<PAGE>
UNITED STATES
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 quarter ended March 31, 2000
[_] 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
0-24439
HINES HORTICULTURE, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0803204
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
12621 Jeffrey Road
Irvine, California 92620
(Address of principal executive offices) (Zip Code)
(949) 559-4444
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and 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 [_]
As of April 30, 2000 there were 22,072,549 shares of Common Stock, par value
$0.01 per share, outstanding.
===============================================================================
<PAGE>
HINES HORTICULTURE, INC.
Index
Part I. Financial Information
<TABLE>
<CAPTION>
Item 1. Financial Statements Page No.
<S> <C> <C>
Consolidated Balance Sheets as of
March 31, 2000 and December 31, 1999 1
Consolidated Statements of Operations for the Three
Months Ended March 31, 2000 and 1999 3
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2000 and 1999 4
Notes to the Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 22
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
Note: Items 1, 2, 3, 4 and 5 of Part II are omitted because they are not
applicable.
</TABLE>
<PAGE>
HINES HORTICULTURE, INC.
CONSOLIDATED BALANCE SHEETS
March 31, 2000 and December 31, 1999
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 2000 1999
- ------ ------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 0 $ 0
Accounts receivable, net of allowance for
doubtful accounts of $1,789 and $1,444 85,418 37,196
Inventories 170,566 144,915
Prepaid expenses and other current assets 5,271 5,204
-------- --------
Total current assets 261,255 187,315
FIXED ASSETS, net of accumulated depreciation
and depletion of $41,547 and $38,455 195,311 169,317
DEFERRED FINANCING EXPENSES, net of
accumulated amortization of $2,227 and $1,985 6,378 3,327
GOODWILL, net of accumulated amortization
of $4,557 and $3,872 139,014 58,822
-------- --------
$601,958 $418,781
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
Page 1
<PAGE>
HINES HORTICULTURE, INC.
CONSOLIDATED BALANCE SHEETS
March 31, 2000 and December 31, 1999
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 2000 1999
- ------------------------------------ -------------- ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 30,114 $ 18,282
Accrued liabilities 7,193 8,618
Accrued payroll and benefits 5,453 7,402
Accrued interest 4,158 4,926
Long-term debt, current portion 12,355 12,730
Borrowings on revolving credit facility 88,500 34,750
Deferred income taxes 46,759 46,565
-------- --------
Total current liabilities 194,532 133,273
LONG-TERM DEBT 314,146 195,677
DEFERRED INCOME TAXES 16,079 15,081
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common Stock
Authorized - 60,000,000 shares $.01 par value;
Issued and outstanding - 22,072,549 shares
at March 31, 2000 and December 31, 1999 221 221
Additional paid in capital 127,938 127,938
Notes receivable from stock sales (127) (173)
Deficit (46,815) (49,145)
Accumulated other comprehensive loss (4,016) (4,091)
-------- --------
Total shareholders' equity 77,201 74,750
-------- --------
$601,958 $418,781
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
Page 2
<PAGE>
HINES HORTICULTURE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2000 and 1999
(Dollars in thousands except share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Sales, net $ 84,900 $ 59,402
Cost of goods sold 44,082 29,343
----------- -----------
Gross profit 40,818 30,059
----------- -----------
Selling and distribution expenses 20,894 14,712
General and administrative expenses 8,334 7,666
Amortization of goodwill 685 305
----------- -----------
Total operating expenses 29,913 22,683
----------- -----------
Operating income 10,905 7,376
----------- -----------
Other expenses
Interest 7,084 4,302
Amortization of deferred financing expenses 242 187
----------- -----------
7,326 4,489
----------- -----------
Income before income taxes 3,579 2,887
Income tax provision 1,249 1,187
----------- -----------
Net income $ 2,330 $ 1,700
=========== ===========
Basic earnings per share:
Net income per common share $ 0.11 $ 0.08
=========== ===========
Diluted earnings per share:
Net income per common share $ 0.11 $ 0.08
=========== ===========
Weighted average shares outstanding--Basic 22,072,549 22,072,549
=========== ===========
Weighted average shares outstanding--Diluted 22,072,549 22,072,549
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
Page 3
<PAGE>
HINES HORTICULTURE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2000 and 1999
(Dollars in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,330 $ 1,700
Adjustments to reconcile net income to
net cash provided by operating activities -
Depreciation, depletion and amortization 3,844 2,900
Amortization of deferred financing costs 242 187
Gain on sale of fixed assets (28) -
Deferred income taxes 1,192 1,603
--------- --------
7,580 6,390
Change in working capital accounts, net of effect
of acquisitions:
Accounts receivable (43,132) (33,673)
Inventories (15,042) (11,831)
Prepaid expenses and other current assets 70 130
Accounts payable and accrued liabilities 3,153 9,239
--------- --------
Net cash used in operating activities (47,371) (29,745)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (9,101) (6,957)
Proceeds from sale of fixed assets 38 -
Acquisitions, net of cash (112,034) (985)
--------- --------
Net cash used in investing activities (121,097) (7,942)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on revolving line of credit 65,265 38,550
Repayments on revolving line of credit (11,515) (1,500)
Proceeds from the issuance of long-term debt 119,416 127
Repayments of long-term debt (1,317) (5)
Proceeds from stock sales notes receivable 46 -
Deferred financing costs incurred (3,293) -
--------- --------
Net cash provided by financing activities 168,602 37,172
--------- --------
Effect of exchange rate changes on cash (134) -
NET DECREASE IN CASH - (515)
CASH, beginning of period - 515
--------- --------
CASH, end of period $ - $ -
========= ========
Supplemental disclosure of cash flow information:
Cash paid for interest, net of capitalized
interest of $166 and $135 $ 7,852 $ 1,468
Cash paid for income taxes $ 297 $ 43
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
Page 4
<PAGE>
HINES HORTICULTURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
MARCH 31, 2000 AND 1999
(UNAUDITED)
1. Description of Business:
------------------------
Hines Horticulture, Inc., a Delaware corporation ("Hines"), produces and
distributes horticultural products through two operating divisions: (1) its
nursery division, Hines Nurseries and (2) its growing media division, Sun
Gro Horticulture ("Sun Gro"). The business of Hines is currently conducted
through Hines Nurseries, Inc. ("Hines Nurseries") a wholly owned subsidiary
of Hines, and through Sun Gro Horticulture Inc. ("Sun Gro-U.S.") a wholly
owned subsidiary of Hines Nurseries, Sun Gro-U.S.'s wholly owned
subsidiary, Sun Gro Horticulture Canada Ltd. ("Sun Gro-Canada"), and Sun
Gro-Canada's direct and indirect Canadian subsidiaries. Unless otherwise
specified, references to "Hines" or the "Company" refer to Hines
Horticulture, Inc. and its subsidiaries.
