<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 March 31, 1998
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 May 8, 1998, was 73,949,632.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 March 31, 1998 and December 31, 1997............... 1
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
for the Three Months Ended March 31, 1998 and 1997....... 2
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
for the Three Months Ended March 31, 1998 and 1997....... 3
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS............. 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.... 18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................... 25
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................... 28
SIGNATURES............................................................... 34
</TABLE>
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
THE LOEWEN GROUP INC.
CONSOLIDATED BALANCE SHEETS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and term deposits............................................................. $ 34,573 $ 36,767
Receivables, net of allowances..................................................... 254,553 251,006
Inventories........................................................................ 35,572 34,885
Prepaid expenses................................................................... 13,229 11,141
------------ ------------
337,927 333,799
Prearranged funeral services......................................................... 428,600 410,379
Long-term receivables, net of allowances............................................. 583,609 553,663
Investments.......................................................................... 188,022 224,008
Insurance invested assets............................................................ 319,667 305,610
Cemetery property, at cost........................................................... 1,020,033 957,831
Property and equipment............................................................... 812,948 797,178
Names and reputations................................................................ 664,551 633,143
Deferred income taxes................................................................ 141,067 130,913
Other assets......................................................................... 160,462 156,636
------------ ------------
$ 4,656,886 $4,503,160
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities........................................... $ 147,047 $ 160,208
Long-term debt, current portion.................................................... 48,170 43,507
------------ ------------
195,217 203,715
Long-term debt....................................................................... 1,885,055 1,750,427
Other liabilities.................................................................... 291,419 308,909
Insurance policy liabilities......................................................... 211,940 214,492
Deferred prearranged funeral services revenue........................................ 428,600 410,379
Preferred securities of subsidiary................................................... 75,000 75,000
Shareholders' equity
Common shares...................................................................... 1,271,869 1,271,177
Preferred shares................................................................... 157,146 157,146
Retained earnings.................................................................. 126,442 98,354
Foreign exchange adjustment........................................................ 14,198 13,561
------------ ------------
1,569,655 1,540,238
------------ ------------
$ 4,656,886 $4,503,160
------------ ------------
------------ ------------
</TABLE>
Commitments and contingencies (Notes 3, 6 and 7)
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
MARCH 31,
----------------------
1998 1997
---------- ----------
(UNAUDITED)
<S> <C> <C>
Revenue
Funeral................................................................................. $ 171,972 $ 155,543
Cemetery................................................................................ 115,273 97,435
Insurance............................................................................... 22,868 21,719
---------- ----------
310,113 274,697
Costs and expenses
Funeral................................................................................. 99,030 92,084
Cemetery................................................................................ 76,943 64,106
Insurance............................................................................... 19,621 17,989
---------- ----------
195,594 174,179
---------- ----------
114,519 100,518
Expenses
General and administrative.............................................................. 24,704 22,683
Depreciation and amortization........................................................... 19,644 16,826
---------- ----------
44,348 39,509
---------- ----------
Earnings from operations.................................................................. 70,171 61,009
Interest on long-term debt................................................................ 33,067 30,698
---------- ----------
Earnings before undernoted items.......................................................... 37,104 30,311
Dividends on preferred securities of subsidiary........................................... 1,772 1,772
---------- ----------
Earnings before income taxes and undernoted items......................................... 35,332 28,539
Income taxes.............................................................................. 8,480 7,996
---------- ----------
26,852 20,543
Equity and other earnings of associated companies......................................... 3,548 3,157
---------- ----------
Net earnings for the period............................................................... $ 30,400 $ 23,700
Retained earnings, beginning of period.................................................... 98,354 80,117
Preferred share dividends................................................................. (2,312) (2,429)
---------- ----------
Retained earnings, end of period.......................................................... $ 126,442 $ 101,388
---------- ----------
---------- ----------
Basic earnings per Common share........................................................... $ 0.38 $ 0.36
Fully diluted earnings per Common share................................................... $ 0.38 $ 0.36
</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>
THREE MONTHS ENDED MARCH
31,
------------------------
1998 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
CASH PROVIDED BY (APPLIED TO)
Operations
Net earnings.......................................................................... $ 30,400 $ 23,700
Items not affecting cash
Depreciation and amortization....................................................... 19,644 16,826
Deferred income taxes............................................................... (10,098) (3,678)
Equity and other earnings of associated companies................................... (3,548) (3,157)
Other, including net changes in other non-cash balances............................... (51,932) (56,257)
----------- -----------
(15,534) (22,566)
----------- -----------
Investing
Business acquisitions................................................................. (102,034) (127,501)
Construction of new facilities........................................................ (4,279) (3,089)
Investments, net...................................................................... (576) (11,091)
Purchase of insurance invested assets................................................. (52,529) (42,396)
Proceeds on disposition and maturities of insurance invested assets................... 38,472 35,574
Purchase of property and equipment.................................................... (6,037) (5,411)
Proceeds on disposition of assets..................................................... -- 170
Other................................................................................. 9,775 (1,525)
----------- -----------
(117,208) (155,269)
----------- -----------
Financing
Issue of Common shares, before income tax recovery.................................... 71 1,880
Increase in long-term debt............................................................ 198,735 200,330
Reduction in long-term debt........................................................... (61,223) (21,579)
Preferred share dividends............................................................. (2,312) (2,429)
Other................................................................................. (5,992) 890
----------- -----------
129,279 179,092
----------- -----------
Increase (decrease) in cash and cash equivalents during the period...................... (3,463) 1,257
Effect of foreign exchange adjustment................................................... 1,269 882
Cash and cash equivalents, beginning of period.......................................... 36,767 18,059
----------- -----------
Cash and cash equivalents, end of period................................................ $ 34,573 $ 20,198
----------- -----------
----------- -----------
</TABLE>
Cash and cash equivalents include cash and term deposits.
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
NOTE 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 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, 1997 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 interim 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.
NOTE 2. ACQUISITIONS
During the three months ended March 31, 1998, the Company acquired 34
funeral homes and 33 cemeteries in the United States. During the three months
ended March 31, 1997, the Company acquired 30 funeral homes and 52 cemeteries in
the United States and three funeral homes in Canada.
-4-
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
NOTE 2. ACQUISITIONS (CONTINUED)
All of the Company's acquisitions have been accounted for by the purchase
method. The preliminary purchase price allocation for certain of these
acquisitions has been estimated based on available information at the time and
is subject to revision. The effect of acquisitions at dates of purchase on the
Consolidated Balance Sheet is shown below.
<TABLE>
<CAPTION>
MARCH 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Current assets.................................................................. $ 1,970 $ 3,115
Prearranged funeral services.................................................... 6,380 4,058
Long-term receivables, net of allowances........................................ 3,438 5,568
Cemetery property, at cost...................................................... 52,421 89,940
Property and equipment.......................................................... 15,908 16,617
Names and reputations........................................................... 36,277 17,132
Other assets.................................................................... 2,332 87
---------- ----------
118,726 136,517
Current liabilities............................................................. (775) (675)
Long-term debt.................................................................. (2,626) (380)
Other liabilities............................................................... (6,911) (3,903)
Deferred prearranged funeral services revenue................................... (6,380) (4,058)
---------- ----------
$ 102,034 $ 127,501
---------- ----------
---------- ----------
Consideration
Cash, including assumed debt repaid at closing................................ $ 88,333 $ 122,798
Debt.......................................................................... 13,701 4,703
---------- ----------
Purchase Price.................................................................. $ 102,034 $ 127,501
---------- ----------
---------- ----------
</TABLE>
The following table reflects, on an unaudited pro-forma basis, the combined
results of the Company's operations acquired during the period ended March 31,
1998 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>
THREE MONTHS ENDED
MARCH 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Revenues........................................................................ $ 313,055 $ 281,675
Net earnings.................................................................... $ 30,350 $ 23,615
Basic earnings per share........................................................ $ 0.38 $ 0.36
Fully diluted earnings per share................................................ $ 0.38 $ 0.36
</TABLE>
-5-
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
NOTE 3. INVESTMENTS
(a) PRIME SUCCESSION HOLDINGS, INC. ("PRIME")
In 1996, the Company and Blackstone Capital Partners II Merchant Banking
Fund L.P. and certain affiliates (together, "Blackstone") acquired Prime, which
holds all of the outstanding common shares of Prime Succession, Inc., an
operator of funeral homes and cemeteries in the United States. 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 owns 21.8% of Prime common stock and 100% of Prime's
non-voting preferred stock.
The Company accounts for its investment in Prime preferred stock by the cost
method. For the three months ended March 31, 1998, income of $1,746,000
(1997--$1,588,000) was recorded representing the 10% 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 three months ended March 31, 1998, a loss of $359,000 (1997--loss of
$571,000) 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.
Any payment to Blackstone is subject to Blackstone or the Company exercising
their respective rights under the Put or the Call. It is not currently possible
to determine whether Blackstone or the Company will exercise such rights.
