-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EFwCPrmKkVFeJadsCU/+xk/7jnoA/EXpu2Lhx2r59mVTkTK3PZnBCC+xA7R/mWx2 EUH2BOuIoojwhKNzZLvqIQ== 0001047469-98-019518.txt : 19980513 0001047469-98-019518.hdr.sgml : 19980513 ACCESSION NUMBER: 0001047469-98-019518 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980512 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LOEWEN GROUP INC CENTRAL INDEX KEY: 0000845577 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PERSONAL SERVICES [7200] IRS NUMBER: 980121376 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12163 FILM NUMBER: 98617229 BUSINESS ADDRESS: STREET 1: 4126 NORLAND AVE CITY: BURNABY BC CANADA V5 STATE: A1 ZIP: V5G 3S8 BUSINESS PHONE: 6042999321 MAIL ADDRESS: STREET 1: 4126 NORLAND AVE STREET 2: BRITISH COLUMIA CITY: BURNABY V5G 3S8 STATE: A1 10-Q 1 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-Q (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-12163 ---------------- THE LOEWEN GROUP INC. (Exact name of registrant as specified in its charter) ---------------- BRITISH COLUMBIA 98-0121376 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
4126 NORLAND AVENUE, BURNABY, BRITISH COLUMBIA, CANADA V5G 3S8 (Address of principal executive offices)(Zip Code) 604-299-9321 Registrant's telephone number, including area code N/A (Former name, former address and former fiscal year, if changed since last report) Indicate by check /X/ whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / ---------------- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Indicate by check /X/ whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes / / No / / ---------------- APPLICABLE ONLY TO CORPORATE ISSUERS The number of outstanding Common shares as of May 8, 1998, was 73,949,632. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE LOEWEN GROUP INC. AND SUBSIDIARIES
PAGE PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS: CONSOLIDATED BALANCE SHEETS as of March 31, 1998 and December 31, 1997............... 1 CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS for the Three Months Ended March 31, 1998 and 1997....... 2 CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION for the Three Months Ended March 31, 1998 and 1997....... 3 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS............. 4 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.... 18 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS................................... 25 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................... 28 SIGNATURES............................................................... 34
PART I ITEM 1. FINANCIAL STATEMENTS THE LOEWEN GROUP INC. CONSOLIDATED BALANCE SHEETS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
MARCH 31, DECEMBER 31, 1998 1997 ------------ ------------ (UNAUDITED) ASSETS Current assets Cash and term deposits............................................................. $ 34,573 $ 36,767 Receivables, net of allowances..................................................... 254,553 251,006 Inventories........................................................................ 35,572 34,885 Prepaid expenses................................................................... 13,229 11,141 ------------ ------------ 337,927 333,799 Prearranged funeral services......................................................... 428,600 410,379 Long-term receivables, net of allowances............................................. 583,609 553,663 Investments.......................................................................... 188,022 224,008 Insurance invested assets............................................................ 319,667 305,610 Cemetery property, at cost........................................................... 1,020,033 957,831 Property and equipment............................................................... 812,948 797,178 Names and reputations................................................................ 664,551 633,143 Deferred income taxes................................................................ 141,067 130,913 Other assets......................................................................... 160,462 156,636 ------------ ------------ $ 4,656,886 $4,503,160 ------------ ------------ ------------ ------------ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable and accrued liabilities........................................... $ 147,047 $ 160,208 Long-term debt, current portion.................................................... 48,170 43,507 ------------ ------------ 195,217 203,715 Long-term debt....................................................................... 1,885,055 1,750,427 Other liabilities.................................................................... 291,419 308,909 Insurance policy liabilities......................................................... 211,940 214,492 Deferred prearranged funeral services revenue........................................ 428,600 410,379 Preferred securities of subsidiary................................................... 75,000 75,000 Shareholders' equity Common shares...................................................................... 1,271,869 1,271,177 Preferred shares................................................................... 157,146 157,146 Retained earnings.................................................................. 126,442 98,354 Foreign exchange adjustment........................................................ 14,198 13,561 ------------ ------------ 1,569,655 1,540,238 ------------ ------------ $ 4,656,886 $4,503,160 ------------ ------------ ------------ ------------
Commitments and contingencies (Notes 3, 6 and 7) See accompanying notes to interim consolidated financial statements -1- THE LOEWEN GROUP INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
THREE MONTHS ENDED MARCH 31, ---------------------- 1998 1997 ---------- ---------- (UNAUDITED) Revenue Funeral................................................................................. $ 171,972 $ 155,543 Cemetery................................................................................ 115,273 97,435 Insurance............................................................................... 22,868 21,719 ---------- ---------- 310,113 274,697 Costs and expenses Funeral................................................................................. 99,030 92,084 Cemetery................................................................................ 76,943 64,106 Insurance............................................................................... 19,621 17,989 ---------- ---------- 195,594 174,179 ---------- ---------- 114,519 100,518 Expenses General and administrative.............................................................. 24,704 22,683 Depreciation and amortization........................................................... 19,644 16,826 ---------- ---------- 44,348 39,509 ---------- ---------- Earnings from operations.................................................................. 70,171 61,009 Interest on long-term debt................................................................ 33,067 30,698 ---------- ---------- Earnings before undernoted items.......................................................... 37,104 30,311 Dividends on preferred securities of subsidiary........................................... 1,772 1,772 ---------- ---------- Earnings before income taxes and undernoted items......................................... 35,332 28,539 Income taxes.............................................................................. 8,480 7,996 ---------- ---------- 26,852 20,543 Equity and other earnings of associated companies......................................... 3,548 3,157 ---------- ---------- Net earnings for the period............................................................... $ 30,400 $ 23,700 Retained earnings, beginning of period.................................................... 98,354 80,117 Preferred share dividends................................................................. (2,312) (2,429) ---------- ---------- Retained earnings, end of period.......................................................... $ 126,442 $ 101,388 ---------- ---------- ---------- ---------- Basic earnings per Common share........................................................... $ 0.38 $ 0.36 Fully diluted earnings per Common share................................................... $ 0.38 $ 0.36
See accompanying notes to interim consolidated financial statements -2- THE LOEWEN GROUP INC. CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION EXPRESSED IN THOUSANDS OF U.S. DOLLARS
THREE MONTHS ENDED MARCH 31, ------------------------ 1998 1997 ----------- ----------- (UNAUDITED) CASH PROVIDED BY (APPLIED TO) Operations Net earnings.......................................................................... $ 30,400 $ 23,700 Items not affecting cash Depreciation and amortization....................................................... 19,644 16,826 Deferred income taxes............................................................... (10,098) (3,678) Equity and other earnings of associated companies................................... (3,548) (3,157) Other, including net changes in other non-cash balances............................... (51,932) (56,257) ----------- ----------- (15,534) (22,566) ----------- ----------- Investing Business acquisitions................................................................. (102,034) (127,501) Construction of new facilities........................................................ (4,279) (3,089) Investments, net...................................................................... (576) (11,091) Purchase of insurance invested assets................................................. (52,529) (42,396) Proceeds on disposition and maturities of insurance invested assets................... 38,472 35,574 Purchase of property and equipment.................................................... (6,037) (5,411) Proceeds on disposition of assets..................................................... -- 170 Other................................................................................. 9,775 (1,525) ----------- ----------- (117,208) (155,269) ----------- ----------- Financing Issue of Common shares, before income tax recovery.................................... 71 1,880 Increase in long-term debt............................................................ 198,735 200,330 Reduction in long-term debt........................................................... (61,223) (21,579) Preferred share dividends............................................................. (2,312) (2,429) Other................................................................................. (5,992) 890 ----------- ----------- 129,279 179,092 ----------- ----------- Increase (decrease) in cash and cash equivalents during the period...................... (3,463) 1,257 Effect of foreign exchange adjustment................................................... 1,269 882 Cash and cash equivalents, beginning of period.......................................... 36,767 18,059 ----------- ----------- Cash and cash equivalents, end of period................................................ $ 34,573 $ 20,198 ----------- ----------- ----------- -----------
Cash and cash equivalents include cash and term deposits. 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 NOTE 1. BASIS OF PRESENTATION The United States dollar is the principal currency of the Company's business and accordingly the interim consolidated financial statements are expressed in United States dollars. The interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada. The interim consolidated financial statements include the accounts of all subsidiary companies and include all adjustments, consisting of normal recurring adjustments, which in management's opinion are necessary for a fair presentation of the financial results for the interim periods. The financial statements have been prepared consistent with the accounting policies described in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1997 and should be read in conjunction therewith. Certain of the comparative figures have been reclassified to conform to the presentation adopted in the current period. USE OF ESTIMATES The preparation of interim consolidated financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. As a result, actual results could differ from those estimates. NOTE 2. ACQUISITIONS During the three months ended March 31, 1998, the Company acquired 34 funeral homes and 33 cemeteries in the United States. During the three months ended March 31, 1997, the Company acquired 30 funeral homes and 52 cemeteries in the United States and three funeral homes in Canada. -4- THE LOEWEN GROUP INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS NOTE 2. ACQUISITIONS (CONTINUED) All of the Company's acquisitions have been accounted for by the purchase method. The preliminary purchase price allocation for certain of these acquisitions has been estimated based on available information at the time and is subject to revision. The effect of acquisitions at dates of purchase on the Consolidated Balance Sheet is shown below.
MARCH 31, ---------------------- 1998 1997 ---------- ---------- Current assets.................................................................. $ 1,970 $ 3,115 Prearranged funeral services.................................................... 6,380 4,058 Long-term receivables, net of allowances........................................ 3,438 5,568 Cemetery property, at cost...................................................... 52,421 89,940 Property and equipment.......................................................... 15,908 16,617 Names and reputations........................................................... 36,277 17,132 Other assets.................................................................... 2,332 87 ---------- ---------- 118,726 136,517 Current liabilities............................................................. (775) (675) Long-term debt.................................................................. (2,626) (380) Other liabilities............................................................... (6,911) (3,903) Deferred prearranged funeral services revenue................................... (6,380) (4,058) ---------- ---------- $ 102,034 $ 127,501 ---------- ---------- ---------- ---------- Consideration Cash, including assumed debt repaid at closing................................ $ 88,333 $ 122,798 Debt.......................................................................... 13,701 4,703 ---------- ---------- Purchase Price.................................................................. $ 102,034 $ 127,501 ---------- ---------- ---------- ----------
The following table reflects, on an unaudited pro-forma basis, the combined results of the Company's operations acquired during the period ended March 31, 1998 as if all such acquisitions had taken place at the beginning of the respective years presented. Appropriate adjustments have been made to reflect the accounting basis used in recording these acquisitions. This pro-forma information does not purport to be indicative of the results of operations that would have resulted had the acquisitions been in effect for the entire periods presented, and is not intended to be a projection of future results or trends.
