LOEWEN GROUP INC, 10-Q, 1999-05-12

LOEWEN GROUP INC
10-Q, 1999-05-12
PERSONAL SERVICES

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-Q

(Mark One)

/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 1999

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

for the transition period from to

Commission file number 1-12163

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THE LOEWEN GROUP INC.

(Exact name of registrant as specified in its charter)

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<TABLE>
<S> <C>
BRITISH COLUMBIA 98-0121376
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>

4126 NORLAND AVENUE
BURNABY, BRITISH COLUMBIA, CANADA V5G 3S8

(Address of principal executive offices) (Zip Code)

604-299-9321

Registrant's telephone number, including area code

N/A
(Former name, former address and former fiscal year, if changed since last
report)

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

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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Indicate by check /X/ whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes / / No / /

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APPLICABLE ONLY TO CORPORATE ISSUERS

The number of outstanding Common shares as of April 30, 1999 was 74,061,750.

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THE LOEWEN GROUP INC.

AND SUBSIDIARIES

<TABLE>
<S> <C> <C>
PAGE
---------

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS:

CONSOLIDATED BALANCE SHEETS
as of March 31, 1999 and December 31, 1998.................................................... 1

CONSOLIDATED STATEMENTS OF OPERATIONS AND
RETAINED EARNINGS (DEFICIT)
For the Three Months Ended March 31, 1999 and 1998............................................ 2

CONSOLIDATED STATEMENTS OF CASH FLOWS
for the Three Months Ended March 31, 1999 and 1998............................................ 3

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS............................................ 4

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................................ 24

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............................ 34

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS..................................................................... 37

ITEM 3. DEFAULTS ON SENIOR SECURITIES......................................................... 41

ITEM 5. OTHER INFORMATION..................................................................... 42

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...................................................... 43

SIGNATURES............................................................................................... 50
</TABLE>
<PAGE>
PART I

ITEM 1. FINANCIAL STATEMENTS

THE LOEWEN GROUP INC.

CONSOLIDATED BALANCE SHEETS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets
Cash and term deposits............................................................. $ 78,611 $ 94,141
Receivables, net of allowances..................................................... 204,481 221,679
Inventories........................................................................ 32,522 34,482
Prepaid expenses................................................................... 18,032 8,916
------------ ------------
333,646 359,218
Long-term receivables, net of allowances............................................. 546,596 647,092
Cemetery property.................................................................... 1,193,846 1,235,847
Property and equipment............................................................... 796,931 825,985
Names and reputations................................................................ 743,489 748,665
Insurance invested assets............................................................ 269,567 266,661
Future income tax assets............................................................. 10,720 12,003
Prearranged funeral services......................................................... 413,846 413,934
Other assets......................................................................... 158,092 164,503
------------ ------------
$ 4,466,733 $4,673,908
------------ ------------
------------ ------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current indebtedness............................................................... $ 48,782 $ 66,222
Accounts payable and accrued liabilities........................................... 137,877 170,134
Long-term debt, current portion.................................................... 742,248 874,123
------------ ------------
928,907 1,110,479
Long-term debt, net of current portion............................................... 1,395,987 1,393,891
Other liabilities.................................................................... 370,035 399,304
Insurance policy liabilities......................................................... 171,795 166,920
Future income tax liabilities........................................................ 200,961 208,939
Deferred prearranged funeral services revenue........................................ 413,846 413,934

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

Shareholders' equity
Common shares...................................................................... 1,274,163 1,274,096
Preferred shares................................................................... 157,146 157,146
Deficit............................................................................ (534,996) (539,741)
Foreign exchange adjustment........................................................ 13,889 13,940
------------ ------------
910,202 905,441
------------ ------------
$ 4,466,733 $4,673,908
------------ ------------
------------ ------------
</TABLE>

Financial condition (Note 1)

Commitments and contingencies (Notes 5, 6, 8, 9 and 10)

See accompanying notes to interim consolidated financial statements

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THE LOEWEN GROUP INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1999 1998
--------- -----------
(RESTATED--
SEE NOTE 3)
(UNAUDITED)
<S> <C> <C>
Revenue
Funeral............................................................. $ 175,431 $ 171,595
Cemetery............................................................ 111,613 115,273
Insurance........................................................... 23,761 22,868
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310,805 309,736
Costs and expenses
Funeral............................................................. 101,779 99,030
Cemetery............................................................ 81,387 78,082
Insurance........................................................... 19,197 19,244
--------- -----------
202,363 196,356
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108,442 113,380
Expenses
General and administrative.......................................... 28,570 24,704
Depreciation and amortization....................................... 19,786 17,926
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48,356 42,630
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Earnings from operations.............................................. 60,086 70,750
Interest on long-term debt............................................ 44,861 35,014
--------- -----------
Earnings before undernoted items...................................... 15,225 35,736
Dividends on preferred securities of subsidiary....................... 1,772 1,772
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Earnings before income taxes and undernoted items..................... 13,453 33,964
Income taxes.......................................................... 6,386 7,473
--------- -----------
7,067 26,491
Equity and other earnings (losses) of associated companies............ (140) 3,548
--------- -----------
Net earnings for the period........................................... $ 6,927 $ 30,039
Retained earnings (deficit), beginning of period...................... (539,741) 75,624
Preferred share dividends............................................. (2,182) (2,312)
--------- -----------
Retained earnings (deficit), end of period............................ $(534,996) $ 103,351
--------- -----------
--------- -----------
Basic earnings per Common share....................................... $ 0.06 $ 0.38
</TABLE>

