<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 June 30, 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 July 31, 1996 there were 10,235,844 shares of the Registrant's Common
Stock, par value $0.01 per share, outstanding.
================================================================================
<PAGE>
HINES HOLDINGS, INC.
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements Page No.
--------
<S> <C> <C>
Condensed Consolidated Balance Sheets as of
December 31, 1995 and June 30, 1996 1
Condensed Consolidated Statements of Income and Retained
Earnings (Deficit) for the Three Months and Six Months
Ended June 30, 1995 and 1996 3
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 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 13
</TABLE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
Signature 17
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 JUNE 30, 1996
<TABLE>
<CAPTION>
ASSETS
------ December 31, 1995 June 30, 1996
(unaudited)
----------------- -----------------
(In thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash $181 $ -
Accounts receivable, net of allowance for
doubtful accounts of $1,165 and $1,287 14,645 33,030
respectively
Inventories 76,894 70,524
Prepaid expenses and other current assets 2,846 2,223
----------------- -----------------
Total current assets 94,566 105,777
----------------- -----------------
FIXED ASSETS, net of accumulated depreciation
and depletion of $8,962 and $11,784, respectively 74,064 74,761
----------------- -----------------
DEFERRED FINANCING EXPENSES, net of
accumulated amortization of $295 and $751,
respectively 7,039 6,736
----------------- -----------------
OTHER ASSETS - 623
----------------- -----------------
GOODWILL, net of accumulated amortization 12,875 13,061
----------------- -----------------
$188,544 $200,958
================= =================
</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 JUNE 30, 1996
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' DEFICIT
------------------------------------- December 31, 1995 June 30, 1996
(unaudited)
----------------- -----------------
(In thousands)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $6,453 $6,444
Accrued liabilities 11,565 20,394
Long-term debt, current portion 4,058 5,812
Revolving line of credit 12,693 5,711
Deferred income taxes, current portion 16,342 21,292
Other liabilities 630 112
----------------- -----------------
Total current liabilities 51,741 59,765
----------------- -----------------
LONG-TERM DEBT, non-current portion 157,742 155,136
----------------- -----------------
15,399 14,984
DEFERRED INCOME TAXES, non-current portion ----------------- -----------------
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 20,597
SHAREHOLDERS' DEFICIT
Common Stock
Authorized - 30,000,000 shares $.01 par value,
Issued and outstanding - 10,000,000 and
10,283,360 at December 31, 1995 and
June 30, 1996, respectively 100 103
Additional paid-in capital 9,900 10,180
Deficit (76,338) (69,807)
----------------- -----------------
Total shareholders' deficit (66,338) (59,524)
----------------- -----------------
$188,544 $200,958
================= =================
</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 and Six Months Ended June 30, 1995 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- --------------------
1995 1996 1995 1996
------- -------- -------- --------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
SALES, NET $67,144 $ 69,970 $105,616 $110,327
COST OF GOODS SOLD 30,770 33,704 48,254 54,011
------- -------- -------- --------
Gross Profit 36,374 36,266 57,362 56,316
------- -------- -------- --------
SELLING AND DISTRIBUTION EXPENSES 12,920 13,793 23,792 25,211
GENERAL AND ADMINISTRATIVE EXPENSES 5,492 4,532 9,131 9,020
------- -------- -------- --------
Total operating expenses 18,412 18,325 32,923 34,231
------- -------- -------- --------
Operating income 17,962 17,941 24,439 22,085
------- -------- -------- --------
OTHER EXPENSES:
Interest 2,493 5,186 4,732 10,278
Amortization of deferred financing expenses 337 234 590 456
------- -------- -------- --------
2,830 5,420 5,322 10,734
------- -------- -------- --------
Income before provision for income taxes,
minority interest and loss (income) from
