<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, 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 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( )
As of July 31, 1997 there were 10,234,234 shares of Common Stock of Hines
Holdings, Inc., par value $.01 per share, outstanding and 20,515,766 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
<TABLE>
<CAPTION>
Item 1. Financial Statements Page No.
--------
<S> <C>
Condensed Consolidated Balance Sheets as of
December 31, 1996 and June 30, 1997 1
Condensed Consolidated Statements of Operations and
Deficit for the Three Months and Six Months Ended
June 30, 1996 and 1997 3
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 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 13
Part II. Other Information
Item 2. Changes in Securities 17
Item 6. Exhibits and Reports on Form 8-K 17
Signature 18
Note: Items 1, 3, 4 and 5 of Part II are omitted because they are not
applicable.
</TABLE>
<PAGE>
HINES HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1996 and June 30, 1997
<TABLE>
<CAPTION>
ASSETS December 31, 1996 June 30, 1997
------ ----------------- -----------------
(Dollars in thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 631 $ -
Accounts receivable, net of allowance for
doubtful accounts of $1,019 and $1,133 15,644 44,297
Inventories 95,224 84,644
Prepaid expenses and other current assets 3,177 1,747
---------------- ----------------
Total current assets 114,676 130,688
---------------- ----------------
FIXED ASSETS, net of accumulated depreciation
and depletion of $14,169 and $17,057 81,870 84,252
DEFERRED FINANCING EXPENSES, net of
accumulated amortization of $1,235 and $1,762 6,352 6,215
OTHER ASSETS 613 408
GOODWILL 24,581 24,822
---------------- ----------------
$228,092 $246,385
================ ================
</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, 1996 and June 30, 1997
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
<TABLE>
<CAPTION>
December 31, 1996 June 30, 1997
----------------- -------------
(Dollars in thousands except share data)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 7,875 $ 10,119
Accrued liabilities 5,358 5,721
Accrued payroll and benefits 5,957 11,086
Long-term debt, current portion 4,897 5,130
Revolving line of credit 29,357 23,983
Deferred income taxes 31,402 37,371
Other liabilities 269 268
-------- --------
Total current liabilities 85,115 93,678
-------- --------
LONG-TERM DEBT 152,769 150,064
DEFERRED INCOME TAXES 6,006 7,249
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 June 30, 1997 30,921 32,812
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 20,515,766 shares
issued at December 31, 1996 and June 30, 1997 23,989 25,439
SHAREHOLDERS' DEFICIT
Common Stock
Authorized - 30,000,000 shares $.01 par value;
Issued and outstanding - 10,226,184 and
10,234,234 at December 31, 1996 and
June 30, 1997 102 102
Additional paid-in capital 5,600 2,269
Deficit (76,410) (65,228)
-------- --------
Total shareholders' deficit (70,708) (62,857)
-------- --------
$228,092 $246,385
======== ========
</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 Six Months Ended June 30, 1996 and 1997
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
---------------------------- ---------------------------
1996 1997 1996 1997
---------- ---------- ---------- ----------
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C>
SALES, NET $69,970 $94,112 $110,327 $141,879
COST OF GOODS SOLD 33,704 46,552 54,011 71,483
---------- ---------- ---------- ----------
Gross Profit 36,266 47,560 56,316 70,396
---------- ---------- ---------- ----------
SELLING AND DISTRIBUTION EXPENSES 13,793 17,382 25,211 29,868
GENERAL AND ADMINISTRATIVE EXPENSES 4,532 6,365 9,020 11,066
UNUSUAL ITEMS - (193) - (193)
---------- ---------- ---------- ----------
Total operating expenses 18,325 23,554 34,231 40,741
---------- ---------- ---------- ----------
Operating income 17,941 24,006 22,085 29,655
---------- ---------- ---------- ----------
OTHER EXPENSES:
Interest 5,186 5,384 10,278 10,622
Amortization of deferred financing expenses 234 277 456 527
---------- ---------- ---------- ----------
5,420 5,661 10,734 11,149
---------- ---------- ---------- ----------
Income before provision for income taxes 12,521 18,345 11,351 18,506
PROVISION FOR INCOME TAXES 4,857 7,443 4,453 7,324
---------- ---------- ---------- ----------
NET INCOME 7,664 10,902 6,898 11,182