THREE MONTHS ENDED MARCH 31, ---------------------- 1998 1997 ---------- ---------- Revenues........................................................................ $ 313,055 $ 281,675 Net earnings.................................................................... $ 30,350 $ 23,615 Basic earnings per share........................................................ $ 0.38 $ 0.36 Fully diluted earnings per share................................................ $ 0.38 $ 0.36
-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 NOTE 3. INVESTMENTS (a) PRIME SUCCESSION HOLDINGS, INC. ("PRIME") In 1996, the Company and Blackstone Capital Partners II Merchant Banking Fund L.P. and certain affiliates (together, "Blackstone") acquired Prime, which holds all of the outstanding common shares of Prime Succession, Inc., an operator of funeral homes and cemeteries in the United States. The excess of the purchase price over the fair value of net assets of approximately $230,000,000 was established as goodwill in Prime Succession, Inc. and is being amortized over 40 years. The Company owns 21.8% of Prime common stock and 100% of Prime's non-voting preferred stock. The Company accounts for its investment in Prime preferred stock by the cost method. For the three months ended March 31, 1998, income of $1,746,000 (1997--$1,588,000) was recorded representing the 10% cumulative annual payment-in-kind dividend. The Company accounts for its investment in Prime common stock by the equity method. Under this method, the Company records its proportionate share of the net earnings (loss) of Prime after deducting the payment-in-kind dividend. For the three months ended March 31, 1998, a loss of $359,000 (1997--loss of $571,000) was recorded representing the Company's proportionate share of the loss attributable to the Prime common stock. Under a Put/Call Agreement entered into with Blackstone, the Company has the option to acquire ("Call") Blackstone's Prime common stock commencing on the fourth anniversary of the acquisition, and for a period of two years thereafter, at a price determined pursuant to the Put/Call Agreement. Blackstone has the option to sell ("Put") its Prime common stock to the Company commencing on the sixth anniversary of the acquisition, and for a period of two years thereafter, at a price determined pursuant to the Put/Call Agreement. Any payment to Blackstone is subject to Blackstone or the Company exercising their respective rights under the Put or the Call. It is not currently possible to determine whether Blackstone or the Company will exercise such rights. Furthermore, any amount to be paid pursuant to the Put or Call is dependent on calculated equity value which is based on EBITDA of future periods. Accordingly, it is not possible at this date to estimate the future amount that may be payable to Blackstone on the exercise of the Put or the Call. -6- THE LOEWEN GROUP INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS NOTE 3. INVESTMENTS (CONTINUED) Summarized financial data for Prime are presented as follows:
THREE MONTHS ENDED MARCH 31, -------------------- 1998 1997 --------- --------- Income statement information: Revenue......................................................................... $ 26,585 $ 24,195 Gross margin.................................................................... 9,874 8,681 Earnings from operations........................................................ 6,305 5,071 Payment-in-kind dividend........................................................ 1,746 1,588 Net loss attributable to common shareholders.................................... (1,649) (2,618)
MARCH 31, DECEMBER 31, 1998 1997 ---------- ------------ Balance sheet information: Current assets............................................................. $ 20,657 $ 25,694 Non-current assets......................................................... 369,882 369,412 ---------- ------------ Total assets............................................................... 390,539 395,106 Current liabilities........................................................ 10,357 14,964 Non-current liabilities.................................................... 253,677 253,734 ---------- ------------ Total liabilities.......................................................... 264,034 268,698 Shareholders' equity....................................................... 126,505 126,408
(b) ROSE HILLS HOLDINGS CORP. ("RH HOLDINGS") In 1996, the Company and Blackstone acquired RH Holdings, which holds all of the outstanding common stock of Rose Hills Company ("RHC") and the cemetery related assets of Rose Hills Memorial Park Association, representing the largest single location cemetery in the United States. The excess purchase price over the fair value of net assets of approximately $130,000,000 was established as goodwill in RH Holdings and is being amortized over 40 years. The Company owns 20.45% of RH Holdings' voting common stock and 100% of RH Holdings' non-voting preferred stock. The Company accounts for its investment in RH Holdings preferred stock by the cost method. For the three months ended March 31, 1998, income of $2,365,000 (1997--$2,150,000) was recorded representing the 10% cumulative annual payment-in-kind dividend. The Company accounts for its investment in RH Holdings common stock by the equity method. Under the equity method, the Company records its proportionate share of the net earnings (loss) of RH Holdings after deducting the payment-in-kind dividend. For the three months ended March 31, 1998, a loss of $201,000 (1997--loss of $335,000) was recorded representing the Company's proportionate share of the loss attributable to the common stock of RH Holdings. The properties contributed by the Company had a net carrying value of $20,382,000. The Company has deferred a gain of $2,618,000 on the disposition of these properties and will recognize the gain if and when the properties are sold. The deferred gain is recorded in other liabilities on the consolidated balance sheet. -7- THE LOEWEN GROUP INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS NOTE 3. INVESTMENTS (CONTINUED) Under a Put/Call Agreement entered into with Blackstone, the Company has the option to acquire ("Call") Blackstone's RH Holdings common stock commencing on the fourth anniversary of the acquisition, and for a period of two years thereafter, at a price to be determined pursuant to the Put/Call Agreement. Blackstone has the option to sell ("Put") its RH Holdings common stock to the Company commencing on the sixth anniversary of the acquisition, and for a period of two years thereafter, at a price determined pursuant to the Put/Call Agreement. Any payment to Blackstone will be subject to Blackstone or the Company exercising their respective rights under the Put or the Call. It is not currently possible to determine whether Blackstone or the Company will exercise such rights. Furthermore, any amount to be paid pursuant to the Put or Call is dependent on calculated equity value which is based on EBITDA of future periods. Accordingly, it is not possible at this date to estimate the future amount that may be payable to Blackstone on the exercise of the Put or the Call. Summarized financial data for RH Holdings are presented as follows:
THREE MONTHS ENDED MARCH 31, -------------------- 1998 1997 --------- --------- Income statement information: Revenue................................................................................... $ 22,679 $ 17,984 Gross margin.............................................................................. 18,937 15,289 Earnings from operations.................................................................. 6,920 4,914 Payment-in-kind dividend.................................................................. 2,365 2,150 Net loss attributable to common shareholders.............................................. (982) (1,640)
MARCH 31, DECEMBER 31, 1998 1997 ---------- ------------ Balance sheet information: Current assets....................................................................... $ 20,395 $ 17,117 Non-current assets................................................................... 296,322 294,934 ---------- ------------ Total assets......................................................................... 316,717 312,051 Current liabilities.................................................................. 18,276 15,780 Non-current liabilities.............................................................. 169,800 169,013 ---------- ------------ Total liabilities.................................................................... 188,076 184,793 Shareholders' equity................................................................. 128,641 127,258
-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 NOTE 4. LONG-TERM DEBT
MARCH 31, DECEMBER 31, 1998 1997 ------------ ------------ Bank revolving credit agreements..................................................... $ 416,966 $ 264,729 Management Equity Investment Plan ("MEIP") bank term credit agreement due in 2001.... 105,140 105,140 9.62% Series D senior amortizing notes due in 2003................................... 51,429 51,429 6.49% Series E senior amortizing notes due in 2004................................... 42,857 50,000 7.50% Series 1 senior notes due in 2001.............................................. 225,000 225,000 7.75% Series 3 senior notes due in 2001.............................................. 125,000 125,000 8.25% Series 2 and 4 senior notes due in 2003........................................ 350,000 350,000 6.10% Series 5 senior notes due in 2002 (Cdn. $200,000,000).......................... 140,865 139,948 6.70% PATS senior notes.............................................................. 300,000 300,000 Present value of notes issued for legal settlements discounted at an effective interest rate of 7.75%............................................................. 38,147 39,115 Present value of contingent consideration payable on acquisitions discounted at an effective interest rate of 8.0%.................................................... 19,785 24,515 Other, principally arising from vendor financing of acquired operations or long-term debt assumed on acquisitions, bearing interest at fixed and floating rates varying from 4.8% to 14.0%, certain of which are secured by assets of certain subsidiaries....................................................................... 118,036 119,058 ------------ ------------ 1,933,225 1,793,934 Less current portion................................................................. 48,170 43,507 ------------ ------------ $ 1,885,055 $1,750,427 ------------ ------------ ------------ ------------
(a) In 1996, the Company, LGII and their senior lenders entered into a collateral trust arrangement pursuant to which the senior lenders share certain collateral on a pari passu basis. The collateral includes (i) a pledge for the benefit of the senior lenders of the shares of capital stock held by the Company of substantially all of its subsidiaries and (ii) all of the financial assets of LGII (including the shares of the capital stock held by LGII of various subsidiaries) (collectively, the "Collateral"). The Collateral is held by a trustee for the equal and ratable benefit of the various holders of pari passu indebtedness. The senior lenders consist principally of the lenders under the senior amortizing notes, senior notes and bank revolving and term credit agreements as well as the holders of certain letters of credit. (b) Certain of the above loan agreements contain various restrictive provisions, including change of control provisions and provisions restricting payment of dividends on Common and Preferred shares, restricting encumbrance of assets, limiting redemption or repurchase of shares, limiting disposition of assets, limiting the amount of additional debt and requiring the Company to maintain specified financial ratios. (c) In March 1998, the Company amended its $1,000,000,000 revolving credit agreement to provide greater flexibility for the timing of equity and other financing alternatives. As part of the amendment, the 364-day tranche was terminated and the $750,000,000 tranche was reduced to a $600,000,000 revolving credit agreement with a three-year term. (d) Repayment of the senior amortizing notes commenced September 1997 for Series D and February 1998 for Series E, all in equal annual amounts to the respective due dates. -9- THE LOEWEN GROUP INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS NOTE 5. PREFERRED SECURITIES OF SUBSIDIARY On August 15, 1994, 3,000,000 9.45% Cumulative Monthly Income Preferred Securities, Series A ("MIPS") were issued by Loewen Group Capital, L.P. ("LGC") in a public offering for an aggregate amount of $75,000,000. LGC is a limited partnership and LGII as its general partner manages its business and affairs. LGII serves as the holding company for all United States assets and operations of the Company. The consolidated financial statements of LGII are prepared in accordance with Canadian generally accepted accounting principles and are presented in United States dollars. Summarized financial data for LGII are presented as follows:
THREE MONTHS ENDED MARCH 31, ---------------------- 1998 1997 ---------- ---------- Income statement information: Revenue................................................................................. $ 287,737 $ 254,931 Gross margin............................................................................ 102,384 87,274 Earnings from operations................................................................ 63,197 51,461 Net earnings............................................................................ 122 1,003
MARCH 31, DECEMBER 31, 1998 1997 ------------ ------------ Balance sheet information: Current assets..................................................................... $ 266,661 $ 244,552 Non-current assets................................................................. 3,886,442 3,688,148 ------------ ------------ Total assets....................................................................... 4,153,103 3,932,700 Current liabilities................................................................ 171,668 172,371 Non-current liabilities............................................................ 3,661,148 3,440,175 ------------ ------------ Total liabilities.................................................................. 3,832,816 3,612,546 Shareholders' equity............................................................... 320,287 320,154
