<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 June 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 AUGUST 5, 1997 23,842,026
----------
1
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HORIZON GROUP, INC.
Index to Form 10-Q
June 30, 1997
Page No.
Part I. Financial Information:
Consolidated Condensed Statements of Operations for the
three and six months ended June 30, 1997 and 1996 3
Consolidated Condensed Balance Sheets as of
June 30, 1997 and December 31, 1996 4
Consolidated Condensed Statements of Cash Flows for the
six months ended June 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
2
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HORIZON GROUP, INC.
Consolidated Condensed Statements of Operations
For the three and six months ended June 30, 1997 and 1996
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------ -------------------
1997 1996 1997 1996
---- ---- ---- ----
(thousands, except per share data)
REVENUE
<S> <C> <C> <C> <C>
Base rent $27,424 $27,346 $54,793 $54,558
Percentage rent 802 588 1,718 1,196
Expense recoveries 8,426 7,810 17,203 15,596
Other 2,109 1,471 3,803 2,869
------ ------ ------ ------
Total revenue 38,761 37,215 77,517 74,219
------ ------ ------ ------
EXPENSES
Property operating 6,064 5,366 12,456 10,974
Real estate taxes 3,530 2,751 6,920 5,391
Land leases and other 2,475 146 5,238 275
Depreciation and amortization 9,549 8,611 19,431 16,328
General and administrative 2,677 1,736 5,280 3,739
Interest 11,846 9,114 23,257 17,805
------ ------ ------ ------
Total expenses 36,141 27,724 72,582 54,512
------ ------ ------ ------
Net income before extraordinary item
and minority interests 2,620 9,491 4,935 19,707
Minority interests (455) (2,286) (1,438) (4,887)
------ ------ ------ ------
Net income before extraordinary item 2,165 7,205 3,497 14,820
Extraordinary charge on prepayment of debt (3,926) - (3,926) (136)
------ ------ ------ ------
NET INCOME (LOSS) $(1,761) $ 7,205 $ (429) $14,684
====== ====== ====== ======
PER SHARE:
Net income before extraordinary item .09 .37 .15 .77
Extraordinary charge (.16) - (.17) (.01)
------ ------ ------ ------
Net income (loss) $ (.07) $ .37 $ (.02) $ .76
====== ====== ====== ======
Cash dividend $ .35 $ .53 $ .70 $ 1.035
====== ====== ====== ======
Average common shares outstanding 23,829 19,432 23,745 19,277
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
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HORIZON GROUP, INC.
Consolidated Condensed Balance Sheets
as of June 30, 1997 and December 31, 1996
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- ------------
ASSETS (thousands)
REAL ESTATE - AT COST:
<S> <C> <C>
Land $ 135,782 $ 135,078
Buildings, improvements and equipment 968,397 938,412
Less accumulated depreciation (79,226) (65,490)
--------- ---------
Total real estate 1,024,953 1,008,000
Cash and cash equivalents 20,757 18,572
Tenant accounts receivable 6,140 6,807
Due from joint venture 10,549 13,764
Assets held for sale 13,075 13,075
Deferred costs 18,990 20,696
Other assets 13,350 14,307
--------- ---------
Total assets $1,107,814 $1,095,221
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Mortgages and other debt $ 587,010 $ 557,672
Accounts payable and accrued expenses 26,861 31,300
Prepaid rents and other tenant liabilities 3,112 5,568
Other liabilities 8,138 5,524
Dividends and distributions payable 9,908 14,832
--------- ---------
Total liabilities 635,029 614,896
--------- ---------
MINORITY INTERESTS 110,400 116,444
--------- ---------
SHAREHOLDERS' EQUITY:
Common shares 238 228
Additional paid-in capital 464,240 448,637
Distributions in excess of net income (102,093) (84,984)
--------- ---------
Total shareholders' equity 362,385 363,881
--------- ---------
Total liabilities and shareholders' equity $1,107,814 $1,095,221
========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE> 5
HORIZON GROUP, INC.
