LOEWEN GROUP INC, 10-K, 1999-04-14

LOEWEN GROUP INC
10-K, 1999-04-14
PERSONAL SERVICES

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
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FORM 10-K

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<S> <C> <C>
(Mark ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
One) SECURITIES EXCHANGE ACT OF 1934
/X/ For the fiscal year ended December 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
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COMMISSION FILE NUMBER 1-12163
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THE LOEWEN GROUP INC.

(Exact name of registrant as specified in its charter)

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BRITISH COLUMBIA 98-0121376
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)

4126 NORLAND AVENUE, BURNABY, V5G 3S8
BRITISH COLUMBIA, CANADA (Postal Code)
(Address of principal executive
offices)
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Registrant's telephone number, including area code: 604-299-9321

Securities registered pursuant to Section 12(b) of the Act:

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(Title of class) (Name of each exchange on which
COMMON SHARES WITHOUT PAR VALUE registered)
NEW YORK STOCK EXCHANGE
THE TORONTO STOCK EXCHANGE
THE MONTREAL EXCHANGE

LOEWEN GROUP CAPITAL, L.P. NEW YORK STOCK EXCHANGE
9.45% CUMULATIVE MONTHLY INCOME
PREFERRED SECURITIES, SERIES A,
GUARANTEED BY THE LOEWEN GROUP
INC.
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Securities registered pursuant to Section 12(g) of the Act:

NONE
(Title of class)

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /

The aggregate market value of Common shares held by non-affiliates of the
registrant was approximately U.S.$134 million as of March 31, 1999.

The number of outstanding Common shares as of March 31, 1999, was
74,061,600.

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DOCUMENTS INCORPORATED BY REFERENCE

Specified sections of the registrant's definitive Proxy Statement and
Information Circular for the 1999 Annual General Meeting of Shareholders, which
will be filed with the Securities and Exchange Commission within 120 days after
December 31, 1998, are incorporated by reference in Part III of this report.

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TABLE OF CONTENTS

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PAGE
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GENERAL INFORMATION........................................................................................ 1

PART I
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ITEM NUMBER
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1. BUSINESS......................................................................................... 2

2. PROPERTIES....................................................................................... 5

3. LEGAL PROCEEDINGS................................................................................ 6

4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.............................................. 10

EXECUTIVE OFFICERS OF LOEWEN..................................................................... 11

PART II

5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS............................ 14

FORWARD-LOOKING AND CAUTIONARY STATEMENTS........................................................ 15

6. SELECTED FINANCIAL DATA.......................................................................... 16

7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............ 18

7 A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....................................... 32

8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................................................... 35

9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE............. 157

PART III

10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............................................... 157

11. EXECUTIVE COMPENSATION........................................................................... 157

12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................... 157

13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................................... 157

PART IV

14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K................................. 158
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GENERAL INFORMATION

Unless the context otherwise requires (i) "Loewen" refers to The Loewen
Group Inc., a corporation organized under the laws of British Columbia, Canada,
(ii) "LGII" refers to Loewen Group International, Inc., a Delaware corporation
and a wholly-owned subsidiary of Loewen, and (iii) the "Company" refers to
Loewen together with its subsidiaries and associated companies.

All dollar amounts are in United States dollars ("U.S.$" or "$") unless
otherwise indicated. References to "Cdn.$" are to Canadian dollars.

Except as specifically noted, financial information is presented in
accordance with Canadian GAAP. Material differences between Canadian GAAP and
accounting principles generally accepted in the United States ("U.S. GAAP"), as
applicable to the Company, are explained in Note 25 to the Company's
consolidated financial statements for the year ended December 31, 1998 (the
"Consolidated Financial Statements"), included in Item 8 of this Form 10-K.

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PART I

ITEM 1. BUSINESS.

OVERVIEW

The Company operates the second-largest number of funeral homes and
cemeteries in North America. In addition to providing services at the time of
need, the Company also makes funeral, cemetery and cremation arrangements on a
pre-need basis. As at March 31, 1999, the Company operated 1,115 funeral homes
and 427 cemeteries throughout North America. During 1997, the Company expanded
into the United Kingdom and now operates 32 funeral homes there. As at March 31,
1999, the Company also operated three insurance subsidiaries that principally
sell a variety of life insurance products to fund funeral services purchased
through a pre-need arrangement.

Historically, the Company pursued an aggressive growth strategy based
primarily upon acquisitions. In the past three years the Company's growth
strategy emphasized cemetery acquisitions, as compared to the historical
emphasis on funeral home acquisitions. Since 1995, the Company has grown by 651
locations to 1,701 at December 31, 1998, including 348 additional cemeteries.

The Company's recent financial results have been disappointing. Beginning in
the second half of 1998, as part of its strategy to improve its results,
liquidity and financial condition the Company virtually eliminated its
acquisition program in order to concentrate on improving existing operations.
This strategy focuses upon emphasizing cash flow from operations and, in
particular, cash flow from cemetery operations. Also, efforts to reduce costs
have been made, including the closure of the Company's Cincinnati and Trevose
offices and consolidation of substantially all management functions in Burnaby.
In July 1998, the Company secured the services of the investment banking firm
Salomon Smith Barney to identify and evaluate opportunities to maximize
shareholder value that could include strategic partnerships, combinations,
dispositions and capital investments in the Company.

Significant management changes occurred beginning in the fourth quarter of
1998. On October 8, 1998, Robert L. Lundgren was appointed President and Chief
Executive Officer replacing Raymond L. Loewen who resigned on the same date. On
December 17, 1998, the Company named three new outside directors, Thomas M.
Taylor, John S. Lacey and William R. Riedl, to the Company's Board of Directors,
replacing three inside directors who simultaneously retired from the Board. On
January 22, 1999, the Company's Board of Directors appointed John S. Lacey as
Chairman, replacing Co-Chairmen Robert L. Lundgren and Raymond L. Loewen.
Through actions taken on March 30, 1999 and April 12, 1999, the Board of
Directors was reduced from 14 to seven members.

On March 31, 1999, the Company entered into revised lending agreements with
the lenders under its bank credit agreement, MEIP bank term credit agreement,
Series D and E senior amortizing notes and one privately held note agreements
(collectively, the "Credit Agreements"). The revised lending agreements change
and add certain financial covenants, waive defaults that would have occurred
with respect to the Company's financial results as of December 31, 1998, suspend
all Common share, Preferred share and MIPS dividends, provide no further
borrowings under the bank credit agreement except for letters of credit, and
require refinancing of $300 million of pass-through asset trust senior
guaranteed notes due 2009 (the "PATS Senior Notes") on terms satisfactory to the
lenders by September 15, 1999. On the same day, the Company completed the sale
of 124 cemeteries and three funeral homes for gross proceeds of $193 million, of
which $126.5 million was required to be paid to certain lenders, to an investor
group led by McCown De Leeuw & Co., a private investment firm. The Company has
two smaller groups of properties which are considered probable for sale. The
Company has recorded a pre-tax impairment loss of $333.9 million in 1998 on
individual properties contained in the above groups.

Although the Company intends to consummate additional asset sales, it is not
committed to sell and has not identified any other properties for which sale is
probable, other than noted above. Should

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additional properties be sold, losses, if any, could be small or significant
depending upon the type of property, location, and prevailing market conditions.

The Company's Consolidated Financial Statements have been prepared on a
going concern basis in accordance with Canadian GAAP. The going concern basis of
presentation assumes that the Company will continue in operation for the
foreseeable future and will be able to realize its assets and discharge its
liabilities and commitments in the normal course of business. If the going
concern basis was not appropriate, then significant adjustments in the
Consolidated Financial Statements would be necessary in the carrying value of
assets and liabilities, the reported revenue and expenses, and the balance sheet
classifications used. There is substantial doubt about the appropriateness of
the going concern assumption because in 1998 the Company experienced both a
significant net loss and negative cash flow. The ability of the Company to
continue as a going concern and to realize the carrying value of its assets and
discharge its liabilities when due is dependent on the successful completion of
actions that the Company has taken or plans to take which management believes
will mitigate the adverse conditions and events that raise doubts about the
validity of the "going concern" assumption. However, there is no certainty that
these actions or other strategies will be sufficient to permit the Company to
continue, or that the Company will be able to refinance the PATS Senior Notes on
terms satisfactory to the lenders under the Credit Agreements by September 15,
1999. In the event that such actions and strategies are not successful, either
the Company or its creditors may initiate proceedings for the liquidation or
reorganization of the Company under Canadian or U.S. bankruptcy laws.

See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" for additional information regarding the Credit Agreements, asset
sales, and the going concern assumption.

Loewen serves as the holding company for all operations of the Company,
which are contained in subsidiary and associated companies. Loewen was
incorporated under the Company Act of British Columbia on October 30, 1985. The
principal executive offices of the Company are located at 4126 Norland Avenue,
Burnaby, British Columbia V5G 3S8, telephone number (604) 299-9321.

BUSINESS OPERATIONS

The Company's operations are comprised of three businesses: funeral homes,
cemeteries and insurance. The Company maintains a regional management structure
for both funeral home and cemetery businesses that is organized in several
geographic regions in the United States, Canada and Europe. Management believes
that this recently implemented organizational structure will enable the Company
to better manage local profit centers.

FUNERAL HOMES

The Company's funeral homes offer a full range of funeral services,
including the collection of remains, registration of death, professional
embalming, use of funeral home facilities, sale of caskets and other
merchandise, and transportation to a place of worship, funeral chapel, cemetery
or crematorium. To provide the public with the opportunity to choose the service
that is most appropriate from both a personal and financial perspective, the
Company offers complete funeral services (including caskets and related
merchandise) at prices averaging approximately $3,400.

Substantially all of the Company's funeral homes provide basic cremation
services, and the Company has proprietary programs designed to provide a full
range of merchandise and services to families choosing cremation. In 1998,
cremations accounted for approximately 26% (27% in 1997) of all funeral services
performed by the Company. As a percentage of all funeral services in the United
States, cremations have been increasing by approximately 1.0% annually over the
past five years and, in 1997, accounted for approximately 24% of all funeral
services performed in the United States.

Funeral operations accounted for approximately 56% of the Company's
consolidated revenue for 1998. Amounts paid for funeral services are recorded as
revenue at the time the service is performed.

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Payments made for pre-need funeral contracts are either placed in trust by the
Company or are used on behalf of the purchaser of the pre-need contract to pay
premiums on life insurance polices under which the Company is designated as the
beneficiary. At the date of performing a pre-arranged funeral service, the
Company records as funeral revenue the amount originally trusted or the
insurance contract amount, together with related accrued earnings retained in
trust and increased insurance benefits. The Company's gross pre-arranged funeral
sales in 1998 were approximately $258 million (1997 -- $267 million).

CEMETERIES

The Company's cemetery operations assist families in making burial
arrangements and offer a complete line of cemetery products (including a
selection of burial spaces, burial vaults, lawn crypts, caskets, memorials,
niches and mausoleum crypts), the opening and closing of graves and cremation
services.

The Company's cemetery operations comprised approximately 36% of the
Company's consolidated revenue for 1998, the majority of which was derived from
pre-need sales of cemetery products and services. The pre-need sale of interment
rights and related products and services is recorded as revenue when customer
contracts are signed. At that time, costs related to the sale are also recorded
and an allowance is established for future cancellations and refunds, based on
management's estimates in light of actual historical experience and trends. A
portion of the proceeds received by the Company from pre-need merchandise and
service sales is generally set aside in trust funds to provide for the future
delivery of the cemetery products and services.

In addition, the Company provides for the long-term maintenance of its
cemetery properties by placing a portion, typically 10%, of the proceeds from
the sale of interment rights into a perpetual care trust fund. The income from
these funds is used to offset the maintenance costs of operating the cemeteries.
At December 31, 1998, the Company's cemeteries had approximately $270 million in
perpetual care trust funds, which are not reflected on the Company's balance
sheet because the principal is required to stay in trust in perpetuity.

INSURANCE

The Company operates three insurance subsidiaries licensed in 29
jurisdictions to principally sell a variety of life insurance products to fund
funerals. Revenue from the Company's insurance operations totaled approximately
$97 million in 1998, or 8% of the Company's consolidated revenue.

COMPETITION

Competition generally arises from two sources in the funeral service
industry. The first form is competition among local funeral homes and cemeteries
for at-need and pre-need business. The market share of a single funeral home or
cemetery in any community is often a function of the name, reputation and
location of that funeral home or cemetery. Gains in market share within a
community are usually achieved over a period of time.

While executing its acquisition growth strategy, the Company faced
competition from other large consolidators in the industry. In the North
American funeral service industry, the Company's competition includes Service
Corporation International ("SCI"), Stewart Enterprises, Inc., and Carriage
Services, Inc., all of which are publicly-traded funeral service and cemetery
companies with significant United States operations, as well as other non-public
regional consolidators. The Company also experienced competition on a local
level from consolidators who own funeral home and cemetery properties in a
concentrated geographic area.

REGULATION

The funeral service industry is regulated primarily on a state and
provincial basis with a vast majority of jurisdictions requiring licensing and
supervision of individuals who provide funeral-related services. A

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number of jurisdictions also regulate the sale of pre-need services and the
administration of any resulting trust funds or insurance contracts. The laws and
regulations are complex, subject to the interpretation by regulators and vary
from jurisdiction to jurisdiction. Non-compliance with these regulations can
result in fines or suspension of licenses required to sell pre-need services and
merchandise. In addition, concerns regarding lack of competition have led a few
jurisdictions to enact legislation restricting the common ownership of funeral
homes, cemeteries and related operations within a specific geographic region.

The Company's United States operations must also comply with Federal
legislation, including the laws administered by the Occupational Safety and
Health Administration, the Americans with Disabilities Act and the Federal Trade
Commission ("FTC") regulations. The FTC administers the Trade Regulation Rule on
Funeral Industry Practices, the purpose of which is to prevent unfair or
deceptive acts or practices in connection with the provision of funeral goods or
services. Certain regulatory requirements also exist in Canada and the United
Kingdom.

The Company's insurance company subsidiaries are subject to regulation by
the states in which they are domiciled and the states in which their products
are sold.

ENVIRONMENTAL RISK

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 and after acquisition. Management endeavors
to ensure that environmental issues are identified and addressed in advance of
acquisition or are covered by an indemnity by the seller or an offset to the
purchase price. On a continuing basis, management assesses and evaluates
environmental risk and, when necessary, conducts appropriate corrective
measures. The Company provides for environmental liabilities using its best
estimates. Actual environmental liabilities could differ significantly from
these estimates.

EMPLOYEES

At December 31, 1998, the Company employed approximately 16,700 people with
approximately 575 people employed at the Company's corporate offices. Management
believes that its relationship with employees is good, but recognizes employees
have concerns over the challenges facing the Company. Approximately 100 of the
Company's employees are members of collective bargaining units.

ITEM 2. PROPERTIES.

The Company's properties consist primarily of funeral homes and cemeteries.
Of the Company's 1,151 funeral homes at December 31, 1998 (including 51 funeral
homes located on or adjacent to a cemetery property), 172 were leased facilities
and the balance were owned by the Company. In addition, 50 of the funeral homes
owned by the Company were mortgaged as security for loans from the seller of the
property or from a commercial lender. Generally, the Company has a right of
first refusal and an option to purchase its leased premises.

The Company operated or provided management or sales services to 550
cemeteries at December 31, 1998, of which eight were mortgaged as security for
loans from the seller of the property. For certain cemeteries, the Company
provides management and sales services pursuant to certain management and sales
agreements. The cemeteries operated by the Company contained an aggregate of
approximately 24,000 acres of which approximately 58% were developed.

In December 1998, the Company sold its Trevose, Pennsylvania office building
in connection with its plans to transfer most functions to Burnaby, British
Columbia. The Company's corporate offices in

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Burnaby occupy 35,000 square feet in a building owned by the Company and 54,000
and 3,900 square feet of office space under separate lease agreements expiring
in 2000 and 1999, respectively. In 1999, in connection with the Company's
closure of the Trevose office and transitioning of its administrative functions
to Burnaby, the Company entered into two additional leases that each expire in
2002 for an aggregate 25,000 square feet of corporate office space in Burnaby.

ITEM 3. LEGAL PROCEEDINGS.

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 in Jefferson Parish dismissed the
FELDHEIM plaintiffs' claim to a class action, and plaintiffs appealed. Briefing
of the appeal was completed in December 1997, and oral argument was held on
January 15, 1998. On June 30, 1998, the Louisiana Fifth Circuit Court of Appeal
affirmed the dismissal of the FELDHEIM plaintiffs' class-action claims except as
to a claim by "Sub Class B" plaintiffs (the proposed class of current
policyholders who are seeking a declaratory judgment). The appellate court found
that the trial court's opinion did not consider the validity of class treatment
for the "Sub Class B" plaintiffs' claim for a declaratory judgment when it
dismissed plaintiffs' class-action claims, and it remanded the case to the trial
court for a hearing on that issue. On September 22, 1998, the trial court ruled
that the claim could not go forward as a class action, and granted the exception
of no cause of action as to Count IV, sub-class B. On October 20, 1998,
plaintiffs noticed a suspensive appeal to the Louisiana Fifth Circuit Court of
Appeal from this ruling. No order granting the suspensive appeal has been signed
by the trial court and the matter has not been filed with the Court of Appeal.
To date, plaintiffs have taken no further action in connection with this filing.

On August 26, 1998, defendants sought dismissal of all of plaintiffs'
remaining individual claims in FELDHEIM. The trial court has not yet ruled on
that request.

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On September 21, 1998, plaintiffs in FELDHEIM filed an "Amended Petition for
Attorneys Fees," which contends that the plaintiffs' lawyers are entitled to an
unspecified sum of attorneys' fees. Defendants will respond shortly to that
amended petition.

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 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 the supervisory writ application. The defendants filed their
Application for Supervisory Writs with the Louisiana Fourth Circuit Court of
Appeal on June 5, 1998. On July 16, 1998, the trial court lifted its previously
entered stay of all proceedings in this case; defendants have filed a motion
requesting that the trial court reinstitute its stay.

On January 6, 1999, the Fourth Circuit Court of Appeal granted supervisory
writs, reversed the trial court judgment overruling the exception of RES
JUDICATA, maintained the exception of RES JUDICATA and dismissed the action. On
February 5, 1999 the DUFFY plaintiffs filed an application for writ of
certiorari with the Louisiana Supreme Court. The Company has filed an opposition
to the 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 consolidated financial
statements.

LUENING, ET AL. v. SI-SIFH CORP., ET AL.

In June 1998, Warren S. Luening 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 St. Bernard, State of Louisiana.
Plaintiffs seek a class action. Defendants in this case are the same entities
against whom complaints were filed in Jefferson Parish, Louisiana (the FELDHEIM
case) and in Orleans Parish, Louisiana (the DUFFY case), and, aside from the
addition of local counsel in St. Bernard Parish, the same lawyers who filed the
FELDHEIM and DUFFY complaints filed the LUENING complaint.

Plaintiffs allegedly hold and held funeral insurance policies issued by
insurance companies owned, directly or indirectly, by the defendants. Plaintiffs
allege that the defendants failed to provide the funeral services purchased with
policies by, among other things, (i) charging them for certain funeral services,
including the services of a funeral director and staff, a funeral ceremony, care
of the deceased, automotive services and a casket, even though these services
were allegedly covered by their policies, and (ii) unjustly enriching themselves
through the payment of services allegedly covered under the plaintiffs'
policies, and the plaintiffs are therefore entitled to restitution of those
payments. Plaintiffs' complaint seeks compensatory and nonpecuniary damages and
attorneys' fees. Louisiana law prohibits plaintiffs from alleging specific
amounts of damages in their complaint.

On October 22, 1998, plaintiffs in LUENING filed a "First Amended Petition
for Damages." In response to the First Amended Petition, on October 19, 1998
defendants removed the LUENING case to federal court on diversity-of-citizenship
grounds. The federal court subsequently remanded the case to state court. As of
the date hereof, no discovery has taken place.

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and granted the motion to compel discovery, ruling that the dismissal of the
class action claims in the FELDHEIM and DUFFY cases did not operate to bar this
particular sub-class of potential plaintiffs. On February 26, 1999, the Company
filed supervisory writs on these rulings, and requested a stay of the discovery
ruling pending a decision on the writ application. On March 1, 1999, the Fourth
Circuit Court of Appeals stayed all further legal proceedings and discovery in
the trial court and ordered the plaintiffs to respond to the Company's writ
application on an expedited basis. The Fourth Circuit granted the Company's writ
application on March 25, 1999, finding that under the RES JUDICATA doctrine as
stated in the Fourth Circuit's DUFFY decision, relitigation of the plaintiffs'
class action claims was forever barred in Louisiana courts by denial of the
class certification in the FELDHEIM case. Accordingly, the Fourth Circuit
reversed the trial court's denial of the Company's RES JUDICATA exception, while
recognizing that individual plaintiffs' claims could proceed in St. Bernard
Parish. It also remanded the case to the trial court for a hearing on the
plaintiffs' motion to compel discloverey, but it instructed that any discovery
requests that are not related to the individual plaintiffs' claims should be
denied.

On March 29, 1999, the LUENING plaintiffs filed an application for writ of
certiorari with the Louisiana Supreme Court, and asked that the writ application
be consolidated with the application for writ of certiorari filed by the DUFFY
plaintiffs. The Company intends to file an opposition to the application.

The Company has determined that it is not possible to predict the final
outcome of this legal proceeding, including whether a class will be certified,
and 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 consolidated financial statements.

THE LOEWEN GROUP INC. ET AL. v. THE UNITED STATES OF AMERICA

On October 30, 1998, Loewen and an affiliate filed a claim against the
United States government for damages under the arbitration provisions of the
North American Free Trade Agreement ("NAFTA"). The plaintiffs contend that they
were damaged as a result of breaches by the United States of its obligations
under NAFTA in connection with certain litigation in the State of Mississippi
entitled O'KEEFE v. THE LOEWEN GROUP INC. Specifically, the plaintiffs allege
that they were subjected to discrimination, denial of the minimum standard of
treatment guaranteed by NAFTA and uncompensated expropriation, all in violation
of NAFTA. The Company has determined that it is not possible at this time to
predict the final outcome of this proceeding or to establish a reasonable
estimate of the damages that may be awarded to the Company.

SECURITIES CLASS ACTIONS

Since December 1998 Loewen has been served with various related lawsuits
filed in the United States District Courts for the Eastern District of
Pennsylvania and for the Eastern District of New York. Raymond L. Loewen, the
former Chairman and Chief Executive Officer, and certain officers and directors
have been named as defendants in some of the suits. All but one of these
lawsuits were filed as purported class actions on behalf of persons or entities
that purchased Loewen common shares during five different time periods ranging
from November 3, 1996 through January 14, 1999. LGII and Loewen Group Capital,
L.P. are named as defendants in two suits (with Loewen, the "Loewen
Defendants"). The plaintiffs in the two lawsuits purport to sue on behalf of a
class of purchasers of MIPS from March 5, 1997 through January 14, 1999. The
MIPS were issued by Loewen Group Capital, L.P.

8
<PAGE>
York have filed a written stipulation with the MDL Panel agreeing to the
transfer of their cases to the Eastern District of Pennsylvania. The MDL Panel
has not ruled. By agreement, the Loewen Defendants' responses to all complaints
currently are due by April 26, 1999.

The complaints filed in the United States District Court for the Eastern
District of Pennsylvania are: BERG v. THE LOEWEN GROUP INC., ET AL., 99-CV-321;
BRODY v. RAYMOND L. LOEWEN, ET AL., 99-CV-19; CAMUTO ET AL. v. RAYMOND L.
LOEWEN, ET AL., 99-CV-640; GILMORE v. RAYMOND L. LOEWEN, ET AL., 99-CV-232; CITY
OF PHILADELPHIA v. LOEWEN GROUP, INC. ET AL., 99-CV-1007; HILL v. THE LOEWEN
GROUP INC. ET AL., 99-CV-560; JAMISON v. RAYMOND L. LOEWEN, ET AL., 99-CV-98;
MCGLATHERY ET AL. v. RAYMOND L. LOEWEN ET AL. 99-CV-665 (the MCGLATHERY suit was
filed on behalf of purchasers of MIPS); PASKOWITZ v. RAYMOND L. LOEWEN ET AL.,
99-CV-91; SIROTA & SIROTA EMPLOYEES PROFIT SHARING PLAN v. THE LOEWEN GROUP INC.
ET AL., 99-CV-585; STEINER v. RAYMOND L. LOEWEN, ET AL., 98-CV-6740; TEKIRAN v.
RAYMOND L. LOEWEN ET AL., 99-CV-589; and TRAVIS v. RAYMOND L. LOEWEN, ET AL.,
No. 99-11340.

The complaints filed in the United States District Court for the Eastern
District of New York are: COHEN v. THE LOEWEN GROUP INC., ET AL. (the COHEN suit
was filed on behalf of purchasers of MIPS); CV 99 553; COLLINS v. THE LOEWEN
GROUP INC., ET AL., CV 99 261; CORRADINI, ET AL. v. THE LOEWEN GROUP INC. ET
AL., CV 99 443; GERSH v. THE LOEWEN GROUP INC., CV 98 7983; GREAT NECK CAPITAL
APPRECIATION PARTNERS v. RAYMOND L. LOEWEN, ET AL., CV 99 164; HARRIS v. THE
LOEWEN GROUP INC., ET AL., CV 99 153; and SALEM v. THE LOEWEN GROUP INC., ET
AL., CV 99 351.

The Pennsylvania cases have all been assigned to Judge Thomas O'Neill.
Plaintiffs have filed a stipulated motion seeking the appointment of the City of
Philadelphia Board of Pensions as lead plaintiff. The Company anticipates that
all of the Pennsylvania cases will be consolidated and that, when and if
transferred, the New York cases will also be consolidated. It is expected that
the lead plaintiff will, when appointed, file a Consolidated and Amended
Complaint, to which the defendants will be required to respond.

Additional class action complaints containing similar allegations may be
filed in the future.

The Company has determined that it is not possible at this time to predict
the final outcome of these proceedings or to establish a reasonable estimate of
possible damages, if any, or reasonably to estimate the range of possible
damages that may be awarded to the plaintiffs. Accordingly, no provision with
respect to these lawsuits has been made in the Company's consolidated financial
statements.

F. LEO GROFF, INC. ET AL. v. RESTLAWN MEMORIAL GARDENS, INC. ET AL.

This action (No. 96-CV-397, Court of Common Pleas, Erie County, Ohio) was
served on the Company and other defendants on September 19, 1996. Plaintiffs
allegedly compete with defendants Restlawn Memorial Park Association, Restlawn
Memorial Gardens, Inc., and Sinfran, Inc., which were acquired by the Company.
Plaintiffs allege thirteen counts, including counts alleging that defendant
Restlawn engaged in false and deceptive advertising, misused confidential
information, defamed plaintiffs, breached contractual obligations,
misappropriated trade secrets, and tortiously interfered with plaintiffs'
contractual relationships. Plaintiffs further allege that the Company knew or
should have known of Restlawn's conduct and adopted and continued Restlawn's
alleged unfair, false, and deceptive practices. Plaintiffs also allege that the
defendants conspired to destroy plaintiffs' business and created a "trust in
order to prevent competition" in violation of Ohio's antitrust laws. Plaintiffs
seek compensatory damages, which are unspecified but alleged to exceed $350,000;
punitive damages, which are unspecified but alleged to exceed $300,000; and
injunctive relief. Defendants' summary judgment motion was denied as to all but
one of plaintiffs' counts. A trial date has been set for July 12, 1999.

9
<PAGE>
range of possible damages that may be awarded to the plaintiff. Accordingly, no
provision with respect to this lawsuit has been made in the Company's
consolidated financial statements.

FLANAGAN

On December 7, 1998, Honorine T. Flanagan filed a complaint in the Superior
Court of the State of California in the County of Los Angeles against Loewen and
LGII. To date, only LGII has been served with the complaint. The matter was
subsequently removed to federal court based on diversity jurisdiction, and it is
now pending in the United States District Court in the Central District of
California.

The complaint alleges that the defendants breached an express warranty
contained in the Share Purchase Agreement dated July 17, 1995, between LGII and
Ms. Flanagan, her husband John Flanagan (now deceased) and the Flanagan Family
Trust. The Share Purchase Agreement was made in connection with LGII's purchase
of the Flanagans' mausoleum and mortuary business in exchange for approximately
$2,000,000 in cash and $7,800,000 of Loewen stock. The Loewen stock was valued
at $36.00 per share at the time of the transaction. Ms. Flanagan alleges that
LGII knew of claims, suits or other actions which would materially and adversely
affect the financial condition of the Company, yet made false statements to the
contrary in the Share Purchase Agreement. Ms. Flanagan alleges that two lawsuits
pending at the time of the Share Purchase Agreement did eventually have a
material adverse impact on the financial condition of the Company and the value
of the stock received by Ms. Flanagan in connection with the Share Purchase
Agreement.

Ms. Flanagan's complaint also contains causes of action for breach of
contract in connection with the Share Purchase Agreement and in connection with
employment and consulting agreements entered into at the time of the Share
Purchase Agreement. Additionally, Ms. Flanagan alleges causes of action for
intentional and negligent misrepresentation and declaratory relief.

Ms. Flanagan estimates that her damages as a result of the alleged breaches
and misrepresentations are not less than $5,000,000. This amount is based on her
claim that the shares she received were represented to have a value of
$7,800,000 at the time of the agreement, and at the time the complaint was filed
those shares had a value that was approximately one third of the original
represented value. Her claimed damages may change as the price of Loewen's
common shares fluctuates. Further, Ms. Flanagan seeks punitive damages in an
unspecified sum. On the declaratory relief cause of action, Ms. Flanagan seeks a
declaration that she is to be reimbursed for her losses pursuant to the
indemnity provision contained in the Share Purchase Agreement. She also seeks a
declaration that until she is indemnified for her losses she is not obligated to
transfer property that pursuant to the Agreement LGII has the option to purchase
for a specified price pursuant to the Share Purchase Agreement.

The Company has determined that it is not possible at this time to predict
the final outcome of this proceeding or 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 plaintiff. Accordingly, no provision with
respect to this lawsuit has been made in the Company's 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.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.

None.

10
<PAGE>
EXECUTIVE OFFICERS OF LOEWEN

The following table sets forth certain information with respect to the
current executive officers of Loewen. The ages of the executive officers are
shown as of March 31, 1999.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
John S. Lacey(1)*.................................... 55 Chairman of the Board

Robert B. Lundgren(2)................................ 55 President and Chief Executive Officer

Michael G. Weedon(3)................................. 45 Executive Vice-President, Administration, Accounting
and Control and Chief Administrative Officer

Timothy R. Hogenkamp(4).............................. 53 Executive Vice-President, Corporate Affairs and
Chairman of the Board, LGII

Paul Wagler(5)....................................... 52 Executive Vice-President, Chief Operating Officer and
Acting Chief Financial Officer

Bradley D. Stam(6)................................... 51 Senior Vice-President, Law

Dwight K. Hawes(7)................................... 39 Senior Vice-President, Corporate Controller

Jeffrey L. Cashner(8)................................ 44 Senior Vice-President, Funeral Home & Cemetery
Operations

Peter S. Hyndman(9).................................. 57 Corporate Secretary

Thomas C. Hardy(10).................................. 57 President, Loewen Life Insurance Group Inc.

Guy Heywood(11)...................................... 40 Vice-President, Treasurer

Roger Ryan(12)....................................... 49 Vice-President, Taxation

William Stewart(13).................................. 39 Vice-President, Corporate Development & International
</TABLE>

- ------------------------

* Mr. Lacey is not an employee of The Loewen Group Inc. or any affiliated
company, and serves as a non-executive Chairman.

FOOTNOTES APPEAR ON THE FOLLOWING PAGE.

11
<PAGE>
(1) Mr. Lacey became the Chairman of the Board of Directors of Loewen on
January 22, 1999. From July 1998 to November 1998, Mr. Lacey was President
and Chief Executive Officer of The Oshawa Group Ltd. in Toronto, Ontario.
From November 1996 to July 1998, Mr. Lacey was President and Chief Executive
Officer of WIC Western International Communications Inc. in Vancouver,
British Columbia. From March 1990 to November 1996, Mr. Lacey was President
and Chief Executive Officer of Scott's Hospitality Inc. in Toronto, Ontario.

(2) Mr. Lundgren, who has served as a Director of Loewen since June 1986,
returned from retirement to become President and Chief Executive Officer of
Loewen in October 1998. Mr. Lundgren also served as Co-Chairman of the Board
of Directors from October 1998 to January 1999.

(3) Mr. Weedon became Chief Administrative Officer of Loewen in November 1997
and Executive Vice-President, Administration, Accounting and Control of
Loewen in November 1998. From July 1998 to November 1998, Mr. Weedon served
as Executive Vice-President, Operations and Administration of Loewen. From
November 1997 to July 1998, Mr. Weedon served as Executive Vice-President of
Administration of Loewen. From December 1996 to November 1997, Mr. Weedon
was a private business consultant and investor. From April 1993 to December
1996, Mr. Weedon served as Executive Vice-President and Chief Operating
Officer of Viridian Inc. (formerly Sherritt Inc.) in Fort Saskatchewan,
Alberta.

(4) Mr. Hogenkamp became Executive Vice-President, Corporate Affairs of Loewen
in November 1998 and Chairman of the Board of LGII in November 1997. From
September 1993 to November 1997, Mr. Hogenkamp served as President and Chief
Operating Officer of Loewen.

(5) Mr. Wagler became Executive Vice-President, Operations and Chief Operating
Officer of Loewen in November 1998 and Acting Chief Financial Officer in
December 1998. From July 1998 to November 1998, Mr. Wagler served as
Executive Vice-President, Finance of Loewen. From March 1995 until July
1998, Mr. Wagler served as Senior Vice-President, Finance. Mr. Wagler served
as Chief Financial Officer from March 1995 until December 1998. Prior to
that time, Mr. Wagler was a Senior Vice-President of ABN AMRO Bank, in
Vancouver, British Columbia.

(6) Mr. Stam became Senior Vice-President, Law of Loewen in March 1998. From
January 1996 until September 1997 Mr. Stam was President, General Counsel
and a director of Western Star Trucks Holdings Ltd. From June 1995 to
January 1996, Mr. Stam was Vice-President, General Counsel and Corporate
Secretary of Western Star Trucks Holdings Ltd. Prior to that time, Mr. Stam
was a partner with the Seattle-based law firm of Culp, Dwyer, Guterson &
Grader.

(7) Mr. Hawes became Senior Vice-President, Corporate Controller of Loewen in
August 1998. From October 1994 to August 1998, Mr. Hawes served as
Vice-President, Finance of Loewen. From January 1993 to October 1994, Mr.
Hawes served as Director of Treasury Operations of Loewen.

(8) Mr. Cashner became Senior Vice-President, Funeral Home & Cemetery
Operations of Loewen in January 1999. From August 1996 to January 1999, Mr.
Cashner served as Regional President, Operations, South East Region of
Loewen. From February 1994 until August 1996, Mr. Cashner served as
Vice-President, Cemetery and Combination Division, South and Western Region
of Loewen.

(9) In addition to serving as Corporate Secretary of Loewen, Mr. Hyndman served
as Vice-President, Law of Loewen from March 1995 to November 1997.

(10) Mr. Hardy became President of Loewen Life Insurance Group Inc. in September
1997. From March 1997 to September 1997, Mr. Hardy served as President,
Chief Executive Officer, Life Insurance Group. Prior to that time, Mr. Hardy
was self-employed. Prior to June 1994, Mr. Hardy served as Executive
Vice-President and Chief Operating Officer of Provident Life & Accident
Insurance Company in Chattanooga, Tennessee.

12
<PAGE>
(11) Mr. Heywood became Vice-President, Treasurer of Loewen in November 1998.
From June 1996 to November 1998, Mr. Heywood served as Director, Treasury
Operations of Loewen. Prior to that time, Mr. Heywood was Assistant
Vice-President of ABN AMRO Bank, in Vancouver, British Columbia.

(12) Mr. Ryan became Vice-President, Taxation of Loewen in March 1998. From
October 1996 to March 1998, Mr. Ryan served as Vice-President, Taxation of
LGII. From March 1994 to October 1996, Mr. Ryan was Director of Taxation,
LGII. Prior to that time, Mr. Ryan was a partner with KPMG in Vancouver,
B.C. and a Senior Tax Manager with KPMG in Seattle, Washington.

(13) Mr. Stewart became Vice-President, Corporate Development & International of
Loewen in September 1998. From July 1997 to September 1998, Mr. Stewart
served as Director, International of Loewen. From March 1995 to July 1997,
Mr. Stewart served as Manager, Finance and Investment Management of Loewen.
Prior to that time, Mr. Stewart was a private finance consultant.

No executive officer of Loewen is related by blood, marriage or adoption to
any director or other executive officer of Loewen.

There are no arrangements or understandings between any executive officer of
Loewen and any other person pursuant to which the executive officer was selected
to serve as an executive officer of Loewen.

13
<PAGE>
PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

MARKET INFORMATION

The Common shares of Loewen have been listed on The New York Stock Exchange
("NYSE") since October 1996 under the symbol "LWN." Prior to such listing, the
Common shares were quoted on The Nasdaq National Market under the symbol "LWNG."
The Common shares have been trading on The Toronto Stock Exchange since May 1987
under the symbol "LWN" and commenced trading on The Montreal Exchange in April
1993, also under the symbol "LWN."

The following table sets forth, for the periods indicated, the range of high
and low sales prices, as reported by the NYSE and The Toronto Stock Exchange.

<TABLE>
<CAPTION>
NEW YORK STOCK TORONTO STOCK
EXCHANGE EXCHANGE
-------------------- --------------------
HIGH LOW HIGH LOW
--------- --------- --------- ---------
(U.S.$) (CDN.$)
<S> <C> <C> <C> <C>
1997 First quarter......................................................... 41.375 31.000 56.750 47.350
Second quarter......................................................... 34.875 27.500 45.000 30.900
Third quarter.......................................................... 35.750 24.750 49.500 34.250
Fourth quarter......................................................... 28.375 23.000 39.000 32.000

1998 First quarter......................................................... 27.500 20.875 38.750 30.150
Second quarter......................................................... 28.813 24.625 41.450 35.000
Third quarter.......................................................... 26.875 11.063 39.800 17.000
Fourth quarter......................................................... 14.500 7.000 21.950 10.750

1999 First quarter......................................................... 8.438 0.938 12.500 1.350
</TABLE>

As at March 31, 1999, there were 2,552 record holders of Loewen's Common
shares.

Each of the Exchanges has rules setting forth quantitative and qualitative
criteria it considers in determining whether a company's securities should
continue to be listed with that Exchange. Based on the Company's recent
financial results, it may not meet all of the criteria for continued listing
with the Exchanges and accordingly, it is possible that those Exchanges may take
action to delist the Company's securities. In the event of any such delisting,
the Company would pursue alternative listing arrangements. The NYSE, in April
1999, indicated to the Company that it is reviewing the Company's status.

DIVIDENDS

The Company declared dividends of $0.10 per Common share in June and
December 1997 and June 1998. In December 1998, the Company did not declare a
dividend for Common shareholders as a result of the ongoing process to consider
all strategic alternatives to maximize shareholder value and operating cash
needs. In March 1999, the Company suspended future dividends on its Common
shares, Preferred shares and MIPS (as defined below) and pursuant to the Credit
Agreements is prohibited from declaring such dividends in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Notes 1 and 8 to the Company's Consolidated Financial Statements
for additional information regarding the Credit Agreements and restrictions on
the payment of dividends. In addition, until the Company pays all deferred
dividends on the Series C Preferred shares and the MIPS, the Company is
prohibited from paying dividends on its Common shares. Aggregate dividends
declared per Common share over the last five years were as follows:

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Dividends per Common share............................................. $ 0.10 $ 0.20 $ 0.20 $ 0.05 $ 0.07
</TABLE>

14
<PAGE>
The payment of cash, stock and deemed dividends on the Common shares is
generally subject to Canadian withholding tax. The rate of withholding tax is
25% or such lesser amount as may be provided by treaty between Canada and the
country of residence of the recipient. Under the current income tax treaty
between the United States and Canada, such withholding tax rate is reduced to
15%.

FORWARD-LOOKING AND CAUTIONARY STATEMENTS

FORWARD-LOOKING STATEMENTS

In 1999, funeral gross margin is expected to be approximately 35% to 40% and
cemetery gross margin is expected to be approximately 25% to 30%. Management
believes that the aggregate purchase price for acquisitions in 1999 will be
minimal. The foregoing statements and certain other statements made in this Form
10-K, including certain statements made in the section entitled "Quantitative
and Qualitative Disclosures about Market Risk," in other filings made with the
Securities and Exchange Commission, and elsewhere (including oral statements
made on behalf of the Company) are forward-looking statements within the meaning
of Section 27A(i) of the Securities Act of 1933 and Section 21E(i) of the
Securities Exchange Act of 1934. Shareholders and potential investors are hereby
cautioned that certain events or circumstances could cause actual results to
differ materially from those estimated, projected or predicted. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

CAUTIONARY STATEMENTS

In addition to other information in this Form 10-K, including the
information that appears in the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Risks and
Uncertainties", the following important factors, among others, could cause
future results to differ materially from estimates, predictions or projections.

1. ABILITY TO CONTINUE AS A GOING CONCERN. The Company's Consolidated
Financial Statements have been prepared on a going concern basis in accordance
with Canadian GAAP. The going concern basis of presentation assumes that the
Company will continue in operation for the foreseeable future and will be able
to realize its assets and discharge its liabilities and commitments in the
normal course of business. If the going concern basis was not appropriate, then
significant adjustments in the Consolidated Financial Statements would be
necessary in the carrying value of assets and liabilities, the reported revenue
and expenses, and the balance sheet classifications used. There is substantial
doubt about the appropriateness of the going concern assumption because in 1998
the Company experienced both a significant net loss and negative cash flow. The
ability of the Company to continue as a going concern and to realize the
carrying value of its assets and discharge its liabilities when due is dependent
on the successful completion of actions that the Company has taken or plans to
take which management believes will mitigate the adverse conditions and events
that raise doubts about the validity of the "going concern" assumption. However,
there is no certainty that these actions or other strategies will be sufficient
to permit the Company to continue, or that the Company will be able to refinance
the PATS Senior Notes on terms satisfactory to the lenders under the Credit
Agreements by September 15, 1999. In the event that such actions and strategies
are not successful, either the Company or its creditors may initiate proceedings
for the liquidation or reorganization of the Company under Canadian or U.S.
bankruptcy laws.

2. REVENUE AND MARGINS. Revenue is affected by the volume of services
rendered and the mix and pricing of services and products sold and actual
pre-need contract cancellation experience. Margins are affected by the volume of
services rendered, the mix and pricing of services and products sold and related
costs. Further, revenue and margins may be affected by fluctuations in the
number of deaths (which may be significant from period to period), competitive
pricing strategies, pre-need sales and other sales programs

15
<PAGE>
implemented by the Company and the ability to hire and retain the necessary
level of sales staff. Revenue is also affected by the level of acquisitions,
which has been substantially reduced, as described below.

3. ACQUISITION LEVELS. In light of the Company's 1998 operating results
and its announced initiative to evaluate opportunities to maximize shareholder
value and improve liquidity, the Company expects its level of acquisitions in
1999 to be minimal. There can be no assurance that funds will be available to
complete any future acquisitions, and there can be no assurance that the Company
will complete any specific number or dollar amount of acquisitions in a
particular year.

4. DISPOSITIONS. On March 31, 1999 one group of properties consisting of
124 cemeteries and three funeral homes was sold for gross proceeds of $193
million. Two smaller groups of properties are considered as probable for sale.

