<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 OR 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission file number: 1-12424
HORIZON GROUP, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
MICHIGAN 38-2559212
-------------------------------- ----------------------------------
(State or other jurisdiction (I.R.S. employer identification no.)
of incorporation or organization)
5000 HAKES DRIVE, NORTON SHORES, MI 49441
- ------------------------------------ -----
(Address of principal executive offices) (Zip Code)
(616) 798-9100
---------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
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 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
--- ---
NUMBER OF COMMON SHARES OUTSTANDING AT NOVEMBER 6, 1997 24,066,635
1
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HORIZON GROUP, INC.
Index to Form 10-Q
September 30, 1997
<TABLE>
<CAPTION>
Page No.
--------
Part I. Financial Information:
<S> <C>
Consolidated Condensed Statements of Operations for the
three and nine months ended September 30, 1997 and 1996 . . .. . . . . . . 3
Consolidated Condensed Balance Sheets as of
September 30, 1997 and December 31, 1996 . . . . . . . . . .. . . . . . . 4
Consolidated Condensed Statements of Cash Flows for the
nine months ended September 30, 1997 and 1996 . . . . . . . .. . . . . . . 5
Notes to Consolidated Condensed Financial Statements . . . . . .. . . . . . . 6-8
Management's Discussion and Analysis of Results of Operations
and Financial Condition . . . . . . . . . . . . . . . . . . .. . . . . . . 9-12
Part II.
Other Information . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . 14
</TABLE>
2
<PAGE> 3
HORIZON GROUP, INC.
Consolidated Condensed Statements of Operations
For the three and nine months ended September 30, 1997 and 1996
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------ ------------------------
1997 1996 1997 1996
---- ---- ---- ----
(thousands, except per share data)
<S> <C> <C> <C> <C>
REVENUE
Base rent $ 28,702 $ 27,529 $ 83,495 $ 82,087
Percentage rent 721 589 2,439 1,785
Expense recoveries 7,963 8,758 25,166 24,354
Other 2,396 1,775 6,199 4,644
-------- -------- --------- ---------
Total revenue 39,782 38,651 117,299 112,870
-------- -------- --------- ---------
EXPENSES
Property operating 6,346 5,657 18,802 16,631
Real estate taxes 3,116 3,436 10,036 8,827
Land leases and other 3,402 454 8,640 729
General and administrative 3,560 2,639 8,840 6,378
Depreciation and amortization 11,875 9,420 31,306 25,748
Provision for impairment 6,877 - 6,877 -
Interest 12,597 9,701 35,854 27,506
-------- -------- --------- ---------
Total expenses 47,773 31,307 120,355 85,819
-------- -------- --------- ---------
Income (loss) before gain on sale of real estate (7,991) 7,344 (3,056) 27,051
Gain on sale of real estate - 432 - 432
-------- -------- --------- ---------
Net income (loss) before minority interests
and extraordinary charge (7,991) 7,776 (3,056) 27,483
Minority interests 602 (1,576) (1,470) (6,463)
-------- -------- --------- ---------
Net income (loss) before extraordinary charge (7,389) 6,200 (4,526) 21,020
Extraordinary charge on prepayment of debt,
of minority interests - (283) (3,292) (419)
-------- -------- --------- ---------
NET INCOME (LOSS) $ (7,389) $ 5,917 $ (7,818) $ 20,601
======== ======== ========= =========
PER SHARE:
Net income (loss) before extraordinary charge $ (.31) $ .29 $ (.19) $ 1.06
Extraordinary charge - (.01) (.14) (.02)
-------- -------- --------- ---------
Net income (loss) $ (.31) $ .28 $ (.33) $ 1.04
======== ======== ========= =========
Cash dividend $ .35 $ .53 $ 1.05 $ 1.565
======== ======== ========= =========
Average common shares outstanding 23,847 20,860 23,780 19,808
======== ======== ========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
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HORIZON GROUP, INC.