Hines Nurseries is a leading national supplier of ornamental, container-
grown plants with nursery facilities located in Arizona, California,
Florida, Oregon, New York, Pennsylvania, South Carolina and Texas. Hines
Nurseries markets its products to retail and commercial customers
throughout the United States.
Sun Gro produces and markets peat moss and professional peat and bark-based
growing media horticulture products for both retail and professional
customers. Sun Gro markets its products in North America and various
international markets with production facilities located in Canada and the
United States.
2. Unaudited Financial Information:
--------------------------------
The unaudited financial information furnished herein, in the opinion of
management, reflects all adjustments (consisting of only normal recurring
adjustments) which are necessary to state fairly the consolidated financial
position, results of operations and cash flows of the Company as of and for
the periods indicated. The Company presumes that users of the interim
financial information herein have read or have access to the Company's
audited consolidated financial statements for the preceding fiscal year and
that the adequacy of additional disclosure needed for a fair presentation,
except in regard to material contingencies or recent significant events,
may be determined in that context.
Page 5
<PAGE>
Accordingly, footnote and other disclosures which would substantially
duplicate the disclosures contained in the Form 10-K filed on March 27,
2000 by Hines Horticulture, Inc. under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), have been omitted. The financial
information herein is not necessarily representative of a full year's
operations.
3. Earnings Per Share:
-------------------
For the three months ended March 31, 2000, there are no differences between
the numerators and denominators for basic and diluted earnings per share
since common stock equivalents have been excluded from the earnings per
share calculation because the effect would be anti-dilutive. The only
potentially dilutive shares relate to stock options. There were no
dilutive common stock equivalents outstanding during the three months ended
March 31, 1999.
4. Inventories:
------------
Inventories consisted of the following:
March 31, December 31,
--------- ------------
2000 1999
--------- ------------
Nursery stock $146,253 $121,330
Finished goods 10,830 10,799
Materials and supplies 13,483 12,786
-------- --------
$170,566 $144,915
======== =========
5. Supplemental Cash Flow Information
----------------------------------
Supplemental disclosure of non-cash investing and financing activities were
as follows:
March 31,
---------
2000 1999
-------- -------
Fair value of assets acquired $116,571 $ -
Liabilities assumed and incurred
in connection with acquisitions 4,537 -
-------- -------
Cash paid $112,034 $ -
======== =======
Page 6
<PAGE>
6. Comprehensive Income
--------------------
Comprehensive income includes all changes in equity during a period except
those resulting from investments by and distributions to the Company's
stockholders. The Company's comprehensive income is composed of cumulative
foreign currency translation adjustments. The components of comprehensive
income during the three months ended March 31, 2000 and 1999, were as
follows:
Three Months Ended March 31,
----------------------------------------
2000 1999
------ ------
Net income $2,330 $1,700
Cumulative foreign currency
translation adjustments 75 -
------ ------
Comprehensive income $2,405 $1,700
====== ======
7. Acquisitions
------------
During the three months ended March 31, 2000, the Company made two
acquisitions, both of which have been accounted for under the purchase
method for accounting purposes. Accordingly, the purchase prices were
allocated to certain assets and liabilities based on their respective fair
market values. The excess of the purchase price over the estimated fair
market value of the net assets acquired relating to each transaction was
accounted for as goodwill. Amounts allocated to goodwill are being
amortized on a straight-line basis over thirty-five years. The purchase
agreements include provisions to adjust the purchase price subject to the
occurrence of certain future conditions. The Company's existing
acquisition facility and a new term loan provided the funds used for the
acquisitions. The consolidated financial statements include the operating
results of each acquisition from the date of acquisition.
On March 3, 2000, the Company entered into an agreement to acquire (i)
substantially all of the assets and assume certain liabilities of Lovell
Farms, Inc., and Botanical Farms, Inc.; (ii) the capital stock of Enviro-
Safe Laboratories, Inc.; and (iii) the partnership interest of Lovell
Properties (collectively referred to as "Lovell"). Lovell is a supplier of
bedding and holiday plants to independent garden centers, home centers,
mass merchandisers and other professional customers in the southeastern
United States. The total acquisition price was approximately $92.0 million,
which resulted in goodwill of approximately $70.2 million. In addition,
under the terms of the purchase agreement, the Company may be required to
make additional payments of up to $12.5 million, contingent upon Lovell
achieving certain operating results during 2000 and 2001.
Page 7
<PAGE>
On January 14, 2000, the Company entered into an agreement to acquire
certain assets (primarily land and buildings) and all of the outstanding
capital stock of Willow Creek Greenhouses, Inc. ("Willow Creek"), a
producer of quality annual bedding plants and holiday plants. The total
acquisition price was approximately $18.8 million, which resulted in
goodwill of approximately $10.2 million. In addition, under the terms of
the purchase agreement, the Company may be required to make additional
payments of up to $1.1 million, contingent upon Willow Creek achieving
certain operating results during 2000 and 2001.
In connection with the Lovell acquisition on March 3, 2000, the Company
entered into an amendment to its existing senior credit facility (the
"Amended Senior Credit Facility") to provide for a new $100 million term
loan and a $15 million increase in the Company's existing working capital
revolving credit facility. The term loan requires annual principal
payments of $1 million through December 31, 2003, $47 million in fiscal
year 2004 and the remaining balance in fiscal year 2005. The term loan and
revolving credit facility interest rate is a percentage spread over the
U.S. prime rate and the Eurodollar rate depending upon the Company's
quarterly leverage and interest rate coverage ratios as defined in the
Amended Senior Credit Facility. The term loan and revolving credit
facility are secured by substantially all of the assets and common stock of
the Company's domestic subsidiaries and 65% of the common stock of its
foreign subsidiary. The Lovell acquisition was financed with proceeds from
the Amended Senior Credit Facility.
