<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 September 30, 1997
( ) 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 92620
(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 ( )
As of October 31, 1997 there were 10,414,734 shares of Common Stock of
Hines Holdings, Inc., par value $.01 per share, outstanding and 20,685,266
shares of 12% Cumulative Redeemable Junior Preferred Stock of Hines Holdings,
Inc., par value $.01 per share, outstanding. As of such date, none of such
shares were held by persons other than affiliates and employees of the
registrant, and there was no public market for such shares.
===============================================================================
<PAGE>
HINES HOLDINGS, INC.
Index
Part I. Financial Information
Item 1. Financial Statements Page No.
--------
Condensed Consolidated Balance Sheets as of
December 31, 1996 and September 30, 1997 1
Condensed Consolidated Statements of Operations and
Deficit for the Three Months and Nine Months Ended
September 30, 1996 and 1997 3
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1996 and 1997 4
Notes to the Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
Part II. Other Information
Item 2. Changes in Securities 18
Item 6. Exhibits and Reports on Form 8-K 19
Signature 20
Note: Items 1, 3, 4 and 5 of Part II are omitted because they are
not applicable.
<PAGE>
<TABLE>
<CAPTION>
HINES HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1996 and September 30, 1997
ASSETS December 31, 1996 September 30, 1997
------ ----------------- ------------------
(Dollars in thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 631 $ -
Accounts receivable, net of allowance for
doubtful accounts of $1,019 and $1,183 15,644 24,516
Inventories 95,224 95,728
Prepaid expenses and other current assets 3,177 2,208
-------- --------
Total current assets 114,676 122,452
-------- --------
FIXED ASSETS, net of accumulated depreciation
and depletion of $14,169 and $18,682 81,870 85,706
DEFERRED FINANCING EXPENSES, net of
accumulated amortization of $1,235 and $2,039 6,352 6,049
OTHER ASSETS 36 36
GOODWILL 24,581 24,831
-------- --------
$227,515 $239,074
======== ========
See accompanying Notes to Condensed Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
</TABLE>
1
<PAGE>
HINES HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1996 and September 30, 1997
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
December 31, 1996 September 30, 1997
----------------- ------------------
(Dollars in thousands except share data)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 7,875 $ 9,067
Accrued liabilities 5,358 8,632
Accrued payroll and benefits 5,957 8,710
Long-term debt, current portion 4,897 5,211
Revolving line of credit 29,357 22,658
Deferred income taxes 31,402 36,117
Other liabilities 269 262
------------ -------------
Total current liabilities 85,115 90,657
------------ -------------
LONG-TERM DEBT 152,769 148,775
DEFERRED INCOME TAXES 6,006 6,877
COMMITMENTS AND CONTINGENCIES
CUMULATIVE REDEEMABLE SENIOR PREFERRED
STOCK 12 PERCENT, par value $.01 per share;
liquidation preference of $1,000 per share; 30,000
shares authorized; 30,000 shares issued
at December 31, 1996 and September 30, 1997 30,921 34,046
CUMULATIVE REDEEMABLE JUNIOR PREFERRED
STOCK 12 PERCENT, par value $.01 per share;
liquidation preference of $1 per share; 22,000,000
shares authorized; 20,498,816 and 20,685,266 shares
issued at December 31, 1996 and September 30, 1977 23,989 26,353
SHAREHOLDERS' DEFICIT
Common Stock
Authorized - 30,000,000 shares $.01 par value;
Issued and outstanding - 10,226,184 and
10,414,734 at December 31, 1996 and
September 30, 1997 102 104
Additional paid-in capital 5,600 460
Notes receivable from stock sales (577) (659)
Deficit (76,410) (67,539)
------------ -------------
Total shareholders' deficit (71,285) (67,634)
------------ -------------
$ 227,515 $ 239,074
============ =============
</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 OPERATIONS AND DEFICIT
Three Months and Nine Months Ended September 30, 1996 and 1997
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
------------------------------- ------------------------------
1996 1997 1996 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
(Dollars in thousands except per share data)
SALES, NET $28,085 $31,104 $138,412 $172,983
COST OF GOODS SOLD 13,943 14,301 67,954 85,784
---------- ---------- ---------- ----------
Gross Profit 14,142 16,803 70,458 87,199
---------- ---------- ---------- ----------
SELLING AND DISTRIBUTION EXPENSES 9,279 10,479 34,490 40,347
GENERAL AND ADMINISTRATIVE EXPENSES 4,128 4,867 13,147 15,933
UNUSUAL ITEMS - 271 - 78
---------- ---------- ---------- ----------
Total operating expenses 13,407 15,617 47,637 56,358
---------- ---------- ---------- ----------
Operating income 735 1,186 22,821 30,841
---------- ---------- ---------- ----------
OTHER EXPENSES:
Interest 4,718 4,897 14,996 15,519
Amortization of deferred financing expenses 242 277 698 804
---------- ---------- ---------- ----------
4,960 5,174 15,694 16,323
---------- ---------- ---------- ----------
Income (loss) before provision for (benefit from)
income taxes (4,225) (3,988) 7,127 14,518
PROVISION FOR (BENEFIT FROM) INCOME TAXES (1,559) (1,677) 2,894 5,647
---------- ---------- ---------- ----------
NET INCOME (LOSS) (2,666) (2,311) 4,233 8,871
Less: Preferred stock dividends (960) (1,955) (2,760) (5,249)
---------- ---------- ---------- ----------
NET INCOME (LOSS) applicable to common stock ($3,626) ($4,266) $1,473 $3,622
========== ========== ========== ==========
Net income (loss) per common share ($0.35) ($0.42) $0.15 $0.33
========== ========== ========== ==========
Weighted average shares outstanding 10,267,521 11,064,235 10,083,807 11,059,762
========== ========== ========== ==========
DEFICIT, beginning of period ($69,807) ($65,228) ($76,338) ($76,410)
NET INCOME (LOSS) during the period (2,666) (2,311) 4,233 8,871
Additional cost of repurchase and retirement of stock 87 - (281) -
---------- ---------- ---------- ----------
DEFICIT, end of period ($72,386) ($67,539) ($72,386) ($67,539)
========== ========== ========== ==========
</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
Nine Months Ended September 30, 1996 and 1997
<TABLE>
<CAPTION>
Nine Months Ended September 30
------------------------------
1996 1997
------------ ------------
(Dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,233 $ 8,871
Adjustments to reconcile net income to
net cash provided by operating activities -
Depreciation, depletion and amortization 4,532 5,372
Gain on sale of fixed assets - (122)
Gain on involuntary disposal of fixed assets - (1,194)
Deferred income taxes 2,433 5,527
Other 148 86
------------ ------------
11,346 18,540
CHANGE IN WORKING CAPITAL ACCOUNTS:
Accounts receivable (3,792) (8,872)
Inventories 2,128 (505)
Prepaid expenses and other assets 272 714
Other assets (597) (82)
Accounts payable and accrued liabilities 2,584 7,216
Other liabilities (161) (7)
------------ ------------
Net cash provided by operating activities 11,780 17,004
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (6,231) (7,379)
Proceeds from sales of fixed assets - 154
Proceeds from insurance claims - 1,194
Purchase of fixed assets with insurance claim
proceeds - (1,081)
Acquisitions, net of cash acquired (10,301) -
------------ ------------
Net cash used in investing activities (16,532) (7,112)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit 147,194 167,306
Repayments on revolving line of credit (139,898) (174,005)
Repayments of long-term debt (2,921) (3,673)
Deferred financing costs (153) (501)
Additional cost of repurchase and retirement of stock (281) -
Repurchase and retirement of stock - (75)
Issuance of preferred and common stock 666 425
Other (36) -
------------ ------------
Net cash provided by (used in) financing activities 4,571 (10,523)
------------ ------------
NET DECREASE IN CASH (181) (631)
CASH beginning of period 0 631
------------ ------------
CASH end of period $ - $ -
============ ============
</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
SEPTEMBER 30, 1996 AND 1997
1. Description of Business:
-----------------------
Hines Holdings, Inc. (Holdings) 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.), a wholly
owned subsidiary of Hines Horticulture, 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."