discontinued operations 15,132 12,521 19,117 11,351
PROVISION FOR INCOME TAXES 5,879 4,857 7,433 4,453
------- -------- -------- --------
Income before minority interest and loss (income)
from discontinued operations 9,253 7,664 11,684 6,898
MINORITY INTEREST IN EARNINGS OF
SUBSIDIARIES 1,798 - 3,958
------- -------- -------- --------
Income before loss (income) from discontinued
operations 7,455 7,664 7,726 6,898
------- -------- -------- --------
LOSS (INCOME) FROM DISCONTINUED
OPERATIONS, net of tax (benefit) of $(325)
and $1,975, respectively 562 - (2,962)
------- -------- -------- --------
NET INCOME 6,893 7,664 10,688 6,898
Retained earnings (deficit), beginning of period 9,692 (77,384) 5,897 (76,338)
Repurchase and retirement of stock - (87) - (367)
------- -------- -------- --------
Retained earnings (deficit), end of period $16,585 $(69,807) $ 16,585 $(69,807)
======= ======== ======== ========
See accompanying Notes to Condensed Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
</TABLE>
3
<PAGE>
HINES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1995 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
1995 1996
-------- --------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,688 $ 6,898
Adjustments to reconcile net income to
net cash provided by operating activities--
Depreciation, depletion and amortization 2,426 3,001
Minority interest in earnings of subsidiaries 3,958 -
Gain on sale of discontinued operations (4,937) -
Deferred income taxes 8,576 4,406
Other 314 478
-------- --------
21,025 14,783
CHANGE IN WORKING CAPITAL ACCOUNTS:
Accounts receivable (17,322) (18,385)
Inventories 3,437 6,371
Prepaid expenses and other assets 1,035 237
Other assets - (587)
Accounts payable and accrued liabilities 2,702 8,465
Other liabilities 503 (162)
-------- --------
Net cash provided by operating activities 11,380 10,722
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (4,282) (3,394)
Operating loan (3,564) -
Acquisitions, net of cash acquired (3,498) -
-------- --------
Net cash used in investing activities (11,344) (3,394)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit 1,800 90,060
Repayments on revolving line of credit - (97,041)
Proceeds from the issuance of long-term debt 2,850 -
Repayments of long-term debt (1,540) (852)
Deferred financing costs - (153)
Repurchase and retirement of stock - (367)
Issuance of preferred and common stock - 880
Other - (36)
-------- --------
Net cash provided by (used in) financing activities 3,110 (7,509)
NET INCOME (DECREASE) IN CASH 3,146 (181)
CASH beginning of period 2,650 181
-------- --------
CASH end of period $ 5,796 $ -
======== ========
See accompanying Notes to Condensed Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations
</TABLE>
4
<PAGE>
HINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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 Holdings
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.
5
<PAGE>
3. Inventories:
------------
As of December 31, 1995 and June 30, 1996, inventories consist of the
following (dollars in thousands):
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
------------ --------
<S> <C> <C>
Nursery stock $ 65,696 $ 60,919
Finished goods 5,686 4,039
Materials and supplies 5,512 5,566
------------ --------
$ 76,894 $ 70,524
============ ========
</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 (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 direct and indirect 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 Exchange because management believes that they would not
be material to investors.
Holdings has no material assets other than the common stock of Hines
Horticulture, 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 presents (a) Holdings as
the parent guarantor (carrying its investment in subsidiary under the
equity method), (b) Hines Horticulture as the issuer (carrying its
investment in its subsidiary under
6
<PAGE>
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:
. Condensed consolidating balance sheets as of December 31, 1995 and
June 30, 1996 (unaudited);
. Condensed unaudited consolidating statements of income and retained
earnings (deficit) for the six and three month periods ended June 30,
1995 and 1996.