Consolidated Condensed Balance Sheets
as of September 30, 1997 and December 31, 1996
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
-------------- ------------
ASSETS (thousands)
<S> <C> <C>
Real estate - at cost:
Land $ 130,995 $ 135,078
Buildings, improvements and equipment 942,831 938,412
Less accumulated depreciation (86,253) (65,490)
---------- ----------
Total real estate 987,573 1,008,000
Cash and cash equivalents 12,137 18,572
Tenant accounts receivable 6,688 6,807
Due from joint venture 11,407 13,764
Assets held for sale 39,081 13,075
Deferred costs 18,376 20,696
Other assets 10,479 14,307
---------- ----------
Total assets $1,085,741 $1,095,221
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Mortgages and other debt $ 585,827 $ 557,672
Accounts payable and accrued expenses 21,322 31,300
Prepaid rents and other tenant liabilities 3,659 5,568
Other liabilities 11,172 5,524
Dividends and distributions payable 9,913 14,832
---------- ----------
Total liabilities 631,893 614,896
---------- ----------
MINORITY INTERESTS 106,664 116,444
---------- ----------
SHAREHOLDERS' EQUITY:
Common shares 239 228
Additional paid-in capital 464,780 448,637
Distributions in excess of net income (117,835) (84,984)
---------- ----------
Total shareholders' equity 347,184 363,881
---------- ----------
Total liabilities and shareholders' equity $1,085,741 $1,095,221
========== ==========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
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HORIZON GROUP, INC.
Consolidated Condensed Statements of Cash Flows
For the nine months ended September 30, 1997 and 1996
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
-------------------------
1997 1996
---- ----
(thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) before extraordinary charge $ (4,526) $ 21,020
Adjustments to reconcile net income (loss) before extraordinary charge
to net cash provided by operating activities:
Minority interests in net income 1,470 6,463
Provision for impairment 6,877 -
Depreciation and amortization 33,171 26,407
Gain on sale of real estate - (432)
Compensation related to stock bonus arrangements - 71
Changes in assets and liabilities:
Tenant accounts receivable 119 2,699
Due from joint venture 2,357 -
Deferred costs and other assets 2,297 (10,909)
Accounts payable and accrued expenses (6,889) (10,265)
Other liabilities 5,648 333
Prepaid rents and other tenant liabilities (1,909) (438)
---------- ---------
Net cash provided by operating activities 38,615 34,949
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for real estate and improvements (44,131) (82,882)
Proceeds from sale of real estate - 1,083
---------- ---------
Net cash used in investing activities (44,131) (81,799)
CASH FLOWS FROM FINANCING ACTIVITIES: ---------- ---------
Proceeds from issuance of common stock 5,940 28,835
Dividends (28,776) (29,836)
Contribution - Minority Interest 7,600 -
Distributions - minority interests (9,177) (9,708)
Proceeds from borrowings 212,100 179,903
Principal payments on mortgages and other debt (33,352) (73,804)
Debt issue costs (4,859) (7,882)
Net repayments of revolving credit facilities (150,395) (45,195)
---------- ---------
Net cash provided by (used in) financing activities (919) 42,313
---------- ---------
Net decrease in cash and cash equivalents (6,435) (4,537)
CASH AND CASH EQUIVALENTS:
Beginning of period 18,572 6,567
---------- ---------
End of period $ 12,137 $ 2,030
========== =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
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HORIZON GROUP, INC.
Notes to Consolidated Condensed Financial Statements
(unaudited)
(1) Financial Statement Presentation
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with the instructions to Form 10-Q and do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles since it is assumed the user of these
statements is reading them in conjunction with the most recent year-end audited
financial statements. In the opinion of management, the consolidated condensed
financial statements contain all normal, recurring adjustments necessary for a
fair statement of financial results for the interim periods presented. The
preparation of these financial statements require management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from these estimates. For
further information, refer to the consolidated financial statements and notes
thereto included in Horizon Group Inc.'s (the "Company") annual report on Form
10-K for the year ended December 31, 1996.