Hines is a leading national supplier of ornamental, container-grown plants
with nursery facilities located in California, Oregon, Texas and South
Carolina. Hines markets its products to retail merchandisers in North
America.
Sun Gro produces, markets and distributes a range of peat-based
horticulture products for both retail and professional customers. Sun Gro
markets its products in North America and various international markets.
Manufacturing is conducted in facilities located in Canada and the United
States.
2. Unaudited Financial Information:
-------------------------------
The unaudited financial information furnished herein, in the opinion of
management, reflects all adjustments 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 March 31, 1997 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, 1996 and September 30, 1997, inventories consist of the
following (dollars in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
----------- ------------
<S> <C> <C>
Nursery stock $ 85,611 $ 84,661
Finished goods 2,975 3,451
Materials and supplies 6,638 7,616
----------- ------------
$ 95,224 $ 95,728
=========== ============
</TABLE>
4. Acquisition:
-----------
On October 7, 1997, Hines II, Inc. (Hines II), was incorporated in Delaware
as a wholly-owned subsidiary of the Company. On October 20, 1997, Hines II
acquired substantially all of the assets of Pacific Color Nurseries, Inc. a
color bedding grower located in Chowchilla and Madera, California, for
$1,700,000. The Company issued a Demand Note in the aggregate principal
amount of $2,500,000 in favor of Madison Dearborn Capital Partners, L.P.,
the Company's controlling stockholder, in order to finance the acquisition.
In addition, the Company is in the process of obtaining further financing
through Hines II to fund future acquisitions.
Pacific Color Nurseries, Inc., has operated since 1990 as a color bedding
grower servicing central and northern California and the acquired business
will be operated under the name of Hines Color - Fresno. The business is
comprised of two parcels, the first a 20 acre growing facility in
Chowchilla, and the second a 30 acre facility located nearby in Madera.
5. Unusual Items:
-------------
The unusual items for the nine months ended September 30, 1997 represent a
$1,194,000 gain on involuntary disposal of fixed assets and a $1,272,000
charge for the restructuring plan at Sun Gro.
During the nine months ended September 30, 1997, the Company received
$1,194,000 of proceeds from insurance claims to replace assets that had
been damaged and, accordingly, recorded a gain of $1,194,000 representing
the difference between the proceeds received and the carrying amount of the
damaged assets. As of September 30, 1997, the Company has acquired
$1,081,000 of fixed assets utilizing the insurance proceeds.
6
<PAGE>
During the second quarter of 1997, the Company approved a restructuring
plan for Sun Gro which, for the nine months ended September 30, 1997,
resulted in an unusual charge of $1,272,000. The charge represents
$1,100,000 of severance related payments and $172,000 of other related
restructuring charges. As of September 30, 1997, $987,000 has been paid.
6. Net Income Per Common Share:
---------------------------
Net income per common share is computed by dividing net income, after
deduction for preferred dividends, by the weighted average number of common
shares outstanding and common stock equivalents.
Statement of Financial Accounting Standards No. 128 "Earnings Per Share"
(SFAS No. 128), issued in February 1997, would require the Company to
report a basic earnings per share and a diluted earnings per share. Basic
earnings per share would be computed by dividing net income available to
common stockholders by the weighted average shares outstanding during the
period, with no assumption of conversion of dilutive common stock
equivalents. Diluted earnings per share would be computed by reflecting
the potential dilution that could occur if additional shares of common
stock were issued upon the exercise of stock warrants.
SFAS No. 128 also would require a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator
of the diluted EPS computation. SFAS No. 128 will be effective for the
Company in the fourth quarter 1997. Earlier adoption is not permitted .
However, disclosure of pro forma EPS computed using SFAS 128 is permitted
in the notes to the financial statements. The following table sets forth
unaudited pro forma EPS data computed under the provisions of SFAS 128:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
1996 1997 1996 1997
----------------- --------------------
<S> <C> <C> <C> <C>
Basic EPS $ 0.15 $0.35 $(0.35) $(0.42)
Diluted EPS $ 0.15 $0.33 $(0.35) $(0.42)
</TABLE>
7
<PAGE>
7. 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 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 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 (the
subsidiary non-guarantor) 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 its 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 for the parent guarantors and its direct and indirect
subsidiaries on a consolidated basis and (f) the parent guarantor on a
consolidated basis as follows:
. Condensed consolidating balance sheets as of December 31, 1996 and
September 30, (unaudited);
. Condensed unaudited consolidating statements of operations and retained
earnings (deficit) and condensed unaudited consolidating statements of cash
flows for the nine month periods ended September 30, 1996 and 1997.
8
<PAGE>
<TABLE>
<CAPTION>
Supplemental Condensed Consolidating Balance Sheets
As of December 31, 1996
(Dollars in thousands)
Sun Gro
Hines Sun Gro Canada
Holdings Hines U.S. (Subsidiary
(Parent Horticulture (Subsidiary Non- Consolidated
Guarantor) (Issuer) Guarantor) Gurantor) Eliminations Total
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash $ -- $631 $91 ($91) $ -- $631
Accounts receivable, net -- 5,316 8,679 1,649 -- 15,644
Inventories -- 88,361 1,455 5,408 -- 95,224
Prepaid expenses and other current assets -- 1,074 991 1,112 -- 3,177
Deferred income taxes -- 50 603 -- (653) --
----------------------------------------------------------------------------------
Total current assets -- 95,432 11,819 8,078 (653) 114,676
----------------------------------------------------------------------------------
FIXED ASSETS, net -- 32,851 4,540 44,479 -- 81,870
DEFERRED FINANCING EXPENSES, net -- 5,020 43 1,289 -- 6,352
OTHER ASSETS -- 36 -- -- 36
GOODWILL, net -- 23,738 -- 843 -- 24,581
DEFERRED INCOME TAXES -- 10,163 -- -- (10,163) -
INVESTMENTS IN SUBSIDIARIES 40,296 15,606 7,729 -- (63,631) -
----------------------------------------------------------------------------------
$ 40,296 $182,810 $24,167 $54,689 ($74,447) $227,515
==================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
- ----------------------------------------------
CURRENT LIABILITIES:
Accounts payable $ -- $4,048 $1,426 $2,401 $ -- $7,875
Accrued liabilities -- 2,718 2,127 513 -- 5,358
Accrued payroll and benefits -- 4,270 1,318 369 -- 5,957
Long-term debt, current portion -- 2,147 -- 2,750 -- 4,897
Revolving line of credit -- 24,201 5,156 -- -- 29,357
Deferred income taxes -- 31,942 -- 113 (653) 31,402
Other liabilities -- -- 63 206 -- 269
Intercompany accounts 56,671 (65,199) (9,023) 17,551 -- --
---------------------------------------------------------------------------------
Total current liabilities 56,671 4,127 1,067 23,903 (653) 85,115
---------------------------------------------------------------------------------
LONG-TERM DEBT -- 142,269 -- 10,500 152,769
DEFERRED INCOME TAXES -- 2,377 1,235 12,557 (10,163) 6,006
CUMULATIVE REDEEMABLE SENIOR
PREFERRED STOCK 30,921 -- -- -- -- 30,921
CUMULATIVE REDEEMABLE JUNIOR
PREFERRED STOCK 23,989 -- -- -- -- 23,989