Pro Forma Operating Data
The following summary of condensed unaudited pro forma results of
operations for the three months ended March 31, 2000 and 1999 gives effect
to the acquisitions of Strong Lite Inc. ("Strong Lite"), Pro-Gro Products,
Inc. and related companies ("Pro Gro"), Atlantic Greenhouses, Inc.
("Atlantic"), Willow Creek and Lovell as if they had occurred on January 1,
1999 (in thousands, except per share data):
The above acquisitions were completed on August 2, 1999, August 23, 1999,
September 9, 1999, January 14, 2000 and March 3, 2000, respectively.
Page 8
<PAGE>
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
2000 1999
------- -------
<S> <C> <C>
Sales, net $91,914 $84,661
Net Income applicable to common stock 2,192 2,279
Basic earnings per share:
Income per common share $ .10 $ .10
Diluted earnings per share:
Income per common share $ .10 $ .10
</TABLE>
8. Segment Information and Guarantor/Non-Guarantor Disclosures:
------------------------------------------------------------
The Senior Subordinated Notes issued by Hines Nurseries (the issuer) have
been guaranteed by Hines (the parent guarantor) and by Sun Gro-U.S. (the
subsidiary guarantor). The issuer and the subsidiary guarantor are wholly
owned subsidiaries of the parent guarantor and the parent and subsidiary
guarantees are full, unconditional, and joint and several. Separate
financial statements of Hines Nurseries and Sun Gro-U.S. are not presented
and Hines Nurseries and Sun Gro-U.S. are not filing separate reports under
the Exchange Act because management believes that they would not be
material to investors. The Senior Subordinated Notes are not guaranteed by
Sun Gro-Canada or its present or future subsidiaries.
The following information provides the required disclosures with respect to
the Company's segments pursuant to Statement of Financial Accounting
Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise
and Related Information". The Company operates in two segments: 1) the
nursery segment and 2) the growing media segment.
The following consolidating information shows (a) Hines on a parent company
basis only as the parent guarantor (carrying its investment in its
subsidiary under the equity method), (b) Hines Nurseries as the issuer
(carrying its investment in its subsidiary under the equity method), (c)
Sun Gro-U.S. as subsidiary guarantor (carrying its investment in Sun Gro-
Canada under the equity method), (d) Sun Gro-Canada and its direct and
indirect subsidiaries, as subsidiary non guarantors, (e) eliminations
necessary to arrive at the information for the parent guarantor and its
direct and indirect subsidiaries on a consolidated basis and (f) the parent
guarantor on a consolidated basis, as follows:
. Consolidating balance sheets as of March 31, 2000 (unaudited) and
December 31, 1999;
. Consolidating statements of operations for the three months ended
March 31, 2000 and 1999 (unaudited) ; and
. Consolidating statements of cash flows for the three months ended
March 31, 2000 and 1999 (unaudited).
Page 9
<PAGE>
Guarantor / Non-guarantor Disclosures
Consolidating Balance Sheet
As of March 31, 2000
(Dollars in thousands)
<TABLE>
<CAPTION>
Nursery
Segment Growing Media Segment
--------- -----------------------------------
Sun Gro
Hines Sun Gro Canada
Horticulture Hines U.S. (Subsidiary
(Parent Nurseries (Subsidiary Non- Sun Gro Consolidated
Guarantor) (Issuer) Guarantor) Guarantors) Sub-total Eliminations Total
------------ --------- ----------- ----------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
------
Current assets:
Cash $ - $ - $ - $ - $ - $ - $ -
Accounts receivable, net - 48,786 31,581 5,051 36,632 - 85,418
Inventories - 151,991 10,055 8,520 18,575 - 170,566
Prepaid expenses and other current assets - 1,825 2,923 523 3,446 - 5,271
Deferred income taxes 23 122 1,019 466 1,485 (1,630) -
-------- -------- ------- ------- -------- --------- --------
Total current assets $ 23 $202,724 $45,578 $14,560 $ 60,138 $ (1,630) $261,255
-------- -------- ------- ------- -------- --------- --------
Fixed assets, net - 123,686 13,833 57,792 71,625 - 195,311
Deferred financing expenses, net - 6,378 - - - - 6,378
Goodwill, net - 117,294 21,014 706 21,720 - 139,014
Deferred income taxes - 13,606 - - - (13,606) -
Investments in subsidiaries 83,924 13,309 9,451 - 9,451 (106,684) -
-------- -------- ------- ------- -------- --------- --------
$ 83,947 $476,997 $89,876 $73,058 $162,934 $(121,920) $601,958
======== ======== ======= ======= ======== ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ - $ 20,740 $ 5,474 $ 3,900 $ 9,374 $ - $ 30,114
Accrued liabilities - 3,106 3,815 272 4,087 - 7,193
Accrued payroll and benefits - 3,698 754 1,001 1,755 - 5,453
Accrued interest - 3,871 287 - 287 - 4,158
Long-term debt, current portion - 8,308 1,510 2,537 4,047 - 12,355
Revolving line of credit - 88,500 - - - - 88,500
Deferred income taxes - 48,389 - - - (1,630) 46,759
Intercompany accounts 6,746 (56,821) 33,028 17,047 50,075 - -
-------- -------- ------- ------- -------- --------- --------
Total current liabilities 6,746 119,791 44,868 24,757 69,625 (1,630) 194,532
-------- -------- ------- ------- -------- --------- --------
Long-term debt - 268,241 29,140 16,765 45,905 - 314,146
Deferred income taxes - 11,300 800 17,585 18,385 (13,606) 16,079
Shareholders' equity
Common stock 221 17,971 11,414 4,500 15,914 (33,885) 221
Additional paid in capital 127,938 21,362 5,889 1,777 7,666 (29,028) 127,938
Notes receivable from stock sales (127) - - - - - (127)
Retained earnings (deficit) (46,815) 38,332 1,781 7,674 9,455 (47,787) (46,815)