See accompanying notes to interim consolidated financial statements

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THE LOEWEN GROUP INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1999 1998
--------- ------------
(RESTATED--
SEE NOTE 3)
(UNAUDITED)
<S> <C> <C>
CASH PROVIDED BY (APPLIED TO)
Operations
Net earnings........................................................ $ 6,927 $ 30,039
Items not affecting cash
Depreciation and amortization..................................... 19,786 17,926
Amortization of debt issue costs.................................. 1,401 1,947
Equity and other losses (earnings) of associated companies........ 140 (3,548)
Other, including net changes in other non-cash balances............. (67,180) (40,125)
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(38,926) 6,239
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Investing
Business acquisitions............................................... -- (88,334)
Construction of new facilities...................................... (4,975) (4,279)
Purchase of insurance invested assets............................... (49,869) (52,529)
Proceeds on disposition and maturities of insurance invested
assets............................................................ 47,551 38,867
Purchase of property and equipment.................................. (6,615) (6,037)
Proceeds on disposition of assets................................... 187,143 --
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173,235 (112,312)
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Financing
Issue of Common shares, before income tax recovery.................. -- 71
Increase in long-term debt.......................................... 4,168 185,034
Repayment of long-term debt......................................... (130,216) (61,223)
Common share dividends.............................................. -- (7,334)
Preferred share dividends........................................... (2,157) (2,312)
Debt issue costs.................................................... (4,022) (10,373)
Repayment of current indebtedness................................... (17,440) --
--------- ------------
(149,667) 103,863
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Decrease in cash and cash equivalents during the period............... (15,358) (2,210)
Effect of foreign exchange adjustment................................. (172) 16
Cash and cash equivalents, beginning of period........................ 94,141 36,767
--------- ------------
Cash and cash equivalents, end of period.............................. $ 78,611 $ 34,573
--------- ------------
--------- ------------

Cash and cash equivalents include cash and term deposits.

Supplementary disclosure
Cash paid for:
Interest.......................................................... $ 63,937 $ 36,271
Taxes............................................................. 3,355 10,552
Non-cash debt and share consideration on acquisitions............... -- 13,701
</TABLE>

See accompanying notes to interim consolidated financial statements

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THE LOEWEN GROUP INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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 going concern
assumption because of recent losses and continued negative cash flows. 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. In the event that the Company cannot
mitigate the adverse conditions and events which raise doubt about the validity
of the "going concern" assumption, the Company or its creditors may initiate
proceedings for the liquidation or reorganization of the Company under Canadian
and/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

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.

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

- 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
agreement (collectively, the "Credit Agreements"), resulting in revised
lending agreements effective March 31, 1999. 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 March
31, 1999 major asset sale;

- Increase effective interest rates or applicable margins;

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THE LOEWEN GROUP INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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

NOTE 1. FINANCIAL CONDITION (CONTINUED)
- 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.

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.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The United States dollar is the principal currency of the Company's business
and accordingly the interim consolidated financial statements are expressed in
United States dollars. The interim consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in Canada.

The interim consolidated financial statements include the accounts of all
subsidiary companies and all adjustments, including normal recurring
adjustments, which in management's opinion are necessary for a fair presentation
of the financial results for the interim periods. The financial statements have
been prepared consistent with the accounting policies described in the Company's
Annual Report on Form 10-K filed with the Securities and Exchange Commission for
the year ended December 31, 1998 and should be

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THE LOEWEN GROUP INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
read in conjunction therewith. Certain of the comparative figures have been
reclassified to conform to the presentation adopted in the current period.

USE OF ESTIMATES

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

NOTE 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.
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, 1998 was a decrease of $22,730,000. 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 primarily due
to effects of acquisition accounting and a corresponding increase in future
income tax liability of approximately $486,000,000. The effect on the interim
consolidated statement of operations for the three months ended March 31, 1998
was a decrease to net earnings of approximately $361,000.

(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 as supplementary information to the Statement of Cash Flows.

NOTE 4. DISPOSITIONS

On March 31, 1999, the Company sold 124 funeral homes and three cemeteries
for gross proceeds of $193,000,000 resulting in a 1998 pre-tax impairment charge
of $301,605,000, and no further gain or loss as at March 31, 1999, based on the
carrying value of the net assets of the businesses sold. However, pursuant to
the purchase agreement, the purchase price is subject to a number of adjustments
to be determined in 1999.

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THE LOEWEN GROUP INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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

NOTE 5. INVESTMENTS

(a) PRIME SUCCESSION HOLDINGS, INC. ("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.

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.

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 wrote 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

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THE LOEWEN GROUP INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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

NOTE 5. INVESTMENTS (CONTINUED)
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 has been recorded reflecting an accrual
of the expected loss on the option reduced by the remaining carrying value of
Prime.

The Company recognized a loss of $140,000 and income of $1,387,000 for the
three month periods ended March 31, 1999 and 1998, respectively, relating to its
investment in Prime. Summarized financial data for Prime are presented as
follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1999 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
Income statement information:
Revenue.................................................................. $ 25,794 $ 26,585
Gross margin............................................................. 9,835 9,874
Earnings from operations................................................. 6,076 6,305
Payment-in-kind dividend................................................. 1,190 1,746
Net loss attributable to common shareholders............................. (1,076) (1,649)
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
Balance sheet information:
Current assets....................................... $ 23,418 $ 22,820
Non-current assets................................... 365,526 368,302
------------ ------------
Total assets......................................... 388,944 391,122

Current liabilities.................................. 15,251 15,952
Non-current liabilities.............................. 254,469 256,060
------------ ------------
Total liabilities.................................... 269,720 272,012

Shareholders' equity................................. 119,224 119,110
</TABLE>

(b) ROSE HILLS HOLDINGS CORP. ("RH HOLDINGS")

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

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THE LOEWEN GROUP INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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

NOTE 5. INVESTMENTS (CONTINUED)
$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 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 assessed that its investment
suffered a decline in value that was other than temporary and wrote 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

-9-
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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

NOTE 5. INVESTMENTS (CONTINUED)
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 has been recorded
reflecting an accrual of the expected loss on the option, offset by the
remaining carrying value of Rose Hills.

Under generally accepted accounting principles, the Company cannot recognize
earnings on its investment in Rose Hills that would increase the investment
above its written down value at December 31, 1998. Future losses, if any,
resulting from the investment in Rose Hills will first offset any deferred
earnings and any excess will be charged against current operating results. For
the three months ended March 31, 1999 the Company deferred earnings of $683,000,
and for the three months ended March 31, 1998 recognized income of $2,164,000
relating to its investment in Rose Hills. Summarized financial data for Rose
Hills are presented as follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1999 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
Income statement information:
Revenue.................................................................. $ 21,791 $ 22,679
Gross margin............................................................. 18,664 18,937
Earnings from operations................................................. 6,721 6,920
Payment-in-kind dividend................................................. 2,602 2,365
Net earnings (loss) attributable to common shareholders.................. 105 (982)
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
Balance sheet information:
Current assets....................................... $ 22,302 $ 23,011
Non-current assets................................... 298,847 298,922
------------ ------------
Total assets......................................... 321,149 321,933

Current liabilities.................................. 16,710 20,488
Non-current liabilities.............................. 173,440 173,153
------------ ------------
Total liabilities.................................... 190,150 193,641

Shareholders' equity................................. 130,999 128,292
</TABLE>

-10-
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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

NOTE 6. DEBT

CURRENT INDEBTEDNESS

A subsidiary of the Company has a $49,020,000 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 March 31, 1999 the balance
outstanding on the Receivables Finance Facility was $48,782,000 (December 31,
1998--$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
(March 31, 1999-- 7.80%). 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.