Furthermore, any amount to be paid pursuant to the Put or Call is dependent on
calculated equity value which is based on EBITDA of future periods. Accordingly,
it is not possible at this date to estimate the future amount that may be
payable to Blackstone on the exercise of the Put or the Call.
-6-
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
NOTE 3. INVESTMENTS (CONTINUED)
Summarized financial data for Prime are presented as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Income statement information:
Revenue......................................................................... $ 26,585 $ 24,195
Gross margin.................................................................... 9,874 8,681
Earnings from operations........................................................ 6,305 5,071
Payment-in-kind dividend........................................................ 1,746 1,588
Net loss attributable to common shareholders.................................... (1,649) (2,618)
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
---------- ------------
<S> <C> <C>
Balance sheet information:
Current assets............................................................. $ 20,657 $ 25,694
Non-current assets......................................................... 369,882 369,412
---------- ------------
Total assets............................................................... 390,539 395,106
Current liabilities........................................................ 10,357 14,964
Non-current liabilities.................................................... 253,677 253,734
---------- ------------
Total liabilities.......................................................... 264,034 268,698
Shareholders' equity....................................................... 126,505 126,408
</TABLE>
(b) ROSE HILLS HOLDINGS CORP. ("RH HOLDINGS")
In 1996, the Company and Blackstone acquired RH Holdings, which 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. The excess 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 owns
20.45% of RH Holdings' voting common stock and 100% of RH Holdings' non-voting
preferred stock.
The Company accounts for its investment in RH Holdings preferred stock by
the cost method. For the three months ended March 31, 1998, income of $2,365,000
(1997--$2,150,000) was recorded representing the 10% 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 RH Holdings after deducting the
payment-in-kind dividend. For the three months ended March 31, 1998, a loss of
$201,000 (1997--loss of $335,000) 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 consolidated
balance sheet.
-7-
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
NOTE 3. INVESTMENTS (CONTINUED)
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 to be 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.
Any payment to Blackstone will be subject to Blackstone or the Company
exercising their respective rights under the Put or the Call. It is not
currently possible to determine whether Blackstone or the Company will exercise
such rights. Furthermore, any amount to be paid pursuant to the Put or Call is
dependent on calculated equity value which is based on EBITDA of future periods.
Accordingly, it is not possible at this date to estimate the future amount that
may be payable to Blackstone on the exercise of the Put or the Call.
Summarized financial data for RH Holdings are presented as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Income statement information:
Revenue................................................................................... $ 22,679 $ 17,984
Gross margin.............................................................................. 18,937 15,289
Earnings from operations.................................................................. 6,920 4,914
Payment-in-kind dividend.................................................................. 2,365 2,150
Net loss attributable to common shareholders.............................................. (982) (1,640)
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
---------- ------------
<S> <C> <C>
Balance sheet information:
Current assets....................................................................... $ 20,395 $ 17,117
Non-current assets................................................................... 296,322 294,934
---------- ------------
Total assets......................................................................... 316,717 312,051
Current liabilities.................................................................. 18,276 15,780
Non-current liabilities.............................................................. 169,800 169,013
---------- ------------
Total liabilities.................................................................... 188,076 184,793
Shareholders' equity................................................................. 128,641 127,258
</TABLE>
-8-
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
NOTE 4. LONG-TERM DEBT
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Bank revolving credit agreements..................................................... $ 416,966 $ 264,729
Management Equity Investment Plan ("MEIP") bank term credit agreement due in 2001.... 105,140 105,140
9.62% Series D senior amortizing notes due in 2003................................... 51,429 51,429
6.49% Series E senior amortizing notes due in 2004................................... 42,857 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
6.10% Series 5 senior notes due in 2002 (Cdn. $200,000,000).......................... 140,865 139,948
6.70% PATS senior notes.............................................................. 300,000 300,000
Present value of notes issued for legal settlements discounted at an effective
interest rate of 7.75%............................................................. 38,147 39,115
Present value of contingent consideration payable on acquisitions discounted at an
effective interest rate of 8.0%.................................................... 19,785 24,515
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....................................................................... 118,036 119,058
------------ ------------
1,933,225 1,793,934
Less current portion................................................................. 48,170 43,507
------------ ------------
$ 1,885,055 $1,750,427
------------ ------------
------------ ------------
</TABLE>
(a) In 1996, the Company, 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 the Company
of substantially all of its subsidiaries and (ii) all of the financial assets of
LGII (including the shares of the capital stock held by LGII of various
subsidiaries) (collectively, the "Collateral"). The Collateral is held by a
trustee for the equal and ratable benefit of the various holders of pari passu
indebtedness. The senior lenders consist principally of the lenders under the
senior amortizing notes, senior notes and bank revolving and term credit
agreements as well as the holders of certain letters of credit.
(b) Certain of the above loan agreements contain various restrictive provisions,
including change of control provisions and provisions restricting payment of
dividends on Common and Preferred shares, restricting encumbrance of assets,
limiting redemption or repurchase of shares, limiting disposition of assets,
limiting the amount of additional debt and requiring the Company to maintain
specified financial ratios.
(c) In March 1998, the Company amended its $1,000,000,000 revolving credit
agreement to provide greater flexibility for the timing of equity and other
financing alternatives. As part of the amendment, the 364-day tranche was
terminated and the $750,000,000 tranche was reduced to a $600,000,000 revolving
credit agreement with a three-year term.
(d) Repayment of the senior amortizing notes commenced September 1997 for Series
D and February 1998 for Series E, all in equal annual amounts to the respective
due dates.
-9-
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
NOTE 5. PREFERRED SECURITIES OF SUBSIDIARY
On August 15, 1994, 3,000,000 9.45% Cumulative Monthly Income Preferred
Securities, Series A ("MIPS") were issued by Loewen Group Capital, L.P. ("LGC")
in a public offering for an aggregate amount of $75,000,000. LGC is a limited
partnership and LGII as its general partner manages its business and affairs.
LGII serves as the holding company for all United States assets and operations
of the Company. The consolidated financial statements of LGII are prepared in
accordance with Canadian generally accepted accounting principles and are
presented in United States dollars.
Summarized financial data for LGII are presented as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Income statement information:
Revenue................................................................................. $ 287,737 $ 254,931
Gross margin............................................................................ 102,384 87,274
Earnings from operations................................................................ 63,197 51,461
Net earnings............................................................................ 122 1,003
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Balance sheet information:
Current assets..................................................................... $ 266,661 $ 244,552
Non-current assets................................................................. 3,886,442 3,688,148
------------ ------------
Total assets....................................................................... 4,153,103 3,932,700
Current liabilities................................................................ 171,668 172,371
Non-current liabilities............................................................ 3,661,148 3,440,175
------------ ------------
Total liabilities.................................................................. 3,832,816 3,612,546
Shareholders' equity............................................................... 320,287 320,154
</TABLE>
The MIPS are due August 31, 2024 and are subject to redemption at par at the
option of LGC, in whole or in part, from time to time, on or after August 31,
2004.
Holders of the MIPS are entitled to receive cumulative dividends at an
annual rate of 9.45% of the liquidation preference of $25 per MIPS. The
dividends accrue from the date of original issuance and are payable monthly in
arrears.
The Company has the right to defer payment of dividends on the MIPS for one
or more periods, each not to exceed 60 consecutive months. In this event the
Company may not declare or pay dividends on, or redeem, purchase or acquire or
make a liquidation payment with respect to any class of its capital stock.
The Company has guaranteed certain payment obligations of LGII to LGC and of
LGC to the MIPS holders. The guarantees are subordinated to all liabilities of
the Company and are unsecured.
-10-
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
NOTE 6. 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 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. On June 11, 1996 all claims against
the MIPS Underwriters were dismissed without prejudice, by agreement of the
parties. The cases were consolidated before the District Court of the Eastern
District of Pennsylvania. A Consolidated and Amended Class Action Complaint was
filed on September 16, 1996.
The parties have agreed to a settlement of all claims in the action. The
District Court entered an order approving the settlement on April 21, 1998,
which becomes effective May 22, 1998 if no appeal is filed. No objections to the
settlement have been filed. The settlement provides for the payment by the
Company on behalf of all defendants of $5,000,000 plus up to $100,000 for costs
of notice and 50% of the costs of administration of the settlement.
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 of Bucks County, Pennsylvania against Osiris
Holding Corporation ("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
-11-
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
NOTE 6. LEGAL PROCEEDINGS (CONTINUED)
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.
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.
ROJAS ET AL.
On February 22, 1995, Juan Riveras Rojas, Leyda Rivera Vega, the Conjugal
Partnership constituted between them, and Carlos Rivera Bustamente instituted a
legal action against Loewen, LGII and a subsidiary in the United States District
Court for the District of Puerto Rico. The complaint alleges that the defendants
breached a contract and ancillary agreements with the plaintiffs relating to the
purchase of funeral homes and cemeteries, and committed related torts. The
plaintiffs seek compensatory damages of $12,500,000, and unspecified punitive
damages (although the Company is advised by counsel that there is no entitlement
to punitive damages under Puerto Rican law). The Company filed a motion to
dismiss the complaint for failure to join an indispensable party. That motion
was granted on March 30, 1998. Plaintiffs filed a notice of appeal to the U.S.