. Condensed unaudited consolidating statements of cash flows for the six
month periods ended June 30, 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 $ - $ 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 June 30,1996
(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 $ - $ - $ - $ - $ - $ -
Accounts receivable, net - 21,094 10,338 1,598 - 33,030
Inventories - 62,505 1,359 6,660 - 70,524
Prepaid expenses and other current assets - 554 654 1,015 - 2,223
Deferred income taxes, current portion - - 418 72 (490) -
-------- -------- ------- ------- -------- --------
Total current assets - 84,153 12,769 9,345 (490) 105,777
-------- -------- ------- ------- -------- --------
FIXED ASSETS, net - 25,254 4,226 45,281 - 74,761
DEFERRED FINANCING EXPENSES, net - 5,292 - 1,444 - 6,736
OTHER ASSETS 587 - 36 - - 623
GOODWILL, net - 12,206 - 855 - 13,061
DEFERRED INCOME TAXES, non-current portion - 1,215 - - (1,215) -
INVESTMENTS IN SUBSIDIARIES 46,986 19,273 6,737 - (72,996) -
-------- -------- ------- ------- -------- --------
$ 47,573 $147,393 $23,768 $56,925 ($74,701) $200,958
======== ======== ======= ======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ - $ 3,397 $ 751 $ 2,296 $ - $ 6,444
Accrued liabilities - 15,673 3,074 1,647 - 20,394
Long-term debt, current portion - 2,937 - 2,875 - 5,812
Revolving line of credit - 3,616 2,095 - - 5,711
Deferred income taxes, current portion - 21,782 - - (490) 21,292
Other liabilities - - 112 - - 112
Intercompany accounts 76,500 (85,498) (9,417) 18,415 - -
-------- -------- ------- ------- -------- --------
Total current liabilities 76,500 (38,093) (3,385) 25,233 (490) 59,765
-------- -------- ------- ------- -------- --------
LONG-TERM DEBT, non-current portion - 143,261 - 11,875 - 155,136
DEFERRED INCOME TAXES, non-current portion - 1,501 1,622 13,080 (1,219) 14,984
CUMULATIVE REDEEMABLE SENIOR
PREFERRED STOCK 10,000 - - - - 10,000
CUMULATIVE REDEEMABLE JUNIOR
PREFERRED STOCK 20,597 - - - - 20,597
SHAREHOLDERS' EQUITY
Common stock 103 3,971 11,414 - (15,385) 103
Additional paid-in capital 10,180 21,361 1,777 1,777 (24,915) 10,180
Retained earnings (deficit) (69,807) 15,392 12,340 4,960 (32,692) (69,807)
-------- -------- ------- ------- -------- --------
Total shareholders' equity (deficit) (59,524) 40,724 25,531 6,737 (72,992) (59,524)
-------- -------- ------- ------- -------- --------
$ 47,573 $147,393 $23,768 $56,925 ($74,701) $200,958
======== ======== ======= ======= ======== ========
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Supplemental Condensed Consolidating Statements of Income and Retained Earnings (Deficit)
(Unaudited)
(In thousands)
For the Six Month Period Ended June 30, 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 $ - $66,839 $34,155 $13,265 ($8,643) $105,616
COST OF GOODS SOLD - 32,258 16,692 7,947 (8,643) 48,254
------------------------------------------------------------------------------
Gross Profit - 34,581 17,463 5,318 - 57,362
OPERATING EXPENSES - 15,213 13,805 3,905 - 32,923
------------------------------------------------------------------------------
Operating income - 19,368 3,658 1,413 - 24,439
------------------------------------------------------------------------------
OTHER EXPENSES:
Interest - 3,364 371 997 - 4,732
Interest - intercompany - - - - - -
Other, net (10,688) (3,473) (3,097) 158 17,690 590
------------------------------------------------------------------------------
(10,688) (109) (2,726) 1,155 17,690 5,322
------------------------------------------------------------------------------
Income (loss) before provision for income taxes,
minority interest and income from discontinued
operations 10,688 19,477 6,384 258 (17,690) 19,117
PROVISION FOR (RECOVERY) OF
INCOME TAXES - 6,118 1,280 35 - 7,433
------------------------------------------------------------------------------
Income (loss) before minority interest and income
from discontinued operations 10,688 13,359 5,104 223 (17,690) 11,684
MINORITY INTEREST IN EARNINGS OF SUBSIDIARIES - - - - 3,958 3,958
------------------------------------------------------------------------------
Income (loss) before income from discontinued
operations 10,688 13,359 5,104 223 (21,648) 7,726
------------------------------------------------------------------------------
INCOME FROM DISCONTINUED OPERATIONS,
net of tax of $1,975 - - - (2,962) - (2,962)
------------------------------------------------------------------------------
NET INCOME (LOSS) 10,688 13,359 5,104 3,185 (21,648) 10,688
Retained earnings (deficit), beginning of period 5,897 2,397 8,573 5,447 (16,417) 5,897
------------------------------------------------------------------------------
Retained earnings (deficit), end of period $ 16,585 $15,756 $13,677 $ 8,632 ($38,065) $ 16,585
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
For the Three Month Period Ended June 30, 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 $ - $47,553 $17,005 $ 7,102 ($4,516) $ 67,144
COST OF GOODS SOLD - 22,601 8,446 4,239 (4,516) 30,770
