10-Q 1 a10-q.txt FORM 10-Q -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) (Mark One) OF THE SECURITIES EXCHANGE ACT OF 1934 /X/ For the quarterly period ended June 30, 2000
OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to
COMMISSION FILE NUMBER 1-12163 ------------------------ THE LOEWEN GROUP INC. (Exact name of registrant as specified in its charter) ------------------------------ BRITISH COLUMBIA 98-0121376 (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 4126 NORLAND AVENUE, BURNABY, V5G 3S8 BRITISH COLUMBIA, CANADA (Postal Code) (Address of principal executive offices)
Registrant's telephone number, including area code: 604-299-9321 (Former name, former address and former fiscal year, if changed since last report): N/A Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / ------------------------ APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes / / No / / ------------------------ APPLICABLE ONLY TO CORPORATE ISSUERS The number of outstanding Common shares as of July 31, 2000 was 74,145,466. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- THE LOEWEN GROUP INC.
PAGE -------- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS: CONSOLIDATED BALANCE SHEETS as of June 30, 2000 and December 31, 1999................... 1 CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT for the Three Months Ended June 30, 2000 and 1999 and the Six Months Ended June 30, 2000 and 1999................. 2 CONSOLIDATED STATEMENTS OF CASH FLOWS for the Three Months Ended June 30, 2000 and 1999 and the Six Months Ended June 30, 2000 and 1999................. 3 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.......... 4 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................... 21 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................................................. 31 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS........................................... 33 ITEM 3. DEFAULTS ON SENIOR SECURITIES............................... 34 ITEM 5. OTHER INFORMATION........................................... 34 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................ 37 SIGNATURES...................................................................... 44
i PART I ITEM 1. FINANCIAL STATEMENTS. THE LOEWEN GROUP INC. CONSOLIDATED BALANCE SHEETS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
JUNE 30 DECEMBER 31 2000 1999 ----------- ------------ (UNAUDITED) ASSETS Current assets Cash...................................................... $ 121,570 $ 55,166 Receivables, net of allowances............................ 191,646 198,500 Inventories............................................... 33,481 34,850 Prepaid expenses.......................................... 10,374 12,332 ----------- ----------- 357,071 300,848 Long-term receivables, net of allowances.................... 577,858 577,733 Cemetery property........................................... 893,996 923,344 Property and equipment...................................... 721,380 799,813 Names and reputations....................................... 622,562 650,200 Insurance invested assets................................... 295,022 281,423 Future income tax assets.................................... 3,486 5,128 Pre-arranged funeral services............................... 429,538 438,541 Other assets................................................ 130,242 133,553 ----------- ----------- $ 4,031,155 $ 4,110,583 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities not subject to compromise Current liabilities Accounts payable and accrued liabilities................ $ 93,093 $ 97,637 Long-term debt, current portion......................... 24,530 20,693 ----------- ----------- 117,623 118,330 ----------- ----------- Long-term debt, net of current portion.................... 57,004 70,511 Other liabilities......................................... 423,228 426,019 Insurance policy liabilities.............................. 194,043 184,207 Future income tax liabilities............................. 144,479 146,028 Deferred pre-arranged funeral services revenue............ 429,538 438,541 Liabilities subject to compromise........................... 2,277,360 2,282,601 Shareholders' equity Common shares............................................. 1,276,414 1,276,434 Preferred shares.......................................... 157,144 157,146 Deficit................................................... (1,058,464) (1,004,917) Foreign exchange adjustment............................... 12,786 15,683 ----------- ----------- 387,880 444,346 ----------- ----------- $ 4,031,155 $ 4,110,583 =========== =========== BANKRUPTCY PROCEEDINGS AND BASIS OF PRESENTATION (NOTE 1) COMMITMENTS AND CONTINGENCIES (NOTES 3, 4 AND 6)
SEE ACCOMPANYING NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 1 THE LOEWEN GROUP INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ----------------------- ----------------------- 2000 1999 2000 1999 ----------- --------- ----------- --------- (UNAUDITED) (UNAUDITED) Revenue Funeral..................................... $ 139,538 $ 147,807 $ 300,608 $ 322,089 Cemetery.................................... 55,138 87,802 126,366 196,572 Insurance................................... 24,176 23,860 48,735 47,621 ----------- --------- ----------- --------- 218,852 259,469 475,709 566,282 ----------- --------- ----------- --------- Costs and expenses Funeral..................................... 100,877 103,631 207,151 210,393 Cemetery.................................... 42,440 69,509 94,074 148,222 Insurance................................... 19,144 18,660 38,251 37,857 ----------- --------- ----------- --------- 162,461 191,800 339,476 396,472 ----------- --------- ----------- --------- 56,391 67,669 136,233 169,810 Expenses General and administrative.................. 18,251 23,683 35,996 49,970 Depreciation and amortization............... 14,658 15,534 29,229 31,302 Provision for asset impairment.............. 92,031 15,112 92,031 15,112 ----------- --------- ----------- --------- 124,940 54,329 157,256 96,384 ----------- --------- ----------- --------- Earnings (loss) from operations............... (68,549) 13,340 (21,023) 73,426 Interest on long-term debt.................... 3,197 32,139 6,495 77,000 Reorganization costs.......................... 7,484 67,163 14,423 67,163 Dividends on preferred securities of subsidiary.................................. -- 1,199 -- 2,971 Other expenses................................ 518 13,813 2,184 13,953 ----------- --------- ----------- --------- Loss before income taxes...................... (79,748) (100,974) (44,125) (87,661) Income taxes.................................. (3,402) 4,356 9,422 10,742 ----------- --------- ----------- --------- Net loss for the period....................... $ (76,346) $(105,330) $ (53,547) $ (98,403) Deficit, beginning of period.................. (982,118) (532,814) (1,004,917) (539,741) ----------- --------- ----------- --------- Deficit, end of period........................ $(1,058,464) $(638,144) $(1,058,464) $(638,144) =========== ========= =========== ========= Basic loss per Common share................... $ (1.06) $ (1.44) $ (0.78) $ (1.38)
SEE ACCOMPANYING NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 2 THE LOEWEN GROUP INC CONSOLIDATED STATEMENTS OF CASH FLOWS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 -------------------- -------------------- 2000 1999 2000 1999 -------- --------- -------- --------- (UNAUDITED) (UNAUDITED) CASH PROVIDED BY (APPLIED TO) Operations Net loss......................................... $(76,346) $(105,330) $(53,547) $ (98,403) Items not affecting cash Depreciation and amortization.................. 18,942 19,417 37,883 39,203 Amortization of debt issue costs............... 1,037 1,358 1,965 2,759 Provision for asset impairment................. 92,031 15,112 92,031 15,112 Future income taxes............................ (7,679) (3,155) 467 (3,752) Losses on disposition of assets and investments.................................. 518 13,813 2,184 13,953 Non-cash reorganization costs.................. 158 58,643 328 58,643 Other, including net changes in other non-cash balances....................................... 12,504 21,967 12,936 (44,788) -------- --------- -------- --------- 41,165 21,825 94,247 (17,273) -------- --------- -------- --------- Investing Purchase of insurance invested assets............ (14,714) (44,242) (50,821) (94,111) Proceeds on disposition and maturities of insurance invested assets...................... 8,893 44,319 36,840 91,870 Proceeds on disposition of assets and investments.................................... 3,890 5,693 9,642 192,836 Purchase of property and equipment............... (3,168) (6,118) (7,639) (12,733) Construction of new facilities................... (408) (3,072) (863) (8,047) -------- --------- -------- --------- (5,507) (3,420) (12,841) 169,815 -------- --------- -------- --------- Financing Increase in long-term debt....................... -- 2,118 -- 6,286 Repayment of long-term debt...................... (2,477) (2,710) (14,216) (132,926) Repayment of current indebtedness................ -- (9,330) -- (26,770) Debt issue costs................................. (405) (2,031) (786) (6,054) Preferred share dividends........................ -- -- -- (2,156) -------- --------- -------- --------- (2,882) (11,953) (15,002) (161,620) -------- --------- -------- --------- Increase (decrease) in cash........................ 32,776 6,452 66,404 (9,078) Cash, beginning of period.......................... 88,794 78,611 55,166 94,141 -------- --------- -------- --------- Cash, end of period................................ $121,570 $ 85,063 $121,570 $ 85,063 ======== ========= ======== =========
SEE ACCOMPANYING NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 3 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. BANKRUPTCY PROCEEDINGS AND BASIS OF PRESENTATION BANKRUPTCY PROCEEDINGS The Loewen Group Inc. (the "Company") is a company organized under the laws of British Columbia, Canada. On June 1, 1999 (the "Petition Date"), the Company, 869 United States subsidiaries and one European subsidiary voluntarily filed a petition for creditor protection under Chapter 11 of the U.S. Bankruptcy Code ("Chapter 11") in the U.S. Bankruptcy Court for the District of Delaware (the "U.S. Bankruptcy Court"). Concurrent with the Chapter 11 filing, the Company and 116 Canadian subsidiaries voluntarily filed an application for creditor protection under the Companies' Creditors Arrangement Act ("CCAA") with the Ontario Superior Court of Justice, Toronto, Ontario, Canada (together with the U.S. Bankruptcy Court, the "Bankruptcy Courts"). Subsequent to the Petition Date, three additional subsidiaries of the Company voluntarily filed for creditor protection and seven subsidiaries were voluntarily deleted. The Company and its subsidiaries under creditor protection (the "Debtors") are presently operating their businesses as debtors-in-possession. The United States trustee for the District of Delaware appointed a statutory committee of unsecured creditors (the "Official Unsecured Creditors' Committee"). The proceedings of the Debtors are being jointly administered for procedural purposes only. The Company's United Kingdom subsidiaries, which generate approximately 1% of the Company's revenues, along with the Company's insurance and certain funeral and cemetery subsidiaries, were excluded from the filings. The Company is reorganizing its affairs under the protection of Chapter 11 and CCAA and will propose a plan of reorganization for itself and its filing subsidiaries, which will be submitted to the Bankruptcy Courts overseeing the Chapter 11 and CCAA proceedings for confirmation after submission to any vote and approval required by affected parties. In June 2000, the U.S. Bankruptcy Court extended the Company's exclusive right to file a plan of reorganization to December 31, 2000, which prevents creditors or other parties from filing alternative plans until such date. BASIS OF PRESENTATION The accompanying interim consolidated financial statements have been prepared on a "going concern" basis in accordance with Canadian generally accepted accounting principles ("GAAP"). The "going concern" basis of presentation assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. There is substantial doubt about the appropriateness of the use of the "going concern" assumption because of the Chapter 11 and CCAA bankruptcy proceedings and circumstances relating to this event, including the Company's current debt structure, recent losses and cash flow. As such, realization of assets and discharge of liabilities are subject to significant uncertainty. The interim consolidated financial statements do not reflect adjustments that would be necessary if the "going concern" basis was not appropriate. If the "going concern" basis was not appropriate for these 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. The appropriateness of the "going concern" basis is dependent upon, among other things, 4 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. BANKRUPTCY PROCEEDINGS AND BASIS OF PRESENTATION (CONTINUED) confirmation of a plan of reorganization, future profitable operations, the ability to comply with the terms of a debtor-in-possession revolving credit facility, and the ability to generate sufficient cash from operations and financing arrangements to meet obligations. Additionally, if a plan of reorganization is approved by the Bankruptcy Courts, the Company will be required to adopt "fresh start" accounting under Canadian and U.S. GAAP. This accounting will require that assets and liabilities be recorded at fair value, based on the values determined in connection with the plan of reorganization. As a result, the reported amounts in the interim consolidated financial statements could materially change, because they do not give effect to the adjustments to the carrying values of assets and liabilities that may ultimately result from the adoption of "fresh start" accounting. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The interim consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in Canada, which in the case of the Company, generally conform with those established in the United States, except as explained in Note 10. 