Circuit Court of Appeals for the First Circuit on April 29, 1998. Assuming
plaintiffs do not succeed in their appeal, it is foreseeable that plaintiffs
will reassert their claims as counterclaims to the complaint filed by the
Company, described below.
The Company claims it has suffered damages far in excess of the amount
claimed by the plaintiffs as a result of breach of contract and related torts on
the part of the plaintiffs. A subsidiary of the Company has filed a complaint
seeking damages in excess of $19,000,000 from the plaintiffs in the General
Court of Justice of the Commonwealth of Puerto Rico. The Company has determined
that it is not possible at this time to predict the final outcome of these legal
proceedings and that it is not possible to establish a reasonable estimate of
possible damages, if any, or reasonably to estimate the range of possible
damages that may be awarded to the plaintiffs. Accordingly, no provision with
respect to this lawsuit has been made in the Company's interim consolidated
financial statements.
FELDHEIM ET AL. V. SI-SIFH CORP. ET AL. AND DUFFY ET AL. V. SI-SIFH CORP. ET AL.
Two complaints were 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 but not the stock of
S.I. in March 1996.
-12-
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
NOTE 6. LEGAL PROCEEDINGS (CONTINUED)
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-IFH 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 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 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 laws.
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 of the appeal was completed in December 1997 and oral argument was held
on January 5, 1998, but a decision has not yet been rendered. As of the date
hereof, no discovery has taken place.
On April 17, 1998, the trial court in the Duffy lawsuit declined to grant
the defendants' exception seeking to dismiss the plaintiffs' class action
allegations on the face of the pleadings. Instead, the court deferred ruling on
those issues until the previously set October 7, 1998 hearing on the class
action issues, and the court indicated it would permit some discovery. On April
23, 1998 the defendants filed a Notice of Intent to Seek Supervisory Writs with
the Court of Appeal from the trial court's April 17, 1998 judgment, and the
trial court granted the defendants' motion for a stay of all proceedings pending
a ruling by the Court of Appeal on supervisory writ application.
The Company has determined that it is not possible at this time to predict
the final outcome of these legal proceedings, including whether a class will be
certified, and that it is not possible to establish a reasonable estimate of
possible damages, if any, or reasonably to estimate the range of possible
damages that may be awarded to plaintiffs. Accordingly, no provision with
respect to this lawsuit has been made in the Company's interim consolidated
financial statements.
OTHER
The Company is a party to other legal proceedings in the ordinary course of
its business but does not expect the outcome of any other proceedings,
individually or in the aggregate, to have a material adverse effect on the
Company's financial position, results of operation or liquidity.
-13-
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
NOTE 7. SUBSEQUENT EVENTS
During the period from April 1, 1998 to May 1, 1998, the Company acquired 13
funeral homes and six cemeteries. The aggregate cost of these transactions was
approximately $42,500,000.
As of May 1, 1998, the Company has committed to acquire certain funeral
homes, cemeteries and related operations, subject in most instances to certain
conditions including approval by the Company's Board of Directors. The aggregate
cost of these transactions, if completed, will be approximately $154,000,000.
NOTE 8. 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
MARCH 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
EARNINGS
Net earnings in accordance with Canadian GAAP............................................... $ 30,400 $ 23,700
Less effects of differences in accounting for:
Insurance operations (d).................................................................. 701 523
Stock options............................................................................. (36) --
Income taxes (e).......................................................................... (361) 467
--------- ---------
Net earnings in accordance with United States GAAP.......................................... $ 30,704 $ 24,690
Other comprehensive income:
Foreign currency translation adjustments.................................................. 637 (655)
Unrealized gains (losses) on securites:
Unrealized holding gains (losses) arising during the period............................. 4,736 (3,457)
Less: reclassification adjustment for gains included in net income...................... (976) (60)
--------- ---------
Comprehensive income in accordance with United States GAAP.................................. $ 35,101 $ 20,518
--------- ---------
--------- ---------
EARNINGS PER COMMON SHARE
Earnings per Common share in accordance with United States GAAP, are as follows:
Basic earnings per Common share........................................................... $ 0.38 $ 0.38
--------- ---------
--------- ---------
Diluted earnings per Common share......................................................... $ 0.38 $ 0.37
--------- ---------
--------- ---------
</TABLE>
Effective December 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 ("FAS 128") Earnings per Share for United States
GAAP purposes, on a retroactive basis. Under FAS 128, basic earnings (loss) per
Common share, similar to Canadian GAAP, is based on the weighted average number
of Common shares outstanding during the year. Diluted earnings (loss) per Common
share is based on the weighted average number of Common shares outstanding
during the year plus
-14-
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
NOTE 8. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
common stock equivalents. The computation of basic and diluted earnings per
Common share is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Basic
Net earnings.............................................................................. $ 30,704 $ 24,690
Less: Preferred share dividends........................................................... 2,312 2,429
--------- ---------
Net earnings attributable to Common shareholders.......................................... $ 28,392 $ 22,261
--------- ---------
--------- ---------
Weighted average number of shares outstanding............................................. 73,930 59,102
Basic earnings per Common share........................................................... $ 0.38 $ 0.38
--------- ---------
--------- ---------
Diluted
Net earnings attributable to Common shareholders.......................................... $ 28,392 $ 22,261
Add: Effect of dilutive securities other than options..................................... 1,298 1,301
--------- ---------
Diluted earnings.......................................................................... $ 29,690 $ 23,562
--------- ---------
--------- ---------
Weighted average number of shares outstanding............................................. 73,930 59,102
Add: Incremental shares from conversion of dilutive options............................... 4,096 5,111
--------- ---------
Diluted shares............................................................................ 78,026 64,213
--------- ---------
--------- ---------
Diluted earnings per Common share......................................................... $ 0.38 $ 0.37
--------- ---------
--------- ---------
</TABLE>
-15-
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
NOTE 8. 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>
MARCH 31, 1998 DECEMBER 31, 1997
-------------------------- --------------------------
UNITED UNITED
CANADIAN STATES CANADIAN STATES
GAAP GAAP GAAP GAAP
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Assets
Long-term receivables, net of allowances.............. $ 583,609 $ 593,042 $ 553,663 $ 555,472
Investments........................................... 188,022 188,022 224,008 184,227
Insurance invested assets............................. 319,667 325,324 305,610 312,073
Cemetery property..................................... 1,020,033 1,401,942 957,831 1,332,987
Names and reputations................................. 664,551 700,966 633,143 668,577
Other assets.......................................... 160,462 186,649 156,636 181,843
Liabilities and Shareholders' Equity
Insurance policy liabilities.......................... 211,940 238,219 214,492 240,750
Other liabilities..................................... 291,419 288,931 308,909 266,903
Deferred income taxes................................. (141,067) 306,658 (130,913) 305,166
Common shares......................................... 1,271,869 1,298,201 1,271,177 1,297,443
Retained earnings..................................... 126,442 107,956 98,354 79,564
Unrealized gains/(losses) on securities available for
sale, net of tax.................................... -- 8,972 -- 5,212
Foreign exchange adjustment........................... 14,198 (14,535) 13,561 (15,170)
</TABLE>
(c) STATEMENT OF CASH FLOWS
Under United States GAAP, cash provided by financing and applied to
investing would decrease by approximately $13,700,000 (1997--$4,700,000) for
non-cash debt issued on acquisitions.
(d) INSURANCE OPERATIONS
PRESENT VALUE OF INSURANCE POLICIES
Under United States GAAP, the Company recognizes an asset that represents
the actuarially-determined present value of the projected future profits of the
insurance in-force at dates of acquisition. Canadian GAAP does not recognize
such an asset. The asset is being amortized to insurance expense over the
estimated life of the insurance in-force at the date of acquisition.
DEFERRED POLICY ACQUISITION COSTS
Under United States GAAP, the Company defers costs related to the production
of new business, which consist principally of commissions, certain underwriting
expenses, and the costs of issuing policies. Deferred acquisition costs are
amortized over the expected premium-paying periods of the related policies.
Canadian GAAP does not permit deferral of such costs.
-16-
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
NOTE 8. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
INSURANCE POLICY LIABILITIES
Insurance policy liabilities, which represent liabilities for future policy
benefits, are accounted for under United States GAAP using the net level premium
method which involves different actuarial assumptions and methodologies than the
policy premium method used for Canadian GAAP. In addition, under Canadian GAAP,
all actuarial assumptions are re-evaluated on a periodic basis, resulting in
adjustments to insurance policy liabilities and insurance costs and expenses.
Under United States GAAP, assumptions established at the time a policy is
written are locked in and only revised if it is determined that future
experience will worsen from that previously assumed.