------------------------------------------------------------------------------
Gross Profit - 24,952 8,559 2,863 - 36,374
OPERATING EXPENSES - 9,197 6,747 2,468 - 18,412
------------------------------------------------------------------------------
Operating income - 15,755 1,812 395 - 17,962
------------------------------------------------------------------------------
OTHER EXPENSES:
Interest - 1,794 213 486 - 2,493
Other, net (6,893) (9) 620 82 6,537 337
------------------------------------------------------------------------------
(6,893) 1,785 833 568 6,537 2,830
------------------------------------------------------------------------------
Income (loss) before provision for income taxes,
minority interest and loss from discontinued
operations 6,893 13,970 979 (173) (6,537) 15,132
PROVISION FOR (RECOVERY) OF INCOME TAXES - 5,354 684 (159) - 5,879
------------------------------------------------------------------------------
Income (loss) before minority interest and loss
from discontinued operations 6,893 8,616 295 (14) (6,537) 9,253
MINORITY INTEREST IN EARNINGS OF SUBSIDIARIES - - - - 1,798 1,798
------------------------------------------------------------------------------
Income (loss) before loss from discontinued
operations 6,893 8,616 295 (14) (8,335) 7,455
------------------------------------------------------------------------------
LOSS FROM DISCONTINUED OPERATIONS,
net of tax benefit of $325 - - - 562 - 562
------------------------------------------------------------------------------
NET INCOME (LOSS) 6,893 8,616 295 (576) (8,335) 6,893
Retained earnings (deficit), beginning of period 9,692 7,140 13,382 9,208 (29,730) 9,692
------------------------------------------------------------------------------
Retained earnings (deficit), end of period $ 16,585 $15,756 $13,677 $ 8,632 ($38,065) $ 16,585
==============================================================================
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Supplemental Condensed Consolidating Statements of Income and Retained Earnings (Deficit)
(Unaudited)
(In thousands)
For the Six Month Period Ended June 30, 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 $ - $71,553 $33,889 $11,589 ($6,704) $110,327
COST OF GOODS SOLD - 35,202 17,864 7,649 (6,704) 54,011
------------------------------------------------------------------------------
Gross Profit - 36,351 16,025 3,940 - 56,316
OPERATING EXPENSES - 16,648 13,940 3,643 - 34,231
------------------------------------------------------------------------------
Operating income - 19,703 2,085 297 - 22,085
------------------------------------------------------------------------------
OTHER EXPENSES:
Interest - 9,307 248 723 - 10,278
Interest - intercompany - (299) 256 43 - -
Other, net (6,898) (356) 487 145 7,078 456
------------------------------------------------------------------------------
(6,898) 8,652 991 911 7,078 10,734
------------------------------------------------------------------------------
Income (loss) before provision for income taxes 6,898 11,051 1,094 (614) (7,078) 11,351
PROVISION FOR (RECOVERY) OF INCOME TAXES - 4,153 427 (127) - 4,453
------------------------------------------------------------------------------
NET INCOME (LOSS) 6,898 6,898 667 (487) (7,078) 6,898
Retained earnings (deficit), beginning of period (76,338) 8,494 12,931 5,447 (26,872) (76,338)
Repurchase and retirement of stock (367) - (1,258) - 1,258 (367)
------------------------------------------------------------------------------
Retained earnings (deficit), end of period ($69,807) $15,392 $12,340 $ 4,960 ($32,692) ($69,807)
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
For the Three Month Period Ended June 30, 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 $ - $51,053 $16,408 $ 5,339 ($2,830) $ 69,970
COST OF GOODS SOLD - 24,586 8,579 3,369 (2,830) 33,704
------------------------------------------------------------------------------
Gross Profit - 26,467 7,829 1,970 - 36,266
OPERATING EXPENSES - 9,885 6,710 1,730 - 18,325
------------------------------------------------------------------------------
Operating income - 16,582 1,119 240 - 17,941
------------------------------------------------------------------------------
OTHER EXPENSES:
Interest - 4,634 151 401 - 5,186
Interest - intercompany - (78) 72 6 - -
Other, net (7,664) (382) 261 73 7,946 234
------------------------------------------------------------------------------
(7,664) 4,174 484 480 7,946 5,420
------------------------------------------------------------------------------
Income (loss) before provision for income taxes 7,664 12,408 635 (240) (7,946) 12,521
PROVISION FOR INCOME TAXES - 4,744 89 24 - 4,857
------------------------------------------------------------------------------
NET INCOME (LOSS) 7,664 7,664 546 (264) (7,946) 7,664
Retained earnings (deficit), beginning of period (77,384) 7,728 11,794 5,224 (24,746) (77,384)
Repurchase and retirement of stock (87) - - - - (87)
------------------------------------------------------------------------------