The MIPS are due August 31, 2024 and are subject to redemption at par at the option of LGC, in whole or in part, from time to time, on or after August 31, 2004. Holders of the MIPS are entitled to receive cumulative dividends at an annual rate of 9.45% of the liquidation preference of $25 per MIPS. The dividends accrue from the date of original issuance and are payable monthly in arrears. The Company has the right to defer payment of dividends on the MIPS for one or more periods, each not to exceed 60 consecutive months. In this event the Company may not declare or pay dividends on, or redeem, purchase or acquire or make a liquidation payment with respect to any class of its capital stock. The Company has guaranteed certain payment obligations of LGII to LGC and of LGC to the MIPS holders. The guarantees are subordinated to all liabilities of the Company and are unsecured. -10- THE LOEWEN GROUP INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS NOTE 6. LEGAL PROCEEDINGS CLASS ACTIONS ALLEGING SECURITIES LAWS VIOLATIONS On November 4, 1995, a class action lawsuit claiming violations of federal securities laws was filed on behalf of a class of purchasers of Company securities against the Company and five individuals who were officers of the Company (four of whom were also directors) in the United States District Court for the Eastern District of Pennsylvania. LGII, LGC, and the lead underwriters (the "MIPS Underwriters") of LGC's 1994 offering of the MIPS, were subsequently added as defendants. On November 7, 1995, a class action lawsuit was filed on behalf of a class of purchasers of Common Shares against the Company and the same individual defendants in the United States District Court for the Southern District of Mississippi alleging Federal securities law violations and related common law claims. On December 1, 1995, a class action lawsuit was filed on behalf of a class of purchasers of the Company's securities against the Company, LGII, LGC and the same individual defendants in the United States District Court for the Eastern District of Pennsylvania. On June 11, 1996 all claims against the MIPS Underwriters were dismissed without prejudice, by agreement of the parties. The cases were consolidated before the District Court of the Eastern District of Pennsylvania. A Consolidated and Amended Class Action Complaint was filed on September 16, 1996. The parties have agreed to a settlement of all claims in the action. The District Court entered an order approving the settlement on April 21, 1998, which becomes effective May 22, 1998 if no appeal is filed. No objections to the settlement have been filed. The settlement provides for the payment by the Company on behalf of all defendants of $5,000,000 plus up to $100,000 for costs of notice and 50% of the costs of administration of the settlement. ESNER ESTATE On February 1, 1995, Stuart B. Esner and Sandra Esner (the "Executors") as co-executor for the Estate of Gerald F. Esner (the "Esner Estate") filed an action in the Court of Common Pleas of Bucks County, Pennsylvania against Osiris Holding Corporation ("Osiris") and a law firm (the "Law Firm") that previously represented Osiris and its principal shareholders, Gerald F. Esner, Lawrence Miller and William R. Shane. Messrs. Miller and Shane currently are executive officers of the Company and LGII. The complaint alleged that Osiris breached the terms of a Second Amended and Restated Shareholders' Agreement among Messrs. Esner, Miller and Shane (the "Shareholders' Agreement") by attempting to repurchase shares of Osiris held by the Esner Estate (the "Esner Shares") without complying with the terms of the Shareholders' Agreement, and that the Law Firm breached its fiduciary duty and committed malpractice in connection with the drafting of the Shareholders' Agreement and its representation of Esner and Osiris. The Executors asked the Court (i) to have the value of Osiris reappraised pursuant to the terms of the Shareholders' Agreement and (ii) to require Osiris to repurchase the Esner Shares pursuant to a new appraisal and the alleged terms of the Shareholders' Agreement or, alternatively, to pay the Esner Estate the fair value of the Esner Shares as determined by the new appraisal. In March 1995, LGII purchased all of the issued and outstanding shares of Osiris, including the Esner Shares. In connection with the purchase, LGII entered into an indemnification agreement whereby Messrs. Miller and Shane agreed to indemnify and hold LGII harmless with respect to any claims, liabilities, losses and expenses, including reasonable attorney's fees, in connection with or arising from the Esner Estate litigation. On April 9, 1996, the Executors filed a second complaint, which names Messrs. Miller and Shane and LGII as defendants. The second complaint alleges breach of contract, fraud and related claims against -11- THE LOEWEN GROUP INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS NOTE 6. LEGAL PROCEEDINGS (CONTINUED) Messrs. Miller and Shane, and that LGII joined a civil conspiracy by acquiring Osiris. The Executors request compensatory damages of $24,300,000 against the various defendants, and seek punitive damages from Messrs. Miller and Shane. The two cases were consolidated by the Court. On October 9, 1996, the Executors instituted a new civil action against the Law Firm. On November 18, 1996 the Executors instituted a new civil action against the individual partners of the Law Firm. In both complaints, the Executors expanded upon the allegations against the Law Firm contained in the previous complaints. By stipulation approved by the Court on February 24, 1997, the parties agreed to consolidate all suits and to permit the Executors to file a Third Amended Complaint, which was filed on February 10, 1997. The prayers for relief remain unchanged. Osiris and Messrs. Miller and Shane filed, and the Court granted, preliminary challenges to the Third Amended Complaint. The Court also dismissed the claims against LGII for failure to state a claim upon which relief can be granted, although the Third Amended Complaint does continue on unaffected counts. The Company has determined that it is not possible at this time to predict the final outcome of these legal proceedings and that it is not possible to establish a reasonable estimate of possible damages, if any, or reasonably to estimate the range of possible damages that may be awarded to the plaintiffs. Accordingly, no provision with respect to this lawsuit has been made in the Company's interim consolidated financial statements. ROJAS ET AL. On February 22, 1995, Juan Riveras Rojas, Leyda Rivera Vega, the Conjugal Partnership constituted between them, and Carlos Rivera Bustamente instituted a legal action against Loewen, LGII and a subsidiary in the United States District Court for the District of Puerto Rico. The complaint alleges that the defendants breached a contract and ancillary agreements with the plaintiffs relating to the purchase of funeral homes and cemeteries, and committed related torts. The plaintiffs seek compensatory damages of $12,500,000, and unspecified punitive damages (although the Company is advised by counsel that there is no entitlement to punitive damages under Puerto Rican law). The Company filed a motion to dismiss the complaint for failure to join an indispensable party. That motion was granted on March 30, 1998. Plaintiffs filed a notice of appeal to the U.S. Circuit Court of Appeals for the First Circuit on April 29, 1998. Assuming plaintiffs do not succeed in their appeal, it is foreseeable that plaintiffs will reassert their claims as counterclaims to the complaint filed by the Company, described below. The Company claims it has suffered damages far in excess of the amount claimed by the plaintiffs as a result of breach of contract and related torts on the part of the plaintiffs. A subsidiary of the Company has filed a complaint seeking damages in excess of $19,000,000 from the plaintiffs in the General Court of Justice of the Commonwealth of Puerto Rico. The Company has determined that it is not possible at this time to predict the final outcome of these legal proceedings and that it is not possible to establish a reasonable estimate of possible damages, if any, or reasonably to estimate the range of possible damages that may be awarded to the plaintiffs. Accordingly, no provision with respect to this lawsuit has been made in the Company's interim consolidated financial statements. FELDHEIM ET AL. V. SI-SIFH CORP. ET AL. AND DUFFY ET AL. V. SI-SIFH CORP. ET AL. Two complaints were filed in 1997 on behalf of individuals who claim damages in connection with funeral insurance policies allegedly issued to them by insurance companies owned, directly or indirectly, by S.I. Acquisition Associates, L.P. ("S.I."). The Company acquired the assets but not the stock of S.I. in March 1996. -12- THE LOEWEN GROUP INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS NOTE 6. LEGAL PROCEEDINGS (CONTINUED) In January 1997, Elmer C. Feldheim and four other individuals filed a lawsuit on behalf of themselves and a class of similarly situated individuals and/or entities against SI-SIFH Corp., SI-SI Insurance Company, Inc., Loewen Louisiana Holdings, Inc., and LGII in the Parish of Jefferson, State of Louisiana. Plaintiffs seek a class action. SI-IFH Corp. and SI-SI Insurance Company, Inc. are affiliates of S.I. In June 1997, Lloyd Duffy, Sr. and four other individuals filed a lawsuit on behalf of themselves and a class of similarly situated individuals and/or entities against SI-SIFH Corp., SI-SI Insurance Company, Inc., Loewen Louisiana Holdings, Inc., and LGII in the Parish of Orleans, State of Louisiana. Plaintiffs seek a class action. The Duffy complaint was filed by the same lawyers who filed the complaint in the Feldheim case, and is a virtually identical copy of the Feldheim complaint. The Duffy case is pending in the trial court and, as of the date hereof, no discovery has taken place. The Feldheim and Duffy plaintiffs allegedly hold or held funeral insurance policies issued by insurance companies owned, directly or indirectly, by the defendants. The plaintiffs allege that (i) the defendants failed to provide the funeral services purchased with the policies by, among other things, offering a casket of inferior quality upon presentation of a policy, and (ii) in connection with the sale of the insurance policy, the insurance companies negligently or fraudulently represented and interpreted the scope and terms of the policies and omitted to provide material information regarding the policy benefits and limitations. Plaintiffs also alleged unfair trade practices in violation of Louisiana's trade practices laws. Plaintiffs' petitions seek damages, penalties and attorneys fees. Louisiana law prohibits plaintiffs from alleging specific amounts of damages. Plaintiffs also seek a declaratory judgment compelling defendants to honor the policies. On June 13, 1997, the district court in Jefferson Parish dismissed the Feldheim plaintiffs' claim to a class action, and plaintiffs have appealed. Briefing of the appeal was completed in December 1997 and oral argument was held on January 5, 1998, but a decision has not yet been rendered. As of the date hereof, no discovery has taken place. On April 17, 1998, the trial court in the Duffy lawsuit declined to grant the defendants' exception seeking to dismiss the plaintiffs' class action allegations on the face of the pleadings. Instead, the court deferred ruling on those issues until the previously set October 7, 1998 hearing on the class action issues, and the court indicated it would permit some discovery. On April 23, 1998 the defendants filed a Notice of Intent to Seek Supervisory Writs with the Court of Appeal from the trial court's April 17, 1998 judgment, and the trial court granted the defendants' motion for a stay of all proceedings pending a ruling by the Court of Appeal on supervisory writ application. The Company has determined that it is not possible at this time to predict the final outcome of these legal proceedings, including whether a class will be certified, and that it is not possible to establish a reasonable estimate of possible damages, if any, or reasonably to estimate the range of possible damages that may be awarded to plaintiffs. Accordingly, no provision with respect to this lawsuit has been made in the Company's interim consolidated financial statements. OTHER The Company is a party to other legal proceedings in the ordinary course of its business but does not expect the outcome of any other proceedings, individually or in the aggregate, to have a material adverse effect on the Company's financial position, results of operation or liquidity. -13- THE LOEWEN GROUP INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS NOTE 7. SUBSEQUENT EVENTS During the period from April 1, 1998 to May 1, 1998, the Company acquired 13 funeral homes and six cemeteries. The aggregate cost of these transactions was approximately $42,500,000. As of May 1, 1998, the Company has committed to acquire certain funeral homes, cemeteries and related operations, subject in most instances to certain conditions including approval by the Company's Board of Directors. The aggregate cost of these transactions, if completed, will be approximately $154,000,000. NOTE 8. UNITED STATES ACCOUNTING PRINCIPLES The interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") in Canada. These principles differ in the following material respects from those in the United States as summarized below: (a) EARNINGS AND EARNINGS PER COMMON SHARE
THREE MONTHS ENDED MARCH 31, -------------------- 1998 1997 --------- --------- EARNINGS Net earnings in accordance with Canadian GAAP............................................... $ 30,400 $ 23,700 Less effects of differences in accounting for: Insurance operations (d).................................................................. 701 523 Stock options............................................................................. (36) -- Income taxes (e).......................................................................... (361) 467 --------- --------- Net earnings in accordance with United States GAAP.......................................... $ 30,704 $ 24,690 Other comprehensive income: Foreign currency translation adjustments.................................................. 637 (655) Unrealized gains (losses) on securites: Unrealized holding gains (losses) arising during the period............................. 4,736 (3,457) Less: reclassification adjustment for gains included in net income...................... (976) (60) --------- --------- Comprehensive income in accordance with United States GAAP.................................. $ 35,101 $ 20,518 --------- --------- --------- --------- EARNINGS PER COMMON SHARE Earnings per Common share in accordance with United States GAAP, are as follows: Basic earnings per Common share........................................................... $ 0.38 $ 0.38 --------- --------- --------- --------- Diluted earnings per Common share......................................................... $ 0.38 $ 0.37 --------- --------- --------- ---------
