Hines Horticulture Sales Decline Slightly in 2005

Hurricane activity in 2005 led to a decrease in revenue for Hines Horticulture. The company reported its fourth-quarter and full-year 2005 results on Friday. The company’s fourth-quarter sales were down 10.2 percent to $37.7 million from $41.9 million for the same period a year ago. Net sales for the full year declined 2.2 percent to $335.2 million.

“Entering the second half of 2005, our sales were trending at 2004 levels,” said Rob Ferguson, chief executive officer. "However, as a result of hurricanes Katrina, Rita and Wilma, we believe that our combined third and fourth quarter net sales declined by as much as $7 to $9 million. Hurricane Wilma alone resulted in a fourth-quarter net sales decline of $5 to $6 million. Despite these hurricanes, we saw a modest improvement in net sales in our other non-hurricane impacted markets during 2005.”

For 2006, Ferguson says the company anticipates a modest increase in net sales as a result of slightly higher averages selling prices per unit.

Gross profit for the fourth quarter of 2005 was $11.5 million, or 30.6 percent of net sales, compared to $18 million, or 42.9 percent of net sales, for the comparable period in 2004. The decline in gross profit was due to lower overall sales volume and increased scrap as a result of hurricane Wilma.

Fourth-quarter operating loss of $10.4 million increased $7.3 million from an operating loss of $3.1 million during the fourth quarter a year ago. The additional operating loss resulted from a decline in gross profit for the period of $6.5 million and an increase in distribution expenses primarily due to continuing increases in fuel costs and common carrier charges. In addition, the company incurred $900,000 in consulting fees as it continues to implement new productivity initiatives aimed at offsetting rising commodity costs. The increase in the operating loss was offset by a decrease in selling expenses as a result of the strategic reorganization that we implemented during the second quarter of 2005.

For the full year ended Dec. 31, 2005, gross profit for Hines was $153.3 million, or 46.8 percent of net sales, compared to $164.5 million, or 49.1 percent of net sales, for the comparable period in 2004. The decline in gross profit margin was mainly due to lower overall sales volume, increased scrap as a result of the hurricanes in the third and fourth quarters and higher raw material and commodity prices, driven primarily by the increase in the cost of petroleum.

Operating income for the 12 months was $20.7 million, down $17.8 million, or 46.2 percent, from $38.5 million for the comparable period a year ago. The decline in operating income resulted from a decline in gross profit primarily due to the hurricanes in the third and fourth quarters and an increase in distribution expenses due to rising fuel costs and common carrier charges. In addition, other operating expenses included consulting fees relating to productivity improvements and severance costs incurred during our strategic reorganization.

Net loss for the 12 decreased to a net loss of $2.6 million, compared to net income of $8.2 million for the comparable period a year ago.

On March 1, 2006, Hines Nurseries, a subsidiary of Hines Horticulture, received notice that Triad Communities has exercised its option to purchase the company’s 168-acre property in Vacaville, Calif. Total proceeds from the Option Agreement and sale of the land is approximately $16.9 million, which includes approximately $2.6 million in option payments already received. The balance of $14.3 million is due 30 calendar days after the exercise. Under the terms of the agreement, Hines Horticulture is able to transition the land in three phases between 2006 and 2008, noting that it is continuing to develop replacement acreage and infrastructure at its 842-acre Winters South facility in Northern California.

Additionally, Hines Horticulture has successfully completed the previously announced sale of 122 acres of unimproved property in Miami, Fla., and received net proceeds from the sale of approximately $47 million. In accordance with the First Amendment to Credit Facility dated June 30, 2005, the proceeds from the Property Sale were used to payoff the entire outstanding balance of the company's term loan, which was approximately $30.5 million. The remaining funds of approximately $16.5 million were used to pay down the company’s revolving credit facility. Hines Horticulture also has entered into a two-year least agreement with the buyer to lease the property while transitioning operations to other locations.

For more information on Hines Horticulture, visit www.hineshort.com.