<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 3, 2000
-----------------
Hines Horticulture, Inc.
(Exact name of registrant as specified in its charter)
Delaware 0-24439 33-0803204
- --------------------------------- ---------------- ------------------
(State or other jurisdiction of (Commission File (I.R.S. Employer
incorporation) Number) Identification No.)
12621 Jeffrey Road
Irvine, California 92620
(Address of principal executive offices)
Registrant's telephone number, including area code: (949) 559-4444
<PAGE>
AMENDMENT
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K,
originally filed with the Securities and Exchange Commission on March 17, 2000,
as set forth in the pages attached hereto:
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On March 3, 2000, Hines Horticulture, Inc. (the "Company") executed a 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 (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 acquisition was accounted for by the purchase method of accounting and
accordingly, the operating results of Lovell from the acquisition date will be
recorded in the Company's consolidated financial statements. The purchase
price, excluding the assumption of ordinary course liabilities, was $92 million.
Additionally, 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. In connection
with the Lovell acquisition, 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 the term loan described herein.
The closing of the acquisition was announced by the Company in a press release
dated March 6, 2000, a copy of which is filed as an exhibit hereto.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
The following financial statements of Lovell are being filed with this
report:
Independent Auditors' Report
Audited Combined Consolidated Balance Sheets as of December 31, 1998 and
1999
Audited Combined Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999
Audited Combined Consolidated Statements of Owners' Equity for the years
ended December 31, 1997, 1998 and 1999
Audited Combined Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999
Notes to Combined Consolidated Financial Statements
<PAGE>
(b) PRO FORMA FINANCIAL INFORMATION
The following pro forma financial information of Lovell are being filed
with this report:
Unaudited Pro Forma Information
Unaudited Pro Forma Combined Consolidated Balance Sheet as of December 31,
1999
Unaudited Pro Forma Combined Consolidated Statement of Operations for the
year ended December 31, 1999
Notes to the Unaudited Pro Forma Combined Consolidated Financial
Information
(c) EXHIBITS
* First amendment to Credit Agreement and Consent, dated as of March 3, 2000,
among Hines Nurseries, Inc., Sun Gro Horticulture Canada Ltd., as
Borrowers, and The Lenders Listed therein, as Lenders, Bank of America
National Trust and Savings Association, as Syndication Agent, Harris Trust
and Savings Bank, as Documentation Agent, Deutsche Bank Canada, as Canadian
Agent, and Bankers Trust Company, as Administrative Agent
* Purchase Agreement by and among Hines Nurseries, Inc., Lovell Farms, Inc.,
Botanical Farms, Inc., Warren W. Lovell III, Jeffrey S. Lovell, Jennifer E.
Moreno, as Trustee of the Trace Lovell Family Investment Trust and Enrique
A. Yanes, Dated as of March 3, 2000
* Press Release dated March 6, 2000
Financial Statements of Lovell listed in Item 7(a) above
Pro Forma Financial Statements of Lovell listed in Item 7(b) above
<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 hereunto duly authorized.
Dated: May 15, 2000 HINES HORTICULTURE, INC.
By: /s/ Claudia M. Pieropan
------------------------
Claudia M. Pieropan
Chief Financial Officer
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ ------------
4.4 (*) First amendment to Credit Agreement and Consent, dated as of
March 3, 2000, among Hines Nurseries, Inc., Sun Gro Horticulture
Canada Ltd., as Borrowers, and The Lenders Listed therein, as
Lenders, Bank of America National Trust and Savings Association,
as Syndication Agent, Harris Trust and Savings Bank, as
Documentation Agent, Deutsche Bank Canada, as Canadian Agent, and
Bankers Trust Company, as Administrative Agent.
10.24 (*) Purchase Agreement by and among Hines Nurseries, Inc., Lovell
Farms, Inc., Botanical Farms, Inc., Warren W. Lovell III, Jeffrey
S. Lovell, Jennifer E. Moreno, as Trustee of the Trace Lovell
Family Investment Trust and Enrique A. Yanes, Dated as of March
3, 2000.
99.1 (*) Press Release dated March 6, 2000.
99.2 (+) Financial Statements of Lovell listed in Item 7(a) above
99.3 (+) Pro Forma Financial Statements of Lovell listed in Item 7(b)
above (+)
_________________
+ Filed herewith.