SHAREHOLDERS' EQUITY
Common stock 102 3,971 11,414 -- (15,385) 102
Additional paid-in capital 5,600 21,364 5,793 1,777 (28,934) 5,600
Notes receivable from stock sales (577) -- -- -- --
Retained earnings (deficit) (76,410) 8,702 4,658 5,952 (19,312) (76,410)
-----------------------------------------------------------------------------------
Total shareholders' equity (deficit) (71,285) 34,037 21,865 7,729 (63,631) (71,285)
-----------------------------------------------------------------------------------
$40,296 $182,810 $24,167 $54,689 ($74,447) $227,515
===================================================================================
</TABLE>
9
<PAGE>
Supplemental Condensed Consolidating Balance Sheets
As of September 30, 1997
(Dollars 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 - 13,382 8,937 2,197 24,516
Inventories - 87,480 2,198 6,050 - 95,728
Prepaid expenses and other current assets - 785 624 799 - 2,208
Deferred income taxes - 50 603 - (653) -
------------------------------------------------------------------------------------
Total current assets - 101,697 12,362 9,046 (653) 122,452
------------------------------------------------------------------------------------
FIXED ASSETS, net - 37,032 4,402 44,272 - 85,706
DEFERRED FINANCING EXPENSES, net - 4,809 181 1,059 - 6,049
OTHER ASSETS - - 36 - - 36
GOODWILL, net - 24,007 - 824 - 24,831
DEFERRED INCOME TAXES - 10,163 - - (10,163) -
INVESTMENTS IN SUBSIDIARIES 49,159 11,401 7,515 - (68,075) -
------------------------------------------------------------------------------------
$ 49,159 $ 189,109 $ 24,496 $ 55,201 $ (78,891)$ 239,074
====================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ - $ 3,798 $ 978 $ 4,291 - $ 9,067
Accrued liabilities - 6,021 1,813 798 - 8,632
Accrued payroll and benefits - 7,079 889 742 - 8,710
Long-term debt, current portion - 2,274 - 2,937 - 5,211
Revolving line of credit - 17,206 5,452 - - 22,658
Deferred income taxes - 36,657 - 113 (653) 36,117
Other liabilities - - 63 199 - 262
Intercompany accounts 56,389 (71,789) (2,871) 18,271 - -
------------------------------------------------------------------------------------
Total current liabilities 56,389 1,246 6,324 27,351 (653) 90,657
------------------------------------------------------------------------------------
LONG-TERM DEBT - 140,524 - 8,251 - 148,775
DEFERRED INCOME TAXES 5 4,439 512 12,084 (10,163) 6,877
CUMULATIVE REDEEMABLE SENIOR
PREFERRED STOCK 34,046 - - - - 34,046
CUMULATIVE REDEEMABLE JUNIOR
PREFERRED STOCK 26,353 - - - - 26,353
SHAREHOLDERS' EQUITY
Common stock 104 3,971 11,414 - (15,385) 104
Additional paid-in capital 460 21,364 5,889 1,777 (29,030) 460
Notes receivable from stock sales (659) - - - - (659)
Retained earnings (deficit) (67,539) 17,565 357 5,738 (23,660) (67,539)
------------------------------------------------------------------------------------
Total shareholders' equity (deficit) (67,634) 42,900 17,660 7,515 (68,075) (67,634)
------------------------------------------------------------------------------------
$ 49,159 $ 189,109 $ 24,496 $ 55,201 $ (78,891)$ 239,074
====================================================================================
</TABLE>
10
<PAGE>
Supplemental Condensed Consolidating Statements of Operations and Retained
Earnings (Deficit)
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Nine Month Period Ended September 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 $ - $ 84,414 $ 47,390 $ 16,412 $ (9,804) $ 138,412
COST OF GOODS SOLD - 41,983 24,822 10,953 (9,804) 67,954
----------------------------------------------------------------------------
Gross Profit - 42,431 22,568 5,459 - 70,458
OPERATING EXPENSES - 21,892 20,480 5,265 - 47,637
----------------------------------------------------------------------------
Operating income - 20,539 2,088 194 - 22,821
----------------------------------------------------------------------------
OTHER EXPENSES:
Interest - 13,731 361 904 - 14,996
Interest - intercompany - (489) 405 84 - -
Other, net (4,233) 325 818 222 3,566 698
----------------------------------------------------------------------------
(4,233) 13,567 1,584 1,210 3,566 15,694
----------------------------------------------------------------------------
Income (loss) before income tax provision (benefit) 4,233 6,972 504 (1,016) (3,566) 7,127
INCOME TAX PROVISION (BENEFIT) - 2,739 353 (198) - 2,894
----------------------------------------------------------------------------
NET INCOME (LOSS) 4,233 4,233 151 (818) (3,566) 4,233
Retained earnings (deficit), beginning of period (76,338) 8,494 12,931 6,818 (28,243) (76,338)
Additional cost of repurchase and retirement of stock (281) - (4,342) - 4,342 (281)
----------------------------------------------------------------------------
Retained earnings (deficit), end of period $ (72,386) $ 12,727 $ 8,740 $ 6,000 $ (27,467) $ (72,386)
============================================================================
</TABLE>
<TABLE>
<CAPTION>
For the Three Month Period Ended September 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 $ - $ 12,861 $ 13,501 $ 4,823 $ (3,100) $ 28,085
COST OF GOODS SOLD - 6,781 6,958 3,304 (3,100) 13,943
----------------------------------------------------------------------------
Gross Profit - 6,080 6,543 1,519 - 14,142
OPERATING EXPENSES - 5,244 6,541 1,622 - 13,407
----------------------------------------------------------------------------
Operating income - 836 2 (103) - 735
----------------------------------------------------------------------------
OTHER EXPENSES:
Interest - 4,424 113 181 - 4,718
Interest - intercompany - (190) 149 41 - -
Other, net 2,666 681 331 77 (3,512) 242
----------------------------------------------------------------------------
2,666 4,915 593 299 (3,512) 4,960
----------------------------------------------------------------------------
Income (loss) before income tax provision (benefit) (2,666) (4,079) (591) (402) 3,512 (4,225)
INCOME TAX PROVISION (BENEFIT) - (1,414) (74) (71) - (1,559)
----------------------------------------------------------------------------
NET INCOME (LOSS) (2,666) (2,665) (517) (331) 3,512 (2,666)
Retained earnings (deficit), beginning of period (69,807) 15,392 12,340 6,331 (34,063) (69,807)
Additional cost of repurchase and retirement of stock 87 - (3,084) - 3,084 87
----------------------------------------------------------------------------
Retained earnings (deficit), end of period $ (72,386)$ 12,727 $ 8,740 $ 6,000 $ (27,467) $ (72,386)
============================================================================
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Supplemental Condensed Consolidating Statements of Operations and Retained Earnings (Deficit)
(Dollars in thousands)
For the Nine Month Period Ended September 30, 1997
-------------------------------------------------------------------------
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 $ - $ 117,275 $ 48,160 $ 16,433 $ (8,885) $ 172,983
COST OF GOODS SOLD - 58,795 25,566 10,308 (8,885) 85,784
--------------------------------------------------------------------------
Gross Profit - 58,480 22,594 6,125 - 87,199
OPERATING EXPENSES - 27,607 23,165 5,586 - 56,358
--------------------------------------------------------------------------
Operating income - 30,873 (571) 539 - 30,841
--------------------------------------------------------------------------
OTHER EXPENSES:
Interest (13) 14,171 561 800 - 15,519
Interest - intercompany - (637) 543 94 - -
Other, net (8,863) 1,758 246 230 7,433 804
--------------------------------------------------------------------------
(8,876) 15,292 1,350 1,124 7,433 16,323
--------------------------------------------------------------------------
