<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 quarterly period ended March 31, 1996
( ) 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
33-99452
HINES HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Nevada 52-1720681
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
12621 Jeffrey Road
Irvine, California 92720
(Address of principal executive offices) (Zip Code)
(714) 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 ( )
At April 30, 1996 there were 10,000,000 shares of the Registrant's Common
Stock par value $0.01 per share, outstanding.
================================================================================
<PAGE>
HINES HOLDINGS, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page No.
--------
Condensed Consolidated Balance Sheets as of
December 31, 1995 and March 31, 1996 1
Condensed Consolidated Statements of Income and Retained
Earnings (Deficit) for the Three Months Ended
March 31, 1995 and 1996 3
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1995 and 1996 4
Notes to the Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
Signature 15
Note: Items 1, 2, 3, 4 and 5 of Part II are omitted because they are not
applicable.
<PAGE>
HINES HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1995 and March 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ASSETS December 31, 1995 March 31, 1996
------ (unaudited)
----------------- --------------
(In thousands)
CURRENT ASSETS:
Cash and short-term deposits $181 $ -
Accounts receivable, net of allowance for
doubtful accounts of $1,165 and $1,267 14,645 37,566
respectively
Inventories 76,894 81,245
Prepaid expenses and other current assets 2,846 3,055
----------------- --------------
Total current assets 94,566 121,866
----------------- --------------
FIXED ASSETS, net of accumulated depreciation
and depletion 74,064 74,377
----------------- --------------
DEFERRED FINANCING EXPENSES, net of
accumulated amortization of $295 and $517
respectively 7,039 6,917
----------------- --------------
OTHER ASSETS - 36
----------------- --------------
GOODWILL, net of accumulated amortization 12,875 12,967
----------------- --------------
$188,544 $216,163
================= ==============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
1
<PAGE>
HINES HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1995 and March 31, 1996
LIABILITIES AND SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
December 31, 1995 March 31, 1996
(unaudited)
------------------ --------------------
(In thousands)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $6,453 $11,109
Accrued liabilities 11,565 13,388
Long-term debt, current portion 4,058 3,812
Revolving line of credit 12,693 36,380
Deferred income taxes, current portion 16,342 16,547
Other liabilities 630 217
------------------- --------------------
Total current liabilities 51,741 81,453
------------------- --------------------
LONG-TERM DEBT, non-current portion 157,742 157,390
------------------- --------------------
DEFERRED INCOME TAXES, non-current portion 15,399 14,734
------------------- --------------------
COMMITMENTS AND CONTINGENCIES
CUMULATIVE REDEEMABLE SENIOR PREFERRED
STOCK 12 PERCENT, par value $.01 per share,
liquidation preference of $1,000 per share 10,000 10,000
CUMULATIVE REDEEMABLE JUNIOR PREFERRED
STOCK 12 PERCENT, par value $.01 per share,
liquidation preference of $1 per share 20,000 20,000
SHAREHOLDERS' RETAINED DEFICIT
Common Stock
Authorized - 30,000,000 shares , $.01 par value,
Issued and outstanding - 10,000,000 at
December 31, 1995 and March 31, 1996 100 100
Additional paid-in capital 9,900 9,870
Retained deficit (76,338) (77,384)
------------------- --------------------
Total shareholders' retained deficit (66,338) (67,414)
------------------- --------------------
$188,544 $216,163
=================== ====================
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
2
<PAGE>
HINES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (DEFICIT)
Three Months Ended March 31, 1995 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------------
1995 1996
--------------- -----------------
(In thousands)
<S> <C> <C>
SALES, NET $38,472 $40,357
COST OF GOODS SOLD 17,484 20,307
--------------- -----------------
Gross Profit 20,988 20,050
--------------- -----------------
SELLING AND DISTRIBUTION EXPENSES 10,872 11,418
GENERAL AND ADMINISTRATIVE EXPENSES 3,639 4,488
--------------- -----------------
Total operating expenses 14,511 15,906
--------------- -----------------
Operating income 6,477 4,144
--------------- -----------------
OTHER EXPENSES:
Interest 2,239 5,092
Amortization of deferred financing expenses 253 222
--------------- -----------------
2,492 5,314
--------------- -----------------
Income (loss) before provision for income taxes,