Accumulated other comprehensive loss (4,016) - (4,016) - (4,016) 4,016 (4,016)
-------- -------- ------- ------- -------- --------- --------
Total shareholders' equity 77,201 77,665 15,068 13,951 29,019 (106,684) 77,201
-------- -------- ------- ------- -------- --------- --------
$ 83,947 $476,997 $89,876 $73,058 $162,934 $(121,920) $601,958
======== ======== ======= ======= ======== ========= ========
</TABLE>
Page 10
<PAGE>
Guarantor / Non-guarantor Disclosures - (Continued)
Consolidating Balance Sheet
As of December 31, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
Nursery
Segment Growing Media Segment
--------- -----------------------------------
Sun Gro
Hines Sun Gro Canada
Horticulture Hines U.S. (Subsidiary
(Parent Nurseries (Subsidiary Non- Sun Gro Consolidated
Guarantor) (Issuer) Guarantor) Guarantors) Sub-total Eliminations Total
------------ --------- ----------- ----------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
------
Current assets:
Cash $ - $ - $ - $ - $ - $ - $ -
Accounts receivable, net - 14,705 19,288 3,203 22,491 - 37,196
Inventories - 126,272 9,742 8,901 18,643 - 144,915
Prepaid expenses and other current assets - 2,460 2,231 513 2,744 - 5,204
Deferred income taxes 24 122 1,018 465 1,483 (1,629) -
-------- -------- ------- ------- -------- --------- --------
Total current assets $ 24 $143,559 $32,279 $13,082 $ 45,361 $ (1,629) $187,315
-------- -------- ------- ------- -------- --------- --------
Fixed assets, net - 99,124 12,984 57,209 70,193 - 169,317
Deferred financing expenses, net - 3,327 - - - - 3,327
Goodwill, net - 36,906 21,206 710 21,916 - 58,822
Deferred income taxes - 13,606 - - - (13,606) -
Investments in subsidiaries 81,596 12,874 7,648 - 7,648 (102,118) -
-------- -------- ------- ------- -------- --------- --------
$ 81,620 $309,396 $74,117 $71,001 $145,118 $(117,353) $418,781
======== ======== ======= ======= ======== ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ - $ 9,709 $ 4,751 $ 3,822 $ 8,573 $ - $ 18,282
Accrued liabilities - 2,567 4,617 1,434 6,051 - 8,618
Accrued payroll and benefits - 5,854 702 846 1,548 - 7,402
Accrued interest - 4,828 98 - 98 - 4,926
Long-term debt, current portion - 8,669 1,516 2,545 4,061 - 12,730
Revolving line of credit - 34,750 - - - - 34,750
Deferred income taxes - 48,194 - - - (1,629) 46,565
Intercompany accounts 6,870 (41,587) 17,863 16,854 34,717 - -
-------- -------- ------- ------- -------- --------- --------
Total current liabilities 6,870 72,984 29,547 25,501 55,048 (1,629) 133,273
-------- -------- ------- ------- -------- --------- --------
Long-term debt - 149,775 29,134 16,768 45,902 - 195,677
Deferred income taxes - 11,300 803 16,584 17,387 (13,606) 15,081
Shareholders' equity
Common stock 221 17,971 11,414 4,500 15,914 (33,885) 221
Additional paid in capital 127,938 21,362 5,889 1,777 7,666 (29,028) 127,938
Notes receivable from stock sales (173) - - - - - (173)
Retained earnings (deficit) (49,145) 36,004 1,421 5,871 7,292 (43,296) (49,145)
Accumulated other comprehensive loss (4,091) - (4,091) - (4,091) 4,091 (4,091)
-------- -------- ------- ------- -------- --------- --------
Total shareholders' equity 74,750 75,337 14,633 12,148 26,781 (102,118) 74,750
-------- -------- ------- ------- -------- --------- --------
$ 81,620 $309,396 $74,117 $71,001 $145,118 $(117,353) $418,781
======== ======== ======= ======= ======== ========= ========
</TABLE>
Page 11
<PAGE>
Guarantor / Non-guarantor Disclosures - (Continued)
Consolidating Statement of Operations
For the quarter ended March 31, 2000
(Dollars in thousands)
<TABLE>
<CAPTION>
Nursery
Segment Growing Media Segment
--------- -----------------------------------
Sun Gro
Hines Sun Gro Canada
Horticulture Hines U.S. (Subsidiary
(Parent Nurseries (Subsidiary Non- Sun Gro Consolidated
Guarantor) (Issuer) Guarantor) Guarantors) Sub-total Eliminations Total
------------ --------- ----------- ----------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales, net $ - $49,293 $32,123 $12,870 $44,993 $(9,386) $84,900
Cost of goods sold - 26,233 20,241 6,994 27,235 (9,386) 44,082
------- ------- ------- ------- ------- ------- -------
Gross Profit - 23,060 11,882 5,876 17,758 - 40,818
Operating expenses - 17,139 10,248 2,526 12,774 - 29,913
------- ------- ------- ------- ------- ------- -------
Operating income - 5,921 1,634 3,350 4,984 - 10,905
------- ------- ------- ------- ------- ------- -------
Other expenses:
Interest (3) 5,913 796 378 1,174 - 7,084
Interest - intercompany - (839) 542 297 839 - -
Amortization of deferred financing
expenses, other (2,328) (1,676) (1,704) - (1,704) 5,950 242
------- ------- ------- ------- ------- ------- -------
(2,331) 3,398 (366) 675 309 5,950 7,326
------- ------- ------- ------- ------- ------- -------
Income before provision for income taxes 2,331 2,523 2,000 2,675 4,675 (5,950) 3,579
Income tax provision 1 195 105 948 1,053 - 1,249
------- ------- ------- ------- ------- ------- -------
Net income $ 2,330 $ 2,328 $ 1,895 $ 1,727 $ 3,622 $(5,950) $ 2,330
======= ======= ======= ======= ======= ======= =======
</TABLE>
Guarantor / Non-guarantor Disclosures
Consolidating Statement of Operations
For the quarter ended March 31, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
Nursery
Segment Growing Media Segment
--------- -----------------------------------
Sun Gro
Hines Sun Gro Canada
Horticulture Hines U.S. (Subsidiary
(Parent Nurseries (Subsidiary Non- Sun Gro Consolidated
Guarantor) (Issuer) Guarantor) Guarantors) Sub-total Eliminations Total
------------ --------- ----------- ----------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales, net $ - $33,173 $22,106 $9,997 $32,103 $(5,874) $59,402