Income (loss) before income tax provision (benefit) 8,876 15,581 (1,921) (585) (7,433) 14,518
INCOME TAX PROVISION (BENEFIT) 5 6,718 (705) (371) - 5,647
--------------------------------------------------------------------------
NET INCOME (LOSS) 8,871 8,863 (1,216) (214) (7,433) 8,871
Retained earnings (deficit), beginning of period (76,410) 8,702 4,658 5,952 (19,312) (76,410)
Dividends - intercompany - - (3,085) - 3,085 -
--------------------------------------------------------------------------
Retained earnings (deficit), end of period $(67,539) $ 17,565 $ 357 $ 5,738 $ (23,660) $ (67,539)
==========================================================================
</TABLE>
<TABLE>
<CAPTION>
For the Three Month Period Ended September 30, 1997
-------------------------------------------------------------------------
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 $ - $ 15,751 $ 13,355 $ 3,953 $ (1,955) $ 31,104
COST OF GOODS SOLD - 7,750 6,669 1,837 (1,955) 14,301
-------------------------------------------------------------------------
Gross Profit - 8,001 6,686 2,116 - 16,803
OPERATING EXPENSES - 7,101 6,720 1,796 - 15,617
-------------------------------------------------------------------------
Operating income - 900 (34) 320 - 1,186
-------------------------------------------------------------------------
OTHER EXPENSES:
Interest - 4,473 171 253 - 4,897
Interest - intercompany - (247) 214 33 - -
Other, net 2,311 389 14 77 (2,514) 277
-------------------------------------------------------------------------
2,311 4,615 399 363 (2,514) 5,174
-------------------------------------------------------------------------
Income (loss) before income tax provision (benefit) (2,311) (3,715) (433) (43) 2,514 (3,988)
INCOME TAX PROVISION (BENEFIT) - (1,404) (229) (44) - (1,677)
-------------------------------------------------------------------------
NET INCOME (LOSS) (2,311) (2,311) (204) 1 2,514 (2,311)
Retained earnings (deficit), beginning of period (65,228) 19,876 561 5,737 (26,174) (65,228)
Dividends - intercompany - - - - - -
-------------------------------------------------------------------------
Retained earnings (deficit), end of period $(67,539) $ 17,565 $ 357 $ 5,738 $ (23,660) $(67,539)
=========================================================================
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Supplemental Condensed Consolidating Statements of Cash Flow
(Dollars in thousands) For the Nine Month Period Ended September 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 (USED IN) OPERATING ACTIVITIES: $ (597) $ 8,574 $ 1,208 $ 2,595 $ - $ 11,780
---------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets - (3,743) (1,200) (1,288) - (6,231)
Acquisitions, net of cash acquired - (10,301) - - - (10,301)
---------------------------------------------------------------------------
Net cash used in investing activities - (14,044) (1,200) (1,288) - (16,532)
---------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit - 95,883 51,311 - - 147,194
Repayments on revolving line of credit - (92,539) (47,359) - - (139,898)
Intercompany advances (repayments) 212 (820) 418 190 - -
Repayments of long-term debt - (1,546) - (1,375) - (2,921)
Deferred financing costs - (31) - (122) - (153)
Dividends received (paid) - 4,342 (4,342) - - -
Issuance of preferred and common stock 666 - - - - 666
Additional cost of repurchase and retirement of stock (281) - - - - (281)
Other - - (36) - - (36)
---------------------------------------------------------------------------
Net cash provided by (used in) financing activities 597 5,289 (8) (1,307) - 4,571
---------------------------------------------------------------------------
NET DECREASE IN CASH - (181) - - - (181)
CASH, beginning of period - 181 - - - 181
---------------------------------------------------------------------------
CASH, end of period $ - $ - $ - $ - $ - $ -
===========================================================================
For the Nine Month Period Ended September 30, 1997
---------------------------------------------------------------------------
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 (USED IN) OPERATING ACTIVITIES: $ (68) $ 16,402 $ (3,389) $ 3,964 $ 95 $ 17,004
---------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets - (4,858) (641) (1,880) - (7,379)
Proceeds from sales of fixed assets - 154 - - - 154
Proceeds from insurance claims - 1,194 - - - 1,194
Purchase of fixed assets from insurance claim proceeds - (1,081) - - - (1,081)
---------------------------------------------------------------------------
Net cash used in investing activities - (4,591) (641) (1,880) - (7,112)
---------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit - 112,934 54,372 - - 167,306
Repayments on revolving line of credit - (119,929) (54,076) - - (174,005)
Intercompany advances (repayments) (282) (6,590) 6,894 (22) - -
Repayments of long-term debt - (1,611) - (2,062) - (3,673)
Deferred financing costs - (331) (170) - - (501)
Dividends received (paid) - 3,085 (3,085) - - -
Repurchase and retirement of stock (75) - - - - (75)
Issuance of preferred and common stock 425 - 95 - (95) 425
---------------------------------------------------------------------------
Net cash provided by (used in) financing activities 68 (12,442) 4,030 (2,084) (95) (10,523)
---------------------------------------------------------------------------
NET DECREASE IN CASH - (631) - - - (631)
CASH, beginning of period - 631 - - - 631
---------------------------------------------------------------------------
CASH, end of period $ - $ - $ - $ - $ - $ -
===========================================================================
</TABLE>
13
<PAGE>
Item 2.
HINES HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following discussion contains trend analysis and other forward looking
statements. Actual results could differ materially from those projected in the
forward looking statements throughout this Report.
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 realizes 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.
Three Months Ended September 30, 1997 compared to Three Months Ended September
30, 1996.
Net Sales. Net sales of $31.1 million for the three months ended September
30, 1997 increased $3.0 million, or 10.7%, from net sales of $28.1 million for
the comparable period in 1996. The Company's sales of its nursery products
increased 22.5%, reflecting $2.0 million of sales from the Iverson and Flynn
nursery acquisitions and increased sales volumes and prices from the other
nursery operations. The Iverson and Flynn nursery operations were acquired on
August 30, 1996 and November 27, 1996, respectively. Excluding the
acquisitions, sales from the remaining core nursery operations increased 7.0%
from the comparable period in 1996. Net sales of peat moss and peat-based
products increased 1.0% from the comparable three month period. Sales from the
professional peat and mix business increased 1.8% from the comparable period in
1996 with continued strong volume growth from the value added professional mix
business. Sales for the retail peat and mix business decreased marginally from
the comparable period in 1996.
Gross Profit. Gross profit of $16.8 million (54.0% of net sales) for the
three months ended September 30, 1997 increased $2.7 million, or 19.1%, from
gross profit of $14.1 million (50.4% of net sales) for the comparable period in
1996. The increase was primarily attributable to the Iverson and Flynn nursery
acquisitions. The increase in gross margin percentage is primarily due to
higher margins from the nursery business resulting from higher average sales
prices and higher margins from the peat and peat-based business due to higher
sales of professional mix, a higher margin product mix, and some improvement in
professional peat prices.