LONG-TERM DEBT

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
Bank credit agreement................................................. $ 253,013 $ 330,000
Management Equity Investment Plan ("MEIP") bank term credit agreement
due in 2000......................................................... 82,901 97,292
9.62% Series D senior amortizing notes due in 2003.................... 36,518 42,857
6.49% Series E senior amortizing notes due in 2004.................... 30,432 42,857
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)........... 132,521 130,676
7.20% Series 6 senior notes due in 2003............................... 200,000 200,000
7.60% Series 7 senior notes due in 2008............................... 250,000 250,000
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%.................................... 37,103 38,147
Present value of contingent consideration payable on acquisitions
discounted at an effective interest rate of 8.0%.................... 4,838 19,785
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...... 110,909 116,400
------------ ------------
2,138,235 2,268,014
</TABLE>

-11-
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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

NOTE 6. DEBT (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
Less current portion:
Bank credit agreement............................................... 253,013 330,000
MEIP bank term credit agreement due in 2000......................... 82,901 97,292
9.62% Series D senior amortizing notes due in 2003.................. 36,518 42,857
6.49% Series E senior amortizing notes due in 2004.................. 30,432 42,857
6.70% PATS senior notes............................................. 300,000 300,000
Other............................................................... 39,384 61,117
------------ ------------
742,248 874,123
------------ ------------
$1,395,987 $1,393,891
------------ ------------
------------ ------------
</TABLE>

(a) The Company completed negotiations with the lenders under the Credit
Agreements resulting in revised lending agreements, effective March 31, 1999.
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 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

-12-
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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

NOTE 6. DEBT (CONTINUED)
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 March 31,
1999, the indebtedness owed to the senior lending group subject to the
collateral trust agreement, including holders of certain letters of credit,
aggregated $2,012,000,000.

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) The Company's bank credit agreement and MEIP bank term credit agreement bear
interest at floating rates (10.50% at March 31, 1999), 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 9(b)).

(e) 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, however, early principal payments of $6,339,000 and
$5,283,000 were made against the Series D and E senior amortizing notes,
respectively, and the Series D senior amortizing notes were amended to defer the
September 1999 principal payment of $8,571,000 to January 2000.

NOTE 7. PREFERRED SECURITIES OF SUBSIDIARY

On August 15, 1994, 3,000,000 9.45% Cumulative Monthly Income Preferred
Securities, Series A ("MIPS") were issued by Loewen Group Capital, L.P. ("LGC")
in a public offering for an aggregate amount of $75,000,000. LGC is a limited
partnership and LGII as its general partner manages its business and affairs.
LGII serves as the holding company for all United States assets and operations
of the Company. The consolidated financial statements of LGII are prepared in
accordance with Canadian generally accepted accounting principles and are
presented in United States dollars.

-13-
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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

NOTE 7. PREFERRED SECURITIES OF SUBSIDIARY (CONTINUED)
Summarized financial data for LGII are presented as follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1999 1998
----------- -----------
(RESTATED --
SEE NOTE 3)
(UNAUDITED)
<S> <C> <C>
Income statement information:
Revenue................................................... $ 280,295 $ 287,360
Gross margin.............................................. 92,161 101,245
Earnings from operations.................................. 48,126 63,654
Net loss.................................................. (29,276) (262)
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
(UNAUDITED)
Balance sheet information:
Current assets........................................................... $ 234,345 $ 236,014
Non-current assets....................................................... 3,749,691 3,904,500
------------ ------------
Total assets............................................................. 3,984,036 4,140,514

Current liabilities...................................................... 841,321 1,207,708
Non-current liabilities.................................................. 3,474,176 3,237,888
------------ ------------
Total liabilities........................................................ 4,315,497 4,445,596

Shareholders' deficiency................................................. (331,461) (305,082)
</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 future MIPS dividends
would be deferred.

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.

NOTE 8. LEGAL CONTINGENCIES

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

-14-
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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

NOTE 8. LEGAL CONTINGENCIES (CONTINUED)
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-Sl 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-Sl 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.

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.

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

-15-
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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

NOTE 8. LEGAL CONTINGENCIES (CONTINUED)
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. 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 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 filed an opposition to
the application. On April 30, 1999, the Lousiana Supreme Court denied the writ
application and thereby declined to review the Court of Appeal's dismissal of
plaintiffs' class action allegations.

The Company has determined that it is not possible at this time to predict
the final outcome of these legal proceedings and that it is not possible to
establish a reasonable estimate of possible damages, if any, or reasonably to
estimate the range of possible damages that may be awarded to plaintiffs.
Accordingly, no provision with respect to this lawsuit has been made in the
Company's interim 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 sought a class action. On October 22, 1998, plaintiffs in LUENING
filed a "First Amended Petition for Damages." 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.

-16-
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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

NOTE 8. LEGAL CONTINGENCIES (CONTINUED)
discovery ruling pending a decision on the writ application. 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 filed an opposition to the application. On April 30,
1999, the Louisiana Supreme Court denied the writ application and thereby
declined to review the Court of Appeal's dismissal of plaintiffs' class action
allegations.

The Company has determined that it is not possible to predict the final
outcome of this legal proceeding 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 interim
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 these 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.