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 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 interim consolidated financial statements have been prepared on a basis consistent with the accounting policies described in the Company's Annual Report on Form 10-K/A filed with the Securities and Exchange Commission for the year ended December 31, 1999 and should be read in conjunction therewith. MEASUREMENT UNCERTAINTY 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 significantly differ from those estimates. COMPARATIVE FIGURES Certain of the comparative figures have been reclassified to conform to the presentation adopted in the current period. NOTE 3. LIABILITIES SUBJECT TO COMPROMISE AND DEBT In the Chapter 11 and CCAA proceedings, substantially all unsecured and under-secured liabilities of the Debtors as of the Petition Date are subject to compromise or other treatment under a plan of reorganization to be confirmed by the Bankruptcy Courts after submission to any required vote and 5 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 3. LIABILITIES SUBJECT TO COMPROMISE AND DEBT (CONTINUED) approval by affected parties. For financial reporting purposes, those liabilities and obligations whose treatment and satisfaction are dependent on the outcome of the Chapter 11 and CCAA proceedings have been segregated and classified as liabilities subject to compromise in the interim consolidated financial statements. Generally, all actions to enforce or otherwise effect repayment of pre-Petition Date liabilities as well as all pending litigation against the Debtors are stayed while the Debtors continue their business operations as debtors-in-possession. The Bar Date, which was the last date by which claims against the Company had to be filed in the U.S. Bankruptcy Court if the claimants wished to receive any distribution in the Chapter 11 proceedings, expired on December 15, 1999. The Bar Date for claims against operating entities applicable to the CCAA proceedings was extended to and expired on March 17, 2000. In June 2000, the Company filed amended schedules identifying additional potential creditors, for which the Bar Date was set at July 14, 2000. Differences between amounts shown by the Debtors and claims filed by creditors will be investigated and either amicably resolved, adjudicated before the Bankruptcy Courts, or resolved through other resolution processes. The ultimate amount of and settlement terms for such liabilities are subject to an approved plan of reorganization and, accordingly, are not presently determinable. Under the U.S. Bankruptcy Code, the Debtors may elect to assume or reject leases, employment contracts, service contracts and other pre-Petition Date executory contracts, subject to U.S. Bankruptcy Court approval. Liabilities related to executory contracts are recorded as liabilities not subject to compromise, unless the Company has decided to reject the contract. Claims for damages resulting from the rejection, after December 15, 1999, of executory contracts will be subject to separate bar dates. The Debtors are reviewing all executory contracts for assumption or rejection. In August 1999, the Debtors applied to the U.S. Bankruptcy Court to reject approximately 200 non-compete agreements. The Company has suspended payments applicable to these non-compete agreements. The U.S. Bankruptcy Court disallowed the Company's motion to reject these non-compete agreements as a group in August 1999. The Company may resubmit some or all of these non-compete agreements on an individual or smaller group basis in the future, as well as applications to reject additional executory contracts. The principal categories of obligations classified as liabilities subject to compromise under the reorganization proceedings are identified below. The amounts in total may vary significantly from the stated amount of proofs of claim that are filed with the Bankruptcy Courts, and may be subject to future adjustment depending on Bankruptcy Court action, further developments or resolution with respect to potential disputed claims, and determination as to the value of any collateral securing claims or other events. Additional claims may also arise from the rejection of executory contracts by the Debtors. 6 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 3. LIABILITIES SUBJECT TO COMPROMISE AND DEBT (CONTINUED) The liabilities subject to compromise and debt are as follows:
JUNE 30, 2000 DECEMBER 31, 1999 ----------------------- ----------------------- LIABILITIES LIABILITIES SUBJECT TO LONG-TERM SUBJECT TO LONG-TERM COMPROMISE DEBT COMPROMISE DEBT ----------- --------- ----------- --------- (UNAUDITED) DIP Facilities.................................... $ -- $ -- $ -- $ 8,000 Bank credit agreements............................ 345,304 -- 338,689 -- 11.12% Series D senior amortizing notes due in 2003............................................ 36,968 -- 36,518 -- 7.82% Series E senior amortizing notes due in 2004............................................ 30,432 -- 30,432 -- 7.50% Series 1 senior notes due in 2001........... 225,000 -- 225,000 -- 8.25% Series 2 senior notes due in 2003........... 125,000 -- 125,000 -- 7.75% Series 3 senior notes due in 2001........... 125,000 -- 125,000 -- 8.25% Series 4 senior notes due in 2003........... 225,000 -- 225,000 -- 6.10% Series 5 senior notes due in 2002 (Cdn. $200,000,000)............................. 135,199 -- 139,567 -- 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% Pass-through Asset Trust Securities ("PATS") and related option liability recorded, due in 1999............................................ 309,760 -- 309,760 -- Promissory notes and capital lease obligations.... 76,191 81,534 80,159 83,204 Accounts payable and accrued liabilities.......... 91,073 -- 95,622 -- 9.45% Cumulative Monthly Income Preferred Securities, Series A ("MIPS")................... 75,000 -- 75,000 -- Executory contracts............................... 27,433 -- 26,854 -- ---------- ------- ---------- ------- 2,277,360 81,534 2,282,601 91,204 Less current portion of long-term debt............ -- 24,530 -- 20,693 ---------- ------- ---------- ------- $2,277,360 $57,004 $2,282,601 $70,511 ========== ======= ========== =======
Litigation against the Company and its filing subsidiaries as of June 1, 1999 and any additional liabilities related thereto will be subject to compromise (see Note 6(a)). As a result of the Chapter 11 and CCAA filings, no principal or interest payments will be made on most pre-Petition Date debt obligations without Bankruptcy Court approval or until a plan of reorganization providing for the repayment terms has been submitted to any required vote and approval of affected parties, has been confirmed by the Bankruptcy Courts and has become effective. In June 2000, the U.S. Bankruptcy Court extended the Company's exclusive right to file a plan of reorganization to December 31, 2000, which prevents creditors or other parties from filing alternative plans until such date. Interest on unsecured and under-secured pre-Petition Date debt obligations subject to compromise has not been accrued after the Petition Date. Interest expense and principal payments will continue to be recorded on most secured vendor financing, including capital lease obligations. Contractual interest 7 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 3. LIABILITIES SUBJECT TO COMPROMISE AND DEBT (CONTINUED) expense not recorded on liabilities subject to compromise totaled $43,352,000 for the three months ended June 30, 2000 (1999 -- $13,718,000), and $86,417,000 for the six months ended June 30, 2000 (1999 -- $13,718,000). In 1996, the Company, Loewen Group International, Inc. ("LGII") and a trustee entered into a collateral trust agreement pursuant to which the senior lenders share certain collateral and guarantees on a pari passu basis (the "Collateral Trust Agreement"). The security for lenders under the Collateral Trust Agreement consists of (i) all of LGII's right, title and interest in and to all rights to receive payment under or in respect of accounts, contracts, contractual rights, chattel paper, documents, instruments and general intangibles, (ii) a pledge of the shares of capital stock of substantially all of the subsidiaries in which the Company directly or indirectly holds more than a 50% voting or economic interest, and (iii) a guarantee by each subsidiary that is pledging stock. The security is held by a trustee for the equal and ratable benefit of the senior lending group. The senior lending group consists principally of the lenders under the senior amortizing notes, senior notes and bank credit agreements as well as the holders of certain letters of credit. Subsequent to the execution of the Collateral Trust Agreement, among other financings, the Company issued the Series 3, Series 4, Series 6 and Series 7 Senior Notes and the PATS (the "Subject Debt"). The aggregate principal amount outstanding of the Subject Debt is $1,100,000. In April 2000, the Company announced that there is uncertainty as to the secured status under the Collateral Trust Agreement with respect to the Subject Debt. In accordance with the terms of the Collateral Trust Agreement, holders of future indebtedness or their representatives were to effect registration by delivering to the collateral trustee Additional Secured Indebtedness Registration Statements in a form set forth in the Collateral Trust Agreement. However, Additional Secured Indebtedness Registration Statements relating to the Subject Debt were either not delivered to the collateral trustee or were delivered indicating an incorrect outstanding amount. The Company has confirmed that it satisfied its obligations under the financing agreements to adopt appropriate corporate resolutions and to deliver to lender representatives, in connection with closing, Additional Secured Indebtedness Registration Statements relating to the Subject Debt. Pursuant to the agreements with lender representatives in connection with those financings, the Company and LGII have treated the Subject Debt as secured under the Collateral Trust Agreement. On this basis, the total indebtedness owed to the senior lending group subject to the Collateral Trust Agreement, including holders of certain letters of credit, at the Petition Date aggregated $2,016,000,000. It is not known when the uncertainty will be resolved. Accordingly, the effects of this contingency, if any, have not been reflected in the Company's interim consolidated financial statements. In March 1999, the Company deferred future dividends applicable to the MIPS. Since June 1, 1999, as a result of the Chapter 11 and CCAA bankruptcy filings, the Company was in default of its bank credit agreements, Series D and E senior amortizing notes, Series 1 through 7 Senior notes, and PATS and, accordingly, has not made interest, principal or dividend payments when due on secured, unsecured and 8 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 3. LIABILITIES SUBJECT TO COMPROMISE AND DEBT (CONTINUED) under-secured debt obligations. The scheduled payments in arrears based on original contractual terms on the Company's senior debt obligations are as follows:
JUNE 30 DECEMBER 31 2000 1999 ----------- ------------ (UNAUDITED) Interest payments in arrears: Bank credit agreements.................................... $ 42,715 $ 21,417 11.12% Series D senior notes.............................. 3,956 1,825 7.82% Series E senior notes............................... 2,186 958 7.50% Series 1 senior notes............................... 17,191 8,438 8.25% Series 2 senior notes............................... 10,525 5,156 7.75% Series 3 senior notes............................... 9,875 4,844 8.25% Series 4 senior notes............................... 18,945 9,281 6.10% Series 5 senior notes............................... 8,373 4,257 7.20% Series 6 senior notes............................... 22,387 14,659 7.60% Series 7 senior notes............................... 29,597 19,361 6.70% PATS................................................ 10,050 10,050 -------- -------- $175,800 $100,246 ======== ======== Principal payments in arrears: 11.12% Series D senior notes.............................. $ 8,571 $ 8,571 7.82% Series E senior notes............................... 7,143 -- 6.70% PATS................................................ 300,000 300,000 -------- -------- $315,714 $308,571 ======== ======== Subsidiary dividends in arrears: 9.45% MIPS................................................ $ 9,450 $ 5,906 ======== ========
The Company, LGII and all of its U.S. debtor subsidiaries, as debtors-in-possession, became parties to a Petition Date $200,000,000 revolving credit agreement (the "DIP Facility"). On May 24, 2000, the Company, LGII and all of its U.S. debtor subsidiaries entered into a new debtors-in-possession credit agreement (the "New DIP Facility"), replacing the DIP Facility. The New DIP Facility, which will be used primarily to fund LGII's working capital needs during the course of the bankruptcy proceedings, contains fewer and less onerous financial covenants than the DIP Facility. The credit limit was reduced to $100,000,000 and the number of participating banks was reduced from 15 to seven. The material covenants that remain are restrictions on new indebtedness and asset sales not already approved by the U.S. Bankruptcy Court, a quarterly interest coverage ratio, and quarterly minimum funeral home gross margin. Use of the New DIP Facility for letters of credit is limited to a maximum of $50,000,000. The New DIP Facility matures on June 30, 2001 and is secured by a perfected security interest in substantially all of the existing and future assets of LGII and its U.S. debtor subsidiaries (subject only to valid and perfected pre-Petition Date liens). The lenders under the New DIP Facility also have the benefit of a "super-priority" administrative expense claim in LGII's bankruptcy proceedings. 9 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 3. LIABILITIES SUBJECT TO COMPROMISE AND DEBT (CONTINUED) Currently, loans made under the New DIP Facility bear interest at floating rates of U.S. Prime plus 1.25% (LIBOR plus 2.75% for Eurodollar advances). A fee of 2.75% is charged on letters of credit and a commitment fee of 0.50% is charged on the unused portion of the New DIP Facility. Related debt issue costs have been deferred and are being amortized over the remaining life of the New DIP Facility. As at June 30, 2000, the borrowings under the New DIP Facility were nil and the letters of credit outstanding were $20,091,000. In 1994, Loewen Group Capital L.P. ("LGC") issued 3,000,000 9.45% Cumulative Monthly Income Preferred Securities, Series A ("MIPS") for an aggregate amount of $75,000,000. LGC is a limited partnership and LGII as its general partner manages its business and affairs. The MIPS were due August 31, 2024 and were 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. As a result of the Chapter 11 filing, the MIPS became currently redeemable. The MIPS are subject to an unsecured guarantee by the Company and LGII. Accordingly, the MIPS have been designated as liabilities subject to compromise. LGII serves as the holding company for all United States assets and operations of the Company. The interim consolidated financial statements of LGII are prepared in accordance with Canadian GAAP and are presented in United States dollars. Summarized financial data for LGII are presented as follows:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 -------------------- -------------------- 2000 1999 2000 1999 -------- --------- -------- --------- (UNAUDITED) (UNAUDITED) Income statement information: Revenue.......................................... $196,556 $ 231,630 $428,491 $ 508,143 Gross margin..................................... 49,884 52,514 119,366 138,362 Earnings from operations......................... (66,209) 10,247 (24,433) 58,373 Net loss......................................... (71,808) (115,638) (49,431) (144,914)