minority interest and income from discontinued
operations 3,985 (1,170)
PROVISION (BENEFIT) FOR
INCOME TAXES 1,554 (404)
-------------- -----------------
Income (loss) before minority interest and income
from discontinued operations 2,431 (766)
MINORITY INTEREST IN EARNINGS OF
SUBSIDIARIES 2,160 -
-------------- -----------------
Income (loss) before income from discontinued
operations 271 (766)
-------------- -----------------
INCOME FROM DISCONTINUED OPERATIONS,
net of tax of $1,650 (3,524) -
-------------- -----------------
NET INCOME (LOSS) 3,795 (766)
Retained earnings (deficit), beginning of period 5,897 (76,338)
Repurchase and retirement of stock - (280)
-------------- -----------------
Retained earnings (deficit), end of period $9,692 ($77,384)
============== =================
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
3
<PAGE>
HINES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1995 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------------
1995 1996
---------------- ---------------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $3,795 ($766)
Adjustments to reconcile net income to
net cash provided by operating activities -
Depreciation, depletion and amortization 1,054 1,465
Minority interest in earnings of subsidiaries 2,160 -
Gain on sale of discontinued operations (5,174) -
Deferred income taxes 2,348 (527)
Other (698) 266
---------------- --------------
3,485 438
CHANGE IN WORKING CAPITAL ACCOUNTS:
Accounts receivable (22,888) (23,246)
Inventories (2,999) (4,351)
Prepaid expenses and other assets 755 (208)
Other assets 533 -
Accounts payable and accrued liabilities 1,806 6,481
Other liabilities 1,077 (450)
---------------- --------------
Net cash used in operating activities (18,231) (21,336)
---------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (1,693) (1,654)
Acquisitions, net of cash acquired (3,498) -
---------------- --------------
Net cash used in investing activities (5,191) (1,654)
---------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit 21,080 43,474
Repayments on revolving line of credit (2,017) (19,787)
Proceeds from the issuance of long-term debt 3,021 -
Repayments of long-term debt (690) (598)
Repurchase and retirement of stock - (280)
---------------- --------------
Net cash provided by financing activities 21,394 22,809
---------------- --------------
NET DECREASE IN CASH AND
SHORT-TERM DEPOSITS (2,028) (181)
CASH AND SHORT-TERM DEPOSITS, beginning
of period 2,650 181
---------------- --------------
CASH AND SHORT-TERM DEPOSITS, end
of period $622 $ -
================ ==============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
4
<PAGE>
HINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 AND 1996
(UNAUDITED)
1. Description of Business:
------------------------
Hines Holdings, Inc. (Holdings), formerly Macluan Capital (Nevada) Inc.,
produces and distributes horticultural products through its two operating
divisions, Hines Nurseries (Hines) and Sun Gro Horticulture (Sun Gro). The
business of Hines is conducted through Hines Horticulture, Inc. (Hines
Horticulture) and the business of Sun Gro is conducted through Sun Gro
Horticulture Inc. (Sun Gro-U.S.) and its wholly owned subsidiary, Sun Gro
Horticulture Canada Ltd. (Sun Gro-Canada). Holdings, together with Hines,
Sun Gro and Sun Gro-Canada, are hereafter collectively referred to as "the
Company."
2. Unaudited Financial Information:
--------------------------------
The unaudited financial information furnished herein, in the opinion of
management, reflects all 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. Accordingly,
footnote and other disclosures which would substantially duplicate the
disclosures contained in the Form 10-K filed on April 10, 1996 by Hines
Holdings, Inc. under the Securities Exchange Act of 1934, as amended, have
been omitted. The financial information herein is not necessarily
representative of a full year's operations.
5
<PAGE>
3. Inventories:
------------
As of December 31, 1995 and March 31, 1996, inventories consist of the
following (dollars in thousands):
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
------------ ---------
<S> <C> <C>
Nursery stock $65,696 $70,407
Finished goods 5,686 4,911
Materials and supplies 5,512 5,927
------- -------
$76,894 $81,245
======= =======
</TABLE>
4. New Accounting Pronouncements:
------------------------------
In 1996, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of Certain Long-lived Assets
and for Long-lived Assets to be Disposed of." The adoption of this
standard did not materially impact the financial statements.
5. Guarantor/Non-Guarantor Disclosures:
------------------------------------
The 11.75% Senior Subordinated Notes issued by Hines Horticulture, Inc.