-17-
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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

NOTE 8. LEGAL CONTINGENCIES (CONTINUED)

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 consolidate all
of the actions for pretrial coordination in the United States District Court for
the Eastern District of Pennsylvania. The cases pending in the Eastern District
of New York have been stayed pending a ruling by the MDL Panel. Counsel for the
plaintiffs in the actions currently pending in the Eastern District of New York
entered into a written stipulation filed with the MDL Panel agreeing to the
transfer of their cases to the Eastern District of Pennsylvania. The MDL Panel
has scheduled oral argument on this issue for May 21, 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. THE 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), 99-CV-553; COLLINS V. THE LOEWEN
GROUP INC., ET AL., 99-CV-261; CORRADINI, ET AL. V. THE LOEWEN GROUP INC. ET
AL., 99-CV-443; GERSH V. THE LOEWEN GROUP INC., 98-CV-7893; GREAT NECK CAPITAL
APPRECIATION PARTNERS V. RAYMOND L. LOEWEN, ET AL., 99-CV-164; HARRIS V. THE
LOEWEN GROUP INC., ET AL., 99-CV-153; and SALEM V. THE LOEWEN GROUP INC., ET
AL., 99-CV-351.

The Pennsylvania cases have all been assigned to Judge Thomas O'Neill. On
April 15, 1999, Judge O'Neill entered an order consolidating all of the
above-described cases in the Eastern District of Pennsylvania, as well as any
related cases thereafter transferred to that District (the "April 15 Order").
The April 15 Order appoints the City of Philadelphia Board of Pensions and
Retirement as lead plaintiff, orders the filing of a Consolidated Amended
Complaint within 45 days, and requires the defendants to respond within 45 days
after the filing of the Consolidated Amended Complaint.

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 interim consolidated
financial statements.

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

-18-
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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

NOTE 8. LEGAL CONTINGENCIES (CONTINUED)
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.

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 interim 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. 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

-19-
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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

NOTE 8. LEGAL CONTINGENCIES (CONTINUED)
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.

OTHER

The Company is a party to other legal proceedings in the ordinary course of
its business but does not expect the outcome of any other proceedings,
individually or in the aggregate, to have a material adverse effect on the
Company's financial position, results of operation or liquidity.

NOTE 9. COMMITMENTS AND CONTINGENCIES

(a) 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).

(b) 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 ten-year U.S. treasury rate of 6.05% on October 1, 1999. At March 31,
1999, the option value was $17,149,000. The option value will change based on
changes in the ten-year U.S. treasury rate.

NOTE 10. 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.

-20-
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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

NOTE 11. SEGMENTED INFORMATION

In 1998 the Company 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 Company's reportable segments are comprised of the three businesses it
operates, funeral homes, cemeteries and insurance, each of which offers
different products and services. There has been no change in the basis of this
segmentation, accounting policies of the segments, or the basis of measurement
of segment profit or loss from that disclosed in the 1998 annual financial
statements. The information for the three months ended March 31, 1998 has been
restated to conform to the 1999 presentation.

<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31 (UNAUDITED) FUNERAL CEMETERY INSURANCE OTHER CONSOLIDATED
- ------------------------------------------------ ----------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Revenue earned from external sales
1999.......................................... $ 175,431 $ 111,613 $ 23,761 $ -- $ 310,805
1998.......................................... 171,595 115,273 22,868 -- 309,736

Earnings (loss) from operations
1999.......................................... $ 52,948 $ 23,987 $ 4,556 $ (21,405) $ 60,086
1998.......................................... 53,675 32,495 3,615 (19,035) 70,750

Total assets, as at:
March 31, 1999 (unaudited).................... $ 2,049,997 $ 1,973,474 $ 276,663 $ 166,599 $4,466,733
December 31, 1998............................. 2,059,422 2,175,663 276,098 162,725 4,673,908
</TABLE>

The following table reconciles earnings from operations of reportable
segments to total earnings from operations and identifies the components of
"Other" segment earnings from operations:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1999 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
Earnings from operations of funeral, cemetery and insurance segments................. $ 81,491 $ 89,785
Other expenses of operations:
General and administrative expenses................................................ (19,080) (16,005)
Depreciation and amortization...................................................... (2,347) (3,029)
Other.............................................................................. 22 (1)
------------ ------------
Total earnings from operations..................................................... $ 60,086 $ 70,750
------------ ------------
------------ ------------
</TABLE>

-21-
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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

NOTE 12. UNITED STATES ACCOUNTING PRINCIPLES

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

(a) EARNINGS AND EARNINGS PER COMMON SHARE

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1999 1998
----------- -----------
(RESTATED--
SEE NOTE 3)
(UNAUDITED)
<S> <C> <C>
EARNINGS
Net earnings in accordance with Canadian GAAP......................... $ 6,927 $ 30,039
Less effects of differences in accounting for:
Insurance operations................................................ 707 701
Stock options....................................................... (22) (36)
----------- -----------
Net earnings before cumulative effect of a change in accounting
principle........................................................... $ 7,612 $ 30,704
Cumulative effect of adopting SOP 98-5 as of January 1, 1998.......... -- (5,000)
----------- -----------
Net earnings in accordance with United States GAAP.................... $ 7,612 $ 25,704

Other comprehensive income:
Foreign currency translation adjustments............................ (51) 637
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period....... (7,912) 4,736
Less: reclassification adjustment for gains included in net
income.......................................................... (1,459) (976)
----------- -----------
Comprehensive income in accordance with United States GAAP............ $ (1,810) $ 30,101
----------- -----------
----------- -----------
</TABLE>

BASIC EARNINGS PER COMMON SHARE

Basic earnings per Common share in accordance with United States GAAP, and
similar to Canadian GAAP, is based on the weighted average number of Common
shares outstanding during the year, and is computed as follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1999 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
Net earnings before cumulative effect of a change in accounting principle................ $ 7,612 $ 30,704
Less: Preferred share dividends.......................................................... 2,182 2,312
----------- -----------
Net earnings before cumulative effect of a change in accounting principle attributable to
Common shareholders.................................................................... $ 5,430 $ 28,392
----------- -----------
----------- -----------
Weighted average number of shares outstanding............................................ 74,061 73,930
Basic earnings before cumulative effect of a change in accounting principle per Common
share.................................................................................. $ 0.07 $ 0.38
----------- -----------
----------- -----------
</TABLE>

-22-
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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

NOTE 12. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
(b) BALANCE SHEET

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

<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
-------------------------- --------------------------
CANADIAN UNITED CANADIAN UNITED
GAAP STATES GAAP GAAP STATES GAAP
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Assets
Receivables, net of allowances....................... $ 204,481 $ 204,481 $ 221,679 $ 221,920
Long-term receivables, net of allowances............. 546,596 544,767 647,092 655,193
Insurance invested assets............................ 269,567 267,714 266,661 270,809
Other assets......................................... 158,092 182,472 164,503 187,760