Although the Company intends to consummate additional asset sales, it is not
committed to sell and has not identified any other properties for which sale is
probable, other than noted above. Should additional properties be sold, losses,
if any, could be small or significant depending upon the type of property,
location, cash flow and prevailing market conditions.

5. TAX RATE. Historically, the Company's financing structures have allowed
it to achieve an effective tax rate well below the Canadian statutory rate of
45%. These structures are not expected to produce similar benefits in the future
due to uncertainty as to when, if ever, the tax benefit of deducting the
Company's future interest expense will be realized. As a result, the Company
expects that its income taxes for 1999 and beyond will likely exceed the
Canadian statutory rate.

In addition, the tax rate for 1999 and beyond may be affected
disproportionately by asset dispositions. In addition to generating a gain or
loss for tax purposes, the disposition of certain locations may require the
Company to take a valuation allowance against certain tax assets that were taken
into account in determining the net amount of the Company's liability for future
income taxes recorded on its balance sheet at December 31, 1998. If this occurs,
the resulting change in the valuation allowance would be treated as an
additional income tax expense in the year such dispositions become probable.

6. OTHER. Consolidated financial results also may be affected by (i) the
ability of the Company to implement various aspects of its strategic initiative
to maximize shareholder value, (ii) the cost and availability of the Company's
financing arrangements (including interest rates on short- and long-term debt
and the availability of equity capital which may be affected by whether the
Company's securities continue to be listed on the Exchanges), (iii) the number
of Common shares outstanding, (iv) competition, (v) the accounting treatment of
acquisitions, dispositions and the valuation of assets, (vi) the level of the
Company's general and administrative costs, (vii) changes in or application of
applicable accounting principles and governmental regulations, (viii) the
outcome of legal proceedings, (ix) the ability of the Company and third parties
to achieve Year 2000 Issue compliance on a timely basis, (x) the ability of the
Company to retain and motivate its employees, including senior management and
critical staff.

ITEM 6. SELECTED FINANCIAL DATA.

Set forth below is certain selected consolidated financial and operating
information of the Company for each year in the five-year period ended December
31, 1998. The selected consolidated financial information is derived from the
Company's audited consolidated financial statements for such periods. The
Company's consolidated financial statements are prepared in accordance with
Canadian GAAP. The information set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto.

The financial results for the year ended December 31, 1998 include
approximately $649 million of pre-tax charges representing impairment of capital
assets and investments and accrual of contingent losses

16
<PAGE>
on investments. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for additional information regarding these charges.

The financial results for the year ended December 31, 1997 include $89.2
million of pre-tax charges ($58.0 million after tax), representing certain
restructuring, strategic initiative and other charges. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
additional information regarding these charges. The financial results for the
year ended December 31, 1996 include $18.7 million (pre-tax) of finance and
other costs related to SCI's October 1996 hostile takeover proposal for the
Company, which proposal was withdrawn in January 1997. The financial results for
the year ended December 31, 1995 include an aggregate of $195.7 million
(pre-tax) for legal settlements and litigation related finance costs and certain
general and administrative costs related to the legal settlements.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1998 1997(1) 1996(1) 1995(1) 1994(1)
---------- ---------- ---------- ---------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, RATIOS AND
OPERATING INFORMATION)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT INFORMATION:
Revenue............................................ $1,136,234 1,114,099 $ 908,385 $ 598,493 $417,328
Gross margin....................................... 291,736 363,639 329,008 224,476 158,854
Earnings (loss) from operations.................... (263,966) 152,131 204,670 117,765 95,660
Net earnings (loss)................................ (598,969) 41,810 65,999 (75,604) 39,872
Basic earnings (loss) per share.................... (8.22) 0.48 1.01 (1.67) 1.00
Fully diluted earnings (loss) per share(2)......... (8.22) 0.48 1.00 (1.67) 1.00
Ratio of earnings to fixed charges(3).............. n/a 1.3x 1.9x n/a 2.4x
Aggregate dividends declared per share............. 0.10 0.20 0.20 0.05 0.07
</TABLE>

<TABLE>
<CAPTION>
AS AT DECEMBER 31,
-----------------------------------------------------------
1998 1997(1) 1996(1) 1995(1) 1994(1)
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Total assets....................................... $4,673,908 $4,790,687 $3,718,734 $2,380,011 $ 1,361,096
Total long-term debt(4)............................ 2,268,014 1,793,934 1,495,925 932,296 515,703
Preferred securities of subsidiary................. 75,000 75,000 75,000 75,000 75,000
Shareholders' equity............................... 905,441 1,517,771 1,026,617 591,006 386,467

OPERATING INFORMATION:.............................
Number of funeral homes(5)......................... 1,151 1,070 956 815 641
Number of funeral services......................... 163,000 153,000 142,000 114,000 94,000
Number of cemeteries(5)............................ 550 483 313 179 116
</TABLE>

- --------------------------
(1) Certain of the comparative figures have been restated to conform to the
change in accounting for income taxes adopted in 1998 (see Note 3 to the
Consolidated Financial Statements).

(2) Fully diluted earnings (loss) per share figures are calculated in accordance
with Canadian GAAP and assume, if dilutive (a) exercise of employee and
other stock options effective on their dates of issue and that the funds
derived therefrom were invested at annual after-tax rates of return ranging
from 6.2% to 7.1%, (b) conversion of the Series C Preferred Shares effective
on the date of the issue of the Series C Receipts and the add-back of the
preferred dividends during the period and (c) exercise of options and
purchase rights under the 1994 Management Equity Investment Plan ("MEIP")
effective on their dates of issue and the add-back of the interest under the
related MEIP loan. See Note 11 to the Consolidated Financial Statements.

(3) The 1998 and 1995 losses are not sufficient to cover fixed charges by a
total of approximately $765.9 million and $127.9 million, respectively, and
as such the ratio of earnings to fixed charges has not been computed.
Reference is made to the Statement re: Computation of Earnings to Fixed
Charges Ratio (Canadian GAAP), which is Exhibit 12.1 to this Form 10-K.

(4) Total long-term debt comprises long-term debt, including current portion.

(5) The numbers of locations for 1994 includes adjustments and consolidations
related to prior periods.

17
<PAGE>
Had the Company's Consolidated Financial Statements been prepared in
accordance with U.S. GAAP (see Note 25 to the Consolidated Financial
Statements), selected consolidated financial information would have been as
follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1998 1997(1) 1996(1) 1995(1) 1994(1)
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT INFORMATION:
Revenue............................................ $ 1,123,460 $ 1,115,400 $ 909,137 $ 598,493 $ 417,479
Earnings (loss) from operations.................... (260,127) 153,038 203,040 117,442 95,897
Earnings (loss) before cumulative effect of change
in accounting principles......................... (594,257) 42,231 64,559 (75,800) 39,652
Diluted earnings (loss) per share before cumulative
effect of change in accounting principles(2)..... (8.15) 0.48 0.97 (1.67) 0.97
Ratio of earnings to fixed charges(3).............. n/a 1.3x 1.8x n/a 2.4x
Aggregate dividends declared per share............. 0.10 0.20 0.20 0.05 0.07
</TABLE>

<TABLE>
<CAPTION>
AS AT DECEMBER 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Total assets....................................... $ 4,709,654 $ 4,776,535 $ 3,699,950 $ 2,345,874 $ 1,329,928
Total long-term debt(4)............................ 2,268,014 1,793,934 1,495,925 892,296 515,703
Preferred securities of subsidiary................. 75,000 75,000 75,000 75,000 75,000
Shareholders' equity............................... 913,365 1,524,195 1,026,110 519,006 385,950
</TABLE>

- --------------------------
(1) Certain of the comparative figures have been reclassified to conform to the
presentation adopted in 1998.

(2) Effective December 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share," for United States GAAP
purposes, on a retroactive basis.

(3) The 1998 and 1995 losses are not sufficient to cover fixed charges by a
total of approximately $767.1 million and $128.3 million, respectively, and
as such the ratio of earnings to fixed charges has not been computed.
Reference is made to the Statement re: Computation of Earnings to Fixed
Charges Ratio (U.S. GAAP), which is Exhibit 12.2 to this Form 10-K.

(4) Total long-term debt comprises long-term debt, including current portion.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RISKS AND UNCERTAINTIES

BASIS OF PRESENTATION

The Consolidated Financial Statements have been prepared on a going concern
basis in accordance with Canadian GAAP. The going concern basis of presentation
assumes that the Company will continue in operation for the foreseeable future
and will be able to realize its assets and discharge its liabilities and
commitments in the normal course of business.

There is substantial doubt about the appropriateness of the use of the going
concern assumption because in 1998 the Company has experienced both a
significant net loss and negative cash flow. As a result, the Company obtained
waivers and amendments to certain of its debt agreements. There is also
uncertainty as to the Company's ability to refinance the PATS Senior Notes which
may be redeemed on October 1, 1999 and which require refinancing by September
15, 1999 under the terms of amended credit agreements. These uncertainties and
the strategies necessary to mitigate the doubt about the validity of the going
concern assumption are discussed below. There is no certainty that these and
other strategies will be sufficient to permit the Company to continue, or that
the Company will be able to refinance the PATS Senior Notes on terms
satisfactory to the lenders under the Credit Agreements by September 15, 1999.
In the event that such actions and strategies are not successful, either the
Company or its creditors may initiate proceedings for the liquidation or
reorganization of the Company under Canadian or U.S. bankruptcy laws.

18
<PAGE>
The Consolidated Financial Statements do not reflect adjustments that would
be necessary if the "going concern" assumption were not appropriate because
management expects that the actions already taken or planned, some of which are
described below, will mitigate the adverse conditions and events that raise
doubts about the validity of the "going concern" assumption used in preparing
these financial statements. If the "going concern" basis was not appropriate for
the Consolidated Financial Statements, then significant adjustments would be
necessary in the carrying value of assets and liabilities, the reported revenues
and expenses, and the balance sheet classifications used.

OPERATIONS

The Company reported a loss from operations in 1998 of $264.0 million after
recording a charge for asset impairment of $333.9 million. Over the past three
years, the Company's strategic growth plan had emphasized cemetery acquisitions,
as compared to the historical emphasis on funeral home acquisitions.
Acquisitions and the integration of cemeteries has required significant cash due
to the pre-need sales of cemetery interment rights, products and services and
related interest costs on debt incurred. The rapid growth in cemetery pre-need
sales and the related long-term receivables have contributed to the negative
cash flow from operations. Cemetery pre-need sales are typically structured with
low initial cash payments by the customers that do not offset the cash costs of
establishing and supporting a growing pre-need sales program, including the
payment of certain sales commissions. The Company expects to continue to incur
negative cash flow from cemetery operations until it is able to satisfactorily
implement various strategies to generate positive cash flow.

During the second half of 1998 the Company curtailed its acquisition program
and undertook a number of steps to improve profitability and cash flow from
operations:

- In June 1998, the Company began the consolidation of many operational and
administrative functions in the Trevose office to the Burnaby head office.
In January 1999, the Company announced the further consolidation of most
of the remaining functions, cemetery accounting, trust administration and
information systems, leaving only the receivable collections function
remaining in Trevose. This consolidation is expected to reduce costs and
improve information and control to support decision making;

- In July 1998, the Board of Directors engaged the services of financial
advisors and investment bankers and announced its intention to consider
all available options to maximize shareholder value, including
opportunities such as strategic partnerships, combinations, dispositions
and capital investments in the Company;

- In September 1998, the Board of Directors created a Special Committee of
independent directors to oversee and supervise the Company's efforts to
maximize shareholder value. In October 1998, the Board of Directors
appointed a new President and Chief Executive Officer. In December 1998,
three new directors recommended by significant shareholders were appointed
to the Board of Directors. In January 1999, the Board of Directors elected
a newly appointed director as Chairman. Through actions taken on March 30,
1999 and April 12, 1999, the Board of Directors was reduced from 14 to
seven members;

- The Company has reorganized its operational management to enhance funeral
and cemetery operations, reduce regional management overhead and achieve
greater accountability for cemetery profitability and cash flow;

- Management reviewed its cemetery pre-need sales strategy and, to improve
cash flow, began implementing changes to the terms and conditions of
cemetery pre-need sales. These changes include: setting minimum contract
terms; adjusting sales force compensation for sales with certain terms;
and eliminating certain types of contracts in jurisdictions with poor cash
flow characteristics after trusting obligations are considered; and

19
<PAGE>
- The Company is implementing several new information systems, principally
in cemeteries, to ensure better information is available to monitor and
evaluate key variables.

FINANCING

As a result of expected negative cash flow from operations during 1999,
scheduled debt maturities in 1999 and its current financial position, on March
31, 1999 the Company:

- Sold 124 cemeteries and three funeral homes for gross proceeds of $193
million of which $126.5 million was used to reduce indebtedness; and

- Completed negotiations with the lenders under the Credit Agreements
resulting in revised lending agreements effective March 31, 1999,
including waivers of certain financial covenants as of December 31, 1998.
As a result, the Company has not had an event of default of the covenants
under the Credit Agreements. The revised lending agreements:

- Provide for no further borrowings and reduce the bank credit agreement,
including letters of credit, from $600 million to $294 million after
application of a portion of the net proceeds from the Company's first
major asset sale;

- Increase effective interest rates or applicable margins;

- Amend certain existing financial covenants and add other financial
covenants;

- Require refinancing the PATS Senior Notes on terms satisfactory to the
lenders party to the Credit Agreements by September 15, 1999;

- Require the appointment of a financial advisor on behalf of lenders and
increased reporting and monitoring;

- Require the suspension of all Common share, Preferred share and MIPS
dividend payments;

- Restrict further acquisitions and equity repurchases;

- Limit capital expenditures and expenditures for development of cemetery
land to $60 million for 1999; and

- Permit additional asset sales subject to certain terms and conditions.

The Company's indebtedness includes the PATS Senior Notes which are held by
a trust for the benefit of the holders of the pass-through asset trust
securities due October 1, 1999. Notwithstanding the obligation to refinance the
PATS Senior Notes on terms satisfactory to the lenders party to the Credit
Agreements by September 15, 1999, the trust has a put option that entitles the
trust to redeem the PATS Senior Notes on October 1, 1999 to fund the repayment
of the pass-through asset trust securities under circumstances where no funding
is tendered pursuant to a competitive bidding process. The Company does not
expect to have sufficient funds to redeem these notes without further asset
sales or proceeds from debt or equity issues. The Company is of the opinion that
this facility has a prospect of being refinanced; however, there is no certainty
of such financing as it will depend primarily on financial market conditions and
the Company's credit rating at that time.

The debt relating to the Credit Agreements and the PATS Senior Notes has
been classified as current liabilities. The Series 1 to 7 Senior Notes have been
classified as non-current liabilities but have cross-default clauses that could
accelerate payment if covenants in the Credit Agreements and the PATS Senior
Notes are not met and the lenders thereunder accelerate payment under those
agreements.

The Company is continuing to review its operations in order to identify
additional strategies to those identified above, including further asset sales,
that are designed to generate cash flow, improve the Company's financial
position, and enable the discharge of the Company's obligations.

20
<PAGE>
RESULTS OF OPERATION

Detailed below are the Company's operating results for the years ended
December 31, 1998, 1997 and 1996, 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
(loss) 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. See Note 22 to the Consolidated Financial Statements
in Item 8 of this Form 10-K.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------------- -------------------------------
1998 1997 1996 1998 1997 1996
--------- --------- --------- --------- --------- ---------
(IN MILLIONS) (PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Revenue
Funeral........................................ $ 631.2 $ 602.1 $ 549.8 55.6 54.0 60.5
Cemetery....................................... 408.5 422.0 286.7 36.0 37.9 31.6
Insurance...................................... 96.5 90.0 71.9 8.4 8.1 7.9
--------- --------- --------- --------- --------- ---------
Total........................................ $ 1,136.2 $ 1,114.1 $ 908.4 100.0 100.0 100.0
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Gross margin
Funeral........................................ $ 223.9 $ 227.9 $ 222.9 35.5 37.9 40.5
Cemetery....................................... 51.3 119.0 88.9 12.6 28.2 31.0
Insurance...................................... 16.5 16.7 17.2 17.1 18.5 23.9
--------- --------- ---------
Total........................................ 291.7 363.6 329.0 25.7 32.6 36.2
Expenses
General and administrative..................... 133.3 112.7 71.2 11.7 10.1 7.8
Depreciation and amortization.................. 88.5 65.4 53.1 7.8 5.9 5.9
Asset impairment............................... 333.9 -- -- 29.4 -- --
Restructuring costs............................ -- 33.4 -- -- 3.0 --
--------- --------- ---------
Earnings (loss) from operations.................. (264.0) 152.1 204.7 (23.2) 13.6 22.5
Interest on long-term debt....................... 182.3 132.2 93.0 16.0 11.9 10.2
Investment impairment and contingent loss........ 315.2 -- -- 27.7 -- --
Loss on early extinguishment of debt............. -- 7.7 -- -- 0.7 --
Gain on sale of investment....................... -- (24.1) -- -- (2.2) --
Finance and other costs related to hostile
takeover proposal.............................. -- -- 18.7 -- -- 2.1
Dividends on preferred securities of
subsidiary..................................... 7.1 7.1 7.1 0.6 0.6 0.8
Income taxes..................................... (164.5) 0.8 23.5 n/a 1.8 26.2
--------- --------- ---------
(604.1) 28.4 62.4 (53.2) 2.6 6.9
Equity and other earnings of associated
companies...................................... 5.1 13.4 3.6 0.5 1.2 0.4
--------- --------- ---------
Net earnings (loss).............................. $ (599.0) $ 41.8 $ 66.0 (52.7) 3.8 7.3
--------- --------- ---------
--------- --------- ---------
</TABLE>

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

Consolidated revenue increased 2.0% to $1.136 billion in the year ended
December 31, 1998 from $1.114 billion in 1997, due to acquisitions. Consolidated
gross margin decreased 19.8% to $291.7 million in 1998 from $363.6 million in
1997, primarily due to volume declines in funeral and cemetery businesses and
increases in the allowance for funeral accounts receivable and pre-need cemetery
accounts receivable as a result of worsening trends in collections experience.
As a percentage of revenue, consolidated gross margin

21
<PAGE>
decreased to 25.7% in 1998 from 32.6% in 1997, principally due to the declines
in funeral, cemetery and insurance gross margins, as discussed below.

Funeral revenue increased 4.8% to $631.2 million in 1998 compared to $602.1
million in 1997, due to revenue from acquisitions. The number of funeral
services performed at locations in operation for all of 1997 and 1998
("Established Locations") declined by 5.2% from 1997 to 1998. This decline,
combined with slightly lower average revenue per funeral service, had an
unfavorable impact on revenue. Funeral gross margin as a percentage of funeral
revenue for Established Locations decreased to 37.2% in 1998 from 38.0% in 1997,
as the decrease in revenue was partially offset by a 5.2% decrease in costs,
resulting from the decline in the number of funeral services performed and the
fixed nature of operating costs. As a result of the gross margin decrease for
Established Locations, together with the lower margins of recently acquired
funeral locations, overall funeral gross margin as a percentage of funeral
revenue decreased to 35.5% in 1998 from 37.9% in 1997. Management expects
funeral gross margin to be approximately 35% to 40% in 1999.

Cemetery revenue decreased 3.2% to $408.5 million in 1998 compared to $422.0
million in 1997, and cemetery gross margin decreased to 12.6% in 1998 from 28.2%
in 1997, both primarily due to a decline in pre-need sales and an increase in
the estimate of the allowance for pre-need accounts receivable to reflect
worsening trends in collections experience. Similarly, for Established
Locations, cemetery gross margin decreased to 7.1% in 1998 from 27.5% in 1997.
Management expects cemetery gross margin to be approximately 25% to 30% in 1999.

Insurance revenue increased to $96.5 million for 1998 from $90.0 million in
1997. The increase in revenues was primarily due to the continuing effort to
expand the sale of pre-need funeral insurance through Company-owned funeral
homes, partially offset by reduced revenues as a result of the sale of First
Capital Life Insurance Company of Louisiana ("First Capital"). On July 27, 1998,
the Company entered into an agreement to sell First Capital for cash proceeds of
approximately $24 million and a pre-tax gain of approximately $6.8 million
included in general and administrative expenses (see below). The sale was
consummated on December 22, 1998. First Capital specialized in the sale of
pre-need funeral insurance sold through non-Company funeral homes. First Capital
had tangible assets of approximately $90 million and annual revenues of
approximately $24 million. Insurance gross margin decreased to 17.1% for 1998
from 18.5% in 1997, primarily due to the loss of First Capital business and the
implementation of the Company's insurance products in and expansion into several
states.

The Company's gross pre-arranged funeral sales decreased to approximately
$258 million in 1998 from approximately $267 million in 1997. Pre-arranged
funeral services comprised approximately 23% of the funeral services performed
by the Company in 1998 and approximately 21% of the funeral services performed
by the Company in 1997. The Company estimates that it had a backlog of
approximately $1.1 billion in pre-need funeral sales as of December 31, 1998.
Approximately 75% of the Company's cemetery revenue in 1998 was generated from
pre-need sales compared with 77% in 1997. Note 2 to the 1998 Consolidated
Financial Statements provides information regarding the accounting treatment of
pre-arranged funeral services and pre-need cemetery sales.

General and administrative expenses, as a percentage of revenue, increased
to 11.7% in 1998 from 10.1% in 1997. For the year ended December 31, 1998,
general and administrative expenses increased $20.6 million to $133.3 million
from $112.7 million in 1997. The increase in general and administrative expenses
in 1998 is a result of the write off of approximately $14.9 million of
previously capitalized costs, primarily for acquisitions and planned
construction projects that are no longer being pursued and approximately $2.0
million of costs associated with the Company's initiative to evaluate strategic
alternatives to maximize shareholder value, including the transition of the
Trevose office, partially offset by the pre-tax gain of approximately $6.8
million from the sale of First Capital (see above). Without reflecting the
impact of these items, general and administrative expenses for 1998 as a
percentage of revenue, was 10.8% as compared to 7.9% in 1997, after the
exclusion of approximately $24.8 million of charges for litigation and various
asset write downs in 1997.

22
<PAGE>
Depreciation and amortization expenses, as a percentage of revenue,
increased to 7.8%, compared to 5.9% in 1997, primarily due to the fixed cost
component effect of lower than expected revenues, accelerated depreciaton and
amortization of assets based on a reassessment of useful lives and the write off
of certain assets.

Interest expense on long-term debt increased by $50.1 million in 1998,
primarily as a result of additional borrowings by the Company to finance its
previous acquisition programs and working capital needs. In 1998, the Company
wrote off as interest expense approximately $15.0 million of deferred debt issue
costs related to its bank credit agreements.

Due to severe liquidity constraints and the need to generate cash in late
1998, the Company identified certain properties which it would consider selling
at their fair value.

On March 31, 1999 one group of properties consisting of 124 cemeteries and
three funeral homes was sold for gross proceeds of $193 million (see Notes 1 and
24). Two smaller groups of properties are considered as probable for sale.

The Company has recorded a pre-tax impairment loss of $333.9 million in 1998
on individual properties contained in the above groups. In calculating the
impairment loss, the Company has used estimated cash flow from operations and
estimated cash proceeds on the sale of these properties. The impairment loss has
reduced cemetery property by $319.3 million, property and equipment by $4.0
million and names and reputations by $10.6 million. The impairment loss is based
on management estimates and as a result, actual results could differ
significantly from these estimates.

Although the Company intends to consummate additional asset sales, it is not
committed to sell and has not identified any other properties for which sale is
probable, other than noted above. As a result, no additional impairment losses
have been recognized since future sales of other properties are not
determinable. Should additional properties be sold, losses, if any, could be
small or significant depending upon the type of property, location, cash flow
and prevailing market conditions.

The Company has recorded in 1998 an investment impairment and contingent
loss of $315.2 million relating to its investments in Rose Hills Holding Corp.
("Rose Hills") and Prime Succession Holdings, Inc. ("Prime"). Prior to the
fourth quarter of 1998, the Company had evaluated the exercise of its call
options related to the majority owner's investment in Rose Hills and Prime as
likely, and the exercise of the majority owner's put options as unlikely. Due to
liquidity concerns of the Company, the performance of Rose Hills and Prime, and
the reduced market values for the Company's and other industry participants'
stock, the Company determined the exercise of the calls to be unlikely and the
exercise of the puts to be likely. Accordingly, the Company determined that its
investments suffered a decline in value that is other than temporary and has
written down its investment in Rose Hills and Prime based on an assumed
distribution of Rose Hill and Prime's shareholders' equity at December 31, 1998,
taking into account the majority owner's return under the put. In addition, the
Company has estimated the expected put option price on the sixth anniversary,
the first date the put options become exercisable by the majority owner, based
on the Company's best estimate of earnings before interest, taxes, depreciation
and amortization at that time and the relevant formula in the put/call
agreements. The Company has accrued contingent losses based upon the difference
between the estimated option prices and the Company's estimates of the fair
value of the majority owner's interest which is based in part on current market
conditions. Such amount could change based on changes in the estimated future
value of the businesses. A net liability (see Notes 5 and 21) has been recorded
reflecting an accrual of the expected losses on the options reduced by the
remaining carrying value of the investments.

In 1998, the Company adopted the Canadian Institute of Chartered Accountants
Handbook Section 3465, "Income Taxes." The provisions of this standard were
applied retroactively to January 1, 1993 which conforms to the effective date
that the Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," for its financial statement amounts presented
under

23
<PAGE>
United States GAAP. Implementation of the standard resulted in a $23.9 million
cumulative effect decrease of retained earnings as of January 1, 1996.

The income tax benefit of $164.5 million and an effective tax rate of
(21.5%) compares to an income tax expense of $0.8 million and an effective tax
rate of 1.8% for 1997. In 1998 the Company established valuation allowances
against future potential tax deductions associated with the following items in
the amounts indicated: 1) provision for losses on the Company's existing
investment in Rose Hills and Prime and the establishment of a liability
regarding the Company's put obligation in the amount of $120.0 million; 2)
certain state, provincial, and federal net operating loss carryovers in the
amount of $50.1 million; and 3) certain other tax benefits in the amount of $7.5
million. Additional information regarding the change in effective tax rate in
1998 compared to 1997 is provided in Note 19 to the Company's Consolidated
Financial Statements.

Historically, the Company's financing structures have allowed it to achieve
an effective tax rate well below the Canadian statutory rate of 45%. These
structures are not expected to produce similar benefits in the future due to
uncertainty as to when, if ever, the tax benefit of deducting the Company's
future interest expense will be realized. As a result, the Company expects that
its income taxes for 1999 and beyond will likely exceed the Canadian statutory
rate.

Equity and other earnings of associated companies were $5.1 million during
1998, down from $13.4 million in 1997, primarily due to the performance of the
Prime and Rose Hills investments as further described in Note 5 to the Company's
Consolidated Financial Statements.

The Company had a net loss of $599.0 million in 1998 compared to net income
of $41.8 million in 1997. Fully diluted loss per share was $8.22 per share
compared to earnings of $0.48 per share in 1997. The net loss and loss per share
for 1998 were primarily due to the decrease in operating earnings and the
charges taken for asset impairment primarily related to cemetery disposals and
the impairment of the Company's equity investments and accrual for contingent
loss in Rose Hills and Prime.

The Company has and plans to further implement strategies to improve
profitability in its businesses and to reduce corporate costs. Management
believes that costs in 1998 included many items that will not occur in 1999.

The Company's statement of cash flows for the year ended December 31, 1998
reflects cash applied to operations of $124.5 million, primarily as a result of
pre-need cemetery programs.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

Consolidated revenue increased 22.6% to $1.1 billion in the year ended
December 31, 1997 from $908.4 million in 1996. Consolidated gross margin
increased 10.5% to $363.6 million in 1997 from $329.0 million in 1996. As a
percentage of revenue, consolidated gross margin percentage decreased to 32.6%
in 1997 from 36.2% in 1996, due to the increased proportion of cemetery revenue
with associated lower margins, and declines in the gross margin percentages of
the Company's funeral home, cemetery and insurance businesses. Charges relating
to the implementation of certain strategic initiatives and other charges
contributed to reduced margins in 1997 compared to 1996.

Funeral revenue increased 9.5% to $602.1 million in 1997 compared to $549.8
million in 1996, due to acquisitions. Funeral revenue for 1996 includes $4.4
million of commission income received by the Company due to certain
non-recurring conversions of trust investments to insurance investments.
Excluding the factors described below, 1997 funeral gross margin at locations in
operation for all of 1996

24
<PAGE>
and 1997 ("Established Locations") was comparable with the prior year. The
number of funeral services performed at Established Locations declined by 3.2%
from 1996 to 1997, substantially consistent with other consolidators in the
industry; however, the effect on revenue was partially offset by a slightly
higher average revenue per funeral service of approximately 2.5%. As a result,
casket and funeral service revenue for Established Locations declined by only
0.7% versus the prior year. Funeral gross margin as a percentage of funeral
revenue for Established Locations decreased to 38.7% in 1997 from 40.8% in 1996,
due to decreased revenue of $6.0 million from a lower number of services that
was partially offset by higher average revenue per service, coupled with
increased operating costs of $6.5 million. The increase in 1997 operating costs
was primarily due to an addition to the reserve for doubtful accounts of
approximately $5.0 million, and certain other charges aggregating approximately
$0.6 million. Overall funeral gross margin as a percentage of funeral revenue
decreased to 37.9% in 1997 from 40.5% in 1996, primarily as a result of the
decrease in funeral gross margin at Established Locations, together with lower
margins on acquired funeral locations.

Cemetery revenue increased 47.2% to $422.0 million in 1997 compared to
$286.7 million in 1996, due to acquisitions. Cemetery revenues in 1997 included
a higher proportion of pre-need sales of openings and closings, as well as
caskets, which have a higher gross margin than other components of cemetery
revenues. Excluding the factors described below, cemetery gross margin for
Established Locations was 31.7%, slightly below 1996, as increased revenues were
offset by higher selling costs, primarily commissions associated with pre-need
sales, and other operating costs, such as maintenance. Overall cemetery gross
margin percentage decreased to 28.2% in 1997 from 31.0% in 1996. The decrease in
overall cemetery gross margin percentage was principally a result of (i) lower
cemetery revenue of $10.4 million attributable to imputed interest on
non-interest bearing installment contract sales in 1997, (ii) $2.0 million in
cemetery cost of sales representing the write off of certain costs related to
the National Baptist Convention program initiated during 1995 and terminated in
the third quarter of 1997, (iii) reversal in 1997 of $3.7 million of sales and
$1.2 million of related cost of sales recorded in 1996 for transactions not
consummated, and (iv) $2.1 million in cemetery cost of sales related to a write
down of cemetery accounts receivable.

Insurance revenue increased to $90.0 million for 1997 from $71.9 million in
1996. Insurance gross margin in 1997 was 18.5% compared to 17.5% in 1996, after
adjusting 1996 to exclude $4.6 million for a revision to actuarial assumptions.

The Company's gross pre-arranged funeral sales increased to approximately
$267 million in 1997 from approximately $190 million in 1996. Pre-arranged
funeral services comprised approximately 21% of the funeral services performed
by the Company in 1997 and approximately 19% of the funeral services performed
by the Company in 1996. The Company estimates that it had a backlog of
approximately $967 million in pre-need funeral sales as of December 31, 1997.
Approximately 77% of the Company's cemetery revenue in 1997 was generated from
pre-need sales compared with 66% in 1996. Note 2 to the 1998 Consolidated
Financial Statements provides information regarding the accounting treatment of
pre-arranged funeral services and pre-need cemetery sales.

General and administrative expenses for 1997 increased to $112.7 million
from $71.2 million in 1996. Included in general and administrative expenses for
1997 are charges of (i) $9.4 million attributable to management's decision to
negotiate the termination of covenant not to compete agreements with certain
former owners in locales where the marketplace has changed and the restrictive
covenants no longer have value to the Company, (ii) $6.0 million for litigation,
(iii) $5.6 million for the write off of acquisition costs associated with
acquisitions that management determined during the year to no longer pursue,
(iv) $2.2 million of fixed asset write downs as a result of streamlining general
and administrative functions, and (v) $1.6 million of software and other costs
associated with a change in the Company's operating strategy. Also included in
1997 general and administrative expenses is the gain before taxes of $3.0
million on the sale of certain funeral home properties.

The Company recognized a restructuring charge of $33.4 million for the third
quarter of 1997. The charge was principally composed of (i) $19.4 million
related to the severance of 545 employees in operating

25
<PAGE>
locations where the Company was not achieving the full benefits of local
staffing synergy, (ii) $6.0 million in fixed asset write downs as a result of
management's decision to curtail or sell certain under-performing locations as
part of the reorganization strategy, and (iii) $7.5 million for lease
termination, severance of 47 employees and other expenses related to the closure
of the Company's Covington, Kentucky corporate office.

Interest expense on long-term debt increased by $39.2 million in 1997,
primarily as a result of additional borrowings by the Company to finance its
expansion programs, as well as the increase in cemetery and funeral pre-need
sales program activity.

In 1997, the Company refinanced a portion of its long-term debt to achieve a
lower interest rate. As a result, the Company incurred a loss on early
extinguishment of debt of $7.7 million related to the prepayment of a Cdn. $35
million term credit facility and the prepayment of three series of senior
amortizing notes totaling approximately $100 million.

In November 1997, the Company completed the sale of its shareholdings in
Arbor Memorial Services Inc. for a gain of approximately $24.1 million, $13.9
million after tax.

The income tax expense of $0.8 million and an effective tax rate of 1.8%,
compares to an income tax expense of $23.5 million for 1996 and an effective tax
rate of 26.2%. The change in effective tax rate in 1997 compared to 1996 is
explained in Note 19 to the Company's Consolidated Financial Statements. The
Company's effective tax rate was historically determined primarily through
certain international and intercompany financing arrangements, as well as other
tax strategies.

Equity and other earnings of associated companies increased to $13.4 million
for 1997 from $3.6 million in 1996 due primarily to the inclusion for a full
year of payment-in-kind dividends, partially offset by the Company's
proportionate share of the full year loss attributable to the Common shares of
Prime and Rose Hills, as described further in Note 5 to the 1998 Consolidated
Financial Statements.

Net earnings decreased to $41.8 million in 1997 from $66.0 million in 1996.
Fully diluted earnings per share decreased to $0.48 per share from $1.00 per
share in 1996.

The Company's statement of cash flows for the year ended December 31, 1997
reflects cash applied to operations of $160.7 million primarily as a result of
increased cemetery and funeral pre-need sales programs.

ACQUISITIONS, INVESTMENTS, CAPITAL EXPENDITURES AND DISPOSITIONS

The Company acquired 89 funeral homes and 65 cemeteries during 1998 for
consideration of approximately $278 million. During 1997, the Company acquired
138 funeral homes, 171 cemeteries and one insurance company for consideration of
approximately $546 million. However, beginning in the second half of 1998, the
Company virtually ceased its acquisition program. The Company expects
acquisitions during 1999 to be minimal.

In December 1998, the Company completed the sale of its insurance
subsidiary, First Capital. The aggregate proceeds from this sale were
approximately $24 million, resulting in a gain before taxes of approximately
$6.8 million.

On March 31, 1999, the Company completed the sale of 124 cemeteries and
three funeral homes to an investor group led by McCown De Leeuw & Co., a private
investment firm. The Company received gross proceeds of $193.0 million. The
investor group included two former officers of the Company. The Company has two
smaller groups of properties which are considered probable for sale. The Company
has recorded a pre-tax impairment loss of $333.9 million in 1998 on individual
properties contained in the above groups.

26
<PAGE>
determinable. Should additional properties be sold, losses, if any, could be
small or significant depending upon the type of property, location, cash flow
and prevailing market conditions.

LIQUIDITY AND CAPITAL RESOURCES

Over the past three years, the Company's strategic growth plan had
emphasized cemetery acquisitions, as compared to its historical emphasis on
funeral home acquisitions. Acquisition and the integration of cemeteries has
required significant cash due to the pre-need sales of cemetery interment
rights, products and services and related interest costs on debt incurred. The
Company expects to continue to incur negative cash flow from cemetery operations
until it is able to satisfactorily implement various strategies to generate
positive cash flow.

The Company's indebtedness includes the PATS Senior Notes which are held by
a trust for the benefit of the holders of the pass-through asset trust
securities due October 1, 1999. Notwithstanding the obligation to refinance the
PATS Senior Notes on terms satisfactory to the lenders party to the Credit
Agreements by September 15, 1999, the trust has a put option that entitles the
trust to redeem the PATS Senior Notes on October 1, 1999 to fund repayment of
the pass-through asset trust securities under circumstances where no funding is
tendered pursuant to a competitive bidding process. The Company does not expect
to have sufficient funds to redeem these notes without further asset sales or
proceeds from debt or equity issues. The Company is of the opinion that these
notes have a prospect of being refinanced, however there is no certainty of such
financing as it will depend primarily on financial market conditions and the
Company's credit rating at that time.

As a result of expected negative cash flow from operations in 1999,
scheduled debt maturities in 1999 and its current financial position, on March
31, 1999 the Company:

- Sold 124 cemeteries and three funeral homes for gross proceeds of $193
million of which $126.5 million was used to reduce indebtedness; and

- Completed negotiations with the lenders under the Credit Agreements
resulting in revised lending agreements.

In addition to taking steps to improve profitability and cash flow
throughout the organization, the Company has also reviewed its cemetery pre-need
sales strategy, and to improve cash flow, began implementing changes to the
terms and conditions of cemetery pre-need sales. These changes include: setting
minimum contract terms; adjusting sales force compensation for sales with
certain terms; and eliminating certain types of contracts in jurisdictions with
poor cash flow characteristics after trusting obligations are considered.

The Company plans to finance its operations and capital expenditures in 1999
from existing cash balances, cash flow from operations and proceeds from further
asset sales.

There is no certainty that these and other strategies will be sufficient to
permit the Company to continue, or that the Company will be able to refinance
the PATS Senior Notes on terms satisfactory to the lenders under the Credit
Agreements by September 15, 1999. In the event that such actions and strategies
are not successful, either the Company or its creditors may initiate proceedings
for the liquidation or reorganization of the Company under Canadian or U.S.
bankruptcy laws.

The Company's past objective has been to maintain its long-term debt/equity
ratio, on average, in a range of 1.0:1 to 1.5:1. Accordingly, due to the timing
of its acquisition program, the Company's long-term debt/equity ratio typically
rose to the high end of the range, and then was reduced substantially by an
equity issue. However, as a result of the Company's recent poor operating
results and negative cash flow requiring increased borrowing for working capital
needs, at December 31, 1998, the Company's long-term debt/equity ratio was
2.5:1. The Company does not have current plans to issue equity in 1999.

The Company's balance sheet at December 31, 1998 as compared to December 31,
1997, reflects changes principally from the impairment charges and contingent
loss on purchase obligations, as well as acquisitions during the first half of
1998.

27
<PAGE>
1998 FINANCINGS

In March 1998, the Company amended its $1 billion revolving bank credit
agreement (the "Revolving Credit Agreement"). As part of the amendment, the $250
million 364-day tranche was terminated and the $750 million tranche maturing in
September 2002 was reduced to a $600 million revolving agreement due March,
2001.

In May 1998, LGII completed a private placement in the United States of $200
million of 7.20% Series 6 Senior Guaranteed Notes due 2003 (the "Series 6 Senior
Notes") and $250 million of 7.60% Series 7 Senior Guaranteed Notes due 2008 (the
"Series 7 Senior Notes"). The net proceeds from the Series 6 and 7 Senior Notes
were used to repay indebtedness outstanding under the Revolving Credit
Agreement. In September 1998, these notes were exchanged for identical notes
registered under the Securities Act of 1933.

In September 1998, a subsidiary of the Company obtained a $98.0 million
revolving receivables finance facility (the "Receivables Finance Facility")
through a subsidiary of one of its bank lenders. Under the terms of the
agreement, new receivables are added to the pool each month to offset
collections from existing receivables. Another subsidiary of the Company
services, administers and collects the receivables. The Receivables Finance
Facility contains certain covenants and provides for various events of
termination. This facility is secured by a pledge of the cemetery receivables
held by the subsidiary and as of September 15, 1999, no further receivables can
be added to the pool. At December 31, 1998 the balance outstanding on the
Receivables Finance Facility was $66.2 million which represents the maximum
amount available. The Receivables Finance Facility bears interest at a floating
rate based on commercial paper rates (December 31, 1998 -- 5.51%). The
Receivables Finance Facility is also subject to a commitment fee ranging from
1.10% - 3.25% of the total facility amount depending on certain financial
ratios. Although there are no assurances, the Company plans to extend the
Receivables Finance Facility or replace it with a similar facility with a longer
term.

In September 1998, the Company terminated its Cdn. $50 million revolving
credit agreement.

In March 1999, the Company completed negotiations with the lenders under the
Credit Agreements resulting in revised lending agreements effective March 31,
1999, including waivers of certain financial covenants as of December 31, 1998.
As a result, the Company has not had an event of default of the covenants in the
Credit Agreements. The revised lending agreements:

- Provide for no further borrowings and reduce the Revolving Credit
Agreement, including letters of credit, from $600 million to $294 million
after application of a portion of the net proceeds from the Company's
first major asset sale;

- Increase effective interest rates or applicable margins;

- Amend certain existing financial covenants and add other financial
covenants;

- Require refinancing the PATS Senior Notes on terms satisfactory to the
lenders party to the Credit Agreements by September 15, 1999;

- Require the appointment of a financial advisor on behalf of lenders and
increased reporting and monitoring;

- Require the suspension of all Common share, Preferred share and MIPS
dividend payments;

- Restrict further acquisitions and equity repurchases;

- Limit capital expenditures and expenditures for development of cemetery
land to $60 million for 1999; and

- Permit additional asset sales subject to certain terms and conditions.

28
<PAGE>
INDEBTEDNESS

On March 31, 1999, the $600 million Revolving Credit Agreement was reduced
to a $294 million facility as part of the revised lending agreements relating to
the Credit Agreements. The Revolving Credit Agreement is secured in the manner
described below under "Collateral Trust Agreement."

LGII also has outstanding $300 million of PATS Senior Notes. The PATS Senior
Notes are held by a trust for the benefit of the holders of pass-through asset
trust securities due October 1, 1999 (the "PATS Trust"). The PATS Senior Notes
bear interest at a rate of 6.70% until October 1, 1999 (the "Reset Date"), at
which time the interest rate will be reset (the "Reset Rate") for the balance of
the term of the PATS Senior Notes at a fixed annual rate of 6.05% plus an
adjustment equal to LGII's then-current credit spread to the ten-year U.S.
Treasury rate on the Reset Date. In connection with the issuance of the PATS
Senior Notes, LGII granted a put option to the PATS Trust that, in effect,
entitles the PATS Trust to redeem the PATS Senior Notes, in whole but not in
part, on the Reset Date. The PATS Trust will exercise the put option if the
interest rate at the Reset Date is greater than the Reset Rate. The PATS Senior
Notes are guaranteed by Loewen and secured in the manner described below under
"Collateral Trust Agreement."

LGII has outstanding six series of senior guaranteed notes aggregating $1.2
billion (the "Senior Notes") issued in March and October of 1996 and May 1998.
The Senior Notes are guaranteed by Loewen and bear interest rates ranging from
7.20% to 8.25% and have initial terms of five to ten 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.

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 $43 million.
The Series D Amortizing Notes are guaranteed by LGII and bear an interest rate
of 9.62% and have an initial term of ten years. A subsidiary of Loewen has a $97
million secured bank term credit agreement maturing in July 2000 (the "MEIP
Loan"), implemented in connection with the 1994 Management Equity Investment
Plan.