JUNE 30 DECEMBER 31 2000 1999 ----------- ------------ (UNAUDITED) Balance sheet information: Current assets............................................ $ 288,191 $ 195,124 Non-current assets........................................ 3,379,048 3,456,213 ---------- ---------- Total assets.............................................. 3,667,239 3,651,337 Liabilities not subject to compromise: Current liabilities....................................... 106,571 104,113 Non-current liabilities................................... 1,206,678 1,175,831 Liabilities subject to compromise........................... 3,148,018 3,115,990 ---------- ---------- Total liabilities........................................... 4,461,267 4,395,934 Shareholders' deficiency.................................... (794,028) (744,597)
10 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 4. DISPOSITIONS In March 1999, the Company sold 124 cemeteries and three funeral homes to an investor group for gross proceeds of $193,000,000, before purchase price adjustments and transaction costs, resulting in a pre-tax loss of $1,122,000. A pre-tax asset impairment provision for long-lived assets of $301,605,000, relating to these properties, was recorded in 1998. The assets and liabilities disposed of were $244,338,000 and $67,867,000, respectively. During 1999, as a result of the Company's bankruptcy filings and operating performance decline, the Company conducted extensive reviews of each of its operating locations, resulting in a pre-tax asset impairment provision for long-lived assets of $340,068,000. In calculating the long-lived asset impairment provision, the Company used estimated cash flow from operations for properties anticipated to be held for their remaining life and, for locations identified as probable for sale, used estimated cash proceeds on the anticipated sale of these properties. The review resulted in the identification of 201 funeral homes and 170 cemeteries as probable for sale and the development of a program for disposition of these locations. In January 2000, the Bankruptcy Courts approved the Company's program for disposition. At June 30, 2000, the Company revised its estimates of expected proceeds of the locations held for disposal, resulting in a pre-tax impairment provision to the locations' long-lived assets of $92,031,000. The asset impairment provision has reduced funeral property by $41,636,000, cemetery property by $39,716,000 and names and reputations by $10,679,000. The long-lived asset impairment provisions were based on management estimates. The Company continues to assess these estimates as it proceeds with the disposition of locations identified as probable for sale. As a result, actual results could differ significantly from these estimates. In addition, due to the bankruptcy proceedings, other properties, although not specifically identified, could be sold. NOTE 5. REORGANIZATION COSTS The Company has incurred the following pre-tax charges for costs associated with reorganizing its affairs under the protection of Chapter 11 and CCAA:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 -------------------- ------------------- 2000 1999 2000 1999 -------- --------- -------- -------- (UNAUDITED) (UNAUDITED) Executory contracts submitted for rejection............. $ 141 $27,228 $ 141 $27,228 Deferred debt issue costs written off................... 173 21,655 173 21,655 PATS option liability recorded.......................... -- 9,760 -- 9,760 Key Employee Retention Plan costs....................... 1,413 -- 3,377 -- Professional fees and other costs....................... 5,757 8,520 10,732 8,520 ------ ------- ------- ------- $7,484 $67,163 $14,423 $67,163 ====== ======= ======= =======
11 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. REORGANIZATION COSTS (CONTINUED) Professional fees and other costs include accounting, legal and consulting services provided to the Company and the Official Unsecured Creditors' Committee which, subject to court approval, are required to be paid by the Company as it reorganizes under Chapter 11 and CCAA. In September 1999, the Bankruptcy Courts approved the Key Employee Retention Plan, a long-term agreement structured to ensure that appropriate employee levels and expertise are retained during the reorganization process. NOTE 6. CONTINGENCIES (a) LEGAL CONTINGENCIES BANKRUPTCY FILINGS On June 1, 1999, the Company, 869 United States subsidiaries and one European subsidiary voluntarily filed a petition for creditor protection and to reorganize under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court. The filings subsequently were consolidated for joint administration (In re: Loewen Group International, Inc., et al., No. 99-1244). On the same day, the Company and 116 Canadian subsidiaries voluntarily filed an application for creditor protection under the Companies' Creditors Arrangement Act in the Ontario Superior Court of Justice in Toronto (File No. 99-CL-3384). Subsequent to the Petition Date, three additional subsidiaries of the Company voluntarily filed for creditor protection and seven subsidiaries were voluntarily deleted. The Company's United Kingdom subsidiaries, which generate approximately 1% of the Company's revenues, along with the Company's insurance and certain funeral and cemetery subsidiaries, were excluded from the filings. See Notes 1, 3 and 5 for additional information. The Company and its subsidiaries under creditor protection are presently operating their businesses as debtors-in-possession and are parties to the New DIP Facility, a $100,000,000 revolving credit agreement that has been approved by the U.S. Bankruptcy Court (Note 3). An Official Unsecured Creditors' Committee has been appointed by the United States trustee in the bankruptcy proceedings. As a result of the Chapter 11 and CCAA filings, litigation against the Company and its filing subsidiaries was stayed as of June 1, 1999, and any additional liabilities related thereto will be subject to compromise, unless the stay is lifted by the applicable Bankruptcy Court. LOUISIANA LAWSUITS In July 2000, five lawsuits were filed in Louisiana against various insurance companies asserting similar claims and seeking class action certification. Security Industrial Insurance Company ("Security Industrial"), one of the Company's subsidiaries, is a defendant in these lawsuits. Security Industrial is one of the Company's insurance subsidiaries that has been excluded from the bankruptcy filings and, as a result, litigation involving Security Industrial is not subject to automatic stay. 12 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. CONTINGENCIES (CONTINUED) The five lawsuits are: - ALEXANDER ET AL. V. SECURITY INDUSTRIAL, filed in the 16th Judicial District Court, Parish of St. Martin, Louisiana (62573-C), by the same plaintiffs' attorneys identified in the Beverly Case below (the "Alexander Case"); - BEVERLY ET AL. V. UNION NATIONAL ET AL., filed in the United States District Court, Western District of Louisiana (CV00-1633L-0), in which Security Industrial, Union National Insurance Co., United Insurance Company of America, and Unitrin, Inc. (d/b/a Trinity Universal Insurance Company) are named defendants (the "Beverly Case"); - COTHRAN ET AL. V. SECURITY INDUSTRIAL ET AL., filed in the First Judicial District Court, Caddo Parish, Louisiana (451548-B), in which Security Industrial, Union National Life Insurance Company, First National Life Insurance Company, Commonwealth Life Insurance Company/Monumental Life Insurance Company, United Insurance Company of America and Unitrin, Inc. are named as defendants (the "Cothran Case"); - SMITH ET AL. V. SECURITY INDUSTRIAL, filed in the Civic District Court, Parish of Orleans (2000-11168), in which Security Industrial, is the sole named defendant (the "Smith Case"); and - SUTHERLAND ET AL. V. UNITED INSURANCE CO. OF AMERICA ET AL., filed in the United States District Court, Eastern District of Louisiana (00-2076), in which Security Industrial, Union National Insurance Co., and United Insurance Company of America are named defendants (the "Sutherland Case"). Except as noted below, the complaints in each of the lawsuits are almost identical. Plaintiffs allege that the defendants sold life insurance products to plaintiffs and other African Americans without disclosing that premiums paid would likely exceed the face value of the policies, and that plaintiffs paid higher premiums than Caucasian policyholders and received proportionately lower death benefits. The plaintiffs seek injunctive relief, equitable relief, restitution, disgorgement, increased death benefits, premium refunds (in one case, with interest), costs and attorneys' fees. The plaintiffs in the Alexander Case, the Cothran Case and the Smith Case also allege racial discrimination under the Louisiana Constitution as well as unfair trade practices, and seek compensatory damages, including where applicable, punitive, exemplary or special damages; however, Louisiana law prohibits punitive damages unless specifically authorized by Federal law. The Beverly Case and the Sutherland Case, which have been filed in Federal court, include an allegation that defendants violated the Civil Rights Act of 1866 (42 U.S.C. 1981), which provides for punitive damages in certain circumstances. On August 3, 2000, the defendants in the Alexander Case and the Cothran Case removed their respective cases to the United States District Court, Western District and Security Industrial removed the Smith Case to the United States District Court, Eastern District. 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 these lawsuits has been made in the Company's interim consolidated financial statements. 13 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. CONTINGENCIES (CONTINUED) OTHER There were no material changes to previously reported litigation, as described in the Company's Annual Report on Form 10-K/A for the year ended December 31, 1999. 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. (b) INVESTMENT CONTINGENCIES -- PRIME SUCCESSION HOLDINGS, INC. ("PRIME") AND ROSE HILLS HOLDINGS CORP. ("ROSE HILLS") In 1998, the Company concluded that its investments in Prime and Rose Hills had suffered a decline in value that was other than temporary and wrote down its investments based on an assumed distribution of Prime's and Rose Hills' shareholders' equity. In 1999, due to the performance of Prime, the Company wrote off its remaining investment in Prime. No further write down was made to the investment in Rose Hills in 1999. In addition, under separate put and call agreements entered into with the majority investor of Prime and Rose Hills, the Company determined that its exercise of the call was unlikely, and the exercise of the put was likely. As a result, based on the Company's determination of the difference between the estimated put option price and the estimated fair value of the majority investor's equity in Prime and Rose Hills, the Company recorded contingent losses and corresponding liabilities. The respective contingent liabilities have been recorded in "Other liabilities," net of the carrying value of the investment in Rose Hills. Such amounts could change based on changes in the estimated future values of the businesses. On July 12, 2000, Prime voluntarily filed a petition for creditor protection under Chapter 11 in the U.S. Bankruptcy Court. Prime announced that it has an agreement in place with major creditors with respect to a plan of reorganization. On July 14, 2000, Prime and its affiliated Chapter 11 debtors filed their proposed plan of reorganization. The plan of reorganization, as filed, contemplates the distribution of warrants to purchase new common stock in reorganized Prime, to existing holders of Prime preferred stock and no distribution to holders of Prime common stock. The plan of reorganization is subject to approval by the bankruptcy court and affected parties. There were no other material changes to the information previously reported in the Company's Annual Report on Form 10-K/A for the year ended December 31, 1999. (c) 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 and after acquisition. Management 14 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. CONTINGENCIES (CONTINUED) endeavors to ensure that environmental issues are identified and addressed in advance of acquisition or are covered by an indemnity by the seller or an offset to the purchase price. On a continuing basis, management assesses and evaluates environmental risk and, when necessary, conducts appropriate corrective measures. The Company provides for environmental liabilities using its best estimates. Actual environmental liabilities could differ significantly from these estimates. NOTE 7. CHANGES IN OTHER NON-CASH BALANCES Supplemental disclosures related to statements of cash flows consist of the following:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ------------------- ------------------- 2000 1999 2000 1999 -------- -------- -------- -------- (UNAUDITED) (UNAUDITED) Decrease (increase) in assets: Receivables, net of allowances Trade............................................ $ 3,817 $(16,711) $ 9,976 $(14,474) Other............................................ (4,051) 20,788 (15,627) 10,535 Inventories........................................ 813 (258) 1,163 1,130 Prepaid expenses................................... 1,758 1,906 1,900 (7,354) Amounts receivable from cemetery merchandise trusts........................................... (11,860) (22,811) (29,057) (53,240) Installment contracts, net of allowances........... 21,159 7,919 35,278 17,881 Cemetery property.................................. (2,335) 3,475 (2,020) (16,727) Other assets....................................... 315 (11,017) 1,161 (3,959) Increase (decrease) in liabilities, including certain liabilities subject to compromise: Accounts payable and accrued liabilities........... (364) 24,417 (2,319) (6,475) Other liabilities.................................. (1,543) 3,945 (2,878) 1,917 Cemetery long-term liabilities..................... (490) 1,710 3,607 14,743 Insurance policy liabilities....................... 4,779 3,964 9,836 8,932 Other changes in non-cash balances................. 506 4,640 1,916 2,303 -------- -------- -------- -------- $ 12,504 $ 21,967 $ 12,936 $(44,788) ======== ======== ======== ======== Supplemental information: Interest paid...................................... $ 1,708 $ 13,929 $ 3,645 $ 77,866 Taxes paid......................................... 6,397 4,002 9,727 7,357 Bad debt expense................................... 6,393 11,472 14,643 24,610 Non-cash investing and financing activities: Non-cash debt and share consideration on acquisitions..................................... -- 2,280 -- 2,280 Capital leases..................................... (2,232) (70) (4,087) (274)
15 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. SEGMENTED INFORMATION The Company's reportable segments are comprised of the three businesses it operates, each of which offers different products and services: funeral homes, cemeteries and insurance. 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 Company's Annual Report on Form 10-K/A for the year ended December 31, 1999.
