, 1996 by and
between Loewen and Douglas J. McKinnon(6)
*10.33 Resignation and Release Agreement, effective June 10, 1996, by and between
Loewen, LGII and Robert O. Wienke(6)
11 STATEMENTS RE COMPUTATION OF PER SHARE EARNINGS
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.(15)
99.2 Put/Call Agreement, dated as of August 25, 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(15)
<PAGE>
EXHIBIT
NUMBER DESCRIPTION PAGE
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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(15)
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")(16)
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(16)
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(16)
</TABLE>
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* 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 (File No. 0-18429)
(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 (File No. 0-18429)
(3) Incorporated by reference from Loewen's Annual Report on Form 10-K for the
year ended December 31, 1994, filed on March 31, 1995 (File No. 0-18429)
(4) Incorporated by reference from the Registration Statement on Form S-4 filed
by Loewen on May 3, 1996, as amended (File No. 333-03135)
(5) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997, filed on May 13, 1997 (File No. 1-12163)
(6) Incorporated by reference from the combined Registration Statement on Form
F-9/F-3 filed by LGII and Loewen on July 1, 1994, as amended (File Nos.
33-81032 and 33-81034)
(7) 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 (File No.
0-18429)
(8) Incorporated by reference from the Registration Statement on Form S-3 filed
by Loewen and LGII on March 21, 1997, as amended (File No. 333-23747)
(9) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996, filed on November 14, 1996 (File No.
1-12163)
(10) Incorporated by reference from the Registration Statement on Form S-4 filed
by LGII and Loewen on November 18, 1996, as amended (File Nos. 333-16319 and
333-16319-01)
(11) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996, filed August 15, 1996 (File No. 0-18429)
(12) Incorporated by reference from Loewen's Periodic Report on Form 8-K/A No. 1
dated April 18, 1995, filed May 5, 1995 (File No. 0-18429)
(13) Incorporated by reference from Loewen's Solicitation/Recommendation
Statement on Schedule 14D-9, filed on October 10, 1996, as amended
(14) Incorporated by reference from Loewen's Annual Report on Form 10-K for the
year ended December 31, 1996, filed on March 31, 1997 (File No. 1-12163)
<PAGE>
(15) Incorporated by reference from Loewen's Periodic Report on Form 8-K, dated
April 26, 1996, filed October 12, 1996, amended October 30, 1996 (File No.
0-18429)
(16) Incorporated by reference from Loewen's Periodic Report on Form 8-K, dated
November 19, 1996, filed December 27, 1996 (File No. 1-12163)
<PAGE>
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
Expressed in thousands of U.S. dollars except per share amounts
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
BASIC
Net earnings........................................................ $ 26,268 $ 19,489 $ 49,968 $ 36,712
Less: Preferred share dividends..................................... 2,380 2,049 4,809 4,023
--------- --------- --------- ---------
Net earnings available to Common shareholders....................... 23,888 17,440 45,159 32,689
Weighted average shares outstanding................................. 63,017 58,687 61,070 54,445
Basic earnings per share............................................ $ 0.38 $ 0.30 $ 0.74 $ 0.60
--------- --------- --------- ---------
--------- --------- --------- ---------
FULLY DILUTED
Net earnings available to Common shareholders....................... $ 23,888 $ 17,440 $ 45,159 $ 32,689
Add: imputed earnings from dilutive options, net of tax effect...... 279 139 549 291
--------- --------- --------- ---------
Fully diluted net earnings.......................................... $ 24,167 $ 17,579 $ 45,708 $ 32,980
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average shares outstanding................................. 63,017 58,687 61,070 54,445
Shares issuable upon assumed conversion of
dilutive options.................................................. 1,093 731 1,086 755
--------- --------- --------- ---------
Fully diluted shares................................................ 64,110 59,418 62,156 55,200
--------- --------- --------- ---------
--------- --------- --------- ---------
Fully diluted earnings per share.................................... $ 0.38 $ 0.30 $ 0.74 $ 0.60
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE LOEWEN
GROUP INC. FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 32,931
<SECURITIES> 0
<RECEIVABLES> 275,391
<ALLOWANCES> 41,814
<INVENTORY> 32,900
<CURRENT-ASSETS> 312,487
<PP&E> 854,313
<DEPRECIATION> 123,861
<TOTAL-ASSETS> 4,023,027
<CURRENT-LIABILITIES> 172,410
<BONDS> 1,398,699
75,000
157,146
<COMMON> 1,248,102
<OTHER-SE> 130,531
<TOTAL-LIABILITY-AND-EQUITY> 4,023,027
<SALES> 550,345
<TOTAL-REVENUES> 550,345
<CGS> 349,878
<TOTAL-COSTS> 349,878
<OTHER-EXPENSES> 74,487
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63,643
<INCOME-PRETAX> 58,793
<INCOME-TAX> 15,700
<INCOME-CONTINUING> 49,968
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49,968
<EPS-PRIMARY> 0.74
<EPS-DILUTED> 0.74
</TABLE>