(the issuer) have been guaranteed by Holdings (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 and Sun Gro-U.S. are not
presented and Hines and Sun Gro-U.S. are not filing separate reports under
the Securities Exchange Act of 1934 because management believes that they
would not be material to investors.
Holdings has no material assets other than the common stock of Hines, and
accordingly, its ability to perform under the guarantee will be dependent
on the financial condition and net worth of Hines Horticulture. The
Senior Subordinated Notes are not guaranteed by Sun Gro-Canada or its
subsidiaries.
The following condensed consolidating information shows (a) Holdings on a
parent company basis only as the parent guarantor (carrying its investment
in subsidiary under the equity method), (b) Hines 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 the subsidiary non-
guarantor under the equity method), (d) Sun Gro-Canada as subsidiary non-
guarantor, (e) eliminations necessary to arrive at the information basis
and (f) the parent guarantor on a consolidated basis as follows:
6
<PAGE>
. Condensed consolidating balance sheets as of December 31, 1995
and March 31, 1996 (unaudited);
. Condensed unaudited consolidating statements of income and
retained earnings (deficit) and condensed unaudited consolidating
statements of cash flows for the three month periods ended March
31, 1995 and 1996.
7
<PAGE>
Supplemental Condensed Consolidating Balance Sheets
As of December 31, 1995
(In thousands)
<TABLE>
<CAPTION>
Sun Gro
Hines Sun Gro Canada
Holdings Hines U.S. (Subsidiary
(Parent Horticulture (Subsidiary Non- Consolidated
Guarantor) (Issuer) Guarantor) Guarantor) Eliminations Total
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and short-term deposits $ - $ 181 $ - $ - $ - $ 181
Accounts receivable, net - 4,465 8,556 1,624 - 14,645
Inventories - 67,393 1,352 8,149 - 76,894
Prepaid expenses and other current assets - 691 1,394 761 - 2,846
Deferred income taxes, current portion - - 418 72 (490) -
---------------------------------------------------------------------
Total current assets - 72,730 11,720 10,606 (490) 94,566
---------------------------------------------------------------------
FIXED ASSETS, net - 24,423 4,092 45,549 - 74,064
DEFERRED FINANCING EXPENSES, net - 5,573 - 1,466 - 7,039
OTHER ASSETS - - - - - -
GOODWILL, net - 12,007 - 868 - 12,875
DEFERRED INCOME TAXES, non-current portion - 487 - - (487) -
INVESTMENTS IN SUBSIDIARIES 40,088 19,864 8,595 - (68,547) -
---------------------------------------------------------------------
$ 40,088 $135,084 $24,407 $58,489 $(69,524) $188,544
=====================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ - $ 2,731 $ 1,424 $ 2,298 $ - $ 6,453
Accrued liabilities - 6,659 2,812 2,094 - 11,565
Long-term debt, current portion - 2,308 - 1,750 - 4,058
Revolving line of credit - 11,813 880 - - 12,693
Deferred income taxes, current portion - 16,832 - - (490) 16,342
Other liabilities - - 630 - - 630
Intercompany accounts 76,426 (85,019) (8,703) 17,296 - -
---------------------------------------------------------------------
Total current liabilities 76,426 (44,676) (2,957) 23,438 (490) 51,741
---------------------------------------------------------------------
LONG-TERM DEBT, non-current portion - 144,492 - 13,250 - 157,742
DEFERRED INCOME TAXES, non-current portion - 1,439 1,243 13,206 (489) 15,399
CUMULATIVE REDEEMABLE SENIOR
PREFERRED STOCK 10,000 - - - - 10,000
CUMULATIVE REDEEMABLE JUNIOR
PREFERRED STOCK 20,000 - - - - 20,000
SHAREHOLDERS' EQUITY
Common stock 100 3,971 13,190 1,777 (18,938) 100
Additional paid-in capital 9,900 21,364 - - (21,364) 9,900
Retained earnings (deficit) (76,338) 8,494 12,931 6,818 (28,243) (76,338)
---------------------------------------------------------------------
Total shareholders' equity (deficit) (66,338) 33,829 26,121 8,595 (68,545) (66,338)
---------------------------------------------------------------------
$ 40,088 $135,084 $24,407 $58,489 $(69,524) $188,544
=====================================================================
</TABLE>
8
<PAGE>
Supplemental Condensed Consolidating Balance Sheets
As of March 31, 1996
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Sun Gro
Hines Sun Gro Canada
Holdings Hines U.S. (Subsidiary
(Parent Horticulture (Subsidiary Non- Consolidated
Guarantor) (Issuer) Guarantor) Guarantor) Eliminations Total