(e) INCOME TAXES
Under United States GAAP, deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
Temporary differences are tax-effected at current rates whereas under Canadian
GAAP, temporary differences are tax-effected at historic rates. There was no
deferred tax effect of changes in tax rates during 1998.
The Company believes that it is more likely than not that the results of
future operations will generate sufficient taxable income to realize the
deferred tax assets. The Company's ability to realize its deferred tax assets is
based on several factors, including a presumption of future profitability in
certain jurisdictions and is subject to some degree of uncertainty.
(f) RECENT ACCOUNTING STANDARDS
The FASB issued FAS 130, Reporting Comprehensive Income, and FAS 131,
Disclosures About Segments of an Enterprise and Related Information which are
required to be implemented during the Company's fiscal year ending December 31,
1998. These standards will affect the presentation but not the measurement of
the consolidated financial statements and the related notes.
The Canadian Institute of Chartered Accountants ("CICA") issued CICA
Handbook 3465, Income Taxes, which is required to be implemented for fiscal
years beginning on or after January 1, 2000. This new standard is substantially
consistent with the U.S. Standard, FAS 109.
-17-
<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 operates the second-largest number 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
pre-need basis. As at May 1, 1998, the Company operated 1,105 funeral homes and
523 cemeteries throughout North America. During 1997, the Company expanded into
the United Kingdom and now operates ten funeral homes there. The Company also
operates several insurance subsidiaries that principally sell a variety of life
insurance products to fund funeral services purchased through a pre-need
arrangement.
The funeral service industry has a number of attractive business
characteristics as described below. 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
preliminary 1996 Business Failure Record published by The Dun & Bradstreet
Corporation, the average business failure rate in the United States in 1996 was
80 per 10,000. The 1996 failure rate of the funeral service and crematoria
industry was 12 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 0.9% annually from 1997 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 13% of the 23,500 funeral homes and approximately 10% 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 favorable industry fundamentals through a
growth strategy that emphasizes three principal components: (i) improving the
revenue and profitability of newly-acquired and established operations; (ii)
acquiring "strategic" operations consisting predominantly of large, multi-
location urban properties; and (iii) acquiring smaller funeral homes and
cemeteries that offer significant synergies with existing properties. Due to the
successful implementation of its business strategy, the Company has grown from
489 locations at December 31, 1992 to 1,638 at May 1, 1998.
-18-
<PAGE>
RESULTS OF OPERATIONS
Detailed below are the Company's operating results for the three months
ended March 31, 1998 and 1997, expressed in dollar amounts as well as relevant
percentages. The operating results are presented as a percentage of revenue
except income taxes, which are presented as a percentage of earnings before
income taxes and equity and other earnings of associated companies. The
Company's operations are comprised of three businesses: funeral homes,
cemeteries and insurance.
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(IN MILLIONS) (PERCENTAGES)
<S> <C> <C> <C> <C>
Revenue
Funeral................................................................ $ 171.9 $ 155.6 55.4 56.6
Cemetery............................................................... 115.3 97.4 37.2 35.5
Insurance.............................................................. 22.9 21.7 7.4 7.9
--------- ---------
Total................................................................ $ 310.1 $ 274.7 100.0 100.0
--------- ---------
--------- ---------
Gross margin
Funeral................................................................ $ 72.9 63.5 42.4 40.8
Cemetery............................................................... 38.3 33.3 33.3 34.2
Insurance.............................................................. 3.3 3.7 14.2 17.2
--------- ---------
Total................................................................ $ 114.5 $ 100.5 36.9 36.6
Expenses
General and administrative............................................. 24.7 22.7 8.0 8.3
Depreciation and amortization.......................................... 19.6 16.8 6.3 6.1
--------- ---------
Earnings from operations................................................. 70.2 61.0 22.6 22.2
Interest on long-term debt............................................... 33.1 30.7 10.7 11.2
Dividends on preferred securities of subsidiary.......................... 1.8 1.8 0.6 0.7
Income taxes............................................................. 8.5 8.0 24.0 28.0
--------- ---------
26.8 20.5 8.7 7.5
Equity and other earnings of associated companies........................ 3.6 3.2 1.1 1.1
--------- ---------
Net earnings............................................................. $ 30.4 $ 23.7 9.8 8.6
--------- ---------
--------- ---------
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Consolidated revenue increased 12.9% to $310.1 million for the three months
ended March 31, 1998 from $274.7 million during the same period in 1997,
primarily due to acquisitions. Consolidated gross margin increased 13.9% to
$114.5 million for the three months ended March 31, 1998 from $100.5 million
during the same period in 1997. As a percentage of revenue, consolidated gross
margin increased to 36.9% for the three months ended March 31, 1998 from 36.6%
during the comparable period in 1997, primarily due to the improvement in
funeral gross margin as a result of cost reductions from the restructuring and
other strategic initiatives effected in the latter half of 1997, but partially
offset by the decline in cemetery and insurance gross margins, as discussed
below.
Funeral revenue increased 10.6% to $171.9 million for the three months ended
March 31, 1998 compared to $155.6 million for the same period in 1997, primarily
due to acquisitions. The number of funeral services performed at locations in
operation for the three months ended March 31, 1997 and 1998 ("Established
Locations") declined by 2.2%, but the revenue impact was partially offset by a
slightly higher average revenue per funeral service. Funeral gross margin as a
percentage of funeral revenue for Established Locations increased to 42.6% in
1998 from 41.5% in 1997, as the $2.8 million decrease in revenue was more than
offset by a $4.2 million decrease in costs, primarily resulting from the
restructuring
-19-
<PAGE>
and other strategic initiatives effected in the latter half of 1997. As a result
of the above improvements, together with increased margins from recently
acquired funeral locations, overall funeral gross margin as a percentage of
funeral revenue increased to 42.4% in 1998 from 40.8% in 1997.
Cemetery revenue increased 18.3% to $115.3 million for the three months
ended March 31, 1998 compared to $97.4 million during the same period in 1997,
primarily due to acquisitions. Cemetery gross margin decreased slightly to 33.3%
in 1998 from 34.2% and for Established Locations decreased to 32.4% in 1998 from
34.2% in 1997, primarily due to increased selling and operating expenses,
coupled with a decline in pre-need interment sales, which typically generate
higher margins.
Insurance revenue increased to $22.9 million for the three months ended
March 31, 1998 from $21.7 million during the same period in 1997. The increase
in revenues was primarily due to the continuing effort to expand this line of
business. Insurance gross margin decreased to 14.2% compared to 17.2% for the
same period in 1997, primarily due to increased benefit claims experience, and
higher commission and other operating costs associated with the start up of
insurance operations in several states.
United States based operations contributed over 90% of consolidated revenue
for the three month periods ended March 31, 1998 and 1997.
General and administrative expenses, as a percentage of revenue, declined to
8.0% for the three months ended March 31, 1998, compared to 8.3% for the same
period in 1997, primarily due to the favorable effects of the restructuring and
other strategic initiatives effected in the latter half of 1997. For the three
months ended March 31, 1998, general and administrative expenses increased $2.0
million compared to the same period in 1997. The increase in general and
administrative expenses in 1998 is primarily a result of the expansion of the
Company's infrastructure necessary to integrate and operate newly acquired
locations. However, such increase was substantially offset by the favorable
effects of the restructuring and other strategic initiatives effected by the
latter half of 1997, resulting in lower general and administrative expenses as a
percentage of revenue.
Interest expense on long-term debt increased by $2.4 million for the three
months ended March 31, 1998 compared to the same period in 1997, primarily as a
result of additional borrowings by the Company to finance its expansion
programs.
Income taxes were $8.5 million, resulting in an effective tax rate of 24.0%
on earnings before income taxes and equity and other earnings of associated
companies for the three months ended March 31, 1998, compared to an effective
tax rate of 28.0% during the same period in 1997. The Company's effective tax
rate is primarily determined through certain international and intercompany
financing arrangements, as well as other tax strategies.
Equity and other earnings of associated companies of $3.6 million for the
three months ended March 31, 1998 primarily reflects the inclusion of
payment-in-kind dividends and the Company's proportionate share of the losses
attributable to the Common shares of Prime Succession Holdings, Inc. and Rose
Hills Holdings Corp., as described further in Note 3 to the Company's interim
consolidated financial statements, and was higher compared to the same period in
1997.
Net earnings increased to $30.4 million for the three months ended March 31,
1998 from $23.7 during the same period in 1997. Fully diluted earnings per share
increased to $0.38 per share in 1998 from $0.36 per share in 1997, as the
effects of increased earnings were partially offset by the increase in the
number of shares outstanding.
ACQUISITIONS, INVESTMENTS AND CAPITAL EXPENDITURES
The Company acquired 34 funeral homes, and 33 cemeteries during the three
months ended March 31, 1998 for consideration of approximately $102 million
through 40 separate acquisition transactions. All of these acquisitions were
located in the United States. During the same period in 1997, the Company
acquired 33 funeral homes and 52 cemeteries for consideration of approximately
$128 million.