Effective December 1997, the Company adopted Statement of Financial Accounting Standards No. 128 ("FAS 128") Earnings per Share for United States GAAP purposes, on a retroactive basis. Under FAS 128, basic earnings (loss) per Common share, similar to Canadian GAAP, is based on the weighted average number of Common shares outstanding during the year. Diluted earnings (loss) per Common share is based on the weighted average number of Common shares outstanding during the year plus -14- THE LOEWEN GROUP INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS NOTE 8. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED) common stock equivalents. The computation of basic and diluted earnings per Common share is as follows:
THREE MONTHS ENDED MARCH 31, -------------------- 1998 1997 --------- --------- Basic Net earnings.............................................................................. $ 30,704 $ 24,690 Less: Preferred share dividends........................................................... 2,312 2,429 --------- --------- Net earnings attributable to Common shareholders.......................................... $ 28,392 $ 22,261 --------- --------- --------- --------- Weighted average number of shares outstanding............................................. 73,930 59,102 Basic earnings per Common share........................................................... $ 0.38 $ 0.38 --------- --------- --------- --------- Diluted Net earnings attributable to Common shareholders.......................................... $ 28,392 $ 22,261 Add: Effect of dilutive securities other than options..................................... 1,298 1,301 --------- --------- Diluted earnings.......................................................................... $ 29,690 $ 23,562 --------- --------- --------- --------- Weighted average number of shares outstanding............................................. 73,930 59,102 Add: Incremental shares from conversion of dilutive options............................... 4,096 5,111 --------- --------- Diluted shares............................................................................ 78,026 64,213 --------- --------- --------- --------- Diluted earnings per Common share......................................................... $ 0.38 $ 0.37 --------- --------- --------- ---------
-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 NOTE 8. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED) (b) BALANCE SHEET The amounts in the interim consolidated balance sheet that differ from those reported under Canadian GAAP are as follows:
MARCH 31, 1998 DECEMBER 31, 1997 -------------------------- -------------------------- UNITED UNITED CANADIAN STATES CANADIAN STATES GAAP GAAP GAAP GAAP ------------ ------------ ------------ ------------ Assets Long-term receivables, net of allowances.............. $ 583,609 $ 593,042 $ 553,663 $ 555,472 Investments........................................... 188,022 188,022 224,008 184,227 Insurance invested assets............................. 319,667 325,324 305,610 312,073 Cemetery property..................................... 1,020,033 1,401,942 957,831 1,332,987 Names and reputations................................. 664,551 700,966 633,143 668,577 Other assets.......................................... 160,462 186,649 156,636 181,843 Liabilities and Shareholders' Equity Insurance policy liabilities.......................... 211,940 238,219 214,492 240,750 Other liabilities..................................... 291,419 288,931 308,909 266,903 Deferred income taxes................................. (141,067) 306,658 (130,913) 305,166 Common shares......................................... 1,271,869 1,298,201 1,271,177 1,297,443 Retained earnings..................................... 126,442 107,956 98,354 79,564 Unrealized gains/(losses) on securities available for sale, net of tax.................................... -- 8,972 -- 5,212 Foreign exchange adjustment........................... 14,198 (14,535) 13,561 (15,170)
(c) STATEMENT OF CASH FLOWS Under United States GAAP, cash provided by financing and applied to investing would decrease by approximately $13,700,000 (1997--$4,700,000) for non-cash debt issued on acquisitions. (d) INSURANCE OPERATIONS PRESENT VALUE OF INSURANCE POLICIES Under United States GAAP, the Company recognizes an asset that represents the actuarially-determined present value of the projected future profits of the insurance in-force at dates of acquisition. Canadian GAAP does not recognize such an asset. The asset is being amortized to insurance expense over the estimated life of the insurance in-force at the date of acquisition. DEFERRED POLICY ACQUISITION COSTS Under United States GAAP, the Company defers costs related to the production of new business, which consist principally of commissions, certain underwriting expenses, and the costs of issuing policies. Deferred acquisition costs are amortized over the expected premium-paying periods of the related policies. Canadian GAAP does not permit deferral of such costs. -16- THE LOEWEN GROUP INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS NOTE 8. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED) INSURANCE POLICY LIABILITIES Insurance policy liabilities, which represent liabilities for future policy benefits, are accounted for under United States GAAP using the net level premium method which involves different actuarial assumptions and methodologies than the policy premium method used for Canadian GAAP. In addition, under Canadian GAAP, all actuarial assumptions are re-evaluated on a periodic basis, resulting in adjustments to insurance policy liabilities and insurance costs and expenses. Under United States GAAP, assumptions established at the time a policy is written are locked in and only revised if it is determined that future experience will worsen from that previously assumed. (e) INCOME TAXES Under United States GAAP, deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Temporary differences are tax-effected at current rates whereas under Canadian GAAP, temporary differences are tax-effected at historic rates. There was no deferred tax effect of changes in tax rates during 1998. The Company believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets. The Company's ability to realize its deferred tax assets is based on several factors, including a presumption of future profitability in certain jurisdictions and is subject to some degree of uncertainty. (f) RECENT ACCOUNTING STANDARDS The FASB issued FAS 130, Reporting Comprehensive Income, and FAS 131, Disclosures About Segments of an Enterprise and Related Information which are required to be implemented during the Company's fiscal year ending December 31, 1998. These standards will affect the presentation but not the measurement of the consolidated financial statements and the related notes. The Canadian Institute of Chartered Accountants ("CICA") issued CICA Handbook 3465, Income Taxes, which is required to be implemented for fiscal years beginning on or after January 1, 2000. This new standard is substantially consistent with the U.S. Standard, FAS 109. -17- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Unless the context otherwise requires (i) "Loewen" refers to The Loewen Group Inc., a company organized under the laws of British Columbia, Canada, (ii) "LGII" refers to Loewen Group International, Inc., a Delaware corporation and a wholly-owned subsidiary of Loewen, and (iii) the "Company" refers to Loewen together with its subsidiaries and associated companies. OVERVIEW The Company operates the second-largest number of funeral homes and cemeteries in North America. In addition to providing services at the time of need, the Company also makes funeral, cemetery and cremation arrangements on a pre-need basis. As at May 1, 1998, the Company operated 1,105 funeral homes and 523 cemeteries throughout North America. During 1997, the Company expanded into the United Kingdom and now operates ten funeral homes there. The Company also operates several insurance subsidiaries that principally sell a variety of life insurance products to fund funeral services purchased through a pre-need arrangement. The funeral service industry has a number of attractive business characteristics as described below. Historically the funeral service industry has had a low business failure risk compared with most other businesses and has not been significantly affected by economic or market cycles. According to the preliminary 1996 Business Failure Record published by The Dun & Bradstreet Corporation, the average business failure rate in the United States in 1996 was 80 per 10,000. The 1996 failure rate of the funeral service and crematoria industry was 12 per 10,000, among the lowest of all industries. In addition, future demographic trends are expected to contribute to the continued stability of the funeral service industry. The U.S. Department of Commerce, Bureau of the Census, projects that the number of deaths in the United States will grow at approximately 0.9% annually from 1997 through 2010. Finally, the funeral service industry in North America is highly fragmented, consisting primarily of small, stable, family-owned businesses. Management estimates that notwithstanding the increasing trend toward consolidation over the last few years, only approximately 13% of the 23,500 funeral homes and approximately 10% of the 10,500 cemeteries in North America are currently owned or operated by the five largest publicly traded North American funeral service companies. The Company capitalizes on these favorable industry fundamentals through a growth strategy that emphasizes three principal components: (i) improving the revenue and profitability of newly-acquired and established operations; (ii) acquiring "strategic" operations consisting predominantly of large, multi- location urban properties; and (iii) acquiring smaller funeral homes and cemeteries that offer significant synergies with existing properties. Due to the successful implementation of its business strategy, the Company has grown from 489 locations at December 31, 1992 to 1,638 at May 1, 1998. -18- RESULTS OF OPERATIONS Detailed below are the Company's operating results for the three months ended March 31, 1998 and 1997, expressed in dollar amounts as well as relevant percentages. The operating results are presented as a percentage of revenue except income taxes, which are presented as a percentage of earnings before income taxes and equity and other earnings of associated companies. The Company's operations are comprised of three businesses: funeral homes, cemeteries and insurance.
THREE MONTHS THREE MONTHS ENDED ENDED MARCH 31, MARCH 31, -------------------- -------------------- 1998 1997 1998 1997 --------- --------- --------- --------- (IN MILLIONS) (PERCENTAGES) Revenue Funeral................................................................ $ 171.9 $ 155.6 55.4 56.6 Cemetery............................................................... 115.3 97.4 37.2 35.5 Insurance.............................................................. 22.9 21.7 7.4 7.9 --------- --------- Total................................................................ $ 310.1 $ 274.7 100.0 100.0 --------- --------- --------- --------- Gross margin Funeral................................................................ $ 72.9 63.5 42.4 40.8 Cemetery............................................................... 38.3 33.3 33.3 34.2 Insurance.............................................................. 3.3 3.7 14.2 17.2 --------- --------- Total................................................................ $ 114.5 $ 100.5 36.9 36.6 Expenses General and administrative............................................. 24.7 22.7 8.0 8.3 Depreciation and amortization.......................................... 19.6 16.8 6.3 6.1 --------- --------- Earnings from operations................................................. 70.2 61.0 22.6 22.2 Interest on long-term debt............................................... 33.1 30.7 10.7 11.2 Dividends on preferred securities of subsidiary.......................... 1.8 1.8 0.6 0.7 Income taxes............................................................. 8.5 8.0 24.0 28.0 --------- --------- 26.8 20.5 8.7 7.5 Equity and other earnings of associated companies........................ 3.6 3.2 1.1 1.1 --------- --------- Net earnings............................................................. $ 30.4 $ 23.7 9.8 8.6 --------- --------- --------- ---------
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997 Consolidated revenue increased 12.9% to $310.1 million for the three months ended March 31, 1998 from $274.7 million during the same period in 1997, primarily due to acquisitions. Consolidated gross margin increased 13.9% to $114.5 million for the three months ended March 31, 1998 from $100.5 million during the same period in 1997. As a percentage of revenue, consolidated gross margin increased to 36.9% for the three months ended March 31, 1998 from 36.6% during the comparable period in 1997, primarily due to the improvement in funeral gross margin as a result of cost reductions from the restructuring and other strategic initiatives effected in the latter half of 1997, but partially offset by the decline in cemetery and insurance gross margins, as discussed below. Funeral revenue increased 10.6% to $171.9 million for the three months ended March 31, 1998 compared to $155.6 million for the same period in 1997, primarily due to acquisitions. The number of funeral services performed at locations in operation for the three months ended March 31, 1997 and 1998 ("Established Locations") declined by 2.2%, but the revenue impact was partially offset by a slightly higher average revenue per funeral service. Funeral gross margin as a percentage of funeral revenue for Established Locations increased to 42.6% in 1998 from 41.5% in 1997, as the $2.8 million decrease in revenue was more than offset by a $4.2 million decrease in costs, primarily resulting from the restructuring -19- and other strategic initiatives effected in the latter half of 1997. As a result of the above improvements, together with increased margins from recently acquired funeral locations, overall funeral gross margin as a percentage of funeral revenue increased to 42.4% in 1998 from 40.8% in 1997. Cemetery revenue increased 18.3% to $115.3 million for the three months ended March 31, 1998 compared to $97.4 million during the same period in 1997, primarily due to acquisitions. Cemetery gross margin decreased slightly to 33.3% in 1998 from 34.2% and for Established Locations decreased to 32.4% in 1998 from 34.2% in 1997, primarily due to increased selling and operating expenses, coupled with a decline in pre-need interment sales, which typically generate higher