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and short-term deposits $ - $ - $ - $ - $ - $ 0
Accounts receivable, net - 19,216 14,977 3,373 - 37,566
Inventories - 72,315 1,458 7,472 - 81,245
Prepaid expenses and other current assets - 926 1,189 940 - 3,055
Deferred income taxes, current portion - - 418 72 (490) -
---------------------------------------------------------------------
Total current assets - 92,457 18,042 11,857 (490) 121,866
---------------------------------------------------------------------
FIXED ASSETS, net - 24,828 4,076 45,473 - 74,377
DEFERRED FINANCING EXPENSES, net - 5,505 - 1,412 - 6,917
OTHER ASSETS - - 36 - - 36
GOODWILL, net - 12,106 - 861 - 12,967
DEFERRED INCOME TAXES, non-current portion - 1,215 - - (1,215) -
INVESTMENTS IN SUBSIDIARIES 39,322 18,727 7,001 - (65,050) -
---------------------------------------------------------------------
$ 39,322 $154,838 $29,155 $59,603 $(66,755) $216,163
=====================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ - $ 4,967 $ 2,498 $ 3,644 $ - $ 11,109
Accrued liabilities - 8,848 1,885 2,655 - 13,388
Long-term debt, current portion - 2,062 - 1,750 - 3,812
Revolving line of credit - 28,582 7,798 - - 36,380
Deferred income taxes, current portion - 17,037 - - (490) 16,547
Other liabilities - - 112 105 - 217
Intercompany accounts 76,706 (85,518) (9,687) 18,499 - -
---------------------------------------------------------------------
Total current liabilities 76,706 (24,022) 2,606 26,653 (490) 81,453
---------------------------------------------------------------------
LONG-TERM DEBT, non-current portion - 144,390 - 13,000 - 157,390
DEFERRED INCOME TAXES, non-current portion - 1,439 1,564 12,949 (1,218) 14,734
CUMULATIVE REDEEMABLE SENIOR
PREFERRED STOCK 10,000 - - - - 10,000
CUMULATIVE REDEEMABLE JUNIOR
PREFERRED STOCK 20,000 - - - - 20,000
SHAREHOLDERS' EQUITY
Common stock 100 3,971 11,414 - (15,385) 100
Additional paid-in capital 9,900 21,332 1,777 1,777 (24,916) 9,870
Retained earnings (deficit) (77,384) 7,728 11,794 5,224 (24,746) (77,384)
---------------------------------------------------------------------
Total shareholders' equity (deficit) (67,384) 33,031 24,985 7,001 (65,047) (67,414)
---------------------------------------------------------------------
$ 39,322 $154,838 $29,155 $59,603 $(66,755) $216,163
=====================================================================
</TABLE>
9
<PAGE>
Supplemental Condensed Consolidating Statements of Income and Retained Earnings
(Deficit)
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
For the Three Month Period Ended March 31, 1995
---------------------------------------------------------------------
Sun Gro
Hines Sun Gro Canada
Holdings Hines U.S. (Subsidiary
(Parent Horticulture (Subsidiary Non- Consolidated
Guarantor) (Issuer) Guarantor) Guarantor) Eliminations Total
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SALES, NET $ - $19,286 $17,150 $ 6,163 $(4,127) $38,472
COST OF GOODS SOLD - 9,657 8,246 3,708 (4,127) 17,484
---------------------------------------------------------------------
Gross Profit - 9,629 8,904 2,455 - 20,988
OPERATING EXPENSES - 6,016 7,058 1,437 - 14,511
---------------------------------------------------------------------
Operating income - 3,613 1,846 1,018 - 6,477
---------------------------------------------------------------------
OTHER EXPENSES:
Interest - 1,570 158 511 - 2,239
Interest - intercompany - - - - - -
Other, net (3,795) (3,464) (3,717) 76 11,153 253
---------------------------------------------------------------------
(3,795) (1,894) (3,559) 587 11,153 2,492
---------------------------------------------------------------------
Income (loss) before provision for income taxes,
minority interest and income from discontinued
operations 3,795 5,507 5,405 431 (11,153) 3,985
PROVISION FOR (RECOVERY ) OF
INCOME TAXES - 764 596 194 - 1,554
---------------------------------------------------------------------
Income (loss) before minority interest and income
from discontinued operations 3,795 4,743 4,809 237 (11,153) 2,431
MINORITY INTEREST IN EARNINGS OF
SUBSIDIARIES - - - - 2,160 2,160
---------------------------------------------------------------------
Income (loss) before income from discontinued
operations 3,795 4,743 4,809 237 (13,313) 271
---------------------------------------------------------------------
INCOME FROM DISCONTINUED OPERATIONS,