COLLATERAL TRUST AGREEMENT

In 1996, Loewen, LGII and their senior lenders entered into a collateral
trust agreement pursuant to which the senior lenders share certain collateral
and guarantees on a pari passu basis (the "Collateral Trust Agreement"). The
security for lenders under the Collateral Trust Agreement consists of (i) all of
LGII's right, title and interest in and to all rights to receive payment under
or in respect of accounts, contracts, contractual rights, chattel paper,
documents, instruments and general intangibles, (ii) a pledge of the shares of
capital stock of substantially all of the subsidiaries in which Loewen directly
or indirectly holds more than a 50% voting or economic interest and (iii) a
guarantee by each subsidiary that is pledging stock. The security 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 1-7
Senior Notes, the Series D and E Amortizing Notes, the Revolving Credit
Agreement, the MEIP Loan and the PATS Senior Notes, as well as holders of
certain letters of credit. In addition, there are various covenants that
prohibit liens on the assets of the non-guaranteeing subsidiaries. At December
31, 1998, the indebtedness owed to the senior lending group subject to the
Collateral Trust Agreement, including holders of certain letters of credit,
aggregated approximately $2.1 billion.

RESTRICTIONS

Certain of the Company's debt instruments and amended credit facilities
contain restrictions, including change of control provisions, provisions
requiring the Company to maintain specified financial ratios and provisions
limiting the encumbrance of assets, payments to subsidiaries, the redemption or

29
<PAGE>
repurchase of shares, disposition of assets, additional debt, transactions with
interested persons, sales of preferred stock, sale-leaseback transactions and
merger and acquisitions. Under the terms of its Credit Agreements, the Company
is prevented from paying dividends on Common shares, Preferred shares and MIPS
securities.

In connection with the issuance of the Monthly Income Preferred Securities
("MIPS") by Loewen Group Capital, L.P. ("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 9 to the 1998 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 that restrict distributions, loans and
advances from such subsidiaries to the Company.

IMPACT OF THE YEAR 2000 ISSUE

OVERVIEW

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.

THE COMPANY'S STATE OF READINESS

During the past two years, the Company has been evaluating and assessing its
existing informational computer systems, as well as non-informational systems,
and determined that it will be necessary to modify or replace certain portions
of its software so that its systems will function properly beyond December 31,
1999. In particular, certain of the Company's financial reporting and
information gathering systems, such as general ledger, fixed assets, payroll,
commissions, accounts receivable and payable, etc., required varying degrees of
modification or replacement. Continued accurate and timely information
processing and reporting is critical to the ongoing operations of the Company.
Similarly, non-informational systems, such as communications systems, security
systems, etc., are critical to the safe and uninterrupted performance of the
Company. The evaluation of the non-informational systems determined that all
significant areas are or will be Year 2000 compliant.

As systems were evaluated and assessed, a detailed work plan was developed
to ensure that each area requiring modification or replacement is adequately and
timely addressed. At this time, the Company's work plan continues to indicate
that most significant areas have been or are scheduled to be remedied by
mid-1999. Such work plan includes adequate time for remediation of the area, as
well as testing to ensure the remediation efforts were complete. Additionally,
the Company has established a task force and a review process to monitor
remaining implementation plans and to determine whether all remaining areas

30
<PAGE>
have been assessed and evaluated, resources identified and remediation completed
on a timely basis. A summary of the Company's work plan and status is as
follows:

<TABLE>
<CAPTION>
EVALUATION YEAR 2000 COMPLETION
COMPLETE COMPLIANT DATE
------------- ------------- -----------
<S> <C> <C> <C>
Corporate................................................ Yes Yes N/A
Funeral Home Operations.................................. Yes No 3Q 1999
Cemetery Operations...................................... Yes No 3Q 1999
Insurance Operations..................................... Yes Yes N/A
</TABLE>

In addition, systems improvements and benefits beyond solution of the Year
2000 Issues are expected to be realized as a result of the above initiatives.

The Company has also made 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 is
currently gathering information requested from third parties to complete its
evaluation and assessment of what, if any, material relationships exist and
whether or not such relationships present significant risks to the continued
operations of the Company beyond 1999. This evaluation and assessment is
expected to be completed by mid-1999. 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 TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES

To date, management estimates that the total cost incurred by the Company to
evaluate, assess and remedy Year 2000 Issues has been less than $1 million, and
is not material to the operating results or financial position of the Company.
The expected future cost to complete evaluation, assessment and remediation of
Year 2000 Issues, including replacement if necessary, is expected to be less
than $2 million. Funding for addressing Year 2000 Issues will be achieved with
operating funds of 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 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. 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 determinable.

THE RISKS OF THE COMPANY'S YEAR 2000 ISSUES

It is difficult to accurately project what the potential risks and
ramifications to the Company may be in the event timely remediation efforts are
not completed by either the Company or significant third parties. In such an
event, it is possible that the ability to maintain accurate and complete
financial records of the Company's activities and transactions, and possibly the
timely and cost-effective procurement of merchandise, will be impaired. Such
events, should they occur, would be likely to significantly impair the Company's
ability to operate as it does today, creating business interruption, potential
loss of business, and earnings and liquidity difficulties. The Company presently
believes that with progress made to date and 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 on a timely
basis, the Year 2000 Issue could have a material impact on the operations of the
Company.

31
<PAGE>
In a "worst-case scenario," which is extremely difficult for the Company to
predict, the Company may be unable to fulfill its customer service obligations
in a timely manner, vendor payments may be delayed and timely and accurate
financial reporting might be hindered. All such effects would be temporary, but
the Company is not able to predict the exact nature of events and circumstances,
extent of time nor cost that might be incurred if a "worst-case scenario"
occurred. The Company believes that its Year 2000 initiatives described are
adequate to mitigate such potential effects.

THE COMPANY'S CONTINGENCY PLANS

Though the Company's Year 2000 Issue work plan is believed to be adequate to
achieve full system compliance on a timely basis, there may be circumstances
that could prevent timely implementation. Accordingly, the Company has designed
its work plan to address this potential occurrence. First, the work plan has
been designed to ensure that the most critical systems and areas are addressed
first, and in a manner that provides adequate time to remediate and test
thoroughly. Second, the Company has secured external expert resources to assist
in evaluation, assessment, prioritization and implementation of the work plan to
further ensure its success. Third, in the event the Company is unable to
completely remediate a system, the Company has sought to develop, where
necessary, an alternative solution as a back-up plan, such as developing a
"parallel" remediation effort (i.e., modifying an existing system to ensure it
is Year 2000 compliant at the same time such system is being completely
replaced). The Company will continue to monitor and adjust its contingency plan
needs in conjunction with the progress made on the primary work plan.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company primarily uses derivatives in the form of interest rate swaps,
cross-currency interest rate swaps, and both Canadian and United States dollar
borrowings. The objective is to manage the mix of floating and fixed rate debt
and to substantially hedge the Company's net investment in foreign assets. The
Company's major market risk exposures are to changing interest rates, equity
prices and foreign currency fluctuations. The Company's exposure to interest
rate fluctuations and equity prices primarily reside in the United States, while
the Company's exposure to foreign currency fluctuations primarily resides in
Canadian dollar investments. All derivative and other financial instruments
described are non-trading and are stated in U.S. dollars. The Company's
derivative contracts are entered into with major financial institutions, thereby
minimizing the risk of credit loss. Fluctuations in interest and currency rates
that affect the swaps are generally offset by corresponding movements in the
assets or debt being hedged. The Company's market risk exposure, discussed
below, provides information about the Company's market sensitive financial
instruments and constitute "forward looking statements" which involve risks and
uncertainties. Actual results could differ materially from those projected in
the forward-looking statements.

The Company's debt instrument sensitivity to floating interest rates is
based on approximately 90% and 10% of the Company's floating rate debt being
based in the United States and Canada, respectively. Accordingly, changes in
U.S. and Canadian interest rates affect the interest paid on the Company's debt.
To reduce the impact of fluctuations in U.S. and Canadian interest rates, the
Company generally manages interest rates such that 50% to 80% of the total debt
is fixed rate debt. Interest rates are managed either by long-term borrowings or
by entering into interest rate swap or option transactions. After allowing for
the effect of the interest rate swaps at December 31, 1998, the Company's total
debt has been converted into approximately $1.8 billion of fixed rate debt at a
weighted average rate of 7.4% and approximately $465 million of floating
interest rate debt at a weighted average rate of 7.1%. After allowing for the
effect of the interest rate swaps, a one percent increase in the various
floating rate debt indices would cause an approximately $4.7 million increase in
the Company's annual interest expense.

The Company's PATS Senior Notes have an embedded option whereby the PATS
trust has the ability to put the $300 million debt back to the Company at
October 31, 1999, should the debt not be purchased

32
<PAGE>
by investors at the redemption date. Provided the option is exercised the
Company will be required to pay the PATS trust the value of the option, if any.
The value of the option at December 31, 1998, is approximately $29.3 million and
will fluctuate based on the 10-year U.S. Treasury rate and a strike price of
6.05%. Should the debt be purchased by investors the notes will have a 10 year
maturity with a fixed rate of 6.05% plus an adjustment equal to the Company's
then current credit spread.

The countries in which the Company has foreign operations are generally
stable politically and economically and are not highly inflationary. The Company
hedges a portion of its net investment in foreign assets. The foreign currency
denominated debt acts as a hedge on foreign currency denominated earnings
provided there is not an operating loss in the foreign currency denominated
segment. Approximately 7% of the Company's net assets and 16% of operating loss
are denominated in foreign currencies. None of the Company's net assets and
approximately 16% of the Company's operating loss are subject to translation
risk.

EQUITY-PRICE RISK MANAGEMENT

The sale of prearranged funeral services, pre-need cemetery merchandise and
insurance products result in the Company having significant investment in, or
managing trusts that have significant investment in mutual funds and equity
securities which are sensitive to current market prices. Fluctuations in
interest and equity market rates on investments held in prearranged funeral
trusts do not result in significant current income fluctuation as the income is
not realized until services are performed. Investments in pre-need cemetery
merchandise trusts and insurance invested assets predominately hold fixed income
securities. These investments are generally held to maturity. Accordingly, any
unrealized gains or losses created by fluctuations in interest rates will not be
realized. The Company manages the mix of equities and fixed income securities in
accordance with policies set by the Investment Committee which is comprised of
members of senior management. The Investment Committee sets and modifies the mix
of investments with the assistance of independent professional financial
advisors. The policy emphasizes a conservative approach while maintaining
acceptable levels of income and capital appreciation. Cost and market values of
these investments as of December 31, 1998 and 1997 are presented in Notes 6, 7,
10 and 25 to the Company's Consolidated Financial Statements.

MARKET SENSITIVE FINANCIAL INSTRUMENTS RISK MANAGEMENT

For certain assets and liabilities, the table presents principal cash flows
and the related average interest rates by expected maturity dates for
instruments held at December 31, 1998. For interest rate swaps, the table
presents the notional amounts and weighted-average interest rates or strike
rates by contractual maturity dates. Notional amounts are used to calculate the
contractual cash flows to be exchanged under the contract.

33
<PAGE>
QUANTITATIVE DISCLOSURE OF MARKET RISKS
DECEMBER 31, 1998
(THOUSANDS OF US DOLLARS)

<TABLE>
<CAPTION>
YEAR OF MATURITY 1999 2000 2001 2002 2003 THEREAFTER TOTAL FAIR VALUE
- -------------------------------- --------- --------- --------- --------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>

LIABILITIES
Fixed rate US $ debt............ $ 444,903 $ 21,906 $ 369,061 $ 12,671 $ 562,173 $ 289,651 $ 1,700,365 $ 1,469,734
Average rate.................. 7.1% 7.9% 7.6% 7.9% 7.9% 7.6% 7.5%

Fixed rate Cdn. $ debt.......... 1,082 599 307 130,961 307 1,323 134,579 105,830
Average rate.................. 8.0% 8.0% 8.0% 6.1% 8.0% 8.0% 6.2%

Floating rate US $ debt......... 494,360 824 685 504 576 2,343 499,292 499,292
Average rate.................. 7.2% 8.0% 8.0% 8.0% 8.0% 8.0% 7.2%

PREFERRED SECURITIES
Monthly Income Preferred
Securities.................... -- -- -- -- -- 75,000 75,000 57,938
Average rate.................. -- -- -- -- -- 9.5% 9.5%
First Preferred Shares, Series
C............................. -- -- -- -- -- 157,146 157,146 90,271
Average rate.................. -- -- -- -- -- 6.0% 6.0%

INTEREST RATE DERIVATIVES
INTEREST RATE SWAPS
US$ pay fixed -- US$ receive
variable...................... 25,000 -- 50,000 -- -- -- 75,000 (1,428)
Average pay rate.............. 5.8% -- 6.2% -- -- -- 6.0%
Average receive rate.......... 5.3% -- 5.3% -- -- -- 5.3%

Cdn.$ pay fixed -- Cdn.$ receive
variable...................... -- -- -- 45,737 -- -- 45,737 590
Average pay rate.............. -- -- -- 6.1% -- -- 6.1%
Average receive rate.......... -- -- -- 5.9% -- -- 5.9%

INTEREST RATE OPTIONS
US$ PATS senior notes put option
(10 year)
Notional Amount............... 300,000 -- -- -- -- -- 300,000 (29,317)
Strike Rate................... 6.1% -- -- -- -- -- 6.1%

US$ LIBOR cap (3 month)
Notional Amount............... 100,000 -- -- -- -- -- 100,000 (46)
Strike Rate................... 6.0% -- -- -- -- -- 6.0%

CROSS-CURRENCY INTEREST RATE
SWAP
US$ floating to GBP floating.... -- -- -- -- 10,921 -- 10,921 (315)
Average pay rate.............. -- -- -- -- 7.0% -- 7.0%
Average receive rate.......... -- -- -- -- 7.3% -- 7.3%
</TABLE>

34
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
THE LOEWEN GROUP INC.

Report of Independent Accountants........................................................................ 36

Consolidated Balance Sheets as of December 31, 1998 and 1997............................................. 37

Consolidated Statements of Operations for the Years Ended December 31, 1998, 1997 and 1996............... 38

Consolidated Statements of Retained Earnings (Deficit) for the Years Ended December 31, 1998, 1997 and
1996................................................................................................... 39

Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996............... 40

Notes to Consolidated Financial Statements............................................................... 41

Supplementary Data: Quarterly Financial data (unaudited)................................................. 88

LOEWEN GROUP INTERNATIONAL, INC.(1)

Report of Independent Accountants........................................................................ 89

Consolidated Balance Sheets as of December 31, 1998 and 1997............................................. 90

Consolidated Statements of Operations and Deficit for the Years Ended December 31, 1998, 1997 and 1996... 91

Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996............... 92

Notes to Consolidated Financial Statements............................................................... 93

NEWEOL INVESTMENTS LTD.(1)

Report of Independent Accountants........................................................................ 136

Consolidated Balance Sheets as of December 31, 1998 and 1997............................................. 137

Consolidated Statements of Operations, Comprehensive Income and Retained Earnings (Deficit) for the Years
Ended December 31, 1998, 1997 and 1996................................................................. 138

Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996............... 139

Notes to Consolidated Financial Statements............................................................... 140
</TABLE>

- ------------------------

(1) FINANCIAL STATEMENTS OF LOEWEN GROUP INTERNATIONAL, INC. ("LGII") AND NEWEOL
INVESTMENTS LTD. ARE INCLUDED IN THIS ANNUAL REPORT ON FORM 10-K BECAUSE THE
OUTSTANDING SHARES OF EACH OF SUCH COMPANIES CONSTITUTE A "SUBSTANTIAL PORTION"
OF THE COLLATERAL (WITHIN THE MEANING OF SECURITIES AND EXCHANGE COMMISSION RULE
3-10 UNDER REGULATION S-X) THAT SECURES THE SERIES 1 THROUGH 4 AND SERIES 6 AND
7 NOTES THAT WERE ISSUED BY LGII AND GUARANTEED BY LOEWEN.

35
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors and Shareholders
The Loewen Group Inc.

We have audited the consolidated balance sheets of The Loewen Group Inc. as
at December 31, 1998 and 1997 and the consolidated statements of operations,
retained earnings (deficit) and cash flows for each of the years in the three
year period ended December 31, 1998. In connection with our audits of the
consolidated financial statements, we also have audited financial statement
schedule II included in item 14 of the Company's annual report on Form 10-K.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.

We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.

In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1998 and 1997 and the results of its operations and its cash flows for each of
the years in the three year period ended December 31, 1998, in accordance with
generally accepted accounting principles in Canada. As required by the Company
Act of the Province of British Columbia, we report that, in our opinion, these
principles have been applied, after giving retroactive effect to the change in
accounting principles described in Note 3 to the consolidated financial
statements, on a consistent basis. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.

Significant differences between Canadian and United States accounting
principles are explained and quantified in Note 25 to the consolidated financial
statements.

/s/ KPMG LLP
Chartered Accountants
Vancouver, Canada

April 12, 1999

COMMENTS BY AUDITOR FOR U.S. READERS ON CANADA-U.S. REPORTING DIFFERENCE

In the United States, reporting standards for auditors require the addition
of an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the company's ability to continue as a going concern, such as those described in
Note 1 to the consolidated financial statements. Our report to the shareholders
dated April 12, 1999 is expressed in accordance with Canadian reporting
standards which do not permit a reference to such events and conditions in the
auditor's report when these are adequately disclosed in the financial
statements.

/s/ KPMG LLP
Chartered Accountants
Vancouver, Canada
April 12, 1999

36
<PAGE>
THE LOEWEN GROUP INC.
CONSOLIDATED BALANCE SHEETS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1998
------------ 1997
------------------
(RESTATED -- NOTE
3)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.................................................... $ 94,141 $ 36,767
Receivables, net of allowances............................................... 221,679 251,006
Inventories.................................................................. 34,482 34,885
Prepaid expenses............................................................. 8,916 11,141
------------ ------------------
359,218 333,799

Long-term receivables, net of allowances....................................... 647,092 553,663
Cemetery property.............................................................. 1,235,847 1,332,987
Property and equipment......................................................... 825,985 797,178
Names and reputations.......................................................... 748,665 668,578
Investments.................................................................... 3,385 224,008
Insurance invested assets...................................................... 266,661 305,610
Future income tax assets....................................................... 12,003 7,849
Prearranged funeral services................................................... 413,934 410,379
Other assets................................................................... 161,118 156,636
------------ ------------------
$ 4,673,908 $ 4,790,687
------------ ------------------
------------ ------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current indebtedness......................................................... $ 66,222 $ --
Accounts payable and accrued liabilities..................................... 170,134 160,208
Long-term debt, current portion.............................................. 874,123 43,507
------------ ------------------
1,110,479 203,715

Long-term debt, net of current portion......................................... 1,393,891 1,750,427
Other liabilities.............................................................. 399,304 308,909
Insurance policy liabilities................................................... 166,920 214,492
Future income tax liabilities.................................................. 208,939 309,994
Deferred prearranged funeral services revenue.................................. 413,934 410,379

Preferred securities of subsidiary............................................. 75,000 75,000

Shareholders' equity
Common shares................................................................ 1,274,096 1,271,177
Preferred shares............................................................. 157,146 157,146
Retained earnings (deficit).................................................. (539,741) 75,624
Foreign exchange adjustment.................................................. 13,940 13,824
------------ ------------------
905,441 1,517,771
------------ ------------------
$ 4,673,908 $ 4,790,687
------------ ------------------
------------ ------------------
FINANCIAL CONDITION (NOTE 1)
COMMITMENTS AND CONTINGENCIES (NOTES 5, 8, 13, 16 AND 17)
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

37
<PAGE>
THE LOEWEN GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1998
----------- 1997 1996
------------------ ------------------
(RESTATED -- NOTE (RESTATED -- NOTE
3) 3)
<S> <C> <C> <C>
Revenue
Funeral................................................... $ 631,221 $ 602,112 $ 549,833
Cemetery.................................................. 408,497 422,010 286,652
Insurance................................................. 96,516 89,977 71,900
----------- ------------------ ------------------
1,136,234 1,114,099 908,385
Costs and expenses
Funeral................................................... 407,302 374,191 326,892
Cemetery.................................................. 357,183 302,965 197,776
Insurance................................................. 80,013 73,304 54,709
----------- ------------------ ------------------
844,498 750,460 579,377
----------- ------------------ ------------------
291,736 363,639 329,008
Expenses
General and administrative................................ 133,289 112,766 71,191
Depreciation and amortization............................. 88,513 65,378 53,147
Asset impairment.......................................... 333,900 -- --
Restructuring costs....................................... -- 33,364 --
----------- ------------------ ------------------
555,702 211,508 124,338
----------- ------------------ ------------------
Earnings (loss) from operations............................. (263,966) 152,131 204,670
Interest on long-term debt.................................. 182,305 132,252 93,028
Investment impairment and contingent loss................... 315,207 -- --
Loss on early extinguishment of debt........................ -- 7,675 --
Gain on sale of investment.................................. -- (24,099) --
Finance and other costs related to hostile takeover
proposal.................................................. -- -- 18,678
----------- ------------------ ------------------
Earnings (loss) before undernoted items..................... (761,478) 36,303 92,964
Dividends on preferred securities of subsidiary............. 7,088 7,088 7,088
----------- ------------------ ------------------
Earnings (loss) before income taxes and undernoted items.... (768,566) 29,215 85,876
Income taxes
Current................................................... 23,118 34,152 22,544
Future.................................................... (187,589) (33,367) 927
----------- ------------------ ------------------
(164,471) 785 23,471
----------- ------------------ ------------------
(604,095) 28,430 62,405
Equity and other earnings of associated companies........... 5,126 13,380 3,594
----------- ------------------ ------------------
Net earnings (loss) for the year............................ $ (598,969) $ 41,810 $ 65,999
----------- ------------------ ------------------
----------- ------------------ ------------------
Basic earnings (loss) per Common share...................... $ (8.22) $ 0.48 $ 1.01
Fully diluted earnings (loss) per Common share.............. $ (8.22) $ 0.48 $ 1.00
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

38
<PAGE>
THE LOEWEN GROUP INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT)
EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

39
<PAGE>
THE LOEWEN GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
------------ ------------- ------------
<S> <C> <C> <C>
(RESTATED -- (RESTATED --
NOTE 3) NOTE 3)
CASH PROVIDED BY (APPLIED TO)
Operations
Net earnings (loss).................................................. $ (598,969) $ 41,810 $ 65,999
Items not affecting cash
Depreciation and amortization...................................... 88,513 65,378 53,147
Amortization of debt issue costs................................... 26,581 6,802 4,096
Asset impairment................................................... 333,900 -- --
Investment impairment and contingent loss.......................... 315,207 -- --
Gain on sale of investments........................................ (6,768) (27,208) --
Future income taxes................................................ (187,589) (33,367) 927
Equity and other earnings of associated companies.................. (5,126) (13,380) (3,594)
Restructuring costs................................................ -- 15,645 --
Other, including net changes in other non-cash balances.............. (90,247) (216,394) (167,438)
------------ ------------- ------------
(124,498) (160,714) (46,863)
------------ ------------- ------------
Investing
Business acquisitions................................................ (252,598) (481,617) (556,921)
Construction of new facilities....................................... (19,208) (32,429) (17,719)
Investments, net..................................................... (1,422) 14,523 (148,398)
Purchase of insurance invested assets................................ (224,145) (261,987) (85,193)
Proceeds on disposition and maturities of insurance invested
assets............................................................. 180,175 252,626 71,939
Purchase of property and equipment................................... (43,540) (52,830) (54,911)
Proceeds on disposition of investments and assets.................... 56,340 70,087 3,685
------------ ------------- ------------
(304,398) (491,627) (787,518)
------------ ------------- ------------
Financing
Issue of Common shares, before income tax recovery................... 1,801 439,429 216,932
Issue of Preferred shares, before income tax recovery................ -- -- 154,094
Increase in long-term debt........................................... 1,105,441 1,343,545 1,037,389
Repayment of long-term debt.......................................... (645,667) (1,082,970) (514,510)
Common share dividends............................................... (14,713) (12,340) (6,679)
Preferred share dividends............................................ (8,900) (9,533) (6,466)
Current note payable................................................. 71,654 -- --
Repayment of current note payable.................................... (5,432) -- (38,546)
Debt issue costs..................................................... (17,884) (7,120) (29,158)
------------ ------------- ------------
486,300 671,011 813,056
------------ ------------- ------------
Increase (decrease) in cash and cash equivalents during the year....... 57,404 18,670 (21,325)
Effect of foreign exchange adjustment.................................. (30) 38 (70)
Cash and cash equivalents, beginning of year........................... 36,767 18,059 39,454
------------ ------------- ------------
Cash and cash equivalents, end of year................................. $ 94,141 $ 36,767 $ 18,059
------------ ------------- ------------
------------ ------------- ------------
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

40
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 1. FINANCIAL CONDITION

BASIS OF PRESENTATION

These consolidated financial statements have been prepared on a going
concern basis in accordance with Canadian generally accepted accounting
principles. The going concern basis of presentation assumes that The Loewen
Group Inc. (the "Company") will continue in operation for the foreseeable future
and will be able to realize its assets and discharge its liabilities and
commitments in the normal course of business. Certain conditions, described
below, currently exist which cast doubt upon the validity of this assumption.

There is substantial doubt about the appropriateness of the use of the going
concern assumption because the Company has experienced in 1998 both a
significant net loss and negative cash flow. There is also uncertainty as to the
Company's ability to refinance the pass-through asset trust senior guaranteed
notes (the "PATS senior notes") which may be redeemed on October 1, 1999 and
which require refinancing by September 15, 1999 under the terms of amended
credit agreements. The ability of the Company to continue as a going concern and
to realize the carrying value of its assets and discharge its liabilities when
due is dependent on the successful completion of actions that the Company has
taken or plans to take which management believes will mitigate the adverse
conditions and events which raise doubt about the validity of the "going
concern" assumption. However, there is no certainty that these actions or other
strategies will be sufficient to permit the Company to continue, or that the
Company will be able to refinance the PATS senior notes on terms acceptable to
certain of the Company's lenders by September 15, 1999. In the event that such
actions and strategies are not successful, either the Company or its creditors
may initiate proceedings for the liquidation or reorganization of the Company
under Canadian or U.S. bankruptcy laws.

The financial statements do not reflect adjustments that would be necessary
if the "going concern" assumption were not appropriate. If the "going concern"
basis was not appropriate for these financial statements, then significant
adjustments would be necessary in the carrying value of assets and liabilities,
the reported revenues and expenses, and the balance sheet classifications used.

OPERATIONS

The Company reported a loss from operations in 1998 of $263,966,000 after
recording a charge for asset impairment of $333,900,000. Over the past three
years, the Company's strategic growth plan had emphasized cemetery acquisitions,
as compared to its historical emphasis on funeral home acquisitions. Acquisition
and the integration of cemeteries has required significant cash due to the
pre-need sales of cemetery interment rights, products and services and related
interest costs on debt incurred. The Company expects to continue to incur
negative cash flow from cemetery operations until it is able to satisfactorily
implement various strategies to generate positive cash flow.

FINANCING

As a result of expected negative cash flow from operations during 1999,
scheduled debt maturities in 1999 and its current financial position, on March
31, 1999 the Company:

- Sold 124 cemeteries and three funeral homes for gross proceeds of
$193,000,000, of which $126,500,000 was used to reduce indebtedness; and

41
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 1. FINANCIAL CONDITION (CONTINUED)
- Completed negotiations with the lenders under its bank credit agreement,
Management Equity Investment Plan ("MEIP") bank term credit agreement,
Series D and E senior amortizing notes and one privately held note
agreements (collectively, the "Credit Agreements"), resulting in revised
lending agreements effective March 31, 1999 including waivers of certain
financial covenants as of December 31, 1998. As a result, the Company has
not had an event of default of the covenants under the Credit Agreements.
The revised lending agreements:

- Provide for no further borrowings and reduce the bank credit agreement,
including letters of credit, from $600,000,000 to $293,720,000 after
application of a portion of the net proceeds from the Company's first
major asset sale;

- Increase effective interest rates or applicable margins;

- Amend certain existing financial covenants and add other financial
covenants;

- Require refinancing of the PATS senior notes on terms satisfactory to
the lenders party to the Credit Agreements by September 15, 1999;

- Require the appointment of a financial advisor on behalf of lenders and
increased reporting and monitoring;

- Require the suspension of all Common share, Preferred share and MIPS
dividend payments;

- Restrict further acquisitions and equity repurchases;

- Limit capital expenditures and expenditures for development of cemetery
land to $60,000,000 for 1999; and

- Permit additional asset sales subject to certain terms and conditions.

The Company's indebtedness includes the PATS senior notes which are held by
a trust for the benefit of the holders of the pass-through asset trust
securities due October 1, 1999. Notwithstanding the obligation to refinance the
PATS senior notes on terms satisfactory to the lenders party to the Credit
Agreements by September 15, 1999, the trust has a put option that entitles the
trust to redeem the PATS senior notes on October 1, 1999 to fund the repayment
of the pass-through asset trust securities under circumstances where no funding
is tendered pursuant to a competitive bidding process. The Company does not
expect to have sufficient funds to redeem these notes without further asset
sales or proceeds from debt or equity issues. The Company is of the opinion that
these notes have a prospect of being refinanced, however there is no certainty
of such financing as it will depend primarily on financial market conditions and
the Company's credit rating at that time.

The debt relating to the Credit Agreements and the PATS senior notes has
been classified as current liabilities. The Series 1 to 7 Senior Notes have been
classified as non-current liabilities but have cross default clauses that could
accelerate payment if covenants in the Credit Agreements and PATS senior notes
are not met and the lenders thereunder accelerate payment under those
agreements.

42
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in Canada, which in the
case of the Company, generally conform with those established in the United
States, except as explained in Note 25.

The United States dollar is the principal currency of the Company's business
and accordingly the consolidated financial statements are expressed in United
States dollars.

BASIS OF CONSOLIDATION

The accounts of all subsidiary companies have been included in the
consolidated financial statements from their respective dates of acquisition of
control or formation. All subsidiaries are wholly owned at December 31, 1998
except for a few companies with small minority interests. The Company's
operating subsidiaries in the United States are held through Loewen Group
International, Inc. ("LGII").

The Company accounts for its investment in companies in which it has
significant influence by the equity method. The Company's proportionate share of
income (loss) as reported, net of amortization of excess purchase price over net
assets acquired, is included in income and added to (deducted from) the cost of
the investment. Common share dividends received reduce the carrying amount of
the investment.

The Company accounts for its investment in joint ventures using the
proportionate consolidation method.

All significant inter-company balances and transactions have been eliminated
in the consolidated financial statements.

USE OF ESTIMATES

The preparation of consolidated financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during the
reporting period. As a result, actual results could significantly differ from
those estimates.

PREARRANGED FUNERAL SERVICES

Prearranged funeral services provide for future funeral services generally
determined by prices prevailing at the time the contract is signed. The payments
made under the contract, in part, are either placed in trust or are used to pay
the premiums of life insurance policies under which the Company will be
designated as beneficiary. Except for insurance commissions and amounts not
required to be trusted, which are used to defray initial costs of
administration, no income is recognized until the performance of a specific
funeral.

Trust fund principal amounts and insurance contract amounts, together with
trust fund investment earnings retained in trust and annual insurance benefits,
are deferred until the service is performed. The Company estimates that trust
fund investment earnings and annual insurance benefits exceed the increase in
cost over time of providing the related services. Upon performance of the
specific funeral service, the Company will recognize the trust fund principal
amount or insurance contract amount together with the accumulated trust earnings
and annual insurance benefits as funeral revenues. Direct obtaining costs
related to the sale of prearranged funeral services are included in other assets
and amortized over a period

43
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
of ten years, approximating the period the benefits are expected to be realized.
Indirect obtaining costs relating to the sale of prearranged funeral services
are expensed in the period incurred.

CEMETERY OPERATIONS

Pre-need sales of cemetery interment rights and other related products and
services are recorded as revenue when customer contracts are signed with
concurrent recognition of related costs. Interest is imputed at a market rate
for contracts that do not bear a market rate of interest. An allowance for
cancellations and refunds is provided at the date of sale based on management's
estimates. The allowance is reviewed quarterly and changes in estimates are
reflected for current and prior contracts as a result of recent cancellation
experience. Actual cancellation rates in the future may result in a change in
estimate.

A portion of the proceeds from cemetery sales is generally required by law
to be paid into perpetual or endowment care trust funds. Cemetery revenue is
recorded net of the amount to be deposited to perpetual or endowment care trust
funds. Earnings of perpetual or endowment care trust funds are used to defray
the maintenance costs of cemeteries. Additionally, pursuant to various state and
provincial laws, a portion of the proceeds from the sale of preneed merchandise
and services may also be required to be paid into trust funds which are recorded
as long-term receivables.

INSURANCE OPERATIONS

(A) INSURANCE REVENUE

The Company earns insurance revenue primarily through the sale of industrial
life and ordinary life insurance policies.

(B) INSURANCE INVESTED ASSETS

Bonds and other fixed-term securities are carried at amortized cost. Net
realized gains and losses on the disposal of bonds and other fixed-term
securities are deferred and amortized to income over the remaining term to
maturity of the security sold. Equity securities are carried at moving average
market value. Net realized gains and losses on the disposal of equity securities
are deferred and amortized to income on a declining balance basis.

Insurance policy liabilities represent an estimate of the amount which,
together with future premiums and investment income, will be sufficient to pay
future benefits, dividends and expenses on insurance and annuity contracts.
Liabilities are computed using the policy premium method which involves the use
of estimates concerning such factors as mortality and morbidity rates, future
investment yields, future expense levels and rates of surrender. Consequently,
policy liabilities include reasonable provisions for adverse deviations from
those estimates. These assumptions will be revised if it is determined that
future experience differs substantially from that previously assumed.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash and term deposits with an initial
maturity less than or equal to 90 days.

44
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES

Inventories are carried at the lower of cost, determined primarily on a
specific identification basis or a first in first out basis, and net realizable
value.

CEMETERY PROPERTY

Cemetery property, including capitalized interest, consists of developed and
undeveloped cemetery property and is valued at average cost. Amounts are
expensed to costs and expenses as sales of cemetery plots occur.

PROPERTY AND EQUIPMENT

Property and equipment is recorded initially at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets as follows:

<TABLE>
<CAPTION>
<S> <C>
Buildings and improvements..................................... 10 to 40 years
Automobiles.................................................... 6 years
Furniture, fixtures and equipment.............................. 6 to 10 years
Computer hardware and software................................. 6 years
Leasehold improvements......................................... Over the term of the lease plus one renewal
</TABLE>

NAMES AND REPUTATIONS

The amount paid for the names and reputations of operations acquired is
equivalent to the excess of the purchase price over the fair value of
identifiable net assets acquired, as determined by management. Amortization is
provided on a straight-line basis over 40 years.

Covenants not to compete included with names and reputations on the
consolidated balance sheet represent amounts capitalized for non-competition
agreements with certain key management personnel of acquired operations.
Amortization of such prepaid covenants not to compete is provided on a
straight-line basis over the terms of the relevant agreements, typically ten
years.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company monitors the recoverability of long-lived assets, including
investments, cemetery property, property and equipment, names and reputations
and other assets based on estimates using factors such as future asset
utilization, business climate and future undiscounted cash flows expected to
result from the use of the related assets or realized upon sale. The Company's
policy is to write down assets to their net recoverable amount in the period
when it is determined that the carrying amount of the asset is not likely to be
recoverable.

DEBT ISSUE COSTS

Debt issue costs included in other assets on the consolidated balance sheet
represent the costs of negotiating and securing the Company's long-term debt and
preferred securities of subsidiary and are included in interest expense on a
straight-line basis over the respective term of the related instrument. These
costs include legal fees, accounting fees, underwriting and agency fees and
other related costs.

45
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACQUISITION COSTS

The Company's policy is to capitalize direct acquisition costs incurred on
potential acquisitions. Upon completion of an acquisition, these costs are
allocated to the assets acquired and are subject to the accounting policies
outlined above. On certain acquisitions, a portion of the consideration is
contingent upon future operating results. Such consideration, if any, is
allocated to the assets acquired once determinable. Direct acquisition costs
related to acquisitions not completed are written off.

DERIVATIVE INSTRUMENTS

The Company enters into derivative transactions with financial institutions
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 counterparties.

The Company enters into interest rate swap agreements to manage interest
rate exposure on its long-term debt. The difference between the amounts paid and
received is accrued and accounted for as an adjustment to interest expense over
the life of the swap agreement.

The Company uses basic swap and option products to manage its exposure to
interest rate movements when anticipated financing transactions are probable and
the significant characteristics and expected terms are identified. Any gain or
loss as a result of the hedging is deferred and amortized as an adjustment to
interest expense over the life of the financing instrument hedged. If at any
point in time a hedging transaction no longer meets the criteria of a hedge, any
gain or loss is recognized in current earnings.

The Company also uses foreign exchange forward contracts, cross currency
swaps, options and futures to hedge the Company's exposure to fluctuations in
foreign exchange rates. Gains or losses as a result of the hedge transaction are
accounted for as an adjustment to the related transaction.

SHARE ISSUE EXPENSES

The costs of issuing shares, net of income tax recoveries thereon, are
applied to reduce the stated value of such shares.

FUTURE INCOME TAXES

The Company follows the asset and liability method of accounting for income
taxes. Under this method, current income taxes are recognized for the estimated
income taxes payable for the current period. Future income tax assets and
liabilities are recognized for temporary differences between the tax and
accounting bases of assets and liabilities as well as for the benefit of losses
available to be carried forward to future years for tax purposes. Future income
tax assets and liabilities are measured using substantively enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on future income
tax assets and liabilities of a change in tax rates is recognized in operations
in the period that includes the substantive enactment date. A valuation
allowance is recognized to the extent the recoverability of future income tax
assets is not considered more likely than not.

46
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE

Basic earnings (loss) per share figures are calculated based on net earnings
(loss) attributable to Common shareholders using the weighted average number of
Common shares outstanding during the respective periods.

Fully diluted earnings (loss) per share figures assume, if dilutive (a)
exercise of employee and other stock options effective on their dates of issue
and that the funds derived therefrom were invested at annual after-tax rates of
return of 7.1% (1997 -- 6.9%, 1996 -- 6.5%), (b) conversion of the Series C
Preferred shares effective on the date of the issue of the Series C Receipts and
the add-back of the dividends during the period and (c) exercise of options and
purchase rights under the 1994 Management Equity Investment Plan ("MEIP")
effective on their dates of issue and the add-back of the interest under the
related MEIP loan (see Note 11(d)).

FOREIGN CURRENCY TRANSLATION

The assets and liabilities of the Canadian operations, which are accounted
for as self-sustaining, have been translated into United States dollars at the
rates of exchange as at the balance sheet dates, and revenue and expenses are
translated at the average rates of exchange for the periods of operation. Gains
or losses arising from the translation are deferred and are classified as
"Foreign exchange adjustment" within Shareholders' equity.

NOTE 3. CHANGE IN ACCOUNTING PRINCIPLES

(A) INCOME TAXES

Effective with the third quarter of 1998, the Company changed its policy for
accounting for income taxes by adopting the provisions of Section 3465, Income
Taxes, of the Handbook of the Canadian Institute of Chartered Accountants which
is described in the Summary of Significant Accounting Policies. Previously, the
Company followed the allocation method of accounting for income taxes.

The provisions were applied retroactively with restatement of prior period
financial statements to January 1, 1993 which conforms to the effective date
that the Company adopted Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes, for its financial statement amounts presented under
United States generally accepted accounting principles. As a result of adopting
the new Canadian standard, the cumulative effect to opening retained earnings at
January 1, 1996 was a decrease of $23,905,000. The cumulative effect on the
consolidated balance sheet at December 31, 1998 is an increase in cemetery
property and names and reputations of approximately $463,000,000 (December 31,
1997 -- $411,000,000) primarily due to effects of acquisition accounting and a
corresponding increase in future income tax liability of approximately
$486,000,000 (December 31, 1997 -- $433,000,000). The effect on the consolidated
statement of operations for the twelve months ended December 31, 1998 was a
decrease to net loss of approximately $9,180,000 (1997 -- decrease to net
earnings of $918,000; 1996 -- increase to net earnings of $2,093,000).

(B) STATEMENT OF CASH FLOWS

The Company adopted CICA Handbook Section 1540, Cash Flow Statements for the
year ended December 31, 1998. The provisions were applied retroactively with
restatement of prior period financial

47
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 3. CHANGE IN ACCOUNTING PRINCIPLES (CONTINUED)
statements. Under Section 1540, non-cash investing and financing activities are
excluded from the statement of cash flows and are disclosed in a note to the
financial statements.

NOTE 4. ACQUISITIONS AND DISPOSITIONS

(A) ACQUISITIONS

During the year ended December 31, 1998, the Company acquired 89 funeral
homes and 65 cemeteries.

During the year ended December 31, 1997, the Company acquired 138 funeral
homes, 171 cemeteries and one insurance company.

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>
1998 1997
---------- -----------
<S> <C> <C>
(RESTATED
-- NOTE 3)
Current assets.......................................................................... $ 6,140 $ 10,138
Prearranged funeral services............................................................ 19,529 37,271
Long-term receivables, net of allowances................................................ 2,914 85,098
Investments............................................................................. 405 36
Cemetery property....................................................................... 185,160 425,320
Property and equipment.................................................................. 45,237 87,587
Names and reputations................................................................... 121,065 113,351
Other assets............................................................................ 12,518 264
---------- -----------
392,968 759,065
Current liabilities..................................................................... (3,612) (6,680)
Long-term debt.......................................................................... (3,402) (4,948)
Other liabilities....................................................................... (5,913) (55,845)
Future income taxes..................................................................... (82,519) (107,823)
Deferred prearranged funeral services revenue........................................... (19,529) (37,271)
---------- -----------
$ 277,993 $ 546,498
---------- -----------
---------- -----------
Consideration
Cash, including assumed debt repaid at closing........................................ $ 252,598 $ 481,617
Debt.................................................................................. 24,310 41,880
Common shares......................................................................... 1,085 23,001
---------- -----------
Purchase Price.......................................................................... $ 277,993 $ 546,498
---------- -----------
---------- -----------
</TABLE>

48
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 4. ACQUISITIONS AND DISPOSITIONS (CONTINUED)

The following table reflects, on an unaudited pro-forma basis, the combined
results of the Company's operations acquired during the year ended December 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 years
presented, and is not intended to be a projection of future results or trends.

<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Revenues.............................................................................. $ 1,156,095 $ 1,180,589
Net earnings (loss)................................................................... $ (600,962) $ 41,588
Basic earnings (loss) per share....................................................... $ (8.24) $ 0.48
Fully diluted earnings (loss) per share............................................... $ (8.24) $ 0.48
</TABLE>

(b) DISPOSITIONS

During the year, the Company sold First Capital Life Insurance Company of
Louisiana, a wholly owned subsidiary, for gross proceeds of $24,522,000
resulting in a pre-tax gain of $6,768,000. The assets and liabilities disposed
of were $89,958,000 and $72,204,000 respectively.

NOTE 5. INVESTMENTS

<TABLE>
<CAPTION>
1998 1997
--------- ----------
<S> <C> <C>
Prime Succession Holdings, Inc. ("Prime")................................................... -- $ 82,972
Rose Hills Holdings Corp. ("Rose Hills").................................................... -- 98,987
Investments of joint venture................................................................ -- 40,113
Other....................................................................................... 3,385 1,936
--------- ----------
$ 3,385 $ 224,008
--------- ----------
--------- ----------
</TABLE>

(a) PRIME

The Company owns 213.2353 shares of Prime common stock, representing 21.8%
of Prime's voting common stock, and 100% of Prime's non-voting preferred stock,
with a 10% cumulative annual payment-in-kind dividend. Blackstone Capital
Partners II Merchant Banking Fund L.P. and certain affiliates (together,
"Blackstone") owns 764.7059 shares of Prime common stock, representing 78.2% of
Prime's voting common stock.