14
<PAGE>
Operating Expenses. Operating expenses of $15.6 million (50.2% of net
sales) for the three months ended September 30, 1997 increased $2.2 million, or
16.4%, from $13.4 million (47.7% of net sales) for the comparable period in
1996. The increase was primarily attributable to the Iverson and Flynn
acquisitions.
Operating Income. Operating income of $1.2 million for the three months
ended September 30, 1997 increased $0.5 million, or 71.4%, from $0.7 million for
the comparable period in 1996, due to the higher sales from the Company's
nursery operations.
Interest Expense. Interest expense of $4.9 million for the three months
ended September 30, 1997 increased $0.2 million from $4.7 million for the
comparable period in 1996. The increase was attributable to higher borrowing
levels under the Company's revolving credit facility.
Net Loss. The net loss of $2.3 million for the three months ended
September 30, 1997 decreased by $0.4 million from a net loss of $2.7 million for
the comparable period in 1996. The decrease was primarily due to the higher
sales from the Company's nursery operations.
Nine Months Ended September 30, 1997 compared to Nine Months Ended September 30,
1996.
Net Sales. Net sales of $173.0 million for the nine months ended September
30, 1997 increased $34.6 million, or 25.0%, from net sales of $138.4 million for
the comparable period in 1996. The Company's sales of its nursery products
increased 38.9%, reflecting $24.4 million of sales from the Iverson and Flynn
nursery acquisitions and increased sales volumes and prices from the other
nursery operations. Excluding these acquisitions, sales from the remaining core
nursery operations increased 10.0% from the comparable period in 1996. Net
sales of peat moss and peat-based products increased 3.2% from the comparable
nine month period. Sales from the professional peat and mix business increased
1.6% from the comparable period in 1996 with continued strong volume growth from
the value added professional mix business. For the retail peat and mix
business, sales increased 7.0% from the comparable period in 1996, primarily due
to volume growth as pricing pressures continued to adversely affect retail peat
sales.
Gross Profit. Gross profit of $87.2 million (50.4% of net sales) for the
nine months ended September 30, 1997 increased $16.7 million, or 23.7%, from
gross profit of $70.5 million (50.9% of net sales) for the comparable period in
1996. The increase was primarily attributable to the Iverson and Flynn nursery
acquisitions and the higher sales from the core nursery operations. The slight
decrease in gross margin percentage is primarily due to lower margins from these
acquisitions, as they are still in the process of being integrated into the main
nursery operations, and lower margins from the peat and peat-based business due
to continued pricing pressures from the retail peat business.
Operating Expenses. Operating expenses of $56.4 million (32.6% of net
sales) for the nine months ended September 30, 1997 increased $8.8 million, or
18.5%, from $47.6 million
15
<PAGE>
(34.4% of net sales) for the comparable period in 1996. The increase was
primarily attributable to the Iverson and Flynn acquisitions.
Operating Income. Operating income of $30.8 million for the nine months
ended September 30, 1997 increased $8.0 million, or 35.1%, from $22.8 million
for the comparable period in 1996, due to the Iverson and Flynn nursery
acquisitions and the higher sales from the Company's core nursery operations.
Interest Expense. Interest expense of $15.5 million for the nine months
ended September 30, 1997 increased $0.5 million from $15.0 million for the
comparable period in 1996. The increase was attributable to higher borrowing
levels under the Company's revolving credit facility.
Net Income. Net income of $8.9 million for the nine months ended
September 30, 1997 increased by $4.7 million from net income of $4.2 million for
the comparable period in 1996. The increase was primarily due to the Iverson
and Flynn acquisitions and the higher sales from the Company's core nursery
operations.
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 $75.0 million revolving credit facility pursuant to a Credit
Agreement dated as of August 4, 1995, as subsequently amended, 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 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 occurring in the third and fourth quarters. The Company had
$19.6 million of unused borrowing capacity under its revolving credit facility
on October 31, 1997.
16
<PAGE>
The Company's capital expenditures totaled $7.4 million for the nine month
period ended September 30, 1997. These capital expenditures consisted primarily
of vehicles, machinery equipment and the purchase of other nursery related
structures required to execute the Company's 1997 expansion plans and capital
expenditures related to preparing peat bogs for harvest. The Company's capital
expenditures for fiscal 1997 are expected to be approximately $11.1 million, and
will be used for capacity expansion at several of the nursery operations and
other maintenance expenditures. These capital expenditures will be funded from
operating cash flow and borrowings under the revolving credit facility.
The debt service costs associated with the borrowings under the Bank Credit
Agreement and the 11 3/4% Senior Subordinated Notes due 2005 of Hines
Horticulture (the "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 remaining principal repayment schedule for the term loans under the
Bank Credit Agreement is $4.5 million, $5.0 million $5.5 million and $6.5
million for the years 1997 through 2000, respectively.
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. In addition, breach of a material
term of the Indenture or any other material indebtedness that results in the
acceleration of such indebtedness would trigger an event of default under the
Bank Credit Agreement causing all amounts owing under the Bank Credit Agreement
to become immediately due and payable.
On October 7, 1997, subsequent to the period covered by this Report, Hines
II, Inc. was incorporated in Delaware as a wholly-owned subsidiary of the
Company. On October 20, 1997, Hines II, Inc. acquired substantially all of the
assets of Pacific Color Nurseries Inc., a color bedding grower servicing central
and northern California, for $1,700,000. The Company issued a Demand Note in
the aggregate principal amount of $2,500,000 in favor of Madison Dearborn
Capital Partners, L.P., the Company's controlling stockholder, in order to
finance the acquisition. The Company is in the process of obtaining further
financing through Hines II, Inc. to fund future acquisitions. On November 7,
1997, the Company and certain of its subsidiaries entered into the Eighth
Amendment and Limited Waiver to Credit Agreement and First Amendment to Holdings
Guaranty and Holdings Pledge Agreement, a copy of which is being filed as an
exhibit to this Report, to cure certain technical defaults under the Bank Credit
Agreement and related agreements arising in connection with the Company's
formation of Hines II, Inc. and its acquisition of the assets of Pacific Color
Nurseries, Inc.
17
<PAGE>
The Company expects that cash flow from operating activities together with
borrowings available under the Bank Credit Agreement and borrowings being
obtained under Hines II, Inc. 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.
PART II. OTHER INFORMATION
Item 2. Changes in Securities
On September 29, 1997, the Registrant sold 100,000 shares of its Common Stock,
par value $.01 per share, to Mr. S. Thigpen, a management employee of Hines
Horticulture Inc., a wholly-owned subsidiary of the Registrant, in a transaction
not involving a public offering and therefore exempt from registration under the
Securities Act of 1933, as amended, pursuant to Section 4(2) thereof. The
aggregate purchase price for such shares was $100,000, payable by a full-
recourse promissory note in favor of the Registrant due in three equal
installments on April 30 of each of 1998, 1999 and 2000.
On September 30, 1997, the Registrant sold 32,200 shares of its Common Stock,
par value $.01 per share, and 67,800 shares of its 12% Cumulative Redeemable
Junior Preferred Stock, par value $.01 per share, to Mr. S. Rizzi, a management
employee of Hines Horticulture Inc., a wholly-owned subsidiary of the
Registrant, and his spouse, in a transaction not involving a public offering and
therefore exempt from registration under the Securities Act of 1933, as amended,
pursuant to Section 4(2) thereof. The aggregate purchase price for such shares
was $100,000, payable by a full-recourse promissory note in favor of the
Registrant due in three equal installments on September 30, 1997 and on March 31
of each of 1998 and 1999.