Liabilities and Shareholders' Equity
Other liabilities.................................... 370,035 364,448 399,304 394,377
Insurance policy liabilities......................... 171,795 201,653 166,920 196,230
Future income tax liabilities........................ 200,961 198,110 208,939 212,378
Common shares........................................ 1,274,163 1,300,535 1,274,096 1,300,428
Deficit.............................................. (534,996) (530,659) (539,741) (536,089)
Accumulated other comprehensive income:
Unrealized gains on securities available for sale,
net of tax....................................... -- (2,434) -- 6,937
Foreign exchange adjustment.......................... 13,889 (15,108) 13,940 (15,057)
</TABLE>

-23-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

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

OVERVIEW

The Company operates the second-largest number of funeral homes and
cemeteries in North America. In addition to providing services at the time of
need, the Company also makes funeral, cemetery and cremation arrangements on a
pre-need basis. As at April 30, 1999, the Company operated 1,116 funeral homes
and 429 cemeteries throughout North America and 32 funeral homes in the United
Kingdom. As at April 30, 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.

RISKS AND UNCERTAINTIES

BASIS OF PRESENTATION

The Company's Interim 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 going concern
assumption because of recent losses and continued negative cash flows. There is
also uncertainty as to the Company's ability to refinance the $300 million of
pass-through asset trust senior guaranteed notes due 2009 (the "PATS Senior
Notes") by September 15, 1999, on terms satisfactory to the lenders under its
bank credit agreement, MEIP bank term credit agreement, Series D and E senior
amortizing notes and one privately held note agreement (collectively, the
"Credit Agreements") revised on March 31, 1999. In the event that the Company
cannot mitigate the adverse conditions and events which raise doubt about the
validity of the "going concern" assumption, the Company or its creditors may
initiate proceedings for the liquidation or reorganization of the Company under
Canadian and/or U.S. bankruptcy laws.

The Interim 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 Interim 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

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.

-24-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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, Pennsylvania office to the
Burnaby, British Columbia 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 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

- 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. 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 March
31, 1999 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;

-25-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
- 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.

RESULTS OF OPERATIONS

Detailed below are the Company's operating results for the three months
ended March 31, 1999 and 1998, expressed in dollar amounts as well as relevant
percentages. The operating results are presented as a percentage of revenue
except income taxes, which are presented as a percentage of earnings before
income taxes and equity and other earnings (losses) of associated companies.

-26-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
The Company's operations are comprised of three businesses: funeral homes,
cemeteries and insurance. See Note 11 to the Interim Consolidated Financial
Statements.

<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
(IN MILLIONS) (IN PERCENTAGES)
<S> <C> <C> <C> <C>
Revenue
Funeral................................................... $ 175.4 $ 171.6 56.4 55.4
Cemetery.................................................. 111.6 115.2 35.9 37.2
Insurance................................................. 23.8 22.9 7.7 7.4
--------- ---------
Total................................................... $ 310.8 $ 309.7 100.0 100.0
--------- ---------
--------- ---------
Gross margin
Funeral................................................... $ 73.6 $ 72.6 42.0 42.3
Cemetery.................................................. 30.2 37.2 27.1 32.3
Insurance................................................. 4.6 3.6 19.2 15.8
--------- ---------
Total................................................... 108.4 113.4 34.9 36.6
Expenses
General and administrative................................ 28.5 24.7 9.2 8.0
Depreciation and amortization............................. 19.8 17.9 6.4 5.8
--------- ---------
Earnings from operations.................................. 60.1 70.8 19.3 22.8
Interest on long-term debt................................ 44.8 35.0 14.4 11.3
Dividends on preferred securities of subsidiary........... 1.8 1.8 0.6 0.6
Income taxes.............................................. 6.4 7.5 47.5 22.0
--------- ---------
7.1 26.5 2.3 8.6
Equity and other earnings (losses) of associated
companies............................................... (0.2) 3.5 (0.1) 1.1
--------- ---------
Net earnings.............................................. $ 6.9 $ 30.0 2.2 9.7
--------- ---------
--------- ---------
</TABLE>

THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998

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
resulting in a 1998 pre-tax impairment charge of $301.6 million, and no further
gain or loss as at March 31, 1999 based on the carrying value of the net assets
of the businesses sold. However, pursuant to the purchase agreement, the
purchase price is subject to a number of adjustments to be determined in 1999.
The Company recorded a pre-tax impairment loss of $32.3 million in 1998 on a
smaller group of properties considered probable for sale. The impairment losses
were based on management estimates and as a result, actual results, when
determined, could differ significantly from these estimates. The operating
results of these locations have been included in the Company's Interim
Consolidated Financial Statements for the three months ended March 31, 1999.
Results for properties that have been sold will not be included in the Company's
results after the date of sale, resulting in a decrease in revenue and
associated expenses.

Although the Company may 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.

-27-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Consolidated revenue increased slightly by 0.3% to $310.8 million for the
three months ended March 31, 1999 from $309.7 million in 1998, as increased
funeral and insurance revenues were offset by a decline in cemetery revenues.
Consolidated gross margin decreased 4.4% to $108.4 million for the three months
ended March 31, 1999 from $113.4 million during the same period in 1998, as the
slight revenue improvement was outpaced by operating cost increases in cemetery
operations. As a percentage of revenue, consolidated gross margin decreased to
34.9% for the three months ended March 31, 1999 from 36.6% during the comparable
period in 1998, principally due to the decline in cemetery gross margin,
partially offset by improvement in insurance gross margin, as discussed below.

Funeral revenue increased 2.2% to $175.4 million for the three months ended
March 31, 1999 compared to $171.6 million for the same period in 1998, primarily
due to revenue from 1998 acquisitions and slightly improved pricing. The average
funeral service revenue increased by 0.3%, while the number of funeral services
performed at locations in operation for the three months ended March 31, 1998
and 1999 declined by 2.4% from 1998 to 1999. Overall funeral gross margin as a
percentage of funeral revenue decreased slightly to 42.0% in 1999 from 42.3% in
1998.