margins. Insurance revenue increased to $22.9 million for the three months ended March 31, 1998 from $21.7 million during the same period in 1997. The increase in revenues was primarily due to the continuing effort to expand this line of business. Insurance gross margin decreased to 14.2% compared to 17.2% for the same period in 1997, primarily due to increased benefit claims experience, and higher commission and other operating costs associated with the start up of insurance operations in several states. United States based operations contributed over 90% of consolidated revenue for the three month periods ended March 31, 1998 and 1997. General and administrative expenses, as a percentage of revenue, declined to 8.0% for the three months ended March 31, 1998, compared to 8.3% for the same period in 1997, primarily due to the favorable effects of the restructuring and other strategic initiatives effected in the latter half of 1997. For the three months ended March 31, 1998, general and administrative expenses increased $2.0 million compared to the same period in 1997. The increase in general and administrative expenses in 1998 is primarily a result of the expansion of the Company's infrastructure necessary to integrate and operate newly acquired locations. However, such increase was substantially offset by the favorable effects of the restructuring and other strategic initiatives effected by the latter half of 1997, resulting in lower general and administrative expenses as a percentage of revenue. Interest expense on long-term debt increased by $2.4 million for the three months ended March 31, 1998 compared to the same period in 1997, primarily as a result of additional borrowings by the Company to finance its expansion programs. Income taxes were $8.5 million, resulting in an effective tax rate of 24.0% on earnings before income taxes and equity and other earnings of associated companies for the three months ended March 31, 1998, compared to an effective tax rate of 28.0% during the same period in 1997. The Company's effective tax rate is primarily determined through certain international and intercompany financing arrangements, as well as other tax strategies. Equity and other earnings of associated companies of $3.6 million for the three months ended March 31, 1998 primarily reflects the inclusion of payment-in-kind dividends and the Company's proportionate share of the losses attributable to the Common shares of Prime Succession Holdings, Inc. and Rose Hills Holdings Corp., as described further in Note 3 to the Company's interim consolidated financial statements, and was higher compared to the same period in 1997. Net earnings increased to $30.4 million for the three months ended March 31, 1998 from $23.7 during the same period in 1997. Fully diluted earnings per share increased to $0.38 per share in 1998 from $0.36 per share in 1997, as the effects of increased earnings were partially offset by the increase in the number of shares outstanding. ACQUISITIONS, INVESTMENTS AND CAPITAL EXPENDITURES The Company acquired 34 funeral homes, and 33 cemeteries during the three months ended March 31, 1998 for consideration of approximately $102 million through 40 separate acquisition transactions. All of these acquisitions were located in the United States. During the same period in 1997, the Company acquired 33 funeral homes and 52 cemeteries for consideration of approximately $128 million. -20- In connection with certain acquisitions, the Company may issue Common shares as full or partial payment of the purchase price ("share-for-share acquisitions"). In August 1996, the Company registered with the Securities and Exchange Commission 5,000,000 Common shares for issuance in connection with prospective share-for-share acquisitions. As of May 1, 1998, 970,422 of such Common shares had been issued. From time to time, the Company may dispose of non-core assets or businesses acquired in conjunction with the acquisition of funeral homes and cemeteries. In addition, the Company expects to continue to combine or sell a small number of locations in order to utilize its resources to produce a better return from its assets. During the period April 1, 1998 to May 1, 1998, the Company acquired 13 funeral homes and six cemeteries. The aggregate cost of these transactions was approximately $43 million. As of May 1, 1998, the Company had signed agreements, some of which are non-binding, for the acquisition of 43 additional funeral homes and 39 additional cemeteries aggregating approximately $154 million. In addition, in the ordinary course of its business, the Company continually is in the process of evaluating or negotiating prospective acquisitions in competition with other potential purchasers. From time to time, the Company may evaluate or negotiate potential acquisitions, which, if consummated, may be considered significant based on acquisition price. IMPACT OF THE YEAR 2000 ISSUE The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. As a result, date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or other disruption of operations and impede normal business activities. During the past two years, the Company has determined that it will be necessary to modify or replace certain portions of its software so that its computer systems will function properly beyond December 31, 1999. The Company presently believes that with current and planned modifications to existing software and conversions to new software, the risk of potential loss associated with the Year 2000 Issue can be mitigated. However, if such modifications and conversions are not made, or are not completed timely, the Year 2000 Issue could have a material impact on the operations of the Company. The Company has expensed approximately $200,000 to date to assess, evaluate and remediate known Year 2000 Issues. As a result, the most significant areas have been or are scheduled to be remedied by mid-1999. Additionally, the Company has established a task force and a review process to monitor remaining implementation plans and to determine whether all remaining areas have been assessed and evaluated, resources identified and remediation completed on a timely basis. At this time, the Company does not believe the remaining cost associated with the Year 2000 Issue to be material. Systems improvements and benefits beyond solution of the Year 2000 Issue are expected to be realized as a result of the above initiatives. The Company has also initiated formal communications with its significant vendors to determine the extent to which the Company is vulnerable to those third parties' failure to remediate their own Year 2000 Issue. The Company's total Year 2000 Issue project cost and estimates to complete exclude the estimated costs and time associated with the impact of a third party's Year 2000 Issue, which are not yet determinable. However, there can be no guarantee that the systems of other companies on which the Company's systems rely will be converted on a timely basis, or that a failure to convert by another company, or a conversion that is incompatible with the Company's systems, would not have material adverse effect on the Company. The cost and the date on which the Company plans to complete the Year 2000 Issue modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could -21- differ materially from those plans. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes, and similar uncertainties. LIQUIDITY AND CAPITAL RESOURCES The Company intends to fund its ongoing expansion programs through a combination of debt and equity offerings and borrowings under its credit facilities (described below). The Company plans to finance principal repayments on debt primarily through the issuance of additional debt or equity or borrowings under revolving credit facilities and plans to ensure financing is available well in advance of scheduled principal repayment dates, thereby protecting the Company's liquidity and maintaining its financial flexibility. The Company's balance sheet at March 31, 1998, as compared to December 31, 1997, reflects changes principally from acquisitions during 1998, as described in Note 2 to the Company's interim consolidated financial statements. In addition, during the past two years the Company has significantly expanded its cemetery and funeral pre-need sales programs. The rapid growth in cemetery pre-need sales and the related long-term receivables have contributed to the greater uses of cash than generated from operations. Cemetery pre-need sales are typically structured with low initial cash payments by the customers which do not offset the cash costs of establishing and supporting a growing pre-need sales program, including the payment of certain sales commissions. For cemetery pre-need sales, the balance due is recorded as an installment contract receivable and the future liability for merchandise as an other liability and, accordingly, the increase in the level of pre-need cemetery sales has resulted in an increase in both current and long-term receivables and other liabilities. The Company's objective is to maintain its long-term debt/equity ratio, on average, in a range of 1.0:1 to 1.5:1. Due to the timing of its ongoing acquisition program, the Company's long-term debt/equity ratio typically will rise to the high end of the range, and then will be reduced substantially by an equity issue. At March 31, 1998, the Company's long-term debt/equity ratio was 1.2:1. INDEBTEDNESS At March 31, 1998, the Company had a $600 million revolving credit facility that matures in March 2001 (the "Revolving Credit Facility"). The Revolving Credit Facility bears interest at alternative market rates selected by LGII. As at May 1, 1998, the amount outstanding under the Revolving Credit Facility was $475 million, and such amount bore interest at 7.2% per annum. In addition, as at May 1, 1998, letters of credit in an aggregate amount of approximately $8 million had been issued under the Revolving Credit Facility. The Revolving Credit Facility is secured in the manner described below under "Collateral Trust Agreement." In addition to the Revolving Credit Facility, LGII has outstanding $300 million in pass-through asset trust senior guaranteed notes, due 2009 (the "PATS Senior Notes"). The PATS Senior Notes bear interest at a rate of 6.70% until October 1, 1999, at which time the interest rate will be reset at a fixed annual rate of 6.05% plus an adjustment equal to LGII's then-current credit spread to the ten-year United States Treasury rate. The PATS Senior Notes are redeemable at the election of the holder, in whole but not in part, at 100% of the principal amount on October 1, 1999. The PATS Senior Notes are guaranteed by Loewen and secured in the manner described below under "Collateral Trust Agreement." LGII also has outstanding four series of senior guaranteed notes aggregating $700 million (the "Series 1-4 Senior Notes") issued in March and October of 1996. The Series 1-4 Senior Notes are guaranteed by Loewen and bear interest rates ranging from 7.50% to 8.25% and have initial terms of five to seven years. LGII also has outstanding one series of senior amortizing notes (the "Series E Amortizing Notes") in the amount of $43 million. The Series E Amortizing Notes are guaranteed by Loewen, bear an interest rate of 6.49% and have an initial term of ten years. -22- Loewen has outstanding Cdn. $200 million of 6.10% Series 5 Guaranteed Notes, due 2002 (the "Series 5 Senior Notes"). The Series 5 Senior Notes are guaranteed by LGII and secured in the manner described below under "Collateral Trust Agreement." In addition, Loewen also has outstanding one series of senior amortizing notes (the "Series D Amortizing Notes") in the amount of $51 million. The Series D Amortizing Notes are guaranteed by LGII and bear an interest rate of 9.62% and an initial term of ten years. Loewen also has a Cdn. $50 million revolving credit facility that matures in July 1999 (the "Canadian Revolving Credit Facility"). A subsidiary of Loewen has a $105 million secured term loan implemented in connection with the 1994 Management Equity Investment Plan that will terminate in July 2000 (the "MEIP Loan"). COLLATERAL TRUST AGREEMENT In 1996 Loewen, LGII and their senior lenders entered into a collateral trust arrangement pursuant to which the senior lenders share certain collateral on a pari passu basis (the "Collateral Trust Agreement"). The collateral includes (i) a pledge for the benefit of the senior lenders of the shares of capital stock held by Loewen of substantially all of its subsidiaries and (ii) all of the financial assets of LGII (including the shares of the capital stock held by LGII of various subsidiaries) (collectively, the "Collateral"). The collateral is held by a trustee for the equal and ratable benefit of the senior lending group. This senior lending group consists principally of the lenders under the Series 1-5 Senior Notes, the Series D and E Amortizing Notes, the Revolving Credit Facility, the Canadian Revolving Credit Facility, the MEIP Loan, and the PATS Senior Notes, as well as the holders of certain letters of credit. RESTRICTIONS Certain of the Company's debt instruments and credit facilities contain restrictions, including change of control provisions, provisions requiring the Company to maintain specified financial ratios and provisions limiting the payment of dividends on Common shares and preferred shares, the encumbrance of assets, payments to subsidiaries, the redemption or repurchase of shares, dispositions of assets, additional debt, transactions with interested persons, sales of preferred stock, sale-leaseback transactions and merger and acquisitions. At March 31, 1998, none of the Company's retained earnings were restricted or unavailable for payment of dividends under the most restrictive agreement. In connection with the issuance of the Monthly Income Preferred Securities ("MIPS") by LGC in August 1994, Loewen is guarantor of a Series A Junior Subordinated Debenture due August 31, 2024 issued by LGII (the "Series A Debenture"). Under the terms of the Series A Debenture, Loewen may not pay dividends on its Common shares if (i) there shall have occurred any event that, with the giving of notice or the lapse of time or both, would constitute an Event of Default (as defined in the Series A Debenture), (ii) Loewen is in default with respect to payment of any obligations under certain related guarantees or (iii) LGII shall have given notice of its election to select an Extension Period (as defined in the Series A Debenture), and such period, or any extension thereof, shall be continuing. For further information regarding the MIPS, see Note 5 to the Company's interim consolidated financial statements. Payments of dividends and loans and advances by subsidiaries to Loewen or LGII are not restricted except that the Company's insurance subsidiaries are subject to