(2) Business Acquisitions and Dispositions
On July 1, 1997, the Company entered into an agreement with Chelsea GCA Realty
Partnership, L.P. ("Chelsea") for lease of the Company's outlet center in
Algodones, New Mexico (the "Center"). The term of the lease is two years, but
may be terminated by Chelsea upon 30 days written notice after December 31,
1997 (the "lease term"). The agreement gives Chelsea the right, during the
lease term, to relocate any and all of the tenants to Chelsea's outlet center
located in Santa Fe, New Mexico. At closing, Chelsea prepaid the
non-refundable $4.0 million rent, $3.0 million for year one and $1.0 million
for year two. Rental payments will be recognized for financial statement
purposes on a straight-line basis. Chelsea is responsible for all costs of
operating the Center during the lease term.
On September 25, 1997 and October 24, 1997, the Company entered into agreements
to sell one outlet center for $4.5 million and four outlet centers for $17.0
million with closings scheduled in the fourth quarter of 1997 and the first
quarter of 1998, respectively. The Company has additionally received a letter
of intent for the sale of an outlet center for $18.3 million. Third quarter
1997 results include a charge of $6.9 million to reduce the carrying value of
these outlet centers to their estimated sales value less cost to dispose. All
the foregoing properties have been classified as held for sale as of September
30, 1997.
On September 23, 1997, the Company entered into an agreement to acquire an
outlet center in Gilroy, California adjacent to the Company's existing outlet
center. Acquisition financing for the purchase price of $38.5 million has been
obtained from Lehman Brothers Realty Corp. The closing is scheduled in the
fourth quarter.
6
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HORIZON GROUP, INC.
Notes to Consolidated Condensed Financial Statements (continued)
(unaudited)
(3) Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be
adopted on December 31, 1997. At that time, the Company will be
required to change the method currently used to compute earnings
per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the
dilutive effect of stock options will be excluded. There will be
no change in the Company's calculated primary earnings per share
and fully diluted earnings per share for the three or nine months
ended September 30, 1997 under this Statement.
(4) Contribution to Joint Venture
In 1996, the Company formed a venture (the "Venture") with a
pension fund (the "Fund") advised by Heitman Capital Management.
The Company contributed its Finger Lakes Outlet Center, a 325,000
square foot center in Finger Lakes, New York, in exchange for $34.9
million and 50% ownership in the Venture. The Fund contributed
$34.9 million in cash for a $31.5 million preferred equity position
that earns a 9.6% return on the outstanding balance and 50%
ownership in the Venture. The Fund's equity position, upon
election by the Fund, is convertible into 1.8 million shares of
the Company's Common Stock. On June 24, 1997, the Company
completed an expansion of the center and contributed it to the
Venture for $7.6 million and a 50% interest in the expansion.
The Fund contributed an additional $7.6 million in cash for a
$6.7 million preferred equity position that in the expansion.
This second contribution by the Fund is convertible into 0.4
million shares of Common Stock of the Company. The Company
manages and leases the entire property. As a result of the
Company's control over the Venture, the accompanying
consolidated financial statements include the assets and
liabilities and results of operationsof the Venture, and the
interest of the Fund has been reflected as a component of
minority interests.
(5) Debt
On June 30, 1997, the Company, through indirect wholly-owned
subsidiaries ("Borrower"), entered into a $300.6 million credit
facility with Lehman Brothers Realty Corporation ("Lender"). The
initial loan (the "Initial Loan") of $250.6 million included an
initial funding at closing of $212.1 million and a reservation of
financing for the acquisition of certain specified properties (the
"Additional Loan"). The Borrower may borrow an additional $50.0
million in increments of no less than $10.0 million each, subject
to the satisfaction of certain conditions, including predefined
debt service coverage ratios (the "Second Loan" and collectively
with the "Initial Loan," including the "Additional Loan,"
7
<PAGE> 8
HORIZON GROUP, INC.