Cost of goods sold - 17,813 11,418 5,986 17,404 (5,874) 29,343
------- ------- ------- ------ ------- ------- -------
Gross Profit - 15,360 10,688 4,011 14,699 - 30,059
Operating expenses - 11,854 8,093 2,736 10,829 - 22,683
------- ------- ------- ------ ------- ------- -------
Operating income - 3,506 2,595 1,275 3,870 - 7,376
------- ------- ------- ------ ------- ------- -------
Other expenses:
Interest - 3,794 157 351 508 - 4,302
Interest - intercompany - (359) 331 28 359 - -
Amortization of deferred financing
expenses, other (1,700) (1,585) 49 - 49 3,423 187
------- ------- ------- ------ ------- ------- -------
(1,700) 1,850 537 379 916 3,423 4,489
------- ------- ------- ------ ------- ------- -------
Income before provision for income taxes 1,700 1,656 2,058 896 2,954 (3,423) 2,887
Income tax provision - (44) 443 788 1,231 - 1,187
------- ------- ------- ------ ------- ------- -------
Net income $ 1,700 $ 1,700 $ 1,615 $ 108 $ 1,723 $(3,423) $ 1,700
======= ======= ======= ====== ======= ======= =======
</TABLE>
Page 12
<PAGE>
Guarantor / Non-guarantor Disclosures
Consolidating Statement of Cash Flows
For the quarter ended March 31, 2000
(Dollars in thousands)
<TABLE>
<CAPTION>
Nursery
Segment Growing Media Segment
--------- -----------------------------------
Sun Gro
Hines Sun Gro Canada
Horticulture Hines U.S. (Subsidiary
(Parent Nurseries (Subsidiary Non- Sun Gro Consolidated
Guarantor) (Issuer) Guarantor) Guarantors) Sub-total Eliminations Total
------------ --------- ----------- ----------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash provided by (used in) operating
activities $ 3 $ (36,294) $(12,503) $ 1,423 $(11,080) $ - $ (47,371)
---- --------- -------- ------- -------- ---- ---------
Cash flows from investing activities:
Purchase of fixed assets, net - (6,468) (1,312) (1,283) (2,595) - (9,063)
Acquisitions, net of cash - (112,034) - - - - (112,034)
---- --------- -------- ------- -------- ---- ---------
Net cash used in investing activities - (118,502) (1,312) (1,283) (2,595) - (121,097)
---- --------- -------- ------- -------- ---- ---------
Cash flows from financing activities:
Proceeds from revolving line of credit - 53,750 - - - - 53,750
Intercompany advances (repayments) (49) (15,324) 15,373 - 15,373 - -
Proceeds from the issuance of long-term
debt - 119,416 - - - - 119,416
Repayments of long-term debt - (1,311) - (6) (6) - (1,317)
Deferred financing costs - (3,293) - - - - (3,293)
Dividends received (paid) - 1,558 (1,558) - (1,558) - -
Repayments of notes receivables from
stock sales 46 - - - - - 46
---- --------- -------- ------- -------- ---- ---------
Net cash provided by (used in)
financing activities (3) 154,796 13,815 (6) 13,809 - 168,602
---- --------- -------- ------- -------- ---- ---------
Effect of exchange rate changes on cash
and cash equivalents - - - (134) (134) - (134)
---- --------- -------- ------- -------- ---- ---------
Net decrease in cash $ - - - - - - -
Cash, beginning of year - - - - - - -
---- --------- -------- ------- -------- ---- ---------
Cash, end of year $ - $ - $ - $ - $ - $ - $ -
==== ========= ======== ======= ======== ==== =========
</TABLE>
Page 13
<PAGE>
Guarantor / Non-guarantor Disclosures
Consolidating Statement of Cash Flows
For the quarter ended March 31, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
Nursery
Segment Growing Media Segment
--------- -----------------------------------
Sun Gro
Hines Sun Gro Canada
Horticulture Hines U.S. (Subsidiary
(Parent Nurseries (Subsidiary Non- Sun Gro Consolidated
Guarantor) (Issuer) Guarantor) Guarantors) Sub-total Eliminations Total
------------ --------- ----------- ----------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash provided by (used in) operating
activities $ - $(24,218) $(6,645) $ 1,118 $(5,527) $ - $(29,745)
---- -------- ------- ------- ------- ---- --------
Cash flows from investing activities:
Purchase of fixed assets, net (16) (6,033) (148) (760) (908) - (6,957)
Acquisitions, net of cash - (500) - (485) (485) - (985)
---- -------- ------- ------- ------- ---- --------
Net cash used in investing activities (16) (6,533) (148) (1,245) (1,393) - (7,942)
---- -------- ------- ------- ------- ---- --------
Cash flows from financing activities:
Proceeds from revolving line of credit,
net - 37,050 - - - - 37,050
Intercompany advances (repayments) 16 (6,809) 6,793 - 6,793 - -
Proceeds from the issuance of long-term
debt - - - 127 127 - 127
Repayments of long-term debt - (5) - - - - (5)
---- -------- ------- ------- ------- ---- --------
Net cash provided by financing activities 16 30,236 6,793 127 6,920 - 37,172
---- -------- ------- ------- ------- ---- --------
Net decrease in cash - (515) - - - - (515)
Cash, beginning of year - 515 - - - - 515
---- -------- ------- ------- ------- ---- --------
Cash, end of year $ - $ - $ - $ - $ - $ - $ -
---- -------- ------- ------- ------- ---- --------
</TABLE>
Page 14
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains forward-looking statements. Hines desires to take
advantage of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 and is including this statement for the
express purpose of availing itself of the protections of the safe harbor
with respect to all forward-looking statements. Several important factors,
in addition to the specific factors discussed in connection with such
forward-looking statements individually, could affect the future results of
the Company and could cause those results to differ materially from those
expressed in the forward-looking statements contained herein.