On September 30, 1997, the Registrant sold 48,300 shares of its Common
Stock, par value $.01 per share, and 101,700 shares of its 12% Cumulative
Redeemable Junior Preferred Stock, par value $.01 per share, to Mr. M. Weaver, a
management employee of Sun Gro Horticulture Inc., an indirect wholly-owned
subsidiary of the Registrant, in a transaction not involving a public offering
and therefore exempt from registration under the Securities Act of 1933, as
amended, pursuant to Section 4(2) thereof. The aggregate purchase price for
such shares was $150,000, payable by a full-recourse promissory note in favor of
the Registrant due in five equal installments on September 30, 1997 and on March
31 of each of 1998, 1999, 2000 and 2001.
18
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a)
Exhibits:
27.1 Financial Data Schedule
4.1 Eighth Amendment and Limited Waiver to Credit Agreement and First
Amendment to Holdings Guaranty and Holdings Pledge Agreement dated as
of November 7, 1997.
(b) Reports on Form 8-K:
No Current Reports on Form 8-K were filed by the Registrant during the
period covered by this Report.
Items 1, 3, 4, and 5 are not applicable and have been omitted.
19
<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
Date: November 13, 1997
Claudia M. Pieropan is signing in the dual capacities as (i) principal
financial officer, and (ii) a duly authorized officer of the Company.
20
<PAGE>
HINES HORTICULTURE, INC.
EIGHTH AMENDMENT AND LIMITED WAIVER
TO CREDIT AGREEMENT
AND FIRST AMENDMENT TO
HOLDINGS GUARANTY AND HOLDINGS PLEDGE AGREEMENT
This EIGHTH AMENDMENT AND LIMITED WAIVER TO CREDIT AGREEMENT AND FIRST
AMENDMENT TO HOLDINGS GUARANTY AND HOLDINGS PLEDGE AGREEMENT (this "Amendment")
is dated as of November 7, 1997 and entered into by and among HINES
HORTICULTURE, INC. (formerly known as Hines Nurseries Inc.), a California
corporation ("Company"), SUN GRO HORTICULTURE INC., a Nevada corporation ("Sun
Gro"), and SUN GRO HORTICULTURE CANADA LTD., a Canadian corporation ("Sun Gro
Canada"; together with Company and Sun Gro, collectively, "Borrowers"), the
financial institutions listed on the signature pages hereof ("Lenders") and BT
COMMERCIAL CORPORATION, as Agent for Lenders ("Agent"), and, for purposes of
Section 7 hereof, the Credit Support Parties (as defined in Section 7 hereof)
listed on the signature pages hereof, and is made with reference to that certain
Credit Agreement dated as of August 4, 1995, by and among Company, Sun Gro and
Sun Gro Canada, Lenders and Agent, as amended by that certain First Amendment
dated as of October 11, 1995, that certain Second Amendment dated as of October
26, 1995, that certain Third Amendment dated as of March 15, 1996, that certain
Fourth Amendment dated as of August 28, 1996, that certain Fifth Amendment and
Consent dated as of November 14, 1996, that certain Sixth Amendment dated as of
February 14, 1997, and that certain Seventh Amendment and Consent to Credit
Agreement dated as of March 26, 1997 (as so amended, the "Credit Agreement").
Capitalized terms used herein without definition shall have the same meanings
herein as set forth in the Credit Agreement.
RECITALS
WHEREAS, Company has requested Lenders to amend the Credit Agreement
and certain related Loan Documents to permit (i) the formation of Hines II, a
wholly owned Subsidiary of Holdings, by Holdings, (ii) the capitalization of
Hines II with all or a portion of the proceeds of up to $2,500,000 from the
issuance of debt or equity by Holdings to MDCP, (iii) the acquisition of the
assets of PCN by Hines II on October 20, 1997, for approximately $1,700,000, and
(iv) Hines II and its Subsidiaries to engage in the nursery business or
businesses related thereto (the transactions described in the foregoing clauses
(i)-(iv) being herein collectively referred to as the "Hines II Transactions");
and
WHEREAS, Borrowers, Lenders and Holdings desire to amend the Credit
Agreement and certain other Loan Documents to permit the Hines II Transactions
and to waive
1
<PAGE>
any noncompliance by Loan Parties with the provisions of the Loan Documents
prohibiting the Hines II Transactions:
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
Section 1. AMENDMENTS TO THE CREDIT AGREEMENT
1.1 Amendment to Section 1: Provisions Relating to Defined Terms
Subsection 1.1 of the Credit Agreement is hereby amended by
adding thereto the following definitions, which shall be inserted in the proper
alphabetical order:
"`Hines II' means Hines II, Inc., a Delaware corporation."
"`Hines II Credit Facility' means the senior secured credit facilities
in an aggregate commitment amount of up to $60,000,000 substantially on the
terms and conditions set forth in that certain commitment letter dated as of
October 8, 1997, between Holdings and BT Commercial Corporation to finance
its acquisition of companies and/or of the assets and operations of
companies engaged in the nursery business or businesses related thereto and
to provide for the working capital needs and general corporate purposes of
such acquired companies or business operations."
"`PCN' means Pacific Color Nurseries, Inc., a California corporation."
1.2 Amendment to Section 8: Events of Default
Section 8 of the Credit Agreement is hereby amended by replacing
subsection 8.18 with the following:
"8.18 Certain Covenants Relating to Holdings.
A. Holdings shall engage in any business other than owning
the capital stock of Company, Hines II and their respective
Subsidiaries and entering into and performing its obligations under
and in accordance with the Loan Documents and the Related Agreements
to which it is a party and the loan documents to be entered into by
Holdings with respect to the Hines II Credit Facility, including
without limitation a demand note in favor of MDCP of up to $2,500,000
for the capitalization of Hines II, a guarantee of Hines II's
obligations thereunder and a pledge of all of the outstanding stock of
Hines II in support of such guarantee, or shall own any assets other
than (a) the capital stock of Company, Hines II and their Subsidiaries
and (b) Cash and Cash
2
<PAGE>
Equivalents in an amount not to exceed $100,000 at any one time for
the purpose of paying general operating expenses of Holdings; or
B. Holdings shall have failed, on or prior to January 31,
1998, either (i) to have entered into the Hines II Credit Facility and
related loan documents, which Hines II Credit Facility and related loan
documents shall be in form and substance satisfactory to all Lenders,
or (ii) to have contributed all shares of stock of Hines II to Company
so that Hines II and its Subsidiaries become Subsidiaries of Company
and to have caused Company and Hines II to have taken all such actions
and executed all such documents as may be required pursuant to
subsections 6.11 and 6.12 hereof with respect to any new Domestic
Subsidiary Company; or"
Section 2. AMENDMENT TO THE HOLDINGS GUARANTY
Amendment to Section 4: Covenants.
Subsection 4.4 of the Holdings Guaranty is hereby amended by
replacing subsection 4.4 with the following:
"4.4 Conduct of Business.