Notes to Consolidated Condensed Financial Statements (continued)
(unaudited)
(the "Loan")). Interest on the Loan is payable at the following
rates: (i) 1.75% over the London interbank offered rate ("LIBOR")
for the Initial Loan, and (ii) 2.25% over LIBOR for the Second
Loan or (iii) if the Loan is converted to a prime rate loan under
certain circumstances at the Lender's discretion, the prime rate
plus .75% with respect to the Initial Loan and plus 1.25% with
respect to the Second Loan. The maturity date of the Loan is July
1, 1999, unless otherwise extended pursuant to the terms of the
Loan. The net proceeds of the Initial Loan were primarily used to
retire the Company's aggregate outstanding balances under the
following: (i) a revolving credit facility with a subsidiary of
First Chicago NBD Corporation and other banks, (ii) construction
financing facilities with Canadian Imperial Bank of Commerce,
(iii) four permanent loans and (iv) one revolving credit
facility. The Company recorded a $3.9 million extraordinary
charge comprised of debt issuance costs associated with the
debt retired. The Loan is guaranteed by the Company and
Horizon/Glen Outlet Centers Limited Partnership and is secured
by a pool of 17 properties transferred to Borrower.
(6) Other Event
On September 25, 1997, the Company engaged Lehman Brothers, Inc.
to assist in assessing strategic alternatives aimed at maximizing
shareholder value, including joint ventures, strategic alliances,
mergers and acquisitions.
(7) Commitments
The Company has entered into contracts or is committed to an
aggregate of $11.1 million, as of September 30, 1997, to complete
the current expansion of its existing centers and development
of new centers.
(8) Supplemental Information about Noncash Investing and Financing
Activities
At September 30, 1997, the Company reclassified four outlet
centers with a net book value of $26.0 million, previously
classified as a component of real estate assets, to assets held
for sale. See Note 2.
8
<PAGE> 9
HORIZON GROUP, INC.
Management's Discussion and Analysis of Results of Operations
and Financial Condition
For the three and nine months ended September 30, 1997
(unaudited)
General Overview
Horizon Group, Inc. is a Real Estate Investment Trust that owns, operates and
develops outlet shopping centers. The Company's growth is derived from
developing new outlet shopping centers, expanding existing outlet shopping
centers, acquiring outlet shopping centers and increasing rental revenue at its
existing outlet shopping centers. The operations of the Company are conducted
through a majority-owned subsidiary, Horizon/Glen Outlet Centers Limited
Partnership, (the "Operating Partnership"). As of September 30, 1997, the
Company owned 84.4 percent of the Operating Partnership.
Results of Operations
Net loss before minority interests and extraordinary charge was $8.0 million
and $3.1 million in the three and nine months of 1997 compared to net income of
$7.8 million and $27.5 million in the corresponding 1996 periods. Three month
results declined due to a $6.9 million impairment provision to reduce the
carrying value of assets held for sale, the Dole Cannery space lease expense of
$2.0 million, and higher interest expense and depreciation not offset by
proportionally increased revenues. Nine month results declined due to the
previously mentioned impairment provision, a $3.9 million extraordinary charge
for debt issuance costs associated with the early retirement of debt, $6.0
million from expensing the Dole Cannery space lease, and higher interest
expense and depreciation not offset by proportionally increased revenues. The
increased depreciation, amortization and interest costs are associated with the
addition of three new centers and five expansions to existing centers that
increased the Company's gross leasable area ("GLA") by approximately .7 million
square feet subsequent to the third quarter of 1996.