FOR THE THREE MONTHS ENDED JUNE 30, 2000 FUNERAL CEMETERY INSURANCE OTHER CONSOLIDATED ---------------------------------------- -------- -------- --------- -------- ------------ (UNAUDITED) Revenue earned from external sales: 2000.................................... $139,538 $ 55,138 $24,176 $ -- $218,852 1999.................................... 147,807 87,802 23,860 -- 259,469 Earnings (loss) from operations: 2000.................................... $(29,097) $(25,466) $ 5,025 $(19,011) $(68,549) 1999.................................... 28,338 (2,191) 5,193 (18,000) 13,340
The following table reconciles earnings (loss) from operations of reportable segments to total earnings (loss) from operations and identifies the components of "Other" segment earnings (loss) from operations:
THREE MONTHS ENDED JUNE 30 ------------------- 2000 1999 -------- -------- (UNAUDITED) Earnings (loss) from operations of funeral, cemetery and insurance segments........................................ $(49,538) $31,340 Other expenses of operations: General and administrative expenses....................... (17,351) (15,684) Depreciation and amortization............................. (1,660) (2,316) -------- ------- Total earnings (loss) from operations....................... $(68,549) $13,340 ======== =======
FOR THE SIX MONTHS ENDED JUNE 30, 2000 FUNERAL CEMETERY INSURANCE OTHER CONSOLIDATED -------------------------------------- ---------- ---------- --------- -------- ------------ (UNAUDITED) Revenue earned from external sales: 2000................................ $ 300,608 $ 126,366 $ 48,735 $ -- $ 475,709 1999................................ 322,089 196,572 47,621 -- 566,282 Earnings (loss) from operations: 2000................................ $ 11,504 $ (10,170) $ 10,469 $(32,826) $ (21,023) 1999................................ 81,286 21,796 9,749 (39,405) 73,426 Total assets, as at: June 30, 2000 (UNAUDITED)........... $1,882,127 $1,684,615 $303,715 $160,698 $4,031,155 December 31, 1999................... 1,984,739 1,745,673 290,398 89,773 4,110,583
16 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. SEGMENTED INFORMATION (CONTINUED) The following table reconciles earnings from operations of reportable segments to total earnings (loss) from operations and identifies the components of "Other" segment earnings (loss) from operations:
SIX MONTHS ENDED JUNE 30 ------------------- 2000 1999 -------- -------- (UNAUDITED) Earnings from operations of funeral, cemetery and insurance segments.................................................. $ 11,803 $112,831 Other expenses of operations: General and administrative expenses....................... (29,533) (34,742) Depreciation and amortization............................. (3,293) (4,663) -------- -------- Total earnings (loss) from operations....................... $(21,023) $ 73,426 ======== ========
NOTE 9. SHARE CAPITAL In March 1999, the Company announced that future dividends on the Series C Preferred Shares would be deferred. As of June 30, 2000, the deferred dividends aggregated $13,385,000. Under the terms of these Preferred shares, they become convertible at the option of the holder into Common shares upon deferral of preferred dividends for six consecutive calendar quarters. As of July 4, 2000, the Company had deferred payment of dividends for six consecutive calendar quarters. Accordingly, these Preferred shares became convertible into Common shares at a ratio of 9.083 Common shares per Preferred share. However, because the Company is now operating under creditor protection, the Company will not be accepting requests for conversion pursuant to this conversion ratio. 17 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 10. UNITED STATES ACCOUNTING PRINCIPLES The interim consolidated financial statements have been prepared in accordance with Canadian GAAP. These principles differ in the following material respects from those in the United States as summarized below: (a) EARNINGS AND EARNINGS PER COMMON SHARE
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 -------------------- -------------------- 2000 1999 2000 1999 -------- --------- -------- --------- (UNAUDITED) (UNAUDITED) Net loss in accordance with Canadian GAAP.......... $(76,346) $(105,330) $(53,547) $ (98,403) Effects of differences in accounting for: Cemetery costs and expenses (c).................. 171 -- 171 -- Insurance operations............................. (356) (2,540) (926) (1,833) Stock options.................................... -- -- (18) (22) Cost of start-up activities...................... 114 1,225 238 1,225 -------- --------- -------- --------- Net loss in accordance with U.S. GAAP.............. (76,417) (106,645) (54,082) (99,033) Other comprehensive income (loss): Foreign currency translation adjustments......... (2,259) 334 (2,897) 283 Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during the period............................ (1,095) 2,040 (724) (5,872) Less: reclassification adjustment for gains included in earnings......................... (1,122) (861) (1,431) (2,320) -------- --------- -------- --------- Comprehensive loss in accordance with U.S. GAAP.... $(80,893) $(105,132) $(59,134) $(106,942) ======== ========= ======== =========
Basic loss per Common share in accordance with U.S. 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:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 -------------------- -------------------- 2000 1999 2000 1999 -------- --------- -------- --------- (UNAUDITED) (UNAUDITED) Net loss in accordance with U.S. GAAP.............. $(76,417) $(106,645) $(54,082) $ (99,033) Less provision for Preferred share dividends..... 2,229 1,504 4,499 3,686 -------- --------- -------- --------- Net loss in accordance with U.S. GAAP attributable to Common shareholders........................... $(78,646) $(108,149) $(58,581) $(102,719) ======== ========= ======== ========= Weighted average number of shares outstanding (thousands)...................................... 74,145 74,104 74,145 74,082 Basic loss per Common share........................ $ (1.06) $ (1.46) $ (0.79) $ (1.39)
18 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 10. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED) (b) BALANCE SHEET The amounts in the interim consolidated balance sheets that materially differ from those reported under Canadian GAAP are as follows:
JUNE 30, 2000 DECEMBER 31, 1999 --------------------------- --------------------------- CANADIAN UNITED STATES CANADIAN UNITED STATES GAAP GAAP GAAP GAAP ----------- ------------- ----------- ------------- (UNAUDITED) Assets: Long-term receivables, net of allowances............................. $ 577,858 $ 587,936 $ 577,733 $ 589,840 Cemetery property........................ 893,996 816,662 923,344 845,840 Names and reputations.................... 622,562 627,553 650,200 655,191 Insurance invested assets................ 295,022 276,062 281,423 263,960 Other assets............................. 130,242 159,420 133,553 161,091 Liabilities and shareholders' equity: Other liabilities........................ 423,228 420,846 426,019 423,384 Insurance policy liabilities............. 194,043 230,014 184,207 217,915 Future income tax liabilities............ 144,479 122,270 146,028 125,394 Common shares............................ 1,276,414 1,302,819 1,276,434 1,302,806 Deficit.................................. (1,058,464) (1,113,611) (1,004,917) (1,059,529) Accumulated other comprehensive income: Unrealized losses on securities available for sale, net of tax..................... -- (6,189) -- (4,034) Foreign exchange adjustment.............. 12,786 (16,211) 15,683 (13,314)
(c) IMPAIRMENT OF LONG-LIVED ASSETS The Company follows the provisions of Statement of Financial Accounting Standards No. 121 ("FAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," for U.S. GAAP purposes. The application of FAS 121 at December 31, 1999, resulted in an additional impairment for U.S. GAAP purposes of $73,014,000 applicable to long-lived assets of locations which are anticipated to be held for their remaining useful life. This additional impairment is due to differences in the measurement of expected future cash flows under Canadian and U.S. GAAP. During 1999, as a result of the Company's bankruptcy filings and operating performance decline, the Company conducted extensive reviews of each of its operating locations. The review resulted in the identification of 201 funeral homes and 170 cemeteries, which did not meet the criteria for inclusion in the Company's new business plan and were designated as potential divestiture candidates. The Company developed a program for disposition for these locations. In January 2000, the disposition program was approved by the Bankruptcy Courts. 19 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 10. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED) At June 30, 2000, the Company revised its estimates of expected proceeds of the locations held for disposal, resulting in a pre-tax impairment provision to the locations' long-lived assets of $92,031,000. The net carrying amount of the long-lived assets of these locations, net of impairment provisions, is $58,061,000. The net carrying amount of long-lived assets excludes working capital and other financial assets and liabilities. The operating income applicable to these locations for the three months ended June 30, 2000 was $29,000 and the operating loss applicable to these locations for the six months ended June 30, 2000 was $5,479,000. (d) RECENT ACCOUNTING STANDARDS The effective date for Statement of Financial Accounting Standards No. 133 ("FAS 133"), "Accounting for Derivative Instruments and Hedging Activities," as deferred by Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of Financial Accounting Standards No. 133 (an amendment of FASB Statement No. 133)," is for all fiscal quarters of fiscal years beginning after June 15, 2000. FAS 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. Management has not determined the impact of this accounting standard on the Company's interim consolidated financial statements. In December 1999, the United States Securities and Exchange Commission (the "SEC") issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 provides the staff's views on the application of existing GAAP to revenue recognition in financial statements. In June 2000, the SEC deferred the implementation date of SAB 101, as applicable to the Company, to the fourth quarter of 2000. Management has not fully determined the impact of SAB 101 on the Company's interim consolidated financial statements, but expects such impact, when determined, to be significant. 20 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Unless the context otherwise requires (i) "Loewen" refers to The Loewen Group Inc., a company organized under the laws of British Columbia, Canada, (ii) "LGII" refers to Loewen Group International, Inc., a Delaware corporation and a wholly-owned subsidiary of Loewen, and (iii) the "Company" refers to Loewen together with its subsidiaries and associated companies. OVERVIEW The Company is the second-largest operator of funeral homes and cemeteries in North America. In addition to providing services at-need, the Company also makes funeral, cemetery and cremation arrangements on a pre-need basis. As at July 31, 2000, the Company operated 1,090 funeral homes and 426 cemeteries throughout North America and 32 funeral homes in the United Kingdom. As at July 31, 2000, the Company also operated three insurance subsidiaries that sell a variety of life insurance products that provide life insurance benefits and fund funeral services on a pre-need basis. The Company has received approvals from the British Columbia Registrar of Companies (which office consulted with the B.C. Securities Commission) and the Toronto Stock Exchange to defer the holding of its next annual general meeting to a date no later than January 4, 2001. However, to keep shareholders informed, in June 2000 the Company mailed to all shareholders a copy of its Annual Report on Form 10-K/A as filed on April 28, 2000. FINANCIAL CONDITION BANKRUPTCY PROCEEDINGS On June 1, 1999 (the "Petition Date"), Loewen, 869 United States subsidiaries and one European subsidiary voluntarily filed a petition for creditor protection under Chapter 11 of the U.S. Bankruptcy Code ("Chapter 11") in the U.S. Bankruptcy Court for the District of Delaware (the "U.S. Bankruptcy Court"). Concurrent with the Chapter 11 filing, Loewen and 116 Canadian subsidiaries voluntarily filed an application for creditor protection under the Companies' Creditors Arrangement Act ("CCAA") with the Ontario Superior Court of Justice, Toronto, Ontario, Canada (together with the U.S. Bankruptcy Court, the "Bankruptcy Courts"). Subsequent to the Petition Date, three additional subsidiaries of Loewen voluntarily filed for creditor protection and seven subsidiaries were voluntarily deleted. The Company's United Kingdom subsidiaries, which generate approximately 1% of the Company's revenues, along with the Company's insurance and certain funeral and cemetery subsidiaries, were excluded from the filings. Loewen and its subsidiaries under creditor protection (the "Debtors") are presently operating their businesses as debtors-in-possession. The U.S. trustee for the District of Delaware appointed a statutory committee of unsecured creditors (the "Official Unsecured Creditors' Committee"). The proceedings of the Debtors are being jointly administered for procedural purposes only. The Company is reorganizing its affairs under the protection of Chapter 11 and CCAA and will propose a plan of reorganization for itself and other filing subsidiaries, which will be submitted to the Bankruptcy Courts overseeing the Chapter 11 and CCAA proceedings for confirmation after submission to any vote and approval required by affected parties. In June 2000, the U.S. Bankruptcy Court extended the Company's exclusive right to file a plan of reorganization to December 31, 2000, which prevents creditors or other parties from filing alternative plans until such date. If a plan of reorganization is approved by the Bankruptcy Courts, the Company will be required to adopt "fresh start" accounting under Canadian and U.S. generally accepted accounting principles ("GAAP"). This accounting will require that assets and liabilities be recorded at fair value, based on the values determined in connection with the plan of reorganization. As a result, the reported amounts in the Interim Consolidated Financial Statements could materially change, because they do not give effect to 21 the adjustments to the carrying value of assets and liabilities that may ultimately result from the adoption of "fresh start" accounting. On January 24, 2000, the Company announced that the U.S. Bankruptcy Court approved the Company's disposition process in connection with its previously-announced program for disposition of non-strategic assets. Through this program, the Company intends to sell up to 371 of its approximately 1,400 U.S. funeral home and cemetery locations. In addition, due to the bankruptcy proceedings, other properties, although not specifically identified, could be sold. BASIS OF PRESENTATION This discussion and analysis of the Company should be read in conjunction with the Interim Consolidated Financial Statements and accompanying Notes in Item 1 of this Form 10-Q. The results reported herein have been prepared on a "going concern" basis in accordance with Canadian GAAP. The "going concern" basis of presentation assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. There is substantial doubt about the appropriateness of the use of the "going concern" assumption because of the Chapter 11 and CCAA bankruptcy proceedings and circumstances relating to this event, including the Company's current debt structure, recent losses and cash flow. As such, realization of assets and discharge of liabilities are subject to significant uncertainty. The Interim Consolidated Financial Statements do not reflect adjustments that would be necessary if the "going concern" basis was not appropriate. 