-20-
<PAGE>
In connection with certain acquisitions, the Company may issue Common shares
as full or partial payment of the purchase price ("share-for-share
acquisitions"). In August 1996, the Company registered with the Securities and
Exchange Commission 5,000,000 Common shares for issuance in connection with
prospective share-for-share acquisitions. As of May 1, 1998, 970,422 of such
Common shares had been issued.
From time to time, the Company may dispose of non-core assets or businesses
acquired in conjunction with the acquisition of funeral homes and cemeteries. In
addition, the Company expects to continue to combine or sell a small number of
locations in order to utilize its resources to produce a better return from its
assets.
During the period April 1, 1998 to May 1, 1998, the Company acquired 13
funeral homes and six cemeteries. The aggregate cost of these transactions was
approximately $43 million. As of May 1, 1998, the Company had signed agreements,
some of which are non-binding, for the acquisition of 43 additional funeral
homes and 39 additional cemeteries aggregating approximately $154 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.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. As a result,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or other disruption of
operations and impede normal business activities.
During the past two years, the Company has determined that it will be
necessary to modify or replace certain portions of its software so that its
computer systems will function properly beyond December 31, 1999. The Company
presently believes that with current and planned modifications to existing
software and conversions to new software, the risk of potential loss associated
with the Year 2000 Issue can be mitigated. However, if such modifications and
conversions are not made, or are not completed timely, the Year 2000 Issue could
have a material impact on the operations of the Company.
The Company has expensed approximately $200,000 to date to assess, evaluate
and remediate known Year 2000 Issues. As a result, the most significant areas
have been or are scheduled to be remedied by mid-1999. Additionally, the Company
has established a task force and a review process to monitor remaining
implementation plans and to determine whether all remaining areas have been
assessed and evaluated, resources identified and remediation completed on a
timely basis. At this time, the Company does not believe the remaining cost
associated with the Year 2000 Issue to be material. Systems improvements and
benefits beyond solution of the Year 2000 Issue are expected to be realized as a
result of the above initiatives.
The Company has also initiated formal communications with its significant
vendors to determine the extent to which the Company is vulnerable to those
third parties' failure to remediate their own Year 2000 Issue. The Company's
total Year 2000 Issue project cost and estimates to complete exclude the
estimated costs and time associated with the impact of a third party's Year 2000
Issue, which are not yet determinable. However, there can be no guarantee that
the systems of other companies on which the Company's systems rely will be
converted on a timely basis, or that a failure to convert by another company, or
a conversion that is incompatible with the Company's systems, would not have
material adverse effect on the Company.
The cost and the date on which the Company plans to complete the Year 2000
Issue modifications are based on management's best estimates, which were derived
utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could
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differ materially from those plans. Specific factors that might cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in this area, the ability to locate and correct all
relevant computer codes, and similar uncertainties.
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 issuance 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 March 31, 1998, as compared to December 31,
1997, reflects changes principally from acquisitions during 1998, as described
in Note 2 to the Company's interim consolidated financial statements. In
addition, during the past two years the Company has significantly expanded its
cemetery and funeral pre-need sales programs. The rapid growth in cemetery
pre-need sales and the related long-term receivables have contributed to the
greater uses of cash than generated from operations. Cemetery pre-need sales are
typically structured with low initial cash payments by the customers which do
not offset the cash costs of establishing and supporting a growing pre-need
sales program, including the payment of certain sales commissions. For cemetery
pre-need sales, the balance due is recorded as an installment contract
receivable and the future liability for merchandise as an other liability and,
accordingly, the increase in the level of pre-need cemetery 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 March 31, 1998, the Company's long-term debt/equity ratio was
1.2:1.
INDEBTEDNESS
At March 31, 1998, the Company had a $600 million revolving credit facility
that matures in March 2001 (the "Revolving Credit Facility"). The Revolving
Credit Facility bears interest at alternative market rates selected by LGII. As
at May 1, 1998, the amount outstanding under the Revolving Credit Facility was
$475 million, and such amount bore interest at 7.2% per annum. In addition, as
at May 1, 1998, letters of credit in an aggregate amount of approximately $8
million had been issued under the Revolving Credit Facility. The Revolving
Credit Facility is secured in the manner described below under "Collateral Trust
Agreement."
In addition to the Revolving Credit Facility, LGII has outstanding $300
million in pass-through asset trust senior guaranteed notes, due 2009 (the "PATS
Senior Notes"). The PATS Senior Notes bear interest at a rate of 6.70% until
October 1, 1999, at which time the interest rate will be reset at a fixed annual
rate of 6.05% plus an adjustment equal to LGII's then-current credit spread to
the ten-year United States Treasury rate. The PATS Senior Notes are redeemable
at the election of the holder, in whole but not in part, at 100% of the
principal amount on October 1, 1999. The PATS Senior Notes are guaranteed by
Loewen and secured in the manner described below under "Collateral Trust
Agreement."
LGII also has outstanding four series of senior guaranteed notes aggregating
$700 million (the "Series 1-4 Senior Notes") issued in March and October of
1996. The Series 1-4 Senior Notes are guaranteed by Loewen and bear interest
rates ranging from 7.50% to 8.25% and have initial terms of five to seven years.
LGII also has outstanding one series of senior amortizing notes (the "Series E
Amortizing Notes") in the amount of $43 million. The Series E Amortizing Notes
are guaranteed by Loewen, bear an interest rate of 6.49% and have an initial
term of ten years.
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Loewen has outstanding Cdn. $200 million of 6.10% Series 5 Guaranteed Notes,
due 2002 (the "Series 5 Senior Notes"). The Series 5 Senior Notes are guaranteed
by LGII and secured in the manner described below under "Collateral Trust
Agreement." In addition, Loewen also has outstanding one series of senior
amortizing notes (the "Series D Amortizing Notes") in the amount of $51 million.
The Series D Amortizing Notes are guaranteed by LGII and bear an interest rate
of 9.62% and an initial term of ten years. Loewen also has a Cdn. $50 million
revolving credit facility that matures in July 1999 (the "Canadian Revolving
Credit Facility"). A subsidiary of Loewen has a $105 million secured term loan
implemented in connection with the 1994 Management Equity Investment Plan that
will terminate in July 2000 (the "MEIP Loan").
COLLATERAL TRUST AGREEMENT
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 Trust Agreement"). 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 its subsidiaries and (ii)
all of the financial assets of LGII (including the shares of the capital stock
held by LGII of various subsidiaries) (collectively, the "Collateral"). The
collateral is held by a trustee for the equal and ratable benefit of the senior
lending group. This senior lending group consists principally of the lenders
under the Series 1-5 Senior Notes, the Series D and E Amortizing Notes, the
Revolving Credit Facility, the Canadian Revolving Credit Facility, the MEIP
Loan, and the PATS Senior Notes, as well as the holders of certain letters of
credit.
RESTRICTIONS
Certain of the Company's debt instruments and credit facilities contain
restrictions, including change of control provisions, provisions requiring the
Company to maintain specified financial ratios and provisions limiting the
payment of dividends on Common shares and preferred shares, the encumbrance of
assets, payments to subsidiaries, the redemption or repurchase of shares,
dispositions of assets, additional debt, transactions with interested persons,
sales of preferred stock, sale-leaseback transactions and merger and
acquisitions. At March 31, 1998, none of the Company's retained earnings were
restricted or unavailable for payment of dividends under the most restrictive
agreement.
In connection with the issuance of the Monthly Income Preferred Securities
("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 5 to the Company's interim consolidated financial statements.
Payments of dividends and loans and advances by subsidiaries to Loewen or
LGII are not restricted except that the Company's insurance subsidiaries are
subject to certain state regulations which restrict distributions, loans and
advances from such subsidiaries to the Company.
SHARE REPURCHASE PROGRAM
In September 1997, the Company announced that it may, from time to time and
until September 1998 subject to market and other conditions, repurchase up to
approximately 3,600,000 of its Common shares and up to 440,000 of its Series C
Preferred shares, through the facilities of the Toronto Stock Exchange, the
Montreal Exchange and the New York Stock Exchange. As at May 1, 1998, no share
repurchases had been made.
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INTEREST RATE RISK MANAGEMENT
The Company enters into derivative transactions with financial institutions
primarily as hedges of other financial transactions. The Company's policies do
not allow leveraged transactions and are designed to minimize credit and
concentration risk with counter-parties. The Company's practice is to use swaps
and options to manage its exposure to interest rate movements. The Company's
strategy is to maintain an average of between 60% and 80% of its debt subject to
fixed interest rates, although at any point in time during a period the
percentage of debt subject to fixed interest rates may be higher or lower. The
Company also uses futures and options to fix the interest rate of anticipated
financing transactions in advance. Derivative transactions 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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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 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, Loewen Group Capital, L.P.,
("LGC"), and the lead underwriters (the "MIPS Underwriters") of LGC's 1994
offering of Monthly Income Preferred Securities ("MIPS"), were subsequently
added as defendants. On November 7, 1995, a class action lawsuit was filed on
behalf of a class of purchasers of Common shares against the Company and the
same individual defendants in the United States District Court for the Southern
District of Mississippi alleging Federal securities law violations and related
common law claims. On December 1, 1995, a class action lawsuit was filed on
behalf of a class of purchasers of the Company's securities against the Company,
LGII, LGC and the same individual defendants in the United States District Court
for the Eastern District of Pennsylvania. On June 11, 1996 all claims against
the MIPS Underwriters were dismissed without prejudice, by agreement of the
parties. The cases were consolidated before the District Court of the Eastern
District of Pennsylvania. A Consolidated and Amended Class Action Complaint was
filed on September 16, 1996.