Cemetery revenue decreased 3.2% to $111.6 million in the three months ended
March 31, 1999 compared to $115.2 million in 1998, primarily due to a decline in
pre-need sales and lower investment income on trust funds, and cemetery gross
margin decreased to 27.1% in 1999 from 32.3% in 1998, due to the decline in
revenue and increase in certain operating costs. Cemetery revenue will decline
further in future quarters due to the disposition of 124 cemetery properties.

Insurance revenue increased 3.9% to $23.8 million for the three months ended
March 31, 1999 from $22.9 million during the same period in 1998. The increase
in revenues was primarily due to the continuing expansion of the sale of
pre-need funeral insurance through Company-owned funeral homes. Insurance gross
margin increased to 19.2% for 1999 from 15.8% in 1998, primarily due to the
implementation of the Company's insurance products in and expansion into several
states and the elimination of intercompany commission costs.

General and administrative expenses, as a percentage of revenue, increased
to 9.2% for the three month period ended March 31, 1999 from 8.0% during the
same period in 1998. The increase in general and administrative expenses in 1999
is a result of increased activities, including professional fees and costs,
associated with the strategic alternative evaluation process and general
business improvement activities currently underway.

Depreciation and amortization expenses for the three months ended March 31,
1999 were 10.4% higher than the same period in 1998, primarily due to
acquisitions made in 1998, partially offset by the write offs in 1998 of various
depreciable assets.

Interest expense on long-term debt increased by $9.8 million for the three
months ended March 31, 1999 compared to the same period in 1998, primarily as a
result of additional borrowings by the Company to finance its previous
acquisition programs and working capital needs and the related higher financing
costs.

The income tax expense of $6.4 million and an effective tax rate of 47.5%
for the three months ended March 31, 1999 compares to an income tax expense of
$7.5 million and an effective tax rate of 22.0% for the same period during 1998.
For the three months ended March 31, 1998 the Company's financing structures
allowed it to achieve an effective tax rate well below the Canadian statutory
rate of 45%. These structures did not produce similar benefits in the current
period because the Company was unable to fully realize the tax benefit from its
interest expense. The Company expects that its income taxes for 1999 and beyond
will likely exceed the Canadian statutory rate.

-28-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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 March 31, 1999. If this occurs,
the resulting change in the valuation allowance would be treated as an
additional income tax expense in the period such dispositions become probable.

The Company determined that its investment in Rose Hills Holding Corp.
("Rose Hills") and Prime Succession Holdings, Inc. ("Prime") had suffered a
decline in value that was other than temporary and wrote down its investments as
of December 31, 1998 based upon the assumed distribution of shareholders' equity
of Rose Hills and Prime. For the three months ended March 31, 1999, the Company
recorded equity losses of associated companies of $0.2 million, as a result of
Prime's losses for the period. Under generally accepted accounting principles,
the Company cannot recognize earnings on its investment in Rose Hills that would
increase the investment above its written down value at December 31, 1998.
Future equity losses, if any, resulting from the investment in Rose Hills will
first offset any deferred earnings and any excess will be charged against
current operating results. For the three months ended March 31, 1999, the
Company deferred earnings of $0.7 million. See Note 5 to the Company's Interim
Consolidated Financial Statements.

The Company had net earnings of $6.9 million for the three months ended
March 31, 1999, a decrease of $23.1 million compared to net earnings of $30.0
million during the same period in 1998. Earnings were $0.06 per share compared
to earnings of $0.38 per share in 1998. The decrease in net earnings and
earnings per share for 1999 were primarily due to the decrease in operating
earnings, higher general and administrative costs, and the additional borrowings
by the Company to finance its previous acquisition programs and working capital
needs and the related higher financing costs.

ACQUISITIONS, INVESTMENTS, CAPITAL EXPENDITURES AND DISPOSITIONS

Beginning in the second half of 1998, the Company virtually ceased its
acquisition program. The Company has acquired one small cemetery during the
three months ended March 31, 1999. During the same period in 1998, the Company
acquired 34 funeral homes and 33 cemeteries for consideration of approximately
$102 million. The Company expects acquisitions during 1999 to be minimal.

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 a
smaller group of properties which is considered probable for sale. The Company
recorded a pre-tax impairment loss of $333.9 million in 1998 on individual
properties contained in the above groups.

Although the Company may 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
during the three months ended March 31, 1999 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.

LIQUIDITY AND CAPITAL RESOURCES

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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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'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 continued 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 $193.0
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 which provide for no further
borrowings.

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 and/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. Historically, 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 March 31, 1999, the Company's long-term debt/equity ratio was 2.3:1.
The Company does not have current plans to issue equity in 1999.

The Company's balance sheet at March 31, 1999 as compared to December 31,
1998, reflects changes principally from the disposition of properties and
related reduction and amendment of the Company's lending agreements, as well as
from ongoing operating activities.

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."

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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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 $30 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 $37 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 $83
million secured bank term credit agreement maturing in July 2000 (the "MEIP
Loan"), implemented in connection with the 1994 Management Equity Investment
Plan.

A subsidiary of Loewen has a receivable financing facility of $49.0 million.
The subsidiary has cemetery installment contract receivables and funeral
receivables with a carrying value of approximately $165.4 million. The facility
is secured by a pledge of the receivables held by the subsidiary. At March 31,
1999, $48.8 million was outstanding under the facility.

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 March 31,
1999, the indebtedness owed to the senior lending group subject to the
Collateral Trust Agreement, including holders of certain letters of credit,
aggregated approximately $2.0 billion.

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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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
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 7 to the Company's Interim Consolidated Financial
Statements.

Payments of dividends and loans and advances by subsidiaries to Loewen or
LGII are not restricted except that the Company's insurance subsidiaries are
subject to certain state regulations 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

-32-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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

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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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.

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 3. 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 March 31, 1999, the Company's total
debt has been converted into approximately $1.8 billion of fixed rate debt at a
weighted average rate of 7.5% and approximately $346 million of floating
interest rate debt at a weighted average rate of 8.7%. After allowing for the
effect

-34-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
of the interest rate swaps, a one percent increase in the various floating rate
debt indices would cause an approximately $3.5 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 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 March 31, 1999, is approximately $17.2 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.

EQUITY-PRICE RISK MANAGEMENT

The sale of prearranged funeral services, pre-need cemetery merchandise and
insurance products results 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.