Guarantor shall engage only in the business of owning the
capital stock of Company, Hines II and their respective Subsidiaries
and entering into and performing its obligations under and in
accordance with the Loan Documents and the Related Agreements to which
it is a party and the loan documents to be entered into by Holdings
with respect to the Hines II Credit Facility, including without
limitation a demand note in favor of MDCP of up to $2,500,000 for the
capitalization of Hines II, a guarantee of Hines II's obligations
thereunder and a pledge of all of the outstanding stock of Hines II in
support of such guarantee. Guarantor shall own no assets other than (a)
the capital stock of Company, Hines II and their Subsidiaries and (b)
Cash and Cash Equivalents in an amount not to exceed $100,000 at any
one time for the purpose of paying general operating expenses of
Holdings. Guarantor shall not directly engage in any business and shall
limit its activities to those activities necessary to discharge its
obligations as a holding company for Company and Hines II."
3
<PAGE>
Section 3. AMENDMENT TO THE HOLDINGS PLEDGE AGREEMENT
Amendment to Section 5: Transfers and Other Liens; Additional
Pledged Collateral; etc.
Subsection 5 of the Holdings Pledge Agreement is hereby amended
by replacing subsection 5(b)(iii) with the following:
"(iii) pledge hereunder, immediately upon its acquisition (directly or
indirectly) thereof, any and all shares of stock issued to or otherwise
acquired by Pledgor of any Person (other than Hines II) that, after the date
of this Agreement, becomes, as a result of any occurrence, a direct
Subsidiary of Pledgor;"
Section 4. LIMITED WAIVER
4.1 Waiver of Noncompliance
Subject to the terms and conditions set forth herein and in reliance
on the representations and warranties of Borrowers contained herein, Lenders
hereby waive:
A. compliance (to the extent, and only to the extent, necessary to
permit the Hines II Transactions to occur) with the provisions of (i)
subsection 8.18A of the Credit Agreement, (ii) subsection 4.4 of the
Holdings Guaranty, and (iii) subsection 5(b))(iii) of the Holdings Pledge
Agreement (each as in effect prior to the Eighth Amendment Effective Date)
and waive any Events of Default and Potential Events of Default arising as
a result of any noncompliance therewith arising out of the Hines II
Transactions prior to the Eighth Amendment Effective Date (as hereinafter
defined); and
B. compliance with any covenant contained in any Loan Document
prohibiting Holdings from permitting any Lien on or any pledge of any of
the assets of Holdings (a "Negative Pledge Covenant") but only with respect
to a pledge by Holdings of all of the outstanding stock of Hines II in
support of a guarantee by Holdings of Hines II's obligations under the
Hines II Credit Facility.
4.2 Limitation of Waivers
Without limiting the generality of the provisions of subsection 10.6
of the Credit Agreement, the waivers set forth above shall be limited precisely
as written and relate solely to noncompliance with subsection 8.18A of the
Credit Agreement, subsection 4.4 of the Holdings Guaranty, subsection 5(b)(iii)
of the Holdings Pledge Agreement and any Negative
4
<PAGE>
Pledge Covenant (each as in effect prior to the Eighth Amendment Effective Date)
in the manner and to the extent described above, and nothing in this Section 4
shall be deemed to:
A. constitute a waiver of compliance by Borrowers or Holdings with
respect to (a) subsection 8.18 of the Credit Agreement, subsection 4.4 of
the Holdings Guaranty, subsection 5(b)(iii) of the Holdings Pledge Agreement
and any Negative Pledge Covenant in any other instance or (b) any other
term, provision or condition of the Credit Agreement or other Loan Documents
or any other instrument or agreement referred to therein; or
B. prejudice any right or remedy that Agent or any Lender may now
have (except to the extent that such right or remedy was based upon existing
defaults that will not exist after giving effect to this Amendment) or may
have in the future under or in connection with the Credit Agreement or other
Loan Documents or any other instrument or agreement referred to therein.
Except as expressly set forth herein, the terms, provisions and
conditions of the Credit Agreement and the other Loan Documents shall remain in
full force and effect and in all other respects are hereby ratified and
confirmed.
Section 5. CONDITIONS TO EFFECTIVENESS
Sections 1, 2, 3 and 4 of this Amendment shall become effective only
upon the satisfaction of all of the following conditions precedent (the date of
satisfaction of such conditions being referred to herein as the "Eighth
Amendment Effective Date"):
A. On or before the Eighth Amendment Effective Date, Holdings and
each Borrower shall deliver to Lenders (or to Agent for Lenders) executed copies
of this Amendment.
B. Agent shall have received copies of this Amendment executed by
Requisite Lenders.
C. On or before the Eighth Amendment Effective Date, all corporate
and other proceedings taken or required to be taken in connection with the
transactions contemplated hereby and all documents incidental thereto not
previously found acceptable by Agent, acting on behalf of Lenders, and its
counsel shall be satisfactory in form and substance to Agent and such counsel,
and Agent and such counsel shall have received all such counterpart originals or
certified copies of such documents as Agent may reasonably request.
5
<PAGE>
Section 6. REPRESENTATIONS AND WARRANTIES
In order to induce Lenders to enter into this Amendment and to amend
the Credit Agreement in the manner provided herein, each Borrower and Holdings
represent and warrant to each Lender that the following statements are true,
correct and complete:
A. Corporate Power and Authority. Each Loan Party has all requisite
corporate power and authority to enter into this Amendment and to carry out the
transactions contemplated by, and perform its obligations under, the Credit
Agreement and other Loan Documents as amended by this Amendment (the "Amended
Agreements").
B. Authorization of Agreements. The execution and delivery of this
Amendment and the performance of the Amended Agreements have been duly
authorized by all necessary corporate action on the part of each Loan Party
party hereto.
C. Signature and Incumbency. The signature and incumbency
certificates of officers of Holdings and each Borrower delivered in connection
with the Fifth Amendment correctly reflects, as of the Eighth Amendment
Effective Date, the signature and incumbency of each officer of Holdings and
each Borrower executing this Amendment and each of the Loan Documents entered
into on or about the Eighth Amendment Effective Date.
D. No Conflict. After giving effect to the amendments and waivers
effected hereby, the execution and delivery by each Loan Party of this Amendment
and the performance by each Loan Party hereto of the Amended Agreements do not
and will not (i) violate any provision of any law or any governmental rule or
regulation applicable to Holdings or any of its Subsidiaries, the Certificate or
Articles of Incorporation or Bylaws of Holdings or any of its Subsidiaries or
any order, judgment or decree of any court or other agency of government binding
on Holdings or any of its Subsidiaries, (ii) conflict with, result in a breach
of or constitute (with due notice or lapse of time or both) a default under any
Contractual Obligation of Holdings or any of its Subsidiaries, (iii) result in
or require the creation or imposition of any Lien upon any of the properties or
assets of Holdings or any of its Subsidiaries (other than Liens created under
any of the Loan Documents in favor of Agent on behalf of Lenders and other than
is contemplated to be created with respect to Hines II in connection with the
Hines II Credit Facility), or (iv) require any approval of stockholders or any
approval or consent of any Person under any Contractual Obligation of Holdings
or any of its Subsidiaries, except for such approvals or consents which have
been obtained on or before the Eighth Amendment Effective Date and disclosed in
writing to Lenders.
E. Governmental Consents. The execution and delivery by the Loan
Parties hereto of this Amendment and the performance by the Loan Parties hereto
of the Amended Agreements do not and will not require any registration with,
consent or approval of, or notice to, or other action to, with or by, any
federal, state or other governmental authority or regulatory body.
F. Binding Obligation. This Amendment has been duly executed and
delivered by each Loan Party and this Amendment and the Amended Agreements are
the
6
<PAGE>
legally valid and binding obligations of such Loan Party, enforceable against
such Loan Party in accordance with their respective terms, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or limiting creditors' rights generally or by equitable principles
relating to enforceability.