The parties have agreed to a settlement of all claims in the action. The
District Court entered an order approving the settlement on April 21, 1998,
which becomes effective May 22, 1998 if no appeal is filed. No objections to the
settlement have been filed. The settlement provides for the payment by the
Company on behalf of all defendants of $5,000,000, plus up to $100,000 for costs
of notice and 50% of the costs of administration of the settlement.
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 of Bucks County, Pennsylvania against Osiris
Holding Corporation ("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.
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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.
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.
FELDHEIM ET AL. V. SI-SIFH CORP. ET AL. AND DUFFY ET AL. V. SI-SIFH CORP. ET AL.
Two complaints were 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 but not the stock of
S.I. in March 1996. 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 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 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 laws.
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 of Jefferson Parish dismissed the
Feldheim plaintiffs' claim to a class action, and plaintiffs have appealed.
Briefing of the appeal was completed in December 1997 and oral argument was held
on January 5, 1998, but a decision has not yet been rendered. As of the date
hereof, no discovery has taken place.
On April 17, 1998 the trial court in the Duffy lawsuit declined to grant the
defendants' exception seeking to dismiss the plaintiffs' class action
allegations on the face of the pleadings. Instead, the court deferred ruling on
those issues until the previously set October 7, 1998 hearing on the class
action issues, and the court indicated it would permit some discovery. On April
23, 1998 the defendants filed a Notice of Intent to Seek Supervisory Writs with
the Court of Appeal from the trial court's April 17, 1998 judgment,
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and the trial court granted the defendants' motion for a stay of all proceedings
pending a ruling by the Court of Appeal on the supervisory writ application.
The Company has determined that it is not possible at this time to predict
the final outcome of these legal proceedings, including whether a class will be
certified, and that it is not possible to establish a reasonable estimate of
possible damages, if any, or reasonably to estimate the range of possible
damages that may be awarded to plaintiffs. Accordingly, no provision with
respect to this lawsuit has been made in the Company's interim consolidated
financial statements.
OTHER
No material developments occurred in connection with any other previously
reported legal proceedings against the Company during the last fiscal quarter.
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.
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's policies are designed to control
environmental risk upon acquisition through extensive due diligence and
corrective measures taken prior to acquisition. The Company believes
environmental liabilities to be immaterial individually and in the aggregate.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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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 Loewen, filed with the Registrar on June 21, 1996 (2)
3.3 Articles of Loewen, restated, filed with the Registrar on March 1, 1988, as amended on March 30,
1988, April 21, 1988, May 19, 1989, May 28, 1992, May 20, 1993, June 29, 1994, December 21, 1995
and February 7, 1996 (1)
4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY-HOLDERS, INCLUDING INDENTURES
4.1.1 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)
4.1.2 Second Amendment, dated for reference May 15, 1996, to Note Agreement, dated for reference
September 1, 1993, among Loewen, LGII and institutions named therein, re Series D Notes (3)
4.2 Guaranty Agreement by LGII re Series D Notes, dated for reference April 1, 1993 (1)
4.3.1 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)
4.3.2 Second Amendment, dated for reference May 15, 1996, to Note Agreement, dated for reference
February 1, 1994, among Loewen, LGII and Teachers Insurance and Annuity Association of America,
re Series E Notes (3)
4.4 Guaranty Agreement by Loewen re Series E Notes, dated for reference February 1, 1994 (1)
4.5.1 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)
4.5.2 First Amendment to the MEIP Credit Agreement, dated as of December 2, 1996 (4)
4.5.3 Second Amendment to the MEIP Credit Agreement, dated as of April 30, 1997 (4)
4.5.4 Third Amendment to the MEIP Credit Agreement, dated as of May 21, 1997 (16)
4.5.5 Fourth Amendment to the MEIP Credit Agreement, dated as of September 29, 1997 (16)
4.6 Security Agreement, dated as of June 14, 1994, by and between LMIC and the MEIP Agent (1)
4.7 Guaranty dated as of June 14, 1994, by LGII in favor of the MEIP Agent for the ratable benefit of
the MEIP Banks (1)
</TABLE>
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EXHIBIT
NUMBER DESCRIPTION
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4.8 Guaranty dated as of June 14, 1994, by Loewen in favor of the MEIP Agent for the ratable benefit
of the MEIP Banks (1)
4.9 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)
4.10 Indenture, dated as of August 15, 1994, by and between LGII, as issuer, Loewen, as guarantor, and
State Street Bank and Trust Company, as trustee with respect to 9.45% Junior Subordinated
Debentures, Series A, due 2024, issued by LGII and guaranteed by Loewen (5)
4.11 MIPS Guarantee Agreement, dated August 15, 1994 (5)
4.12 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)
4.13 Indenture, dated as of March 20, 1996, by and between LGII, as issuer, 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 (6)
4.14 Form of Senior Guarantee of LGII's Series 1 and 2 Notes (included in Exhibit 4.13)
4.15 Form of Global Series 1 and 2 Outstanding Note of LGII (included in Exhibit 4.13)
4.16 Form of Physical Series 1 and 2 Outstanding Note of LGII (included in Exhibit 4.13)
4.17 Form of Global Series 1 and 2 Exchange Note of LGII (3)
4.18 Form of Physical Series 1 and 2 Exchange Note of LGII (3)
4.19 Amended and Restated Credit Agreement, dated as of March 27, 1998 ("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
administrative and syndication agent (16)
4.20 Collateral Trust Agreement, dated as of May 15, 1996, among Bankers Trust Company, as trustee,
Loewen, LGII and various other pledgers (3)
4.21.1 Amended and Restated Operating Credit Agreement, dated for reference July 15, 1996, between Loewen
and Royal Bank of Canada (8)
4.21.2 Third Amendment to Operating Credit Agreement, dated for reference July 15, 1996, among Loewen,
LGII and Royal Bank of Canada (8)
4.22 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 (8)
4.23 Form of Senior Guarantee of LGII's Series 3 and 4 Notes (included in Exhibit 4.22)
4.24 Form of Global Series 3 and 4 Outstanding Note of LGII (included in Exhibit 4.22)
4.25 Form of Physical Series 3 and 4 Outstanding Note of LGII (included in Exhibit 4.22)
4.26 Form of Global Series 3 and 4 Exchange Note of LGII (9)
4.27 Form of Physical Series 3 and 4 Exchange Note of LGII (9)
4.28 Indenture, dated as of September 26, 1997, between Loewen, as issuer, LGII, as guarantor, and The
Trust Company of Bank of Montreal, as trustee, with respect to the Series 5 Notes (14)
</TABLE>
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<TABLE>
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EXHIBIT
NUMBER DESCRIPTION
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4.29 Form of Series 5 Guaranteed Note of LGII (14)
4.30 Form of Senior Guarantee of Loewen's Series 5 Note (14)
4.31 Indenture, dated as of September 30, 1997, between LGII, as issuer, Loewen, as guarantor, and
State Street Bank and Trust Company, as trustee, with respect to the Senior Guaranteed Notes due
2009 (14)
4.32 Form of Global Senior Guaranteed Note due 2009 of LGII (14)
4.33 Form of Physical Senior Guaranteed Note due 2009 of LGII (14)
4.34 Form of Senior Guarantee of LGII's Senior Guaranteed Notes due 2009 (14)
4.35 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)
4.36 Form of Indenture by and between LGII, as issuer, Loewen, as guarantor, and Fleet National Bank,
as trustee (7)
4.37 Loewen and LGII 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 Loewen and LGII. None of such
instruments not included as exhibits herein collectively represents long-term debt in excess of
10% of the consolidated total assets of Loewen or LGII.