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. Additionally, the amounts reported could materially change because of a plan of reorganization, since the reported amounts in the Interim Consolidated Financial Statements do not give effect to adjustments to the carrying value of the underlying assets or amounts of liabilities that may ultimately result. The appropriateness of the "going concern" basis is dependent upon, among other things, confirmation of a plan of reorganization, future profitable operations, the ability to comply with the terms of a debtor-in-possession revolving credit agreement and the ability to generate sufficient cash from operations and financing arrangements to meet obligations. As detailed below under "Liquidity and Capital Resources -- Collateral Trust Agreement," the Company announced in April 2000 that there is uncertainty as to the secured status of certain senior debt with principal aggregating $1.1 billion. It is not known when the uncertainty will be resolved. Accordingly, the effects of this contingency, if any, have not been reflected in the Company's Interim Consolidated Financial Statements. RESULTS OF OPERATIONS Detailed below are the Company's operating results for the three months and six months ended June 30, 2000 and 1999, expressed in dollar amounts as well as relevant percentages. The operating results are presented as a percentage of revenue. 22 The Company's operations are comprised of three businesses: funeral homes, cemeteries and insurance. Additional segmented information is provided in Note 8 to the Interim Consolidated Financial Statements.
THREE MONTHS ENDED THREE MONTHS ENDED JUNE 30 JUNE 30 ------------------- ------------------- 2000 1999 2000 1999 -------- -------- -------- -------- (IN MILLIONS) (PERCENTAGES) Revenue Funeral............................................ $139.5 $ 147.8 63.8 57.0 Cemetery........................................... 55.2 87.8 25.2 33.8 Insurance.......................................... 24.1 23.9 11.0 9.2 ------ ------- ----- ------ Total............................................ $218.8 $ 259.5 100.0 100.0 ====== ======= ===== ====== Gross margin Funeral............................................ $ 38.7 $ 44.2 27.7 29.9 Cemetery........................................... 12.7 18.3 23.0 20.8 Insurance.......................................... 5.0 5.2 20.8 21.8 ------ ------- Total............................................ 56.4 67.7 25.8 26.0 Expenses General and administrative......................... 18.3 23.7 8.3 9.1 Depreciation and amortization...................... 14.6 15.5 6.7 6.0 Provision for asset impairment..................... 92.0 15.1 42.1 5.8 ------ ------- Earnings from operations............................. (68.5) 13.4 (31.3) 5.1 Interest on long-term debt........................... 3.2 32.2 1.5 12.5 Reorganization costs................................. 7.5 67.2 3.4 25.9 Dividends on preferred securities of subsidiary...... -- 1.2 -- 0.5 Other expenses....................................... 0.5 13.8 0.2 5.3 Income taxes......................................... (3.4) 4.3 n/a n/a ------ ------- Net loss............................................. $(76.3) $(105.3) (34.9) (40.6) ====== =======
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999 Consolidated revenue decreased 15.7% to $218.8 million for the three months ended June 30, 2000 from $259.5 million in 1999. This decrease is primarily due to decreases in funeral and cemetery revenue as described below. Consolidated gross margin decreased 16.7%, to $56.4 million for the three months ended June 30, 2000 from $67.7 million in 1999, primarily due to the decline in funeral and cemetery revenue. As a percentage of revenue, consolidated gross margin decreased to 25.8% for the three months ended June 30, 2000 from 26.0% in 1999. Funeral revenue decreased 5.6% to $139.5 million for the three months ended June 30, 2000 from $147.8 million in 1999, primarily due to fewer funeral services, partly, management believes, attributable to continuing consumer concerns caused by the bankruptcy filings, as well as the general business conditions also faced by other consolidators in the industry. At locations in operation for all of the three months ended June 30, 1999 and 2000 ("Established Locations"), the average revenue per funeral service decreased by 0.9%, while the number of funeral services performed decreased by 5.0%. Overall funeral gross margin, as a percentage of funeral revenue, decreased to 27.7% for the three months ended June 30, 2000 from 29.9% in 1999, principally as a result of lower revenue and significant fixed operating costs. The Company's previously-announced program to dispose of 201 funeral home locations that are considered non-strategic assets will result in a significant reduction in future funeral revenue. 23 Cemetery revenue decreased 37.2% to $55.2 million for the three months ended June 30, 2000 from $87.8 million in 1999, primarily due to, management believes, continuing consumer concerns caused by the bankruptcy filings in June 1999 and pre-need sales contract term changes effected in the second quarter of 1999 and the second quarter of 2000. These contract changes included shorter terms that are less attractive to certain customers but are designed to improve cash flow. Overall cemetery gross margin, as a percentage of cemetery revenue, increased to 23.0% for the three months ended June 30, 2000 from 20.8% in 1999, primarily due to the effects of reduced costs. The Company's previously announced program to dispose of 170 cemetery locations that are considered non-strategic assets will result in a significant reduction in future cemetery revenue. Insurance revenue increased 1.3% to $24.1 million for the three months ended June 30, 2000 from $23.9 million in 1999. Overall insurance gross margin as a percentage of insurance revenue decreased slightly to 20.8% for the three months ended June 30, 2000 from 21.8% in 1999. General and administrative expenses were reduced 22.9%, or $5.4 million, to $18.3 million for the three months ended June 30, 2000 from $23.7 million in 1999. The decrease in general and administrative expenses for the three months ended June 30, 2000 is primarily due to the closure of the Trevose corporate office in the second quarter of 1999, the termination of various strategic initiatives subsequent to the bankruptcy filing on June 1, 1999, and the Company's continuing program to operate more efficiently and implement systems improvements. General and administrative expenses, as a percentage of revenue, decreased to 8.3% for the three months ended June 30, 2000 from 9.1% in 1999. Depreciation and amortization expenses decreased to $14.6 million for the three months ended June 30, 2000 from $15.5 million in 1999, primarily due to dispositions made in 1999. As a percentage of revenue, depreciation was 6.7% for the three months ended June 30, 2000 compared to 6.0% in 1999, primarily due to the decline in revenue. The Company recorded a pre-tax asset impairment provision of $92.0 million on long-lived assets for certain properties included in the Company's previously-announced program to dispose of 371 locations that are considered non-strategic assets. The asset impairment provision on the long-lived assets resulted from the Company revising its estimates of expected proceeds of the properties held for disposal, to reflect the ongoing bid process. In the second quarter of 1999, the Company recorded an additional pre-tax asset impairment provision of $15.1 million for properties identified at December 31, 1998 as probable for sale. Interest expense on long-term debt decreased by $29.0 million to $3.2 million for the three months ended June 30, 2000 from $32.2 million in 1999. The decrease is primarily a result of the suspension of post-Petition Date interest expense and payments for under-secured and unsecured debt obligations resulting from the Company's bankruptcy filings. Contractual interest expense not recorded on certain pre-Petition Date debt obligations amounted to $43.3 million and $13.7 million for the three months ended June 30, 2000 and 1999, respectively. Reorganization costs decreased to $7.5 million for the three months ended June 30, 2000 from $67.2 million in 1999. These costs were primarily for professional fees for accounting, legal and consulting services provided to the Company and the Official Unsecured Creditors' Committee, costs applicable to the Company's Key Employee Retention Plan, and other costs and fees incurred while the Company reorganizes under Chapter 11 and CCAA. In the three months ended June 30, 1999, immediately subsequent to the Petition Date, the Company incurred reorganization costs of $21.7 million for the write off of deferred debt issue costs, $9.8 million for the recording of the PATS option liability, $27.2 million for the write off of costs associated with executory contracts submitted for rejection by the Company, and $8.5 million of professional fees associated with the Company's reorganization under Chapter 11 and CCAA. Total reorganization costs since the Petition Date applicable to the Company's reorganization under Chapter 11 and CCAA amounted to $107.2 million as at June 30, 2000. 24 Other expenses decreased to $0.5 million for the three months ended June 30, 2000 from $13.8 million in 1999. Other expenses in 1999 reflects an additional non-recurring pre-tax charge of approximately $13.5 million relating to the sale of 124 cemeteries and three funeral homes on March 31, 1999, due to subsequent purchase price adjustments pursuant to certain terms of the purchase agreement. The income tax benefit for the three months ended June 30, 2000 was $3.4 million, compared to income tax expense of $4.3 million in 1999. The Company was not able to realize a significant income tax benefit associated with the provision for asset impairment recorded in the three months ended June 30, 2000, and the reorganization costs recorded in the three months ended June 30, 1999 because these items were generally not deductible for tax purposes and realization of the associated future tax benefits was not considered more likely than not. Future income and losses, and the disposition of certain locations, may require the Company to record a change in the valuation allowance of 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 June 30, 2000. If this occurs, the resulting change in the valuation allowance, which could be significant, would generally be treated as an additional income tax expense or benefit in the period in which it arises. The Company expects that its effective income tax rate for fiscal year 2000 and beyond may vary significantly from the Canadian and United States statutory rates. The Company had a net loss of $76.3 million for the three months ended June 30, 2000 compared to a net loss of $105.3 million in 1999. Basic loss per share was $1.06 for the three months ended June 30, 2000 compared to a loss per share of $1.44 in 1999. Exclusive of the provision for asset impairment, the net earnings for the three months ended June 30, 2000 were $15.7 million. The reduction in net loss for the three months ended June 30, 2000 was primarily due to lower reorganization costs, the suspension of interest expense applicable to under-secured and unsecured debt obligations as a result of the bankruptcy filings, lower other expenses and lower general and administrative expenses, partially offset by lower funeral and cemetery gross margins and higher provision for asset impairment. The Company's statement of cash flows for the three months ended June 30, 2000 reflects cash provided from operations of $41.2 million, compared to $21.8 million in 1999, primarily due to the suspension of interest on under-secured and unsecured debt obligations as a result of the bankruptcy filings and the improved cash flow from cemetery operations. 25
SIX MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ------------------- ------------------- 2000 1999 2000 1999 -------- -------- -------- -------- (IN MILLIONS) (PERCENTAGES) Revenue Funeral............................................ $300.6 $ 322.1 63.2 56.9 Cemetery........................................... 126.4 196.6 26.6 34.7 Insurance.......................................... 48.7 47.6 10.2 8.4 ------ ------- ----- ------ Total............................................ $475.7 $ 566.3 100.0 100.0 ====== ======= ===== ====== Gross margin Funeral............................................ $ 93.5 $ 111.7 31.1 34.7 Cemetery........................................... 32.3 48.3 25.6 24.6 Insurance.......................................... 10.4 9.8 21.5 20.5 ------ ------- Total............................................ 136.2 169.8 28.6 30.0 Expenses General and administrative......................... 36.0 50.0 7.6 8.8 Depreciation and amortization...................... 29.2 31.3 6.1 5.5 Provision for asset impairment..................... 92.0 15.1 19.3 2.7 ------ ------- Earnings from operations............................. (21.0) 73.4 (4.4) 13.0 Interest on long-term debt........................... 6.5 77.0 1.4 13.7 Reorganization costs................................. 14.4 67.2 3.0 11.9 Dividends on preferred securities of subsidiary...... -- 3.0 -- 0.5 Other expenses....................................... 2.2 13.9 0.5 2.5 Income taxes......................................... 9.4 10.7 n/a n/a ------ ------- Net loss............................................. $(53.5) $ (98.4) (11.3) (17.4) ====== =======