-35-
<PAGE>
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 March 31, 1999. 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.

QUANTITATIVE DISCLOSURE OF MARKET RISKS
MARCH 31, 1999
(THOUSANDS OF U.S. DOLLARS)

<TABLE>
<CAPTION>
YEAR TO MATURITY 1999 2000 2001 2002 2003 THEREAFTER TOTAL FAIR VALUE
- --------------------------- -------- ------- -------- -------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES
Fixed rate US $ debt....... $404,740 $28,455 $372,030 $ 13,101 $562,113 $282,191 $1,662,630 $ 816,590
Average rate............. 7.3% 7.9% 7.6% 7.9% 7.9% 7.6% 7.6%
Fixed rate Cdn. $ debt..... 825 608 312 132,809 312 1,341 136,207 67,182
Average rate............. 8.0% 8.0% 8.0% 6.1% 8.0% 8.0% 6.2%
Floating rate US $ debt.... 385,187 560 700 518 577 639 388,181 251,202
Average rate............. 9.0% 8.0% 8.0% 8.0% 8.0% 8.0% 9.0%

PREFERRED SECURITIES
Monthly Income Preferred
Securities............... -- -- -- -- -- 75,000 75,000 15,187
Average rate............. -- -- -- -- -- 9.5% 9.5%
First Preferred Shares,
Series C................. -- -- -- -- -- 157,146 157,146 27,988
Average rate............. -- -- -- -- -- 6.0% 6.0%

INTEREST RATE DERIVATIVES
INTEREST RATE SWAPS
US$ pay fixed -- US$
receive variable......... 25,000 -- 50,000 -- -- -- 75,000 (940 )
Average pay rate......... 5.8% -- 6.2% -- -- -- 6.0%
Average receive rate..... 5.0% -- 5.0% -- -- -- 5.0%
Cdn.$ pay fixed -- Cdn.$
receive variable......... -- -- -- 46,382 -- -- 46,382 476
Average pay rate......... -- -- -- 5.9% -- -- 5.9%
Average receive rate..... 6.1% 6.1%
INTEREST RATE OPTIONS
US$ PATS senior notes put
option (10 year)
Notional Amount.......... 300,000 -- -- -- -- -- 300,000 (17,149 )
Strike Rate.............. 6.1% -- -- -- -- -- 6.1%
CROSS-CURRENCY INTEREST
RATE SWAP
US$ floating to GBP
floating................. -- -- -- 10,921 -- -- 10,921 26
Average pay rate......... -- -- -- 6.8% -- -- 6.8%
Average receive rate..... -- -- -- 5.2% -- -- 5.2%
</TABLE>

-36-
<PAGE>
PART II

ITEM 1. 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.

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.

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

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<PAGE>
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. 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.

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 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. 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

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<PAGE>
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

SECURITIES CLASS ACTIONS

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. THE 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.,

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<PAGE>
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), 99-CV-553; COLLINS V. THE LOEWEN
GROUP INC., ET AL., 99-CV-261; CORRADINI, ET AL. V. THE LOEWEN GROUP INC. ET
AL., 99-CV-443; GERSH V. THE LOEWEN GROUP INC., 98-CV-7983; GREAT NECK CAPITAL
APPRECIATION PARTNERS V. RAYMOND L. LOEWEN, ET AL., 99-CV-164; HARRIS V. THE
LOEWEN GROUP INC., ET AL., 99-CV-153; and SALEM V. THE LOEWEN GROUP INC., ET
AL., 99-CV-351.

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 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.

FLANAGAN

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<PAGE>
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.

OTHER

ENVIRONMENTAL CONTINGENCIES AND LIABILITIES

The Company's operations are subject to numerous environmental laws,
regulations and guidelines adopted by various governmental authorities in the
jurisdictions in which the Company operates. Liabilities are recorded when
environmental liabilities are either known or considered probable and can be
reasonably estimated. The Company's policies are designed to control
environmental risk upon acquisition through extensive due diligence and
corrective measures taken prior to acquisition. The Company believes
environmental liabilities to be immaterial individually and in the aggregate.

ITEM 3. DEFAULTS ON SENIOR SECURITIES

(a) There were no material defaults.

(b) In March 1999, the Company suspended future dividends on its Common
shares, Preferred shares and MIPS and pursuant to the Credit Agreements
is prohibited from declaring such dividends in the future. As of May 12,
1999, the cumulative dividends in arrears on the Preferred shares were
approximately $2.2 million and the cumulative dividends in arrears on the
MIPS were approximately $0.9 million.

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<PAGE>
ITEM 5. OTHER INFORMATION.

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-Q, 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-Q, 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 Interim
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 Interim 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 of recent losses and continued negative cash flow. 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. In the event that the
Company cannot mitigate the adverse conditions and events which raise doubt
about the validity of the "going concern" assumption, the Company or its
creditors may initiate proceedings for the liquidation or reorganization of the
Company under Canadian and/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 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.

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<PAGE>
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. A smaller group of properties is considered probable for sale.

Although the Company may 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 March 31, 1999. If this occurs,
the resulting change in the valuation allowance would be treated as an
additional income tax expense in the period 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 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, and (x) the ability of
the Company to retain and motivate its employees, including senior management
and critical staff.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------
<C> <S>

3 CHARTER DOCUMENTS

3.1 Certificate of Incorporation of The Loewen Group Inc. ("Loewen") issued by the British Columbia
Registrar of Companies (the "Registrar") on October 30, 1985 (1)

3.2 Altered Memorandum of 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)
</TABLE>

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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------
<C> <S>
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 (5)

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") (6)

4.5.2 First Amendment to the MEIP Credit Agreement, dated as of December 2, 1996 (7)

4.5.3 Second Amendment to the MEIP Credit Agreement, dated as of April 30, 1997 (7)

4.5.4 Third Amendment to the MEIP Credit Agreement, dated as of May 21, 1997 (8)

4.5.5 Fourth Amendment to the MEIP Credit Agreement, dated as of September 29, 1997 (8)

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)

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 (9)

4.11 MIPS Guarantee Agreement, dated August 15, 1994 (9)

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)
</TABLE>

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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------
<C> <S>
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 (8)

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 (6)

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 (10)