certain state regulations which restrict distributions, loans and advances from such subsidiaries to the Company. SHARE REPURCHASE PROGRAM In September 1997, the Company announced that it may, from time to time and until September 1998 subject to market and other conditions, repurchase up to approximately 3,600,000 of its Common shares and up to 440,000 of its Series C Preferred shares, through the facilities of the Toronto Stock Exchange, the Montreal Exchange and the New York Stock Exchange. As at May 1, 1998, no share repurchases had been made. -23- INTEREST RATE RISK MANAGEMENT The Company enters into derivative transactions with financial institutions primarily as hedges of other financial transactions. The Company's policies do not allow leveraged transactions and are designed to minimize credit and concentration risk with counter-parties. The Company's practice is to use swaps and options to manage its exposure to interest rate movements. The Company's strategy is to maintain an average of between 60% and 80% of its debt subject to fixed interest rates, although at any point in time during a period the percentage of debt subject to fixed interest rates may be higher or lower. The Company also uses futures and options to fix the interest rate of anticipated financing transactions in advance. Derivative transactions are entered into as hedges based on several criteria, including the timing, size and term of the anticipated transaction. Any gain or loss from an effective hedging transaction is deferred and amortized over the life of the financing transaction as an adjustment to interest expense. -24- PART II ITEM 1. LEGAL PROCEEDINGS. CLASS ACTIONS ALLEGING SECURITIES LAWS VIOLATIONS On November 4, 1995, a class action lawsuit claiming violations of federal securities laws was filed on behalf of a class of purchasers of Company securities against the Company and five individuals who were officers of the Company (four of whom were also directors) in the United States District Court for the Eastern District of Pennsylvania. LGII, Loewen Group Capital, L.P., ("LGC"), and the lead underwriters (the "MIPS Underwriters") of LGC's 1994 offering of Monthly Income Preferred Securities ("MIPS"), were subsequently added as defendants. On November 7, 1995, a class action lawsuit was filed on behalf of a class of purchasers of Common shares against the Company and the same individual defendants in the United States District Court for the Southern District of Mississippi alleging Federal securities law violations and related common law claims. On December 1, 1995, a class action lawsuit was filed on behalf of a class of purchasers of the Company's securities against the Company, LGII, LGC and the same individual defendants in the United States District Court for the Eastern District of Pennsylvania. On June 11, 1996 all claims against the MIPS Underwriters were dismissed without prejudice, by agreement of the parties. The cases were consolidated before the District Court of the Eastern District of Pennsylvania. A Consolidated and Amended Class Action Complaint was filed on September 16, 1996. The parties have agreed to a settlement of all claims in the action. The District Court entered an order approving the settlement on April 21, 1998, which becomes effective May 22, 1998 if no appeal is filed. No objections to the settlement have been filed. The settlement provides for the payment by the Company on behalf of all defendants of $5,000,000, plus up to $100,000 for costs of notice and 50% of the costs of administration of the settlement. ESNER ESTATE On February 1, 1995, Stuart B. Esner and Sandra Esner (the "Executors") as co-executor for the Estate of Gerald F. Esner (the "Esner Estate") filed an action in the Court of Common Pleas of Bucks County, Pennsylvania against Osiris Holding Corporation ("Osiris") and a law firm (the "Law Firm") that previously represented Osiris and its principal shareholders, Gerald F. Esner, Lawrence Miller and William R. Shane. Messrs. Miller and Shane currently are executive officers of the Company and LGII. The complaint alleged that Osiris breached the terms of a Second Amended and Restated Shareholders' Agreement among Messrs. Esner, Miller and Shane (the "Shareholders' Agreement") by attempting to repurchase shares of Osiris held by the Esner Estate (the "Esner Shares") without complying with the terms of the Shareholders' Agreement, and that the Law Firm breached its fiduciary duty and committed malpractice in connection with the drafting of the Shareholders' Agreement and its representation of Esner and Osiris. The Executors asked the Court (i) to have the value of Osiris reappraised pursuant to the terms of the Shareholders' Agreement and (ii) to require Osiris to repurchase the Esner Shares pursuant to a new appraisal and the alleged terms of the Shareholders' Agreement or, alternatively, to pay the Esner Estate the fair value of the Esner Shares as determined by the new appraisal. In March 1995, LGII purchased all of the issued and outstanding shares of Osiris, including the Esner Shares. In connection with the purchase, LGII entered into an indemnification agreement whereby Messrs. Miller and Shane agreed to indemnify and hold LGII harmless with respect to any claims, liabilities, losses and expenses, including reasonable attorney's fees, in connection with or arising from the Esner Estate litigation. On April 9, 1996, the Executors filed a second complaint, which names Messrs. Miller and Shane and LGII as defendants. The second complaint alleges breach of contract, fraud and related claims against Messrs. Miller and Shane, and that LGII joined a civil conspiracy by acquiring Osiris. The Executors request compensatory damages of $24,300,000 against the various defendants, and seek punitive damages from Messrs. Miller and Shane. The two cases were consolidated by the Court. -25- On October 9, 1996, the Executors instituted a new civil action against the Law Firm. On November 18, 1996 the Executors instituted a new civil action against the individual partners of the Law Firm. In both complaints, the Executors expanded upon the allegations against the Law Firm contained in the previous complaints. By stipulation approved by the Court on February 24, 1997, the parties agreed to consolidate all suits and to permit the Executors to file a Third Amended Complaint, which was filed on February 10, 1997. The prayers for relief remain unchanged. Osiris and Messrs. Miller and Shane filed, and the Court granted, preliminary challenges to the Third Amended Complaint. The Court also dismissed the claims against LGII for failure to state a claim upon which relief can be granted, although the Third Amended Complaint does continue on unaffected counts. The Company has determined that it is not possible at this time to predict the final outcome of these legal proceedings and that it is not possible to establish a reasonable estimate of possible damages, if any, or reasonably to estimate the range of possible damages that may be awarded to the plaintiffs. Accordingly, no provision with respect to this lawsuit has been made in the Company's interim consolidated financial statements. FELDHEIM ET AL. V. SI-SIFH CORP. ET AL. AND DUFFY ET AL. V. SI-SIFH CORP. ET AL. Two complaints were filed in 1997 on behalf of individuals who claim damages in connection with funeral insurance policies allegedly issued to them by insurance companies owned, directly or indirectly, by S.I. Acquisition Associates, L.P. ("S.I."). The Company acquired the assets but not the stock of S.I. in March 1996. In January 1997, Elmer C. Feldheim and four other individuals filed a lawsuit on behalf of themselves and a class of similarly situated individuals and/or entities against SI-SIFH Corp., SI-SI Insurance Company, Inc., Loewen Louisiana Holdings, Inc., and LGII in the Parish of Jefferson, State of Louisiana. Plaintiffs seek a class action. SI-SIFH Corp. and SI-SI Insurance Company, Inc. are affiliates of S.I. In June 1997, Lloyd Duffy, Sr. and four other individuals filed a lawsuit on behalf of themselves and a class of similarly situated individuals and/or entities against SI-SIFH Corp., SI-SI Insurance Company, Inc., Loewen Louisiana Holdings, Inc., and LGII in the Parish of Orleans, State of Louisiana. Plaintiffs seek a class action. The Duffy complaint was filed by the same lawyers who filed the complaint in the Feldheim case, and is a virtually identical copy of the Feldheim complaint. The Duffy case is pending in the trial court and, as of the date hereof, no discovery has taken place. The Feldheim and Duffy plaintiffs allegedly hold or held funeral insurance policies issued by insurance companies owned, directly or indirectly, by the defendants. The plaintiffs allege that (i) the defendants failed to provide the funeral services purchased with the policies by, among other things, offering a casket of inferior quality upon presentation of a policy, and (ii) in connection with the sale of the insurance policy, the insurance companies negligently or fraudulently represented and interpreted the scope and terms of the policies and omitted to provide material information regarding the policy benefits and limitations. Plaintiffs also alleged unfair trade practices in violation of Louisiana's trade practices laws. Plaintiffs' petitions seek damages, penalties and attorneys fees. Louisiana law prohibits plaintiffs from alleging specific amounts of damages. Plaintiffs also seek a declaratory judgment compelling defendants to honor the policies. On June 13, 1997, the district court of Jefferson Parish dismissed the Feldheim plaintiffs' claim to a class action, and plaintiffs have appealed. Briefing of the appeal was completed in December 1997 and oral argument was held on January 5, 1998, but a decision has not yet been rendered. As of the date hereof, no discovery has taken place. On April 17, 1998 the trial court in the Duffy lawsuit declined to grant the defendants' exception seeking to dismiss the plaintiffs' class action allegations on the face of the pleadings. Instead, the court deferred ruling on those issues until the previously set October 7, 1998 hearing on the class action issues, and the court indicated it would permit some discovery. On April 23, 1998 the defendants filed a Notice of Intent to Seek Supervisory Writs with the Court of Appeal from the trial court's April 17, 1998 judgment, -26- and the trial court granted the defendants' motion for a stay of all proceedings pending a ruling by the Court of Appeal on the supervisory writ application. The Company has determined that it is not possible at this time to predict the final outcome of these legal proceedings, including whether a class will be certified, and that it is not possible to establish a reasonable estimate of possible damages, if any, or reasonably to estimate the range of possible damages that may be awarded to plaintiffs. Accordingly, no provision with respect to this lawsuit has been made in the Company's interim consolidated financial statements. OTHER No material developments occurred in connection with any other previously reported legal proceedings against the Company during the last fiscal quarter. The Company is a party to other legal proceedings in the ordinary course of its business but does not expect the outcome of any other proceedings, individually or in the aggregate, to have a material adverse effect on the Company's financial position, results of operation or liquidity. ENVIRONMENTAL CONTINGENCIES AND LIABILITIES The Company's operations are subject to numerous environmental laws, regulations and guidelines adopted by various governmental authorities in the jurisdictions in which the Company operates. Liabilities are recorded when environmental liabilities are either known or considered probable and can be reasonably estimated. The Company's policies are designed to control environmental risk upon acquisition through extensive due diligence and corrective measures taken prior to acquisition. The Company believes environmental liabilities to be immaterial individually and in the aggregate. -27- 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 (the "Registrar") on October 30, 1985 (1) 3.2 Altered Memorandum of Loewen, filed with the Registrar on June 21, 1996 (2) 3.3 Articles of Loewen, restated, filed with the Registrar on March 1, 1988, as amended on March 30, 1988, April 21, 1988, May 19, 1989, May 28, 1992, May 20, 1993, June 29, 1994, December 21, 1995 and February 7, 1996 (1) 4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY-HOLDERS, INCLUDING INDENTURES 4.1.1 Note Agreement, dated for reference September 1, 1993, by and between Loewen and LGII re 9.62% Senior Guaranteed Notes, Series D, due September 11, 2003, issued by Loewen ("Series D Notes"), as amended on June 10, 1994 (1) 4.1.2 Second Amendment, dated for reference May 15, 1996, to Note Agreement, dated for reference September 1, 1993, among Loewen, LGII and institutions named therein, re Series D Notes (3) 4.2 Guaranty Agreement by LGII re Series D Notes, dated for reference April 1, 1993 (1) 4.3.1 Note Agreement by LGII and Loewen re 6.49% Senior Guaranteed Notes, Series E, due February 25, 2004, issued by LGII ("Series E Notes"), dated for reference February 1, 1994 (1) 4.3.2 Second Amendment, dated for reference May 15, 1996, to Note Agreement, dated for reference February 1, 1994, among Loewen, LGII and Teachers Insurance and Annuity Association of America, re Series E Notes (3) 4.4 Guaranty Agreement by Loewen re Series E Notes, dated for reference February 1, 1994 (1) 4.5.1 Amended and Restated 1994 MEIP Credit Agreement, dated as of June 14, 1994, amended and restated as of May 15, 1996 (the "MEIP Credit Agreement"), by and between Loewen Management Investment Corporation, in its capacity as agent for LGII ("LMIC"), Loewen and the banks listed therein (the "MEIP Banks") and Wachovia Bank of Georgia, N.A., as agent for the MEIP Banks ("MEIP Agent") (1) 4.5.2 First Amendment to the MEIP Credit Agreement, dated as of December 2, 1996 (4) 4.5.3 Second Amendment to the MEIP Credit Agreement, dated as of April 30, 1997 (4) 4.5.4 Third Amendment to the MEIP Credit Agreement, dated as of May 21, 1997 (16) 4.5.5 Fourth Amendment to the MEIP Credit Agreement, dated as of September 29, 1997 (16) 4.6 Security Agreement, dated as of June 14, 1994, by and between LMIC and the MEIP Agent (1) 4.7 Guaranty dated as of June 14, 1994, by LGII in favor of the MEIP Agent for the ratable benefit of the MEIP Banks (1)