Less: Preferred stock dividends (900) (1,647) (1,800) (3,294)
---------- ---------- ---------- ----------
NET INCOME applicable to common stock $6,764 $9,255 $5,098 $7,888
========== ========== ========== ==========
Net income per common share $0.68 $0.84 $0.51 $0.71
========== ========== ========== ==========
Weighted average shares outstanding 10,000,000 11,058,868 10,000,000 11,057,526
========== ========== ========== ==========
DEFICIT, beginning of period ($77,384) ($76,130) ($76,338) ($76,410)
NET INCOME during the period 7,664 10,902 6,898 11,182
Repurchase and retirement of stock (87) - (367) -
---------- ---------- ---------- ----------
DEFICIT, end of period ($69,807) ($65,228) ($69,807) ($65,228)
========== ========== ========== ==========
</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
Six Months Ended June 30, 1996 and 1997
<TABLE>
<CAPTION>
Six Months Ended June 30
-----------------------------------
1996 1997
-------- ---------
(Dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 6,898 $ 11,182
Adjustments to reconcile net income to
net cash provided by operating activities -
Depreciation, depletion and amortization 3,001 3,546
Gain on sale of fixed assets - (122)
Gain on involuntary disposal of fixed assets - (1,293)
Deferred income taxes 4,406 7,210
Other 478 132
-------- ---------
14,783 20,655
CHANGE IN WORKING CAPITAL ACCOUNTS:
Accounts receivable (18,385) (28,652)
Inventories 6,371 10,580
Prepaid expenses and other assets 237 1,299
Other assets (587) (20)
Accounts payable and accrued liabilities 8,465 7,737
Other liabilities (162) (3)
-------- ---------
Net cash provided by operating activities 10,722 11,596
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (3,394) (4,590)
Proceeds from sales of fixed assets - 154
Proceeds from insurance claims - 1,338
Purchase of fixed assets with insurance claim
proceeds - (903)
-------- ---------
Net cash used in investing activities (3,394) (4,001)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit 90,060 96,926
Repayments on revolving line of credit (97,041) (102,300)
Repayments of long-term debt (852) (2,472)
Deferred financing costs (153) (390)
Repurchase and retirement of stock (367) (75)
Issuance of preferred and common stock 880 85
Other (36) -
-------- ---------
Net cash used in financing activities (7,509) (8,226)
-------- ---------
NET DECREASE IN CASH (181) (631)
CASH beginning of period 181 631
-------- ---------
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
JUNE 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.
Page 5
<PAGE>
3. Inventories:
------------
As of December 31, 1996 and June 30, 1997, inventories consist of the
following (dollars in thousands):
December 31, June 30,
1996 1997
------------ --------
<TABLE>
<CAPTION>
<S> <C> <C>
Nursery stock $85,611 $77,345
Finished goods 2,975 2,471
Materials and supplies 6,638 4,828
------- -------
$95,224 $84,644
======= =======
</TABLE>
4. Unusual Items:
--------------
The unusual items for the second quarter of 1997 represent a $1,293,000
gain on involuntary disposal of fixed assets and a $1,100,000 charge for
the restructuring plan at Sun Gro.
In the second quarter of 1997, the Company received $1,338,000 of proceeds
from insurance claims to replace assets that had been damaged and,
accordingly, recorded a gain of $1,293,000 representing the difference
between the proceeds received and the carrying amount of the damaged
assets. As of June 30, 1997, the Company has acquired $903,000 of fixed
assets utilizing the insurance proceeds.
In the second quarter of 1997, the Company approved a restructuring plan
for Sun Gro which resulted in an unusual charge of $1,100,000. The charge
represents severance related payments. As of June 30, 1997, $552,000 has
been paid.
5. 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
Page 6
<PAGE>
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 and,
accordingly, the Company will be required to restate the earnings per share
calculation for the interim periods of 1997, and for all earnings per share
data of prior years presented in summaries of earnings or selected
financial data.
6. 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 June 30,
1997 (unaudited);
. Condensed unaudited consolidating statements of operations and retained
earnings (deficit) and condensed unaudited consolidating statements of cash
flows for the six month periods ended June 30, 1996 and 1997.