* Incorporated by reference to the same Exhibit number of the Company's
Current Report on Form 8-K filed March 17, 2000.
<PAGE>
EXHIBIT 99.2
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Lovell Farms, Inc., Botanical Farms, Inc.,
Enviro-Safe Laboratories, Inc., and Lovell Properties:
We have audited the accompanying combined balance sheets of Lovell Farms, Inc.,
Botanical Farms, Inc., Enviro-Safe Laboratories, Inc., and Lovell Properties, a
partnership, (collectively referred to as "Lovell Farms, Inc. and Affiliates" or
the "Companies"), all of which are under common ownership and common management,
as of December 31, 1998 and 1999, and the related combined statements of
operations, owners' equity and cash flows for each of the three years in the
period ended December 31, 1999. These combined financial statements are the
responsibility of the Companies' management. Our responsibility is to express
an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of Lovell Farms, Inc. and Affiliates
as of December 31, 1998 and 1999, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1999 in
conformity with accounting principles generally accepted in the United States of
America.
Deloitte & Touche LLP
Certified Public Accountants
Miami, Florida
March 31, 2000
<PAGE>
LOVELL FARMS, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS 1998 1999
CURRENT ASSETS:
Cash and cash equivalents $ 633,500 $10,298,038
Receivables, net 4,459,209 3,982,842
Inventories 6,579,479 7,834,299
Prepaid expenses 531,019 90,673
----------- -----------
Total current assets 12,203,207 22,205,852
PROPERTY AND EQUIPMENT, net 7,501,781 8,586,828
DEFERRED INCOME TAXES, net 14,423 120,597
OTHER 425,637 749,091
----------- -----------
TOTAL $20,145,048 $31,662,368
=========== ===========
LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,597,844 $ 3,479,383
Accrued liabilities 180,719 2,595,875
Due to shareholders 640,000 640,000
Lines of credit 1,200,000 2,698,250
Current portions of long-term debt and capital lease obligations 354,618 394,575
----------- -----------
Total current liabilities 3,973,181 9,808,083
CAPITAL LEASE OBLIGATION, net of current portion 4,971 328,221
LONG-TERM DEBT, net of current portion 2,232,659 1,925,948
----------- -----------
Total liabilities 6,210,811 12,062,252
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 9 and 10)
OWNERS' EQUITY:
Common stock 800 816
Additional paid-in capital - 5,479,401
Loan receivable from shareholder - (1,089,650)
Retained earnings 12,170,499 13,718,422
Partners' capital 1,762,938 1,491,127
----------- -----------
Total owners' equity 13,934,237 19,600,116
----------- -----------
TOTAL $20,145,048 $31,662,368
=========== ===========
</TABLE>
See notes to combined financial statements.
-2-
<PAGE>
LOVELL FARMS, INC. AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1998 1999
<S> <C> <C> <C>
NET SALES $39,270,827 $45,288,710 $52,716,216
COST OF SALES 12,764,569 14,890,795 15,866,930
----------- ----------- -----------
Gross profit 26,506,258 30,397,915 36,849,286
----------- ----------- -----------
EXPENSES:
Selling, general and administrative 16,217,844 19,782,578 33,343,118
Interest 286,696 305,679 370,677
Gain on sale of land - (488,017) -
----------- ----------- -----------
Total expenses 16,504,540 19,600,240 33,713,795
----------- ----------- -----------
INCOME FROM OPERATIONS 10,001,718 10,797,675 3,135,491
OTHER INCOME 81,880 97,763 111,504
----------- ----------- -----------
INCOME BEFORE INCOME TAX
PROVISON (BENEFIT) 10,083,598 10,895,438 3,246,995
INCOME TAX PROVISION (BENEFIT) 12,412 17,748 (106,174)
----------- ----------- -----------
NET INCOME $10,071,186 $10,877,690 $ 3,353,169
=========== =========== ===========
</TABLE>
See notes to combined financial statements.