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999 Consolidated revenue decreased 16.0% to $475.7 million for the six months ended June 30, 2000 from $566.3 million in 1999. This decrease is primarily due to decreases in funeral and cemetery revenue as described below. Consolidated gross margin decreased 19.8%, to $136.2 million for the six months ended June 30, 2000 from $169.8 million in 1999, primarily due to the decline in funeral and cemetery revenue. As a percentage of revenue, consolidated gross margin decreased to 28.6% for the six months ended June 30, 2000 from 30.0% in 1999. Funeral revenue decreased 6.7% to $300.6 million for the six months ended June 30, 2000 from $322.1 million in 1999, primarily due to fewer funeral services, partly, management believes, attributable to continuing consumer concerns caused by the bankruptcy filings, as well as the general business conditions also faced by other consolidators in the industry. At locations in operation for all of the six months ended June 30, 1999 and 2000 ("Established Locations"), the average revenue per funeral service was consistent with the prior year, while the number of funeral services performed decreased by 5.7%. Overall funeral gross margin, as a percentage of funeral revenue, decreased to 31.1% for the six months ended June 30, 2000 from 34.7% in 1999, principally as a result of lower revenue and significant fixed operating costs. The Company's previously-announced program to dispose of 201 funeral home locations that are considered non-strategic assets will result in a significant reduction in future funeral revenue. Cemetery revenue decreased 35.7% to $126.4 million for the six months ended June 30, 2000 from $196.6 million in 1999, primarily due to the disposition of 124 cemetery properties at March 31, 1999. In addition, revenues were negatively impacted by pre-need sales contract term changes effected in the 26 second quarter of 1999 and additional changes effected in the second quarter of 2000. These contract changes included shorter terms and larger down payments that are less attractive to certain customers but are designed to improve cash flow and, management believes, by continuing consumer concerns caused by the bankruptcy filings in June 1999. Overall cemetery gross margin, as a percentage of cemetery revenue, increased to 25.6% for the six months ended June 30, 2000 from 24.6% in 1999, primarily due to the effects of reduced costs. The Company's previously announced program to dispose of 170 cemetery locations that are considered non-strategic assets will result in a significant reduction in future cemetery revenue. Insurance revenue increased 2.3% to $48.7 million for the six months ended June 30, 2000 from $47.6 million in 1999. Overall insurance gross margin as a percentage of insurance revenue increased to 21.5% for the six months ended June 30, 2000 from 20.5% in 1999, primarily due to the continuing effort to expand the sale of pre-need funeral insurance through Company-owned funeral homes. General and administrative expenses were reduced 28.0%, or $14.0 million, to $36.0 million for the six months ended June 30, 2000 from $50.0 million in 1999. The decrease in general and administrative expenses for the six months ended June 30, 2000 is primarily due to the closure of the Trevose corporate office in the second quarter of 1999, the termination of various strategic initiatives subsequent to the bankruptcy filing on June 1, 1999, and the Company's continuing program to operate more efficiently and implement system improvements. General and administrative expenses, as a percentage of revenue, decreased to 7.6% for the six months ended June 30, 2000 from 8.8% in 1999. Depreciation and amortization expenses decreased to $29.2 million for the six months ended June 30, 2000 from $31.3 million in 1999, primarily due to dispositions made in 1999. As a percentage of revenue, depreciation was 6.1% for the six months ended June 30, 2000 compared to 5.5% in 1999, primarily due to the decline in revenue. The Company recorded a pre-tax asset impairment provision of $92.0 million on long-lived assets in the second quarter for certain properties included in the Company's previously-announced program to dispose of 371 locations that are considered non-strategic assets. The asset impairment provision on the long-lived assets resulted from the Company revising its estimates of expected proceeds of the properties held for disposal, to reflect the ongoing bid process. In the second quarter of 1999, the Company recorded an additional pre-tax asset impairment provision of $15.1 million for properties identified at December 31, 1998 as probable for sale. Interest expense on long-term debt decreased by $70.5 million to $6.5 million for the six months ended June 30, 2000 from $77.0 million in 1999. The decrease is primarily a result of the suspension of post-Petition Date interest expense and payments for under-secured and unsecured debt obligations resulting from the Company's bankruptcy filings. Contractual interest expense not recorded on certain pre-Petition Date debt obligations amounted to $86.4 million and $13.7 million for the six months ended June 30, 2000 and 1999, respectively Reorganization costs decreased to $14.4 million for the six months ended June 30, 2000 from $67.2 million in 1999. These costs were primarily for professional fees for accounting, legal and consulting services provided to the Company and the Official Unsecured Creditors' Committee, costs applicable to the Company's Key Employee Retention Plan, and other costs and fees incurred while the Company reorganizes under Chapter 11 and CCAA. In the six months ended June 30, 1999, immediately subsequent to the Petition Date, the Company incurred reorganization costs of $21.7 million for the write off of deferred debt issue costs, $9.8 million for the recording of the PATS option liability, $27.2 million for the write off of costs associated with executory contracts submitted for rejection by the Company, and $8.5 million of professional fees associated with the Company's reorganization under Chapter 11 and CCAA. Total reorganization costs since the Petition Date applicable to the Company's reorganization under Chapter 11 and CCAA amounted to $107.2 million as at June 30, 2000. 27 Other expenses decreased to $2.2 million for the six months ended June 30, 2000 from $13.9 million in 1999. Other expenses in 1999 reflects an additional non-recurring pre-tax charge of approximately $13.5 million relating to the sale of 124 cemeteries and three funeral homes on March 31, 1999, due to subsequent purchase price adjustments pursuant to certain terms of the purchase agreement. The income tax expense for the six months ended June 30, 2000 was $9.4 million, compared to income tax expense of $10.7 million in 1999. The Company was not able to realize a significant income tax benefit associated with the provision for asset impairment recorded in the six months ended June 30, 2000, and the reorganization costs recorded in the six months ended June 30, 1999 because these items were generally not deductible for tax purposes and realization of the associated future tax benefits was not considered more likely than not. Future income and losses, and the disposition of certain locations, may require the Company to record a change in the valuation allowance of 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 June 30, 2000. If this occurs, the resulting change in the valuation allowance, which could be significant, would generally be treated as an additional income tax expense or benefit in the period in which it arises. The Company expects that its effective income tax rate for fiscal year 2000 and beyond may vary significantly from the Canadian and United States statutory rates. The Company had a net loss of $53.5 million for the six months ended June 30, 2000 compared to a net loss of $98.4 million in 1999. Basic loss per share was $0.78 for the six months ended June 30, 2000 compared to a loss per share of $1.38 in 1999. The reduction in net loss for the six months ended June 30, 2000 was primarily due to the suspension of interest expense applicable to under-secured and unsecured debt obligations as a result of the bankruptcy filings, lower reorganization costs, lower general and administrative expenses and lower other expenses, partially offset by lower funeral and cemetery gross margins, and higher provision for asset impairment. The Company's statement of cash flows for the six months ended June 30, 2000 reflects cash provided from operations of $94.2 million, compared to cash applied of $17.3 million in 1999, primarily due to the suspension of interest on under-secured and unsecured debt obligations as a result of the bankruptcy filings and the improved cash flow from cemetery operations. DISPOSITIONS In December 1999, the Company announced its intention to dispose of 201 funeral homes and 170 cemeteries in the United States that do not meet the Company's future geographic and strategic objectives. In January 2000, the Bankruptcy Courts approved the Company's disposition process for the locations identified. The Company received over 250 letters of intent for various groups of these properties, and now has formal bids for the majority of the properties offered for sale. Potential buyers have commenced due diligence and initial negotiations. In addition, due to the bankruptcy proceedings, other properties, although not specifically identified, could be sold. In March 1999, the Company completed the sale of 124 cemeteries and three funeral homes. The Company received gross proceeds of $193.0 million, before purchase price adjustments and transaction costs. LIQUIDITY AND CAPITAL RESOURCES Over the past few 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 required significant cash due to the pre-need sales of cemetery interment rights, products and services and related interest costs on debt incurred. On June 1, 1999, Loewen and most of its subsidiaries voluntarily filed a petition for creditor protection under Chapter 11 and CCAA. The Company will continue to conduct business in the ordinary 28 course as debtors-in-possession under the protection of the Bankruptcy Courts while a plan of reorganization is developed. Loewen, LGII and all of its U.S. debtor subsidiaries, as debtors-in-possession, became parties to a Petition Date $200 million revolving credit agreement (the "DIP Facility"). In May 2000, Loewen and all of its U.S. debtor subsidiaries entered into a new debtors-in-possession credit agreement (the "New DIP Facility"), replacing the DIP Facility. The New DIP Facility, which will be used primarily to fund LGII's working capital needs during the course of the bankruptcy proceedings, contains fewer and less onerous financial covenants than the DIP Facility. The credit limit was reduced to $100 million and the number of participating banks was reduced from 15 to seven. The material covenants that remain are restrictions on new indebtedness and asset sales not already approved by the U.S. Bankruptcy Court, a quarterly interest coverage ratio, and quarterly minimum funeral home gross margin. Use of the New DIP Facility for letters of credit is limited to a maximum of $50 million. The New DIP Facility matures on June 30, 2001 and is secured by a perfected security interest in substantially all of the existing and future assets of LGII and its U.S. debtor subsidiaries (subject only to valid and perfected pre-Petition Date liens). The lenders under the New DIP Facility also have the benefit of a "super-priority" administrative expense claim in LGII's bankruptcy proceedings. Currently, loans made under the New DIP Facility bear interest at floating rates of U.S. Prime plus 1.25% (LIBOR plus 2.75% for Eurodollar advances). A fee of 2.75% is charged on letters of credit and a commitment fee of 0.50% is charged on the unused portion of the New DIP Facility. Related debt issue costs have been deferred and are being amortized over the remaining life of the New DIP Facility. As at June 30, 2000, the borrowings under the New DIP Facility were nil and the letters of credit outstanding were $20.1 million. The Company believes that sufficient cash resources currently exist to satisfy its near-term obligations. In addition, the Company has taken steps to improve profitability and cash flow throughout the organization, including a review of its cemetery pre-need sales strategy. To improve cash flow, the Company implemented changes to the terms and conditions of cemetery pre-need sales in the second quarter of 1999 and the second quarter of 2000. These contract changes included shorter terms that are less attractive to certain customers but are designed to improve cash flow. As a result of the Chapter 11 and CCAA filings, no principal or interest payments will be made on most pre-Petition Date debt obligations without Bankruptcy Court approval or until a plan of reorganization providing for the repayment terms has been submitted to any required vote and approval of affected parties, has been confirmed by the Bankruptcy Courts and has become effective. In June 2000, the U.S. Bankruptcy Court extended the Company's exclusive right to file a plan of reorganization to December 31, 2000, which prevents creditors or other parties from filing alternative plans until such date. Interest on unsecured and under-secured pre-Petition Date debt obligations subject to compromise has not been accrued after the Petition Date. Interest expense and principal payments will continue to be recorded on most secured vendor financing, including capital lease obligations. Contractual interest expense not recorded on liabilities subject to compromise totaled $43.3 million for the three months ended June 30, 2000 (1999 -- $13.7 million), and $86.4 million for the six months ended June 30, 2000 (1999 -- $13.7 million). In March 1999, the Company deferred future dividends applicable to the MIPS. Since June 1, 1999, as a result of the bankruptcy filings, the Company was in default of its bank and term credit agreements, senior amortizing notes and senior notes and, accordingly, has not made interest, principal or dividend payments when due on secured, unsecured and under-secured debt obligations. The Company's balance sheet at June 30, 2000 as compared to December 31, 1999, reflects significant changes from the asset impairment provision and, to a lesser extent, changes from ongoing operating activities. 