Retained earnings (deficit), end of period ($69,807) $15,392 $12,340 $ 4,960 ($32,692) ($69,807)
==============================================================================
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Supplemental Condensed Consolidating Statements of Cash Flow
(Unaudited)
(In thousands)
For the Six Month Period Ended June 30, 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: $ - $ 13,505 ($3,856) $ 1,731 $ - $ 11,380
------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets - (2,032) (670) (1,580) - (4,282)
Operating loan - (3,564) - - - (3,564)
Acquisitions, net of cash acquired - (3,498) - - - (3,498)
------------------------------------------------------------------------------
Net cash used in investing activities - (9,094) (670) (1,580) - (11,344)
------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit - (1,800) 3,600 - - 1,800
Proceeds from the issuance of long-term debt - 2,850 - - - 2,850
Repayments of long-term debt - (265) - (1,275) - (1,540)
------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities - 785 3,600 (1,275) - 3,110
------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH - 5,196 (926) (1,124) - 3,146
CASH, beginning of period - 101 1,425 1,124 - 2,650
------------------------------------------------------------------------------
CASH, end of period $ - $ 5,297 $ 499 $ - $ - $ 5,796
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
For the Six Month Period Ended June 30, 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>
CASH PROVIDED BY OPERATING ACTIVITIES: ($587) $ 9,513 $ 460 $ 1,336 $ - $ 10,722
------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets - (1,644) (631) (1,119) - (3,394)
Acquisitions, net of cash acquired - - - - - -
------------------------------------------------------------------------------
Net cash used in investing activities - (1,644) (631) (1,119) - (3,394)
------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit - 57,412 32,648 - - 90,060
Repayments on revolving line of credit - (65,609) (31,432) - - (97,041)
Intercompany advances (repayments) 74 (479) 249 156 - -
Repayments of long-term debt - (602) - (250) - (852)
Deferred financing costs - (30) - (123) - (153)
Dividends received (paid) - 1,258 (1,258) - - -
Issuance of preferred and common stock 880 - - - - 880
Repurchase and retirement of stock (367) - - - - (367)
Other - - (36) - - (36)
------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities 587 (8,050) 171 (217) - (7,509)
------------------------------------------------------------------------------
NET DECREASE IN CASH - (181) - - - (181)
CASH, beginning of period - 181 - - - 181
------------------------------------------------------------------------------
CASH, end of period $ - $ - $ - $ - $ - $ -
==============================================================================
</TABLE>
12
<PAGE>
HINES HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30,
1995.
Net Sales. Net sales of $70.0 million for the three months ended June 30,
1996 increased $2.9 million, or 4.3%, from net sales of $67.1 million for the
comparable period in 1995. Net sales of the Company's nursery products increased
7.4%, reflecting both increased sales volumes and prices. Net sales of the
Company's peat moss and peat-based products decreased 3.4% from the comparable
three month period. This decrease was primarily due to reduced peat moss sales
volumes and prices, but was partially offset by increased sales of value-added
peat-based potting and growing mixes. These peat moss 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
moss prices are likely to continue throughout 1996 and will continue to
adversely affect gross profit margins in the Company's peat moss business.
Gross Profit. Gross profit of $36.3 million (51.8% of net sales) for the
three months ended June 30, 1996 decreased $0.1 million, or 0.3%, from gross
profit of $36.4 million (54.2% of net sales) for the comparable period in 1995.
The decrease was attributable to the Company's 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 differences in product mix.
Operating Expenses. Operating expenses of $18.3 million (26.2% of net
sales) for the three months ended June 30, 1996 decreased $0.1 million, or 0.5%,
from $18.4 million (27.4% of net sales) for the comparable period in 1995. The
decrease was primarily attributable to decreased distribution expenses for the
Company's peat and peat-based products as a result of lower peat sales volumes.
Operating Income. Operating income of $17.9 million for the three months
ended June 30, 1996 decreased $0.1 million, from $18.0 million for the
comparable period in 1995, due to the reasons described above.
Interest Expense. Interest expense of $5.2 million for the three months
ended June 30, 1996 increased $2.7 million from $2.5 million for the comparable
period in 1995. The increase was attributable to the issuance of $120 million of
Senior Subordinated Notes on October 19, 1995 which replaced the $110 million
senior subordinated credit facility.