-3-
<PAGE>
LOVELL FARMS, INC. AND AFFILIATES
<TABLE>
<CAPTION>
COMBINED STATEMENTS OF OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
- ------------------------------------------------------------------------------------------------------------------
Loan
Additional Receivable Total
Common Paid-in From Retained Partners Owner's
Stock Capital Shareholder Earnings Capital Equity
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 1, 1997 $800 - - $ 12,163,788 $ 2,858,995 $ 15,023,583
Net income (loss) 10,386,566 (315,380) 10,071,186
Capital distributions (10,881,808) - (10,881,808)
---- ---------- ----------- ------------ ----------- ------------
BALANCE,
DECEMBER 31, 1997 800 - - 11,668,546 2,543,615 14,212,961
Net income 10,658,367 219,323 10,877,690
Capital distributions (10,156,414) (1,000,000) (11,156,414)
---- ---------- ----------- ------------ ----------- ------------
BALANCE,
DECEMBER 31, 1998 800 - - 12,170,499 1,762,938 13,934,237
Net income (loss) 3,624,980 (271,811) 3,353,169
Capital distributions (2,077,057) - (2,077,057)
Issuance of common stock 16 $5,479,401 - - - 5,479,417
Receivable from shareholder
for taxes withheld $(1,089,650) - - (1,089,650)
---- ---------- ----------- ------------ ----------- ------------
BALANCE,
DECEMBER 31, 1999 $816 $5,479,401 $(1,089,650) $ 13,718,422 $ 1,491,127 $ 19,600,116
==== ========== =========== ============ =========== ============
</TABLE>
-4-
<PAGE>
LOVELL FARMS, INC. AND AFFILIATES
<TABLE>
<CAPTION>
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
- -------------------------------------------------------------------------------------------------------------------------
1997 1998 1999
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,071,186 $ 10,877,690 $ 3,353,169
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 580,597 629,493 853,494
Provision for losses on accounts receivable 58,047 545,030 90,112
Gain on sale and disposal of property and equipment - (488,017) (2,096)
Issuance of common stock as compensation - - 5,479,417
Changes in operating assets and liabilities:
Receivables 569,682 (90,735) 386,255
Inventories 101,416 (140,883) (1,254,820)
Prepaid expenses and other current assets (645,801) (336,486) 440,346
Other assets (83,412) 175,405 (323,454)
Accounts payable 419,983 (604,834) 1,881,539
Due to shareholders 600,000 - -
Accrued expenses 90,765 89,392 2,415,156
Deferred income taxes (2,534) (11,889) (106,174)
------------ ------------ -----------
Net cash provided by operating activities 11,759,929 10,644,166 13,212,944
------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,443,444) (488,489) (1,544,843)
Proceeds from sale and disposal of property and
equipment - 1,180,521 14,650
------------ ------------ -----------
Net cash provided by (used in) investing activities (1,443,444) 692,032 (1,530,193)
------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line-of-credit agreements 800,000 400,000 1,498,250
Principal payments on long term debt and capital
lease obligations (278,441) (789,538) (349,756)
Dividends paid to owners (10,881,808) (11,156,414) (2,077,057)
Receivable from shareholder - - (1,089,650)
------------ ------------ -----------
Net cash used in financing activities (10,360,249) (11,545,952) (2,018,213)
------------ ------------ -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (43,764) (209,754) 9,664,538
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 887,018 843,254 633,500
------------ ------------ -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 843,254 $ 633,500 $10,298,038
============ ============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid in during the year for:
Interest 279,475 297,673 387,280
Taxes 10,402 - -
SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING AND INVESTING ACTIVITIES:
Property and equipment obtained through capital lease - 15,172 406,252
</TABLE>
See notes to combined financial statements.
-5-
<PAGE>
LOVELL FARMS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1999 AND FOR THE
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
- --------------------------------------------------------------------------------
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General - Lovell Farms, Inc., Botanical Farms, Inc., Enviro-Safe
Laboratories, Inc. and Lovell Properties, a partnership, (collectively
referred to as "Lovell Farms, Inc. and Affiliates" or the "Companies"), are
engaged in the business of growing flowering plants, primarily in South
Florida, and of selling and distributing such plants throughout the United
States.
Basis of Presentation - The accompanying combined financial statements are
presented in accordance with accounting principles generally accepted in the
United States of America.
Principles of Combination - The accompanying combined financial statements
include the accounts of Lovell Farms, Inc. and Affiliates. All significant
intercompany transactions and balances have been eliminated from the
accompanying combined financial statements.