4.22 Form of Physical Series 3 and 4 Exchange Notes of LGII (10)

4.23 Form of Senior Guarantee of LGII's Series 3 and 4 Exchange Notes (included in Exhibit 4.21 or
4.22)

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
(11)

4.25 Form of Series 5 Guaranteed Notes of LGII (11)

4.26 Form of Loewen Guarantee of LGII's Series 5 Notes (11)

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 (11)

4.28 Form of Global "PATS" Senior Guaranteed Notes due 2009 of LGII (11)

4.29 Form of Physical "PATS" Senior Guaranteed Notes due 2009 of LGII (11)

4.30 Form of Senior Guarantee of LGII's "PATS" Senior Guaranteed Notes due 2009 (11)

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 (12)

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 (13)

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 (14)

4.36 Form of Physical Series 6 and 7 Exchange Notes of LGII (14)
</TABLE>

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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------
<C> <S>
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 (8)

*10.4 Form of Indemnification Agreement with Outside Directors (16)

*10.5 Form of Indemnification Agreement with Officers (16)

*10.6 Form of Loewen Severance Agreement (16)

*10.7 Loewen Severance Pay Plan (16)

*10.8 1994 Management Equity Investment Plan (the "MEIP") (16)

*10.9 Form of Executive Agreement executed by participants in the MEIP (9)

*10.10 1994 Outside Director Compensation Plan, as restated and amended as at January 9, 1997, and
further amended as at June 25, 1998 (5)

*10.11 Employee Stock Option Plan (International), as restated and amended as at September 17, 1998 (5)

*10.12 Employee Stock Option Plan (Canada), as restated and amended as at September 17, 1998 (5)

*10.13 Form of Stay Put Bonus Plan Letters, dated February 26, 1999 (5)

*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 (6)

*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 (8)
</TABLE>

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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------
<C> <S>
*10.21 Resignation and Release Agreement, effective June 10, 1996, by and between Loewen, LGII and Robert
O. Wienke (6)

*10.22 Employment Agreement, dated March 21, 1997, by and between Loewen and Thomas C. Hardy (5)

*10.23 Employment Agreement, dated October 31, 1997, by and between Loewen and Michael G. Weedon (8)

*10.24 Severance Agreement, dated November 4, 1997, by and between Loewen and Douglas J. McKinnon (8)

*10.25 Employment Agreement, dated January 30, 1998, by and between Loewen and Brad Stam (8)

*10.26 Employment Agreement, dated October 26, 1998, by and between Loewen and Peter S. Hyndman (5)

*10.27.1 Employment Agreement, dated November 30, 1998, by and between Loewen and Robert Lundgren (5)

*10.27.2 Severance Agreement, dated as of November 30, 1998, by and between Loewen and Robert Lundgren (5)

*10.27.3 Indemnification Agreement, dated February 3, 1999, by and between Loewen and Robert Lundgren (5)

11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS

27 FINANCIAL DATA SCHEDULE

99 ADDITIONAL EXHIBITS

99.1 Stock Purchase Agreement, dated as of June 14, 1996, by and among Prime Succession, Inc. the other
individuals or entities listed on the signature pages thereof, Loewen and Blackhawk Acquisition
Corp. (17)

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 (18)

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 (17)

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") (19)

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 (19)

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 (19)

99.7 Form of Letter of Transmittal (20)
</TABLE>

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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------
<C> <S>
99.8 Form of Notice of Guaranteed Delivery (20)

99.9 Standstill Agreement dated as of December 31, 1998, by and between Loewen, Thomas M. Taylor and
TMI-FW, Inc. (21)
</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)

(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 Annual Report on Form 10-K for the
year ended December 31, 1998, filed on April 15, 1999 (File No. 1-12163).

(6) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996, filed on November 14, 1996 (File No.
1-12163)

(7) 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)

(8) 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)

(9) 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)

(10) Incorporated by reference from the Registration Statement on Form S-4
filed by LGII and Loewen on November 18, 1996, as amended (File Nos.
333-16319 and 333-16319-01)

(11) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997, filed on November 14, 1997 (File No.
1-12163)

(12) 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)

(13) 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)

(14) 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)

(15) 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)

(16) Incorporated by reference from Loewen's Solicitation/Recommendation
Statement on Schedule 14D-9, filed on October 10, 1996, as amended

(17) 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)

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<PAGE>
(18) 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)

(19) Incorporated by reference from Loewen's Periodic Report on Form 8-K, dated
November 19, 1996, filed December 27, 1996 (File No. 1-12163)

(20) 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)

(21) Incorporated by reference from Loewen's Periodic Report on Form 8-K, dated
December 30, 1998, filed January 4, 1999

(b) REPORTS ON FORM 8-K

The following Current Reports on Form 8-K were filed by Loewen during the
first quarter of fiscal 1999:

<TABLE>
<CAPTION>
FILING DATE ITEM NUMBER DESCRIPTION
- ---------------------------- ------------------------ ----------------------------------------------------------
<S> <C> <C>
January 4, 1999 (dated Item 5. Other Events Description of a Standstill Agreement by and among Loewen,
December 30, 1998) Thomas M. Taylor, a director of the Company, and TMI-FW,
Inc., a corporation controlled by Mr. Taylor, and filing
of Standstill Agreement.

January 19, 1999 (dated Item 5. Other Events Press release confirming that options being considered by
January 15, 1999) the Company include sales of assets.

January 25, 1999 (dated Item 5. Other Events Press release naming outside director John S. Lacey as
January 22, 1999) Chairman of the Board.

March 2, 1999 (dated March Item 5. Other Events Press release announcing cemetery asset sale to investor
1, 1999) group.

March 9, 1999 (dated March Item 5. Other Events Press release announcing that the Board has deferred the
8, 1999) April 1 dividend payment on the Company's Convertible
First Preferred Shares, Series C.
</TABLE>

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<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>
THE LOEWEN GROUP INC.

Dated: May 11, 1999 By: /s/ ROBERT B. LUNDGREN
Name: Robert B. Lundgren
Title: PRESIDENT AND CHIEF EXECUTIVE OFFICER

Dated: May 11, 1999 By: /s/ DWIGHT K. HAWES
Name: Dwight K. Hawes
Title: SENIOR VICE-PRESIDENT, CORPORATE CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
</TABLE>

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<PAGE>

INDEX TO 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)

4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES

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)