G. Incorporation of Representations and Warranties From Credit
Agreement. After giving effect to the amendments and waivers effected hereby,
the representations and warranties contained in Section 5 of the Credit
Agreement and contained in the other Loan Documents are and will be true,
correct and complete in all material respects on and as of the Eighth Amendment
Effective Date to the same extent as though made on and as of that date, except
to the extent such representations and warranties specifically relate to an
earlier date, in which case they were true, correct and complete in all material
respects on and as of such earlier date.
H. Absence of Default. After giving effect to the amendments and
waivers effected hereby, no event has occurred and is continuing or will result
from the consummation of the transactions contemplated by this Amendment that
would constitute an Event of Default or a Potential Event of Default.
Section 7. ACKNOWLEDGEMENT AND CONSENT
Company is a party to the Company Guaranty, the Company Security
Agreement, the Company Pledge Agreement, the Company Trademark Security
Agreement, the Company Patent Security Agreement and the Collateral Account
Agreement pursuant to which Company has (i) guarantied the Obligations and (ii)
created liens in favor of Agent on certain Collateral to secure the Obligations
and to secure its obligations under the Company Guaranty. Sun Gro is a party to
the Domestic Subsidiary Guaranty, the Domestic Subsidiary Security Agreement,
the Domestic Subsidiary Pledge Agreement, the Domestic Subsidiary Trademark
Security Agreement, the Domestic Subsidiary Patent Security Agreement and the
Collateral Account Agreement pursuant to which Sun Gro has (i) guarantied the
Obligations and (ii) created liens in favor of Agent on certain Collateral to
secure the obligations of Sun Gro under the Domestic Subsidiary Guaranty. Sun
Gro Canada is a party to the Canadian Subsidiary Security Agreement and the
Canadian Subsidiary Pledge Agreement pursuant to which Sun Gro Canada has
created liens in favor of Agent on certain Collateral to secure certain of the
Obligations. Holdings is a party to the Holdings Guaranty and the Holdings
Pledge Agreement pursuant to which Holdings has (i) guarantied the Obligations
and (ii) pledged certain Collateral to Agent to secure the obligations of
Holdings under the Holdings Guaranty. Company, Sun Gro, Sun Gro Canada and
Holdings are collectively referred to herein as the "Credit Support Parties",
and the Guaranties and Collateral Documents referred to above are collectively
referred to herein as the "Credit Support Documents".
7
<PAGE>
Each Credit Support Party hereby acknowledges that it has reviewed the
terms and provisions of the Credit Agreement, the other Loan Documents and this
Amendment and consents to the amendment of the Credit Agreement and the other
Loan Documents effected pursuant to this Amendment. Each Credit Support Party
hereby confirms that each Credit Support Document to which it is a party or
otherwise bound and all Collateral encumbered thereby will continue to guaranty
or secure, as the case may be, to the fullest extent possible the payment and
performance of all "Obligations," "Guarantied Obligations" and "Secured
Obligations," as the case may be (in each case as such terms are defined in the
applicable Credit Support Document), including without limitation the payment
and performance of all such "Obligations," "Guarantied Obligations" or "Secured
Obligations," as the case may be, in respect of the Obligations of Borrowers now
or hereafter existing under or in respect of the Amended Agreements and the
Notes defined therein.
Each Credit Support Party acknowledges and agrees that any of the
Credit Support Documents to which it is a party or otherwise bound shall
continue in full force and effect and that all of its obligations thereunder
shall be valid and enforceable and shall not be impaired or limited by the
execution or effectiveness of this Amendment. Each Credit Support Party
represents and warrants that all representations and warranties contained in the
Amended Agreements and the Credit Support Documents, in each case to which it is
a party or otherwise bound, are true, correct and complete in all material
respects on and as of the Eighth Amendment Effective Date to the same extent as
though made on and as of that date, except to the extent such representations
and warranties specifically relate to an earlier date, in which case they were
true, correct and complete in all material respects on and as of such earlier
date.
Each Credit Support Party (other than Borrowers) acknowledges and
agrees that (i) notwithstanding the conditions to effectiveness set forth in
this Amendment, such Credit Support Party is not required by the terms of the
Credit Agreement or any other Loan Document to consent to the amendments to the
Credit Agreement effected pursuant to this Amendment and (ii) nothing in the
Credit Agreement, this Amendment or any other Loan Document shall be deemed to
require the consent of such Credit Support Party to any future amendments to the
Credit Agreement.
Section 8. MISCELLANEOUS
A. Reference to and Effect on the Credit Agreement and the Other
Loan Documents.
(i) On and after the Eighth Amendment Effective Date, each reference
in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein"
or words of like import referring to the Credit Agreement, and each
reference in the other Loan Documents to the "Credit Agreement",
"thereunder", "thereof" or words of like import referring to the Credit
Agreement shall mean and be a reference to the Amended Agreement.
8
<PAGE>
(ii) Except as specifically amended by this Amendment, the Credit
Agreement and the other Loan Documents shall remain in full force and effect
and are hereby ratified and confirmed.
(iii) The execution, delivery and performance of this Amendment shall
not, except as expressly provided herein, constitute a waiver of any
provision of, or operate as a waiver of any right, power or remedy of Agent
or any Lender under, the Credit Agreement or any of the other Loan
Documents.
B. Fees and Expenses. Company acknowledges that all costs, fees and
expenses as described in subsection 10.2 of the Credit Agreement incurred by
Agent and its counsel with respect to this Amendment and the documents and
transactions contemplated hereby shall be for the account of Company.
C. Headings. Section and subsection headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive effect.
D. Applicable Law. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING
WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF
NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
E. Counterparts; Effectiveness. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument; signature pages may be detached from multiple separate
counterparts and attached to a single counterpart so that all signature pages
are physically attached to the same document.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
HINES HORTICULTURE, INC. (formerly
known as Hines Nurseries Inc.),
as Borrower
By: _______________________________
Title: ____________________________
SUN GRO HORTICULTURE INC.,
as Borrower
By: _______________________________
Title: ____________________________
SUN GRO HORTICULTURE CANADA LTD.,
as Borrower
By: _______________________________
Title: ____________________________
HINES HOLDINGS, INC. (formerly known
as Hines Horticulture Inc.)
By: _______________________________
Title: ____________________________
S-1
<PAGE>
BT COMMERCIAL CORPORATION,
as a Domestic Lender and as Agent
By: ________________________________
Title: _____________________________
BT BANK OF CANADA,
as a Canadian Lender
By: _______________________________
Title: ____________________________
BANKERS TRUST COMPANY,
as an Issuing Lender
By: _______________________________
Title: ____________________________
S-2
<PAGE>
HARRIS TRUST AND SAVINGS BANK,
as a Domestic Lender
By: _______________________________
Title: ____________________________
FLEET BANK OF MASSACHUSETTS, N.A., as
a Domestic Lender
By: _______________________________
Title: ____________________________
LASALLE NATIONAL BANK,
as a Domestic Lender
By: _______________________________
Title: ____________________________
NATIONSBANK OF TEXAS, N.A.,
as a Domestic Lender and Canadian Lender
By: _______________________________
Title: ____________________________
UNION BANK OF CALIFORNIA, N.A.
as a Domestic Lender and Canadian Lender
By: _______________________________
Title: ____________________________
S-3
<PAGE>
WELLS FARGO BANK, N.A.
as a Domestic Lender and Canadian Lender
By: _______________________________
Title: ____________________________
BANK OF MONTREAL,
as a Canadian Lender
By: _______________________________
Title: ____________________________
S-4
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