The common stock balance and legal structure of each entity consists of the
following as of December 31:
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Lovell Farms, Inc. (par $1 per share; 5,000 shares authorized; 200 and
216 shares issued and outstanding in 1998 and 1999, respectively), $ 200 $ 216
a subchapter S corporation
Botanical Farms, Inc. (par $1 per share; 7,500 shares authorized;
100 shares issued and outstanding), a subchapter C corporation 100 100
Enviro-Safe Laboratories, Inc. (par $1 per share; 10,000 shares authorized;
500 shares issued and outstanding), a subchapter S corporation 500 500
Lovell Properties, a partnership - -
----- -----
Total $ 800 $ 816
===== =====
</TABLE>
Use of Estimates - The preparation of the financial statements in conformity
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 financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents - The Companies consider all highly liquid
investments with an initial maturity of three months or less to be cash
equivalents.
Allowance for Doubtful Accounts - The Companies carry their receivables from
customers and others at the amount deemed to be collectible. Accordingly,
the Companies provide allowances for accounts receivable deemed to be
uncollectible based on management estimates. Any recoveries made on these
amounts are recognized in the period the recoveries are made.
-6-
<PAGE>
Inventories - Inventories consist of growing plants and supplies and are
valued at the lower of cost or market. Cost is determined using the weighted
average method for growing plants and the first-in, first-out method for
supplies. Inventories with expected turnover of greater than one year are
classified as non-current assets (other assets).
Property and Equipment - Property and equipment is stated at cost.
Depreciation, which includes amortization of assets under capital lease, is
based on the straight-line method over the lesser of the estimated useful
lives of the related assets or the term of the lease, which range from five
to thirty years. Depreciation and amortization relating to property and
equipment used directly in the Companies' nursery operations are included in
cost of sales. Depreciation and amortization relating to property and
equipment not used directly in the Companies' nursery operations are
included in selling, general and administrative expenses.
Repairs and maintenance costs are expensed as incurred.
Revenue Recognition - Revenues are recognized when goods are delivered.
Terms and return policies are determined on a customer by customer basis.
Income Taxes - Lovell Farms, Inc. and Enviro-Safe Laboratories, Inc. are
subchapter S corporations and Lovell Properties is a partnership. Entities
which are S corporations and partnerships are not required to pay income
taxes as the net income or loss passes through directly to the owners'
individual tax returns.
Botanical Farms, Inc. is a subchapter C corporation. Accordingly, it is
subject to corporate income taxes. As such, an income tax provision
(benefit), has been recorded for Botanical Farms, Inc.
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.
Long-Lived Assets - The Companies evaluate their long-lived assets for
potential impairment. When circumstances indicate that the carrying amount
of an asset may not be recoverable as demonstrated by the projected
undiscounted cash flows, an impairment loss would be recognized based on
fair value.
2. RECEIVABLES
Receivables consist of the following as of December 31:
1998 1999
Receivables, trade $4,428,534 $4,224,929
Other 185,562 2,912
---------- ----------
4,614,096 4,227,841
Allowance for doubtful accounts (154,887) (244,999)
---------- ----------
Total $4,459,209 $3,982,842
========== ==========
-7-
<PAGE>
3. INVENTORIES
Inventories consist of the following as of December 31:
1998 1999
Plants $3,387,211 $3,395,766
Pots, trays, chemicals and packing supplies 2,390,733 3,587,580
Fertilizers 660,144 837,721
Seeds 451,133 574,389
Other 38,594 71,067
---------- ----------
6,927,815 8,466,523
Less: Amount classified as non-current
(other assets) (348,336) (632,224)
---------- ----------
Total $6,579,479 $7,834,299
========== ==========
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of December 31:
1998 1999
Land $ 4,939,178 $ 4,939,178
Buildings and improvements 843,720 971,214
Machinery and equipment 4,594,009 6,277,597
Furniture and fixtures 275,450 418,973
----------- -----------
10,652,357 12,606,962
Less accumulated depreciation and amortization (3,150,576) (4,020,134)
----------- -----------
Total $ 7,501,781 $ 8,586,828
=========== ===========
Included in machinery and equipment as of December 31, 1998 and 1999 are
assets under capital lease with a cost of $15,172 and $473,661,
respectively.