Property operating and real estate tax expense, as well as the Company's
revenue from expense recoveries, has increased as a result of the Company's
additional GLA. Land lease and other expense increased $2.9 million and $7.9
million in the current three and nine months compared to the prior year
principally from the Dole Cannery space lease and a $.6 million charge from an
expired loan commitment fee. General and administrative expense increased from
$2.6 million and $6.4 million in the three and nine month periods of 1996 to
$3.6 million and $8.8 million in the respective 1997 periods due to a $.7
million charge for discontinued development projects and decreased
capitalization of overhead costs principally from decreasing development
activity in 1997. In April 1997, the Company reduced its development staff and
announced that the management of its developmentactivities will be outsourced
to a related party. All of the development staff expenditures had been
previously capitalized in connection with ongoing development activities.
9
<PAGE> 10
HORIZON GROUP, INC.
Management's Discussion and Analysis of Results of Operations
and Financial Condition (continued)
For the three and nine months ended September 30, 1997
(unaudited)
Consolidated revenues were as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
------------------------------------- --------------------------------------
Percentage Percentage
1997 1996 Increase 1997 1996 Increase
---- ---- ----------- ---- ---- -----------
<S> <C> <C> <C> <C> <C> <C>
Base rent $28,702 $27,529 4.3% $ 83,495 $ 82,087 1.7%
Percentage rent 721 589 22.4% 2,439 1,785 36.6%
Expense recoveries 7,963 8,758 (9.1)% 25,166 24,354 3.3%
Other 2,396 1,775 35.0% 6,199 4,644 33.5%
------- ------- ---- -------- -------- ----
$39,782 $38,651 2.9% $117,299 $112,870 3.9%
======= ======= ===== ======== ======== =====
</TABLE>
Base rent increases in the current comparable three and nine month periods
principally resulted from increased GLA offset by lower occupancy in the
portfolio. Percentage rent increased in the current comparable three and nine
months due to improved tenant sales. Weighted average rent per square foot of
GLA, excluding those properties held for sale, as of September 30, 1997, was
$14.92 compared to $14.66 as of September 30, 1996. Increases in expense
recoveries from tenants in the current nine months as compared to the prior
year resulted principally from additional GLA partially offset by lower
recoveries in the current quarter due to lower average occupancy. Other income
increased in the three and nine month periods from higher interest and
temporary tenant income partially offset by lower lease termination income.
Occupancy of the core outlet center portfolio, which excludes the Dole Cannery,
the Muskegon power center and the six properties held for sale, was 91.5% at
September 30, 1997 versus 91.8% at September 30, 1996. Occupancy on a total
gross leasable area basis for theentire portfolio, was 88.2% at September 30,
1997 compared to 89.1% at September 30, 1996
Liquidity and Capital Resources
On June 30, 1997, the Company received, from an institutional lender, a $300.6
million credit facility with a two-year term and, at the Company's election, a
floating interest rate tied to either Prime or LIBOR. The Company intends to
use rate protection agreements to limit its exposure under this credit
facility. Proceeds of $212.1 million from the initial funding from this credit
facility were used to repay existing debt. The credit facility provides $50.0
million for construction and working capital needs, subject to the satisfaction
of certain conditions including predefined debt service coverage, and $38.5
million of acquisition financing for the purchase of a Gilroy, California
outlet center in a transaction expected to close in the fourth quarter.
10
<PAGE> 11
HORIZON GROUP, INC.
Management's Discussion and Analysis of Results of Operations
and Financial Condition (continued)
For the three and nine months ended September 30, 1997
(unaudited)
In October 1997, the Company received a $17.0 million project specific
construction loan commitment from a financial institution. Proceeds from the
loan, scheduled to close in the fourth quarter of 1997, will be used to repay
an existing construction loan of $8.9 million and fund future construction
costs.
In January 1997, the Company issued approximately 317,000 shares of common
stock under the Company's Dividend Reinvestment Plan ("DRIP") with total
proceeds of $5.9 million. The Company has discontinued further stock issuances
under the DRIP based on the current market price of the Company's stock.