Consolidated Condensed Statements of Cash Flows
For the six months ended June 30, 1997 and 1996
(unaudited)
<TABLE>
<Capton>
Six months ended
June 30,
----------------
1997 1996
(thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income before extraordinary charge $ 3,497 $ 14,820
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Minority interests in net income 1,438 4,887
Depreciation and amortization 20,685 16,909
Compensation related to stock bonus arrangements - 51
Changes in assets and liabilities:
Tenant accounts receivable 667 (99)
Due from joint venture 3,215 -
Deferred costs and other assets 1,393 (6,879)
Accounts payable and accrued expenses (6,328) (6,771)
Other liabilities 2,614 1,972
Prepaid rents and other tenant liabilities (2,456) (496)
--------- --------
Net cash provided by operating activities 24,725 24,394
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for real estate and improvements (33,830) (55,520)
Proceeds from sale of real estate 143 -
--------- --------
(33,687) (55,520)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 5,940 -
Dividends (20,431) (19,125)
Contribution from joint venture 7,600 -
Distributions - minority interests (6,580) (6,889)
Proceeds from borrowings 212,100 65,406
Principal payments on mortgages and other debt (32,179) (59,533)
Debt issue costs (4,908) (4,793)
Net proceeds (repayments) from revolving credit facility (150,395) 53,056
--------- --------
Net cash provided by financing activities 11,147 28,122
--------- --------
Net increase (decrease) in cash 2,185 (3,004)
CASH:
Beginning of period 18,572 6,567
--------- --------
End of period $ 20,757 $ 3,563
========= ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE> 6
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) 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 six months ended June 30, 1997 under this statement.
(3) Contribution to Joint Venture
In November 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. The Fund contributed an additional
$7.6 million in cash for a $6.7 million preferred equity position that
earns a 9.6% return on the outstanding balance and a 50% interest in
the expansion. The $7.6 million in cash was distributed to the
6
<PAGE> 7
HORIZON GROUP, INC.
Notes to Consolidated Condensed Financial Statements (continued)
(unaudited)
Company. 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 financial statements include the assets
and liabilities and results of the Venture and the interest of the Fund
has been reflected as a component of minority interests.
(4) 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," (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) the prime rate plus .75% with
respect to the Initial Loan and plus 1.25% with respect to the Second
Loan, for a prime rate loan if the Loan is converted to a prime rate
loan under certain circumstances at Lender's discretion. 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.
(5) Subsequent Event
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
7
<PAGE> 8
HORIZON GROUP, INC.
Notes to Consolidated Condensed Financial Statements (continued)
(unaudited)
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.
(6) Commitments
The Company has entered into contracts or is committed an aggregate of
$17.3 million, as of June 30, 1997, to complete the current expansion
of its existing centers and development of new centers.
8
<PAGE> 9
HORIZON GROUP, INC.
Management's Discussion and Analysis of Results of Operations
and Financial Condition
For the three and six months ended June 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 June 30, 1997, the Company
owned 84.3 percent of the Operating Partnership.
Results of Operations
Net income before minority interests decreased $10.8 million and $18.6 million
in the three and six months of 1997 from $9.5 million and $19.6 million in the
corresponding 1996 periods primarily due to a $3.9 million extraordinary charge
for debt issuance costs associated with the early retirement of debt, the $4.0
million impact of expensing the Dole Cannery space lease, and higher interest
expense and depreciation not offset by increased revenues. The increased
depreciation, amortization and interest costs are associated with the addition
of three new centers and eight expansions to existing centers that increased
the Company's gross leasable area ("GLA") by approximately 1.3 million square
feet.
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. General and administrative expense increased from $1.7 million
and $3.7 million in the three and six month periods of 1996 to $2.7 million and
$5.3 million in the respective 1997 periods due to declining capitalization
principally from decreasing development activity in 1997. In April 1997, the
Company reduced its development staff and announced that the management of its
development activities will be outsourced to a related party. All of the
development staff expenditures have been previously capitalized in connection
with ongoing development activities.
Consolidated revenues were as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
----------------------------- ----------------------------
Percentage Percentage
1997 1996 Increase 1997 1996 Increase
------- ------- ---------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Base rent $27,424 $27,346 .3% $54,793 $54,558 .4%
Percentage rent 802 588 36.4% 1,718 1,196 43.6%
Expense recoveries 8,426 7,810 7.9% 17,203 15,596 10.3%
Other 2,109 1,471 43.4% 3,803 2,869 32.6%
------- ------- ---- ------- ------- ----
$38,761 $37,215 4.2% $77,517 $74,219 4.4%
======= ======= ==== ======= ======= ====
</TABLE>
9
<PAGE> 10
HORIZON GROUP, INC.
Management's Discussion and Analysis of Results of Operations
and Financial Condition (continued)
For the three and six months ended June 30, 1997
(unaudited)
Base rent increases in the current comparable three and six month periods
principally resulted from increased GLA offset by lower occupancy in portfolio.
Percentage rent increased in the current comparable three and six months due
to improved tenant sales. Weighted average rent per square foot of GLA as of
June 30, 1997, was $14.61 compared to $14.39 as of June 30, 1996. Increases in
expense recoveries from tenants in the current quarter as compared to the prior
year resulted principally from additional GLA. Other income increased in the
three and six 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 Dole, the
Muskegon power center, New Mexico and the two properties held for sale, Holland
and Port Huron, was 90.2% at June 30, 1997 versus 92.7% at June 30, 1996.