5. OTHER ASSETS
Other assets consist of the following as of December 31:
1998 1999
Used pots inventories $ 348,336 $ 632,224
Deposits on equipment 47,301 51,004
Other deposits 30,000 30,916
Cash surrender value of life insurance policy - 34,947
---------- -----------
Total $ 425,637 $ 749,091
========== ===========
-8-
<PAGE>
6. DUE TO SHAREHOLDERS
The amount due to shareholders of $640,000 as of December 31, 1999 and 1998
are non-interest-bearing demand notes.
7. LINES OF CREDIT
The Companies have the following lines of credit as of December 31:
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
A $2,000,000 line of credit with a bank, payable on demand,
which was paid off on March 1, 2000. This line of credit is
unsecured but is guaranteed by certain owners of the
Companies. Interest on the line of credit is payable monthly
at the bank's prime lending rate less 1% (7.5% at
December 31, 1999). The line of credit contains covenants
requiring, among other things, that the Companies maintain
a certain ratio of adjusted net income to fixed changes. $ 1,100,000 $ 2,000,000
A $598,250 line of credit with a bank, payable on demand, which
expires on May 4, 2004. This line of credit is secured by other
vehicles. Interest on the line of credit is payable monthly
at the bank's prime rate less 1% (7.5% at December 31, 1998). - 598,250
A $100,000 line of credit with a bank, payable on demand,
which expires on May 31, 2000. This line of credit is secured
by receivables and equipment. Interest
on the line of credit is payable monthly at the bank's prime
rate less 1% (7.5% at December 31, 1999). 100,000 100,000
----------------- -----------------
Total $ 1,200,000 $ 2,698,250
================= =================
</TABLE>
-9-
<PAGE>
8. LONG-TERM DEBT
Long-term debt consists of the following as of December 31:
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Bank loan with principal and interest, at the bank's prime lending
rate (8.5% at December 31, 1999), payable in monthly installments
of $11,306, maturing on August 24, 2001. Secured by receivables. $1,373,427 $1,237,751
Bank loan with principal and interest, at the bank's prime lending
rate, payable in monthly installments of $3,958, maturing
on April 24, 2000. Secured by farm land and improvements. 481,718 434,218
Bank loan with principal and interest, at the bank's prime lending
rate, payable in monthly installments of $3,245, maturing
on August 24, 2004. Secured by real property. 415,367 379,678
Third party loan with principal and interest, at 6%, payable
in annual installments of $27,694, maturing on August 1, 2001.
Secured by real property. 74,027 50,775
Third party loan with principal and interest, at 9%, payable
in monthly installments of $403, maturing on July 1, 2003.
Secured by real property. 17,828 14,462
Bank loan with principal and interest, at the bank's prime ending
rate, payable in monthly installments of $1,459, paid off on
February 9, 2000. Secured by certain machinery and equipment. 20,525 3,018
Bank loan with principal and interest, at the bank's prime lending
rate, payable in monthly installments of $1,307, maturing on
February 21, 2002. Secured by certain machinery and equipment. 50,983 35,300
Bank loan with principal and interest, at the bank's prime lending
rate, payable in monthly installments of $2,083, maturing on
April 3, 2002. Secured by certain machinery and equipment. 81,251 58,208
Bank loan with principal and interest, at the bank's prime lending
rate payable in monthly installments of $1,059, maturing on
June 15, 2000. Secured by certain machinery and equipment. 31,774 19,064
Bank loan with principal and interest, at the bank's prime lending
rate, payable in monthly installments of $780, maturing on
December 15, 1999. Secured by certain machinery and equipment. 9,364 -
Bank loan with principal and interest, at the bank's prime lending
rate, payable in monthly installments of $500, maturing on
June 15, 2000. Secured by certain machinery and equipment. 3,000 -
Bank loan with principal and interest, at the bank's prime lending
rate, payable in monthly installments of $2,143, maturing on
January 15, 2000. Secured by certain machinery and equipment. 22,966 -
--------------- ---------------
Total 2,582,230 2,232,474
Less current portion (349,571) (306,526)
--------------- ---------------
Long-term debt, net of current portion $2,232,659 $1,925,948
=============== ===============
</TABLE>
-10-
<PAGE>
Following are the scheduled maturities of long-term debt as of December 31,
1999:
Year Amount
2000 $ 306,526
2001 299,268
2002 238,617
2003 224,836
2004 222,105
2005 and thereafter 941,122
----------
Total $2,232,474
==========
9. COMMITMENTS AND CONTINGENCIES
The Companies lease equipment from unrelated third party under various
operating leases. Total rent expense for the years ended December 31, 1997,
1998 and 1999, was approximately $21,000, $53,000, and $48,000,
respectively.