The Company's estimated or anticipated future results, products and
service performance or other non-historical facts are forward-looking and
reflect Hines' current perspective of existing trends and information.
These statements involve risks and uncertainties that cannot be predicted
or quantified and, consequently, actual results may differ materially from
those expressed or implied by such forward-looking statements. Such risks
and uncertainties include, among others, the continued ability of Hines' to
access water, the impact of growing conditions, risks associated with
customer concentration, future acquisitions and the ability to integrate
such acquisitions in a timely and cost effective manner, the ability to
manage growth, the impact of competition, the ability to obtain future
financing, limitations of leverage and debt restrictions, government
regulations and other risks and uncertainties defined from time to time in
Hines' Securities and Exchange Commission filings.
Therefore, the Company wishes to caution each reader of this report to
consider carefully these factors as well as the specific factors discussed
with each forward-looking statement in this report and disclosed in the
Company's filings with the Securities and Exchange Commission as such
factors, in some cases, have affected, and in the future (together with
other factors) could affect, the ability of the Company to implement its
business strategy and may cause actual results to differ materially from
those contemplated by the statements expressed herein.
Overview
General. Hines is one of the largest commercial nursery operations in
North America, producing one of the broadest assortments of container-grown
plants in the industry. The Company sells its nursery products primarily to
the retail segment, which includes premium independent garden centers, as
well as leading home centers and mass merchandisers, such as Home Depot,
Lowe's, Wal-Mart, Kmart and Target. The Company is also the largest North
American producer and marketer of sphagnum peat moss and professional bark-
based growing mixes. The Company sells its growing media products primarily
to professional customers, including greenhouse growers, nursery growers
and golf course developers. The Company believes that sales of its nursery
and growing media products have been positively affected by societal and
demographic trends, such as greater levels of home ownership, the aging of
the American population and the increasing popularity of gardening. Recent
trends in the retail distribution channel, such as the expansion of large
"big box" retailers and their growing emphasis on the lawn and garden
category, have increased consumer exposure to lawn and garden products.
Management believes these trends have favorably impacted the Company and
provide excellent opportunities for improved operating performance.
Seasonality. The Company's nursery business, like that of its
competitors, is highly seasonal. In 1999, approximately 75% of Hines
Nurseries' net sales and approximately 117% of Hines Nurseries' operating
income occurred in the first half of the year. Approximately 57% of Hines
Nurseries' net sales and approximately 105% of Hines Nurseries' operating
income occurred in the second quarter of 1999. The Company has experienced
and expects to continue to experience significant seasonality in net sales,
operating income and net income. This quarterly variability is primarily
the result of the consumer gardening cycle, which is closely aligned to
seasonal weather patterns, particularly weekend weather during the peak
growing season, as well as other factors. Sun Gro's sales, because they are
more heavily weighted towards the professional markets, typically do not
experience the large seasonal variances present in the retail market, and
are only slightly weighted towards the first half of the year.
Page 15
<PAGE>
Acquisitions. The Company has completed a number of recent
acquisitions to expand and diversify its operations. Since January 1, 1997,
the Company has completed eight acquisitions, all of which have been
accounted for under the purchase method. Accordingly, the purchase prices
were allocated to certain assets and liabilities based on their respective
fair market values. The excess of the purchase price over the estimated
fair market value of the net assets acquired relating to each transaction
was accounted for as goodwill. Amounts allocated to goodwill are being
amortized on a straight-line basis over thirty-five years. The Company's
existing acquisition facility and a new term loan provided the funds used
for the acquisitions. The consolidated financial statements include the
operating results of each acquisition from the date of acquisition.
On March 3, 2000, the Company entered into an agreement to acquire (i)
substantially all of the assets and assume certain liabilities of Lovell
Farms, Inc., and Botanical Farms, Inc.; (ii) the capital stock of Enviro-
Safe Laboratories, Inc.; and (iii) the partnership interest of Lovell
Properties (collectively referred to as "Lovell"). Lovell is a supplier of
bedding and holiday plants to independent garden centers, home centers,
mass merchandisers and other professional customers in the southeastern
United States. The total acquisition price was approximately $92.0 million,
which resulted in goodwill of approximately $70.2 million. In addition,
under the terms of the purchase agreement, the Company may be required to
make additional payments of up to $12.5 million, contingent upon Lovell
achieving certain operating results during 2000 and 2001.
On January 14, 2000, the Company entered into an agreement to acquire
certain assets (primarily land and buildings) and all of the outstanding
capital stock of Willow Creek Greenhouses, Inc. ("Willow Creek"), a
producer of quality annual bedding plants and holiday plants. The total
acquisition price was approximately $18.8 million, which resulted in
goodwill of approximately $10.2 million. In addition, under the terms of
the purchase agreement, the Company may be required to make additional
payments of up to $1.1 million, contingent upon Willow Creek achieving
certain operating results during 2000 and 2001.
These acquisitions have and will continue to affect the
period-to-period comparability of the operating results discussed below.
The Company intends to pursue strategic acquisitions from time to time that
increase its production capacity, broaden or complement its existing
product lines, expand its geographic presence or offer operating synergies.
The Company believes that the highly fragmented nature of the nursery
industry presents it with a number of opportunities to make such
acquisitions, though the Company does not have current agreements to
consummate any such acquisitions.
Page 16
<PAGE>
Tax Matters. The Company derives significant benefits under the U.S.
federal tax code by qualifying to use the cash method of accounting for
federal income tax purposes. Under the cash method, sales are included in
taxable income when payments are received and expenses are deducted as they
are paid. The primary benefit the Company receives is the ability to deduct
the cost of inventory as it is incurred. As a result of the Company's
ability to deduct its growing costs under the farming exception, the
Company has generally not been required to pay cash income taxes and has
generated net operating losses for federal income tax purposes. In 1999,
the Company generated taxable income for federal income tax purposes. To
the extent taxable income is offset with net operating loss carry forwards,
no cash federal income tax will be paid apart from a small amount due to
the alternative minimum tax. During the same period, the Company has
continued to show a tax provision relating to the recording of deferred
taxes. At December 31, 1999, the Company had approximately $36.5 million in
net operating loss carry forwards for federal income tax reporting
purposes.