Occupancy on a total gross leasable area basis for the entire portfolio, was
87.4% at June 30, 1997 compared to 92.3% at June 30, 1996. Occupancy at
"stabilized" assets, which is calculated by including only the leased GLA at
properties in stabilization, declined from 94.5% at June 30, 1996 to 91.4% at
June 30, 1997.
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 ratios which
the Company expects to meet in the fourth quarter of 1997, and $38.5 million of
acquisition financing.
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
$33.8 million was spent during the first six 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 and
additional borrowings.
The Company believes it will have access to the capital resources necessary to
expand and develop its business. The Company anticipates that existing cash
balances and cash flow from operations, together
10
<PAGE> 11
HORIZON GROUP, INC.
Management's Discussion and Analysis of Results of Operations
and Financial Condition (continued)
For the three and six months ended June 30, 1997
(unaudited)
with cash from borrowings and other sources, will be adequate to meet the
capital and liquidity needs of the Company. The Company expects to meet its
short-term borrowing requirements primarily through floating-rate debt
financing. The Company is currently negotiating a short-term credit facility
with a financial institution, but has no commitments for any such borrowings.
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.
The Company declared a $.35 dividend per common share in the second 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. The Company intends
to pay those dividends from cash flow from operations which is expected to
increase due to future growth in rental revenues at existing outlet shopping
centers and cash flow from expansions, acquisitions and new developments.
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.
Adjusted Funds From Operations
The Company believes that Adjusted Funds From Operations before minority
s 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 Operations
before minority interests and extraordinary charge for the three and six months
of 1997 decreased $5.7 million and $11.1 million to $9.8 million and $19.7
million, or 12.4% and 36.1% compared to 1996. The decrease resulted principally
from increased interest and space lease expense not offset by increased
revenues.
11
<PAGE> 12
HORIZON GROUP, INC.
Management's Discussion and Analysis of Results of Operations
and Financial Condition (continued)
For the three and six months ended June 30, 1997
(unaudited)
Review of Unaudited Consolidated Condensed Interim Financial Statements
The Company's consolidated condensed financial statements at June 30, 1997 and
for the three-month and six-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 2. Changes in Securities
Under terms of a Loan Agreement dated June 30, 1997 between HGL Outlet
Associates and Third Horizon Group Limited Partnership and Lehman
Brothers Realty Corporation (the "Lender"), the Company is limited,
without the approval of the Lender, on a payment of dividends to the
greater of (a) 100 percent of Adjusted Funds From Operations ("AFFO")
as defined for the previous twelve months or (b) the amount necessary
to maintain Horizon's tax status as a Real Estate Investment Trust or
(c) $.35 per share of AFFO.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of the shareholders of the Company was held on May
14, 1997. At such meeting, the shareholders of the Company elected
Norman R. Higo (for: 19,223,062 shares; against: 0 shares; withheld:
1,439,310 shares) and Robert D. Perlmutter (for: 19,177,870 shares;
against: 0 shares; withheld: 1,484,502 shares) as directors of the
Company (for: 19,226,674 shares; against: 0 shares; withheld: 1,435,698
shares). At the meeting, the shareholders approved the adoption of the
1997 Stock Option Plan (for: 18,729,383 shares; against: 1,714,028
shares; withheld: 218,961 shares).
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibit 4 Loan Agreement, Associates and Third Horizon dated as
of June Group Limited Partnership and 30, 1997,
between Lehman HGL Outlet Brothers Realty Corporation.
Incorporated herein by reference to the Company's
Form 8-K filed July 24, 1997.
Exhibit 15a Acknowledgment of Independent Accountants
Exhibit 15b Independent Accountants' Review Report
Exhibit 27 Financial Data Schedule (Edgar filing only)
b) None
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: August 13, 1997 By: /s/ Richard Phillips
--------------------------------
Richard Phillips, Vice President
and Principal Accounting Officer
14
<PAGE> 15
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION
- ----------- -----------
Exhibit 4 Loan Agreement, dated as of June 30, 1997, between HGL
Outlet Associates and Third Horizon Group Limited
Partnership and Lehman Brothers Realty Corporation.
Incorporated herein by reference to the Company's
Form 8-K filed July 24, 1997.
Exhibit 15a Acknowledgment of Independent Accountants
Exhibit 15b Independent Accountants' Review Report
Exhibit 27 Financial Data Schedule (Edgar filing only)
<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
(FormS-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 August 13, 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
six-month periods ended June 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 August 13,
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 six-month periods ended June 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
August 13, 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 June 30, 1997, and the related
consolidated condensed statements of operations and cash flows for the
three-month and six-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 six-month periods ended June 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 inquiries 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 June
30, 1997, and for the three-month and six-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
August 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
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