Following is a summary of future minimum payments under capital and under
operating leases that have initial or remaining noncancelable lease terms
in excess of one year as of December 31, 1999:
<TABLE>
<CAPTION>
Capital Operating
Year Leases Leases
<S> <C> <C>
2000 $118,306 $ 37,080
2001 106,649 26,921
2002 101,150 430
2003 94,843
2004 78,720
--------- ---------
Total minimum lease payments 499,668 $ 64,431
Amounts representing interest (5.87 to 7.08%) 83,398 =========
---------
Present value of net minimum payments 416,270
Less current portion 88,049
---------
Capital lease obligation, net of current portion $328,221
=========
</TABLE>
Through December 30, 1999, the Companies had a verbal profit-sharing
arrangement with a non-owner employee whereby the employee received an
annual salary and bonus equal to 10% of the cash distributions to the
owners of the Companies. During the years ended December 31, 1997, 1998 and
1999, such salary and bonus aggregated $1,149,472, $1,065,478 and $700,000,
respectively. On December 31, 1999 the employee became an owner of Lovell
Farms, Inc. (see Note 10).
On August 19, 1994, a former employee ("plaintiff") of the Companies filed
a lawsuit against the Companies. The former employee is seeking damages for
breach of fiduciary duty, fraudulent inducement, unjust enrichment,
accounting and violation of the Florida Uniform Trade Secrets Act. On
October 7, 1997, the court granted the Companies' motion for summary
judgement as to the count for violation of the Florida Uniform Trade
Secrets Act. On February 2, 1999, the former employee amended his complaint
and, on March 4, 1999, the Companies filed their motion to dismiss the
second amended complaint. The court has ruled on the motion, but the
Companies have filed a motion to vacate that order. The outcome of this
lawsuit is uncertain; accordingly, no provision has been made in the
accompanying combined financial statements as a result of this matter.
-11-
<PAGE>
10. ISSUANCE OF COMMON STOCK
On December 31, 1999, Lovell Farms, Inc. issued, as compensation to an
employee, 16 shares of common stock with a fair value of $5,479,401. As
such, such amount has been included as compensation in the accompanying
combined statements of operation. The issued shares represents
approximately 7.41% ownership of Lovell Farms, Inc. Additionally, as of
December 31, 1999, the Companies have a loan receivable from the
shareholder of $1,089,650 for payroll taxes paid on behalf of the
shareholder related to this transaction.
During 2000, the Companies entered into a bonus agreement with the employee
described above. The agreement was contingent upon the completion of the
sales transaction described in Note 13. Upon the completion of this
transaction, the employee described above is entitled to receive a bonus of
approximately $5.1 million.
11. INCOME TAXES
The Companies provision (benefit) for income taxes related to the income
(loss) of Botanical Farms, Inc. consists of the following:
<TABLE>
<CAPTION>
State
Year ended December 31, 1997: Federal and Local Total
<S> <C> <C> <C>
Current $ 13,504 $ 1,442 $ 14,946
Deferred (2,290) (244) (2,534)
------- ------ -------
Total $ 11,214 $ 1,198 $ 12,412
======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
State
Year ended December 31, 1998: Federal and Local Total
<S> <C> <C> <C>
Current $ 25,305 $ 4,332 $ 29,637
Deferred (10,151) (1,738) (11,889)
-------- ------- --------
Total $ 15,154 $ 2,594 $ 17,748
======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
State
Year ended December 31, 1999: Federal and Local Total
<S> <C> <C> <C>
Current $ - $ - $ -
Deferred (90,658) (15,518) (106,174)
-------- -------- ---------
Total $(90,658) (15,518) (106,174)
======== ======== =========
</TABLE>
The Companies' effective tax rate differs from the federal statutory rate of 34%
primarily due to the fact that two of the entities included in the combined
financial statements are S subchapter corporations and one entity is a
partnership, all of whom are not subject to tax.