Page 7
<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) Guarantor) 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 577 - 36 - - 613
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) -
---------------------------------------------------------------------------------------
$40,873 $182,810 $24,167 $54,689 ($74,447) $228,092
=======================================================================================
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
Retained earnings (deficit) (76,410) 8,702 4,658 5,952 (19,312) (76,410)
---------------------------------------------------------------------------------------
Total shareholders' equity (deficit) (70,708) 34,037 21,865 7,729 (63,631) (70,708)
---------------------------------------------------------------------------------------
$40,873 $182,810 $24,167 $54,689 ($74,447) $228,092
=======================================================================================
</TABLE>
8
<PAGE>
Supplemental Condensed Consolidating Balance Sheets
As of June 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 - 30,731 11,552 2,014 - 44,297
Inventories - 80,205 1,095 3,344 - 84,644
Prepaid expenses and other current assets - 508 559 680 - 1,747
Deferred income taxes - 50 603 - (653) -
--------------------------------------------------------------------------
Total current assets - 111,494 13,809 6,038 (653) 130,688
--------------------------------------------------------------------------
FIXED ASSETS, net - 35,468 4,412 44,372 - 84,252
DEFERRED FINANCING EXPENSES, net - 4,883 197 1,135 - 6,215
OTHER ASSETS 372 - 36 - - 408
GOODWILL, net - 23,992 - 830 - 24,822
DEFERRED INCOME TAXES - 10,163 - - (10,163) -
INVESTMENTS IN SUBSIDIARIES 51,470 11,605 7,514 - (70,589) -
--------------------------------------------------------------------------
$ 51,842 $197,605 $25,968 $52,375 ($81,405) $246,385
==========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ - $ 6,104 $ 818 $ 3,197 $ - $ 10,119
Accrued liabilities - 3,086 1,882 753 - 5,721
Accrued payroll and benefits - 9,044 1,423 619 - 11,086
Long-term debt, current portion - 2,255 - 2,875 - 5,130
Revolving line of credit - 14,771 9,212 - - 23,983
Deferred income taxes - 37,911 - 113 (653) 37,371
Other liabilities - - 63 205 - 268
Intercompany accounts 56,443 (66,373) (6,035) 15,965 - -
--------------------------------------------------------------------------
Total current liabilities 56,443 6,798 7,363 23,727 (653) 93,678
--------------------------------------------------------------------------
LONG-TERM DEBT - 141,064 - 9,000 - 150,064
DEFERRED INCOME TAXES 5 4,532 741 12,134 (10,163) 7,249
CUMULATIVE REDEEMABLE SENIOR
PREFERRED STOCK 32,812 - - - - 32,812
CUMULATIVE REDEEMABLE JUNIOR
PREFERRED STOCK 25,439 - - - - 25,439
SHAREHOLDERS' EQUITY
Common stock 102 3,971 11,414 - (15,385) 102
Additional paid-in capital 2,269 21,364 5,889 1,777 (29,030) 2,269
Retained earnings (deficit) (65,228) 19,876 561 5,737 (26,174) (65,228)
--------------------------------------------------------------------------
Total shareholders' equity (deficit) (62,857) 45,211 17,864 7,514 (70,589) (62,857)
--------------------------------------------------------------------------
$ 51,842 $197,605 $25,968 $52,375 ($81,405) $246,385
==========================================================================
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Supplemental Condensed Consolidating Statements of Operations and Retained Earnings (Deficit)
(Dollars 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 income tax provision (benefit) 6,898 11,051 1,094 (614) (7,078) 11,351
INCOME TAX PROVISION (BENEFIT) - 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 income tax provision (benefit) 7,664 12,408 635 (240) (7,946) 12,521
INCOME TAX PROVISION (BENEFIT) - 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>
10
<PAGE>
<TABLE>
<CAPTION>
Supplemental Condensed Consolidating Statements of Operations and Retained Earnings (Deficit)
(Dollars in thousands) For the Six Month Period Ended June 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 $ - $101,524 $34,805 $12,480 ($6,930) $141,879
COST OF GOODS SOLD - 51,045 18,897 8,471 (6,930) 71,483
-------------------------------------------------------------------------
Gross Profit - 50,479 15,908 4,009 - 70,396
OPERATING EXPENSES - 20,506 16,445 3,790 - 40,741
-------------------------------------------------------------------------
Operating income - 29,973 (537) 219 - 29,655
-------------------------------------------------------------------------
OTHER EXPENSES:
Interest (13) 9,698 390 547 - 10,622
Interest - intercompany - (390) 329 61 - -
Other, net (11,174) 1,369 232 153 9,947 527
(11,187) 10,677 951 761 9,947 11,149
-------------------------------------------------------------------------
Income (loss) before income tax provision (benefit) 11,187 19,296 (1,488) (542) (9,947) 18,506
INCOME TAX PROVISION (BENEFIT) 5 8,122 (476) (327) - 7,324
-------------------------------------------------------------------------
NET INCOME (LOSS) 11,182 11,174 (1,012) (215) (9,947) 11,182
Retained earnings (deficit), beginning of period (76,410) 8,702 4,658 5,952 (19,312) (76,410)
Repurchase and retirement of stock - - (3,085) 3,085 0
-------------------------------------------------------------------------