net of tax of $1,650 - - - (3,524) - (3,524)
---------------------------------------------------------------------
NET INCOME (LOSS) 3,795 4,743 4,809 3,761 (13,313) 3,795
Retained earnings (deficit), beginning of period 5,897 2,397 8,573 1,371 (12,341) 5,897
Repurchase and retirement of stock - - - - - 0
---------------------------------------------------------------------
Retained earnings (deficit), end of period $ 9,692 $ 7,140 $13,382 $ 5,132 $(25,654) $ 9,692
=====================================================================
</TABLE>
<TABLE>
<CAPTION>
For the Three Month Period Ended March 31, 1996
-------------------------------------------------------------------------
Sun Gro
Hines Sun Gro Canada
Holdings Hines U.S. (Subsidiary
(Parent Horticulture (Subsidiary Non- Consolidated
Guarantor) (Issuer) Guarantor) Guarantor) Eliminations Total
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SALES, NET $ - $20,500 $17,481 $6,250 $ (3,874) $ 40,357
COST OF GOODS SOLD - 10,616 9,285 4,280 (3,874) 20,307
------------------------------------------------------------------------
Gross Profit - 9,884 8,196 1,970 - 20,050
OPERATING EXPENSES - 6,763 7,230 1,913 - 15,906
------------------------------------------------------------------------
Operating income - 3,121 966 57 - 4,144
------------------------------------------------------------------------
OTHER EXPENSES:
Interest - 4,673 97 322 - 5,092
Interest - intercompany - (221) 184 37 - -
Other, net 766 26 226 72 (868) 222
------------------------------------------------------------------------
766 4,478 507 431 (868) 5,314
------------------------------------------------------------------------
Income (loss) before provision for income taxes,
minority interest and income from discontinued
operations (766) (1,357) 459 (374) 868 (1,170)
PROVISION FOR (RECOVERY ) OF
INCOME TAXES - (591) 338 (151) - (404)
------------------------------------------------------------------------
Income (loss) before minority interest and income
from discontinued operations (766) (766) 121 (223) 868 (766)
MINORITY INTEREST IN EARNINGS OF
SUBSIDIARIES - - - - - -
------------------------------------------------------------------------
Income (loss) before income from discontinued
operations (766) (766) 121 (223) 868 (766)
------------------------------------------------------------------------
INCOME FROM DISCONTINUED OPERATIONS,
net of tax of $0 - - - - - -
------------------------------------------------------------------------
NET INCOME (LOSS) (766) (766) 121 (223) 868 (766)
Retained earnings (deficit), beginning of period (76,338) 8,494 12,931 5,447 (26,872) (76,338)
Repurchase and retirement of stock (280) - (1,258) - 1,258 (280)
------------------------------------------------------------------------
Retained earnings (deficit), end of period $(77,384) $ 7,728 $11,794 $5,224 $(24,746) $(77,384)
========================================================================
</TABLE>
10
<PAGE>
Supplemental Condensed Consolidating Statements of Cash Flow
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
For the Three Month Period Ended March 31, 1995
---------------------------------------------------------------------
Sun Gro
Hines Sun Gro Canada
Holdings Hines U.S. (Subsidiary
(Parent Horticulture (Subsidiary Non- Consolidated
Guarantor) (Issuer) Guarantor) Guarantor) Eliminations Total
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES: $(4,000) $(9,083) $(7,376) $(1,772) $ 4,000 $(18,231)
---------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets - (817) (449) (427) - (1,693)
Acquisitions, net of cash acquired - (3,498) - - - (3,498)
---------------------------------------------------------------------
Net cash used in investing activities - (4,315) (449) (427) - (5,191)
---------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit - 12,080 7,500 1,500 - 21,080
Repayments on revolving line of credit - (917) (1,100) - - (2,017)
Intercompany advances (repayments) 4,000 - - - (4,000) -
Proceeds from the issuance of long-term debt - 3,021 - - - 3,021
Repayments of long-term debt - (265) - (425) - (690)
Dividends received (paid) - - - - - -
Repurchase and retirement of stock - - - - - -
---------------------------------------------------------------------
Net cash provided by (used in) financing
activities 4,000 13,919 6,400 1,075 (4,000) 21,394
---------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND
SHORT-TERM DEPOSITS - 521 (1,425) (1,124) - (2,028)
CASH AND SHORT-TERM DEPOSITS, beginning
of period - 101 1,425 1,124 - 2,650
---------------------------------------------------------------------
CASH AND SHORT-TERM DEPOSITS, end
of period $ - $ 622 $ - $ - $ - $ 622
=====================================================================
</TABLE>
<TABLE>
<CAPTION>
For the Three Month Period Ended March 31, 1995
---------------------------------------------------------------------
Sun Gro
Hines Sun Gro Canada
Holdings Hines U.S. (Subsidiary
(Parent Horticulture (Subsidiary Non- Consolidated
Guarantor) (Issuer) Guarantor) Guarantor) Eliminations Total
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES: $ - $(16,555) $ (5,613) $ 832 $ - $(21,336)
--------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets - (805) (231) (618) - (1,654)
Acquisitions, net of cash acquired - - - - - -
--------------------------------------------------------------------
Net cash used in investing activities - (805) (231) (618) - (1,654)
--------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit - 25,542 17,932 - - 43,474
Repayments on revolving line of credit - (8,773) (11,014) - - (19,787)
Intercompany advances (repayments) 280 (500) 184 36 - -
Repayments of long-term debt - (348) - (250) - (598)
Dividends received (paid) - 1,258 (1,258) - - -
Repurchase and retirement of stock (280) - - - - (280)
--------------------------------------------------------------------
Net cash provided by (used in) financing
activities - 17,179 5,844 (214) - 22,809
--------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND
SHORT-TERM DEPOSITS - (181) - - - (181)
CASH AND SHORT-TERM DEPOSITS, beginning
of period - 181 - - - 181
--------------------------------------------------------------------
CASH AND SHORT-TERM DEPOSITS, end
of period $ - $ - $ - $ - $ - $ -
====================================================================
</TABLE>
11
<PAGE>
HINES HOLDINGS, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's nursery business is highly seasonal in nature, with the
strong retail demand for lawn and garden products typically occurring in the
second quarter of the fiscal year. Accordingly, the Company expects to realize
a higher portion of its annual net sales and operating earnings during the
second quarter. The Company's peat moss business is more heavily weighted
towards the professional markets, which do not typically experience the large
seasonal variances present in the retail market. As a result of the seasonality
of the nursery business, management believes the first quarter results may not
properly reflect the current strong positive trends it believes are occurring in
the nursery business. The Company's consolidated results have also been
adversely affected by price declines in its peat moss business, which management
believes are the result of an unusually favorable peat harvest in Eastern Canada
in 1995, which created an excess supply of peat moss in the Company's eastern
markets.
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995.
Net Sales. Net sales of $40.4 million for the three months ended March 31,
1996 increased $1.9 million, or 4.9%, from net sales of $38.5 million for the
comparable period in 1995. The Company's sales of its nursery products
increased 6.3%, reflecting increased sales volumes and prices. Net sales of
peat moss and peat-based products increased 3.5% over the comparable three month
period. This was primarily due to sales volume increases and partially offset
by sale prices declines. These sale prices declines were primarily due to the
continued effect of the unusually favorable peat moss harvest in Eastern Canada
in 1995, which created an excess supply of peat moss in the Company's eastern
markets. The Company believes that these lower peat prices are likely to
continue throughout 1996 and will adversely affect gross profit margins in the
Company's peat moss business.
Gross Profit. Gross profit of $20.1 million (49.7% of net sales) for the
three months ended March 31, 1996 decreased $0.9 million, or 4.4%, from gross
profit of $21.0 million (54.5% of net sales) for the comparable period in 1995.
The decrease was primarily attributable to the peat and peat-based products due
to (i) lower sales prices resulting from the excess supply of peat moss, and
(ii) higher production costs due to product mix.