-12-
<PAGE>
Significant components of deferred taxes as of December 31 are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
<S> <C> <C> <C>
Deferred tax asset:
Accounts payable and other current liabilities $ 19,817 $ 28,946 $115,027
Alternative minimum tax 2,199
Net operating loss 51,769
Deferred tax liability:
Prepaid expenses (21,655)
Inventories (17,283) (14,523) (26,743)
-------- -------- --------
Net deferred tax asset $ 2,534 $ 14,423 $120,597
======== ======== ========
</TABLE>
12. MAJOR CUSTOMER
Sales to a major unaffiliated customer represented approximately 78% of
combined sales for 1997 and 80% of combined sales for 1998 and 1999.
13. SUBSEQUENT EVENT
On March 3, 2000, the owners and shareholders of the Companies' entered
into an agreement to sell; (i) substantially all of the assets and certain
liabilities of Lovell Farms, Inc. and Botanical Farms, Inc.; (ii)
substantially all of the common stock of Enviro-Safe Laboratories, Inc. and
the partnership interest in Lovell Properties.
* * * * * *
-13-
<PAGE>
EXHIBIT 99.3
HINES HORTICULTURE, INC.
UNAUDITED PRO FORMA INFORMATION
On March 3, 2000, Hines Horticulture, Inc. (the "Company") executed a 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 (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 acquisition was accounted for by the purchase method of accounting and
accordingly, the operating results of Lovell from the acquisition date will be
recorded in the Company's consolidated financial statements. The purchase price,
excluding the assumption of ordinary course liabilities, was $92 million.
Additionally, 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. In connection
with the Lovell acquisition, 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 the term loan described herein.
The following unaudited pro forma combined consolidated balance sheet as of
December 31, 1999 assumes that the acquisition of Lovell had occurred on
December 31, 1999. The unaudited pro forma combined consolidated statement of
operations is derived from the historical consolidated financial statements of
the Company and Lovell and assumes that the acquisition of Lovell had occurred
on January 1, 1999.
The unaudited pro forma combined consolidated financial statements are presented
for information purposes only, do not purport to constitute complete financial
statements, and are not necessarily indicative of future operating results. The
pro forma statements also do not include complete footnotes and certain
financial presentations normally required for complete financial statements
under generally accepted accounting principles. Accordingly, the pro forma
combined consolidated financial statements should be read in conjunction with
the Company's audited financial statements and notes thereto for the three years
ended December 31, 1999, and the related Management's Discussion and Analysis of
Financial Condition and Results of Operations, included on the Annual Report on
Form 10-K filed on March 27, 2000.
<PAGE>
HINES HORTCULTURE, INC.
UNAUDITED PRO FORMA COMBINED CONSOLIDATED
BALANCE SHEET
As of December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
PRO FORMA
HINES LOVELL ADJUSTMENTS TOTAL
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash $ - $ 10,298 $ 10,298
Accounts receivable, net 37,196 3,983 1,090 (B) 42,269
Inventories 144,915 7,834 152,749
Prepaid expenses and other current assets 5,204 91 5,295
----------- ----------- ------------ -----------
Total current assets 187,315 22,206 1,090 210,611
FIXED ASSETS, net 169,317 8,587 1,636 (A) 179,540
DEFERRED FINANCING EXPENSES, net 3,327 - 3,327
OTHER ASSETS - 749 749
GOODWILL, net 58,822 0 70,723 (A) 129,545
----------- ----------- ------------ -----------
Total assets $ 418,781 $ 31,542 $ 73,449 $ 523,772
=========== =========== ============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 18,282 $ 3,479 $ 21,761
Accrued liabilities 8,618 2,596 11,214
Accrued payroll and benefits 7,402 7,402
Accrued interest 4,926 4,926
Other current liabilities - 640 640
Long-term debt, current portion 12,730 395 13,125
Borrowings on revolving credit facility 34,750 2,698 37,448
Deferred income taxes 46,565 - 46,565
----------- ----------- ------------ -----------
Total current liabilities 133,273 9,808 143,081
LONG-TERM DEBT 195,677 2,254 93,049 (A) 290,980
DEFERRED INCOME TAXES 15,081 (120) 14,961
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common Stock 221 1 (1) (A) 221
Additional paid in capital 127,938 6,971 (6,971) (A) 127,938
Notes receivable from shareholders (173) (1,090) 1,090 (B) (173)
Deficit/Retained earnings (49,145) 13,718 (13,718) (A) (49,145)
Accumulated other comprehensive loss (4,091) (4,091)
----------- ---------- ------------ -----------
Total shareholders' equity 74,750 19,600 (19,600) 74,750
----------- ---------- ------------ -----------
Total liabilities and shareholders' equity $ 418,781 $ 31,542 $ 73,449 $ 523,772
=========== ========== ============ ===========
</TABLE>
<PAGE>
HINES HORTCULTURE, INC.