Results of Operations
Three Months Ended March 31, 2000 compared to Three Months Ended March 31,
1999
Net sales. Net sales of $84.9 million for the three months ended March
31, 2000 increased $25.5 million, or 42.9%, from net sales of $59.4 million
for the comparable period in 1999. This substantial sales gain was
attributable in part to recently completed acquisitions in both the nursery
and growing media businesses. Sales from the Company's nursery operations
increased 49% during the first quarter, with particularly strong
performances registered in its Eastern and Southern regions. The Southern
region continues to benefit from planned capacity expansions and successful
store service programs. The Company's most recent nursery acquisitions,
Willow Creek in Arizona and Lovell Farms in Florida were both major
contributors to a strong first quarter performance as each significantly
increased sales from recent capacity expansions.
Net sales of the Company's growing media products increased by 36%
from the comparable period in 1999. Sales in the Eastern and Central
regions increased significantly, with recent acquisitions, Strong Lite and
Pro Gro registering solid performances. Sales of professional peat and mix
led the growing media segment due in large part to the mounting popularity
of the Company's professional mixes and the introduction of the Company's
co-packing operations with large bagged goods companies.
Gross profit. Gross profit of $40.8 million for the three months ended
March 31, 2000 increased $10.7 million, or 35.5%, from gross profit of
$30.1 million for the comparable period in 1999. The increase was primarily
attributable to higher sales at both the Company's nursery and growing
media operations.
Page 17
<PAGE>
As a percent of sales, gross margin decreased from 50.6% to 48.1% of
net sales primarily due to the impact of recent acquisitions having lower
gross margins than the existing base business both within the nursery and
growing media operations and the costs related to scaling up the Company's
co-packing initiative.
Operating expenses. Operating expenses of $29.9 million for the three
months ended March 31, 2000 increased $7.2 million, or 31.7%, from $22.7
million for the comparable period in 1999. The increase was primarily
attributable to acquisitions and the significant investment in sales and
management infrastructure required to support the Company's current and
future growth. Operating expenses as a percentage of net sales were reduced
from 38.2% to 35.2% in first three months of 2000, primarily attributable
to the Company's ability to leverage operating expenses on higher sales
volume.
Operating income. Operating income of $10.9 million for the three
months ended March 31, 2000 increased $3.5 million, or 47.3%, from $7.4
million for the comparable period in 1999. As a percentage of net sales,
operating income improved 0.4% to 12.8% from 12.4%, due primarily to the
ability of the Company's growing media business to streamline a number of
support functions to gain increased administrative efficiencies.
Interest expense. Interest expense of $7.1 million for the three
months ended March 31, 2000 increased $3.8 million, or 65.1%, from $4.3
million for the comparable period in 1999. This increase in interest
expense is a result of the acquisitions made during the past nine months
and higher interest rates.
Provision for income taxes. The Company's effective income tax rate
was 34.9% and 41.1% for the three months ended March 31, 2000 and 1999,
respectively. The decrease in the effective income tax rate is mainly due
to the release of tax reserves management determined will no longer be
necessary.
Net income. Net income of $2.3 million for the three months ended
March 31, 2000 increased $0.6 million from a net income of $1.7 million for
the comparable period in 1999. The improvement to net income was primarily
attributable to increased sales and the Company's ability to leverage its
operating expenses on higher sales volume.
Page 18
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The Company has historically satisfied its working capital requirements
through operating cash flow and borrowing from its working capital facility. Due
to the highly seasonal nature of the Company's nursery operations, the Company
historically significantly increases its borrowing under its revolving credit
facilities to fund peak needs.
In 1998, the Company entered into a senior credit facility (the "Senior
Credit Facility") which provided for a $50.0 million term loan and a $200.0
million revolving credit facility, comprised of a $100.0 million working capital
facility and a $100.0 million acquisition facility. The Senior Credit Facility
has a five-year term. The revolving credit facility and all other obligations
under the Senior Credit Facility are secured by substantially all of the assets
and common stock of Hines Nurseries and Sun Gro-U.S., as well as a pledge of 65%
of the common stock of Sun Gro-Canada. The principal repayment schedule for the
term loan is $6.25 million in 2000, $11.25 million in 2001, $18.75 million in
2002 and $11.25 million in 2003. Amounts borrowed under the acquisition facility
will convert into a term loan in September 2000 and will begin to amortize
thereafter. The Senior Credit Facility, among other things, limits the ability
of Hines Nurseries and its subsidiaries to pay any dividends.
In connection with the Lovell acquisition on March 3, 2000, the Company
entered into an amendment to its existing senior credit facility (the "Amended
Senior Credit Facility") to provide for a new $100 million term loan and a $15
million increase in the Company's existing working capital revolving credit
facility. The term loan requires annual principal payments of $1 million through
December 31, 2003, $47 million in fiscal year 2004 and the remaining balance in
fiscal year 2005. The term loan and revolving credit facility interest rate is a
percentage spread over the U.S. prime rate and the Eurodollar rate depending
upon the Company's quarterly leverage and interest rate coverage ratios as
defined in the Amended Senior Credit Facility. The term loan and revolving
credit facility are secured by substantially all of the assets and common stock
of the Company's domestic subsidiaries and 65% of the common stock of its
foreign subsidiary. The Lovell acquisition was financed with proceeds from the
Amended Senior Credit Facility.
As of March 31, 2000, $78.0 million in aggregate principal amount remains
outstanding of the Company's 11 3/4% Senior Subordinated Notes due 2005, Series
B. The indenture pursuant to which the Senior Subordinated Notes were issued
imposes a number of restrictions on Hines Nurseries and Sun Gro-U.S. The
indenture limits, among other things, their ability to incur additional
indebtedness, to make certain restricted payments (including dividends to
Hines), to make certain asset dispositions, to incur certain liens and to enter
into certain significant transactions.