During 1997, the Company plans to spend approximately $51.1 million, of which
$43.8 million was spent during the first nine months, to continue expansion or
development of its centers. The Company plans to fund this expansion and
development with existing cash balances, cash flow from operations, additional
borrowings and proceeds from asset sales.
Due to the decline in its results of operations, the Company believes it will
have limited access to capital resources. The Company anticipates that existing
cash balances and cash flow from operations, together with cash from borrowings
and other sources, will be used in the foreseeable future to meet the capital
and liquidity needs of the Company. To meet its long-term liquidity
requirements, the Company intends to obtain funds through additional equity
offerings or long-term debt financing in a manner consistent with its debt to
total market capitalization policy. There is no assurance the Company will be
able to obtain equity or long-term debt financing or, if obtained, on favorable
terms.
The Company declared a $.35 dividend per common share in the third quarter of
1997. In order to qualify as a Real Estate Investment Trust ("REIT") for
Federal income tax purposes, the Company is required to pay dividends to its
shareholders of at least 95% of its REIT taxable income. Although the Company
intends to make distributions to its shareholders in accordance with the
requirements of the Internal Revenue Code of 1986, as amended, it also intends
to retain such amounts as it considers necessary from time to time for the
acquisition or development of new properties as suitable opportunities arise
and for the expansion and renovation of its outlet shopping centers. The
Company's policy is to generally limit dividends to Adjusted Funds From
Operations. Under the Loan, the Company is limited to paying dividends from
Adjusted Funds From Operations without the consent of Lehman Brothers. Due to
the decline in the Company's Adjusted Funds From Operations and the Company's
liquidity needs, the Company expects to reevaluate its dividend.
11
<PAGE> 12
HORIZON GROUP, INC.
Management's Discussion and Analysis of Results of Operations
and Financial Condition (continued)
For the three and nine months ended September 30, 1997
(unaudited)
Adjusted Funds From Operations
The Company believes that Adjusted Funds From Operations before minority
interests is the primary indicator of the financial performance of the Company
and is influenced by both the operations of the properties and the capital
structure of the Company. Adjusted Funds From Operations before minority
interests is defined as net income (computed in accordance with generally
accepted accounting principles) excluding (1) gains or losses from debt
restructuring, certain one-time charges and write downs and sales of property,
(2) depreciation of real estate, (3) amortization other than the amortization
of deferred financing costs and (4) adjustments for unconsolidated partnerships
and joint ventures (Funds From Operations as defined by the National
Association of Real Estate Investment Trusts in March 1995), then further
adjusted to (a) eliminate the effect of straight-line rental income and rental
expense and (b) deduct normalized capital expenditures associated with leasing,
tenant improvements and non-revenue enhancing upkeep of properties. Adjusted
Funds From Operations is the most significant factor considered by the Board of
Directors in determining the amount of cash distributions the Company will make
to shareholders. Adjusted Funds From Operations does not represent cash flow
from operations as defined by generally accepted accounting principles and is
not necessarily indicative of cash available to fund all cash flow needs.
Adjusted Funds From 12 Operations before minority interests and extraordinary
charge for the three and nine months of 1997 decreased $6.2 million and $17.4
million to $8.6 million and $28.3 million, or 41.6% and 38.1% compared to 1996.
The decrease resulted principally from increased interest and Dole Cannery
space lease expense not offset by increased revenues.
Review of Unaudited Consolidated Condensed Interim Financial Statements
The Company's consolidated condensed financial statements at September 30, 1997
and for the three-month and nine-month periods then ended have been reviewed,
prior to filing with the Securities and Exchange Commission, by Ernst & Young
LLP, the Company's auditors, and their report is included herein.