Prime holds all of the outstanding common shares of Prime Succession, Inc.,
an operator of funeral homes and cemeteries in the United States. Prime
Succession, Inc. was purchased on August 26, 1996 for approximately $320,000,000
of which $52,000,000 was funded by Blackstone and $78,000,000 by the Company,
and $190,000,000 was financed through bank borrowings and the issuance of senior
subordinated notes. The excess of the purchase price over the fair value of net
assets of approximately $230,000,000, was established as goodwill in Prime
Succession, Inc. and is being amortized over 40 years.

49
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 5. INVESTMENTS (CONTINUED)
Blackstone and the Company have the right to designate five and three
nominees, respectively, to the Prime Board of Directors. Blackstone controls the
strategic operating, investing and financing policies of Prime. Neither
Blackstone nor the Company can, without the consent of the other party, sell or
transfer its share in Prime to a party other than to an affiliate of itself.

Under a Put/Call Agreement entered into with Blackstone in August 1996, 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.

The prices for the Call and the Put are based on a formula that calculates
the equity value attributable to Blackstone's common share interest. The
calculated equity value is determined at the Put or Call date based on a
multiple of approximately 12x earnings before interest, taxes, depreciation and
amortization ("EBITDA") for the previous year, after deduction of certain
liabilities. Any payment to Blackstone under the Call or the Put may be in the
form of cash and/or Common shares of the Company, at the Company's option,
subject to certain conditions.

Upon a Call, Blackstone will receive, at a minimum, its original investment
plus a 24.1% compound return per annum thereon regardless of the calculated
equity value. Any additional equity value attributable to Blackstone common
stock interest is determined on the basis of a formula set forth in the Put/Call
Agreement. Upon a Put by Blackstone, there is no guaranteed return to
Blackstone. Any payment to Blackstone is limited to Blackstone's share of the
calculated equity value based on a formula set forth in the Put/Call Agreement.

The Company provides various administrative services to Prime under an
Administrative Services Agreement for an annual fee of $250,000.

Prior to the fourth quarter of 1998, the Company evaluated the exercise of
the Call on the fourth anniversary date as likely. Due to liquidity concerns of
the Company, the performance of Prime and the reduced market values for the
Company's and other industry participants' stock, the Company has determined the
exercise of the Call on the fourth anniversary as unlikely and the exercise of
the Put as likely. Accordingly, the Company assessed that its investment
suffered a decline in value that is other than temporary and has written down
its investment based on an assumed distribution of Prime's shareholder's equity
at December 31, 1998 taking into account Blackstone's return under the Put. In
addition, the Company has estimated the expected Put option price on the sixth
anniversary, the first date the Put option becomes exercisable by Blackstone,
based on the Company's best estimate of EBITDA at that time and the relevant
formula in the Put/Call Agreement. The Company has accrued a contingent loss
based upon the difference between the estimated option price and the Company's
estimate of the fair value of Blackstone's equity in Prime which is based in
part on current market conditions. Such amount could change based on changes in
the estimated future value of the business. A net liability (see Note 21) has
been recorded reflecting an accrual of the expected loss on the option reduced
by the remaining carrying value of Prime.

50
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 5. INVESTMENTS (CONTINUED)
In 1998, 1997 and 1996 the Company recognized income (loss) of ($1,430,000),
$5,073,000 and $1,156,000, relating to its investment in Prime, excluding the
1998 investment impairment and contingent loss.

Summarized financial data for Prime are presented as follows:

<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Income statement information:
Revenue.................................................................... $ 98,005 $ 101,139 $ 32,651
Gross margin............................................................... 32,293 38,616 11,066
Earnings from operations................................................... 17,595 24,123 5,492
Payment-in-kind dividend................................................... 7,226 6,542 2,300
Net loss attributable to common shareholders............................... (14,524) (6,739) (5,250)

Balance sheet information:
Current assets............................................................. $ 22,820 $ 25,694 $ 24,614
Non-current assets......................................................... 368,302 369,412 374,174
---------- ---------- ----------
Total assets............................................................... 391,122 395,106 398,788

Current liabilities........................................................ 15,952 14,964 22,531
Non-current liabilities.................................................... 256,060 253,734 249,652
---------- ---------- ----------
Total liabilities.......................................................... 272,012 268,698 272,183

Shareholders' equity....................................................... 119,110 126,408 126,605
</TABLE>

(b) ROSE HILLS

The Company owns 204.5454 shares of Rose Hills common stock, representing
20.45% of Rose Hills' voting common stock, and 100% of Rose Hills non-voting
preferred stock, with a 10% cumulative annual payment-in-kind dividend.
Blackstone owns 795.4546 shares of Rose Hills common stock, representing 79.55%
of Rose Hills' voting common stock.

Rose Hills holds all of the outstanding common stock of Rose Hills Company
("RHC") and the cemetery related assets of Rose Hills Memorial Park Association,
representing the largest single location cemetery in the United States. These
companies were purchased on November 19, 1996 for approximately $285,000,000 of
which $130,000,000 was funded by Blackstone and the Company, and $155,000,000
was financed through bank borrowings and the issuance of senior subordinated
notes. The excess of the purchase price over the fair value of net assets of
approximately $130,000,000 was established as goodwill in RHC and is being
amortized over 40 years.

Blackstone and the Company have the right to designate five and three
nominees, respectively, to the Rose Hills' Board of Directors. Blackstone
controls the strategic operating, investing and financing policies of Rose
Hills. Neither Blackstone nor the Company can, without the consent of the other
party, sell or transfer its shares in Rose Hills to a party other than to an
affiliate of itself.

Under a Put/Call Agreement entered into with Blackstone in November 1996,
the Company has the option to acquire ("Call") Blackstone's Rose Hills common
stock commencing on the fourth anniversary of

51
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 5. INVESTMENTS (CONTINUED)
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 Rose Hills 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.

The prices for the Call and the Put are based on a formula that calculates
the equity value attributable to Blackstone's common share interest. The
calculated equity value is determined at the Put or Call date based on a
multiple of approximately 13x earnings before interest, taxes, depreciation and
amortization ("EBITDA") for the previous year, after deduction of certain
liabilities. Any payment to Blackstone under the Call or the Put may be in the
form of cash and/or Common shares of the Company, at the Company's option,
subject to certain conditions.

Upon a Call, Blackstone will receive, at a minimum, its original investment
plus a 22.5% compound return per annum thereon regardless of the calculated
equity value. Any additional equity value attributable to Blackstone common
stock interest will be determined on the basis of a formula set forth in the
Put/Call Agreement. Upon a Put by Blackstone, there is no guaranteed return to
Blackstone. Any payment to Blackstone is limited to Blackstone's share of the
calculated equity value based on a formula set forth in the Put/Call Agreement.

The Company provides various management and administrative services to RHC
and subsidiaries under an Administrative Services Agreement for an annual fee of
$250,000. If the Administrative Services Agreement becomes terminable by
Blackstone due to the Company's material breach thereof or other failure to
comply in any material respect, Blackstone under the Put will receive, at a
minimum, its original investment plus a 25% compound return per annum thereon
which increases to 27.5% in the event of a change in control of the Company,
regardless of the calculated equity value.

Prior to the fourth quarter of 1998, the Company evaluated the exercise of
the Call on the fourth anniversary date as likely. Due to liquidity concerns of
the Company, the performance of Rose Hills and the reduced market values for the
Company's and other industry participants' stock, the Company has determined the
exercise of the Call on the fourth anniversary as unlikely and the exercise of
the Put as likely. Accordingly, the Company assesses that its investment
suffered a decline in value that was other than temporary and has written down
its investment based on an assumed distribution of Rose Hills' shareholder's
equity at December 31, 1998 taking into account Blackstone's return under the
Put. In addition, the Company has estimated the expected Put option price on the
sixth anniversary, the first date the option becomes exercisable, based on the
Company's best estimate of EBITDA at that time and the relevant formula in the
Put/Call Agreement. The Company has accrued a contingent loss based upon the
difference between the estimated option price and the Company's estimate of the
fair value of Blackstone's equity in Rose Hills which is based in part on
current market conditions. Such amount could change based on changes in the
estimated future value of the business. A net liability (see Note 21) has been
recorded reflecting an accrual of the expected loss on the option, offset by the
remaining carrying value of Rose Hills.

In 1998, 1997 and 1996 the Company recognized income of $6,535,000,
$6,566,000 and $464,000, relating to its investment in Rose Hills, excluding the
1998 investment impairment and contingent loss.

52
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 5. INVESTMENTS (CONTINUED)
Summarized financial data for Rose Hills are presented as follows:

<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Income statement information:
Revenue.................................................................... $ 83,577 $ 70,645 $ 7,080
Gross margin............................................................... 69,814 59,900 5,982
Earnings from operations................................................... 19,538 14,738 1,327
Payment-in-kind dividend................................................... 9,568 8,708 932
Net loss attributable to common shareholders............................... (8,534) (10,476) (1,460)

Balance sheet information:
Current assets............................................................. $ 23,011 $ 20,400 $ 21,272
Non-current assets......................................................... 298,922 292,198 296,562
---------- ---------- ----------
Total assets............................................................... 321,933 312,598 317,834

Current liabilities........................................................ 20,488 15,221 15,510
Non-current liabilities.................................................... 173,153 170,119 173,298
---------- ---------- ----------
Total liabilities.......................................................... 193,641 185,340 188,808

Shareholders' equity....................................................... 128,292 127,258 129,026
</TABLE>

The Company was a party to a joint venture for investment purposes. The
investment balance represented the Company's proportionate share of the joint
venture's investment in credit card receivables. In 1998, the investment
matured, the joint venture's liabilities were repaid and the joint venture was
liquidated.

NOTE 6. INSURANCE INVESTED ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------- ----------------------
CARRYING MARKET CARRYING MARKET
VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Fixed maturities................................................. $ 246,576 $ 251,454 $ 281,659 $ 290,200
Equity securities................................................ 80 44 110 55
Short-term investments and other................................. 20,005 20,005 23,841 23,841
---------- ---------- ---------- ----------
$ 266,661 $ 271,503 $ 305,610 $ 314,096
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>

On the insurance invested assets, the Company earned $21,349,000 of
investment income for the year ended December 31, 1998 (1997 -- $23,847,000).
Included in the market value of insurance invested assets are $6,942,000 and
$2,100,000 of unrealized gains and losses, respectively (1997 -- $8,947,000 and
$461,000, respectively).

53
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 6. INSURANCE INVESTED ASSETS (CONTINUED)
Maturities of fixed maturity securities, excluding mortgage-backed
securities and collateralized mortgage obligations, are estimated as follows:
$6,853,000 due in one year or less (1997 -- $6,081,000), $25,667,000 due in one
to five years (1997 -- $30,576,000), $67,598,000 due in five to ten years
(1997 -- $81,005,000), and $72,843,000 due after ten years
(1997 -- $52,929,000). Maturities on a market value basis are approximately the
same as the amortized cost basis at December 31, 1998. The Company had
approximately $73,615,000 (1997 -- $111,068,000) in mortgage-backed securities
and collateralized mortgage obligations at December 31, 1998 with a market value
of $76,649,000 (1997 -- $115,015,000).

NOTE 7. PREARRANGED FUNERAL SERVICES

Prearranged funeral services represents amounts deposited in accordance with
state trusting laws with various financial institutions together with accrued
earnings. The Company will receive the prearranged funeral trust amounts when
the funeral services are performed. The funds deposited in trust are invested as
follows:

<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Short-term investments.................................................................... $ 151,113 $ 145,365
Fixed maturities.......................................................................... 142,385 92,555
Balanced mutual funds..................................................................... 1,419 123,080
Equity securities......................................................................... 65,268 14,970
Insurance policies held by trust.......................................................... 52,844 32,552
Other..................................................................................... 905 1,857
---------- ----------
$ 413,934 $ 410,379
---------- ----------
---------- ----------
</TABLE>

The weighted average rate of return on the above prearranged funeral trust
assets for the year ended December 31, 1998 was 3.0% (1997 -- 3.8%,
1996 -- 5.2%).

NOTE 8. DEBT

CURRENT INDEBTEDNESS

In September 1998, a subsidiary of the Company obtained a $98,039,000
revolving receivables finance facility (the "Receivables Finance Facility")
through a subsidary of one of its bank lenders. Under the terms of the
agreement, new receivables are added to the pool each month to offset
collections from existing receivables. Another subsidiary of the Company
services, administers and collects the receivables. The Receivables Finance
Facility contains certain covenants and provides for various events of
termination. This facility is secured by a pledge of the cemetery receivables
held by the subsidiary and as of September 15, 1999 no further receivables can
be added to the pool. At December 31, 1998 the balance outstanding on the
Receivables Finance Facility was $66,222,000, which represents the maximum
amount available to the Company based on eligible receivables which secure the
loan. The Receivables Finance Facility bears interest at a floating rate based
on commercial paper rates (December 31, 1998 -- 5.51%). The Receivables Finance
Facility is also subject to a commitment fee ranging from 1.10%-3.25% of the
total facility amount, depending on certain financial ratios.

54
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 8. DEBT (CONTINUED)
LONG-TERM DEBT

<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Bank credit agreement................................................................. $ 330,000 $ 264,729
Management Equity Investment Plan ("MEIP") bank term credit agreement due in 2000..... 97,292 105,140
9.62% Series D senior amortizing notes due in 2003.................................... 42,857 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)........................... 130,676 139,948
7.20% Series 6 senior notes due in 2003............................................... 200,000 --
7.60% Series 7 senior notes due in 2008............................................... 250,000 --
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%, see Note 23........................................ 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........................................................................ 116,400 119,058
------------ ------------
2,268,014 1,793,934
Less current portion:
Bank credit agreement............................................................... 330,000 --
MEIP bank term credit agreement due in 2000......................................... 97,292 --
9.62% Series D senior amortizing notes due in 2003.................................. 42,857 7,143
6.49% Series E senior amortizing notes due in 2004.................................. 42,857 8,572
6.70% PATS senior notes............................................................. 300,000 --
Present value of notes issued for legal settlements discounted at an effective
interest rate of 7.75%............................................................ 21,450 998
Present value of contingent consideration payable on acquisitions discounted at an
effective interest rate of 8.0%, see Note 23...................................... 14,947 4,730
Other............................................................................... 24,720 22,064
------------ ------------
874,123 43,507
------------ ------------
$ 1,393,891 $ 1,750,427
------------ ------------
------------ ------------
</TABLE>

(a) The Company completed negotiations with the lenders under the Credit
Agreements resulting in revised lending agreements, effective March 31,
1999, including waivers of certain financial covenants as of December 31,
1998. As a result, the Company has not had an event of default of the
covenants under the Credit Agreements. The revised lending agreements:

55
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 8. DEBT (CONTINUED)
- Increase effective interest rates or applicable margins;

- Amend certain existing financial covenants and add other financial
covenants;

- Require refinancing of the PATS senior notes on terms satisfactory to
the lenders party to the Credit Agreements by September 15, 1999;

- Require the appointment of a financial advisor on behalf of lenders and
increased reporting and monitoring;

- Require the suspension of all Common share, Preferred share and MIPS
dividend payments;

- Restrict further acquisitions and equity repurchases;

- Limit capital expenditures and expenditures for development of cemetery
land to $60,000,000 for 1999; and

- Permit additional asset sales subject to certain terms and conditions.

The debt relating to the Credit Agreements and the PATS senior notes have
been classified as current liabilities. The Series 1 to 7 Senior Notes have
been classified as non-current liabilities but have cross default clauses
that could accelerate payment if covenants in the Credit Agreements and PATS
senior notes are not met and the lenders thereunder accelerate payment under
those agreements.

(b) In 1996, the Company, LGII and their senior lenders entered into a
collateral trust agreement pursuant to which the senior lenders share
certain collateral and guarantees on a pari passu basis (the "Collateral
Trust Agreement"). The security for lenders under the Collateral Trust
Agreement consists of (i) all of LGII's right, title and interest in and to
all rights to receive payment under or in respect of accounts, contracts,
contractual rights, chattel paper, documents, instruments and general
intangibles, (ii) a pledge of the shares of capital stock of substantially
all of the subsidiaries in which the Company directly or indirectly holds
more than a 50% voting or economic interest and (iii) a guarantee by each
subsidiary that is pledging stock. The security is held by a trustee for the
equal and ratable benefit of the senior lending group. The senior lending
group consists principally of the lenders under the senior amortizing notes,
senior notes and bank and term credit agreements as well as the holders of
certain letters of credit. At December 31, 1998, the indebtedness owed to
the senior lending group subject to the collateral trust agreement,
including holders of certain letters of credit, aggregated $2,108,000,000.

Certain of the above senior note 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 and limiting the amount of additional debt. The senior
notes also provide for a default in the event of the acceleration of certain
other debt.

(c) In March 1998, the Company amended its $1,000,000,000 bank credit agreement.
As part of the amendment, the 364-day tranche was terminated and the
$750,000,000 tranche was reduced to a $600,000,000 bank credit agreement
with a three-year term. On March 31, 1999 the Company further amended its
bank credit agreement (see Note 8(a)).

56
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 8. DEBT (CONTINUED)
The Company's bank credit agreement and MEIP bank term credit agreement bear
interest at floating rates (7.31% at December 31, 1998), based on U.S. LIBOR
rates or the prime lending rates of certain banks, plus an applicable
margin.

(d) The PATS senior notes are due in 2009, however they 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 bear interest at a rate of
6.70% until October 1, 1999, at which time, if no redemption election
occurs, the interest rate will be reset at a fixed annual rate of 6.05% plus
an adjustment equal to the Company's then current credit spread to the
ten-year United States Treasury rate (see Note 16(h)).

(e) In September 1998, the Company's Cdn. $50,000,000 revolving credit agreement
was terminated. 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. In March 1999, the Series D senior
amortizing notes were amended to defer the September 1999 principal payment
of $8,571,000 to January 2000.

(f) In May 1998, LGII completed a private placement in the United States of
$200,000,000 of 7.20% Series 6 Senior Guaranteed Notes due 2003 (the "Series
6 senior notes") and $250,000,000 of 7.60% Series 7 Senior Guaranteed Notes
due 2008 (the "Series 7 senior notes"). The net proceeds from the Series 6
and 7 senior notes were used to repay indebtedness outstanding under the
bank credit agreement. In September 1998, these notes were exchanged for
identical notes registered under the Securities Act of 1933.

(g) The notes issued under legal settlements represent a promissory note in the
amount of $80,000,000 payable over 20 years in equal annual installments of
$4,000,000, without interest. Interest is accrued on the discounted amount
and is included in accounts payable and accrued liabilities. Annual payments
will eliminate this accrual and the balance will be applied to the
promissory note.

(h) Included in interest expense is $26,581,000 of amortization and write-offs
of debt issue costs (1997 -- $6,802,000, 1996 -- $4,096,000)

(i) Maturities of long-term debt are as follows:

<TABLE>
<CAPTION>
TOTAL
------------
<S> <C>
1999........................................................ $ 874,123
2000........................................................ 23,329
2001........................................................ 370,053
2002........................................................ 144,136
2003........................................................ 563,056
Thereafter.................................................. 293,317
------------
$ 2,268,014
------------
------------
</TABLE>

NOTE 9. PREFERRED SECURITIES OF SUBSIDIARY

On August 15, 1994, 3,000,000 9.45% Cumulative Monthly Income Preferred
Securities, Series A ("MIPS") were issued by Loewen Group Capital, L.P. ("LGC")
in a public offering for an aggregate

57
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 9. PREFERRED SECURITIES OF SUBSIDIARY (CONTINUED)
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>
1997 1996
1998 ------------ ------------
------------ (RESTATED -- (RESTATED --
NOTE 3) NOTE 3)
<S> <C> <C> <C>
Income statement information
Revenue............................................................... $ 1,072,556 $ 1,035,099 $ 839,352
Gross margin.......................................................... 275,139 305,764 293,636
Earnings (loss) from operations....................................... (217,088) 120,622 179,522
Net loss.............................................................. (635,912) (78,750) (3,107)

Balance sheet information
Current assets........................................................ $ 236,014 $ 244,552 $ 223,388
Non-current assets.................................................... 3,904,500 3,965,795 3,084,990
------------ ------------ ------------
Total assets.......................................................... 4,140,514 4,210,347 3,308,378

Current liabilities................................................... 1,207,708 172,371 156,290
Non-current liabilities............................................... 3,237,888 3,737,722 2,958,334
------------ ------------ ------------
Total liabilities..................................................... 4,445,596 3,910,093 3,114,624

Shareholders' equity (deficiency)..................................... (305,082) 300,254 193,754
</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.

In March, 1999 the Company announced that payment of the MIPS dividends had
been deferred (see Note 24).

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.

58
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 10. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND FAIR VALUE OF
FINANCIAL INSTRUMENTS

The Company enters into derivative transactions with financial institutions
primarily as hedges of other financial transactions. The Company does not trade
in financial instruments and is not a party to leveraged derivatives.

(a) SWAP AGREEMENTS AND INTEREST RATE OPTIONS

(1) Three interest rate swap agreements with commercial banks and financial
institutions, each having a notional principal amount of $25,000,000. The
Company will receive floating Libor based rates determined quarterly (5.253%
at December 31, 1998) and will pay fixed rates of 5.755%, 6.200% and 6.190%
under the agreements. The agreements expire in June 1999, June 2001 and June
2001, respectively.

(2) Two interest rate swap agreements with commercial banks, having an aggregate
notional principal amount of Cdn. $70,000,000. The Company will receive a
fixed rate of 6.100% and will pay floating Bankers Acceptance based rates
determined quarterly (5.9218% at December 31, 1998). The agreements expire
in October 2002.

(3) A perpetual cross-currency swap with a commercial bank, having a notional
principal amount of $10,921,000 and GBP 6,700,000. The exchange rate is
reset every 5 years, beginning November, 2003. The Company will receive
floating $US Libor determined quarterly (5.20% at December 31, 1998) and
will pay floating GBP Libor plus .04% (6.79% at December 31, 1998)
determined quarterly.

The Company is exposed to credit losses in the event of non-performance by
the other parties to the interest rate and currency swap agreements. However,
the Company does not anticipate non-performance by the counterparties. The
carrying amounts of the interest rate and currency swap agreements approximate
fair values at December 31, 1998.

(b) FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of cash and term deposits, current receivables, current
indebtedness, accounts payable and accrued liabilities and liabilities of joint
venture approximates fair value due to the short-term maturities of these
instruments. The fair value of insurance policy liabilities has been omitted
because it is

59
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 10. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND FAIR VALUE OF
FINANCIAL INSTRUMENTS (CONTINUED)
not practicable to determine fair values with sufficient reliability. Financial
instruments with a carrying value materially different from their fair value
include:

<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------------- --------------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
(1) Financial assets
Prearranged funeral services......................... $ 413,934 $ 415,759 $ 410,379 $ 415,966
Insurance invested assets............................ 266,661 271,503 305,610 314,096
Long-term receivables
Practicable to estimate fair value................. 391,842 399,943 275,866 278,415
Not practicable.................................... 255,250 -- 277,797 --

(2) Financial liabilities
Long-term debt....................................... $ 2,268,014 $ 2,008,634 $ 1,793,934 $ 1,833,203
Preferred securities of subsidiary................... 75,000 57,938 75,000 81,375
</TABLE>

The fair value determination of prearranged funeral services, insurance
invested assets and long-term receivables is based on quoted market prices. The
long-term receivables for which it is not practicable to estimate fair value
comprise primarily installment receivables on cemetery sales, which generally
have terms of three to five years and bear interest ranging from 8% to 15%.

The fair value of long-term debt subject to fixed interest rates is
estimated by discounting the future cash flows, including interest payments,
using rates currently available for debt of similar terms and maturity, based on
the Company's credit standing and other market factors. The fair value of
long-term debt subject to floating market rates approximates its carrying value.
The fair value of the preferred securities of a subsidiary is estimated based
upon quoted market prices.

60
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 11. SHARE CAPITAL

(a) AUTHORIZED

200,000,000 (1997 -- 200,000,000) First Preferred shares without par value

40,000,000 (1997 -- 40,000,000) Class A shares without par value

750,000,000 (1997 -- 750,000,000) Common shares without par value

Of the 200,000,000 First Preferred shares, 1,000,000 shares are designated
as 7.75% Cumulative Redeemable Convertible First Preferred Shares without par
value, Series A, 425,000 shares are designated as Convertible First Preferred
Shares, Series B, see Note 11(c), and 8,800,000 shares are designated as 6.00%
Cumulative Redeemable Convertible First Preferred Shares, Series C ("Series C
Preferred shares") (see Note 11(c)).

(b) ISSUED AND OUTSTANDING

<TABLE>
<CAPTION>
NUMBER OF
SHARES STATED VALUE
------------ ------------
<S> <C> <C>
Common shares and contributed surplus
Outstanding December 31, 1995......................................................... 48,167,765 $ 490,055
Issued for cash by public offering, net of expenses of $5,558,000................... 7,700,000 216,576
Issued for legal settlements........................................................ 2,500,000 72,000
Issued for cash on exercise of stock options, including related tax benefits........ 315,583 5,214
Issued for cash under stock purchase plan........................................... 20,850 708
Issued for acquisitions............................................................. 340,537 11,651
Issued under employee stock bonus plan.............................................. 12,280 227
------------ ------------
Outstanding December 31, 1996......................................................... 59,057,015 796,431
Issued for cash by public offering, net of expenses of $10,402,000.................. 13,800,000 445,136
Issued for cash on exercise of stock options, including related tax benefits........ 181,086 4,813
Issued for cash under stock purchase plan........................................... 56,625 1,630
Issued for acquisitions, see Note 4................................................. 807,161 23,001
Issued under employee stock bonus plan.............................................. 9,010 166
------------ ------------
Outstanding December 31, 1997......................................................... 73,910,897 1,271,177
Issued for cash on exercise of stock options, including related tax benefits........ 54,876 1,092
Issued for cash under stock purchase plan........................................... 18,425 650
Issued for acquisitions, see Note 4................................................. 64,007 1,085
Issued under employee stock bonus plan.............................................. 7,885 92
------------ ------------
Outstanding December 31, 1998......................................................... 74,056,090 $ 1,274,096
------------ ------------
------------ ------------
Preferred shares
Series C Preferred shares........................................................... 8,800,000 $ 157,146
------------ ------------
------------ ------------
</TABLE>

First Preferred shares may be issued from time to time in one or more series
and in such numbers and with such special rights and restrictions as the
directors of the Company determine.

61
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 11. SHARE CAPITAL (CONTINUED)
During 1994, as part of the Management Equity Investment Plan, 425,000
shares were designated as Convertible First Preferred shares, Series B of the
Company. Each Convertible First Preferred share is convertible into ten Common
shares at any time prior to July 13, 2011. No Series B Preferred shares have
been issued.

The Series C Preferred shares were issued for cash of $157,146,000 by public
offering, net of expenses of $3,776,000, in 1996. The holders of Series C
Preferred shares will have the right at any time before January 1, 2003, to
convert each Series C Preferred share into that number of Common shares
determined by dividing Cdn. $25.00 by Cdn. $38.125. Thereafter, a holder of
Series C Preferred shares will have the right on January 1, 2003, and on the
first business day of each quarter thereafter, to convert all or part of such
Series C Preferred shares into that number of Common shares determined by
dividing Cdn. $25.00 plus accrued and unpaid dividends by the greater of Cdn.
$3.00 and 95% of the Current Market Price (as defined) on the date of
conversion.

The holders of the Series C Preferred shares are entitled, as and when
declared by the Board of Directors, to a fixed preferential cumulative cash
dividend of 6% per year, payable quarterly.

The Series C Preferred shares will not be redeemable by the Company prior to
July 1, 1999.

On or after July 1, 1999, the Series C Preferred shares will be redeemable
by the Company, upon giving not less than 30 days notice, at a redemption price
equal to Cdn. $25.00 per share together with accrued and unpaid dividends. Prior
to July 1, 2001, the redemption will only be effected by the issuance of Common
shares, determined by dividing the redemption price by the greater of Cdn. $3.00
and 95% of the Current Market Price at the date of redemption. On and after July
1, 2001, the redemption may be effected by the issuance of Common shares or
payment of a cash amount.

In the event of the liquidation, dissolution or winding up of the Company or
other distribution of assets of the Company among its shareholders for the
purpose of winding up its affairs, the holders of the Series C Preferred shares
shall be entitled to receive the redemption price before any amounts are paid to
the holders of Common shares or any other class of shares ranking junior to the
Series C Preferred shares.

In March 1999, the Company deferred the quarterly dividend payment on the
Series C Preferred shares (see Note 24).

(d) MANAGEMENT EQUITY INVESTMENT PLAN ("MEIP")

4,250,000 Common shares of the Company were reserved upon adoption by the
Company of the MEIP on June 15, 1994. Senior Exchangeable Debentures amounting
to $127,670,000 were issued by LGII to a wholly-owned subsidiary of LGII formed
to act as agent for the MEIP. The Debentures are due July 15, 2001 and bear
interest at floating rates. Each $300.40 of principal amount of Debentures will
be exchangeable for one Convertible First Preferred share, Series B of the
Company, each of which will be convertible into ten Common shares of the
Company. As part of the MEIP, the present participants paid $2,869,000
(1997 -- $3,281,000) for option rights to acquire $57,382,000
(1997 -- $65,613,000) of Debentures exercisable as to 50% in 1999, 25% in 2000
and 25% in 2001. If an option expires unexercised, the participant will receive
a refund without interest of the amount paid to acquire such option right. In

62
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 11. SHARE CAPITAL (CONTINUED)
addition, the former Chairman paid $2,253,000 for the right and obligation to
acquire $45,060,000 of Debentures with the same exercise dates.

(e) SHAREHOLDER PROTECTION RIGHTS PLAN

The Company has in place a Shareholder Protection Rights Plan (the "Plan"),
which is meant to discourage unfair takeover bid tactics and to give the Board
of Directors time, if there is an unsolicited bid, to pursue alternatives to
maximize shareholder value. To preserve the shareholders' right to consider
takeover bids on a fully-informed basis, the Plan provides that a bidder's
position may be substantially diluted if it does not make either a "permitted
bid" directly to all shareholders or negotiate with the Board for a waiver of
the Plan's provisions. The Plan expires on April 20, 2000.

Under the Plan, each Common shareholder is entitled to receive one right in
certain situations. The rights however will not trade separately from the Common
shares unless a takeover bid is announced or someone, excluding "Grandfathered
Persons," acquires 20% of the Common shares. To the Company's knowledge, only
Raymond L. Loewen and Anne Loewen are Grandfathered Persons.

The rights issued to Common shareholders under the Plan entitle the holder,
upon the occurrence of certain triggering events, to acquire Common shares in
the Company at a 50% discount to the market. Triggering events include the
acquisition of 20% or more of the Common shares in a transaction not approved by
the Board of Directors. However, the rights are not triggered by certain
permitted bids that are made to all holders of Common shares and that are
approved by a majority vote of independent shareholders.

By creating the potential for substantial dilution of an unfair bidder's
position, the Plan encourages an acquirer to proceed by way of a permitted bid
or to approach the Board with a view to negotiation. The Plan's permitted bid
provision allows bidders to take bids directly to all the shareholders. The Plan
thus preserves the shareholder's right to consider such bids on a fully-informed
basis. The Company, at the time of the adoption of the Plan, was not aware of
any pending or threatened takeover bid for the Company.

There are exceptions to the Plan to permit the acquisition of shares by (i)
persons who held more than 20% of the Common shares on April 20, 1990, subject
to certain restrictions, and (ii) registered pension plans whose governing
legislation prohibits them from holding more than 30% and who are acquiring the
Common shares independently for investment.

(f) STOCK OPTION PLANS

The Company has separate fixed stock option plans for its United States and
Canadian employees which enable the Company to grant options to its employees
and directors. The option plans are administered by the Compensation Committee
of the Company's Board of Directors. Each participant enters into an option
agreement which sets forth, among other things, the number of options granted,
the exercise price and the vesting conditions of the options. The exercise price
of an option may not be less than the market price of the Company's stock on the
trading day immediately prior to the grant date and in no event may an option
terminate later than ten years after the grant date of such option.

63
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 11. SHARE CAPITAL (CONTINUED)
A summary status of the Company's fixed stock option plans and changes
during the two years ended December 31, 1998, are as follows:

<TABLE>
<CAPTION>
1998 1997
------------------------------ -----------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
STOCK OPTIONS SHARES EXERCISE PRICE SHARES EXERCISE PRICE
- ---------------------------------------------------------- ----------- ----------------- ---------- -----------------
<S> <C> <C> <C> <C>
Outstanding beginning of year............................. 5,781,704 $ 26 4,417,517 $ 25
Options granted......................................... 1,139,365 18 1,639,408 30
Options exercised....................................... (58,094) 22 (175,641) 23
Options cancelled....................................... (2,293,902) 21 (99,580) 31
----------- ----------
Outstanding end of year................................... 4,569,073 $ 26 5,781,704 $ 26
----------- ----------
----------- ----------
Options exercisable at end of year........................ 2,272,916 3,043,129
</TABLE>

The following table summarizes information about the Company's fixed stock
options outstanding at December 31, 1998:

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER REMAINING
OUTSTANDING AT CONTRACTUAL LIFE WEIGHTED AVERAGE
OPTIONS OUTSTANDING DECEMBER 31, 1998 (IN YEARS) EXERCISE PRICE
- ---------------------------------------------------------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Range of exercise prices
$ 5.50 - $22.28................................................. 794,950 7.3 $ 13
22.29 - 27.85.................................................. 1,686,489 7.6 26
27.86 - 33.42.................................................. 1,822,134 7.4 30
33.43 - 45.00.................................................. 265,500 7.3 36
-----------------
4,569,073 7.5 $ 26
-----------------
-----------------
</TABLE>

<TABLE>
<CAPTION>
NUMBER
OUTSTANDING AT WEIGHTED AVERAGE
OPTIONS EXERCISABLE DECEMBER 31, 1998 EXERCISE PRICE
- ---------------------------------------------------------------- ----------------- -----------------
<S> <C> <C> <C>
Range of exercise prices
$ 5.50 - $22.28................................................. 349,950 $ 17
22.29 - 27.85.................................................. 993,924 26
27.86 - 33.42.................................................. 802,534 29
33.43 - 45.00.................................................. 126,508 36
-----------------
2,272,916 $ 26
-----------------
-----------------
</TABLE>

NOTE 12. FOREIGN EXCHANGE ADJUSTMENT

The foreign exchange adjustment account represents the net changes due to
exchange rate fluctuations in the equivalent United States dollar book values of
the Company's net investments in self-sustaining non-United States operations
since their respective dates of acquisition.

64
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 13. LEGAL CONTINGENCIES

FELDHEIM ET AL. v. SI-SIFH CORP. ET AL. AND DUFFY ET AL. v. SI-SIFH CORP ET AL.

On August 26, 1998, defendants sought dismissal of all of plaintiffs'
remaining individual claims in FELDHEIM. The trial court has not yet ruled on
that request.

65
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 13. LEGAL CONTINGENCIES (CONTINUED)
On September 21, 1998, plaintiffs in FELDHEIM filed an "Amended Petition for
Attorneys Fees," which contends that the plaintiffs' lawyers are entitled to an
unspecified sum of attorneys' fees. Defendants will respond shortly to that
amended petition.

As of the date hereof, no discovery has taken place.

LUENING, ET AL. v. SI-SIFH CORP., ET AL.

66
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 13. LEGAL CONTINGENCIES (CONTINUED)
On October 22, 1998, plaintiffs in LUENING filed a "First Amended Petition
for Damages." In response to the First Amended Petition, on October 19, 1998
defendants removed the LUENING case to federal court on diversity-of-citizenship
grounds. The federal court subsequently remanded the case to state court. As of
the date hereof, no discovery has taken place.

On January 29, 1999, the state court heard argument on the plaintiffs'
motion to compel discovery and the Company's exceptions of venue and RES
JUDICATA. On February 3, 1999, the court denied both exceptions and granted the
motion to compel discovery, ruling that the dismissal of the class action claims
in the FELDHEIM and DUFFY cases did not operate to bar this particular sub-class
of potential plaintiffs. On February 26, 1999, the Company filed supervisory
writs on these rulings, and requested a stay of the discovery ruling pending a
decision on the writ application. On March 1, 1999, the Fourth Circuit Court of
Appeals stayed all further legal proceedings and discovery in the trial court
and ordered the plaintiffs to respond to the Company's writ application on an
expedited basis. The Fourth Circuit granted the Company's writ application on
March 25, 1999, finding that under the RES JUDICATA doctrine as stated in the
Fourth Circuit's DUFFY decision, relitigation of the plaintiffs' class action
claims was forever barred in Louisiana courts by denial of the class
certification in the FELDHEIM case. Accordingly, the Fourth Circuit reversed the
trial court's denial of the Company's RES JUDICATA exception, while recognizing
that individual plaintiffs' claims could proceed in St. Bernard Parish. It also
remanded the case to the trial court for a hearing on the plaintiffs' motion to
compel discovery, but it instructed that any discovery requests that are not
related to the individual plaintiffs' claims should be denied.

On March 29, 1999 the LUENING plaintiffs filed an application for writ of
certiorari with the Louisiana Supreme Court, and asked that the writ application
be consolidated with the application for writ of certiorari filed by the DUFFY
plaintiffs. The Company intends to file an opposition to the application.

THE LOEWEN GROUP INC. ET AL. v. THE UNITED STATES OF AMERICA

67
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 13. LEGAL CONTINGENCIES (CONTINUED)
SECURITIES CLASS ACTIONS

The complaints generally make allegations concerning, among other things,
Loewen's internal controls, accounting practices, financial disclosures and
acquisition practices. The Loewen Defendants have filed a motion with the
Judicial Panel on Multidistrict Litigation (the "MDL Panel") to consolidation
all of the actions for pretrial coordination in the United States District Court
for the Eastern District of Pennsylvania. Counsel for the plaintiffs in the
actions currently pending in the Eastern District of New York have filed a
written stipulation with the MDL Panel agreeing to the transfer of their cases
to the Eastern District of Pennsylvania. The MDL Panel has not ruled. By
agreement, the Loewen Defendants' responses to all complaints currently are due
by April 26, 1999.

The Pennsylvania cases have all been assigned to Judge Thomas O'Neill.
Plaintiffs have filed a stipulated motion seeking appointment of the City of
Philadelphia Board of Pensions as lead plaintiff. The Company anticipates that
all of the Pennsylvania cases will be consolidated and that, when and if
transferred, the New York cases will also be consolidated. It is expected that
the lead plaintiff will, when appointed, file a Consolidated and Amended
Complaint, to which the defendants will be required to respond.

Additional class action complaints containing similar allegations may be
filed in the future.

68
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 13. LEGAL CONTINGENCIES (CONTINUED)
The Company has determined that it is not possible at this time to predict
the final outcome of these proceedings or to establish a reasonable estimate of
possible damages, if any, or reasonably to estimate the range of possible
damages that may be awarded to the plaintiffs. Accordingly, no provision with
respect to these lawsuits has been made in the Company's consolidated financial
statements.

F. LEO GROFF, INC. ET AL. v. RESTLAWN MEMORIAL GARDENS, INC. ET AL.

FLANAGAN

69
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 13. LEGAL CONTINGENCIES (CONTINUED)
Ms. Flanagan's complaint also contains causes of action for breach of
contract in connection with the Share Purchase Agreement and in connection with
employment and consulting agreements entered into at the time of the Share
Purchase Agreement. Additionally, Ms. Flanagan alleges causes of action for
intentional and negligent misrepresentation and declaratory relief.

OTHER

NOTE 14. RESTRUCTURING COSTS

During 1997, the Company recorded pre-tax charges of $33,400,000
($21,500,000 after tax), for restructuring associated with the Company's efforts
to more fully integrate its field and administrative operations and improve
long-term financial performance. The restructuring charges primarily consisted
of $19,400,000 related to the severance of approximately 545 employees in
operating locations where consolidation and clustering synergies were not being
achieved, $7,500,000 associated with the closure of the Company's Covington,
Kentucky corporate office and $6,000,000 of asset write-downs related to
realignment or elimination of under-performing locations.

70
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 14. RESTRUCTURING COSTS (CONTINUED)

Actual severance paid, including to the Covington office employees, at
December 31, 1997 was $15,900,000. The remaining liability for severance of
$5,200,000, which primarily relates to benefit or salary continuance
arrangements, was fully extinguished in 1998.

NOTE 15. IMPAIRMENT OF LONG-LIVED ASSETS

Due to severe liquidity constraints and the need to generate cash in late
1998, the Company identified certain properties which it would consider selling
at their fair value.

On March 31, 1999 one group of properties consisting of 124 cemeteries and
three funeral homes was sold for gross proceeds of $193,000,000 (see Notes 1 and
24). Two smaller groups of properties are considered as probable for sale.

The Company has recorded a pre-tax impairment loss of $333,900,000 in 1998
on individual properties contained in the above groups. In calculating the
impairment loss, the Company has used estimated cash flow from operations and
estimated cash proceeds on the sale of these properties. The impairment loss has
reduced cemetery property by $319,300,000, property and equipment by $4,000,000
and names and reputations by $10,600,000. The impairment loss is based on
management estimates and as a result, actual results could differ significantly
from these estimates.

Although the Company intends to consummate additional asset sales, it is not
committed to sell and has not identified any other properties for which sale is
probable, other than noted above. As a result, no additional impairment losses
have been recognized since future sales of other properties are not
determinable. Should additional properties be sold, losses, if any, could be
small or significant depending upon the type of property, location, cash flow
and prevailing market conditions.

During 1997, the Company recorded a charge to general and administrative
expenses for an impairment loss of $12,600,000, of which $6,400,000 was
non-cash, related to a write down of certain under-performing assets. The
impaired assets included $9,400,000 related to the termination of
non-competition agreements in markets where restrictive covenants no longer have
value to the Company and $3,200,000 of fixed assets and software costs related
to the streamlining of general and administrative functions and the change in
the Company's operating strategy.

71
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 16. COMMITMENTS AND CONTINGENCIES

(a) LEASES

At December 31, 1998, the Company was committed to operating lease payments
for premises, aircraft, automobiles and office equipment in the following
approximate amounts:

<TABLE>
<CAPTION>
TOTAL
---------
<S> <C>
1999............................................................................... $ 18,952
2000............................................................................... 15,500
2001............................................................................... 11,808
2002............................................................................... 10,086
2003............................................................................... 8,087
Thereafter......................................................................... 47,783
</TABLE>

Total rent expense for each of the years in the three year period ended
December 31, 1998 was $16,849,000, $18,268,000 and $12,626,000, respectively.

(b) COVENANTS NOT TO COMPETE

In connection with various acquisitions, the Company has entered into
non-competition agreements ("covenants not to compete") with certain key
management personnel of operations acquired. The Company's payments under the
agreements may be made at closing or over future periods and are expensed over
the terms of the specific contracts. At December 31, 1998, the agreements in
place will result in future payments in the following approximate amounts:

<TABLE>
<CAPTION>
TOTAL
---------
<S> <C>
1999............................................................................... $ 13,806
2000............................................................................... 14,472
2001............................................................................... 11,636
2002............................................................................... 10,560
2003............................................................................... 8,928
Thereafter......................................................................... 28,416
</TABLE>

The Company has guaranteed indebtedness of certain participants of the 1994
Management Equity Investment Plan aggregating $3,700,000 (1997 -- $3,500,000).
The guarantee exists until the termination of the Management Equity Investment
Plan on July 15, 2001.

(d) ENVIRONMENTAL CONTINGENCIES AND LIABILITIES

72
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 16. COMMITMENTS AND CONTINGENCIES (CONTINUED)
through extensive due diligence and corrective measures taken prior to and after
acquisition. Management endeavors to ensure that environmental issues are
identified and addressed in advance of acquisition or are covered by an
indemnity by the seller or an offset to the purchase price. On a continuing
basis, management assesses and evaluates environmental risk and, when necessary,
conducts appropriate corrective measures. The Company provides for environmental
liabilities using its best estimates. Actual environmental liabilities could
differ significantly from these estimates.