UNAUDITED PRO FORMA COMBINED CONSOLIDATED
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
(in thousands, except per share data)
<TABLE>
<CAPTION>
PRO FORMA
HINES LOVELL ADJUSTMENTS TOTAL
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Sales, net $ 277,650 $ 52,716 $ 330,366
Cost of goods sold 139,921 15,867 155,788
------------- -------------- ------------ -------------
Gross profit 137,729 36,849 174,578
------------- -------------- ------------ -------------
Selling and distribution expenses 65,234 11,445 76,679
General and administrative expenses 28,835 21,898 1,551 (C)(E) 52,284
Other operating expenses (income) 1,438 (112) 1,326
------------- -------------- ------------ -------------
Total operating expenses 95,507 33,231 1,551 130,289
------------- -------------- ------------ -------------
Operating income 42,222 3,618 (1,551) 44,289
------------- -------------- ------------ -------------
Other expenses
Interest 17,408 371 8,645 (D) 26,424
Amortization of deferred financing expenses 750 - 750
------------- -------------- ------------ -------------
18,158 371 8,645 27,174
------------- -------------- ------------ -------------
Income before provision for income taxes 24,064 3,247 (10,196) 17,115
Income tax provision 8,644 (106) (2,388) (F)(G) 6,150
------------- -------------- ------------ -------------
Net income $ 15,420 $ 3,353 $ (7,808) $ 10,965
============= ============== ============ =============
Basic and diluted net income per share: $ 0.70 $ 0.50
============= =============
Weighted average shares outstanding--Basic 22,072,549 22,072,549
============= =============
Weighted average shares outstanding--Diluted 22,072,549 22,072,549
============= =============
</TABLE>
<PAGE>
HINES HORTICULTURE, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
Note 1 - Basis of Presentation
In connection with the Company's acquisition of Lovell, the Company paid
approximately $92 million in cash to acquire substantially all the assets and
assume certain liabilities of Lovell. The Company incurred acquisition related
expenses of approximately $1 million in connection with this acquisition. The
transaction was accounted for as a purchase with the purchase price allocation
being based on the estimated fair values of the acquired assets and liabilities
assumed.
Note 2 - Non-Recurring Items Included in the Pro Forma Combined Consolidated
Statement of Operations
Included in the Lovell historical statement of operations for the year ended
December 31, 1999 are certain acquisition related bonuses and employee benefits
totalling approximately $6.6 million. These bonuses are not considered recurring
events and as such, are not expected to have a continuing impact on future
operating results.
Note 3 - Pro Forma Adjustments
(A) To reflect the elimination of Lovell's equity accounts and the
preliminary allocation of the purchase price to the tangible and
intangible assets acquired. These allocations are subject to change
based upon the finalization of managements estimates of the purchase
price allocation and as other valuation information is received.
(B) To reflect a reclassification of a note receivable from a former
shareholder from shareholders' equity to accounts receivable.
(C) To reflect the amortization of goodwill over 35 years on a straight-
line basis.
(D) To reflect an increase in interest expense on the additional debt
incurred to finance the Lovell acquisition.
(E) To conform fixed asset capitalization accounting policies used by
Lovell's to the accounting policies used by the Company.
(F) To reflect the estimated tax effects of pro forma adjustments at the
effective rate in effect during the year ended December 31, 1999.
(G) To reflect Lovell tax provision calculated at Hines effective tax
rate.