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EXHIBIT NUMBER DESCRIPTION - --------- -------------------------------------------------------------------------------------------------- 4.8 Guaranty dated as of June 14, 1994, by Loewen in favor of the MEIP Agent for the ratable benefit of the MEIP Banks (1) 4.9 Exchange Acknowledgment by Loewen, with respect to the 1994 Exchangeable Floating Rate Debentures due July 1, 2001 issued by LGII, dated June 15, 1994 (1) 4.10 Indenture, dated as of August 15, 1994, by and between LGII, as issuer, Loewen, as guarantor, and State Street Bank and Trust Company, as trustee with respect to 9.45% Junior Subordinated Debentures, Series A, due 2024, issued by LGII and guaranteed by Loewen (5) 4.11 MIPS Guarantee Agreement, dated August 15, 1994 (5) 4.12 Zero Coupon Loan Agreement, dated as of November 1, 1994, by and between WLSP Investment Partners I Neweol Finance B.V., Electrolux Holdings B.V., Man Production Rotterdam B.V., Adinvest A.G., and Wachovia Bank of Georgia, N.A. (1) 4.13 Indenture, dated as of March 20, 1996, by and between LGII, as issuer, Loewen, as guarantor of the obligations of LGII under the Indenture, and Fleet National Bank as Trustee, with respect to Senior Guaranteed Notes of LGII (6) 4.14 Form of Senior Guarantee of LGII's Series 1 and 2 Notes (included in Exhibit 4.13) 4.15 Form of Global Series 1 and 2 Outstanding Note of LGII (included in Exhibit 4.13) 4.16 Form of Physical Series 1 and 2 Outstanding Note of LGII (included in Exhibit 4.13) 4.17 Form of Global Series 1 and 2 Exchange Note of LGII (3) 4.18 Form of Physical Series 1 and 2 Exchange Note of LGII (3) 4.19 Amended and Restated Credit Agreement, dated as of March 27, 1998 ("BMO Credit Agreement"), among LGII, as borrower, Loewen, as a guarantor, the lenders named therein, as the lenders, Goldman, Sachs & Co., as the documentation agent, and Bank of Montreal, as issuer, swingline lender and administrative and syndication agent (16) 4.20 Collateral Trust Agreement, dated as of May 15, 1996, among Bankers Trust Company, as trustee, Loewen, LGII and various other pledgers (3) 4.21.1 Amended and Restated Operating Credit Agreement, dated for reference July 15, 1996, between Loewen and Royal Bank of Canada (8) 4.21.2 Third Amendment to Operating Credit Agreement, dated for reference July 15, 1996, among Loewen, LGII and Royal Bank of Canada (8) 4.22 Indenture, dated as of October 1, 1996, by and between LGII, Loewen and Fleet National Bank, as trustee, with respect to the Series 3 and 4 Notes (8) 4.23 Form of Senior Guarantee of LGII's Series 3 and 4 Notes (included in Exhibit 4.22) 4.24 Form of Global Series 3 and 4 Outstanding Note of LGII (included in Exhibit 4.22) 4.25 Form of Physical Series 3 and 4 Outstanding Note of LGII (included in Exhibit 4.22) 4.26 Form of Global Series 3 and 4 Exchange Note of LGII (9) 4.27 Form of Physical Series 3 and 4 Exchange Note of LGII (9) 4.28 Indenture, dated as of September 26, 1997, between Loewen, as issuer, LGII, as guarantor, and The Trust Company of Bank of Montreal, as trustee, with respect to the Series 5 Notes (14)
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EXHIBIT NUMBER DESCRIPTION - --------- -------------------------------------------------------------------------------------------------- 4.29 Form of Series 5 Guaranteed Note of LGII (14) 4.30 Form of Senior Guarantee of Loewen's Series 5 Note (14) 4.31 Indenture, dated as of September 30, 1997, between LGII, as issuer, Loewen, as guarantor, and State Street Bank and Trust Company, as trustee, with respect to the Senior Guaranteed Notes due 2009 (14) 4.32 Form of Global Senior Guaranteed Note due 2009 of LGII (14) 4.33 Form of Physical Senior Guaranteed Note due 2009 of LGII (14) 4.34 Form of Senior Guarantee of LGII's Senior Guaranteed Notes due 2009 (14) 4.35 Shareholder Protection Rights Plan, dated as of April 20, 1990, as amended on May 24, 1990 and April 7, 1994 and reconfirmed on May 17, 1995 (1) 4.36 Form of Indenture by and between LGII, as issuer, Loewen, as guarantor, and Fleet National Bank, as trustee (7) 4.37 Loewen and LGII hereby agree to furnish to the Commission, upon request, a copy of the instruments which define the rights of holders of long-term debt of Loewen and LGII. None of such instruments not included as exhibits herein collectively represents long-term debt in excess of 10% of the consolidated total assets of Loewen or LGII. 10 MATERIAL CONTRACTS 10.1 Stock Purchase Agreement, dated as of March 16, 1995, by and between Osiris Holding Corporation and LGII (10) 10.2 Receipt Agreement, dated as of January 3, 1996, for the Cumulative Redeemable Convertible First Preferred Shares, Series C, of Loewen ("Series C Shares") (6) 10.3 Undertaking by Raymond L. Loewen and Anne Loewen, dated as of January 3, 1996, to vote in favor of the motion to subdivide the Series C Shares (6) 10.4 Settlement Agreement, dated as of February 1, 1996, by and between Loewen, LGII and affiliated entities and J.J. O'Keefe, Sr., Gulf National Life Insurance Company and affiliated entities (6) 10.5 Shareholders' Agreement, dated as of February 9, 1996, by and between Loewen, LGII, J.J. O'Keefe, Sr., Gulf National Life Insurance Company and affiliated entities, and certain individuals and law firms named therein (6) 10.6 Settlement Agreement and Mutual General Release effective as of February 12, 1996, entered into on March 19, 1996, by and between Provident American Corporation, Provident Indemnity Life Insurance Company, Loewen and LGII (6) 10.7 Registration Rights Agreement, dated as of March 20, 1996, by and between LGII, Loewen and the Initial Purchasers named therein (6) 10.8 Asset Purchase Agreement, dated as of March 26, 1996, by and between LLI, Inc., and LLPC, Inc. and S.I. Acquisition Associates, L.P. (6) 10.9 Asset Purchase Agreement, dated as of March 26, 1996, by and between Loewen Louisiana Holdings, Inc. and S.I. Acquisition Associates, L.P. (6) 10.10 Letter Agreement, dated August 8, 1997, by and between Loewen and Service Corporation International (16) *10.11 Form of Indemnification Agreement with Outside Directors (11)
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EXHIBIT NUMBER DESCRIPTION - --------- -------------------------------------------------------------------------------------------------- *10.12 Form of Indemnification Agreement with Officers (11) *10.13 Form of Loewen Severance Agreement (11) *10.14 Loewen Severance Pay Plan (11) *10.15 1994 Management Equity Investment Plan (the "MEIP") (1) *10.16 Form of Executive Agreement executed by participants in the MEIP (5) *10.17 1994 Outside Director Compensation Plan, as restated and amended as at January 9, 1997, and further amended as at August 15, 1997 (16) *10.18 Employee Stock Option Plan (International), as restated and amended as at March 11, 1998 (16) *10.19 Employee Stock Option Plan (Canada), as restated and amended as at August 15, 1997 (16) *10.20 Employment Agreement, dated August 19, 1988, by and between Loewen and Tim Hogenkamp (1) *10.21 Employment Agreement, dated March 6, 1990, by and between Loewen and Peter S. Hyndman (1) *10.22 Employment Agreement, and Covenant Not to Compete, dated November 14, 1990, by and between LGII and Albert S. Lineberry, Sr. (1) *10.23 Employment Agreement, dated April 12, 1991, by and between Loewen and Dwight Hawes (1) *10.24 Consulting Agreement, dated July 18, 1994, by and between Loewen and Charles B. Loewen, LGII, and Corporate Services International Inc. (1) *10.25 Employment Letter, dated March 10, 1995, by Raymond L. Loewen to Paul Wagler (5) *10.26 Employment Agreement, dated March 17, 1995, by and between Loewen, LGII and Lawrence Miller (1) *10.27.1 Employment Agreement, dated March 17, 1995, by and between Loewen and William R. Shane ("Shane Employment Agreement") (1) *10.27.2 Amendment No. 1 to Shane Employment Agreement, dated February 23, 1998, by and between Loewen and William R. Shane (16) *10.28 Employment Agreement, dated April 30, 1996, by and between Loewen and Grant Ballantyne (5) *10.29 Employment Agreement, dated May 1, 1996, amended July 18, 1996 by and between Loewen and Douglas J. McKinnon (5) *10.30 Resignation and Release Agreement, effective June 10, 1996, by and between Loewen, LGII and Robert O. Wienke (5) *10.31 Employment Agreement, dated October 3, 1997, by and between Loewen and F. Andrew Scott (16) *10.32 Employment Agreement, dated October 31, 1997, by and between Loewen and Michael G. Weedon (16) *10.33 Severance Agreement, dated November 4, 1997, by and between Loewen and Douglas J. McKinnon (16)
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EXHIBIT NUMBER DESCRIPTION - --------- -------------------------------------------------------------------------------------------------- *10.34 Employment Agreement, dated January 30, 1998, by and between Loewen and Brad Stam (16) 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS 27 FINANCIAL DATA SCHEDULE 99 ADDITIONAL EXHIBITS 99.1 Stock Purchase Agreement, dated as of June 14, 1996, by and among Prime Succession, Inc. the other individuals or entities listed on the signature pages thereof, Loewen and Blackhawk Acquisition Corp. (12) 99.2 Put/Call Agreement, dated as of August 26, 1996, by and among Blackstone, Blackstone Offshore Capital Partners II L.P. ("Blackstone Offshore"), Blackstone Family Investment Partnership II L.P. ("Blackstone Family"), PSI Management Direct L.P. ("PSI"), LGII and Loewen (15) 99.3 Stockholders' Agreement, dated as of August 26, 1996, by and among Prime Succession, inc. (to be renamed Prime Succession Holdings, Inc.), Blackstone, Blackstone Offshore, Blackstone Family, PSI and LGII (12) 99.4 Subscription Agreement, dated as of November 19, 1996, by and among Rose Hills Holdings Corp. ("Rose Hills"), Blackstone, Blackstone Rose Hills Offshore Capital Partners L.P. ("Blackstone Rose Hills"), Blackstone Family, Roses Delaware, Inc. ("RDI"), Loewen, LGII and RHI Management Direct, L.P. ("RHI") (13) 99.5 Put/Call Agreement, dated as of November 19, 1996, by and among Blackstone, Blackstone Offshore, Blackstone Family, Blackstone Rose Hills, LGII, RDI, Loewen and RHI (13) 99.6 Stockholders' Agreement, dated as of November 19, 1996, by and among Rose Hills, Blackstone, Blackstone Rose Hills, Blackstone Family, RDI, LGII and RHI (13)
- ------------------------ * Compensatory plan or management contract (1) Incorporated by reference from Loewen's Annual Report on Form 10-K for the year ended December 31, 1994, filed on March 31, 1995 (File No. 0-18429) (2) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, filed on August 15, 1996 (File No. 0-18429) (3) Incorporated by reference from the Registration Statement on Form S-4 filed by Loewen on May 3, 1996, as amended (File No. 333-03135) (4) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, filed on May 13, 1997 (File No. 1-12163) (5) Incorporated by reference from the combined Registration Statement on Form F-9/F-3 filed by LGII and Loewen on July 1, 1994, as amended (File Nos. 33-81032 and 33-81034) (6) Incorporated by reference from Loewen's Annual Report on Form 10-K for the year ended December 31, 1995, filed on March 28, 1996, as amended (File No. 0-18429) (7) Incorporated by reference from the Registration Statement on Form S-3 filed by Loewen and LGII on March 21, 1997, as amended (File No. 333-23747) (8) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, filed on November 14, 1996 (File No. 1-12163) -32- (9) Incorporated by reference from the Registration Statement on Form S-4 filed by LGII and Loewen on November 18, 1996, as amended (File Nos. 333-16319 and 333-16319-01) (10) Incorporated by reference from Loewen's Periodic Report on Form 8-K/A No. 1, dated April 18, 1995, filed May 5, 1995 (File No. 0-18429) (11) Incorporated by reference from Loewen's Solicitation/Recommendation Statement on Schedule 14D-9, filed on October 10, 1996, as amended (12) Incorporated by reference from Loewen's Periodic Report on Form 8-K, dated August 26, 1996, filed October 11, 1996, as amended October 30, 1996 (File No. 0-18429) (13) Incorporated by reference from Loewen's Periodic Report on Form 8-K, dated November 19, 1996, filed December 27, 1996 (File No. 1-12163) (14) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, filed on November 14, 1997 (File No. 1-12163) (15) Incorporated by reference from Loewen's Periodic Report on Form 8-K/A No. 1, dated August 26, 1996, filed October 29, 1996 (File No. 0-18429) (16) Incorporated by reference from Loewen's Annual Report on Form 10-K for the year ended December 31, 1997, filed on March 30, 1998 (File No. 0-18429) (b) REPORTS ON FORM 8-K The following Current Reports on Form 8-K were filed by Loewen during the subject quarter:
FILING DATE ITEM NUMBER DESCRIPTION - ---------------------------- ------------------------ ---------------------------------------------------------- March 3, 1998 (dated March Item 5. Other Events Press release announcing (i) fourth quarter financial 2, 1998) results, (ii) realization of initial benefits from restructuring and strategic initiatives, and (iii) 1997 annual revenues March 6, 1998 (dated March Item 5. Other Events Press release announcing cash dividends on Preferred 5, 1998) Shares March 18, 1998 (dated March Item 5. Other Events Press release announcing the signing of a long-term 16, 1998) contract for the management of Catholic cemeteries in Tucson May 8, 1998 (dated May 7, Item 5. Other Events Press release announcing first quarter financial results 1998)
-33- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Loewen has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE LOEWEN GROUP INC. Date: May 12, 1998 By: /s/ PAUL WAGLER Name: Paul Wagler Title: SENIOR VICE-PRESIDENT, FINANCE AND CHIEF FINANCIAL OFFICER Date: May 12, 1998 By: /s/ WILLIAM G. BALLANTYNE Name: William G. Ballantyne Title: SENIOR VICE-PRESIDENT, FINANCIAL CONTROL AND ADMINISTRATION (PRINCIPAL ACCOUNTING OFFICER)