(e) EXECUTIVE SEVERANCE AGREEMENTS

The Company has executed severance agreements with certain key executives
and managers. Under the severance agreements, if there is a change in control of
the Company, the executive or manager becomes entitled to severance pay
amounting to one to three years compensation, and certain other benefits.

(f) CONTINGENCY RELATED TO POTENTIAL SALE OF ADDITIONAL PROPERTIES

The Company has identified and is implementing strategies that will generate
cash flow and improve its financial position. Such strategies include further
asset sales, such as the sale of 124 cemeteries and three funeral homes
completed on March 31, 1999 for gross proceeds of $193,000,000. The Company has
two smaller groups of properties which are considered probable for sale. The
Company has recorded a pre-tax impairment loss of $333,900,000 in 1998 on
individual properties contained in the above groups.

Although the Company intends to consummate additional asset sales, it is not
committed to sell and has not identified any other properties for which sale is
probable, other than noted above. As a result, no additional impairment losses
have been recognized since future sales of other properties are not
determinable. Should additional properties be sold, losses, if any, could be
small or significant depending upon the type of property, location, cash flow
and prevailing market conditions.

(g) CONTINGENCY RELATED TO POTENTIAL PURCHASE OF INVESTMENTS

The Company has identified and accrued for contingent losses arising from
the exercise of the Put/ Call Agreements in connection with its investments in
Prime and Rose Hills (see Note 5).

(h) CONTINGENCY RELATED TO PATS SENIOR NOTES

The PATS senior notes aggregating $300,000,000 are held by a trust for the
benefit of the holders of the pass-through asset trust securities due October 1,
1999. The trust has a put option that entitles the trust to redeem the PATS
senior notes on October 1, 1999 to refund the repayment of the pass-through
asset trust securities under circumstances where no funding is tendered pursuant
to a competitive bidding process. If the put option is exercised, the Company is
obligated to pay the trust for any loss with respect of an interest rate option
based on a 10 year U.S. treasury rate of 6.05% on October 1, 1999. At December
31, 1998, the option value was $29,300,000. The option value will change based
on changes in the 10 year U.S. treasury rate.

73
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 17. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE

The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect the Company's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
Company, including those related to efforts of customers, suppliers, or other
third parties, will be fully resolved.

NOTE 18. RETIREMENT PLANS

The Company has a defined contribution retirement plan covering
substantially all United States employees. There are no required future
contributions under this plan in respect of past service. The Company has a
401(K) Retirement Savings Plan for United States employees who may defer between
2% and 15% of their compensation. The Company will match 100% of employee
contributions to a maximum of 2% of employees' eligible compensation.

The Company has a Registered Retirement Savings Plan for Canadian employees
who may contribute 3% of their compensation which is matched by an equal
contribution to the plan by the Company on behalf of employees. There are no
required future contributions under these plans in respect of past service.

The total expense for retirement plans for the three years ended December
31, 1998 was $3,271,000, $3,222,000 and $2,318,000, respectively.

NOTE 19. INCOME TAXES

(a) EFFECTIVE TAX RATE

The Company's effective income tax rate is derived as follows:

<TABLE>
<CAPTION>
1998 1997 1996
--------- ------------- -------------
(RESTATED -- (RESTATED --
NOTE 3) NOTE 3)
% % %
<S> <C> <C> <C>
Combined Canadian federal and provincial income tax rate...................... (45.5) 45.5 45.5
Non-deductible costs of hostile takeover proposal............................. -- -- 7.9
Non-deductible amortization of goodwill arising from acquisitions............. 1.5 11.9 4.9
Non-deductible restructuring and other charges................................ 0.2 8.7 --
Equity and other earnings of associated companies at lower rates.............. (0.3) (11.6) (1.8)
Change in valuation allowance on future tax assets............................ 21.7 19.0 1.4
Foreign income taxed at lower rates and other taxes not based on income....... (1.2) (73.1) (31.8)
Other......................................................................... 2.1 1.4 0.1
--------- ----- -----
(21.5) 1.8 26.2
--------- ----- -----
--------- ----- -----
</TABLE>

74
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 19. INCOME TAXES (CONTINUED)
(b) FUTURE TAX ASSETS AND LIABILITIES

<TABLE>
<CAPTION>
1998
----------- 1997
-----------
(RESTATED --
NOTE 3)
<S> <C> <C>
Future tax liabilities
Long-term receivables................................................................ $ 60,384 $ 25,969
Cemetery property.................................................................... 303,003 374,759
Property and equipment............................................................... 61,204 65,465
Investments.......................................................................... -- 4,264
Insurance policy liabilities......................................................... 18,905 7,814
Other................................................................................ 24,522 11,130
----------- -----------
Total future tax liabilities......................................................... 468,018 489,401
----------- -----------
Future tax assets
Accounts payable and accrued liabilities............................................. $ 17,340 $ 8,249
Cemetery long-term liabilities....................................................... 34,649 34,672
Insurance assets..................................................................... 15,149 3,517
Legal settlements.................................................................... 15,517 15,911
Interest............................................................................. 150,614 82,349
Unrealized losses on investments in Prime and Rose Hills............................. 119,994 --
Deferred costs related to prearranged funeral services............................... 7,198 7,691
Share issue costs.................................................................... 8,414 13,099
Operating loss carryforwards......................................................... 63,050 22,887
Other................................................................................ 16,748 10,457
----------- -----------
Total future tax assets before valuation allowance................................... 448,673 198,832
Valuation allowance.................................................................. (177,591) (11,576)
----------- -----------
Total future tax assets after valuation allowance.................................... 271,082 187,256
----------- -----------
Net future tax liabilities........................................................... $ 196,936 $ 302,145
----------- -----------
----------- -----------
</TABLE>

Although realization of the Company's deferred tax assets is not assured,
management believes that it is more likely than not that reversals of future tax
liabilities provide sufficient taxable income to realize the future tax assets.
The Company's ability to realize its future tax assets is based on several
additional factors, including tax planning strategies to realize the benefit of
loss carryforwards and other tax assets in the amount of approximately
$12,500,000. The extent of valuation allowance required would likely be
adversely affected by future sales of subsidiaries. It is reasonably possible
that these estimates could change in the near term due to matters such as the
timing and manner of reversals of future tax liabilities, sales of operations,
and future income. During the year ended December 31, 1998, the Company
increased its valuation allowance by approximately $166,015,000
(1997 -- $8,077,000).

75
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 20. CHANGES IN OTHER NON-CASH BALANCES

Supplemental disclosures related to statements of cash flows consist of the
following:

<TABLE>
<CAPTION>
1997
1998 -----------
----------- (Restated
Note 3) 1996
-----------
(Restated
Note 3)
<S> <C> <C> <C>
(Increase) decrease in assets
Receivables, net of allowances........................................... $ 18,516 $ 3,365 $ (32,050)
Inventories.............................................................. 671 (1,371) (2,689)
Prepaid expenses......................................................... 2,630 892 (2,670)
Amounts receivable from cemetery merchandise trusts...................... (98,121) (89,944) (6,672)
Installment contracts, net of allowances................................. 6,481 (134,382) (64,652)
Cemetery property........................................................ (46,081) (34,924) 13,974
Deferred charges......................................................... (33,062) (42,497) (28,684)
Other assets............................................................. 12,753 4,405 (21,844)
Increase (decrease) in liabilities
Accrued settlements...................................................... -- -- (53,000)
Accounts payable and accrued liabilities................................. 14,908 39,746 20,517
Other liabilities........................................................ 8,635 13,887 5,417
Cemetery long-term liabilities........................................... (15,046) 22,268 441
Insurance policy liabilities............................................. 22,935 313 2,332
Other changes in non-cash balances......................................... 14,534 1,848 2,142
----------- ----------- -----------
$ (90,247) $ (216,394) $ (167,438)
----------- ----------- -----------
----------- ----------- -----------
Supplemental information
Interest paid............................................................ $ 174,628 $ 103,799 $ 91,000
Taxes paid............................................................... 15,226 44,282 21,180
Bad debt expense......................................................... 122,250 58,392 34,750

Non-cash investing and financing activities
Non-cash debt and share consideration on acquisitions.................... $ 25,395 $ 64,881 $ 62,711
Note receivable from sale of subsidiaries................................ -- 15,725 --
Common shares and debt issued for legal settlements...................... -- -- 112,000
Properties contributed to Rose Hills including unrealized gain thereon... -- -- 23,000
</TABLE>

76
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 21. SUPPLEMENTARY FINANCIAL INFORMATION

A summary of certain balance sheet accounts as at December 31, is as
follows:

<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
(RESTATED --
NOTE 3)
Receivables, net of allowances
Trade accounts...................................................................... $ 101,051 $ 96,529
Installment contracts............................................................... 158,884 132,701
Other............................................................................... 59,213 72,120
Unearned finance income............................................................. (30,404) (17,475)
Allowances for contract cancellations and doubtful accounts......................... (67,065) (32,869)
------------ ------------
$ 221,679 $ 251,006
------------ ------------
------------ ------------
Long-term receivables, net of allowances
Notes receivable.................................................................... $ 11,999 $ 12,547
Amounts receivable from cemetery merchandise trusts................................. 392,148 297,739
Installment contracts............................................................... 353,054 305,144
Unearned finance income............................................................. (53,217) (41,655)
Allowances for contract cancellations and doubtful accounts......................... (56,892) (20,112)
------------ ------------
$ 647,092 $ 553,663
------------ ------------
------------ ------------
Cemetery property
Developed land and lawn crypts...................................................... $ 216,029 $ 195,597
Undeveloped land.................................................................... 887,161 1,058,989
Mausoleums.......................................................................... 132,657 78,401
------------ ------------
$ 1,235,847 $ 1,332,987
------------ ------------
------------ ------------
Property and equipment
Land................................................................................ $ 174,366 $ 171,060
Buildings and improvements.......................................................... 547,218 504,722
Automobiles......................................................................... 80,940 75,970
Furniture, fixtures and equipment................................................... 154,182 138,534
Computer hardware and software...................................................... 41,900 34,486
Leasehold improvements.............................................................. 16,082 14,363
Accumulated depreciation and amortization........................................... (188,703) (141,957)
------------ ------------
$ 825,985 $ 797,178
------------ ------------
------------ ------------
Names and reputations
Names and reputations............................................................... $ 775,865 $ 672,613
Covenants not to compete............................................................ 81,855 71,666
Accumulated amortization............................................................ (109,055) (75,701)
------------ ------------
$ 748,665 $ 668,578
------------ ------------
------------ ------------
</TABLE>

77
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 21. SUPPLEMENTARY FINANCIAL INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
1998 1997
------------ ------------
(RESTATED --
NOTE 3)
<S> <C> <C>
Other assets
Deferred debt issue costs........................................................... $ 23,709 $ 33,182
Deferred direct obtaining costs..................................................... 102,632 83,714
Cemetery management contracts....................................................... 13,413 --
Other............................................................................... 21,364 39,740
------------ ------------
$ 161,118 $ 156,636
------------ ------------
------------ ------------
Accounts payable and accrued liabilities
Trade payables...................................................................... $ 46,210 $ 42,447
Interest............................................................................ 38,686 38,413
Dividends........................................................................... 2,154 7,391
Insurance, property and business taxes.............................................. 6,353 7,013
Other............................................................................... 76,731 64,944
------------ ------------
$ 170,134 $ 160,208
------------ ------------
------------ ------------
Other liabilities
Cemetery long-term liabilities...................................................... $ 211,647 $ 219,663
Accrual for contingent loss (Note 5(a) and (b))..................................... 128,333 --
Covenants not to compete............................................................ 20,540 17,434
Liabilities of joint venture (Note 5(c))............................................ -- 39,660
Regional partnership liabilities.................................................... 9,971 12,145
Participants' deposits in MEIP (Note 11(d))......................................... 5,120 5,508
Other............................................................................... 23,693 14,499
------------ ------------
$ 399,304 $ 308,909
------------ ------------
------------ ------------
</TABLE>

NOTE 22. SEGMENTED INFORMATION

The Company has adopted Section 1701, Segment Disclosures, of the Handbook
of the Canadian Institute of Chartered Accountants, which changes the way the
Company reports information about its operating segments. The information in
1997 and 1996 has been restated to conform to the 1998 presentation.

The Company's reportable segments are comprised of the three businesses it
operates, each of which offers different products and services: funeral homes,
cemeteries and insurance.

The funeral homes offer a full range of funeral services, encompassing the
collection of remains, registration of death, professional embalming, use of
funeral home facilities, sale of caskets and other merchandise, and
transportation to a place of worship, funeral chapel, cemetery or crematorium.
In addition to providing at-need funeral services, the Company provides advance
funeral planning services to it customers.

78
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 22. SEGMENTED INFORMATION (CONTINUED)
The cemeteries assist families in making burial arrangements and offer a
complete line of cemetery products (including a selection of burial spaces,
burial vaults, lawn crypts, caskets, memorials, niches and mausoleum crypts),
the opening and closing of graves and cremation services. The majority of
cemetery revenue is from pre-need sales.

The insurance companies sell a variety of life insurance products, primarily
to fund funeral services purchased through a pre-need arrangement. The funeral
home companies sell insurance contracts on behalf of the Company's insurance
operations for which they receive commission revenue. In 1998, the inter-company
commissions amounted to $3,717,000 and were eliminated in the Company's
consolidated financial statements.

The accounting policies of the segments are the same as those described in
the summary of significant accounting policies (see Note 2). The Company sells
primarily to external customers, though any intersegment sales or transfers
occur at market price. The Company evaluates performance based on earnings from
operations of the respective businesses.

<TABLE>
<CAPTION>
FUNERAL CEMETERY INSURANCE OTHER CONSOLIDATED
------------ ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenue earned from external sales
1998........................................ $ 631,221 $ 408,497 $ 96,516 $ -- $1,136,234
1997........................................ 602,112 422,010 89,977 -- 1,114,099
1996........................................ 549,833 286,652 71,900 -- 908,385
Earnings (loss) from operations
1998........................................ $ 125,242 $ (301,789) $ 16,472 $ (103,891) $ (263,966)
1997........................................ 147,730 100,638 16,508 (112,745) 152,131
1996........................................ 157,461 76,068 17,149 (46,008) 204,670
Investment revenue (included in earnings
(loss) from operations)
1998........................................ $ 3,391 $ 34,432 $ 21,351 $ 1,774 $ 60,948
1997........................................ 5,560 29,197 23,519 335 58,611
1996........................................ 3,271 15,836 16,615 1,249 36,971
Depreciation and amortization
1998........................................ $ 62,892 $ 11,384 $ 31 $ 14,206 $ 88,513
1997........................................ 51,085 7,820 36 6,437 65,378
1996........................................ 45,146 4,237 42 3,722 53,147
Total assets
1998........................................ $ 2,033,047 $ 2,202,038 $ 276,098 $ 162,725 $4,673,908
1997........................................ 1,963,099 2,124,409 331,754 371,425 4,790,687
1996........................................ 1,651,186 1,366,399 329,134 372,015 3,718,734
Capital expenditures
1998........................................ $ 74,681 $ 26,370 $ 420 $ 6,513 $ 107,984
1997........................................ 108,691 53,023 208 11,157 173,079
1996........................................ 136,220 36,782 1,274 9,966 184,242
</TABLE>

79
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 22. SEGMENTED INFORMATION (CONTINUED)
The following table reconciles earnings from operations of reportable
segments to earnings (loss) before income taxes and identifies the components of
"Other" segment earnings from operations:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Earnings (loss) from operations of funeral, cemetery and insurance
segments................................................................. $ (160,075) $ 264,876 $ 250,678
Other expenses of operations:
General and administrative expenses...................................... (87,659) (72,128) (42,286)
Restructuring costs...................................................... -- (33,364) --
Depreciation and amortization............................................ (14,206) (6,437) (3,722)
Other.................................................................... (2,026) (816) --
----------- ----------- ----------
(103,891) (112,745) (46,008)
----------- ----------- ----------
Total earnings (loss) from operations...................................... $ (263,966) $ 152,131 $ 204,670
----------- ----------- ----------
----------- ----------- ----------
</TABLE>

The following table reconciles total assets of reportable segments and
details the components of "Other" segment assets which is mainly comprised of
corporate assets:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Total assets of funeral, cemetery and insurance segments................ $ 4,511,183 $ 4,419,262 $ 3,346,719
"Other" assets includes:
Cash.................................................................. 61,012 2,681 (1,319)
Receivables........................................................... 11,492 41,444 11,487
Prepaid expenses...................................................... 3,499 3,216 4,599
Long-term receivables, net of allowances.............................. 7,753 3,957 2,217
Investments........................................................... 2,581 224,008 266,228
Property and equipment................................................ 33,323 42,198 33,818
Names and reputations................................................. 4,358 4,766 5,174
Future income tax assets.............................................. 10,243 7,849 3,971
Deferred debt issue costs............................................. 23,709 33,182 33,199
Other................................................................. 4,755 8,124 12,641
------------ ------------ ------------
162,725 371,425 372,015
------------ ------------ ------------
Total assets............................................................ $ 4,673,908 $ 4,790,687 $ 3,718,734
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

The Company operates principally in North America. Over 90% of its revenues
are earned in the United States, however, the Company also has operations in
Canada and the United Kingdom. The

80
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 22. SEGMENTED INFORMATION (CONTINUED)
following tables depict the revenues earned and the long term assets held in the
reportable geographic segments.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
------------ ------------ ----------
<S> <C> <C> <C>
Revenue
United States........................................................... $ 1,065,074 $ 1,048,236 $ 849,325
Canada.................................................................. 63,979 64,965 58,536
Other................................................................... 7,181 898 524
------------ ------------ ----------
$ 1,136,234 $ 1,114,099 $ 908,385
------------ ------------ ----------
------------ ------------ ----------
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Property and equipment, names and reputations and cemetery property
United States......................................................... $ 2,623,497 $ 2,614,772 $ 2,001,767
Canada................................................................ 163,932 171,680 143,156
Other................................................................. 23,068 12,291 992
------------ ------------ ------------
$ 2,810,497 $ 2,798,743 $ 2,145,915
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

NOTE 23. RELATED PARTY TRANSACTIONS

During 1996, as part of the normal course of operations, the Company
chartered a jet aircraft, a motor vessel and a helicopter at competitive rates
from companies owned or controlled by the former Chairman of the Company. The
total costs of the related party charters amounted to $605,110. In 1996, the
Company purchased all of the shares of 476822 B.C. Ltd., which owned the motor
vessel, for an effective purchase price of Cdn. $7,860,000. The motor vessel was
sold in 1999 (see Note 24). In addition, in 1996 a company owned by the former
Chairman of the Company sold the jet aircraft and helicopter to a third party.
Subsequently, the Company has leased the jet aircraft and helicopter from the
third party at commercially reasonable terms.

As part of the acquisition of Osiris Holding Corporation ("Osiris"), the
Company has recorded $14,947,000 as long-term debt at the present value of the
total remaining contingent payments of approximately $17,100,000. The Company
expected to pay the balance over a five-year period ending in 2001 to the former
shareholders of Osiris, two of whom were officers of the Company. Subsequent to
year end, the two officers of the Company entered into an agreement with the
Company to purchase a number of cemeteries and funeral homes and ended their
association with the Company. The balance of the contingent payments were
reclassed to current portion of long-term debt as the remaining balance was paid
out of the proceeds of the sale in 1999 (see Note 24).

In addition, as part of the acquisition of Shipper Management ("Shipper"),
the Company has recorded $4,838,000 as a long-term liability, representing the
present value of total remaining contingent payments, payable through 2001, to
the former shareholders of Shipper, one of whom is an officer of the Company.

At December 31, 1998, Company officers, directors and employees were
indebted to the Company for approximately $10,800,000 (1997 -- $9,100,000).

81
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 24. SUBSEQUENT EVENTS

In February, 1999 the Company sold the motor vessel for proceeds of
$4,000,000. The Company recorded an impairment loss of $1,000,000 on the motor
vessel in 1998.

On March 8, 1999, the Company deferred payment of the quarterly cash
dividend of Cdn $0.375 per share on the Company's 6% Cumulative Redeemable
Convertible First Preferred Shares, Series C which would have been payable on
April 1, 1999. The Company also deferred payment of dividends on the Company's
Cumulative Monthly Income Preferred Securities, Series "A".

On March 31, 1999, the Company completed the sale of 124 cemeteries and
three funeral homes to an investor group led by McCown De Leeuw & Co., a private
investment firm. Upon completion of the sale the Company received gross proceeds
of $193,000,000 resulting in a pre-tax loss of $301,605,000 which was provided
for, as an impairment loss, in 1998. The investor group included two former
officers of the Company.

On March 31, 1999, the Company completed negotiations with certain lenders
resulting in revised lending agreements, including waivers of certain financial
covenants at December 31, 1998. As a result, the Company has not had an event of
default of certain covenants in its Credit Agreements.

82
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 25. UNITED STATES ACCOUNTING PRINCIPLES

The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") in Canada. These principles
differ in the following material respects from those in the United States as
summarized below:

(A) EARNINGS (LOSS) AND EARNINGS (LOSS) PER COMMON SHARE

<TABLE>
<CAPTION>
1998 1997 1996
----------- --------- ---------
<S> <C> <C> <C>
EARNINGS (LOSS)
Net earnings (loss) in accordance with Canadian GAAP........................... $ (598,969) $ 41,810 $ 65,999
Less effects of differences in accounting for:
Insurance operations (c)..................................................... 2,833 1,701 (1,440)
Stock options................................................................ (36) (173) --
Foreign exchange loss (e).................................................... -- (1,107) --
Cost of start-up activities (g).............................................. 1,915 -- --
----------- --------- ---------
Net earnings (loss) before cumulative effect of a change in accounting
principle.................................................................... $ (594,257) $ 42,231 $ 64,559
Cumulative effect of adopting SOP 98-5 as of January 1, 1998................... (5,000) -- --
----------- --------- ---------
Net earnings (loss) in accordance with United States GAAP...................... $ (599,257) $ 42,231 $ 64,559

Other comprehensive income
Foreign currency translations
Unrealized foreign currency gains (losses) arising during the period....... 116 998 (1,682)
Less: reclassification adjustment for losses included in net income........ -- (1,909) --
Unrealized gains (losses) on securities:
Unrealized holding gains arising during the period, net of deferred tax
expense of $8,354, $5,992, and $1,222, respectively...................... 10,211 7,323 1,494
Less: reclassification adjustment for gains included in net income......... (8,486) (3,044) (561)
----------- --------- ---------
Comprehensive income (loss) in accordance with United States GAAP.............. $ (597,416) $ 45,599 $ 63,810
----------- --------- ---------
----------- --------- ---------
EARNINGS (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE PER
COMMON SHARE
Basic earnings (loss) before cumulative effect of change in accounting
principle per Common share................................................. $ (8.15) $ 0.49 $ 0.98
----------- --------- ---------
----------- --------- ---------
Diluted earnings (loss) before cumulative effect of change in accounting
principle per Common share................................................. $ (8.15) $ 0.48 $ 0.97
----------- --------- ---------
----------- --------- ---------
</TABLE>

For the year ended December 31, 1998, the earnings per Common share effect
of the cumulative effect of the change in accounting principle is $0.07,
resulting in basic and diluted loss per Common share of $(8.22).

83
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 25. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
Under United States GAAP, 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
common stock equivalents. The computation of basic and diluted earnings (loss)
before cumulative effect of change in accounting principle per Common share is
as follows:

<TABLE>
<CAPTION>
1998 1997 1996
----------- --------- ---------
<S> <C> <C> <C>
Basic
Net earnings (loss) before cumulative effect of change in accounting
principle.................................................................. $ (594,257) $ 42,231 $ 64,559
Less: Preferred share dividends.............................................. 8,900 9,533 8,874
----------- --------- ---------
Net earnings (loss) before cumulative effect of change in accounting
principle attributable to Common shareholders.............................. $ (603,157) $ 32,698 $ 55,685
----------- --------- ---------
----------- --------- ---------
Weighted average number of shares outstanding................................ 73,989 67,313 56,743
Basic earnings (loss) before cumulative effect of change in accounting
principle per Common share................................................. $ (8.15) $ 0.49 $ 0.98
----------- --------- ---------
----------- --------- ---------
Diluted
Net earnings (loss) before cumulative effect of change in accounting
principle attributable to Common shareholders.............................. $ (603,157) $ 32,698 $ 55,685
Add: Effect of dilutive securities other than options........................ -- -- --
----------- --------- ---------
Diluted earnings (loss) before cumulative effect of change in accounting
principle.................................................................. $ (603,157) $ 32,698 $ 55,685
----------- --------- ---------
----------- --------- ---------
Weighted average number of shares outstanding................................ 73,989 67,313 56,743
Add: Incremental shares from conversion of dilutive options.................. -- 926 610
----------- --------- ---------
Diluted shares............................................................... 73,989 68,239 57,353
----------- --------- ---------
----------- --------- ---------
Diluted earnings (loss) before cumulative effect of change in accounting
principle per Common share................................................. $ (8.15) $ 0.48 $ 0.97
----------- --------- ---------
----------- --------- ---------
</TABLE>

84
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 25. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
(B) BALANCE SHEET

The amounts in the consolidated balance sheet that differ from those
reported under Canadian GAAP are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------------- --------------------------
CANADIAN UNITED CANADIAN UNITED
GAAP STATES GAAP GAAP STATES GAAP
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
(RESTATED --
NOTE 3)
Assets
Receivables, net of allowances........................ $ 221,679 $ 221,920 $ 251,006 $ 251,006
Long-term receivables, net of allowances.............. 647,092 655,193 553,663 555,472
Investments........................................... 3,385 3,385 224,008 184,227
Insurance invested assets............................. 266,661 270,809 305,610 312,073
Other assets.......................................... 161,118 184,374 156,636 181,840

Liabilities and Shareholders' Equity
Other liabilities..................................... 399,304 394,377 308,909 266,903
Insurance policy liabilities.......................... 166,920 196,230 214,492 240,750
Future income tax liabilities......................... 208,939 212,378 309,994 313,016
Common shares......................................... 1,274,096 1,300,428 1,271,177 1,297,443
Retained earnings (deficit)........................... (539,741) (536,089) 75,624 79,564
Accumulated other comprehensive income:...............
Unrealized gains on securities available for sale,
net of tax........................................ -- 6,937 -- 5,212
Foreign exchange adjustment........................... 13,940 (15,057) 13,824 (15,173)
</TABLE>

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.

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

85
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 25. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
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.

(D) UNREALIZED GAINS AND LOSSES

Amounts receivable from cemetery merchandise trusts and insurance invested
assets are subject to the provisions of Financial Accounting Standards No. 115
("FAS 115"), "Accounting for Certain Investments in Debt and Equity" under
United States GAAP. Under FAS 115, fixed maturity securities which the Company
has the positive intent and ability to hold to maturity are classified as
held-to-maturity and are carried at amortized cost. Fixed maturity securities
classified as held-to-maturity were approximately $30,582,000 at December 31,
1998 (1997 -- $69,243,000). Debt and equity securities that are held with the
objective of trading to generate profits on short-term differences in price are
carried at fair value, with changes in fair value reflected in the results of
operations. At December 31, 1998, the Company had no securities classified as
trading (1997 -- $1,380,000). All other fixed maturity and equity securities not
classified as either held-to-maturity or trading are classified as
available-for-sale and carried at fair value which was approximately
$619,913,000 at December 31, 1998 (1997 -- $496,922,000). Available-for-sale
securities may be sold in response to changes in interest rates and liquidity
needs. Unrealized holding gains and losses related to available-for-sale
investments, after deducting amounts allocable to income taxes, are reflected as
a separate component of stockholders' equity. Unrealized holding gains and
losses related to trading investments, after deducting amounts allocable to
income taxes, are reflected in earnings.

(E) FOREIGN EXCHANGE LOSS

Upon the sale of a Canadian equity investment in 1997, the Company
recognized a foreign exchange loss of $802,000 for Canadian GAAP purposes. The
foreign exchange loss under United States GAAP was $1,909,000 due to differences
in the related foreign exchange adjustment on the balance sheet that arose from
the Company's change in reporting currency on January 1, 1994.

(F) STOCK-BASED COMPENSATION

The Company follows the disclosure provisions of Statement of Financial
Accounting Standards No. 123 ("FAS 123"), "Accounting for Stock-Based
Compensation", for United States GAAP purposes.

The Company continues to record compensation expense for United States GAAP
purposes following the intrinsic value principles of APB 25 for Accounting for
Stock Issued to Employees in accounting for the plans. Under APB 25, no
compensation expense has been recognized for its stock-based compensation plans
in any of the three years ending December 31, 1998. Had compensation cost been
determined based on fair value at the grant dates for awards under those plans
consistent with the measurement provisions of FAS 123, net earnings (loss)
before cumulative effect of change in accounting principle under United States
GAAP would have been $(593,648,000) for the year ended December 31, 1998
(1997 -- $35,781,000, 1996 -- $58,860,000) and basic and diluted earnings (loss)
before cumulative effect of change in accounting principle per Common share
would have been $(8.14) and $(8.14), respectively (1997 -- $0.39 and $0.38,
respectively, 1996 -- $0.88 and $0.87, respectively). For these purposes, the
fair value of each

86
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 25. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
option is estimated on the date of the grant using the Black-Scholes
option-pricing model with the following weighted average assumptions: dividend
yield nil (1997 -- 0.5%, 1996 -- 0.5%), expected volatility 29% (1997 -- 24%,
1996 -- 24%), Canadian risk-free interest rates 4.88% (1997 -- 5.24%,
1996 -- 5.68%) United States risk-free interest rates 5.11% (1997 -- 5.89%,
1996 -- 5.57%) and expected average option term of 3.5 years (1997 -- 5.0 years,
1996 -- 3.4 years). The weighted average fair value of the options granted is
$5.51 (1997 -- $9.15, 1996 -- $6.78) per option.

(G) REPORTING ON THE COSTS OF START-UP ACTIVITIES

The AICPA issued Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities" ("SOP 98-5") on April 3, 1998, to be effective for fiscal
years beginning after December 15, 1998. SOP 98-5 states that the costs of
start-up activities, including organization costs, should be expensed as
incurred. The Company has elected early adoption of SOP 98-5 to be effective for
the year ended December 31, 1998, for United States GAAP purposes. Pursuant to
SOP 98-5, the Company has written off the unamortized costs of start-up
activities, which are contained in other assets, as a change in accounting
principle.

SOP 98-5 was adopted in the fourth quarter of 1998, and was effective
January 1, 1998. The effects on the previously published year to date interim
net earnings (loss) and earnings (loss) per Common share would be decreases of
approximately $5,000,000 and $0.07, respectively, resulting from the cumulative
effect of the adoption of SOP 98-5.

(H) ADVERTISING COSTS

Advertising costs were $10,444,000 for the year ended December 31, 1998
(1997 -- $9,509,000, 1996 -- $8,221,237).

(I) RECENT ACCOUNTING STANDARDS

Statement of Financial Accounting Standards No. 133 ("FAS 133") "Accounting
for Derivative Instruments and Hedging Activities" is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. FAS 133 requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.

Management has not determined the impact of this recent accounting standard
on its consolidated financial statements.

NOTE 26. COMPARATIVE FIGURES

Certain of the comparative figures have been reclassified to conform to the
presentation adopted in the current period.

87
<PAGE>
THE LOEWEN GROUP INC.
SUPPLEMENTARY DATA
QUARTERLY FINANCIAL DATA (UNAUDITED)
EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER(1) QUARTER(1) QUARTER(1) QUARTER(1)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1998
Revenue....................................................... $ 309,736 $ 301,923 $ 263,887 $ 260,688
Gross profit.................................................. 113,380 93,605 63,593 21,158
Net earnings (loss)........................................... 30,039 10,242 (32,438) (606,812)
Fully diluted earnings (loss) per Common share................ $ 0.37 $ 0.11 $ (0.47) (8.22)

Year ended December 31, 1997
Revenue....................................................... $ 274,697 $ 275,648 $ 274,136 $ 289,618
Gross profit.................................................. 99,010 97,600 72,489 94,540
Net earnings (loss)........................................... 24,167 27,166 (40,329) 30,806
Fully diluted earnings (loss) per Common share................ $ 0.36 $ 0.39 $ (0.58) $ 0.38
</TABLE>

- ------------------------------

(1) Certain of the comparative figures have been restated to conform to the
change in accounting for income taxes adopted in 1998 (see Note 3 to the
Consolidated Financial Statements).

88
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors and Shareholders
Loewen Group International, Inc.

We have audited the consolidated balance sheets of Loewen Group
International, Inc. as at December 31, 1998 and 1997 and the consolidated
statements of operations and deficit and cash flows for each of the years in the
three year period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1998 and 1997, and the results of its operations and its cash flows for each of
the years in the three year period ended December 31, 1998, in accordance with
generally accepted accounting principles in Canada.

Significant differences between Canadian and United States accounting
principles are explained and quantified in Note 25 to the consolidated financial
statements.

/s/ KPMG LLP
Chartered Accountants
Vancouver, Canada

April 12, 1999

COMMENTS BY AUDITOR FOR U.S. READERS ON CANADA-U.S. REPORTING DIFFERENCE

/s/ KPMG LLP
Chartered Accountants
Vancouver, Canada

April 12, 1999

89
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

EXPRESSED IN THOUSANDS OF U.S. DOLLARS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
------------ ------------
(RESTATED--
NOTE 3)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........................................................... $ 84,202 $ 35,563
Receivables, net of allowances...................................................... 114,491 169,758
Inventories......................................................................... 30,137 30,391
Prepaid expenses.................................................................... 7,184 8,840
------------ ------------
236,014 244,552

Long-term receivables, net of allowances.............................................. 486,388 387,282
Cemetery property..................................................................... 1,226,358 1,308,128
Property and equipment................................................................ 712,995 679,219
Names and reputations................................................................. 678,576 598,689
Investments........................................................................... 30,245 184,723
Insurance invested assets............................................................. 266,661 305,610
Prearranged funeral services.......................................................... 351,961 345,795
Other assets.......................................................................... 151,316 156,349
------------ ------------
$ 4,140,514 $ 4,210,347
------------ ------------
------------ ------------
LIABILITIES and SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities
Accounts payable and accrued liabilities............................................ $ 150,412 $ 138,963
Loans and advances from affiliates, current portion................................. 227,841 --
Long-term debt, current portion..................................................... 829,455 33,408
------------ ------------
1,207,708 172,371

Loans and advances from affiliates, net of current portion............................ 784,369 1,013,914
Long-term debt, net of current portion................................................ 1,254,036 1,531,586
Other liabilities..................................................................... 414,319 259,388
Insurance policy liabilities.......................................................... 166,920 214,492
Future income tax liabilities......................................................... 191,283 297,547
Deferred prearranged funeral services revenue......................................... 351,961 345,795

Preferred securities of subsidiary.................................................... 75,000 75,000

Shareholders' equity (deficiency)
Share capital....................................................................... 526,058 487,514
Deficit............................................................................. (823,172) (187,260)
Foreign exchange adjustment......................................................... (7,968) --
------------ ------------
(305,082) 300,254
------------ ------------
$ 4,140,514 $ 4,210,347
------------ ------------
------------ ------------
</TABLE>

FINANCIAL CONDITION (NOTE 1)

COMMITMENTS AND CONTINGENCIES (NOTES 5, 9, 13, 16 AND 17)

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

90
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT

EXPRESSED IN THOUSANDS OF U.S. DOLLARS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1998
------------ 1997 1996
------------ -----------
(RESTATED -- (RESTATED --
NOTE 3) NOTE 3)
<S> <C> <C> <C>
Revenue
Funeral............................................................... $ 559,217 $ 536,926 $ 489,571
Cemetery.............................................................. 416,823 408,196 277,881
Insurance............................................................. 96,516 89,977 71,900
------------ ------------ -----------
1,072,556 1,035,099 839,352
------------ ------------ -----------
Costs and expenses
Funeral............................................................... 363,742 336,473 294,033
Cemetery.............................................................. 353,662 319,558 196,974
Insurance............................................................. 80,013 73,304 54,709
------------ ------------ -----------
797,417 729,335 545,716
------------ ------------ -----------
275,139 305,764 293,636
Expenses
General and administrative............................................ 114,397 97,792 68,390
Depreciation and amortization......................................... 76,225 56,358 45,724
Asset impairment...................................................... 301,605 -- --
Restructuring costs................................................... -- 30,992 --
------------ ------------ -----------
492,227 185,142 114,114
------------ ------------ -----------
Earnings (loss) from operations......................................... (217,088) 120,622 179,522
Interest and financing fees paid to affiliates, net..................... 119,571 102,226 71,313
Interest on long-term debt.............................................. 165,403 119,972 80,497
Investment impairment and contingent loss............................... 313,459 -- --
Loss on early extinguishment of debt.................................... -- 4,591 --
Finance and other costs related to hostile takeover proposal............ -- -- 13,019
------------ ------------ -----------
Earnings (loss) before undernoted items................................. (815,521) (106,167) 14,693
Dividends on preferred securities of subsidiary......................... 7,088 7,088 7,088
------------ ------------ -----------
Earnings (loss) before income taxes and undernoted items................ (822,609) (113,255) 7,605
Income taxes
Current............................................................... 9,629 20,186 11,009
Future................................................................ (185,397) (43,098) 1,323
------------ ------------ -----------
(175,768) (22,912) 12,332
------------ ------------ -----------
(646,841) (90,343) (4,727)
Equity and other earnings of associated companies....................... 10,929 11,593 1,620
------------ ------------ -----------
Loss for the year....................................................... (635,912) (78,750) (3,107)
Deficit, beginning of year.............................................. (187,260) (108,510) (105,403)
------------ ------------ -----------
Deficit, end of year.................................................... $ (823,172) $ (187,260) $(108,510)
------------ ------------ -----------
------------ ------------ -----------
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

91
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

EXPRESSED IN THOUSANDS OF U.S. DOLLARS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1998
------------ 1997 1996
------------- ------------
(RESTATED -- (RESTATED --
NOTE 3) NOTE 3)
<S> <C> <C> <C>
CASH PROVIDED BY (APPLIED TO)
Operations
Loss................................................................. $ (635,912) $ (78,750) $ (3,107)
Items not affecting cash
Depreciation and amortization...................................... 76,225 56,358 45,724
Amortization of debt issue costs................................... 25,018 6,387 3,672
Asset impairment................................................... 301,605 -- --
Investment impairment and contingent loss.......................... 313,459 -- --
Future income taxes................................................ (185,397) (43,098) 1,323
Gain on sale of investment......................................... (6,768) -- --
Equity and other earnings of associated companies.................. (10,929) (11,593) (1,620)
Restructuring costs................................................ -- 12,697 --
Proceeds on factored accounts receivable............................. 142,181 185,179 56,318
Other, including net changes in other non-cash balances.............. (223,157) (229,524) (165,504)
------------ ------------- ------------
(203,675) (102,344) (63,194)
------------ ------------- ------------
Investing
Business acquisitions................................................ (236,737) (453,223) (546,615)
Construction of new facilities....................................... (17,929) (24,954) (13,756)
Investments, net..................................................... 16 (2,275) (140,712)
Purchase of insurance invested assets................................ (224,145) (261,987) (85,193)
Proceeds on disposition and maturities of insurance invested
assets............................................................. 180,175 252,626 71,939
Purchase of property and equipment................................... (34,670) (42,632) (42,634)
Proceeds on disposition of assets.................................... 56,202 3,767 3,255
------------ ------------- ------------
(277,088) (528,678) (753,716)
------------ ------------- ------------
Financing
Increase in long-term debt........................................... 1,102,681 1,195,242 1,036,548
Repayment of long-term debt.......................................... (603,978) (1,031,105) (504,586)
Issue of Common shares............................................... -- 185,250 175,069
Increase in loans and advances from affiliates....................... 339,527 446,450 192,074
Repayment of loans and advances from affiliates...................... (291,874) (142,763) (36,091)
Repayment of current note payable.................................... -- -- (38,546)
Debt issue costs..................................................... (16,954) (3,999) (28,770)
------------ ------------- ------------
529,402 649,075 795,698
------------ ------------- ------------
Increase (decrease) in cash and cash equivalents
during the year...................................................... 48,639 18,053 (21,212)
Cash and cash equivalents, beginning of year........................... 35,563 17,510 38,722
------------ ------------- ------------
Cash and cash equivalents, end of year................................. $ 84,202 $ 35,563 $ 17,510
------------ ------------- ------------
------------ ------------- ------------
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

92
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 1. FINANCIAL CONDITION

BASIS OF PRESENTATION

These consolidated financial statements have been prepared on a going
concern basis in accordance with Canadian generally accepted accounting
principles. The going concern basis of presentation assumes that Loewen Group
International, Inc. (the "Company") will continue in operation for the
foreseeable future and will be able to realize its assets and discharge its
liabilities and commitments in the normal course of business. Certain
conditions, described below, currently exist which cast doubt upon the validity
of this assumption.

There is substantial doubt about the appropriateness of the use of the going
concern assumption because the Company has experienced in 1998 a significant
loss, negative cash flow and a shareholders' deficiency. There is also
uncertainty as to the Company's ability to refinance the pass-through asset
trust senior guaranteed notes (the "PATS senior notes") which may be redeemed on
October 1, 1999 and which require refinancing by September 15, 1999 under the
terms of amended credit agreements. Furthermore, there is uncertainty as to the
Company's ability to refinance loans and advances from affiliates, including
$206,000,000 due August 15, 1999. The ability of the Company to continue as a
going concern and to realize the carrying value of its assets and discharge its
liabilities when due is dependent on the successful completion of actions that
the Company has taken or plans to take which management believes will mitigate
the adverse conditions and events which raise doubt about the validity of the
"going concern" assumption. However, there is no certainty that these actions or
other strategies will be sufficient to permit the Company to continue, or that
the Company will be able to refinance the PATS senior notes on terms acceptable
to certain of the Company's lenders by September 15, 1999. In the event that
such actions and strategies are not successful, either the Company or its
creditors may initiate proceedings for the liquidation or reorganization of the
Company under Canadian or U.S. bankruptcy laws.

OPERATIONS

The Company reported a loss from operations in 1998 of $217,088,000 after
recording a charge for asset impairment of $301,605,000. Over the past three
years, the Company's strategic growth plan had emphasized cemetery acquisitions,
as compared to its historical emphasis on funeral home acquisitions.
Acquisitions and the integration of cemeteries has required significant cash due
to the pre-need sales of cemetery interment rights, products and services and
related interest costs on debt incurred. The Company expects to continue to
incur negative cash flow from cemetery operations until it is able to
satisfactorily implement various strategies to generate positive cash flow.

93
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 1. FINANCIAL CONDITION (CONTINUED)
FINANCING

As a result of expected negative cash flow from operations during 1999,
scheduled debt maturities in 1999 and its current financial position, on March
31, 1999, the Company:

- Sold 124 cemeteries and three funeral homes on March 31, 1999 for gross
proceeds of $154,000,000 of which $103,361,000 was used to repay
indebtedness; and

- Completed negotiations with the lenders under its bank credit agreement,
Management Equity Investment Plan ("MEIP") bank term credit agreement,
Series D and E senior amortizing notes and one privately held note
agreements (collectively, the "Credit Agreements") resulting in revised
lending agreements effective March 31, 1999 including waivers of certain
financial covenants as of December 31, 1998. As a result, the Company has
not had an event of default of the covenants under the Credit Agreements.
The revised lending agreements:

- Increase effective interest rates or applicable margins;

- Amend certain existing financial covenants and add other financial
covenants;

- Require refinancing of the PATS senior notes on terms satisfactory to the
lenders party to the Credit Agreements by September 15, 1999;

- Require the appointment of a financial advisor on behalf of lenders and
increased reporting and monitoring;

- Require the suspension of all Common share, Preferred share and MIPS
dividend payments;

- Restrict further acquisitions and equity repurchases;

- Limit capital expenditures and expenditures for development in respect of
cemetery land to $60,000,000 for 1999; and

- Permit additional asset sales subject to certain terms and conditions.