Retained earnings (deficit), end of period ($65,228) $19,876 $561 $5,737 ($26,174) ($65,228)
=========================================================================
For the Three Month Period Ended June 30, 1997
-------------------------------------------------------------------------
Sun Gro
Hines Sun Gro Canada
Holdings Hines U.S. (Subsidiary
(Parent Horticulture (Subsidiary Non- Consolidated
Guarantor) (Issuer) Guarantor) Guarantor) Eliminations Total
-------------------------------------------------------------------------
SALES, NET $ - $73,411 $17,582 $5,806 $2,687) $94,112
COST OF GOODS SOLD - 36,175 9,198 3,866 (2,687) 46,552
-------------------------------------------------------------------------
Gross Profit - 37,236 8,384 1,940 - 47,560
OPERATING EXPENSES - 12,547 8,879 2,128 - 23,554
-------------------------------------------------------------------------
Operating income - 24,689 (495) (188) - 24,006
-------------------------------------------------------------------------
OTHER EXPENSES:
Interest (13) 4,902 218 277 - 5,384
Interest - intercompany - (209) 178 31 - -
Other, net (10,894) 1,179 432 81 9,479 277
-------------------------------------------------------------------------
(10,907) 5,872 828 389 9,479 5,661
-------------------------------------------------------------------------
Income (loss) before income tax provision (benefit) 10,907 18,817 (1,323) (577) (9,479) 18,345
INCOME TAX PROVISION (BENEFIT) 5 7,923 (329) (156) - 7,443
-------------------------------------------------------------------------
NET INCOME (LOSS) 10,902 10,894 (994) (421) (9,479) 10,902
Retained earnings (deficit), beginning of period (76,130) 8,982 4,640 6,158 (19,780) (76,130)
Repurchase and retirement of stock - - (3,085) - 3,085 -
-------------------------------------------------------------------------
Retained earnings (deficit), end of period ($65,228) $19,876 $561 $5,737 ($26,174) ($65,228)
=========================================================================
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Supplemental Condensed Consolidating Statements of Cash Flow
(Dollars 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>
CASH PROVIDED BY (USED IN) 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)
---------------------------------------------------------------------------
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>
<TABLE>
<CAPTION>
For the Six Month Period Ended June 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: $ 219 $ 10,529 ($1,832) $ 2,585 $ 95 $ 11,596
---------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets - (2,913) (392) (1,285) - (4,590)
Proceeds from sales of fixed assets - 154 - - - 154
Proceeds from insurance claims - 1,338 - - - 1,338
Purchase of fixed assets from insurance claim proceeds - (903) - - - (903)
---------------------------------------------------------------------------
Net cash used in investing activities - (2,324) (392) (1,285) - (4,001)
---------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit - 75,521 21,405 - - 96,926
Repayments on revolving line of credit - (84,951) (17,349) - - (102,300)
Intercompany advances (repayments) (229) (1,174) 1,423 (20) - -
Repayments of long-term debt - (1,097) - (1,375) - (2,472)
Deferred financing costs - (220) (170) - - (390)
Dividends received (paid) - 3,085 (3,085) - - -
Repurchase and retirement of stock (75) - - - (75)
Issuance of preferred and common stock 85 - - 95 (95) 85
---------------------------------------------------------------------------
Net cash provided by (used in) financing activities (219) (8,836) 2,224 (1,300) (95) (8,226)
---------------------------------------------------------------------------
NET DECREASE IN CASH - (631) - - - (631)
CASH, beginning of period - 631 - - - 631
---------------------------------------------------------------------------
CASH, end of period $ - $ - $ - $ - $ - $ -
===========================================================================
</TABLE>
12
<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.
Three Months Ended June 30, 1997 compared to Three Months Ended June 30, 1996.
Net Sales. Net sales of $94.1 million for the three months ended June 30,
1997 increased $24.1 million, or 34.4%, from net sales of $70.0 million for the
comparable period in 1996. The Company's sales of its nursery products increased
43.8%, reflecting $16.5 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 11.6% from the comparable period
in 1996. Net sales of peat moss and peat-based products increased 9.4% from the
comparable three month period. Sales from the professional peat and mix business
increased 2% from the comparable period in 1996 with continued strong volume
growth, particularly from the value added professional mix business. For the
retail peat and mix business, sales increased 23.6% 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 $47.6 million (50.5% of net sales) for the
three months ended June 30, 1997 increased $11.3 million, or 31.1%, from gross
profit of $36.3 million (51.8% of net sales) for the comparable period in 1996.
The increase was primarily attributable to the Iverson and Flynn nursery
acquisitions. The 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 and higher production
costs resulting from higher sales of products with lower margins.