10 MATERIAL CONTRACTS
10.1 Stock Purchase Agreement, dated as of March 16, 1995, by and between Osiris Holding Corporation
and LGII (10)
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") (6)
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 (6)
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 (6)
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 (6)
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 (6)
10.7 Registration Rights Agreement, dated as of March 20, 1996, by and between LGII, Loewen and the
Initial Purchasers named therein (6)
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. (6)
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. (6)
10.10 Letter Agreement, dated August 8, 1997, by and between Loewen and Service Corporation
International (16)
*10.11 Form of Indemnification Agreement with Outside Directors (11)
</TABLE>
-30-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------
<C> <S>
*10.12 Form of Indemnification Agreement with Officers (11)
*10.13 Form of Loewen Severance Agreement (11)
*10.14 Loewen Severance Pay Plan (11)
*10.15 1994 Management Equity Investment Plan (the "MEIP") (1)
*10.16 Form of Executive Agreement executed by participants in the MEIP (5)
*10.17 1994 Outside Director Compensation Plan, as restated and amended as at January 9, 1997, and
further amended as at August 15, 1997 (16)
*10.18 Employee Stock Option Plan (International), as restated and amended as at March 11, 1998 (16)
*10.19 Employee Stock Option Plan (Canada), as restated and amended as at August 15, 1997 (16)
*10.20 Employment Agreement, dated August 19, 1988, by and between Loewen and Tim Hogenkamp (1)
*10.21 Employment Agreement, dated March 6, 1990, by and between Loewen and Peter S. Hyndman (1)
*10.22 Employment Agreement, and Covenant Not to Compete, dated November 14, 1990, by and between LGII
and Albert S. Lineberry, Sr. (1)
*10.23 Employment Agreement, dated April 12, 1991, by and between Loewen and Dwight Hawes (1)
*10.24 Consulting Agreement, dated July 18, 1994, by and between Loewen and Charles B. Loewen, LGII, and
Corporate Services International Inc. (1)
*10.25 Employment Letter, dated March 10, 1995, by Raymond L. Loewen to Paul Wagler (5)
*10.26 Employment Agreement, dated March 17, 1995, by and between Loewen, LGII and Lawrence Miller (1)
*10.27.1 Employment Agreement, dated March 17, 1995, by and between Loewen and William R. Shane ("Shane
Employment Agreement") (1)
*10.27.2 Amendment No. 1 to Shane Employment Agreement, dated February 23, 1998, by and between Loewen and
William R. Shane (16)
*10.28 Employment Agreement, dated April 30, 1996, by and between Loewen and Grant Ballantyne (5)
*10.29 Employment Agreement, dated May 1, 1996, amended July 18, 1996 by and between Loewen and Douglas
J. McKinnon (5)
*10.30 Resignation and Release Agreement, effective June 10, 1996, by and between Loewen, LGII and Robert
O. Wienke (5)
*10.31 Employment Agreement, dated October 3, 1997, by and between Loewen and F. Andrew Scott (16)
*10.32 Employment Agreement, dated October 31, 1997, by and between Loewen and Michael G. Weedon (16)
*10.33 Severance Agreement, dated November 4, 1997, by and between Loewen and Douglas J. McKinnon (16)
</TABLE>
-31-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------
<C> <S>
*10.34 Employment Agreement, dated January 30, 1998, by and between Loewen and Brad Stam (16)
11 STATEMENT 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. (12)
99.2 Put/Call Agreement, dated as of August 26, 1996, by and among Blackstone, Blackstone Offshore
Capital Partners II L.P. ("Blackstone Offshore"), Blackstone Family Investment Partnership II
L.P. ("Blackstone Family"), PSI Management Direct L.P. ("PSI"), LGII and Loewen (15)
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 (12)
99.4 Subscription Agreement, dated as of November 19, 1996, by and among Rose Hills Holdings Corp.
("Rose Hills"), 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") (13)
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 (13)
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 (13)
</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 the Registration Statement on Form S-4 filed
by Loewen on May 3, 1996, as amended (File No. 333-03135)
(4) 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)
(5) 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)
(6) 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)
(7) 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)
(8) 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)
-32-
<PAGE>
(9) 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)
(10) 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)
(11) Incorporated by reference from Loewen's Solicitation/Recommendation
Statement on Schedule 14D-9, filed on October 10, 1996, as amended
(12) Incorporated by reference from Loewen's Periodic Report on Form 8-K, dated
August 26, 1996, filed October 11, 1996, as amended October 30, 1996 (File
No. 0-18429)
(13) Incorporated by reference from Loewen's Periodic Report on Form 8-K, dated
November 19, 1996, filed December 27, 1996 (File No. 1-12163)
(14) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997, filed on November 14, 1997 (File No.
1-12163)
(15) Incorporated by reference from Loewen's Periodic Report on Form 8-K/A No.
1, dated August 26, 1996, filed October 29, 1996 (File No. 0-18429)
(16) Incorporated by reference from Loewen's Annual Report on Form 10-K for the
year ended December 31, 1997, filed on March 30, 1998 (File No. 0-18429)
(b) REPORTS ON FORM 8-K
The following Current Reports on Form 8-K were filed by Loewen during the
subject quarter:
<TABLE>
<CAPTION>
FILING DATE ITEM NUMBER DESCRIPTION
- ---------------------------- ------------------------ ----------------------------------------------------------
<S> <C> <C>
March 3, 1998 (dated March Item 5. Other Events Press release announcing (i) fourth quarter financial
2, 1998) results, (ii) realization of initial benefits from
restructuring and strategic initiatives, and (iii) 1997
annual revenues
March 6, 1998 (dated March Item 5. Other Events Press release announcing cash dividends on Preferred
5, 1998) Shares
March 18, 1998 (dated March Item 5. Other Events Press release announcing the signing of a long-term
16, 1998) contract for the management of Catholic cemeteries in
Tucson
May 8, 1998 (dated May 7, Item 5. Other Events Press release announcing first quarter financial results
1998)
</TABLE>
-33-
<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.
<TABLE>
<S> <C>
THE LOEWEN GROUP INC.
Date: May 12, 1998 By: /s/ PAUL WAGLER
Name: Paul Wagler
Title: SENIOR VICE-PRESIDENT, FINANCE
AND CHIEF FINANCIAL OFFICER
Date: May 12, 1998 By: /s/ WILLIAM G. BALLANTYNE
Name: William G. Ballantyne
Title: SENIOR VICE-PRESIDENT, FINANCIAL
CONTROL
AND ADMINISTRATION
(PRINCIPAL ACCOUNTING OFFICER)
</TABLE>
-34-
<PAGE>
INDEX TO EXHIBITS
<TABLE>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
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 Loewen, filed with the Registrar on June 21,
1996 (2)
3.3 Articles of Loewen, restated, filed with the Registrar on March 1,
1988, as amended on March 30, 1988, April 21, 1988, May 19, 1989, May
28, 1992, May 20, 1993, June 29, 1994, December 21, 1995 and February
7, 1996 (1)
4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY-HOLDERS, INCLUDING
INDENTURES
4.1.1 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)
4.1.2 Second Amendment, dated for reference May 15, 1996, to Note
Agreement, dated for reference September 1, 1993, among Loewen,
LGII and institutions named therein, re Series D Notes (3)
4.2 Guaranty Agreement by LGII re Series D Notes, dated for reference
April 1, 1993 (1)
4.3.1 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)
4.3.2 Second Amendment, dated for reference May 15, 1996, to Note
Agreement, dated for reference February 1, 1994, among Loewen,
LGII and Teachers Insurance and Annuity Association of America,
re Series E Notes (3)
4.4 Guaranty Agreement by Loewen re Series E Notes, dated for reference
February 1, 1994 (1)
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
4.5.1 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)
4.5.2 First Amendment to the MEIP Credit Agreement, dated as of
December 2, 1996 (4)
4.5.3 Second Amendment to the MEIP Credit Agreement, dated as of April
30, 1997 (4)
4.5.4 Third Amendment to the MEIP Credit Agreement, dated as of May 21,
1997 (16)
4.5.5 Fourth Amendment to the MEIP Credit Agreement, dated as of
September 29, 1997 (16)
4.6 Security Agreement, dated as of June 14, 1994, by and between LMIC and
the MEIP Agent (1)
4.7 Guaranty dated as of June 14, 1994, by LGII in favor of the MEIP Agent
for the ratable benefit of the MEIP Banks (1)
4.8 Guaranty dated as of June 14, 1994, by Loewen in favor of the MEIP
Agent for the ratable benefit of the MEIP Banks (1)
4.9 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)
4.10 Indenture, dated as of August 15, 1994, by and between LGII, as
issuer, Loewen, as guarantor, and State Street Bank and Trust Company,
as trustee with respect to 9.45% Junior Subordinated Debentures,
Series A, due 2024, issued by LGII and guaranteed by Loewen (5)
4.11 MIPS Guarantee Agreement, dated August 15, 1994 (5)
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
4.12 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)
4.13 Indenture, dated as of March 20, 1996, by and between LGII, as issuer,
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 (6)
4.14 Form of Senior Guarantee of LGII's Series 1 and 2 Notes (included in
Exhibit 4.13)
4.15 Form of Global Series 1 and 2 Outstanding Note of LGII (included in
Exhibit 4.13)
4.16 Form of Physical Series 1 and 2 Outstanding Note of LGII (included in
Exhibit 4.13)
4.17 Form of Global Series 1 and 2 Exchange Note of LGII (3)
4.18 Form of Physical Series 1 and 2 Exchange Note of LGII (3)
4.19 Amended and Restated Credit Agreement, dated as of March 27, 1998
("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 administrative and syndication agent (16)
4.20 Collateral Trust Agreement, dated as of May 15, 1996, among Bankers
Trust Company, as trustee, Loewen, LGII and various other pledgers (3)
4.21.1 Amended and Restated Operating Credit Agreement, dated for
reference July 15, 1996, between Loewen and Royal Bank of Canada (8)
4.21.2 Third Amendment to Operating Credit Agreement, dated for
reference July 15, 1996, among Loewen, LGII and Royal Bank of
Canada (8)
4.22 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 (8)
4.23 Form of Senior Guarantee of LGII's Series 3 and 4 Notes (included in
Exhibit 4.22)
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
4.24 Form of Global Series 3 and 4 Outstanding Note of LGII (included in
Exhibit 4.22)
4.25 Form of Physical Series 3 and 4 Outstanding Note of LGII (included in
Exhibit 4.22)
4.26 Form of Global Series 3 and 4 Exchange Note of LGII (9)
4.27 Form of Physical Series 3 and 4 Exchange Note of LGII (9)
4.28 Indenture, dated as of September 26, 1997, between Loewen, as issuer,
LGII, as guarantor, and The Trust Company of Bank of Montreal, as
trustee, with respect to the Series 5 Notes (14)
4.29 Form of Series 5 Guaranteed Note of LGII (14)
4.30 Form of Senior Guarantee of Loewen's Series 5 Note (14)
4.31 Indenture, dated as of September 30, 1997, between LGII, as issuer,
Loewen, as guarantor, and State Street Bank and Trust Company, as
trustee, with respect to the Senior Guaranteed Notes due 2009 (14)
4.32 Form of Global Senior Guaranteed Note due 2009 of LGII (14)
4.33 Form of Physical Senior Guaranteed Note due 2009 of LGII (14)
4.34 Form of Senior Guarantee of LGII's Senior Guaranteed Notes due 2009
(14)
4.35 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)
4.36 Form of Indenture by and between LGII, as issuer, Loewen, as
guarantor, and Fleet National Bank, as trustee (7)
4.37 Loewen and LGII 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 Loewen and LGII. None of such instruments not
included as exhibits herein collectively represents long-term debt in
excess of 10% of the consolidated total assets of Loewen or LGII.