The Company's indebtedness includes the PATS senior notes which are held by
a trust for the benefit of the holders of the pass-through asset trust
securities due October 1, 1999. Notwithstanding the obligation to refinance the
PATS Senior Notes on terms satisfactory to the lenders party to the Credit
Agreements by September 15, 1999, the trust has a put option that entitles the
trust to redeem the PATS senior notes on October 1, 1999 to fund the repayment
of the pass-through asset trust securities under circumstances where no funding
is tendered pursuant to a competitive bidding process. The Company does not
expect to have sufficient funds to redeem these notes without further asset
sales or proceeds from debt or equity issues. The Company is of the opinion that
these notes have a prospect of being refinanced, however there is no certainty
of such financing as it will depend primarily on financial market conditions and
the Company's credit rating at that time.

94
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 1. FINANCIAL CONDITION (CONTINUED)
The debt relating to the Credit Agreements and the PATS senior notes has
been classified as current liabilities. The Series 1 to 4, 6 and 7 Senior Notes
have been classified as non-current liabilities but have cross default clauses
that could accelerate payment if covenants in the Credit Agreements and PATS
senior notes are not met and the lenders thereunder accelerate payment under
those agreements.

The Company's indebtedness includes loans and advances due to affiliates of
which a term loan of $206,000,000 and revolving credit loans of $21,841 are due
in 1999. Repayment of the related party loans is restricted under the revised
lending agreements.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company was incorporated on February 25, 1987 under the laws of the
State of Delaware and is directly and indirectly a wholly owned subsidiary of
The Loewen Group Inc. (the "Parent Company"). The United States dollar is the
principal currency of the Company's business and accordingly the consolidated
financial statements are expressed in United States dollars.

The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada and generally conform with
those established in the United States, except as explained in Note 25.

BASIS OF CONSOLIDATION

Other long-term investments including preferred share investments are
accounted for using the cost method.

The Company accounts for its investments in joint ventures using the
proportionate consolidation method.

All significant inter-company balances and transactions have been eliminated
in the consolidated financial statements.

USE OF ESTIMATES

The preparation of consolidated financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported

95
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenue and expenses during the reporting period. As a
result, actual results could differ from those estimates.

PREARRANGED FUNERAL SERVICES

CEMETERY OPERATIONS

A portion of the proceeds from cemetery sales is generally required by law
to be paid into perpetual or endowment care trust funds. Cemetery revenue is
recorded net of the amount to be deposited to perpetual or endowment care trust
funds. Earnings of perpetual or endowment care trust funds are used to defray
the maintenance costs of cemeteries. Additionally, pursuant to various state
laws, a portion of the proceeds from the sale of pre-need merchandise and
services may also be required to be paid into trust funds which are recorded as
long-term receivables.

INSURANCE OPERATIONS

(A) INSURANCE REVENUE

The Company earns insurance revenue primarily through the sale of industrial
life and ordinary life insurance policies.

96
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(B) INSURANCE INVESTED ASSETS

Insurance policy liabilities represent an estimate of the amount which,
together with future premiums and investment income, will be sufficient to pay
future benefits, dividends and expenses on insurance and annuity contracts.
Liabilities are computed using the policy premium method which involves the use
of estimates concerning such factors as mortality and morbidity rates, future
investment yields, future expense levels and rates of surrender. Consequently,
policy liabilities include reasonable provisions for adverse deviations from
those estimates. These assumptions may be revised if it is determined that
future experience will differ substantially from that previously assumed.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash and term deposits with an initial
maturity less than or equal to 90 days.

INVENTORIES

Inventories are carried at the lower of cost, determined primarily on a
specific identification basis or a first in first out basis, and net realizable
value.

CEMETERY PROPERTY

PROPERTY AND EQUIPMENT

Property and equipment is recorded initially at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets as follows:

<TABLE>
<S> <C>
Buildings and improvements........ 10 to 40 years
Automobiles....................... 6 years
Furniture, fixtures and
equipment....................... 6 to 10 years
Computer hardware and software.... 6 years
Over the term of the lease plus one
Leasehold improvements............ renewal
</TABLE>

97
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NAMES AND REPUTATIONS

IMPAIRMENT OF LONG-LIVED ASSETS

The Company monitors the recoverability of long-lived assets, including
investments, cemetery properties, property and equipment, names and reputations
and other assets, based on estimates using factors such as future asset
utilization, business climate and future undiscounted cash flows expected to
result from the use of the related assets or realized upon sale. The Company's
policy is to write down assets to their net recoverable amount in the period
when it is determined that the carrying amount of the asset is not likely to be
recoverable.

DEBT ISSUE COSTS

ACQUISITION COSTS

DERIVATIVE INSTRUMENTS

98
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
are identified. Any gain or loss as a result of the hedging is deferred and
amortized as an adjustment to interest expense over the life of the financing
instrument hedged. If at any point in time a hedging transaction no longer meets
the criteria of a hedge, any gain or loss is recognized in current earnings.

FUTURE INCOME TAXES

NOTE 3. CHANGE IN ACCOUNTING PRINCIPLES

(a) INCOME TAXES

The provisions were applied retroactively with restatement of prior period
financial statements to January 1, 1993 which conforms to the effective date
that the Company adopted Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes, for its financial statement amounts presented under
United States generally accepted accounting principles. As a result of adopting
the new Canadian standard, the cumulative effect to opening retained earnings at
January 1, 1996 was a decrease of $20,657,000. The cumulative effect on the
consolidated balance sheet at December 31, 1998 is an increase in cemetery
property and names and reputations of approximately $452,278,000 (December 31,
1997 -- $402,301,000) primarily due to effects of acquisition accounting and a
corresponding increase in future income tax liability of $472,941,000 (December
31, 1997 -- $422,201,000). The effect on the consolidated statement of
operations for the twelve months ended December 31, 1998 was a decrease to net
loss of approximately $9,180,000 (1997 -- increase of $1,004,000;
1996 -- decrease of $1,761,000).

(b) STATEMENT OF CASH FLOWS

The company adopted CICA Handbook Section 1540, Cash Flow Statements for the
year ended December 31, 1998. The provisions were applied retroactively with
restatement of prior period financial statements. Under Section 1540, non cash
investing and financing activities are excluded from the statement of cash flows
and are disclosed in a note to the financial statements.

99
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 4. ACQUISITIONS AND DISPOSITIONS

(a) ACQUISITIONS

During the year ended December 31, 1998 the Company acquired 62 funeral
homes and 62 cemeteries.

During the year ended December 31, 1997, the Company acquired 105 funeral
homes, 171 cemeteries and one insurance company.

Current liabilities..................................................................... (1,704) (6,042)
Long-term debt.......................................................................... (2,106) (3,087)
Other liabilities....................................................................... (3,574) (55,673)
Future income taxes..................................................................... (78,451) (105,724)
Deferred prearranged funeral services revenue........................................... (19,382) (35,093)
---------- -----------
$ 258,360 $ 511,291
---------- -----------
---------- -----------
Consideration
Cash, including assumed debt repaid at closing........................................ $ 236,737 $ 453,223
Debt.................................................................................. 20,538 39,411
Share capital of Parent Company....................................................... 1,085 18,657
---------- -----------
Purchase Price.......................................................................... $ 258,360 $ 511,291
---------- -----------
---------- -----------
</TABLE>

The following table reflects, on an unaudited pro-forma basis, the combined
results of the Company's operations acquired during the period ended December
31, 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

100
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 4. ACQUISITIONS AND DISPOSITIONS (CONTINUED)
indicative of the results of operations that would have resulted had the
acquisitions been in effect for the entire years presented, and is not intended
to be a projection of future results or trends.

<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Revenues.............................................................................. $ 1,087,490 $ 1,094,043
Net loss.............................................................................. $ (649,835) $ (81,664)
</TABLE>

(b) DISPOSITIONS

NOTE 5. INVESTMENTS

<TABLE>
<CAPTION>
1998 1997
--------- ----------
<S> <C> <C>
4103 Investments Ltd. ("4103")............................................................. $ -- $ 148,914
Prime Succession Holdings, Inc. ("Prime").................................................. -- 6,102
Rose Hills Holdings Corp. ("Rose Hills")................................................... -- 28,223
TLGI Management Corp.
70,586,000 Preferred shares (1997 -- nil) representing 40.34%............................ 28,626 --
Other...................................................................................... 1,619 1,484
--------- ----------
$ 30,245 $ 184,723
--------- ----------
--------- ----------
</TABLE>

(a) 4103 INVESTMENTS

In March 1997, the Company transferred 100 Common shares and 6,668 Preferred
shares in Prime at their carrying value of $72,279,000 to 4103 Investments, a
Canadian company under common control. The Company also transferred 100 Common
shares and 6,300 Preferred shares in Rose Hills at their carrying value of
$65,976,000 to 4103 Investments. In exchange, the Company received 189,475,132
Class B non-voting Common shares representing 48.68% of 4103 Investments common
shares. 4103 Investments cannot declare dividends on the Class A voting Common
shares without first paying an equal dividend on the Class B Common shares.

On November 25, 1998, the Company's investment became a joint venture when
the Company received, as a capital contribution 1,000 Class A Common voting
shares of 4103 Investments, representing 50% of the voting rights, from the
Parent Company. Effective from that date, the Company has accounted for its
investment in 4103 Investments common shares by the proportionate consolidation
method. The net loss recorded by 4103 Investments subsequent to November 25,
1998 was $205,944,000, which included an investment impairment charge of
$209,323,000. Prior to November 25, 1998, the Company accounted for its
investment in 4103 Investments by the equity method. Accordingly, the Company's
proportionate share of the assets and liabilities are reflected in the Company's
balance sheet at December 31, 1998. For the period to November 25, 1998, equity
income of $14,107,000 (1997 -- income of $10,659,000) was recorded which
includes $4,455,000 of income related to equity earnings from Prime and Rose
Hills.

101
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 5. INVESTMENTS (CONTINUED)

Summarized financial data for 4103 Investments for the year ended December
31, 1998, with comparatives for the period from inception on March 24, 1997 to
December 31, 1997, are presented as follows:

<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Income statement information:
Earnings before income taxes and equity loss of associated company..................... $ 35,147 $ 25,237
Net earnings (loss).................................................................... (176,965) 21,455

Balance sheet information:
Current assets......................................................................... $ -- $ 9,032
Non-current assets..................................................................... 111,425 292,634
----------- ----------
Total assets........................................................................... 111,425 301,666

Current liabilities.................................................................... 49 579
Non-current liabilities................................................................ -- 1,984
----------- ----------
Total liabilities...................................................................... 49 2,563

Shareholders' equity................................................................... 111,376 299,103
</TABLE>

(b) PRIME

The Company owns 163.0475 shares of Prime common stock, representing 16.67%
of Prime's voting common stock, and 48.68% of Prime's non-voting preferred
stock, with a 10% cumulative annual payment-in-kind dividend. Blackstone Capital
Partners II Merchant Banking Fund L.P. and certain affiliates (together,
"Blackstone") owns 764.7059 shares of Prime common stock, representing 78.2% of
Prime's voting common stock.

Blackstone and the Company have the right to designate five and three
nominees, respectively, to the Prime Board of Directors. Blackstone controls the
strategic operating, investing and financing policies of Prime. Neither
Blackstone nor the Company can, without the consent of the other party, sell or
transfer its share in Prime to a party other than to an affiliate of itself.

102
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 5. INVESTMENTS (CONTINUED)
The prices for the Call and the Put are based on a formula that calculates
the equity value attributable to Blackstone's common share interest. The
calculated equity value is determined at the Put or Call date based on a
multiple of approximately 12x earnings before interest, taxes, depreciation and
amortization ("EBITDA") for the previous year, after deduction of certain
liabilities. Any payment to Blackstone under the Call or the Put may be in the
form of cash and/or Common shares of the Parent Company, at the Parent Company
and the Company's option, subject to certain conditions.

The Parent Company provides various administrative services to Prime under
an Administrative Services Agreement for an annual fee of $250,000.

Prior to the fourth quarter of 1998, the Company evaluated the exercise of
the Call on the fourth anniversary date as likely. Due to liquidity concerns of
the Parent Company and the Company, the performance of Prime and the reduced
market values for the Parent Company's and other industry participants' stock,
the Company has determined the exercise of the Call on the fourth anniversary as
unlikely and the exercise of the Put as likely. Accordingly, the Company
assessed that its investment suffered a decline in value that is other than
temporary and has written down its investment based on an assumed distribution
of Prime's shareholder's equity at December 31, 1998 taking into account
Blackstone's return under the Put. In addition, the Company has estimated the
expected Put option price on the sixth anniversary, the first date the Put
option becomes exercisable by Blackstone, based on the Company's best estimate
of EBITDA at that time and the relevant formula in the Put/Call Agreement. The
Company has accrued a contingent loss based upon the difference between the
estimated option price and the Company's estimate of the fair value of
Blackstone's equity in Prime which is based in part on current market
conditions. Such amount could change based on changes in the estimated future
value of the business. A net liability (see Note 21) has been recorded
reflecting an accrual of the expected loss on the option reduced by the
remaining carrying value of Prime.

In 1998, 1997 and 1996 the Company recognized income (loss) of $(3,100,000),
$(133,000) and $1,156,000, relating to its investment in Prime, excluding the
1998 investment impairment and contingent loss.

103
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 5. INVESTMENTS (CONTINUED)
Summarized financial data for Prime are presented as follows:

Shareholders' equity....................................................... 119,110 126,408 126,605
</TABLE>

The Company owns 153.2143 shares of Rose Hills common stock, representing
15.32% of Rose Hills' voting common stock, and 62.4% of Rose Hills non-voting
preferred stock, with a 10% cumulative annual payment-in-kind dividend.
Blackstone owns 795.4546 shares of Rose Hills common stock, representing 79.55%
of Rose Hills' voting common stock.

Under a Put/Call Agreement entered into with Blackstone in November 1996,
the Company has the option to acquire ("Call") Blackstone's Rose Hills 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 Rose Hills 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.

104
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 5. INVESTMENTS (CONTINUED)
The prices for the Call and the Put are based on a formula that calculates
the equity value attributable to Blackstone's common share interest. The
calculated equity value is determined at the Put or Call date based on a
multiple of approximately 13x earnings before interest, taxes, depreciation and
amortization ("EBITDA") for the previous year, after deduction of certain
liabilities. Any payment to Blackstone under the Call or the Put may be in the
form of cash and/or Common shares of the Parent Company, at the Parent Company's
and Company's option, subject to certain conditions.

Prior to the fourth quarter of 1998, the Company evaluated the exercise of
the Call on the fourth anniversary date as likely. Due to liquidity concerns of
the Parent Company and the Company, the performance of Rose Hills and the
reduced market values for the Parent Company's and other industry participants'
stock, the Company has determined the exercise of the Call on the fourth
anniversary as unlikely and the exercise of the Put as likely. Accordingly, the
Company assesses that its investment suffered a decline in value that was other
than temporary and has written down its investment based on an assumed
distribution of Rose Hills' shareholder's equity at December 31, 1998 taking
into account Blackstone's return under the Put. In addition, the Company has
estimated the expected Put option price on the sixth anniversary, the first date
the option becomes exercisable, based on the Company's best estimate of EBITDA
at that time and the relevant formula in the Put/Call Agreement. The Company has
accrued a contingent loss based upon the difference between the estimated option
price and the Company's estimate of the fair value of Blackstone's equity in
Rose Hills the value of which is based in part on current market conditions.
Such amount could change based on changes in the estimated future value of the
business. A net liability (see Note 21) has been recorded reflecting an accrual
of the expected loss on the option, offset by the remaining carrying value of
Rose Hills.

In 1998, 1997 and 1996 the Company recognized income of $3,699,000,
$1,023,000 and $464,000, relating to its investment in Rose Hills, excluding the
1998 investment impairment and contingent loss.

105
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 5. INVESTMENTS (CONTINUED)
Summarized financial data for Rose Hills are presented as follows:

<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Income statement information:
Revenue.................................................................... $ 83,577 $ 70,645 $ 7,080
Gross margin............................................................... 69,814 59,900 5,982
Earnings from operations................................................... 19,538 14,738 1,327
Payment-in-kind dividend................................................... 9,568 8,708 932
Net loss attributable to common shareholders............................... (8,534) (10,476) (1,460)

Shareholders' equity....................................................... 128,292 127,258 129,026
</TABLE>

The Company owns 70,586,000 Class A redeemable preferred shares of TLGI
Management Corp., a Canadian subsidiary of the Parent Company that owns and
operates funeral homes in Canada. In December 1998, the Company recorded its
share of an impairment charge against its preferred share investment in TLGI
Management Corp. of $41,960,000.

NOTE 6. INSURANCE INVESTED ASSETS

Maturities of fixed maturity securities, excluding mortgage-backed
securities and collateralized mortgage obligations, are estimated as follows:
$6,853,000 due in one year or less (1997 -- $6,081,000),

106
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 6. INSURANCE INVESTED ASSETS (CONTINUED)
$25,677,000 due in one to five years (1997 -- $30,576,000), $67,598,000 due in
five to ten years (1997 -- $81,005,000), and $72,843,000 due after ten years
(1997 -- $52,929,000). Maturities on a market value basis are approximately the
same as the amortized cost basis at December 31, 1998. The Company had
approximately $73,615,000 (1997 -- $111,068,000) in mortgage-backed securities
and collateralized mortgage obligations at December 31, 1998 with a market value
of $76,649,000 (1997 -- $115,015,000).

NOTE 7. PREARRANGED FUNERAL SERVICES

Prearranged funeral services represent amounts deposited in accordance with
state trusting laws with various financial institutions together with accrued
earnings. The Company will receive the prearranged funeral trust amounts when
the funeral services are performed. The funds deposited in trust are invested as
follows:

<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Short-term investments.................................................................... $ 94,043 $ 89,280
Fixed maturities.......................................................................... 137,482 84,056
Balanced mutual funds..................................................................... 1,419 123,080
Equity securities......................................................................... 65,268 14,970
Insurance policies held by trust.......................................................... 52,844 32,552
Other..................................................................................... 905 1,857
---------- ----------
$ 351,961 $ 345,795
---------- ----------
---------- ----------
</TABLE>

The weighted average rate of return on the above prearranged funeral trust
assets for the year ended December 31, 1998 was 3.0% (1997 -- 3.5%,
1996 -- 5.1%).

NOTE 8. LOANS AND ADVANCES FROM AFFILIATES

<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Term loan from affiliated company
Interest at 11.50%.................................................................. $ 889,905 $ 889,905
Revolving credit loans from affiliated companies
Interest at U.S. treasury rate plus 5% due in 2002.................................. 137,594 87,821
Interest at 11.25% due in 1999...................................................... 10,291 --
Interest at U.S. treasury rate plus 5.36% due in 1999............................... -- 45,233
Interest at prime plus 2% due in 1999............................................... 11,550 21,013
Other demand loans to affiliates
Demand loan to Parent Company....................................................... (16,958) (22,569)
Non-interest bearing and due on demand.............................................. (20,172) (7,489)
------------ ------------
1,012,210 1,013,914
------------ ------------
Current portion of loans and advances from affiliates............................... (227,841) --
------------ ------------
$ 784,369 $ 1,013,914
------------ ------------
------------ ------------
</TABLE>

107
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 8. LOANS AND ADVANCES FROM AFFILIATES (CONTINUED)
The term loan and certain revolving credit loans from an affiliated company
are secured by a junior lien, under a collateral trust arrangement with a group
of senior lenders to the Company and Parent Company (see Note 9). The
$889,905,000 term loan is comprised of $206,000,000 due August 15, 1999,
$199,650,000 due April 11, 2000, $184,390,000 due February 1, 2001 and
$299,865,000 due June 5, 2002.

NOTE 9. LONG-TERM DEBT

<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Bank credit agreement............................................................... $ 330,000 $ 234,500
Management Equity Investment Plan ("MEIP") bank term credit agreement due in 2000... 97,292 105,140
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
7.20% Series 6 senior notes due in 2003............................................. 200,000 --
7.60% Series 7 senior notes due in 2008............................................. 250,000 --
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%, see Note 23...................................... 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...................................................................... 105,410 111,724
------------ ------------
2,083,491 1,564,994
Less current portion:
Bank credit agreement............................................................... 330,000 --
MEIP bank term credit agreement due in 2000......................................... 97,292 --
6.49% Series E senior amortizing notes due in 2004.................................. 42,857 7,143
6.70% PATS senior notes............................................................. 300,000 --
Present value of notes issued for legal settlements discounted at an effective
interest rate of 7.75%............................................................ 21,450 988
Present value of contingent consideration payable on acquisitions discounted at an
effective interest rate of 8.0%, see Note 23...................................... 14,947 4,730
Other............................................................................... 22,909 20,547
------------ ------------
829,455 33,408
------------ ------------
$ 1,254,036 $ 1,531,586
------------ ------------
------------ ------------
</TABLE>

(a) The Company completed negotiations with the lenders under the Credit
Agreements resulting in revised lending agreements effective March 31, 1999,
including waivers of certain financial covenants

108
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 9. LONG-TERM DEBT (CONTINUED)
as of December 31, 1998. As a result, the Company has not had an event of
default of the covenants under the Credit Agreements. The revised lending
agreements:

- Increase effective interest rates or applicable margins;

- Amend certain existing financial covenants and add other financial
covenants;

- Require refinancing of the PATS senior notes on terms satisfactory to
the lenders party to the Credit Agreements by September 15, 1999;

- Require the appointment of a financial advisor on behalf of lenders and
increased reporting and monitoring;

- Require the suspension of all Common share, Preferred share and MIPS
dividend payments;

- Restrict further acquisitions and equity repurchases;

- Limit capital expenditures and expenditures for development of cemetery
land to $60,000,000 for 1999; and

- Permit additional asset sales subject to certain terms and conditions.

The debt relating to the Credit Agreements and the PATS senior notes have
been classified as current liabilities. The Series 1 to 4, 6 and 7 Senior
Notes have been classified as non-current liabilities but have cross default
clauses that could accelerate payment if covenants in the Credit Agreements
and PATS senior notes are not met and the lenders thereunder accelerate
payment under those agreements.

(b) In 1996, the Company, its Parent Company and their senior lenders entered
into a collateral trust agreement pursuant to which the senior lenders share
certain collateral and guarantees on a pari passu basis (the "Collateral
Trust Agreement"). The security for lenders under the Collateral Trust
Agreement consists of (i) all of the Company's right, title and interest in
and to all rights to receive payment under or in respect of accounts,
contracts, contractual rights, chattel paper, documents, instruments and
general intangibles, (ii) a pledge of the shares of capital stock of
substantially all of the subsidiaries in which the Company directly or
indirectly holds more than a 50% voting or economic interest and (iii) a
guarantee by each subsidiary that is pledging stock. The security is held by
a trustee for the equal and ratable benefit of the senior lending group. The
senior lending group consists principally of the lenders under the senior
amortizing notes, senior notes and bank and term credit agreements as well
as the holders of certain letters of credit. At December 31, 1998, the
indebtedness of the Company owed to the senior lending group subject to the
collateral trust agreement, including holders of certain letters of credit,
aggregated $1,934,000,000.

Certain of the above senior note agreements contain various restrictive
provisions, including change of control provisions and provisions
restricting payment by the Parent Company of dividends on Common and
Preferred shares, restricting encumbrance of assets, limiting redemption or
repurchase

109
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 9. LONG-TERM DEBT (CONTINUED)
of shares, limiting disposition of assets and limiting the amount of
additional debt. The senior notes also provide for a default in the event of
the acceleration of certain other debt.

The Company's bank credit agreement and MEIP bank term credit agreement bear
interest at floating rates (7.31% at December 31, 1998), based on U.S. LIBOR
rates or the prime lending rates of certain banks, plus an applicable
margin.

(d) The PATS senior notes are due in 2009, however they 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 bear interest at a rate of
6.70% until October 1, 1999, at which time, if no redemption election
occurs, the interest rate will be reset at a fixed annual rate of 6.05% plus
an adjustment equal to the Company's then current credit spread to the ten
year United States Treasury rate (see Note 16(g)).

(e) In May 1998, the Company completed a private placement in the United States
of $200,000,000 of 7.20% Series 6 Senior Guaranteed Notes due 2003 (the
"Series 6 senior notes") and $250,000,000 of 7.60% Series 7 Senior
Guaranteed Notes due 2008 (the "Series 7 senior notes"). The net proceeds
from the Series 6 and 7 senior notes were used to repay indebtedness
outstanding under the bank credit agreement. In September 1998, these notes
were exchanged for identical notes registered under the Securities Act of
1933.

(f) The notes issued under legal settlements represent a promissory note in the
amount of $80,000,000 payable over 20 years in equal annual installments of
$4,000,000, without interest. Interest is accrued on the discounted amount
and is included in accounts payable and accrued liabilities. Annual payments
will eliminate this accrual and the balance will be applied to the
promissory note.

(g) Included in interest expense is $25,018,000 of amortization and write-offs
of debt issue costs (1997 -- $6,387,000, 1996 -- $3,672,000)

(h) Maturities of long-term debt are as follows:

<TABLE>
<CAPTION>
<S> <C>
1999................................................... $ 829,455
2000................................................... 19,464
2001................................................... 368,911
2002................................................... 13,102
2003................................................... 560,694
Thereafter............................................. 291,865
------------
$ 2,083,491
------------
------------
</TABLE>

110
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 10. PREFERRED SECURITIES OF SUBSIDIARY

On August 15, 1994, 3,000,000 9.45% Cumulative Monthly Income Preferred
Securities, Series A ("MIPS") were issued by Loewen Group Capital, L.P. ("LGC")
in a public offering for an aggregate amount of U.S. $75,000,000. LGC is a
limited partnership and the Company as its general partner manages its business
and affairs.

The MIPS are due August 31, 2024 and are subject to redemption at par at the
option of LGC, in whole or in part, from time to time, on or after August 31,
2004.

Holders of the MIPS are entitled to receive cumulative dividends at an
annual rate of 9.45% of the liquidation preference of U.S. $25 per MIPS. The
dividends accrue from the date of original issuance and are payable monthly in
arrears.

The Company has the right to defer payment of dividends on the MIPS for one
or more periods, each not to exceed 60 consecutive months. In this event the
Parent Company may not declare or pay dividends on, or redeem, purchase or
acquire or make a liquidation payment with respect to any class of its capital
stock.

The Parent Company has guaranteed certain payment obligations of the Company
to LGC and of LGC to the MIPS holders. The guarantees are subordinated to all
liabilities of the Parent Company and are unsecured.

In March, 1999 the Company announced that payment of the quarterly MIPS
dividends had been deferred.

111
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 11. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND FAIR VALUE OF
FINANCIAL INSTRUMENTS

(A) SWAP AGREEMENTS AND INTEREST RATE OPTIONS

The Company has entered into swap agreements and interest rate options with
a number of different commercial banks and financial institutions to manage its
interest rate exposure on fixed rate long-term debt. At December 31, 1998, such
agreements included three interest rate swap agreements with commercial banks
and financial institutions, each having a notional principal amount of
$25,000,000. The Company will receive floating Libor based rates determined
quarterly (5.253% at December 31, 1998) and will pay fixed rates of 5.755%,
6.200% and 6.190% under the agreements. The agreements expire in June 1999, June
2001 and June 2001, respectively.

The Company is exposed to a credit loss in the event of non-performance by
the other parties to the interest rate swap agreements. However, the Company
does not anticipate non-performance by the counterparties. The carrying amounts
of the interest rate swap agreements approximate fair values at December 31,
1998.

(B) FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of cash and term deposits, current receivables and
accounts payable and accrued liabilities approximates fair value due to the
short-term maturities of these instruments. The fair value of insurance policy
liabilities, and loans and advances from affiliates have been omitted because it
is not practicable to determine fair values with sufficient reliability.
Financial instruments with a carrying value materially different from their fair
value include:

<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
--------------------------- ---------------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
(1) Financial assets
Prearranged funeral services...................... $ 351,961 $ 353,696 $ 345,795 $ 351,382
Insurance invested assets......................... 266,661 271,503 305,610 314,096
Long-term receivables
Practicable to estimate fair value.............. 391,842 399,943 275,866 278,415
Not practicable................................. 94,546 -- 111,416 --

(2) Financial liabilities
Long-term debt.................................... $ 2,083,491 $ 1,856,123 $ 1,564,994 $ 1,604,970
Preferred securities of subsidiary................ 75,000 57,938 75,000 81,375
</TABLE>

112
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 11. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND FAIR VALUE OF
FINANCIAL INSTRUMENTS (CONTINUED)
The fair value of long-term debt subject to fixed interest rates is
estimated by discounting the future cash flows, including interest payments,
using rates currently available for debt of similar terms and maturity, based on
the Company's credit standing and other market factors. The fair value of
long-term debt, subject to floating market rates, approximate their carrying
values. The fair value of the preferred securities of a subsidiary is estimated
based upon quoted market prices. It is not practicable to determine the fair
value of loans and advances from affiliates.

NOTE 12. SHARE CAPITAL

(A) AUTHORIZED

3,000 Common shares with a par value of $0.01

(B) ISSUED AND OUTSTANDING

<TABLE>
<CAPTION>
NUMBER OF SHARES
STATED VALUE
-------------------- ------------------------------
1998 1997 1998 1997
--------- --------- -------------- --------------
<S> <C> <C> <C> <C>
Common shares................................................... 1,521 1,455 $ 15 $ 15
Contributed surplus............................................. 526,058,352 487,514,320
-------------- --------------
$ 526,058,367 $ 487,514,335
-------------- --------------
-------------- --------------
</TABLE>

During 1998, the Company issued 66 Common shares to affiliated companies for
gross proceeds of $38,544,000. During 1997, the Company issued 247 Common shares
to affiliated companies for gross proceeds of $185,250,000.

NOTE 13. LEGAL CONTINGENCIES

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 the Company 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 the Company 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

113
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 13. LEGAL CONTINGENCIES (CONTINUED)
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.

On August 26, 1998, defendants sought dismissal of all of plaintiffs'
remaining individual claims in FELDHEIM. The trial court has not yet ruled on
that request.

On September 21, 1998, plaintiffs in FELDHEIM filed an "Amended Petition for
Attorneys Fees," which contends that the plaintiffs' lawyers are entitled to an
unspecified sum of attorneys' fees. Defendants will respond shortly to that
amended petition.

As of the date hereof, no discovery has taken place.

114
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 13. LEGAL CONTINGENCIES (CONTINUED)
of all proceedings in this case; defendants have filed a motion requesting that
the trial court reinstitute its stay.

LUENING, ET AL. V. SI-SIFH CORP., ET AL.

In June 1998, Warren S. Luening and four other individuals filed a lawsuit
on behalf of themselves and a class of similarly situated individuals and/or
entities against SI-SIFH Corp, SI-SI Insurance Company, Inc., Loewen Louisiana
Holdings, Inc., and the Company in the Parish of St. Bernard, State of
Louisiana. Plaintiffs seek a class action. Defendants in this case are the same
entities against whom complaints were filed in Jefferson Parish, Louisiana (the
FELDHEIM case) and in Orleans Parish, Louisiana (the DUFFY case), and, aside
from the addition of local counsel in St. Bernard Parish, the same lawyers who
filed the FELDHEIM and DUFFY complaints filed the LUENING complaint.

115
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 13. LEGAL CONTINGENCIES (CONTINUED)
respond to the Company's writ application on an expedited basis. The Fourth
Circuit granted the Company's writ application on March 25, 1999, finding that
under the RES JUDICATA doctrine as stated in the Fourth Circuit's DUFFY
decision, relitigation of the plaintiffs' class action claims was forever barred
in Louisiana courts by denial of the class certification in the FELDHEIM case.
Accordingly, the Fourth Circuit reversed the trial court's denial of the
Company's RES JUDICATA exception, while recognizing that individual plaintiffs'
claims could proceed in St. Bernard Parish. It also remanded the case to the
trial court for a hearing on the plaintiffs' motion to compel discovery, but it
instructed that any discovery requests that are not related to the individual
plaintiffs' claims should be denied.

THE LOEWEN GROUP INC. ET AL. V. THE UNITED STATES OF AMERICA

On October 30, 1998, Loewen and an affiliate filed a claim against the
United States government for damages under the arbitration provisions of the
North American Free Trade Agreement ("NAFTA"). The plaintiffs contend that they
were damaged as a result of breaches by the United States of its obligations
under NAFTA in connection with certain litigation in the State of Mississippi
entitled O'KEEFE V. THE LOEWEN GROUP INC. Specifically, the plaintiffs allege
that they were subjected to discrimination, denial of the minimum standard of
treatment guaranteed by NAFTA and uncompensated expropriation, all in violation
of NAFTA. The Parent Company has determined that it is not possible at this time
to predict the final outcome of this proceeding or to establish a reasonable
estimate of the damages that may be awarded to the Company.

SECURITIES CLASS ACTIONS

Since December 1998 Loewen has been served with various related lawsuits
filed in the United States District Courts for the Eastern District of
Pennsylvania and for the Eastern District of New York. Raymond L. Loewen, the
former Chairman and Chief Executive Officer, and certain officers and directors
have been named as defendants in some of the suits. All but one of these
lawsuits were filed as purported class actions on behalf of persons or entities
that purchased Loewen common shares during five different time periods ranging
from November 3, 1996 through January 14, 1999. The Company and Loewen Group
Capital, L.P. are named as defendants in two suits (with Loewen, the "Loewen
Defendants"). The plaintiffs in the two lawsuits purport to sue on behalf of a
class of purchasers of MIPS from March 5, 1997 through January 14, 1999. The
MIPS were issued by Loewen Group Capital, L.P.

The complaints generally make allegations concerning, among other things,
Loewen's internal controls, accounting practices, financial disclosures and
acquisition practices. The Loewen Defendants

116
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 13. LEGAL CONTINGENCIES (CONTINUED)
have filed a motion with the Judicial Panel on Multidistrict Litigation (the
"MDL Panel") to consolidation all of the actions for pretrial coordination in
the United States District Court for the Eastern District of Pennsylvania.
Counsel for the plaintiffs in the actions currently pending in the Eastern
District of New York have filed a written stipulation with the MDL Panel
agreeing to the transfer of their cases to the Eastern District of Pennsylvania.
The MDL Panel has not ruled. By agreement, the Loewen Defendants' responses to
all complaints currently are due by April 26, 1999.

The complaints filed in the United States District Court for the Eastern
District of Pennsylvania are: BERG V. THE LOEWEN GROUP INC., ET AL., 99-CV-321;
BRODY V. RAYMOND L. LOEWEN, ET AL., 99-CV-19; CAMUTO ET AL. V. RAYMOND L.
LOEWEN, ET AL., 99-CV-640; GILMORE V. RAYMOND L. LOEWEN, ET AL., 99-CV-232; CITY
OF PHILADELPHIA V. LOEWEN GROUP, INC. ET AL., 99-CV-1007; HILL V. THE LOEWEN
GROUP INC. ET AL., 99-CV-560; JAMISON V. RAYMOND L. LOEWEN, ET AL., 99-CV-98;
MCGLATHERY ET AL. V. RAYMOND L. LOEWEN ET AL. 99-CV-665 (the MCGLATHERY suit was
filed on behalf of purchasers of MIPS); PASKOWITZ V. RAYMOND L. LOEWEN ET AL.,
99-CV-91; SIROTA & SIROTA EMPLOYEES PROFIT SHARING PLAN V. THE LOEWEN GROUP INC.
ET AL., 99-CV-585; STEINER V. RAYMOND L. LOEWEN, ET AL., 98-CV-6740; TEKIRAN V.
RAYMOND L. LOEWEN ET AL., 99-CV-589; and TRAVIS V. RAYMOND L. LOEWEN, ET AL.,
No. 99-11340.

The complaints filed in the United States District Court for the Eastern
District of New York are: COHEN V. THE LOEWEN GROUP INC. (the COHEN suit was
filed on behalf of purchasers of MIPS), ET AL.; CV 99 553; COLLINS V. THE LOEWEN
GROUP INC., ET AL., CV 99 261; CORRADINI, ET AL. V. THE LOEWEN GROUP INC. ET
AL., CV 99 443; GERSH V. THE LOEWEN GROUP INC., CV 98 7983; GREAT NECK CAPITAL
APPRECIATION PARTNERS V. RAYMOND L. LOEWEN, ET AL., CV 99 164; HARRIS V. THE
LOEWEN GROUP INC., ET AL., CV 99 153; and SALEM V. THE LOEWEN GROUP INC., ET
AL., CV 99 351.

The Pennsylvania cases have all been assigned to Judge Thomas O'Neill.
Plaintiffs have filed a stipulated motion seeking the appointment of the City of
Philadelphia Board of Pensions as lead plaintiff. The Parent Company anticipates
that all of the Pennsylvania cases will be consolidated and that, when and if
transferred, the New York cases will also be consolidated. It is expected that
the lead plaintiff will, when appointed, file a Consolidated and Amended
Complaint, to which the defendants will be required to respond.

Additional class action complaints containing similar allegations may be
filed in the future.

F. LEO GROFF, INC. ET AL. V. RESTLAWN MEMORIAL GARDENS, INC. ET AL.

This action (No. 96-CV-397, Court of Common Pleas, Erie County, Ohio) was
served on the Parent Company and other defendants on September 19, 1996.
Plaintiffs allegedly compete with defendants Restlawn Memorial Park Association,
Restlawn Memorial Gardens, Inc., and Sinfran, Inc., which were acquired by the
Company. Plaintiffs allege thirteen counts, including counts alleging that
defendant Restlawn engaged in false and deceptive advertising, misused
confidential information, defamed plaintiffs,

117
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 13. LEGAL CONTINGENCIES (CONTINUED)
breached contractual obligations, misappropriated trade secrets, and tortiously
interfered with plaintiffs' contractual relationships. Plaintiffs further allege
that the Parent Company knew or should have known of Restlawn's conduct and
adopted and continued Restlawn's alleged unfair, false, and deceptive practices.
Plaintiffs also allege that the defendants conspired to destroy plaintiffs'
business and created a "trust in order to prevent competition" in violation of
Ohio's antitrust laws. Plaintiffs seek compensatory damages, which are
unspecified but alleged to exceed $350,000; punitive damages, which are
unspecified but alleged to exceed $300,000; and injunctive relief. Defendants'
summary judgment motion was denied as to all but one of plaintiffs' counts. A
trial date has been set for July 12, 1999.

The Company has determined that it is not possible at this time to predict
the final outcome of these proceedings or to establish a reasonable estimate of
possible damages, if any, or reasonably to estimate the range of possible
damages that may be awarded to the plaintiffs. Accordingly, no provision with
respect to this lawsuit has been made in the Parent Company's or the Company's
consolidated financial statements.

FLANAGAN

On December 7, 1998, Honorine T. Flanagan filed a complaint in the Superior
Court of the State of California in the County of Los Angeles against Loewen and
the Company. To date, only the Company has been served with the complaint. The
matter was subsequently removed to federal court based on diversity
jurisdiction, and it is now pending in the United States District Court in the
Central District of California.

The complaint alleges that the defendants breached an express warranty
contained in the Share Purchase Agreement dated July 17, 1995, between the
Company and Ms. Flanagan, her husband John Flanagan (now deceased) and the
Flanagan Family Trust. The Share Purchase Agreement was made in connection with
the Company's purchase of the Flanagans' mausoleum and mortuary business in
exchange for approximately $2,000,000 in cash and $7,800,000 of Loewen stock.
The Loewen stock was valued at $36.00 per share at the time of the transaction.
Ms. Flanagan alleges that the Company knew of claims, suits or other actions
which would materially and adversely affect the financial condition of the
Parent Company, yet made false statements to the contrary in the Share Purchase
Agreement. Ms. Flanagan alleges that two lawsuits pending at the time of the
Share Purchase Agreement did eventually have a material adverse impact on the
financial condition of the Parent Company and the value of the stock received by
Ms. Flanagan in connection with the Share Purchase Agreement.

118
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 13. LEGAL CONTINGENCIES (CONTINUED)
indemnity provision contained in the Share Purchase Agreement. She also seeks a
declaration that until she is indemnified for her losses she is not obligated to
transfer property that, pursuant to the Agreement, the Company has the option to
purchase for a specified price pursuant to the Share Purchase Agreement.

OTHER

NOTE 14. RESTRUCTURING COSTS

During 1997, the Company recorded pre-tax charges of $31,000,000
($19,800,000 after tax), for restructuring associated with the Company's efforts
to more fully integrate its field and administrative operations and improve
long-term financial performance. The restructuring charges primarily consisted
of $19,000,000 related to the severance of approximately 523 employees in
operating locations where consolidation and clustering synergies were not being
achieved, $7,500,000 associated with the closure of the Company's Covington,
Kentucky corporate office and $4,100,000 of asset write-downs related to
realignment or elimination of under-performing locations.

Actual severance paid, including to the Covington office employees, at
December 31, 1997 was $15,800,000. The remaining liability for severance of
$4,800,000 primarily relates to benefit or salary continuance arrangements and
was fully extinguished in 1998.

NOTE 15. IMPAIRMENT OF LONG-LIVED ASSETS

Due to severe liquidity constraints and the need to generate cash in late
1998, the Company identified certain properties which it would consider selling
at their fair value.

On March 31, 1999 one group of properties consisting of 124 cemeteries and
three funeral homes was sold for gross proceeds of $154,000,000 (see Notes 1 and
24). A smaller group is considered probable for sale.

The Company has recorded a pre-tax impairment loss of $301,605,000 in 1998
on individual properties contained in the above groups. In calculating the
impairment loss, the Company has used estimated cash flow from operations and
estimated cash proceeds on the sale of these properties. The impairment loss has
reduced cemetery property by $295,957,000, property and equipment by $2,284,000
and names and reputations by $3,364,000. The impairment loss is based on
management estimates and as a result, actual results could differ significantly
from these estimates.

119
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 15. IMPAIRMENT OF LONG-LIVED ASSETS (CONTINUED)
additional impairment losses have been recognized since future sales of other
properties are not determinable. Should additional properties be sold, losses,
if any, could be small or significant depending upon the type of property,
location, cash flow and prevailing market conditions.

During 1997, the Company recorded a charge to general and administrative
expenses for an impairment loss of $11,600,000, of which $5,400,000 was
non-cash, related to a write down of certain under-performing assets. The
impaired assets included $9,400,000 related to the termination of
non-competition agreements in markets where restrictive covenants no longer have
value to the Company and $2,200,000 of fixed assets and software costs related
to the streamlining of general and administrative functions and the change in
the Company's operating strategy.

NOTE 16. COMMITMENTS AND CONTINGENCIES

(A) LEASES

At December 31, 1998, the Company was committed to operating lease payments
for premises, automobiles and office equipment in the following approximate
amounts:

<TABLE>
<CAPTION>
TOTAL
---------
<S> <C>
1999........................................................... $ 16,099
2000........................................................... 12,872
2001........................................................... 10,161
2002........................................................... 9,396
2003........................................................... 7,510
Thereafter..................................................... 42,360
</TABLE>

Total rent expense for each of the years in the three year period ended
December 31, 1998 was $13,462,000, $15,258,000 and $11,144,000, respectively

(B) COVENANTS NOT TO COMPETE

<TABLE>
<CAPTION>
TOTAL
---------
<S> <C>
1999........................................................... $ 13,806
2000........................................................... 14,472
2001........................................................... 11,636
2002........................................................... 10,560
2003........................................................... 8,928
Thereafter..................................................... 28,416
</TABLE>

120
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 16. COMMITMENTS AND CONTINGENCIES (CONTINUED)
(C) MANAGEMENT EQUITY INVESTMENT PLAN GUARANTEE

The Company has guaranteed indebtedness of participants of the 1994
Management Equity Investment Plan totaling approximately $3,700,000
(1997 -- $3,500,000). The guarantee exists until the termination of the
Management Equity Investment Plan on July 15, 2001.