29 COLLATERAL TRUST AGREEMENT In 1996, Loewen, LGII and a trustee 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 senior amortizing notes, senior notes and bank and term credit agreements, as well as the holders of certain letters of credit. At the Petition Date, the indebtedness owed to the senior lending group subject to the Collateral Trust Agreement, including the holders of certain letters of credit, aggregated approximately $2.0 billion. In April 2000, the Company announced that under the Collateral Trust Agreement, there is uncertainty as to the secured status of the Company's Series 3, 4, 6 and 7 Senior Notes and the Pass-through Asset Trust Securities (the "Subject Debt"). The aggregate principal amount outstanding of the Subject Debt is $1.1 billion. In accordance with the terms of the Collateral Trust Agreement, holders of future indebtedness or their representatives were to effect registration by delivering to the collateral trustee Additional Secured Indebtedness Registration Statements. Pursuant to the agreements with lender representatives in connection with financings subsequent to the establishment of the Collateral Trust Agreement, the Company and LGII have treated the Subject Debt as secured. However, Additional Secured Indebtedness Registration Statements relating to the Subject Debt were either not delivered to the collateral trustee or were delivered indicating an incorrect outstanding amount. The Company has confirmed that it satisfied its obligations under the financing agreements to adopt appropriate corporate resolutions and to deliver to lender representatives, in connection with closing, Additional Secured Indebtedness Registration Statements relating to the Subject Debt. It is not known when the uncertainty will be resolved. Accordingly, the effects of this contingency, if any, have not been reflected in the Company's Interim Consolidated Financial Statements. RESTRICTIONS The New DIP Facility contains various financial and other restrictive covenants including, among other things, restrictions on new indebtedness and asset sales not already approved by the U.S. Bankruptcy Court, a minimum ratio of quarterly cash flow to interest, and minimum quarterly funeral home gross margin. Use of the New DIP Facility for letters of credit is limited to a maximum of $50 million. Under the terms of the New DIP Facility, the cash of the Company, LGII and the subsidiaries which have filed under Chapter 11 is generally restricted for use within this group of filed companies. The Company's insurance subsidiaries, which have not filed for protection under Chapter 11, are also subject to certain state regulations that restrict distributions, loans and advances from such subsidiaries to the Company. RECENT ACCOUNTING STANDARDS The effective date for Statement of Financial Accounting Standards No. 133 ("FAS 133"), "Accounting for Derivative Instruments and Hedging Activities," as deferred by Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of Financial Accounting Standards No. 133 (an amendment of FASB Statement No. 133)," is for all fiscal quarters of fiscal years beginning after June 15, 2000. FAS 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and 30 measure those instruments at fair value. Management has not determined the impact of this accounting standard on the Company's Interim Consolidated Financial Statements. In December 1999, the Securities and Exchange Commission (the "SEC") issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 provides the staff's views on the application of existing generally accepted accounting principles to revenue recognition in financial statements. In June 2000, the SEC deferred the implementation date of SAB 101, as applicable to the Company, to the fourth quarter of 2000. Based on Company discussions with the SEC and conclusions reached by the Company, the Company expects its pre-need revenue recognition policies to: - Recognize sales of pre-arranged funerals and pre-need cemetery merchandise and services at time of delivery or performance of services; - Recognize sales of pre-need cemetery spaces when interment right title is transferred; and - Expense immediately selling expenses incurred in connection with sales of pre-arranged funerals and pre-need cemetery merchandise, services, and spaces. Management has not fully determined the impact of SAB 101 on the Company's Interim Consolidated Financial Statements, but expects such impacts, when determined, to be significant. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The Company used derivatives, prior to filing for bankruptcy, primarily in the form of interest rate swaps, cross-currency interest rate swaps, and both Canadian and United States dollar borrowings. The objective was 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 resides 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 were non-trading and were stated in U.S. dollars. The Company's derivative contracts were entered into with major financial institutions, thereby minimizing the risk of credit loss. Fluctuations in interest and currency rates that affected the swaps were 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 constitutes "forward-looking statements" which involve risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. As a result of the Company's bankruptcy filings on the Petition Date, virtually all of the Company's fixed and floating rate debt instruments are in default. Such obligations have been reclassified as liabilities subject to compromise and will not be settled until a plan of reorganization is confirmed by the Bankruptcy Courts. These material limitations restrict the Company's ability to fully reflect the net market risk exposure of these instruments. Accordingly, information about fair values and scheduled repayments of the debt obligations has been omitted. In addition, all interest rate derivatives previously held by the Company have been terminated and a liability has been recorded if necessary. Comparative information for the prior year has similarly been omitted as the information is no longer meaningful due to the bankruptcy proceedings. The Company's sensitivity to floating interest rates is primarily attributable to borrowings under the New DIP Facility. Accordingly, changes in U.S. interest rates affect the interest paid on the Company's debt. The Company has foreign operations in the United Kingdom (32 locations) and Mexico (one location). These countries are generally stable politically and economically, and are not highly inflationary. 31 EQUITY-PRICE RISK MANAGEMENT The sale of pre-arranged 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 pre-arranged 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 not sold prior 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. 32 PART II ITEM 1. LEGAL PROCEEDINGS. BANKRUPTCY FILINGS On June 1, 1999, the Company, 869 United States subsidiaries and one European subsidiary voluntarily filed a petition for creditor protection and to reorganize under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). The filings subsequently were consolidated for joint administration (IN RE: LOEWEN GROUP INTERNATIONAL, INC., ET AL., No. 99-1244). On the same day, the Company and 116 Canadian subsidiaries voluntarily filed an application for creditor protection under the Companies' Creditors Arrangement Act in the Ontario Superior Court of Justice in Toronto (File No. 99-CL-3384). Subsequent to the Petition Date, three additional subsidiaries of the Company voluntarily filed for creditor protection and seven subsidiaries were voluntarily deleted. The Company's United Kingdom subsidiaries, which generate approximately 1% of the Company's revenues, along with the Company's insurance and certain funeral and cemetery subsidiaries, were excluded from the filings. See Notes 1, 3 and 5 to the Interim Consolidated Financial Statements for additional information. The Company and its subsidiaries under creditor protection are presently operating their businesses as debtors-in-possession. An Official Unsecured Creditors' Committee has been appointed by the United States trustee in the bankruptcy proceedings. In May 2000, Loewen and all of its United States debtor subsidiaries entered into a new debtors-in-possession credit agreement, see Note 3 to the Interim Consolidated Financial Statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" for further information about the new debtors-in-possession credit agreement. As a result of the Chapter 11 and CCAA filings, litigation against the Company and its filing subsidiaries was stayed as of June 1, 1999, and any additional liabilities related thereto will be subject to compromise, unless the stay is lifted by the applicable Bankruptcy Court. LOUISIANA LAWSUITS In July 2000, five lawsuits were filed in Louisiana against various insurance companies asserting similar claims and seeking class action certification. Security Industrial Insurance Company ("Security Industrial"), one of the Company's subsidiaries, is a defendant in these lawsuits. Security Industrial is one of the Company's insurance subsidiaries that has been excluded from the bankruptcy filings and, as a result, litigation involving Security Industrial is not subject to automatic stay. The five lawsuits are: - ALEXANDER ET AL. V. SECURITY INDUSTRIAL, filed in the 16th Judicial District Court, Parish of St. Martin, Louisiana (62573-C), by the same plaintiffs' attorneys identified in the Beverly Case below (the "Alexander Case"); - BEVERLY ET AL. V. UNION NATIONAL ET AL., filed in the United States District Court, Western District of Louisiana (CV00-1633L-0), in which Security Industrial, Union National Insurance Co., United Insurance Company of America, and Unitrin, Inc. (d/b/a Trinity Universal Insurance Company) are named defendants (the "Beverly Case"); - COTHRAN ET AL. V. SECURITY INDUSTRIAL ET AL., filed in the First Judicial District Court, Caddo Parish, Louisiana (451548-B), in which Security Industrial, Union National Life Insurance Company, First National Life Insurance Company, Commonwealth Life Insurance Company/Monumental Life Insurance Company, United Insurance Company of America and Unitrin, Inc. are named as defendants (the "Cothran Case"); - SMITH ET AL. V. SECURITY INDUSTRIAL, filed in the Civic District Court, Parish of Orleans (2000-11168), in which Security Industrial, is the sole named defendant (the "Smith Case"); and 33 - SUTHERLAND ET AL. V. UNITED INSURANCE CO. OF AMERICA ET AL., filed in the United States District Court, Eastern District of Louisiana (00-2076), in which Security Industrial, Union National Insurance Co., and United Insurance Company of America are named defendants (the "Sutherland Case"). Except as noted below, the complaints in each of the lawsuits are almost identical. Plaintiffs allege that the defendants sold life insurance products to plaintiffs and other African Americans without disclosing that premiums paid would likely exceed the face value of the policies, and that plaintiffs paid higher premiums than Caucasian policyholders and received proportionately lower death benefits. The plaintiffs seek injunctive relief, equitable relief, restitution, disgorgement, increased death benefits, premium refunds (in one case, with interest), costs and attorneys' fees. The plaintiffs in the Alexander Case, the Cothran Case and the Smith Case also allege racial discrimination under the Louisiana Constitution as well as unfair trade practices, and seek compensatory damages, including where applicable, punitive, exemplary or special damages; however, Louisiana law prohibits punitive damages unless specifically authorized by Federal law. The Beverly Case and the Sutherland Case, which have been filed in Federal court, include an allegation that defendants violated the Civil Rights Act of 1866 (42 U.S.C. 1981), which provides for punitive damages in certain circumstances. On August 3, 2000, the defendants in the Alexander Case and the Cothran Case removed their respective cases to the United States District Court, Western District and Security Industrial removed the Smith Case to the United States District Court, Eastern District. 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 these lawsuits has been made in the Company's Interim Consolidated Financial Statements. OTHER There were no material changes to previously reported litigation, as described in the Company's Annual Report on Form 10-K/A for the year ended December 31, 1999. The Company is a party to other legal proceedings in the ordinary course of its business but does not expect the outcome of any other proceedings, individually or in the aggregate, to have a material adverse effect on the Company's financial position, results of operation or liquidity. ITEM 3. DEFAULTS ON SENIOR SECURITIES. The amounts in default and arrears on the Company's senior debt obligations, including dividends in arrears, are provided in Notes 3 and 9 to the Interim Consolidated Financial Statements. ITEM 5. OTHER INFORMATION. STOCK EXCHANGE LISTINGS The Common shares of Loewen trade on The Toronto Stock Exchange under the symbol "LWN." FORWARD-LOOKING STATEMENTS Certain 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 SEC 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. 34 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 -- Financial Condition," 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. There is substantial doubt about the appropriateness of the use of the "going concern" assumption because of the Chapter 11 and CCAA bankruptcy proceedings and circumstances relating to this event, including the Company's current debt structure, recent losses and cash flow. As such, realization of assets and discharge of liabilities are subject to significant uncertainty. The Interim Consolidated Financial Statements do not reflect adjustments that would be necessary if the "going concern" basis was not appropriate. 