10 MATERIAL CONTRACTS
10.1 Stock Purchase Agreement, dated as of March 16, 1995, by and between
Osiris Holding Corporation and LGII (10)
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
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") (6)
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 (6)
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 (6)
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
(6)
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 (6)
10.7 Registration Rights Agreement, dated as of March 20, 1996, by and
between LGII, Loewen and the Initial Purchasers named therein (6)
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. (6)
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.
(6)
10.10 Letter Agreement, dated August 8, 1997, by and between Loewen and
Service Corporation International (16)
*10.11 Form of Indemnification Agreement with Outside Directors (11)
*10.12 Form of Indemnification Agreement with Officers (11)
*10.13 Form of Loewen Severance Agreement (11)
*10.14 Loewen Severance Pay Plan (11)
*10.15 1994 Management Equity Investment Plan (the "MEIP") (1)
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
*10.16 Form of Executive Agreement executed by participants in the MEIP
(5)
*10.17 1994 Outside Director Compensation Plan, as restated and amended
as at January 9, 1997, and further amended as at August 15, 1997
(16)
*10.18 Employee Stock Option Plan (International), as restated and
amended as at March 11, 1998 (16)
*10.19 Employee Stock Option Plan (Canada), as restated and amended as
at August 15, 1997 (16)
*10.20 Employment Agreement, dated August 19, 1988, by and between
Loewen and Tim Hogenkamp (1)
*10.21 Employment Agreement, dated March 6, 1990, by and between Loewen
and Peter S. Hyndman (1)
*10.22 Employment Agreement, and Covenant Not to Compete, dated
November 14, 1990, by and between LGII and Albert S. Lineberry,
Sr. (1)
*10.23 Employment Agreement, dated April 12, 1991, by and between Loewen
and Dwight Hawes (1)
*10.24 Consulting Agreement, dated July 18, 1994, by and between Loewen
and Charles B. Loewen, LGII, and Corporate Services International
Inc. (1)
*10.25 Employment Letter, dated March 10, 1995, by Raymond L. Loewen to
Paul Wagler (5)
*10.26 Employment Agreement, dated March 17, 1995, by and between
Loewen, LGII and Lawrence Miller (1)
*10.27.1 Employment Agreement, dated March 17, 1995, by and between Loewen
and William R. Shane ("Shane Employment Agreement") (1)
*10.27.2 Amendment No. 1 to Shane Employment Agreement, dated February 23,
1998, by and between Loewen and William R. Shane (16)
*10.28 Employment Agreement, dated April 30, 1996, by and between Loewen
and Grant Ballantyne (5)
*10.29 Employment Agreement, dated May 1, 1996, amended July 18, 1996 by
and between Loewen and Douglas J. McKinnon (5)
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
*10.30 Resignation and Release Agreement, effective June 10, 1996, by
and between Loewen, LGII and Robert O. Wienke (5)
*10.31 Employment Agreement, dated October 3, 1997, by and between
Loewen and F. Andrew Scott (16)
*10.32 Employment Agreement, dated October 31, 1997, by and between
Loewen and Michael G. Weedon (16)
*10.33 Severance Agreement, dated November 4, 1997, by and between
Loewen and Douglas J. McKinnon (16)
*10.34 Employment Agreement, dated January 30, 1998, by and between
Loewen and Brad Stam (16)
11 STATEMENT 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. (12)
99.2 Put/Call Agreement, dated as of August 26, 1996, by and among
Blackstone, Blackstone Offshore Capital Partners II L.P. ("Blackstone
Offshore"), Blackstone Family Investment Partnership II L.P.
("Blackstone Family"), PSI Management Direct L.P. ("PSI"), LGII and
Loewen (15)
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 (12)
99.4 Subscription Agreement, dated as of November 19, 1996, by and among
Rose Hills Holdings Corp. ("Rose Hills"), 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") (13)
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 (13)
<PAGE>
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 (13)
</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 the Registration Statement on Form S-4
filed by Loewen on May 3, 1996, as amended (File No. 333-03135)
(4) 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)
(5) 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)
(6) 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)
(7) 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)
(8) 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)
(9) 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)
(10) 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)
(11) Incorporated by reference from Loewen's Solicitation/Recommendation
Statement on Schedule 14D-9, filed on October 10, 1996, as amended
(12) Incorporated by reference from Loewen's Periodic Report on Form 8-K,
dated August 26, 1996, filed October 11, 1996, as amended October 30, 1996
(File No. 0-18429)
(13) 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>
(14) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997, filed on November 14, 1997 (File
No. 1-12163)
(15) Incorporated by reference from Loewen's Periodic Report on Form 8-K/A
No. 1, dated August 26, 1996, filed October 29, 1996 (File No. 0-18429)
(16) Incorporated by reference from Loewen's Annual Report on Form 10-K for
the year ended December 31, 1997, filed on March 30, 1998 (File
No. 0-18429)
<PAGE>
THE LOEWEN GROUP INC. Exhibit 11
For 10 Q
COMPUTATION OF PER SHARE EARNINGS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
BASIC
Net earnings $30,400 $23,700
Less: Preferred share dividends 2,312 2,429
------- -------
Net earnings available to Common shareholders 28,088 21,271
Weighted average shares outstanding 73,930 59,102
Basic earnings per share $ 0.38 $ 0.36
------- -------
------- -------
FULLY DILUTED
Net earnings available to Common shareholders $28,088 $21,271
Add: imputed earnings from dilutive options, net
of tax effect 1,565 1,576
------- -------
Fully diluted net earnings $29,653 $22,847
------- -------
------- -------
Weighted average shares outstanding 73,930 59,102
Shares issuable upon assumed conversion of
dilutive options 4,738 4,887
------- -------
Fully diluted shares 78,668 63,989
------- -------
------- -------
Fully diluted earnings per share $ 0.38 $ 0.36
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the unaudited interim
consolidated financial statements of The Loewen Group Inc. for the three months
ended March 31, 1998 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 34,573
<SECURITIES> 0
<RECEIVABLES> 289,309
<ALLOWANCES> 34,756
<INVENTORY> 35,572
<CURRENT-ASSETS> 337,927
<PP&E> 966,275
<DEPRECIATION> 153,327
<TOTAL-ASSETS> 4,656,886
<CURRENT-LIABILITIES> 195,217
<BONDS> 1,885,055
75,000
157,146
<COMMON> 1,271,869
<OTHER-SE> 140,640
<TOTAL-LIABILITY-AND-EQUITY> 4,656,886
<SALES> 310,113
<TOTAL-REVENUES> 310,113
<CGS> 195,594
<TOTAL-COSTS> 195,594
<OTHER-EXPENSES> 44,348
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,067
<INCOME-PRETAX> 38,880
<INCOME-TAX> 8,480
<INCOME-CONTINUING> 30,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,400
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.38
</TABLE>