13
<PAGE>
Income before minority interest and income from discontinued operations.
The income before minority interest and income from discontinued operations of
$7.7 million for the three months ended June 30, 1996 decreased by $1.6 million
from income of $9.3 million for the comparable period in 1995. This decrease was
due to the reasons described above.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995.
Net Sales. Net sales of $110.4 million for the six months ended June 30,
1996 increased $4.8 million, or 4.5%, from net sales of $105.6 million for the
comparable period in 1995. Net sales of the Company's nursery products increased
7.1%, reflecting both increased sales volumes and prices. Net sales of the
Company's peat moss and peat-based products remained virtually unchanged from
the comparable six month period. This was primarily due to reduced peat moss
sales volumes and prices, but was offset by increased sales of value-added peat-
based potting and growing mixes. These peat moss 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
moss prices are likely to continue throughout 1996 and will continue to
adversely affect gross profit margins in the Company's peat moss business.
Gross Profit. Gross profit of $56.3 million (51.0% of net sales) for the
six months ended June 30, 1996 decreased $1.1 million, or 1.9%, from gross
profit of $57.4 million (54.3% of net sales) for the comparable period in 1995.
The decrease was primarily attributable to the Company's 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 differences in product mix.
Operating Expenses. Operating expenses of $34.2 million (31.0% of net
sales) for the six months ended June 30, 1996 increased $1.3 million, or 3.9%,
from $32.9 million (31.2% 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 $22.1 million for the six months
ended June 30, 1996 decreased $2.3 million, or 9.4%, from $24.4 million for the
comparable period in 1995, due to the reasons described above.
Interest Expense. Interest expense of $10.3 million for the six months
ended June 30, 1996 increased $5.6 million from $4.7 million for the comparable
period in 1995. The increase was attributable to the issuance of $120 million of
Senior Subordinated Notes on October 19, 1995 which replaced the $110 million
senior subordinated credit facility.
Income (loss) before minority interest and income from discontinued
operations. The income before minority interest and income from discontinued
operations of $6.9 million for the six months ended June 30, 1996 decreased by
$4.8 million from income of $11.7 million for the
14
<PAGE>
comparable period in 1995. This decrease was attributable to the decrease in
operating income and the increase in interest expense due to the reasons
described above.
LIQUIDITY AND CAPITAL RESOURCES
As a result of 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. The
Company maintains a $50.0 million revolving credit facility pursuant to a Credit
Agreement dated as of August 4, 1995 by and among Hines Horticulture, Sun Gro-
U.S. and Sun Gro-Canada, as borrowers, the lenders listed therein and BT
Commercial Corporation, as agent (the "Bank Credit Agreement"). The revolving
credit facility is subject to a borrowing base tied to accounts receivable and
inventory and expires on December 31, 2000. The revolving credit facility and
all other obligations under the Bank Credit Agreement, are 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 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 $41.7 million of
unused borrowing capacity under its revolving credit facility on July 31, 1996.
The Company's capital expenditures totaled $3.4 million for the six month
period ended June 30, 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 $10.0
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, including term loans made to Hines Horticulture and Sun Gro-Canada in
an initial aggregate principal amount of $25.0 million, 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. 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 the 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
15
<PAGE>
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.
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, 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.
16
<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: /s/ CLAUDIA M. PIEROPAN
--------------------------------
Claudia M. Pieropan
Chief Financial Officer
(Duly authorized officer and
principal financial officer)
Date: August 12, 1996
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 34,317
<ALLOWANCES> 1,287
<INVENTORY> 70,524
<CURRENT-ASSETS> 105,777
<PP&E> 86,545
<DEPRECIATION> 11,784
<TOTAL-ASSETS> 200,958
<CURRENT-LIABILITIES> 59,765
<BONDS> 155,136
<COMMON> 103
30,597
0
<OTHER-SE> (59,524)
<TOTAL-LIABILITY-AND-EQUITY> 200,958
<SALES> 110,327
<TOTAL-REVENUES> 110,327
<CGS> 54,011
<TOTAL-COSTS> 34,231
<OTHER-EXPENSES> 10,734
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,278
<INCOME-PRETAX> 11,351
<INCOME-TAX> 4,453
<INCOME-CONTINUING> 6,898
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,898
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