Operating Expenses. Operating expenses of $15.9 million (39.4% of net
sales) for the three months ended March 31, 1996 increased $1.4 million, or
9.6%, from $14.5 million (37.7% of net sales) for the comparable period in 1995.
The increase was attributable to the Company's higher variable selling and
distribution expenses incurred as a result of higher overall sales volumes and
general cost increases.
Operating Income. Operating income of $4.2 million for the three months
ended March 31, 1996 decreased $2.3 million, or 35.8%, from $6.5 million for the
comparable period in 1995, due to the reasons described above.
Interest Expense. Interest expense of $5.1 million for the three months
ended March 31, 1996 increased $2.9 million from $2.2 million for the comparable
period in 1995. The increase was attributable
12
<PAGE>
to the issuance of $120 million of Senior Subordinated Notes on October 19,
1995, which replaced a $110 million senior subordinated credit facility.
Income (loss) before minority interest and income from discontinued
operations. The loss before minority interest and income from discontinued
operations of $0.8 million for the three months ended March 31, 1996 increased
by $3.2 million from income of $2.4 million for the comparable period in 1995.
This increase was due to the reasons described above.
LIQUIDITY AND CAPITAL RESOURCES
Based on the highly seasonal nature of the Company's nursery products
operations, the Company has historically satisfied its working capital
requirements through revolving credit facilities and operating cash flow.
Accordingly, the Company has a $50.0 million revolving credit facility which is
subject to a borrowing base and expires on December 31, 2000. The revolving
credit facility is secured by substantially all of the assets and common stock
of Hines Horticulture and Sun Gro-U.S. as well as a pledge of 66% of the common
stock of Sun Gro-Canada. Proceeds from the revolving credit facility can be
distributed downstream to any of the Company's subsidiaries, including Sun Gro-
Canada. The Company typically draws under its revolving credit facility in its
first and fourth fiscal quarters to fund its nursery products inventory buildup
and continuing operating expenses. Approximately 75% of Hines' sales occur in
the first half of the year, which allows the Company to reduce the revolving
credit facility after the first quarter. Working capital requirements for the
Company's peat moss operations are less seasonal in nature with slight inventory
buildups expected in the Company's third and fourth fiscal quarters. The
Company had $14.5 million of unused borrowing capacity under its revolving
credit facility on April 30, 1996.
The Company's capital expenditures totaled $1.7 million for the three month
period ended March 31, 1996. These capital expenditures consisted primarily of
vehicle, machinery and equipment purchases and other nursery related structures
and capital expenditures related to preparing peat bogs for harvest. The
Company's capital expenditures for 1996 are expected to be approximately $6.9
million.
The debt service costs associated with the borrowings under the Bank Credit
Agreement and the Senior Subordinated Notes significantly increased the
Company's liquidity requirements. All borrowings under the Bank Credit
Agreement will mature prior to the Notes. The Company's principal repayment
schedule for term loans under the Bank Credit Agreement is $3.0 million, $4.5
million, $5.0 million $5.5 million and $6.5 million for the years 1996 through
2000, respectively. Borrowings are available under the $50.0 million revolving
credit facility. The Company expects that cash flow from operating activities
together with borrowings available under the Bank Credit Agreement will be
sufficient to fund working capital needs, capital spending requirements and debt
service requirements of the Company's current capital structure for the
foreseeable future.
The Indenture pursuant to which the Notes were issued imposes a number of
restrictions on the Company. The Indenture limits, among other things, the
Company's ability to incur additional indebtedness, to make certain restricted
payments, to make certain asset dispositions, to incur certain liens and to
enter into certain significant transactions. 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 Bank Credit
Agreement, upon which all amounts owing under the Bank Credit Agreement would
become immediately due and payable.
13
<PAGE>
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:
On April 2, 1996, after the period covered by this Report, the
Registrant filed a Current Report on Form 8-K dated March 27,
1996, attaching a press release announcing the Registrant's
estimated net sales and EBITDA for the period ended December 31,
1995 and setting forth management's view as to the reasons for
such results.
Items 1, 2, 3, 4, and 5 are not applicable.
14
<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 HOLDINGS, INC.
(Registrant)
By: __________________________
Claudia M. Pieropan
Chief Financial Officer
Date: May 8, 1996
Claudia M. Pieropan is signing in the dual capacities as i) Chief Financial
Officer, and ii) a duly authorized officer of the Company.
15
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