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. Additionally, the amounts reported could materially change because of a plan of reorganization, since the reported amounts in the Interim Consolidated Financial Statements do not give effect to adjustments to the carrying value of the underlying assets or amounts of liabilities that may ultimately result. The appropriateness of the "going concern" basis is dependent upon, among other things, confirmation of a plan of reorganization, future profitable operations, the ability to comply with terms of a debtor-in-possession revolving credit facility and the ability to generate sufficient cash from operations and financing arrangements to meet obligations. 2. BANKRUPTCY PROCEEDINGS. The Company is reorganizing its affairs under the protection of Chapter 11 and CCAA and will propose a plan of reorganization for itself and other filing subsidiaries, which will be submitted to the Bankruptcy Courts overseeing the Chapter 11 and CCAA proceedings for confirmation after submission to any vote and approval required by affected parties. If the plan of reorganization receives all requisite approvals, the Company will be required, under Canadian and U.S. GAAP, to adopt "fresh start" accounting. Fresh start accounting requires that assets and liabilities be recorded at fair value, based on the values determined in connection with the plan of reorganization. If the reorganization plan is approved and the Company emerges from bankruptcy, the carrying value of assets and liabilities recorded in the Company's financial statements after the adoption of fresh start accounting could differ materially from the amounts reported in the consolidated balance sheet at June 30, 2000. During the pendency of the reorganization proceedings, the Company is implementing operational and system improvements. In particular, a new cemetery contract management system is being implemented in the cemetery operations on a location by location basis to improve the recording and tracking of individual pre-need contracts. Management believes the new cemetery contract management system will: (i) improve the timeliness of and access to operational and financial information; (ii) reduce administrative costs; (iii) provide for improved trust efficiencies, and (iv) improve the estimation of merchandise and service liabilities. Further adjustments may be made to the estimation of cemetery merchandise and service liabilities as the cemetery contract management system is implemented. In April 2000, the Company announced that under the collateral trust agreement among the Company, LGII and their senior lenders (the "Collateral Trust Agreement"), there is uncertainty as to the secured status of the Company's Series 3, 4, 6 and 7 Senior Notes and the Pass-through Asset Trust Securities (the "Subject Debt"). The aggregate principal amount outstanding of the Subject Debt is $1.1 billion (see Note 3 to the Interim Consolidated Financial Statements for additional information regarding the terms of the Subject Debt). 35 Under the Collateral Trust Agreement, senior lenders share certain collateral and guarantees on a pari passu basis. In accordance with the terms of the Collateral Trust Agreement, holders of future indebtedness or their representatives were to effect registration by delivering to the collateral trustee Additional Secured Indebtedness Registration Statements. However, Additional Secured Indebtedness Registration Statements relating to the Subject Debt were either not delivered to the collateral trustee or were delivered indicating an incorrect outstanding amount. The Company has confirmed that it satisfied its obligations under the financing agreements to adopt appropriate corporate resolutions and to deliver to lender representatives, in connection with closing, Additional Secured Indebtedness Registration Statements relating to the Subject Debt. Pursuant to the agreements with lender representatives in connection with financings subsequent to the establishment of the Collateral Trust Agreement, the Company and LGII have treated the Subject Debt as secured. It is not known when the uncertainty regarding the secured status of the Subject Debt will be resolved. Accordingly, the effects of this contingency, if any, have not been reflected in the Company's Interim Consolidated Financial Statements. 3. 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 may be affected by the proposed change in accounting policies associated with the application of the guidance provided by the Securities and Exchange Commission's Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). Revenue is also affected by the level of dispositions. The Company's intended disposition of 201 funeral homes and 170 cemeteries identified as probable for sale in December 1999, will result in a significant reduction in future revenue. In addition, due to the bankruptcy proceedings, other properties, although not specifically identified, could be sold. Revenue may also be affected by the negative implications associated with the bankruptcy proceedings. 4. DISPOSITIONS. In December 1999, the Company identified 371 locations as probable for sale. In January 2000, the U.S. Bankruptcy Court for the District of Delaware approved the Company's proposed disposition process. Although the Company may consummate additional asset sales, it is not committed to sell and has not identified any other properties for which a material sale is probable. When properties are sold, gains or losses could be small or significant depending upon the type of property, location, cash flow and prevailing market conditions. 5. TAX RATE. The Company expects that its effective income tax rate for 2000 and beyond will likely vary significantly from the Canadian and United States statutory rates. Future income and losses, the disposition of certain locations, and the effects of the application of the guidance provided by SAB 101, may require the Company to record a change in the valuation allowance of 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 June 30, 2000. If this occurs, the resulting change in the valuation allowance, which could be significant, would generally be treated as an additional income tax expense or benefit in future periods. 6. OTHER. Consolidated financial results also may be affected by (i) the ability of the Company to successfully develop and implement a plan of reorganization pursuant to bankruptcy proceedings that provides for achieving profitable operations and obtaining appropriate financing, among other things, (ii) the ability of the Company to retain and motivate its employees, including senior management and critical staff, (iii) the continued availability of operating cash flow and debtor-in-possession financing, (iv) dispositions and the related valuation of assets, (v) the number of Common shares outstanding, (vi) competition, (vii) the level of the Company's general and administrative costs, and (viii) changes in applicable governmental regulations. 36 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------ ----------- 3 CHARTER DOCUMENTS 3.1 Certificate of Incorporation of The Loewen Group Inc. ("Loewen") issued by the British Columbia Registrar of Companies ("Registrar") on October 30, 1985(1) 3.2 Altered Memorandum of Loewen, filed with the Registrar on June 21, 1996(2) 3.3 Articles of Loewen, restated, filed with the Registrar on March 1, 1988, as amended on March 30, 1988, April 21, 1988, May 19, 1989, May 28, 1992, May 20, 1993, June 29, 1994, December 21, 1995 and February 7, 1996(3) 4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES 4.1.1 Note Agreement, dated for reference September 1, 1993, by and between Loewen and LGII re 9.62% Senior Guaranteed Notes, Series D, due September 11, 2003, issued by Loewen ("Series D Notes"), as amended on June 10, 1994(1) 4.1.2 Second Amendment, dated for reference May 15, 1996, to Note Agreement, dated for reference September 1, 1993, among Loewen, LGII and institutions named therein, re Series D Notes(4) 4.1.3 Summary of Terms and Conditions, dated March 30, 1999, amending certain credit agreements to which Loewen is a party(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)
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EXHIBIT NUMBER DESCRIPTION ------ ----------- 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) 4.13 Form of Senior Guarantee of LGII's Series 1 and 2 Notes (included in Exhibit 4.12) 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 Exhibits 4.14 and 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 4.19) 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 Exhibits 4.21 and 4.22)
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EXHIBIT NUMBER DESCRIPTION ------ ----------- 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 4.33) 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) 4.37 Form of Senior Guarantee of LGII's Series 6 and 7 Exchange Notes (included in Exhibits 4.35 and 4.36) 4.38.1 Debtor-In-Possession Credit Agreement, dated as of June 1, 1999 (the "DIP Agreement"), by and among LGII, as debtor and debtor-in-possession, each of LGII's subsidiaries listed on the signature pages thereof, each as debtor and debtor-in-possession, Loewen, the Lenders named therein, as the initial Lenders, and First Union National Bank, as the L/C Issuer and as the Administrative Agent for the Lenders(15) 4.38.2 First Amendment to the DIP Agreement, dated as of July 16, 1999(15) 4.38.3 Second Amendment to the DIP Agreement, dated as of August 25, 1999(16) 4.38.4 Third Amendment to the DIP Agreement, dated as of October 21, 1999(16) 4.38.5 Fourth Amendment to the DIP Agreement, dated as of December 21, 1999(16)
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EXHIBIT NUMBER DESCRIPTION ------ ----------- 4.39 Debtor-In-Possession Credit Agreement, dated as of May 24, 2000 (the "New DIP Agreement"), by and among LGII, as debtor and debtor-in-possession, each of LGII's subsidiaries listed on the signature pages thereof, each as debtor and debtor-in-possession, Loewen, the Lenders named therein, as the initial Lenders, and First Union National Bank, as the L/C Issuer and as the Administrative Agent for the Lenders 4.40 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* Form of Indemnification Agreement with Outside Directors(17) 10.4* Form of Indemnification Agreement with Officers(17) 10.5.1* The Loewen Group Inc. Corporate Incentive Plan(16) 10.5.2* The Loewen Group Inc. Operations Incentive Plan(16) 10.5.3* The Loewen Group Inc. Basic Employee Severance Plan(16) 10.5.4* The Loewen Group Inc. Executive and Other Specified Employee Severance Plan(16) 10.5.5* The Loewen Group Inc. Confirmation Incentive Plan(16) 10.5.6* The Loewen Group Inc. Retention Incentive Plan(16) 10.5.7* Form of Employment and Release Agreement for Corporate and Country Management(16) 10.5.8* Form of Employment and Release Agreement for Employees Other Than Corporate and Country Management(16) 10.6* 1994 Management Equity Investment Plan (the "MEIP")(17) 10.7* Form of Executive Agreement executed by participants in the MEIP(9) 10.8* 1994 Outside Director Compensation Plan, as restated and amended as at January 9, 1997, and further amended as at June 25, 1998(5) 10.9* Employee Stock Option Plan (International), as restated and amended as at September 17, 1998(5) 10.10* Employee Stock Option Plan (Canada), as restated and amended as at September 17, 1998(5) 10.11* Form of Stay Put Bonus Plan Letters, dated February 26, 1999(5)
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EXHIBIT NUMBER DESCRIPTION ------ ----------- 10.12* Employment Agreement, dated April 12, 1991, by and between Loewen and Dwight Hawes(1) 10.13* Consulting Agreement, dated July 18, 1994, by and between Loewen and Charles B. Loewen, LGII, and Corporate Services International Inc.(1) 10.14* Resignation and Release Agreement, effective June 10, 1996, by and between Loewen, LGII and Robert O. Wienke(6) 10.15* Employment Agreement, dated October 31, 1997, by and between Loewen and Michael G. Weedon(8) 10.16* Employment Agreement, dated January 30, 1998, by and between Loewen and Brad Stam(8) 10.17* Employment Agreement, dated October 26, 1998, by and between Loewen and Peter S. Hyndman(5) 10.18.1* Employment Agreement, dated November 30, 1998, by and between Loewen and Robert Lundgren(5) 10.18.2* 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.(18) 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(19) 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(18) 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")(20) 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(20) 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(20)
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EXHIBIT NUMBER DESCRIPTION ------ ----------- 99.7 Form of Letter of Transmittal(21) 99.8 Form of Notice of Guaranteed Delivery(21)
------------------------------- * 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 Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, filed on August 13, 1999 (File No. 1-12163) (16) Incorporated by reference from Loewen's Annual Report on Form 10-K for the year ended December 31, 1999, filed on March 16, 2000 (File No. 1-12163) (17) Incorporated by reference from Loewen's Solicitation/Recommendation Statement on Schedule 14D-9, filed on October 10, 1996, as amended 42 (18) 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) (19) 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) (20) Incorporated by reference from Loewen's Periodic Report on Form 8-K, dated November 19, 1996, filed December 27, 1996 (File No. 1-12163) (21) 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) (b) REPORTS ON FORM 8-K The following Current Reports on Form 8-K were filed by Loewen during the second quarter of fiscal 2000:
FILING DATE ITEM NUMBER DESCRIPTION ----------- ----------- ----------- April 11, 2000 Item 5. Other Events Press release describing circumstances (dated April 7, 2000) giving rise to uncertainty regarding the status of certain debt. May 2, 2000 Item 5. Other Events Press release reporting first quarter (dated May 1, 2000) financial results.
43 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. THE LOEWEN GROUP INC. Dated: August 11, 2000 /s/ MICHAEL A. CORNELISSEN -------------------------------------------------- Michael A. Cornelissen SENIOR VICE-PRESIDENT, CHIEF FINANCIAL OFFICER (PRINCIPAL FINANCIAL OFFICER) Dated: August 11, 2000 /s/ DWIGHT K. HAWES -------------------------------------------------- Dwight K. Hawes SENIOR VICE-PRESIDENT, CORPORATE CONTROLLER (PRINCIPAL ACCOUNTING OFFICER)
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