Page 19
<PAGE>
In addition, breach of a material term of the indenture or any other
material indebtedness that results in the acceleration of such indebtedness
would trigger an event of default under the Senior Credit Facility, causing all
amounts owing thereunder to become immediately due and payable. The Senior
Credit Facility imposes a number of similar and certain additional restrictions
(including financial covenants) on Hines Nurseries and its subsidiaries.
The seasonal nature of the Company's operations results in a significant
increase in certain components of working capital (primarily accounts receivable
and inventory) during the growing and selling cycles. Net cash used by operating
activities for the three months ended March 31, 2000, of $47.4 million increased
$17.7 million, from $29.7 million for the comparable period in 1999. This
increase is attributable to the increased inventory levels to support the
Company's expanded operations and an increased accounts receivable balance
related to the increase in sales in the three months ended March 31, 2000.
Net cash used for investing activities during the three months ended March
31, 2000 increased $113.2 million to $121.1 million from $7.9 million for the
comparable period in 1999. The increase was primarily due to the Company's
acquisitions of Willow Creek and Lovell, and the development of additional
nursery acreage, the purchase of nursery-related structures, certain vehicles,
and machinery and equipment.
Net cash provided by financing activities during the three months ended
March 31, 2000 increased $131.4 million to $168.6 million from $37.2 million for
the comparable period in 1999. The increase was primarily associated with
increased borrowings under the Amended Senior Credit Facility related to the
acquisitions described above.
The Company typically draws under its revolving credit facilities in the
first and fourth quarters to fund its inventory buildup of nursery products and
seasonal operating expenses. Approximately 75% of the sales of Hines Nurseries
occur in the first half of the year, generally allowing the Company to reduce
borrowings under its revolving credit facilities in the second and third
quarters. Working capital requirements for the Company's growing media
operations are less seasonal in nature, with slight inventory buildups generally
occurring in the third and fourth quarters. As the Company approaches the peak-
selling season, this also represents the peak in the Company's borrowings as the
Company funds the significant build-up of receivables and inventories. On April
30, 2000, the Company had unused borrowing capacity of $1.4 million and $11.5
million under its acquisition facility and working capital revolver,
respectively, within the Amended Senior Credit Facility.
Page 20
<PAGE>
As a result of the Company's ability to deduct its growing costs under the
farming exception, the Company has generally not been required to pay cash
income taxes in recent years and has generated net operating losses for federal
income tax purposes. Even with the benefits of the farming exception, the
Company may nonetheless be required to pay cash income taxes in future years
after use, loss or expiration of its tax net operating loss carry forwards. Such
cash income taxes could also result from increased taxable income due to, among
other reasons, (1) any slowdown in, or elimination of, future growth in the
Company's inventory of growing plants, or (2) limits on the Company's ability to
use net operating loss carryforwards to offset all of its tax liability under
the alternative minimum tax system.
The Company's capital expenditures were approximately $9.1 million for the
three months ended March 31, 2000. The capital expenditures for Hines Nurseries
($6.5 million) related primarily to the purchase and development of additional
nursery acreage, the purchase of nursery-related structures, vehicles, and
machinery and equipment. The capital expenditures for Sun Gro ($2.6 million)
related primarily to peat bog development and the purchase of peat bog
harvesting and processing equipment. The Company's capital expenditures for 2000
are expected to be approximately $39 million.
Management believes that cash generated by operations and borrowings
available under the Amended Senior Credit Facility will be sufficient to meet
the Company's anticipated working capital, capital expenditures and debt service
requirements for the foreseeable future. However, as a result of its plan to
pursue strategic acquisitions, the Company will likely require additional debt
or equity financing in the future. There can be no assurance that such
additional financing will be on terms favorable to the Company, or at all.
Year 2000 Compliance
- --------------------
The Company instituted a program to determine whether its computerized
information systems are able to interpret dates beyond the year 1999 and
implemented programming modifications to its main operational and financial
reporting systems to address these issues. The financial systems of companies
recently acquired by the Company were also evaluated to determine whether they
were Year 2000 compliant.
To date, the Company has not incurred any significant failures,
interruptions of supplies or services related to the Year 2000 issue.
Page 21
<PAGE>
Recent Accounting Pronouncements
- --------------------------------
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivatives and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. In July 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133," which deferred the effective date until the first
fiscal quarter of the first fiscal year beginning after June 15, 2000. Through
March 31, 2000, the Company has not engaged in significant hedging activities or
invested in derivative instruments.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company has not experienced any material changes to its market risk
exposures since December 31, 1999.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
Current Report on Form 8-K dated March 17, 2000, setting forth an
executed purchase agreement to acquire (i) substantially all of the
assets and assume certain liabilities of Lovell Farms, Inc., and
Botanical Farms, Inc.; (ii) the capital stock of Enviro-Safe
Laboratories, Inc.; and (iii) the partnership interest of Lovell
Properties.
Items 1, 2, 3, 4 and 5 are not applicable and have been omitted.
Page 22
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HINES HORTICULTURE, INC.
(Registrant)
By: /s/ Claudia M. Pieropan
-----------------------------------
Claudia M. Pieropan
Chief Financial Officer
(Principal financial officer
and duly authorized officer)
Date: May 15, 2000
Page 23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-2000
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 87,207
<ALLOWANCES> 1,789
<INVENTORY> 170,566
<CURRENT-ASSETS> 261,255
<PP&E> 236,858
<DEPRECIATION> 41,547
<TOTAL-ASSETS> 601,958
<CURRENT-LIABILITIES> 194,532
<BONDS> 314,146
0
0
<COMMON> 221
<OTHER-SE> 77,201
<TOTAL-LIABILITY-AND-EQUITY> 601,958
<SALES> 84,900
<TOTAL-REVENUES> 84,900
<CGS> 44,082
<TOTAL-COSTS> 29,913
<OTHER-EXPENSES> 7,326
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,084
<INCOME-PRETAX> 3,579
<INCOME-TAX> 1,249
<INCOME-CONTINUING> 2,330
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,330
<EPS-BASIC> 0.11
<EPS-DILUTED> 0.11
</TABLE>