Operating Expenses. Operating expenses of $23.6 million (25.0% of net
sales) for the three months ended June 30, 1997 increased $5.3 million, or 29%,
from $18.3 million (26.2% of net sales) for the comparable period in 1996. The
increase was primarily attributable to the Iverson and Flynn acquisitions.
Page 13
<PAGE>
Operating Income. Operating income of $24 million for the three months
ended June 30, 1997 increased $6.1 million, or 34.1%, from $17.9 million for the
comparable period in 1996, due to the higher sales from the Company's nursery
operations.
Interest Expense. Interest expense of $5.4 million for the three months
ended June 30, 1997 increased $0.2 million from $5.2 million for the comparable
period in 1996. The increase was attributable to higher borrowing levels under
the Company's revolving credit facility but was somewhat offset by lower
interest rates.
Net Income. Net income of $10.9 million for the three months ended June 30,
1997 increased by $3.2 million from net income of $7.7 million for the
comparable period in 1996. The increase was primarily due to the higher sales
from the Company's nursery operations.
Six Months Ended June 30, 1997 compared to Six Months Ended June 30, 1996.
Net Sales. Net sales of $141.9 million for the six months ended June 30,
1997 increased $31.6 million, or 28.6%, from net sales of $110.3 million for the
comparable period in 1996. The Company's sales of its nursery products increased
41.9%, reflecting $22.4 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 10.6% from the comparable period in 1996. Net sales of peat
moss and peat-based products increased 4.1% from the comparable six month
period. Sales from the professional peat and mix business increased 1.4% from
the comparable period in 1996 with continued strong volume growth, particularly
from the value added professional mix business. For the retail peat and mix
business, sales increased 8.8% 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 $70.4 million (49.6% of net sales) for the
six months ended June 30, 1997 increased $14.1 million, or 25.0%, from gross
profit of $56.3 million (51.0% 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 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 and higher production costs resulting from higher
sales of products with lower margins.
Operating Expenses. Operating expenses of $40.7 million (28.7% of net
sales) for the six months ended June 30, 1997 increased $6.5 million, or 19.0%,
from $34.2 million (31.0% of net sales) for the comparable period in 1996. The
increase was primarily attributable to the Iverson and Flynn acquisitions.
Page 14
<PAGE>
Operating Income. Operating income of $29.7 million for the six months
ended June 30, 1997 increased $7.6 million, or 34.3%, from $22.1 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 $10.6 million for the six months
ended June 30, 1997 increased $0.3 million from $10.3 million for the comparable
period in 1996. The increase was attributable to higher borrowing levels under
the Company's revolving credit facility but was somewhat offset by lower
interest rates.
Net Income. Net income of $11.2 million for the six months ended June 30,
1997 increased by $4.3 million from net income of $6.9 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
$47.0 million of unused borrowing capacity under its revolving credit facility
on July 31, 1997.
The Company's capital expenditures totaled $4.6 million for the six month
period ended June 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 $16.3 million, and
will be used for the acquisition of the land currently being leased at the
Fallbrook nursery
Page 15
<PAGE>
location, 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 Company expects that cash flow from
operating activities together with borrowings available under the revolving
credit facility 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. 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.
Page 16
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities
On June 2, 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. Bradley A. Weins, a management
employee of Sun Gro Horticulture Inc., and 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
$100,000, payable by a full-recourse promissory note in favor of the Registrant
due in three equal installments on March 31 of each of 1998, 1999 and 2000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27.1 Financial Data Schedule
(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.
Page 17
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HINES HOLDINGS, INC.
(Registrant)
By:
----------------------------------
Claudia M. Pieropan
Chief Financial Officer
Date: August 8, 1997
Claudia M. Pieropan is signing in the dual capacities as (i) principal
financial officer, and (ii) a duly authorized officer of the Company.
Page 18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 45,430
<ALLOWANCES> 1,133
<INVENTORY> 84,644
<CURRENT-ASSETS> 130,688
<PP&E> 101,309
<DEPRECIATION> 17,057
<TOTAL-ASSETS> 246,385
<CURRENT-LIABILITIES> 93,678
<BONDS> 150,064
58,251
0
<COMMON> 102
<OTHER-SE> (62,857)
<TOTAL-LIABILITY-AND-EQUITY> 246,385
<SALES> 141,879
<TOTAL-REVENUES> 141,879
<CGS> 71,483
<TOTAL-COSTS> 40,741
<OTHER-EXPENSES> 11,149
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,622
<INCOME-PRETAX> 18,506
<INCOME-TAX> 7,324
<INCOME-CONTINUING> 11,182
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,182
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
