Hines Horticulture, Inc. Business Information, Profile, and History

Company Perspectives:

More than a company, we are a diverse community of dedicated people working together to realize our full potential and the potential of our company, our customers and the many businesses that are touched by Hines Horticulture everyday. Unified by our deeply held values and shared vision, we provide the leadership that sets the standards and shapes the future for our industry. We believe that there is no greater way to dignify ourselves and our customers than to consistently provide outstanding quality in everything that we do. Never satisfied, we strive to break through the boundaries between yesterday's achievements and tomorrow's possibilities. But it is our heart, our passion and our caring that drives our performance and makes us who we are.

History of Hines Horticulture, Inc.

Hines Horticulture, Inc. is a leading operator of commercial nurseries in North America, producing approximately 4,100 varieties of ornamental, container-grown plants primarily for outdoor use. It has 13 nurseries in the United States and Canada and is the largest North American producer of ornamental container and field-grown plants. It is also one of the largest North American producers of sphagnum peat moss and peat-based potting and growing mixes, with 16 peat-harvesting sites. It produces and distributes horticultural products through its two operating divisions: Hines Nurseries and Hines Color. The company sells its nursery products primarily to the retail segment, which includes premium independent garden centers, as well as leading home centers and mass merchandisers, such as Home Depot, Lowe's, Wal-Mart, Kmart, and Target.

1920-76: From Family-Owned Business to Weyerhauser Subsidiary

James W. (Bud) Hines, Sr., a forestry graduate of Cornell University, founded Hines Horticulture in 1920 in Altadena, California. From his father, Hines had learned as a boy to love plants, propagation techniques, and nursery procedures. The nursery remained a family-owned business and moved to the ten-acre Irvine Ranch in Irvine almost 40 years later in 1958. James W. Hines, Jr., who had studied business administration at the University of California in Los Angeles, and Cecil Shirar joined Hines, Sr., as joint owners of the nursery that year.

By 1976, the nursery had grown to 320 acres and incorporated as Hines Holding Company. It was acquired by the Weyerhauser Company of Tacoma, Washington. Weyerhauser, a timber company whose leadership wanted to increase its offerings in the growing industry, expanded the Irvine nursery by another 100 acres and started two new Hines facilities in Houston, Texas, and Vacaville, northern California.

With the Hines family no longer heading up its nursery, however, the company came upon hard times in the early 1980s. Despite revenues of $27 million in 1983, the company lost $3 million. Then, in 1984, Douglas D. Allen joined the business as its president, and with new management, he steered the company to firmer ground. Allen built key elements of the company's infrastructure and designed much of its methodology. By 1989, the company had made $10 million on revenues of $47 million. In 1990, Weyerhauser sold its portion of the business to several of Hines's managers and a private investment group, the Macluan Capital Corporation of Vancouver, British Columbia. In 1992, company sales were approximately $50 million.

1993-2000: Growth Through Acquisition

Under new management, the company embarked upon expansion through the purchase of other nurseries and related companies. An aggressive acquisition campaign led to the addition of 12 companies between 1993 and 2000. The purpose of this strategy was to generate growth by diversifying product offerings and increasing Hines's geographic presence. The first of its acquisitions was Sun Gro Horticulture Inc., a leading national producer of premium growing media and mixes, sphagnum peat moss, and peat products. Sphagnum peat moss is partially decomposed sphagnum moss, a plant whose unique cellular structure makes it highly air- and water-absorbent and ideal for root development. Two years later, the company acquired Oregon Garden Products (OGP), a producer of ornamental, cold-tolerant, container-grown plants and flowering color plants. This acquisition further broadened Hines Nurseries' product mix and brought with it undeveloped acreage for future expansion.

Another significant development in the company's history occurred in 1995 when Hines was itself acquired by Madison Dearborn Capital Partners, L.P. Under Madison Dearborn, Steve Thigpen, who had a B.S. in plant and soil science and a Ph.D. in plant physiology, assumed the role of Hines's chief executive officer. Thigpen, like Allen, had joined the company in 1984, having headed up Weyerhauser's research efforts after it purchased Hines. He also spent ten years as general manager of Hines's Vacaville operation.

As the big box retailers, such as Lowe's, Home Depot, Wal-Mart, and Kmart, continued to grow, spurring consolidation among growers to keep up with their demand for product, Hines's list of acquisitions lengthened. In 1996, it acquired the assets of Iverson Perennial Gardens, Inc. and Flynn Nurseries, Inc. Iverson, located in South Carolina, produced perennial flowers and plants, which it sold primarily to home centers and mass merchandisers in the eastern, southeastern, and midwestern regions of the United States. Flynn produced ornamental plants, flowering color plants, and perennials and was located in southern California.