Other Information
The statements contained herein which are not historical facts are forward
looking statements based upon economic forecasts, budgets, and other factors
which, by their nature, involve known risks, uncertainties and other factors
which may cause the actual results, performance or achievements of Horizon
Group, Inc. to be materially different from any future results implied by such
statements. In particular, among the factors that could cause actual results
to differ materially are the following: business conditions and general
economy; competitive factors; interest rates and other risks inherent in the
real estate business. For further information on factors which could impact
the Company and the statements contained herein, reference is made to the
Company's other filings with the Securities and Exchange Commission.
12
<PAGE> 13
HORIZON GROUP, INC.
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Exhibit 15a Acknowledgment of Independent Accountants
Exhibit 15b Independent Accountants' Review Report
Exhibit 27 Financial Data Schedule (Edgar filing only)
b) On July 24, 1997, a Current Report on Form 8-K dated
July 24, 1997 was filed with respect to a $300.6 million
credit facility with Lehman Brothers Realty Corp.
13
<PAGE> 14
SIGNATURES
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.
HORIZON GROUP, INC.
-------------------
Registrant
Date: November 12, 1997 By: /s/ Richard Phillips
----------------- -------------------------------------
Richard Phillips, Vice President
and Principal Accounting Officer
14
<PAGE> 15
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
EX-15a Acknowlegement of Independent Accountants
EX-15b Independent Accountant's Review Report
EX-27 Financial Data Schedule
<PAGE> 1
Exhibit 15a
Acknowledgment of Independent Accountants
To the Shareholders and Board of Directors
Horizon Group, Inc.
We are aware of the incorporation by reference in the Registration Statements
(Form S-3 No. 33-95174, No. 333-09315 and No. 33-95730; and Form S-4 No.
33-91236) of Horizon Group, Inc. of our report dated November 10, 1997,
relating to the unaudited consolidated condensed interim financial statements
of Horizon Group, Inc. that are included in its Form 10-Q for the three-month
and nine-month periods ended September 30, 1997.
We are also aware of the incorporation by reference in the Registration
Statement (Form S-8 No. 33-79784) pertaining to the Amended and Restated 1993
Stock Option Plan, the 1993 Director Stock Option Plan and the Employee Stock
Bonus Arrangement; the Registration Statement (Form S-8 No. 33-89152)
pertaining to the Profit Sharing/401(K) Plan; and the Registration Statement
(Form S-8 No. 33-95308) pertaining to the McArthur/Glen Realty Corp. 1993
Long-Term Incentive Plan of Horizon Group, Inc. of our report dated November
10, 1997, relating to the unaudited consolidated condensed interim financial
statements of Horizon Group, Inc. that are included in its Form 10-Q for the
three-month and nine-month periods ended September 30, 1997.
Pursuant to Rule 436(c) of the Securities Act of 1933, our report is not a part
of the aforementioned registration statements prepared or certified by
accountants within the meaning of Section 7 or 11 of the Securities Act of
1933.
Ernst & Young LLP
Chicago, Illinois
November 10, 1997
<PAGE> 1
Exhibit 15b
Independent Accountants' Review Report
To the Shareholders and Board of Directors
Horizon Group, Inc.
We have reviewed the accompanying consolidated condensed balance sheet of
Horizon Group, Inc. (the Company) as of September 30, 1997, and the related
consolidated condensed statements of operations and cash flows for the
three-month and nine-month periods then ended. These financial statements are
the responsibility of the Company's management. We did not make a similar
review of the consolidated condensed statements of operations and cash flows
for the three-month and nine-month periods ended September 30, 1996.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquires of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, which will be
performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated condensed financial statements at
September 30, 1997, and for the three-month and nine-month periods then ended
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of the Company as of December 31,
1996, and the related consolidated statements of operations, shareholders'
equity, and cash flows for the year then ended (not presented herein) and in
our report dated February 26, 1997, we expressed an unqualified opinion on
those consolidated financial statements. In our opinion, the information set
forth in the accompanying consolidated condensed balance sheet as of December
31, 1996, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
Ernst & Young LLP
Chicago, Illinois
November 10, 1997
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