-34- INDEX TO 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 (the "Registrar") on October 30, 1985 (1) 3.2 Altered Memorandum of Loewen, filed with the Registrar on June 21, 1996 (2) 3.3 Articles of Loewen, restated, filed with the Registrar on March 1, 1988, as amended on March 30, 1988, April 21, 1988, May 19, 1989, May 28, 1992, May 20, 1993, June 29, 1994, December 21, 1995 and February 7, 1996 (1) 4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY-HOLDERS, INCLUDING INDENTURES 4.1.1 Note Agreement, dated for reference September 1, 1993, by and between Loewen and LGII re 9.62% Senior Guaranteed Notes, Series D, due September 11, 2003, issued by Loewen ("Series D Notes"), as amended on June 10, 1994 (1) 4.1.2 Second Amendment, dated for reference May 15, 1996, to Note Agreement, dated for reference September 1, 1993, among Loewen, LGII and institutions named therein, re Series D Notes (3) 4.2 Guaranty Agreement by LGII re Series D Notes, dated for reference April 1, 1993 (1) 4.3.1 Note Agreement by LGII and Loewen re 6.49% Senior Guaranteed Notes, Series E, due February 25, 2004, issued by LGII ("Series E Notes"), dated for reference February 1, 1994 (1) 4.3.2 Second Amendment, dated for reference May 15, 1996, to Note Agreement, dated for reference February 1, 1994, among Loewen, LGII and Teachers Insurance and Annuity Association of America, re Series E Notes (3) 4.4 Guaranty Agreement by Loewen re Series E Notes, dated for reference February 1, 1994 (1) EXHIBIT NUMBER DESCRIPTION - ------- ----------- 4.5.1 Amended and Restated 1994 MEIP Credit Agreement, dated as of June 14, 1994, amended and restated as of May 15, 1996 (the "MEIP Credit Agreement"), by and between Loewen Management Investment Corporation, in its capacity as agent for LGII ("LMIC"), Loewen and the banks listed therein (the "MEIP Banks") and Wachovia Bank of Georgia, N.A., as agent for the MEIP Banks ("MEIP Agent") (1) 4.5.2 First Amendment to the MEIP Credit Agreement, dated as of December 2, 1996 (4) 4.5.3 Second Amendment to the MEIP Credit Agreement, dated as of April 30, 1997 (4) 4.5.4 Third Amendment to the MEIP Credit Agreement, dated as of May 21, 1997 (16) 4.5.5 Fourth Amendment to the MEIP Credit Agreement, dated as of September 29, 1997 (16) 4.6 Security Agreement, dated as of June 14, 1994, by and between LMIC and the MEIP Agent (1) 4.7 Guaranty dated as of June 14, 1994, by LGII in favor of the MEIP Agent for the ratable benefit of the MEIP Banks (1) 4.8 Guaranty dated as of June 14, 1994, by Loewen in favor of the MEIP Agent for the ratable benefit of the MEIP Banks (1) 4.9 Exchange Acknowledgment by Loewen, with respect to the 1994 Exchangeable Floating Rate Debentures due July 1, 2001 issued by LGII, dated June 15, 1994 (1) 4.10 Indenture, dated as of August 15, 1994, by and between LGII, as issuer, Loewen, as guarantor, and State Street Bank and Trust Company, as trustee with respect to 9.45% Junior Subordinated Debentures, Series A, due 2024, issued by LGII and guaranteed by Loewen (5) 4.11 MIPS Guarantee Agreement, dated August 15, 1994 (5) EXHIBIT NUMBER DESCRIPTION - ------- ----------- 4.12 Zero Coupon Loan Agreement, dated as of November 1, 1994, by and between WLSP Investment Partners I Neweol Finance B.V., Electrolux Holdings B.V., Man Production Rotterdam B.V., Adinvest A.G., and Wachovia Bank of Georgia, N.A. (1) 4.13 Indenture, dated as of March 20, 1996, by and between LGII, as issuer, Loewen, as guarantor of the obligations of LGII under the Indenture, and Fleet National Bank as Trustee, with respect to Senior Guaranteed Notes of LGII (6) 4.14 Form of Senior Guarantee of LGII's Series 1 and 2 Notes (included in Exhibit 4.13) 4.15 Form of Global Series 1 and 2 Outstanding Note of LGII (included in Exhibit 4.13) 4.16 Form of Physical Series 1 and 2 Outstanding Note of LGII (included in Exhibit 4.13) 4.17 Form of Global Series 1 and 2 Exchange Note of LGII (3) 4.18 Form of Physical Series 1 and 2 Exchange Note of LGII (3) 4.19 Amended and Restated Credit Agreement, dated as of March 27, 1998 ("BMO Credit Agreement"), among LGII, as borrower, Loewen, as a guarantor, the lenders named therein, as the lenders, Goldman, Sachs & Co., as the documentation agent, and Bank of Montreal, as issuer, swingline lender and administrative and syndication agent (16) 4.20 Collateral Trust Agreement, dated as of May 15, 1996, among Bankers Trust Company, as trustee, Loewen, LGII and various other pledgers (3) 4.21.1 Amended and Restated Operating Credit Agreement, dated for reference July 15, 1996, between Loewen and Royal Bank of Canada (8) 4.21.2 Third Amendment to Operating Credit Agreement, dated for reference July 15, 1996, among Loewen, LGII and Royal Bank of Canada (8) 4.22 Indenture, dated as of October 1, 1996, by and between LGII, Loewen and Fleet National Bank, as trustee, with respect to the Series 3 and 4 Notes (8) 4.23 Form of Senior Guarantee of LGII's Series 3 and 4 Notes (included in Exhibit 4.22) EXHIBIT NUMBER DESCRIPTION - ------- ----------- 4.24 Form of Global Series 3 and 4 Outstanding Note of LGII (included in Exhibit 4.22) 4.25 Form of Physical Series 3 and 4 Outstanding Note of LGII (included in Exhibit 4.22) 4.26 Form of Global Series 3 and 4 Exchange Note of LGII (9) 4.27 Form of Physical Series 3 and 4 Exchange Note of LGII (9) 4.28 Indenture, dated as of September 26, 1997, between Loewen, as issuer, LGII, as guarantor, and The Trust Company of Bank of Montreal, as trustee, with respect to the Series 5 Notes (14) 4.29 Form of Series 5 Guaranteed Note of LGII (14) 4.30 Form of Senior Guarantee of Loewen's Series 5 Note (14) 4.31 Indenture, dated as of September 30, 1997, between LGII, as issuer, Loewen, as guarantor, and State Street Bank and Trust Company, as trustee, with respect to the Senior Guaranteed Notes due 2009 (14) 4.32 Form of Global Senior Guaranteed Note due 2009 of LGII (14) 4.33 Form of Physical Senior Guaranteed Note due 2009 of LGII (14) 4.34 Form of Senior Guarantee of LGII's Senior Guaranteed Notes due 2009 (14) 4.35 Shareholder Protection Rights Plan, dated as of April 20, 1990, as amended on May 24, 1990 and April 7, 1994 and reconfirmed on May 17, 1995 (1) 4.36 Form of Indenture by and between LGII, as issuer, Loewen, as guarantor, and Fleet National Bank, as trustee (7) 4.37 Loewen and LGII hereby agree to furnish to the Commission, upon request, a copy of the instruments which define the rights of holders of long-term debt of Loewen and LGII. None of such instruments not included as exhibits herein collectively represents long-term debt in excess of 10% of the consolidated total assets of Loewen or LGII. 10 MATERIAL CONTRACTS 10.1 Stock Purchase Agreement, dated as of March 16, 1995, by and between Osiris Holding Corporation and LGII (10) EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.2 Receipt Agreement, dated as of January 3, 1996, for the Cumulative Redeemable Convertible First Preferred Shares, Series C, of Loewen ("Series C Shares") (6) 10.3 Undertaking by Raymond L. Loewen and Anne Loewen, dated as of January 3, 1996, to vote in favor of the motion to subdivide the Series C Shares (6) 10.4 Settlement Agreement, dated as of February 1, 1996, by and between Loewen, LGII and affiliated entities and J.J. O'Keefe, Sr., Gulf National Life Insurance Company and affiliated entities (6) 10.5 Shareholders' Agreement, dated as of February 9, 1996, by and between Loewen, LGII, J.J. O'Keefe, Sr., Gulf National Life Insurance Company and affiliated entities, and certain individuals and law firms named therein (6) 10.6 Settlement Agreement and Mutual General Release effective as of February 12, 1996, entered into on March 19, 1996, by and between Provident American Corporation, Provident Indemnity Life Insurance Company, Loewen and LGII (6) 10.7 Registration Rights Agreement, dated as of March 20, 1996, by and between LGII, Loewen and the Initial Purchasers named therein (6) 10.8 Asset Purchase Agreement, dated as of March 26, 1996, by and between LLI, Inc., and LLPC, Inc. and S.I. Acquisition Associates, L.P. (6) 10.9 Asset Purchase Agreement, dated as of March 26, 1996, by and between Loewen Louisiana Holdings, Inc. and S.I. Acquisition Associates, L.P. (6) 10.10 Letter Agreement, dated August 8, 1997, by and between Loewen and Service Corporation International (16) *10.11 Form of Indemnification Agreement with Outside Directors (11) *10.12 Form of Indemnification Agreement with Officers (11) *10.13 Form of Loewen Severance Agreement (11) *10.14 Loewen Severance Pay Plan (11) *10.15 1994 Management Equity Investment Plan (the "MEIP") (1) EXHIBIT NUMBER DESCRIPTION - ------- ----------- *10.16 Form of Executive Agreement executed by participants in the MEIP (5) *10.17 1994 Outside Director Compensation Plan, as restated and amended as at January 9, 1997, and further amended as at August 15, 1997 (16) *10.18 Employee Stock Option Plan (International), as restated and amended as at March 11, 1998 (16) *10.19 Employee Stock Option Plan (Canada), as restated and amended as at August 15, 1997 (16) *10.20 Employment Agreement, dated August 19, 1988, by and between Loewen and Tim Hogenkamp (1) *10.21 Employment Agreement, dated March 6, 1990, by and between Loewen and Peter S. Hyndman (1) *10.22 Employment Agreement, and Covenant Not to Compete, dated November 14, 1990, by and between LGII and Albert S. Lineberry, Sr. (1) *10.23 Employment Agreement, dated April 12, 1991, by and between Loewen and Dwight Hawes (1) *10.24 Consulting Agreement, dated July 18, 1994, by and between Loewen and Charles B. Loewen, LGII, and Corporate Services International Inc. (1) *10.25 Employment Letter, dated March 10, 1995, by Raymond L. Loewen to Paul Wagler (5) *10.26 Employment Agreement, dated March 17, 1995, by and between Loewen, LGII and Lawrence Miller (1) *10.27.1 Employment Agreement, dated March 17, 1995, by and between Loewen and William R. Shane ("Shane Employment Agreement") (1) *10.27.2 Amendment No. 1 to Shane Employment Agreement, dated February 23, 1998, by and between Loewen and William R. Shane (16) *10.28 Employment Agreement, dated April 30, 1996, by and between Loewen and Grant Ballantyne (5) *10.29 Employment Agreement, dated May 1, 1996, amended July 18, 1996 by and between Loewen and Douglas J. McKinnon (5) EXHIBIT NUMBER DESCRIPTION - ------- ----------- *10.30 Resignation and Release Agreement, effective June 10, 1996, by and between Loewen, LGII and Robert O. Wienke (5) *10.31 Employment Agreement, dated October 3, 1997, by and between Loewen and F. Andrew Scott (16) *10.32 Employment Agreement, dated October 31, 1997, by and between Loewen and Michael G. Weedon (16) *10.33 Severance Agreement, dated November 4, 1997, by and between Loewen and Douglas J. McKinnon (16) *10.34 Employment Agreement, dated January 30, 1998, by and between Loewen and Brad Stam (16) 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS 27 FINANCIAL DATA SCHEDULE 99 ADDITIONAL EXHIBITS 99.1 Stock Purchase Agreement, dated as of June 14, 1996, by and among Prime Succession, Inc. the other individuals or entities listed on the signature pages thereof, Loewen and Blackhawk Acquisition Corp. (12) 99.2 Put/Call Agreement, dated as of August 26, 1996, by and among Blackstone, Blackstone Offshore Capital Partners II L.P. ("Blackstone Offshore"), Blackstone Family Investment Partnership II L.P. ("Blackstone Family"), PSI Management Direct L.P. ("PSI"), LGII and Loewen (15) 99.3 Stockholders' Agreement, dated as of August 26, 1996, by and among Prime Succession, inc. (to be renamed Prime Succession Holdings, Inc.), Blackstone, Blackstone Offshore, Blackstone Family, PSI and LGII (12) 99.4 Subscription Agreement, dated as of November 19, 1996, by and among Rose Hills Holdings Corp. ("Rose Hills"), Blackstone, Blackstone Rose Hills Offshore Capital Partners L.P. ("Blackstone Rose Hills"), Blackstone Family, Roses Delaware, Inc. ("RDI"), Loewen, LGII and RHI Management Direct, L.P. ("RHI") (13) 99.5 Put/Call Agreement, dated as of November 19, 1996, by and among Blackstone, Blackstone Offshore, Blackstone Family, Blackstone Rose Hills, LGII, RDI, Loewen and RHI (13) 99.6 Stockholders' Agreement, dated as of November 19, 1996, by and among Rose Hills, Blackstone, Blackstone Rose Hills, Blackstone Family, RDI, LGII and RHI (13)
- ------------------ * Compensatory plan or management contract (1) Incorporated by reference from Loewen's Annual Report on Form 10-K for the year ended December 31, 1994, filed on March 31, 1995 (File No. 0-18429) (2) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, filed on August 15, 1996 (File No. 0-18429) (3) Incorporated by reference from the Registration Statement on Form S-4 filed by Loewen on May 3, 1996, as amended (File No. 333-03135) (4) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, filed on May 13, 1997 (File No. 1-12163) (5) Incorporated by reference from the combined Registration Statement on Form F-9/F-3 filed by LGII and Loewen on July 1, 1994, as amended (File Nos. 33-81032 and 33-81034) (6) Incorporated by reference from Loewen's Annual Report on Form 10-K for the year ended December 31, 1995, filed on March 28, 1996, as amended (File No. 0-18429) (7) Incorporated by reference from the Registration Statement on Form S-3 filed by Loewen and LGII on March 21, 1997, as amended (File No. 333-23747) (8) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, filed on November 14, 1996 (File No. 1-12163) (9) Incorporated by reference from the Registration Statement on Form S-4 filed by LGII and Loewen on November 18, 1996, as amended (File Nos. 333-16319 and 333-16319-01) (10) Incorporated by reference from Loewen's Periodic Report on Form 8-K/A No. 1, dated April 18, 1995, filed May 5, 1995 (File No. 0-18429) (11) Incorporated by reference from Loewen's Solicitation/Recommendation Statement on Schedule 14D-9, filed on October 10, 1996, as amended (12) Incorporated by reference from Loewen's Periodic Report on Form 8-K, dated August 26, 1996, filed October 11, 1996, as amended October 30, 1996 (File No. 0-18429) (13) Incorporated by reference from Loewen's Periodic Report on Form 8-K, dated November 19, 1996, filed December 27, 1996 (File No. 1-12163) (14) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, filed on November 14, 1997 (File No. 1-12163) (15) Incorporated by reference from Loewen's Periodic Report on Form 8-K/A No. 1, dated August 26, 1996, filed October 29, 1996 (File No. 0-18429) (16) Incorporated by reference from Loewen's Annual Report on Form 10-K for the year ended December 31, 1997, filed on March 30, 1998 (File No. 0-18429) EX-11 2 EXHIBIT 11 THE LOEWEN GROUP INC. Exhibit 11 For 10 Q COMPUTATION OF PER SHARE EARNINGS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
Three months ended March 31, ----------------------- 1998 1997 ---------- ---------- BASIC Net earnings $30,400 $23,700 Less: Preferred share dividends 2,312 2,429 ------- ------- Net earnings available to Common shareholders 28,088 21,271 Weighted average shares outstanding 73,930 59,102 Basic earnings per share $ 0.38 $ 0.36 ------- ------- ------- ------- FULLY DILUTED Net earnings available to Common shareholders $28,088 $21,271 Add: imputed earnings from dilutive options, net of tax effect 1,565 1,576 ------- ------- Fully diluted net earnings $29,653 $22,847 ------- ------- ------- ------- Weighted average shares outstanding 73,930 59,102 Shares issuable upon assumed conversion of dilutive options 4,738 4,887 ------- ------- Fully diluted shares 78,668 63,989 ------- ------- ------- ------- Fully diluted earnings per share $ 0.38 $ 0.36
EX-27 3 EXHIBIT 27
5 This schedule contains summary information extracted from the unaudited interim consolidated financial statements of The Loewen Group Inc. for the three months ended March 31, 1998 and is qualified in its entirety by reference to such financial statements. 3-MOS DEC-31-1998 MAR-31-1998 34,573 0 289,309 34,756 35,572 337,927 966,275 153,327 4,656,886 195,217 1,885,055 75,000 157,146 1,271,869 140,640 4,656,886 310,113 310,113 195,594 195,594 44,348 0 33,067 38,880 8,480 30,400 0 0 0 30,400 0.38 0.38
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