(D) ENVIRONMENTAL CONTINGENCIES AND LIABILITIES

(e) CONTINGENCY RELATED TO POTENTIAL SALE OF ADDITIONAL PROPERTIES

The Company has identified and is implementing strategies that will generate
cash flow and improve its financial position. Such strategies include further
asset sales, such as the sale of 124 cemeteries and three funeral homes
completed on March 31, 1999 for gross proceeds of $154,000,000. The Company has
a smaller group of properties which is also considered probable for sale. The
Company has recorded a pre-tax impairment loss of $301,605,000 in 1998 on
individual properties contained in the above groups.

Although the Company intends to consummate additional asset sales, it is not
committed to sell and has not identified any other properties for which sale is
probable, other than noted above. As a result, no additional impairment losses
have been recognized since future sales of other properties are not
determinable. Should additional properties be sold, losses, if any, could be
small or significant depending upon the type of property, location, cash flow
and prevailing market conditions.

(f) CONTINGENCY RELATED TO POTENTIAL PURCHASE OF INVESTMENTS

The Company has identified and accrued for contingent losses arising from
the exercise of the Put/Call Agreements in connection with its investments in
Prime and Rose Hills (see Note 5).

(g) CONTINGENCY RELATED TO PATS SENIOR NOTES

121
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 16. COMMITMENTS AND CONTINGENCIES (CONTINUED)
1998, the option value was $29,300,000. The option value will change based on
changes in the 10 year U.S. treasury rate.

NOTE 17. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE

NOTE 18. RETIREMENT PLAN

The Company has a defined contribution retirement plan covering
substantially all United States employees. There are no required future
contributions under this plan in respect of past service. The Company has a
401(K) Retirement Savings Plan for United States employees who may defer between
2% and 15% of eligible compensation. The Company will match 100% of employee
contributions to a maximum of 2% of employees' eligible compensation.

The total expense for the retirement plan for the three years ended December
31, 1998 was $2,622,000, $2,356,000 and $1,802,000, respectively.

122
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 19. INCOME TAXES

(A) EFFECTIVE TAX RATE

The Company's effective income tax rate is derived as follows:

<TABLE>
<CAPTION>
1998 1997 1996
--------- ------------- -------------
<S> <C> <C> <C>
(RESTATED -- (RESTATED --
NOTE 3) NOTE 3)
% % %
Combined United States federal and state income tax rate...................... (40.0) (40.0) 44.6
Non-deductible amortization of goodwill arising from acquisitions............. 0.8 3.9 41.7
Non-deductible costs of hostile takeover proposal............................. -- -- 47.3
Non-deductible restructuring and other charges................................ 0.1 0.6 --
Change in valuation allowance on future tax assets............................ 15.5 7.8 13.8
Other......................................................................... 1.9 5.2 (13.7)
--------- ----- -----
(21.7) (22.5) 133.7
--------- ----- -----
--------- ----- -----
</TABLE>

123
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 19. INCOME TAXES (CONTINUED)
(B) FUTURE TAX ASSETS AND LIABILITIES

<TABLE>
<CAPTION>
1998 1997
----------- ----------------
<S> <C> <C>
(RESTATED --
NOTE 3)
Future tax liabilities
Long-term receivables............................................................ $ 62,563 $ 18,564
Cemetery property................................................................ 303,145 372,676
Property and equipment........................................................... 54,149 53,901
Investments...................................................................... -- 4,264
Insurance policy liabilities..................................................... 18,905 7,814
Other............................................................................ 14,535 5,358
----------- ----------------
Total future tax liabilities....................................................... 453,297 462,577
----------- ----------------

Future tax assets
Accounts payable and accrued liabilities......................................... $ 16,206 $ 8,312
Cemetery long-term liabilities................................................... 34,649 34,672
Legal settlements................................................................ 15,517 15,911
Insurance assets................................................................. 15,149 3,517
Interest......................................................................... 150,614 82,349
Unrealized losses on investments in Prime and Rose Hills......................... 101,842 --
Deferred costs related to prearranged funeral services........................... 7,198 7,691
Operating loss carryforwards..................................................... 41,795 14,564
Other............................................................................ 16,647 9,432
----------- ----------------
Total future tax assets before valuation allowance............................... 399,617 176,448

Valuation allowance.............................................................. (137,603) (11,418)
----------- ----------------
Total future tax assets after valuation allowance................................ 262,014 165,030
----------- ----------------

Net future tax liabilities....................................................... $ 191,283 $ 297,547
----------- ----------------
----------- ----------------
</TABLE>

Although realization of the Company's deferred tax assets is not assured,
management believes that it is more likely than not that reversals of future tax
liabilities provide sufficient taxable income to realize the future tax assets.
The extent of valuation allowance required would likely be adversely affected by
future sales of subsidiaries. It is reasonably possible that these estimates
could change in the near term due to matters such as the timing and manner of
reversals of future tax liabilities, sales of operations, and future income.
During the year ended December 31, 1998, the Company increased its valuation
allowance by approximately $126,185,000 (1997 -- $7,919,000).

124
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 20. CHANGES IN OTHER NON-CASH BALANCES

Supplemental disclosures related to statements of cash flow:

<TABLE>
<CAPTION>
1998 1997 1996
--------- ---------- ----------
(RESTATED (RESTATED
-- NOTE 3) -- NOTE 3)
<S> <C> <C> <C>
(Increase) decrease in assets
Receivables, net of allowances.................. $ 20,279 $ 8,945 $ (32,536)
Inventories..................................... 565 (689) (2,400)
Prepaid expenses................................ 1,771 1,627 (3,246)
Amounts receivable from cemetery merchandise
trusts........................................ (98,114) (89,893) (6,703)
Installment contracts, net of allowances........ (119,759) (143,599) (62,900)
Cemetery property............................... (47,286) (31,045) 13,922
Deferred charges................................ (30,520) (39,668) (27,253)
Other assets.................................... 11,193 (9,467) (16,051)
Increase (decrease) in liabilities
Accrued settlements............................. -- -- (53,000)
Accounts payable and accrued liabilities........ 9,684 40,232 17,755
Other liabilities............................... 8,597 10,900 112
Cemetery long-term liabilities.................. (15,448) 19,261 619
Insurance policy liabilities.................... 22,935 5,786 747
Other changes in non-cash balances................ 12,946 (1,914) 5,430
--------- ---------- ----------
$(223,157) $ (229,524) $ (165,504)
--------- ---------- ----------
--------- ---------- ----------
Supplemental information
Interest paid................................... $ 160,012 $ 88,796 $ 78,800
Taxes paid...................................... 80 33,067 9,965
Bad debt expense................................ 82,333 52,635 27,731

Non-cash investing and financing activities
Non-cash debt and share consideration on
acquisitions.................................. 21,623 58,068 62,711
Note receivable from sale of subsidiary......... -- 15,725 --
Increases in loans and advances from affiliates
and debt arising from legal settlements....... -- -- 111,800
Properties contributed to Rose Hills including
unrealized gain thereon....................... -- -- 23,000
Exchange of common and preferred shares of Prime
and Rose Hills for shares of 4103
Investments................................... -- 138,255 --
Increases in loans and advances from affiliates
in consideration for share issuances.......... 38,544 185,250 175,069
</TABLE>

125
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 21. SUPPLEMENTARY FINANCIAL INFORMATION

A summary of certain balance sheet accounts as at December 31, is as
follows:

<TABLE>
<CAPTION>
1998 1997
---------- -----------
(RESTATED
-- NOTE 3)
<S> <C> <C>
Receivables, net of allowances
Trade accounts............................................ $ 46,593 $ 87,402
Installment contracts..................................... 50,001 40,825
Other..................................................... 55,450 69,602
Unearned finance income................................... (7,884) (4,846)
Allowances for contract cancellations and doubtful
accounts................................................ (29,669) (23,225)
---------- -----------
$ 114,491 $ 169,758
---------- -----------
---------- -----------
Long-term receivables, net of allowances
Notes receivable.......................................... $ 11,942 $ 12,547
Amounts receivable from cemetery merchandise trusts....... 392,000 297,688
Installment contracts..................................... 116,973 95,512
Unearned finance income................................... (19,147) (11,505)
Allowances for contract cancellations and doubtful
accounts................................................ (15,380) (6,960)
---------- -----------
$ 486,388 $ 387,282
---------- -----------
---------- -----------
Cemetery property
Developed land and lawn crypts............................ $ 206,743 $ 189,177
Undeveloped land.......................................... 889,257 1,042,885
Mausoleums................................................ 130,358 76,066
---------- -----------
$1,226,358 $ 1,308,128
---------- -----------
---------- -----------
Property and equipment
Land...................................................... $ 145,674 $ 146,681
Buildings and improvements................................ 479,097 431,342
Automobiles............................................... 69,346 65,875
Furniture, fixtures and equipment......................... 132,775 117,164
Computer hardware and software............................ 26,510 20,342
Leasehold improvements.................................... 13,818 12,405
Accumulated depreciation and amortization................. (154,225) (114,590)
---------- -----------
$ 712,995 $ 679,219
---------- -----------
---------- -----------
Names and reputations
Names and reputations..................................... $ 698,009 $ 598,819
Covenants not to compete.................................. 81,070 70,933
Accumulated amortization.................................. (100,503) (71,063)
---------- -----------
$ 678,576 $ 598,689
---------- -----------
---------- -----------
</TABLE>

126
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 21. SUPPLEMENTARY FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
---------- -----------
(RESTATED
-- NOTE 3)
<S> <C> <C>
Other assets
Deferred debt issue costs................................. $ 21,137 $ 29,201
Deferred direct obtaining costs........................... 97,254 79,846
Cemetery management contracts............................. 13,413 --
Other..................................................... 19,512 47,302
---------- -----------
$ 151,316 $ 156,349
---------- -----------
---------- -----------
Accounts payable and accrued liabilities
Trade payables............................................ $ 38,852 $ 35,900
Interest.................................................. 34,727 34,689
Insurance, property and business taxes.................... 5,593 6,059
Other..................................................... 71,240 62,315
---------- -----------
$ 150,412 $ 138,963
---------- -----------
---------- -----------
Other liabilities
Cemetery long-term liabilities............................ $ 202,267 $ 212,958
Accrual for contingent loss (Note 5(b) and (c))........... 155,338 --
Covenants not to compete.................................. 20,540 17,734
Regional partnership liabilities.......................... 9,836 12,149
Participants' deposits in MEIP............................ 5,120 5,508
Other..................................................... 21,218 11,039
---------- -----------
$ 414,319 $ 259,388
---------- -----------
---------- -----------
</TABLE>

NOTE 22. SEGMENTED INFORMATION

The Company's reportable segments are comprised of the three businesses it
operates, each of which offers different products and services: funeral homes,
cemeteries and insurance. All of the Company's operations are located in the
United States.

The cemeteries assist families in making burial arrangements and offer a
complete line of cemetery products (including a selection of burial spaces,
burial vaults, lawn crypts, caskets, memorials, niches and

127
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 22. SEGMENTED INFORMATION (CONTINUED)
mausoleum crypts), the opening and closing of graves and cremation services. The
majority of cemetery revenue is from pre-need sales.

<TABLE>
<CAPTION>
FUNERAL CEMETERY INSURANCE OTHER CONSOLIDATED
------------ ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Revenue earned from external sales
1998......................................... $ 559,217 $ 416,823 $ 96,516 $ -- $1,072,556
1997......................................... 536,926 408,196 89,977 -- 1,035,099
1996......................................... 489,571 277,881 71,900 -- 839,352
Earnings (loss) from operations
1998......................................... $ 113,608 $ (262,366) $ 16,472 $ (84,802) $ (217,088)
1997......................................... 126,865 70,709 16,508 (93,460) 120,622
1996......................................... 135,864 68,399 17,151 (41,892) 179,522
Investment revenue (included in earnings (loss)
from operations)
1998......................................... $ 3,197 $ 33,602 $ 21,351 $ 1,590 $ 59,740
1997......................................... 5,354 28,647 23,518 275 57,794
1996......................................... 3,156 15,379 16,615 1,038 36,188
Depreciation and amortization
1998......................................... $ 56,146 $ 10,668 $ 31 $ 9,380 $ 76,225
1997......................................... 45,531 7,391 36 3,400 56,358
1996......................................... 40,022 3,987 40 1,675 45,724
Total assets
1998......................................... $ 1,790,679 $ 1,923,540 $ 276,098 $ 150,197 $4,140,514
1997......................................... 1,734,321 1,850,223 331,754 294,049 4,210,347
1996......................................... 1,486,514 1,259,821 311,406 250,637 3,308,378
Capital expenditures
1998......................................... $ 64,845 $ 25,574 $ 420 $ 3,448 $ 94,287
1997......................................... 83,381 52,893 208 6,807 143,289
1996......................................... 116,676 36,187 1,274 9,828 163,965
</TABLE>

128
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 22. SEGMENTED INFORMATION (CONTINUED)

The following table reconciles earnings from operations of reportable
segments to earnings (loss) before income taxes and identifies the components of
"Other" segment earnings from operations:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Earnings (loss) from operations of funeral, cemetery and insurance
segments.................................................................. $ (132,286) $ 214,082 $ 221,414
Other expenses of operations:
General and administrative expenses....................................... (74,846) (58,252) (40,217)
Restructuring costs....................................................... -- (30,922) --
Depreciation and amortization............................................. (9,380) (3,400) (1,675)
Other..................................................................... (576) (886) --
----------- ---------- ----------
(84,802) (93,460) (41,892)
----------- ---------- ----------
Total earnings (loss) from operations....................................... $ (217,088) $ 120,622 $ 179,522
----------- ---------- ----------
----------- ---------- ----------
</TABLE>

The following table reconciles total assets of reportable segments and
details the components of "Other" segment assets which is mainly comprised of
corporate assets:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Total assets of funeral, cemetery and insurance segments................ $ 3,990,317 $ 3,916,298 $ 3,057,741
"Other" assets includes:
Cash.................................................................. 52,007 1,884 (1,187)
Receivables........................................................... 16,233 41,359 17,927
Prepaid expenses...................................................... 2,362 1,472 3,713
Long-term receivables, net of allowance............................... 7,696 3,957 2,217
Investments........................................................... 30,245 184,723 170,245
Property and equipment................................................ 13,338 19,240 11,420
Names and reputations................................................. 4,358 4,766 5,174
Deferred debt issue costs............................................. 21,137 29,201 31,588
Other................................................................. 2,821 7,447 9,540
------------ ------------ ------------
150,197 294,049 250,637
------------ ------------ ------------
Total assets.......................................................... $ 4,140,514 $ 4,210,347 $ 3,308,378
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

NOTE 23. RELATED PARTY TRANSACTIONS

During 1998, the Company entered into agreements, through a series of
transactions, to sell cemetery installment contract receivables to an affiliate
of the Company for approximately $112,861,000 resulting in a loss of
$11,189,000, and funeral home contract receivables for $23,674,000 resulting in
a loss of $1,903,000.

During 1997, the Company entered into agreements, through a series of
transactions, to sell cemetery installment contract receivables to an affiliate
of the Company for approximately $185,179,000 (1996-- $57,483,000) resulting in
a loss of $22,066,000 (1996--$5,225,000).

129
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 23. RELATED PARTY TRANSACTIONS (CONTINUED)
For the year ended December 31, 1998, the Company paid management fees to
the Parent Company of $23,264,000 (1997 -- $18,961,000; 1996 -- $15,884,000).

During the year ended December 31, 1997, the Company paid approximately
$10,800,000 for insurance and other services to a related company. There were no
such expenditures in 1998.

As part of the acquisition of Osiris Holding Corporation ("Osiris"), the
Company has recorded $14,947,000 as a long-term liability which is the present
value of the total remaining contingent payments of approximately $17,100,000.
The Company expected to pay the balance over a five-year period ending in 2001
to the former shareholders of Osiris, two of whom were officers of the Company.
Subsequent to year end the two officers of the Company entered into an agreement
with the Company to purchase a number of cemeteries and funeral homes and ended
their association with the Company. The balance of the contingency payment was
reclassified to current liabilities as the remaining balance was agreed to be
paid out of the proceeds of the sale in 1999 (see Note 24).

At December 31, 1998, Company officers, directors and employees were
indebted to the Company for approximately $10,400,000 (1997 -- $9,000,000).

NOTE 24. SUBSEQUENT EVENTS

In Febuary, 1999 the Parent Company sold the motor vessel for proceeds of
$4,000,000. The Parent Company recorded an impairment loss of $1,000,000 on the
motor vessel in 1998.

On March 8, 1999, the Company deferred payment of the dividends on the
Company's Cumulative Monthly Income Preferred Securities, Series "A".

On March 31, 1999, the Company completed the sale of 124 cemeteries and
three funeral homes to an investor group led by McCown De Leeuw & Co., a private
investment firm. The Company received gross proceeds of $154,000,000. The
investor group included two former officers of the Company. The Company has
recorded a pre-tax impairment loss of $301,605,000 in 1998 on individual
properties contained in the above groups.

130
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 24. SUBSEQUENT EVENTS (CONTINUED)
On March 31, 1999, the Company completed negotiations with certain lenders
resulting in revised lending agreements, including waivers of certain financial
covenants at December 31, 1998. As a result, the Company has not had an event of
default of certain covenants in its Credit Agreements.

NOTE 25. UNITED STATES ACCOUNTING PRINCIPLES

The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles("GAAP") in Canada. These principles
differ in the following material respects from those in the United States as
summarized below:

(a) LOSS

<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------- ---------
<S> <C> <C> <C>
Loss in accordance with Canadian GAAP......................................... $ (635,912) $ (78,750) $ (3,107)
Less effects of differences in accounting for:
Factoring transactions (d).................................................. 604 12,314 --
Insurance operations (e).................................................... 2,833 1,701 (1,440)
Cost of start-up activities (h)............................................. 2,302 -- --
----------- ---------- ---------
Loss before cumulative effect of a change in accounting principle............. (630,173) (64,735) (4,547)
Cumulative effect of adopting SOP 98-5 as of January 1, 1998.................. (3,940) -- --
----------- ---------- ---------
Loss in accordance with United States GAAP.................................... (634,113) (64,735) (4,547)

Other comprehensive income....................................................
Foreign currency translations............................................... (7,968) -- --
Unrealized gains (losses) on securities:
Unrealized holding gains arising during the period, net of deferred tax
expense of $8,354, $5,992, and $1,222, respectively..................... 10,211 7,323 1,494
Less: reclassification adjustment for gains included in net income........ (8,486) (3,044) (561)
----------- ---------- ---------
Comprehensive income (loss) in accordance with United States GAAP............. $ (640,356) $ (60,456) $ (3,614)
----------- ---------- ---------
----------- ---------- ---------
</TABLE>

131
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 25. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
(b) BALANCE SHEET

The amounts in the consolidated balance sheet that differ from those
reported under Canadian GAAP are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------------- --------------------------
CANADIAN UNITED CANADIAN UNITED
GAAP STATES GAAP GAAP STATES GAAP
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
(RESTATED --
NOTE 3)
Assets
Receivables, net of allowances........................ $ 114,491 $ 200,078 $ 169,758 $ 229,314
Long-term receivables, net of allowances.............. 486,388 633,951 387,282 528,015
Insurance invested assets............................. 266,661 270,809 305,610 312,073
Other assets.......................................... 151,316 176,984 156,349 181,556

Liabilities and Shareholders' Equity
Loans and advances from affiliates, current portion... 227,841 288,824 -- 53,399
Loans and advances from affiliates.................... 784,369 926,666 1,013,914 1,138,511
Other liabilities..................................... 414,319 409,392 259,388 257,128
Insurance policy liabilities.......................... 166,920 196,230 214,492 240,750
Future income tax liabilities......................... 191,283 205,275 297,547 309,725
Share capital......................................... 526,058 527,732 487,514 489,188
Deficit............................................... (823,172) (810,472) (187,260) (176,359)
Accumulated other comprehensive income
Unrealized gains on securities available for sale,
net of tax........................................ -- 6,937 -- 5,212
</TABLE>

PRESENT VALUE OF INSURANCE POLICIES

DEFERRED POLICY ACQUISITION COSTS

132
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 25. 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.

(d) SALES OF RECEIVABLES

The Company adopted Financial Accounting Standard No. 125 ("FAS 125"),
"Accounting for Transfers and Servicing of Financial Assets", for transfers of
financial assets after December 31, 1996. Under FAS 125, the Company does not
recognize the sales of receivables until the transferred receivables are put
beyond the reach of the Company's creditors. The Company's cemetery installment
contract receivables have been sold to an affiliate whose capital stock is
pledged as collateral for the benefit of the Company's senior lenders, see Note
9. Accordingly, for United States GAAP purposes, the Company continues to carry
the transferred receivables on its financial statements, the proceeds from the
sales of receivables have been reflected in loans and advances from affiliates
and the related losses are deferred and recognized as interest expense over the
life of the loan.

(e) UNREALIZED GAINS AND LOSSES

Amounts receivable from cemetery merchandise trusts and insurance invested
assets are subject to the provisions of Financial Accounting Standard No. 115
("FAS 115"), "Accounting for Certain Investments in Debt and Equity" under
United States GAAP. Under FAS 115, fixed maturity securities which the Company
has the positive intent and ability to hold to maturity are classified as
held-to-maturity and are carried at amortized cost. Fixed maturity securities
classified as held-to-maturity were approximately $30,582,000 at December 31,
1998 (1997 -- $69,243,000). Debt and equity securities that are held with the
objective of trading to generate profits on short-term differences in price are
carried at fair value, with changes in fair value reflected in the results of
operations. At December 31, 1998, the Company had no securities classified as
trading (1997 -- $1,380,000). All other fixed maturity and equity securities not
classified as either held-to-maturity or trading are classified as
available-for-sale and carried at fair value which was approximately
$619,913,000 at December 31, 1998 (1997 -- $496,922,000). Available-for-sale
securities may be sold in response to changes in interest rates and liquidity
needs. Unrealized holding gains and losses related to available-for-sale
investments, after deducting amounts allocable to income taxes, are reflected as
accumulated other comprehensive income, a separate component of stockholders'
equity. Unrealized holding gains and losses related to trading investments,
after deducting amounts allocable to income taxes, are reflected in earnings.

133
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 25. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
(f) ACCOUNTING FOR JOINT VENTURE

Beginning in November 1998, the Company proportionately consolidates, for
Canadian GAAP purposes, its investment in 4103 Investments, which is a joint
venture. Under United States GAAP, the investment in 4103 Investments is
recorded under the equity method.

(g) STOCK-BASED COMPENSATION

The Company adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 123 ("FAS 123"), "Accounting for Stock-Based
Compensation", for United States GAAP purposes.

For these purposes, the fair value of each option is estimated on the date
of the grant using the Black-Scholes option-pricing model with the following
weighted average assumptions: dividend yield nil (1997 -- 0.5%, 1996 -- 0.5%),
expected volatility 29% (1997 -- 24%, 1996 -- 24%), United States risk-free
interest rates 5.11% (1997 -- 5.89%, 1996 -- 5.57%) and expected average option
term of 3.4 years (1997 -- 4.6 years, 1996 -- 2.9 years). The weighted average
fair value of the options granted is $6.41(1997 -- $8.92, 1996 -- $6.25) per
option.

(h) REPORTING ON THE COSTS OF START-UP ACTIVITIES

The AICPA issued Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities" ("SOP 98-5") on April 3, 1998, to be effective for fiscal
years beginning after December 15, 1998. SOP 98-5 states that the costs of
start-up activities, including organization costs, should be expensed as
incurred. The Company has elected early adoption of SOP 98-5 to be effective for
the year ended December 31, 1998. Pursuant to SOP 98-5, the Company has written
off the unamortized costs of start-up activities, which are contained in other
assets, as a change in accounting principle.

SOP 98-5 was adopted in the fourth quarter of 1998, and was effective
January 1, 1998. The effect on the loss for the year ended December 31, 1998
would be a decrease of $3,940,000.

134
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 25. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
(i) ADVERTISING COSTS

Advertising costs were $8,796,000 for the year ended December 31, 1998
(1997 -- $7,896,000; 1996 -- $6,796,000).

(j) RECENT ACCOUNTING STANDARDS

Management has not determined the impact of this recent accounting standard
on its consolidated financial statements.

NOTE 26. COMPARATIVE FIGURES

Certain of the comparative figures have been reclassified to conform to the
presentation adopted in the current period.

135
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors and Shareholders
Neweol Investments Ltd.

We have audited the consolidated balance sheets of Neweol Investments Ltd.,
as defined in Note 2 to the financial statements, as at December 31, 1998 and
1997 and the consolidated statements of operations, comprehensive income and
retained earnings (deficit) and cash flows for each of the years in the three
year period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of Neweol Investments Ltd. as at
December 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the years in the three year period ended December 31, 1998, in
accordance with generally accepted accounting principles in the United States.
As required by the Company Act of the Province of British Columbia, we report
that, in our opinion, these principles have been applied on a consistent basis.

/s/ KPMG LLP
Chartered Accountants
Vancouver, Canada

April 12, 1999

COMMENTS BY AUDITOR FOR U.S. READERS ON CANADA-U.S. REPORTING DIFFERENCE

/s/ KPMG LLP
Chartered Accountants
Vancouver, Canada
April 12, 1999

136
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 2)

CONSOLIDATED BALANCE SHEETS

EXPRESSED IN THOUSANDS OF U.S. DOLLARS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash................................................................................ $ 916 $ 181
Accounts receivable, net of allowances.............................................. 23,708 --
Installment contract receivables, net of allowances................................. 57,959 61,549
Note receivable from affiliate...................................................... 39,938 --
------------ ------------
122,521 61,730

Long-term installment contract receivables, net of allowances......................... 135,076 143,420
Investments........................................................................... -- 13,358
Investment in affiliate............................................................... -- 47,441
Notes receivable from affiliates...................................................... 170,976 1,032,516
Due from affiliates................................................................... 5,186 387
Due from Parent Company............................................................... 37,830 --
Deferred income taxes................................................................. 12,003 --
Other assets.......................................................................... 558 1,244
------------ ------------
$ 484,150 $ 1,300,096
------------ ------------
------------ ------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current indebtedness................................................................ $ 66,222 $ --
Accounts payable and accrued liabilities............................................ 4,365 3,444
Due to affiliates................................................................... 2,894 7,868
------------ ------------
73,481 11,312

Note payable.......................................................................... 5,756 2,517
Due to Parent Company................................................................. -- 3,701
Accrued equity loss in associated company............................................. 43,987 --
Minority interest and redeemable shares of subsidiary................................. 9,422 21,999

Shareholders' equity
Capital stock, no par value, 1,000,000,000 shares authorized, 267,706 shares issued
and outstanding (1997 -- 264,839)................................................. 1,190,576 1,177,787
Retained earnings (deficit)......................................................... (838,476) 82,660
Accumulated other comprehensive income:
Foreign currency translation adjustment........................................... (596) 120
------------ ------------
351,504 1,260,567
------------ ------------
$ 484,150 $ 1,300,096
------------ ------------
------------ ------------
FINANCIAL CONDITION (NOTE 1)
COMMITMENTS AND CONTINGENCIES (NOTES 3, 5, 15 AND 17)
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

137
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 2)

CONSOLIDATED STATEMENTS OF OPERATIONS,
COMPREHENSIVE INCOME AND RETAINED EARNINGS (DEFICIT)

EXPRESSED IN THOUSANDS OF U.S. DOLLARS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
----------- ---------- ---------
<S> <C> <C> <C>
Revenue
Interest income from affiliates............................................. $ 120,398 $ 99,145 $ 59,403
Revenue earned from purchased receivables................................... 26,690 7,384 979
Other revenue............................................................... -- 807 1,900
----------- ---------- ---------
147,088 107,336 62,282
Expenses
General and administrative.................................................. 6,621 2,709 1,513
Contract cancellation and bad debt expense.................................. 35,213 -- --
Interest expense............................................................ 1,354 -- --
Impairment loss on notes receivable from affiliate.......................... 837,790 -- --
----------- ---------- ---------
Earnings (loss) before income tax expense and undernoted items................ (733,890) 104,627 60,769
Income taxes
Current..................................................................... 6,727 6,070 6,633
Deferred.................................................................... (12,003) -- --
----------- ---------- ---------
(5,276) 6,070 6,633
----------- ---------- ---------
(728,614) 98,557 54,136
Equity in earnings (losses) of associated companies........................... (91,428) (9,129) 1,650
Minority interest............................................................. (212) (5,202) (6,366)
----------- ---------- ---------
Net earnings (loss)........................................................... $ (820,254) $ 84,226 $ 49,420
----------- ---------- ---------
----------- ---------- ---------

Other comprehensive income, net of tax:
Net earnings (loss)......................................................... $ (820,254) $ 84,226 $ 49,420
Foreign currency translation................................................ 596 (120) (5,573)
----------- ---------- ---------
Comprehensive income (loss)................................................... $ (819,658) $ 84,106 $ 43,847
----------- ---------- ---------
----------- ---------- ---------

Retained earnings, beginning of period........................................ $ 82,660 $ 54,163 $ 10,415
Net earnings (loss)........................................................... (820,254) 84,226 49,420
Dividends on common shares.................................................... (100,882) (53,669) --
Dividends on redeemable preferred shares...................................... -- (2,060) (5,672)
----------- ---------- ---------
Retained earnings (deficit), end of period.................................... $ (838,476) $ 82,660 $ 54,163
----------- ---------- ---------
----------- ---------- ---------
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

138
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 2)

CONSOLIDATED STATEMENTS OF CASH FLOWS

EXPRESSED IN THOUSANDS OF U.S. DOLLARS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH PROVIDED BY (APPLIED TO)
Operations
Net earnings (loss)...................................................... $ (820,254) $ 84,226 $ 49,420
Items not affecting cash
Minority interest...................................................... 212 5,202 6,366
Deferred income taxes.................................................. (12,003) -- --
Impairment loss on notes receivable from affiliate..................... 837,790 -- --
Equity in losses (earnings) of associated companies.................... 91,428 9,129 (1,650)
Collections of purchased receivables from affiliate...................... 91,188 -- --
Net changes in other non-cash balances................................... 14,737 (5,614) 9,280
----------- ----------- -----------
203,098 92,943 63,416
----------- ----------- -----------
Investing
Loans to affiliate....................................................... (154,658) (474,853) (251,171)
Repayments of notes receivable from affiliate............................ 138,469 142,763 36,091
Purchase of receivables from affiliate................................... (117,036) (177,748) (57,483)
Investments.............................................................. -- (9,732) (2,212)
Investment in affiliate.................................................. 387 (24,473) --
Advances to affiliates................................................... (5,529) -- --
----------- ----------- -----------
(138,367) (544,043) (274,775)
----------- ----------- -----------
Financing
Capital contributions from Parent Company................................ -- 431,805 40,792
Advances from Parent Company............................................. -- 16,267 190,130
Repayment of advances from Parent Company................................ (35,092) -- (19,673)
Advances on note payable................................................. 71,654 -- --
Repayments on note payable............................................... (5,432) -- --
Common share dividends................................................... (95,126) -- --
Increase in minority interest............................................ -- 3,126 --
----------- ----------- -----------
(63,996) 451,198 211,249
----------- ----------- -----------
Increase in cash during the year........................................... 735 98 (110)
Cash, beginning of year.................................................... 181 83 193
----------- ----------- -----------
Cash, end of year.......................................................... $ 916 $ 181 $ 83
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

139
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 2)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF US DOLLARS, EXCEPT NUMBER OF SHARES

NOTE 1. FINANCIAL CONDITION

BASIS OF PRESENTATION

These consolidated financial statements have been prepared on a going
concern basis in accordance with generally accepted accounting principles in the
United States. The going concern basis of presentation assumes that Neweol
Investments Ltd. ("the Company") will continue in operation for the foreseeable
future and will be able to realize its assets and discharge its liabilities and
commitments in the normal course of business. Certain conditions, described
below, currently exist which cast doubt upon the validity of this assumption.

During the year, the Company incurred a loss of $820,254,000 primarily the
result of the impairment loss on notes receivable from its affiliate Loewen
Group International, Inc. ("LGII") and an accrual of the equity in LGII's loss
in excess of the Company's investment.

There is substantial doubt about the appropriateness of the use of the going
concern assumption because of uncertainty as regards The Loewen Group Inc.'s
("Parent Company") and LGII's financial condition due to both a significant net
loss and negative cash flow experienced in 1998. There is also uncertainty as to
LGII's ability to refinance its pass-through asset trust senior guaranteed notes
("PATS senior notes") which may be redeemed on October 1, 1999 and which require
refinancing on terms satisfactory to certain of the Parent Company's and LGII's
lenders by September 15, 1999 under the terms of certain of the Parent Company's
and LGII's debt agreements. The shares held by the Parent Company of its
subsidiaries are pledged under a collateral trust arrangement as collateral for
among other debt, the PATS senior notes.

The Company is economically dependent upon its Parent Company and its
subsidiaries. The ability of the Company to continue as a going concern and to
realize the carrying value of their assets and discharge their liabilities when
due is dependent on the successful completion of actions that the Parent Company
and its subsidiaries have taken or plan to take which management believes will
mitigate the adverse conditions and events which raise doubt about the validity
of the "going concern" assumption. However, there is no certainty that the
actions or other strategies carried out by the Parent Company and its
subsidiaries will be sufficient to permit the Company to continue.

The consolidated financial statements do not reflect adjustments that would
be necessary if the "going concern" assumption were not appropriate. If the
going concern basis was not appropriate for these consolidated financial
statements, then significant adjustments would be necessary in the carrying
value of assets and liabilities, the reported revenues and expenses, and the
balance sheet classifications used.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Neweol Investments Ltd. was incorporated on November 6, 1992 under the
federal laws of Canada and continued on June 3, 1993 under the laws of the
Province of British Columbia as a wholly owned subsidiary of the Parent Company.
The principal activities of the Company are to provide financing to and hold
investments in other subsidiaries of the Parent Company ("affiliates").

The consolidated financial statements have been prepared in United States
dollars in accordance with generally accepted accounting principles in the
United States. The preparation of consolidated financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of

140
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 2)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF US DOLLARS, EXCEPT NUMBER OF SHARES

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenue and expenses during the reporting
period. As a result, actual results could differ from those estimates.

BASIS OF CONSOLIDATION

The accompanying consolidated financial statements have been prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission. These consolidated financial statements exclude certain
subsidiaries of the Company which were transferred to an affiliate in a
reorganization that was effective July 19 and August 13, 1996 and accordingly
are not intended to be a complete presentation of the historical consolidated
financial position, results of operations, and cash flows of the Company. To the
extent interests in those subsidiaries were not transferred as a result of the
reorganization, such interests are reflected in the accompanying financial
statements.

These consolidated financial statements include the following principal
subsidiaries: Loewen Luxembourg (No. 1) S.A., 4166 Investments Ltd., their
subsidiaries and predecessors and Neweol's equity investment in its affiliate
LGII. All subsidiaries are wholly owned at December 31, 1998, except for
redeemable shares of a subsidiary which are held by an affiliate.

The Company initially records investments acquired from third parties at
cost and investments acquired from entities under common control at the
transferor's carrying value.

The Company accounts for its investment in companies in which it has
significant influence by the equity method. The Company's proportionate share of
income (loss) as reported is included in income and added to (deducted from) the
cost of the investment. Common share dividends received reduce the carrying
amount of the investment.

All significant intercompany balances and transactions have been eliminated
from the consolidated financial statements.

The Company receives administrative support from the Parent Company at no
charge to the Company. Direct costs of the Company's operations are recorded as
expenses.

The Company has no operations independent of those carried on by its
subsidiaries. The Company is dependent on future remittances from its
subsidiaries or capital contributions from its Parent Company to satisfy its
obligations, primarily all of which are to affiliates.

REVENUE EARNED FROM PURCHASED ACCOUNTS RECEIVABLE

Unearned finance income and unamortized purchase discount, representing the
financing cost to the affiliates, are established at the time of the purchase.
Unearned finance income and unamortized purchase discount are recognized as
revenue earned from purchased receivables over the collection period of the
contract receivables.

ALLOWANCE FOR CONTRACT CANCELLATIONS AND DOUBTFUL ACCOUNTS

An allowance for cancellations and refunds is provided at the date of sale
based on management's estimates. The allowance is reviewed quarterly and changes
in estimates are reflected for current and prior

141
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 2)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF US DOLLARS, EXCEPT NUMBER OF SHARES

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
contracts as a result of recent cancellation experience. Actual cancellation
rates in the future may result in a change in estimate.

CONCENTRATION OF CREDIT RISK

All of the Company's installment contract receivables are from the sale of
pre-need cemetery interment rights, merchandise and services to consumers. All
of the Company's accounts receivable are from the at-need sale of funeral
services to consumers. The installment contract receivables and the accounts
receivable individually are relatively small dollar amounts and originated at
multiple locations throughout the U.S.

All of the Company's notes receivable from affiliates are due from LGII,
with the exception of a note receivable from a United Kingdom affiliate (see
note 3).

ACCOUNTING FOR INCOME TAXES

The Company follows the asset and liability method of accounting for income
taxes. Deferred income taxes are recognized for the future tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Deferred tax assets and liabilities are measured using enacted rates expected to
apply to taxable income in the years in which these temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.

FOREIGN CURRENCY

The assets and liabilities denominated in foreign currencies have been
translated into United States dollars at the rates of exchange at the balance
sheet dates, and revenues and expenses are translated at the average rates of
exchange for the periods of operation.

Exchange gains and losses arising from foreign currency transactions are
included in income in the current year. Unrealized gains and losses arising from
the translation are classified as "Foreign currency translation adjustment"
within shareholders' equity. No exchange gains or losses have been incurred in
the years presented.

142
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 2)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF US DOLLARS, EXCEPT NUMBER OF SHARES

NOTE 3. NOTES RECEIVABLE FROM AFFILIATES

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
Current
Secured term credit agreement due in 1999....................... $ 206,000 $ --
Allowance for credit losses..................................... (166,062) --
------------ ------------
Net current notes receivable from affiliate....................... $ 39,938 $ --
------------ ------------
------------ ------------
Long-term
Unsecured revolving credit agreement due in 1999................ $ -- $ 54,790
Unsecured revolving credit agreement due in 2003................ 10,291 --
Unsecured revolving credit agreement due in 2003................ 10,914 --
Secured revolving credit agreements due in 2002................. 137,594 87,821
Secured term credit agreement due in 1999....................... -- 206,000
Secured term credit agreement due in 2000....................... 199,650 199,650
Secured term credit agreement due in 2001....................... 184,390 184,390
Secured term credit agreement due in 2002....................... 299,865 299,865
------------ ------------
Total long-term investment in notes receivable.................... 842,704 1,032,516
Allowance for credit losses....................................... (671,728) --
------------ ------------
Net long-term notes receivable from affiliates.................... $ 170,976 $ 1,032,516
------------ ------------
------------ ------------
</TABLE>

All of the Company's notes receivable are due from LGII, with the exception
of the unsecured revolving credit agreement due in 2003, which is due from a
United Kingdom affiliate. The Company has determined there is no impairment
related to the note receivable from the United Kingdom affiliate.

At December 31, 1998, the Company has determined that the notes receivable
from LGII were impaired based upon the affiliate's negative cash flow and its
deteriorating operational and financial condition. The Company has measured
impairment using the estimated fair value of the collateral associated with the
notes receivable. Accordingly, the Company has recognized a $837,790,000
allowance for credit losses against the notes receivable from LGII. The Company
has not changed its method of recognizing interest income and will evaluate
collectibility of interest receivable balances on an ongoing basis.

The first unsecured revolving credit agreement due in 2003 bears interest at
a fixed rate of 11.25%. The second unsecured revolving agreement due in 2003
bears interest at a floating rate based on the mean of the London interbank
offered rates for deposits of similar duration to the interest accrual period
plus 2.5% (10.0% at December 31, 1998; 9.93% at December 31, 1997). The secured
revolving credit agreements due in 2002 bear interest at a floating rate based
on U.S. Treasury rates adjusted to a constant maturity of three months plus 5%
(9.09% at December 31, 1998). The current and long-term secured term credit
agreements bear interest at a fixed rate of 11.5% per annum. The maximum credit
available under the unsecured revolving credit agreements and the secured
revolving credit agreements is $99,500,000 and $300,000,000, respectively.

In 1996, the Parent Company, LGII and their senior lenders entered into a
collateral trust agreement pursuant to which the senior lenders share certain
collateral and guarantees on a pari passu basis (the

143
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 2)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF US DOLLARS, EXCEPT NUMBER OF SHARES

NOTE 3. NOTES RECEIVABLE FROM AFFILIATES (CONTINUED)
"Collateral Trust Agreement"). The security for lenders under the Collateral
Trust Agreement consists of (i) all of LGII's right, title and interest in and
to all rights to receive payment under or in respect of accounts, contracts,
contractual rights, chattel paper, documents, instruments and general
intangibles, (ii) a pledge of the shares of capital stock of substantially all
of the subsidiaries in which the Parent Company directly or indirectly holds
more than a 50% voting or economic interest and (iii) a guarantee by each
subsidiary that is pledging stock. The security is held by a trustee for the
equal and ratable benefit of the senior lending group. Accordingly, the secured
revolving and term credit agreements are secured under the Collateral Trust
Agreement, subordinated to the senior lending group. At December 31, 1998, the
indebtedness of the Parent Company and its subsidiaries owed to the senior
lending group subject to the Collateral Trust Agreement, including holders of
certain letters of credit aggregated $2,108,000,000.

NOTE 4. INVESTMENTS

On November 15, 1994, a subsidiary of the Company made an investment of
$99,600 representing a 24.9% interest in a partnership. The investment was
carried at the equity method. The partnership's profits were $nil for the year
ended December 31, 1998 (1997 -- $411,000; 1996 -- $373,000). The partnership's
principal asset was credit card receivables. Equity income of $nil has been
netted into general and administrative expense at December 31, 1998
(1997 -- $102,000; 1996 -- $93,000). On January 15, 1998, the partnership was
wound up with the partnership's liabilities being repaid and the assets
liquidated.

NOTE 5. INVESTMENT IN AFFILIATE

The Company has a 14% (1997 -- 15%) interest in LGII. LGII serves as the
holding company for the Parent Company's United States funeral, cemetery and
insurance operations. The Company follows the equity method of accounting for
this investment because it has significant influence over LGII as a result of
its affiliate relationship and related party transactions. As a result of a
transaction being settled by LGII issuing shares to the Parent Company, the
Company's investment has been diluted to 14% during the year. The Company has
recorded its equity in the loss of LGII in excess of the net book value of its
investment

144
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 2)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF US DOLLARS, EXCEPT NUMBER OF SHARES

NOTE 5. INVESTMENT IN AFFILIATE (CONTINUED)
due to the Company's guarantee of LGII's debt and pledge of the shares of its
subsidiaries as collateral for debt of LGII. Summarized financial data for LGII
on a U.S. GAAP basis are presented as follows:

<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Income statement information:
Revenue........................................... $ 1,059,783 $ 1,036,882 $ 840,103
Net loss.......................................... (634,113) (64,735) (4,547)

Balance sheet information:
Current assets.................................... $ 321,603 $ 304,108 $ 223,388
Non-current assets................................ 4,081,877 4,138,197 3,107,273
------------ ------------ ------------
Total assets...................................... 4,403,480 4,442,305 3,330,661

Current liabilities............................... 1,268,691 225,770 156,290
Non-current liabilities........................... 3,418,560 3,898,495 2,981,124
------------ ------------ ------------
Total liabilities................................. 4,687,251 4,124,265 3,137,414

Shareholders' equity (deficiency)................. (283,771) 318,040 193,247

The Company's equity in the loss of LGII............ $ 91,428 $ 9,627 $ 321
</TABLE>

LGII is subject to material contingencies, as disclosed below:

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."). LGII 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.