In 1997, Hines, with yearly revenues of $201 million, acquired certain assets of Pacific Color Nurseries, which produced color bedding plants, and Bryfogle's Wholesale, Inc. Bryfogle's, too, produced color bedding plants, which it sold primarily to home centers and mass merchandisers in California. With the 1998 acquisition of Lakeland Peat Moss, Ltd., Hines gained facilities for the production of peat moss and peat-based potting and growing mixes in Canada and Oregon. Lakeland's products were sold primarily to retail customers and, to a lesser extent, greenhouse growers, vegetable farmers, and golf course developers in the western United States.

The company's revenues for 1998 were almost $235 million. It went public in 1998, raising $56 million with its initial public offering and becoming the only public commercial grower. Unfortunately for Hines, however, the growing industries did not command much attention among investors in the late 1990s, and the company's price per share declined steadily. By Decem- ber 2000, it had dipped below the $5 required minimum for continued listing on the NASDAQ and was for a time at risk of being removed from the stock exchange.

Hines made three more acquisitions in 1999, Atlantic, Pro Gro, and Strong Lite, and two more, Lovell Farms and Willow Creek Greenhouses, in 2000. Atlantic further added to the company's capacity as a producer of flowering potted plants and annual bedding plants, while Pro Gro and Strong Lite, producers of composted, bark-based growing mixes, added to Hines's other product lines. The company's revenues continued to increase, reaching $277.7 million with profits of $15.4 million, in 1999.

By the year 2000, there were only a handful of companies in the $20 billion growers market that could compete with Hines. The company had more than ten nursery and greenhouse locations and almost 20 peat moss and potting mix sites and covered more than 4,300 acres throughout North America. With the acquisition of Lovell Farms in Florida and Willow Creek Greenhouses in Arizona, both of which specialized in color bedding and holiday plants, the company had significantly enhanced its geographic scope. According to Thigpen in a 2000 GrowerTalks article, Hines had reached "critical mass" and set about to reorganize itself internally.

2000-2002: Reorganization and Economic Slowdown

To accommodate the differences between the color business, with its growing period of a matter of months, and the nursery business, with a growing period of years, Hines split its operations into three functional divisions: nursery, color, and growing media. Despite obvious differences, the three divisions had a great deal in common: Thigpen cited the company's reliance on grower teams--"not weeders and waterers and such, but teams who grow the crop and are responsible for crops from start to finish"--in the GrowerTalks article.

Hines's revenues for 2000 were $423 million with profits of $12.4 million, 40 percent of total sales from the nursery division, 30 percent from peat moss, and 28 percent from flowering color operations. It was ranked number one by Greenhouse Grower. Yet, although the company was enjoying increasing profitability, its prolonged growth spurt had left it heavily leveraged. After a fire in November destroyed a significant portion of a peat harvesting production facility in Canada, the company made the decision to sell its Sun Gro business, consisting of Sun Gro Horticulture Canada Ltd. and Sun Gro Horticulture Inc. After searching for a year and a half, in March 2002 it found a buyer.

To compound matters, the economic slowdown and energy crisis of 2001 introduced additional difficulties for Hines. It caused a slowdown in sales across the board that led Hines and its competitors to raise prices, switch fuels, and explore alternative energy sources. Hines, still ranked the largest grower nationally for the second year in a row, decided to forego acquisitions in 2001 in order to make debt reduction and financial liquidity its primary objectives. Having abandoned its role as producer of growing media, the company was now focused on its two remaining markets, greens and color.

Principal Subsidiaries: Hines Nurseries, Inc.; Enviro-Safe Laboratories, Inc.

Principal Competitors: Color Spot Nurseries; Monrovia Nurseries; Premier CDN Enterprises.

Chronology

• Key Dates:
• 1920: James W. Hines, Sr., founds Hines.
• 1957: Company buys Irvine Ranch; Hines, Jr., and Cecil Shirar join as part owners.
• 1976: After incorporating as Hines Holding Company, business is acquired by Weyerhauser Company.
• 1990: Macluan Capital Corporation and certain managers buy out the company.
• 1993: Company acquires Sun Gro Horticulture Inc.
• 1995: Company is acquired by Madison Dearborn Capital Partners, L.P.
• 1998: Company completes its initial public offering and acquires Lakeland Peat Moss, Ltd.
• 2000: Greenhouse Grower magazine names Hines number one.
• 2002: Company sells Sun Gro Horticulture Canada Ltd. and Sun Gro Horticulture Inc.