145
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 2)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF US DOLLARS, EXCEPT NUMBER OF SHARES

NOTE 5. INVESTMENT IN AFFILIATE (CONTINUED)
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 August 26, 1998, defendants sought dismissal of all of plaintiffs'
remaining individual claims in FELDHEIM. The trial court has not yet ruled on
that request.

As of the date hereof, no discovery has taken place.

LGII 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

146
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 2)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF US DOLLARS, EXCEPT NUMBER OF SHARES

NOTE 5. INVESTMENT IN AFFILIATE (CONTINUED)
awarded to plaintiffs. Accordingly, no provision with respect to this lawsuit
has been made in LGII's consolidated financial statements.

LUENING, ET AL. V. SI-SIFH CORP., ET AL.

On January 29, 1999, the state court heard argument on the plaintiffs'
motion to compel discovery and LGII's exceptions of venue and RES JUDICATA. On
February 3, 1999, the court denied both exceptions and granted the motion to
compel discovery, ruling that the dismissal of the class action claims in the
FELDHEIM and DUFFY cases did not operate to bar this particular sub-class of
potential plaintiffs. On February 26, 1999, LGII filed supervisory writs on
these rulings, and requested a stay of the discovery ruling pending a decision
on the writ application. On March 1, 1999, the Fourth Circuit Court of Appeals
stayed all further legal proceedings and discovery in the trial court and
ordered the plaintiffs to respond to LGII's writ application on an expedited
basis. The Fourth Circuit granted the LGII's writ application on March 25, 1999,
finding that under the RES JUDICATA doctrine as stated in the Fourth Circuit's
DUFFY decision, relitigation of the plaintiffs' class action claims was forever
barred in Louisiana courts by denial of the class certification in the FELDHEIM
case. Accordingly, the Fourth Circuit reversed the trial court's denial of the
LGII's RES JUDICATA exception, while recognizing that individual plaintiffs'
claims could proceed in St. Bernard Parish. It also remanded the case to the
trial court for a hearing on the plaintiffs' motion to compel discovery, but it
instructed that any discovery requests that are not related to the individual
plaintiffs' claims should be denied.

147
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 2)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF US DOLLARS, EXCEPT NUMBER OF SHARES

NOTE 5. INVESTMENT IN AFFILIATE (CONTINUED)
On March 29, 1999, the LUENING plaintiffs filed an application for writ of
certiorari with the Louisiana Supreme Court, and asked that the writ application
be consolidated with the application for writ of certiorari filed by the DUFFY
plaintiffs. LGII intends to file an opposition to the application.

LGII has determined that it is not possible to predict the final outcome of
this legal proceeding, including whether a class will be certified, and 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 LGII's consolidated financial statements.

THE LOEWEN GROUP INC. ET AL. V. THE UNITED STATES OF AMERICA

On October 30, 1998, the Parent Company and an affiliate filed a claim
against the United States government for damages under the arbitration
provisions of the North American Free Trade Agreement ("NAFTA"). The plaintiffs
contend that they were damaged as a result of breaches by the United States of
its obligations under NAFTA in connection with certain litigation in the State
of Mississippi entitled O'KEEFE V. THE LOEWEN GROUP INC. Specifically, the
plaintiffs allege that they were subjected to discrimination, denial of the
minimum standard of treatment guaranteed by NAFTA and uncompensated
expropriation, all in violation of NAFTA. The Parent Company has determined that
it is not possible at this time to predict the final outcome of this proceeding
or to establish a reasonable estimate of the damages that may be awarded to
LGII.

SECURITIES CLASS ACTIONS

Since December 1998 the Parent Company has been served with various related
lawsuits filed in the United States District Courts for the Eastern District of
Pennsylvania and for the Eastern District of New York. Raymond L. Loewen, the
former Chairman and Chief Executive Officer, and certain officers and directors
have been named as defendants in some of the suits. All but one of these
lawsuits were filed as purported class actions on behalf of persons or entities
that purchased the Parent Company's common shares during five different time
periods ranging from November 3, 1996 through January 14, 1999. LGII and Loewen
Group Capital, L.P. are named as defendants in two suits (with the Parent
Company, the "Loewen Defendants"). The plaintiffs in the two lawsuits purport to
sue on behalf of a class of purchasers of the Monthly Income Preferred
Securities, Series A (MIPS) from March 5, 1997 through January 14, 1999. The
MIPS were issued by Loewen Group Capital, L.P.

The complaints generally make allegations concerning, among other things,
the Parent Company's internal controls, accounting practices, financial
disclosures and acquisition practices. The Loewen Defendants have filed a motion
with the Judicial Panel on Multidistrict Litigation (the "MDL Panel") to
consolidation all of the actions for pretrial coordination in the United States
District Court for the Eastern District of Pennsylvania. Counsel for the
plaintiffs in the actions currently pending in the Eastern District of New York
have filed a written stipulation with the MDL Panel agreeing to the transfer of
their cases to the Eastern District of Pennsylvania. The MDL Panel has not
ruled. By agreement, the Loewen Defendants' responses to all complaints
currently are due by April 26, 1999.

148
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 2)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF US DOLLARS, EXCEPT NUMBER OF SHARES

NOTE 5. INVESTMENT IN AFFILIATE (CONTINUED)
AL. V. RAYMOND L. LOEWEN, ET AL., 99-CV-640; GILMORE V. RAYMOND L. LOEWEN, ET
AL., 99-CV-232; CITY OF PHILADELPHIA V. LOEWEN GROUP, INC. ET AL., 99-CV-1007;
HILL V. THE LOEWEN GROUP INC. ET AL., 99-CV-560; JAMISON V. RAYMOND L. LOEWEN,
ET AL., 99-CV-98; MCGLATHERY ET AL. V. RAYMOND L. LOEWEN ET AL. 99-CV-665 (the
MCGLATHERY suit was filed on behalf of purchasers of MIPS); PASKOWITZ V. RAYMOND
L. LOEWEN ET AL., 99-CV-91; SIROTA & SIROTA EMPLOYEES PROFIT SHARING PLAN V. THE
LOEWEN GROUP INC. ET AL., 99-CV-585; STEINER V. RAYMOND L. LOEWEN, ET AL.,
98-CV-6740; TEKIRAN V. RAYMOND L. LOEWEN ET AL., 99-CV-589; and TRAVIS V.
RAYMOND L. LOEWEN, ET AL., No. 99-11340.

The complaints filed in the United States District Court for the Eastern
District of New York are: COHEN V. THE LOEWEN GROUP INC., ET AL. (the COHEN suit
was filed on behalf of purchasers of MIPS); CV 99 553; COLLINS V. THE LOEWEN
GROUP INC., ET AL., CV 99 261; CORRADINI, ET AL. V. THE LOEWEN GROUP INC. ET
AL., CV 99 443; GERSH V. THE LOEWEN GROUP INC., CV 98 7983; GREAT NECK CAPITAL
APPRECIATION PARTNERS V. RAYMOND L. LOEWEN, ET AL., CV 99 164; HARRIS V. THE
LOEWEN GROUP INC., ET AL., CV 99 153; and SALEM V. THE LOEWEN GROUP INC., ET
AL., CV 99 351.

The Pennsylvania cases have all been assigned to Judge Thomas O'Neill.
Plaintiffs filed a stipulated motion seeking the appointment of the City of
Philadelphia Board of Pensions as lead plaintiff. LGII anticipates that all of
the Pennsylvania cases will be consolidated and that, when and if transferred,
the New York cases will also be consolidated. It is expected that the lead
plaintiff will, when appointed, file a Consolidated and Amended Complaint, to
which the defendants will be required to respond.

Additional class action complaints containing similar allegations may be
filed in the future.

LGII has determined that it is not possible at this time to predict the
final outcome of these proceedings or to establish a reasonable estimate of
possible damages, if any, or reasonably to estimate the range of possible
damages that may be awarded to the plaintiffs. Accordingly, no provision with
respect to these lawsuits has been made in the LGII's consolidated financial
statements.

F. LEO GROFF, INC. ET AL. V. RESTLAWN MEMORIAL GARDENS, INC. ET AL.

This action (No. 96-CV-397, Court of Common Pleas, Erie County, Ohio) was
served on LGII and other defendants on September 19, 1996. Plaintiffs allegedly
compete with defendants Restlawn Memorial Park Association, Restlawn Memorial
Gardens, Inc., and Sinfran, Inc., which were acquired by LGII. Plaintiffs allege
thirteen counts, including counts alleging that defendant Restlawn engaged in
false and deceptive advertising, misused confidential information, defamed
plaintiffs, breached contractual obligations, misappropriated trade secrets, and
tortiously interfered with plaintiffs' contractual relationships. Plaintiffs
further allege that defendants knew or should have known of Restlawn's conduct
and adopted and continued Restlawn's alleged unfair, false, and deceptive
practices. Plaintiffs also allege that the defendants conspired to destroy
plaintiffs' business and created a "trust in order to prevent competition" in
violation of Ohio's antitrust laws. Plaintiffs seek compensatory damages, which
are unspecified but alleged to exceed $350,000; punitive damages, which are
unspecified but alleged to exceed $300,000; and injunctive relief. Defendants'
summary judgment motion was denied as to all but one of plaintiffs' counts. A
trial date has been set for July 12, 1999.

149
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 2)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF US DOLLARS, EXCEPT NUMBER OF SHARES

NOTE 5. INVESTMENT IN AFFILIATE (CONTINUED)
range of possible damages that may be awarded to the plaintiffs. Accordingly, no
provision with respect to these lawsuits has been made in LGII's consolidated
financial statements.

FLANAGAN

On December 7, 1998, Honorine T. Flanagan filed a complaint in the Superior
Court of the State of California in the County of Los Angeles against the Parent
Company and LGII. To date, only LGII has been served with the complaint. The
matter was subsequently removed to federal court based on diversity
jurisdiction, and it is now pending in the United States District Court in the
Central District of California.

The complaint alleges that the defendants breached an express warranty
contained in the Share Purchase Agreement dated July 17, 1995, between LGII and
Ms. Flanagan, her husband John Flanagan (now deceased) and the Flanagan Family
Trust. The Share Purchase Agreement was made in connection with LGII's purchase
of the Flanagans' mausoleum and mortuary business in exchange for approximately
$2,000,000 in cash and $7,800,000 of Loewen stock. The Loewen stock was valued
at $36.00 per share at the time of the transaction. Ms. Flanagan alleges that
LGII knew of claims, suits or other actions which would materially and adversely
affect the financial condition of the Parent Company, yet made false statements
to the contrary in the Share Purchase Agreement. Ms. Flanagan alleges that two
lawsuits pending at the time of the Share Purchase Agreement did eventually have
a material adverse impact on the financial condition of the Parent Company and
the value of the stock received by Ms. Flanagan in connection with the Share
Purchase Agreement.

Ms. Flanagan estimates that her damages as a result of the alleged breaches
and misrepresentations are not less than $5,000,000. This amount is based on her
claim that the shares she received were represented to have a value of
$7,800,000 million at the time of the agreement, and at the time the complaint
was filed those shares had a value that was approximately one third of the
original represented value. Her claimed damages may change as the price of the
Parent Company's common shares fluctuates. Further, Ms. Flanagan seeks punitive
damages in an unspecified sum. On the declaratory relief cause of action, Ms.
Flanagan seeks a declaration that she is to be reimbursed for her losses
pursuant to the indemnity provision contained in the Share Purchase Agreement.
She also seeks a declaration that until she is indemnified for her losses she is
not obligated to transfer property that pursuant to the Agreement LGII has the
option to purchase for a specified price pursuant to the Share Purchase
Agreement.

LGII has determined that it is not possible at this time to predict the
final outcome of this proceeding or 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 plaintiff. Accordingly, no provision with
respect to this lawsuit has been made in LGII's consolidated financial
statements.

150
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 2)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF US DOLLARS, EXCEPT NUMBER OF SHARES

NOTE 5. INVESTMENT IN AFFILIATE (CONTINUED)
OTHER

LGII is a party to other legal proceedings in the ordinary course of its
business but does not expect the outcome of any other proceedings, individually
or in the aggregate, to have a material adverse effect on the LGII's financial
position, results of operation or liquidity.

CONTINGENCY RELATED TO POTENTIAL PURCHASE OF INVESTMENTS

LGII has identified and accrued for contingent losses arising from the
exercise of the Put/Call Agreements in connection with its investments in Prime
Succession Holdings, Inc. and Rose Hills Holdings Corp.

CONTINGENCY RELATED TO PATS SENIOR NOTES

The PATS senior notes aggregating $300,000,000 are held by a trust for the
benefit of the holders of the pass-through asset trust securities due October 1,
1999. The trust has a put option that entitles the trust to redeem the PATS
senior notes on October 1, 1999 to refund the repayment of the pass-through
asset trust securities under circumstances where no funding is tendered pursuant
to a competitive bidding process. If the put option is exercised, LGII is
obligated to pay the trust for any loss with respect of an interest rate option
based on a 10 year U.S. treasury rate of 6.05% on October 1, 1999. At December
31, 1998, the option value was $29,300,000. The option value will change based
on changes in the 10 year U.S. treasury rate.

NOTE 6. MINORITY INTEREST AND REDEEMABLE SHARES OF SUBSIDIARY

A subsidiary of the Company has issued 40 Class B Ordinary non-voting
redeemable shares ("Class B shares") to an affiliate. The Class B shares are
redeemable on demand at their carrying amount of $9,433,000. The Class B shares
have no right to earnings of the subsidiary, in excess of the redemption amount,
in the ordinary course or in connection with the winding up of the Company,
unless such dividend or other distribution shall be specifically resolved and
declared payable to the Class B shareholders.

NOTE 7. INCOME TAXES

All income tax expense represent income taxes payable outside Canada. Income
tax differed from amounts computed by applying Canadian federal and provincial
income tax rates of 45.5% on earnings before income taxes and undernoted items
as a result of the following:

<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Expected income tax expense (benefit).................... $ (333,920) $ 47,605 $ 27,649
Foreign income taxed at different rates.................. 328,644 (41,535) (21,016)
----------- ---------- ----------
$ (5,276) $ 6,070 $ 6,633
----------- ---------- ----------
----------- ---------- ----------
</TABLE>

During 1998, the Company paid $6,071,543 of income taxes
(1997 -- $7,166,000; 1996 -- $12,650,000).

The temporary difference which creates the deferred tax asset arose from the
provision for bad debts and contract cancellations. Management believes that it
is more likely than not that the results of future

151
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 2)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF US DOLLARS, EXCEPT NUMBER OF SHARES

NOTE 7. INCOME TAXES (CONTINUED)
operations will generate sufficient taxable income to realize the deferred tax
asset. Accordingly, the Company has not recorded a valuation allowance. The
Company's ability to realize its deferred tax asset is based on several factors,
including future profitability and is subject to some degree of uncertainty.

NOTE 8. DUE FROM PARENT COMPANY

The amount due from Parent Company is unsecured, non-interest bearing, due
on demand and is denominated in Canadian dollars.

NOTE 9. CURRENT INDEBTEDNESS

In September 1998, a subsidiary of the Company obtained a $98,039,000
revolving receivables finance facility (the "Receivables Finance Facility")
through a subsidiary of one of the Parent Company's bank lenders. Under the
terms of the agreement, new receivables are added to the pool each month to
offset collections from existing receivables. Another subsidiary of the Company
services, administers and collects the receivables. The Receivables Finance
Facility contains certain covenants and provides for various events of
termination. This facility is secured by a pledge of the cemetery receivables
held by the subsidiary with a book value of $189,206,000 and as of September 15,
1999 no further receivables can be added to the pool. At December 31, 1998 the
balance outstanding on the Receivables Finance Facility was $66,222,000 which
represents the maximum amount available to the Company based on eligible
receivables which secure the loan. The Receivables Finance Facility bears
interest at a floating rate based on commercial paper rates (December 31,
1998--5.51%). The Receivables Finance Facility is also subject to a commitment
fee ranging from 1.10%-3.25% of the total facility amount depending on certain
financial ratios.

NOTE 10. NOTE PAYABLE

The note payable is due to an affiliate, is unsecured, bears interest at 8%,
and is due on demand.

NOTE 11. SHAREHOLDERS' EQUITY

(a) CAPITAL STOCK AUTHORIZED

1,000,000,000 (1997 -- 1,000,000,000) Common shares without par value.

500,000,000 (1997 -- 500,000,000) non-voting, non-cumulative, redeemable and
retractable Preferred share with par value of $1 Canadian.

152
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 2)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF US DOLLARS, EXCEPT NUMBER OF SHARES

NOTE 11. SHAREHOLDERS' EQUITY (CONTINUED)
(b) CAPITAL STOCK ISSUED AND OUTSTANDING

<TABLE>
<CAPTION>
NUMBER OF CAPITAL
SHARES STOCK
----------- ------------
<S> <C> <C>
Common shares and additional paid-in capital:
Outstanding December 31, 1995........................................ 80,401 $ 214,539
Contributed by Parent Company...................................... -- 66,973
----------- ------------
Outstanding December 31, 1996........................................ 80,401 281,512
Issued during the year............................................. 184,438 872,889
Contributed on transfer of investment.............................. -- 23,386
----------- ------------
Outstanding December 31, 1997........................................ 264,839 1,177,787
Issued during the year (see Note 14)............................... 2,867 12,789
----------- ------------
Outstanding December 31, 1998...................................... 267,706 $ 1,190,576
----------- ------------
----------- ------------
</TABLE>

During the year, the Company declared and paid dividends aggregating
$100,882,000 (approximately $377 per share) on the outstanding common shares. As
at December 31, 1998, there were no declared and unpaid dividends outstanding.

Substantially all the Company's deficit represents losses incurred in
foreign subsidiaries.

(d) FOREIGN EXCHANGE ADJUSTMENT

The foreign exchange adjustment arose due to changes in the exchange rate
applicable to the Canadian dollar amount due to or from Parent Company between
the dates of borrowing and the balance sheet date.

NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of cash, accounts receivable, current indebtedness and
accounts payable and accrued liabilities approximate fair value due to the
short-term maturities of these instruments.

It is not practicable to determine the fair value of the notes receivable
from affiliates, the amount due from Parent Company, due from and to affiliates,
the note payable or redeemable preferred shares due to their related party
nature.

It is not practicable to estimate the fair value of installment contract
receivables, which comprise installment receivables on cemetery sales, which
generally have terms of three to five years and bear interest ranging from 8% to
15%.

NOTE 13. INSTALLMENT CONTRACT RECEIVABLES AND ACCOUNTS RECEIVABLE

During the year, the Company purchased cemetery installment contract
receivables from affiliates under common control for approximately $112,861,000
(1997 -- $185,179,000) of which $93,328,000 was paid in cash and $19,533,000 is
included in due to affiliates. The Company has recorded the purchase at

153
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 2)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF US DOLLARS, EXCEPT NUMBER OF SHARES

NOTE 13. INSTALLMENT CONTRACT RECEIVABLES AND ACCOUNTS RECEIVABLE (CONTINUED)
the gross amount of the installment contract receivables of $182,497,000 net of
the allowance for contract cancellations and doubtful accounts of $27,411,000,
unearned finance income of $31,036,000 and unamortized purchase discount of
$11,189,000 representing the financing cost to the affiliates. The purchase
discount and unearned finance income are recognized in revenue over the
collection period of the installment contract receivables. During 1998, the
Company has recognized interest income of $15,906,000 (1997 -- $4,409,000)
related to purchased cemetery installment contract receivables.

During the year, the Company purchased funeral home accounts receivable from
affiliates under common control for approximately $23,674,000 all of which was
paid in cash. The Company has recorded the purchase at the gross amount of the
accounts receivable of $43,033,000 net of the allowance for doubtful accounts of
$17,456,000 and unamortized purchase discount of $1,903,000 representing the
financing cost to the affiliates. The purchase discount is recognized in revenue
over the collection period of the accounts receivable.

The Company has entered into management and receivable servicing agreements
with affiliates. The affiliates perform specified collection services in return
for servicing fees of 108.2% of the affiliate's cost of servicing the cemetery
installment contract receivables and 0.25% of the average outstanding balance
under collection for funeral home accounts receivable.

NOTE 14. NON-CASH TRANSACTIONS

The Company entered into the following non-cash transactions:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
--------- ---------- ---------
<S> <C> <C> <C>
Issuance of a promissory note to an affiliate in settlement of a dividend....... $ 5,756 $ -- $ --
Increase in due to affiliates on purchase of installment contract receivables... 19,533 -- --
Decrease in amounts due to Parent Company for payments made by Parent Company on
the Company's behalf, including $2,315,000 of receivable purchases and
$1,065,000 of deferred finance costs.......................................... 4,015 -- --
Issuance of 2,867 common shares upon acquisition of minority interest in Eagle
from Parent Company........................................................... 12,789 -- --
Increase in amounts due from Parent Company resulting from the sale of a
subsidiary.................................................................... 10,454 -- --
Repayment of notes payable as a result of the sale of subsidiary................ 2,517 -- --
Receipt of note receivable from affiliate upon redemption of 80 preferred shares
of affiliate held as an investment............................................ -- 8,000 --
Issuance of 21,346 common shares upon acquisition of minority interest in Loewen
Finance Delaware, LLC from Parent Company..................................... -- 100,911 --
Sale of subsidiary in exchange for redeemable preferred shares of affiliate, the
subsequent redemption of the preferred shares for a note receivable, and
distribution of the note receivable to Parent Company......................... -- 53,669 --
</TABLE>

154
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 2)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF US DOLLARS, EXCEPT NUMBER OF SHARES

NOTE 14. NON-CASH TRANSACTIONS (CONTINUED)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
--------- ---------- ---------
<S> <C> <C> <C>
Increase in amounts due to Parent Company for payments made by Parent Company on
the Company's behalf, including $722,000 of acquisition costs................. -- 3,599 --
Dividends declared on preferred shares and settled by issuance of notes payable
to affiliate.................................................................. -- 2,060 5,672
Issuance of notes payable upon redemption of redeemable preferred shares........ -- 55,174 --
Reduction of amount due to Parent Company and assumption of liabilities by
Parent Company, net of notes receivable from Parent Company and unrealized
foreign exchange gain thereon upon issuance of common shares.................. -- 340,173 --
Increase in receivables advanced to affiliate resulting from collections and
repurchases of installment contract receivables............................... -- 41,554 3,679
Increase in investment in affiliate funded by contribution from Parent
Company....................................................................... -- -- 26,181
Sale of 13% interest in units of Loewen Finance (Wyoming), LLC in exchange for
notes receivable from Parent Company.......................................... -- -- 78,633
Issuance of notes payable as consideration in an acquisition.................... -- 2,517 --
Increase in due to affiliate for purchase of accounts receivable from
affiliate..................................................................... -- 7,431 --
</TABLE>

NOTE 15. COMMITMENTS AND CONTINGENCIES

The shares held by the Company are pledged under a collateral trust
arrangement whereby the senior lenders of the Parent Company and an affiliate
under common control would share certain collateral on a pari passu basis. This
collateral is held by a trustee for equal and ratable benefit of the various
holders of senior indebtedness. In addition the Company guarantees all affiliate
debt secured by the Collateral Trust Agreement. At December 31, 1998, the
indebtedness owed to the senior lending group subject to the Collateral Trust
Agreement, including holders of certain letters of credit aggregated
$2,108,000,000.

155
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 2)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF US DOLLARS, EXCEPT NUMBER OF SHARES

NOTE 16. SUPPLEMENTARY FINANCIAL INFORMATION

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Summary of accounts receivable:
Accounts receivable................................................... $ 43,067 $ --
Unamortized purchase discount......................................... (1,903) --
Allowance for doubtful accounts....................................... (17,456) --
---------- ----------
Outstanding December 31,.............................................. $ 23,708 $ --
---------- ----------
---------- ----------
Summary of installment contract receivables:
Installment contracts................................................. $ 316,660 $ 293,599
Unearned finance income............................................... (47,844) (40,790)
Unamortized purchase discount......................................... (21,327) (23,211)
Allowance for contract cancellations and doubtful accounts............ (54,454) (24,629)
---------- ----------
193,035 204,969
Current portion....................................................... (57,959) (61,549)
---------- ----------
Outstanding December 31,.............................................. $ 135,076 $ 143,420
---------- ----------
---------- ----------
</TABLE>

NOTE 17. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE

The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operation and financial
reporting may range from minor errors to significant systems failure which could
affect the Company's or a subsidiary's ability to conduct normal business
operations. It is not possible to be certain that all aspects of the Year 2000
Issue affecting the Company, including those related to efforts of customers,
suppliers, or other third parties, will be fully resolved.

NOTE 18. SUBSEQUENT EVENT

On March 31, 1999, the Company purchased and cancelled 18,825 common shares
held by the Parent Company.

NOTE 19. COMPARATIVE FIGURES

Certain of the comparative figures have been reclassified to conform to the
presentation adopted in the current period.

156
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

In accordance with General Instruction G(3), the information required by
Item 10 (with the exception of certain information pertaining to executive
officers, which is included in Part I hereof) has been omitted and is
incorporated by reference from the Registrant's definitive proxy statement and
information circular relating to its 1999 annual general meeting of shareholders
(the "Proxy Statement").

ITEM 11. EXECUTIVE COMPENSATION.

In accordance with General Instruction G(3), the information required by
Item 11 has been omitted and is incorporated by reference from the Proxy
Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

In accordance with General Instruction G(3), the information required by
Item 12 has been omitted and is incorporated by reference from the Proxy
Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

In accordance with General Instruction G(3), the information required by
Item 13 has been omitted and is incorporated by reference from the Proxy
Statement.

157
<PAGE>
PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a) DOCUMENTS FILED AS PART OF THIS REPORT:

(1) FINANCIAL STATEMENTS

THE LOEWEN GROUP INC.

Report of Independent Accountants

Consolidated Balance Sheets as of December 31, 1998 and 1997

Consolidated Statements of Operations for the Years Ended December
31, 1998, 1997 and 1996

Consolidated Statements of Retained Earnings (Deficit) for the Years
Ended December 31, 1998, 1997 and 1996

Consolidated Statement of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996

Notes to Consolidated Financial Statements

Supplementary Data: Quarterly Financial data (unaudited)

LOEWEN GROUP INTERNATIONAL, INC.

Report of Independent Accountants

Consolidated Balance Sheets as of December 31, 1998 and 1997

Consolidated Statements of Operations and Deficit for the Years Ended
December 31, 1998, 1997 and 1996

Consolidated Statement of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996

Notes to Consolidated Financial Statements

NEWEOL INVESTMENTS LTD.

Report of Independent Accountants

Consolidated Balance Sheets as of December 31, 1998 and 1997

Consolidated Statements of Operations, Comprehensive Income and
Retained Earnings (Deficit) for the Years Ended December 31, 1998,
1997 and 1996

Consolidated Statements of Cash Flows for the Years Ended December
31, 1998, 1997 and 1996

Notes to Consolidated Financial Statements

(2) FINANCIAL STATEMENT SCHEDULE

Schedule II--Valuation and Qualifying Accounts

158
<PAGE>
(3) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------
<C> <S>
3 CHARTER DOCUMENTS

3.1 Certificate of Incorporation of The Loewen Group Inc. ("Loewen") issued by the British
Columbia Registrar of Companies (the Registrar) on October 30, 1985(1)

3.2 Altered Memorandum of Loewen, filed with the Registrar on June 21, 1996(2)

3.3 Articles of Loewen, restated, filed with the Registrar on March 1, 1988, as amended on March
30, 1988, April 21, 1988, May 19, 1989, May 28, 1992, May 20, 1993, June 29, 1994, December
21, 1995 and February 7, 1996(3)

4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES

4.1.1 Note Agreement, 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(4)

4.1.3 Summary of Terms and Conditions, dated March 30, 1999, amending certain credit agreements to
which Loewen is a party

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(4)

4.3.3 Summary of Terms and Conditions, dated March 30, 1999, amending certain credit agreements to
which Loewen is a party (see Exhibit 4.1.3)

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")(5)

4.5.2 First Amendment to the MEIP Credit Agreement, dated as of December 2, 1996(6)

4.5.3 Second Amendment to the MEIP Credit Agreement, dated as of April 30, 1997(6)

4.5.4 Third Amendment to the MEIP Credit Agreement, dated as of May 21, 1997(7)

4.5.5 Fourth Amendment to the MEIP Credit Agreement, dated as of September 29, 1997(7)

4.5.6 Summary of Terms and Conditions, dated March 30, 1999, amending certain credit agreements to
which Loewen is a party (see Exhibit 4.1.3)
</TABLE>

159
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------
<C> <S>
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(8)

4.11 MIPS Guarantee Agreement, dated August 15, 1994(8)

4.12 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 Series 1 and 2 Senior Guaranteed Notes of LGII(3)

4.13 Form of Senior Guarantee of LGII's Series 1 and 2 Notes (included in Exhibit 4.13)

4.14 Form of Global Series 1 and 2 Exchange Notes of LGII(4)

4.15 Form of Physical Series 1 and 2 Exchange Notes of LGII(4)

4.16 Form of Senior Guarantee of LGII's Series 1 and 2 Exchange Notes (included in Exhibit 4.14 or
4.15)

4.17.1 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(7)

4.17.2 Summary of Terms and Conditions, dated March 30, 1999, amending certain credit agreements to
which Loewen is a party (see Exhibit 4.1.3)

4.18 Collateral Trust Agreement, dated as of May 15, 1996, among Bankers Trust Company, as
trustee, Loewen, LGII and various other pledgors(4)

4.19 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(5)

4.20 Form of Senior Guarantee of LGII's Series 3 and 4 Notes (included in Exhibit 4.22)

4.21 Form of Global Series 3 and 4 Exchange Notes of LGII(9)

4.22 Form of Physical Series 3 and 4 Exchange Notes of LGII(9)

4.23 Form of Senior Guarantee of LGII's Series 3 and 4 Exchange Notes (included in Exhibit 4.21 or
4.22)
</TABLE>

160
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------
<C> <S>
4.24 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 Guaranteed
Notes(10)

4.25 Form of Series 5 Guaranteed Notes of LGII(10)

4.26 Form of Loewen Guarantee of LGII's Series 5 Notes(10)

4.27 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 Series 5 Senior
Guaranteed Notes due 2009(10)

4.28 Form of Global "PATS" Senior Guaranteed Notes due 2009 of LGII(10)

4.29 Form of Physical "PATS" Senior Guaranteed Notes due 2009 of LGII(10)

4.30 Form of Senior Guarantee of LGII's "PATS" Senior Guaranteed Notes due 2009(10)

4.31 Shareholder Protection Rights Plan, dated as of April 20, 1990, as amended on May 24, 1990
and April 7, 1994 and reconfirmed on May 17, 1995(1)

4.32 Form of Indenture by and between LGII, as issuer, Loewen, as guarantor, and Fleet National
Bank, as trustee, relating to the Debt Securities that may be issued pursuant to
Registration Statement No. 333-29443(11)

4.33 Indenture dated as of May 28, 1998, between LGII, as issuer, Loewen, as guarantor, and State
Street Bank and Trust Company, as trustee, with respect to the Series 6 and 7 Notes(12)

4.34 Form of Senior Guarantee of Series 6 and 7 Notes of LGII (included in Exhibit 4.37)

4.35 Form of Global Series 6 and 7 Exchange Notes of LGII(13)

4.36 Form of Physical Series 6 and 7 Exchange Notes of LGII(13)

4.37 Form of Senior Guarantee of LGII's Series 6 and 7 Exchange Notes (included in Exhibit 4.35 or
4.36)

4.38 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 Receipt Agreement, dated as of January 3, 1996, for the Cumulative Redeemable Convertible
First Preferred Shares, Series C, of Loewen ("Series C Shares")(3)

10.2 Undertaking by Raymond L. Loewen and Anne Loewen, dated as of January 3, 1996, to vote in
favor of the motion to subdivide the Series C Shares(3)

10.3 Letter Agreement, dated August 8, 1997, by and between Loewen and Service Corporation
International(7)

*10.4 Form of Indemnification Agreement with Outside Directors(15)

*10.5 Form of Indemnification Agreement with Officers(15)

*10.6 Form of Loewen Severance Agreement(15)

*10.7 Loewen Severance Pay Plan(15)
</TABLE>

161
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------
<C> <S>
*10.8 1994 Management Equity Investment Plan (the MEIP)(15)

*10.9 Form of Executive Agreement executed by participants in the MEIP(8)

*10.10 1994 Outside Director Compensation Plan, as restated and amended as at January 9, 1997, and
further amended as at June 25, 1998

*10.11 Employee Stock Option Plan (International), as restated and amended as at September 17, 1998

*10.12 Employee Stock Option Plan (Canada), as restated and amended as at September 17, 1998

*10.13 Form of Stay Put Bonus Plan Letters, dated February 26, 1999

*10.14 Employment Agreement, dated August 19, 1988, by and between Loewen and Tim Hogenkamp(1)

*10.15 Employment Agreement, and Covenant Not to Compete, dated November 14, 1990, by and between
LGII and Albert S. Lineberry, Sr.(1)

*10.16 Employment Agreement, dated April 12, 1991, by and between Loewen and Dwight Hawes(1)

*10.17 Consulting Agreement, dated July 18, 1994, by and between Loewen and Charles B. Loewen, LGII,
and Corporate Services International Inc.(1)

*10.18 Employment Letter, dated March 10, 1995, by Raymond L. Loewen to Paul Wagler(5)

*10.19 Employment Agreement, dated March 17, 1995, by and between Loewen, LGII and Lawrence
Miller(1)

*10.20.1 Employment Agreement, dated March 17, 1995, by and between Loewen and William R. Shane
("Shane Employment Agreement")(1)

*10.20.2 Amendment No. 1 to Shane Employment Agreement, dated February 23, 1998, by and between Loewen
and William R. Shane(7)

*10.21 Resignation and Release Agreement, effective June 10, 1996, by and between Loewen, LGII and
Robert O. Wienke(5)

*10.22 Employment Agreement, dated March 21, 1997, by and between Loewen and Thomas C. Hardy

*10.23 Employment Agreement, dated October 31, 1997, by and between Loewen and Michael G. Weedon(7)

*10.24 Severance Agreement, dated November 4, 1997, by and between Loewen and Douglas J. McKinnon(7)

*10.25 Employment Agreement, dated January 30, 1998, by and between Loewen and Brad Stam(7)

*10.26 Employment Agreement, dated October 26, 1998, by and between Loewen and Peter S. Hyndman

*10.27.1 Employment Agreement, dated November 30, 1998, by and between Loewen and Robert Lundgren

*10.27.2 Severance Agreement, dated as of November 30, 1998, by and between Loewen and Robert Lundgren
</TABLE>

162
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------
<C> <S>
*10.27.3 Indemnification Agreement, dated February 3, 1999, by and between Loewen and Robert Lundgren

11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS

12 STATEMENT RE COMPUTATION OF EARNINGS TO FIXED CHARGES RATIO

12.1 Statement re Computation of Earnings to Fixed Charges Ratio (Canadian GAAP)

12.2 Statement re Computation of Earnings to Fixed Charges Ratio (U.S. GAAP)

21 SUBSIDIARIES OF LOEWEN

23 CONSENTS OF EXPERTS

23.1 Consent of KPMG LLP

24 POWERS OF ATTORNEY (INCLUDED IN THE SIGNATURE PAGES TO THIS REPORT)

27 FINANCIAL DATA SCHEDULE

99 ADDITIONAL EXHIBITS

99.1 Stock Purchase Agreement, dated as of June 14, 1996, by and among Prime Succession, Inc. the
other individuals or entities listed on the signature pages thereof, Loewen and Blackhawk
Acquisition Corp.(16)

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(17)

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(16)

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")(18)

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(18)

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(18)

99.7 Form of Letter of Transmittal(19)

99.8 Form of Notice of Guaranteed Delivery(19)
</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 14, 1996 (File No. 0-18429)

163
<PAGE>
(3) Incorporated by reference from Loewen's Annual Report on Form 10-K for the
year ended December 31, 1995, filed on March 28, 1996, as amended (File No.
0-18429)

(4) Incorporated by reference from the Registration Statement on Form S-4 filed
by Loewen on May 3, 1996, as amended by the Registration Statement on Form
S-4/A filed by Loewen on June 20, 1996 and the Registration Statement on
Form S-4/A filed by Loewen on August 26, 1996 (File No. 333-03135)

(5) 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)

(6) 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)

(7) 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. 1-12163)

(8) 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)

(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 Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997, filed on November 14, 1997 (File No.
1-12163)

(11) Incorporated by reference from the Registration Statement on Form S-3 filed
by Loewen and LGII on March 21, 1997, as amended (File Nos. 333-23747 and
333-23747-01)

(12) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q/A for
the quarter ended June 30, 1998, filed on August 13, 1998 (File No. 1-12163)

(13) Incorporated by reference from the Registration Statement on Form S-4 filed
by LGII and Loewen on August 26, 1998, as amended (File No. 333-62239-01)

(14) 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)

(15) Incorporated by reference from Loewen's Solicitation/Recommendation
Statement on Schedule 14D-9, filed on October 10, 1996, as amended

(16) Incorporated by reference from Loewen's Periodic Report on Form 8-K, dated
August 26, 1996, filed October 11, 1996, as amended October 29, 1996 (File
No. 1-12163)

(17) 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. 1-12163)

(18) Incorporated by reference from Loewen's Periodic Report on Form 8-K, dated
November 19, 1996, filed December 27, 1996 (File No. 1-12163)

(19) Incorporated by reference from Amendment No. 1 to the Registration
Statement on Form S-4 filed by LGII and Loewen on September 21, 1998 (File
No. 333-62239-01)

164
<PAGE>
(b) REPORTS ON FORM 8-K

The following Current Reports on Form 8-K were filed by Loewen during the
last quarter of fiscal 1998:

<TABLE>
<CAPTION>
FILING DATE ITEM NUMBER DESCRIPTION
- ------------------------------ ------------------------ ---------------------------------------------
<S> <C> <C>
October 7, 1998 (dated October Item 5. Other Events Press release announcing the formation of the
6, 1998) Company's Special Committee to supervise the
Company's process for maximizing shareholder
value

October 9, 1998 (dated October Item 5. Other Events Press release announcing the resignation of
8, 1998) Raymond L. Loewen as Chief Executive Officer
and the election of Robert Lundgren as Chief
Executive Officer and President

November 9, 1998 (dated Item 5. Other Events Press release announcing the transfer of
November 3, 1998) 10,062,125 Common shares to Canadian Imperial
Bank of Commerce by Raymond L. Loewen

November 9, 1998 (dated Item 5. Other Events Press release announcing third quarter
November 5, 1998) financial results

November 20, 1998 (dated Item 5. Other Events Press release announcing the realignment of
November 20, 1998) the Company's senior management team

November 23, 1998 (dated Item 5. Other Events Press release announcing a cash dividend on
November 23, 1998) Preferred Shares

December 1, 1998 (dated Item 5. Other Events Press release announcing the expansion of the
December 1, 1998) Company's Search Committee to identify and
recommend three new members to the Board of
Directors

December 4, 1998 (dated Item 5. Other Events Press release announcing the addition of two
December 3, 1998) shareholder representatives to the Company's
Special Committee to identify and recommend
three new members to the Board of Directors

December 30, 1998 (dated Item 5. Other Events Press release announcing a cash dividend on
December 23, 1998) Preferred Shares and no dividend on Common
Shares
</TABLE>

(d) Financial statements of Loewen Group International, Inc. ("LGII") and
Neweol Investments Ltd. are included in this Annual Report on Form 10-K
because the outstanding shares of each of such companies constitute a
"substantial portion" of the collateral (within the meaning of Securities
and Exchange Commission Rule 3-10 under Regulation S-X) that secures the
Series 1 through 4 Notes and Series 6 and 7 Notes that were issued by
LGII and guaranteed by Loewen.

165
<PAGE>
THE LOEWEN GROUP INC.

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

DECEMBER 31, 1998

(IN THOUSANDS OF US $)

<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS(1) DEDUCTIONS(2) PERIOD
- --------------------------------------------- ----------- ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Current -- Allowance for contract
cancellations and doubtful accounts

Year ended December 31, 1998................. $ 32,869 $ 56,581 $ 1,060 $ (23,445) $ 67,065
Year ended December 31, 1997................. 27,717 32,350 2,802 (30,000) 32,869
Year ended December 31, 1996................. 19,666 16,427 9,468 (17,844) 27,717

Due after one year -- Allowance for contract
cancellations and doubtful accounts

Year ended December 31, 1998................. $ 20,112 $ 65,669 $ 1,338 $ (30,227) $ 56,892
Year ended December 31, 1997................. 19,848 26,042 2,372 (28,150) 20,112(3)
Year ended December 31, 1996................. 10,861 18,323 10,564 (19,900) 19,848
</TABLE>

- ------------------------------

(1) Primarily the opening balance for acquired companies

(2) Uncollected receivables written off, net of recoveries

(3) The 1997 deductions have been reclassified to conform with the presentation
adopted in 1998.

166
<PAGE>
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

<TABLE>
<S> <C> <C>
THE LOEWEN GROUP INC.

Dated: April 13, 1999 By: /s/ ROBERT B. LUNDGREN
-----------------------------------------
Robert B. Lundgren
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>

POWER OF ATTORNEY

Each person whose signature appears below hereby appoints Robert B. Lundgren
and Paul Wagler, and each of them severally, acting alone and without the other,
his true and lawful attorney-in-fact with authority to execute in the name of
each such person, and to file with the Securities and Exchange Commission,
together with any exhibits thereto and other documents therewith, any and all
amendments (including without limitation post-effective amendments) to this
report necessary or advisable to enable the registrant to comply with the
Securities Exchange Act of 1934, and any rules, regulations and requirements of
the Securities and Exchange Commission in respect thereof, which amendments may
make such changes in this report as the aforesaid attorney-in-fact deems
appropriate.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<S> <C>
Dated: April 13, 1999 /s/ ROBERT B. LUNDGREN
--------------------------
Robert B. Lundgren
President, Chief Executive
Officer and Director
(Principal Executive
Officer)

Dated: April 13, 1999 /s/ PAUL WAGLER
--------------------------
Paul Wagler
Executive Vice-President,
Chief Operating Officer
and Acting Chief Financial
Officer (Principal
Financial Officer)

Dated: April 13, 1999 /s/ DWIGHT K. HAWES
--------------------------
Dwight K. Hawes
Senior Vice-President,
Corporate Controller
(Principal Accounting
Officer)

Dated: April 13, 1999 /s/ JOHN S. LACEY
--------------------------
John S. Lacey
Chairman of the Board
</TABLE>

167
<PAGE>
<TABLE>
<S> <C>
Dated: April 13, 1999 /s/ CHARLES B. LOEWEN
--------------------------
Charles B. Loewen
Director

Dated: April 13, 1999 /s/ JAMES D. MCLENNAN
--------------------------
James D. McLennan
Director

Dated: April 13, 1999 /s/ WILLIAM R. RIEDL
--------------------------
William R. Riedl
Director

Dated: April 13, 1999 /s/ THOMAS M. TAYLOR
--------------------------
Thomas M. Taylor
Director

Dated: April 13, 1999 /s/ JOHN N. TURNER
--------------------------
The Right Honourable John
N. Turner,
P.C., C.C., Q.C.
Director
</TABLE>

AUTHORIZED REPRESENTATIVE IN THE UNITED STATES

The undersigned is the Registrant's authorized representative in the United
States.

<TABLE>
<S> <C>
Dated: April 13, 1999 /s/ TIMOTHY R. HOGENKAMP
--------------------------
Timothy R. Hogenkamp
</TABLE>

168
<PAGE>
INDEX TO EXHIBITS